China and the WTO: What Price

Membership?
For china and China watchers, December 11, 2006, was a particularly significant day. it
marked the five-year anniversary of the day China gained a spot in the World Trade
Organization and thereby rejoined the global community of market economies that it had
rejected some five decades earlier in favor of central planning. It also represented the deadline for
the implementation of nearly all of Chinas remaining commitments from its accession package.

Negotiation Chinas Entry into the WTO

After 15 years of negotiations both multilaterally with WTO members and, at the same time,
bilaterally with each interested WTO member, China was approved as a member on September
17, 2001, to take official effect on December 11. Chinas accession involved the assumption of
the preexisting multilateral GATT/WTO agreements as well as new requirements specific to
China (some of which were unprecedented). The terms China agreed to in its WTO negotiations
can be roughly classified into three realms:

Reforms facilitating Foreign Business

To win membership in the WTO, China promised to:
1.

Phase in full trading and distribution rights to all foreign-owned firms and joint ventures over
te course of three years.

2. Abolish dual pricing, meaning that foreign and domestic companies could not be charged
different prices for inputs.
3. Foreign companies were to be allowed to hold majority shares in Chinese retailers within two
years of accessions and to provide their own retail services within three years os recession.
4. Foreign insurance suppliers were gradually allowed to expand their scope of activity.
5. The maximum percentage equity share that foreign telecommunications suppliers were
allowed to hold in joint vents was steadily increased to 49% to 50%.
6. by 2003, foreign banks were permitted to conduct domestic-currency business with Chinese
enterprises, and by 2006, with Chinese individuals

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Reforms Promoting Free Trade

1. Implement substantial tariff reduction on agricultural (31% - 14%) and industrial (25% - 7%)
goods immediately upon accession. The most strongly affected industries were information
technology, chemical, automobiles, and wood and paper.
2. Eliminate most of its non-tariff measures, such as (other) import quotas and restrictive
licensing procedures, immediately upon accession, and all Non-Tariff Measures with three
years of accession.
3. Not to subsidize its exports, to cap subsidies of domestic industries, and to eliminate the statecontrolled monopolies for agricultural goods.
4. Promised that the sanitary and phytosanitary standards by which it judged agricultural
imports would be uniform and scientifically based.
5. China committed to treat the exports of WTO members as it treated domestic Chinese goods
6. To treating imported goods comparably with domestic goods when making regulatory
judgments, levying fees and assessing complaints.
7. To adhere to standard customs valuations procedures, which were designed to ensure that
gains from reductions in tariff rate were not undermined buy increases in total tariffs from
the overvaluation of imports

Systematic Reforms to improve the Transparency

The third broad category of reforms to which China agreed was systemic: changes to the
countrys legal framework designed to remedy some of the main obstacles foregone enterprise
and trade.
- Transparency
China committed to make its trade- and commerce-related law more transparent
by publishing them regularly, in at least one official WTO language (English,
French, or Spanish).
Uniform and fair enforcement of those laws and to the creation of a process for
investigation of complaints of non-uniform application.
- Protection of intellectual property rights
Tighten its legal protection of patents, trademarks, trade secrets, and copyrights and the enforcement of those laws - in accordance with internationally accepted
standards.

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Complications Caused by Chinas Accession

Although the Chinese government strongly believed that WTO membership would be
critical to Chinas long-term successful growth, accession created serious short-term challenges
for China, both domestically and abroad.
1. Domestic Impacts
1.1.Threat to domestic sector (motor vehicle industry and agriculture were at risk)
1.2.Household welfare (high unemployment, pension system was increasingly endangered)
1.3.Rural-Urban inequality. (funding for social services was especially scarce for rural Chinese
based in the increasing gap between rural and urban incomes)
1.4.Environmental damages. (pollution, clean-water shortages, acid rain and health problems)
2. Tensions with the West
2.1.Acquisition of overseas oil (Chinas energy needs)
2.2.Was Chinas Trade boom hurting the West

Incorporating WTO Reforms into Chinas Long-Term Growth

As Chinas five-year WTO anniversary passed, Premier Wen Jiabao found himself facing
a dissatisfied public in addition to pressure from the West. Furthermore, the Newspapers were
increasingly publishing criticisms of the mas layoffs that accompanied privatizations and of the
foreign takeovers of Chine companies and banks. At the same time, the government would need
late store of funds to keep the four state banks sufficiently capitalized at all times

It also seemed likely that China resources would be stretched to their limit. Wen would
have to find the money to provide for the millions of workers losing their jobs due to privatization
and foreign competition and to overhaul the dangerously unbalanced pension system as Chinas
population aged.

Although the ultimate effects of Chinas WTO accession were still unknown, one thing
was clear: Managing Chinas global integration smoothly would involve some delicate balancing
acts on the part of Premier Wen. Chinas need for oil and textile markets would have to be
balanced agains the Wetss strategic and protectionist concerns. Efficiency-boosting competition
would have to be balanced agains the welfare of Chinas laid-off employees. An the WTOs
demand for openness would need to be balanced against the protection of Chinas internal
stability.

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if you had been advising Chinese government, would you have recommended
joining the WTO? why? why not? Did China get a good deal?
I had wisely recommended joining the WTO. The principal reason is because, besides all
the struggles that this accession had bring (in short-term) to China is just an evidence that China
must resemble its assets, State-Owned Enterprises, tariff and non-tariff rate in order to improve
itself. China has the biggest market and it can decide the new path of international business.
Despite all the terms that China had to accept for the WTO membership and the obstacles
addressed with other WTO members, it was just one step to enter to the global community of
market economies and even if today they couldn't realize all the benefits that this agreement will
bring, in a long-term, it will help China to consolidate its position on the globalization

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