Mandelson faces China flak as old trade theory ‘unravels’

By Stewart Fleming

Date: 29/09/05

The MEP in charge of drafting European Parliament's position on trade relations with China has called for a "new protectionism" to help Europe face the challenges presented by the fast developing Asian economies. Caroline Lucas, the British Green MEP, has taken direct aim at Trade Commissioner Peter Mandelson's strategy for tackling surging Chinese imports, arguing that what the European Union needs is a "new protectionism".

In a speech to the British Labour Party at its annual conference in Brighton, Mandelson called for Europe to engage in a "race to the top" in competition with China and India by "making sure we succeed where we can, as a provider of top quality, highly specialised goods and services in a knowledge-based economy".

Trying to put a protective wall around ourselves would remove the pressure on companies to innovate and raise their competitiveness, he said.

But Lucas, a member of the international trade committee of the Parliament whose draft report on trade relations with China was being voted on today (29 September), said that the scale of the challenge presented by China was forcing experts to re-examine the international trade theory of comparative advantage. This argues that everybody can benefit from free trade.

"The whole free-trade theory is beginning to shake," she said, pointing to renowned American economist Paul A. Samuelson's controversial recent paper which concluded that "comparative advantage cannot be counted on to create...net gains greater than net losses from trade".

"We need to revisit the idea of managing our trade," Lucas said. She does not favour the beggar-my-neighbour attempts to exploit trading relationships and defend local interest groups, which are the hallmark of traditional protectionism, but rather a "new protectionism characterised by the legitimate management of trade relationships".

The case against protectionism is, she says, "based on the unsubstantiated assumption that the EU, by investing in skills and technology, will be able to outcompete the Chinese in the race 'up the value chain'."

But, she goes on, China and India are fast developing their own lower-cost but highly skilled expertise in these areas too: "almost 20% of China's exports are now classed as hi-tech".

Her draft report to Parliament, which was approved by the trade committee late last month, urges China to do more to live up to its obligations as a member of the World Trade Organization.

It also demands that the EU take immediate steps to prevent the problem of import surges which hit the textile industry "spreading 'soon' to the bicycle, automobile, machinery and steel industries".

She also wants the Commission to conduct an urgent investigation into the impact of free trade with China on other sectors of the economy such as hi-tech manufacturing, and to publish fuller and more regular information on the impact of Chinese imports on EU industry.

The support in the committee for the controversial draft report shows that the agreement with China to curb textile imports has not damped down the mounting concern about the Chinese challenge as, according to the International Monetary Fund, the EU economy is facing a significant slowdown in its already sluggish rate of growth.

• Stewart Fleming is a freelance journalist based in Brussels.

Article reports that Caroline Lucas, the British Green MEP in charge of drafting the European Parliament's position on trade relations with China called for a 'new protectionism' to help Europe face the challenges presented by the fast developing Asian economies. She took direct aim at European Trade Commissioner Peter Mandelson's strategy for tackling surging Chinese imports. Mandelson had recently spoken out against protectionist measures which, he said were counter-productive to domestic competitiveness and innovation.

• Primary Source

European Parliament: Report on Prospects for trade relations between the EU and China (2005/2015(INI)), 5.9.05 http://europarl.europa.eu/omk/sipade3?PUBREF=-//EP//NONSGML+REPORT+A6-2005-0262+0+DOC+PDF+V0//EN&L=EN&LEVEL=0&NAV=S&LSTDOC=Y

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