Category Archives: Wall Street Journal

Don’t Believe China’s Trade Hype

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Don’t Believe China’s Trade Hype

Beijing runs with the G-33—poorer, protectionist-minded WTO laggards.

By Greg Rushford

35 COMMENTS

Don’t expect much progress in dismantling global trade barriers from the World Trade Organization’s meeting in Buenos Aires this week. The Trump administration will take most of the blame. American trade negotiators have even said they will refuse to sign the customary ministerial declaration expressing support for the “centrality of the multilateral trading system.” The U.S., as WTO Deputy Director Alan Wolff noted, is “sitting this one out.”

In the absence of American leadership, all eyes are on Chinese President Xi Jinping. Mr. Xi has missed no opportunity to declare his support for the WTO’s mission of advancing free trade. He acknowledges that China has benefited greatly since becoming a WTO member in 2001.

“We should uphold multilateralism and pursue shared growth,” Mr. Xi declared last month in a speech to Asia-Pacific business leaders in Vietnam. His remarks were well-received—in clear contrast to Mr. Trump’s insular America First exhortations at the same forum. Global economic leadership is a key part of Mr. Xi’s “Chinese Dream.”

 But going by China’s actual record in the WTO, Mr. Xi will have to dream on. Despite the glowing free-trade rhetoric from Beijing, inside WTO negotiating rooms China is hardly a champion of free trade. Instead, the Chinese run with the G-33, a group of poorer, protectionist-minded WTO laggards—the likes of South Africa, Venezuela, Zimbabwe and India.

These countries tailor their negotiating positions to longstanding grudges against their former European colonial masters, as well as rich Americans. They support China’s assertion that it remains a developing nation deserving of “special and differential treatment” when it comes to dismantling trade barriers.

In the WTO’s thorny agriculture negotiations, for example, China and India stand together in demanding that rich Europeans and Americans dismantle trade-distorting subsidies. Yet they demand that “developing” countries be allowed to continue propping up tens of millions of subsistence farmers indefinitely.

Beijing insists that it made enough concessions on lowering agriculture tariffs and subsidies when it joined the WTO in 2001. When the WTO held its ministerial meetings in Bali in 2013, the Chinese and Indians won the “temporary” right to circumvent their existing legal restrictions on exceeding their (wasteful) domestic support programs. In Buenos Aires, they will push for the permanent right to prop up their globally uncompetitive farmers.

Beijing is also resisting an initiative to curb governmental subsidies that contribute to overfishing. In 2002 a group of WTO members led by Australia, New Zealand, Iceland and Chile established the so-called Friends of Fish to try to reach consensus. But China wants a carve-out to protect its subsidies and insists that countries be allowed to police violations themselves—an approach that threatens the collapse of already depleted global fishing stocks.

China has also failed to join the WTO’s Government Procurement Agreement. Forty-seven advanced economies have opened bidding on more than $1.7 trillion of their governmental contracts to foreign competition. China entered negotiations to join the GPA in 2002. The big news from the WTO’s 2011 ministerial meetings in Geneva was that Beijing would sign on. But that deal has never materialized, while talks drag on and on.

While Chinese rhetoric doesn’t square with the country’s record in the WTO, Beijing’s performance is not all negative. After arduous negotiations, Beijing joined the Information Technology Agreement, where 82 WTO members have agreed to slash tariffs on trade in high-tech goods.

 China also slashed average tariffs on industrial products to less than 9%, and has promised early action to slash its 25% auto tariffs. Chinese officials from President Xi on down vow that China will continue to play a “constructive” role inside the WTO.

Just how constructive depends on whether Beijing continues to seek special treatment at the expense of its partners. This week’s meeting might begin to shed light on an important question: Is Mr. Xi’s free-trade talk worth more than scoring political points against Donald Trump ?

Mr. Rushford edits the Rushford Report, an online journal that tracks trade politics.

How China Tamed the Green Watchdogs

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Wall Street Journal

Too many environmental organizations are betraying their ideals for the love of the yuan.

Chinese dredging vessels in the waters around Mischief Reef of the Spratly Islands.

By

Greg Rushford

7 COMMENTS

Scores of Chinese dredgers ground up the coral of semisubmerged reefs in the South China Sea over the past three years to build artificial islands that are now becoming military bases. The enormity of the destruction to marine biodiversity is unprecedented. The Chinese government has destroyed more than 5 square miles of coral reef in fishing grounds that help feed hundreds of millions of people, including Chinese.

