LexisNexis(TM) Academic - Document
Financial Times (London, England)
August 30, 2005 Tuesday
London Edition 1
SECTION: COMMENT & ANALYSIS; Pg. 15
LENGTH: 857 words
HEADLINE: Lessons from the China textiles stitch-up GUY DE JONQUIERES
BYLINE: By GUY DE JONQUIERES
BODY:
After all the criticism and ridicule heaped on the European Union over the fiasco of its quotas on Chinese textiles imports, it is time to speak up in its defence. Perversely and unwittingly, it has done the cause of free trade a favour by showing up the manifest absurdity of the alternative.
The economic benefits of open markets, although real, are hard to quantify precisely because they are long term and widely spread. But the costs of trade protection, for its practitioners as well as its targets, are easier to identify. Seldom have they been exposed with more brutal clarity than since the EU sealed the deal, amid much self-congratulation, in June.
Instead of delivering market certainty, as it was supposed to do, the deal has created chaos, as blocked Chinese shipments pile up at European ports. It penalises Europe's healthy retail sector, while generating no new jobs in its sickly textiles industry. Indeed, the quotas may prove largely futile, because imports from China will in time be replaced by imports from other developing countries, not by products made in Europe. Nonetheless, with the retail trade in turmoil and EU members feuding over the measures, last week saw the bizarre spectacle of Brussels pleading with Beijing to help resolve its self-inflicted problems by agreeing to relax the curbs.
That is not all. The EU-China textiles stitch-up, soon to be emulated by the US, marks a return to the discredited "managed" trade policies of the 1980s, of which Japan was the main target. Far from blunting Japan's competitive challenge, those policies sharpened it, fattening Japanese exporters' margins and spurring them to move upmarket.
The Uruguay round world trade agreement outlawed many types of managed trade. The textiles quota deals flout the spirit, if not the letter, of that ban. But their legality is unlikely to be tested, because nobody has a strong incentive to challenge it.
Glaring as the lessons of the EU fiasco are, it would be optimistic to assume they will be learnt quickly. US plans to strike a similar deal suggest the reverse. Rather, the signs are that in the near term, the struggle between the forces seeking to keep western markets open and those pushing to close them may become more intense.
Massive excess production capacity in many of China's industries, and its producers' frenzied striving to maintain output at any cost, are set to keep its exports rising for the foreseeable future. Hu Jintao, China's president, will doubtless try to soften the blow by handing out some big export orders when he visits Washington next week. That may please the likes of Boeing and General Electric but it is unlikely to impress weaker US producers unable to cope with Chinese competition.
China's World Trade Organisation membership agreement gives thema potentially powerful weapon.It entitles other countries legally to restrict until 2012 all types of Chinese exports, not just textiles, on the basis of less rigorous criteria than WTO rules would otherwise require. So far, the weapon has not been fired. But trade history suggests that when such options are created, so are pressures to use them.
However, the push will not be all one way, or on all fronts. Some products of which China is a big exporter, such as inexpensive television sets and DVD players, are hardly produced in the US or EU any more. In those industries, the west no longer has any jobs left to protect.
More important, expanded trade and foreign direct investment, and the growth of global sourcing and cross-border supply chains, are changing the dynamics of trade politics. By strengthening the mutual independence of national economies and industries that operate within them, those trends have made many producers more sensitive to the costs of import restrictions and created new incentives to oppose them.
That is why makers of semiconductors and information technology equipment, which undergo different stages of processing at plants all over the world, persuaded governments in the 1990s to eliminate duties on their products. Similarly, George W. Bush's imposition of steel tariffs three years ago triggered an unexpectedly loud outcry among US steel users that led to their repeal.
But globalisation has gone only so far to re-define commercial self-interest. The current climate of Sinophobia in Washington has sent many US companies that manufacture in China running for cover, because they fear they could become its target. That has reduced to near-silence a once vocal lobby against curbs on Chinese imports.
Furthermore, there are still times when it suits multinational companies to embrace protectionism - even when they have been victims of it. Witness Japanese car companies' stealthy support a few years ago for EU measures limiting their South Korean rivals' inroads into Europe.
In the ebb and flow of these complex cross-currents, the great EU textiles debacle certainly does not mark a watershed. Nor will it reduce the vigour with which protectionist-minded producers press their case. But it will at least have done some good if it prompts politicians to think twice before succumbing to their demands.
