US manufacturers' wish to complain to WTO about RMB: a good thing for China

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Last updated at: (Beijing Time) Wednesday, October 22, 2003

US manufacturers' wish to complain to WTO about RMB: a good thing for China

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If the WTO (World Trade Organization) really gets involved in this dispute, it will be a good thing for China. At the time when China acceded to the WTO, its aim was to have a criterion for judging and solving future disputes with foreign chamber of commerce.

Frank Vargo, vice-president of the NAM in charge of international economic affairs, recently claimed that the "perfect US dollar union" to which NAM is a party would complete the fund-raising work within several weeks and would formally submit a trade investigation application to the US government concerning China's manipulation of the RMB exchange rate, demanding the US government to lodge a complaint to the WTO.

The weapon wielded by US manufacturers this time is Article 301 of US Trade Law for the following reason: The Chinese government's purchase of large amounts of foreign exchange year in year out and its manipulation of the RMB exchange rate in order to gain export advantages are in violation of WTO regulations and China's promise made to the IMF.

Zhang Hanlin, director of the World Trade Research Institute of the Foreign Economic and Trade University, told China's "News Weekly" that this kind of accusation is completely untenable.

Firstly, during the negotiation on its entry into the WTO, China never promised that the RMB must realize free conversion and China must totally abolish the foreign exchange control system. China only mentioned in the protocol on its accession to the WTO that Chinese economic merger into the world economy objectively requires that China make greater reform to its foreign exchange control system, but neither timetable, nor concrete content was set up for the reform.

The NAM charge China with violation of its IMF promise is groundless. After its seat in the IMF was restored in 1980, China promised that as a member under Article 8 of IMF, free exchange of its money under current account should be realized. Later in the exchange rate system reform in 1994, China realized the free conversion of the RMB under current account. But this was the only promise China had made.

Since "the US dollar union" has a definite representation among manufacturers, Lawyer Tao Jingzhou, chief representative at the Beijing Office of Coudert Brothers law office, held that this might possibly be a warm-up for the trade war started by US enterprises. He warned that Chinese entrepreneurs must pay close attention to the development of the situation, so as to cope with, at an early date, possible US adoption of trade protection measures.

But in the opinion of Professor Zhang Hanlin, the possibility for the establishment of a lawsuit is very little. "This is only a political card played before the year of US general election, China need not pay too much attention to it," said the professor.

To file a lawsuit, the NAM has to go through two passes: First is whether US Trade Office would accept the trade investigation application and start investigation.

The "provisions of US Trade Law are divided into three ordinary articles, three super-class articles and three special articles." Zhang Hanlin told China's "News Weekly", the foundation for the lawsuit lodged by the NAM contains three ordinary and three super-class articles, but they only have the power to make an appeal, the decision on whether investigation be started shall be taken jointly by the US Trade Representative Office, the US Department of Commerce and the US Congress, the appraisal would take a long course.

Furthermore, the NAM which lodged a charge against the RMB exchange rate this time is the main Sino-US trade deficit sufferer. But a vast number of US transnational companies have greatly benefited from free trade. For these enterprises and companies, demanding the revaluation of the RMB is not a sensible decision. What US trade office is to regulate is not only the group interests of the NAM alone, but due consideration is also given to the group interests of many other enterprises and companies, therefore, the possibility of accepting the NAM application and starting 301 investigation is next to nothing.

Wang Youli, director of the America/Atlantic Department of the International Economic-Trade Cooperation Institute under the Department of Commerce, also held that the space for US interference in Sino-US trade in the form of domestic legislation is shrinking. This can be clearly seen from the failure of American use of "Article 301" to protect its iron and steel industry.

Even if this appeal is established within the United States, there is still a second pass for whether China needs to respond to prosecution: The examination and ruling of the WTO. Professor Zhang Hanlin pointed out that the possibility for the WTO to take up this case is very little. Firstly, the WTO does not exercise jurisdiction over the exchange rate matter. Secondly, as mentioned above, China has not broken its promise in the aspect of exchange control.

Furthermore, in the eyes of Zhang Hanlin, if the WTO really gets involved in this dispute, it would be a good thing for China. "When China tried hard to join the WTO, its aim was to have a criterion for judging and solving future disputes with foreign chamber of commerce."

Zhang Hanlin said that when the NAM laid claim to its own rights, it must not forget the purpose of WTO free trade and the balance between right and obligation. As a matter of fact, the rights obtained by every country from the WTO are unbalanced. For instance, the US manufacturing industry suffers some loss from trade, but other industries and transnational companies distributed around the globe have accumulated huge amounts of wealth from free trade. To balance the unbalanced benefits from free trade, it needs to rely on the government's self-improvement, rather than blame the exchange rate policies of foreign governments.

The article is carried on China's News Weekly, and translated by People's Daily Online

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