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China FTA Analyst
November 2006
Time for China to get serious about trade policy
China's influence in the global economy continues to grow, but the perennial question is whether it will use its influence in enlightened economic self-interest or to advance political goals. The balance is tipping towards political interest, writes Alan Oxley.
Pronounced strains of mercantilism are appearing in China's trade policy. This is raising concern among China's major trading partners and should give cause for thought in Canberra. If these trends persist, the chance of Australia negotiating an effective free trade agreement with China is slim.
American and European officials have lodged a formal challenge in the WTO against Chinese import tariffs on automobiles, on the grounds they were forcing auto-manufacturers to favour Chinese suppliers.
Washington has also asked Beijing to detail how much it subsidises Chinese business. There are recent reports that the US Special Trade Representative is preparing a further complaint against China in the WTO, this time for not protecting intellectual property. While some of the motivation for these moves has come from the lead up to the recent mid-term elections, the movement to push China on subsidies has been gathering steam for some time. With Democrats having taken over Congress, pressure to act is likely to grow.
Peter Mandelson, the EU Trade Commissioner, issued a paper expressing concern that Beijing was pursuing a "China First" policy, and that this was apparent in the steel, automobile, semi-conductor and ship-building industries. A week later in a meeting with the Chinese Commerce Ministry he urged Beijing to play a more active role in the management of the global economy.
There may also be some special pleading here. The European Commission is under pressure from Italian and French manufacturers of garments and shoes who are struggling against much more competitive Chinese producers. It has imposed anti-dumping duties on Chinese imports of these products.
Nevertheless, the "China First" charge will resonate with those in Australian industry who are following the FTA negotiations with China. To them, it is clear that China is fostering "national champions", not only in industrial sectors referred to by Mandelson, but also in agriculture and services. Australians have been told China is not interested in negotiating in these sectors.
Chinese officials have also told Australian negotiators, FTA negotiators in New Zealand and ASEAN not to expect much more liberalisation, since China cut enough trade barriers in the WTO.
This all points towards some revisionism in policy in Beijing. China deserves recognition for the dramatic commitments it made to open markets on accession to the WTO in 2001. On average, it has halved tariffs; it has also cut auto tariffs from around 70 percent to less than 20 percent, and went much further than most countries in its commitments to liberalise the financial sector. Nevertheless, there is still a great deal more economic reform required.
Some say economic reformers in Beijing are in retreat. Reformers are concentrated in the National Reform and Development Commission, which is, incidentally, responsible for reforming the financial sector. There is not much evidence of reform interest in the rest of the Government.
There is a bigger issue here for Beijing than merely negotiating FTAs or complying with WTO obligations. China is not the first government to have to contend with push-back against economic reform by mercantilist interests.
For China to secure full value from its growing influence in the world economy, it needs to demonstrate that it is willing to work with other countries to build markets to common advantage, rather than to shape economic relations principally to give advantage to its own national companies. This applies to the terms of FTAs it negotiates, as well as its obligations in the WTO.
Alan Oxley is Principal Consultant of ITS Global, which provides administrative support to China Business Focus. This article represents the views of its author.
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