How the Trade Management Policies are Changing the Allocation of

How the Trade Management Policies are Changing the Allocation of
Global Resources
Chen Xiaowen
Qingdao university international trade department
Abstract: Economic globalization has intensified international competition. While the Western nations
propel the economic globalization, trade protection chiefly represented as trade management has been
increasingly reinforced in the trade area. This tendency is demonstrated by the close relation between
the formulation of trade protection policies and industrial competitiveness, utilization of WTO
regulations for trade protection, renewal of national laws and regulations, reinforcement of technical
trade barriers and green trade barriers and the establishment of regional economic integration groups, etc.
By exerting an influence on and changing the global resource allocation areas and orientation, these
policies and measures will make it impossible to optimize the allocation of world resources.
Key words:
trade management, allocation of resources, industrial competitiveness, technical trade
barriers
Preface
Since the 1990s, with the expansion of international division of labor and co-operation, economic
globalization has become an irreversible trend of the world economy. It not only promotes the
development of global productivity, accelerates the growth of world economy, but also intensifies the
international competition in production and trade. In trade area, while advocating and pushing forward
trade freedom, the Western countries strengthen the trade protection, which is shown by the formulation
and implementation of trade management policies and measures. They put forth national policies,
regulations and rules and sign international treaties and agreements to exert interference and influence
upon foreign trade. This protective action will have an impact on the areas and orientation of the
allocation of world resources. At present in the theoretical circles, both China’s and foreign research on
the effects of national trade management on resource allocation remains blank. Therefore, a detailed
analysis is given as follows
.
Ⅰ. New trends of Western trade protectionism
The new trends of the Western trade protection find expression in the formulation of trade protection
．
policies and changes in the fields and means of protection.
1 The analysis of the relativism of trade protection policy-making processes and industrial
competitiveness.
Obviously the trade government policy of developed countries is relative to that specific country’s
industrial competitiveness. The stronger the in international competitiveness of a certain industry, the
smaller the relative trade protection measures. The weaker the international competitiveness of the
industry, the more stringent the trade protection measures.
1 Industrial competitiveness
Normalized Trade Balance is a term mainly used as a criterion in determining the international
competitiveness of a trade in a certain country. NTB is the ratio between the net export of an industry or
of a product and the total sum of import and export. The formula is:
NTBit=(Xit―Mit)/(Xit+Mit)
（）
In the formula:
X, M = export volume and import volume;
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i
= a certain country, industry or product;
Xit
= the total export of country i in period t;
Mit
= the total import of country i in period t;
(2). Comparisons in industrial competition.
The following is a comparison of competition between China and developed countries using the
example of the clothing industry.
Table 1
China
Competition Index of
Trade
1990
0.99
Competition Index of China’s Clothing Trade
1995
1999
0.92
0.94
2004
0.96
(Data source: NTB results processed from WTO, GATT and customs statistics. Same sources for the
following tables.)
1999
2000
Table 2
Competition Index of the Clothing Trade in Leading Countries and Areas
France
Germany
Italy
Japan
Korea
U.S
0.34
-0.47
0. 39
-0.94
0.76
-0.75
-0.36
-0.48
1. 0.18
-0.96
0.76
-0.77
China
0.94
0.94
The statistics above shows that the clothing trade in France, Germany, U.S and Japan demonstrates a
trade deficit. Italy is in favorable balance but declines in the competition index. The least competitive
country is Japan and U.S. China is number one in the competition index in the clothing trade. The
competition of the clothing industry is increasing in newly industrialized countries, especially Korea.
(3) Analysis on the relativism between industrial competition and trade protection policies.
The trade protection of the western countries in the traditional industries of clothing, steel and
agriculture is conspicuous and the implementation of those policies relates directly to the low
competition of the industries. 50 years after the Second World War, the export competition
(export/import volume) of the clothing industry in Japan decreased from 0.34 in 1985 to 0.02 in 2001
and its trade competition declined to negative value(see above ,only –0.96). Japan’s trade protection of
the textile and clothing industries made the adjustment from supply and demand by means of
administrative subsidies, group compensation to the textile industry and import quota to the direct
limitation of imports under WTO regulations. The representative measure of this is the slackening of the
protection standards on textile products under the “Suggestive Reports of the Policy Committee on the
Evaluation of the Textile Industry” of the Ministry of Economy, Trade and Industry in December 2000.
2. Protected areas and changes in method
(1). The protection in agriculture and the new trade areas tends to increase with the decrease of the
protection on industrial products.
Protective tariffs on industrial products of advanced countries have tended to decrease in light of the
regulation of the WTO. The average tariff on industrial products is around 3% at present. But it is a
different look at agriculture and the new trade areas. The main illustrations are the subsidization and
support of agriculture, protection of intellectual property rights in the area of service investment, and the
blockade of and monopoly-formation on the export of hi-tech and cutting edge technologies.
To take the US as an example, on 13 May 2002 president Bush signed into law the new Agriculture
Assistance Act, whereby Federal governments would allocate USD 190 billion for their agriculture in
the following ten years and increase their agriculture financial allocations by 67 percent from the year
2003 through to 2008. The government employs more and more green box subsidies.
