Chapter 2: Complex Interdependence
1) the 2004 Chinese Embargo to Brazil 2) the 2010 Chinese Embargo to Argentina
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following year, 2007, crude oil exports fell and, as Oviedo points out, “recovered the 3rd position they occupy in the country’s total exports, with 8.1%.”165
Before proceeding with the analysis of the two embargoes examined in this chapter, this section could be summed up by stating soybean-based biodiesel would offer the possibility of adding value to Brazilian and Argentine exports to the PRC as well as – more importantly– improving their bargaining position relative to the PRC and attenuating the detrimental effects of asymmetry, with a more “exportable” product that could be used by these countries as a tool of political bargaining with Beijing, by linking it to China’s energy needs and environmental concerns. This, indeed, would be a win-win situation.
Empirical Cases: Vulnerability to External Shocks:
1) the 2004 Chinese Embargo to Brazil 2) the 2010 Chinese Embargo to Argentina
According to what has been argued in preceding sections, the “vulnerability to external shocks”166 examined in this chapter are illustrated with the two embargoes that Chinese authorities decided to impose –allegedly on grounds of safety reasons– on Brazilian soybean shipments in May 2004 (lifted in late July that year) and Argentine soybean oil cargoes in April 2010 (which was to be lifted six months later).
Succinctly put, in both cases Chinese restrictions –as aforementioned, imposed on grounds of alleged violations of safety standards regulations– had detrimental effects on the latter countries, which suffered significant economic costs and revenue losses, and further strengthened China’s bargaining position towards them –i.e., the costly effects were reciprocal in the sense that had consequences for both the PRC and its suppliers. As aforementioned, these effects were negative for Brazil and Argentina (since Chinese purchases of their products were cancelled and shipments either delayed or rejected entry to China), and advantageous for the PRC (which benefited from lower prices of the commodity at the time it lifted the embargoes). This study considers that the safety167 concerns alleged by Chinese authorities when deciding the imposition of the embargoes were not unfounded –i.e., there were a necessary condition for them– but were not
165 Ibid.
166 Keohane and Nye, Power and Interdependence, xiii.
167 This study argues that, real as they were, the food safety concerns (high levels of fungicides and pesticides) amounted to a necessary –but not sufficient– condition for the imposition of the embargoes. It follows the conventional distinction made between the more quantitatively-oriented concept of “food security” –the security level achieved when the food production of a certain country equals or surpasses its own food needs– and the more qualitatively-oriented concept of “food safety” –the guarantee given to the consumer that the characteristics of the foodstuffs that he/she purchases will be of sufficient quality to fulfill a number of criteria, including health and safety. In this regard, it has been pointed out that “unsafe food contains hazardous agents, or contaminants, that can make people sick –either immediately or by increasing their risk to chronic disease. Such contaminants can enter foods at many different points in the food production process, and can occur naturally or as the result of poor or inadequate production practices.
Hazardous agents that are receiving attention from policymakers include microbial pathogens, zoonotic diseases, parasites, mycotoxins, antibiotic drug residues, and pesticide residues. Genetically modified foods and their potential to contain allergens or toxins not found in conventional foods have begun to receive attention as well.” See Laurian J. Unnevehr, “Food Safety in Food Security and Food Trade”, in IFPRI Focus 10, Brief 1 (Sept. 2003): 3-5.
http://www.ifpri.cgiar.org/sites/default/files/pubs/2020/focus/focus10/focus10.pdf
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sufficient either. Rather, I put forward the argument that, as a matter of fact, Chinese restrictions were retaliatory measures that, in both cases, resulted from a combination of motives that were predominantly economic and political, respectively, with safety concerns ultimately playing a secondary role. 168 Under these circumstances, then, this study argues that the theoretical insights offered by CID make possible to have a deeper understanding of the underlying political and economic motives of such measures, by linking China’s capacity to imposed the aforementioned restrictions without fearing any retaliations from neither Brazil nor Argentina. Keohane and Nye refer to this as
“comparative in-vulnerability” and define it as “the ability to impose discriminatory trading restrictions without effective retaliation.”169
According to the authors, “comparative in-vulnerability” is related to issues involving raw materials, since it is possible for a certain country to “design independent economic strategies by which could reduce its economic vulnerability to external events.”
