The Chinese trade regime: will the prey become hunter or vice versa?

by M. Ulric Killion 

Borrowing from a page at the website of the International Association of Machinists and Aerospace Workers (IAM), which addresses common complaints about trade with China, “Unfair trade practices by the People’s Republic of China continue to plague American workers. The trade deficit hit a record $232 billion last year and manufacturing jobs continue to diminish as companies such as Wal-Mart look to China for cheap labor.”

The IAM further characterizes the problem with China trade as, “The United States continues to be flooded with a wave of imports from China. Clothes, toys, refrigerators, air conditioners – the list goes on and on. U.S. corporations such as Wal-Mart are jumping at the opportunity to import products from a country where workers are forced to work ungodly hours for a mere fraction of what American workers earn. Meanwhile, the Chinese government continues to drastically undervalue their currency, making American products more expensive in China and Chinese products cheaper here. The result is the continued loss of manufacturing jobs and a record trade deficit that hit $232 billion last year.”

In the United States and other (both developed and developing) countries and economies, the aforesaid statements of the IAM are typical of the complaints made about trade with China. For this reason, it should hardly come as a surprise that China enjoys the status of being the trade regime that is the most frequent subject of new World Trade Organization (WTO) investigations (WTO, 2009).

As the China Ministry of Commerce observed, “China can expect to be a major target of rising trade protectionism - particularly from the United States and India - as the world struggles to recover from the global financial crisis, the Ministry of Commerce (MOFCOM) said Thursday. The crisis has pushed trade protectionist cases to a historical high” (Ding, 2009).

Sino-US Trade 

The year of 2009, however, may well represent a pivotal year for China as a Member of the WTO. As of this writing, China has filed its first complaint against the European Union (EU) with the WTO, in relation to its complaint against the EU’s anti-dumping duties on China-made screws and bolts, and there is also its filing of a challenge to a US ban on the imports of Chinese poultry.

China’s participatory efforts in addressing its trade disputes within the realm of the WTO and its Dispute Settlement Body (DSB) is a good or bad consequence, mostly dependent on who or what trade regime is the alleged wrongdoer, or even, in the future, who or what trade regime may find themselves at the other end of the AD/CVD variety of trade measures. A good consequence owing to China’s increasing use of the WTO trade regime, especially its DSB, is that it lends to the processes of juridification, which arguably associate with the increasing utilization of international trade laws or the WTO rules—substantive and procedural—governing the world multilateral trade system.

From the perspective of those countries or trade regimes witnessing China increasingly employing the WTO regime in resolving trade disputes, other countries or trade regimes may perceive this as a bad consequence. In this respect, the United States should proceed with greater caution on issues of Sino-US trade, lest it may find itself in this category of those countries or trade regimes.

For instance, when the United States filed a complaint with the WTO over Chinese restrictions on the export of key industrial raw materials, such as coke, bauxite, fluorspar, magnesium, silicon metal, yellow phosphorus and zinc, China responds by filing its complaint challenging a US ban on the imports of Chinese poultry. In another example, the United States introduced its new variety of protectionist-trade policy, which is the legislative-enacted Buy American variety. In July 2009, China, perhaps as a response or as even following the example set by the United States, introduced its Buy China variety of protectionism (i.e., the Buy China requirement), as an inclusion in its domestic stimulus package.

In June 2009, there is also the controversial decision of the International Trade Commission (ITC). The ITC ruled “by a 4-2 vote that a surge of low-priced consumer tires from China is harming the domestic industry,” an import surge they alleged has caused “major job losses and plant closures in the United States” (Killion, June 20, 2009). The ITC considered the issue of remedy, and send its report to the US President and the US Trade Representative by July 9. The United Steelworkers (USW) Union, who filed its complaint with the ITC on April 20, 2009, is now urging the Obama administration to employ section 421 of the Trade Law, which requires the ultimate approval or rejection of the president even after a ruling of the US International Trade Commission. In this respect, the USW wants the Obama Administration to approve the ruling of the ITC, thereby, from their perspective, they want the Obama administration to more than halve the number of imports from 46 million units last year to 21 million. The USW perceives these China-tires imports as having cost about 7,000 US jobs. All of this presents a dilemma for the Obama administration, however.

"This is the administration's first real test on trade policy . . . [and] they're either going to implement new trade barriers or not," as Chad Brown explained, "this is the first decision that has been in the administration's lap that they have direct responsibility over" (Shin, 2009). “In his short tenure, Obama has sent conflicting signals on trade. He has warned against policies that ‘send a protectionist message’ and criticized trade barriers, saying they ‘hurt us all in the end.’ But the administration has also failed to stop policies that major trading partners have decried as protectionist. It has largely ignored complaints by Canada, its largest trading partner, over the Buy American policy. And it has failed to resolve a dispute with Mexico over Mexican truck access to U.S. highways” (Shin, 2009).

