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Three Proposals Target China's Unfair Trade Practices
TradeAlert.org ^ | Friday, September 26, 2003 | William R. Hawkins

Posted on 09/26/2003 1:04:55 PM PDT by Willie Green

For education and discussion only. Not for commercial use.

For education and discussion only. Not for commercial use.

China´s currency manipulation has become the focus of American public outrage, especially given the slow pace of the U.S. economic recovery. The issue has grown political legs, leading even some members of the Bush Administration to pay it lip service. In a sharp departure from past policy, Treasury Secretary John Snow has publicly called for Asian countries to adopt more "flexible" exchange rates, though he has been reluctant to call out China by name.

Beijing has a trade surplus with the United States of about $120 billion this year. The rule of thumb that every $1 billion in the trade balance represents the gain or loss of 10,000 jobs. Using that standard, the trade deficit with China could explain the loss of  more than 1 million American jobs.

China keeps its currency at a fixed exchange rate of 8.3 yuan to the dollar, a rate that has remained constant since 1994 when its devaluation sent other Pacific Rim economies into convulsions from which they have not yet fully recovered. Experts believe the yuan is artificially undervalued by about 40 percent against the dollar, which adds to other Chinese trade advantages from cheap labor to government subsidies.      

The Bush Administration does not want to go beyond diplomatic discussions. China, however, has already made it clear that it will not be talked out a of policy that has paid such handsome dividends. Beijing believes that with so many major firms having built plants in China to take advantage of its mercantilist policies, it will be able to muster substantial political clout from corporate lobbyists in Washington to head off any anti-Chinese policy.  

With the Bush Administration unwilling to act, three proposals have been put forward from other quarters to fill the void in leadership. The plan with the most press attention comes from the National Association of Manufacturers (NAM) and other members of the “Sound Dollar Coalition.’ They are considering filing a case with the U.S. International Trade Commission charging China with using currency manipulation to gain “unfair’ trade advantages under Section 301 of the Trade Act of 1974. Under Section 301, the United States can impose trade sanctions on countries that restrict U.S.  exports.  The remedy is to impose duties on imports from the offending country in response to the damage to U.S. exporters resulting from that country's unfair trade practices.  

Not only would the NAM initiative take a long time to work through the overly legalistic process of the US International Trade Commission (which could easily run a year), it seems to miss the point.  The real issue is not the blocking of exports to China, but the flooding of America with Chinese goods.  It has been clear for some time that the predominant business model for selling in China is to produce in China, a model Beijing strongly favors.  There is little chance that the United States is going to be able to export its way out of its massive trade deficit with China.  

The choice of Section 301 by NAM, instead of the more logical Section 201, which protects American firms from injury by imports, appears to be an ideological decision.  NAM is torn between its transnational corporate members, who have invested heavily in China, and a larger number of smaller American member companies facing import competition from China.  NAM has to say something on behalf of the majority of its members, but cannot advocate import restrictions that are opposed by its biggest financial contributors, who are themselves exporting from China.  By framing their action as a support for exports, they can appear to be boosters of trade rather than as “protectionists.’ Their approach is thus likely to be ineffective, which will keep their transnational members happy, but continue to ruin their American members and the U.S. economy.  NAM is thus a lamb in wolf´s clothing.

A more direct approach is the bill S.  1586, introduced on September 5 by  a bipartisan group of U.S.  Senators led by Charles Schumer (D-NY) and including Jim Bunning (R-KY), Lindsey Graham (R-SC), Elizabeth Dole (R-NC), Richard Durbin (D-IL), and Evan Bayh (D-IN).  It has since picked up Hillary Clinton (D-NY), Mark Dayton (D-MN), Michael Enzi (R-WY), Herb Kohl, Herb (D-WI), Arlen Specter (R-PA) and Debbie Stabenow (D-MI) as co-sponsors.  

The bill would impose an across-the-board tariff of 27.5 percent on any imported article, product, or manufacture of the People's Republic of China.  The bill bases the authority to impose such a countervailing duty on Article XXI of the GATT 1994 which the lawmakers argue “allows a member of the World Trade Organization to take any action which it considers necessary for the protection of its essential security interests.  Protecting the United States manufacturing sector is essential to the interests of the United States.’ This is an important bill symbolically because it has moderate senators from both parties talking about imposing tariffs.  However, it faces significant legislative hurdles just before Congress ends its session for the year; not the least of which is to be buried in the notoriously free trade-oriented Senate Finance Committee.

The third, and potentially most effective and direct approach, is to invoke the safeguard mechanisms that were part of the U.S.-China agreement allowing Beijing to join the WTO.  Designed to prevent injury to American industries and workers from import surges or unfair trade practices, these include provisions allowing restrictions on Chinese imports that disrupt U.S. markets.  The Bush Administration claims it is committed to maintaining the effectiveness of these mechanisms, but has yet to invoke any of them, even as a threat to foster negotiations.  

Senators Ernest Hollings (D-SC), John Edwards (D-NC), Dole, and Graham are circulating a letter calling on President Bush to invoke the China safeguards for textiles.  But to really tackle the crisis facing the entire manufacturing economy, the safeguards need to be invoked across the board.  It would be the way to get to the solution of S. 1586 in a much more straightforward manner.  It would also be less prone to challenge at the WTO because it is a mechanism that Beijing has agreed to allow the United States to use.  And in terms of domestic American politics, as another presidential election approaches, highlighting the China safeguard approach puts the onus directly on the White House.

President Bush must either act, or explain why he is allowing Beijing to use predatory measures against American firms and workers when remedies are available.  

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.


TOPICS: Business/Economy; Culture/Society; Editorial; Foreign Affairs; Government
KEYWORDS: china; globalism; thebusheconomy

1 posted on 09/26/2003 1:04:55 PM PDT by Willie Green
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