LOAD-DATE: August 29, 2005
August 30, 2005 Tuesday
London Edition 1
SECTION: COMMENT & ANALYSIS; Pg. 15
LENGTH: 857 words
HEADLINE: Lessons from the China textiles stitch-up GUY DE JONQUIERES
BYLINE: By GUY DE JONQUIERES
BODY:
After all the criticism and ridicule heaped on the European Union over the fiasco of its quotas on Chinese textiles imports, it is time to speak up in its defence. Perversely and unwittingly, it has done the cause of free trade a favour by showing up the manifest absurdity of the alternative.
The economic benefits of open markets, although real, are hard to quantify precisely because they are long term and widely spread. But the costs of trade protection, for its practitioners as well as its targets, are easier to identify. Seldom have they been exposed with more brutal clarity than since the EU sealed the deal, amid much self-congratulation, in June.
Instead of delivering market certainty, as it was supposed to do, the deal has created chaos, as blocked Chinese shipments pile up at European ports. It penalises Europe's healthy retail sector, while generating no new jobs in its sickly textiles industry. Indeed, the quotas may prove largely futile, because imports from China will in time be replaced by imports from other developing countries, not by products made in Europe. Nonetheless, with the retail trade in turmoil and EU members feuding over the measures, last week saw the bizarre spectacle of Brussels pleading with Beijing to help resolve its self-inflicted problems by agreeing to relax the curbs.
That is not all. The EU-China textiles stitch-up, soon to be emulated by the US, marks a return to the discredited "managed" trade policies of the 1980s, of which Japan was the main target. Far from blunting Japan's competitive challenge, those policies sharpened it, fattening Japanese exporters' margins and spurring them to move upmarket.
The Uruguay round world trade agreement outlawed many types of managed trade. The textiles quota deals flout the spirit, if not the letter, of that ban. But their legality is unlikely to be tested, because nobody has a strong incentive to challenge it.
Glaring as the lessons of the EU fiasco are, it would be optimistic to assume they will be learnt quickly. US plans to strike a similar deal suggest the reverse. Rather, the signs are that in the near term, the struggle between the forces seeking to keep western markets open and those pushing to close them may become more intense.
Massive excess production capacity in many of China's industries, and its producers' frenzied striving to maintain output at any cost, are set to keep its exports rising for the foreseeable future. Hu Jintao, China's president, will doubtless try to soften the blow by handing out some big export orders when he visits Washington next week. That may please the likes of Boeing and General Electric but it is unlikely to impress weaker US producers unable to cope with Chinese competition.
China's World Trade Organisation membership agreement gives thema potentially powerful weapon.It entitles other countries legally to restrict until 2012 all types of Chinese exports, not just textiles, on the basis of less rigorous criteria than WTO rules would otherwise require. So far, the weapon has not been fired. But trade history suggests that when such options are created, so are pressures to use them.
However, the push will not be all one way, or on all fronts. Some products of which China is a big exporter, such as inexpensive television sets and DVD players, are hardly produced in the US or EU any more. In those industries, the west no longer has any jobs left to protect.
More important, expanded trade and foreign direct investment, and the growth of global sourcing and cross-border supply chains, are changing the dynamics of trade politics. By strengthening the mutual independence of national economies and industries that operate within them, those trends have made many producers more sensitive to the costs of import restrictions and created new incentives to oppose them.
That is why makers of semiconductors and information technology equipment, which undergo different stages of processing at plants all over the world, persuaded governments in the 1990s to eliminate duties on their products. Similarly, George W. Bush's imposition of steel tariffs three years ago triggered an unexpectedly loud outcry among US steel users that led to their repeal.
But globalisation has gone only so far to re-define commercial self-interest. The current climate of Sinophobia in Washington has sent many US companies that manufacture in China running for cover, because they fear they could become its target. That has reduced to near-silence a once vocal lobby against curbs on Chinese imports.
Furthermore, there are still times when it suits multinational companies to embrace protectionism - even when they have been victims of it. Witness Japanese car companies' stealthy support a few years ago for EU measures limiting their South Korean rivals' inroads into Europe.
In the ebb and flow of these complex cross-currents, the great EU textiles debacle certainly does not mark a watershed. Nor will it reduce the vigour with which protectionist-minded producers press their case. But it will at least have done some good if it prompts politicians to think twice before succumbing to their demands.
LOAD-DATE: August 29, 2005
posted by Eastlaw at 11:39 PM
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