The Custom-House

The Chinese challenge in electronics

Chinese exports of "electronic and information technology products" have grown rapidly, from under $20 billion in 1995 to over $140 billion in 2003. 

Does this growth "constitute evidence that China is leapfrogging ahead technologically," perhaps due to a "government industrial policy" of "high tech mercantilism"?  Is this "a major challenge to US commercial and security interests"? 

Nicholas Lardy, of the Institute for International Economics, doesn't think so.

First of all, while its true that Chinese exports of electronics have grown enormously in the last 10 years, these aren't generally what you'd think of as high tech.  They're mainly exporting things like "DVD players, notebook computers, and mobile telephones."

Moreover, they're importing most of the components for these.  "While China exported $142 billion in electronic and information technology products in 2003, China's imports of these products, overwhelmingly parts and components rather than finished goods, were over $128 billion."  China is assembling products from parts imported from elsewhere.

Finally, most Chinese production is generated by "foreign firms that are using China as an export platform...Taiwanese firms that have relocated to the mainland dominate the production of electronic and information technology products that are exported from China...In 2003, for example, foreign firms accounted for 92 percent of China's $41 billion in exports of computers, components, and peripherals and 74 percent of China's $89 billion in exports of electronics and telecommunications equipment..." 

Source: Nicholas R. Lardy, "China: The Great New Economic Challenge?"  (pages 131-134) in The United States and the World Economy, edited by C. Fred Bergsten (Institute for International Economics, 2005).  You can read Lardy's essay online, but you can't print it out.

Where do the Doha Round negotiations stand?

The Doha Round of trade negotiations are moving slowly (maybe too slowly) along the road to the Hong Kong ministerial meetings.

Frances Williams reports (for the Financial Times) that"Doha global trade round 'close to crisis'" (April 29).

Peter Gallagher draws on what he learned during recent visits to Washington, Brussels, and Geneva, to survey the status of the negotiations, and speculate about their prospects:"Doha doldrums" (April 30).

It looks like Lamy vs Pérez del Castillo

The results of the second round of WTO Director-General selection committee consultations were announced today (Friday, April 29).  Frenchman Pascal Lamy was the leader, followed by Uruguayan Carlos Pérez del Castillo. 

Mauritian Foreign Minister Jaya Krishna Cuttaree was third of the three candidates (least likely to generate a consensus), and dropped out of the contest.

Richard Waddington reports for Reuters that: "France's Lamy stays on track to win WTO race".   Waddington points to reports of "tactical" voting by the European nations:

"Diplomats said Cuttaree lost out because many European Union states had put the Uruguayan, a widely-respected former head of the WTO's executive General Council, as their second choice, preferring a run-off against him to the Mauritian."

Warren Giles reports for Bloomberg that "Lamy's Bid for Top WTO Job Buoyed as Rival Eliminated ". Giles reports that the next round is to begin on May 9, and is expected to lead to a selection by May 31.

Sam Cage of the Associated Press reports that "Cuttaree pulls out of race to be WTO chief". (via San Luis Obispo Tribune)

Frances Williams reports in the Financial Times: "Lamy the frontrunner to become world trade chief" (April 29).

Apparently the second place decision between Cuttaree and Pérez del Castillo was very close.  What will happen now?:

"European diplomats said the latest round of consultations confirmed that Mr Lamy not only had the most support, first and second preferences combined, but also the broadest spread of support.

Mr Lamy, who is French, can now expect to pick up backing from many ACP countries that previously stood behind Mr Cuttaree. They are likely to be more wary of Mr Peréz del Castillo, who is from a country committed to liberal farm trade policies that could endanger their preferential trade with the EU and other industrialised nations.

But Mr Peréz del Castillo claims significant support in Asia as well as a solid base in Latin America. "

Revised several times during April 29

Either Lamy or Pérez del Castillo

Last week, two former Mexican representatives to the WTO argued that either Pascal Lamy or Carlos Pérez del Castillo would make a good WTO Director General:

"Political correctness should not guide WTO race

By Angel Lopez Hoher and Eduardo Perez Motta

Published: April 23 2005 03:00 | Last updated: April 23 2005 03:00

From Mr Eduardo Pérez Motta and Mr Angel López Hoher.

