US hysteria hikes China trade
tensions By Emad Mekay
WASHINGTON - Just hours after new data
showed an ever-widening US trade deficit with
China, Washington asked the World Trade
Organization (WTO) on Thursday to arbitrate its
dispute with Beijing over what the US government
considers illegal trade subsidies. The move
increases trade tensions that came to the fore
during a high-level meeting here between the two
economic giants in May.
Washington says
two rounds of WTO talks initiated by the US in
February failed to persuade
Beijing to go far enough in curbing its use of
trade subsidies that Washington says violate its
commitments to the Geneva-based global trade body.
China says it has already repealed one form of the
subsidies that Washington objects to. But the US
remained unsatisfied.
"We continue to
prefer a negotiated settlement to this dispute,
but without assurance of complete corrective
action by China, we must continue to pursue the
WTO process to enforce our rights," said Sean
Spicer, spokesman for the United States Trade
Representative (USTR).
Mexico joined the
United States in its request for the WTO to
sponsor the talks with China. In April, the two
countries filed another supplemental consultation
request after China removed one subsidy and passed
a revised income-tax law.
At issue are
broader subsidy programs that the US believes are
prohibited by the WTO Agreement on Subsidies and
Countervailing Measures. These include alleged
backing for China-based firms that use domestic
rather than imported products, as Washington
prefers, or for firms that export overseas rather
than for local consumption.
Washington
argues that a range of domestically produced goods
in the US, from steel to paper to computers, are
denied an opportunity to compete in the Chinese
market and in third-country markets where they are
forced to vie with highly subsidized Chinese
imports. The alleged Chinese subsidies cover such
sectors as steel, wood products and information
technology, among others.
A fact sheet
distributed by the USTR office earlier about the
case said that among the tactics China uses to
give its companies an edge over US competitors
were tariff exemptions, discounted lending rates
and income-tax reductions and refunds available to
China-based companies that meet certain
export-performance benchmarks.
These
benefits have appealed to many firms, especially
from neighboring Asian nations, which moved their
final assembly operations to China since its
accession to the WTO. The subsidies being
challenged by Washington purportedly go to foreign
companies that invest in China and that meet those
criteria. US officials say those companies
accounted for nearly 60% of China's exports of
manufactured goods in 2005.
This is the
second dispute against China for which the US has
requested a WTO dispute-settlement panel.
The US, Canada and the European Union
requested a WTO panel last September to probe
China's promotion of local content in the
automotive sector through extra charges on
imported auto parts. Panel proceedings in that
dispute are under way.
Tensions between
the two trading powerhouses heightened further on
Thursday after the US Commerce Department said the
trade gap with China increased to US$20 billion in
May, up from $19.4 billion in April. China says
that half of its trade surplus in June was because
of exports to the US.
The data released on
Thursday show the US trade deficit with China
widened to $96 billion for the year - a 15%
year-to-date increase over 2006.
Several
US lawmakers have called for punitive measures
against China, including labeling it a "currency
manipulator", and have put forward several bills
to stem the trade deficit with the Asian giant.
"It's another month of deficit-busting
trade policy with China - a nation that doesn't
play by the rules," Democratic Senator Sherrod
Brown said on Thursday. "China manipulates its
currency, exploits workers and environmental
standards, and exports contaminated food, medicine
and products. Enough is enough. Our trade policy
with China has been a disaster for our nation, and
everyone except this administration [of President
George W Bush] recognizes it."
But not
everyone agrees that China is to blame for the US
economic woes. Stephen Roach, managing director
and chief economist at Morgan Stanley, told the
official Chinese news agency Xinhua last week:
"The United States runs trade deficits not because
it is victimized by unfair competition from China
or anyone else but because it suffers from a
chronic shortfall in domestic savings. In its rush
to impose trade sanctions on China, the US
Congress risks making a policy blunder of
monumental proportions.
"We don't have a
bilateral problem with China. We have a
multilateral problem here. Blaming deficits on
China won't fix anything."
Trade sanctions
such as tax and countervailing duties, Roach said,
"are functional equivalents of tax hikes on US
consumers and American multinational business. In
response, China can put reciprocal tax on products
sold to the United States and diversify China's
foreign-exchange reserve from the US dollar."
Still, US legislators are seeking to
exploit a recent food-contamination scare to pass
measures against Beijing. They say that many
Chinese products imported into the US contain
toxic substances or are guilty of rampant safety
violations. The lawmakers have issued many calls
to the Bush administration to take action to
ensure food imports meet US health and safety
standards.
In May, the US and China agreed
at the close of high-level meetings that the
latter will take steps to open its financial and
other services markets - moves that still fall
short of the many sweeping measures US lawmakers
have been calling for to narrow the US trade gap
with the Asian nation.
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