Is China the trade troublemaker?

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Fred Bergsten on Chinese global economic engagement in Foreign Affairs:

On trade, China has been playing at best a passive and at worst a disruptive role. It makes no effort to hide its current preference for low-quality, politically motivated bilateral and regional trade arrangements rather than economically meaningful (and demanding) multilateral trade liberalization through the WTO. Since China is the world’s largest surplus country and second-largest exporter, this poses two important challenges to the existing global regime.

First, China’s refusal to contribute positively to the Doha Round of international trade negotiations has all but ensured the talks’ failure. Beijing has declared that it should have no liberalization obligations whatsoever and has invented a new category of WTO membership (“recently acceded members”) to justify its recalcitrance. Such a stance by a major trading power is akin to abstention and has practically guaranteed that the Doha negotiations will go nowhere. And since the global trading system does not stay in place, but is always moving either forward or backward, a collapse of the Doha Round would be quite serious: it would represent the first failure of a major multilateral trade negotiation in the postwar period and place the entire WTO system in jeopardy. China is not the only culprit in the Doha drama, of course. The United States and the EU have been unwilling to abandon their agricultural protectionism, other important emerging economies have been unwilling to meaningfully open their markets, and several poor countries have resisted contributing to a global package of reforms. But China, with its major stake in open trade, exhibits the sharpest contrast of all the major players between its objective interests and its revealed policy.

Second, China’s pursuit of bilateral and regional trade agreements with neighboring countries is more about politics than economics. Its “free-trade agreement” with the Association of Southeast Asian Nations (ASEAN), for example, covers only a small share of its commerce with the countries in question; it is simply an effort to calm their fears of being swamped by their huge neighbor. Again, it is true that the United States and other major trading powers also factor foreign policy considerations into their selections of partners for regional and bilateral trade agreements. But they also insist on economic standards that largely conform to the WTO’s rules. China is able to escape legal application of those rules by continuing to declare itself a “developing country” and by taking advantage of “special and differential treatment.” But for a major global trading power to hide behind such loopholes provokes substantial international strains.

China is also hurting the global trading system by supporting the creation of a loose but potent Asian trading bloc. The network of regional agreements that started with one between China and ASEAN has steadily expanded to include virtually all other possible Asian permutations: parallel Japanese-ASEAN and South Korean-ASEAN deals; various bilateral partnerships, including perhaps a Chinese-Indian one; a “10 + 3” arrangement that brings together the ten ASEAN countries and all three Northeast Asian countries, and possibly even a “10 + 6” agreement that would broaden the group to include Australia, India, and New Zealand. All this activity is likely to produce, within the next decade, an East Asian free-trade area led by China.

Such a regional grouping would almost certainly trigger a sharp backlash from the United States and the EU, as well as from numerous developing countries, because of its new discrimination against them. Even more important, it would create a tripolar global economic regime — a configuration that could threaten existing global arrangements and multilateral cooperation.

China’s challenges to the global trading system are most visible in its opposition to the U.S. proposal, launched at the Asia-Pacific Economic Cooperation forum in 2006, for a free-trade area of the Asia-Pacific. The APEC initiative, immediately endorsed by a number of those smaller member economies that fervently want to prevent trade conflict between the group’s two superpowers, seeks to head off the looming confrontation between an Asia-only trading bloc and the United States, which could draw a line down the middle of the Pacific. The initiative would eventually consolidate the many preferential pacts in the Asia-Pacific region and offer an economically meaningful Plan B for widespread trade liberalization if the Doha Round definitively fails. China has led the opposition to the idea, demonstrating its preference for bilateral deals with minimal economic content and its lack of interest in trying to defend the broader trading order.

These criticisms seem a bit unfair, as the US and EU are equally guilty of every charge. Why would a two-bloc world divided between the EU and APEC be more appealing than a three-bloc world? What has China done to hamper the agricultural negotiations at Doha, which are the real stumbling block? What US bilateral trade deal was more about economics than politics? What economic standards is China avoiding in its trade deals, when the WTO has never really disciplined a PTA?

Bergsten is identifying all the problems correctly, but I think he’s a bit strained in trying to distinguish China from the United States and Europe.

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