Tag: China

Trade Law, Trade War, and the Case of Multilayered Wood Flooring from China

Public angst over China’s rise and the threat of populist currency legislation have prompted speculation about a U.S.-China “Trade War.” With the 2012 elections still a whole year away, there is ample opportunity for campaigning politicians to ignite that fuse.

But pyrotechnics aren’t necessary. Rather than a 1930s-style free-for-all, a trade war—if one were to begin—is more likely to be of the lowercase, “rules-based” variety, where trade restrictions are imposed in compliance (or under the pretense of compliance) with global trade rules. Many of the battles would be waged behind the façade of so-called trade remedy laws.

Antidumping and countervailing duty measures are the most commonly invoked forms of “contingent protectionism” permitted under World Trade Organization rules. Those rules allow member governments to maintain and administer national antidumping and countervailing duty laws to remedy—through the imposition of customs duties—the effects of imports determined to be sold at unfairly low prices (antidumping) or determined to be unfairly subsidized by a government (countervailing). But imposing “remedies” under these laws is contingent upon certain conditions being met. Two core conditions are that the administering authorities need to demonstrate that the imports in question are being dumped or subsidized, and that those dumped or subsidized imports are causing or threatening material injury to the domestic industry.

A determination expected tomorrow from the U.S. International Trade Commission offers a case in point. The Commission will vote on the question of whether dumped and subsidized imports of multilayered wood flooring (MLWF) from China are causing or threatening material injury to the U.S. MLWF industry. An affirmative determination could invite Chinese retaliation because the evidence of a causal connection between imports from China and injury to the U.S. industry is weak to non-existent. If the U.S. government is going to stretch or skirt the evidentiary standards established by domestic law and international treaty, the Chinese government may be inclined to do the same. (In fact, the Chinese government is already alleged to have broken those rules – and the United States is seeking recourse in the WTO – when it imposed antidumping and countervailing duties on U.S. chicken exports in 2010.)

Multilayered wood flooring is a floor covering product—used for the same practical purposes as hardwood flooring, tile, and carpeting. Sales of MLWF are highly dependent upon new housing starts and remodeling expenditures, both of which tanked when the housing bubble burst in 2008. As a result of U.S. housing starts declining from a seasonally adjusted annual rate of 1.1 million units in February 2008 to just 505,000 units in March 2009, as well as the large decline in remodeling activity over the same period, MLWF industry prices, shipments, revenues, and profits declined substantially, as did imports from China and other countries. But since the second quarter of 2009, housing starts have been stable at about 600,000 units per year and remodeling activity has been steady at about $112 billion per year.

Importantly for the injury analysis, this period of stability in housing starts and renovation activity enables an analysis that isolates the effects of imports on the domestic industry. And what is evident is that, as domestic consumption of MLWF picked up, so did U.S. imports, producer shipments, revenues, and profits (from -9.9 percent in 2009 to -1.0 percent in the first half of 2011). Increasing volumes of subject imports correlate with an improving condition of the domestic industry. Throughout the period of stabilization, prices in the U.S. market have been steady, as well. If imports from China were to have an injurious effect on the domestic industry, one would expect the increasing volume of such imports to drive down prices in the United States. But imports from China, on average, do not underprice domestic MLWF. According to the public version of the USITC Staff Report in this matter:

…prices for MLWF from China were below those for U.S.-produced MLWF in 60 of 110 instances; margins of underselling ranged from 1.5 to 36.4 percent. In the remaining 50 instances, prices for MLWF imported from China were above those for U.S.-produced MLWF; margins of overselling ranged from 0.1 to 30.4 percent.

An affirmative finding of injurious dumping and/or subsidization from the USITC tomorrow would require disregard of these and other crucial facts and would warrant closer scrutiny of the antidumping regime. It would also invite similar actions from Chinese trade remedies authorities and then who know where it will lead.

A Step Forward in Afghanistan, If We Are Willing to Take It

The Washington Post reports the Obama administration has revised its Afghan war strategy to include “more energetic efforts to persuade” Afghanistan’s neighbors—including India, China, and the Central Asian republics—to “support a political resolution.” Just yesterday, the New York Times reported that the administration was also relying on Pakistan’s Inter-Services Intelligence spy agency “to help organize and kick-start reconciliation talks aimed at ending the war in Afghanistan.”

