Protectionism Menaces Thai Economy

When Thailand announced a "Buy-Thai" campaign years ago, the American embassy raised the issue with Thai authorities, complaining that it distorted trade between Thailand and its partners.

A global trend reflected in President Obama's 'Buy American' policy could threaten Thailand's export-led economy.

So what should Thai authorities make of the "Buy American" provisions of the huge economic stimulus plan devised by President Barack Obama? Among other things, they bar the purchase of foreign steel for any publicly funded infrastructure project.

These provisions - which some critics have labelled hypocritical - have raised fears about rising protectionism as countries do whatever they can to protect their faltering economies. Protectionism was one of the most talked-about issues at the recent World Economic Forum in Davos, Switzerland.

In the United Kingdom, British workers have protested angrily about jobs being given to workers from elsewhere in Europe.

Is protectionism going to prevail in the 21st century? If so, how will export-oriented Thailand be affected?

The current world recession is a crisis of historical proportions, but it is not the first downturn. Leading world economies have learned from previous crises that hardship can only be overcome by collaboration, according to Niphon Poaphongsakorn, president of the Thailand Development Research Institute (TDRI).

For instance, during the world economic crisis in the 1980s, five leading economies - France, Germany, Japan, the UK and the US - signed the Plaza Accord to depreciate the US dollar against the Japanese yen. The extraordinarily weak yen then created huge trade deficits for Japan's trading partners.

Today, said Dr Niphon, international mechanisms such as the World Trade Organisation (WTO) monitor and counter anti-free trade measures.

"There will not be an extreme degree of protectionism," said Mr Niphon.

He added that "Buy American" is not inherently evil. The provisions are part of an economic stimulus package that American taxpayers - rather than free-riders - should benefit from. Other governments, including the Thai government, are doing the same, he said.

"But no government should do anything that establishes NTBs [non-tariff barriers] for other nations," he said.

The term NTB covers all barriers to trade except tariffs. Common NTBs include anti-dumping and countervailing (AD and CVD) duties.

Pimchanok Vonkhorporn, the director of the Multilateral Trade Negotiations Bureau, shares Dr Niphon's opposition to protectionism, though she sees it as "unavoidable" in current times.

"Every country must take internal issues as its first priority," she said.

In her view, the "Buy American" policy is also the latest signal of a protectionist approach from the Obama government.

"It has already had a strong response. Washington would like to take AD and CVD measures seriously. As usual, the Democrat-led government will take labour standards and environment as the issue. It has pledged to enforce bilateral free trade agreement seriously as well," she said.

US international trade policy under the Obama administration must comply with global trade rules. But she sees "Buy American" as lying in a grey area.

"If you ask me if the degree [of protectionism] is going to be strong, I must say yes," she said.

Thailand has already prepared itself for a rise in dumping of imported products. This is likely to increase as exporting countries are unable to sell their products at home so they export discounted products to other markets instead, said Ms Pimchanok.

"Importing countries might complain that Thai products are dumped in their markets and vice versa," she said.

Pornsilp Patcharintanakul, the deputy secretary-general of the board of Trade of Thailand, said Barack Obama's international trade policy could create problems for Thai exporters, who depend heavily on the US market.

"What worries me is a special tax - for example, a tax on carbon emissions to save the environment," he said.

Thai exporters must comply with US law but the Thai government could ask Washington for more time so exporters can adjust, he said.

Anyway, Mr Obama seems to be aware of the dangers of protectionism and of sending the wrong message. He sent a strong signal that he would remove the most provocative passages from the bill.

"I agree that we can't send a protectionist message," he said in an interview with Fox TV.

"I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

Source - The Bangkok Post