End of the Manufacturing Empire?

Bloomberg recently carried a report on China's move to limit exports of the lalor-intensive products. Will this, coupled with the charges over products " Made in China", mark the end of the Manufacturing Empire of China?

China to Limit Exports of Labor-Intensive Products  

By Li Yanping                                     
 
July 25 (Bloomberg) -- China will curb exports of cheap labor-intensive products to force manufacturers into making higher-quality goods, in a move to narrow the world's largest trade surplus and reduce environmental damage.                  

The Ministry of Commerce will expand its catalogue of processed goods subject to export limits in the second half of 2007, following the July 23 move to increase a levy for exporters, the ministry's industry director Wang Qinhua said today.                  

``The new policy will add cost and affect the cash flow of exporters, especially those engaged in the labor-intensive part of the industry,'' she said at a press conference in Beijing. ``Our calculation shows that the impact will force exporters to increase value to their products and upgrade their technology.''                  

China's record $112.5 billion first-half trade surplus has fanned tensions with the U.S. and European Union, flooding the world's fourth-largest economy with more than $1.3 trillion in foreign currency reserves. Cheap wages and lax environmental rules have attracted manufacturers, 50 percent of them invested by Hong Kong companies, to produce leather goods, electronics, metal products, toys and other goods for sales abroad.                  

``Every nation wants to upgrade its technology, especially at a time of increasing global competition and rising raw material costs,'' said Huang Yiping, Citigroup Inc.'s Hong Kong- based China economist. ``Many companies in China already have been moving up the technology ladder and value chain, and this new policy will only accelerate this process.''                  

Capital Requirement                  

China on July 23 said it would raise a levy on companies that import metals, plastic and textiles into China for use in products that will in turn be shipped abroad.                  

A total of 1,853 types of commodities including copper, lead, zinc and cloth will be added to the restricted category, requiring importers to deposit half of their payable levies including duty and value-added tax at the customs office, according to the trade ministry's statement.                  

The new limit may add about 8 billion yuan ($1.06 billion) to costs for exporters, 50 percent of which have been invested by Hong Kong-based companies, the commerce ministry's trade director Wang Jian said today.                  

``Hong Kong-invested producers will probably be the hardest- hit by this move,'' the ministry's industry director Wang said today. The trade ministry needs the move ``due to the changing international and domestic environment and China's promise to upgrade its industries,'' she said, adding the government will provide some aid and incentives to help Hong Kong manufacturers with the transition.                  

Killing the Growth Engine?                  

China's economy, expanding 10 percent every year on average since 1982, has been driven mostly by the so-called processing trade, in which companies import tax-deductible raw materials to turn into export products.                  

The proportion of processing trade has surged 333-fold over the past 25 years and accounted for 45 percent of China's total value of imports and exports in the first six months of this year, according to the trade ministry's data.                  

The government doesn't want to completely stop investments that have helped the economy balloon almost 40-fold in the past 25 years.                  

Manufacturers can be exempted from the exports limit if they shift their production to inland provinces including Shaanxi, Xinjiang and Gansu further away from the Chinese coast, part of a plan by the government to close the income gap between the wealthy coastal cities and the interior, Wang said today.                  

Western Region Exempted                  

``Processing trade manufacturers can alternatively move to central or western regions from the south and east coasts to be exempted from the export restrictions,'' she said. ``Production and labor costs are relatively low.''                  

China's 2008 trade surplus is estimated to increase 45 percent to a record $257 billion.                  

That's prompted some U.S. congressmen to draft legislation to force the Chinese central bank to let the yuan strengthen against the dollar. Some lawmakers have also called for laws to tie Chinese exports to the country's environmental and labor record.                  

In a series of moves this year, China lowered export incentives and increased tariffs to slow the pace of overseas sales and ease trade tension with major partners including the U.S. and the European Union.                  

The latest move to restrict exports also strike at energy- intensive industries with high amounts of emissions and effluents, in an attempt to reduce China's energy dependence and improve the country's environmental record. The policy may not be able to pare the trade record, said Societe Generale's Chief Asia Economist Glenn Maguire.                  

