Table Of Contents
2 CHINA’S FIRST ATTEMPTS TO ENTER THE WTO
3 PROLONGED DIFFICULTIES
4 FINAL WTO ACCESSION
5 BENEFITS AND DISADVANTAGES OF WTO MEMBERSHIP
5.1 EXPECTED BENEFITS FROM WTO MEMBERSHIP
5.2 EXPECTED DISADVANTAGES FROM WTO MEMBERSHIP
6 FUTURE OUTLOOK
What were the difficulties surrounding China’s accession to the World Trade Organisation (WTO)? Why has it taken the People’s Republic of China (PRC) over 15 years to join? What are the expected benefits and disadvantages of joining? What changes is WTO membership likely to bring to China’s economy in the future?
These are the question this paper aims to address on the following pages. WTO accession by China is often seen as the most significant event about China in the last decade, even ahead of the Taiwan Independence issue, which continues to penetrate world news periodically. Since the end of the Cultural Revolution in 1978, China has been on a course of economic reform. Today, Chinese are richer than ever before in history, with the country itself having experienced extended periods of extraordinary growth, even throughout recent events such as the Asian crisis (Morck and Yeung 2000).
Along side the other international organisations in operation today, the WTO has played an important role in liberalising and regulating global markets (WTO Secretariat 2000). It covers numerous aspects of economic and trade globalisation such as commodities trade, services trade, investments relating to trade, intellectual property rights relating to trade, mechanisms on trade policy deliberation and dispute settlement, transparency of regulations, and sustainable development (Linggguang 2001). Wallach (1999) rightly expects that the WTO will ‘continue to advance global liberisation through multilateral rules’.
Entering the WTO is widely regarded as being of significant importance for China, both in terms of gaining access to foreign markets, but also to use firm WTO rules to fight off economic entrenchment. Further, Woo (2001) sees the country’s marketisation and international integration ‘below the optimal degree’. With WTO membership, China can rightfully expect to become, once again, a full and respected member of the international trading arena, much in the same way as the country made its political reappearance on the international stage through its UN membership in 1972 (Morck and Yeung 2000).
The effects of Chinese WTO membership are expected to be profound and widespread, both on the Chinese economy, but also on its trading partners. This paper will focus on aspects affecting the Chinese economy, highlighting the main advantages of membership, but also reporting on some of the expected and perceived negative impacts.
Specifically, this report will highlight China’s first attempts to join the WTO more than 15 years ago in chapter two. Chapter three will focus on the main areas of difficulty surrounding WTO accession, while chapter four will comment on the final accession in December 2001. The expected economic advantages and disadvantages for China will be discussed in chapter five; finally, chapter six will offer a brief future outlook for China, again mainly from an economic perspective.
2 China’s First Attempts to Enter the WTO
Since the 1970s, with the adoption of its Open Door Policy, China has been negotiating trade treaties with major countries. These were mostly of bilateral nature, resulting in trade and other agreements with most countries with which China had diplomatic relations (Kong 2001). In addition, China has often also enjoyed the same trade treatment as established members of the WTO through the Most Most-Favoured-Nation (MFN) provision of the WTO, which requires member states to treat nationals of other countries no less favourably than their own, and treat all nations equitably (Kong 2001, McDonald and Burton 2002).
In July 1986, China applied officially to become a member of the General Agreement on Tariffs and Trade (GATT), the WTO’s predecessor, a body China had once been an original contracting member of. It was assumed that entry into GATT would present no great obstacles, as admission to the World Bank and the International Monetary Fund (IMF) had been rather swift. However, WTO accession was nowhere near fast, pointing to the ‘huge gap between the status quo of China’s trade measures and WTO requirements’ (Kong 2001).
3 Prolonged Difficulties
The difficulties that surrounded China’s admission to the WTO can be broadly categorised into three areas, namely political, economical, and legal.
Political issues had its root in numerous vested and entrenched interests from people within China, making it difficult to ‘break the political log-jam’ (Yang 2000). In addition, the Tiananmen Square massacre in 1989 shattered China’s image abroad and with it the friendly relations the country had enjoyed with its western trading partners, brought about by China’s ongoing economic reforms at a time when most if not all other socialist countries were still practicing centralised planning. Yang (2001) argues that without the incident at Tiananmen Square, GATT admission would have been granted to China by the West out of political and strategic considerations much earlier.
Economic issues were observed on two fronts, with opposition to accession both coming from within China and from abroad.
In China, interest groups, mainly in strongly protected sectors like heavy industries (such as machinery, automobiles, and chemicals) and service industries (such as domestic distribution, banking, insurance, and telecommunications) have applied considerable pressure onto the government to oppose accession. State-owned enterprises (SOEs), despite over 20 years of reforms, along with agriculture interest groups, were also strongly opposed to any GATT progression. The rational behind this can be found in the fear of more efficient competition from abroad (Fan et al., 1998). These lobby groups thus argued that WTO accession would be detrimental to China’s national interests.
Abroad, the opposition has, not surprisingly perhaps, been roughly reversed: Lobby groups here feared predominantly China’s most competitive and dynamic industries. Industrial countries have been trying, with some success, to include special safeguard provisions to counter these industries into the accession protocol. U.S. labour-intensive industries have been one of the most opposed to China’s WTO entry, for instance in the textile sector (Chow 2001).
Legal difficulties aroused from the fact that China’s legal system does often simply not operate within the ‘paradigm the WTO contemplates’ (Hoogmartens 2001). It appears that especially the transitional nature of the PRC’s legal system has caused delays in the country’s WTO accession. Problems often also arise out of establishing the Rule of Law in the first place, considering China’s enormous size, coupled with often corrupt or plain incompetent local officials (Hoogmartens 2001).