Bill Zhang

Thursday, April 13, 2006

Gifts to the US on the eve of President Hu Jintao's trip to Washington

News from US:The Runaway Trade Giant

As its impact on the U.S. economy expands, China is also growing less vulnerable to American pressure on key issues

Nucor Chief Executive Daniel R. DiMicco sees a train wreck coming. True, Charlotte (N.C.)-based Nucor Corp., America's top steelmaker, had a banner year in 2005. But China now churns out more steel than the U.S., Japan, and Europe combined. Despite its own voracious demand, China has become a net steel exporter. More mills are in the pipeline that DiMicco complains are "massively subsidized" by interest-free loans, an undervalued currency, and export tax breaks. "If China decides to export significant amounts of steel," he warns, "there will be no such thing as competition." Advertisement

DiMicco would love to see the U.S. file a complaint with the World Trade Organization to block a flood of Chinese imports. Trouble is, it's not clear that China's help to steel producers violates WTO rules. Besides, Washington does not want to bring cases it is unlikely to win. How about getting the Feds to file an anti-dumping suit in U.S. court? To succeed, Nucor would have to prove it was already damaged by cheap Chinese imports.

CHINA'S GIFTS. DiMicco's angst highlights a dilemma for Washington: No one quite knows what to do about a China that is growing into a trade giant but in many ways still plays by its own rules. True, China has liberalized greatly since entering the WTO in 2001. And it came bearing gifts on the eve of President Hu Jintao's trip to Washington.

China has agreed to import U.S. beef and medical devices, load all PCs sold in the mainland with legal software, and buy $16.2 billion worth of Boeing jets, Motorola networking gear, and other goods. Another cause for cheer: America's February trade deficit with China shrank by 22.7% to its lowest monthly level in a year. The moves, declared Chinese Vice-Premier Wu Yi, show Beijing's intent to cut the trade gap and "observe the spirit of equality, mutual benefit, and win-win."

Yet worried execs like DiMicco see few signs of progress on the really big issues. They include China's refusal to significantly revalue its currency, its weak enforcement of rampant piracy, and its continued use of cheap credit, subsidies, and nontariff barriers to boost favored industries and companies.

U.S. officials are being more aggressive in bringing antidumping suits and WTO cases when China violates the rules, but they also say it's time for China to go beyond the agreements it made in 2001 and basically grow up. "We need a more balanced relationship," says U.S. Trade Representative Rob Portman, "based on the fact that China is a mature trading partner and a full-fledged WTO member."

WEAK CLOUT. Balancing the relationship, though, takes clout -- clout the U.S. may not have. The U.S. lost its ability to impose unilateral sanctions once China joined the WTO. Even if the U.S. hauled China to Geneva on issues like currency, intellectual property rights, and industry policies, its chances of winning under WTO rules are slight.

U.S. efforts to get China to beef up enforcement of intellectual-property-rights laws are a case in point. For more than a decade, Washington has demanded that Beijing halt the piracy of software, music CDs, and movies. China's laws are fine, and it can crack down when it wants: Witness the scarcity of knockoffs of mascot dolls for the Beijing Olympics.

But due to weak enforcement, trade groups claim U.S. software, entertainment, and publishing companies lose billions in China due to illegal copies. While Beijing announced a 14-point plan on Apr. 11 to crack down on pirates, skeptics say the U.S. shouldn't back off until it sees results. Says Dan Glickman, CEO of the Motion Picture Assn., which leads Hollywood's antipiracy fight: "On these issues where China really has not responded, I think the best leverage is the WTO."

Is it? Even if the U.S. does file a case alleging inadequate enforcement, there's no guarantee it will win. That's because the WTO lacks clear standards defining adequate progress toward enforcement, says China trade expert Nicholas R. Lardy of Washington's Institute for International Economics: "The elephant in the room nobody wants to talk about is that we don't have much leverage." If a suit fails, Beijing could ease the pressure on pirates. "To bring a case and lose it is detrimental," Portman says.

