Tag Archives: World Trade Organisation

Firming World Trade Recovery Provides Cheer For China

Containers at a dock in China. Trade, exports and imports. Xinhua file photo

A glimmer of hope for China among the uncertainties over the world economy is that the recovery in world trade is firming up. The high trade growth rates of the double-digit export-led growth years are no where near being back. But the recovery from the mid-2011 contraction, slow though it is, has persisted long enough to suggest that global trade is past the trough of its current cycle.

Global trade levels rose by 1.4% in December, up from the 0.8% increase in November and a turnaround of the contractions of 0.9% and 0.7% in October and September, respectively, according to a new estimate from the Dutch Bureau for Economic Policy Analysis (the CPB; its figures are closely watched because they provide the earliest available measure of global trade.) The sharpest growth was among developing countries, up 3% over November’s rate, with export rates in Asia up 4.2%. Emerging economies are now firmly in the sights of Chinese exporters, who will get new government support to attack those markets.

That is doubly cheering for China’s exporters. In January, the country’s exports fell, largely because of the early Lunar New Year. Seasonally adjusted, they rose by 10.3% year-on-year, though that wasn’t the number that got the headlines.

The IMF still forecasts 6% growth in world trade in 2012, including a robust expansion in the trade in services. That is up from the 5.6% the CPB estimates for 2011, but down from 2010’s 14.9%. The brakes on a faster pick-up in trade are the expected ones:

  • the slow pace of the global economic recovery and the continuing concerns about the euro-crisis:
  • protectionist pressures increasing, if being kept politically constrained by mutual agreement of the G20, which has recently extended its pact not to go protectionist to the end of next year; and
  • stalled progress on the Doha round of talks on new trade rules. In the face of that, free-trade agreements are likely to proliferate, particularly in the Asia-Pacific region.

WTO-referred disputes are also likely to be more frequent. Most will probably involve China, the U.S. and the EU as complainant or defendant. Just as they do now. The disputes mechanism is slow and unwieldy, but it does resolve disputes without letting them spill over into other areas of bilateral relations, a useful safety valve in difficult times, and not just for trade relations.

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WTO Hands Beijing Big Trade Win

The World Trade Organisation’s ruling at the end of last week in favor of China’s appeal against E.U. anti-dumping tariffs of imports of Chinese screws and other fastenings is significant. It undercuts the basis on which the E.U. and the U.S. have imposed a welter of similar antidumping tariffs against other Chinese imports (WTO report in full). Chinese goods have been the subject of antidumping measures by the E.U. and U.S. in 445 cases over the past decade, accounting for one in four of those imposed by all WTO members (which has included China since 2001).

The essence of the WTO’s ruling is that the methodology that the E.U. uses to assess the true production cost of Chinese goods is flawed and thus there are factors other than state aid that makes their manufacture cheaper than European-produced equivalents. Beijing has publicly played down the importance of the decision, but E.U. officials have described it as a “significant setback”. They have 60 days to appeal. We believe that unless the E.U. can see some sort of workaround, a challenge will be mounted because of the precedent it sets. With Beijing playing increasing legal hardball at the WTO, it is game on.

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Protectionist Spirits Rise In Washington

A U.S. Congressional committee has voted out a bill that would subject China to retaliatory trade sanctions on the basis that Beijing keeps the yuan undervalued against the U.S. dollar to give its exports an unfair advantage. The full House will vote on the bill next week. It would still have to be approved in the Senate and survive a Presidential veto to become law. The last two hurdles are much higher than the first. Even if it clears all the American legislative hurdles, imposing countervailing duties skirts World Trade Organisation’s rules closely enough for China to be likely to launch a challenge.

Sander Levin, chairman of the House Ways and Means committee, draws a straight line between China’s currency policy and American jobs, saying the yuan “has a major impact on American workers and therefore American jobs. That’s what this is really all about.”

That is what the politics is all about. What is less clear is that revaluing the Chinese currency would create more jobs in he U.S. in any significant number. Few economists would argue that it would unless the revaluation is of a scale that would cause a whole new slate of economic problems of its own. And even within the narrow dimension of currencies, America’s international competitiveness turns on more than a single exchange rate now that China sits at the heart of a web of Asian manufacturing.

Chinese commentators have been uniform in pushing the line that the US. is blaming China for its poor economic performance instead of trying to put its own house in order. With American politicians deep into a contentious midterms election season, that message is likely to fall on deaf ears.

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China Inches Towards Opening State Contracts To Foreign Bidders

Both the U.S. and the E.U. have been pushing for China to join the World Trade Organisation’s agreement on government procurement (GPA) to open up a market for government work that was said to be worth 700 billion yuan ($100 billion) in 2009 and growing by more than 15% a year (though that numbers strikes us a low or narrowly defined). Last month Beijing submitted a revised version of its rejected 2007 proposal for GPA membership. That excluded local governments and state-owned enterprises from the scope of Beijing’s membership, had a high threshold for qualifying public-sector contracts and a 15 year implementation timetable.

In June China hawks in the U.S. Congress proposed to ban the U.S. government buying Chinese goods until Beijing joined the GPA (which would, it should be remembered, give it reciprocal access to government procurement in the 41 countries that are already GPA members). Today Sun Zhenyu, Beijing’s envoy to the WTO, told state media that it would take “time and effort” to improve Beijing’s offer, but that it still wanted to join “as soon as possible”.

Sun said China’s revised proposal addressed two of three main points of contention by noting that the qualifying contract sizes had been reduced and the implementation timetable cut to five years. The range of public sector entities hasn’t been expanded, though. Sun, doubtlessly prepping the ground ahead of the WTO taking up the revised offer in October, also said WTO members shouldn’t be “too demanding” of Beijing’s revised proposals, and indicated that foreign companies should consider the absolute size of even a small slice of China’s government procurement rather than worry about getting access to all of it. As a theatrical agent once said to us, 10% of something is better than 100% of nothing.

Looking at how Beijing has liberalized its trade rules since joining the WTO in 2001 — gradually — membership of the GPA is unlikely to provide an immediate bonanza for foreign companies especially given how close the state and corporate China remain. But even a couple of high-profile trophy awards would be a start, albeit of a long and hard road.

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