The Australia-China Chamber of Commerce and Industry of New South Wales Newsletter No. 20 29 May 2000
CONTENTS Lesson 1 Lesson 2 Lesson 3 Lesson 4 Implications for Australia-China Trade Sources of Information
ACCCI ELECTRONIC NEWSLETTER NO. 20 The focus for this issue is the Global Trade After the PNTR Vote. It was announced last week that the U. S. House of Representatives approved permanent normal trading relations with China by a surprisingly wide margin of 237 to 197. This paves the way for China to join the World Trade Organisation (WTO), and the expected opening of China's markets should give a definite boost to global trade. It is not all that it seems, however. An unlikely coalition of trade unions, religious groups, environmentalists and military veterans in the U. S. fought a fierce campaign to defeat the bill. It is far from clear that the intensity of their opposition diminished with the 24 May vote. The division of opinion was closer than the final numbers indicate. As late as the morning of the 24th, the bill required one or two more votes to pass. When these were finally committed, a flood of previously uncommitted lawmakers joined the winning side. These could, presumably, have swung to the other side if the vote had gone that way. Moreover, the voting is not yet over. Under current U. S. law, President Clinton must ask Congress for a one-year extension of China's normal trade relations by 3 June. The U. S. Senate is not expected to approve the PNTR bill until later in the month, thus leaving trade relations with China in a technically uncertain state until the bill becomes law. Debate on the one-year extension is possible, if any member of the House of Representatives demands it. All of this might appear to be matters of internal politics in the U. S., but in a globalised community the issues and outcomes have direct bearing on China and on China's trading partners, including Australia. Additionally, the debate on the issues conveys a number of lessons, which we feel are important enough to mention.
LESSON ONE: A political leader who changes strategies causes confusion and opens the way for interest groups to reinvigorate the abandoned strategy. The annual review of trading rights for state-dominated economies arose from the Jackson-Vanik amendments to the U.S. Trade Act of 1974, which originally aimed at ensuring the release of people who wanted to escape the Communist bloc nations for religious reasons. President Clinton linked the review to human rights generally, and changed the name to "normal trade relations" (rather than "most favoured nations"). The negations for U. S. support of China's entry into the WTO included a detailed list of concessions from the Chinese, as well as a timetable for implementing the concessions. In return, the Clinton Administration agreed to de-link human rights from the negotiations and also promised to ask Congress to approve permanent normal trade relations. This de-linking was a change in strategy that seemed appropriate in view of the substantial content of the 250-page document "Agreement on Market Access between the People's Republic of China and the United States of America". It nevertheless angered groups that used the annual exposé for various purposes. These groups fanned the opposition. The possibility of a defeat for the PNTR, in turn, angered U.S. business interests that were likely to gain from the "Agreement on Market Access". A defeat of the PNTR would not prevent China from joining the WTO, but it would alter the bilateral relations between the U.S. and China if China were to become a member. Although WTO members are expected to treat all other members in a uniform way, in relation to trade, an abrogation of this is possible under WTO articles. For example, both Cuba and the U.S. are members of the WTO, but the U.S. continues to deny Cuba full trading rights. Without PNTR, China could refuse to grant to the U. S. any WTO trading privileges that were not negotiated and agreed upon prior to the "Agreement on Market Access". This would allow U.S. exporters to enjoy most of the tariff concessions that China extends to any other country (this was negotiated in 1997), but market access in services, and in many manufacturing activities in China, could "fall through the cracks" for U. S. companies. Not surprisingly, U.S. manufacturers that were set to open plants and offices in China as a result of the concessions mounted a strong campaign to secure passage of the PNTR. This, in yet another turn, motivated trade unions to oppose it. Although this chain of events may have been difficult to foresee when human rights were initially linked to the annual trade reviews, some analysts place much of the blame on the Clinton Administration for initiating the "chain".
