WTO questions China’s export barriers

* Export curbs not economically effective for conservation

* Can give advantage to domestic producers

* No comment on yuan rate

By Jonathan Lynn

GENEVA, May 31 (BestGrowthStock) – China’s curbs on exports of some
raw materials to conserve resources may not meet the stated
goals while giving Chinese manufacturers an unfair advantage,
the World Trade Organization said on Monday.

The remarks, in a report prepared for China’s two-yearly
trade policy review, constituted a rare comment by the WTO’s
secretariat on a current dispute between members.

China’s restrictions on raw materials sales have been
challenged by the United States, European Union and Mexico, and
the WTO set up a panel in December to rule on the complaints.
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The WTO noted that China has continued to open its markets
since joining the global trade body in 2001, and its average
tariff is now only 9.5 percent against 9.7 percent in 2007.

But it said export barriers have not fallen as fast as
import barriers.

China uses restrictions such as prohibitions, licensing,
quotas, taxes and partial tax rebates to manage certain exports
in order to conserve resources and energy, it said.

The report questioned whether this approach was economically
effective, and noted that such restraints tend to reduce export
volumes of the targeted products, diverting supplies to the
domestic market and depressing their domestic prices.

“Export restraints… may implicitly assist domestic
downstream processing of the products concerned,” it said.

In other words, by cutting off exports of some raw
materials, China makes them more expensive for foreign
manufacturers who use them while making them cheaper for its own
domestic processing industry, which is thus able to sell its
finished goods abroad more cheaply than foreign competitors can.

EXTERNAL/DOMESTIC BALANCE

WTO officials are normally reluctant to comment on issues
that are subject to litigation for fear of influencing the
outcome, and the report steered a discreet path around other
disputes involving China.

For instance it refrained from any recommendation on China’s
currency, whose level concerns the United States and some other
trading partners. It noted that when the International Monetary
fund had last examined it, some IMF directors had agreed that
the yuan was substantially undervalued, while the central bank
wants to keep the rate basically stable.

The report was prepared on April 26 but only released on
Monday for the start of the three-day review of trade policies
at the world’s biggest exporter and second-biggest importer.

China was making greater use of trade actions such as duties
on unfairly priced imports, while itself remaining the most
frequent target of such anti-dumping measures, it said.

Since 2008 China has been involved in 4 disputes as a
complainant and 11 as a defendant, it said.

The WTO said heavy reliance on manufacturing had resulted in
over-investment and excess capacity in some industries which
became obvious when external demand fell, leading to a 16
percent fall in exports in 2009. Chinese exports have rebounded
this year.

This over-investment was partly due to the absence of a
proper capital market, monetary policy that is not fully based
on market instruments, and government guidance in allocating
resources, it said.

A better balance between external and domestic demand to
drive growth, and further liberalisation of import and export
policies would strengthen China’s ability to work with other
countries to manage trade and economic imbalances, it said.

It said the crisis has reinforced China’s intention to
undertake longer-term structural reforms.

These include strengthening domestic demand by strengthening
social safety nets, reducing household precautionary savings,
diversifying the economy and developing capital markets to
reduce high enterprise savings.

Stock Market Money
(Editing by Charles Dick)

WTO questions China’s export barriers