WTO Membership Promotes a More Open China

Each year the U.S. Trade Representative’s Office issues a report on the status of China’s compliance with its obligations as a member of the World Trade Organization to open its market further to global competition. Mandated by law, the most recent report was issued yesterday, all 109 pages, and it is generating media buzz (check out this New York Times story, for example) for its critical comments about China’s failure to fully comply with its commitments.

The report was certainly well timed to make a spalsh. This week, a high-powered U.S. delegation is heading to China, led by U.S. Treasury Secretary Henry Paulson and including Federal Reserve Chairman Ben Bernanke. The delegation aims to cajole the Chinese to speed up not only trade liberalization but the flexibility of their currency.

This week also marks the 5th anniversary of China’s accession to the WTO as its 143rd member after 15 years of negotiations. As a condition of its entry, the Chinese government agreed to lower tariffs on imports and open its market further to foreign investment and services trade. After five years, the phased implementation process is officially over.

I’ve been reading through the USTR’s report today and I think the news media have been somewhat hyping its negative aspects (surprise, surprise). It does rightly criticize China for not doing enough to stop piracy of intellectual property and to freely allow certain imports and services. But the report also notes impressive progress.

China’s market is significantly more open today than it was even five years ago. For example, before its accession, China did not allow foreign-owned companies to freely import, export, and distribute goods within China. Today those so-called trading rights are widely permitted. China’s tariffs on goods of the greatest importance to U.S. industry have fallen from an average of 25 percent in 1997 to 7 percent. Tariffs on information technology goods from the United States have fallen to zero. Overall U.S. exports to China are up 35 percent so far in 2006 compared to last year and are up 158 percent since 2000.

My Cato colleague Daniel Ikenson goes beyond the USTR report in an op-ed titled “Toasting China: Why Their WTO Membership is a Blessing,” to show that China’s entry into the WTO has been good for the U.S. economy.

All in all, this should be a happy anniversary for everyone who supports freer markets and expanding trade.