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Home >> Opinion
UPDATED: 16:06, April 16, 2007
Is trade war between US and China looming? (2)
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Interview with Cato Expert Daniel J.Ikenson, by Yong Tang, People's Daily Washington-based correspondent

The United States has formally lodged its WTO complaint against copyright piracy in China. According to sources, the US trade delegation in Geneva had handed the documents detailing the complaint to the World Trade Organization, activating the WTO's dispute settlement process. The US has also filed a case accusing China of restricting distribution of foreign music, films and books.

The WTO cases mark the latest in a series of trade disputes between the two economic giants. Last month, the Bush administration said it would impose tariffs on imports of glossy paper from China to combat Chinese government subsidies. And in February, the administration announced a WTO case charging China with providing illegal incentives to Chinese manufacturers to export their products.

Is a trade war between China and US looming? What is political significance of these tough gestures? How could the two countries work together to manage and even resolve trade disputes? Yong Tang, a Washington-based correspondent of People's Daily, conducted an exclusive interview with Daniel J. Ikenson, associate director of Cato's Center for Trade Policy Studies.

Yong Tang: US Trade Representative Susan Schwab said the new WTO cases should not be viewed as hostile actions against China, adding that they follow lengthy negotiations and represent the normal way for mature trading partners to resolve their differences. She also said there would be no trade war between the two countries. However, according to widespread media speculation, the move would very likely trigger a trade war between the US and China. Do you think this speculation is correct?

Ikenson: No, I think the opposite is true. Recent U.S. actions will likely prevent a trade war. Intellectual property rights issues have long been a source of tension in the relationship. While China might cite its continuous efforts at revamping its laws and redoubling its efforts at enforcement, the incidence of copyright piracy in particular is not reported to be declining. A perceived failure to do much to address the problem successfully is one of the reasons many members of the U.S. Congress have been advocating tough measures against China.

Some of the unilateral actions being considered in the Congress, which would violate U.S. WTO commitments, are more likely to spark a trade war than would the U.S. Trade Representative's recent WTO complaints, which do not violate U.S. obligations. Also, the USTR's actions will likely help defuse momentum in Congress to enact regrettable, unilateral, WTO-illegal measures that would be more likely to incite China to retaliate.

Yong Tang: One expert on US-China trade said the Chinese government has taken several steps to protect intellectual property rights and he really doesn't know what more the Chinese governments can do. What's your personal opinion?

Ikenson: Personally, I think there is more that China can do. I think intellectual property piracy is a problem common throughout the world, particularly in developing countries. But China, on account of its tremendous economic success and it burgeoning trade surplus, has drawn a lot of attention from other countries. Its policies are under the international spotlight more than other countries' policies.

Ambassador Schwab identified specific areas where she thinks improvement in China's IP regime can be achieved: getting rid of the minimum thresholds for prosecution; destroying seized materials rather than removing labels and reintroducing those products into the supply chain; granting copyright protection for products awaiting approval for distribution in China. I think these are areas that the Chinese government can agree to, and in fact can agree to during consultations and before the official adjudication WTO adjudication process gets underway. I believe there is fertile ground for ending this case during the consultation phase, as was the case with the semi-conductor tax issue back in 2004.

Yong Tang: Do recent moves by the Bush Administration signal that the White House is getting tougher after six years of talk and conciliation with China?

Ikenson: Yes, the Bush administration is getting tougher. For over 6 years, the Bush administration was a bulwark against reactionary, reflexive demands for tougher action against Chinese imports. The administration, correctly in my opinion, took a bird's-eye view of the relationship and recognized not only that there were bigger, strategic issues to consider, but also that as a new WTO member that had agreed many reforms, China would require some time to implement its commitments.

I think the administration now believes (as do I) that China has had enough time and has achieved enough success that it should now be, as Robert Zoellick suggested 18 months ago, a more "responsible stakeholder," commensurate with its growing stature in the world economy. But there should be no doubt also that the Democratic Congress, with its inherent hostility to trade, is exerting itself over an administration that has been severely weakened politically. If the administration is to get anything from this Congress, it will have to compromise much more than it ever has. And trade, I believe, is one of the areas up for compromise.

Yong Tang: How do you think of the timing of the cases? Some analysts said the touch actions might be intended to defuse mounting political pressure on Capitol Hill to reverse a growing trade deficit with China. How do you think of this comment?

Ikenson: Regrettably, many policymakers on Capitol Hill are ill-informed about economics. Most believe exports are good, imports are bad, and the trade account is the scoreboard. Since the U.S. has a large trade deficit, we are losing at trade, and the main reason we are losing is because our trade partners are cheating.

In China's case, the cheating involves currency manipulation, subsidization of industry, unfair labor practices, intellectual property right violations and more. By forcing China to play fair, the trade balance will correct itself. That's the rationale that motivates Congress. It's misguided.

