| THE WTO AND CHINA’S OBJECTIVES AS A WORLD TRADING POWER | |||||||||
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| http://whmsebhyy.com 2004年06月11日 13:07 中評網 | |||||||||
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Hai Wen China Center for Economic Research (CCER) Peking University, Beijing
June 1997
The completion of the GATT Uruguay Round negotiation, the establishment of the World Trade Organization (WTO), together with the end of the Cold War and the economic transition in former planned economies signals that a new international economic The validity and stability of the new international economic What is the China’s objectives, efforts and problems in its accession to the WTO? What is the main obstacles for China’s WTO membership? What will be the costs and benefits for the global economy from keeping China outside of the multilateral trading system? This paper discusses these issues. AN EMERGING WORLD TRADING POWER In discussing China’s WTO accession, it is important to understand China’s place in the global trade. Through almost twenty years’ of economic reforms and openness, China has clearly become a major participant in the world economy. Before it adopted an open-door policy in the late 1970s, China was almost completely isolated from the world. By the end of the Cultural Revolution and before the open door economic reforms, China only exported US$6.9 billion merchandise in 1978, less than one percent of the total world exports. In spite of its large geographic size, rich natural resources and large population, it was the 34th largest exporting country in the world. China has quickly become an important trading power in the world. Its foreign trade has increased almost 15 % annually in the past twenty years. In less than two decades, China’s total value of merchandise export has expanded more than twenty-fold. In 1996, China exported a total of US$ 151 billion and imported a total of US$ 139 billion worth of goods. The total share of the world merchandise trade has reached 2.7% in 1996, and it became the 9th largest exporting country in the world (5th largest trading power if we count the European Union as one group). If Hong Kong is included in China (exclude the trade between mainland and Hong Kong), then China is the 4th largest trader in the world. China now is a dominant exporter of labor-intensive products. In 1995, China exported more than 20% of the world labor-intensive manufactures. China is the major exporter of textile (16.8%), toys (13.1%), cotton (13.1%), clothing (around 13%), and shoes (12.5%). It has increasing shares of the world exports in radio, clocks, television, machinery, motorcycle, auto parts, and other manufactures. Table I China’s Imports and Exports and Shares in the World Trade Year Imports (US$ billion) Share of World Imports Exports (US$ billion) Share of World Exports (1) (2) (1) (2) (1) (2) (1) (2) 1980 20.0 33.9 1.0 1.7 18.1 30.1 0.9 1.5 1981 22.0 33.4 1.1 1.7 22.0 32.5 1.2 1.7 1982 19.3 30.2 1.1 1.7 22.3 31.9 1.3 1.8 1983 21.4 31.4 1.2 1.8 22.2 32.3 1.3 1.9 1984 27.4 38.6 1.5 2.1 26.1 38.1 1.4 2.1 1985 42.3 49.6 2.2 2.6 27.4 39.7 1.5 2.2 1986 42.9 50.9 2.0 2.4 30.9 44.6 1.5 2.2 1987 43.2 57.7 1.8 2.4 39.4 56.0 1.7 2.4 1988 55.3 74.3 2.0 2.7 47.5 68.4 1.8 2.6 1989 59.1 77.3 1.9 2.5 52.5 78.7 1.8 2.7 1990 53.4 79.1 1.6 2.3 62.1 90.1 1.9 2.7 1991 63.8 93.0 1.8 2.6 71.8 109.2 2.1 3.2 1992 80.6 116.5 2.1 3.1 84.9 127.9 2.3 3.5 1993 104.0 142.8 2.8 3.8 91.7 142.3 2.6 4.0 1994 115.6 166.0 2.8 4.0 121.0 167.2 3.0 4.1 1995 132.1 2.6 148.8 3.0 1996 138.8 151.1
Notes: (1) is the data for mainland China only, and (2) includes Hong Kong (net trade in the world market). Sources: The data is (1) is from “A Statistical Survey of China, 1997”, the Chinese Statistical Bureau. Data (2) is from Table 1 of Peter Drysdale, “The Implications of China’s Membership of the WTO for Industrial Transformation”. Sources of his data: UN trade data, International Economic Data Bank, the Australian National University In the international capital market, China has become the second largest recipiet (after the United States) of foreign investment. Before reforms started in 1978, China rarely had any foreign direct investment. This situation did not change much in early 1980s. The total foreign investment from 1979 to 1982 was less than US$ 12.5 billion, an average of about US$ 3 billion per year. In early 1990s, after Deng Xiaoping visited Southern China, China launched a new round of reforms and adopted more open foreign investment policies. High expectation on returns and tax exemptions attracted a record double-digit level of capital inflow in 1992 (see Table II). The trend has continued as Chinese economic reforms have deepened. In 1996, China attracted more than US$81.6 billion investment (US$ 54.8 billion actual foreign capital inflow) from foreign countries. China’s total foreign investment from 1979 to 1996 was US$283.4 billion. Among them, more than 71% ($204.3 billion) were from over the last five years.
