China accession to WTO and its consequences for working people

One of the greatest recent events that will shape global capitalism for years to come is the integration of China into the world market. Economists told us: “the entry into the world economy of China, India and the former Soviet Union has in effect doubled the global labour force (China accounts for more than half of this increase)…

China has almost 200 million underemployed workers in rural areas, …It will continue to subdue wage growth and global inflation. Profit margins could also remain historically high for a period.”[2] Good news for business. On the other hand, the Chinese government is determined to continue its hard line policy of zero tolerance for freedom of union organising. Jorg Wuttke, Chairman of the German Chamber of Commerce in China, told the secret of China’s competitiveness:

“For manufacturing, why go to Southeast Asia and not China? ……South Korea and Taiwan wages are high and they have trade unions.”[3]

“Never forget that our relative advantage is our cheap labour cost. Forgetting this will make us lost our way in international trade.” This was what the chief WTO negotiator, Long Yong Tu, told his audience in a recent conference.

In order to access the WTO the Chinese government made huge concession to the US and the EU, concessions that many developing countries like India had resisted, formerly at least. She voluntarily gave up the 10 percent domestic support in agriculture that developing countries are entitled to and accepted 8.5 percent instead. Her tariff cut is much deeper than India’s[4]. China’s average tarrif for agricultural goods is now as low as 15%, significantly lower than the average 24% among developing countries. While India lower her industrial goods average tarrif to 25-40%, China further cut her own to 10%. Chinese State owned trading firms and investment firms are required to function commercially, whereas WTO rules only requires trading firms to be subjected to market forces.

In the current General Agreement on Trade in Services negotiations the US and EU are delighted that China was so forthcoming in opening up her services sector. Recently, Bo Xilai, the commerce minister, proudly told his audience that while developed countries have opened 80 percent of 160 service sectors (specified by the WTO), and developing countries have opened 20-40 percent, China has opened 62 percent of her service sectors to foreign competitors[5]. China’s cutthroat competition helps the US and EU to press developing countries to follow China’s example.

Regardless the China agenda will be successful or not, the truth is that common peasants and workers have not benefited from the growth in trade and economy. On the contrary, in order to enter the WTO, China have restructured her industry and privatized her public service. As a result 40 millions of workers in the state sector lost their jobs. For the same reason, Chinese government also sacrificed the peasants. Agricultural tariff was reduced to one of the lowest in the world. All of the above measures will compound the impact of imported cereal products, and lead to the destruction of small peasants economy in the future. According to the official research, under the terms of WTO accession, more than 12 million farmers will have to leave the land. A recent World Bank report stated that since China’s accession to WTO, the average income for rural household went down 1%, and for the poorest it went down 6%.Recently, China become net importer of agricultural products. This is quite alarming for a big country like China. The response, however, from government officials is to promote more commercial farming and export-oriented agriculture. The government plan to increase agricultural annual export value from 10 billion to 30 billion US dollars in 4 to 5 years. This policy is merely reinforcing the regime of “fittest for survival” of the international trade system. However this system is not sustainable either from social or environmental perspective. Bangkok Post reported that “Thai’s farmers are complaining China is flooding Thai markets with cheap longan, onions, garlic, roses, peaches, pears and a variety of other cash crops, particularly since the FAT with China a year ago.” [6]

The notion that China is defender of developing countries in opposition to US hegemony is simply a fairy tale. It denies the most obvious fact that in the name of free trade, China, exporting immense quantities of goods at ever-lower prices at the expense of her workers and weaker developing countries, has become a powerful engine driving the global race to the bottom for working people across the world. In doing this China serves both the interests of her elites and those in the US, EU, and Japan, rather than opposing them. They are in fact a grand alliance to exploit labour, despite occasional squabbles over the spoils. Deng Xiaoping laid out his programme for a new course in March 1989, three months before the massacre to repress the Tiananmen Square democracy movement, saying, “China cannot allow demonstrations to happen too easily,…….or else foreign investment stop flowing in. Our strict control over this aspect will not deter foreign investment. Quite the opposite, they will be more relaxed [in investing]”.[7] Foreign investors are in full agreement with Deng, at least in practice, by pouring ever bigger capital investments into China after the massacre. Recently The Economist drew the following balance sheet: “The integration of China’s 1.3 billion people will be as momentous for the world economy as the Black Death was for 14th-century Europe, but to the opposite effect. The Black Death killed one-third of Europe’s population, wages rose and the return on capital and land fell. By contrast, China’s integration will bring down the wages of low-skilled workers and the prices of most consumer goods, and raise the global return on capital.”[8] (Emphasis added)

The logical conclusion is that labour should simultaneously oppose the Chinese, US, EU, and Japanese elites, rather than siding with any of them.

