Beijing neglects trade rule
The Australian, Canberra
Alan Oxley: Beijing neglects trade rule
China’s caps on the price of our iron ore exports violate the WTO
10 March 2006
CHINA is now in the World Trade Organisation and is negotiating free trade agreements. It wants to be a player in the game of world trade. Yet it does not understand the rules of that game. How else to explain Beijing’s decision this week to control the price of exports of iron ore from Australia and Brazil? This is not permitted in the WTO world of multilateral trade.
Many trade experts privately feared China was not ready for membership when it was admitted to the WTO in 2001. The key concern was whether Beijing would be able to implement the obligations. This had two dimensions. First, was Beijing able to implement commitments? Could Beijing direct agencies such as customs offices in provinces and would it enforce intellectual property rules?
And second, were there enough Chinese officials who understood market economics to administer controls on trade within the spirit of the WTO?
As far as the US administration is concerned, the jury is still out. To date Washington has moved carefully with Beijing. Chinese exports are important to the US economy and a number of important US companies have substantial business interests in China. But it has evidently decided it is time to get tough.
The US Trade Representative office has a large portfolio of instances of Chinese failure to meet WTO obligations accepted by China when it joined. Rob Portman, the USTR representative announced last month that the office would establish a China compliance unit. "As a mature trading partner, China should be held accountable for its actions and required to live up to its responsibilities, including opening markets and enforcing intellectual property rights," Portman said.
Except in a few commodities, Australian business is not exposed to the China market to the same extent as US companies. Compliance has mattered less, but business has had experience enough to wonder if enough officials in the Chinese Government do understand how the rules of trade change once a country joins the WTO.
When agreement between Australia and China to negotiate a free trade agreement was announced last year, the most enthusiastic sector in China was the minerals and energy sector. In other areas, such as agriculture and financial services, Chinese officials have been negative about the FTA even covering these areas, let alone agreeing to liberalise.
However, when Australian officials and business executives gathered in Beijing in March 2004 for the first exchanges with Chinese officials, representatives of the Chinese minerals and energy sector enthusiastically told Australian counterparts the FTA would be a good opportunity to control the high prices of Australian minerals exports.
Optimists on the Australian side concluded that the first step in the FTA negotiations would be to educate the Chinese about how prices work in free markets. Some then thought that optimism might be misplaced when Chinese Government officials, including Fu Ying, the ambassador in Canberra, ran an energetic campaign last year to influence negotiations on iron ore prices.
Now there are official media reports in China that officials are orchestrating a buyers cartel for the forthcoming negotiations over iron ore prices with Australia’s mining companies, although the Chinese Ministry of Commerce has denied them. Separate reports are emanating about what the price should be.
Canberra’s first response should evidently be diplomatic. In the world of multilateral trade, you do not rig the rules or use government to intimidate parties in commercial transactions. The General Agreement on Tariffs and Trade was created to stop that.
And in this civilised world, when governments have beefs, they discuss them openly with trading partners, particularly when they are friends and even negotiating FTAs with them.
This is what DFAT should do first and it is an obvious subject for the Prime Minister to raise when the Chinese President visits next month.
That would contrast with how Beijing handled Canberra in the early years of the Howard Government when it objected to a string of statements and reports in Canberra and froze ministerial visits without the courtesy of raising its concerns about them beforehand.
Australia has clear right of recourse to the WTO. Its rules do not permit governments to subject some trading partners, but not others to controls on trade. They do not permit members to restrict trade by means other than tariffs.
Hiding behind opaque administrative arrangements does not work either. Japan tried to manage imports of beef in this way and Australia and the US successfully challenged those as impermissible under GATT rules.
Perhaps Beijing thinks that because the exposure of Australia’s minerals industry is now so large to China’s market it can exercise brute economic power to force down the price of iron ore. It should check Australia’s record in trade disputes. Canberra has challenged the US, the EU and Japan in the GATT and WTO when it thought the issue important enough. It is also likely that the US will also now start to call China to order in the WTO.
Alan Oxley, a former Australian ambassador to the GATT, is director of ITS Global, consultants on global issues.
