The decision of the Chinese to tax their own exports re-introduces the scourge of the so-called “voluntary restraint” that the WTO agreements were supposed to have eliminated in 1995. The USA and the EU threats to use quotas to slash Chinese imports has led to a tax on every other consumer of jeans, shirts and underwear in the world. The Chinese have decided to increase their current export taxes by up to 400 percent on 148 categories of garments: according to the “Sydney Morning Herald”:http://www.smh.com.au/news/World/China-averts-trade-war-with-US-Europes/2005/05/21/1116533567413.htmlthat implies a duty of between 10 and 20 percent ad valorem. The Washington Post”: calculates a duty of about 12 to 48 cents per garment. bq. “The China Textile Industry Council said Friday Chinese textile companies would have to ‘make sacrifice’ as a result of the export tariff hike. Sun Huaibin, spokesman for the Council, said that the Council understood the decision of the government as ‘it is for the purpose of helping establish a new world textile trade order and ease the trade friction that the government has made the concession.’ ”(“China Daily(link to this excerpt)”:http://www.chinadaily.com.cn/english/doc/2005–05/20/content_444377.htm) The tax is not enough to slow demand much in markets such as the USA. US consumers are the ones responsible for the rapid growth in demand for Chinese products and they’re unlikely to be dissuaded by this sort of price increase. So it’s unlikely that the Chinese are doing this in the hope that they’ll convince the US authorities to withdraw the threatened ‘safeguard’ action. It’s more likely that the Chinese are hoping to capture some of the rents that the added protection will offer to the US industry when prices there start to reflect the drastic cut-back in the supply volume from China (safeguards will cut supply growth from three figures to 7.5% for at least a year an probably for three years). Left with few options in the face of the safeguards, the Chinese government has played a clever hand in imposing the export tax. When the USA pressed the Japanese in the 1980s to ‘voluntarily restrain’ their exports of motor vehicles and semi-conductors, prices for those goods jumped in the USA. Friends of mine then working for the US Trade Representative’s Office agreed to pay a $1200 ‘premium’ (a lot of money in those days) to stay on the waiting list for a Nissan sports car. The Japanese firms made a big profit from the GATT-illegal action by the USA. In effect, the Chinese government is making sure that it gets it’s cut from the tax that the US government is apparently happy to impose on its own consumers. But a fundamental WTO rule (Article 1 of GATT) says that the export duty has to be applied—just like an import duty—to all export markets without discrimination. So everyone in the world just had their clothing prices pushed up a bit by the threats from the USA and the EU. We are all paying the price for the willingness of those two stalwarts of open markets to screw the consumer for “no very good reason(link to Ben Muse’s weblog)”:http://benmuse.typepad.com/ben_muse/2005/05/what_can_the_us.html How do these two giant hypocrites get away with shafting their own consumers and the rest of the world on this? The answer is the screw-you safeguards built into the Chinese Protocol of accession to WTO. I’ve earlier provided details on “how these ‘safeguards’ work”:http://www.inquit.com/article/368/barriers-go-up-to-chinese-clothing. Watch out, because there’s more to come. It’s very likely that the US garment industry will back up it’s claims of ‘disruption’ (the ill-defined trigger for the present safeguards) with a set of anti-dumping petitions. The Congress, too, is considering a bill that would hike tariffs on Chinese textiles if China does not re-value it’s currency. Note the calm determination with which the US Commerce Department (at least) acts in the interests of the US garment manufacturers: bq. The US Association of Importers of Textiles and Apparel (USA-ITA) immediately blasted the decision, reporting “all pretense of legitimate deliberations was clearly dropped” since the decision was made just four days after the close of the public comment period. Laura E. Jones, executive director of USA-ITA, said: “After a 30-day comment period in which a large number of companies invested a great deal of time and effort to explain why safeguards would be wrong, why they won’t help the US industry and why products made in China are in many cases items that are not made here, the government takes all of four days to say that our views don’t matter.”(“Textile World”:http://www.textileworld.com/News.htm?CD=5&ID=9253)
Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.
He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher