International Economic Trade -- International

International Economic Trade -- International Trade Regulations of China

After many decades of international efforts to liberalize the global market, the forces of globalization continue to be restricted by the diverse legislation in each country. China is one of the largest economies of the globe and many of its partners are impacted by the governmental policies. The aim of this paper is to reveal some of their international trade policies, alongside with the effects they generate upon other global players. In achieving this however, it is vital to start off with a brief presentation of the country.

Brief Description of China

After the European Union and the United States of America, China is the third largest economy of the globe with a gross domestic product for 2008 of $7,800 billion. Historically, China has been a global leader in terms of arts and science and has set the trend for numerous developments. The nineteenth and twentieth centuries however saw the demise of China due to internal civil distress or gradual occupations by foreigner invaders. After the Second World War, the eastern Asian country came under the ruling of communist Mao Zedung, who imposed an autocratic style of leadership. The state's international position and economic prosperity were positively influenced, but the civil issues remained intense as the population's liberty and rights were often disregarded. The fall of Mao Zedung brought about further improvements in terms of economics and social rights, but much has yet to be addressed. Despite the opening towards a more liberalized market and obvious improvements within the civil society, the country's policies still impact much of its international trade relations. Today's China is characterized by the following highlights:

Population of 1,338,612,968 individuals, growing at a rate of 0.655%; 43% of the population lives in urban areas, the statistics revealing a 2.7% annual increase

Economic prosperity revealed in the 9.8% increase in 2008's gross domestic product (in 2007, the GDP growth rate was of 13%, the lower rate in 2008 being attributed to the internationalized economic crisis); GDP per capita is of $6,000, in a context in which the global average is of $10,400 and the income per capita in the United States is of $47,000

43% of the labor force works in agriculture; 25% in industry and 32% in services; unemployment rate is of 4%

China exports mainly electrical machinery, textiles iron and steel to the United States (19.1%), Hong Kong (15.1%), Japan (8.4%), South Korea (4.6%) and Germany (4%); in 2008, exports totaled $1.465 trillion

They generally import machinery, oil and fuels, metal ores and organic chemicals from Japan (14%), South Korea (10.9%), Taiwan (10.5%), the United States (7.3%) and Germany (4.7%); in 2008, imports totaled $1.156 trillion

Main natural resources: coal, iron ore, natural gas, petroleum, mercury, tin, manganese, aluminum, zinc, uranium and the largest global potential of hydropower

Numerous environmental issues due to high levels of pollution and scarcity of fresh water resources (Central Intelligence Agency, 2009)

3. China's International Trade Policies and their Impact on Global Parties

It is without any doubt that the political approach to conducting international business has significantly modified throughout the past recent years. For instance, many of the trade barriers were lifted, allowing as such foreign investors to commence and consolidate trade relations with the eastern Asian country. Many import barriers were lifted and the subsidies for exports have been significantly reduced. Also, state trading monopolies have been eliminated (United States Department of Agriculture, 2009). In terms of the country's population, this translated into increased revenues and improved living standards, with the downside however of an increasing income gap between different social classes and categories of employees. Despite the improvements that led to an almost nine times increase in the country's GDP since 1978, the government remains highly involved in the economic operations and continues to regulate the market (World Trade Organization, 2006). For instance, the Chinese authorities implemented relatively high value added taxes for imported commodities, which significantly increase their retail price and make them less competitive than the national products.

