Universal Cargo Management

Vietnam to Become 150th WTO Member Jan. 11

The WTO has announced that Vietnam sent notification Dec. 12 that its legislature has ratified the country’s entry into the WTO. As a result, Vietnam will officially become a WTO member on Jan. 11, 2007.

China Announces Plans to Cut Import Taxes on Certain Autos and Auto Parts

According to Xinhua news agency, China’s Ministry of Finance recently announced that it will cut import taxes on certain cars and auto parts as of July 1 to comply with commitments made as part of its WTO accession agreement. The Chinese government plans to cut tariffs on passenger cars, SUVs and minivans from 28% to 25%. The government will also cut tariffs on certain auto parts, such as auto bodies and medium- and low-emission engines, will be reduced to 10% from between 13.8% to 16.4%.

It is still unclear whether this latest move will have any effect on a U.S. request for consultations with China over tariffs on its auto parts. The USTR announced March 30 that the U.S., the European Union and Canada requested WTO dispute settlement consultations with China over its treatment of imported auto parts. According to the USTR, China’s taxes on imported auto parts discourage automobile manufacturers in China from using imported auto parts in the assembly of vehicles. China’s WTO commitments limit its tariffs on imported auto parts to rates that are significantly below China’s tariffs on finished vehicles.

PTO Program in China on Protecting GIs and Trademarks

The U.S. Patent and Trademark Office and the China Trademark Office recently completed a weeklong program in China on the protection of geographical indications. GIs identify a good as originating in the territory of a WTO member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographic origin. Examples of GIs from the U.S. include Florida oranges, Idaho potatoes and Vidalia onions.

Similar to the U.S., China protects GIs through a trademark system, which is administered by the CTMO. However, China also has a second system for protecting GIs, administered through a separate government agency, which has led to confusion over the protection of GIs and trademarks. “The USPTO-CTMO geographical indications program represents a significant effort on behalf of each office to understand our respective systems for the protection of trademarks and geographical indications,” noted PTO Director Jon Dudas. “Better mutual understanding will lead to certainty and confidence in the protection afforded to trademarks and geographical indications.”

House Committee Approves Container Security Bill Without 100% Screening

The House Homeland Security Committee unanimously approved the Security and Accountability for Every (SAFE) Port Act (H.R. 4954) on April 26. Lawmakers made several amendments to the bill, which could come to the House floor as early as next week, but a proposal to require 100% scanning of all inbound cargo containers was not among them.

The amendment, which had been proposed by Representative Ed Markey (D-MA), would have required the Department of Homeland Security (DHS) to ensure that all such containers are scanned using the best-available technology, including scanning for radiation and density, before they are loaded onto a ship destined for the US. This requirement would have been imposed within three years for larger ports and five years for smaller ports. The measure would also have required cargo containers to be sealed with a device that indicates if the container has been tampered with in transit and notifies U.S. officials of the time and place of any such breach before the container enters U.S. waters. Business groups had vigorously opposed Markey’s proposal, arguing that it would slow international trade flows, thus increasing risks of theft or tampering, and require technology and processes that are not yet operationally viable.

Committee members did, however, approve a separate scanning-related amendment. According to International Trade Daily, this provision would require the DHS to “evaluate the development of nuclear and radiological detection systems for use at foreign ports” and within one year “determine whether adequate technology can be deployed at foreign ports.” The U.S. would be able to reject “cargo from ports whose foreign governments refuse to cooperate if the United States decides to step up inspections overseas.”

Other provisions of the bill that remain unchanged would:

• require the DHS to develop a strategic plan to enhance international supply chain security for all modes of transportation by which containers arrive in, depart from or move through U.S. seaports;

• require the DHS to develop protocols for the resumption of trade in the event of a transportation security incident, with preferences associated with participation in current supply chain security programs;

• require the DHS to collect entry data, in addition to manifest data, from importers before a container is loaded at a foreign port;

• formally establish the Container Security Initiative (CSI) and require the DHS to conduct security assessments for foreign ports interested in participating in the program;

• codify the Customs-Trade Partnership Against Terrorism (C-TPAT), establish minimum participation standards, and divide program membership into tiered categories based on the level of each company’s security cooperation;

• establish within the DHS the position of director of cargo security policy; and

• provide, through a dedicated grant program, risk-based funding for hardening U.S. ports against attacks and enhancing capabilities to respond to attacks and resume operations.

Hu Jintao Visit Fails to Make Concrete Progress

A meeting between Chinese President Hu Jintao and President Bush on April 20 garnered no new promises from the Chinese leader on the divisive issues of China’s currency valuation, intellectual property rights (IPR) protection and additional market access for U.S. goods. Some U.S. groups were critical of the lack of any real advancement during the official visit following the record $202 billion trade deficit with China in 2005. “The President failed to make any significant progress in talks with his Chinese counterpart,” said Kevin Kearns, president of the U.S. Business and Industry Council, which represents many small- and medium-sized enterprises (SME) in the U.S.

