The Right Way to Get China into the WTO

This article appeared in Apple Daily on September 13, 1999.

After a four month hiatus, China and the United States have resumed talkson China's accession to the World Trade Organization. True, both countriesadmit only to conducting a "stocktaking" of their respective positions, butit is clear that there will be an all out push to get China into the WTO bythe time of the Seattle Ministerial in November. As such, many have highhopes that President Clinton and President Jiang will announce some type ofagreement by this Saturday when they meet to join other Pacific Rim leadersin New Zealand, even if it is only a vague 'agreement in principle' of thekind that China has with both Australia and Japan.

Most agree that WTO membership for China is beneficial not just for Chinabut for the world trading community at-large. Those who oppose China'smembership in the WTO are mostly heads of state-run monopolies in China orheads of powerful labor unions in the United States. For China, WTOmembership will help bolster the position of Premier Zhu Rongji, who facesthe difficult task of keeping China on the reform path. For othercountries, it will help integrate China more peacefully into theinternational community as well as open up China's market to increasedforeign competition.

While heartened that negotiations have resumed, there is reason to beconcerned that U.S. trade negotiators at this time are too focused onwinning specific time commitments from China with regard to market access.Does it really matter if China takes five as opposed to eight years tolower barriers in a particular sector? The overarching goal should be tokeep China on the reform path, something they are close to falling offbecause of their rapidly deteriorating economy. This is particularly thecase since China already put forward a very good market access package lastApril 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. Thatis for the world trading community to secure not only firm commitments fromChina on market access, but commitments on the methods for evaluatingChina's progress as well. Any agreement with China should have clearlydelineated methods on how the WTO will monitor China's progress wheninevitable conflicts arise. The key word for the WTO should be"transparency" so that foreigners understand clearly the myriad ofsometimes conflicting administrative laws at work in China.

While the West rightly holds Premier Zhu Rongji in high esteem, they areright to be skeptical of his ability to deliver on any WTO package he putsforward. The reason is that Zhu faces enormous resistance from certainindustrial ministries and local officials who have designed laws andregulations to serve their own narrow interests. Moreover, in some cases,there are overlapping jurisdictions for economic affairs, leading to whatthe Chinese refer to as 'too-many-mothers-in law'. Under the weight of suchan onerous bureaucratic system, it becomes too easy to keep foreigners atbay and markets closed.

A focus on transparent institution building in China is not only beneficialfor foreign companies doing business in China, but for the WTO as well.Such a commitment from China to focus on transparency and administrativereform will be crucial in resisting pressure to 'manage' China's trade uponaccession. Some, for example, are advocating a policy of forcing theChinese to meet certain import targets. The WTO tried this policy withPoland-it failed. Ironically, one reason it failed was because in someyears Poland would have exceeded the target and imported more than theywere obliged to do. In light of the target, however,it gave protectionists an excuse to restrict trade and not let the marketfunction as it normally would have done.

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

One way for China to avoid this problem is to convince the West that theprocess by which trade is conducted in China is transparent and fair. Thisis why administrative reform in China is so crucial for it is the only waythat the WTO will be able to evaluate and rule in a competent fashionshould a dispute settlement case arise. Without such a commitment, it seemslikely that the WTO will face enervating disruptions for years to come. Itwill be much easier for Western countries to win frivolousdispute settlement cases and impose unilateral protectionist measures. Suchan outcome is in the interest of neither China nor the WTO, except for, ofcourse, the heads of state-run monopolies and powerful labor unions.