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• W2056571386 abstract "Elena Ianchovichina and Will Martin (2006) are to be congratulated for a comprehensive, nuanced and balanced assessment of the complex and highly politicized issue of China's accession to the World Trade Organization (WTO). At the most general level, it is helpful to think of three types of effects of China's economic expansion: a broad “locomotive effect”, which derives from the fact that a significant-sized economy is growing about three times faster than the global economy; a “competition effect”, applying to firms and countries producing similar kinds of goods and services; and a “complementarity effect”, deriving from China's rapidly growing demand for the goods and services it consumes. Emphasizing the usual caveats associated with this sort of exercise, Ianchovichina and Martin's main arguments can be summarized as follows. First, as is invariably the case, the principal benefits of reform are felt at home. In an age of increased emphasis on reciprocity in international trade negotiations, it is important not to lose sight of this key conclusion. Second, the largest absolute gains to China's trade partners are reaped by North America and the European Union (EU). In fact, about half of these gains are the result of the abolition of the Multi-Fibre Arrangement (MFA), and are in this sense incidental to China's reforms and its accession to the WTO. Third, the second largest gains, relative to the size of the economy, are actually achieved by Taiwan, following its own accession to the WTO. Fourth, Japan and the more industrialized Asian economies benefit from China's liberalization, mainly because of the strong complementarities between them and China. Fifth, the picture is mixed for other developing economies. In particular, the lower income economies of South-East Asia are forecast to experience a small decline in gross domestic product (GDP), principally because they are in direct competition with China in a range of labor-intensive manufactures. Again, much of this story is concentrated in the clothing sector in third country markets, as a consequence of the MFA phase-out. Sixth, there are likely to be powerful investment effects, as post-reform rates of return in China are forecast to rise. In turn, this will be beneficial for economies that are primarily complementary to China (e.g. the more advanced industrial economies of East Asia, and resource rich economies such as Australia and Brazil), but competitor economies could experience some investment diversion to China. As Ianchovichina and Martin emphasize, this is an exercise in comparative statics. China is growing extraordinarily fast, with impacts that are both global and country-specific. China's current per capita income is variously estimated to be similar to that of Japan around 1960. Japan's extremely rapid post-war growth reshaped first the Western Pacific economies, and then had major global impacts. A useful rough approach to imagining China's impacts, if its rapid growth is maintained for decades, is that its scale will be simply gigantic, something akin to “ten Japans”. In the process, the dynamic effects of China's expansion will dwarf this sort of (very useful) comparative statics exercise. That is, there will be huge general equilibrium effects that are extremely difficult to quantify. These effects are depressing global prices for goods and services for which it is a major exporter (e.g. principally labor-intensive manufactures across an increasingly broad spectrum), relative to what they would otherwise be, and boosting prices where it is a major consumer (e.g. industrial raw materials and energy). Moreover, the capital account implications are also enormous. China is already the world's largest recipient of foreign direct investment (FDI), even allowing for the so-called “round tripping” phenomenon. With the formal relaxation of the peg to the US dollar, presumably the Yuan will appreciate, albeit gradually. In addition, global rates of return in activities that are complementary to China's expansion can be expected to rise. China's commitments in services are the most radical, and in key areas such as telecommunications, transport and finance. These are likely to have profound effects throughout the economy, in enhancing the productivity of the goods sectors, and in China's external relations, both in attracting FDI and where services are already significantly tradable. Ianchovichina and Martin model some of these reforms by resorting to the common practice of treating barriers to services trade in equivalent ad valorem terms. But they are unable to model in any detail the efficiency gains in services owing to lack of data. Within agriculture, there are likely to be diverse intra-sector effects. As China continues to grow fast, it will likely lose comparative advantage fairly quickly in “broad acre”, land-extensive activities (e.g. grains). But it will presumably be competitive in many land-intensive activities (e.g. horticulture) and agro-processing sectors. Trade liberalization in manufacturing has proceeded further, especially for export-oriented producers. There are also likely to be substantial inter-sectoral