Collapse of Doha affects opportunity to reduce inflation in China
July 29th, 2008 by Adam
The collapse of the Doha round of WTO talks is a real shame. Traditionally the talks were seen as a north v south issue. The North (or West or Rich or Developed World) wanted greater access to the South (or East or Poor or Developing World) to sell more services in particular. The South wanted more access to sell agricultural crops to the North. China has been mentioned, critically, in reports of the collapse. This is unusual, normally it was the US, Europe or Japan being criticised.
There were plenty of issues to be worked out, and no-one expected them to be worked-out, but at least the lines were clear, and well drawn. However as inflation has soared, globally, affecting everyone, there seemed a new benefit could arise from solving some of these trade dipsutes. Simply put, more trade = more efficient distribution of resources, and thus better pricing and better allocation of resources. This might affect some products and some countries differently but overall, it would help with the global inflation problems.
China, India and a few other developing countries have now realised they do not want free trade in agricultural crops, because some of their farmers will lose out to other countries’ farmers: each country wanted to protect some of its farmers from imports from other developing countries. This is a real shame. In the end (in addition to the north v south disagreements) there were major arguments between developing countries. Each was being selfish to protect one group or another and thus, overall, the whole agreement stood even less chance.
It also shows that countries like China can be very two-faced (hey, which countries are not two-faced?) and can play different sides at different games. What is clear is that the World is not a Rich v Poor world, or a West v South or a Developed v Developing etc. It is more complex with different regions, countries, provinces etc all having different products that they want to trade, and others they want to protect. What is the solution? Answers to the WTO please, as they don’t know! In the meantime the World will have to rely on other solutions to the inflation crisis (in no particular order): tackling corruption, tackling water shortages, tackling natural disasters, tackling global energy shortages, tackling over consumption, tackling environmental degradation and the list goes on.
The good news? With so many problems, there are plenty of places to start trying to tackle them, and plenty of scope for solutions. Try to detect the sarcasm, because the hope of solving these problems is much lower than that of the trade problems, where at least there was a co-ordinating body, a process and some ability to implement the solutions (even if no-one could agree the solution). Trade was (and is) one of those ‘unleasing’ opportunities: just let business get on with making money, and they will very quickly take advantage of the opportunities, hopefully solving some of the poverty related issues at the same time (which we generally know business is good at doing). For most of the other problems, agreeing the solution will be the easy step, implementing will be even harder!
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March 23rd, 2008 at 5:19 am
There are some interesting comments on China’s competitiveness in an article by Booz Allen Hamilton, including the following:
March 23rd, 2008 at 7:29 am
Adam,
great piece.
when I read this article to begin with, all I could think of was the fact that if buyers in Spain, Italy, and Germany would just make some trips to China and buy from factories that properly dispose of the material, the market would force those who don’t to change.
But, maybe I am just being naive
R
March 23rd, 2008 at 7:17 pm
Rich
Porter has spoken about so-called ‘Corporate Social Integration’ related to the coming together of the different sectors so it is hard to differentiate as the roles seem similar (though he has not look at the different ownership or accountability elements of the sectors -which is interesting in itself).
It is strange that Business is acting like government in enforcing these kinds of regulations, especially when it increases the prices business pays (in the traditional supply chain stuff in guangdong, though, yes it is possible to argue that capacity building for those suppliers is providing many quality/relationship/efficiency etc benefits for the buyers too).
I do wonder how far the role of business should go in this…
Adam
March 23rd, 2008 at 7:19 pm
Also interesting is Accountability’s work on responsible competitiveness; of which a ‘national’ report for China is due out soon (the current report is Global).
March 23rd, 2008 at 7:32 pm
Adam,
One of the classes I took while at Thunderbird spent a significant amount of time exploring the fact that government power was being diminished by corporate interests going global, and in my mind corporations own their supply chain in china just like they do in Finland. If they make the choice to by PV panels in Xi’an, they are responsible for the waste of the facility.
R
March 23rd, 2008 at 8:09 pm
Rich
…but is it a corporation’s responsibility to be enforcing the environmental or social or economic law in china?
evidently is has become their responsibility in some sectors, due to various pressures (media, NGO, government etc), and i wonder how many other sectors will start playing this role and how far this role will go. This is interesting especially as, typically, business is supposed to be pulling back from ‘running schools’ or ‘being government’ in developing countries as this was seen as something that (i.e. in Africa) was a) not a business’s job/competence and b) weakened the government in those countries.
Thus, an interesting question, why has, in China, where the government COULD, if it really wanted to, enforce the law, has the government preferred businesses to enforce laws (although this might be changing as the government finally toughens up its enforcement)?
I can think of a couple of major reasons such as the government not wanting to enforce those laws; the government preferring businesses to bear the costs of enforcing those laws; the government believing that business can enforce those laws better than the government.
What do you think?
Adam
March 25th, 2008 at 4:02 am
An interesting discussion, to be sure.
AccountAbility’s work on Responsible Competitiveness is being well received by government officials and Chinese businesses who realize that long-term competitiveness is about creating value.
