On December 11, 2001, China became the 143rd member of the World Trade Organization (WTO). As China vowed economic reform and adherence to WTO rules of fair trade, many world economists raised a wary eyebrow.
Now, U.S. manufacturers—papermakers included—say that China poses a threat to world trade and something needs to be done about it. Complaints range from the Chinese government's manipulation of the value of its currency to improper government subsidies to cases of trademark infringement and intellectual property stealing.
Manufacturers' cries of foul are not unfounded. Estimates from investment banks and analysts show that China's yuan is anywhere from 15-50% undervalued—most economists set the mark at 40%. Yet despite China's alleged violation of WTO and International Monetary Fund (IMF) principles of fair exchange among national currencies, Beijing appears uncaring and continues to peg the yuan to every move the dollar makes.
To further fuel its export engine, China's finance experts reportedly are debating whether to raise government subsidies via increased tax rebates for exporters—a move that would make Chinese exports even more competitive.
George Jones, President of Seaman Paper, before the House Committee on Small Business on June 25, testified, "In 1997, U.S. paper and paperboard exports to China were 479,000 metric tons, or $256 million (these amounts include converted paper and paperboard products). By 2002, U.S. paper and paperboard exports only increased to 577,000 metric tons with a value of $384 million. In fact, exports to China of several important paper categories have stagnated or declined because of substantial build up in Chinese paper and paperboard production capacity.
"In contrast, China's paper and paperboard exports (including converted products) greatly benefited from an artificially weak currency. In 1997, these exports totaled some 45,000 metric tons with a value of $313 million. That amount jumped to 206,000 metric tons and $806 million last year. So, the U.S. trade balance with China in paper and paperboard products stood at a negative $422 million last year in a sector where China doesn't have a comparative advantage."
Mr. Seaman's figures aren't surprising, especially when you take into account that the U.S. trade deficit with China surged 24% last year to a record $103 billion.
Unfortunately for US manufacturers, it certainly doesn't appear that China has made much progress with its WTO promise to reform its planned economy into a market economy, which is the basis on which global trade operates.
At the WTO Ministerial Conference in Doha, Qatar (November 2001), just weeks before China's accession into the WTO, China's trade minister Shi Guangsheng pledged to abide by the WTO's rules. A year and a half later the jury is still out on China's intentions or ability to play by those rules.
The Bush administration has yet to take any real persuasive political action, but pressure is mounting. "Now is the time for a full-court press from a broad range of U.S. policy makers to get China to adopt market-based rules," were Mr. Seaman's closing instructions to House Committee members.
Paper industry leaders must act now, and aggressively pursue their state representatives and Washington in an effort to convince Congress that simply "urging" China to play fair just doesn't cut it.
