Will Mexico Block China From the WTO?

By Ben Calmes
Sinomania!

After fourteen years of hard work China has concluded trade agreements with nearly every country on the planet, promising unprecedented market access. Final discussions for China's long anticipated admission to the World Trade Organization (WTO) have broken down at WTO headquarters on the chilly shores of Lake Geneva in Switzerland. While the ministers in Geneva debate protocol and bureaucratic structures, China and Mexico remain in deadlock over a bilateral trade agreement. Meanwhile, US President Bush will soon make his first foreign trip --a visit to the ranch of Mexican President Vincente Fox.

Mexico, a founding member of the WTO, is the only country that has yet to conclude a trade agreement with China. Without an agreement, China will be excluded from entering the organization. If such a scenario occurs, the trade agreements with the USA and European Union will not go into effect as they assume admittance to the WTO in 2001. And China, by many measures already the world's second largest economy, will operate outside the great global trading block with an unknown impact on world economic cycles.

The administration of former Mexican President Ernesto Zedillo long stalled over approving China's entry into the WTO. It appears that policy has not changed under Mexico's new President Vincente Fox. His new economic czar, Ernest Derbez, admitted to reporters in December 2000 that Mexico could block China's bid. More recently, however, Mexico City newspaper El Universal reported that Derbez said Mexico would not block China from the WTO. Derbez said that by the end of March Mexico will have an agreement with China. However, prior to that date, the Mexican government will send the WTO "a series of very concrete documents regarding the position Mexico has taken on the situation in the organization." Derbez has also said that one reason for the slow talks is to ensure China is making "internal changes" to comply with WTO rules and regulations.

What's at issue? Publicly, the issue is fear of dumping by China, that is a surge in cheap imports after China enters WTO. To protect its own fragile economy, Mexico currently imposes heavy anti-dumping tariffs on Chinese imports. And Mexico is probably making the case to the WTO that those tariffs remain in place.

But the real issue is the fear that China will eclipse Mexico in the race for export markets, foreign direct investment, and economic growth in the years ahead. Both countries are trade powerhouses according to WTO data, although China is well ahead of Mexico, even more so if Hong Kong numbers are included. Both countries are among the top three recipients of foreign direct investment, although China is the perennial front runner. And both China and Mexico continue to experience strong economic growth. Chinese GDP surged 8.2% in 2000 while the Mexican economy grew by 7% (growth figures are from their respective governments).

But statistical similarities aside, the comparison is uneven. China is an international trade titan and "Chinitos" (Mexican slang for Chinese) take advantage of Mexico's maquiladora export processing zones and build factories that export to the USA. Mexico has for some time followed an Asian style export-led development strategy but remains overly dependent (if not entirely dependent) on the USA for its exports, foreign investment, even currency stability.

Stalling or even blocking China's WTO entry could only be in Mexico's long term benefit. The new Mexican government wants to press President Bush about the creation of a "hemisphere wide trade block" which he mentioned as a foreign policy initiative during his presidential campaign. Mexican President Fox will discuss the proposal, which he calls "NAFTA Plus", with George W. Bush when they meet in February. This may be an early test of the direction of USA foreign policy under President Bush. Condoleeza Rice, Bush's National Security Advisor, said at the Republican National Convention that Mexico would be the "corner stone" of Bush administration foreign policy.

As it stands, the current round of talks between China and the WTO have collapsed over disagreements over farm subsidies. The next meeting is scheduled for late February or early March--the same timeframe given by Ernest Derbez for Mexico's bilateral trade agreement. WTO Deputy Director-General Paul-Henri Ravier has instructed delegates to speak to their governments before the next meeting. "It is clear that governments at the highest level have to be involved," he said.

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