On March 7, 2008, the Congressional Research Service (”CRS”) issued a report written by Wayne M. Morrison entitled “China-US. Trade Issues.” The 31 page report summarizes the major trade issues between the United States and China, as well as some of the steps that are being taken by the U.S. and Chinese governments to address these trade issues.
The report notes that in 2007 China became the third largest U.S. export market, overtaking Japan. Notably, U.S. exports to China have risen nearly 240% between 2001 and 2007. However, critics point out that a significant number of U.S. exports to China are either raw materials, parts or components rather than finished products.
The report highlights two areas of dispute impacting U.S. exports to China: China’s currency policy and implementation of China’s WTO obligations. From 1994 until 2005, China pegged its currency (yuan or RMB) at 8.28 to one dollar. However, after prodding by the U.S. Treasury Secretary, China announced on July 21, 2005 that the yuan’s exchange rate would become adjustable. According to the Bank of China, between July 21, 2005 and February 29, 2008 the dollar-yuan exchange rate went from 8.11 to 7.12, representing a 13.9% appreciation of the yuan.
To date, the United State Trade Representative has filed five WTO dispute resolution cases against China. Two of the cases were resolved (involving charges of illegal subsidies and discriminatory semiconductor tax rules) and in a third case, the WTO ruled on February 13, 2008 that China’s discriminatory tariff policy concerning auto parts was inconsistent with its WTO obligations.
Arguably, the most important of the five WTO cases (filed on April 10, 2007) alleges that China has failed to adequately enforce its Intellectual Property obligations. This case is especially significant because it involves a challenge to a broad range of China’s Intellectual Property policies rather than just a specific restriction or product.
Turning to imports, it is not surprising to learn that China became the largest source of U.S. imports in 2007, overtaking Canada. However, what may be surprising to some is that an increasing proportion of US. imports from China constitute technologically advanced products (such as computers) as opposed to labor intensive products such as toys, consumer electronics and apparel.
The report discusses developments in three areas concerning imports from China: product safety, the imposition of Countervailing Duties and restrictions on textile imports. Of course, unless you have been living under a rock for the last year, you could not have missed all of the headline grabbing stories concerning defective Chinese imports including toys, toothpaste, pet food and tires. In order to address these problems, the Consumer Product Safety Commission, the National Transportation Safety Administration and the Department of Health and Human Services all signed agreements with their Chinese counterparts in September and December of 2007 to address safety and quality issues.
On March 30, 2007, the Commerce Department imposed Countervailing Duties (a U.S. law trade law which addresses illegal subsidies) on certain Chinese coated free sheet paper products. This decision was significant because it was the first time that Countervailing Duties were applied to China, which is considered to be a non-market economy. The decision allows the U.S. to apply additional duties on imports of the paper products to offset the impact of the subsidy. Countervailing Duty investigations have also been initiated as to Chinese off the road tires and steel pipe.
Of all of the U.S. industries that have been adversely impacted by Chinese imports, producers of textiles and apparel have been the most vocal, especially since import quotas were lifted in January of 2005. The Bush administration intervened and on November 8, 2005, China agreed to import restrictions effective until the end of 2008.
The report explains that US-China trade issues are being addressed via the President’s Strategic Economic Dialogue (”SED”) and the introduction of several bills in the 110th Congress. The SED was initiated as a result of an agreement between President Bush and President Hu on September 29, 2006. A U.S. Treasury Department press release states that the purpose of the SED is to discuss long-term stategic challenges. To date, there have been three meetings: in December of 2006, May of 2007 and December of 2007. At the last meeting in December of 2007, the U.S. and China entered into several formal agreements for joint action, such as a Memorandum of Cooperation to launch the Environmental Industries Forum to promote deployment of environmental technologies in China and increased trade in environmental goods and services.
Finally, the report highlights approximately twenty China related trade bills introduced in the 110th Congress. Seven of the bills would impose punitive measures in an effort to convince China to change its currency policy. On the incentive side, H.R. 3273 would expand U.S. export promotion programs in order to boost exports to China by small and medium sized companies.
This CRS report is an excellent summary of US-China trade issues to date and is supposed to be updated as events warrant. In future blog posts, I will investigate and discuss these US-China trade issues in more detail, with a focus on increasing U.S. exports to China.