Congress has increasingly warned that it plans to take action if it doesn’t feel that appropriate steps are being taken by China to rein in the spiraling deficit. Ranking Member of the Senate Finance Committee Max Baucus (D-MT) said, “I am extremely disappointed that President Hu did not commit to take concrete steps to allow China’s currency to reflect market forces.” Baucus and Senator Charles Grassley (R-IA) introduced legislation on March 28 primarily aimed at resolving currency and trade enforcement issues between the U.S. and China. Grassley suggested that he would be watching closely over the coming weeks to see what action is taken in order to decide whether to move forward with the bill.

Additional legislation regarding China, including a bill introduced by Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) that would impose an additional 27.5% duty on imports from China and a House bill that would allow countervailing (CV) duties to be imposed on non-market economies, is also awaiting congressional action. In addition, the Treasury Department is expected to submit a report to Congress soon that could label China a “currency manipulator.” Treasury delayed submitting the report until after Hu’s visit.

Report Highlights Positive Impact of US-China Trade

The US-China Business Council issued a report on January 25 concluding that despite the US-China trade imbalance, the long-term benefits to the US of trade with China are substantial. The conclusion is based on a detailed assessment of US-China trade and investment since 2000 and projections to 2010. The study was conducted by Oxford Economics and The Signal Group. Some of the relevant findings are listed below.

Economic health. By 2010, US gross domestic product (GDP) will be 0.7% higher and US prices will be 0.8% lower as a result of trade and investment with China since 2001. Together, these equate to an increase of around $1,000 in real disposable income per US household annually.

Productivity. Output per worker across the US economy will increase by 0.7% by 2010, much of which is attributable to improvements in manufacturing productivity as a result of increased trade with China. This higher productivity will be the result of two effects: (a) increased competition, which causes the least productive manufacturing firms to close or to increase their productivity to compete with imports from China; and (b) price effects, which allow US firms that source some of their inputs from China, or from other countries competing with China, to benefit from lower costs.

Employment. The recent expansion of trade and investment with China is contributing to a decades-long shift in the structure of US employment away from manufacturing and toward services. The report estimates that while US manufacturing employment by 2010 will have been reduced by 500,000 jobs, this job loss will be offset by an equivalent 500,000 increase in US service sector jobs. While this structural shift displaces some workers in manufacturing sectors and thus represents a real cost to workers in those sectors, the economy as a whole will benefit from the permanent output and price effects of increased trade with China. The overall impact should be a continuing, and increasing, positive boost to US output, productivity, employment, and real wages.

Trade deficit. The imbalance with China cannot, by itself, explain the recent deterioration of the overall US trade position. While the bilateral imbalance has been rising dramatically in absolute terms, China’s share of the overall US current account deficit has remained fairly constant, at around 20%, for more than a decade. The increase in China’s share of US imports from 2000 to 2004 was offset by declining shares of other East Asian countries, reflecting a profound shift in production patterns by Asian and other multinational firms operating in the region. The growth in Chinese exports to the US since 2001 is partly the result of an increase in foreign investment in China associated with its WTO entry, rather than any major change in the treatment of those exports under US trade policy.

Chinese Imports. As a result of its booming import demand, China was one of the main locomotives of global economic growth in the years spanning the recent global recession. China’s import growth from 2000 to 2004 contributed more than any other country’s to global import growth. China’s demand thus stimulated export growth among its trading partners, including the US, whose sales to China have constituted the fastest growing segment of its exports in recent years.

China Targets Dumping to Lower Trade Surpluses

Chinese government officials have committed to a series of measures aimed at lowering the country’s growing trade surpluses with major trading partners, The Wall Street Journal reported on December 5. Among these is an effort to reduce dumping by Chinese companies; e.g., by increasing efforts to identify violators and imposing tougher penalties. The article noted that China has been the leading target of antidumping (AD) complaints at the WTO for ten years running, and that the US alone currently maintains AD duty orders on over 50 categories of imports from China. A crackdown may not have much effect on a US trade deficit with China that is expected to reach $200 billion this year, but it could give credence to assertions from Beijing that it is committed to playing by global trade rules.

US-China Commission to Hold Hearing on Hong Kong Ministerial, Other Trade Issues

The US-China Economic and Security Review Commission (USCC) will hold a public hearing on December 8 in Washington, DC. The purpose of the hearing is to examine the issues to be addressed at the Hong Kong Ministerial Conference of the WTO Doha Round. Invited witnesses include international trade law experts, Administration officials, and labor and industry representatives. The hearing will focus on the process whereby US trade objectives are determined and pursued. It will also address the results of US trade policies toward China, discuss the results of the Doha Round, and provide an assessment of the Administration's fulfillment of Congressional objectives as defined under Trade Promotion Authority (TPA).

China Not Named in Treasury Report but US Maintains Pressure for Currency Reform

The Treasury Department released its semi-annual report on foreign currency practices on November 28, and Secretary John Snow said it did not name China as a currency manipulator. Snow indicated that Beijing avoided this designation largely by virtue of the steps it took earlier this year to liberalize its exchange rate regime, but warned that this could change next spring if China does not take further reform measures.

