wto in china

7/29/2019 Wto in China

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Asia

Program,Environmental Change & Security

Project,Project on America and the GlobalEconomy

China and theWTODomestic Challenges and

nternational Pressures

Kent Hughes, Gang Lin, and Jennifer L.Turner


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Asia

Program,Environmental Change & Security

Project,Project on America and the GlobalEconomy

China and theWTODomestic Challenges andInternational Pressures

Kent Hughes, Gang Lin, and Jennifer L.Turner

This publication was made possible by a Ford Foundation grant totheWoodrow WilsonCenter.2002 Woodrow Wilson International Center for Scholars, Washington,D.C.www.wilsoncenter.org


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WOODROW WILSON CENTER SPECIAL REPORT

WOODROW WILSON INTERNATIONAL CENTER FORSCHOLARS LEE H. HAMILTON,

DIRECTOR

BOARD OF

TRUSTEESJoseph B. Gildenhorn, Chair; Steven Alan Bennett, Vice Chair. Public Members: James H. BilLibrarian of Congress; John W. Carlin, Archivist of the United States; Bruce Cole, Chair, Na

Endowment for the Humanities; Roderick R. Paige, Secretary, U.S. Department of Education;L.Powell, Secretary, U.S. Department of State; Lawrence M. Small, Secretary, Smithsonian Insti

Tommy G. Thompson, Secretary, U.S. Department of Health and Human Services. Private

Members: Joseph A. Cari, Jr., Carol Cartwright, Jean L. Hennessey, Daniel L. Lamaute, Dori

Matsui, Thomas R. Reedy, Nancy M. Zirkin

WILSONCOUNCILSteven Kotler, President. Diane Aboulafia-D'Jaen, Charles S. Ackerman, B.B. Andersen, Cy

Ansary, Charles F. Barber, Lawrence E. Bathgate II, John Beinecke, Joseph C. Bell, A. Oakley B

Charles W. Burson, Conrad Cafritz, Nicola L. Caiola, Raoul L. Carroll, Scott Carter, Albert V. CaseyB. Clark, William T. Coleman, Jr., Michael D. DiGiacomo, Sheldon Drobny, F. Samuel Eberts III, DavidEller, Sim Farar, Susan Farber, Charles Fox, Barbara Hackman Franklin, Morton Funger, Greg

Gallo, Chris G. Gardiner, Eric Garfinkel, Bruce S. Gelb, Steven J. Gilbert, Alma Gildenhorn, D

Girard-diCarlo, Michael B. Goldberg, William E. Grayson, Raymond A. Guenter, Gerald T. Halpin,

L. Hardin, Jr., Carla A. Hills, Eric Hotung, Frances Humphrey Howard, John L. Howard, Darrell

Jerry Jasinowski, Brenda LaGrange Johnson, Shelly Kamins, Edward W. Kelley, Jr., Anastasia D

Christopher J. Kennan, Michael V. Kostiw, William H. Kremer, Dennis LeVett, Harold O. Levy, DaLink,David S. Mandel, John P. Manning, Edwin S. Marks, Jay Mazur, Robert McCarthy, Stephen

G.McConahey, Donald F. McLellan, J. Kenneth Menges, Jr., Philip Merrill, Jeremiah L. Murphy, MT.Muse, Della Newman, John E. Osborn, Paul Hae Park, Gerald L. Parsky, Michael J. Polenske,

Robert Quartel, Jr., J. John L. Richardson, Margaret Milner Richardson, Larry D. Richman,EdwinRobbins, Robert G. Rogers, Otto Ruesch, B. Francis Saul, III, Alan Schwartz, Timothy R. ScJ.Michael Shepherd, George P. Shultz, Raja W. Sidawi, Debbie Siebert, Thomas L. Siebert, Ke

Siegel, Ron Silver, William A. Slaughter, James H. Small, Thomas F. Stephenson, Wilmer T

Norma Kline Tiefel, Mark C. Treanor, Christine M. Warnke, Ruth Westheimer, Pete Wilson,DeborahWince-Smith, Herbert S. Winokur, Jr., Paul Martin Wolff, Joseph Zappala, Richard S. Ziman

ABOUT THECENTERThe Center is the living memorial of the United States of America to the nations twenty-eigh

pres-ident, Woodrow Wilson. Congress established the Woodrow Wilson Center in 1968 as aninterna-tional institute for advanced study, symbolizing and strengthening the fruitful relationship

betweenthe world of learning and the world of public affairs. The Center opened in 1970 underownboard of trustees.

