China Agrees to Remove Subsidies

Saturday, December 1, 2007 12:43
Posted in category Uncategorized

In what appears to be a victory for the US side, the NY Times is reporting that China has agreed to remove a dozen subsidies on WTO disputed products.

In reading the article though, and then reading Susan Schwab’s notes in PDF here, it appears to me that the USTR is looking at this on a much wider level and may try to use this ruling to push harder for more removals.

According to Schwab, this victory is significant in three ways:

This outcome represents a victory for U.S. manufacturers, producers and their workers.

First, it eliminates a set of widely- available subsidies that create significant disadvantages for U.S. products across many manufacturing sectors.

Second, it shows that Chinese policymakers understand the need to respect the strict WTO prohibitions on these kinds of subsidies in the future. It also demonstrates that our two nations can work together to resolve major differences.

Third, it shows that President Bush’s approach to resolving trade disputes with China – dialogue if possible, legal action when necessary, and working within the rules-based system – gets real results.

Interesting that she thinks that, but I am still wondering what the wider victory is here. Obviously, there was a small battle won, but will this ruling have a real impact on a wider scale?

I don’t think so… and the reason I say that is because they are not clear on what is an American product, a Chinese product, and what is an American product made in China… and without this distinction, I do not think they would be able to correctly solve the imbalances that are present in the system.

If they had their heads around this, then they would not say that American made cars and telecommunications equipment are being held out of the market… after all, Buick, GM, Motorola, Cisco, and others are all doing well in China… I think some might even acknowledge that China is their best market.

The problem is that none of these items are made in America and sent to China for sale. they are made in Tianjin, Suzhou, and Shanghai and sold in China. It is not that they don’t have a market, or that the Chinese are trying to stop the sale of these items.. it is just that American manufacturers have found that it is more cost effective (perhaps greener) to produce and sell in the same market. their products can be customized for the market, they save on transportation, etc..

Through this process, American manufacturers have in essence become their own competitors, and while I am not saying that is right or wrong.

I am saying that the way the argument is being framed, the discussions conducted, and the solutions created to address these problems is wrong.

On a side note. I did find interesting in this is that China is already considering a complete removal of the VAT rebate system.. and one of the categories (steel) has been targeted over and over again as there are Chinese fears that the industry is over producing. Not saying it is completely a hollow victory, but it is something to think about none the less

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