Letter from the President
The Hammer Again?
by Robert A Kapp
President, The US-China Business Council
Just as the United States Trade Representative (USTR) considers a petition from the AFL-CIO that defines China's deficient labor rights regime in the migrant-worker factories of South and East China as an "unfair trade practice," conjures the nightmare of a Chinese "supply shock" wiping out US industries in the next five years, and demands new US tariffs of up to 77 percent on all PRC-manufactured imports to the United States in retaliation, China itself has publicly awakened to the grim and worsening side effects of the country's helter-skelter economic growth over the last decade--including the toll imposed on its so-called floating population of migrant laborers.
While "awakening" is seldom the same as "making real changes," it is a sad irony that if the AFL-CIO's "Section 301" petition were ever carried out, the results would likely prove counterproductive and would likely reduce the chances that America and China might begin to work together on economic and humanitarian challenges whose resolution should command their shared commitment.
The essence of the AFL-CIO petition is that China, by denying workers the freedom to organize independent labor organizations and by maintaining a system of distinct rural and urban residence registration biased against rural ID-holders, perpetuates the existence of a "submerged sub-caste" of laborers in the factories of Southeast China and the lower Yangzi River region. The artificial repression of these unempowered workers' wages, stemming especially from the absence of free labor unions, is converted by mathematical means into a specific number of US jobs lost to Chinese producers.
The petitioners claim repeatedly that their goal in asking for high US tariffs on Chinese imports is not protectionism, but is rather to defend the rights of Chinese workers, level the trade playing field, and prevent the further erosion of US jobs.
The Bush Administration must either pick up or cast away this hand grenade at a politically super-sensitive moment; if it refuses to entertain the petition, it will be pilloried for not caring for American jobs or suffering Chinese workers. If it takes up the petition, it opens the door to a year-long investigation of the petition's analysis and charges, and essentially another year-long battle over whether to retain or discard the permanent Normal Trade Relations (PNTR) treatment that Congress decided to extend to China in 2000. A year of that (USTR would have 12 months to conduct its investigation and decide what sanctions, if any, to impose on China) would have attendant chilling effects on US-China economic ties--and very likely a chilling effect on broader US-China relations, whose significance to American national interests is beyond question.
Perhaps most important, the petition's demand for unilateral US trade action against China, outside the framework of the World Trade Organization (WTO), which does not deal with labor issues as trade practices, raises the specter of a return to tit-for-tat conflict between the United States and its third-ranked trade partner, unmediated by any multilateral dispute resolution system. It is far more likely that implementation of this petition would engender PRC retaliation against American exports and the farmers, workers, and companies who make them than that China would eliminate the socioeconomic practices targeted by the US petitioners.
The petition raises other demands on top of the trade-wrecking tariffs. First, after denouncing the iniquities of globalization as a form of corporate welfare, the petitioners raise the familiar demand that the United States cease all trade agreement negotiations until the WTO has made commitment to International Labor Organization standards a requirement of WTO participation.
Second, after the United States cripples Chinese exports by imposing prohibitive tariffs, Washington should somehow persuade China to sit down with us and negotiate a new binding agreement covering the establishment of the labor rights regime demanded by the petitioners. Only when China establishes that regime should the United States reduce or eliminate the recommended punitive tariffs.
The petition starts from the assumption that what stands between China and improved labor conditions are material incentives for Beijing, in the form of crushing US tariffs. It assumes that a large US trade deficit with China gives the United States leverage with which to compel changes in Chinese labor practices. And it assumes that after the United States shuts its door to the products of Chinese factories and workers, China will sit down and sign a binding bilateral agreement on its highly sensitive domestic labor regime, in order to get out from behind the US eight ball.
The petition does not explain to lay readers how throwing hundreds of thousands or even millions of Chinese factory workers from impoverished rural backgrounds into unemployment will save these workers from misfortune. In short, if this petition goes forward, we can expect months and months of mobilization by the familiar opponents, over China trade and globalization--again.
What is immediately at stake is the survival or destruction of PNTR and stable, WTO-based economic interaction between the United States and China. What is at stake over the longer term is the future of US-China cooperation across the board.
