Inside the Modern Dragon
China's Roaring Economy
Trade, Tires, Competition and Rules
As the world’s second largest economy expands at a rapid pace thanks mainly to its export market, China is often the center of attention in the global trading system. The attention is not always good. Rightly or wrongly, leaders in developed but weakening markets often blame China for domestic job losses.
One example is when U.S. workers producing tires complained that competition from China was causing plant closures and job losses. In September of 2009, the United States started imposing a 35 tariff on imports of Chinese tires. China complained bitterly and took its complaint to the World Trade Organization. The case went to a settlement panel and then to an appellate body. China said U.S. plant closures were the result of globalization, not Chinese imports. The case was unique because it was launched by U.S. workers rather than businesses.
At the end of the legal battle, China lost its dispute in September of 2011 when the appellate body upheld the panel’s decision and the U.S. tariffs. The reason? When China joined the WTO in 2001, it reluctantly agreed to allow for special scrutiny of its exports. Basically, countries can call for an investigation if a domestic industry is injured due to competition from China if imports increase significantly over a short period of time. In the tire case, the WTO said Chinese imports had grown “substantially,” 42.7 percent from 2004 to 2005, and the domestic industry suffered injury, primarily because three plants closed in 2006.
The effect? It is hard to make a cursory judgment about how the U.S. tariff has impacted the industry. Has it saved or restored U.S. jobs? Has the price of tires increased? Only one thing is clear upfront: the industry is highly globalized. Furthermore, it is expanding at a rapid pace, mostly likely due to the increased demand for cars in developing countries. In 2011, the global tire industry announced plans to make capital investments in capacity expansions worth $10 billion. According to Tire Business.com, that’s the largest one-year investment on record. (See TireBusiness.com below for the details.)
Discrimination against China? China complained that the cause for the U.S. dispute was antithetical to the WTO’s principle of nondiscrimination. When joining the WTO in 2001, China only reluctantly agreed to the condition that the United States used in asserting its right to impose tariffs on Chinese tariffs. (The specific safeguard is in Paragraph 16 of China’s ascension charter.)
At the time, WTO members agreed to use “utmost restraint” in exercising the tool, according to a statement by trade representative negotiating for China’s ascension to the WTO. In 2002 the trade representative warned that, “Frequent recourse to this mechanism of such nature can only damper China’s enthusiasm to take an active and constructive role in the multilateral trading system.” (See source document below.)
So perhaps this case is a discriminatory one against China. But as the world’s fastest industrializing country, China is unique.
Sources:
"Global Tire Report: Makers Commit Nearly $10B for expansions," Aug. 31, 2011. Tire Business.com.
WTO, Committee on Safeguards. CHAIRMAN'S REPORT TO THE COUNCIL FOR TRADE IN GOODS ON TRANSITIONAL REVIEW OF CHINA (November 2002) Pg. 5 http://www.jmcti.org/2000round/China/TRM/g_sg_058.pdf
WTO summary and documents for more information: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds399_e.htm#bkmk399abr
About this Project
This is a web-based journalism project about modern China—a country undergoing massive industrialization and technological change. This project began as an intellectual inquiry and a journey to China. [Read more...]