Sir,

As the race to succeed Supachai Panitchpakdi as director-general of the World Trade Organisation enters its final phase, it is important to take a step back to ponder what would be best for the organisation as a whole.

In an article on the importance of choosing the heads of international organisations, Martin Wolf suggested that the next director-general needed to be "someone able to sell [the WTO's] mission, understand the detail and, where necessary, reach out to the governments on which agreements depend". To these criteria we would like to add two that should be obvious (but are not always): that the director-general has to be perceived as an honest broker, and needs to be someone who believes in free trade.

We believe, unencumbered by the responsibility of trade-related public office, that both Pascal Lamy and Carlos Pérez del Castillo fulfil these criteria - each with an emphasis on different traits.

The list of candidates has shrunk to three men. A choice will soon have to be made between them, to avoid repeating the unsavoury and debilitating experience of last time. It would be heartening if, for this choice, WTO members were guided not by regional or political considerations, but by the candidates' personal record and the work programme they have laid out before the General Council.

In its hour of need - and this surely qualifies as such - the WTO should be headed by the best man, not by the most politically correct or the one least threatening to any member's position."

Letter to the editor of the Financial Times, published April 23. The Times noted that "Eduardo Pérez Motta, Former Ambassador of Mexico to the WTO Angel López Hoher, Former Deputy Permanent Representative of Mexico to the WTO").

Is it down to Lamy or Cuttaree?

Richard Waddington reports for Reuters South Africa that, as the second round of the WTO selection process comes to a close, it looks like French candidate Pascal Lamy, and Mauritian candidate Jaya Krishna Cuttaree are the leading candidates: "Lamy, Mauritian minister look set for WTO duel".

"France's Pascal Lamy and Mauritian Foreign Minister Jaya Krishna Cuttaree seemed in pole position to head the World Trade Organisation (WTO) after the latest soundings of members' views, diplomats said on Wednesday.

As the penultimate round of consultations drew to a close, Uruguay's former trade envoy Carlos Perez del Castillo, the only other contender, appeared to be trailing and was expected to have to drop out of the race, they said...

...However, some diplomats warned there could be a surprise given the complexity of the selection process, with the degree of opposition to a candidate also having to be weighed in addition to the support he receives..."

Suppose the Chinese sold a lot of their U.S. government bonds?

The Chinese hold a lot of U.S. government bonds.   Suppose they tried to use these holdings as an economic weapon against the U.S.?

Kash spins out a scenario over at Angry Bear: "China's Real Weapon?".

And take a look at his novelistic treatment about the conditions under which China might use this weapon: "China's New Weapon".

Is the WTO DG selection process transparent enough?

D Ravi Kanth reports that a "Divisive race starts for the top job " in the WTO (Deccan Herald of Bangalore, April 25).

This is an interesting column, treating several topics.  I'm going to focus on comments on the concerns raised about the "transparency" of the WTO Director-General selection process:

" India and China, however, expressed concerns about lack of transparency in the selection process. The two countries supported the Brazilian demand that figures ought to have been indicated so that the losing candidate knew why he is being asked to leave. India's senior trade negotiator Gopal Pillai told Deccan Herald, “We didn't question the process but we feel there has to be greater transparency.”

The WTO’s powerful General Council chairperson Ambassador Amina Mohamed turned down the Brazilian request for figures saying that she is not bound to reveal the confidential information shared by the members during confessions.

The problem with the selection process is that there are no white and black rules. Rules framed in 2002 allow the triumvirate — the chairs of the General Council, the dispute settlement body, and the trade policy division — to arrive at a result based on their assessment. That assessment is based on geographical support-spread, preference for candidates from the industrialised, developing, and least-developed countries and so on. “I went by the rulebook,” Ambassador Amina Mohamed told Deccan Herald .

But some countries strongly feel that the losing candidate at each round has to be justified by a clear explanation as to why he is being asked to vacate. “If you choose to not reveal figures as demanded by Brazil, why did the GC chair announce rankings among the candidates making it look so and so is the winner,” said an Asian trade envoy. “Obviously, she wants to tilt the balance in favour of one candidate,” the envoy argued, refusing to disclose the name of that one candidate..."

