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Monday, September 22, 2003

Big Trouble Over Little China

With US elections looming next year, the volume in the war of words over the 'china trade' is definitely going up. Let's hope that's all it is, a war of words. I, of course, do not mean to imply that all China's trade practices are 'fair', nor would I suggest that such a thing could be said whilst keeping a straight face of the US record. What is more significant is the evident deterioration in the atmosphere. As I noted yesterday in connection with another topic , shouting normally is not the best way to make progress on an agenda. If this continues it is less, rather than more likely that the Renminbi will float any time soon. And following so close on the heals of Cancun, it has to raise a question mark over the continuing future of the globalisation process. No bad thing, some might say, but this would not be my view.

Chinese trade officials and experts reacted yesterday with a mixture of defiance and foreboding to several criticisms of Beijing by Donald Evans, US commerce secretary, that signalled a sharp increase in trade tensions across the Pacific.

Sun Huaibin, director of the China National Textile Industry Council, a powerful government-linked body, dismissed Mr Evans's complaint that China was pursuing "unfair" trade policies in some areas. "The US is always bragging about being a free-market economy," Mr Sun said in an interview. "Our competitive edge [in textiles] is the result of 10 years of reform and restructuring. The US textile industry should learn from our experience rather than seeking the help of their government."

The textiles sector is particularly sensitive in a bilateral trade relationship that has become a key issue for the next US presidential election. Mr Evans said the US administration was creating an "unfair trade practices team" to combat illegal product-dumping, intellectual property theft and other abuses by trading partners - mainly China - that contributed to a loss in US jobs.

US business groups also stepped up pressure yesterday, saying that China's compliance with its obligations under the World Trade Organisation had been "uneven and incomplete" and warning there could be "political consequences" if US companies did not see tangible new opportunities.

The toughly worded report from the US Chamber of Commerce, the largest business federation in the country, says China's entry into the WTO has raised the expectations of US companies, who want to see sales in China grow markedly.

"Without tangible improvements, there will be political consequences as well as a possible souring of business views about the market," it says.

The complaints that US companies are not winning sufficient business in China echo many of the charges made against Japan two decades ago when that country was running record trade surpluses with the US. But while the US in the 1980s negotiated a series of agreements to limit Japan's exports to the US, such mechanisms are no longer allowed under WTO rules.

China's trade surplus overtook that of Japan for the first time last year to total $103bn (€92bn, £65bn), raising widespread concern in the US that China is keeping its currency pegged at an artificially competitive rate. US calls for a revaluation have been rejected by China, although Beijing is considering moving to a more flexible exchange rate.

US Chamber officials said yesterday that they did not want concerns over China's WTO compliance to become an excuse for protecting the US market. They sought to distance themselves from the campaign launched by some US manufacturers and sympathetic members of Congress to press China into revaluing its currency.

"We do support engagement," said Joe Damond, a lobbyist for the pharmaceutical industry and member of the Chamber's China task force. "What we want to see is that engagement turn into concrete results for our companies."

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