The 1988 Omnibus Trade and Competitiveness Act requires Treasury to report on whether countries manipulate the rate of exchange between their currency and the US dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade. According to Snow, Monday’s report found that no major US trading partner meets this standard. The Bush Administration has been under increasing pressure from lawmakers and US industry groups to designate China as a currency manipulator, which would have required bilateral consultations and could have led to the imposition of trade sanctions. However, Treasury officials had suggested for months that such a designation was not forthcoming, noting that currency valuation is only one of many factors in the growing US trade deficit with China. In a likely attempt to head off the expected protests from Capitol Hill, Snow said the report includes a special annex that “highlights the complexity of reaching judgments on this issue” and “shows that no one indicator or set of indicators can provide determinative evidence.”

Snow applauded China for the steps it took in July to increase exchange rate flexibility, saying they were largely responsible for the report’s determination. Whether or not that determination will be sustained in the next report is “contingent on further progress to incorporate flexibility reflecting underlying market forces in China’s [yuan] exchange rate,” he said, noting that such progress has not been apparent so far. “The actual operation of the new system is highly constricted. As a result, the distortions and risks created by China’s rigid exchange rate still persist…It is imperative that China move towards greater flexibility as quickly as possible.”

Snow said the Treasury report also calls on the International Monetary Fund (IMF) to intensify its efforts to promote greater flexibility in exchange rates for China and other large emerging Asian economies. The report urges the IMF to provide a comprehensive report on these issues, including associated policy assessments, on an expedited basis. Treasury will also explore possible proposals for reforms in IMF exchange rate surveillance procedures.

Portman Warns China on Lack of Progress on Trade Issues

In a November 14 speech and press conference in Beijing, US Trade Representative (USTR) Rob Portman took a tougher than usual approach to the various irritants in the US-China trade relationship. Portman’s remarks come ahead of a visit to China this coming weekend by President Bush, who is under pressure from lawmakers upset over the soaring US trade deficit with China to take stronger actions on issues such as currency reform and intellectual property rights (IPR) enforcement.

Portman warned that US attitudes toward trade with China have shifted over the past few years. He opined that Congress might very well reject permanent normal trade relations (PNTR) status for China if a vote were taken on the issue today because “Americans are greatly concerned about…whether China is playing by the rules.” Portman said much of that concern stems from the enormous bilateral trade deficit, which is likely to hit $200 billion this year – in particular, the belief that it is the result of unfair practices. “This is why many Americans are becoming more and more frustrated with China, which we see reflected in their elected representatives, the U.S. Congress,” Portman said. “They believe that the game is rigged: that American goods and services are not receiving fair treatment in China, and that Americans must compete at home and abroad against Chinese producers who are able to sell at less than fair market prices. They want that to change.”

Portman chastised China for not taking the situation seriously enough, asserting that current bilateral trade and economic tensions “threaten to undermine the much greater good that each country derives from this relationship.” He noted that Chinese officials typically offer one of three responses when confronted with US complaints about unfair treatment, and offered a rebuttal to each one.

• “It’s not true” – Beijing argues that it is “open to a huge amount of foreign investment and trade and that this should be enough to satisfy everyone,” said Portman. But significant obstacles abound; e.g., prohibitions on foreigners owning 100% of their Chinese investments, and increasing numbers of technical barriers that “directly affect the ability of our firms to sell to and operate in China.” He indicated that market access was likely to be one of the main issues of discussion during President Bush’s upcoming visit.

• “It’s beyond our control” – “Even when China admits there are barriers, we frequently hear that China has no other choice – that the barriers are not really its fault, but something the nation cannot help but impose,” Portman said. For example, China continues to maintain restrictions on direct sales companies in light of “the ‘unique’ history of fraud in this industry in China.” But all countries deal with business fraud, and “[t]here is no reason why China cannot use [protections offered in other countries] while sill allowing legitimate businesses to operate.”

• “Not so fast” – “[P]erhaps the most common and sometimes most frustrating response I hear from the Chinese is that the government is working on the problem but it will take lots of time,” Portman said. “We…hear this very often in regard to the protection of intellectual property rights.” But there are IPR protection systems all over the world that China can use or borrow from, he noted, pointing out that “Chinese companies seem to understand these concepts pretty well when they invest in other countries.” The bottom line, Portman said, is that “the problem of intellectual property protection is not being solved quickly enough” and it “needs to be fixed sooner rather than later.”

In order to preserve and grow the bilateral economic relationship, Portman concluded, China must discard these excuses and take concrete measures to increase foreign investment, access for US products, and protections for IPR. These steps will do much to improve the bilateral trade relationship, he emphasized – by allowing more US exports to China, thus easing the bilateral trade deficit, and by demonstrating China’s commitment to the rules-based international economic system that has enabled the high domestic growth rates of the past 25 years.