Global Trends by Martin Khor

Monday 28 August 2017

Spotlight remains on trade issues

Trade issues continue to make news as the United States triggers a trade weapon on China while the a meeting to decide if the TPP has a future is held this week


The last Global Trends article (Star, 14 August) warned that the world is on the brink of a trade war with the United States planning a serious trade measure against China.

On that same day, US President Donald Trump signed an order for the US Trade Representative Robert Lighthizer to determine whether to investigate China's policies, practices, or actions that may be harming American intellectual property rights, innovation, or technology development.

Four days later Lighthizer announced he was initiating an investigation of China under Section 301 of the US Trade Act of 1974.

He said China’s policies and practices may encourage or require the transfer of American technology and intellectual property to enterprises in China and negatively affect American economic interests.  This is a trigger for a long drawn out trade conflict.    

China responded with controlled anger.  Its Ministry of Commerce expressed “strong dissatisfaction” with the US’s unilateral and protectionist action, and accused the US of violating the rules of the World Trade Organisation by applying a domestic law to an international matter.

A deputy editor of the state-owned China Daily commented:  “With its Section 301 investigation the US is trying to be a player and the referee at the same time. The US is violating its WTO commitment with this investigation. The implication of this is serious.”

Although it does not equate to a declaration of a trade war, it is moving in that direction, said the article.  “A trade war between the world's two largest economies, or just tit-for-tat retaliation between them, would be calamitous to not only themselves, but also the global economy.”

Other countries also have serious concerns about Section 301.  The US widely used this unilateral trade measure in the 1980s and early 1990s to pressurise and threaten its trade partners to comply with what the US demanded, or they would face punitive tariffs.

Under Section 301, the US Trade Representative can take “all appropriate and feasible action” to eliminate the targeted act, policy, or practice.  These actions are with respect to trade in goods or services, or “any other area of pertinent relations with the foreign country.”

After the WTO came into being in 1995, Section 301 was deemed WTO-illegal, and the US used it rarely.  Now the US has signalled the revival of Section 301.

If the US eventually uses trade sanctions under Section 301 against China (the investigation may take up to a year), it is important for China to take a WTO case against the US. If China wins, it could put a brake on this unilateral measure.  But one can’t predict the US response.  

Trump is however unlikely to wait a year before further actions.  “It’s a very big move,” he declared when announcing the Section 301 case on China.  “And this is just the beginning.” 

So we can expect all kinds of other measures, including under national security, anti-dumping, unfair subsidies and WTO cases.

Another trade issue under the spotlight this week is the future of the Trans-Pacific Partnership.  After the shock of the US pulling out, the remaining 11 members (known as the TPP-11) are discussing how to rescue it.

A meeting starting today in Australia will see the TPP-11 pondering over at least three options:  sign the TPP text as it was agreed to by all the 12, including the US; “suspend” controversial parts of the text that the US had insisted on but which were unpopular with some of the other countries, and “revive” them if and when the US rejoins the TPP; and renegotiate the whole text.

The first option would be quite irrational: why sign on to an agreement which was heavily tilted toward US interests when the reward – market access to the US – is no longer available?  Moreover the US would enjoy the benefits of the TPP-11’s changes in rules and policies without having to give anything in return.

The second option is tricky.  What may be controversial or undesirable to one or some of the TPP-11 may be desirable to others.  And even if a new US President decides to join the TPP, he or she is expected to insist on more heavy concessions from the TPP-11 in order to win a TPP vote in Congress.

The third is the most honest, but a re-negotiation could mean a new TPP will not materialise.

Malaysia has perhaps the most at stake among the TPP-11 as the TPP will affect it probably more than any of the others. The chapters on investment, government procurement, competition and state-owned enterprises have serious and systemic implications for the country’s political economy, including the foreign-local and the intra-local shares of future business.

In addition, there are the concerns, shared with many other countries, that the chapter on intellectual property will drastically and adversely affect the public’s access to medicines, information and education.      

The main reason Malaysia and some other countries were attracted to the TPP was to gain better access to the US market.  Now that this benefit is unavailable, the mathematics of costs and benefits have to be re-done.  Is it worth the costs and risks of accepting very burdensome obligations when the major benefit is no longer there?

Developed countries led by Japan and Australia believe they can still obtain substantial benefits from a TPP without the US, for they actually share the same views as the US on many issues.

But developing countries like Malaysia, Vietnam and some Latin Americans will have to think seriously what is in there for them when the benefits go down while the risks and costs remain.