|
|
|
|
EU-China trade friction: A problem
of perception
By Duncan Freeman
Trade with China has become a hot issue in
Brussels, where the European Commission is in the
process of responding to the large increases in a
few categories of textile imports since the
removal of the last quotas on global textile trade
at the beginning of the year. In the latest
developments, on Thursday, EU Trade Commissioner
Peter Mandelson was reported to be in intensive
consultations with Chinese textile negotiator Gao
Hucheng on the issue. Mandelson's spokeswoman
Claude Veron-Reville described the talks as having
a "constructive atmosphere", but added later that
"the next deadline [to reach an informal
agreement] is the May 31...either there is an
agreement or there isn't".
Concerns over
the textile issue have become entwined with
perceptions, albeit still relatively rare, of a
Europe under threat from a flood of Chinese
exports. This perception of a threat is especially
prevalent in France, where the textile industry is
still comparatively large. Chinese textiles have
even been dragged into arguments in the French
debate over its referendum on the new
Constitutional Treaty for the European Union to be
held later this month. Whether they are for or
against the constitution, those arguing almost
inevitably see China as a threat. On the one hand,
critics of the new constitution blame the European
Commission run by "liberals" who believe in market
economics for failing to act fast enough to
protect the interests of the French textile
industry. On the other, supporters of the
constitution have argued that only through a
strong and united Europe can France protect itself
from the threat of the Chinese.
Many
French citizens are apparently convinced that the
country is threatened by a flood of imports from
China. Given the tenor of comment in the media,
and opinion from labor, industry and political
leaders in France focusing on the increase in
textile imports since the beginning of the year,
it would be easy to believe that this was so. In
fact, during the first two months of 2005, France
enjoyed a spectacular improvement in its trade
with China, performing better than any other major
European economy. According to the latest official
EU statistics, French exports to China rose 61.7%
in the first two months of 2005 compared with the
same period of the previous year, while imports
rose by only 14.4%. In the same period, total
exports by the 25 EU member states to China rose
by a mere 2.5%, while imports rose by 21%.
For
once the French economy has outperformed the rest
of Europe in at least one sphere, a rare enough
event these days, but the success goes unremarked.
Admittedly, the figures for two months do not
necessarily tell us a great deal, and France still
has a deficit on trade with China. It is also true
that the increase in French exports was as a
result of aircraft deliveries to China. Since
France is where Airbuses are assembled, aircraft
sales are the determining factor in how well
French exports perform in China, and only if
deliveries are maintained for the rest of the year
will the performance of the first two months be
sustained.
Still, the difference between
the perception and reality is important. France is
not the only European country with a textile
industry, but it is where the problem of Chinese
imports has found the greatest resonance. The
debate over the European Constitution is suffused
with perceptions of threats - the Anglo-Saxons (in
France this translates into the "rapacious market
economics" allegedly practiced in the UK and US),
the Eastern Europeans (cheap labor and market
economics), the Turks (a potential Muslim member
of the EU), and the Chinese (cheap labor and
imports) to name just a few, and the solution is
believed to be safety in stasis.
One might
think that France would draw a lesson from the
Chinese textile surge: it should abandon
industries like T-shirts and underwear, suitable
for nations in the early stages of
industrialization, and focus on industries of the
21st century like building aircraft. Of course,
economic policy is not that simple, but the
attitude is a complete contrast to the UK. No
French leader has been prepared to say that
textiles should be allowed to go the same way as
MG Rover, the last British-owned car manufacturer
in the UK, which was allowed to collapse in the
middle of an election campaign, with possible job
losses of the same order as those predicted for
the French textile industry as a result the surge
in Chinese imports. In contrast to France, in the
UK, Chinese textile imports went unmentioned
during the recent general election and are
considered almost purely a "business" story by the
media, unworthy of the wider coverage they have
received in France.
The difference
illustrates the enormous contrasts in perception
as Europe wakes up to the economic challenge of
China. Although it has yet to trigger the type of
hysteria to be found in the US Congress, the
textile issue has raised trade with China as a
political issue, at least in some quarters. The
EU, like the US, has a large and growing trade
deficit with China. The 15 member states of the
EU, prior to the enlargement last year, had a
deficit of 70.8 billion euros (US$90 billion) on
their trade with mainland China in 2004, compared
with 55.5 billion euros in 2003, and 47.6 billion
euros in 2002.
Although exports to China
are growing, imports are increasing much faster.
While there are many European companies that see
China as an enormous opportunity, there are also
plenty of domestic industry lobby groups willing
to portray it as a threat to Europe. China is,
after all, the most frequent target of
anti-dumping actions by the European Commission,
even if they affect only a tiny fraction of actual
imports.
In fact, although it is common to
speak of the EU trade deficit with China, the
reality is that there are many different trade
deficits. As in almost everything else, a
Europewide construct hides enormous national
diversity. For instance, in 2004 the UK, where the
subject is not contentious, had a deficit of 17.1
billion euros on a total trade of 24.0 billion
euros with China, while the Netherlands had a
deficit of 16.4 billion euros on a total trade of
21.1 billion euros. These two countries alone
account for about half the total deficit with
China.