To argue that China defends the interests of developing countries is to exaggerate her spasmodic and tactical support for them, while downplaying her fundamental ambition of carving ever-greater world market share at any human and environmental costs. While the media mainly focus on negotiations between China, the US, and the EU, they largely ignore the fact that developing countries like Brazil are also announcing restrictions on China’s textile imports.

For Mexico China’s threat is more pronounced. In 2003 Mexican manufacturers complained that China had overtaken Mexico to become the No. 2 exporter to the US after Canada[9]. Mexican President Fox said that Chinese pirates were stealing their jobs[10]. We need not endorse Fox’s position, but it contradicts the rosy picture of ‘China defending developing countries’; quite the opposite. It only makes the race to the bottom among developing countries more intense than ever.


China --- the biggest winner of MFA phase out?

The MFA was always regarded by developing countries as developed countries’ protectionist attempt to bar their textile products, which is one of few industrial sectors where developing countries have comparative advantages. Though many developing countries had always pressed to eliminate the MFA, it is an irony of history that upon the phasing out of the MFA, in July 2004 some developing countries like Mauritius called for to extend the MFA, in face of the prospect of China seizing the lion’s share of world export of textile goods.

The quota system on one hand was protectionist for the developed countries; on the other it helped to spread out textile exports across 200 countries. According to a WTO report, eliminating quotas for textiles products will end with only 30 strong developing countries left; among them China’s share of exports may be as high as 50 percent (currently 16 percent), while India’s is projected at 15 percent (currently four percent). Mexico, Philippines, and Indonesia will see textile exports halved, and Mexico will drop to three percent from the current 10 percent. In developed countries like the US and EU, over the past four years the US has lost 350,000 garment and textile jobs, and probably more than half the remaining 700,000 are at risk[11].

The International Textile, Garment, and Leather Workers' Federation (ITGLWF) also called to extend the MFA, in order to save textile and garments jobs in developed as well as developing countries. In a press release, the ITGLWF said that since the elimination of the quota system in 31 Dec 2004, serious plants closure and jobs losses were reported in Kenya, Cambodia, Mauritius, Sri Lanka, Philippines, and Tunisia. When its call failed, the ITGLWF many times came close to the point of endorsing the EU’s policy of using the clause in China’s WTO accession agreement that restricts exports from China.

US labour federation the AFL-CIO along with US conservatives are even more aggressive in their attack on China’s surges of cheap imports, holding it responsible for plant closures and job losses in the US. In 2000 the AFL-CIO fought in vain to stop the Clinton administration granting Permanent Normal Trade Relations status to China, and its demands to improve workers’ rights as a condition of China’s WTO accession also failed. In 2004 the AFL-CIO called to impose trade remedies (like raising tariffs) on China for being responsible for the disappearance of 2.5 million manufacturing jobs. Recently it joined the Chinese Currency Coalition to press the Chinese government to revalue the yuan. It seems that the AFL-CIO conceives that trade protectionism is a good way to keep jobs. Ironically, when it comes to free trade promoted by the North American Free Trade Agreement (NAFTA) and the WTO, the AFL-CIO does not remain loyal to trade protectionism and oppose NAFTA and the WTO in principle, but was content in trying to append a labour clause on free trade agreements.

To identify China as the main winner and the US and EU as losers over the end of the MFA is far from true. The first thing to note is that foreign textile companies account for ¼ of all Chinese export earnings from textile products; they, not Chinese companies, directly benefit from expanding Chinese exports. Chinese companies do reap the remaining ¾ of export earnings, but generally their average profit rates are low, since the majority of them subcontract to foreign brands, only earning a fraction of value added, often just 10 percent[12]. Importers like Wal-Mart and brand companies pocket the major share of profit. Thirdly, the more China exports textile products, the more it needs to import textile machines from developed countries; Germany is the top textile machine exporting country.

In fact China has become the world’s biggest textile machine importer, and is 1½ times higher in money terms than the second country—Turkey[13]. In the exchange of labour-intensive products (Chinese textile) for capital-intensive products (US and EU machinery), the latter get most value added. Therefore, the rise of China as a textile products exporter benefits Chinese, US, and EU companies. It is in the interests of all three to see the end of the MFA, despite episodic frictions.

That textile manufacturers in developed countries may lose market share does not nullify the above statement, because benefits can be ten times the losses to US capitalists as a whole by forcing open the capital goods market and services of developing countries, with China ranked number one. Textiles production is a sunset industry in developed countries anyway, and stopping China’s imports will not save jobs there, because Wal-Mart will simply shift sourcing from China to India.

