Category Archives: Trade Policy

It Isn’t All About You, China

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There was a confused story last week in China Daily about negotiations for China’s entry into the World Trade Organization’s government procurement agreement. The headline was simple enough, merely stating that China is not likely to finish entry negotiations this year. Fair enough. Such things take time and government procurement rules are exceptionally complicated. And, since these rules require definition of exactly which government entities are covered, there is a lot of horse-trading going on.

The original “Agreement on Government Procurement” was completed in 1979 and the rules, and what is covered, have been changing ever since. Only fifteen countries signed on back then and the agreement now has 42 signatories. Most of these are developed countries because they tend to have the largest procurement markets and the most global competitors. Each addition forces a re-alignment of obligations and a re-negotiation of which government entities are covered. This is because no government is willing to give others a “free ride” when it comes to buying goods or services for their own use. A major revision of the agreement was reached in December 2011, so signing up is always something of a moving target. Beijing doesn’t like that.

Procurement negotiators in Geneva, December 2011

China made an initial offer to join the procurement agreement in 2007. Naturally, as in most trade negotiations, Beijing made a “low ball” offer which was, just as naturally, rejected by the existing signatories. Not because of any dislike for China, but because this is the nature of a negotiation. The Chinese negotiators knew they weren’t making a fully competitive offer and that, of course, other countries would want more, whether in terms of the products covered or the Chinese government entities that would be covered by the agreement. Offers and counter-offers have continued, but existing signatories complain that too few of China’s provincial procurements would be subject to the agreement – only five out of 31 provinces. And there is strong disagreement about how to handle China’s state-controlled enterprises, since few of the existing signatories have such animals. Beijing says it doesn’t control purchases by state enterprises. The usual response from the signatories is “yeah, sure.”

The China Daily article quotes a spokesperson from the Ministry of Finance as saying that no agreement will be reached this year “because of increased standards set by developed nations“, implying that a cabal of western countries is moving the goalposts. This seems to refer to pending changes in European Union procurement regulations that would allow EU members to exclude bids from countries that don’t offer reciprocity in their own procurements. I have not seen the new EU draft, so there could be something problematic there.

“The EU’s new pact, when adopted, won’t have an immediate effect on Chinese companies bidding for EU contracts and won’t scare China into making concessions over the government procurement agreement proposal, as they expect.”
- Suo Bicheng, director, Department of World Trade Organization Affairs, Ministry of Finance

It isn’t clear whether Beijing is more unhappy because of the new EU regulations or because of the revised procurement agreement itself. The December 2011 revision expanded the government entities covered by the agreement on the part of the existing signatories, covering more local and regional procurements than ever before. So the signatories will require similar improvements by any countries applying to join. This is something that China has been most reluctant to do, which is why they have offered only five provinces. This may be the standard that Beijing accuses “developed countries” of raising. If so, this is nothing that is aimed expressly at China. It applies to any signatory of the procurement agreement.

By the way, China is not the only one negotiating to join the procurement agreement. Albania, Georgia, Jordan, the Kyrgyz Republic, Moldova, Oman, Panama and Ukraine would all like in – and some have been negotiating longer than China.

Canadian Piggies Huff & They Puff …

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Evil Canadians

… but they still are likely to face trade barriers in South Africa. Canada has been diversifying its agricultural markets, especially for its meat exporters, who have long focused on the United States and Asia. They have had a successful campaign in South Africa, but they are running into resistance from South Africa’s pig farmers. Canada now sells about $41 million annually in meat products, mostly pork, and Canadian exporters have won close to half the supermarket share for high-end pork products. This does not sit well with South African farmers. And, as in most countries, the farmers seem to have a disproportionate number of political friends eager to help out.

A rumor campaign claims that wastage from Canadian pork products sliced at South African slaughterhouses is spreading animal diseases to South African farms. Of course, no scientific proof has been presented and no reason that pork from Canada should be more disease-laden than pork from any other source. But let’s not let facts get in the way of a good story. Actually, the rumors have been around for years, but they are getting more play now that Canada is grabbing a larger share of the South African pork market. Could there be a connection?

There is rumbling in the South African government about filing a case against Canadian pork in the World Trade Organization, though it is difficult to say on what that case would be based. Either the Canadian product meets South Africa’s health and safety standards – or it doesn’t. There is counter-rumbling that Pretoria will design new health standards that will somehow exclude Canadian pork from the market. That, too, is difficult to see unless there is some pig disease endemic to Canada that doesn’t occur in South Africa, too. It seems more likely we will see Canada launch a WTO case if South Africa tries to discriminate against Canadian products.

Am I the only one who senses similarities between this dispute and South Africa’s attempts to limit imports of poultry products from Brazil? Looks like we have a pig war to go with our chicken war.

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Lest anybody think that all trade disputes are headline-makers, the U.S. Commerce Department last week decided that the United Arab Emirates is dumping steel nails, and China and Taiwan are doing the same with something called stilbenic optical brightening agents. Commerce found that China and Mexico are subsidizing and dumping galvanized steel wire. What’s more, those suspicious Chinese may even be subsidizing exports of crystalline silicon photovoltaic cells and steel wheels (they may be dumping the wheels, too). And those dastardly Mexicans, joined by equally nefarious South Koreans, are both dumping and subsidizing sales of bottom-mount refrigerator-freezers, presumably with the terrifying consequence that American consumers can buy them for less. Let me know if you hear any candidates bring up stilbenic optical brightening agents.

Plenny FTA News

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No, this isn’t another article about finally implementing the U.S.-South Korea FTA. There is so much else happening out there on free trade agreements, many of them south/south agreements that don’t involve the United States or other developed countries. I posted about south/south FTAs a couple months ago, but a lot more is going on.

Leaping & bounding to India?

Turkey is excited about the prospect of an FTA with India. The two countries have jointly studied the possibility and the preliminary results look good for both sides. And trade is growing even without an FTA. Bilateral trade between India and Turkey leapt from US$4 billion in 2010 to $7 billion in 2011 – a 75% jump in a single year!

“… through the economic partnership of an FTA, the floodgates will open both the directions and the trade will go leaps and bounds.”
- Burak Akcapar, Turkish ambassador to India

Not so good news on free trade prospects between Mexico and Brazil. Seems the two Latin powers are in a tiff about motor vehicle trade and they are letting that get in the way of broader trade liberalization. They did an auto trade agreement about ten years ago and Brazil has decided it is too one-sided. The Brazilians have pressured Mexico into voluntary export restraints that will cut Mexican auto exports to the hot Brazilian market for the next three years. [Sounds like something Washington once did to Tokyo, doesn't it?]

“After this, it would seem irresponsible to talk about a (free trade agreement) until confidence has returned to the market and also to manufacturers in both countries, who are very worried because deals need to be honored.”
- Bruno Ferrari, Mexico’s Economics Minister

Pakistan and Morocco want into the FTA game, too. I don’t know how this one would work, because trade between the two is fairly small and is extraordinarily lopsided. Total bilateral trade last year was about US$345 million, of which $314 million moved from Morocco to Pakistan. The backstory is that Pakistan depends on Morocco for 90% of the rock phosphate the Pakistani fertilizer industry needs. Pakistan also buys some Moroccan textiles and pharmaceuticals. Morocco appears to buy soccer balls and surgical instruments from Pakistan. Not sure I see this as a full blown FTA, but you never know.

Hardly south-south, Japan and Canada announced Sunday that they are beginning negotiations for an FTA across the North Pacific.

Meanwhile, China’s premier Wen Jia-bao said last week that someday there would be a U.S.-China free trade agreement. No timetable. I think he was just making conversation.