The Roots of the Chinese Drywall Problem: Part I January 31, 2010

As consumers across the nation are struggling to cope with the burdens associated with Chinese drywall (financial or/and health), a question beginning to be asked with some consistency is, “What caused or allowed the Chinese drywall crisis to take place? . . . What are its origins?”  This two-part article will explore in brevity the backdrop of the issue, and the relationship between China and the U.S

Globalization efforts and principles of free-trade bolstered world economies in the late 20^th century, particularly between the United States and China. The economic relationship between the two, however, evolved with an eye towards growth, expedience, and flexibility rather than domestic consumer protection.

Read an interesting article by Vicky Hu on Chinese economic reform here.

In the broadest sense, there are two issues presently confronting domestic consumers: A widespread lack of quality control and a lack of an effective remedial system when the culpable entity is a Chinese manufacturer.  Consumers who do not have an experienced attorney to represent them in complicated international matters face extraordinary obstacles.  For example, certain documents may be required to be translated into a specific dialect of the Chinese language when serving foreign defendants.

Beginning in the 1980’s, GATT tariff negotiations came under fire from some exporting business interest groups due to concerns that regulatory policies might serve as a potential barrier to trade, in a non-tariff capacity.  These groups argued that the price of exports would increase, if compliance with competing regulations were to be scrupulously adhered to, thus resulting in unfair and discriminatory results to such exporters in the global arena.  As a result of these concerns, the Uruguay Round Agreements included two components aimed at reducing these regulatory barriers.

The Technical Barrier to Trade Agreement[1] and the Sanitary and Phytosanitary Measures Agreement[2] sought to eliminate regulatory policies that were not promoted in good faith, or were arbitrarily imposed to benefit local businesses.  It seems that the intention was to combat localized practices of squeezing out global competition that were disguised as regulatory policies.[3] Measures taken to facilitate domestic protectionism in the traditional sense (i.e., to protect domestic businesses) must be watered down from the outset as a result of these limitations.[4]

For a continued analysis of these measures the their implications, please read Part II.

REFERENCES:

[1] Agreement on Technical Barriers to Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Ann. 1A, Legal Instruments-Results of the Uruguay Round, 1868 U.N.T.S. 120 (1994) [hereinafter TBT Agreement].

[2] Agreement on the Application of Sanitary and Phytosanitary Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, Legal Instruments–Results of the Uruguay Round, 1867 U.N.T.S. 493 (1994) [hereinafter SPS Agreement].

[3] TBT Agreement,  pmbl.; SPS Agreement, pmbl.

[4] Watered down domestic protectionism in the traditional sense is not a bad thing, as it simply alludes to the fact that free-trade is facilitated in a more efficient manner.  The problem arises at a later point in the consumer protectionism context, where the TBT and SPS agreements are so limiting upon government that certain standards are left to industries.