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Hello from Brussels, where the details of the anti-coercion instrument we wrote about on Monday have been published and are being intensely debated. One view is that, interpreted broadly enough, it would essentially give the European Commission’s trade directorate control over EU foreign and security policy. Call us captured by our sources, but frankly you could do worse.
Today’s main piece is on the 20th anniversary of China joining the World Trade Organization, a birthday that will evoke mixed feelings in Beijing and Geneva and the distinct lack of a party atmosphere in Washington.
Charted waters looks at a new index of shipping costs, which its founders hope will set the benchmark for the measurement of container freight rates.
US needs to be in it to win it
Rich countries have a pretty standard narrative about China’s membership of the World Trade Organization, which goes like this. It joined in December 2001 following a decade of enthusiasm about the irresistible march of globalisation. The assumption was that the arc of Chinese development was long but that it bent towards capitalism. China’s status under WTO rules as a “non-market economy” was even given a pre-determined expiry date.
That turned out to be wrong. Reformers such as Zhu Rongji, Chinese premier from 1998 to 2003, were supplanted by aggressive economic nationalists. True, Beijing actually has a fairly good record of complying with the letter of WTO dispute settlement rulings, having for example dismantled state support to its wind turbine industry. It has joined the multi-party interim appeal arrangement, the workaround institution that various countries set up after the US put the WTO appellate body into the deep freeze.
But the gaps in the WTO rule book, which was designed for market economies, have become all too obvious. The subsidies disciplines leave a lot of the huge range of Chinese trade-distorting government interventions uncovered. Attempts to bring more of the companies and agencies of state under them have been foiled by the unhelpful definition of a “public body” set down by the WTO’s dispute settlement system.
With regard to negotiations, China has refused to give up its special and differential developing country status. It sat on its hands as the multilateral Doha round sickened throughout the 2000s before popping up at the fateful WTO ministerial in 2008 to earn some credit by administering the final blow.
This narrative isn’t wrong, as far as it goes — and the recent review of China’s trade policy at the WTO shows a lot of rich countries share the critical analysis. But it ignores the errors of the US, in particular, in sidelining the WTO and China within it. You don’t have to agree with all of this invaluable paper by Henry Gao at the Singapore Management University, a relatively sympathetic analysis of China’s experiences in the WTO, to recognise Washington’s own role in bypassing and undermining the institution. The US has systematically barked up a whole forest of wrong trees ever since China joined, wasting political capital, alienating allies and creating expectations on Capitol Hill it couldn’t possibly meet.
Now that the Doha round is toast, it’s easy to forget just how much time and energy it sucked up after the US and the EU foolishly insisted on launching it — at exactly the same ministerial meeting in 2001 as admitted China. After Washington promised its farmers unrealistic new export market access in the round, the talks hit resistance from developing countries. In reaction, the US redoubled its efforts to pursue a strategy of “competitive liberalisation” — a rash of preferential trade deals — which undermined the WTO.
The US has also been utterly obsessed with defending certain methodologies of antidumping duty (you can bone up on the “zeroing” saga here) from the depredations of the WTO’s dispute settlement process, an institution it has now done its best to undermine. There are plenty of reasons to be cross with WTO dispute settlement, but the US has allowed its animus to be driven too much by a small number of sectors (usually steel) and their antidumping lawyers (people such as Robert Lighthizer).
By contrast, it took until 2017 for the US to join together with the EU and Japan to come up with new definitions of trade-distorting subsidy which might cover more of China’s state capitalist model. That project has been stop-start ever since, had to be relaunched last month, and has failed to broaden beyond the three governments involved. Fair enough, it’s fantasy to imagine they will pitch up at the WTO clutching their bits of paper with new subsidy rules scrawled on and all the other members will paste them into the WTO rule book without demur. But you can’t beat something with nothing, and if you want fundamentally to shift the debate over subsidies, you need to focus on that much more than on antidumping methodology.
One solution to get the US and China round the same table is laid out here by the venerable Jim Bacchus (a founder member and former chair of the WTO appellate body, though he doesn’t like to mention it). Bacchus’s way forward is a grand bargain where China accepts broader subsidy rules and addresses issues such as forced technology transfer in return for the US cutting agricultural subsidies and reforming its trade defence instruments.
To be honest, we’re not super-confident that there’s going to be a lot of reconciliation. The US isn’t engaging meaningfully with WTO reform discussions, whatever warm fuzzy vibes US trade representative Katherine Tai may be sending out. Les absents ont toujours tort, as they say in Brussels, or “you gotta be in it to win it” in the Washington version. China, however annoying it may be, is at least turning up and participating.
If we all teleported back to 2001, the other big economies would no doubt write many more explicit rules into China’s accession agreement, and they’d be right to do so. But we are where we are. Not until the US signals that it’s a better guardian of the WTO system than China will Washington earn the credibility to make up for lost time.
The spike in shipping costs has led to a wave of attention in benchmarks measuring the price of transporting a container of goods across the world’s oceans. With this in mind, shipping data outfit Xeneta and Compass Financial Technologies, a financial index provider for alternative asset classes, have today launched the Xeneta Shipping Index by Compass.
The aim of the index, which will cover eight of the world’s leading trade routes, is to be the most accurate and transparent daily container freight index available and to comply with EU rules on benchmarks for short-term shipping freight rates. Here’s a peek at what the data show for the east Asia to US west coast and North Europe to South America east coast voyages. Claire Jones
The UK has threatened the US with higher retaliatory tariffs if it doesn’t lift the Trump-era duties on steel and aluminium.
The FT editorial board opines that Germany under Olaf Scholz will have to move beyond Angela Merkel’s doctrine of “change through trade” when dealing with China.
More on Scholz: the new German chancellor is prepared to halt construction of the Nordstream II gas pipeline as part of a package of sanctions if Russia invades Ukraine.
The US might be trying to bring home chip supply chains, but it seems its own manufacturers have other ideas and would prefer to invest in Asia instead. Another US chipmaker, Entegris, plans to more than double its investment (Nikkei, $) in Taiwan to $500m. Alan Beattie and Francesca Regalado