Monday, June 03, 2013

EFN Asia 22: Dealing with Economic Nationalism, Jeju Forum

Below is the Rapporteur's Report that I submitted to the organizers of the recently concluded Jeju Forum for Peace and Prosperity 2013. This is posted in the EFN Asia website.

○ Session Outline
Dealing with Economic Nationalism
Session Code
15:40 – 17:00
Moderator: Wan Saiful WAN JAN
Presenter: SAM, Rainsy
Discussants: CHOI, Byung-il; FENG, Xingyuan; Pham Chi LAN; LIU, Junning;
Barun MITRA; Tricia YEOH

○ Key Points by the Presenter
- Economic nationalism is understandable. Early stage of development, there is a need to protect crucial new and small economies,
- Cambodia case, probably the poorest of the 10 member Asean countries. There is big disparity in economic development among members.
- Asean is creating a free trade zone but it raises lots of concern in Cambodia. It needs a period of time to adopt and prepare before liberalization.
- To compete successfully, country needs leadership. Not a matter of ideology but leadership with vision, that promotes national interest, any ideology can promote devt. No prospect for development bec leadership only wants to survive politically.
We need to put the house in order first before we face competition. Need physical and social infrastructure.
- Cambodia is a banana kingdom with gang and mafia of kleptocracy. One of the world’s most corrupt and underdeveloped countries.
- GDP growth of 6% or more is meaningless if the environment is destroyed, social fabric is destroyed due to prostitution and human trafficking, inequitable development.
- Free trade can be disruptive and destructive. Cambodia cannot face free trade and free market yet, it must have political democracy first.
- Korean ODA for Cambodia is a waste of Korean taxpayers money as human rights is not protected, the gangs and mafia are in power.

- Keyword:  political democracy, free market, Cambodia corruption, human rights violation, prostitution

○ Synopsis of Discussants
1. CHOI, Byung-il:
- Disagree with Mahathir that countries need protectionism. Economic nationalism is unsustainable.
- Many people in Korea complain of imported fish, other food, that we should be self sufficient, but forcing self-sufficiency in food, only few countries can survive.
- How to attain econ prosperity, invest in education, liberalize the economy. Good political leadership is also important.

2. Pham Chi LAN:
- Protectionist measures rose recently via technical barriers to trade (TBT). Tariffs are going down but various measures like health concerns, environment restrict trade.
- Vietnam been a member of the ASEAN since 1995, we experience trade deficit with Asean members plus North Asia, but trade surplus with EU.
- FDI about 80 percent coming from East Asia and South East Asia. But mainly for low cost, low tech industries, plus environmental problems.
- Asean initiative is good but not enough, E Asian countries need to open up their economies more for Vietnam exports.

3. LIU, Junning:
- Economic nationalism is a body of policies that protect certain local interests, requires the imposition of tariffs, restrictions of free trade, Intervention in the name of protecting “national interest”.
- Nationalism forces consumers to buy only local producers, trade protectionism, even nationalization of some foreign companies.
- Nowadays nationalism is omnipresent especially in dictatorships, currency control. It is costly to consumers because supply of capital, consumer goods becomes higher and costly.
- It appeals to national pride, suspicion, fear of foreign goods, but consumers lose. Case of high tariff on foreign made milk. Consumers endure high prices, low or bad, harmful product quality.

4. Tricia YEOH:
- Recent growth of Malaysia not at par with neighbors, cost of business is high due to corruption, bureaucracies
- 1971 New Economic Policy (NEP) to eradicate poverty, noble, but was meant to protect the Bumiputera, the local elites, the princess of the Earth. It engendered a culture of patronage and cronyism.
- Mahathir this morning said the need to protect automotive industry. Such protectionism actually is a waste of government money to protect local industries, bail out of around 69-70 billion Ringgit were lost.
- Government role has in the economy has been rising. Previously, private investments was high but since 1998 private investment was less than government investment.
- Government-linked corporations(GLCs) account for “approximately 36% and 54% respectively of the market capitalisation of Bursa Malaysia and the Kuala Lumpur Composite Index”. GLCs and GLICs are the major players in the economy.
- Malaysian economy is heavily dominated by government, in the areas which are privatised, select individuals are chosen to receive lucrative tenders and contracts.
- Cronyism results if government is dominant, give only to friends, monopolies in electricity, telecoms. There is need to remove barriers to trade, make the economy more competitive, control corruption.