Table II Foreign Investment in China
Year Total ($ Bil.) Annual Growth Rate FDI ($ Bil.) Annual Growth Rate 1983 1.98 0.64 1984 2.71 0.37 1.26 0.98 1985 4.65 0.72 1.66 0.32 1986 7.26 0.56 1.87 0.13 1987 8.45 0.16 2.31 0.23 1988 10.23 0.21 3.19 0.38 1989 10.06 (0.02) 3.39 0.06 1990 10.29 0.02 3.49 0.03 1991 11.55 0.12 4.37 0.25 1992 19.20 0.66 11.01 1.52 1993 38.96 1.03 27.52 1.50 1994 43.21 0.11 33.77 0.23 1995 48.13 0.11 37.52 0.11 1996 54.80 0.14 41.73 0.11 Sources: “A Statistical Survey of China, 1997”, the State Statistical Bureau, PRC
CHINA’S OBJECTIVES AS A MEMBER OF THE GATT/WTO As China becomes a leading trading power of the world, it has increasing incentives to join the world trading system. Incentives arise not only from the benefits of the multilateral system but also from the problems that China is facing. As an emerging world trading power, a general objective for China is to further integrate its economy In particular, China wants to join the WTO with the following objectives:
1. Obtain A Permanent Non-Discrimination Status In The World Trade Order Since China is not a member of the world trade regime, it does not automatically have the Most Favorite Nation (MFN) status with other trading partners. It needs to negotiate trade agreements with each individual country. So far, China has signed bilateral MFN agreements with more than 110 countries. However, some of these bilateral agreements are not stable. The annual review and debate of China MFN status in the United States has damaged Sino-US economic relationships since 1989. By joining the WTO, China wants to ensure a stable and non-discriminated trade relations with all the countries.
2. Participate in a Multilateral Framework For Dispute Settlement Currently, China’s economic relationships with all other countries are based on bilateral agreements. As a non-member of the WTO, the settlement of trade disputes between China and its trade partners largely depend upon bilateral negotiation. Many of these disputes are adjudicated by each of the country’s domestic laws. In recent years, there have been more than 200 “dumping” charges against Chinese exports. In case negotiation fails, unilateral trade sanctions and retaliation are often used as solutions. As China integrates
3. Play an Active Role in Writing Rules for the Future The GATT has completed its last round of trade negotiation, but the WTO is continuing the effort of free trade in future. The WTO will resume negotiations on agriculture, services and other sectors in three years. The continuing negotiations in the WTO are writing rules for the future. As an emerging and large world trading power, China does not want to stand on the sideline while others write the rules of the game. It is clear that there are benefits and adjustment costs for each country in the process of trade liberalization and globalization. Each country tries to maximize its future gains and reduce its adjustment costs in the new
CHINA’S ACCESSION TO THE GATT/WTO AND TRADE REFORMS China’s effort to return to the world trade regime began in the late 1970s when China started its economic reforms and adopted the open-door policy. After more than thirty years of isolation and a centrally planned economy, both China and the GATT contracting countries needed time to understand each other before China’s re-entry A Working Party was established on March 4,1987 to start the process of China’s re-entry of the GATT. The main tasks of the Working Party were to examine and evaluate the Chinese trading regime, defining areas and timetables for negotiation and adjustment, and preparing a report for the GATT Council. The Working Party had seven productive meetings in the period through until April 1989, but was suspended after the Tiananmen Square incident and not reconvened until 1992. 1992 was a very important year in the history of China’s efforts to re-enter the GATT. The Working Party held three meetings and completed the general hearing and assessment of China’s trading system. Negotiations on the commitment and conditions for entry Following the conclusion of the Uruguay Round, China launched a major campaign to join the GATT. China wanted to become a founding member of the new WTO. Along with nation-wide propaganda to promote the internationalization of the economy and disseminate knowledge on the GATT, China made a series of reforms in line with the GATT rules. China’s reforms in its external sector include: Decentralization of Foreign Trade Prior to the reform, the Ministry of Foreign Trade conducted and controlled all trade. Since 1988, foreign trade has been decentralized to local authorities and foreign trade corporations (FTCs). In 1980, the central government controlled about 98% of total trade. By 1991, only 11% of foreign trade was still controlled by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) (Garnaut and Huang, 1995; Zhang, 1993). In the last two WTO working meetings, China indicated that it will release control on trading rights after it becomes a member. Reduction of tariff and Non-tariff Barriers Since January 1992, China has reduced tariffs several times and brought the average rate down from 47.2% to 21.5% in 1997. China has also substantially reduced the number of goods subject to quotas and licensing. By 1994, China had eliminated quotas and import licenses for 283 products. In May of 1994, China