Meanwhile, in China, a different drama is under way. President Hu Jintao and Premier Wen Jiabao are very publicly redirecting the rhetoric and policy initiatives of China's top leadership toward confronting the immense social problems generated by the past decade of rapid economic change. The mantra of the new PRC leadership, now moving up and down the vertical chain of China's unitary political-administrative system, is "balanced and sustainable development."
Speaker after speaker from the highest levels of China's economic policymaking apparatus, at a recent Beijing conference hosted by the State Council's Development Research Center (DRC), touched lightly, if at all, on GDP growth targets (the traditional meat and potatoes of China's bureaucracies). Rather, they tucked into a new cuisine: the gaping and worsening inequalities of wealth, income, education, social services, and opportunities among regions, within provinces, and within Chinese society more generally. These experts are trying to figure out ways to deliver social protections and enhanced opportunities to the hundreds of millions of Chinese who are being shunted to the margins of society by the pattern of recent economic development.
Thus, in the background papers for the China Development Forum, particularly in the paper by Han Jun, director general of the Department of Rural Economic Research of the DRC, entitled "China: From Urban-Rural Partition to Coordinated Urban-Rural Development," we find a riveting examination of the huge social cleavages facing the PRC, including the unsustainable burdens on China's peasantry in poor regions of the country and the rigidity of the rural/urban household registration system that so grievously disadvantages rural dwellers who migrate to Chinese cities in search of employment. The description of that registration system is as hard-hitting in Han's paper as it is in the AFL-CIO petition.
Han's analysis portrays:
- The stalling and then the reversal of the rise in rural incomes after the first burst of improvements in the 1980s; today, much of rural China is falling farther and farther behind the urban sector in virtually all measures of social development;
- The collapse of public health services in rural China;
- The constant shifting of social costs from higher levels of government to lower ones (essentially the problem of "unfunded mandates" falling to village-level administrators who resort to random and corrupt collection of miscellaneous taxes and fees);
- The seizure of farm lands for non-agricultural uses by local-level power-holders from peasants who have no power to resist the taking of their lands; the self-enrichment of those who have the wherewithal to seize land from the tillers and the resulting impoverishment of the formal agricultural residents;
- The chaos and irrationality (plus the administrative venality and corruption) of rural and urban taxation systems alike;
- The discrimination and abuse facing rural migrants in the floating population of China's cities (including their children's exclusion from public education).
All of this was thrown into the sunlight (in English) in Han's and others' conference papers, for a readership of top international corporate leaders and China's own policymaking elite. Along with other, interlocked social-political failings, the plight of China's migrant workers, which has been dealt with in great detail in the Western human rights publications and academic studies so heavily cited in the AFL-CIO petition, appears in stark relief in these sobering studies sponsored by an organ of the Chinese state.
The question, of course, is whether high-sounding calls for change from the top can turn into meaningful action at the bottom of the hierarchy in China. The essential structure of the PRC state remains largely intact: initiatives normally originate at the very top and are transmitted downward to provinces and localities for implementation. The path downward is a labyrinth of bureaucratic and economic vested interests, and all too often the ideas of the central leadership have dissipated into ineffectualness by the time they reach the action level at the bottom of the hierarchy.
However unclear the outcomes, the magnitude of these challenges is clear. And thus, back to the proposal from the "non-protectionist" petitioners who have asked the US government to put tariffs of up to 77 percent on Chinese manufactured imports to the United States to help China's manufacturing workers and save US jobs.
Though the US administration, under whichever party occupies the White House after next January, may pursue the charges and calculations in the AFL-CIO petition over the next year, the papers from the recent China Development Forum, reflecting before the world China's new-found zeal for attacking fundamental socioeconomic problems, suggest that more productive avenues could open for the United States.
The United States should be working, as earnestly as it can within the limits of its own stretched resources, to assist China in managing these gargantuan economic, financial, and social problems. Dozens of cooperative efforts are under way even now--I sat in on one related meeting involving American nongovernmental organizations and researchers from China's Ministry of Labor and Social Security even while writing this letter.
Barring the door to China's products, while saddling American consumers with the burden of new and heavy import taxes, offers little in the way of greater economic or national security for the United States. We are at the brink, yet again, of doing something unilateral and ill advised, the resulting damage of which will take years to undo. Better that we not travel that road in the first place.
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