"China, EU Sign Broad Trade Pact"
Clay Chandler
Washington Post, May 20, 2000, page A1
"China and Europe Agree on Trade Group Entry"
Craig S. Smith
New York Times, May 20, 2000, page A4
"Chinese Calling U.S. Trade Bill Vital to Reform"
Elisabeth Rosenthal with Joseph Kahn
New York Times, May 21, 2000, Section 1 page 1
"Clinton Softens Push for China Trade Bill"
Charles Babington
Washington Post, May 21, 2000, page A6
These articles discuss issues related to permanent normal trade relations (PNTR) with China. The articles by Chandler and Smith report on a trade agreement reached between the European Union and China that will facilitate China's entry into the WTO. Both articles assert that this agreement would grant European firms an advantage over U.S. firms in dealing with China, if Congress does not grant China PNTR.
For example, the Post article asserts that the agreement was "seen in Washington as an additional push to the Clinton administration's efforts to persuade Congress to grant China permanent normal trading relations (PNTR)." It then quotes U.S. Trade Representative Charlene Barshefsky's statement that the United States will be at a major disadvantage in trade agreements with China if Congress does not approve PNTR.
This claim is disputed by Columbia University law professor, Mark Barenberg, who specializes in international economic law. Barenberg argues that as long as the United States is extending normal trading status to China (which is currently the case), then it is entitled to any trade or investment concessions that China grants to third nations. According to Barenberg's argument, if China joins the WTO, the United States would be able to benefit from any concessions that China granted the EU, whether or not Congress approved PNTR. (This argument can be found in Barenberg's memo, "The Debate on PNTR for China: A Response to Barshefsky and Jackson.") These articles should not have presented the Clinton administration's position without noting that it is questioned by legal scholars.
The article by Rosenthal and Kahn discusses the attitudes of people it labels as "reformers" in China. According to the article, virtually all of these people are hoping that the U.S. Congress approves PNTR. It is worth noting that leaders of other nations who were frequently referred to as "reformers" in these papers and by U.S. political leaders were subsequently shown to be enmeshed in corruption. This list includes Boris Yeltsin in Russia, who was granted immunity from prosecution by his successor; Carlos Salinas in Mexico, who is now living in exile in the United States; and Fernando Collor in Brazil, who resigned to avoid impeachment. This past history should lead readers to demand evidence that the people in China identified as "reformers" really fit this description.
The Babington article includes an assessment of the politics of the PNTR vote by Al From, the president of the Democratic Leadership Council. From is quoted, in the context of the PNTR vote, as saying that "the American people are not going to turn to a protectionist party." He then goes on to note that all the major contenders for Republican and Democratic party presidential nominations supported PNTR for China.
The article does not present any views countering From's. It is worth noting that most polls show PNTR to lack majority support. Therefore it is not obvious that a presidential candidate would lose popular support by opposing it. However, PNTR for China does enjoy overwhelming support from business-- hence it would be difficult for a candidate who opposed PNTR to raise the money needed to win a major party's presidential nomination.
"Rallying Round the China Bill, Hungrily"
Keith Bradsher
New York Times, May 21, 2000, Section 3 page 1
"Autos: Huge Investments, and Seeking More"
Keith Bradsher
New York Times, May 21, 2000, Section 3 page 2
"Textiles: Cheaper Clothing, But at What Price?"
Leslie Kaufman
New York Times, May 21, 2000, Section 3 page 2
"High Technology: Intellectual Property and Other Issues"
Sara Robinson and Seth Schiesel
New York Times, May 21, 2000, Section 3 page 3
"Agriculture: Poised to Become a Big Winner"
David Barboza
New York Times, May 21, 2000, Section 3 page 3
These short articles examine how several important industries will be affected by granting China PNTR status. In each case the articles either advance implausible claims in support of the agreement, or ignore important factors that may put PNTR in a more negative light.
