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ADB warns of threat of rising protectionism to region

SINGAPORE — The Asian Development Bank (ADB) yesterday highlighted the dangers of protectionism to the region, saying that strengthening trade linkages and attracting foreign direct investment (FDI) will help contribute to growth in Asia and the Pacific, and improve resilience against protectionist forces.

The Asian Development Bank headquarters. AFP file photo

The Asian Development Bank headquarters. AFP file photo

SINGAPORE — The Asian Development Bank (ADB) yesterday highlighted the dangers of protectionism to the region, saying that strengthening trade linkages and attracting foreign direct investment (FDI) will help contribute to growth in Asia and the Pacific, and improve resilience against protectionist forces.

“Trade and FDI have been key drivers of growth and prosperity in Asia and the Pacific. The region should guard against the threat of rising protectionism and make concerted efforts to push for freer trade and better investment policies to preserve the region’s growth momentum,” said ADB’s deputy chief economist Zhuang Juzhong at the release of the lender’s Asian Economic Integration Report 2016.

The call came just two days after Italian Prime Minister Matteo Renzi said he would resign after voters rejected constitutional reform proposals for Italy, with the populist and anti-globalist Five Star Movement playing a big role in the “No” vote. The Italian referendum result followed Britain’s vote in June to leave the European Union and the victory of Republican candidate Donald Trump in the United States presidential election last month as anti-globalisation sentiment gathered momentum across the world.

Mr Trump has vowed to scrap the Trans-Pacific Partnership (TPP) agreement and said he would impose tariffs on imports from China.

“The pushback against globalisation and increasing political pressures against trade openness could create more hurdles to the trade environment, potentially slowing the progress of regional integration. More so, recent political events — such as the Brexit vote in June and Mr Trump’s victory in the US election — suggest a rising tide of anti-globalisation and anti-establishment sentiments among parts of the electorate worldwide. These events could increase global uncertainty and erode confidence on global institutions,” the ADB report said.

Prime Minister Lee Hsien Loong warned on Sunday that the trend of developed countries turning inwards and taking a more protectionist and nativist approach would hurt trade, security and international order, with small and open countries such as Singapore particularly vulnerable.

The ADB report also noted that structural transformation in China and the poor global economic recovery continued to weigh on the region’s trade growth. Asia’s trade growth slowed to 2.3 per cent last year from 3.5 per cent in 2014, much sharper than the decline in global trade growth to 2.7 per cent from 2.8 per cent over the same period.

The report said greater openness to trade and FDI can strengthen the region’s resilience to slow global growth, but countries need to improve their institutional quality, business environment and policy effectiveness to encourage foreign investment. FDI can contribute to economic growth through job creation, capital mobilisation and infrastructure development, while promoting productivity through technological and knowledge spillovers. It also fosters inclusiveness through better working conditions and rising wages, the report added.

Asia and the Pacific attracted almost a third of global FDI last year, of which more than half was intra-regional. The region received US$527 billion in FDI last year, a 9 per cent increase from US$484 billion in 2014, the report noted.

Manila-based ADB — owned by 67 member countries including 48 from the region — is marking 50 years of development partnership in the region this month. It is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Last year, ADB assistance totalled US$27.2 billion, including co-financing of US$10.7 billion. Rumi Hardasmalani

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