5. FENG, Xingyuan:
- Trade benefits both players, allows efficient distribution of factors of production. The “infant industry” argument, we should not protect, we will only protect underdevelopment.
- Open markets and protection of property rights are key. Also stable currencies to protect foreign investors.
- Trade benefits even between unequal economies. President Obama was asking for “balance of trade” with China, meaning China should export less to the US. This is wrong. Trade surplus by China is used to invest and spend by citizens in the US, so deficit is compensated.
- US should ask instead that China should open up market in services.
- Trade ban campaign of Japanese goods last year, means banning our own development. Like manyJapanese companies are thinking of moving their investments out of China and go somewhere.
- Free trade is beneficial to all sides, both buyers and sellers, not only one side.

6. Barun MITRA:
- People trade, companies trade, governments don’t, but governments negotiate trade, and  negotiations take many years.
- India is not known for manufacturing, more for IT. Perhaps the only country manufacturing automobiles in the 40s after Japan, yet how many Indian car brands do we hear now.
- Today local car manufacturers survive only because of government support. The infant industry argument only resulted in cronyism.
- India believes industrialization inside, not export orientation, cronyism resulted and it  hurts our own poor people much more than other people
- IT not protected or subsidized, even completely neglected, and they prospered. About 80 percent of our IT products are for exports.
- Free trade is fair trade. Two sides agree, a win win situation, benefits both buyers and sellers. Economic nationalism is used by politicians to secure themselves. Losers are the people.

Sam Rainsy Reactions:
- If an economy is poor, unprepared, free trade is destructive. Need for a transitional period to produce positive effects first, before we open up the economy to free trade.
- Consider the social and political environment first, control corruption, farmers becoming landless under the name of trade liberalism.

1: Cambodia, how to develop it?
2: What is your vision for prosperity in Cambodia?

Sam Raimsy Answer:
- First, good leadership and second is education. Cambodia leadership is a mafia, a gang it can destroy a country using liberalism. From communism to democracy, become worse under a mafia.
- China and Vietnam, they are socialist but they have developed. They uphold national interest, they have long-term vision. Even non-democrats like Mahathir and Lee Kuan Yew but they have vision.
- Education, the war and dictatorships, 3 generations were lost, only low tech investments come. We need to catch up.

Barun Answer:
- Free trade to be effective and powerful, it has to be unilateral, nothing to negotiate. The most protected industries are also most inefficient, like agriculture.
- Pure unilateralism in trade allowed Indian IT to develop, without any government protection.

Xingyuan answer.
- Look also at HK, low taxes, free trade, there is economic prosperity

Choi answer
- Protectionism is understandable, to protect the weak, but consider the political economy.
- Beneficiaries of nationalism and protectionism are incumbent players.

Closing Remarks by German Ambassador to Korea, Rolf Mafael

- Building an internal market for asia will build prosperity.
- Germany case, global competitiveness, open economy allowed us to survive the recent global financial crisis
- Services sector need more liberalization in the EU. We have the same discussion and debate in Europe as you have here on economic nationalism.
- Our prosperity depends largely also to our trade with Asia.
- Priority is the WTO, multilateral negotiation.
- There are indeed social consequences to liberalization, like ensuring labor standards, but this was heavily opposed by many developing countries.
- If you step back, 1996-97 vs today, Asia has made big progress.
- When the EU-Korea FTA was negotiated, german car industry opposed, but who benefitted later? German car industry, they were able to enter Korean market better. Another beneficiary was the Korean car industry.
- Ultimately, customers won in both Korea and Germany. Liberalization will lead to more prosperity
○ Policy Implications
- Protection of human rights, controlling corruption, are key for poor economies like Cambodia.
- Economic nationalism and protectionism often results in cronyism and corruption, disadvantages the local consumers via higher prices, low quality products and services due to absence or limited competition.
- Economic liberalism will benefit consumers, will lead to peace and prosperity.
- Unilateral trade liberalization is one option that countries should consider to avoid cronyism, control corruption, directly benefit the people, consumers and producers alike.

○ Rapporteur
Bienvenido “Nonoy” Oplas
President, Minimal Government Thinkers Inc., Philippines
Mobile Phone
+63 915 8204616

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