How Does New Zealand see the WTO DG Race?

Fran O'Sullivan, an Assistant Editor with the New Zealand Herald surveys the three remaining candidates, and reports on the thoughts of NZ Trade Negotiations Minister Jim Sutton: "Search for a WTO leader". 

Who will NZ support:

Pascal Lamy:

"Trade Negotiations Minister Jim Sutton concedes Lamy has strong credentials for the top job and admires his undoubted Gallic charm.

But Sutton is also critical of the EU's protectionist approach to agriculture.

Like his Australian counterpart, Mark Vaile - who as far back as December said Lamy's campaign was unofficially being run by then US Trade Representative Bob Zoellick - Sutton would prefer a more obvious free-marketer in the job."

Carlos Perez del Castillo:

"Perez del Castillo is openly backed by New Zealand, Australia and other members of the Cairns group of agricultural exporting nations.

Trade Negotiations Minister Jim Sutton expects him to be in the final round."

Jaya Krishna Cuttaree:

"Trade Negotiations Minister Jim Sutton wants Perez del Castillo. But if the Uruguayan drops out after this conclave, as Cuttaree suggests, New Zealand is expected to fold its vote in Lamy's favour on the grounds of sheer managerial competence to get the Doha Round completed. "

Cuttaree visited Europe this week

Stefania Bianchi reports that: "Lamy Pulls Ahead in WTO Leadership Race".

But the real purpose of the story seems to be to report on Mauritian Foreign Minister Jaya Krishna Cuttaree's (one of Lamy's two competitors) meeting with EU parliamentarians earlier this week.

Who will Brazil support now?

Mario Osava (for Inter Press Service News Agency) wonders who Brazil will support, now that its candidate Luiz Felipe de Seixas Correa is out of the running for WTO Director-General. 

This is part of a longer piece on recent Brazilian foreign policy setbacks.   Osava describes Seixas Correa's required withdrawal as the "biggest" of several recent foreign policy "blows" absorbed by Brazil.   Then:

"...Up until now, Brazil has enjoyed considerable influence in the WTO, which makes the fact that this was the setting for such a crushing foreign relations setback especially surprising. Lamy and Cuttaree are both defenders of agricultural subsidies, which have always been the main target of Brazil's battles in the WTO.

Given that Brazil's own candidate is now out of the running, its backing in future rounds of voting should logically pass to Pérez de Castillo -- whose candidacy was upheld by the new leftist government that took office in Uruguay on Mar. 1 -- as a representative of Mercosur, who also has the support of Argentina (Paraguay is the fourth full member of this bloc).

But backing the Uruguayan candidate will be a bitter pill to swallow for Brazil, which put forward its own candidate, Seixas Correa, precisely as a means of opposing Pérez Castillo, whom it accused of having presented a proposal that ”favoured the wealthy countries” in September 2003, as chairman of the WTO General Council.

Pérez del Castillo's proposal, submitted to the WTO ministerial conference in Cancún, Mexico, was rejected by the majority of developing countries, with the end result being a breakdown in negotiations.

Nevertheless, refusing to support the Uruguayan candidate is not a viable alternative either, since it would weaken Brazil's position as one of the coordinators of the so-called Group of 20, an alliance of countries -- of which Uruguay is also a member -- opposed to the agricultural subsidies implemented by industrialised nations, to the detriment of the developing world..."

This is an interesting article, placing Seixas Correa's candidacy in a wider political context. The Director-General selection isn't taking place in a vacuum. External events (the choice of a World Bank president) affect it, and it has implications for other things:

"This does not bode well for Brazil's aspirations to U.N. Security Council permanent membership, while threatening its role as a leader or major player in a variety of political and trade negotiations, ranging from the forging of closer ties between South America and Africa and the Arab world to the Doha Round of negotiations in the WTO, initiated in November 2001."

Revised April 22. This was originally titled "A Brazilian Diplomatic Defeat" following the thrust of the Osava article. My interest is somewhat different, and I've retitled the post to reflect that.