abolished another 195 quotas. Currently, China has only 28 products (15 electronic goods and 13 others) are still subjected to import quotas and licenses, eight (mainly agricultural products) are subjected to non-quota license, and 103 are required import registration. Elimination of Export Subsidies In 1991, the Chinese government abolished all explicit export subsidies. From then on the FTCs had the responsibility for their own losses. . (4) Increases in Transparency China issued a Foreign Trade Law on July 1, 1994 to make regulations more transparent. It also started to change the method of allocating license from bureaucratic application procedure to open competition. (5) Foreign Exchange Reforms Reforms in foreign exchanges market converted the RMB official exchange rate to the market rate and abolishing the dual exchange rate system on January 1, 1994; Regardless of China’s effort and enthusiasm, the bilateral and multilateral negotiations were not very successful. China was still not able to return to the GATT and join the WTO after decades. The United States attitude towards China is firm: “China must follow the rule of the WTO if it wants to join the international trade body” (chief United States negotiator Charlene Barshefsky). It insisted that China must fulfill the WTO’s rule for the accession. On November 10, 1995, Deputy United States Trade Representative Charlene Barshefsky provided a “road map” for China’s accession. China’s response was that this was a “positive initiative” but that it demanded too much (O’Oum, 1996). China argued that the United States was obstructing China’s accession to the WTO for political reasons. China’s economic system is much closer to the WTO requirements than the United States portrays, but the gaps between two negotiating positions remain wide. In February and in May of 1997, China and the WTO had another two rounds of negotiations. In both of these talks, both parties made compromises so that the negotiation made some progress. China showed some flexibility on foreign trading rights, and the US indicated a willingness to compromise on the time requirements in the adjustment period. Currently, China is working with the United States and other major members for accession to the WTO, but it is not clear when and how China will be able to join the world’s most important trade organization. BARRIERS FOR CHINA TO ENTRY THE WTO China has formally requested to renew its membership of the GATT and to join the WTO for more than ten years. The deadline proposed initially for China’s re-entry to the GATT was the end of 1989, but China is still outside the world trading system eight year later. Perhaps it is the most complex and difficult accession process in the history of the GATT. Why is it so difficult for China to join the world trading system even though China is already the world 9th largest trade country? According to Lardy, China, in some respects, is one of the more open economies in Asia. “Its economy is more open than that of other East Asian economies at comparable stages of economic development and in certain respects is even more open than they are now (Lardy, 1994).” What, then, are the main barriers or obstacles for China’s accession to the world trading system? There are many differences between China’s position and the demands made by the United States. The main differences are: (1) China wants a gradual system adjustment, the United States wants a rapid change; (2) The United States and other developed countries want to have special safeguard options to protect their economies against future import surges from China—China does not accept this; (3) China wants to maintain protective measures for its “infant industries” as a developing country—but the United States does not agree to grant the full range of protective measures to China as it does to other developing countries. 1. Gradual vs. Rapid Adjustment Tariff Reduction. Although China has reduced its average tariff rate from 47.2% to 21.5% in less than six years, its rate is still high compared to other developing countries in the WTO. China has indicated a willingness to cut its average tariff rate to 15% in three years for industrial products and six years for agricultural products—the United States demands a 7% (European Union ask for 8%) tariff rate as a precondition to accession to the WTO. Trading License System. China has offered to phase out the current trading license system in five years—the United States is pushing for two or three years. In addition, the OECD countries request China to open up its distribution sector within a few years, but China does not want do so until 2020. Discriminatory Industrial and Investment Policies. Current Chinese industrial and investment policies discriminate against foreign investors. Foreign companies are restricted in certain sectors. The United States, the European Union and Japan want China to change these policies upon accession—China needs a much longer time to achieve these reforms. 