Category Archives: China

Weird Science

Posted on by
Reply

It’s our reaction to science that is weird. Modern societies seem to distrust science and prefer to rely on gut feelings, especially if the science disagrees with pre-conceived notions. And especially if the science conflicts with the trade protection that governments wish to provide favored industries.

Typical WTO meeting

The WTO’s Committee on Sanitary & Phytosanitary Measures (SPS) met last week in Geneva – with some disturbing results. The WTO press release I have linked to has to be non-prejudicial, but it is clear that there are a lot of countries that are putting on trade restrictions, using the excuse they are necessary for health and safety, but which have little or no scientific justification. An unusual joint complaint about non-science-based trade barriers came from Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, New Zealand, Paraguay, Philippines and the United States – and it picked up additional support from Mexico, South Africa and the European Union.

“The increase in the number of SPS measures that are not based on international standards, guidelines and recommendations or that have inadequate scientific justification is a point of concern readily raised … These measures often unduly restrict trade and appear to be associated with objectives that are not deemed as legitimate under international trade rules.”

- joint paper submitted by Argentina, Australia, Brazil, Canada, Chile, Colombia, Costa Rica, New Zealand, Paraguay, Philippines and the United States

Let’s get into some of the specific complaints:

Indonesian port closures. The United States, backed by the EU, Australia, Chile, Canada, New Zealand and South Africa, questioned Jakarta’s plan to close four major ports to imported shipments of fruit and vegetables. The United States and New Zealand say this will close off 90% of Indonesia’s fruit and vegetable imports. Jakarta says it has to close the four main ports because it has insufficient laboratory facilities at those ports to look for “threats found in imported products”. The threats are not specified, no increase in health problems has been noted, nor has construction of new lab facilities been announced.

China’s food additive tests. India asked questions about China’s new testing methods to discover the ingredients of food additives. India says the new tests do not conform to any known international standard. The Chinese delegation said they’ll get back to us.

EU standards for aluminum in pasta. I knew that spaghetti wasn’t al dente. China complained that the European Union has set its standards too high for aluminum content in flour products, including noodles. Aluminum can apparently be naturally present in flour, so Brussels has set a content limit of 10mg/kg. Chinese noodles apparently have 50mg/kg, so Beijing says that the EU is discriminating against China. If your penne tastes metallic …

Taiwan’s ban on ractopamine. The United States, Canada and Brazil say that Taipei’s embargo on pork and beef containing ractopamine ignores findings by the Food & Agriculture Organization and the World Health Organization that the growth agent is safe for humans. That said, a proposed international standard for ractopamine content is still being debated in the FAO and the WHO.

EU regulation on novel foods. Brussels has for years had restrictions on importing so-called “novel foods”. These are foods that may have been consumed elsewhere for centuries, but that are new to Europe. Peru, backed by Cuba, Colombia, Brazil, Chile, Argentina and Paraguay, is leading the charge to loosen European limits on their food exports.

Chinese standard for methanol in alcoholic beverages. Beijing is considering a new maximum limit on methanol alcohol in distilled spirits not made from grain. Mexico, worried that the limit may be used to embargo Chinese imports of tequila, is raising questions about the scientific basis of the Chinese proposal.

U.S. and EU standards on pesticide in rice. India raised issues with numerous European limits on pesticide residues and with a specific U.S. limit on the amount of the pesticide tricyclazole that can remain in Basmati rice. The Indians argued that the residues in both big markets are not based on scientific findings.

Argentina’s restriction on book imports. Argentina, seemingly insanely, is stopping imports of books if they haven’t been tested for the lead content of their ink. Seems they are worried about people who lick their fingers while reading. This isn’t a formal WTO case yet, but a new restriction spotted by one of our readers, a fellow trade blogger. Check out Tread The Middle Path.

These are just the latest cases. The WTO says that 331 complaints have been brought to the SPS Committee since it was founded in 1995. The peak was in 2002 when there were 43 cases, so we are some better off today. There were only 16 new cases in 2011. Many of the 331 complaints have been resolved and most never hit the headlines, but – just from the newer complaints above – you can see that these can be contentious.

The language of the WTO, the GATT before it, and the WTO’s SPS Agreement all say that members have the right to protect the health and safety of their citizens. But they also say that this is not an excuse to install trade barriers without scientific basis. A fine line to walk.

China’s Duty Cuts: Real or Not?

Posted on by
Reply

How much will this buy?