Buying Time?                  

``This buys some time politically but it's clearly supportive of a large trade surplus in the longer term,'' as manufacturers shift to higher-end products, Maguire said today in Hong Kong. ``China still has to allow the yuan to appreciate to ease excess liquidity in the economy.''                  

The yuan has strengthened 9.5 percent against the U.S. dollar since the Chinese central bank ended the currency's dollar link in 2005.                  

Some U.S. lawmakers deem the gain as insufficient. The U.S. Senate Finance Committee is set to consider legislation tomorrow to push China to raise the value of its currency.                  

The economy expanded 11.9 percent in the second quarter, the fastest pace in 12 years, backed by an 84 percent jump in trade surplus because exporters produced more and rushed their shipments ahead of a June deadline to curb overseas sales.                  

Separately, the National Development and Reform Commission, the Chinese government's top planning agency, said today the prevention of ``overheating'' is the most important policy goal in the second half of 2007, reiterating a government priority to curb inflation.          

Made in China: CNN Interview

It seems that in addition to the WSJ, the CNN is also interested in food safety issues. They interviewed me in HK last week, and the special program on this, called "Made in China", will be aired in HK on Thursday July 26 at 1930pm and 2230pm, then again on Friday July 27 at 0030am and 0930am.

The schedules for other regions of the world on July 26 are: Buenos Aires 1130 Berlin 1630 New Delhi 2000.

You can find more about this special program here. 

Another interview with the Wall Street Journal: Safety Becomes a Hot Trade Issue

I was recently interviewed by the WSJ for the trade war between the US and China on technical standards. Here's the story. The WSJ (China) also has a Chinese version here, which is also reproduced at the end of the current page:

Safety supplants quotas as hot-button trade issue; As China, U.S. play tit for tat, fears grow rules may be abused

Andrew Batson. The Wall Street Journal Asia. Hong Kong: Jul 16, 2007. pg. 1

As China and other nations exchange heated accusations over the safety of their food and other products, it is becoming clear that safety and quality standards are increasingly replacing tariffs and quotas as focal points for international trade disputes.

In the latest of what appears to be an escalating series of tit-for-tat moves, Chinese authorities Friday announced a temporary suspension of imports of some products from several U.S. meat processors, including Tyson Foods Inc., Sanderson Farms Inc. and Cargill Inc. The notice said China's tests had found safety problems including salmonella in frozen chicken from Tyson and residues of growth hormones in Cargill's frozen pork ribs.

The move highlights the Chinese government's determination to show it has food-safety issues under control after a series of scares and scandals has undermined the confidence of domestic consumers and hurt the image of China's exports abroad. The U.S. Food and Drug Administration has blocked shipments of Chinese-made toothpaste and of several types of farm-raised Chinese seafood, because of worries about chemical contamination. In recent days, Chinese authorities have pledged to tighten scrutiny of exported products, and said that thousands of unlicensed or unsafe food producers have been closed down.

They also have pledged to look more closely at what China is importing from abroad. In addition to the frozen chicken and pork ribs blocked last week, China in recent weeks has turned back shipments of French bottled water, Australian seafood and U.S. drink mix that authorities said were contaminated or failed safety tests.

Safety standards have a history of being used as trade barriers, a pattern that observers in both China and the U.S. worry may be reappearing. The back and forth of blocked imports looks increasingly like a trade battle, although one in which accusations of endangering consumers have taken the place of charges of unfair competition and dumping.

'We are likely to see these requirements increasingly being used, and abused, as a trade barrier,' says Leora Blumberg, an international-trade adviser based in Hong Kong for the law firm Heller Ehrman LLP. Ms. Blumberg, a former South African trade official, says that a series of global trade pacts has reduced import duties across the board and restrained nations' ability to block trade through other means.

The current U.S. furor over issues such as tainted pet food and dangerous toys that were made in China has emerged at a time when U.S.-China trade is a potent political issue in Washington. Several U.S. lawmakers had called for trade sanctions against China because of what they describe as unfair trading practices, even before safety concerns became widespread.