The international trade with agricultural products has been subjected to numerous changes throughout the past two decades and it represents the most noteworthy sector in analyzing the international trade policies of China as the endeavors in the agricultural field can easily be extrapolated and understood in the context of the country's policies towards all trade operations. In this order of ideas, the most outstanding policies refer to the following:

Tariffs on agricultural products still exist, but were cut from 31% to 15% -- as an impact on trade partners, the reduction in tariffs means that the they are better able to sell their products to Chinese customers; additionally, their products are better able to compete in the national market as their prices have been reduced; however, due to the existence of the 15% tariff, the products of other countries continue to be sold at higher prices within the Chinese market

The Chinese government established quotas for key commodities; the amounts of products traded above the established quotas are subjected to increased tariffs (between 5 to 40%) -- this materializes in that the foreign exporters are able to sell key products at competitive prices, but that the quantities for these products are limited; if they want to increase the amount of goods exported to China, they must pay additional taxes. The table below reveals the exact quotas established for each group of agricultural products:

Source: United States Department of Agriculture

The state-trading monopolies have been almost entirely eliminated, meaning that the foreign partners are better able to sell their products within the Chinese market; however, monopolies continue to exist for grains, sugar and fertilizers, meaning that the foreign countries rich in these products cannot distribute them in China

The Chinese government implements a value added tax for the large majority of imported products. This VAT is of 13% for agricultural commodities and of 17% for industrial products and processed foods. Additionally, the VAT is calculated based on the value of the product upon its entrance in China, including as such the costs of transportation. This means that the retail price of the imported products and commodities is higher than the retail price of the national products. Exporting countries find it as such more challenging to compete within the Chinese market

In terms of non-tariff barriers, these have theoretically been eliminated with the country's accession to the World Trade Organization; as such, at least in theory, the imported and exported agricultural products are subjected to the same sanitary and phytosanitary standards; the application of these standards is however more drastic for imported products and more permissive for exported goods

There are no subsidies to exports as they have been eliminated once the quality of WTO member was achieved; in the international market, this means that the Chinese products are only able to compete due to their qualities, not based on prices of unfriendly competition, subsidized by the Chinese government. Otherwise put, international players enjoy strengthened levels of competitive power relative to Chinese manufactured products

Juts like the import quotas, quotas on exported products and commodities continue to exist; the mechanism of establishing these quotas is not transparent (United States Department of Agriculture).

All in all, despite the major improvements of the past two decades, the trade policies in terms of agricultural products and commodities remains focused on protection of the national sector, with a clear intent on reducing imports and increasing exports. Another characteristic of the Chinese international trade policies is that they are continually developed to respond to the emergent challenges in the micro and macroenvironment. Additionally, whenever the Chinese government feels that the interests of the people are above the stipulations of the international trade organizations to which is has become a member, they will choose to disobey the norms and implement protectionist policies. A 2007 report by Albert Keidel, Robert Cassidy, Roger Ferguson and Jessica Tuchman Matthews found that "China has broken the promises it made in its WTO accession agreement, by failing to properly report subsidies, undervaluing its currency, and violating intellectual property rights."

The most recent example in terms of China's breaking of WTO regulations is given by the eastern Asian country's response to the highly debated swine flu. Despite the assurances of WTO, the WHO (World Health Organization), FAO (the Food and Agriculture Organization of the United Nations) and the OIE (the World Organization for Animal Health) and their appeal toward sustained trade operations with live pigs and pork products, the eastern Asian state imposed import restrictions to the exporters in the regions confirmed to have registered cases of swine influenza. The ban on pork products imports severely impacted California, a primary supplier of pork and live pigs to China; the companies in the region lost both financial resources, as well as had their reputation damaged by the Chinese refusal to accept the American pork. Additionally, California is a major port that gathers products and shipments from various regions, to then be shifted off to China. Due to the cases of swine flu in California, the Chinese government issues policies that do not allow the import of any products that have come into contact with California (Workman, 2009). This means that the cargo must be transported to other regions, further increasing operational costs and reducing the efficiency of American organizations exporting to China.

Another characteristic of the international trade policies implemented by the Chinese government refers to the means in which the decisions are made. The western investors point out to a highly centralized system, but argue that the openness to liberalized trade is only possible through the process of decentralization. Otherwise put, they desire that the government allows its regional office to make the decisions that directly affect their region (Goodman and Segal, 1994). The measure is yet to be implemented as the process of development and implementation of international trade policies is highly complex, ensures governmental power and must be completed with focus on the country's overall interests, as well as the stipulations in the WTO agreements.