Wednesday, May 30, 2012

France, Globalisation and Protectionism - Where will the dice roll?

(Courtesy: Chris Riddell, The Observer, 2009)
With a new government in place in France, I read with great interest this interview of the new Industry Minister  of France Arnaud Monteburg who had strong reactions against globalisation and seemed pro-protectionist. Some excerpts:
"We need above all to protect ourselves. [Globalisation] is an extremism because, without loyalty or law, without any limit, it has placed our territories, our industrial system, enterprises, wage-earners — in direct competition with countries which have wages 30 times lower than ours.

Social protection there is virtually absent, whilst wage earners [in France] after two centuries of social struggle have fair working conditions. And this competition has destroyed our industrial system. Furthermore, it has not greatly progressed emerging countries either. Some countries have escaped [poverty] and others have not. They have become poor."
Speaking about the need for unilateral Protectionism, he continued:
To start with, this is a European strategy. And Francois Hollande, besides, in his campaign expressed himself very strongly on the necessity that Europe, if she is to be ‘Open’ should not be ‘offered’ [like a sacrifice]. Today we are unprotected against globalisation. [He uses the metaphor of a 'globalisation sieve'].
Even the European Commission is now recommending greater protection than any that existed before. Let us be clear. It is about re-orienting the European Union which is currently as ineffective as a sieve against globalisation. And we will need to ask for reciprocity: that which the Chinese, the Americans, the Brazilians…
The Brazilians have just decided come up with an incredible strategy: they have decided to tax every iPhone made by Apple in China that comes across Brazilian borders. The consequence is that Apple has decided to build a factory in Brazil. It is obvious that the European Union alone in our European continent has the power to do that. Therefore …”
Are we going to see a new wave of "protectionist" measures from France in the light of these observations? Are the measures proposed consistent with France's obligations under the WTO? Though there are no specific measures to analyse here, is the general trend of "reciprocity" in free trade, ie. engaging in protectionism against countries which do not follow free trade policies themselves, acceptable under the multilateral trading system? Can France selectively impose barriers to trade against those countries that it perceives are being protectionist? Does this not violate the principle of "most favoured nation" treatment under the GATT? France is also not a very active player in the dispute settlement mechanism of the WTO as compared to the US or China. Does this indicate the general reluctance to engage with an international dispute resolution mechanism that may have an impact on national sovereignty?

This detailed paper by Sophie Meunier titled "France, Globalisation and Global Protectionism" in 1999 (in the context of the Seattle opposition to the WTO Ministerial) gave a detailed analysis of France's attitude towards globalisation as well as the reasons for it. Is the opposition rooted in France's opposition to Anglo-Saxon and American dominance? It also brought out the dichotomy of France's participation in the globalised world economy as well as it's opposition to it.
"If politicians want to bolster their claims to a different, more democratic, more just world economy, they should work with their European partners on providing a sensible alternative. The main reason why they are not really doing this is the paradox that I stated at the beginning of this article: France is increasingly resisting globalization, while at the same globalization can be identified as the main driving force behind the recent success and modernization of the French economy. As long as politicians have not  found a way to resolve this fundamental tension, French opposition to globalization  will remain purely rhetoric –with clear domestic consequences, but little chances of affecting the rest of the world. "
This general resentment against globalisation in France has been explained in this piece in the YaleGlobal Online titled "Has European Protectionism Finally Triumphed Over Free Trade? French style of reciprocal protectionism wins new fans in Europe" by Justin Stares who explained the dominance of France's thinking in the European Union.
"The French believe they are under no obligation to trade freely with countries that are themselves not believers in free trade. "What we want is reciprocity," says Gael Veyssiere, spokesman for the French permanent representation to the European Union. "We believe in fair free trade. Why should we be the only ones to be completely open when others are not?" he French ministers take this protectionist reflex to Brussels, where they find support from similar-minded nations such as Italy. They attempt to block takeovers on the grounds that certain French companies are strategic assets; they talk up "Buy European" campaigns such as the one now promoted by French President Nicolas Sarkozy, who is seeking re-election. "Europe has for too long been the idiot of the global village," former French foreign affairs minister Hubert Vedrine told Belgian newspaper Le Soir. "This has to stop," he said earlier this month. "Open your eyes: lots of countries that were yesterday aid recipients have today become dragons and huge competitors. We have to re-establish more balance between countries in the west and the emerging countries. Tensions will be inevitable. So what? We mustn't be afraid."
Is France's opposition more rhetoric than action? In the globalised world and the existence of multilateral rules, is a stand of getting back to protectionist measures just a mirage or a real threat? Will  France take concrete measures that can be perceived  as "protectionist" and how will its trading partners react? While Argentina is being accused of following a protectionist path recently with its import licensing procedures, will it be France next on the line? Will we see a WTO dispute against France soon?


gulzar said...

Good post srikar. But while France has traditionally been on the left of center on trade related issues and its current reactions are not surprising, the same reaction, with a lesser intensity, is now widespread across much of developed world, including the US. I see four issues here

1. The Great Recession has brought considerable hardships to all these economies. And such periods are generally associated with search for external villains.

2. The Great Convergence of the past decade-and-half, when some of the larger emerging economies have become world leaders in many sectors and have surpassed many developed economies in size and global economic influence, has surely contributed to some of the discontent. And the representativeness bias associated with high-profile events like job losses/factory closures due to economic competition from emerging economies and the relative successes of certain big emerging world companies and countries has stoked insecurities among the developed economies. As always, the losers from such business battles, add fuel to the fire and whip up political passions.

3. Unlike in the past - when losers from trade were smaller in number, and were being compensated or rehabilitated quickly and generally to their satisfaction - the current set of losers are larger in number and do not enjoy the same level of comfort/cushion. In simple terms, there may be a distributional problem with the gains and losses of globalization. While the gains of globalization are concentrated at the top of the pyramid, the losers are larger in number and the magnitude of the adverse impact on them is much higher. And there is well documented evidence for both trends.

4. Finally, many of the businesses in the developed economies which are now facing competition from emerging economies and are losing their battles, are in the same position as the firms in developing economies many years ago when they faced similar competition from developed economies.

Srikar said...

Absolutely agree, Gulzar. i was only trying to highlight the fact that "protectionism" is not something that is the preserve only of the developing world!