The State Council in Beijing announced Friday what may be significant cuts in China’s import duties. On the other hand, no details have been released, though we are overwhelmed with rhetorical hyperbole. The proof is in the fried rice, so I suppose we must contain our excitement. That said, I see that the U.S. states of Indiana and Michigan have announced new export drives to sell in China, citing the new duty cuts as the reason. One suspects coincidental timing of announcements.

China certainly needs to boost domestic demand, and suffers from the image of a huge export surplus (despite running a deficit recently), so big duty cuts make sense. And it is significant that this issue has risen to the level of the State Council. Something as mundane as tariff levels would normally be handled by bureaucrats further down the chain. My strong suspicion is that the cuts went to the State Council after fights among the ministries. We haven’t seen the details because they are being feverishly worked out now that the State Council has given the go-ahead. Duty cuts can apparently be expected for:

“… some energy products, raw materials, consumer goods closely related to people’s daily lives, and key items that China does not produce.”

- State Council statement, March 30, 2012

The reference to energy products may not mean a lot. Diesel fuel already is duty-free and many other petroleum products pay only a 1% customs duty. Other duty cuts, however, could be more significant. China’s current average import duty is about 9.8% – low for a developing country, but still a significant cost. Industrial spare parts seem to be one area of focus:

“One of the ministry’s top trade priorities this year is…to increase imports of capital goods, especially spare parts, and consumer goods. … Encouraging the import of capital goods such as advanced spare products is undoubtedly helpful to upgrading China’s industry, the promotion of investment efficiency and improving international competitiveness.”

- Wang Shouwen, director, Department of Foreign Trade, Ministry of Commerce

These tariff reductions should not be seen in isolation, but as part of a continuing series of cuts as China loosens access to its markets. The Finance Ministry earlier announced temporary duty cuts to an average of 4.4% on some 700 products, though the fact that these cuts are “temporary” means that business can’t exactly plan future deals based on the new tariff levels. Their temporary nature likely reflects disagreements between ministries about whether or not tariff cuts are wise, and whether or not they should be done unilaterally or kept as bait to negotiate lower duties by other countries. These earlier cuts were focused on products used in public health or information technologies, as well as energy.

The South China Morning Post reports that some of the new reductions are likely to be in consumer products such as meat, baby formula, dairy products, cosmetics and apparel.

If these cuts turn out to be permanent and unilateral, China deserves to be held up as a shining example of a country acting in its own economic and political self interest while also improving the global trade climate. But we should wait to see the details before bestowing accolades.

Arms Trade

Posted on by
Reply

My last arms deal was in 2000 when Austria bought nine Sikorsky Blackhawks. Their prime mission was search and rescue, so I’m not sure it should count. Many U.S. commercial officers are ambivalent about the arms trade, and political appointees periodically frowned on our involvement, but I always felt that the customer was going to buy from somebody, so it might as well be us.

An analysis of global arms trade was published recently by the Stockholm International Peace Research Institute (SIPRI), taking a searching look at arms flows from 2007 through 2011. SIPRI stresses its independent analysis, but bear in mind that it gets a lot of its funding from the Swedish government. That said, despite Sweden’s role as a military equipment supplier, I have no reason to doubt SIPRI’s data or analysis. You can get the complete report here.

The major countries selling military gear and weapons don’t change all that much, so it is no surprise that SIPRI’s Top 5 arms suppliers are, in order, the United States, Russia, Germany, France and the United Kingdom. The United States sold 30% of the world’s arms in 2007-2011 and the Russians dealt 24%. The Top 5 together controlled 75% of the business. That, however, means that other players are growing because the Top 5 controlled 78% during 2002-2006. Here’s who the Top 5 are selling to:

Major arms sellers & their customers

What is extraordinary, and a big change over the years, is that the Top 5 arms buyers are all in Asia: India, South Korea, Pakistan, China and Singapore. India has an aging war machine and is replacing much of it, plus they have little domestic arms manufacturing capability. South Korea faces problems to the north, and Pakistan is nervous about India and Afghanistan, and has problems of its own. China is moving down the buyers list, swiftly becoming an arms exporter itself. Singapore, given its size, was a surprise to me, but they appear to be going very high tech in their purchases.

Major arms buyers & their suppliers

The biggest arms deal of 2011 – and the biggest in decades – was Saudi Arabia’s decision to buy or renew 154 F-15 fighters from the United States