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And China came A-COURTING

IAN ALLEN/STAFF PHOTOGRAPHER - Exhibits at the China-Caribbean Economic Forum and Trade Fair at the National Arena recently.

THE CHINESE arrived in Jamaica amidst much fanfare. They came because they are resolute in maintaining their quest for long-term strategic and sustainable development goals. These include: sustainable economic growth, institutional and human capacity building, to dominate world trade in goods, to be the additional member to the Group of Seven (G-7) and to be among the elite executive directors with special voting powers, on the board of the International Monetary Fund (IMF). However, there are pre-conditions to the attainment of these goals, and one such goal is its impact on the world economy. The mechanisms to these pre-conditions include strategic positioning or free access to free trade areas without violating trade rules.

The Chinese are a trustworthy and tough negotiating nation, and they will keep their word. The robustness of the Chinese economy is a manifestation of mutual trust and respect shared among the international community coexisting with a disciplined and smart Chinese society.

The Chinese kept their word that "under the terms of Joint Declaration Agreement signed by Margaret Thatcher and Deng Xiaping in 1984, Hong Kong's economic system will remain in place for another 50 years." (The Gleaner, June 30, 1997). Hong Kong was returned from British rule to mainland China on July 1, 1997. Instead of imposing its socialist policies on Hong Kong, the Chinese adapted Hong Kong's capitalist system and their way of life and used it as a catalyst for transformation. Previously, China skilfully crafted a gateway through Hong Kong to the international community for trade in goods and services. It was not difficult therefore, for contemporary China to understand that "in order for capacity building to serve as a catalyst and social protection regimes it needs the support of comparative historical experience as points of reference for lesson drawing." (Edwin Jones 1997 working paper). Undoubtedly, China's successful transformation from idealism to realism

may be as a result of the lessons drawn from the Hong Kong experience.

AN ECONOMIC POWERHOUSE

On Wednesday February 3, 2005, a high powered Chinese delegation began a three-day visit to Jamaica. The Chinese delegation included: Mr. Zeng Qinghong, vice-president of China, Madame Ma Xiuhong, Chinese vice-minister for Commerce, and An Min, Chinese vice-president for commerce (The Gleaner, February 3, 2005). Proponents have expressed the view that this visit is an indication that China wants stronger ties with Jamaica while others have stated that this will boost our tourist arrival. These simplistic views are inconsistent with China's long-term strategic and sustainable goals; therefore we need to make a critical assessment of the reasons the Chinese came to Jamaica.

China is indeed a global economic powerhouse and it is their policy to further extend their economic dominance. As at October 2004, the US trade deficit with China stood at US$16.8-billion. China accounts for 10 per cent of total US trade. China is the European Union's (EU) biggest customer. The EU has a trade deficit of more than41-billion (US$53-billion) for the first ten months of 2004. In Jamaica, we have seen evidence of the Chinese dominance in our markets. With surging exports China is currently experiencing a six-year high trade surplus of US$31.98-billion.

Critics have argued that China's strategy to peg the yuan at 8.28 to the U.S. dollar for more than a decade has artificially placed many economies, including the US and the EU at a comparative disadvantage; also, the peg is offering foreign investors exchange-rate stability when investing in China. Critics further argue that the yuan is undervalued by approximately 40 per cent and this makes China's exports artificially cheap. Additionally, China's massive subsidies are boosting its comparative advantage.

CUNNING PARTNER

There should be no doubt that the reasons given for China's visit to Jamaica are either superficial or deceptively pragmatic. It is well established that China is strategically establishing a commercial presence, not just in countries, per se, but in free trade areas ultimately. There are two obvious reasons for this move: firstly, to avoid the 'Common External Tariff' (CET) and secondly, to be consistent with the 'Rules of Origin Agreement' under the World Trade Organisation (WTO). The CET is a common tariff against non-members within a free trade area, while members enjoy free trade. The Rules of Origin Agreement are the criteria used to define where a product was made. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duties, and more. As long as China establishes a commercial presence in Jamaica before the establishment of the CARICOM Single Market and Economy (CSME), China's goods will be automatically exempt from the CET. We should note, however, that this commercial presence cannot be a distribution centre, instead, a manufacturing plant is preferred in order to fulfil the criteria for the Rules of Origin Agreement.

