International Trade
WTO and China
China joined the World Trade Organization (WTO) in 2002 after a bruising battle in Congress. To get into the WTO, China had to negotiate agreements with existing members on the changes it would make in its trade and economic policies to conform to WTO rules. The agreement with the U.S. was long and detailed, containing many specific commitments to changes in existing import barriers and export incentives.
Gains from trade have not materialized
In the year since entering the WTO, what has changed in China and in U.S.-China trade? Not much.
· The U.S. trade deficit with China continues to grow.
· U.S. companies are still flocking to invest in China.
· U.S. exports to China are not growing very much, especially in comparison with the growth in U.S. imports.
There is no visible trend indicating that U.S. exports will substitute for production in China, as predicted by those in the U.S. who supported China’s entry into the WTO. As the UAW said during the debate, WTO membership assures multinational corporations that their investments in China will be subject to fewer arbitrary Chinese government rules, making investment there even more appealing.
Labor repression
Because of the repressive Chinese government apparatus and the absence of any worker rights protections in the WTO’s rules or the U.S.-China accession agreement, workers in China cannot form independent unions. Their pay is far, far lower than in other countries of comparable economic development, and working hours and conditions are often deplorable.
Auto
Auto trade is just one indicator of how this trading relationship is moving. The U.S. deficit in automotive trade with China, most of which is in automotive parts, doubled from 1999 to 2002 to $2 billion. Last year, with China in the WTO, the deficit grew by nearly 30 percent. Similar to our experience with Mexico under NAFTA, exports increased from very low levels and imports grew far more. Here’s a brief description of what appears to be taking place, even as China’s tariffs on vehicles and parts have started to fall.
· Automakers from around the world are expanding their investments in China, adding assembly capacity and meeting local content commitments (which can no longer be strictly enforced by the Chinese government but still establish “goodwill” with governments and consumers).
· While the vehicles are almost all sold in China, the parts producers also export back to the U.S. Some parts are exported to China from the U.S., at least until they can be produced in China in adequate numbers and quality. Other parts are shipped to China from companies’ other international locations, such as Brazil and Thailand.
· As investments in China grow (GM just bought a share of a fourth assembly plant and DaimlerChrysler is looking to expand the presence of Mercedes and Chrysler there), so will exports of parts.
· At some point, there may be a few more vehicles exported to China from the U.S., but the U.S. companies are more likely to ship vehicles from their Asian, Latin American and European plants than from the U.S. (because they are cheaper and/or the right size for the Chinese market).
We have seen this pattern before. Because government repression assures that Chinese workers cannot benefit from new investment and job creation, companies gain a new low cost production site and a potential new market, making the Chinese model the industry standard and putting downward pressure on U.S. wages and working conditions. That’s the current path of globalization.
NAFTA Trucking
Despite concerns about the safety of Mexican trucks, the qualifications of Mexican drivers and the contribution of the Mexican trucks to U.S. air pollution, the Bush Administration is determined to implement the flow of trucks between the U.S. and Mexico that was negotiated in NAFTA. The Administration has put inspection systems in place in border states, but their effectiveness has not been demonstrated.
Two of the most important issues involved in opening up the U.S.-Mexico border to deliveries from production site to selling location are driver compensation and industry structure.
Driver compensation
· Drivers of the trucks will be in the U.S. for extended periods of time, but paid Mexican wages.
· Mexican drivers will not be subject to U.S. minimum wage laws.
· Mexican compensation will effectively undercut the wages and benefits of American workers doing the same work.
· This will hurt American drivers and have no positive impact on the pay of Mexican drivers.
Industry restructuring
· Mexican trucking companies are fighting the opening of the border out of fear that larger, better financed U.S. trucking firms will be better able to integrate deliveries on both sides of the border and either buy them up or put them out of business.
· Integrating operations will allow the U.S. companies to threaten U.S. drivers, warehouse workers and even their office staffs with moving more work to their Mexican operations.
· Changes in ownership and pressure to increase “efficiency”, through layoffs, would create significant displacement of current workers in Mexico.
· This hurts workers in both countries but helps
pad the bottom line for the companies.
Trade in Services
While the vast majority of U.S. trade is in goods, a growing number of UAW members work in a wide variety of service industries that are deeply involved in international trade, such as:
· Insurance - writing insurance policies in a foreign country and processing insurance claims abroad
· Education - setting up a foreign branch of a college
· Health care - buying hospitals abroad or sending medical teams to provide specific services
· Media and publications - selling cartoons or articles to foreign journals or newspapers
· Public services - sending construction and engineering crews abroad to work on public projects
The World Trade Organization (WTO) has rules that cover trade in services and is in the process of updating them in negotiations that started last year and are scheduled to be completed by 2005. Rules on services are also included in NAFTA and other U.S. free trade agreements and they are an important issue in the ongoing Free Trade Area of the Americas (FTAA) negotiations.