The trade account has very little to do with trade policy and very much to do with fiscal policy and habits of savings and consumption. But, to answer your question, yes, to a large extent these actions are intended to defuse political pressure (and, as I said at the top, to head off actions that could lead to a trade war)

Yong Tang: What is the political significance of the cases? Someone said the Democratic controlled Congress is more likely to embrace trade protectionism than the Republican controlled Congress. Do you think so?

Ikenson: Yes, I think that is true, although a growing number of Republicans is beginning to become more skeptical about trade �C particularly trade with China.

Yong Tang: The dispute between US and China over copyright piracy has been going on for more than 20 years. Some experts argue that the dispute will still be there for another 20 years. Do you think it's possible?

Ikenson: Sure. There will always be those industries that lament not having 100 percent protection from IP theft. As long as there is incidence of IP theft, there will be a lobby for improving IP protections. But if the problem subsides (which I believe it will as China becomes a richer country), the political will to do anything about the remaining problem will subside. In many respects, IP theft is a cost of doing business, and that cost rests with the businesses themselves.

Yong Tang: What do you think of China's performance on copyright and even intellectual property right protection?

Ikenson: I am really not qualified to judge. I suspect on some average basis, it's not much worse than anywhere else. But since China is the world's largest and fastest growing country, the problem is magnified.

Yong Tang: How will the trade dispute between US and China impact the bilateral political and diplomatic relations?

Ikenson: As long as the disputes are conducted under the auspices of the WTO, the relationship will improve dramatically. We still have a lot to learn about and from each other. We are experiencing growing pains now, but we have a roadmap to guide us. Our respective WTO commitments obligate us to do certain things and prevent us from doing others. As long as we continue to recognize the vast benefits of the rules-based trading system and recognize that the cost of those benefits is adherence to the rules (which really isn't a cost because it's beneficial), we will overcome all of our trade disputes without descent into a trade war.

But if either country decides to take matters into their own hands and starts knowingly violating commitments with punitive unilateral actions, then the relationship could spiral downward. I think, very clear, the stakes are simply way too high for either country to let that happen.

Yong Tang: In the coming month of May, the China-US Strategic Economic Dialogue will be held in Washington, D.C. Do you think the conference will ease the pain of the trade dispute?

Ikenson: I think the conference will be the perfect venue for working to resolve some of the issues in the WTO complaint. The consultation phase of the dispute settlement process will be at its peak.

Yong Tang: The trade frictions have been getting momentum since the beginning of this year. Business Week once concluded that the bilateral trade relations between US and China would take a dramatic downturn in 2007 and the future would have to be a bumpy road. What is your opinion?

Ikenson: I think that is just sensational journalism. I am more optimistic. As I said above, there is too much for both countries to lose if economic relations deteriorated.

Yong Tang: According to some media coverage, China is said to be the most ideal country with which US could launch a trade war. This is because China is becoming the major target of trade protectionism in the world as it turns out to be a prime destination for global industrial relocation. Do you agree with this notion?

Ikenson: If U.S. policymakers were intent on sending the U.S. (and world) economy into a profound recession, they would consider launching a trade war with China. It is a lose-lose scenario. Nobody thinks a trade war would be a good idea.

Yong Tang: What could US and China do in order to manage and even resolve trade confrontations with each other?

Ikenson: I have often said that the United States could make a relatively costless, but hugely significant gesture to advance the relationship by extending "market economy status" to China for purposes of the antidumping law.

Tensions in the relationship usually boil down to a list of 10 or 12 gripes that the United States has with China. (I would add that some of those gripes are legitimate). Rarely does the discussion focus on China's gripes with the United States. I think it would be a worthy undertaking for U.S. policymakers to consider how they might make it easier to get what they want from China by giving China some of the things it wants. We can't expect a one-way street. It's all about compromise. (END)

Bio

Dan Ikenson is associate director of Cato's Center for Trade Policy Studies, focusing on WTO disputes, regional trade agreements, U.S.-China trade issues, steel and textile trade policies, and antidumping reform. Ikenson has been involved in international trade since 1990.

Before joining Cato in 2000, Ikenson was director of international trade planning for an international accounting and business advisory firm. Before that, he co-founded the Library of International Trade Resources (LITR), a consulting firm providing interactive information access and international trade consulting. And before that, he was a trade policy and antidumping analyst at a few different international trade law practices in Washington, DC.

Ikenson is the author of many studies and articles on trade policy and is the coauthor of Antidumping Exposed: The Devilish Details of Unfair Trade Law. He has appeared on The Newshour with Jim Lehrer, CNN, CNBC, Bloomberg TV, MSNBC, ABC News, and NPR. His articles have been published in the Wall Street Journal, the Washington Times, the Detroit News, National Review Online, and elsewhere.

Ikenson holds a M.A. in economics from George Washington University.


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