'It's difficult to weigh what is the safety element and what is the trade element, but my sense is that both elements are there in the discussions,' says Zhang Hongjun, a partner in the law firm of Holland & Knight LLP who divides his time between China and the U.S. 'Certainly it provides a lot of support to the people who are anti-international trade or anti-China trade.'

The growing food-safety tension between the U.S. and China threatens to further complicate an already delicate period in relations between two of the world's major economies. 'The risk is a cascade of punitive or blocking steps, misinterpretation, second guessing and retaliation,' Donald Straszheim, of the investment firm Roth Capital Partners, wrote in a recent report. 'This is the last thing we need.'

No one disputes that regulators in China and the U.S. have genuine concerns over consumer welfare and food safety. The rise in public concern over health and food safety in wealthy North American and European countries also has pushed governments to be tougher on safety standards.

But the highly technical nature of food safety and product standards gives governments a lot of leeway in practice, and makes it difficult to ensure that rules are enforced fairly and objectively. That is challenging the international-trade system to find ways to resolve this particularly thorny type of trade dispute.

'There are lots of standards where it's impossible to judge whether it is for consumer protection or to create trade barriers,' says Henry Gao, a former World Trade Organization official who now teaches at the University of Hong Kong. The WTO requires any safety standard to have a scientific basis, but that is usually 'a procedural safeguard, not a substantive analysis,' Mr. Gao says. That is because the WTO often isn't equipped to judge the scientific basis of such rules, so it simply looks to see whether a country followed a proper process when drafting them.

Adding to the convergence between the two issues is that sometimes groups calling for trade protection also are flagging safety concerns.

For instance, the Southern Shrimp Alliance, a U.S. industry group that has filed trade complaints against imported Chinese shrimp, also has called for more testing of imported seafood, calling the nation 'a known violator of U.S. food-safety laws.' China has acknowledged shortcomings in its regulatory system but says more than 99% of U.S. food imports from China passed Food and Drug Administration inspection in each of the last three years.

'Governments are sometimes pressured to go beyond what is necessary to protect human, animal and plant health and to use this type of restriction to protect domestic industries from foreign competition,' says Ms. Blumberg, of the Heller Ehrman law firm.

China and other developing nations frequently complain that tough safety standards are being used to keep their products out of rich nations' markets. Poorer nations often don't have the resources or expertise to cope with constantly shifting technical requirements, or to effectively challenge them as trade restraints. At meetings this year of WTO committees, several developing countries said they feel the expanding number of standards is blocking trade. Argentina, for example, has asked for a review of new standards on acceptable levels of pesticide residues.

China has stepped up efforts to make sure exporters are up to date on new standards in their target markets. The government has estimated that 15% of all Chinese exporters encountered some form of technical trade barrier last year, causing them direct losses of some $75.8 billion. China exported $969.08 billion of goods last year.

'Traditional trade policies like tariffs and quotas have less and less impact on international trade, while the impact of technical trade policies such as standards, technical regulations and conformity-assessment procedures is becoming increasingly obvious,' China's Commerce Ministry said last week.

The WTO has a special committee devoted to food-safety issues in trade — known as 'sanitary and phytosanitary measures' — where nations can raise concerns about each other's policies. But many disputes drag on for years: Out of 245 problems raised at the committee over the past decade, a solution has been reported for only 66, according to WTO figures.

One outstanding complaint by the U.S. is China's restrictions on imports of U.S. beef, which date from the finding of bovine spongiform encephalopathy, or mad-cow disease, in a U.S. cow in 2003. The U.S. has taken several measures to make sure supplies of beef won't be contaminated by any future cases of the disease, and contends China's import ban is excessively cautious. The U.S. ambassador to China recently met with the agency in charge, the General Administration of Quality Supervision, Inspection and Quarantine. But despite such lobbying, the ban hasn't been lifted.