LESSON TWO: A political leader who does not change strategies when circumstances are altered risks being "painted" into a corner". The Reagan and Bush Administrations (1981-1993) began a "New World Order" in which big government was "bad". Most governments became "big" through a build-up of regulatory apparatus and intervened at the wrong time, in the wrong way and sometimes for the wrong reasons. The results often restricted growth in productivity and therefore lowered standards of living below the level that could be achieved in the absence of intervention. Free trade on a global basis was of course desirable, but that could be attained only by overcoming resistance that had accumulated over many years of regulatory activity. Interventions were necessary in order to "level the playing field", but would no longer be needed when a level field was achieved. Ironically, interventions to stop interventions proved to be difficult to stop, largely because they succeeded. The volume of world trade grew substantially faster than the growth in output during that period. The Clinton Administration built upon the Republican Party initiatives and repackaged and reapplied them as a regional initiative under NAFTA. That altered the circumstances. The subsequent shift from a regional to a global perspective retained the bilateral strategy of ensuring that national interests were protected. Not surprisingly, every other country followed with their own national-interest objectives, and these objectives were not necessarily the same as those of the U. S. Markets became interdependent through this globalisation process, but a level field to one nation was perceived by another nation to be adversely tilted. There are no effective means for resolving such differing perceptions. Combining Lesson One and Lesson Two suggests that a political leader will be unable to avoid actions that render leadership ineffective. This seems to fit the situation for many countries. Perhaps we need better institutional arrangements to allow greater flexibility in defining the playing fields. We may also need a better set of rules to determine when self-interest of one person or group encroaches upon that of another. We have no immediate answers for this issue, but we nevertheless believe that someone should begin to think about them. We also believe that the PNTR debate is a good starting point and we outline some of the relevant aspects.
LESSON THREE: Human rights mean different things to different people, and ways of securing the rights will therefore differ. Chinese Activists in Exile Some Chinese dissidents now residing in the U. S. supported approval of the PNTR bill while others refused to abandon support of the annual review. The conflict effectively neutralised their influence in Congress. Congressional opponents of the trade bill staged a rally on Capitol Hill to introduce several dozen Chinese workers, student leaders and veteran activists who urged Congress to vote down permanent trade ties. "China will never change unless it's under pressure," said one veteran of the opposition movement who believed that he would not have been released by the Chinese authorities without the annual review. President Clinton pointed to support from well-known opposition leaders in China and elsewhere. He cited an opinion expressed a former Beijing human rights and environmental activist, who stated: "I believe that permanent normal trade status, with its implication of openness and fairness, is among the most powerful means of promoting freedom in China." The Conservative Republicans Comments expressed during the debate indicate that religious freedom was the principal source for the strong opposition expressed by this group. Religious persecution becomes inflammatory to those who are more deeply committed to religious beliefs. For Americans generally this has a wide application, due mainly to the importance of religious freedom in many of the original 13 colonies. In the U. S., as elsewhere, some religious groups have become politically active, thus making it difficult to distinguish motives and objectives. Rather than lessen the importance attached to religious freedom, political and social activism of such groups has tended to link religious freedom with other freedoms. Authoritarian regimes that show any tendency to suppress, restrict or to censor are thus presumed to be guilty of human rights violations. For most Chinese, choices were restricted after 1949 mainly through dependency on the state. This changed substantially after 1978 and Chinese are much freer (and richer) than they were previously. The division of opinion about human rights arises principally from differing views as to what must come first. Trade Unionists Much of the world sees the rural-to-urban migration in China as additions to the pool of workers in nearby Chinese cities. American unionists see it as additions to the global pool of workers and that pool (consisting of Chinese, Mexicans and others) is considered to be qualitatively different from the U. S. labour pool. A transfer of manufacturing enterprises from the northern states to the southern states in the U. S. was associated with activism by those who were directly affected by northern plant closures. It was nevertheless accepted by the population generally. Southerners also had a "right to work" and a combination of market and non-market pressures should eventually produce similar working conditions and wage rates for the southern workers. This was viewed differently, however, when factories in, say, El Paso, Texas were moved across the border to Juarez, Mexico after the NAFTA Agreement was implemented. Non-market pressures for better wages and working conditions were less certain from a national government over which the displaced workers, and their union representatives, had little or no influence. Since market pressures were considered to be ineffective in the U. S. in achieving the desired north-south equalisation, they were not expected to be effective in a further southerly movement of manufacturing enterprises. Thus, the "right to work" and the "right to better working conditions" became de-linked when international boundaries were crossed. Many see this de-linking as a somewhat sophisticated form of job protection, and it obviously is to some degree. It is more than a repackaging exercise, however. If organisations such as the WTO exist for the purpose of establishing rules for the smooth flow of goods and services across national boundaries, then many people will continue to press for rules to allow a fair and reasonable flow of employment opportunities. The Congressional-Executive Commission on China, which became part of the PNTR bill, has little to say about "workers' rights", apart from bans on the importation of products made by prison labour. Until some consensus of opinion is reached on the issue, the nature of the globalisation process as the creation of a borderless planet will be viewed by many as another "playing field" that is constantly being tilted.
