A member nation can file complaint cases with the World Trade Organization (WTO) over trade, but is the process just political finagling or a legitimate request for redress over competitive disadvantages?
Recently, the United States angered the Chinese regime by filing two WTO cases addressing intellectual property rights violations and market access barriers to copyright-based industries. In addition, the United States threatened to charge tariffs on numerous Chinese imports, notably paper imports.
"The Bush administration will continue to vigorously enforce U.S. trade law with respect to China. Since 2001, we have issued 31 antidumping orders against China, compared to the 24 orders put into place between 1993 and 2000," said Carlos M. Gutierrez, U.S. secretary of commerce, in a recent press release.
In March, the U.S. Department of Commerce slapped import duties on coated paper from China due to massive Chinese subsidies that put U.S.-based producers at a disadvantage. U.S. manufacturers claim that Chinese producers enjoy governmental tax breaks, debt-forgiveness, and low-cost loans, according to NewPage Corp., a Dayton, Ohio-based paper producer, in a release.
Proponents of tariffs argue that the United States finally has a level playing field with the Chinese, while others feel that the move will prompt Chinese retaliation and hurt an already dicey trade relationship between the United States and China.
"In fact, neither will occur, because the White House measures are not new, not tough and not relevant," said Clyde Prestowitz, president of the Economic Strategy Institute, a Washington, D.C.-based non-profit and non-partisan policy research think tank.
Prestowitz, as former U.S. trade negotiator during the Ronald Reagan years, is familiar with the behind-the-scenes dealings. He claims that WTO filings are just another game that politicians play to appease their political constituents.
His words about WTO filings sound unfamiliar only to the uninitiated: "I am familiar with this old ritual. In the background is the U.S. trade deficit that is setting new records and is especially large with a particular country—yesterday Japan, today China."
After constituents raise enough complaints about unfair trade practices, "a high-level bilateral dialogue on trade, currency and broader economic issues is launched with the big surplus country," said Prestowitz. The United States brings its demands to the table, which the other side ignores, coming back with its own set of complaints.
Prestowitz is not in favor of such talks: "The talks go nowhere as the partner country blames the problems on lazy, incompetent American companies and U.S. policies that result in excess consumption and negative savings. Congress and the Administration then do a dance within the dance. Some congresspersons threaten trade-restrictive legislation if the trading partner doesn't shape up."
The result is that the U.S. government announces tariffs on certain products. The trading partner gets upset and threatens to retaliate. Yet, neither side wants a "trade war," but is only interested in buying time and hoping that the market will adjust itself.
Talking Tough
The game has begun. Speakers at last month's public hearings of the U.S.-China Economic and Security Review Commission are talking tough. Rep. Walter B. Jones (R-NC) feels that bilateral discussions will not resolve any issues between the United States and China: "The U.S. Congress and the President must combat these practices with legislation to limit China's access to the U.S. market unless China starts playing by the rules," he said in a speech published on the Commission's Web site ( http://www.uscc.gov/ ).
Jeffrey Fiedler, appointed co-chair of the U.S.-China Economic and Security Review Commission asserts that the Chinese regime is violating the "spirit" of WTO by not privatizing the majority of its viable economic enterprises. Fiedler doubts that the Chinese regime will let go of the reins.
Fiedler claims that the Chinese have not shown the slightest intention of joining the free market system: "They also betray a cynical approach to international trade in which the object is to gain advantage over competitors by means fair or foul." A case in point are the large subsidies in the form of "low interest rate loans from state-owned banks, loan forgiveness, free land, tax rebates, discounted energy" by which the Chinese communist regime maintains a stranglehold on China's resources.
Scott Kennedy, professor at Indiana University, sees China's compliance with some of the WTO requirements—such as establishing rules of trade and associate laws—as mere window-dressing. He claims that China did not remove "traditional trade barriers; and more importantly, it has tried to exploit loopholes in the WTO governance regime and adopt more sophisticated forms of protection."
Dr. George T. Haley, director of the Center for International Industry Competitiveness, argues that the Chinese have no intention of privatizing what they consider the seven core businesses: "armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation, and shipping."
Buying Spree Over Traditional Growth
Indeed, Chinese firms are on a shopping spree to gobble up U.S. know-how by buying established firms in the finance and mining machinery sectors.
Daniel H. Rosen, a member of the Peterson Institute for International Economics, saw this coming all along. He addressed the issue during last month's U.S.-China Economic and Security Review Commission's public hearings.
Rosen predicts that the only way for Chinese firms to break into foreign markets at an accelerated pace is to purchase established firms. "There are only two options for establishing a business platform from which to sell to a new market: Build it or buy it. Outside manufacturing, China has poor skills, talent, and experience."
Rosen cautioned that Chinese firms will not buy just any established firm. China will try to snatch up firms that bring technology to the table—technology that China is incapable of duplicating, that would take too long to develop, that is in a sector in which China still plays second fiddle and which it needs in order to attain world market dominance.
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