“China is committing a grand theft of the global commons,” says Philippine Supreme Court Justice Antonio Carpio in an e-book published earlier this month. It’s a theft that has inflicted “permanent and irreparable harm to the coral reef ecosystem,” an arbitral tribunal in The Hague determined last year in litigation brought by the Philippines.

Yet Greenpeace, the World Wide Fund for Nature and Conservation International have all averted their eyes. “None of them have really stepped up to the plate,” says Edgardo Gomez, an award-winning professor emeritus of marine biology at the University of the Philippines.

China’s environmental crimes have been well-documented by Mr. Gomez and a small band of dedicated marine scientists. Biologist John McManus at the University of Miami’s Rosenstiel School warns of a major fisheries collapse if China continues to thwart remedial action. Kent Carpenter, a professor at Virginia’s Old Dominion University, has demonstrated China’s extensive damage to threatened marine species.

The best-funded environmental groups don’t have much to say when asked about the issue. A spokesman for Conservation International in Manila declines to comment. “As we’re sure you can appreciate, we cannot undertake conservation efforts everywhere,” says WWF spokesman Christopher Conner in Washington. “WWF is not a political organization,” adds Joel Palma, president of WWF-Philippines.

It’s the same story with Greenpeace. “The reason we don’t work on the South China Sea is because the nations around the area are embroiled in a territorial dispute,” says J.P. Agcaoili, the communications manager for Greenpeace Southeast Asia. Mr. Agcaoili asserts that it would be “counterproductive” to tackle the South China Sea issue.

But the environmental NGOs don’t usually hesitate to confront governments. For example, Greenpeace activists scaled an oil rig in 2012 to protest Russian drilling in the Arctic Ocean. The WWF and Greenpeace even spoke out against Chinese-government subsidies that have resulted in destructive overfishing, especially off the coast of West Africa.

So why didn’t they utter a peep about China’s degradation of the South China Sea?

Knowing when to keep their mouths shut seems to be the price these organizations must pay to enjoy the good will of Beijing. It’s one thing to offer respectful criticism over Chinese fishing subsidies within the bounds that the Communist Party tolerates as a social safety valve. But it’s another matter entirely to condemn the crimes that China is committing in the South China Sea, a position that would infuriate the Politburo.

Greenpeace, Conservation International and the WWF all have offices in China. The WWF’s programs to protect the giant panda drive donations globally, and well-heeled do-gooders pay $10,000 per person for panda safaris in Sichuan. Mr. Gomez of the University of the Philippines laments, “Sad but true, money talks.”

As the WWF notes on its website, it operates in China “at the invitation of the Chinese government.” But invitations can be withdrawn. With dozens of Chinese nationals employed on the mainland by the WWF, Greenpeace and Conservation International, the NGOs’ operations in the Middle Kingdom are hostage to the whims of the Party.

The WWF’s international board of directors includes Wang Shi, founder of China’s biggest residential real-estate developer. An avid sportsman, Mr. Wang is no stranger to danger, having climbed Mt. Everest. Yet he declined to comment on China’s actions in the South China Sea.

Likewise the WWF-Philippines board, which includes some of that country’s wealthiest executives, has stayed silent. Christopher Po, the CEO of Century Pacific Tuna, is looking to China as a major growth market for his seafood exports. Jaime Augusto Zobel de Ayala, who chairs one of the Philippines’s largest conglomerates, is currently in talks with Chinese enterprises about infrastructure projects.

Hotel developer Elizabeth Sy has even closer ties to the mainland. Ms. Sy is an advisor to the board of SM Prime, which has shopping malls across the Philippines and also in five Chinese cities. She is the daughter of the Philippines’s richest man, Henry Sy Sr. , who was born in Fujian and has large ventures on the mainland.

WWF-Philippines president Joel Palma, on behalf of the board, declined requests for comment on conflicts between members’ businesses and protecting the marine environment. The WWF has revenue of more than $300 million annually.

Environmental organizations appeal for donations by pointing to their record of speaking truth to power. But the flagship groups are betraying their ideals in the pursuit of money and access in China. That’s the real reason we don’t see Greenpeace’s Rainbow Warrior protesting Beijing’s environmental crimes in the South China Sea.

Mr. Rushford is editor of the Rushford Report, which tracks international economic and security issues.

America’s Philippines Blunder

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America’s Philippines Blunder
Failing U.S. trade policy exacerbates Manila’s doubts of Washington’s security promises.