(in this case, rising prices and the alleged violation of safety regulations). The authors suggest to “consider, for instance, the often-discussed problem of raw materials. If one were concerned about other countries’ refusal or inability to sell [or purchase, for the purposes of this study] energy or materials, one could restrict imports, diversify sources of supply, build up stockpiles and design contingency plans for… the event of sudden deprivation.”170 This section argues that, up to a point, this is what happened in the cases under examination: China restricted imports in order to minimize the impact of rising prices, in the case of Brazil, and to retaliate to both Argentine President Cristina Fernández de Kirchner’s decision to postpone what would have been her 1st State visit to the PRC in January 2010, plus economic reasons (antidumping measures imposed by the Argentine government).
The PRC could afford to do it because it could rely upon other suppliers. Indeed, China relies in three main suppliers for its soybeans purchases: the US, Brazil and Argentina –i.e, it does have a number of sources from where to import soybeans, while Brazil and Argentina rely on Chinese purchases to the point of being –over-dependent.
Thus, this gives the PRC the upper hand in dealing with them.
It is China’s “comparative invulnerability”, then, that contributes to strengthen its predominance and lesser dependence on trade relations with these countries and to
168 This study argues that, in the case of Brazil, the imposition of the embargo was mainly economically-driven: the restrictions were considered by Brazil’s Minister of Development, L.F. Furlan, as having probably been “opportunistic” and an attempt to “get lower prices” for Chinese soybean imports. The international prices of the commodity had risen due to bad harvests in the US and poor crops in Brazil and Argentina caused by drought in the South (for instance, the Brazilian state of Rio Grande do Sul lost 42%
of its soybean crop due to it).
In the case or Argentina, the study puts forward the argument that the embargo was a retaliatory measure, mainly motivated by political reasons –i.e., the Argentine president’s decision to postpone her first State visit to China in January 2010– but that also had economic causes –i.e., they were partially a response to antidumping measures taken by the Argentine government– besides the alleged safety concerns.
See “China suspendeu o embargo à soja brasileira após de negociação” – Consultor Jurídico – June 22, 2004.
http://www.conjur.com.br/2004-jun-22/china_suspende_embargo_soja_brasileira_negociacao (accessed December 10, 2012).
169 Ibid., 120.
170 Keohane and Nye, Power and Interdependence, 208.
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make even more robust the already stronger position that the PRC has relative to these countries, and also in the global markets for a number of commodities.
As it will be examined in detailed in later sections of this study, this chapter argues that, in a number of occasions in recent years, different agencies of the Chinese government –such as the State Administration of Grain (SAG, 国家粮食局 or國家糧食 局, Guójiā Liángshí Jú, one of the “functional agencies” of the State Council [SC, 国务 院; or 國務院, Guó Wù Yuàn], directly under the National Development and Reform
Commission [NDRC, 国家发展和改革委员会, or國家發展和改革委員會, Guójiā
Fāzhǎn hé Gǎigé Wěiyuánhuì] and from which depend institutions such as the China National Grain and Oils Information Center, the China Grain Research and Training Center, among others)171 or China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ,国家质量监督检验检疫总局, or國家質量監督檢驗 檢疫總局,Guójiā Zhìliàng Jiāndū Jiǎnyàn Jiǎnyì Zǒngjú)172– have repeatedly barred Brazilian and Argentine soybeans cargoes from entering China, for a number of reasons.
Needless to say, such bans and restrictions have created frictions and had negative repercussions on the economic and trade relations among these countries.
Another aspect that is examined throughout this chapter is the degree of risk – entailed by the aforementioned rejections/refusals by the Chinese authorities– of deepening trade frictions and rising tensions with these countries (with bilateral trade relations being strained at times), as well as of commercial exchanges having negative repercussions on diplomatic relations with them.
In order to do so, the present research will, first –and without denying the partial responsibility of both Brazilian inspection agencies and, in particular, the Argentine government itself on having either given room for the safety violations to happen or to, in the case of Argentina, given cause with its behavior to Chinese retaliation– attribute such shocks to China’s tendency to take advantage of the position of strength that its economic and political leverage gives it in its negotiations with these countries.
Second, this study takes, as concrete examples of such shocks, the two specific events that –although not being the only ones, since there were several precedents of the same nature– better characterize Brazil’s and Argentina’s dependence on and vulnerability to Chinese purchases of soybeans –with these countries respectively being China’s 2nd and 3rd largest suppliers of soybeans.