This is good news, but also déjà vu. The administration called for “pursuing greater regional diplomacy” back in 2009. It also said it would ask “all countries who have a stake in the future of this critical region to do their part.” Countries in the region do have a stake in Afghanistan’s future; America, however, has few effective instruments for submerging the differences among competing powers.

Take our relationship with Iran. It has made significant inroads with Afghanistan’s Hazara and Tajik communities and is well-positioned to be a key player in the region. But Tehran and Washington seem neither close to engaging in direct talks nor willing to make reciprocal concessions for the cause of furthering peace. The irony is that after 9/11, American and Iranian interests initially converged in Afghanistan: Tehran cooperated with Washington to overthrow the Taliban regime, and during the Bonn negotiations helped broker a compromise between President Karzai and the Northern Alliance.

America’s complicated relationship with Iran is one reason why what U.S. officials perceive to be in America’s best interests may not be synonymous with the pursuit of peace. Isolating Iran, or even Pakistan for that matter, will hurt the substance of negotiations, increase the incentive for these countries to sabotage peace, and hinder Washington’s ability to shape a coherent regional strategy. Even if Washington were to engage Tehran and Islamabad, they may very well decide to protract the bargaining process to convey that time is on their side (it is). One reason why the administration’s 2009 effort may have faltered was that Pakistan—a major player in Afghanistan’s internal affairs (to the consternation of many Afghans)—has come to feel that it can manage the terms of reconciliation. In fact, it is this belief that tempers Pakistan’s eagerness to be more accommodating toward the United States, which is why the case for American humility is key when it comes to the subject of negotiations.

Peace will not be perfect. Problems will rise when competing interests collide on certain core issues. Nevertheless, all parties must be sufficiently dedicated to reaching a consensus on what constitutes a manageable settlement. After all, some countries will seek to stymie their enemy’s provision of assistance to Kabul (i.e. Pakistan vis-à-vis India). Getting these countries to think otherwise will necessitate a shift in said country’s perceptions of others’ intentions.

As I wrote last week, U.S. officials understand the enormity of problems they confront in this vexing region. Proponents of peace are not blind to these difficulties. Unfortunately, much like the current nation-building effort, when it comes to regional engagement, U.S. officials could be making yet another ambitious commitment that is beyond their ability to carry out.

Cross-posted from The Skeptics at the National Interest.

The Lives of Others 2.0

Tattoo it on your forearm—or better, that of your favorite legislator—for easy reference in the next debate over wiretapping: government surveillance is a security breach—by definition and by design. The latest evidence of this comes from Germany, where there’s growing furor over a hacker group’s allegations that government-designed Trojan Horse spyware is not only insecure, but packed with functions that exceed the limits of German law:

On Saturday, the CCC (the hacker group) announced that it had been given hard drives containing “state spying software,” which had allegedly been used by German investigators to carry out surveillance of Internet communication. The organization had analyzed the software and found it to be full of defects. They also found that it transmitted information via a server located in the United States. As well as its surveillance functions, it could be used to plant files on an individual’s computer. It was also not sufficiently protected, so that third parties with the necessary technical skills could hijack the Trojan horse’s functions for their own ends. The software possibly violated German law, the organization said.

Back in 2004–2005, software designed to facilitate police wiretaps was exploited by unknown parties to intercept the communications of dozens of top political officials in Greece. And just last year, we saw an attack on Google’s e-mail system targeting Chinese dissidents, which some sources have claimed was carried out by compromising a backend interface designed for law enforcement.

Any communications architecture that is designed to facilitate outsider access to communications—for all the most noble reasons—is necessarily more vulnerable to malicious interception as a result. That’s why technologists have looked with justified skepticism on periodic calls from intelligence agencies to redesign data networks for their convenience. At least in this case, the vulnerability is limited to specific target computers on which the malware has been installed. Increasingly, governments want their spyware installed at the switches—making for a more attractive target, and more catastrophic harm in the event of a successful attack.