France is very much a second
leaguer in terms of its deficit - 6.3 billion
euros on a total trade of 17 billion euros - and
ranks close to Italy which had a deficit of 7.4
billion euros on a trade of 16.3 billion euros.
Germany, with a total trade of 49.6 billion euros
in 2004, is by far the largest European trader
with China, but it is also in relative terms the
closest to balancing its trade of all the major
European economies, having a comparatively small
deficit of only 7.6 billion euros. Finland is the
only EU member to consistently run a trade surplus
with China, although others such as Sweden and
Austria have occasionally managed the feat in
recent years. There is no simple correlation
between trade with China and the balance on that
trade. Nor is there necessarily a direct
relationship between the size of the deficit, and
the degree to which it is seen as a threat or a
problem.
It is unclear even to what extent
or how the trade deficit with China does actually
represent a problem, or at least a new one. The EU
in recent years has consistently run a sizeable
trade surplus with Hong Kong, which reduces the
size of the deficit with China as a whole. Whether
or not Hong Kong is included in China's external
trade, far more important is the role of the rest
of East and Southeast Asia. Today, China is often
the final assembly point for products sourced from
around the region. Between 2000 and 2003 there was
a significant fall in imports to the EU from the
rest of Asia, a trend which was only reversed last
year. For instance, imports from Japan in 2004
were 69 billion euros, compared with a peak of
87.1 billion euros in 2000. The EU's trade deficit
with Asia apart from China in 2004 was
considerably less than it was in 2000. The deficit
with Japan fell from 42.2 billion euros to 26.7
billion euros. Even with the large increases in
the deficit with China, the EU's trade deficit
with East Asia as a whole in 2004 has merely
returned to almost the same level as 2000.
The trading relationship between the EU
and China is far from simple. The imbalances are
the result of a complex dynamic that includes
processing trade and foreign investment in China.
There are interest groups in Europe that will
continue to sound a warning of the China threat.
But it is unlikely for the moment that trade with
China will lead to political posturing in Europe
of the kind seen in the US, where political
dynamic is completely different. Much to the
frustration of some industry lobby groups, the EU
tends to adopt measured tones in these matters,
which fall within the domain of the Commission,
ie, technocrats, rather than politicians.
Public concern over the issue will vary
from state to state, and even if the French or
other governments wish to push the Commission to
respond to public concern, they may not
necessarily carry others with them. Even on the
textile issue, it is by no means certain that all
governments believe tough action against China is
necessary. Overall, the EU has a much smaller
trade deficit than the US, and the euro zone
actually runs a small trade surplus. Furthermore,
relations with China have never been politicized
in Europe in the way they are in Washington. While
concern may be rising in some quarters, trade
relations with China are unlikely to become
confrontational. Even France, for all its anxiety
over textiles, would not wish to push the issue
too far, as was shown during Premier Raffarin's
recent trip to China, when he adopted a far from
aggressive tone.
To the extent that the
EU's deficit is the result of multiple causes, its
reduction, if that is possible, will not come from
any simple set of policies. Any hope that yuan
revaluation will solve the problem is of course an
almost certain non-starter. Exchange rates are
undoubtedly a factor in the most recent increase
in imports from China, and the modest growth in EU
exports, but this is almost certainly largely a US
dollar rather than a yuan problem. The fate of the
US dollar will have a greater impact on trade
between Europe and China than any yuan
revaluation. There is also no doubt that further
opening of the Chinese economy may aid EU
exporters, as should the growth of the Chinese
economy. But greater openness is likely to lead to
greater investment by European companies, either
selling directly to the Chinese market, or
exporting back to Europe.
Whatever happens
in China, or to exchange rates, not all European
economies will benefit equally. Some will be more
competitive in the Chinese market than others. As
trade figures show, Finland, recognized as one of
the most competitive economies in Europe, is able
to balance its trade with China. The Lisbon Agenda
was agreed to by EU members as a program to make
the European economy more competitive, although it
has so far failed to meet its objectives. Even if
it were successfully implemented, there will
remain many sectors where imports from China and
Asia will continue to be too competitive. Should
it ever become a matter of contention, the
capacity of the EU, and especially the European
Commission, to reduce the deficit with China will
be limited. Nevertheless, Chinese textiles will
continue to preoccupy Brussels trade officials for
some time to come. At least on this specific
issue, by imposing quotas or persuading China to
limit exports, they can take action which will
have some effect in the short term.
Duncan Freeman is a
Brussels-based freelance journalist and
consultant.
(Copyright 2005 Asia Times
Online Ltd. All rights reserved. Please contact us
for information on sales, syndication and republishing.) |
|
|
|
|
|
|
|
 |
|
|
|
|
|
All material on this
website is copyright and may not be republished in any form without written
permission.
© Copyright 1999 - 2005 Asia Times
Online Ltd.
|
|
Head
Office: Rm 202, Hau Fook Mansion, No. 8 Hau Fook St., Kowloon, Hong
Kong
Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
|
|
|
|