In all its activities the Woodrow Wilson Center is a nonprofit, nonpartisan organization,support-ed financially by annual appropriations from Congress, and by the contributions of foundatio

porations, and individuals. Conclusions or opinions expressed in Center publications and pro

are those of the authors and speakers and do not necessarily reflect the views of the Cente

fellows, trustees, advisory groups, or any individuals or organizations that provide financial s

to the Center.


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ExecutiveSummary

1

Kent H.Hughes

Remarks by JeffreyBader,

6

Assistant United States Trade Representative forChinaon Chinas Accession to theWTOEdited by Kent H.

HughesState-Owned Enterprises underSiege

12

GangLin

(R)evolution of RuralChina

16

Jennifer L.Turner and SunLiang

Keeping an Eye onChina

21

Kent H.Hughes

Appendix A:

China Joins the WTOImpact on RuralChina

26

AppendixB:Chinas Entry into the World Economy 19492002

29

CHINA AND THE WTO: DOMESTIC CHALLENGES & INTERNATIONAL

PRESSURES

iii

Contents


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ivODROW WILSON CENTER SPECIAL REPORT

CHINA JOINS THE

WTODOMESTIC CHALLENGES AND INTERNATIONALPRESSURESDecember12,20015th floor ConferenceRoomAGENDA

Time

Topic

Speaker(s)

11:30 12:30 pmLunch/KeynoteAddress

Jeffrey A.Bader

12:30 12:45 pmCoffeeBreak

12:45 2:00 pm State-OwnedEnterprises

Dorothy J.Solingerunder

SiegeLawrence C.ReardonMark A.Groombridge

2:00 2:15 pm Coffee

Break2:15 3:30 pm WTO and the(r)evolution

QirenZhouof Rural

ChinaBaoqingZhaoMarilynBeach

3:30 3:45 pm CoffeeBreak

3:45 5:00 pm Keeping an AmericanEye

C. RichardDAmatoon

ChinaCalman J.CohenPeter B. Hale

Conference Agenda


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On December 11, 2001, China became a formal member oftheWorld Trade Organization (WTO).By joining the WTO,Chinatook a major step towards economic integration with theworldeconomy. In two decades, China has gone from the hermetic

isolation ofthe Mao era to become a major force in many globalindustries.DECISIVE STEP IN CHINAS

MODERNIZATIONWTO membership will accelerate the development of an open andglob-ally competitive economy in China. In taking on WTOcommitments,Chinas leaders opted to develop a strong economy that would bemuchmore closely woven into the global tradingsystem.SIGNIFICANT OPENING FOR TRADE, SERVICES,ANDINVESTMENTChinese WTO commitments include significantly cutting tariffs inman-ufactured goods, opening many services to various degrees offoreigninvestment, and following WTO codes on intellectual propertyandinvestment.CHALLENGE FOR STATE-OWNEDENTERPRISESGreater global competition will force Chinas inefficient state-ownedenterprises to add to the millions of workers left unemployed bypreviousreforms. Global competition will force China to merge, privatize, orclose75,000 inefficient state-owned enterprises. China faces a keyproblem inadjusting to change while creating enough new jobs for displacedindustri-al and rural

workers.TRANSFORMATION AND OPPORTUNITY IN RURALCHINAChina is sharply reducing (to an average of 14 percent) the agriculturaltar-iffs of most interest to the United States. Increased imports of grainswilldisplace Chinese farmers but also will open up opportunities toshift tohigher value added crops such as fruits and vegetables. To turnchallengeinto opportunity, the Chinese government will have to create secureland


PRESSURES

1

Executive SummaKent H.

HughesProject on America and the Global Economy


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tenure and complement individual effort with key investments ininfra-structure.MONITORING AND SUPPORTING WTO

COMPLIANCEThe WTO, the U.S. government, and the private sector will bemonitor-ing Chinas compliance with its WTO obligations. There will be aneffortby all parties to help with compliance rather than an early resort tformaldispute settlement by theWTO.CHINA, U.S., AND THEFUTUREWith WTO membership, China will develop even closer ties withtheUnited States and other major industrial countries. The stillunansweredquestions are whether closer economic ties will spill over intogeopoliticalcooperation and greater progress on democracy and humanrights.

