Double Handshake

Earlier this month, much was made of US president Barack Obama’s decision to impose a 35% tariff on tires imported from China. In retaliation, Beijing threatened to stop buying US-made chicken, causing the typical hyperbolic media to declare the start of a Sino-US “trade war.”

Of course, nothing of the sort has happened, and almost certainly won’t given the two countries’ mutual economic dependence. However, the unresolved question remains of how much (if any) countries should level the playing field when confronted with surging Chinese imports that undercut local producers. And it is not only a question the US must deal with. In countries like Brazil, Argentina and Mexico, low-cost Chinese imports across a range of goods remain a cause of trade tension.

At least one commentator, Latin Business Chronicle columnist Victor Mroczka, is calling for Latin American countries to consider following president Obama’s footsteps and impose their own “China safeguards,” when needed.

Mroczka, an international trade lawyer, argues that the imposition of what he calls “safeguard tariffs” against China are more effective in that they can be implemented much faster than WTO trade dispute rulings, which usually take years to be resolved (For the record, Latin American countries have initiated over 200 WTO investigations against China since 2001). By contrast, Obama’s tire tariff will take effect tomorrow, September 26, only five months after the initial petition was filed.

Second, he points out that as part of China’s 2001 WTO accession agreement, the country agreed to be subject to transitional, product-specific safeguard mechanisms, when facts warranted them, until 2013. When are these safeguards allowed to be imposed? “Where products of Chinese origin are being imported [into a WTO member country] in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers,” according to the WTO. In other words, imposing product-specific tariffs on China, until 2013, is perfectly legal within the terms of the country’s WTO accession agreement.

Finally, Mroczka argues that if one Latin American country imposes a safeguard tariff against China, it may have a knock-on effect for other Latin economies. As an example, he supposes Brazil impose a safeguard tariff against Chinese refrigerator imports:

If China’s low-price exports to Brazil increased 20 percent from 2006 to 2008 and the Brazilian refrigerator industry was losing market share and sales to China, and as a result began to reduce its workforce, the evidence would be pretty strong to initiate a safeguard action.

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After the imposition of the safeguard tariff by Brazil, let’s assume that Mexico saw an increase of refrigerator imports from China (even a small increase) and feared that large volumes of refrigerators that were originally destined for Brazil would now be coming to Mexico and threatening its refrigerator industry as well. Reacting to this threat, Mexico could bypass the safeguard investigation process and request immediate consultations with China. If, after 60 days, the consultations fail to obtain assurances from China that an increase in refrigerator imports is not coming, Mexico could then impose tariffs or a quota. The same process could be followed by Chile, Peru, Panama, whoever.

To me, the legality of all this seems convincing enough. My question is not “Is this this something Latin American economies can do?” but rather, “Is this something Latin American countries really want to do?” To wit, the answer largely depends on where you come down on free trade and your stake in the countries involved. One man’s “safeguard” is another man’s “protectionism.”

But in the case of Latin America, it’s important to bear in mind that the region has far less leverage when “poking the dragon” as does the US. The region is dependent on China as one of its largest buyers of natural resources, its economies essentially propped up by China through the global crisis. For, say, Brazil to slap a tariff on Chinese-made refrigerators, it must make sure it doesn’t have serious repercussions for the backbone of its trade relationship with China: soy beans and oil. Ditto, Peru and Chile with copper.

Similarly, even though China “invests” in the US in its holding of US$ trillions in T-bonds, I’d argue that Latin American economies are far more palpably influenced by China’s foreign investment decisions than the US. China Development Bank – a government-owned entity – is responsible for US$ billions in loans to Latin American projects this year. In the global downturn, you can’t get that kind of financing anywhere else.

Moreover, as Latin American companies are still struggling to get their footing in the Chinese market, a retaliatory tariff against them is the last thing they need. China’s love of American chicken feet may save the US in their trade bout, but no one in China will likely notice if bottles of Chilean Malbec disappear from the shelves of Beijing because a 40% tariff makes them prohibitively expensive to import.

Well, since DH cannot be anymore “harmonized” in China than it already is, I thought I’d offer a quick update on the “Amazon’s Tiananmen,” a label that’s been used to describe the violent clashes between indigenous Indians and Peruvian police in June over land use in Peru’s Amazon jungle. The tensions bubbled over three months ago, as Peru’s government continued opening up more areas of the country for oil and mineral exploration without consulting the local inhabitants. All in all, around thirty police officers and protesters were killed and more than 200 were injured.

When I first wrote about the clashes in the days that followed, I questioned the “Tiananmen” comparison. Aside from the timing (happening in early June, around the time of the 20-year anniversary of the China protests) and easily simplified narrative (oppressive government cracking down on its own people), I didn’t find a lot of similarity between the two protests.

One thing that I did get wrong in that earlier post, however, was the amount of media coverage Peru’s protesters got. I had rashly predicted that the incident would not capture international attention like China’s protesters got twenty years previously. Yet, in the weeks that followed Peru’s clashes, the incident made front-page headlines worldwide. Some of these news sources jumped on the “Amazon’s Tiananmen” label, while most did not.

Regardless, mounting international pressure and Lima’s backtracking culminated in the apology and resignation of the country’s prime minister Yedude Simon and congress’s repealing some of the laws granting wanton commercial development in tribal areas. This is not to say that all foreign development has stopped in the area, but I submit that the protests did have a major impact in Lima, something I would not have predicted had you asked me in June.

So, what then of the “Tiananmen” label? Survivor International, a British NGO, whose director Stephen Corry coined the term as far as I can tell, is still using it. Last week, Survivor published another indictment of Peru’s government in the 100 days that followed the “Amazon’s Tiananmen” and called for an independent investigation of what happened really happened in June.

