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SHAPIRO: China’s puzzling U-turn on trade
Beijing has the most to lose by keeping tariffs on information technology
If there is one thing that has shifted China from a second-world country to superpower status, it is the power of free trade. Yet last month, China held up and threatened the viability of a critical trade deal, the Information Technology Agreement (ITA). As the agreement would eliminate tariffs on agreed-upon information-technology products, China’s surprise reversal on free trade has perplexed negotiators and observers, especially since the country’s economic power and living standards have skyrocketed as its trade with the world has jumped.
China signed the multilateral deal that cut tariffs on IT products in 1996. The theory behind the pact was that these products should be low-cost and accessible, as they enhance every nation’s economic growth. The results have been terrific. In almost every country, existing businesses have been transformed and new businesses have been created as IT products have revolutionized communication and work.
Signatory economies benefited from the agreement. Citizens from around the world have been able to buy personal computers, laptops and other IT products at low prices because importers’ costs did not include expensive tariffs. China, in particular, benefited substantially from the agreement. In 1996, China accounted for 3 percent of ITA trade; by 2008, China accounted for 19 percent. China is now the largest exporter of IT goods.
However, as information technology has transformed over the years, many products have become multifunctional. Computers now include DVD players, and TVs include computers. Mobile phones function as minicomputers, and printers function as scanners and copiers. Some countries, especially in Europe, have used converging technologies as an excuse to raise tariffs on imports and protect domestic companies.
Most signatories agree it is time to update the agreement to reflect changing technology. In June, member countries convened in Geneva to continue talks on updating the agreement. An expanded ITA could cover as many as 256 products, increasing trade and allowing the citizens of the signatory nations low-cost access to products that connect them to entertainment, education and information.
China surprised the group, though, by asking that 106 products be completely removed from the list. By comparison, the United States asked for only one product to be removed. Despite requests by negotiators, China did not narrow down its list and as a result, the talks were suspended in mid-July.
China’s negotiating position is illogical and inconsistent with its new responsibilities as a superpower. China stands to gain significantly from an expanded agreement. Moreover, a superpower should use its influence to improve the lives of its own citizens and those of the world. Improving free trade allows consumers lower-cost access to critical products.
China’s inward-looking position is self-serving and inconsistent with its membership in the World Trade Organization. The WTO is dedicated to free trade, and member countries must be committed to this principle. China’s actions are also out of sync with its position as the world’s leading exporter. Its blatant protectionist posture is illogical and detrimental to a world dependent on free trade.
I worked hard several years ago to help China receive Most Favored Nation status and to ensure its accession to the WTO. I’ve traveled to China many times and met with leaders in government and industry. No Chinese leader I have met can explain to me China’s strange position in these recent talks. Granted, interagency squabbles and lack of leadership may be at play. Some Chinese agencies understand the benefits of an expanded agreement, while others seek only to reap the funding collected from tariffs, and others want to protect domestic industry.
Regardless of the reasons, China’s position is untenable. As a global economic leader, China should understand that reciprocal treatment in global trade pacts is the way things work. Moreover, superpowers generally do not rely on tariff collection for revenue. Only by opening markets and allowing integrated economies can countries expect true growth.
China needs the competition inspired by trade to become a nation of innovators rather than the world’s low-cost manufacturer. As Forbes contributor Panos Mourdoukoutas recently argued, Chinese companies now need healthy competition to make great leaps forward, from “imitation to innovation.” No Chinese company has yet cracked the Forbes “World’s Most Innovative Companies” list.
China’s support for an agreement expansion would declare its need to embrace both import and export markets, particularly during this time of economic transition in China. The country’s growth dropped 25 percent in the second quarter of 2013. This is reason enough for China to look beyond its own borders for export opportunities.
If a new Information Technology Agreement is to be concluded this year, a goal industry and negotiators alike think is quite possible, China needs to re-engage quickly and put a serious offer on the table. Unless China changes its position, the talks are unlikely to be revived. China’s protectionist position could effectively destroy the very concept upon which it has become a successful world superpower. Moreover, it puts China in an untenable position in relation to the rest of the world. Just recently, 81 organizations from 31 countries wrote to the Chinese government asking it to change its position and support the completion of the agreement.
China’s current stance is bad for trade and seriously disrupts the benefits of innovation in information technology and communications. China should immediately take a leadership role in the agreement talks or risk undermining not only the global economy, but also the very relevance of the World Trade Organization.
Gary Shapiro is president and CEO of the Consumer Electronics Association.
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