產品安全取代配額成為貿易爭端焦點
2007年07月16日15:11
隨著中國與其貿易夥伴在食品等產品安全問題上的相互指責愈演愈烈﹐我們越來越清楚地看到﹐安全與質量標準正日益取代關稅及配額﹐成為國際貿易爭端中的主角。

中國政府週五"以牙還牙"﹐ 宣佈暫停進口泰森食品有限公司(Tyson Foods Inc.)、嘉吉公司(Cargill Inc.)和Sanderson Farms Inc.等數家美國肉類加工商的部分產品。中國在公告中稱﹐檢測中在上述公司部分產品中發現了安全問題﹐如泰森的凍雞中含有沙門氏菌﹐嘉吉的冷凍豬排骨中含有生長激素殘餘物。

特別報導
‧ "中國製造"危機
面對近期發生的一系列有損國內消費者信心和出口產品形像的醜聞﹐中國政府此舉凸現了其嚴格控制食品安全的決心。此前﹐美國食品和藥物管理局(Food and Drug Administration, FDA)禁止了中國產牙膏和多種養殖海產品的進口﹐原因是擔心這些產品受到了化學污染。近日來﹐中國有關部門已承諾加大對出口商品的審查力度﹐同時表示已下令關閉了數千家無證經營和生產問題食品的企業。

中國政府同時表示也要加強對進口商品的檢查。除了上週被禁的凍雞和冷凍排骨外﹐中國近期已連續查禁了法國瓶裝水、澳大利亞海產品和美國飲料等進口商品﹐稱這些產品或是受到了污染﹐或是沒有通過安全檢測。

安全標準歷史上就曾被用作設立貿易壁壘的武器﹐而今中美觀察家心中皆有歷史重演的擔心。當前這種你來我往相互封鎖產品進口的形勢看上去已越來越像是一場貿易大戰﹐只是戰爭的焦點變了﹐相互指控的目標從原來的傾銷和不公平競爭變成了現在的危害消費者權益。

曾經身為南非貿易官員、現擔任律師事務所Heller Ehrman LLP駐香港國際貿易顧問的麗奧拉•布隆博格(Leora Blumberg)說﹐使用、濫用安全標準作為貿易壁壘的情況可能會越來越多﹐現有的一系列全球貿易協議已使得貿易進口關稅普遍下降﹐國家間通過其他手段設立貿易壁壘的行為也受到了大大的限制。

美中貿易而今已經成為華盛頓的重大政治問題﹐好幾位美國議員早在食品安全問題爆發之前就已呼籲就他們稱之為"不公平貿易行為"的做法對中國實行貿易制裁。當前美國政府對諸如寵物食品和兒童玩具等一系列涉及中國進口產品的事件大動肝火正是在這樣一種背景下發生的。

"很難說這裡面哪些是安全層面哪些是貿易層面的因素﹐但我的感覺是兩個層面的因素都有﹐"Holland & Knight 律師事務所合夥人張紅軍如是說。這位為工作而不斷往返中美兩地的律師同時表示﹕"當然﹐這給那些反對國際貿易或反對對華貿易的人提供了不少的口實。"

中美食品安全問題上緊張氣氛的不斷加劇有可能使這兩個世界主要經濟體之間眼下本已相當微妙的關係變得更加複雜。投資公司Roth Capital Partners的唐納德•斯特拉斯哲姆(Donald Straszheim)在近日的一份報告中寫道﹐目前的風險是﹐從懲罰性和限制性舉措﹐到接下來的曲解、猜忌和報復﹐勢態會不斷升級﹐這些是我們最不願看到的事情。

沒有人懷疑中美兩國的監管機構的確是在為食品安全和消費者利益著想。北美、歐洲等發達地區公眾對健康和食品安全的憂慮已推動政府實行更加嚴格的安全標準也是不爭的事實。

然而﹐食品安全和產品標準的高技術性特徵使政府在實際操作中有了很多的自由空間﹐因而很難確保執行過程的客觀與公正。在此情況下﹐國際貿易體系如何尋找新的方法來解決這一類極其棘手的貿易爭端便成了一個巨大的挑戰。