For example, the Bradsher piece notes that PNTR will end China's requirement that 80 percent of the parts used to assembly cars in China be produced domestically, implying that this will lead to a surge in exports of car parts to China from the United States and elsewhere. However, the likelihood that there will be a significant flow of car parts from the United States to China is extremely small. As it notes in the opposite context (shipping Chinese-made parts to the U.S.) in its last sentence: "The logistics costs of moving parts around the world are expensive."
Similarly, the Kaufman piece includes a quote from a clothing manufacturer implying that there will be substantial sales of U.S.-made textiles in China. Given the advantage in labor costs enjoyed by manufacturers in China, or elsewhere in East Asia, it is almost inconceivable that there will ever be a significant flow of textile products from the United States to China.
The Robinson and Schiesel piece implies that this agreement will be a great boon for the development of China's high-tech sector because it will lead to increased enforcement of copyrights in China. According to the U.S. software trade association, 95 percent of the software used in China is currently unauthorized. This means that if China were forced to pay the copyright-protected price for all of its software, the cost of the software used by Chinese industry would increase by 2000 percent. It is questionable whether this would be beneficial for China's high-tech sector.
The Barboza article claims that PNTR will lead to more U.S. sales of agricultural products to China, which it describes as a win-win situation. China will win because its consumers will have access to lower-priced imported food. U.S. farmers will win because they will get higher prices for their products. The article fails to note that if U.S. farmers win because they get higher prices for their products, then U.S. consumers will lose to some extent, since they will be paying higher prices for food. The gains to farmers may exceed the losses to consumers, but a full accounting of the impact of the trade agreement should not ignore the prospective costs to consumers.
"In Chinese Wages, a U.S. Bump"
Clay Chandler and Frank Swoboda
Washington Post, May 23, 2000, page E1
This article discusses the compensation received by the Chinese employees of U.S. firms operating in China. It presents an extraordinarily one-sided account, relying almost exclusively on wage data provided by U.S. corporations. Only in the last paragraph does it mention some of the evidence of abusive conditions uncovered by human rights investigators in China.
The article presents several assertions about wage rates in China that are on their face implausible. For example, it reports that at a Delphi Packard joint venture that manufactures car parts in Shanghai, workers' make about $3,600 a year, counting benefits and bonuses. Assuming a 2,500 hour work year (probably a low estimate), this implies an hourly wage of $1.44. The article claims that General Motors pays workers at its car factory, also located in Shanghai, an average hourly wage of $3.70 an hour, in addition to benefits of 89 cents an hour, or "performance bonuses which can almost double take home pay."
This implies that the General Motors workers receive 226 percent more than the Delphi workers. This is an incredible pay differential for workers in the same industry in the same city. It would be comparable to some autoworkers receiving $18 an hour in one factory in New York City and $60 an hour for comparable work at another factory in New York City. Differences of even one-fifth this magnitude are rare.
The article then reports that a U.S. Chamber of Commerce survey of 48 U.S.-based firms operating in China found that the firms paid their workers an average of $5.25 an hour, not counting benefits. This implies that the average firm pays wages that are more than 40 percent higher than the wages in the G.M. factory and nearly four times as high as the wages at the Delphi factory. Since neither company is known to be especially bad employers (the opposite is true), the Chamber of Commerce's data is clearly wrong. Apparently the Chamber of Commerce has chosen to fabricate wage data in the hopes of influencing the Congressional vote on PNTR.
The article points out that U.S. labor unions would like China's trade status to be subject to annual review by Congress, and then adds, "It's fine with union leaders if that perpetuates the economic uncertainty that discourages many U.S. firms from investing and creating jobs in China."
While this may be a legitimate conclusion, news stories usually refrain from such inferences. For example, U.S. pharmaceutical companies have lobbied hard to have their patents enforced in developing nations. It is not likely that any news story will ever infer that "it's fine with industry executives if young children in developing nations die because patent protection has made life-saving drugs unaffordable." This inference about the attitudes of drug company executives has the same logical validity as this article's inference about the attitudes of union leaders.
This article focuses exclusively on the wage and working conditions of workers directly employed U.S. multinationals. The article does not note that when issues have been raised about the employment conditions of people doing work for U.S. multinationals in China and other developing nations, it has nearly always concerned the working conditions of sub-contractors, not those directly employed by U.S. firms.