AccountAbility’s Chinese version of the 2007 State of Responsible Competitiveness will be launched at the Ministry of Commerce WTO Tribune’s Golden Bee International CSR Forum in Beijing on April 25th with new essays from AccountAbility and Chinese authors, including high-level support in a preface.
I cannot positively answer as to why some officials would prefer to frame adherence to environmental and labor laws in CSR terms, but doing so does level the playing field and raise “Brand China.” It makes sense in the long term as well, especially as companies go beyond compliance to leadership of social and environmental issues, like those in the Global Leadership Network.
Government-coordinated projects around Responsible Competitiveness are emerging:
Witness the Pudong economic committee’s spearheading of a district responsible competitiveness program started in the summer of 2007. It brings together media, government leading offices, and principles to award and reward companies that make environmental protection and social issues part of their long-term competitiveness and development strategies.
Note the tightening of standards from Zhejiang and other eastern areas and the interest of these governments in exploring regional responsible competitiveness, especially in how to get SMEs involved and raise their responsible competitiveness.
Chinese economic policy makers have a pickle. They realize that raising environmental and social standards too high too quickly can constrain competitiveness in the short term. On the flip side, they know that failure to compel companies to adhere reduces competitiveness in the long term through environmental damage and poor social conditions, and ultimately reduced GDP growth.
CSR as incentive and risk mitigation for leading international and Chinese brands means companies can exceed the level of the law on their own terms as they know best. That’s the carrot. The stick is knowing that stated government intention to punish those who do not meet basic requirements. Moving a factory to a less developed region to evade regulation may be a short term fix, but hopefully the media will tail those companies.
Media is being given more room to hold corporations accountable, but time will tell before we know to what level journalists will perform this function.
One key to responsible competitiveness is for companies to commit to universal international standards like the Forest Stewardship Council, the Electronic Industry Code of Conduct, supply chain standards, the Carbon Principle, and UNGC principles. In CSR reporting, companies seek assurance from the AA1000 assurance standard or the GRI. Getting buy-in from Chinese companies is a long-term process, but one which is gaining more support from Chinese managers, as evidenced by results of the annual survey conducted by Fortune China and AccountAbility and published as the cover story in the March issue of Fortune China and available (soon) in English at http://www.accountability21.net. These standards allow for automatic branding for exporters and universal recognition of company commitments from the government and the media. In this way, assurance and accountability can be improved as well, because companies have made public declarations. Commitments to voluntary standards is also a way of leveling the playing field internationally. If companies commit, why move to areas with less developed legal environments and lower standards?
As financial institutions, civil society, governments, and competitors pay more attention to these standards, we can expect them to be an ever more integral part of sustainable development, international governance, and long-term competitiveness.
Joshua Wickerham,
Coordinator, Chinese Affairs, AccountAbility
March 25th, 2008 at 4:23 am
Adam,
In response to your question.. yes and no.
Firms have a responsibility to uphold a measure of responsibility no matter where they are, and in the case of Nike who said that the recent Labor LAw doesn’t fully meet ILO standards… that means in my view that they are using ILO as the default.
Companies, no matter where they are have choices. There is the choice to take advantage of areas where standards/ enforcement are not as strict, and there is the choice to uphold a higher level and work with local officials and associations to help bring the level up.
At some point, as we are seeig in China, those who chose the former, the regualtions will eventually catch up and they will have to reinvest to bring themselves over the bar anyway.
Look at Wuxi. Officials have had to close fsome 600 facilities that were dumping into Wuxi water sources. What if wuxi officials had enforced the regulations ahead of time though, and those 600 were forced to invest ahead of time? (1) the disaster caused could have been averted (2) 1+ billion USD in savings could have been saved (3) jobs losses from the closes could have been saved - jobs possibly could have been added …
As to your assertion that the government could just flip a switch and enforce the rules on the books, that is not really feasible. Take the Shanxi brick kiln scandal… sure, they were able to send the 45,000 inspectors in and role some heads.. but what was going on behind the scenes? those 45,000 inspectors came from somewhere!
In the end, responsibilities lie at every level, and a mature system would provide the conduits necessary to ensure the feedback loop is closed.
right now, we are in a fragmented environment, and as such.. I would say it is more important that ever for foreign manufacturers, importers, and brands to pay attention to their supply chain and do what they can. Because if they don’t, and it something happens, they will become the poster child for all that is wrong in China.
R
March 31st, 2008 at 11:36 am
Here in Washington, DC, all three presidentail candidates are supporting counter measures to global warming. The Democratic nominee will also modify what is meant by “free trade.” Once a US program is enacted, it won’t be too long before an import tax may be placed on goods with respect to their “excess” carbon pollution content. So the Chinese can either 1) pay the tax and get no benefit or 2) save the tax and use it to clean up their environment.
Overall, I agree China poliocymakers are moving in a good direction. I am an advisor to China Environment Fund where we think about longer term value creation. Also, my firm in Beijing, Syntao, is getting more requests for help with sustainabilty reporting by large Chinese comopanies — a very encouraging trend.
September 15th, 2008 at 8:36 am
Once things start going right, you could be asked to bring some proof.