(2) Implementation of trade protection by way of Regional Economic Integration Groups (REIG)
With the development of economic globalization, REIGs have a greater and greater influence on
the world economy and trade. More and more countries have attained trade benefits by means of REIGs.
According to the statistics of WTO, about 70% of world trade occurred in trade groups. Based on the
bilateral or multilateral cooperation mechanism, and marked by unification of regional markets and of
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regulations, REIGs have promoted free movement of regional production factors and commodity
services, but at the same time, it has also created stronger obstacles in market-permission for non-group
members. Some countries regard REIGs as a way of enhancing their power to influence the markets or
to evade non-discriminatory regulations of the WTO. Therefore, they can implement some measures that
the WTO hasn’t carried out, in order to benefit member countries and exclude non-member countries. A
powerful REIG can exert influence on the formulation of international economic regulations by taking
advantage of the privileged position, which allowed the main member countries get more benefits from
the regulations.
(3) Trade management policy takes effect on more and more fields. Non-tariff barriers are used widely.
Among them, technological trade barriers are expanding very quickly and their kinds have been
increasing; the standards of green trade barriers keep rising; anti-dumping cases have also been
increasing rapidly.
More and more western countries have used trade management policy as a means of trade
protection, so as to reduce trade friction in many fields brought by economic globalization. As for the
developed countries, under the flag of fair trade, they sign all kinds of trade treaties or agreements
through bilateral or multilateral negotiations, and acquired trade benefits from them. In addition, during
the negotiations, they always act as the controller; with regard to their domestic behavior, they evade
responsibilities and regulations in the WTO in order to enhance trade protection through the formulation
of laws, regulations and rules. For example, according to the relevant domestic laws such as
environment law and plants protection law, anything including products, seeds, their packaging and
species that do harm to the environment, plants and human being, are banned from entry into the
Japanese market.
(4) Implement trade protection by making good use of WTO regulations
Main manifestation:
• Influence on the formulation of WTO regulations
Developed countries brought their own concerns into the jurisdiction of WTO by taking advantage
of their influence in WTO. For example, the implementation of subsidies in agricultural agreements was
managed in three box policies named “yellow box”, “blue box” and “green box”. At present, the blue
box policy has been carried out only in developed countries, in other words, it was mainly made for
developed countries. In the meantime, many measures in the green box policy have not been
implemented in developing countries including China. These measures are in fields such as agricultural
product service of marketing promotion, income subsidies not related with production, income
insurance plans, and retirement or professional subsidies of agricultural producers.
• Restrict imports or expand exports by making use of WTO regulations
Developed countries can achieve the goal of expand exports by making use of WTO regulations.
Because of China’s commitment to the 16th term in the “protocol for joining the WTO”, countries can
take special security measures with regard to particular products of member countries with the
permission of WTO. In the fourth quarter in 2004 alone, the USA proposed 12 special security cases
based on the “threat of market disturbance”.And in 2005, some developing countries such as Brazil and
Argentina also took special security measures after those of developed countries with regard to Chinese
products. Now, many countries have been urged to work on internal legislation to establish special
safeguard mechanisms.
(5) Occupy other markets by encouraging commodities export brought about by direct investment of
transnational corporations (TNCs)
Under the background of economic globalization, trade protection measures tended to transfer from
import restriction to export encouragement. Direct investment is becoming one of the main ways in
encouraging export, besides usual measures such as export-subsidies, export-credit and
commodity-dumping. TNCs have broken through tariff and non-tariff barriers by establishing Subsidiary
Corporations in these countries and occupying their markets. Local marketing strategy sometimes made
for dumping. However, for this kind of dumping, the host countries have no way of resort to the WTO;
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therefore the investing countries can get investment and trade benefits. In the meantime, if the host
country belongs to a certain regional economic group, the inner tax-free treatment can give the investing
country more trade benefits and allow it to occupy more markets in regional group countries
.
Ⅱ. Trade protection policies of developed countries influencing global resource
allocation
1. Trade protection is correlated with industry competition. The resource allocation of the protected
areas that have weak competition is easily distorted.
By 2005, China has occupied 25% of the American import market on textile and garments. The
trade deficit of the American textile and garments is close to 73 billion U.S. dollars, among which 18
billion U.S. dollars belongs to China. In the last 4 years, the American textile and garments industry had
lost 370,000 employment opportunities because of increased importation. If the U.S. does not adopt
forceful and effective limitation to Chinese products by the end of 2007, China will occupy more than
75% of the American and more than 50% of the global textile and garments market. And at that time,
there will be a transfer of 30 million employment opportunities from the world to China, including
500,000 employment opportunities transferred from the United States. Therefore, trade conflict between
the America and China in the textile and garment field is unceasingly strained, and the anti-dumping
cases and special remedy protection cases to China are increasing rapidly. However, the price of Chinese
textile products is 76% lower than that of the United State, and 58% lower than the world average level.