More about China.
More about trade.
"Trade Deficit Rises to $30.2 Billion"
John Burgess
Washington Post, May 20, 2000, page E1
This article reports on the Commerce Department's release of trade data for the month of March. The article notes that the $30.2 billion trade deficit in March was a record, but then states that when "inflation is factored in, the monthly number has been somewhat higher in a few months of the past year."
This claim is misleading. It is based on the fact that the prices of some imported goods, most notably oil, have risen significantly in the last year. In other words, if the effect of the higher price is removed, then the March trade deficit would appear much smaller. This is an inaccurate way of accounting for inflation when examining the trade deficit, if the purpose is to determine the future burden it places on the country. For this purpose, the correct way to account for inflation in trade data is to use an overall measure of inflation, such as the GDP deflator, to compare deficits at different points in time. (A better measure is to take the deficit as share of GDP.) In terms of its impact on the sustainability of the trade deficit and the nation's indebtedness, it doesn't matter how many goods we are actually getting for the dollars we spend on imports--the only relevant factor is how much more we are spending on imports than foreigners are spending on U.S. exports.
More about trade.
"Drug Makers and the Third World: A Case Study in Neglect"
Donald G. McNeil Jr.
New York Times, May 21, 2000, Section 1 page1
This informative article examines the reasons why few drugs are developed and produced for the diseases that afflict people in developing nations. At one point it comments that health policy experts view it as necessary to give drug manufacturers tax breaks or to pay them directly in order to get them to develop drugs that meet the needs of people in developing nations.
This assertion assumes that the patent system is the only or best way to produce drugs. In fact, most biomedical research is not supported by patents. It is supported by either the government, private foundations and charities, or universities. The Times has run many articles recently that point to the inefficiency of the patent system as a means of supporting bio-medical research.
For example, a recent article reported that medical volunteers are reluctant to take part in research without compensation when they realize that the researcher or her employer stands to profit from it ("Sharing of Profits Is Debated as the Value of Tissue Rises," by Gina Kolata, New York Times, 5/15/00, page A1; see ERR, 5/22/00). An article last year reported on how the large gap between the patent-protected price and the actual cost of producing drugs has created a black market for drugs. The drugs sold in this black market are of questionable quality ("Makeshift Pharmacies Are Dispensing Death," by Don Terry, New York Times, March 29, 1999, page A19; see ERR, < a href="http://www.fair.org/err/990405.html">4/5/99). Patents are not the only way to support biomedical research, and there is no evidence in favor of the view that they are the most efficient means to support this research.
"Charitable Giving Surged Again in '99, by an Estimated 9 Percent"
Karen W. Arenson
New York Times, May 25, 2000, page A14
This article examines data on charitable contributions in 1999. While the article notes that contributions have risen significantly compared with previous years, it notes that they actually fell slightly when measured as a share of national wealth. This would be the appropriate metric for giving, since many of the contributions were in the form of stock, and since the legally required minimum annual amount of grants from foundations is determined by their asset holdings.
"Harvard Won't Ease Funding Restrictions"
Robert O'Harrow Jr.
Washington Post, May 26, 2000, page A16
This article reports on the decision by Harvard's medical school to retain limits on the consulting fees that researchers can receive from companies with a stake in the outcome in their research. Harvard also restricts stockholding in such companies. The school decided to keep the policy, over the objections of many faculty members, because of concerns about conflicts of interest.
Dean Baker is an economist and the co-director of the Center for Economics and Policy Research (CEPR). His latest book (co-authored with Mark Weisbrot) is Social Security: The Phony Crisis (University of Chicago Press). ERR is a joint project of FAIR and CEPR.
ERR is edited by Jim Naureckas.
More analysis of the New York Times and Washington Post can be found at http://www.fair.org/media-outlets/nyt.html and http://www.fair.org/media-outlets/wpost-newsweek.html.
You can sign up to receive ERR via email every week at http://www.cepr.net/columns/subbaker.htm. ERR is archived at http://www.fair.org/err/.
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