Moreover, the Obama administration has been sending other conflicting signals on Sino-US trade. For instance, there is Secretary of State Hillary Clinton encouraging China to continue to buy US debt, while US Treasury secretary Timothy Geithner earlier accused China of currency manipulation, and the appointment of Ron Kirk as the new US trade representative, who announced that he did not come to the job with deal fever. Kirk, though supporting international trade in a broad sense, "has also made comments suggesting that protectionism might not be so bad after all" (Abrams, 2009). The problems of US protectionist policy may become more of a reality with the passage of time for proponents of Buy American provisions; a path to protectionism that may ultimately serve as a legacy of the Obama presidency.

It is a crisis in Sino-US trade relations that seems to present a paradox for both the Obama administration and the US congress. As the Wall Street Journal (2009) observed, when addressing the first case initiated under the Obama administration, which involves Chinese restrictions on the export of key industrial raw materials, [US Trade Representative Kirk] "said it does seem somewhat 'counterintuitive' that the Obama administration's first WTO complaint involves allegations that China isn't exporting enough" (WSJ, 2009). 

China and WTO Investigations 

In addition, what other countries or trade regimes, especially Western countries or economies, should consider is the record of trade measures taken against China. This also serves as reminder of the recent WTO data or statistics on anti-dumping investigations. The data, more importantly, generally concludes the China enjoys the status of being the trade regime that is the most frequent subject of new investigations. Relevant portions of the WTO data follow.

In May 2009, “The WTO Secretariat reported that during the period 1 July — 31 December 2008, the number of initiations of new anti-dumping investigations showed a 17 per cent increase compared with the corresponding period of 2007. The number of new measures applied also increased between these periods. In particular, during July — December 2008, 15 WTO Members reported initiating a total of 120 new investigations, compared with 103 initiations reported by 14 Members for the corresponding period of 2007.” As the WTO Secretariat also reported, “On a yearly basis, there were 208 initiations of new anti-dumping investigations in 2008, as compared to 163 in 2007 and 202 in 2006 . . .”

According to the WTO Secretariat, “The Members reporting the highest number of new initiations during July-December 2008 were India, reporting 42, followed by Brazil, reporting 16, China (11), Turkey (10), Argentina and the European Communities (9 each), Indonesia (6), Ukraine (4), Pakistan and the United States (3), Australia and Colombia (2 each), and Canada, Korea and Mexico (1 each). These figures represented increases for Argentina, Australia, Brazil, India and Turkey, and declines for Korea and the United States, while the numbers of initiations by Canada, the European Communities and Mexico remained unchanged, compared with the numbers reported for July — December 2007. China, Colombia, Indonesia, Pakistan and Ukraine, which did not report new initiations for July — December 2007, reported new initiations for the second semester of 2008.” 

The WTO Secretariat, more importantly, reported that, “China was the most frequent subject of the new investigations, with 34 new initiations directed at its exports. This was a 17 per cent decrease from 40 new investigations opened in respect of exports from China during July — December 2007. The European Communities (including individual member states) was next with 14 new investigations directed at its exports, followed by Chinese Taipei, Thailand, and the United States (6 each), Indonesia, Korea and Malaysia (5 each), India and Saudi Arabia (4 each) and Iran and Turkey (3 each). These were followed by Australia; Belarus; Hong Kong, China; Japan; Russia; South Africa and Ukraine (2 each), and Argentina, Armenia, Brazil, Chile, Ecuador, Israel, Kazakhstan, Kuwait, Peru, Philippines and Sri Lanka (one each).”

China’s increasing participation in the WTO regime, especially increasingly employing its trade dispute resolution mechanism, is a good or bad consequence, mostly depending on who or what country stands on the other side of the aisle. However, despite China’s antagonists or those acting on behalf of China antagonists, in terms of the aspirations embodied in the WTO regime, it is actually a good consequence that will promote free and fair trade, in the long run. For the same reason, China’s increasing usage of the WTO regime in resolving trade disputes does not present an issue of whether the prey becomes hunter or vice versa.

Sources:

Ding Qingfen, China a major target of trade protectionism: official, China Daily, July 31, 2009.

M. Ulric Killion, US, Europe charge China with WTO violations, mulrickillion.blogspot.com, June 27, 2009.

M. Ulric Killion, ITC rules on China tire imports - finds import surge (dumping) in US, mulrickillion.spaces.live.com, June 20, 2009.

Annys Shin, In Tire Tariff Case, Obama Faces First Chinese Trade Policy Test, Washington Post, August 7, 2009.

Jim Abrams, Former Dallas Mayor Ron Kirk confirmed as US trade representative, AP, March 18, 2009, (Chicago Tribune).

U.S., Europe File Trade Complaint against China, WSJ, June 24, 2009.

China Defends Curb on Exports, WSJ, June 24, 2009.

WTO: 2009 Press Release, SPRESS/556, 7 May 2009, Anti-Dumping, WTO Secretariat reports increase in new anti-dumping investigations.

Copyright © Protected - All Rights Reserved M. Ulric Killion, 2009.