Now that all the hype and the hoopla of Chinese President Hu Jintao’s visit to the United States are over, the same basic commercial question remains unanswered: How can American companies create more jobs for Americans by selling more American goods and services in China?
American President Barack Obama is right to focus on exports as one of the best ways to create more jobs in the United States. The White House estimates that 6,000 new jobs are created for every $1 billion in new exports. Achieving Obama’s goal of doubling US exports in five years is therefore a crucial part of continuing U.S. economic recovery. Doubling exports would create two million new jobs for Americans.
Obama is right, too, to focus on China as a promising market for more U.S. exports. Only 1% of U.S. companies export at all, and most of them export to only one country -- most often neighboring Canada or Mexico. The Chinese economy grew by more than 10% last year. China is now the second-largest economy in the world after the United States. U.S. exports increased 17% in 2010, and U.S. exports to China are growing nearly twice as fast as those to the rest of the world.
Understandably, most of the popular and political attention in the United States has been on the huge bilateral trade deficit with China, which totaled about $250 billion last year. This tends to obscure the fact that U.S. exports to China grew from a mere $19 billion in 2001, when China became a Member of the World Trade Organization, to $90 billion in 2010 -- an increase of about 450%.
Likewise, Obama is shrewd to try to shift the emphasis in the ongoing bilateral trade debate with China from the endless and emotionally-charged esoterics of alleged Chinese currency manipulation to the more traditional bread-and-butter trade aim of achieving more market access in China for American goods and services. The currency issue requires a multilateral solution involving a host of trading countries; it cannot be resolved bilaterally between China and the United States. Many of the issues of market access can be resolved bilaterally between the two countries within the framework of already existing multilateral WTO rules.
The continuing challenge facing the United States in securing more access to China is simply this: the trade barriers that increasingly confront U.S. exporters in China are anything but traditional. Traditional tariff barriers to trade remain in China, and need to be reduced. But the Chinese have been especially busy lately building all kinds of new non-tariff barriers to trade. These barriers must be addressed before American exporters can hope to gain any truly meaningful additional market access to China, and nothing that resulted from Hu’s state visit does anything to diminish them.
As usual, a slew of new business deals was announced during the U.S.-China summit. These deals are expected to increase U.S. exports to China by $45 billion. According to Obama, “From machinery to software, from aviation to agriculture, these deals will support some 235,000 American jobs.”
True enough. But this is not enough. This is not nearly enough to assure American exporters of the additional market access they ought to have in China given the continuing U.S. comparative advantage in many kinds of manufacturing, agriculture, and services.
To secure the market access in China that Americans ought to have, President Obama and his Administration must follow up on the recent summit by demanding that China open up the overall Chinese economy to foreign goods and services in the ways China promised to do when China became a Member of the WTO a decade ago.
Considerable progress has been made in China in many areas in the past decade toward overall compliance with China’s WTO obligations. But not nearly enough. And now, in the wake of the Great Recession, China is considering and applying an array of new actions that discriminate in favor of Chinese producers in ways that could be inconsistent with WTO rules.
Although China is in the process of complying with two adverse rulings on copyright piracy in the WTO, the pirating and counterfeiting of all kinds of intellectual property continue to be rampant throughout China. Microsoft CEO Steve Ballmer has said, for example, that one customer in ten of Microsoft products in China is actually paying for them. WTO rules require enforcement of intellectual property rights.
Chinese export taxes and quotas on raw materials and on the rare earth metals that are essential ingredients of many high-tech products give domestic producers in China an unfair competitive edge, and leave foreign producers with a choice of either going without those vital materials and metals or investing and producing in China as the only assured way of attaining them. This critical concern for American competitiveness was not even mentioned in the 41-point “U.S.-China Joint Statement” released at the conclusion of Hu’s visit.
Many of China’s clean-energy subsidies to state-owned enterprises and to other Chinese producers discriminate against foreign producers, and are distorting trade in China and elsewhere. This has already led to one complaint by the United States against China in the WTO, involving subsidies to China’s wind power industry. It could lead to more if the two countries do not find some way to cooperate on the rapidly emerging issue of “green subsidies.” This issue, too, was evaded in the summit communique.
In telecommunications, information technology, and other high-tech sectors, China is increasingly pouring resources into establishing China-only standards that ignore globally-accepted standards and could slant the Chinese market in favor of Chinese producers. Such actions could violate WTO rules against discriminatory technical regulations (and could also undermine China’s own hopes of competing globally).
Not least of these new non-tariff trade barriers is the “indigenous innovation” program proposed as part of China’s plans for ongoing government procurement, which could exclude foreign products from China’s vast government purchases -- which comprise 20% of Chinese GDP and exceed $100 billion annually. Despite promising to do so a decade ago, China has yet to agree to abide by WTO rules requiring non-discriminatory treatment in government purchases.
In addition, there are restrictions on trading rights, mandatory technology transfers, compulsory technology licensing, local content requirements, limited distribution rights, rigged testing rules, mandates to reveal encryption codes, excessive disclosure for scientific permits and technology patents, a foreign-focused anti-monopoly law, and much more that all work together to make it all but impossible for American and other foreign providers of goods and services to have fair access to the rapidly growing Chinese marketplace.
To make matters worse for would-be U.S. exporters to China, these Chinese barriers to trade often verge on the invisible. Despite WTO obligations that require transparency in all laws, regulations, and rulings that affect trade, the subtler nuances of the Chinese administrative regime are -- shall we say -- often elusive to the foreign eye.
In the aftermath of the recent Chinese state visit, the vast and varied abundance of discriminatory Chinese measures that limit real market access to foreign goods and services should be at the very top of the American trade agenda with China. Where these Chinese non-tariff barriers to trade are inconsistent with WTO rules, and where bilateral negotiations fail, the United States should take legal action against China in the WTO. Where international rules do not yet apply to China’s trade barriers, the United States should forge an international consensus to make new rules that will apply, and will be effective.
Making more jobs for more Americans depends on it.
James Bacchus is a former chief judge for the World Trade Organization, a former Member of Congress, and a former trade negotiator for the United States. He chairs the global practice of the Greenberg Traurig law firm.