Thursday 2 July 2009

WTO looking closely at Chinese trade restrictions

After spending so long trying to get into the WTO China now spends a long time trying to get around the rules.

Even in the face of a global recession or indeed perhaps because of the global recession the US and EU are fighting back over the Chinese restrictions on exports that are aimed at protecting the domestic steel industry.

This is really a none issue and will not save global trade. China will dig in and the US and Europe will give up.

Duties call [Economist]

DESPITE the periodic sighting of green shoots elsewhere in the economy, the landscape of global trade remains resolutely bare. The World Bank said on June 22nd that world-trade volumes, reeling from a drastic collapse in global demand (see chart), will shrink by nearly 10% this year. That would be the sharpest fall since the Depression, and the first decline in trade since a small dip in 1982.

Unsurprisingly, tempers are fraying as governments struggle to find ways to protect their own. The latest salvo was fired on June 23rd by America and the European Union, which complained to the World Trade Organisation (WTO) about China’s restrictions on the exports of nine minerals, including bauxite, coke, magnesium and manganese. These are important raw materials for the steel industry, among others, and China restricts their exports on the grounds that they are exhaustible resources. But America and the EU argue that by hindering their export, China is unfairly favouring domestic industries.

John Veroneau, a former American deputy trade representative, believes the case against China is a strong one. He also argues that this week’s move can be seen as an effort to foster more trade (as there surely would be if China were to ease its export restrictions) at a time when trade is in a great deal of trouble. In practice, it is unlikely to have that effect. If the case proceeds to the stage where a formal WTO panel is formed to decide on its merits, it could drag on for several years, by which time trade will, with luck, have recovered from its current moribund state.

Jeffrey Schott, a trade expert at the Peterson Institute for International Economics, a think-tank, says that the case against China may also help the cause of open trade in other ways. If Ron Kirk, America’s new trade representative, demonstrates that he is actively enforcing the agreements already in place, he may get “the authority to negotiate Doha and other accords”.

That may be too sanguine. True, America and the EU are not resorting to imposing fresh barriers of their own in this dispute; for that matter, China’s export restrictions are not new either. But trade experts warn that protectionism remains a serious worry. Of particular concern are the so-called “Buy China” requirements added to China’s stimulus package this month. These require recipients of money from China’s mammoth fiscal expansion to choose domestic suppliers “unless products or services cannot be obtained in reasonable commercial conditions in China”. This sounds like out-and-out protectionism. But America, which included similar “Buy America” provisions in its own stimulus bill, may find it hard to raise a stink.


1 comment:


miƩrcoles 1 de julio de 2009

CHINA and BRAZIL announced yesterday that from now on, their trade relations will be held not in dollars, but in their respective currencies, according previously a fair change rate.

YUAN first appearance in an international trade agreement seems not to scare US dollar.

Nevertheless, this fact has, according to my view, an incredible psychological impact on the future trends....

BRAZIL is the main latinamerican economy. CHINA is the main economy in ASIA, together with JAPAN.

Then, two of the main economies in the world are ready to trade without the arbitrage of US Dollars.

The ALBA ( the populism movement in South America ) leaded by Chavez, Venezuela president, is ready to do the same with oil and other raw materials exports.

Once again, the future impact will depend on the capacity of CHINA economy to reduce exports to the US and begin serving its domestic demand. Analysts say this won´t happen till 2015.

This BRAZIL-CHINA movement is the 1st attack to the DOLLAR hegemony as a reference currency and therefore, as an arbitrage currency for foreign commercial agreements.

CHINA has to go planning the YUAN international show up to the world.
But, as usual, CHINA manages things their way, just like Frank Sinatra... CHINA will begin trading with those countries key for its economy, and step by step, it will be going out of its yuan fixed rate by billateral compromises.

In the middle of a global economic downturn, this is not good news for US Dollar. Since, and although americans want a weak dollar to begin exporting again,... we must not forget that the US is moreover an importing country.

If CHINA goes reducing its exposure to US exports, the US will have problems to stabilise its currency.

EURO seems to be absent from this battle, but obviously EURO has nothing to offer to the world, since EUROPE remains as a dead continent, only healed some times by Germany auto and heavy manufacturers, Italian fashion and car industries, and France, or Spain touristic acceptance.

I forecast a volatile currency market for the next 6-12 months, and a huge risk on US dollar stability. Therefore, my advice for EURO holders resides on keeping the EURO exposure vs USDollar and wait for future events.

Nevertheless, something with stronger impact seems to go rooting in the horizon. And it is not obviously green ...

The huge Public spending of OBAMA policies, the forecasted high inflation rates for the next 2 years will not help a lot.

Jose Luis Revilla Escudero
WWShares, Inc
-Global Wealth Management-