Global recession prompts the rise of Protectionism fears

There is a growing fear of a new wave of protectionism amongst European leaders. The signs are already apparent; the Americans have been promoting 'Buy American' but this threatens to trigger a transatlantic trade war as the EU has warned it will not stand 'idly by' if the ban on imports is introduced.

The worry is spreading across Europe that an every-man-for-himself attitude will prevail as countries move to approve massive economic stimulus packages. France has been at the centre of the row with the proposed 5.7bn Pound bail out to the France's auto industry with President Nicolas Sarkozy making protectionist comments.

Czech Prime Minister Mirek Topolanek warned of a "spectre of protectionism" that could prolong and intensify the global economic downturn. Criticism has been aimed at Sarkozy following statements about production in the Eastern European country made during an interview on French television last week. He was referencing the PSA Peugeot Citroen plant based in the Czech city of Kolin. "It is justifiable if a Renault factory is built in India so that Renault cars may be sold to the Indians," Sarkozy said. "But it is not justifiable if a factory of a certain producer, without citing anyone, is built in the Czech Republic and its cars are sold in France." Despite this pressure from Paris, the PSA Peugeot Citroen has said it will continue to manufacture vehicles in the Czech Republic.

EU competition commissioner Neelie Kroes is worried by the widely reported conditions set by the French Government linking the loans to a requirement that production remains in France. Earlier in the week the European Commission warned that it will block the loans if there are conditions imposed on PSA Peugeot Citroen and Renault to preserve French jobs for French workers.

For European auto manufacturers exporting to Britain, the situation is particularly bad as the price of their product has become about 25 per cent more expensive over the past year with the fall of the Pound against the Euro.

France's economy minister Christine Lagarde's has stated that a short period of protectionism is necessary until tougher international regulations have been agreed to protect taxpayers and financial consumers from market risks. Lagarde said on France's BFM TV: "A bit of protectionism is a necessary evil. But I add, a necessary evil that must be temporary." This is in contrast to PM Gordon Brown, who warned against "a new form of protectionism, a retreat of globalisation and a reduction of trade and cross-border activity."

With a global recession taking grip, there has been a pledge from European Governments to keep international trade channels open in the hope they have learnt from the protectionist mistakes of the Great Depression. However the reality is that as times get tougher these pledges may not be respected and this will have a detrimental effect on the European Union.

12 Feb 2009