Protectionism 'under control'

09:15, March 15, 2010      

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Romano Prodi, former Italian Prime Minister and former European Union (EU) President, sat for an exclusive interview with the Global Times (GT) Thursday in Shanghai. He shared his insights on trade conflicts, Chinese currency policy and the country's economic growth strategy.

Prodi, 71, served as Italian Prime Minister twice, from 1996-1998 and then again from 2006-2008. He headed the European Commission from 1999-2004. During the five years of his presidency, the EU introduced the euro and expanded membership to 25 additional countries.

Prodi will start a one-year professorship at China Europe International Business School in Shanghai this year.

Trade conflicts

GT: You might be aware of a growing number of trade conflicts between the EU and China and between the US and China in recent years. Many Chinese companies faced anti-dumping rulings in the EU and the US. Do you think it is because of the protectionism sparked by recent economic recovery strategies adopted by the developed countries?

Prodi: To be honest, the period of national protectionism has not come yet, although there are a lot of controversial issues. When you analyze it, many trade conflicts are particularly linked to some local factories, and linked to normal interests of some powerful local politicians.

I think behaviors of governments are wise enough. This is what I think about the trade conflicts. It is different from common opinions, but I am trying to look at the situation from a historical perspective. Recently, I am worried (about what will happen) if the governments lose their mind and start to reiterate (anti-dumping rulings), but until now, things are under control.

GT: What solutions can you suggest for improving a fair trade environment in a global market?

Prodi: We have to work with the instruments that we have. There is the WTO (World Trade Organization), which is run by a group of wise men and respected by everybody, but we need to give it more confidence to make agreements possible.

Going beyond a certain number of controversial issues, China and Europe will be self-defeating, and China and the US will be self-defeating, so we have to stop it.

Yuan exchange rate

GT: China is under pressure to revaluate its currency. The country was recently accused of using a "pegged" currency exchange rate as a subsidy for Chinese exporters. Despite the pressure, the Chinese government re-iterated it would keep the yuan's value basically stable at a reasonable level this year. What do you think of China's position on this issue?

Prodi: I think, not despite this pressure, but because of this pressure, the Chinese government is having the yuan exchange rate fixed. The Chinese government will never give up its stance on the yuan just because others tell what it needs to do. This is a simply political foundation for a government and I don't know why politicians don't understand that.

The problem of currency must be tackled in a very prudent way in the long term without any declaration. The currency policy needs to be dealt with in terms of cost of materials, cost of imports, and inflation.

GT: According to Premier Wen's government work report, China will keep its stimulus measures in order to maintain 8 percent growth in gross domestic product this year. What do you think of the effects of China's stimulus measures in 2009?

Prodi: Without America's and China's immediate actions, this financial crisis will turn into a tragedy. I am absolutely clear that the difference between now and 1929 is that now we have governments, and the governments reacted, while in 1929, nobody reacted.

For the future, there are financial capabilities in China to work on this stimulus measures, but I am unable to judge the quantity. I actually think, more and more the challenge is to unify the economy of the country, let's say, infrastructure, not only in the big cities of China, but also in rural and remote areas, and the welfare state, so there is more aid and incentives for poor farmers. The next great challenge for China is to grow evenly in the future.

GT: Do you think China's economy is relying heavily on investment?

Prodi: When you have 10 percent deficits in the United States, you don't rely on the government? I tell you it is the government that saved the economy. The problem now is how to fix things in a long run, and how to arrange an exit strategy, but the strategy can't happen in one day.

The economy, except in Asia, is not in recovery yet. Since the deficits are so spread in most parts of industrialized economies, we need to work out an agreement to get out of inflation. The only real solution relies on billions of consumers in the world, and from this point of view, China plays a very important role in an exit strategy.

Exit strategies

GT: Speaking of the exit strategy, when is the best time for China to step out of stimulus measures?
Prodi: Well, it is not the most worried about problem for China now, since the country has over 8 percent economic growth. Instead, for those countries that have 10 percent deficits but zero economic growth, they have to worry about the exit strategy. The Chinese government switches the strategy up and down depending on inflation.

GT: The EU is considering exit strategies, while some of its members, such as Greece, are heavily in debt. Do you think the problems could make it difficult for the member countries to coordinate on exit strategies?
Prodi: There is no proper instrument now to coordinate this strategy. The strategy can only be done through country members' wills. I've been president of the European Commission for many years. I don't think the European Commission is the instrument with a strong power of persuasion, and the budget for the commission is always not enough. But don't underestimate the important roles of some certain member states in deciding intervention in such issues.

Foreign companies in China

GT: The European Chamber of Commerce in Beijing recently stated that they hope to see further progress on China's foreign investment policy. What do you think of foreign companies' positions in China?
Prodi: If we consider the situation, looking from the past, the progress here is clearly visible. Certainly there are hopes of a faster progress.

We enter a new phase in which China starts to invest abroad in a massive way. There is no need for the European Chamber of Commerce to complain, because China will un-derstand its own interests go in the direction of balanced liberalization in increasing cross-investment.

Source: Global Times

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