Wednesday, December 23, 2009

Tit for tat builds in China trade wars

China has slapped anti-dumping duties on imports of carbon steel fasteners from the European Union, just a day after the EU extended import duties on shoes from China and Vietnam. It marks a growing sense of unease between China and western countries as tariffs are imposed on an increasing number of Chinese made products.

In recent days China has also sought a WTO probe into US duties slapped on Chinese made tyres. At a World Trade Organization dispute settlement meeting in Geneva on Monday, China requested the formation of an expert panel to examine the legality of "special safeguard" duties on Chinese tyre imports imposed by the Obama administration in September. The United States successfully raised procedural objections, and China has said it will raise the demand again with the WTO next month.

Chinese officials say the US government decision to impose the duties "lacked a factual basis, and was thus in violation of the relevant WTO rules." They also said the measures were a result of "bowing to pressure from domestic protectionism, and violated the international consensus to avoid protectionist measures against the backdrop of the financial and economic crisis."

However when the WTO ruled over the importing of music and films, China refused to accept the findings and said it would appeal the decision. But WTO trade judges on Monday rejected a Chinese appeal against a ruling that many of its curbs on foreign films, books and other cultural products violate trade rules. If China fails over the next year to bring its practices in line with international trade law, the US can ask the WTO to authorise commercial sanctions against Chinese goods.

While China has seen more cases targeting its own failure to abide by WTO rules, it has also brought an increasing number of cases before the international trade body. Some analysts say it is a healthy sign that it is becoming a more active member of the WTO. However, others might ague China is not playing fair and ignoring rulings made against it.

The Asian country's import restrictions have been a key criticism of Western exporters. Many complain that China's rapid rise as a trade juggernaut has been aided by unfair policies that boost sales of Chinese goods abroad while limiting the amount of foreign products entering the Chinese market. The probe initiated Monday by the WTO, at the request of the US, Mexico and the 27-nation European Union, focuses on the other half of the equation by examining China's treatment of domestic and foreign manufacturers with regards to its vast wealth of raw materials.

In the latest instance of trade tensions, EU ministers voted on Tuesday to extend import duties on shoes from China and Vietnam by 15 months, despite a vote on November 19 by the EU's anti-dumping committee to reject plans to extend the tariffs. The action provoked a swift response from the Chinese. "China is extremely dissatisfied," Yao Jian, a spokesman for China's Commerce Ministry, said in a statement on the ministry's website. "We have noticed that EU importers, retailers, and many member countries show opposition to the anti-dumping measures. We hope the EU could respect facts, follow the wishes of European people and stop such anti-dumping measures," Yao said [Reuters / Xinhua]

As the west recovers from a long lasting recession, there is a growing feeling amongst many people that too much manufacturing has been shifted abroad resulting in a loss of domestic manufacturing and with it a loss of jobs. But while there is a distrust of the quality of many Chinese products and a desire to create employment opportunities at home, it may be too late to turn the tide.

In Britain manufacturing once accounted for almost 40% of the country's output, it now represents less than half that. It has declined steadily over the past 30 years, giving way to competition from abroad, particularly the Far East where labour is much cheaper. "I pay a press operator between £4.50 and £4.75 an hour, whereas in China it costs 40p an hour," Russell Luckock, who ran an engineering company in the Midlands, told the BBC a decade ago. Such stark statistics have led some economists to argue that manufacturing in the UK is no longer a viable proposition.

In the US the car manufacturing industry has suffered significantly, not only by an unwillingness to adapt to automotive changes, but also due to increased competition from foreign companies selling cheaper vehicles. Even GM's trademark Hummer looks set to be bought up by a Chinese car maker as the erosion of western brands continues. Sichuan Tengzhong Heavy Industrial Machinery is looking to purchase the car, but the deal is still waiting for Chinese government approval. There are few items to be found that are made domestically. Zippo lighters, the Maglite torch and the Leatherman multitool are American made exceptions. 

In Britain it is virtually impossible to find anything not manufactured in China, India, Japan or other Far Eastern country, except for things like cheese of which Britain boasts 700 varieties [FT]. Even France, a country steeped in national pride, has shifted production abroad in many instances. Creuset, a French cookware manufacturer, has many of its products now made in Thailand and in China after more than 80 years based in France.

It is in such a climate that nationalism builds and along with it protectionism. China of course wants to protect its manufacturing and export interests. But as the west wallows in the last throws of a difficult recession, China will meet further resentment and hostility. Analysts and observers believe these Sino-American trade fights are only the beginning as President Barack Obama's administration will likely file more cases against China. Obama made campaign pledges to take a tougher approach with US trading partners in the face of soaring job losses and the longest US recession since World War II [MSNBC]. It now appears that the EU are also joining in the fray. While it may appease domestic voters in the west, a trade war with China could have serious implications. Martin Hutchinson of the Money Morning website said such moves could bring about a second depression.

tvnewswatch, Beijing, China

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