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Sino-American trade and investment friction

by Frank Ching

Hong Kong

Last month China disclosed figures for 2013 confirming that it had replaced the United States as the world’s largest trading nation, with the country passing another milestone in its march toward superpower status. China’s overall trade in goods rose 7.6 percent over the previous year to reach $4.16 trillion. Final U.S. figures are not yet available but they are almost certain to fall below $4 trillion.

As recently as 2006, the U.S. was the most important trading partner for 127 countries, compared to 70 for China. However, only five years later, the two had changed places, with China being the most important trading partner for 124 countries, compared to 76 for the U.S.

Total U.S.-China bilateral trade in 2013 stood at $559 billion, with the American trade deficit exceeding $300 billion. This is a remarkable increase over the $5 billion in trade in 1981, two years after the establishment of diplomatic relations.

China’s dramatic growth over the last 35 years would not have been possible without American willingness to accept its exports. Increasingly, however, Washington is looking to China to take its exports.

In recent years, American exports to China have been growing faster than Chinese exports to the U.S. Similarly Chinese investment in America is growing faster than American investment in China. Given such a huge, intertwined economic relationship, trade frictions are inevitable.

Thus, last month, China expressed “serious concern” and called on the U.S. to drop anti-dumping investigations into Chinese exports of solar power products. However, Washington has repeatedly stated that while it prefers to pursue dialogue with Beijing to resolve trade frictions, when dialogue doesn’t work, it will not hesitate to invoke the World Trade Organization’s dispute settlement mechanism.

In fact, the U.S. has done so 15 times since China joined the World Trade Organization in 2001, more than twice as many cases as any other WTO member has brought against China.

In its 2013 report to Congress on China’s WTO compliance, the U.S. Trade Representative attributed many of Washington’s problems with Beijing to “the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises in China’s economy.” Ironically America’s capitalists are now hailing decisions made in November at the third plenary session of the 18th Congress of the Chinese Communist Party.

As the USTR said, “The United States shares the Third Plenum Decision’s goal of reducing Chinese government intervention in the economy, accelerating China’s opening up to foreign goods and services, reforming China’s state-owned enterprises and improving transparency and the rule of law to allow fair competition in China’s market.”

However, the third plenum promised many things, including fair judicial proceedings, but the recent trial of rights advocate Xu Zhiyong, who was sentenced to four years in prison, makes it clear that there has been little improvement.

It is likely to be years before the 60 decisions made public at the plenum will be fully implemented. In the meantime, the U.S. will no doubt continue to exert pressure on China.

Other outstanding Sino-American issues include China’s government procurement, which continues to discriminate against the U.S. and other foreign countries, the protection of intellectual property rights and the amendment of China’s trade secrets law, which was not updated after China joined the WTO.

According to the USTR, China has imposed duties “for the purpose of striking back at trading partners that have exercised their WTO rights against China,” even in the absence of “necessary legal and factual support for the duties.” Last month, the U.S. for the first time challenged China’s claim that it had complied with a WTO decision regarding duties on certain American steel products.

Nonofficial observers, such as Timothy Webster of Case Western Reserve University School of Law, have also noted that China procrastinates in the implementation of WTO decisions. However, Webster told a hearing of the Congressional-Executive Commission on China on Jan. 15 that “China is, at base, a system maintainer, not a system challenger.”

Like the U.S., China, too, is making more use of the WTO’s dispute resolution mechanism. China, no doubt, will reject American charges of not complying with the WTO decision on steel products. But China needs to be able to justify its position on legal grounds rather than to act arbitrarily.

Beijing will no doubt gain greater sophistication in its legal and other maneuvers over time.

As China plays a bigger role in world trade, it will become increasingly important for China to abide by the same rules that are honored by other trading nations.

Frank Ching is a journalist based in Hong Kong. Email: Frank.ching@gmail.com Twitter: @FrankChing1