A glimpse on the trade restrictions of the G20 economies, and on the report of WTO, OECD, and UNCTAD covering their trade investment measures.

Developing countries are indulged into the concept of globalization for centuries, while it is a new concept for developing countries. Rich countries play a major role in the globalization process by manipulating the global markets to their own interest.

To protect their domestic industry, countries implement protectionist economic policies restricting trade activities with other countries through restrictive quotas, tariffs on imported goods, and many other regulations. This is done with an intention to prevent over flooding of foreign goods into the domestic markets.

G20 countries are an association of the 20 largest economies. Trade policies of the G20 economies consist of tariff hikes, anti-dumping regulations, licensing, and export regulations. A recent report submitted by WTO, OECD, and UNCTAD states that Over the past six months, most G20 governments have put in place more new trade restrictive measures than in previous periods since the crisis. Their restraint to resist protectionism appears to be under increasing pressure. The commitment to roll back export restrictions has not been followed; in fact, new export restrictions are on an increasing trend (Source: wto.org).

The report asserts that the Multilateral Trading system was helpful in reducing the pressures of protectionism during the financial ice age. Therefore, the system should be preserved so as to be applied in times of future crises.

An increasing trend has been observed in the SPS measures of the G20 countries. (Sanitary and Phytosanitary measures). This governs food safety, and animal and plant health measures.

The report further states that the new investment measures of the G20 economies have eliminated restrictions to international capital flows. However, investigations of the report express concern over the microeconomic imbalances in the global economy, and fear that weak fiscal position of the Governments and price fluctuations may weaken governments commitment to foreign investments.

Seven countries including India, Russia, Brazil, China, Italy, S. Africa, and Turkey have amended their investment policies which were more common in the emerging markets than in the mature markets.

Brazil increased the rate of tax on the financial transaction of non-residents to control the inflow of short terms speculative capital. Indias FDI policy facilitates expansion of foreign owned companies, allowing the conversion on non-cash items into equity. China has started a pilot scheme for foreign private equity investments. Italy has facilitated state owned companies to purchase equity from companies of national interest. Turkey has simplified the rules for purchase of real estate by foreign owned Turkish companies. Russia has liberalized foreign investments in its financial sector and even in some strategic sector that were earlier under foreign investment restrictions. S. Africa has increased the share of foreign assets held by South African institutional investors in their portfolios.

Countries of Italy, Japan, UK, Australia, US, and Germany hold legacy assets, and liabilities in many financial firms estimated to be more than USD 1.5 trillion for the financial sector. OECD Secretary-General Angel Gurra believes that the G20, keeping their doors open for foreign investments is encouraging, as it would prove helpful in facing the risks still hovering around the economic recovery.

Overall these investment policies indicate the elimination of restrictions for foreign capital inflows. G20 countries attempt to liberalize FDI shows that they are well aware of the importance of foreign investments in supporting a sustainable development of the country. But imbalances in the economy, price fluctuations, and limitations of the Government may hinder the obligation of the G20 countries in implementing their policies.

References:


1)     Reports on G20, Trade & Investment Measures, (Oct 2010-April 2011), wto.org

2)     Fifth Report on G20 Investment Measures, 24th May 2011, oecd.org