Is China's accession to WTO threatening exports of developing countries?

Abstract

Using the “revealed competitive advantage indices” for exports and imports, the paper is devoted to the analyses of the vulnerability of selected developing countries if China's competitive position is improved due to its entry to World Trade Organization (WTO). In contrast to the existing literature, which concentrates on labour-intensive products as a group, this paper considers products at a disaggregate level because products in the same group are not often homogeneous. It is argued that the competitive effects of China's accession on developing countries are exaggerated in the literature. In labour-intensive manufactured goods, China competes mainly with South Asian countries (e.g., India, Pakistan, Bangladesh, Sri Lanka, and Nepal) and a few Latin American and African countries. However, it also provides them with little demand complementary effects. Nevertheless, some Latin American and African countries may benefit from the expansion of China's imports of foods and agricultural raw materials. In the final market for capital goods, China competes with Asian newly industrializing economies (NIEs) and Association of Southeast Asian Nations (ASEAN) countries and in a limited number of goods with Mexico and Costa Rica. For NIEs, unlike others, such competition involves complementary effects through the import of parts and components, which will overoffset the competition effects in the short and medium run. As China develops its capacity to produce components, however, the “competition” effect may dominate. China's export structure is similar to that of the Republic of Korea and Malaysia in the final market for a number of “finished” capital goods. By contrast, Thailand is vulnerable in clothing, miscellaneous household equipment, and electric machinery. Indonesia has little to worry except for furniture. India concentrates mainly on undergarments and China in outer garments. Bangladesh, Sri Lanka, Pakistan, Viet Nam, and Nepal have similar export structure with China in some clothing items; however, overall, they (particularly Viet Nam) have been aggressive in exportation of these products. Sri Lanka and Pakistan also compete with China in toys and sporting goods, but both have shown some strength in their exports. Except Mexico, Costa Rica, Haiti, and to some extent Uruguay, the export structure of the Latin American countries is mostly different from that of China. Mexico has a strong competitive position vis-à-vis China in a number of clothing items but weaker in a few assembly operations. Costa Rica's competitive advantage has noticeably improved for a number of clothing items and a few assembly operations. Haiti competes with China in eight products, mostly clothing. It has a strong competitive position in footwear, one clothing item, and some base metal. Uruguay's relative competitive position is weak in a number of labour-intensive products. The export structure of African countries is different from that of China, except for Egypt, Morocco, Tunisia, and Malawi. These countries have improved their competitive position in their clothing. China's entry into the WTO will not change, for some time, its market access for textiles and clothing for it to be a threat to other developing countries. Nevertheless, if China attempts devaluation, the situation could change radically. China's devaluation is, however, unlikely. Over a longer term, much depends on what policy China will pursue in its trade and industrialization. China's attempt in increasing domestic value added in exports could lead to improvement in its competitiveness in technology/skill-intensive products of interest to NIEs and the ASEAN.