Thursday, March 11, 2010

ASEAN Free Trade Agreements Disaster for all but China

It's really time for the reality to penetrate the debate over ECFA: Taiwan, with so many industries in direct competition with China, is going to be blasted by waves of cheap Chinese junk. The Straits Times has the call:
The China-Asean Free Trade Area (Cafta), which kicked in at the start of this year, has been greeted with little enthusiasm in the region.

A Philippine Daily Inquirer story, headlined 'The China-Asean Free Trade Area: Propaganda and reality', contended that contrary to the positive spin by the country's leaders, 'most of the advantages will probably flow to China'.

A Jakarta Post analysis urged Indonesian companies to 'face the music' and take on the challenge of competition from China. The most telling headline was in Beijing's China Daily: 'China allays fears of Asean nations over Cafta'.
This article begins with Thailand, which China absolutely screwed:
Thailand, in particular, had a bitter experience. In 2005, tariffs for 200 items of vegetables and fruits were abolished. Thailand expected to export tropical fruit to China and import winter fruit from it at zero tariff. But what happened was that Thai farmers of garlic, longan and other fruit and vegetables were decimated by cheap Chinese imports. Worse, Chinese officials reportedly either refused to lower tariffs on Thai imports or left the Thai produce to rot in warehouses.

The Thai experience fanned fears that Asean would become the dumping ground for cheap Chinese agricultural and manufactured products. And that fear is not unfounded.

Already, smuggling of cheap Chinese shoes into Viet Nam has done damage to the shoe industry there. In Indonesia, cheap imports of clothes, toys and electronic goods, often through smuggling, have hurt local manufacturers of such products. What would happen when the floodgates to cheap Chinese products are thrown wide open? It is no wonder that Indonesia has asked for a two-year delay in tariff reductions for 228 items.

The trade and foreign direct investment (FDI) figures are not encouraging either. Since 2004, tariffs between the two sides have been coming down, and Asean's trade deficit with China has widened. From 2000 to 2008, China-Asean trade grew sixfold to US$198 billion (S$280 billion). But Asean's trade deficit also widened five times to US$21.6 billion. Asean's cumulative FDI in China was US$52 billion in 2008. By comparison, China's FDI in Asean was just US$2.8 billion.
This piece, after discussing hopes for change in this situation (yeah, good luck with that), goes on to make the connection between China's duplicitous, mercantile trade policies and its territorial ambitions...
Still, if the Chinese hope to allay the fears of Asean, they should do more to assure that bilateral trade and investment flows are not skewed in their favour. If Beijing cannot reassure Asean that the grouping has little to fear from it economically, how can it begin to address fears over its intentions in issues such as the territorial disputes it has with various countries in the region?
So many of Taiwan's industries have counterparts in China. Cheap Chinese junk is going to go through the island's economy like a tsunami. Hey journalists! Someone needs to ask Ma at a press conference a direct question about these economic realities: how can Taiwan expect to succeed where everyone else is experiencing problems?

Note also that according to the FDI figures, China doesn't reinvest in its ASEAN partners. Money comes in, but it doesn't go out. US Establishment China policy is to tame China by ensconcing it in the global financial and trade system like Gulliver pinned to the sand by the ropes of the Lilliputians. This policy appears to be a failure (except for the well connected foreign policy types making the big bucks off consulting and similar work, which is why the "tame China by binding it to us" approach will always have spokesmen): the world system is finding China too big a mercantilist nugget to swallow.

UPDATE: Walden Bello has a long piece on this problem in the NI (h/t to David in comments), similar to a piece of his I blogged on earlier.

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17 comments:

TicoExpat said...

Michael,

The thing is that many free trade proponents say it is the market that is requesting this cheap importas from China. They claim the customer demands the cheapest items, and that if the locals cannot compete, it is because they are not competitive at an international level and hence should be left to rot -literally.
They say that tariffs and such protective measures are unhealthy and old fashioned.

One cannot help to think that oh yeah, the consumer is partially to blame -suuure- when choosing the cheapest item -Duh!- but then you have the other side of the coin: the consumer himself has less money to spare because the local industries are trying to lower costs to compete with Chinese production internationally.

Seems to me this is a dangerous vicious cycle where everyone loses.

Taiwan's situation gets worse due to teh fact that we are talking political dominance more than economical advantages.

Thomas said...

One thing to keep an eye out for is under what conditions the wording of the ECFA that comes out of the KMT-CCP negotiations allows for the termination or alteration of the pact.

David said...

Walden Bello had an article about this in the New Internationalist.

China’s neo-colonialism

SY said...

Thomoas wrote: the wording of the ECFA

The problem is: Nobody seems to have seen the complete text of a draft; no matter how preliminary a draft it is, just a draft. No, none has ever been sighted (let alone "been read").

I doubt anyone in the Ma regime has seen one either.

The non-existence of a complete draft in the mist of all the random shots about "advantages" of ECFA by Ma shows how eerie the current situation is to Taiwan.

Without the complete context of (at least) a draft, all talks are meaningless.

Anonymous said...

"Cheap Chinese junk is going to go through the island's economy like a tsunami."

I am sure your clothing is made in Switzerland, right? The fact is that consumers do like cheap prices, even junk.

