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China’s WTO Accession: Some Lessons for Vietnam

Will MartinWorld Bank

3 June 2003

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WTO and the Policy Reform Process

In China and Vietnam the reform process has been incremental and experimentalWTO accession involves a change More reliance on legal commitments Schedules for future reform

Important to keep the focus on development

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China and WTO : issues for Vietnam

What does China’s accession involve?How did it fit into China’s development strategy?What are the policy implications for Vietnam?

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Accession InvolvesUniform administration and transparencyNon-discrimination between suppliers and between domestic and imported goods

Trading rights liberalized Tariffs bound and substantially reducedAbolition of all NTBs except state tradingAbolition of multiple-tier pricingAbolition of TRIMsAbolition of MFA quotas on textiles

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And…Trade-Related Intellectual Property RightsRetention of state trading for oil and key agricultural productsTariff-rate-quota regime for some imports Non-market economy treatment in antidumping for 15 yearsProduct-specific safeguards for 12 yearsSpecial textile safeguards for 3 years

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A long-term program of trade reformAverage Tariffs

Weighted Unweighted

1992 41 43

1995 30 36

2001 14 17

Post-accession 6.8 9.8

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Agriculture

Protection generally low in China’s agricultureSignificant reductions in protection to maize, cotton, sugar, dairy, oilseeds Helps lock in an efficient agricultural sector But need to assess impacts on the poor

Like Vietnam, China has strong agricultural export interests

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Manufacturing

6% cut in protection needed, vs 33% since 1992Big reductions in tariffs on beverages/tobacco and motor vehiclesMassive restructuring of the motor vehicle sector required should allow output to rise despite the fall in

protection

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Abolition of MFA Quotas

Removes a major burden from China’s exporters of textiles and clothing China’s clothing exports to go up over 100%,

employment up more than 50%

If Vietnam does not join WTO, she will be the only major exporter subject to quotas

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GATSGeneral principles of transparency & MFN China has committed to opening in 57% of sectors/modes vs 39% in Vietnam’s Bilateral Agreement with the US “The most radical services liberalization ever

negotiated in the WTO” Extensive use of pre-commitments to lock in

future reforms and strengthening of the regulatory framework

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How does China’s accession affect Vietnam?

Some key reform lessonsGains from increased market accessGains from increased importsLosses from third market competitionPossible impacts through increased competition for investment

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Key reform lessons

Can be used to deepen the reform process Improve the legal system Strengthen financial sector regulationRigorous negotiation process with demanding technical requirements Many requirements likely to be difficult

• Most help promote reform & development• Some, like safeguards, inhibit development

Requires involvement by top leaders

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Market access impacts

Vietnam gains from increased exports to China, especially products where Vietnam has a comparative advantage eg rubber, palm oil, oil and gas Exports of intermediates for global

production sharing– electronics, textiles Producer services

Complemented by AFTA-China access

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Increases in imports from China

China has become a more important supplier to other developing countries, for example Consumer goods Possibly automobiles and components Producer goods FTA access may help expand this trade

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Changes in China’s tradeExports Imports

% %Feedgrains -77.8 -2.4Vegetables and fruits 14.6 -6.3Sugar 13.9 24.1Cotton -51.8 7.7Other food 11.4 62.6Beverages & tobacco 9.7 112.4Textiles 32.7 38.5Apparel 105.8 30.9Petrochemicals 3.1 11.8Autos 27.7 24Other manufactures 4.1 18.9Commercial services -0.4 35.4Other services 1.4 33.6Total 16.8 17.3

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Third market competition

Vietnam likely to face considerably stronger competition Many exports are similar to China’s exports

and face substantial competition But only in textiles/clothing are China’s

exports likely to rise very rapidly Important to ensure the trade regime

allows other exports to grow

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Overall welfare impacts

Tariffs China’s Quotas Total

North America 2355 2713 5259 Western Europe 5682 8285 14200 Japan 2281 291 2553 China 4658 2389 9563 Taiwan 754 338 1376 Other NICs 1543 -82 1456 Indonesia -82 -216 -310 Vietnam -20 -395 -405 Other SE Asia 215 -464 -268 India -676 -2338 -2999 World 17402 7409 28261

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Some potential policy responses

WTO accession process helps increase integration, strengthen institutions And to abolish the textile/clothing quotas!

Welcome the market access opportunitiesBenefit from imports from ChinaImprove efficiency in competiting goods, especially textiles and clothingConsider regional trade initatives

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ConclusionsMost features of China’s accession to WTO promote reform & integration Reforms like these help Vietnam’s development Important to resist measures like non-market

economy treatment & safeguards

Policies need to encourage direct trade Improve efficiency in competing sectors