China as Trade Deal Impediment

♠ Posted by Emmanuel in ,, at 4/02/2007 01:36:00 AM
Many developing countries are becoming averse to free trade initiatives in fear of China's manic export machine, according to this Bloomberg article. Just today, China revised its GDP growth forecast upwards for Q1 2007 from 10.2% to 11.0%, in large part due to a growing trade surplus:

Despite the government last year adopting a number of tightening measures, economic growth has shown clear signs of rebounding in the past quarter.

Statistics show that urban fixed-asset investment picked up moderately to 23.4 percent year-on-year in January-February, and from about 20 percent in the fourth quarter of last year, reversing the trend of a gradual slowdown since last July.

Meanwhile, the trade surplus registered a massive leap of 230 percent, and retail sales were up 14.7 percent on the first two months of last year.

Bloomberg notes that not only are developed countries clamoring for action on China because of lost factory jobs, but also developing countries--particularly textile manufacturers that have not managed to cope with Chinese exports after the Multi-Fiber Arrangement (MFA) quota system lapsed in 2005:
China's emergence as a world trade powerhouse, blamed in the U.S. and Western Europe for the loss of thousands of factory jobs, is having an even more severe impact on developing nations. Support for free trade is dwindling as industry groups in countries around the globe lobby for protection against Chinese competition

Frank Vargo, vice president for international economic affairs with the National Association of Manufacturers in Washington, calls fear of Chinese competition "one of the most important impediments'' to a new world trade agreement in the current Doha round of negotiations [see my previous commentary as well].

Much of the impact comes from China's textile exports, which accounted for about 70 percent of its record $177.5 billion trade surplus last year, according to Chinese Textile Industry Association Chairman Du Yuchuan...

No region has felt the shock more than Central and South America. "The least developed countries in Latin America are scared to death,'' says William Reinsch, president of the Washington-based National Foreign Trade Council.

In Colombia, Chinese textiles are displacing products in domestic as well as export markets, says Ivan Amaya, president of the Colombian Association of Textile Producers. Textile imports from China have risen more than fivefold since 2001, according to Amaya...

Colombian Trade Minister Luis Plata says his office is conducting a "preliminary investigation'' of dumping complaints, which "should be concluded in the first half of the year.''

Elsewhere in Latin America, industry officials with similar grievances are demanding relief from their governments. Peru's producers have asked the government to investigate their complaint that China is dumping textiles and apparel in Peru at below-market prices.

"The Chinese sell their wares at prices that don't even cover the cost of the raw material,'' says Martin Reano, general manager of the textiles committee of Peru's industrial lobby, the National Industry Society, in Lima. "No one can compete with that.''

The entire Bloomberg article is well worth reading. In contrast, many would take umbrage to this Forbes commentary on "Is Trade Too Free?" Its author, William Baldwin, states that it is in everyone's best interests for China to pile 'em high and sell 'em cheap. Such insensitivity to the plight of those displaced by Chinese competition--fair or unfair--does nothing to boost the free-trade cause. What we have here is another instance of how not to promote globalization. On anti-dumping, he says "We are unmistakably enriched when China dumps products on our markets too cheaply (or, what is the same thing, makes the yuan artificially cheap). This would be true even if China had a giant wall blocking all U.S. imports."