Let's also not forget that Taiwan did not start making notebook computers, but cheap electronic toys and calculators. In fact, America could have decided to cut off trade with Taiwan using just this rationale that it would destroy local jobs.

Now, if you want to argue against free trade with China on national defense issues, or maybe currency or non-tariff barriers, then fine.

But to hear Taiwan supporters rail against allowing more keenly priced foreign products into the Taiwan market smacks of hypocrisy.

Also, sometimes it isn't unfair trade practices, just better competition. China is not going away. China will even expand into Taiwanese and other markets WITHOUT a trade agreement.

Thomas said...

SY:

Of course nobody has seen a final copy yet. That is why I said we need to look at "the wording of the ECFA that comes out of the KMT-CCP negotiations." Eventually we will see some wording. And when we do, we will need to scrutinize it quickly. Therefore, it makes sense to be on the lookout for potential problem areas, and this is one of them.

This is not a good situation, but unless Ma suddenly has a change of heart and allows the process to become more transparent, it is what we will be left with.

jerome the lesser said...

Japan interests followed in the footsteps of Japanese armed efforts to liberate Asia from the yoke of British, French and Dutch colonialism.

Following its victory in the Pacific war the US intended dumping a system that represented a damper on its own interests. Rescinding previous “unequal treaties” with China and making an example of dismembering Japan of its territory of Taiwan was meant to convey just that to other old imperial powers.

Unfortunately, its crusade was thwarted early on by its own delusional misread of immediate post-war liberation movements across Asia and South-East Asia. It ended up putting on the boots the Japanese and the French had just left.

But wait… because the "Greater Asia Co-prosperity Sphere" is back...with a vengeance!!

Would not you agree?

Michael Turton said...

If the worst thing you can say about opposition to ECFA is that it is hypocrisy, we are doing well.

Anonymous said...

Micheal: Common sense would dictate that if China misbehaves or the free trade agreements turn out bad for the countries, they will end the agreements, no?

Anonymous said...

No, the worse things you can say about the opposition to the ECFA is that they are a bunch of chauvinist protectionists who believe in free trade for Taiwanese exports but not for foreign imports. That is hypocritical, too.

The charge about "cheap Chinese junk" sounds more like a protectionist argument than anything else. Seriously, you think Indonesia is awash with high quality locally made products that lose out to "cheap junk?"

Now if you meant product safety, maybe there is a point, but I would guess that product safety for domestic production in Indonesia is not that good.

Michael Turton said...

The charge about "cheap Chinese junk" sounds more like a protectionist argument than anything else. Seriously, you think Indonesia is awash with high quality locally made products that lose out to "cheap junk?"

Yes, that's right. I was thinking that all indonesian products were high quality. I was thinking that about the same time I was thinking that our only choices were the totally dichotomous ones of either free trade or protectionism.

Really, with logical skills like that, no wonder you're posting anonymously.

Michael Turton said...

Micheal: Common sense would dictate that if China misbehaves or the free trade agreements turn out bad for the countries, they will end the agreements, no?

Some of them are in fact attempting to re-negotiate, AFAIK. But ECFA is a managed trade agreement which does not appear to have opt-out clauses.

Anonymous said...

So the emphasized message should not be how ECFA will screw Taiwan by flooding the marketplace, but that it is not possible to cancel or re-negotiate this agreement if things turn out badly. Very bad news indeed!

Michael Turton said...

Perhaps, but I think it would be better to point out the wide range of negatives for this ugly agreement.

Anonymous said...

"Yes, that's right. I was thinking that all indonesian products were high quality. I was thinking that about the same time I was thinking that our only choices were the totally dichotomous ones of either free trade or protectionism."

The implication is that inferior Chinese products somehow "flooding in" and "take market share" from better, locally produced products. Is this not what you are saying?

So to stop this from happening you are arguing for the continued protection of Taiwanese industries, no?

Michael Turton said...

The implication is that inferior Chinese products somehow "flooding in" and "take market share" from better, locally produced products. Is this not what you are saying?

No, that's not what I am saying.

So to stop this from happening you are arguing for the continued protection of Taiwanese industries, no?

I'm arguing for management of trade for the betterment of both sides, not destructive race-to-the-bottom mercantilism that will only leave Taiwanese indebted, without a manufacturing base, jobless, and at the mercy of China.

The purpose of ECFA is to annex the island to China -- we've been told that over and over again by Chinese leaders. It will do this overtly by being signed under the one China rubric of Beijing, and covertly by hollowing out the island's industrial base, the material foundation of the island's independence. Trade with China, as all the nations around it understand, is not like trade with other nations.

I don't subscribe to the free market religion with its bastardized Ricardian comparative advantage theology, which bears the same relationship to actual economics that early Christian messianic belief bore to actual jewish messianism. Markets are policy tools, not religious commitments.

Michael

Marc said...

ANON 8:10 said, "I am sure your clothing is made in Switzerland, right? The fact is that consumers do like cheap prices, even junk."

The clothes I buy are made in countries other than China. I buy quality, because it lasts longer and is "cheaper" in the long run. The same goes for my shoes, towels, sheets and linen, my cookware, my furniture, and the food I put in my mouth.

Your uncritical generalization implies that junk and cheap quality sells better. Maybe it does when you have no money...