China's impressive expansion of international trade started in the late 1970s. China has succeeded to export its products thanks to their very cheap prices and the important reduce of tariff as a trade barrier. Nowadays we can't deny that products who are made in China are everywhere. However, a letter from Euratex (the European federation of the professionals of the textile sector) denounced the too strong presence of the Chinese's products, and unfair competition. In fact, China increased considerably its market share since the 5 last years in Europe, and a lot of European jobs are in danger. For those reasons European Union desires to keep some protectionism measures even if WTO and China disagree with this decision.
We can wonder what could be the reaction of the European wholesalers and retailers with this potential changes. In a first time we will study all the European measures who attempt to reduce the importation from China, then what can be the consequences of this potential changes.
I- European protectionist measures
European Union uses several types of measure against the imports from China: Non-tariff barriers and tariff barriers.
1- Non-tariff barriers
Non-tariff barriers to trade are trade barriers that restrict imports but they no consist in the augmentation of the import duties. Non-tariff barriers are government laws, regulations, policies, conditions, restrictions, or specific requirements, and private sector business practices or prohibitions, who protect the domestic industries from foreign competition. They are the means of keeping the foreign goods out of domestic market while abiding by the multilateral agreements that the country has signed through the WTO (World Trade Organization).
We can find two different quotas in the non tariff bariers.
The import quota. It is the number or amount of goods of a specific kind or class, such as garments and shoes, that the government of importing country will permit to be imported. Import quotas are normally imposed on an annual and a country basis.
And the export quota who is the number of goods of a specific kind or class that the government of exporting country will allow to be exported. The purpose of export quota is to protect the domestic supply of the goods, for example, sugar, cement and lumber. Export quota may also be used to boost the world prices of such commodities as oil and strategic metals, and to protect the natural resources of the exporting country.
2- Tariff Barriers
Accessibility to an import market may be hampered by the tariff barriers of the importing country. We can distinguish three different tariffs barriers.
High Customs Duty
The high import duties in many countries have been reduced under the former GATT (General Agreement on Tariffs and Trade) multilateral agreements. The GATT was formed in Geneva, Switzerland, in 1947 and it was succeeded by the WTO (World Trade Organization) on January 1, 1995. The organization, through multilateral agreements, helps reduce trade barriers between the signatory countries and promotes trade through tariff concessions. WTO has wide power to regulate international competition.
Countervailing Duty
Countervailing duty is a duty imposed in addition to the regular import duty, in order to counteract or offset the subsidy and bounty paid to foreign export-manufacturers by their government as an incentive to export, that would reduce the cost of goods. Imposing a countervailing duty is the answer to unfair competition from subsidized foreign goods.
Anti-dumping Duty
Dumping must be distinguished from simple practices of low-price sales resulting from lower costs or greater productivity. The key criterion in this respect is not, in fact, the relationship between the price of the exported product and that on the market of the country of import, but the relationship between the price of the exported product and its normal value. Thus, a product is considered to be dumped if its export price to the Community is less than the comparable price for a like product established in the ordinary course of trade within the exporting country.
Anti-dumping duty is a duty imposed to offset the advantage gained by the foreign exporters when they sell their goods to an importing country at a price far lower than their domestic selling price or below cost. Dumping usually occurs from the oversupply of goods, which is often a result of overproduction, and from disposing of obsolete goods to other markets. It is the protectionism measure who is the most frequently uses by the European Union.
In regard to anti-dumping duties, the EU may choose to impose one or more of three basic forms:
' Ad valorem duty ' a percentage of the net, free-at-EU frontier (CIF) price. This is the most common form of duty.
' Specific duty ' a fixed value for a certain amount of goods, '100 per tonne of a product
' Variable duty ' a minimum import price (MIP). Importers in the EU do not pay an anti-dumping duty if the foreign exporter's export price to the EU is higher than the MIP.
It is the protectionism measure who is the most frequently uses by the European Union.
The first anti-dumping investigation against China was launched by the European Community in 1979, immediately after China started opening its economy to the outside world. Since then, the filing of contingent protection measures targeted at China have proliferated at a rapid pace, with anti-dumping actions far more prevalent than other measures such as safeguards. In the 1980s, anti-dumping cases against China averaged 6.3 per year. The number increased to 30.3 per year in the 1990s. In 2004, there were 48 anti-dumping investigations and 41 final measures against exports from china.
II- External environment and the consequences of these potential changes
1- The European external environment
The external environment consists to analyse, competitors, the economic system, the social system, the monetary system, the political/legal system and the environmental system. We are going to focus on three essentials components of the external environment: the political system, the economic system, and the social system in China.
