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Doha failure Beijing’s chance

The Australian

Doha failure Beijing’s chance

Separate trade agreements will allow China to cherry-pick the deals it wants writes China correspondent Rowan Callick


Doha didn’t excite China. Beijing has met its demise with a shrug.

For a country whose Government’s legitimacy depends crucially on continued rapid growth, and whose growth appears to depend crucially on trade, which now occupies 70 per cent of gross domestic product, the failure of the breakdown of the World Trade Organisation’s Doha round to attract attention is curious.

The Chinese media have all but ignored it, and senior officials have scarcely referred to it.

One reason is that trade under the Hu Jintao’s leadership team has lost its gloss. The US and European Union’s claims of "unfair competition" from China are irritating to the Government, especially since about 60 per cent of exports are produced by foreign or partly foreign-owned companies.

The profit margins for most exported products have become desperately thin, as input costs keep rising and as the pricing power of a smaller group of retailers, led by Wal-Mart, keeps growing.

The International Herald Tribune published a study last Friday about a Chinese factory in Tianjin that makes leather work boots. It sells them for $20 a pair, on which it earns a profit of 85c. The US retailer sells them for $65 a pair, on which it makes a $4.50 profit.

The overheating of the economy is being blamed on excessive foreign inputs which are now seen as driving growth beyond acceptable safety limits — by 10.9 per cent in the first half of the year.

Much of that investment is going to the export sector, attracted by the need to keep cutting costs — most simply, by employing low-wage Chinese workers.

China acceded to the WTO under the previous leadership team of Jiang Zemin and Zhu Rongji in December 2001. In December, it will fulfil its accession obligations — viewed by some in the current administration as onerous.

At the death of the Doha talks in Geneva, the six parties that attempted to concoct a last-minute cure were the US, the EU, Japan, Australia, Brazil and India. No China.

That’s not to say China has lost interest in trade. That would be foolish. It remains an animating force in the country. But it no longer tops government priorities, and this is being sensed throughout the vast administrative edifice.

US Trade Representative Susan Schwab said developing countries were in part reluctant to open their markets for fear China, itself still treated as a developing nation at the WTO, would crowd them out.

She is probably right, certainly from a psychological perspective. But Asian Development Bank research claims that full global liberalisation would add just 0.2 per cent a year to China’s GDP by 2025.

China’s Government is convinced that where it really needs trade openings, it can engineer them bilaterally — especially, right now, with Asian, African and Latin American countries where it also seeks secure access to supplies of energy and other resources.

In this context, Foreign Minister Alexander Downer was right to say, in a speech last Thursday to the Australian Chamber of Commerce in Hong Kong — the biggest in the world — that there was "new energy" in the free trade agreement talks between the countries.

China is being courted by much of the world as a preferential trading partner. It has already signed deals of sorts with Pakistan, the Association of South East Asian Nations and Thailand (restricted essentially to agriculture), and is talking to New Zealand, Chile, South Africa and the countries of the Gulf Co-operation Council in the Middle East, which provide more than 40 per cent of China’s oil. India might soon be joining the queue.

China’s neighbours send it the components they make for assembly, and most of the resulting products are then exported. It has thus become the hub of East Asia’s economy. If China can cut special deals with these partners, it expects to end up ahead of the game.

Japan’s belated answer is to press harder for a free trade area that covers all the countries of the East Asia Summit: Australia, China, India, Japan, New Zealand, South Korea and the 10 ASEAN member states.

That process began at the end of 2005 and the prospect of such a vast trade bloc emerging would certainly make the North American Free Trade Agreement countries and the EU sit up.

China would naturally play a leading part in such a group — in Japan’s absence, clearly the leading part. But the presence of its chief political competitor Japan — whose economy China would see itself emulating in the not-too-distant future — would be seen by Beijing as muddying the water.

China is reluctant to give the US any encouragement on the trade front either. A recent China Daily commentary by trade academic Miao Yingchun of Wuhan University complained that the US was stepping up its co-operation with leading trade partners, especially the EU and Japan, on their stance towards China.

"US trade policy is interfering more deeply into China’s internal affairs," he wrote. "Transformational diplomacy is actually enhanced interference supporting internal reform."

Shocking. For people like Miao, all trade reform appears to comprise unacceptable political pressure.

Despite China’s wishful thinking, Doha may not be dead, just dormant.

Don McKinnon, the New Zealander who is secretary-general of the Commonwealth Secretariat — and widely dubbed "the great white chief" — wrote on June 24 about the round: "Success is assured."

He may well know something the rest of us don’t.

China is not too fussed either way. A Lazarus-like Doha resurrection would help to lever open some new markets. Final burial would leave it free to cherry-pick the fresh preferential deals it wants, and diplomatically filibuster the rest.

Fortunately for Australia, it’s on the former list. And the chief Chinese negotiator with Canberra is Zhang Xiangchen — also the head of China’s WTO office — and a convinced global liberaliser who comprehends clearly the extent of the recent gains from China’s accession, and the further benefits that would come from broader and deeper openings.

The Beijing hierarchy, especially determined to insulate the country’s fraught farmers from further cause for resentment and, in places, riot, will take a lot of convincing to open up agricultural markets any wider. And it wants to retain the other "strategic" sectors, including banking, in state hands.

The trade debate inside China is not over. But progress anywhere, and especially there these days, is harder to come by, something Downer and his negotiating team surely understand despite his appropriate public optimism.

 source: The Australian