U.S. Files WTO Complaint

Sunday, February 4, 2007 2:31
Comments Off on U.S. Files WTO Complaint

for those of us who were told the 5th anniversary should be celebrate with a diamond, we were proven wrong as the Bush administration files a WTO complaint against China.

Really, this should be no surprise to anyone who read the USTR Report, or my posts breaking down the USTR Report (Part I, II, III, IV, V, VI, VII, & VIII)

The U.S. feels that China is subsidizing manufacturers through an artificial RMB valuation, preferential taxes, and a few dozen other ways that China promotes exports while protecting its markets against imports.

In the words of USTR Representative Susan Schwab “This case is about standing up for America’s workers and manufacturers” and came after discussions with Beijing officials failed to resolve the underlying issues.

While early in the process (it will take years to resolve the complaint), it is going to be really interesting to see how this affects the relationship between China and the U.S.

I am sure there are more than a few cadres in Beijing that are blowing steam out of there ears and wondering what else… after all, the RMB is at a new low of 7.76, China restructured the VAT, and there have been a number of regulations recently meant to curb inbound investment…. the later of these was actually said to be a nationalistic policy by the Chinese government.

One statement in the Marketwatch article states that the U.S.

Chinese law contains a series of measures that reduce taxes and other payments owed to the government by exporters. They violate a number of WTO rules, including the explicit prohibition of export subsidies.
The companies who qualify for using these subsidies account for nearly 60% of China’s exports of factory goods in 2005, including steel, wood and paper, the USTR said.

so… my question would be how many of those products have been produced in an American factory located in China? After all… those are still considered Chinese goods.

While not working as quickly as they should, the VAT reduction and more stringent M&A regulations should begin taking affect as U.S. manufacturers that are operating in low value end manufacturing will find the costs of entering to high while the achievable margins too low… and thus rather than manufacture in China and sell in China, they will continue to manufacture in the U.S. and send to China.

As I pointed out in Do Trade Stats Really , the statistics that the Bush administration often use to prove their case are flawed as they do not take into account the American branded goods manufactured and sold in China. They only account for the good manufactured in American and then exported to China.

For anyone that has lived in China, it will not take a long time to figure out that Motorola (u.s. company) phones sold in the markets of China are made in China, that Whirlpool (U.S. company) washers are made and sold in China, and that there are a load of other companies that are manufacturing and selling their products here….and I am sure that it will be the Chinese to prove that rather than the Bush administration as a counter argument.

One thing is for sure, Paulson’s next visit is going to be a rough one. This move shows that the administration is going to bypass his knowledge of China, and belief that a long term strategy is needed, for a short term unilateral move (ever notice the E.U., Africa, and S. America are not pushing for RMB review or accusing China of erecting barriers to entry??)

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