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Policy shift reflects changing US attitude

China Daily, China

Policy shift reflects changing US attitude

By Miao Yingchun (China Daily)

27 June 2006

US President George W. Bush nominated Henry M. Paulson as his new Treasury Secretary on May 30. In his Rose Garden announcement of the nomination, Bush stressed that Paulson will "help ensure that our trading partners play by the rules, respect intellectual property rights and maintain flexible, market-based exchange rates for their currencies."

All of the three agendas mentioned are undoubtedly important topics in terms of economic ties between China and the United States.

This is a significant declaration indicating that the United States is actually adjusting its trade policies towards China.

It is easy to track the adjustment after going through a string of documents on various economic topics, including a report entitled "US-China Trade Relations: Entering a New Phase of Greater Accountability and Enforcement" released by the Office of the United States Trade Representative (USTR) on February 14, the 2006 Economic Report of the President issued by the White House, the President’s Trade Policy Agenda 2006 and several other documents.

Analyzing current policies, it is possible to see the adjustment manifest itself in several ways.

First, the policies point to intensified discrimination against China.

The USTR decided to establish an internal enforcement task force to focus on preparing and handling potential WTO cases with China.

Creating the first enforcement task force devoted to a single country, the USTR is clearly trying to set China apart from the rest of Washington’s trade partners.

But it’s not the first time that we have seen such discriminatory measures. China was placed on the Priority Watch List by the USTR in its 2005 Special 301 Report.

Returning to the list again after its removal in 1996, China was tagged as one of the countries failing to provide an adequate level of protection to intellectual property rights (IPR).

This is obviously an unfair accusation, and clearly ignores the efforts China has made in recent years in its IPR protection.

Besides, the United States is also pushing China to offer wider market access beyond the commitment made on its WTO entry in late 2001.

According to the USTR’s February report, the United States is also urging China to "play a role in strengthening the international trading system commensurate with its commercial heft and the level of benefit it has obtained from that system."

To be specific, the document listed several priority areas, including fostering a rule-based competitive environment for foreign and domestic interests, expanding market access to IPR-intensive sectors, addressing limitations to market access and regulatory barriers in the telecommunications and other service sectors.

These items are all beyond China’s WTO commitments. As a developing country, it is certainly unfair for China to be pushed to comply with such requests.

Second, the US Government repeatedly stresses China’s responsibility as a member of the international community in an attempt to contain China through economic diplomacy.

The USTR said that US trade policy towards China has come in three stages.

The first stage was from 1986 to 2001 when China was working to join the General Agreement on Tariffs and Trade, the forerunner of the WTO. US trade policy at the time focused on bringing China into the rule-based world trade system.

The second stage was from 2001 to 2005, during which the United States tried to monitor China’s integration into the global trading system and ensure its compliance with its accession obligations.

This policy entered its third stage in 2006 when China reached the deadline for the fulfilment of most of its WTO obligations. The crux of the bilateral trade policy was to propel China to play a larger role in the world trading system and global balances.

The changing policy focuses through the three stages clearly indicate that the trade policy has gradually centred on enhancing China’s responsibilities in the international community, which could contain China’s means and modes of economic growth with various international rules.

Such intentions have been clearly set out by Robert B. Zoellick, the US Deputy Secretary of State, in his speech in September 2005. "We now need to encourage China to become a responsible stakeholder in the international system. As a responsible stakeholder, China would be more than just a member it would work with us to sustain the international system that has enabled its success," he said.

This marks a new pathway to containing China diplomatically. Defining China as a "stakeholder," Zoellick has used a term which is actually calling for China to be a "responsible big country." According to this, issues once regarded as internal affairs of China became the responsibilities of a big international player, such as the exchange rate of the renminbi, IPR protection and market access to China.

Following the same track, the 2006 Economic Report of the President reiterated that "China’s WTO membership also brings new responsibilities, such as improving the protection of intellectual property, full compliance with trade agreements and continued progress toward a flexible and market-based exchange-rate regime."

Third, US trade policy is interfering more deeply into China’s internal affairs.

US Secretary of State Condoleezza Rice defined a transformational diplomacy in her speech to Georgetown University in Washington DC on January 18.

Compared with traditional diplomacy, this new type of diplomacy is aimed at supporting internal reform from within the country instead of solely eying the relationship between nations.

Transformational diplomacy is actually an enhanced interference in the internal affairs of other countries.

Given the overall shift of focus in US diplomatic policy, economic and trade policies towards China have also undergone substantial adjustment in a similar direction.

Resorting less to means like anti-dumping investigations against Chinese businesses, the US presses the Chinese Government on issues of concern, in an effort to forge China’s economic and trade policies.

At the same time, the US Government is also stepping up its co-operation with other trade partners, like EU member states and Japan, on their stances towards China.

Fourth, the United States focuses on three major areas in its bilateral trade with China.

The US now focuses on market access, the exchange rate of the renminbi and IPR, all of which would lead to an imbalance in bilateral trade. In fact, none of the accusations made against China on these three topics are soundly based.

China has seen a stunning increase in its imports in recent years, making it the world’s third largest importer by the end of 2005. And its import from the United States has been growing at an annual rate of more than 20 per cent in recent years.

The Chinese currency has appreciated 3.2 per cent since it was floated on the market on July 21, 2005. The United States still thinks such a rise is "too cautious" just because it is not as dramatic as the 15 to 25 per cent that Washington had expected.

Fifth, the adjustment of US trade policy towards China has been clearly set with specific targets and detailed measures of enforcement.

The USTR report raised three core principles in trade policy: promoting an increasingly open, rules-based international trade system, capturing the economic benefits of more open global markets for the American people and pursuing a trade relationship that is more equitable and durable with more balanced opportunities that generate corresponding growth in US export-supported employment.

From the list of the specific and detailed enforcement actions, it is clear that the recent adjustment in US trade policies is both enforceable and aggressive. It not only stresses co-operation between different branches of the government and the legislature, but also positions it well to deal with the overall shift in diplomatic policy towards China.

The author is a researcher with the Department of World Economics at Wuhan University.