Will China's failure to secure safety standards negatively impact its trade relations with Latin America?
Latin America Advisor
Chinese authorities recently delayed the entry of three shiploads of Argentine soya in a move interpreted as reprisal for Argentina’s recently announced restrictions on some Chinese goods amid general concern about the safety of Chinese exports. How will safety concerns affect China-Latin America trade? How can China's Latin American trading partners manage Chinese economic pressure while at the same time ensuring the safety of imported Chinese products?
Beatrice Rangel, Managing Director of AMLA Consulting LLC: Latin America has not been a world leader in the field of safety standards. Safety and environmental standards usually take a back seat in emerging markets, as they are too busy creating economic infrastructure to generate capital and nurture growth. This development approach was aptly described by a distinguished president of Brazil when he observed 'we would rather be in the position of having to clean the air as a result of vibrant manufacturing plants than to have a perfectly blue sky and no plants at all.' That said, I think the ongoing failure of China to secure safety standards will negatively impact its trade relations not only with Latin America but with the world at large. This will certainly be the case with pharmaceuticals that can terminally harm the population, as we witnessed a few months ago in Panama, where 100 people died, forcing President Torrijos to sack his cabinet. In manufacturing areas less sensitive to human health, safety concerns about Chinese exports to Latin America might have two different impacts. First, those goods imported from the US or Europe that will reduce the proportion of Chinese inputs will clearly become more expensive; second, there should be a significant change in the composition of Chinese imports, as Latin American nations move away from goods that could create health hazards, while increasing their imports of capital goods, and tools and machinery. In the end, I do not see a sensible reduction in imports from China, except for pharmaceuticals. China's lead is price-based, and there is no other country that can offer better prices than China.
Thomas O'Keefe, President of Mercosur Consulting Group, Ltd: It is unclear if the safety concerns of the Argentines and other countries that have adopted similar measures, such as the US or the European Union, are legitimate or if this is just another form of protectionism that is less cumbersome and expensive to use than anti-dumping or safeguard remedies. There is some basis for concern that this may be veiled protectionism against Chinese imports, especially in the case of Latin America, given that the anti-dumping and safeguard regimes are relatively new and the government officials entrusted with applying them still comparatively inexperienced. It would be wiser for the Chinese government to use the WTO both to challenge the legitimacy of the international measures as well as to fashion WTO-compliant responses. Otherwise, they risk setting off a tit-for-tat trade war that will further undermine an already fragile multilateral trading order. Over the long run, the Chinese can't win because they are much more dependent on Latin American soya and other primary commodities than Latin America is dependent on cheap Chinese manufactured goods (which can always be made locally, anyway, and have the added advantage of boosting local production and employment).
Javier Tizado, President of Tubos Trans Electric SA in Argentina and a former Argentine Secretary of Trade: Trade between Argentina and China has been increasing significantly, with more dynamic Chinese export growth resulting in a reversal of the trade surplus Argentina maintained since 2001. China exports mostly industrial manufactured goods to Argentina, in particular machines and electric equipment, toys, shoes, and textiles. Local production of these goods is carried out by small- and medium-sized businesses that generate numerous jobs whose security is jeopardized by the unusual advance of Chinese imports. Argentina's sales to China are mainly primary products, in particular beans and soya oil (70 percent of the total). Sales of Chinese products at very low prices that displace national production are possible due to subsidies and unfair trade practices which have motivated various countries—including the US, Mexico, and Canada—and the European Union to file cases and claims at the World Trade Organization. There are limited possibilities for small Argentine companies to initiate dumping and/or subsidies cases given the complexity, cost, and time required by the process. It is in this context that Argentina recently established measures to strengthen import controls on China and other Asian countries' shipments to avoid the entry of low-quality products that can put the population's health and safety at risk.
Jon Huenemann, Principal in the International Department at Miller & Chevalier, and a former Assistant US Trade Representative with responsibilities in the Americas: The global trading system and its members have an interest in handling this type of issue adroitly because it involves China—an increasingly driving force in global growth and trade and investment flows—but also because these are precisely the kinds of issues that are the nature of things to come as the global economy integrates. The international disciplines that exist within the WTO, such as the sanitary and phytosanitary disciplines, the disciplines regarding technical barriers to trade, and the WTO language as it pertains to protecting public health, coupled with other germane standards-setting bodies, such as Codex when it comes to food, are important, and they should be adhered to by all countries. At the same time, as the world rapidly integrates, the strains will grow even more than is currently the case today, as concerns about safety and trade get increasingly tangled up within a myriad of domestic regulatory frameworks. In a number of market segments where trade occurs, these regulatory frameworks are not the subject of an international consensus regarding international standards. Furthermore, concerns about public health and safety are typically at the core of national policymaking and accordingly are viewed zealously as areas where domestic priorities take precedence, and in these circumstances rigorous scientific research and analysis are not always the basis for regulatory requirements or standards. An important factor for Latin America and all trading countries is the importance of abiding by existing international disciplines and rules pertaining to trade and its intersection with public health and safety, while also advocating for rigorous, science-based decision-making by regulatory bodies and the avoidance of unnecessary barriers to trade. To put it another way, be careful of throwing stones in glass houses.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.