China joins the world
By Paul Maidment (Forbes.com)
Updated: 2006-02-16 08:57

http://www.forbes.com/columnists/2006/02/14/china-US-trade-cx_pm_0214trade.html?partner=rss

It says both something about how the Chinese economy has grown over the past 25 years and how concerned some in the U.S. feel about that, that the U.S. has given notice that it will, in effect, now treat China as a trading partner in much the same way it treats the European Union--i.e., have its lawyers beat up their lawyers over world trade rules.

Now that it is nearing full membership in the World Trade Organization, the office of the U.S. Trade Representative, Rob Portman, has released a report calling for tougher enforcement of China's obligations to follow global trade rules and more open markets.

China joined the WTO in 2001 and is nearing the end of a five-year transitional period. The U.S.' soaring and politically sensitive bilateral trade deficit with China accounted for a quarter of the record $726 billion trade deficit in 2005.

The USTR report is subtitled "Entering a New Phase of Greater Accountability and Enforcement." While China has focused on export growth and developing domestic industries, that is "not being matched by a comparable focus on fulfilling market opening commitments and on the protection of intellectual property and internationally recognized labor rights," the report says.

Though the report notes the benefits of the growing trade to the U.S. economy in the form of inflation dampening lower prices for semi-manufactures and consumer goods, there are few carrots in the report. "Absent tangible evidence that China is acting responsibly with respect to these issues, popular support for a 25-year-old trade policy of constructive economic engagement with China could be in danger, with potentially damaging consequences for both countries,” it says.

Some in US Congress have called for protectionist measures to be taken against China, and last year's attempt by a state-controlled oil company, CNOOC, to make a hostile takeover of California-based Unocal, stirred a nationalist backlash that preyed off growing worry at China’s rising economic strength.

Hitherto, the Bush Administration has sought to tone down the rhetoric against China's economic policies, especially over Beijing's controversial management of its currency, the renminbi, which some in America accuse Beijing of keeping artificially low in order to boost Chinese exports.

This new report marks not just a new phase in the relationship but also a steady hardening of tone from Washington. It comes on the heels of the 2006 Economic Report of the President, which also used blunt language to spell out that China’s "tightly managed" exchange rate and foreign exchange market intervention to limit currency appreciation are partly to blame for the U.S.’ record trade deficit.

China let the renminbi rise an initial 2% against the dollar in July 2005 when it replaced its decade-old peg of the renminbi to the dollar with a link to a basket of currencies. But the currency has subsequently risen by less than 1% against the dollar.

However, Portman’s new tough line does keep the thrust of U.S. policy on market opening and global trade rules, not on what would be a futile attempt to erect barriers against Chinese imports that would benefit special interests more than millions of U.S. households. The former may have the lobbying dollars this U.S. presidential year, but the latter have votes.

Portman also declined to ask Congress to create more sanctions to impose on Beijing over trade. The Bush Administration now plans to add a few more staff on the ground in China to monitor trade activity and to engage in more diplomatic efforts to push China into regulatory reform.

It has also sidestepped an idea circulating on Capital Hill that Congress should appoint a special trade prosecutor of its own. Portman will set up a new task force to oversee China trade enforcement, including a general counsel in the USTR to prepare and prosecute WTO actions.

As Brussels can attest to Beijing, the USTR’s lawyers will find plenty of work to do.