[CTC] IPS Guardian commentary on US-China investment treaty

[Sarah Anderson]

Thanks to CTC, Lori Wallach and Rep. Michaud for an excellent
TPP briefing today.  Since the topic of ASEAN came up the
article below by Walden Bello should be of interest.  I would only
add that as mentioned on the call, Chinese wages are starting to
rise and low end manufacturing and assembly has started to flow 
out of China to Vietnam, Bangladesh, Sri Lanka and other places 
in southeast and south Asia, further complicating regional trade 
relationships. Nevertheless China remains the fulcrum of production
and distribution of goods, and the intersection between the new
(China-ASEAN) CAFTA and the potential TPP is very contested 
territory. 

cheers

Fred
Sierra Club & Oregon Fair Trade Campaign

--------------------

http://www.fpif.org/articles/china_lassoes_its_neighbors

China Lassoes its Neighbors

By Walden Bello, March 8, 2010

With the Doha Round of negotiations of the World Trade Organization in
limbo, the heavy hitters of international trade have been engaged in a
race to sew up trade agreements with smaller partners. China has been
among the most aggressive in this game, a fact underlined on January 1,
2010, when the China-ASEAN Free Trade Area (CAFTA) went into effect.

Touted as the world's biggest Free Trade Area, CAFTA will bring
together 1.7 million consumers with a combined gross domestic product
of $5.9 trillion and total trade of $1.3 trillion. Under the agreement,
trade between China and Brunei, Indonesia, Malaysia, the Philippines,
Thailand, and Singapore has become duty-free for more than seven
thousand products. By 2015, the newer members of the Association of
Southeast Asian Nations (ASEAN) — Vietnam, Laos, Cambodia, and Myanmar
— will join the zero-tariff arrangement.

The propaganda mills, especially in Beijing, have been trumpeting the
FTA as bringing "mutual benefits" to China and ASEAN. In contrast,
there has been an absence of triumphal rhetoric from ASEAN. In 2002,
the year the agreement was signed, Philippine President Gloria
Macapagal-Arroyo hailed the emergence of a "formidable regional
grouping" that would rival the United States and the European Union.
ASEAN's leaders, it seems, have probably begun to realize the
consequences of what they agreed to: that in this FTA, most of the
advantages will probably flow to China.

At first glance, it seems like the China-ASEAN relationship has been
positive. After all, demand from a Chinese economy growing at a
breakneck pace was a key factor in the Southeast Asian growth that
began around 2003 after the low growth following the Asian financial
crisis of 1997 and 1998. For Asia as a whole, in 2003 and the beginning
of 2004, "China was a major engine of growth for most of the economies
in the region," according to a UN report. "The country's imports
accelerated even more than its exports, with a large proportion of them
coming from the rest of Asia." During the current international
recession ASEAN governments, much like the United States, are counting
on China — which registered an annualized growth rate of 10.7 percent
in the last quarter of 2010 — to pull them out of the doldrums.

A More Complex Picture

But is the Chinese locomotive really pulling the rest of East Asia
along with it, on the fast track to economic nirvana? In fact, China's
growth has in part taken place at Southeast Asia's expense. Low wages
have encouraged local and foreign manufacturers to phase out their
operations in relatively high-wage Southeast Asia and move them to
China. China's devaluation of the yuan in 1994 had the effect of
diverting some foreign direct investment away from Southeast Asia. The
trend of ASEAN losing ground to China accelerated after the financial
crisis of 1997. In 2000, foreign direct investment in ASEAN shrank to
10 percent of all foreign direct investment in developing Asia, down
from 30 percent in the mid-nineties.

The decline continued in the rest of the decade, with the UN World
Investment Report attributing the trend partly to "increased
competition from China." Since the Japanese have been the most dynamic
foreign investors in the region, much apprehension in the ASEAN
capitals greeted a Japanese government survey that revealed that 57
percent of Japanese manufacturing transnational corporations found
China to be more attractive than the ASEAN-4 (Thailand, Malaysia,
Indonesia, and the Philippines).

Snags in a Trade Relationship

Trade has been another and perhaps greater area of concern. Massive
smuggling of goods from China has disrupted practically all ASEAN
economies. For instance, with some 70-80 percent of shoe shops in
Vietnam selling smuggled Chinese shoes, the Vietnamese shoe industry
has suffered badly. In the case of the Philippines, a recent paper by
Joseph Francia and Errol Ramos of the Free Trade Alliance claims that
the local shoe industry has also been hit hard by smuggling of Chinese
goods. Indeed, the range of goods negatively affected is broad,
including steel, paper, cement, petrochemicals, plastics, and ceramic
tiles. "Many Philippine companies, even those that are competitive
globally, had to close shop or reduce production and employment, due to
smuggling," they write.

Because of this massive smuggling, the official trade figures with
China released by the Chinese embassy in Manila — that show the
Philippines enjoying a positive trade balance in manufacturing and
industrial commodities — are questionable.

