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Added value key to countering protectionism

(China Daily)

15:44, July 27, 2012

Anders Aeroe believes the best way for China to counter rising protectionism, is to engage in more value-added production.

"To remain competitive, Chinese exporters cannot only reduce their production price, they have to compete in terms of quality with other suppliers," he told China Daily.

"Chinese exporters would be less subjected to antidumping investigations if it specialized in a higher price range."

The head of the market development division of the International Trade Centre said he is also optimistic about China's transition as it "progressively changes its specialization from assembly with limited value added, into new activities with more value added".

Aeroe added that manufacturing companies in China have to be prepared to relocate some parts of their production processes out of the country, as costs rise at home.

The focus could shift here to R&D, while other countries in the region would benefit as manufacturing facilities moved to cheaper locations.

Aeroe said he is less enthusiastic, however, about regional free trade agreements, although FTAs are easier to conclude than multilateral agreements. Small economies may be excluded from them or face difficulties in having their concerns heard, he added.

There is also a greater risk of trade diversion from FTAs, meaning that international trade become less efficient for all, he said.

Looking at broader global trade issues, he said the world should still pin its hopes on the WTO's multilateral framework, as it could cut transaction fees for all members.

"For the moment, the average transaction cost is 10 percent of the world trade value.

"If the Doha Round, or at least the trade facilitation part is completed, the percentage will be reduced to 5 percent, which is major progress and will help world trade a lot," he said.

Global trade now exceeds pre-economic crisis levels and trade protectionism has so far generally been held at bay, he added.

But he noted that although the number of actions taken by the G20 countries is on the increase, the measures taken are generally very specific and limited in scope.

Global Trade Alert, a monitoring service run by Simon Evenett - a professor at St. Gallen University in Switzerland - recently reported that protectionist actions including tariff increases, export restrictions and skewed regulatory changes were much higher in 2010 and 2011 than previously thought.

The alert also noted that, despite the G20's pledge in 2008 to maintain free trade, its members are collectively responsible for 79 percent of global protectionist actions this year, up from 60 percent in 2009.

By comparison, G20 members' share of world trade declined from 80 percent in 2010 to around 77 percent now, Aeroe said.

The good news is after a plunge in global trade following the 2008 financial crisis, trade has recovered and hit a value higher than the pre-crisis level, he added.

The bad news is a "dramatic deterioration" in the sovereign debt of European economies is dampening demand and is likely to affect trade in 2012.


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