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July 9, 2015

Time To Rethink BRICs Trade Strategy

London, July 2015

In advance of this week’s BRICS Leaders’ Summit and a meeting of their Trade Ministers, CEPR has launched a new report from the trade watchdog, the Global Trade Alert, calling for a profound shift in the trade strategy of the leading emerging markets.

Shift from what? In 2014, as far as commerce was concerned, the BRICS focused on promoting commercial ties, establishing a New Development Bank, advocating steps at the World Trade Organization (WTO) and cautioning that mega-regional free trade deals, such as the Trans-Pacific Partnership, should not harm non-members.

The principal findings of this GTA report are:

Exporters, investors, and nationals working overseas from the BRICS have seen their commercial interests harmed 2,733 times since the crisis began -on average once a day. The sheer scale of hits to the BRICS trading interests is now apparent.

A third of the hits to BRICS trading interests were inflicted by the BRICS themselves. More generally, developing countries caused four-fifths of the hits to the BRICS’ trading interests. The BRICS own record on protectionism is mixed. In recent years they accounted for 50% of global trade reforms and 40% of trade distortions imposed. BRICS trade reforms tend to phase out sooner, however.

On six metrics covering their commercial policy mix, their propensity to unwind trade distortions, and the number of products affected, the BRICS perform as well as the G-7 nations and better than the other members of the G-20.

Where the BRICS record sours is the frequency of resort to trade distortions and in its global reach, as highlighted in the following two findings:

A total of 1,451 trade distortions have been imposed by the BRICS since the crisis began, only 20% of which have been unwound. India and Russia are each responsible for imposing 450 trade distortions.

Brazil, India, and China have introduced dozens of schemes to artificially boost exports since the crisis began. Shipments from these 3 countries compete head on in third markets with exporters from other countries. Three-fifths of non-commodity exports from the Least Developed Countries (LDCs) compete with a subsidised rival from China or India. Over three-quarters of European and North American non-commodity trade competes with subsidised rivals from Brazil, India, and China.

More statistics can be found in the supporting tables at the end of the Report. Part Two of the report includes spiral diagrams and maps highlighting the differences in commercial policy stance between the BRICS. Chapter 3 of the Report contains comparisons between the policy mix of the BRICS, the G-7 industrialised nations, and the other members of the G-20.

The author of the report, Professor Simon Evenett, said: “Playing geopolitics has led to the wrong BRICS trade strategy. Strategy should reflect the awkward facts on the ground.

“At a time when the exports of the BRICS have stalled, the top priority of the BRICS is to address the unilateral steps governments take to distort commerce, rather opining about the WTO and mega-FTAs.

“The BRICS find it convenient to imply that protectionism originates in the West. The reality is that four-fifths of trade distortions harming the BRICS were imposed by developing countries. The BRICS are paying a high price for mouthing the mantra of Special and Differential treatment, which is trade-speak for giving poor countries a pass on protectionism.

“Since 60% of all trade distortions harm at least one BRICS, it’s time for these emerging powers to take an aggressive stand against protectionism.

“Current trade initiatives are incoherent. The BRICS took steps in 2014 to strengthen trade between them. Yet a third of the protectionist harm to the BRICS was imposed by a member of that group. What is given with one hand is taken away by the other.

“The combined scale of Brazil, China, and India’s expanded export incentives represents the largest known distortion to global markets of the crisis era. When trading partners realise the implications for lost sales in third markets, trade tensions will rise.”

Ends --

Source: Simon J. Evenett via Commodities-Now   

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