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International Biz Ops

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In a recent article "Chinese Competition: Europe Is Not Unarmed" published in World Economy, Giulio Tremonti, just re-appointed to the Italian Treasury, has struck again: a few years ago he lambasted the euro; now he sees the main threat to European economies coming from "marketism", i.e. the blind faith placed in the free market and its apologists, who do not take into account the adverse effects on domestic firms that aggressive competition from emerging economies is causing (China especially). In a global system of liberalized trade, industrializing producers are not subject to the high standards on quality, labor, and the environment that EU companies must respect. Tremonti's culprit is the WTO, and his proposals revolve around age-old remedies like erecting protectionist barriers (tariffs, import quotas, etc.)

But is it really true that the EU has not protected its industries against the "Chinese peril", and that WTO imposes undiscriminating liberalization of trade? And does China's competitive advantage lie in its lower production standards? What kinds of legally sound responses can be devised?

The WTO does not oblige states to completely liberalize foreign trade and allows for defensive measures by its member states. The EU has made extensive use of antidumping tariffs (ostensibly to protect itself from imported products sold below cost). It has been the world's third largest user of antidumping tariffs over the last decade. Also, China is not considered a market economy by the WTO, and this makes the antidumping procedure easier to implement, since the EU is allowed to use the reference prices of a third (market) economy to expose instances of Chinese dumping.

Going back to ethical standards, it is true that the WTO does not enforce the respect of minimum labor and environmental standards. The EU has tried to persuade other countries to introduce the so-called social clause, according to which imports could be suspended if coming from a country that violated the fundamental rights of workers. Developing countries have strongly opposed such proposal and effectively killed it. The case of environmental standards is similar, although in this case the importer has the right to block the import of a product, if it has adverse effects on the place where it is consumed. But halting imports of goods whose negative effects (either social or environmental) are limited to the exporting country is not allowed.

Thus we are left with no alternatives other than international trade negotiations. These should persuade China and other emerging economies to sign the ILO conventions and the international agreements on the environment. Calling for an illegitimate protectionist backlash could instead provoke trade wars of uncertain outcome.


1. What are the economic and political dangers of China and other developing countries relentlessly pursuing their global economic growth objectives while disregarding environmental, labor and ethical issues?

2. What measures should be introduced by the United States and the European Union through organizations such as ILO and WTO to address these issues?

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1. What are the economic and political dangers of China and other developing countries relentlessly pursuing their global economic growth objectives while disregarding environmental, labor and ethical issues?
The main economic dangers of China and other developing countries pursuing global economic growth is that these economies export large quantities of low priced goods to the developed countries. On one hand these goods drive out locally produced goods because of their attractive prices. The production in developed countries slows down and in some cases stops altogether. These low prices are possible because countries like China have strong environmental, labor and standards related laws but these are not enforced. Ethical issues are forgotten in pursuit of growth.
The effect on the ...

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