2 WOODROW WILSON CENTER SPECIALREPORT


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On December 11, 2001, China became an official member oftheWorld Trade Organization (WTO). Membershipmarkedanother major step by the Chinese leadership towardsdeepen-ing free market reforms.Over just 21 years, China has moved from the

iso-lation of the Mao Zedong era to become more outward looking andmoreintegrated with the globalcommunity.Exports, global finance, and a growing reliance on markets were not

theearly goals of the Chinese Communist Party. Since the Communistscameto power in China in 1949, the Chinese people have lived through aseriesof social and economic experiments, which brought momentouschangeand periods of turmoil.The collectivization of agriculture and thecreationof rural communes created an inefficient state grain bureaucracy thatsti-fled innovation and productivity. Maos Great Leap Forward and hisexper-iment with backyard steel production both foundered on economicreality.These radical economic experiments helped trigger a famine inwhichmillions died. Debates over the direction of the revolution and splitsin theparty leadership led Mao to launch the Cultural Revolution inwhichChina lost a decade of development and a generation missed itschance ateducation. In the late 1970s, Deng Xiaoping initiated economic reforms

thatopened Chinas economy to the world market. His dictum that it didnotmatter whether the cat was black or white only if it caught mice,presagedthe reemergence of a free market and a gradual loosening of socialrestric-tions. As China opened up to the world, the years of economicisolationand stagnation were apparent. Almost all Chinese wore the traditionalblueor gray Mao jacket, few consumer goods were available, and state-

runenterprises were models of inefficiency. Instead of cars, the wideboule-vards of Beijing were dominated by the quiet whistling sound ofthousandsofbicycles.Chinas long march to WTO membership started in 1986 when

Chinafirst expressed an interest in joining the General Agreement on TariffsandTrade, the predecessor to todays WTO. Over the following decadeand ahalf, China became a major global exporter and a magnet forforeign

CHINA AND THE WTO: DOMESTIC CHALLENGES & INTERNATIONAL PRESSURES

IntroductioKent H.


3


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direct investment. China will be a major economic force in the WTforit is the third largest country by geographic size, has one of theworldslargest economies, and, at 1.2 billion, the worlds largestpopulation.Today, China has been transformed. From Beijing in the north

alongthe coast to Guangzhou in the south, China is emerging as a majoindus-trial power. The ubiquitous construction crane is but one sign oftheexplosion of urban growth. Mao jackets are dingy relics found onlytheelderly, the rural poor, or the rare tourist. Fashionably dressedyoungerChinese rush by, a cell phone at their ear, on their way to a privatsectorjob or the local discotheque. Evidence of the economys opennesstheworld is apparent in the service as well as the industrial sector. Tofor-eign tourists to this modern China can lunch at KFC, shop at Wal-Martand even have a latte at the Starbucks outlet in Beijings ForbiddeCity.It is this China that seems to offer the prospect of an enormous

marketfor exports as well as domestic production. In the19

thcentury, theEnglishdreamed of adding one inch to each shirttail in China as a way of

keep-ing the mills in Manchester spinning forever. A decade ago,GrahmeBrowning retold the same story in her If Everybody Bought Just OnShoe .Coastal China is a reality that is full of economic promise,

whereChinese industries are moving up the value chain from silk andshoes tosemiconductors and software. While millions of urban Chineseconsumersare already an important economic force in the world, rural Chinelagfar behind their urban cousins. The shift to more efficient agricultu

andthe closing of some state-owned enterprises (SOEs) have alreadycreatedstrains in Chinese society. Despite more than a decade of rapidgrowth,economists estimate that there may be as many as 150 million

unemployedor partially employed Chinese seeking stableemployment.By assuring China access to the worlds major markets,

membership inthe WTO offers this emerging economy enormous advantages. Withatassured access, China will become an even more inviting site forforeigndirect investors who are focused on export as well as Chinesedomesticmarkets. In the American context, China is freed from the annualrenewalof securing Normal Trade Relations status (formerly Most Favored

Nationstatus). But there are challenges as well. On the one hand, anumber ofU.S.government agencies and congressionally created independe

com-missions will be carefully monitoring the progress of China inimplement-ing the many requirements that come with WTO membership. Ontheother hand, greater international competition will acceleratechanges inthe state-owned enterprises and the agricultural sector. Furtherliberaliza-tion of the Chinese market should speed economic growth and,eventual-


Coastal Chinaisa reality thatisfull of

economicpromise,whereChineseindus-tries are

movingup thevaluechain from

silkand shoestosemiconductor

s and software.


