China is on outside looking in

Updated: 2013-03-29 16:29

By Yang Yang, Ding Qingfen in Beijing, Zhang Chunyan in London Yu Wei in San Francisco, and Liu Jia in Brussels (China Daily)

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China is on outside looking in

China already has free-trade agreements with 15 countries, and negotiations are under way for 13 others, including with Japan, South Korea, Iceland and Switzerland, the Ministry of Commerce says.

An analysis published by the European Institute for Asian Studies says officials in Washington and Brussels have acknowledged that the "growing economic might of China" has given "added incentive" to EU-US talks.

"They said that the trade agreement would provide a more united front against Chinese standards and norms in areas such as product safety or intellectual property," the institute analysis says.

Chen Xin, director of the Economics Office of the Institute of European Studies of the Chinese Academy of Social Sciences, says the EU and the US "say that through a free-trade agreement they want to confront the challenges of the emerging economies, but everything points to China".

In 2011 the EU and the US set up a group to discuss the prospect of a free-trade agreement. Its report last June said the talks should seek to conclude a proposal for a transatlantic agreement that goes beyond tariffs, including provisions on intellectual property, services, investment, procurement, regulatory issues and non-tariff barriers.

The European Commission says the EU and US economies account for nearly half of world GDP and for nearly one third of world trade flows. Total US investment in the EU is three times higher than in all of Asia. EU investment in the US is about eight times the amount of EU investment in India and China combined. If an EU-US free-trade agreement were to become a reality it would eclipse all others.

The European Commission President Jose Manuel Barroso has estimated that a "comprehensive and ambitious agreement" would increase GDP growth by 0.5 percent. Last month he announced plans to seek a deal, a day after US President Barack Obama gave US support in his State of the Union address, saying a free-trade deal would "boost American exports, support American jobs and level the playing field in the growing markets of Asia".

Erikson says the biggest barriers for the deal are in areas of non-tariff barriers and regulatory convergence, including politically sensitive areas such as regulations on agricultural goods, public procurement and the regulation of cross-border data flow.

Despite talk about an EU-US deal changing trade rules, there are those who are sanguine about what negotiations would mean for China.

"China needn't worry much about the EU and the US on this," says Wan Jifei, chairman of the China Council for the Promotion of International Trade.

"It's their own business, and whether and when the pact is wrapped up, there are still a lot of questions."

Some experts say that the impact on China's trade with the EU and the US would in fact be slight.

Zhao at the University of International Business and Economics in Beijing, says: "On the value chain, the EU and the US occupy the highest 15 percent, and China is getting rid of the lowest 15 percent characterized by intensive labor and resources, so for the middle 70 percent there is a lot of room for growth."

The biggest volume of Chinese trade with the EU and the US is in areas such as retail consumer goods and electronics, which will not be directly affected by any changes that arise.

Tyson Barker, director for transatlantic relations at the Bertelsmann Foundation in Washington, says: "Rather its immediate impact will be to augment trade in goods, services and investment in areas the US and EU already dominate like auto manufacturing, sophisticated machinery, chemicals and services."

However, trade in services between the EU and China is much smaller than that between EU and the US, as is the intra-industry trade and investment relationship, says the US Chamber of Commerce Europe Office.

As a result, "China should not worry too much about trade diversion. Instead, China may be missing out on additional trade that is generated by these agreements," says Devin Stewart, senior program director and senior fellow at the Carnegie Council for Ethics in International Affairs.

Zhao says that "for China, we should look at how the Doha round can be pushed forward".

Over the past two months there have been new signals about the Doha talks, Chen Deming, who was until recently China's commerce minister, said at a news conference.

"All member nations concerned are considering launching an early harvest program" by the end of this year, and "China is glad to see and advance the proposal", Chen said.

Meanwhile, China has a lot of room to grow its foreign trade through developing regional and bilateral pacts, Wan Jifei says.

"China could continue to accelerate the negotiation of free-trade agreements with countries such as Costa Rica and Australia.

Zhao says: "The EU and the US have extended the definition of trade so as to control China's growth. We cannot ignore them. Instead, we should consider changing our policies, including industrial policy, trade policy and competition policy to meet the new standards. I think we should proactively take part in the process.

"However, for some issues that violate our economic sovereignty, we should take the problems to the United Nations, such as the security investigation the US conducted on Huawei and ZTE, the two big telecommunications companies."

The BBC has reported that the most optimistic timeframe given by European officials for an EU-US deal is two years, but that consideration is based, among other things, on the presidency of Barroso, whose term expires in October next year.

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