Monitoring China trade: a fool’s errand?

Date: 08/09/05

In April 2004, ten Chinese businessmen from near Shanghai were arrested.

Their alleged crime was to have bought hundreds of acres of land from which they had illegally evicted some 4,000 farmers and borrowed EUR 1 billion to build a new steel plant - without a licence.

It is episodes like this which make some experts sceptical about the possibility of putting in place an effective joint EU-China textile export monitoring regime and made Trade Commissioner Peter Mandelson reluctant to do so.

In modern economic history, there is one outstanding example of moderately effective managed trade of significant scale: the 1980s US-Japan 'voluntary restraint' agreements on Japan's car exports.

It involved controlling the exports of just three large companies, by an island nation with an effective bureaucracy which was dependent on its trade partner, the US, for military security.

China, in contrast, is an authoritarian developing country with a corrupt and fragile administrative machine with no chance of controlling thousands of textile manufacturers, even if it wanted to, which it does not. In the same way that banks eventually undermine cross-border currency controls, China's textile exporters will, in time, find ways of evading the new textile exporting regime - perhaps by the simple ruse of having exports re-labelled in Hong Kong or Singapore.

Mandelson clearly took his eye off the ball when the market-managing international Agreement on Textile and Clothing (ATC) ended last December and China began to swamp the world's markets with its textiles. It is harder to argue, however, that a long-term policy of seeking managed trade or 'voluntary restraint' agreements with China makes any sense.

China is in a hurry to industrialise, fearing that adverse demographics will mean that it gets old and poor before it can get rich. 'Voluntary restraint' is not a priority.

China is also too important a growth market for EU exports for the Union to risk adopting a policy which would probably produce a succession of high profile confrontations.

Article discusses the difficulties of setting up an effective joint EU-China textile export monitoring regime.