China Trade Policy and Reciprocity

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This one might surprise you. I’m a free trade guy and almost never come down on the side of anything that will result in trade barriers or restrictions. On the other hand, though, I’ve always been a big supporter of WTO member states using all available legal tools at their disposal to resolve disputes with other nations.

A new policy announced by the EU falls somewhere in between, but I like it. Here are the basics:

The European Union will block access for Chinese companies bidding for publicly funded contracts unless businesses from Europe get the same access in China, under new proposals tabled in Brussels as David Cameron held trade talks in Beijing.

[ . . . ]

Karel de Gucht, the European trade commissioner, proposed “a tool whereby we can impose reciprocity” to ensure that China did not discriminate against foreign businesses while awarding government funded contracts.

“Imagine a Chinese company that participates in a bid, and on the other hand the same sector, or sub-sector, of public procurement is not open in China, then we could make an intervention,” he said.

Keep in mind that government procurement is a special beast and that basic WTO rules do not apply. There is a separate agreement out there on government procurement, but not all WTO members are signatories. So we’re not talking about some sort of blatant violation of international trade law here — I’d be against that, of course.

So what’s to like about this policy? Well, the principle of reciprocity is something Beijing understands very well and practices on a regular basis. Coincidentally, I mentioned this in class today. The topic was M&A, and we were discussing some of the outward deals that had been killed (e.g. CNOOC/UNOCAL, Huawei/3Com (or Sprint), etc.).1 I mentioned that a lot of foreign investors, or potential foreign investors, had been worried at the time these deals were scuttled overseas that the approval authorities over here would reciprocate and make things difficult for inward M&A.

Never really happened, but it is definitely the case that Beijing is big on reciprocity, so formulating a policy based on that principle isn’t such a bad idea. Moreover, there is something inherently “fair” about treating others the same way they’ve treated you. Very Golden Rule-ish.

The big question of course is whether the EU can actually put together a policy like this which is narrow enough. Can they actually draft something that targets areas that in China are clearly closed to EU firms, or will the policy be an excuse for protectionism, using broad language?

I’m all in favor of this in theory. We’ll have to wait and see what this looks like on paper.

  1. None of my students had heard of the UNOCAL deal of course. Most of them were teenagers at the time. Yikes! []

One response on “China Trade Policy and Reciprocity

  1. Sam

    Not sure how many Chinese companies got profitable foreign government contracts in the first place. If they do get involved, I think most of these companies are only the sub-sub-contractors doing the dirty work on the cheap, which they’ll do anyway with or without the EU ban.