LESSON FOUR: The self-interest that drives the market-based economic system will create greater internal conflict as the globalisation process expands. An analysis by the New York Times of the voting patterns for the PNTR bill suggested that members of the U. S. House of Representatives voted according to their constituencies. This is of course what we would expect in a democratic system. The basic point, however, is that self-interests became paramount. It was in the self-interest of the U. S. Congress to vote in a way that retains re-election prospects. It was in the self-interest of the constituents to communicate their interests and to insist that those interests be taken seriously. Globalisation is certain to increase these pressures. The economic system records "votes" of consumers and producers in monetary units, giving wealthy consumers and producers a larger number of "votes" than poor ones. The political system in most countries is based upon the notion of one-person, one-vote and exists partly to equalise the greater economic power of those who command a greater amount of productive resources. International organisations such as the WTO will continue to be based upon a modified one-country, one-vote system. Anything else would be unworkable for the foreseeable future. When these international organisations concentrate on globalised markets (where "wealth votes" count) the internal voting system (where "country votes" count) will be continuously in conflict with normal market outcomes. This conflict is likely to filter down to all organisations that convey trade and investment objectives of their membership. The task of finding a safety net to protect those who suffer as a result of the conflict is likely to be an extremely difficult one.
IMPLICATIONS FOR AUSTRALIA-CHINA TRADE AND INVESTMENT Depending upon the method of measurement, China is currently either the world's second or the third largest economy. Thus, within a globalised setting, the "wealth votes" of China are already substantial and are certain to increase. This is an obvious explanation for the generally favourable acceptance by most Chinese of the short-term costs associated with WTO compliance. It also explains the greater concern in the U. S., as compared, for example, to Australia. Sander Levin, the Democrat representative in the U. S. House of Representatives who proposed the Congressional-Executive Commission on China, stated during the debate: It seems to me that trade and globalisation can be forces for good, and we can't stop them. But we have to shape them. In China's case, you can't just vote yes and trust that social and economic changes will come along together." The "shaping" will be dictated by national self-interests and those interests will be dictated by the self-interests of the more vocal constituents. This suggests the following: · Australia cannot rely on "old friends" in trade and investment matters. The de-linking process that surrounds globalisation will continue to occur when it is in the self-interest of those who control the linkages. · Herding behaviour, which is often a comfortable and relatively safe way to enjoy "new grass", can be counterproductive if the "grass" is already trampled by the large "wealth votes". It will be necessary to forge separate links that convey mutual benefits over a period of time. This requires a greater amount of homework in determining what benefits are most desirable and in seeking partners for each type of benefit. In the past, we have generally taken these for granted, but the rest of the world is beginning to re-examine them.
SOURCES OF INFORMATION The Challenge of Global Capitalism, by Robert Gilpin (Princeton University Press, 2000). "Details of China Trade Pact Released by U.S.", New York Times, by Joseph Kahn, 15 March 2000. "Snapping Up Chinese Goods Despite Qualms on Trade Bill", New York Times, by Joseph Kahn, 17 May 2000. "Conflicting Views Hinder Dissidents on China Trade Vote", New York Times, by Joseph Kahn, 19 May 2000. "Chinese See U.S. Trade Bill as Vital to Future Reforms", New York Times, by Elisabeth Rosenthal and Joseph Kahn, 21 May 2000. "Lighting Up a Lesson in China Trade", New York Times, by Tom Redburn, 21 May 2000. "Furor Over Bill Obscures Crucial Emigration Issue", New York Times ,by Joseph Kahn, 24 May 2000. Key Points in US Proposal to Monitor China Rights", ChinaOnline, 24 May 2000 "PNTR: Forging A Link To Trade With China", ChinaOnline, by John J. Sei, 24 May 2000. "The PNTR Vote's Over, What's Next", ChinaOnline, by Harvey Sicherman, 25 May 2000. "How the Hard-Driving G.O.P Gave Clinton a Trade Victory", New York Times, by Eric Schmitt, 26 May 2000. "Clinton Must Seek Temporary China Trade Extension", ChinaOnline (Reuters), 26 May 2000. Internet Addresses: ChinaOnline: http://www.chinaonline.com New York Times: http://www.nyt.com Send comments on this newsletter to: j.zerby@unsw.edu.au Return to the Index Page