2. Safeguards vs. MFN As a condition of acceptance for China 3. Developing vs. Developed Country China insists on developing country status in accession to the GATT/WTO, but the United States wants China to enter the system as a non-developing country. As a developing country, China can take a longer time to liberalize international trade and have more time to protect its “infant” industries. By the World Bank’s definition, China is a developing country, but the United States argues that China is an “export powerhouse” (Chong, 1995). The US claims that China is so big and so significant in the world market, that China can not be treated as a regular developing country. In short, the United States wants China to liberalize trade and foreign investment before it becomes a member of the world trading system. Is the United States asking for too much, or, are these requests minimal requirements for a new WTO member? If we look at the history of the GATT, it is not difficult to find that China has experienced a more complex process and faced higher entry barriers than many other countries. The US and other OECD countries often claim that China is still not a market economy. However, a full market economy is not a necessary condition for accession According to Chinese negotiators, the current WTO demands are much greater than they were in the late 1980s when China’s economy was much less open and free. Lardy has also pointed out that, “it is time to recognize that the United States has already demanded and received more from China in terms of economic reforms than was demanded of other comparatively developed countries when they entered the GATT (Lardy, 1994)” Regarding the developing vs. developed argument, it is true that China is a large exporting country, but it should not be penalized for its good performance. The GATT’s definition of a “developing country” (less-developed country) is based on standards of living, not on export performance. Therefore, the United States interpretation of China’s case is not justified. It is clear that China has experienced a much more complicated entry process From an economic point of view, the recent growth in China’s economy and rapid increase in Chinese exports has made developed countries rather nervous about the future challenge from China. One popular concern in the United States is: Will China become another Japan? The United States has had a huge trade deficit with Japan for many years. If China becomes another Japan, the potential for an even larger trade deficit is realistic, if only because of the fact that China is so much larger than Japan. The United States wants to learn a lesson from the past and access the Chinese market before this concern becomes a reality. A World Bank study shows that, under the Uruguay Round trade liberalization, China’s export to the United States, European Union, and Japan would increase by 40% (World Bank, 1993). Many WTO member countries believe that China will receive large benefits by joining the WTO. This belief gives a strong incentive to the United States and other countries to use this opportunity to demand more from China. Politically, the United States and Western countries want to ensure that China’s market-oriented economic reforms continue. They do not want Chinese state-owned enterprises to benefit from China’s WTO membership. After the collapse of the former Soviet Union, China has become the number one target to be watched by the United States. Clearly, the US and some other OECD countries are attempting to use this opportunity to maximize their access to the Chinese market and to shape the Chinese trade position in the new world economic order. INTERNAL OBSTACLES Can the US successfully reach its goals? Will China make compromises in the WTO membership negotiations? The answer is rather pessimistic, since there is also internal obstacles for the WTO accession. So far, the Chinese government is reluctant to accept demands from the United States and the other major GATT/WTO contracting countries. China is even willing to postpone its entry to the WTO. It is not difficult to see the economic and political reasons behind the China’s action. 1. High Adjustment Costs in Domestic Economy China’s main reason for rejecting the market accession conditions requested by the United States is to prevent domestic industries from failing. As a developing country and a former planned economy, China has a large set of low efficient industrial sectors. To avoid rapid social and political change and possible turmoil, China has adopted a gradualistic approach in its economic reforms. The Chinese government understands the cost of slow reform in its state-owned enterprises, but they believe that the adjustment costs of rapid change will be much higher. Situations in Russia and East European countries made the Chinese leaders very cautious to make any big change. The social stability is the first priority for the current political regime. Table III shows the current situation in affected import-competing sectors. These sectors do not have a comparative advantage or competitive advantage in international competition. Research indicates that one-third of Chinese industries will face international competition once China enters the GATT/WTO. These sectors account for almost 40% of total Chinese industrial output value and about 30% of industrial employment. Furthermore, most of the firms in these sectors are state owned firms with a very low level of efficiency. The competition from domestic non-SOEs, including town and village enterprises (TVEs) and joint ventures, has already caused many SOEs to suffer losses. The Chinese government is hesitant to bring in more competition to the SOEs at the current stage.