With Friends Like Sen. Sessions, Free Trade Is in Trouble

According to a story in Politico today, Senator Jeff Sessions of Alabama has been whipping his Republican colleagues to vote in favor of the China currency legislation that appears to be headed for passage in the Senate. (My Cato colleague Dan Ikenson has explained  why raising tariffs on imports from China would be a mistake.)

The Politico story says that Sessions is “traditionally a proponent of free trade,” but his actual voting record indicates otherwise. According to the trade vote data base we maintain on the home page of the Herbert A. Stiefel Center for Trade Policy Studies at Cato, Sen. Sessions has voted in favor of lower trade barriers on a bare majority (26 out of 49) of the significant trade votes we’ve recorded.

Since 1997, Sen. Sessions has voted in favor of protectionist farm bills (2002, 2007, 2008), banning safety-certified Mexican trucks from U.S. roads (2007), country-of-origin labeling (2003), the WTO-illegal Byrd amendment (2003, 2005), the original Schumer-Graham bill to impose a 27.5 percent tariff against imports from China (2005), sugar import quotas (1999, 2000, 2001), and steel import quotas (1999)

Meanwhile, he’s voted against the Morocco free-trade agreement (2004), trade promotion authority (1998, 2002), and normal trade relations with Vietnam (2001) and China (1997, 1999).

And to top it all off, it was Sen. Sessions who single-handedly scuttled renewal last year of the Generalized System of Preferences, the long-standing program that had allowed certain imports from poor countries to enter the United States duty free. As my Cato colleague Sallie James has chronicled (here and here), the good senator refused to allow the program to be renewed because of a dispute affecting a small number of his constituents who are employed making sleeping bags.

Like too many of his fellow senators, Sen. Sessions supports our freedom to trade only as long as it does not affect any noisy special interests in his own state.

Explaining Aircraft Carriers

Yesterday, State Department spokeswoman Victoria Nuland made the following comment regarding China’s maiden voyage in the old Varyag carcass it has been tinkering with for over a decade:

We would welcome any kind of explanation that China would like to give for needing this kind of equipment.

This echoes Donald Rumsfeld’s remarks at the 2005 Shangri-La Dialogue in which he puzzled in quintessentially Rumsfeldian fashion:

Since no nation threatens China, one must wonder:

* Why this growing investment?

* Why these continuing large and expanding arms purchases?

* Why these continuing robust deployments?

Maybe, like me, the Chinese are reading Aaron Friedberg’s new book on U.S.-China security competition (Friedberg worked on Asia for Vice President Cheney). Perhaps high-ranking military officials there shudder a bit when they read, on page 184, that someone very close to the levers of power in Washington admits mildly that

Stripped of diplomatic niceties, the ultimate aim of the American strategy is to hasten a revolution, albeit a peaceful one, that will sweep away China’s one-party authoritarian state and leave a liberal democracy in its place.

Given this, as Friedberg sensibly notes later (p. 231),

It is difficult to believe that the present Beijing regime will accept indefinitely a situation in which its fate could depend on American forbearance, and hard to see how it can escape that condition without building a much bigger and more capable navy.

I actually agree with David Axe’s characterization of the Shi Lang as “a piece of junk,” and given the geography of the region, I wouldn’t—as the Chinese aren’t—pour many resources into aircraft carriers to remedy this predicament. But if the roles were reversed, and China spent four times as much as we did on our military—and if China had naval bases ringing my coastline and fancied itself the “hub” of a “hub-and-spokes” set of alliances between itself and a variety of Latin American countries and Canada—I’d probably think that these facts, when assembled, constituted a pretty strong argument for spending more money on anything I could use to defend myself. Especially if China had recently gone on an ideological rampage trying to “hasten revolutions” and leaving smoldering wreckages in its wake.

At any rate, what’s good for the goose ought to be good for the gander, so I anxiously await the Pentagon’s detailed explanation for why we need each of our 11 aircraft carriers, every one of which is enormously more powerful than the PRC’s puny flattop.

Cross-posted from the National Interest.

Does Asia Need a Larger U.S. Handout?