The economic system is the organisation of the economy to allocate scarce resources. The economy tends to go through periods of faster and slower growth. Businesses prosper when the economy is booming and living standards are rising.The China's economy is the third largest in the world after the U.S. and Japan with a nominal GDP of US$4.4 trillion (2008) when measured in exchange-rate terms. It is the second largest in the world after that of the United States with a GDP of $7.8 trillion (2008) when measured on a purchasing power parity (PPP) basis. China has had the fastest-growing major economy for the past 30 years with an average annual GDP growth rate above 10%.
The social system is the fabric of ideas, attitudes and behavior patterns that are involved in human relationships. In particular businesses are influenced by consumer attitudes and behaviours which depend on such factors as the age structure of the population, and the nature of work and leisure. China has been the world's most populous country for centuries. Because of the rapid and extensive fertility declines in China in the past 30 years, the country's rate of population growth has slowed considerably. In addition to facing enormous population changes, China has experienced major economic change over the past half-century. This rapid growth has been accompanied by rising income inequalities.
The political system creates the rules and frameworks within which business operates. Government policy supports and encourages some business activities, while discouraging others the creation of pollution. Chinese government essentially counts on its cheap labor force for export. So, China is currently specialized in the low value products, like the textile sector.
2- Chinese and European Union relationships
China is the biggest target of trade defence investigations in the European Union. The EU currently has 49 anti-dumping measures in force against Chinese imports. However it doesn't mean that they don't do business between each other.
In fact, the EU relations with China were established in 1975 and are governed by the 1985 EU-China Trade and Cooperation Agreement. In 2007, to reflect the depth and breadth of today's strategic partnership, negotiations began to improve this to a Partnership and Cooperation Agreement. Today, the EU is China's largest trade partner, with China being the EU's second largest partner.
For example, European companies invested ' 7,1 billion in China in 2007 (up from ' 6,7 billion in 2006). China invested ' 0,6 billion in 2007 (down from 2.2 billion in Europe in 2006. China is Europe's fastest growing export market. Europe exported ' 72 billion worth of goods to China in 2007 and this figure went up about 12% over the first 9 months of 2008 compared to the same period in 2007. Exports from the EU to China grew by 75% between 2003 and 2007. China for European Union represents a big opportunity. In fact, China with its 1.3 billion consumers is a huge export market for European services and goods. The Chinese are also very interested in European Union. First it represents an important market but also because of the rising influence of the EU on the international politics.
However, it still exists some problem in their cooperation. For example, in last June the European Union and the United States accused China of unfair trade practices, they said that China had imposed quotas, export duties and other costs on raw materials used in the production of steel, chemicals and aluminium. Moreover, European services companies find it very difficult to break into the Chinese market and are often discriminated against.
3- What could be the reaction of different actors in European Union with a so important change
The Chinese government attempt since several years to negotiate with the European Union for give up the several measures who was adopted for reduce the importations of the Chinese products.
In fact, China wants that its exportation rate augment. However, with this several measures Chinese products are more submitted to the Eupean competition.
Nevertheless, the European Union wants to protect from the strong competitiveness of the products that come from China. Europe cannot compete with the cheap cost of the labour force, and so with the lower prices of the products. For this, the European Union wants to keep its different measures (tariff barriers, and non tariff barriers) in particular the anti-dumping. Those measures try to protect the European manufacturer, jobs and so European economy in general.
If European Union decides to give up these restrictions, European manufacturers will be threaten. It can have like consequences the augmentation of the relocations and so the lost of their jobs for hundred of European.
However, the European wholesalers and retailers could find interest, and advantages with the stop of these measures. In fact, Chinese's products would be less expensive without any tariff barrier. They could buy it with a more interesting price.
Wholesalers and retailers can react with two different ways with these price diminutions.
First one, they can sell the product with just their normal margin. So, products who come from China, will be sell at a reduce price. Finally, it could have a repercussion on the amount of sales.
Or, they can sell Chinese's products with a largest margin. And so, the consumers will not have any advantage to the free trade.
Conclusion
To conclude, we have seen in this study the different European protectionist measures who attempt to protect the European Union economy from the Chinese products. Then we have analysed the Chinese environment. Followed by the difficult and complex relationship between China and European Union and at the end we have made a supposition about the possible consequences if the European Union renounce with these restrictions and the probable reaction of the wholesalers and retailers.
The question of free trade is not an easy one. For the reason that, a lot of actors are implicated. Moreover, it implies an ethical problem. European Union fights for several years for the human rights. So we can wonder, if this implication is questioning if European Union imports products who was made with bad workers conditions.
