China and the WTO

The meeting between President Clinton and President Jiang Zemin at the APEC convention helped to thaw the recent chill in U.S.-China relations. Though they made no tangible progress toward U.S. approval of China's bid to enter the WTO, they did agree to the resumption of negotiations. The APEC summit reopened the discussions on China's WTO entry but with limited expectations of a quick resolution.

The next round of WTO talks are scheduled to begin on November 30, placing a deadline on China's possible entry. The real time limit exists in the need for Congress to approve U.S. support for China's entry to WTO before it recesses in November, making China's entrance before the 'Millenium Round' of WTO negotiations highly unlikely. If China is not a member by November, the country will miss out on the opportunity to participate in important negotiations regarding the progressive liberalization of the service sector, and it is uncertain at what point in the future China might again try to gain membership in WTO. All negotiations are being kept confidential until an agreement is reached.

Currently, the main points of contention are the timetables by which WTO member countries must open their markets in industry, agriculture, and services, and China's reduction of tariff rates to meet global norms. The U.S. has also raised specific demands regarding market access for financial services and the telecommunications industry. The Chinese have already agreed to make sharp cuts in farm and industrial tariffs, and to begin the opening automobile, telecommunications, and banking industries to foreign competition. At the same time, the Chinese economy (particularly state-owned enterprises) is facing many problems. If China cannot enter the WTO as a developing country, it may be in the country's best interest to remain outside the organization, allowing it to maintain its protectionist measures and nurture the economy rather than threaten it with international competition.

Responding to the possibility of not joining the WTO, China has moved to give slightly more freedoms to foreign capital. China is trying to attract multinationals through trade promotion programs, and is expanding bilateral trade deals with many of its trading partners. China is walking a fine line between opening its markets too quickly to international competition, which could destroy the domestic firms, and protecting its domestic markets, which hinders trade. As such, WTO membership may not occur, but certain trade deals may be possible as China seeks to maintain its state-owned enterprises and domestic markets, while engaging in international trade.

Were China to become a member, it would have to conform to WTO standards and end many of its own protectionist measures, which severely hinder international trade. Transparency is one major issue in the WTO, as it is considered an essential ingredient for international free trade. Transparency issues arise in markets such as medical equipment, where a foreign firm's product must pay large fees and pass an battery of tests without the firm being given any information about the tests. Should China not enter the WTO, it will feel much less pressure to end unfair trade practices.

The repercussions of China's remaining a nonmember of the WTO are far reaching, with effects throughout the global economy. The U.S. already has a huge budget deficit in its trade with China, due in part to the fact that China does not have to adhere to the WTO's trade practices. Many U.S. firms cannot compete with China's cheap labor and high government subsidies, which decrease the price of Chinese products. In fact, the American Textile Manufacturers Institute is lobbying Congress to keep protectionist quotas on Chinese competitors beyond the present 2005 deadline until 2010. Such protectionist measures hinder free trade and are counter to the ideals of the WTO, but as China is not a member of the WTO, the U.S. feels it must take these measures to ensure the strength of its own market. As such, WTO entry is an issue of vital importance for the future of U.S.-China economic and political relations.

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