Yesterday, AEI scholars Dan Blumenthal and Michael Mazza authored an interesting op-ed in the Wall Street Journal with a perplexing title: “Asia Needs a Larger U.S. Defense Budget.” There are a couple of more sensible arguments you could make: For instance, that Asian countries need larger defense budgets, or that U.S. interests in Asia require larger military expenditures that Asian countries can’t or won’t make themselves . Blumenthal and Mazza gesture at both of those arguments but don’t really make either one. As such, the piece is an emblem of what’s wrong with the Asia policy discussion–to the extent it exists–in Washington today.

In the opening paragraph, the authors state that “it is…difficult to assess how much cuts [to military spending] will cost tomorrow,” but in the next sentence defy that claim by promising that “in Asia, the price will be unacceptably high.” Either it is difficult to assess how much cuts will cost tomorrow, or we know that the price of cuts in Asia will be unacceptably high, but not both. The authors also are apparently unaware of the facts when they argue that U.S. military spending has been “slashed.”  It hasn’t even been cut. (For its part, the Asia studies department at AEI was last seen disseminating wildly inflated estimates  of Chinese military spending and then refusing to answer queries about how they came up with the figures.)

Blumenthal and Mazza then swerve widely to avoid explaining China’s military buildup, writing that

The international trade that has fueled the region’s economic boom is dependent upon the immeasurable strategic tasks undertaken by the U.S. military–from keeping safe maritime shipping to reassuring friends and allies while deterring China and North Korea.

The reason that China is building up its military forces and narrowly targeting them at securing their sea lines of communication (and perhaps a bit further out) is that they quite rationally do not want to rely on the eternal beneficence of the United States to do it for them, particularly when prominent Asia scholars mention in the same breath deterring and containing China as a primary goal of the U.S. in Asia.

There are other contradictions. For instance, Blumenthal and Mazza assert flatly that

If America skimps on its military, China will become the regional hegemon.

That’s one possibility, but aren’t there others? One paragraph later, the authors allow that sure there are: the alternative is that

Asian countries might find ways to resist Chinese pressure themselves.

So then maybe it’s not foreordained that China will run amok in East Asia absent Washington as its balancer-of-first-resort. But that brings us back around to the weirdness of the title of the piece: saying that Asia needs a larger U.S. defense budget is like saying that Greece needs more German stabilization money. (While we’re here, AEI calling for more military spending is like rock legend Bruce Dickinson calling for more cowbell.)

These kinds of arguments ought to at least try to show why the best way to achieve German (or American) interests is to dole out more largesse to third parties. That may or may not be true, but it would be good to at least see an argument to that effect, rather than all the hand waving and then backing down from the strongest claims in the article.

Zero Cheers for the Chinese Communist Party

The Chinese Communist Party celebrates its 90th birthday today. Pardon me if I do not attend the party.

It is undeniably true, as the authorities in Beijing are trumpeting, that the Chinese Mainland under one-party communist rule has enjoyed spectacular economic success during the past 30 years. China’s rapid growth was unleashed by the reforms of the late communist leader Deng Xiaoping that began in the late 1970s, but those reforms—private ownership of business, farms and housing, market pricing, foreign investment, and trade liberalization, among others—were hardly an extension of the Communist Party’s agenda. In fact, those reforms were a direct repudiation of everything the Chinese Communist Party and its co-founder Mao Tse-tung believed and practiced before and after the communist takeover of 1949.

Under Mao, tens of millions of Chinese starved in the Great Leap Forward of 1958-60. Millions suffered cruelly at the hands of the Red Guards during the Cultural Revolution of 1966-76. During the first 30 years of communist rule, the Chinese people enjoyed neither economic nor political and civil freedom. Even amid rising economic prosperity today, China’s one-party state continues to imprison, torture, and kill people who practice their faith or question the party. That is not much of a record to celebrate.

The Chinese people do not need communist rule to prosper. We can see that plainly enough 112 miles across the Taiwan Strait. Under the rule of the Nationalist Party, the 23 million people of Taiwan made the transition from military rule to a lively, multiparty democracy with freedom of speech, assembly, and religion. Behind liberal economic reforms dating back to the 1960s, the Taiwanese people have achieved a per capita gross domestic product (at purchasing power parity) that is four and a half times greater than on the mainland—$35,700 vs. $7,600.

It does not take much imagination to envision what Mainland China would be like today if it had followed the path of Taiwan rather than that of the 90-year-old Chinese Communist Party.