The outcome of the American Government adopting the trade protection measures is to expend high
costs in order to maintain native industry. The distortion of resource allocation is obvious.
2. In the agriculture and new trade field, protection measurements of the western countries are
strengthened constantly, which means that the governments participate in the resources allocation
broadly in these fields. European and American countries are reluctant to give up the mint agricultural
subsidies, therefore the free trade of the world’s primary products is not able to be completely realized in
the short run, and the optimized resource allocation in the primary products field has a long way to go.
In the manufactured products field, since the average import tariff has declined and trade stipulation is
open, the protection level of the manufactured products has slightly declined. The basic function of the
market mechanism to the resource allocation is further strengthened.
3. Using regional economic integration groups to implement trade protection will promote regional
economy development in the world. Member countries strengthen the resource flow in special areas by
promoting trade and investment in the region, optimizing regional resource allocation among member
countries and benefiting them. But in the same time, REIGs create trade diverting effect that is not in
favor of global resource allocation and does not reduce the cost. The result is replacing optimum
resource allocation by secondary resource allocation.
Since the North America Free Trade Area (NAFTA) was established, the volume of trade between
America and Canada, America and Mexico has increased rapidly. In terms of economics, America and
Canada are the biggest trading partners, the Canadian export volume to America occupies 86% of the
Canadian total export volume, and America has 25% of the export market in Canada. America is also the
biggest trading partner to Mexico. The export volume of Mexico to America is next to Canada and ranks
No. 2 among American trade. The trade growth promoted resources sharing among the American
countries, but excluded the resources flow between the North America area and other regions.
4. Trade areas protected by policy have formed barriers against the optimized disposition of resources. It
is an obvious characteristic of the 21st century that technological trade barriers and green trade barriers
have continuously strengthened. The disposition of resources in different countries has been transferring
from traditional areas to high tech and green product areas. The interference of trade management policy
in related areas may not only distort domestic resources allocation, lower the efficiency of the resources,
but also make other countries concentrate limited resources on identical or relevant industry, thereby
intensify the international competition. Seeking trade benefit within identical area does not conform to
the principle of comparative benefit. Plus, it may increase the opportunity cost of the utilization of
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global resources.
Taking as an example the technical barrier in western nations, US, European Union and Japan have
formulated their own TBT (technical barrier to trade) and SPS (Sanitary and Phytosanitary standard).
This strict standard has limited the export of many types of products like mechanical and agricultural
products from developing countries. Developed countries limit imports, while simultaneously they
monopolize high-tech products, undertake export control, and limit the export of technology to
developing countries. Low cost products from developing countries cannot enter developed countries,
thereby comparative advantage cannot not be used, while consumers in developed countries can only
accept and consume commodities at high prices, therefore the consumer surplus is reduced. The
intensifying technological trade barrier does not favor the sharing of global technology resources.
Developing countries are compelled to pour high investment into research and development areas, thus
leading to the waste of resources.
5. Using the WTO regulations to implement trade protection will violate WTO tenets in resource
allocation, and it is hard to realize the optimum resource allocation all over the world. The non-optimum
and unreasonable resource allocation will be shown in trade friction. In recent years, the increased trade
frictions are obvious. The field in which the trade frictions are severe is sometimes the same field as that
with severely distorted resource allocation.
Ⅲ、Conclusion:
In conclusion, the trade government policies of western developed countries are changing the system of
the world resources distribution, resulting in its distortion and waste in many fields. To optimize the
distribution, it is desirable for those countries to reduce their unfavorable interruption and their
protection of their industries and trades. The sole choice for the sustainable development of the world
economy, if it exists, is the promotion of freedom of world trade and investment, and at the same time a
reduction in the cost of world resources distribution.
References:
［1］Realizing Profit Advantage ---Comparison on Owning International Competition Industry Between
China and the US by Chen Jiagui etc. <International Trade> 5/2002
［2］Perfecting Green box Supporting Measures ---Comments and Proposals on the World Trade
Organization Agriculture Agreement of Green Box Policy by Task Group <International Trade> 29-33,
Jan,2002
3 Adjustment and Perfection of the Chinese External Economy and Trade Policy --- The rise of the
Chinese Economy and Trade With Management ---Policy of Free Investment By Zhang Hanlin, Li
Jiguang <International Trade> 7/2005
4 The Important Transform In the Way of Government Resource Attribution, Century Economy
Reports, 1/2004
5 <Development Model and Revelation on Foreign Industry and Group> <Macro Economy
Research> by Cao Hongjun, Wang Yiyi 10/2004
Author: Chen Xiaowen, female , 1966, being a lecturer work in international business institute of
Qingdao university, who got the economics bachelor degree from east china normal university , master
of economics degree from Shandong university, and also a PHD student of Qingdao university major in
population environment and resources economics.
Mail address: Qingdao university international trade department, shandong China
Postcode: 266071 Tel: 13012509702 E-mail address: [email protected]
Subject:
How The Trade Management Policies are changing the Allocation of Global Resources
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