MISSING DATA. Another problem, U.S. trade officials complain, is that many U.S. software companies have been unwilling to gather and supply the hard data needed to mount a successful case. "Our bigger challenge isn't the law," says one official. "It's getting the evidence you need from companies who don't want to be seen as cooperating with the U.S. government."

Besides risking retaliation against their mainland operations, executives aren't sure a successful WTO ruling will solve anything, given China's weak rule of law. "Even if you won, would it really change the way business is done at the provincial level, or change the business environment?" asks Heather Clark, assistant vice-president for Asia of Pharmaceutical Research & Manufacturers of America.

The U.S. has been just as stymied in its efforts to force a revaluation of the yuan. American manufacturers claim the yuan is undervalued by as much as 40%, giving mainland exports a huge price edge. In response to Washington pressure, Beijing last year finally let the yuan fluctuate slightly, but it hasn't gained enough to make a big difference.

News from China: Trade deals reflect resolve to cut surplus

Major commercial deals China has signed with the United States reflect its sincerity to reduce the huge trade surplus, Vice-Premier Wu Yi said in Washington on Tuesday after fruitful high-level negotiations.

Wu, who is heading a 200-strong delegation of business people, told a press conference that Chinese companies had signed 107 contracts with US firms worth $16.2 billion.

The agreements cover sectors ranging from airplanes, electronics, auto parts, heavy equipment and software to cotton and soybeans.

Chinese airlines will buy 80 next-generation Boeing 737 planes, valued at $4.6 billion, in addition to the 70 Boeing 737s ordered in November during US President George W. Bush's visit to Beijing.

The latest agreements were signed at the conclusion of the annual US-China Joint Commission on Commerce and Trade (JCCT) meeting in Washington.

The talks on Tuesday were attended by Wu Yi, US Commerce Secretary Carlos Gutierrez and Trade Representative Rob Portman, both of whom praised China for its commitments.

"In our discussions today, which were very frank and positive, we were able to solve some problems," Portman said at a joint news conference.

To ease trade frictions with the United States, China promised at the meeting that it would reopen its market to US beef, reduce piracy of American goods and begin talks by the end of next year to open its huge government procurement market to foreign firms.

Beef imports were suspended in December 2003 after mad-cow disease was found in Washington State. Other countries including South Korea and Japan have also banned US beef imports since then. China bought $28.4 million worth of US beef in 2003.

On copyright piracy, China requires all computers sold in the country be loaded with legal operating software and to increase enforcement efforts against all forms of copyright piracy.

China also made commitments to streamline the sale approval of American medical devices; to adjust capital requirements that American telecommunications companies see as a major barrier to setting up Chinese operations; and to make sure new rules do not discriminate against US express delivery firms.

Wu reiterated that the United States could also help itself by lifting security restrictions on exports of high technology to China. At the JCCT talks, Washington agreed to explore that issue through top-level talks.

The large purchases in the United States could not fully eradicate the trade deficit, but they delivered a very important message to the US Congress, the public and the media, said Zhou Shijian, a researcher with the Institute of American Studies under the Chinese Academy of Social Sciences. "It shows the sincerity and goodwill of the Chinese Government and enterprises to redress the bilateral trade imbalance," Zhou said.

US-China Business Council President John Frisbie welcomed the outcome of the JCCT talks.

"A comprehensive, step-by-step approach that includes carrots, not only sticks, to develop mutually beneficial trade ties and resolve differences is the best way for the United States and China to make measurable, lasting progress in the commercial relationship," he said.

The US Commerce Department announced yesterday that the bilateral trade gap with China shrank 22.7 percent in February as the country's deficit narrowed 4.1 percent to $65.7 billion.

The trade deficit with China narrowed significantly to $13.8 billion the lowest level since March 2005 reflecting a 16.2 percent drop in imports and a 17 percent rise in exports, it said.


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