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US-China trade spats cloud prospects for progress

The two countries need to work together, not engage in recriminations

PUBLISHED : Wednesday, 20 January, 2016, 8:18am
UPDATED : Wednesday, 20 January, 2016, 8:18am

This column has argued on several occasions that multilateral negotiations on trade, climate change and other global issues can only succeed when China and the United States are on the same side. At the very least their differences must be sufficiently similar to permit mutually compatible outcomes.

The need for US-China alignment is dictated by the sheer economic size of the two parties relative to the rest of the world.

But preferential deals are in a different class. Initiatives such as the recently concluded but yet to be ratified 12-nation Trans-Pacific Partnership (TPP) – which excludes China – are shaped partly by geopolitical rivalry. The same can be said of the Asia-based Regional Comprehensive Economic Partnership and the EU-US Trans-Atlantic Trade and Investment Partnership.

The contrast between rivalrous preferentialism and multilateral cooperation favours the latter. The World Trade Organisation’s (WTO) inclusiveness trumps the parochialism of exclusion, especially when its motivation is geopolitical.

Cooperation between the two giants in the room was in evidence at last month’s WTO ministerial conference in Nairobi. It facilitated the adoption of a formulation that could break the stalemate that has frustrated progress in the WTO’s Doha negotiations since their launch in 2001.

If China and the US make common cause, a necessary but insufficient condition exists for success. Others have to agree too, although the costs of blocking a consensus are inversely related to country size.

In negotiations among parties with diverse economic interests, the trick is the trade-off

Just as China and the US facilitated the Nairobi outcome, whether they work together now will shape the opportunities for leveraging the Nairobi outcome towards real progress in 2016 and beyond. That progress could embrace issues that have frozen Doha and explore new subjects in need of multilateral attention.

But some current US-China trade spats are clouding the prospects for advancement. One concerns the updated Information Technology Agreement (ITA) completed in Nairobi. The ITA seeks to secure duty-free trade in IT products.

The update, initiated in 2012, was needed to incorporate new products that have emerged since the original 1996 agreement.

When agreement was finally reached last month in Nairobi, it was accompanied by assertions, predominantly from the US side, that China had failed to play a helpful or constructive role in closing the deal. Similar sentiments from informal government sources and the private sector have been heard before.

The basis for the complaint resides in China’s wish to cut its tariff to zero over a longer period, extending to seven years. Most of the rest of the 54 participants cutting tariffs on the 201 products included in the deal will phase in the duty elimination over shorter periods.

In negotiations among parties with diverse economic interests, the trick is the trade-off. If a trade-off is agreed, it is unclear why recriminations make sense. Under the TPP, the US, for example, has insisted upon maintaining tariffs of 25 per cent on certain trucks and SUVs for more than 20 years. Others agreed to this, so what would be the point in carping?

Of more concern, however, is that China is being prevented – fundamentally on account of US opposition – from participating in the 23-party plurilateral negotiations for a trade in services agreement (TISA). This negotiation started as a direct result of frustration with hostage-taking in the Doha round of multilateral trade negotiations.

One position was that nothing could happen in services until farm trade was settled. So services took flight from the WTO, leading to the TISA initiative. Participation in TISA was supposed to be open to all.

China’s putative intransigence in ITA negotiations, and in negotiations on priority liberalisation of environment-friendly goods, is being cited as an argument for continuing to shut the country out of TISA. China asked to join the negotiations in 2013, only months after they were launched.

Such tensions are damaging for both parties in the relationship – not to mention the harm they do to everyone else in the WTO. Advancing shared interests on the basis of constructive dialogue – as has often happened in the past – should surely override progress-inhibiting recrimination.

Patrick Low is a fellow at the University of Hong Kong’s Asia Global Institute

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