Here it must be noted that China also is losing textile and garment jobs. To be competitive enough to drive others out of business, Chinese textile and garment sectors shed 52.5 percent and 28 percent of jobs respectively between 1996 and 2001, amounting to 3.3 million and 0.5 million jobs. 26 million manufacturing jobs were lost in the same period, accounting for 40.5 percent of all manufacturing jobs[14]. Such sharp decline in manufacturing jobs in such a short time was unheard of. Those retaining jobs in Chinese textile and garment factories saw their wages cut and intensity of labour rose. In July 2005 3,000 textile workers in Guangzhou struck against wage cuts and were suppressed. However, neither the AFL-CIO nor the ITGLWF ever mention China job losses when calculating job losses in textile and garment in particular or manufacturing as a whole.

The notion that China wins and the US loses by ending the MFA is thoroughly flawed. If we think in terms of classes rather than countries, it is obvious that Chinese, US, and EU companies are all winners, while workers in all lands are losers, albeit to different degrees under different time frames. Targeting China and letting the US government off the hook, or worse supporting US protectionism, cannot benefit US workers. For there is no essential link between protecting the market from cheap imports and keeping jobs. What links exist are weak, never direct, and dependent on many factors that labour cannot control—employers, not employees, control investment decisions and distribution of profit that directly affect labour. Labour cannot fight for things over which they have no control. Even in the short-term, when protectionism produces positive side effects that may keep jobs in certain sectors, in the long run there is no basic correlation between the two. In this era of globalisation, the link between trade (protectionist or free trade) and job creation, or more generally, the link between growth and job creation, is weaker than ever. To argue the otherwise only helps the ruling elite pit workers in all countries against each other. US labour should first and foremost hold the US ruling elite responsible for job losses.


The role of China in the conclusion of the 6th Ministerial Meeting in Hong Kong

The important reason for the Hong Kong ministerial conference managed to move “forward” from the initial Doha round was the betrayal of big developing country like China, India and Brazil, which headed the G20. They compromised to the EU and US by sacrifying the interest of small developing countries. It becomes obvious now that the reason for China, India, and Brazil once resisted the advanced countries agenda in the Cancun conference in 2003 was only due to the fact that developed countries were far too ambitious then. Once the latter water down a bit their agenda, the three big developing countries find it beneficial to conclude the Hong Kong Conference.

The position of the Chinese government was very clear: it would fully accept the Doha agenda --- especially the NAMA and GATS ----- as soon as developed countries give out token concession to developing countries to sweeten their pill. Mr. Bo Xi Lai, the Minister of Commerce and Trade of China, repeated the appeal from Mr. Hu Jin Tao, the president of China, which stated that “all related parties should give the strongest political will, show necessary flexibility, and actively promote the Doha development round’s negotiation. It is the only way we can reach substantial achievement in the Hong Kong conference.” The China delegation also participated in all green room negotiations, which were only open to advanced countries and a few privileged developing countries. Most developing countries were left outside. Feng Jun, a representative from the Chinese delegation, expressed that other developing countries had high expectations of China to stand up and defend the interests of developing countries. Surely, China disappointed them. Bo Xi Lai clearly said that “China enjoy comparative advantages in low to medium end products. Therefore, China hope to develop new market for herself.”

[1] This article is originally a paper presented to a conference held by APRN in July 2005, and then revised and updated, in May 2006, with a brief evaluation on China’s role in the conclusion of the 6th Ministerial Meeting in Hong Kong in Dec 2005.

[2] China and the world economy, The Economist, 28 July 2005

[3] SCMP, 30th Oct 2001

[4] For instance, see “China and the WTO: An Economic Balance sheet”, by Daniel H. Rosen, Institute for International Economics web site

[5] Hong Kong Economic Journal, 10 June 2005

[6] Bangkok Post, 30 Jan 2005

[7] Deng Xiaoping wenxuan (Writings of Deng Xiaoping), vol III, People’s Publishing House, Beijing, 1993, p. 286

[8] The Dragon and the Eagle, The Economist, 30 Sept 2005

[9] Some Mexican manufacturers, after traveling to China, were dispirited and had this to say: “They [Chinese) have extremely aggressive tax incentives, low salaries, very aggressive worker training, and a supply chain that allows them to have immediate access to the latest technology.” Business Week, 22 December 2003

[10] Quand la Chine change le monde (When China changes the world), by Erik Izraelewicz, 2005, Chinese edition by CITIC Publishing House, p 146.

[11] Trading down, David Moberg, The Nation, posted 22 December 2004 (10 January 2005 issue)

[12] Hong Kong Economic Journal, 17 Sept 2005

[13] Ming Pao, Hong Kong, 8 June 2005

[14] Wo Guo Zhong Chang Qi Shi Ye Wen Ti Yan Jiu. (Research on medium- and long-term unemployment problems in China). Jiang Xuan, 2004, Publishing House of the Renmin University of China, p.179-181