Interestingly, a commercial presence in Jamaica or Haiti would not only allow China tariff free access to a regional market size of 14.5-million, but to a larger market, that is the Free Trade Area of the Americas (FTAA), which is approximately 750-million. This is China's long-term strategic goal which they are hoping will be facilitated though remaining unnoticed by the Jamaican trade negotiators. It must be noted also, that China is currently negotiating with the Association of South East Asian Nations (ASEAN), a free trade area, for membership. If China is successful, the outcome will be a potential market size of 2.1-billion, which would be the largest free trade area in the world.

THE COST OF LIBERALISATION

Jamaica has entered a new phase of liberalisation, and with liberalisation there are costs and benefits. The extent to which an economy benefits from liberalisation is largely dependent on its institutions and systems, productive capacity, environmental scanning techniques and the core values of its politicians and trade negotiators. China's commercial presence in Jamaica will impose costs and benefits to the region. Some domestic production and jobs will be replaced; however, consumers are likely to benefit from lower prices in the long-run. It is highly likely that there will be significant loss to Trinidad and Tobago's manufacturing sector, but T&T can be compensated from an oil deal with China. We should note that China will not only compete in our markets, they will complement our markets by adding new products and this will lead to a wider variety of choices for our consumers.

Depending on the phase of the negotiations thus far, Jamaica should emphasise at all times, joint ownership with the Chinese. The Chinese should not be allowed more than 49 per cent ownership of any project in Jamaica. The Chinese believe more than anyone else in joint ownership and they have made it absolutely clear in their Schedule of Commitments to the General Agreement on Trade in Services (GATS). The Jamaican negotiators must also strongly emphasise a time table for 'value added', that is, the transfer of skills and techniques from the Chinese to our Jamaican workers. This methodology is not new as it was featured strongly in Sir. W. Arthur Lewis' model on the Industrialisation of the British West Indies, which was recommended to Jamaica 50 years ago.

ECONOMIC COLD WAR?

China's high level visit to Jamaica prompted certain sensitivities and we respond to them. With the US being the most powerful economy in the world, and Brazil as the third largest economy in the world, both at loggerheads over the establishment of the FTAA, on the one hand, and the emergence of China in the region, on the other hand, all three nations are supercharged for an economic cold war. China's timely visit to Jamaica is not coincidental, but it has certainly fuelled a potential economic cold war. However, with the strength of the WTO, a compromise is in the making and Jamaica is at the epicentre of this compromise. Jamaica is geographically placed within close proximity to the U.S., and as such, China will do anything to establish a facility in Jamaica for two reasons: firstly, to maximise its comparative advantage in the western hemisphere, and secondly, to become a member by default of the CSME and the FTAA.

Brazil on one hand would welcome China's presence in Jamaica, because they are at variance with the US over some political and economic issues. Brazil is also expressing distrust with the potential dominance of the US in the FTAA and certain bilateral trade agreements in Latin and South America. The U.S. on the other hand, is neither happy with Brazil's nonchalant attitude towards the FTAA nor China's physical presence in Jamaica. Unfortunately, the US cannot pressure China too much as they are aware of China's influence on the world economy, hence, any unnecessary disruption in the Chinese growth momentum, bearing in mind that the yuan is pegged to the US dollar, the consequences will have serious contagion effect on the world economy. We are all aware of the Asian financial crisis and its impact on the world economy. It is therefore likely that the U.S. will want to target the weakest link and that might be to pressure Jamaica to keep China out of the region. In this case, pressure may be a special consideration.

This is an interesting phase in Jamaica's development within the context of liberalisation, and our negotiators should be firm, knowledgeable and professional in their approach. The high level Chinese delegation that came to Jamaica must not be taken lightly. Indeed, China is not here to host a simple China/CARICOM trade show. They are going through necessary adjustments in their economy. They are under pressure by the finance ministers of the G-7 to remove the peg from the yuan to the US dollar and operate a flexible exchange rate regime. They are also being pressured to revalue the yuan by as much as 40 per cent. If this happens it will affect their long-term growth momentum.

China's move to Jamaica is highly calculated and strategic. China is relatively weak in trade in services and financial markets; indeed, they are currently experiencing a trade deficit in services. Any disruption in trade in goods will burst the Chinese bubbles. They have promised the G-7 another 10 years before they revisit the peg, they have kept their word in the past and so no one doubts their sincerity.

Now we do understand the complexities surrounding the high level delegation of the Chinese visit. In the midst of these three economic and political powers, Jamaica should use its leverage. We must remember that we need to increase production and productivity, in order to make jobs available for even those who have been deported and also to compensate for reduced revenues from our banana exports. It is to this end that the Jamaican negotiators should strengthen the coalition and negotiate in the interest of our Human Development.