differences. For example, the automotive industry is likely to undergo major restructuring, boosting the efficiency of the fragmented and highly regulated sector. Textiles and clothing are likely to expand rapidly following the phasing out of the MFA restrictions, providing of course the major trading partners do deliver on their commitments. Ianchovichina and Martin assume that the US and Europe do remove their quotas on apparel and textiles as per the agreement, and do not impose any additional safeguards. We have to suspend judgment on this assumption for the time being, but thus far the news is not very encouraging. Related to this, how does one interpret the findings in tables 5 and 7 that South-East Asia will be adversely affected by China's trade reforms? This is analyzed in detail elsewhere in this volume, but in passing several points are worth making here. First, as economies closely engaged with China, the dynamic effects are outweighing these relatively small (0.1–0.4% of GDP) comparative static effects. Second, the major negative reported impacts in the Ianchovichina and Martin analysis come mainly from the removal of MFA quotas, and so have nothing to do per se with China's reform and growth. Third, some of these countries, for example Indonesia and Thailand, should be able to benefit from China's agricultural liberalization in areas like rubber, sugar, urea, and possibly rice. There will also be a major increase in inter-industry trade in manufactures, especially in electronics, as FDI-led regional manufacturing networks expand. How China manages its own trade policies will have crucial implications for the global trading system. The latter is currently directionless, with the Doha Round making little progress, and many countries resorting to bilateral agreements that typically do little to progress the liberal multilateral agenda, and are often harmful to it. As with most of its East Asian neighbors until recent years, China historically has pursued a twin strategy of unilateral trade reform combined with support for the multilateral framework. Its region-specific commitments (APEC, China – Association of South-East Asian Nations [ASEAN], etc) have tended towards the “open regionalism” approach, in the sense that many of its concessions have, or are likely to be, multilateralized. Its accession to the WTO continued this tradition. Clearly, which way it swings in the choices between unilateral, multilateral and bilateral reform will have major implications for the global system. Finally, I have some minor points of detail and queries. I list these in order of appearance in the paper. None is central to the authors’ principal conclusions. First, Ianchovichina and Martin's modeling excludes nontariff barriers (NTBs), although the data in table 3 incorporate price comparison effects. This is justified on the grounds of modeling convenience and the fact that NTBs are now relatively unimportant. Perhaps a little more assurance could have been provided for the latter assertion, since so much of China's economy remains “state influenced” if not controlled. Second, and related to the first point, it would be useful to briefly inform the reader how close is the match between the GTAP protection data and the (presumably more accurate) protection data reported in tables 2 and 3. Third, in table 4, some of the figures are perhaps a little counter-intuitive. There is the big bang in apparel exports (and to a lesser extent textiles), and the expected declines where export subsidies are reduced (e.g. in feedgrains and plant-based fibers). But not much seems to be happening in other labor-intensive manufactures, where one would expect a reform “unshackling” effect. Examples include electronics (where much of the huge intra-East Asian trade expansion is located) and light manufacturing. Fourth, I would be inclined to emphasize a bit more that there are of course several “Chinas” just within the PRC. Although growth has been rapid nationwide, it has been particularly fast in the eastern region, and per capita income there is now about double that of the poorer western region, resulting in a significant increase in inter-regional inequality. As some of the richer coastal regions approach higher-income East Asian norms, they will begin to lose their comparative advantage in labor-intensive activities, and the competition to fill the vacuum will be between lower income economies elsewhere (India, Vietnam, etc) and lower income regions within China. In turn, how much the latter effect predominates will be shaped by how quickly internal restrictions on labor mobility are relaxed (China's labor market is of course far removed from that assumed in the Ianchovichina and Martin modeling, of full employment, perfect mobility, etc), the expansion of China's infrastructure to the West, and the capacity of the more remote regions to offer a conducive investment climate. The less these factors apply, the more China's rapid coastal growth will spill over to its neighboring countries." @default.
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• W2056571386 title "Comment on Trade Impacts of China's World Trade Organization Accession" @default.
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