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ly, generate new jobs for the immense Chinese workforce. In thenearterm, however, WTO compliance may simply add millions more tothetens of millions already looking for work and exacerbate socialinstability.In the wake of Chinas accession to the WTO, the Asia Program,

theEnvironmental Change and Security Projects WorkingGroup onEnvironment in U.S.-China Relations, and the Project on Americaandthe Global Economy co-hosted a one-day Wilson Center conferencetitledChina and the WTO: Domestic Challenges and International Pressures .Duringthis conference, speakers focused on these two fundamentalquestions:The impact of WTO membership on Chinas state-owned

industrialsector, its rural economy, and overall socialstability.

Chinas ability to comply with WTOstrictures.


PRESSURES

5


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As Assistant United States Trade Representative for China,Baderwas instrumental in helping take the final steps inrepresentingU.S. interests as China joined the World Trade

Organization(WTO). Prior to joining the Office of the United StatesTradeRepresentative (USTR), Bader served as Director of Asian Affairs otheNational Security Council, as Deputy Assistant Secretary of State fEastAsian and Pacific Affairs, and U.S. Ambassador to Namibia. Hisremarks atthe Wilson Center conference are summarizedbelow.Bader put the overall significance of Chinese accession in sever

differ-entcategories: A decisive step in Chinas move toward market oriented

modernization;The end to congressional debates over the annual renewal of

normaltrade relations (previously most favored nation) status withChina;

A dramatic opening of Chinas goodsmarket;

Broad Chinese acceptance of WTO standards on services,intellectualproperty and investment;and,

A significant shift toward transparency and the rule of law inChina.

DECISIVE STEP IN CHINASMODERNIZATIONChina first expressed interest in becoming a member of theGeneralAgreement on Tariffs and Trade (GATT) in 1986. China wasemergingfrom a long period of relative isolation to join a number of majorinterna-tional organizations. Joining the GATT was, as Bader commented,onemore step in the alphabet soup of organizations that China was ionjoining. Membership was not so much part of an economic strategas itwas a part of Chinas becoming a full-fledged member of the globcom-munity. By June 1989, a working party of the GATT was scheduledtomeet in Geneva with the prospect of approving Chinasmembership, aprospect that was delayed by the Tiananmen Square protests and t

dra-matic suppression by the Chinese military.While Chinese memberwas

6 WOODROW WILSON CENTER SPECIAL REPORT

Jeffrey Bader, Assistant United States Trade Representative for China

Chinas Accession to the WTO

Edited by Kent H. Hughes


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in abeyance, members of the GATT completed the UruguayRound ofmultilateral trade negotiations. Bader noted that the Uruguay Roundnotonly created the World Trade Organization as a successor to the GATTbutalso significantly raised the bar for any country seeking WTO

membership.China continued to seek GATT and then WTO membership butwitha broader interest. In the 1990s, many inside China saw WTO

member-ship as a mechanism for transforming Chinas economy, for makingit amarket economy, for making it an economy that could compete in thelate20th and 21stcenturies.The move towards membership in the WTO

hadthe backing of key Chinese leaders and the strong support of theChineseMinistry of Foreign Trade and the Economic Cooperation(MOFTEC).In practice, there developed a kind of tacit alliance between theChinesemodernizers and outside negotiators who were seeking greateraccess tothe Chinesemarket.In addition to strengthening Chinas development of a competitive

mar-ket system at home, WTO membership gives China WTOprotection inentering all the worlds major markets. Bader expected that theassuredaccess to global markets would create increased exportopportunities. Itwould also make China an even more attractive target for foreigndirectinvestors, who are focused on exporting from China as well asselling inChinas domestic markets. In Baders view, Chinas membership intheWTO is an all but irreversible commitment to greater integration intheworld

