Saturday, April 14, 2007

China and WTO: Battles Ahead

Just weeks before the World Trade Organization Third Ministerial Meeting in early December, China and the United States reached a landmark agreement on the terms of China’s entry into the World Trade Organization (WTO). While the accord removes a number of obstacles to China’s entry into the international trade body, it signifies only the beginning of a long accession process. The upcoming battle for the trade deal in the U.S. Congress, and the market access agreements China still has to negotiate with some twenty-three countries, including the EU and Canada, represent some of the many future challenges that await China and pro-China groups in the United States.

Following concessions made in the areas of agriculture, textiles and finance on the part of the Chinese government, significant progress was made on the terms of China’s accession to the WTO during Prime Minister Zhu Rongji’s April visit to the United States. However, early debate over the merits of the agreement within the Clinton administration, the U.S. bombing of the Chinese embassy in Belgrade, and continuing tensions across the Taiwan Straits delayed further discussion for much of this year. According to Daniel Rosen former Institute of International Economics Scholar, the agreement signed this November is largely consistent with terms negotiated by the U.S. and Chinese teams in April.

Accession to the WTO will further open China’s domestic markets to trade and investment, and include permanent normal trading relations (PNTR) status for China, which requires passage by the United States House of Representatives. Permanent NTR, formerly known as Most-Favored Nation status (MFN), will ensure Chinese goods receive the low-tariff access to U.S. markets that almost every other nation receives.

Under the recent agreement with the United States, China will reduce average import duties to 17 percent from 22.1 percent after WTO accession. Export subsidies and tariffs on farm goods, automobiles and auto parts will be eliminated. China will allow 49 percent foreign ownership in telecommunications firms, with an increase to 50% after two years. U.S. banks, insurance companies, and film producers will be given greater access to domestic markets. Also, China’s ban on foreign investment in Internet companies will ‘no longer be an issue,’ says Charlene Barshefsky, U.S. Trade Representative.

In China, the government has established working groups to inform the various ministries and industry leaders on the terms of the agreement, and the possible effects of WTO membership on sectors of the economy. President Jiang Zemin and Premier Zhu Rongji must prepare a population that is still grappling with the implications of the agreement—many Chinese are currently supportive, but wary of the effects of a widespread market opening on weak industries. While WTO membership is expected to raise the efficiency of domestic firms, and contribute to GDP growth, workers in China's state sectors, already facing high unemployment, are expected to be particularly affected by the accord. Lower tariffs on cotton, wheat and other farm products, according to Hu Angang, an economist at the Chinese Academy of Sciences, could shock China's vast agricultural economy.

Preparing for a fight with the Republican-dominated Congress, President Clinton has asked business groups and pro-China interests to play a lead role with the administration in lobbying for the agreement. A broad coalition of groups opposed to the China WTO agreement is brewing within Congress. Labor, environmental, human rights, and manufacturing trade groups are preparing to rally against the agreement when the House votes on it early next session. Ohio Democrat U.S. Representative, Sherrod Brown, was quoted as saying, "We're going to make this the biggest vote in the 106th Congress." Some have also raised concerns as to whether China will live up to the terms of the agreement and implement the market access protocols.

While a number of steps lie ahead for China, China is expected to participate in this November’s Third Ministerial Meeting as an observer nation, while playing a more substantial role upon accession.

Go to resources on China and the WTO:

News Sources
Trade Statistics


China on the World Stage: Reexamining Expectations (November 22, 1999)
In this speech, Robert Bottelier, former World Bank Chief at the Resident Mission in Beijing, describes the history of China's relationship with international financial institutions, and explores the dynamics of Sino-World Bank relations since the 1950s. He discusses the political and economic issues that shape China's approach to the World Bank, and multilateral institutions.

China’s view of WTO: Neither Favor nor Monster (November 18, 1999)
Gary Chen, China Online writer, discusses the many issues that are shaping domestic debate on the WTO agreement within China. He relates both the challenges and opportunities for Chinese government ministeries, industrial sectors, and the populace, and the many potential areas of conflict between U.S. and China once the terms of the agreement are implemented.

Why US-China WTO Concord Matters (November 15, 1999)
Daniel Rosen, former Institute of International Economics Fellow, argues that the bilateral agreement signed by China and the United States is critically important to resolving the wide range of outstanding issues between the two countries. Futhermore, "completion of the bilateral talks is a potent signal that economic welfare will not be held hostage to narrow political interests."

Coming to terms with the “WTO Effect” on U.S.-China Trade and China’s Economic Growth (November 2, 1999)
In this commentary, Mark Frazier argues that the real significance of China accession to the WTO "lies not in the short term benefits that might accrue to corporations in specific sectors, but in the restructuring of China's economy over the next decade." He contends that economic growth in China, and continued domestic restructuring of the banking and the State-Owned Enterprises (SOEs) sectors are in the long term interest of U.S. exporters, and U.S. economic policy makers.

China and the WTO: The Politics behind the Agreement (November 1999)
Joseph Fewsmith of the National Bureau of Asian Research provides an insighful and exceptionally researched look at the political factors that shaped Sino-U.S. WTO negotiations over the course of 1999. He discusses Zhu Rongji's position amongst the Chinese leadership upon return from his failed April meeting with President Clinton, overtures from the United States after the embassy bombing in Belgrade, and the role of president-level dialogue in pushing through the agreement this November. In China, he notes, "unfortunately, the missed opportunity in April, followed by the embassy bombing in early May, raised the WTO issue from the already difficult arena of bureaucratic politics into the often brutal realm of elite politics."

China Accession to the WTO: A Candid Appraisal from U.S. Industry (September 1999)
In this noteworthy National Bureau of Asian Research brief, the authors developed and administered a structured questionnaire to executives and trade associations to gauge corporate views on China's entry into the WTO. The brief explains a range of U.S. corporate expectations and strategies, provides initial corporate responses to the April-negotiated agreement, and views on the problems associated with implementing an agreement in China.

China and the World Trade Organization: An Economic Balance Sheet (June 1999)
In this Institute of International Economics brief, the author provides a nuanced appreciation of the direct economic impact of a WTO agreement between China and the United States, with estimates for import, export, and GDP growth as a result of the agreement, and long term figures. The author also discusses the implications of WTO rules and standards on the Sino-U.S. trade relationship, and Chinese compliance with international obligations.

China and WTO: A Great Leap Forward for U.S. Businesses? (May 1999)
Daniel Rosen provides a comprehensive analysis of the April negotiated WTO deal between China and the United States in this May 1999 report. Mr. Rosen explains the concessions made by the Chinese government and their implications for U.S. business operating in China. The report includes market access and protocol commitments from the Office of the United States Trade Representative.