EU fights protectionist trend in Asia

Date: 24/06/1999

By Shada Islam

TWO years after a crippling financial crisis brought most of Asia's once-vibrant economies to their knees, the region is back on Europe's business agenda.

European companies are hoping for quick rewards from a weaker euro and Asia's slow but steady economic recovery. But for many, gaining access to post-crisis Asian markets remains a challenge.

Despite the region's nascent recovery, Asian consumers have less money to spend on imported European products than they did in the halcyon years. EU exporters also complain that many Asian governments have responded to the crisis by increasing tariffs, erecting more technical trade barriers and introducing discriminatory taxes which discourage imports.

Dorian Prince, head of the European Commission's market access unit, says that while Asians have not retreated behind a protectionist wall, there are "very disturbing" signs of increases in tariffs in many countries in the region, including Thailand, Malaysia and the Philippines.

The tariff hikes are within the rates pledged by countries in the World Trade Organisation, but the increase - often on European-produced luxury goods, machinery and cars - act as an additional brake on exports to the recession-hit region. The Commission also claims that they are also in violation of the 'pledge' given by Asian countries to resist protectionst pressures.

The market access unit has identified a total of 1,200 obstacles which exclude European exports from foreign markets or represent unfair competition for EU businesses. Of these, 440 are in Asia alone.

Information on access barriers worldwide is supplied by European exporters, trade associations and EU governments, which regularly turn to Prince's unit for help in opening up foreign markets. Each complaint is carefully examined, analysed and added to the "encyclopaedic knowledge" of global trade barriers in the unit's computerised data base.

Each problem is then raised in bilateral discussions with governments and, if that fails, brought up in the WTO. Six hundred such cases are currently being negotiated either in the WTO or bilaterally, and the Union has already notched up 200 successes.

Members of the Association of Southeast Asian Nations (ASEAN) have also finally - albeit reluctantly - agreed to set up a special 'market access working group' to study complaints about trade barriers.

The heat is being turned up, with more WTO action expected in the coming months. The EU has already launched 41 consultations on issues as diverse as Korean quotas on imports of milk powder and India's import licensing requirements in the auto sector, and Acting Trade Commissioner Sir Leon Brittan promised last month to embark on a "major new phase" of the Union's efforts to eliminate import barriers in Asia and elsewhere.

European exporters, worried about their declining sales in Asia and anxious to benefit from the impending upturn in the region's economies, insist that the EU should continue to focus on South Korea and Japan. But ASEAN countries India and Pakistan are also seen as important markets where tariffs need to be reduced and tax measures which discriminate against foreign exporters dismantled.

The Commission's spotlight has revealed a number of new - and old - examples of unfair tax procedures in Asia which officials say are based on differentiating between local and imported goods, despite the WTO rule which bans such discrimination.

In Thailand, imported European mineral water is taxed at 20%, the same rate as for soft drinks. The Union suspects that the Thai authorities, who introduced the tax without any warning last year and made it retroactive for the last decade, are trying to curb imports to protect local mineral water production.

Also in the firing line is Malaysia, with a new tax on imports of heavy machinery which is is up to 20% higher than that imposed on local producers. During a recent visit to Kuala Lumpur, Brittan also raised the question of Malaysia's protection of its domestic car industry through tariffs of up to 300%, import quotas, discriminatory excise taxes and local content requirements.

In the Philippines, domestic spirits are taxed at a fixed rate of 8 pesos a litre while taxes on imported alcohol vary on the basis of the sales price and can be up to 300 pesos per litre.

The Commission is also worried about the "Buy Malaysian" and "Buy Thai" campaigns which crop up intermittently and could be in violation of WTO rules.

Prince says the EU is focusing on sectors where there is a danger that Asians could "take the wrong path" and which have a "precedent value" for other sectors and trading nations. The message is simple, he says: "Short-term ad hoc protectionist moves pandering to individual industrial lobbies are not going to save the day."

He also warns that while there is "rock solid EU opinion for markets to remain open", it will obviously be much harder to resist protectionist trends "if we cannot point to other countries playing by the rules".

Although less vocal than their counterparts in the US, many European manufacturers are beginning to grumble about falling sales in Asia while exports to Europe from the region are rising.

They acknowledge that Asia has been in a recession, but insist that the fall in Union exports also results from measures such as higher tariffs, new excise duties and stricter technical requirements.

The Association of European Car Industries (ACEA) points out that while South Korea's car sales in the EU increased by almost 40% last year to more than 400,000 vehicles, European carmakers' exports to Korea fell by 78% to just 800 vehicles.

European textile manufacturers also face increasing problems exporting to Asia's "best" markets, according to the industry's lobby group Euratex, and not just because of the recession. It says increasing tariffs and non-tariff barriers, including government subsidies to the sector, are also to blame.

Asians argue that the world's focus should be on keeping western markets open to Asian goods, thereby helping the region win its uphill struggle against recession. Trade officials argue that the real problem is the use of anti-dumping measures by the EU and US to keep out competing goods.

Asian textile exporters also insist that Brussels and Washington are in no position to complain about market access hurdles in Asia given their own poor track record in eliminating import quotas on textiles and clothing.

The focus on their trade behaviour is making many Asians uncomfortable. "European pressure to accelerate the market-opening process in Asia could have serious social implications," com-plained one trade official. "Our industries are in transition. Unless foreign competition is at a sustainable pace, they could be eliminated."

But Prince insists the spotlight now on Asia's trade conduct should not be seen as negative. "Exporters are more demanding of Asia because they are interested in the region," he points out.