economy.PERMANENT NORMAL TRADERELATIONSAlong with WTO membership, China also secured permanentnormaltrade relations status with the United States. Bader noted that theannualdebates over trade relations had become a lightning rod for virtuallyeveryconcern Americans have expressed about China. As Chinas bilateraltradesurplus has grown with the United States approaching $ 85billion in2001, more and more attention was paid to Chinese trade practices. Butinaddition to trade, the congressional debates often focused onhumanrights, the use of prison labor, the lack of a commitment to

democracy,failed attempts to restrict the proliferation of key technologies andweaponsystems, and a host of securityissues.While favoring further opening of the Chinese market,

some inCongress were reluctant to lose the leverage they saw in the annualdebateover trade. Others contended that the threat of Smoot-Hawley eratariffswas so draconian that it would never be used. Some in Congress alsosug-gested that steady but less visible pressure might be more effective indeal-


PRESSURES

7

Chinasmember-ship in theWTOis an allbutirreversiblecommitmenttogreaterintegra-tion in theworldeconomy.


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ing with China. Supporters of free trade also argued that developmof arule of commercial law in China would eventually spill over into thtreat-ment of individual and political rights. Even if the prospect ofimposingprohibitive tariffs was remote, U.S. exporters and investors

generallyfavored eliminating that uncertainty by granting China permanentnormaltrade relations as part of securing WTO discipline over Chinas owuse oftrade barriers. In the end (in 1999), the Congress voted forpermanentnormal trade relations as part of Chinas joining theWTO.EXPORTS TOCHINAChinas accession to the WTO marks a dramatic opening of the Chine

mar-ket.Bader noted that 1,000 pages of Chinese commitments to marketopeningcan be found on the WTOs website ( http://www.wto.org/) and a

summa-ry of them on the USTRs website( http://www.ustr.gov/regions/china-hk-mongolia-taiwan/accession.shtml) .Under the Chinese agreement for accession to the WTO,

agriculturaltariffs on the products of most interest to the United States will ave14percent. Overall, tariffs of interest to the U.S. will fall to 7 percentForgoods involved in information technology, tariffs will disappearaltogetherin 2005.

Bader pointed to the tariffs on IT related products as one of thebenefitsthat came from the lengthy and detailed negotiations over Chines

WTOmembership.The question of reduced tariffs on IT products had fir

beenraised in the Asia-Pacific Economic Cooperation forum. Chinadecidedthat the zero tariffs on IT would be in its interest. In Baders view,Chinascommitment to phase out tariffs on IT products and equipmenthadalready helped attract related IT investments fromTaiwan.BEYOND EXPORTS: SERVICES, INTELLECTUALPROPERTY,ANDINVESTMENTBader noted that China had agreed to an across-the-boardopening onservices. China will now allow varying degrees of foreigninvestment ininsurance, banking, and securities. The full range of service

openingsextends from law firms to freightforwarders.The negotiators also made considerable progress in securing th

right offoreign investors to distribute their products within China. Afterthreeyears, foreign companies can have wholly owned distributionnetworks inretail and wholesale trade and through commercial agents. Theonlyexception left is for chain stores, and Bader stressed that they had

negotiat-ed a fairly narrow definition of what constituted a chain store.Theright to


distribution networks would be phased in over three years the firstyearallowing minority ownership, the second a majority stake, and thethirdfullownership.China also agreed that foreign firms could do business in China

withoutestablishing a physical presence. There is change coming on thestrictlydomestic front as well. With WTO accession, Chinas many state-ownedenterprises (discussed in the first panel of the conference) willhave tomake decisions on a commercial rather than a politicalbasis.Chinese accession also means that it will be required to abide by

exist-ing WTO codes on intellectual property and investment. Under thecodefor Trade Related Investment Measures, China cannot require offsets,for-eign exchange balancing, or specific levels of exports as acondition forinvesting in China. Foreign products must be given the same tests andheldto the same technical standards as domesticgoods.In agriculture, China actually went well beyond the current

WTOrequirements. China agreed to forego all export subsidies foragricultural


PRESSURES

19851986198719881989199019911992199319941995199619971998199920002001


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-$100,000

-$80,000

-$60,000

-$40,000

-$20,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

US dollars (millions)