Table 3 China’s Industrial Sectors May be Affected by Accession to the WTO (1994) Manufacturing Sector Output Value (RMB billion) Share Employees (million) Share Chemical Materials & Products 380.3 7% 4.50 7% Medical & Pharmaceutical Prod. 87.5 2% 0.97 1% Smelting & Pressing 536.8 10% 4.47 7% Metal Products 170.8 3% 1.96 3% Transportation Equipment 318.6 6% 3.45 5% Elect. Equipment and Machinery 232.7 5% 2.33 4% Electronic and Telecom. 199.99 4% 1.63 2% Total: 1926.6 38% 19.31 29%
Source: China Statistical Yearbook, 1995, State Statistical Bureau, PRC Another important sector may be affected is agriculture. Although the agricultural sector in China is not run by the state, politically it is always a sensitive area. Historically, China had several food shortage which resulted in either political turmoil or peasant uprising. Thus, food security is highly related to the political stability in China, and “self-sufficiency” has been a national policy for many years. However, like most countries in their industrialization, China has gradually lost the comparative advantage in agriculture in past decades. The relative agricultural prices have increased and some grain prices have exceeded the international price level. Not only food security, the returns to factors during economic growth is also a main concern of agricultural policy choice. As the income in non-agricultural sectors increases in industrialization, the income of farmers are partially been compensated by increase in agricultural prices. However, this trend will not continue if China liberalize its agriculture market. The relative return to land will definitely decrease in an open economy that is growing. Farmers whose income are depended on the return to land will be worse off and income gap will be enlarged. In contrast with the relative weak import-competing sectors, China’s export sectors have already been decentralized. Most enterprises in the export sector are not state owned. Their activities are more profit-driven and market oriented. In the past decades, despite difficulties in accessing foreign markets as a non-GATT member, China’s exports have grown at an average of 18.7 %, 11% higher than the world export growth rate, from 1978 to 1994. Without being a member of the world trading system, China’s export share in world trade has increased from less than 1% in 1978 to more than 4% in 1994. Many of China’s labor-intensive products are already major exports in the world . By joining the WTO, China’s exports will find it easier to enter foreign markets, but the situation may not improve that much in the short run. Who in China supports the accession and who opposes it? It is very clear that the majority of high tech or capital intensive sectors will face more competition and bear most of the adjustment costs. These sectors are mainly owned or controlled by the state. In the current situation, the state owned import-competing groups have more political and economic influence in the central government than do the supporters of the export sector. If China follows the “road map” provided by the United States and other developed countries, the market gain from the accession to WTO will be very marginal while the internal adjustment costs will be very large. Therefore, at the current stage of reform, it is unlikely that the Chinese government will fully commit to trade liberalization and open markets. ests in the Current Governmental Structure
3. Rising Nationalist Sentiment Since the 1989 Tiananman incident and the fall of the Soviet Bloc, the political relationship between the United States and China has deteriorated. Conflicts have been rising frequently over the past eight years. The United States Congress passed a resolution to oppose China’s Olympic bid, the Clinton Administration invited Lee Tunghui to the United States, American news media were disrespectful to the Chinese athletes, and many other Americans have criticized China. These actions have had very negative effects in China and have increased nationalist sentiment among the Chinese people and policymakers. It has become very popular to support the government in “saying no” to America and other Western countries. Also, China is in a period of economic as well as political transition, and it is very difficult for the current Chinese leaders and WTO negotiators to accept all of the requests from the United States. Any compromise to someone who is not friendly to China will be