US-China trade: A smile and a
grimace By Abid Aslam
WASHINGTON - China has agreed to scrap
some trade subsidies, handing US officials a rare
chance to claim success in international affairs.
But while industry reaction has been upbeat,
workers remain unimpressed as the impact remains
to be seen.
Beijing said it had signed a
memorandum of understanding rescinding a raft of
tax breaks and subsidies that Washington had
challenged this year as unfair and in violation of
World Trade
Organization (WTO) rules. The
concessions come in the run-up to high-level trade
talks scheduled for this month and aimed at
reducing Sino-US economic tensions.
A
similar deal was reached with Mexico, which had
joined the US complaint at the WTO, China's
mission to the Geneva-based institution announced.
Beijing thus headed off a formal WTO
ruling under which it might have been found guilty
of stacking the deck against US and Mexican
competitors with measures that encouraged Chinese
firms to export more than they otherwise would and
rewarded them for using domestic, rather than
imported, goods.
The top US trade envoy
quickly claimed the laurels. "This outcome
represents a victory for US manufacturers,
producers and their workers," Trade representative
Susan Schwab said. The offending Chinese tax
incentives and subsidies would be abolished by
January 1, 2008, she said.
Industry
quickly chimed in. "The settlement of this case is
great news," the National Association of
Manufacturers, the largest US industrial
exporters' lobby, said in a statement. "China is
to be commended for recognizing that these
subsidies were illegal and for acting responsibly
to eliminate them without going through prolonged
litigation. We hope this is a harbinger of things
to come," it added.
The AFL-CIO, a
federation of some 54 unions claiming a combined
membership of some 10 million US and Canadian
workers, demanded stronger action to reduce the US
trade deficit with China.
While John
Sweeney, the AFL-CIO president, called the Chinese
decision "an important achievement" he added, "we
hope that USTR [United States Trade
Representative] and the Bush administration will
show equal diligence in addressing worker rights
violations, import safety and currency
manipulation, all of which contribute to the
enormously lopsided trade imbalance between the
United States and China.
China ran a
record trade surplus of US$187.6 billion with the
United States in the first nine months of this
year and seems set to surpass last year's surplus
of $232.5 billion. Workers and politicians have
been baying for an end to the hemorrhage.
Democrats in Congress are advancing
measures that would make it easier to impose
tariffs on imports and thus protect US firms
against China's subsidies and weak currency.
Schwab said the administration of
President George W Bush remained opposed to such
punitive measures. The administration succeeded in
bringing Beijing around because it shunned a
punitive approach in favor of negotiation,
eventually buttressed with litigation at the WTO -
an appropriate route since both countries are
members.
"The agreement demonstrates the
two great trading nations can work together to
settle disputes to their mutual benefit," she
said. Sweeney, however, said the US complaint and
its resolution were too long in coming. "These
subsidies should have been eliminated when China
joined the WTO six years ago," he said.
Just how much US exporters and their
workers stand to benefit from Thursday's deal
remains to be seen. Officials and analysts alike
have said the impact will be more than symbolic
because the subsidies applied across steel,
information technology and other major sectors of
China's export economy and to all companies with
foreign investors or joint-venture partners. Such
companies are said to make about 60% of China's
exports.
The agreement is aimed at helping
US companies against Chinese competitors, but
since it covers firms in which foreigners hold a
stake, at least some of the cost will be borne by
US investors and partners.
Another three
US complaints - involving auto parts and
intellectual property rights protections - remain
pending at the WTO.
These and other issues
are to be taken up in China December 12-13, during
the next round of the Strategic Economic Dialog.
Washington's delegation, to be headed by US
Treasury Secretary Henry Paulson, also is expected
to ask Chinese officials to ease limits on US bank
investments.
Beijing has previously
scrapped tax breaks deemed offensive by Washington
and has begun to allow its currency to rise
gradually against a weak dollar - moves that
signal not only that it is willing to accommodate
Washington's needs but also that it feels itself
in a strong enough economic and financial position
so to do.
Separately, China and the
European Union said last week they will launch a
series of high-level trade talks in March.
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