Ｔｒａｄｅ Ｐｒｏｔｅｃｔｉｏｎｉｓｍ Ｈｉｎｄｅｒｓ Ｇｌｏｂａｌ Ｅｃｏｎｏｍｉｃ Ｒｅｃｏｖｅｒｙ

ＬＩＵ　ＱＩＯＮＧ

In contrast to the slump in other parts of the world, Chinas

auto industry is holding fast to brisk growth. However, overseas orders for auto parts are slumping, and trade protectionism is rearing its ugly head.

Latest “421” Case

Last April, the U.S. International Trade Commission (ITC) initiated a market disruption investigation into certain passenger vehicle and light truck tires from China following a petition filed by the United Steel Workers (USW). This was the seventh, and also the largest, Section 421 case against China since it joined the WTO in 2001.

Section 421 was added to the Trade Act of 1974 by the U.S.-China Relations Act of 2000. Also known as the China-Specific Safeguards, the statute stipulates that during the first 12 years of Chinas WTO membership, if a Chinese product imported into the United States is in such great quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of a like or directly competitive product, the U.S. shall impose increased duties or other import restrictions with respect to such product, to the extent and for such period as considered necessary to prevent or remedy the market disruption.

According to USW figures, Chinese tire shipments to the U.S. grew 215 percent in volume and 295 percent in value between 2004 and 2008, reaching 46 million units, worth US $1.788 billion, in 2008.

The USW alleged that domestic producers are being crushed under the weight of tires from China, and wanted the American government to impose restrictions on Chinese imports. Once approved, the trade relief could slash 55 percent off Chinas tire export to the U.S. at the 2008 level, or 12 percent of its global exports.

The USW charges are baseless. “Chinese exports fill the low range of the tire market in the U.S, which has largely been abandoned by American companies,” explained Zhao Wenquan, chief of the Technology and Economy Committee of China Rubber Industry Association. “Even if Chinese exports are kept out of the U.S., American automakers and consumers will turn to exports from other nations to fill their demand.”

According to customs statistics, of the tires China exported during the first four months of this year, as many as 56.9 percent were from foreign-funded enterprises in China, of which a good share are American investments. At present, 200-odd import agencies and more than 43,100 retailers are handling Chinese tires in the U.S., leading to jobs for some 100,000 Americans. A slashing of Chinese tire imports will mean hugelosses to these businesses and individuals.

“Chinese tires are not rivaling products of the same category or imperiling the market in the U.S. Limiting Chinese imports cannot solve the problems confronting the American tire industry,” said Commerce Ministry spokesman Yao Jian on June 19.

ITCs proposed remedy also met with opposition at home. The Tire Industry Association (TIA) of the United States made a statement saying the measure would not help retain manufacturing jobs, and would also be detrimental to consumers, as Chinese tires meet the needs of those with limited budgets. TIA said it believes that a drastic cut in Chinese tire imports would lead to market disruption.

Specter of Protectionism

Chinas tire exports have been faced with increasing trade barriers ever since the nation became the worlds second largest tire producer and exporter. The majority of products involved in anti-dumping cases are tires for autos and bike/motorbike tires, typically low-end products.

“Protectionism has been rising in recent years. The Zhongce dispute in 2007 is an example,” said Deng Yali, secretary general of China Rubber Industry Association. In June 2007, Foreign Tire Sales Inc., a small importer based in New Jersey, asked the U.S National Highway Traffic Safety Administration to recall 450,000 tires made by Hangzhou Zhongce Rubber Co., Ltd., saying there were quality defects. It blamed the tires for a crash in Philadelphia in August 2006, in which two people died and another two were injured.

But sample tests by the General Administration of Quality Supervision, Inspection and Quarantine showed that the Zhongce tires used in the U.S. fully met the Federal Motor Vehicle Safety Standard 119, or FMVSS 119. There is no evidence that the Philadelphia car accident was caused by tire failure. Investigations later revealedthat the car involved in the crash was running on two pairs of tires of differentbrands and sizes. It is common sense that mismatched tires will pose a great risk on the road.

“Some people seek import restrictions on the pretext of quality flaws in times of growing trade frictions,” Deng said. The ongoing economic crisis is fueling a new wave of protectionism, and Chinas tire industry has once again become the target. Last June, ITC voted to put import restrictions on Chinese tires for passenger vehicles and light trucks under the China Specific Safeguard.

“The Safeguard statue is typically tinged with trade protectionism,” complained Yi Xiaozhun, vice-minister of commerce. “[Despite being] cleared of dumping and government-subsidy charges, Chinese products may still be subject to import restrictions in the U.S., only for being competitive. This is unfair to Chinese producers, and a shame to America, as it is discriminatory and violates the Most-Favored-Nation principle of the WTO.”

Tighter Grip

Technical barriers are another tactic used by certain countries to block imports. Since 2000, more than 20 countries have detailed more than 50 codes, standards and assessment measures with respect to tire technologies. And more than 50 countries have introduced the green label system. In the EU, this covers approximately 10,000 products.

“When the economy falters, the government faces greater pressure to save domestic enterprises, and therefore is prone to impose trade barriers to control the influx of foreign products. This is a lesson from history. Trade protectionism was rampant during the Great Depression,” said Yu Yongding, chief of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences.

This is supported by WTO findings. The global trade body warned in July of an increase in restrictive trade measures since the onset of the financial crisis, and forecast a 10 percent decrease in the volume of world trade this year, a post-war record. According to WTO figures, 83 restrictive trade measures were put in place by 24 countries and the EU in the second quarter of this year alone, more than twice the number of free trade policies made during the same period.

“While traditional protectionism is weakening under WTO rules,” said Yu Yongding, “a neo-protectionism has been growing since the financial tsunami broke out last year. Unlike traditional measures such as hefty tariffs, it often takes such forms as green product barrier, technical barrier, anti-dumping and intellectual property right protection.”

By 2006, China had for 13 straight years been the target of the largest number of anti-dumping investigations and measures in the world. WTO figures show that last year, 40 percent of anti-dumping cases and 70 percent of anti-subsidy cases were filed against Chinese products. In the first quarter of this year, the global number of anti-dumping, anti-subsidy and product-specific safeguard cases went up by 18.8 percent over the same period last year, with two-thirds of the cases involving Chinese products.

“Trade protectionism shadows the outlook of world economic recovery. China is a major victim of protectionism in this economic crisis, said Vice-Minister Yi Xiaozhun.

In the light of the grim international environment, experts are urging Chinese manufacturers to upgrade their products, and focus more on technology and efficiency. Investing abroad can also help avoid anti-dumping risks. Meanwhile, trade associations should step up monitoring and coordination to avoid cut-throat competition within their industries. They should also help member organizations to respond quickly to anti-dumping investigations to prevent further economic losses.