The international financial crisis has changed the global economic pattern considerably and multipolarization has become the most significant trend of today’s world. Countries are striving to expand international trade in the hope of achieving a win-win outcome by creating FTA (Free Trade Agreement) or conducting closer economic and strategic cooperation. China and the U.S. are no exception.
China-US FTA Talks Should be Initiated
Despite the frictions and disputes, trade and investments between the world’s two largest economies, China and the U.S., have been increased continuously at a substantial rate over the past decades. In order to reduce unnecessary misunderstanding and promote healthier trade relationship between China and the U.S., perhaps it is time for the two countries to initiate talks on establishing the China-U.S. FTA.
Comparing with ten years ago, China is now relatively better prepared to initiate talks with the U.S. to establish FTA. Accelerating the implementation of the FTA strategy is an important part of its further opening-up policy. Furthermore, it is one of the strategic tasks of the 12th Five-Year Plan. Until the end of 2010, China had already signed FTA, CEPA, or ECPA with ASEAN, New Zealand, Singapore and some other countries. As can be seen, launching the FTA with the U.S. is in line with China’s strategy of FTA expansion．
In terms of economic benefits, establishing the China-U.S. FTA will give the two countries’ comparative advantages into full play and make the most of their complementarities. China and the U.S. have great complementarities in the aspects of economic development, resources and industrial structure, which have already brought significant benefits to them over the past years. Chinese market is becoming more and more important for the U.S. exports. During the past decade, the U.S. exports to China grew rapidly by 468%, while its exports to other countries only grew by 55%. Obviously, as the biggest importer of the U.S. goods and services, China has made remarkable contributions to the U.S. economy.
In the future, the complementarities between the two nations will continue to exist and thus, establishing China-U.S. FTA will vigorously promote trade development between the two nations. According to a primary estimation, if China and the U.S. had established a FTA and hence had reduced their tariffs by 10%, their economic growth rates could have increased by 3.93% and 0.45% respectively in 2011. And this trend is likely to stay for quite a while. In terms of employment, both China and the U.S. could have boosted their employment rate to a great deal.
Of course, China and the U.S. are not the only beneficiaries of the FTA. For the global economy, the negotiation of the FTA between China and the U.S. will be able to greatly facilitate and liberalize the global trade and investment, and send the world market a strong message of confidence.
Although the China-U.S. FTA will be a good blessing for China, the U.S. and the rest of the world, its negotiation process is likely to be a lengthy one and will probably continue for many years. The following are two of the problems confronting the negotiation process.
On the one hand, the U.S. may be reluctant to initiate the negotiation due to its political concerns. When the U.S. chooses a country for initiating FTA negotiation, its political consideration often comes first, rather than the economic consideration. After the international financial crisis, the rising of China’s comprehensive national strength has become America’s great worry. As a result, the U.S. tends to see China as a rival, rather than a partner. Under such circumstances, the U.S. will not be keen on launching the FTA negotiation process.
On the other hand, China has a lot of preparations to do for the FTA negotiation with the U.S. Judging from the FTA negotiations that the U.S. has undertaken with other countries, we can see that the fields involved in America’s FTA negotiations have been enlarged dramatically, including such issues as labor force, environment, intellectual property right protection and so forth. The standards in those fields will be further raised in the future. If the U.S. agrees to negotiate a FTA with China, it may demand even higher requirements which China find difficult to satisfy. This will put China under enormous pressure during the negotiation.
Nonetheless, the difficulties confronting the China-U.S. FTA negotiation should not stop us from moving ahead. Even when the two nations have not reached agreement in some aspects of the negotiation, their willingness to initiate the FTA negotiation process will have a huge impact on both countries and the world in general.
Due to its complexity and extensive international influence, the negotiation should be initiated with appropriate measures at the right time.
Instead of starting the negotiation by the Chinese and U.S. governments, we can let some non-governmental organizations such as think tanks from the two sides take the initiative. Experts and scholars from think tanks will be able to undertake in-depth discussions on the pros and cons of the possible China-U.S. FTA. When things go well and time is right, they can bring in government officials from both sides for further negotiation, and gradually an agreement will be reached.
The U.S.-China Strategic and Economic Dialogue can be used to accelerate the initiation. There have already been many dialogues between China and the U.S. In particular, the U.S.-China Strategic and Economic Dialogue, which is committed to issues like promoting China-U.S. trade and investment, financial supervision, consumption and savings rates adjustment, should include discussions on establishing China-U.S. FTA. This will definitely be of great help to speed up the FTA negotiation process.
No one has to lose in the establishment of the China-U.S. FTA, as it is a win-win outcome and will promote a sustainable and healthy trade relationship. And it is good for the world as a whole. Sure, it will take some time before the consensus and agreement can be reached,, but we have to get it started. The sooner the better!
Wei Jianguo is currently Secretary-General of China Center for International Economic Exchanges. He was also a former Vice-minister of Commerce in China.
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