The next great wall

Buy local campaigns raise protectionist barriers in Asia

Politicians in Europe and America have been especially vocal about the dangers of protectionism in recent month. Even so, many Asian firms feel that barriers are gradually rising against them. Tighter environmental laws, “place of origin” rules and others new regulations are being introduced in America and Europe, they complain. The costs of complying with these regulations make Asian rice, furniture and toys less competitive. As Asian exports continue to collapse, the region is responding in kind.

The week Vietnam increased import tariffs of dairy products, after raising duties on paper last month. India has upped tariffs on some types of steel. Malaysia’s prime minister has issued a plea on his website to “buy local products in large quantities”. The Indonesian government will introduce regulations this month to penalise 4m officials if they do not buy locally produced food, dinks, shoes, clothes, music and films. New rules which favour local steelmakers are also likely to cut Indonesian steel imports to 15m tonnes this year, down from 9m tonnes in 2008. Such measures are not protectionist, the Indonesian trade minister claims, but are merely “branding campaigns”

Perhaps the loudest anti-protectionist calls in the region have come from china. House before Hillary Clinton’s visit last month, Zhong Shan, the vice-minister of commerce said that China “strongly opposes protectionism” and gave warning that it could make the financial crisis worse. Just as America watered down the buy-local, clause in its own financial bailout package, China quietly removed one from its own industry-support bill a few weeks ago. This had instructed “governments of different levels to give priority to home-grown light industry products”

But the mere mention of the clause seems to have been enough to make local governments comply. Although Beijing publicly continues to rally against protectionism, China’s provinces are busily erecting internal barriers.

Farmers in Hangzhou now get a 13% subsidy if they buy Hangzhou made refrigerators, televisions, mobile phones and washing machines. Officials in Henan and Hubei must give priority to local suppliers of buses, cars, farming equipment, software and medicines. In the province of Anhui, publicly funded infrastructure projects must use Anhui made steel, concrete doors and windows, glass, wiring and electrical equipment. Appliance makers and two carmakers based in the province, Chery and Jinghuai Automobile must buy locally made steel. In return, state owned businesses, taxi operators and government officials will buy their cars. From next month, power plants will also have to buy locally mined coal.

Similarly, in Changchun City, in the Jillian province, inspection fees for new vehicles made by first auto works (FAW) a local carmaker, are being waived, giving the company a prince advantage over rivals. Government officials have been told to consider FAW vehicles first: farmers will get a 10% discount on locally made tractors. At least 50% of the equipment for officially sanctioned “large projects” must be bought locally too.

Such policies carry risks especially in Asia. In Vietnam, Thailand and Malaysia exports account for more than 50 % of the economy, and for more than one-third in Indonesia and China. Retaliatory barriers would hit these countries hard-hence the politicians’ public claims that they remain deeply opposed to protectionism. Yet halting its here rise in Asia, as elsewhere, will be difficult. Most of the recent policy changes and buy local pronouncement can be fudged under existing trade agreements. Politicians everywhere are torn between what they say in public about the evils of trade barriers and the desire to protect special interest, taxes or votes at home.