Legislative Issues: Trade with China

Chinese-made ceramic products are increasingly available in the United States and other countries, and U.S.-based producers of ceramic manufacturing equipment sell their equipment in China. This dichotomy produces a conflict for certain segments of the U.S. ceramic market—how to compete against inexpensive imports yet also make sales of equipment and supplies.

Trade Deficit

The impact of ceramic imports to the U.S. from China is particularly dramatic in the dinnerware segment of the ceramic industry. The U.S. dinnerware market experienced $1.4 billion in sales last year. Of this sum, $991.3 million, or 70%, was imported ware. The total imported from China was valued at $385 million, or 39%, of all of the imported dinnerware. Over the last four years, dinnerware imports to the U.S. from China have grown by over 100%. Last year, 27% of all dinnerware sold in the U.S. was produced in China. Clearly, Chinese products are now dominating this segment of the industry.

In September of 1999, the U.S. trade deficit with China was a record $6.7 billion. That month, China passed Japan as the country with the largest trade deficit with the U.S.

Barriers to Open Trade

The U.S. basically follows a free trade policy, which means doing little to restrict the international sale of goods. The reduction of trade barriers is a major goal of the World Trade Organization (WTO), of which the U.S. and most other nations are members. The international agreements setting up the WTO commit member countries to lowering trade barriers such as tariffs.

China is not a WTO member, though it would like to be and has applied for membership. For years, the U.S. and other countries have opposed its membership for a variety of reasons, including the limited extent to which China makes its domestic market available to imports from other countries. For some foreign made goods, China is considered a closed shop where imports are discouraged in a number of ways. Some countries have also complained that China does not adequately enforce international agreements pertaining to patents, copyrights and trademarks, resulting in the production and sale of “knockoffs” in China.

Another problem is that many enterprises are owned by the Chinese government itself, including elements of the military. This makes it difficult to determine if the government is subsidizing the production of export goods that enable such goods to be sold in foreign markets below their actual cost of production. If such subsidization by the Chinese government does take place, it could amount to trade “dumping” in violation of the anti-subsidy laws of other countries.

China also presents problems of a non-trade nature that are not presented by many other countries. Human rights concerns, indications of the use of prison labor and poor working conditions have moved some groups to oppose expanded trade with China.

What is the MOU?

In May of this year, the U.S. Food and Drug Administration (FDA) entered into a Memorandum of Understanding (MOU) with the government of China for the testing and certification of ceramic food ware imported into the U.S. The FDA has promised that it will closely monitor compliance. The purpose of the MOU is to make sure that there is a level playing field for ceramic food ware, with Chinese imports complying with the same standards as U.S. produced ware.

Among other things, under the MOU, ceramic ware from China produced in plants certified by an agency of the Chinese government as in compliance with FDA standards will be labeled with an “H” sticker or logo imprinted on the box along with a factory code. If certified ware is determined by the FDA to not be in compliance, then all ware from that factory may be detained.

Recent Developments

On November 15, 1999, the U.S. and China reached an agreement whereby China committed itself to open its markets to more foreign investment and to make other changes to its economy to facilitate international trade. In return, the U.S. will drop its opposition to China’s membership in the WTO.

The changes will not be immediate, as various parts of the agreement are to be phased in over several years. Among other things, U.S. companies will be able to sell industrial goods in China without using a Chinese middleman. There is also a 15-year restriction against “dumping” (selling below cost) Chinese-made products in the U.S. If China does gain WTO membership, it will be obligated by the WTO treaty to assure safe working conditions.

Much still needs done before the agreement can be fully implemented. The president of the AFL-CIO has already come out against the agreement, and Congress will have to pass legislation giving China permanent Normal Trade Relations status. This will probably be a contentious issue; some congressmen have raised questions concerning Chinese imports taking jobs from Americans. In addition, some members of the Senate and House feel that the U.S. should not support China’s WTO membership until China first improves its human rights situation and stops making weapons sales to certain radical countries.

There are also indications that not all elements of the Chinese government are happy with the trade deal, which raises issues concerning compliance.

Trade with China is almost certain to remain controversial, and its impact on the ceramic industry will most likely grow, especially with implementation of the WTO agreement. Regardless of the outcome, U.S. manufacturers will need to carefully monitor their own products and processes to ensure that they remain competitive in an increasingly global economy.