WCA January 2007

From the

Americas

Wire & Cable ASIA – January/February 2007

Commerce trumps sanctions

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

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.’

The next China?

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.