The chapter examines two theoretically relevant cases that reflect particularly well the more influential and dominant position that the PRC occupies in Sino-Brazilian and Sino-Argentine relations, and for which they are theoretically relevant for the purposes of this study: Thus, the incidents that will be examined in this chapter are:
1) The 2004 embargo that China imposed to Brazilian soybeans (the so-called “red beans incident” in English173 and referred to as “proibição”
[“embargo”] in Portuguese and in Mandarin “禁运巴西大豆”)174, and
171 State Administration of Grain of the People’s Republic of China (SAG) http://www.chinagrain.gov.cn (accessed November 9, 2012)
172 General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ)
http://www.aqsiq.gov.cn/ (accessed November 7, 2012)
173 Alexei Barrionuevo, “To Fortify China, Soybean Harvest Grows in Brazil”, The New York Times, April 6, 2007.
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2) The 2010 embargo imposed by China to Argentine soybean oil.
It is argued that significant asymmetries in terms of economic power and political relevance among China, Brazil, and Argentina have allowed the PRC to not only manipulate –to its advantage, and according to its needs –its dependence on the primary commodities that it imports from Brazil and Argentina, but also to exploit the dependence of both South American countries on Chinese demand of such commodities.
It emphasizes the fact that, due to the combination of a number of features unique to the countries being examined –described in detail in the different sections of this chapter– and according to the theoretical postulates above mentioned, the implications of both asymmetry and dependence in Sino-Brazilian and Sino-Argentine relations could be attenuated, reduced, and, eventually, countered.
These two cases do not constitute, by any means, an attempt to generalize its implications to the whole of Sino-Latin American politics. However, it could be argued that the analysis of these cases does offer certain innovative insights into the politics of asymmetrical interdependence in Sino-Latin American relations.
Embargo as Restrictions to Trade
This section will refer to “embargo” understood as a prohibition on exports/imports imposed to a certain country (or countries), which scope can vary from
“partial” to “complete”, in spite of the fact that the term can also be sued as referring to a general “ban” on trade and commerce. The causes of an embargo are predominantly economic and political, but there are also security and environmental concerns. They are widely regarded to be serious diplomatic measures that the imposing country decides to adopt in an attempt to persuade another country of giving up a particular behavior or interest. Thus, they can be thought of as a form of protest against another country’s practices or behavior. Regardless the motive, embargoes are trade barriers, similar to economic sanctions and widely considered as legal barriers to trade.
It is worthy to recall that, according to the WTO, non-tariff barriers can be imposed by countries in order to limit trade flows among them. Non-tariff trade barriers (NTBs) hinder trade by, for instance, restricting imports. Such restrictions can be imposed, among other forms, as “rules of origin”, “import licensing”, or “pre-shipment inspections”, which are mainly used by the governments of developing countries. Such inspections consist on “independent entities” that are employed to check the details of the goods (essentially, their price, quantity and quality) ordered overseas.175
http://www.nytimes.com/2007/04/06/business/worldbusiness/06soy.html?_r=0&adxnnl=1&pagewanted=al l&adxnnlx=1381860815-RbXAGuXzEcQ4EBu0UE4/9w (accessed November 10, 2007).
174 “巴西担心中国新政策将影响其大豆对华出口 (Brazil fears PRC’s new policy affects soybean exports to China)” – Ministry of Commerce of the People’s Republic of China (MOFCOM)– January 1, 2007.
It is worthy to highlight that: “在 2004 年，由于国际豆价飙升，中国以巴西大豆产品卫检问题为由宣 布禁止从巴西进口大豆，而且一些巴西出口商也被认定是市场禁入者，这起争端经过了数月的外交 斡旋后才最终得以解决。阿木林外长表示，巴西过去付出了巨大代价才得以解决这个问题，而目前 来看类似的情况仍有可能会发生。”
http://br.mofcom.gov.cn/aarticle/jmxw/200701/20070104197440.html (accessed May 2, 2010) .
175 “Understanding the WTO: Non-Trade Barries” – WTO
http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm (accessed May 2, 2011).
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In the cases under examination, Chinese media seem to prefer to refer to these measures as “curtailments” of soybean imports (understanding as such the action of reducing or restricting imports of this commodity). From an Brazilian and Argentine perspective, however, they constituted “embargoes”176 that led to not only considerable losses in export taw revenues, but also to policy alteration and a re-consideration of the terms in which relations with China were conducted.
1) The 2004 Chinese embargo to Brazilian soybeans