曾任世界貿易組織(World Trade Organization, WTO)官員、現在香港大學(University of Hong Kong)任教的高樹超(Henry Gao)說﹐標準有很多很多﹐你根本無法判斷它什麼時候是為了保護消費者﹐什麼時候是為了設立貿易壁壘。他說﹐世貿組織要求任何安全標準都要有科學依據﹐ 但這往往只是程式上的保護﹐而非實質性的分析。那是因為世貿組織往往不具備判別這類安全標準科學依據的能力﹐因此它只是看成員國在起草安全標準時是否遵循了恰當的程序。

此外﹐有些團體在大喊貿易保護的同時也在揮舞安全問題的大旗﹐這也使二者之間的界線變得更加模糊。

舉例來說﹐美國行業團體Southern Shrimp Alliance在對中國進口蝦產品提出貿易申訴的同時﹐還要求加強對中國進口海產品的檢測﹐稱中國是"違反美國食品安全法的慣犯"。中國則一方面承認自身監管體系的不足﹐同時卻表示過去三年間中國出口美國的產品中有99%以上都通過了FDA的檢測。

前文提到的Heller Ehrman國際貿易顧問布隆博格說﹐有時政府是迫於壓力才在保護人和動植物健康所必須的手段之外使用這一類限制措施來保護本國企業免受海外競爭的衝擊。

中國等發展中國家常常抱怨稱﹐發達國家設置嚴格的安全標準﹐目的就是為把發展中國家的產品擋在它們自己的市場之外。面對頻繁變動的技術要求﹐發展中國家往往無力應對﹐也無法積極應戰﹐他們既沒有資源﹐也缺乏技術。在世貿組織今年的會議上﹐幾個發展中國家就表示他們覺得標準數量與日俱增有礙全球貿易的發展﹐其中阿根廷要求對殺蟲劑殘留物可接受水平的新標準進行重新審核。

中國也已加緊努力確保其出口商隨時跟得上各出口市場安全標準的變化。據中國政府估算﹐本國15%的出口商去年遭遇到一定程度的技術性貿易壁壘﹐直接損失約758億美元。中國去年的出口總額為9, 690.8億美元。

中國商務部上週指出﹐關稅、配額等傳統貿易政策對國際貿易的影響已越來越小﹐而安全標準、技術性規定、合格評定程序等技術性貿易政策的影響正變得愈加顯著。

世貿組織下設有一個專門委員會﹐負責處理貿易活動中的食品安全問題﹐成員國可以向其提出對各國貿易政策的不滿。可是有很多問題在擱置數年後仍是懸而未決－－世貿組織數據顯示﹐過去10年間該委員會共收到245項申訴﹐得到解決的僅有66項。

美國就中國限制美國牛肉進口所提出的申訴就是眾多未決案中的一起。此案事起2003年美國一頭牛被發現染有瘋牛病。事發後美國採取了多項措施確保今後的牛肉供應不會受到污染或瘋牛病困擾﹐但中國一直沒有取消美國牛肉進口禁令。美國因此向世貿組織提出申訴﹐稱中國進口禁令過分。近日美國駐華大使與中國國家質量監督檢驗檢疫總局(General Administration of Quality Supervision, Inspection and Quarantine)官員見了面﹐但遊說無果﹐禁令猶在。

Andrew Batson

My interview on the US-China TRIPS case at the Wall Street Journal

U.S. Piracy Case May Raise Trade Tensions With China

Washington - The Bush administration formally took its longstanding spat with China over pirated movies, music and books to the World Trade Organization. The move represents a further increase in trade tensions between the two countries.

U.S. Trade Representative Susan Schwab made the official announcement. "Piracy and counterfeiting levels in China remain unacceptably high," Ms. Schwab said in a prepared statement.

While acknowledging China's leaders have made progress to improve property rights protections for movies, music, books and other goods, she said the U.S. and China haven't been able to agree on legal changes the U.S. believes are needed for China to comply with its commitments as a member of the WTO.

The U.S. plans Tuesday to ask for dispute-settlement consultations from the WTO on two matters: one claiming deficiencies in China's legal structures to protect and enforce copyrights and trademarks; and the other challenging barriers to China's market for books, music, videos and movies.

The Chinese Ministry of Commerce didn't have any immediate comment on the expected move, which was reported in Saturday's editions of The Wall Street Journal and New York Times.

