Darker clouds over world trade
Rising trade protectionist measures adopted by some countries could spell trouble for China,which has just completed its 10th year as a member of the World Trade Organization (WTO).
In 2010, world trade recorded its largest annual increase as merchandise exports surged 14.5percent, supported by a 3.6 percent recovery in global output as measured by GDP. Chinamade a particularly strong contribution to the recovery of world trade, with its exports increasingby a massive 28 percent in terms of volume and its imports rising by more than 22 percent.
The rebound was strong enough for world exports to recover its peak level of 2008, but notstrong enough to return to the previous growth path. On one hand, the debt crises in majordeveloped nations, especially the European Union and the United States, continue to reduceglobal demand. On the other, as trade ministers are about to meet at the WTO ministerialconference from Dec 15 to 17 in Geneva, world trade is expected to grow in 2011 by 6.5percent and rising trade protectionism spells trouble.
According to the recent global trade alert report, unexpectedly adverse macroeconomics in2011, combined with election cycles, has weakened the resolve against protectionism. China,along with some other countries, remains the most frequent target of crisis-era protectionism.
Other WTO members have used anti-dumping cases to target China's trade policies. Suchcases will remain a convenient tactic as long as China is considered a "non-market" economyunder the terms negotiated with the WTO in 2001 (the clause will expire only in 2016). To builda case, these terms allow a country to substitute China's prices with those of another, oftenpricier, market economy.
In the next half decade, the "rules of the game" at the WTO may shift. According to a recentWTO decision, state involvement must be accounted for in bank financing, land prices andproduction input prices. In other words, the anti-dumping tactic is being extended to anti-subsidy cases by using higher third country market rates and prices to demonstrate subsidizedpricing.
For all practical purposes, the disputes are now being taken to a different level. It is one thingto say, "since I do not like your trade policy, you better change it", and quite another to say, "since I don't like your system, change it".
In brief, trade pressure is converted into systemic pressure. The anti-subsidy retaliation gamehas already begun. It is taking place in the emerging industries of the future - the cleantechnology.
The push toward the "green sector" began after the oil crises of the 1970s. In the past threedecades, leadership in the key segments has shifted from Japanese to European to Americanand, most recently, to Chinese companies.
In early November, the US government launched an investigation into imports of Chinese solarpanels after American solar companies called for anti-dumping and anti-subsidy duties. Inreturn, China's commerce ministry said it was looking into US renewable energy subsidies.
The White House used to enthusiastically promote Solyndra, a manufacturer of solar powerequipment, until plummeting silicon prices led the company to bankruptcy in September. TheRepublicans targeted the case as an example of US President Barack Obama's "industrialpolicies". In turn, the White House is now criticizing China's "industrial policies". This political tit-for-tat in and around the anti-subsidy cases is useful in the election year in the US.
Since progress in the multilateral Doha initiative has been slow, many countries are nowpromoting regionalism to revitalize trade liberalization, but in exclusionary terms. For instance,the Trans-Pacific Partnership (TPP), supported by Washington, would exclude China - a vitalPacific power and the world's largest exporter whose trade may be nearly one-and-half timesthat of the United States by 2020.
Trade friction is likely to increase because of the debt crises in the developed economies andgrowth pains in emerging economies. The developed economies will be tempted to use traderules differently to make China and other large emerging economies the scapegoats. It is likesaying: "Look, our debt crisis is not our problem. They evolved with the rise of China, India andthe rest. So it is their fault, not ours."
The very success of China and other emerging economies, which follow its trajectory, is aninadvertent contributing factor in the WTO friction. In the past decade, the priority for Chinawas to liberalize the market to support industrialization and urbanization. This priority remainscentral to the less developed provinces and cities. In top-tier Chinese cities, however, thepriority is to boost competitiveness by moving up the industrial value chain. This is hardly news,though. After World War II, Western Europe, too, liberalized markets at first and began to movehigher in the value-added chain only later. The goal was to catch up with the US' level ofeconomic development to provide better living standards - and so do China, India, Brazil,Russia, Indonesia, Vietnam, and other emerging and developing countries today.
In the 10th year of China's accession to the WTO, rising trade protectionism holds potential fortrouble and could lead to more friction in world trade. And if it harms China's growth it will alsoharm the growth of other nations - including the advanced economies.
The author is research director of international business at India, China and America Institute,an independent think tank in the US and visiting fellow at Shanghai Institutes for InternationalStudies (China).
(China Daily 12/13/2011 page9)
15 Dec 2011
Dan Steinbock, China Daily