By GREG RUSHFORD
July 28, 2016 12:46 p.m. ET

U.S. Secretary of State John Kerry on Wednesday discussed the “full range” of economic and security issues with Rodrigo Duterte, the Philippines’ newly elected president. The visit comes in the wake of The Hague’s July 12 ruling that Chinese actions in the South China Sea violate Philippine rights.

Mr. Kerry’s diplomatic mission was to assure Mr. Duterte that Manila can count on Washington’s mutual-defense promises. But there are also Mr. Duterte’s doubts that the U.S. can support the Philippine trade and economy.

When Mr. Duterte was sworn in to office on June 30, U.S. Trade Representative Michael Froman announced a new trade policy that upends important economic growth plans in the Philippines. It threatens to wipe out an estimated $100 million annual boost to Philippine exports of travel goods such as luxury handbags, wallets and backpacks. It also complicates Philippine investment aspirations to create some 75,000 travel-goods-related jobs in the next five years.

At first glance, Mr. Froman’s announcement gives no hint of the economic controversy it has sparked. He says that President Obama wants to make “a powerful contribution to lifting people out of poverty and supporting growth in some of the poorest countries in the world, while also reducing costs to American consumers and businesses.” The policy benefits 43 least-developed beneficiary countries, such as Cambodia and Haiti, and 38 African nations. Pursuant to the U.S. Generalized System of Preferences (GSP) program, these countries will no longer have to pay stiff tariffs of up to 20% on handbags, wallets and other travel goods exported to the U.S.
The U.S. decision to give preferential treatment to the industry’s small players, while blindsiding the most competitive producers, is perplexing. Cambodia, for instance, holds a modest 0.4% of the U.S. market, producing mostly backpacks. Africa’s total travel-goods exports to the U.S. amount to roughly one hundredth of one percent market share. As a result, the policy gives just two countries—China and Vietnam—a combined 90% share of the $5 billion U.S. travel-goods market.
It is unlikely that preferential treatment will prompt least-developed countries to boost their exports. Even with 15 years of duty-free access to U.S. clothing markets under the African Growth and Opportunity Act, 40 African countries combined to export less than 1%, or $1 billion, of garments each year to the U.S. The Philippines alone exceeds Africa in clothing exports by more than $100 million.

Diplomats from other countries and industry giants in the U.S., such as Coach, Columbia Sportswear and Kate Spade, have written to Mr. Froman asking for an explanation. On Wednesday 14 members of U.S. Congress, including 10 from the powerful Ways and Means Committee that has jurisdiction over trade, also issued a strong letter to the U.S. trade chief. But Mr. Froman has yet to offer any economic rationale for the decision, nor is there any evidence on the public record to support it.

Developing countries with larger market shares of the travel-goods industry, such as India, Indonesia, Pakistan, the Philippines, Sri Lanka and Thailand, must now reconsider their plans to expand their investments. Major U.S. players such as Coach and Michael Kors, which looked to U.S. trade officials to provide financial incentives to shift production away from China, will now put those investment plans on hold. China is thus poised to keep its 85% share of the U.S. travel-goods market.

Vietnam, as a communist country, is not eligible for the GSP preferences. But in the Trans-Pacific Partnership trade deal, the U.S. agreed to give the Vietnamese—who now hold a 5% market share—the same duty-free treatment withheld from GSP-eligible countries. Pakistan’s Prime Minister Nawaz Sharif thought he had received assurances directly from President Obama last year that U.S. trade officials understood the “importance” of increasing enhanced market access for Pakistan’s GSP-covered exports. Diplomats I have spoken to chafe at the unfairness.

Viewed through the Philippine lens, the failure to connect economic cooperation with the security aspect of Obama’s pivot to Asia is glaring. Cambodia, apparently thanks to financial inducements from Beijing, has been the spoiler whenever the Philippines has sought solidarity from its partners in the Association of Southeast Asian Nations in standing up to China in the South China Sea.

Asked repeatedly for his side of the story, Mr. Froman asserted through a spokesman that “travel goods are a product particularly well-suited to be produced in least-developed countries.” He declined to explain further.

While the broader security relationship will survive, it is worth noting that in international economic diplomacy, like in personal relationships, unnecessary smaller slights erode trust. With the Chinese watching on the sidelines and eager to buy their way out of their South China Sea mess, this is not a wise time to rub the volatile new Philippine leader the wrong way.

Mr. Rushford edits an online journal that specializes in international economic diplomacy.