Commentary

The Right Way to Get China into the WTO

By Mark A. Groombridge
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After a four month hiatus, China and the United States have resumed talks on China’s accession to the World Trade Organization. True, both countries admit only to conducting a “stocktaking” of their respective positions, but it is clear that there will be an all out push to get China into the WTO by the time of the Seattle Ministerial in November. As such, many have high hopes that President Clinton and President Jiang will announce some type of agreement by this Saturday when they meet to join other Pacific Rim leaders in New Zealand, even if it is only a vague ‘agreement in principle’ of the kind that China has with both Australia and Japan.

Most agree that WTO membership for China is beneficial not just for China but for the world trading community at-large. Those who oppose China’s membership in the WTO are mostly heads of state-run monopolies in China or heads of powerful labor unions in the United States. For China, WTO membership will help bolster the position of Premier Zhu Rongji, who faces the difficult task of keeping China on the reform path. For other countries, it will help integrate China more peacefully into the international community as well as open up China’s market to increased foreign competition.

While heartened that negotiations have resumed, there is reason to be concerned that U.S. trade negotiators at this time are too focused on winning specific time commitments from China with regard to market access. Does it really matter if China takes five as opposed to eight years to lower barriers in a particular sector? The overarching goal should be to keep China on the reform path, something they are close to falling off because of their rapidly deteriorating economy. This is particularly the case since China already put forward a very good market access package last April when Premier Zhu visited the United States and was rebuffed by a U.S. President too weak to stand up to labor interests at home.

More broadly, though, there is a right way to get China into the WTO. That is for the world trading community to secure not only firm commitments from China on market access, but commitments on the methods for evaluating China’s progress as well. Any agreement with China should have clearly delineated methods on how the WTO will monitor China’s progress when inevitable conflicts arise. The key word for the WTO should be “transparency” so that foreigners understand clearly the myriad of sometimes conflicting administrative laws at work in China.

While the West rightly holds Premier Zhu Rongji in high esteem, they are right to be skeptical of his ability to deliver on any WTO package he puts forward. The reason is that Zhu faces enormous resistance from certain industrial ministries and local officials who have designed laws and regulations to serve their own narrow interests. Moreover, in some cases, there are overlapping jurisdictions for economic affairs, leading to what the Chinese refer to as ‘too-many-mothers-in law’. Under the weight of such an onerous bureaucratic system, it becomes too easy to keep foreigners at bay and markets closed.

A focus on transparent institution building in China is not only beneficial for foreign companies doing business in China, but for the WTO as well. Such a commitment from China to focus on transparency and administrative reform will be crucial in resisting pressure to ‘manage’ China’s trade upon accession. Some, for example, are advocating a policy of forcing the Chinese to meet certain import targets. The WTO tried this policy with Poland-it failed. Ironically, one reason it failed was because in some years Poland would have exceeded the target and imported more than they were obliged to do. In light of the target, however, it gave protectionists an excuse to restrict trade and not let the market function as it normally would have done.

Trade hawks, particularly in the United States, are also calling for other special restrictions on China, claiming that Western countries should have special protections against import surges. Specifically, some are calling for extending the period in which China would be held by a different standard with regard to anti-dumping and special safeguard provisions. Such special provisions would relegate China to second-class status within the WTO-something they should resist at all costs.

One way for China to avoid this problem is to convince the West that the process by which trade is conducted in China is transparent and fair. This is why administrative reform in China is so crucial for it is the only way that the WTO will be able to evaluate and rule in a competent fashion should a dispute settlement case arise. Without such a commitment, it seems likely that the WTO will face enervating disruptions for years to come. It will be much easier for Western countries to win frivolous dispute settlement cases and impose unilateral protectionist measures. Such an outcome is in the interest of neither China nor the WTO, except for, of course, the heads of state-run monopolies and powerful labor unions.

Mark Groombridge is a research fellow in the Center for Trade Policy Studies at the Cato Institute. His book, Tiger by the Tail: China & the World Trade Organization, co-authored with Claude Barfield, was just published by the AEI Press.