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China's new policy calls for fair play, not protectionism

(Xinhua)
Updated: 2009-06-23 13:31

Critics are accusing China of practicing protectionism in a directive ordering a stop to discrimination against home-made products in government procurement from its 4-trillion-yuan ($586 billion) stimulus package.

However, on closer inspection, the "Buy China" policy, as it was dubbed in foreign media reports, does not create, but eliminates, discrimination.

To detect trade protectionism in the directive is either misinterpretation or overreaction.

The fact is that the directive from the national economic planning agency, the National Development and Reform Commission (NDRC), is made to avoid discrimination against domestically made equipment.

"Bidding documents set a lot of discriminatory conditions to illegally limit Chinese-made equipment. This phenomenon is very obvious and in some cases very serious," says the directive from the NDRC dated June 4.

Foreign Ministry spokesman Qin Gang made it clear Thursday that the purpose of the directive is to ensure "a fair and competitive market".

He said the notice complied with China's government procurement law of 2002 and international common practice, and foreign firms and products would face no discrimination.

The allegations fail to stand up to scrutiny.

Related readings:  China denies protectionism allegations  US and China: 'no protectionism'  China, US vow to strengthen trade ties  China says against trade protectionism

To start with, China has not signed the WTO Agreement on Government Procurement under the framework of the World Trade Organization, like many other developing nations, says Zhang Hanlin, dean of the China WTO Research Institute of the University of International Business and Economics.

So it would be pointless to look into whether China had breached any WTO rules in issuing the directive.

It is also misleading to call the directive a "Buy China" policy in parallel to the "Buy American" provisions in the United States' $787-billion economic stimulus bill, as the directive is in nature a government notice, not a law.

The "Buy American" provision, which prohibits the purchase of foreign iron, steel, and manufactured goods for any stimulus-funded infrastructure project, states that it will be "applied in a manner consistent with US obligations under the World Trade Organization Government Procurement Agreement."

Government procurement is not about foreign trade, but about how to best spend the taxpayers' money, so guiding policies cannot constitute protectionism.

In evaluating China's move to support domestically made products, it should be remembered that giving priority to home-made products is actually practiced in many countries.

Even the United States, which has signed the WTO government procurement treaty, has laws and regulations stipulating preference for domestically made products, such as the Buy American Act, which restricts the purchase of supplies that are not domestic end products for use within the United States.

Interestingly, Lenovo computers are excluded from the US government procurement list for "security" reasons, although such computers are little different from IBM products before Lenovo took over the personal computer unit from the US firm in 2004, says Zhang Yansheng, director of NDRC's Institute of Foreign Trade.

It should also be noticed that the NDRC directive is not finding excuses to support domestically made equipment by saying there is discrimination against local manufacturers.

Dong Tao, chief China economist for Credit Suisse, told the Financial Times on June 17 that local governments do tend to favor foreign products in some categories.

According to a survey by Zhang Hanlin's team, most of the medical equipment in China, advanced equipment in particular, was imported, though he refused to reveal the exact figure.

If China made a mistake in issuing such a directive, it was the timing.

As Dong Tao points out, "Given how important free trade is for China's economy this is not the right message to be sending to the rest of the world right now."

However, in the big picture, China is not denying access to foreign manufacturers and products to its huge market. That is the message China's trade partners should be looking for.