CAFTA may simply legalize all this smuggling and worsen the already
negative effects of Chinese imports on ASEAN industry.

The Thai "Early Harvest" Debacle

When it comes to agriculture, the trends are clearer. Even without the
FTA, for instance, the Philippines already has a $370 million deficit
with China. I recently visited Benguet, a key vegetable and fruit
producing area of the country. The farmers were despondent, almost
resigned to being destroyed by the expected deluge of Chinese goods. A
national government official warned them that their only chance of
survival lay in invoking trade restrictions, based on complaints that
Chinese imports did not meet sanitary standards — a risky move that
could invoke retaliatory measures. The governor of the province
complained that the CAFTA sneaked up on them, with most farmers not
knowing that the Philippines signed the agreement as far back as 2002.

Similar bitter complaints have emerged in Thailand, where the impact of
the "early harvest" agreement with China under CAFTA has been better
documented.

Under the agreement, Thailand and China agreed to eliminate immediately
tariffs on more than 200 items of vegetables and fruits. Thailand would
export tropical fruits to China, while winter fruits from China would
be eligible for the zero-tariff deal. The expectations of mutual
benefit evaporated after a few months, however. Thailand got the bad
end of the deal. As one assessment put it, "despite the limited scope
of the Thailand-China early harvest agreement, it has had an
appreciable impact in the sectors covered. The 'appreciable impact' has
been to wipe out northern Thai producers of garlic and red onions and
to cripple the sale of temperate fruit and vegetables from the Royal
projects." Thai newspapers pointed to officials in Southern China
refusing to bring down tariffs as stipulated in the agreement, while
the Thai government brought down the barriers to Chinese products.

Resentment at the results of the China-Thai early harvest agreement
among Thai fruit and vegetable growers contributed to widespread
disillusionment with the broader free-trade agenda of the Thaksin
government. Opposition to free trade was a prominent feature of the
popular mobilizations that culminated in a military coup that ousted
that regime in September 2006.

The Thai early harvest experience created consternation not just in
Thailand but throughout Southeast Asia. It stoked fears of ASEAN
becoming a dumping ground for China's extremely competitive industrial
and agricultural sectors, which could drive down prices because of
China's cheap urban labor and even cheaper labor coming to the cities
the countryside. These fears at the grassroots have, however, fallen on
deaf ears as ASEAN governments have been extremely reluctant to
displease Beijing.

The Chinese View

For Chinese officials, the benefits to China of an FTA with ASEAN are
clear. The aim of the strategy, according to Chinese economist Angang
Hu, is to more fully integrate China into the global economy as the
"center of the world's manufacturing industry." A central part of the
plan was to open up ASEAN markets to Chinese manufactured products.
China views Southeast Asia, which absorbs only around 8 percent of
China's exports, as an important market with tremendous potential to
absorb even more goods, which is particularly important given the
growing popularity of protectionist sentiments in the United States and
European Union.

China's trade strategy is a "half open model," argues Hu: It's "open or
free trade on the export side and protectionism on the import side."

ASEAN: a Beneficiary?

Despite the brave words from Arroyo and other ASEAN leaders in 2002,
when the agreement was signed, it's much less clear how ASEAN will
benefit from the ASEAN-China relationship. The benefits will certainly
not come in labor-intensive manufacturing, where China enjoys an
unbeatable edge because of its cheap labor. Nor would benefits come
from high tech, since even the United States and Japan are scared of
China's remarkable ability to move very quickly into high-tech
industries even as it consolidates its edge in labor-intensive
production.

ASEAN's agriculture ASEAN will also not be net beneficiary? As the
early harvest experience with the Philippines and Thailand has shown,
China is clearly super-competitive in a vast array of agricultural
products from temperate crops to semi-tropical produce as well as in
agricultural processing. Vietnam and Thailand might be able to hold
their own in rice production, Indonesia and Vietnam in coffee, and the
Philippines in coconut and coconut products, but there may not be many
more products to add to the list.

Moreover, even if under CAFTA, ASEAN were to gain or retain
competitiveness in some areas of manufacturing and trade, China will
not likely depart from what Hu calls its "half open" model of
international trade. The Thai early harvest experience underlines the
effectiveness of administrative obstacles that can act as non-tariff
barriers in China.

In terms of raw materials, Indonesia and Malaysia have oil that is in
scarce supply in China, Malaysia has rubber and tin, and the
Philippines has palm oil and metals. China, however, is largely
reproducing the old colonial division of labor, whereby it receives
low-value-added natural resources and agricultural products and sends
to the Southeast Asian economies high-value added manufactures.

With multilateral trade negotiations stuck at the WTO, the big trading
countries have been engaged in a race to sew up trade agreements with
weaker partners. China is turning out to be the most successful at this
game, having managed to create the world's largest free-trade area. For
China, the benefits are clear. For its Southeast Asian partners, the
benefits are less clear. Indeed, with the likely erosion of local
industry and agriculture, Southeast Asia will be paying a big price for
a bad deal.