International Economics - FAQ about International Economics

China's Accession To WTO

A. Introduction B. 13 Years' Accession to WTO C. WTO's Attractiveness to China D. One Big Step to WTO-Deal between China and US E. What's Next

A. Introduction

"We are not a World Trade Organization until China has joined...A door to history has been opened and now member governments must walk through it together,"

Mr. Mike Moore, the Director-General of WTO

China has sought to enter world trade's leading body for 13 years, it has been negotiating entry to the World Trade Organization, WTO and its predecessor organization the General Agreement on Tariffs and Trade, GATT.

To join the WTO, which sets global trading rules, China would have to reach market-opening agreements with the United States, the European Union, Canada and other members, the talks with the United States are seen as the key to membership.

One of the main sticking points for impeding China's accession to WTO was its refusal to open its own markets to goods from other countries, particularly the United States and Europe.

However, on the 15th November 1999, China and the United States has ultimately made an agreement which paved the way for China's entry to WTO. "There is a major step forward in China's accession to the WTO. I have said many times that we are not a World Trade Organization until China has joined," said the WTO Director-General, Mike Moore who welcomed the US-China accord on Chinese accession to the WTO.

B. 13 Years' Accession to WTO

After the agreement was made between China and US, the date for China to enter WTO should not be far away. However, before this date comes, the road is paved for many years. Let's have a review on what happened on China and the related countries during these 13 years' accession to WTO.

*Beforehand,*
1948	China was a founding member of GATT.
1949	China withdrew from GATT under the Nationalist government.
After 1959	China withdrew entirely from international trade, restricting itself as in the days of the Emperor Qianlong to a trade fair in Canton and some covert business in Hong Kong and Macau.
*13 Years' Accession started,*
1986	China began talks to rejoin GATT, the precursor to the WTO.
1989	The talks were broken off in the aftermath of the Tiananmen Square crackdown. On the other hand, China successfully pursued bilateral trade deals playing on trading power off against another but as more and more goods and services have been opened to international trade, this has not been enough.
1992	To further its own interest, China is compelled to take part in successive negotiating rounds. China has to go through a drawn-out discussion about commitment, responsibilities and mutual obligation, with individual countries such as the United States, Japan and the European Union.
1995	WTO established and replaced GATT. China's eagerness to join the world trade leading body is raised.
1999, April	Negotiators have made little progress in three rounds of talks in two months, with Chinese negotiators disputing concessions US officials claim were given in a breakthrough session in April. Clinton rejected an offer from Premier Zhu Rongji who visited US in April, the US Trade Representative's office made public a list of the supposed concessions. Powerful Chinese state industries and politicians then used the list to lobby against a WTO deal and humiliate Zhu.
1999, May 7th	North Atlantic Treaty Organization, NATO bombed the Chinese Embassy in Yugoslavia. In the anti-US protests that swept China following the bombing , protesters branded Zhu as a sellout to foreign interests. A series of actions by the Clinton administration inadvertently strengthened the protectionist sentiment in China and caused Beijing to suspend WTO talks for four months.
1999, November	China and US met again at Beijing which is believed to be the last major chance to strike a deal if China wants to join the WTO before new global trade liberalization talks open in Seattle on November 30.
1999, November 15th	An agreement between China and US was made after six days of tense negotiations between US Trade Representative Charlene Barshefsky and Chinese officials. Only two days of talks had been scheduled.

C. WTO's Attractiveness to China

Struggling for such many years, what makes China to be so eager for joining WTO? Is WTO really attractive? Everything has two sides, China's entry to WTO will surely bring benefits to her, but also costs.

China wants to join WTO before year 2000 (end of period), it does not only have a meaning but also a benefit. According to the World Bank, there might be some short-term pain, but China would benefit by about $83 billion a year. (The rest of the world would see benefits of $340 billion a year.) That is, $423 billion is the amount to be split among the participating parties. Those dominant parties are US, EU and Japan.

Benefits:	*Costs:*
China would become a rule setter in the global trading community. It would be able to influence debates and new rules on trade liberalization globally. That is very important for a country like China, which is one of the top ten trading nations in the world, and has this enormous potential market.	As a member of the WTO, China would have access to mechanisms to sort out multilateral disputes. But usually, in trade and politics, China prefers to resolve disputes bilaterally so as to take advantage of its size.
With the international factors added to the Chinese market, economic reform is likely to be speeded up. The Chinese people will also gain more power and freedom come along.	China can be changed, by the WTO, by the market economy rule. But the market economy will only work with the rule of law, that is the foundation, but in China today, it is completely ruled by a few people, not ruled by law. Changes may only be brought to those rich and authority, power and freedom may not go to the ordinary Chinese people.
China's economy, by overcoming market distortions and enjoying new efficiencies, would soar to greater competitiveness and consumer choice.	The state owned industry sector in China is very weak. Many of these companies would be pushed onto the brink of bankruptcy if they had to face the full force of foreign competition in China, after the tariff barriers are lowered and after greater access is given to foreign companies in the Chinese market.
Cheaper imported goods like cars and a variety of goods and services are available in the Mainland market. At the same time, more exports to different countries can raise the earnings.	China would have to loosen up its production subsidy and various trade restrictions.
Some Chinese youngsters believe that if they improve their English, they can be more marketable to multinational companies, like internet companies.	With the WTO, more and more state enterprises and small companies will close down and there will be more and more unemployment. As China has no security system, if you lose the job, you will lose everything, then, social unrest may arise.

