Will 'Section 301' affect Chinese economy?

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Last updated at: (Beijing Time) Wednesday, April 07, 2004

Will 'Section 301' affect Chinese economy?

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March 19, the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), the biggest one in the United States, published a piece of news on its website, declaring that it had handed in a petition to the US trade representative Robert Zoellick in the hope that the government would use the "Section 301 of US trade law" to stop China "artificially keeping labor cost low".

This is the first time a US labor union calls for a sanction against a foreign country by using related provisions under the Section 301. This also shows that American NGOs are increasingly demanding their government to exert pressure on China.

In June 2003, the Coalition for a Sound Dollar once asked the government to use the "Section 301" to pressure China into revaluing its Renminbi.

The act of AFL-CIO reflects a hostile attitude towards Chinese commodities by some American interest groups, while Beijing's economic experts say at present the US government is unlikely to make any "extremist responses", but the "anti-outsourcing" movement may affect China's ongoing structure updating of its industries.

Labor cost too low?

In its letter to the US trade representative Robert Zoellick, AFL-CIO pointed out that some Chinese workers had fallen into a "nightmare of working 18 hours per day", and under such unprotected conditions they have caused loss of thousands upon thousands of jobs in American factories.

This is the first time the organization quoted the "workers' rights and interests" part of the US trade law passed in 1974 to ask Bush administration to impose sanction against China according to the Section 301, said John J. Sweeney, president of AFL-CIO. They ask the US government to impose sanction against China according to a US law instead of the WTO rules, and demand the Bush administration to talk with Beijing so as to bring China's labor conditions up to "international standards".

A researcher from the Chinese Academy of Social Sciences brushed the act aside by calling it "nonsense"-China's low labor cost is entirely caused by the nation's rich labor supply which exceeds market demands, and the Chinese government has repeatedly raised the standard of minimum wage instead of deliberately keeping labor prices low.

Viewed from statistics, the researcher said, China has an average weekly payment lower than neighboring countries and regions, but this is mainly caused by the "dual structure" of the Chinese economy. Large numbers of surplus labor supply the market ceaselessly from rural areas, keeping the country's labor cost in manufacturing industry very low. Even if the payment standard of eastern China is raised by a big margin, surplus labors from central and western regions could still ensure large numbers of cheap labor for eastern enterprises.

In October 2003, the US-China Business Dialogue was formally set up in Beijing. One of its purposes is to dissuade possible trade rows between the two countries through communications between Chinese and US enterprises.

The Dialogue's China-side organ, the China Council for the Promotion of International Trade (CCPIT) told China Business Post lately that the two sides have not yet talked on the labor price issue, and the earliest talk possible will be at October's regular meeting.

"Compulsory exercise"

As the US general election is drawing nearer, all interest groups are exerting pressures on the government. This has become a "compulsory exercise" once every four years, Chinese scholars say.

NGOs have certain "eloquent power" in US social or even political life, said Wang Hongxia, a research from the Chinese Academy of International Trade and Economic Cooperation. These organizations are interrelated with one another and they are quite able to create a sensation during certain periods. Especially on the eve of the general election, these groups, out of their own interests, will usually exert pressure on the government by means and ways.

The Bush Administration, though under great pressure, didn't show signs of a harder line towards China, said Wang. Now the United States is imposing pressure on China over the semi-conductor issue. This can be taken only as a "show" and the problem will finally be solved through talks instead of being taken to the WTO.

Although Bush met with powerful challenge from Kerry of the Democratic Party on the road of seeking for reelection, the government has by now displayed a rational attitude towards trade with China, without signs of extremist acts to win more votes.

In his "2004 President's Economic Report", Bush pointed out that "the development of the Chinese economy benefits the US economy", indicating that his government will not impose sanction against China under the pressure from certain domestic interest groups. This is proved by the earlier campaign for Renminbi revaluation.

Will "Section 301" affect Chinese economy?

It is an irreversible trend that some US industrial sectors shift to China, even if President Bush give the order to stop them, said another researcher from the Chinese Academy of International Trade and Economic Cooperation.

The "Section 301" has been used for 124 times. Will the wand fall on China's head at the last moment? Experts interviewed by China Business Post say the AFL-CIO move is not really targeting at China's labor prices, but meant to prevent the US industries from shifting to China.

Will this affect the Chinese economy? Premier Wen Jiabao made it clear in his Government Work Report that we must promote China's industrial structural update by seizing the opportunity of international industrial shifting.

Should the US shifting be blocked it is bound to cast an impact on China's industrial structure.

Some state governments in the United States have drafted law to prohibit hi-tech outsourcing, and the Senate is also considering law making to ban outsourcing projects organized by the US government.

This shows that the United States have now begun to use law to set a limit on China. However, as the researcher noted, "China's good investment environment pose temptations irresistible to any enterprise". Along with the economic development, the United States is bound to shift its labor-intensive and some capital-intensive industries overseas, in which China is the top choice.

If the US enterprises don't come, other countries will come to take their place. A survey by a Japanese bank tells that two thirds of Japanese enterprises intend to increase investment in China. American enterprises will continue to shift to China even though Bush allows sanctions under the excuse of China's labor prices.

China attracted 30 percent higher foreign capital during January and February, statistics from the Ministry of Commerce told.

By People's Daily Online

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