How to hit China where it hurts

The European Union has bared its teeth at China during the latest World Trade Organization (WTO) trade policy review.

Given how seriously China takes the WTO (and how much it has benefited from being a member of the club), this is one of the best levers to use against Beijing’s increasing protectionism.

Since the financial crisis, a number of foreign companies have complained that they are being discriminated against in the Chinese marketplace. And while China talks a good game about its role rebalancing the world’s economy, the reality is rather different.

As the EU points out: “In 2009, bilateral trade in goods was €296 billion ($361 billion) and trade in services amounted to €31 billion. However, the EU is still exporting more to Switzerland than it is to China.” Hmm. So much for the imminent arrival of the Chinese consumer.

Meanwhile, the Chinese government continues to flout its WTO commitments and keep some marketplaces very firmly shut. The EU has a good go at Beijing over this.

“The WTO Secretariat’s report is also very clear in describing, even if only very briefly, the continued direct government intervention to guide resources into particular sectors, particularly, manufacturing.

“As the world’s largest provider of manufactured goods, there is no possible explanation that could justify this direct intervention and guidance. The sector is clearly already ‘grown-up’ and mature enough to perform alone: On what grounds can China justify the protection – for instance through ownership caps – of its automobile sector which is nowadays the world’s largest producer?”

Clearly, despite China’s membership of the WTO, there remains a lack of communication over trade issues between the Middle Kingdom and its major partners. The EU points out that it took China two years to answer some questions it posed during the last Trade Policy review in 2008.

Here are some more extracts from the EU statement:

“We would like to put particular emphasis on the need for continued reform, as we have seen some worrisome signals of stagnation in this process. Although China reiterates its firm commitment to continued opening-up and reform – we find the word reform almost 30 times in China’s government report – we believe this does not duly characterize the current situation in China, where our companies are reporting on a worsening of the business climate. Continued reform is highly needed for instance in the services sector – and just to mention some, reforms in financial services, insurance, or telecoms could certainly contribute to the recognized need for faster development of the services sector. Overall, we encourage China make further progress in its reform process.”

“China’s Compulsory Certification Scheme (CCC) continues to represent a major obstacle for foreign companies exporting to China due to the complexity, costs and length of the procedure. Instead of trying to reduce administrative burdens and trade disruptions reported by many Members in the TBT Committee, China seems determined to expand the scope of the CCC to new items such as ICT products.”

“The EU also urges China to take all the necessary steps to align Chinese standards to international standards, and to avoid putting in place diverging Chinese- specific national standards where international standards exist. There is still a long way to go as only 47% of Chinese standards are aligned with international standards, as mentioned in the Secretariat’s report.”