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‘East Asia trade bloc would balance NAFTA and EU’

Asia Today | Sydney | 10 November 2004

‘East Asia trade bloc would balance NAFTA and EU’

CHINA WILL MAINTAIN vigilance over developments in Taiwan’s “pro-independence” movement, but it is essentially a bilateral issue between Beijing and Washington, says prominent Chinese official Long Yongtu.

“If looked at from a broad perspective, the Taiwan issue is really a bilateral issue,” says Long, one of China’s most public faces.

The well-travelled Long told ASIA TODAY INTERNATIONAL: “I think the US and China are enjoying a better relationship. Last year, Colin Powell (the US Secretary of State) told me he believed the US-China relationship is in the ‘best shape ever’ in our history.”

Long, who was in Sydney recently to argue the case for launching an Australia-China Free Trade Agreement, says the “core set” of American (foreign) strategy has changed since September 11, 2001. Since then, it has been about international terrorism. He says Washington is concerned about terrorism in this region and China’s approach to terrorism. “We share a lot of the concerns of the US on this issue,” he says.

“I do not believe the US will take Taiwan as a top priority in terms of its security or political strategy. Without the support of the US, I do not think Taiwan can achieve independence.” Long adds that it is clear Australia also does not support an independent Taiwan. “While we keep vigilant on Taiwan’s independence movement under Chen Shui-bian’s administration, I am still optimistic that people will question whether Chen can achieve his ambition.”

Long is China’s best-known trade negotiator, having led China’s decade-long negotiations for accession to the World Trade Organisation in tough rounds with the United States and the European Union. At times Vice-Minister of Foreign Trade and Economic Co-operation, Long has since left the Government to become the Secretary-General of the Boao Forum for Asia (Beijing wants the forum to become a premier international economic talkfest, in answer to the famous annual Davos conference).

“I hope Doha can be concluded as soon as possible because it is significant to the multilateral system,” he says. “There is a tone of optimism in the Doha Round. China is very positive, and we are comfortable with what has been agreed, including the commitment to agriculture. The key players have agreed to give up agricultural export subsidies, and we have agreed to that. I still believe multilateral negotiations should be the best choice for all trading partners. These are the cornerstone of all multilateral trade and they are anti-discriminatory among trading partners. The World Trade, Organisation should be the best choice.” It could reinforce the global trade agreement. But with 147 members, Long says negotiations have become complicated, and that progress is slow.

“However, given the difficulty the WTO now faces, bilateral FTAs if properly done could be complementary building blocks to a more liberalised trading agreement in the world,” Long says. In fact, China sees bilateral FTAs, especially with developed economies like Australia and New Zealand, as building blocks for a regional grouping in this region.

Beijing would like to see the emergence of an East Asian arrangement such as the European Union or the North America Free Trade Arrangement (NAFTA). Such an East Asian grouping would balance the world system, which is slowly being carved into blocs.

“But East Asia is complicated. Our northern neighbours are a bit difficult and, for a long time to come, it would be difficult to have meaningful free trade agreements with Japan and South Korea.” Long is an enthusiastic supporter of an FTA with Australia, saying that together with its FTA with New Zealand, it could set the stage for negotiation with Japan and South Korea. China has already started negotiating for an FTA with the Association of South East Asian Nations (ASEAN).

China is part of the so-called ASEAN-plus 3, initiative, which includes Korea and Japan. ASEAN+3 has proposed the formation of an economic grouping. Long says this is complicated because of the size of Japan and Korean economies. But separately, the Heads of State - of Japan, Korea and China - have met in preliminary meetings and agreed to first undertake a feasibility study for an arrangement that covers the three northern neighbours.

Long says any regional grouping would have to be complementary to the multilateral system under the auspices of the World Trade Organisation. For a long time, China’s policy was to be part of the global trading system, says Long, but its mindset started to change when it realised that China is not part of a regional arrangement or bilateral FTAs. It now seems logical for Beijing to begin to pursue bilateral agreements. “Everybody is negotiating bilateral FTAs, why not China?” he asks.

But before China can begin negotiating with Australia, a major hurdle has to be crossed. Beijing seeks market economy status - a request strenuously objected to by Australian industry. Long is adamant that “China is a market economy”. China’s trading partners, including New Zealand and Chile, which have begun negotiations for an FTA, have offered China “market economy status”, but Australian industry is digging in deep. Canberra will have to convince industry that existing protective safeguards against cheap Chinese imports will be preserved.

“If Australia decides to apply market economy status, that would be good news for both sides,” Long says, adding that Australian industry will still be protected by anti-dumping measures. He believes that, because of the overwhelming benefits to both sides, the governments will be able to overcome the objections of industry groups in Australia to move ahead with negotiations for an FTA.

Long expects China’s negotiations with ASEAN to be concluded “very soon”. “We have been talking for about two years. Negotiations with New Zealand are also well advanced.”

As a softener to Australian industry, Long says the Chinese market is wide open for high-tech components and parts. These products require research and development and a high level of technology which, as yet, does not exist in China. He says China imports 60 to 70 per cent of what it requires, mostly from South Korea and Japan.

Even if Australian companies manage to carve up 10 per cent of the market, this would represent huge opportunities. He notes that Australian investment in China is low, less than one per cent of the US$60 billion which arrived last year.

On the issue of China’s deflationary impact on global prices, Long says: “The first point is that the view that China is a major manufacturing centre is only right when it comes to low-end manufacturing. These are cheap, low value-added products. China manufacturing does not have a dominant role in (global) manufacturing. The role is exaggerated.

“China is not in a position to influence world prices except in industrial products such as steel, cement and other things. China is not the sole producer of office equipment and other products. For many products, Chinese imports components and China assembles them to take advantage of labour costs to finish products in China.

Imported components in these products are invisible to the global consumer because they are hidden by the made-in-China label. Yet many of these products are produced by multinational companies.”

When told that smaller developing countries, like Mexico, are now affected by China’s cheap exports, Long says Mexico still has a competitive advantage (over China) in terms of tariff market and relationships with major countries (US and Canada). “China is not taking over any country’s share. It is not our intention,” he says.

 source: Asia Today