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Saturday, August 23, 2003

Recession-hit Italy snipes at China, but fairly?

Reuters
Rome, August 21

Recession-hit Italy has been sniping at China this summer, with politicians
complaining that lax labour rules give the Asian giant an unfair edge.
Anxious to safeguard "Made in Italy" products, some senior members of the
centre-right government have called for a return to protectionism via
tighter global working regulations and higher tariffs on Chinese goods.

Official statistics show the Italian share of global exports in its key
sectors like textiles, clothing, shoes and jewellery slumped almost a third
to 13 per cent between 1987 and 2000, while China's stake virtually
quadrupled to 15 per cent.

"It's dramatically obvious that where China enters, Italy exits," Economy
Minister Giulio Tremonti said recently.

"It's not that Italian businessmen and employees have suddenly become
incapable or lazy, it's that there are operators who destroy you because
they are running on zero costs."

Firebrand Umberto Bossi, leader of government coalition partner the Northern
League, has called for customs tariffs to be slapped on Chinese goods.
"We want to defend our work and our factories with protectionism," he told a
conference in the industrial north, his electoral stronghold.

UPDATING FREE TRADE

Tremonti's language is more subtle as he talks of updating the concept of
free trade with the formula "trade based on rules". However, the end effect
would be the same -- penalising countries like China, that keep wages low
and hours long.

Another bugbear is China's imitation of products -- Tremonti's pet example
being how they have copied the stamp that items made in the European
Community must carry -- "CE" -- and expropriated it as China Economy to
label their goods.

Tremonti will likely take advantage of Italy holding the rotating EU
presidency to push his ideas to a bigger audience, although his boss, Prime
Minister Silvio Berlusconi, has said Italy will abide by the World Trade
Organisation.

"If the WTO doesn't agree, there is nothing I can do," Berlusconi, the
billionaire businessman-turned-politician, told La Repubblica newspaper this
week, when asked about tariffs.

Economists are sceptical about the murmurings on China, saying the
government is trying to find a scapegoat for an economy that has contracted
for the past two quarters.

"They're doing it for political reasons. Protectionist policies are
sometimes very popular but it's very dangerous," said Lorenzo Codogno, an
economist at Bank of America in London.

Salvatore Parlato, who works for the Milan-based economic institute REF,
agreed the risks were high: "In the long-term ... countries pushing for
trade barriers will lose market share as the countries they target grow and
become consumers."

As well as cheap labour costs, Chinese exports have been helped by the yuan
currency being pegged to the value of a weakening dollar while a strong euro
has hurt Italian products overseas.

DEEP-SEATED PROBLEMS

But the fact that Italy's export share dropped over a 13-year period
suggests more fundamental problems, as does a comparison with its
currency-sharing neighbours.

The World Economic Forum rates Italy 39th in the world competitive stakes,
whereas Germany is fourth.

Leading businessmen like Vittorio Merloni, eponymous chairman of the Italian
white goods maker, say the government should offer tax breaks to encourage
research and innovation.

Others argue that Italy's success stories tend to be niche players in less
dynamic sectors like food rather than electronics, and say it should shake
up its industrial base.

Another drag is the south where infrastructure is poor and corporate
activity scarce. But even up north, momentum has waned with one-time titans
like carmaker Fiat falling on hard times.

Most economists say Italy should put its own house in order, before taking a
broom to someone else's.

As a recent REF report on competition bluntly concluded: "If we're not
growing, it's not China's fault but our own."

© Hindustan Times Ltd. 2003.
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