US-China trade: A smile and a grimace
By Abid Aslam
WASHINGTON - China has agreed to scrap some trade subsidies, handing US officials a rare chance to claim success in international affairs. But while industry reaction has been upbeat, workers remain unimpressed as the impact remains to be seen.
Beijing said it had signed a memorandum of understanding rescinding a raft of tax breaks and subsidies that Washington had challenged this year as unfair and in violation of World Trade
Organization (WTO) rules. The concessions come in the run-up to high-level trade talks scheduled for this month and aimed at reducing Sino-US economic tensions.
A similar deal was reached with Mexico, which had joined the US complaint at the WTO, China’s mission to the Geneva-based institution announced.
Beijing thus headed off a formal WTO ruling under which it might have been found guilty of stacking the deck against US and Mexican competitors with measures that encouraged Chinese firms to export more than they otherwise would and rewarded them for using domestic, rather than imported, goods.
The top US trade envoy quickly claimed the laurels. “This outcome represents a victory for US manufacturers, producers and their workers,” Trade representative Susan Schwab said. The offending Chinese tax incentives and subsidies would be abolished by January 1, 2008, she said.
Industry quickly chimed in. “The settlement of this case is great news,” the National Association of Manufacturers, the largest US industrial exporters’ lobby, said in a statement. “China is to be commended for recognizing that these subsidies were illegal and for acting responsibly to eliminate them without going through prolonged litigation. We hope this is a harbinger of things to come,” it added.
The AFL-CIO, a federation of some 54 unions claiming a combined membership of some 10 million US and Canadian workers, demanded stronger action to reduce the US trade deficit with China.
While John Sweeney, the AFL-CIO president, called the Chinese decision “an important achievement” he added, “we hope that USTR [United States Trade Representative] and the Bush administration will show equal diligence in addressing worker rights violations, import safety and currency manipulation, all of which contribute to the enormously lopsided trade imbalance between the United States and China.
China ran a record trade surplus of US$187.6 billion with the United States in the first nine months of this year and seems set to surpass last year’s surplus of $232.5 billion. Workers and politicians have been baying for an end to the hemorrhage.
Democrats in Congress are advancing measures that would make it easier to impose tariffs on imports and thus protect US firms against China’s subsidies and weak currency.
Schwab said the administration of President George W Bush remained opposed to such punitive measures. The administration succeeded in bringing Beijing around because it shunned a punitive approach in favor of negotiation, eventually buttressed with litigation at the WTO - an appropriate route since both countries are members.
“The agreement demonstrates the two great trading nations can work together to settle disputes to their mutual benefit,” she said. Sweeney, however, said the US complaint and its resolution were too long in coming. “These subsidies should have been eliminated when China joined the WTO six years ago,” he said.
Just how much US exporters and their workers stand to benefit from Thursday’s deal remains to be seen. Officials and analysts alike have said the impact will be more than symbolic because the subsidies applied across steel, information technology and other major sectors of China’s export economy and to all companies with foreign investors or joint-venture partners. Such companies are said to make about 60% of China’s exports.
The agreement is aimed at helping US companies against Chinese competitors, but since it covers firms in which foreigners hold a stake, at least some of the cost will be borne by US investors and partners.
Another three US complaints - involving auto parts and intellectual property rights protections - remain pending at the WTO.
These and other issues are to be taken up in China December 12-13, during the next round of the Strategic Economic Dialog. Washington’s delegation, to be headed by US Treasury Secretary Henry Paulson, also is expected to ask Chinese officials to ease limits on US bank investments.
Beijing has previously scrapped tax breaks deemed offensive by Washington and has begun to allow its currency to rise gradually against a weak dollar - moves that signal not only that it is willing to accommodate Washington’s needs but also that it feels itself in a strong enough economic and financial position so to do.
Separately, China and the European Union said last week they will launch a series of high-level trade talks in March.