But while China’s Tiananmen legacy inside the country is hushed at best and forgotten at worst, it seems to me that the Peru’s “Tiananmen” stands to be held up by indiginous groups as a major (if bloodied) victory, given Lima’s repentance over the incident. Would anyone in participating in the 1989 demonstrations claim the same?

First off, apologies for the major drop-off in posting on DH lately, things should pick up again in the fall when I’m more settled in my new home in Beijing. Nevertheless…

Latin America and Africa are often lumped together when talking about China’s interest in them – namely, as two gigantic sources for natural resources. While many of the billion-dollar trade and investment deals have been made in oil and mineral resources to keep the furnaces back in China blazing, agricultural resources are also included. China has had a national policy for 95% food self-sufficiency in place for some time, but with 22% of the world’s population (eating increasingly more and more) and only 7% of the world’s arable land, China is looking abroad as it stares down some frightening food-supply pressures.

Unlike the last wave of Chinese agriculture investment abroad (in the 1990s, largely to Southeast Asia), Chinese companies are now flocking to southern Africa to buy up and develop fertile African farmland to grow food for export. By 2007, China had 63 agricultural investment projects in southern Africa, and last year, Beijing promised US$800 million to modernize Mozambique’s agricultural sector. Loro Horta wrote a good overview of the situation for the Jamestown Foundation earlier this year.

But what about Latin America? With some of the world’s richest agricultural regions in the Argentine Pampas, is China buying up farmland there as well? Apparently not.

Reuters published an interesting article last month about China’s noticeable non-interest in buying up Latin American farmland in the same way it has in Africa.

Land prices and mature farming markets in Brazil and Argentina, the engines of Latin America’s commercial farming, make investments in big production projects less of a bargain for China.

“China’s ideas about farm prices are very different from the reality in Argentina’s Pampas. They think they can buy good farmland for $1,000 per hectare.” said Ernesto Fernandez Taboada, executive director of the Argentine Chamber of Commerce for Southeast Asia.

The best Pampas land costs up to 10 times that much.

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“They wanted to enter but couldn’t after they realized what kind of investment it would take to have their own local infrastructure and logistics to control production,” said Carlo Lovatelli, president of Brazil’s grain crushing association Abiove.

The complexity of local farm markets makes it difficult to guarantee that the products of Chinese investments in food here would make it efficiently to China’s ports.

“Today China is offering financing and access to cheap labor, neither of which Brazil especially needs,” said emerging market analysts Trusted Sources in a report.

Local growers are closely integrated with trading companies, which provide credit and inputs like seeds, agrochemicals and fuel. Producers, already carrying heavy debt loads, have little need for additional financing. They also have ample directed government credit.

In Africa, Chinese financing goes a lot farther. The Asian nation also has been allowed to deploy one of its competitive advantages in Africa – low-paid Chinese workers. Entrenched Latin American labor interests would not permit that.

Instead, China has bought Latin American agricultural products (especially Brazilian soybeans) directly. This is possible because soybeans are a major exception of the 95% food self-sufficiency policy described above. According to Reuters’ article, China buys 65% of the world’s seaborne soybean trade, making it the country’s number one import from Brazil.

So, while China may not be buying up Latin American agricultural land directly, Latin American is and will continue to play a major role in what ends up on Chinese dinner tables. Should China’s food self-sufficiency policy start causing hunger pangs (as it may already be doing) – and Beijing open up the country to more agricultural imports – look to the sprawling estancias of Brazil and Argentina to play a major role in becoming China’s “new rice bowl.”

For fans of contemporary art in Beijing, there are still 10 days left to catch the inaugural 798 Beijing Biennale 2009 happening at the city’s 798 Art District. Within the factory-turned-art-exhibition compound, there are 12 venues showing Biennale work from contemporary artists, Chinese and foreign.

I was especially drawn to 798’s Linda Gallery to check out one of China’s first all-Latin American art showings. The exhibition, “Turn on, Tune in, Drop out” features 25 Latin American artists from eight countries in a wide range of mediums. Curators Nicolás and Katiushka Arze, from Chile, have a good what-it-all-means blurb in the gallery’s information guide:

“The curatorial project for the Latin American part of the biennial does
not delineate a specific art movement or dialogue within art generations. It explores the risk of literally inventing Latin American art in China. This is only possible in a country like this, so unrelated and so far from Latin American art. We are not concerned with surveying the direction of contemporary Latin American art, but instead seek to produce cultural exchange and enrichment between artists whose backgrounds might clash…”

Entering the gallery, you’re faced with a set of five vibrant abstract
color compositions. Something feels familiar about these colors…and then you realize what you’re looking at: folded national flags. Ana Roldan’s (Mexico) “Colombia, Chile, Uruguay, Mexico and Brazil” is a nice introductory piece, acquainting visitors with the Latin American theme without telling them outright.

Not many of the works deal with “China” overtly. My favorite piece in the collection were graphite floor rubbings of “Private Property” signs from various locales around New York City. About her work “Property Lines,” artist Francisa Benitez (Chile) told Diariocrítico de México, “I am very happy to show in China how, in the US, private property is sacred, with signs that are sometimes very small…” What I enjoyed was studying the seemingly endless typefaces and styles, and imagining the past areas they belonged to.

A stronger sense of “China” comes from Nicolas Grum’s (Chile) use of a
common fuel source throughout the country: coal briquettes. Grum arranged 500 of them to spell out the words “Giants do not exist” in the middle of the gallery floor. I can’t be sure what kind of giants Grum had in mind, but from a giant’s perspective on the second floor looking down, the people looked smaller than much of the art.

The 2009 Beijing Biennale runs through September 12.