Concerning the criticism about joining WTO, Vice Minister of Foreign Trade, Long Yongtu argued that there would be a sufficiency long "transition period" for the mainland to adjust to foreign competition. "If we have a firm grip on our sovereignty, the opening up of the market will not lead to a big disruption."

Hong Kong, as part of China, will surely affected by any changes happened on the Mainland. After China's entry to WTO, some expect that Hong Kong stands to gain in almost every respect, but some can see the negative side of this event to Hong Kong. Financial analysts forecast export and import trade from and to the mainland to be doubled by 2005. The mainland's entry to the WTO would help Hong Kong's battle against trademark and copyright infringement.

However, any positive effect on consumption from WTO membership may be minimized by concerns over higher unemployment as restructuring of the economy speeds up with WTO membership. Some also fear that Hong Kong's place as a gateway to China may be lost if the mainland trades directly with more countries. But the Chief Executive, Tung Chee-hua said fear of Hong Kong losing its role as middleman had been there all along and the SAR would remain vulnerable irrespective of the WTO.

Besides China, the United States is also very eager for pushing China to the WTO, although it's a mutual beneficial affair to both China and US, it seems that US will be in a better position than that of China. It is because China is a real great potential market to US. The agreement between China and US would open China's market to US products and help introduce American values into China. With the elimination of high tariffs, import licenses and quotas and limits on foreign investment, the huge trade deficit to US can be shrunk.

D. One Big Step to WTO-Deal between China and US

On the 15th November 1999, US announced the successful completion of bilateral talks on China's accession to the WTO. The talks between US and China were led by the United States Trade Representative, Charlene Barshefsky, and the Chinese Trade Minister, Shi Guangsheng. The other important officials including Director of the White House's National Economic Council of US, Gene Sperling and Vice Minister of Foreign Trade of China, Long Yongtu.

The main content of the Agreement is as follows:

Average Tariff Levels:
China agreed to cut its average tariff level to 17 percent from 22.1 percent.

Telecommunications:
China will allow 49 percent investment by foreign telecoms providers from the date of accession, with the figure increasing to 50 percent after two years.

Internet:
US companies will be allowed to invest in Chinese Internet content providers.

Autos:
China will cut its import tariffs on automobiles to 25 percent from 80-to-100 percent by 2006. US firms will be allowed to provide auto financing in China.

Banking:
Foreign banks will be able to conduct local currency business with Chinese enterprises two years after China's WTO entry and retail business five years after entry.

Agriculture:
China agreed to cut import tariffs on agricultural products to between 14.5 percent and 15 percent and establish tariff rate quotas for wheat, corn, rice and cotton, with a substantial share reserved for private trade. China also agreed to phase out state trading of soy oil.

Hollywood films:
China is going to allow the US to export as much as 50 films a year instead of 10.

Export subsidies:
China will eliminate export subsidies.

Distribution:
China will allow distribution rights for US exporters.

China stood to gain by entering the WTO as a developing country, not a developed one as previously insisted by the US.

E. What's Next

Although the deal between China and US was hailed as a major step forward, some trade experts cast doubts on whether China's WTO entry will follow smoothly.

Despite gains for US exporters, critics of China are likely to challenge the effort to get the agreement through Congress. Labor has vowed to fight the agreement as well. They pointed to claims of slave labor and persecution of union leaders on the Mainland.

And the support of other WTO members is needed before China is granted membership in the body and most of the benefits of the agreement become effective.

The European Union and Canada both have outstanding issues they want to discuss before agreeing to China joining the WTO, and many developing countries, which make up the vast majority of the WTO's current membership of 135, had yet to even start talks with China, diplomats said. Others, such as Brazil and India, have a number of outstanding issues to settle.

Japan completed talks with China earlier this year and a Canadian official said Canada's talks with China could be completed in November 1999.

Finally, some foreign experts said many Chinese officials continue to confound foreigners with their lack of even a superficial understanding of the implications of WTO membership. For example, some Chinese experts on the WTO naively argue that entry will protect them from the many dumping cases now leveled against Chinese exports by both Europe and the United States. They fail to realize that WTO membership merely changes the location of the battlefield, it doesn't necessarily alter the nature of that war.

To avoid such fundamental misunderstandings and to adequately prepare the Chinese for all the practical and psychological changes they face in becoming a full member of the multilateral trading system, the United States, Japan and the European Union need to mount a comprehensive education and training effort for Chinese officials.

In the early 1990s, Washington consciously built into the intellectual property accords it signed with Beijing a commitment to help train Chinese lawyers, judges and customs officials in the concepts and practicalities of copyrights, trademarks and patents, so that the Chinese could faithfully implement the deal.

The WTO has instituted some training for Chinese officials to help them to implement Beijing's WTO commitments. But additional Japanese, European and American funds and expertise are needed to broaden participation in the training effort.