seen as a weak leadership. The rising of nationalist sentiment makes it far more difficult for the Chinese government to be flexible on WTO accession. THE PROSPECTS TO CHINA’S ACCESSION TO THE WTO Negotiation over China’s accession to the world trading system is an international “game”. Both sides want to maximize gains through the process. For the United States and the Western countries, it is an opportunity to access the Chinese market and formalize the future direction of China’s economic development. For China, it is an important step in gaining international recognition and integrating itself No one will disagree that bringing China Currently, the United States, Europe and Japan may overestimate the net gain to China or underestimate the benefits they may have if they can bring China China will not be admitted to the WTO in the near future unless the United States changes its global political and economic policy. Considering the domestic situations, China is not ready yet for full commitment to the WTO principles. China will continue to reform its economic system and trade policies for its own sake, but it may take more time than Western countries wish. It is now up to the world trading system to make the choice of adopting China as a special case or postponing China’s accession to the WTO. Meanwhile, as an alternative, China will play an active role in APEC. The “unilateral” and “voluntary” principles will make China more comfortable about deciding its own pace of reform and trade liberalization. “Peer pressure” from APEC countries will provide a positive external role in pushing China’s economic reform and trade liberalization, which in return will pave a road for China to access the WTO.
References Chong, Florence, “APEC, WTO, 301: The United States Team Forging Access to Regional Markets”, Asia Today, Australia’s Regional Business Magazine, Vol 13, No. 10, October 1995 Drysdale, Peter, and Andrew Elek, “China and the International Trading System”, Pacific Economic Papers, No. 214, Australia-Japan Research Centre, the Australian National University, December 1992 Drysdale, Peter, “The Implications of China’s Membership of the WTO for Industrial Transformation”, Paper presented in the Conference on Chinese Industrial Upgrade: Institutional Transformation and International Cooperation, CASS, Beijing 17-18 January, 1997 Elek, Andrew, “From Osaka to Subic: APEC’s Challenges for 1996”, Pacific Economic Papers, No. 255, Australia-Japan Research Centre, the Australian National University, May 1996 Garnaut, Ross, and Yiping Huang, “China’s Trade Reform and Transition: Opportunities and Challenges for OECD Countries: A Report Prepared for the Trade Directorate, OECD”, Department of Economics, RSPAS, ANU, February 1995 Garnaut, Ross, and Yiping Huang, “China and the Future International Trading System”, China and East Asia Trade Policy, Pacific Economic Papers, No.250, Vol.III, AJPC, Australian National University, December 1995 Lardy, Nicholas R., China in the World Economy, Institute for International Economics, Washington D.C., 1994 The Ministry of International Trade and Industry of Japan, the Subcommittee on Unfair Trade Policies and Measures of the Industrial Structure Council, “China’s Accession to the WTO”, in 1996 Report on the WTO Consistency of Trade Policies by Major Trading Partners, This report was officially released on March 29, 1996 O’Ouim, Rober P., How to Bring China and Taiwan World Bank, China Foreign Trade Reform: Meeting the Challenge of the 1990s, World Bank, Washington D.C., 1993 Xia, Shen, and Chu, Xiangying, ed. The Dictionary of General Agreement on Tariffs and Trade, Foreign Trade Education Press, Beijing, 1993 Yang, Shengming, “WTO and the Development Strategy for China’s Foreign Trade in the 1990s”, paper presented at the International Conference on China and WTO: Issues and Impacts on China and the East Asian and Pacific Economies, Tokyo, May 8-9, 1996 Zhang, Xiaoguang, “Reforming a Centrally Planned Trade System: the Chinese Experience”, Economic Division Working Paper, East Asia, 93/6, Research School of Pacific and Asian Studies, the Australian National University, 1993 Zhang, Xiaoguang, and Peter G. Warr, “China’s Re-entry to THE GATT: A General Equilibrium Analysis of Tariff Reduction”, China and East Asia Trade Policy, Pacific Economic Papers, No.250, Vol.III, AJPC, Australian National University, December |
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