A global contest of values in EU-US-China trade

As China endorses a reformer as president and the EU and US plan a free-trade pact, the competition to set trade rules heats up. A EU-US pact would strengthen their economies and send a signal to China to take more responsibility for higher trade standards.

The Monitor's View

On one side of the globe this week, China opened its annual legislative meeting to endorse the new Communist Party leader, Xi Jinping, as the country’s next president. High expectations have been set for Mr. Xi to radically reform the Chinese economy – but by what standards isn’t yet clear.

Meanwhile, on the other side of the globe, the European Union trade commissioner, Karel De Gucht, was in the United States to drum up support for a proposed EU-US agreement on free trade.

These two events in the world’s largest economies are the latest moves in an ongoing contest to define the values that drive international commerce.

The overriding reason for an EU-US pact, Mr. De Gucht told the Monitor, is to ensure that standards used by Europe and the US – such as openness, rule of law, respect for rights – can be universal in a world challenged by China’s norms of behavior, such as a lack of transparency and mercantile favoritism toward state-run enterprises.

The EU does not want to be aggressive toward China nor is it being defensive, De Gucht said. Rather, because China is no longer an emerging economy, it must take responsibility for improving the international system.

“They are entitled to a place in the universe,” he said.

Yet, De Gucht points out, China “doesn’t have a strategic approach to remodel the world.” So in the meantime, the US and EU must band together to find an equilibrium with China and its brand of “authoritarian capitalism.”

An EU-US pact would, for example, raise the bar on what a free-trade agreement should be – higher than the standard currently practiced by the World Trade Organization (WTO). By harmonizing their respective standards in many fields – especially intellectual property – the EU and US would further cement global standards.

China’s willingness to join in the setting of world standards has been slow. Last year, a World Bank report stated that China’s participation in global governance “will inevitably be gradual as the international community and China make constant adjustments to accommodate each other.”

One example of its behavior is China reneging on a pledge to the WTO to open its market for credit-card payments. It still allows its own UnionPay enterprise to dominate the domestic market.

An EU-US pact wouldn’t be the only shaper of global trade rules. After the 1998 Asian financial crisis exposed a practice of crony capitalism and lack of transparency in the region, the West took the lead in establishing high standards in financial accounting. The Organization for Economic Cooperation and Development, which represents most wealthy nations, also develops standards for business. The OECD, for example, has principles on investor rights and adequate disclosure in corporate governance.

With Europe and the US hit hard by the 2008-09 financial crisis, the world seems adrift on improving standards for capitalism. China, meanwhile, is stronger than ever but beset by domestic problems. An EU-US pact would both strengthen their respective economies and also send a signal to China to join the effort to set standards for global trade.

Trade isn’t a zero-sum game. By freeing trade even further, it will eventually benefit all.