The Hindu : Opinion / Editorials : China's turn to press for free trade

Online edition of India's National Newspaper
Thursday, May 19, 2005

Opinion

Opinion - Editorials

China's turn to press for free trade

The imposition of quotas by the United States on three categories of textile imports from China raises issues that reach beyond the concerns of its domestic producers. No doubt, the U.S. textile and garment industries, like many other labour-intensive sectors, have been losing competitiveness vis-a-vis manufacturers in low-wage economies. This situation has been rendered particularly serious after the abolition of the global textile quota regime from January 2005. A broader question of interest was the way China has kept its national currency pegged at a fixed rate of 8.3 yuan to a dollar for more than a decade despite a burgeoning export surplus, especially with the U.S. It is quite possible that the textile quotas issue will be used by Washington to exert pressure on Beijing to revalue the yuan, so that U.S. products could become that much more competitive in China's burgeoning market and the trade deficit with the People's Republic would come down. Although the initial official reaction of Beijing to the American action has been one of injured innocence, the possibility of bilateral consultations leading to a partial alleviation of American concerns in areas like currency and the services sector cannot be ruled out.

Another significant aspect of the American levy is that it represents the price China has had to pay for being a late entrant into the World Trade Organisation. The levy of quotas by the U.S. has been resorted to under the "market disruption" clauses of a bilateral agreement preceding China's accession to the WTO and signed by Beijing as a condition for American support to the accession. Beijing may not be able to retaliate even if the U.S. refuses to offer compensation in some other sectors for a loss of market share in textiles; the bilateral agreement, after all, is a derogation from the more balanced rights and obligations available under the WTO's Safeguards Agreement. The WTO agreements on anti-dumping and countervailing duties leviable in the case of proven unfair trade practices and safeguard measures in the case of surges in imports were themselves the result of the experience of the 1970s and 1980s, when the U.S. imposed on Japan "voluntary" export restraints in respect of cars, computer chips, and a few other products. It is interesting that U.S. importers and retailers on the one side and Chinese textile manufacturers on the other are deploying, persuasively, all the arguments in favour of free trade and against protectionism that America and other developed countries put forth in a bid to push for open markets everywhere. However, this falls in a pattern set off by the current phase of globalisation. In consequence, the systemic weaknesses of mature market economies are sought to be overcome mainly by exerting pressure on more and more countries to adopt the market economy system.

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