WCA January 2007

From the Americas

Commerce trumps sanctions

The next China?

Trade between North Korea and China flourishes despite a US push to isolate the regime of Kim Jong II The United States continues to falter in its effort to get China solidly behind its effort to isolate North Korea, one of the points of President George Bush’s ‘axis of evil.’ And signs are strong that that failure is grounded not mainly in political differences but rather in the bread- and-butter terms of buying and selling. China has consistently resisted US pressure to get tough with its neighbour, a nation with a famously dyspeptic leader and a 1.2-million strong army. Even after North Korea’s announcement of a nuclear explosion on 9 th October the Chinese response was measured. China did approve the United Nations economic sanctions against North Korea, ensuring their passage. And China’s leaders hinted that they were mulling a harder line, leading a few Chinese banks to freeze some North Korean accounts and financial transactions. But these initiatives are negligible in light of the growing trade relationship between the two Asian nations. China is North Korea’s principal aid donor and supplier of oil. In the other direction, China imports more coal and electricity from North Korea all the time. Chinese business interests are buying into North Korean mining operations, and Chinese entrepreneurs may even succeed in leasing a North Korean port as a potential shipping hub with access to the Sea of Japan. This is not a relationship to be undone by a little praise heaped by US Secretary of State Condoleezza Rice on Beijing for its cooperation in the matter of the UN sanctions. In fact, according to press reports these are quietly being ignored by the Chinese truckers and private transport companies sending goods into North Korea and by customs agents on the Chinese side. North Korean agents on the lookout for contra- band are reported to be somewhat more rigorous at checkpoints. The United States wants China to tighten its border inspections to squeeze the economy of North Korea and ensure that it does not buy or sell nuclear materials. China is concerned not to destabilise North Korea for fear of an exodus of refugees. Fortunately, the UN sanctions against North Korea are couched in language sufficiently rich in diplomatic ambiguity to keep the two big powers from colliding outright. For example, it bans the transport of luxury goods across the China-North Korea border – but fails to provide a definition of luxury goods. In late October, China’s Foreign Ministry spokesman Liu Jianchao said that his government intended to comply fully with the UN sanctions against North Korea. Mr Liu also said that inspections along the border would remain ‘normal.’

Vietnam sells almost nine times as much to the US as it buys The planned visits of the presidents of the US, Russia, and China to Hanoi in mid-November for an Asia-Pacific Economic Cooperation summit meeting were built around one main objective. After more than a decade of talks about making Vietnam a member of the World Trade Organization, these and other heads of state sent their trade negotiators before them to clear the way for action. Why the US, in particular, is so keen on bringing its former bitter enemy into the regulated structure of the WTO is no mystery. Now a semi-capitalist society, Vietnam has the second-fastest-growing economy in Asia, behind only China’s. Its 8.4% growth rate in 2005 exceeded that of its closest rival India, as well as Thailand, Malaysia, Taiwan, and South Korea. Of special concern to President George Bush, the pace of Vietnam’s exports to the US is rising even faster than China’s, and the country’s trade surplus with the US has soared. Over the first eight months of 2006 Vietnam exported $5.56 billion worth of goods to the American market; it imported $625.9 million worth. Clearly, as an economic force Vietnam is as much to be reckoned with as when, under communist control, it drove the Americans out of Indo-China nearly four decades ago. Since then the Vietnamese have had plenty of time to become disillusioned with the inefficiency of state-owned industries. Now firmly committed to economic liberalisation policies, they have become, in some ways, more American than the Americans. Vietnam’s Finance Ministry recently produced the draft of a personal taxes law, expected to be approved by January, that offers more tax breaks for the wealthy than the United States does. Inheritances among immediate family members will be entirely exempt from taxation, as will interest on all but the largest bank accounts. And debate is under way over whether capital gains should be taxed. All of this should gladden the hearts of the American president’s pro-business friends in Congress. But does it? Shortly before the mid-term elections in November, members of Mr Bush’s Republican majority were sharply divided over a question soon to be put to the vote. Should the United States grant permanent, full trade relations to Vietnam, given the two countries’ history and the punishing effects of Vietnam’s selling almost nine times as much to Americans as it buys? Given the economic ascendancy of the country analysts are calling ‘the next China,’ a better question might be whether or not it matters very much which way the US lawmakers vote on Vietnam.

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Wire & Cable ASIA – January/February 2007