China’s rise as an economic powerhouse is often attributed to the comparative advantages it has in terms of cheap labor and manufacturing. However, less recognized are the trade barriers that have been utilized by China for its rise. While tariff barriers have now become an issue of an impending trade war between China and the U.S. and are more visible, Chinese restrictions on imports from other countries by stealth through the application of non tariff barriers often remains invisible. While China openly advocates globalization and the free flow of trade, a closer look at the patterns of trade it has with its top trading partners reveals the tools used by China to ensure that the balance tilts in its favor.
In 2017, China’s top trading partners in terms of export sales were the U.S., Hong Kong, Japan, South Korea, Vietnam, Germany, India, the Netherlands, the U.K. and Singapore. China incurred the highest trade surpluses with the U.S., amounting to US$ 276.8 billion; Hong Kong, amounting to US$273.6 billion; the Netherlands, amounting to US$56.1 billion; India, amounting to US$51.6 billion and the U.K., amounting to US$34.7 billion. Among the countries that generate the greatest positive balances of trade for China, surpluses with India, the U.S. and Mexico grew at the fastest pace from 2016 to 2017. For all the mentioned countries, there exist tariff as well as non tariff barriers in China, limiting imports from these countries, while Chinese exports to these countries grow continuously.
Tariff and non tariff barriers to trade are the most common measures implemented by countries to manage their exports and imports. For China, tariff barriers include raising taxes, while non tariff barriers are about increasing limits to the volume of goods traded. An example of a trade barrier China frequently uses is that of its low exchange rate, which encourages exports but restricts imports. As far as the less visible non tariff barriers are concerned, different measures are used for different countries trading with China.
In the case of American goods, the Chinese government attempts to manage the export of many primary, intermediate and downstream products by raising or lowering the value added tax (VAT) rebate available upon export. China sometimes reinforces its objectives by imposing or retracting export duties. In 2014, China agreed to improve its VAT rebate system, including by actively studying international best practices, and to deepen communication with the United States on this matter, including regarding its impact on trade. To date, however, China has not made any movement toward the adoption of international best practices. Additionally, the Chinese government uses Quarantine Inspection Permits (QIPs) to keep out American agricultural products, causing costly delays while they sit on the docks. Over and above these, China keeps out genuine exported commodities, while they are pirated in China. This is because of China’s maintenance of restrictions on the right to import and distribute legitimate copyright intensive products, such as music CDs, or movie DVDs for example. This is a painful exacerbation of China’s poor record of IPR protection. These restrictions delay the introduction of the products in to the marker, while creating time and space for infringing individuals and groups to ensure that infringement and patent violations continues to dominate the market in China. Also, as stated by a U.S. government report, Chinese government officials have pressured foreign companies to license their technologies or intellectual property on unfavorable terms! The U.S. attempts at getting China to address these issues have yielded negligent success.
In the case of Indian exports to China, certain oilseeds require as many as 11 certificates stating that they are pest free. Interestingly, 10 of the 11 pests are already present in China! Also, many if the Chinese standards such as the CCC require a certification by Chinese authorities before a product can be put on the Chinese market. The factory has to be inspected at the expense of the exporter, which is a lengthy, costly and cumbersome process, which at the end in most cases leads to no clear cut answer on the certification. This in itself discourages exporters. The sanitary and the phytosanitary certification requirements for items such as seeds, fruit, seafood, and vegetables exceed international standards, and to make matters worse, the international system of arbitration of disputes is not recognized in China. Additionally, difficult registration processes and frequent changes in rules relating to standards and frequent certification requirements hinder Indian exports in sectors such as pharmaceuticals.
The EU, which is also an important trading partner for China faces non tariff barriers. European exporters, similar to Indian exporters face an increasing number of unjustifiable non tariff barriers in the form of product certification, labeling standards, import approval requirements and customs clearance delays. In the telecoms and financial services sector, firms from the EU have been unable to expand significantly because of high capital requirements and extremely complex approval procedures. In the manufacturing sector, China continues to maintain restrictions on some key industries for Europe- such as automobiles, petrochemicals or steel. The delays in the CCC approvals from China also provide counterfeits with a wonderful opportunity to put the fakes of European products on the Chinese market, while the actual EU products continue waiting a CCC approval!
While China treats the EU as an important export market, and seeks to gain significantly from trade and investment; it also keeps its comparative advantages through making usage if various protective measures- be it tariff or non tariff. The usage of non tariff barriers is more appealing given the fact that they are more complex and more invisible in nature. The story is the same for all of China’s major trading partners. As compared to other countries, China is the most creative as well as active in the usage of non tariff barriers and this can be attributed to the fragile nature of its growth which has been modeled on exports; which the government desperately seeks to protect. The usage of non tariff barriers are signs of China’s self centered trade policies in juxtaposition to its official calls for globalization and free trade.