Protectionist measures by recession-hit USA

Wednesday, 6 October 2010 21:11 -     - {{hitsCtrl.values.hits}}

The recession-hit USA, in its attempts to regain the lost momentum in its economy, is taking certain measures which appear to be protectionist and will affect developing countries.

Recently, the Ohio State Government approved an executive order banning outsourcing. This is a measure which is expected to affect the IT sector in developing countries, particularly India, which was a major beneficiary of US outsourcing. It is said that about 60% of the Indian IT sector export revenue comes from the US.

Another issue causing concern to the developing countries is the increase in visa fees for certain categories which hit the IT skilled labour hoping to work in the US. However, in a twist of fate, while the once-strong US economy which welcomed foreign skilled personnel from developing countries, particularly in the IT sector, is tightening up its visa procedures to limit foreign skilled personnel working in the country, today emerging economies like India are attracting foreign skilled personnel, particularly in the IT sector.

Thus, while some of the developing countries are liberalising through various partnership agreements, etc., the developed countries are showing signs of protectionism.

The economic policy speech of President Obama also gave an indication about which way the USA is moving when he stated that he intends to cut tax incentives given to companies outsourcing their work to other countries.

He said: “For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries. I want to change that. Instead of loopholes that incentivise investments in overseas jobs, I am proposing a more generous, permanent extension of the tax credit that goes to companies for all the research and innovation they do right here in America. If we are going to give tax breaks to companies, they should go to companies that create jobs in America and not those who create jobs overseas.”

In another development, the New York Times carried an article about how the Chinese authorities subsidised producers of solar and wind technology in allegedly unfair ways. With the congressional elections getting closer and the economy still not improving enough, an American trade union is said to have filed action accusing China of illegally subsidising exports of clean energy equipment and wanted the Government to take action against China at the WTO.

The article also reported that the US President had approved a bill for $ 10 million in grants and financing to new companies and another $ 10 million for economic stimulation programmes in the clean energy sector while investing in infrastructure to benefit the industry. While these are all good moves to reduce greenhouse gas emissions, it is difficult to understand why action should be taken against another developing country for similar action!

Simultaneously, the US is one of the most vocal voices in asking developing countries to reduce the greenhouse gas emissions and advocating switching from carbon intensive coal and oil to renewable clean energy such as solar and wind. The US has even gone to the extent of passing a Bill in the House of Representatives authorising the President to impose “a border adjustment measure,” which is similar to a tax on carbon intensive imports of countries that have not taken sufficient measures on climate change.

Protectionism is a word that should have minimum usage in multilateral trade and it is hoped that the once-leading economy of the world will not resort too much to such protectionist measures.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)

Recent columns