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The barriers to
trade
By Li YongYan
BEIJING -
Last month, China's Administration of Quality
Supervision, Inspection and Quarantine banned imports of
soybeans, not on quality nor from any particular origin,
but by certain of the world's largest trade houses. And,
while it very much resembles penalizing a vessel for the
cargo it may or not carry, it is an excellent example of
how governments meet the perplexing question of
protecting trade.
When a local deficit occurs,
it creates a vacuum that is rapidly filled by surplus
from another source. Trade happens as a result, to the
benefit of both parties in the transaction. That is in
an ideal world where everything is nice and simple
without any adverse implications. But the fact is that
trade has never been free of government interventions
and controls.
With good reason. In a sense,
those controls are justifiable means to offset trade's
undesirable elements. For, if unchecked and unregulated,
competitive products would continue to pour in. Not only
would they fill the shortfall in local supplies, they
would also drive home industries out of business and
local suppliers and manufacturers into bankruptcy. That
in turn can give rise to social instability, which could
prove too high a price for politicians to accept.
It is at this point that the economy becomes
inextricably intertwined with politics. Hence we have
the so-called "political economy". That is also when we
begin to see a lot of economic politics coming into
play. What does a government do when a certain industry
at home becomes endangered by foreign competition? There
are a few basic options at hand:
Creating new jobs by such programs as accelerating
urbanization to absorb the surplus of labor displaced by
the imports.
Subsidizing the affected industries to keep them
alive.
Allowing imports to take up the slack in supply and,
when balance is reached, close the borders.
Refusing to let substitute supplies come in, thereby
driving up the price of the commodity in question for
the benefit of the industry concerned.
Or, practicing free trade to the letter, letting
every man fend for himself and the devil take the
hindmost.
Clearly, responsible governments do
not wish to be accused of being callous toward the
plight of a certain group or groups of interests -
specially by the voters. Turning a deaf ear to their
outcries is not really a politically correct option.
Likewise, letting the market go to the moon to the
detriment of the general public would draw much more
fire to the decision-makers.
New employment is
most positive and least disruptive. But it takes the
longest time and is most difficult to implement
successfully, as the newly unemployed usually lack the
skills and retraining necessary for an entirely new
environment.
Subsidies are costly. They are also
unfair to other sectors of an "equal welfare" society.
Besides, they also provide foreign competitors turned
"negotiating partners" at World Trade Organization talks
with some of the most potent weapons and leverage. "So
be it," you say. "A foreign farmer's vote does not count
in our next elections."
Well, the bad
news is that once a practice is perceived to be
"unfair", foreign farmers' displeasure will more often
than not transform into trade barriers for some of your
own exports.
That leaves the control of imports
on an as-needed basis the apparent choice. Note that it
is not necessarily the best alternative, because the
fundamental issues that cause the deficit or
inefficiency in the first place remain unsolved. But
politically and short-term, it is the most
cost-effective and convenient way to meet the demands
all around while keeping things under control.
For sure, it is still unfair to the foreign
trade partners who have a surplus of the products that
you need. Thus different excuses are conjured up for the
barriers that are put up suddenly in the middle of the
year. These excuses are as convincing in a number of
cases as they are creative in others.
European
Union members protect their agricultural sector by,
among other things, demanding that imported soybean and
corn produce are labeled if they are genetically
modified (GM), making life difficult for the United
States, one of the largest and most competitive
producers and exporters of agricultural commodities.
This is despite the fact that no conclusive evidence has
yet been scientifically established to prove or disprove
that GM food is harmful to consumers' health. However,
one has to give the Europeans credit for being so ...
original. No wonder it is being copied and pasted
elsewhere. Except that China's copycats take the art to
the next level.
Granted, a sovereign government
has a legitimate right to regulate and control imports
and exports as it sees fit, as long as it decides that
such policies are worth the risk of retaliation. But
"legitimate" is not necessarily valid or sound. Since
governments tend to base decisions on considerations of
domestic interests and expert opinions, it is important
therefore to examine some of the arguments put forward.
In an interview with a major Chinese newspaper,
one professor in a Beijing-based research center said
the US Department of Agriculture's (USDA) crop/trade
estimates on China's soybean supply and demand are a
deliberate "attempt to mislead China into increasing its
imports, for the purpose of benefiting the American
soybean complex", and that the United States "intends to
make China a processing center for American beans so as
to control China's soy industry".
As if that
were not shocking enough, the newspaper went on to claim
that the US government has over the recent years used
the Chicago Board of Trade to protect its domestic
soybean complex. The futures exchange is therefore
inflated to arrive at a better price.
These
arguments are an insult to the proponents' own
intelligence, to say the mildest. They neglected a
simple question: If the USDA is so manipulative, how
come the agency is also adjusting downward its
estimates of other China's import needs, or increasing
its estimate for US corn yield, at the same time and
from quarter to quarter? Surely a new estimate for a
higher area planted in wheat would only hurt US farmers.
Yet these fluctuations are a recurring theme in the
USDA's reports.
In addition, nobody asks
importers half a globe away to take the USDA's numbers
as the holy book. Import of such bulk commodities as
soybeans is now decentralized. Each crusher in China
does its own market calculations before it pays more
than US$5 million for a cargo of the produce. To suggest
that local edible-oil refineries rely on the USDA for
their business decisions is ridiculous.
By the
same token, the accusation is equally absurd that the US
government is controlling a futures market. How then to
explain the price hike in crude oil in a market that
happens to sit on US soil, too? That Washington sets out
to increase the energy costs in order to harm US
interests?
Also, what is the US government's
motive in driving down Chicago Board of Trade
prices, which we see from time to time?
Last but
not least, is there such a plot by Americans to
"control" China's soy industry? If one industry is flush
with imports from a particular source, then 56 percent
of China's crude is shipped from the Persian Gulf. And
we have not heard any so-called experts sounding alarms
over an Arab scheme to control China's oil-refining
industry.
In fact, China has already become a de
facto processing center for a lot of goods, from Nike
shoes to Nokia phones, from cheap textiles to expensive
circuit boards. If anything, China is worried that it
can't attract more of these opportunities to process
something for somebody.
It would be a great
disservice to the policymakers and general public if
half-cooked opinions get to influence the decision
process without the challenge of a second voice.
Li YongYan is an analyst of Chinese
business.
(Copyright 2003 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication
policies.)
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