While supported by the U.S. movie and music businesses, the complaints have stirred unease among executives of other U.S. industries, including drug companies and high-tech manufacturers. Many fear that a clash with China over piracy could undermine the increasing cooperation they have won over the past year with local Chinese officials on combating the problem.

Ma Xiushan, deputy general secretary of the China Intellectual Property Society, said the cases will be seen as a negative signal from the U.S. at a time "when China is working very hard to narrow our distance from the U.S. and other developed countries in intellectual property rights protection."

Henry Gao, a former WTO official who teaches at the University of Hong Kong now, said, "I am not sure the U.S. can win this case." He noted that the criminal penalties for piracy in China are, under WTO rules, supposed to be "consistent with the level of penalties applied for crimes of a corresponding gravity." It isn't obvious what crimes are equivalent to being caught with 500 CDs, he said. "This is where the U.S. will have to come up with some really good arguments."

"This will drag the WTO into sensitive political issues and I think the WTO probably will be very cautious here," he added. Yet he noted that in the past China has taken action to defuse WTO complaints before they come to a head.

China has taken a number of steps recently to crack down on piracy, increasing penalties and lowering the thresholds for what constitutes a criminal act. Chinese provincial authorities have worked alongside U.S. industries to carry out a series of raids against factories and warehouses trafficking in counterfeit goods.

"The piracy issue is a world-wide issue," said Chen Zhaokuan, deputy director of the Copyright Society of China. "Many countries are facing the same challenges in their anti-piracy campaigns. For China, we are a later-comer in this area, and it's natural that the sense of copyright protection among the Chinese people is not that strong. Considering how much work we have done to promote the copyrights protection and to fight against piracy in the past 10 years, we already have made many achievements."

U.S. industry groups that aren't expected to support the WTO cases include the Business Software Alliance, whose members include Microsoft Corp. and Apple Inc., and the Pharmaceutical Research and Manufacturers of America, the drug industry's main trade group. Both sectors have made their own market-access and antipiracy advances and don't want to see that work disturbed, administration and industry officials said.

The cases add to a list of U.S. trade actions against China in recent months. The administration in February filed a WTO case alleging that Beijing doled out unfair subsidies to a range of Chinese industries, while last month the Commerce Department broke decades of precedent by opening the way for U.S. companies to seek higher tariffs on some Chinese paper imports found to have benefited from government subsidies.

The first case will make a number of specific complaints against China's enforcement of its own piracy laws. Current Chinese law says that in the case of counterfeit CDs, for instance, one must be caught with at least 500 to be charged with a crime. The U.S. will argue that there should be no such threshold.

The case will also argue that it should be illegal to either distribute or produce counterfeit goods. Chinese law requires one to be caught doing both before being charged.

"This case is going to be very technical, very targeted and very specific," said one industry official with knowledge of the administration's case.

The other complaint will target what the U.S. alleges to be overly restrictive rules on the distribution of foreign CDs, DVDs, books and other media products. The case won't seek to overturn the limit placed by Beijing on foreign films that are allowed to show in Chinese theaters, which is now set at 20 films a year.

DVDs of Hollywood blockbusters and CDs of the latest pop hits are readily available in shops or on streetcorners in Chinese cities. Almost all of them -- 90% or more, according to most industry estimates -- are illegal copies. The problem has also stunted the development of China's own film industry, as pirated DVDs hit the market so quickly that most films can make little money from ticket sales or legitimate DVD sales.

One reason the U.S. is also pushing its complaint about restrictions on distribution of foreign movies is that there is currently little legally available content to compete with pirated versions in China. As previously reported, studios like Fox and Warner have been trying to market legitimate DVD products in China at prices the local market can bear in an effort to wean Chinese consumers off pirated alternatives.

Seoul Symposium on "FTAs in Asia and WTO"

On June 22, at the invitation of Prof. Won-mog Choi and the Korean Scoeity of International Economic Law, I presented a paper on China's FTA strategy at a symposium in Seoul. It was my first time in Korea, and I found it a wonderful country.