Friday, 1 August 2008

Collapse of DDA: Blame it on China?

This is my take on China's position in the DDA, which appeared in the first page of the WSJ yesterday.

China picks its side in world trade talks

Developing nations, not richer partners, offer important link

Andrew Batson. The Wall Street Journal Asia. Hong Kong: Jul 31, 2008. pg. 1

BEIJING -- China's willingness to let the latest round of global trade talks collapse is a sign of how the emerging giant's ties with other developing nations are becoming increasingly important, as it sees fewer future gains from negotiations with rich countries like the U.S.

The talks at the World Trade Organization in Geneva foundered after member countries couldn't agree on a proposal to allow developing nations to use special "safeguard" tariffs to shield their farmers from floods of low-priced imports. Wealthy nations led by the U.S. heaped blame on India and China for blocking a global deal over a narrow point. The poorer countries, chiefly India, in turn blasted the rich nations for coddling their farmers with subsidies at a time of record food prices.

Some analysts said an unfavorable political calendar -- with the U.S. president a lame duck and India's coalition government facing elections by May -- was the real culprit. Both those governments clearly believed domestic political constraints prevented them from compromising on an issue that affects their powerful farm lobbies, observers said.

In an interview, India's commerce and industry minister, Kamal Nath, said he expects only a "pause" of a few months in global trade talks, not a complete breakdown. Mr. Nath said he had just hewn to a consistent position in the talks that India was willing to negotiate on trade issues but was unwilling to compromise "livelihood security."

But China's late-hour emergence as a swing factor was a surprising shift in the dynamics of the Doha Round of trade talks -- and not only because it marked a departure from Beijing's usually low-key negotiating style. Its vocal support for India's position, even though the issue of agricultural-safeguard measures is less significant for China, effectively negated a chance to expand markets for Chinese exporters in favor of building political ties with other lower-income countries.

"The Chinese leadership has tried to adopt a strategy to sacrifice economic interests to win the goodwill of developing countries," says Henry Gao, a former WTO official who now teaches trade law at Singapore Management University. "China has always claimed that since it itself is a developing country, its interests will always lie with its developing-country brothers."

As the world's second-largest exporter after Germany, and a major producer of everything from tennis shoes to auto parts, China has little in common with the smaller developing countries that struggle to break into rich-country markets. With an average nonfarm tariff of 9%, China's market is also relatively open: India's average rate is more than 16%. In that respect, China's interests are closer to the wealthy countries who were trying to bring down the high tariff barriers in developing nations.

Publicly, however, China has cast its lot with the developing countries. The state-run Xinhua news agency blamed "selfish and short- sighted actions" by rich countries for the collapse and warned that trade protectionism will be on the rise. "The negotiations are not supposed to produce a deal just for protecting and promoting prosperity in rich nations," the state-run China Daily newspaper wrote in an editorial Wednesday.

China's trade negotiator said the country is ready to bolster trade ties with willing partners outside the WTO process. "On the basis of equality and reciprocity, China is ready to further intensify the bilateral trade and economic cooperation with the members present here," Commerce Minister Chen Deming said in Geneva, expressing particular interest in ties with the so-called least-developed countries and small-and-vulnerable economies.

Indeed, China's trade with other emerging markets -- from Asian neighbors like Indonesia and Malaysia to the Persian Gulf and Africa -- has been booming, even as its exports to the U.S. have slowed sharply this year. China has been particularly active in developing economic ties with Africa, with its companies building infrastructure projects there and striking large mining deals.

Some of those relationships have come under fire by Western critics, most notably in the case of China's ties with conflict-ridden Sudan and the repressive regime in Myanmar. But they do highlight how China seems to be looking for future growth outside its traditional markets of the U.S. and Europe. And that gives China less incentive to participate in WTO negotiations that are still dominated by those big powers.

"There's not so much for them to gain" because the U.S. and European Union markets are largely open already, says Matthew McConkey, director of Asian trade for the law firm Mayer Brown JSM in Beijing. "I don't know what the carrot is for them in this situation."

The biggest trade issue for China these days is the rising number of "safeguards" and antidumping measures used by rich countries to block imports of some products from China. But the global trade talks never seriously discussed eliminating those measures, which are politically important to many governments. So it could be difficult for negotiators to come home with an agreement that would make a material difference to a country that exported $1.22 trillion of goods last year.

Still, some Chinese scholars say a big trading country like China would be one of the largest beneficiaries from a WTO deal that led to a further freeing-up of global trade.

"For the long term, we still hope that there can be a unified global trade framework," says Mei Xinyu, a scholar at the Chinese Academy of International Trade and Economic Cooperation, a government think tank in Beijing. "China is large country that exports to almost every country in the world and imports from everywhere as well. Any bilateral or regional agreement cannot substitute for a true global trade arrangement."


Paul Beckettin New Delhi contributed to this article.

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