Year

U

S

and

Chinese Trade Since 1985

xports to Chinaese Exports to the US US Trade Deficit

US AND CHINESE TRADE SINCE1985

YEAR

U.S. DOLLARS (INMILLIONS)


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Source: US Census Bure

Foreign Trade Division D

Dissemination Branch,

Washington D.C. 20233


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products and accepted a cap on domestic subsidies that is lower tnor-mally available to developingcountries.With Chinese membership in the WTO, the focus will now shift

fromnegotiation to implementation. The agreement, Bader stressed, w

notself-implementing. He noted the continuing negotiations withKorea,Japan, and others to secure full market access. Bader again exprehisview that the Chinese would stick to the letter of quantifiablecommit-ments such as specific tariff reductions. He pointed to the serviceagree-ments as a field where written rather than numerical agreements w

sub-ject to interpretation and hence debate. Bader also noted the threhun-dred-plus paragraph narrative in the WTO Working Partyreport onChinese WTO membership, which also would be subject tointerpretation.In some cases, Bader noted that Chinas lead negotiating agenc

theMinistry on Foreign Trade and Economic Cooperation, workedcloselywith other agencies that had responsibility for banking orinsurance.Thoseagencies had helped shape Chinese commitments in joining the Wandcould be expected to work for its implementation. In other cases,howev-er, such as distribution, there was no single ministry that could spforthe millions of retail outlets in China. Local officials who were notpart ofthe WTO process may well be the first to hear complaints from locshopowners. These local officials may raise questions and obstacles otheirown.

To help monitor and encourage compliance, the Administration

andthe Congress have established a number of watchdog groups. (seesumma-ry of panel three below). Specifically, USTR is chairing aninteragencygroup to monitor Chinas progress. Moreover, separate departmeorgovernment agencies are assigned to keep track of specific Chinecom-mitments. Each month the interagency group will meet to reviewprogresstoward compliance. In addition, the interagency group will reviewtheconcerns of American business and trade associations. Bader alsmen-tioned a multilateral review established under the WTO that willresult ina report each year for the first eight years after Chinas accession

thenagain on the tenth

year.WTO AND REFORM INCHINAMany China watchers predict that joining a rule-based organizatiolikethe WTO will have an impact beyond the strictly economic sphereAs aresult of joining the WTO, the Chinese administration shouldbecomemore transparent; for example, they will be expected to publish laandregulations. Bader noted that China had already opened up propotariff


Theagreement,Baderstressed,was not

self-implementing. Bader

againexpressedhisview thatthe

Chinesewouldstick to theletterof

quantifiablecommitmentssuch as

specifictariff reductions.


23/46

rate quotas for public comment. China is also developing asystem ofadministrative review so that bureaucratic rulings can beappealed.China will also be subject to the current WTO rules for dispute

settle-ment. Although Bader and subsequent panelists expected early

disputes tobe settled between the various parties rather than through the WTO,theprospect of a formal dispute settlement process will help Chinaadhere toits extensive WTOagreements.Such requirements mean that WTO membership will significantly

addto the forces of accountability within China. The presence ofaccountantsand lawyers should help develop the rule of law as well as facilitatingcom-merce. Bader speculated that the spreading rule of law would alsocon-tribute to a growing pluralism in the years to come. He also struck aposi-tive note about Chinas role as a WTO member, noting that Chinawas aforceful advocate for a new round of multilateral trade negotiations atthelatest APEC meeting. Because of Chinas extensive WTOcommitmentson agriculture, he also thought China might push for thereduction orelimination of export and domestic subsidies in othercountries.In conclusion, Bader summed up the range of market opening

commit-ments that China has made in joining the WTO. He noted that boththeUnited States and China were very careful to guard their nationalsover-eignty. Chinas decision to accept the review of sovereigntyimplicit inWTO membership was, he believed, a major step toward Chinesemod-ernization and fuller integration into the world economy. At the

sametime, Bader stressed that the agreement was not self-implementing.WTOmembers would need to work with China to achieve the fullbenefits ofWTOmembership.


PRESSURES

11


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The most dramatic change in Chinas economic system is themelt-down of the colossal and inefficient state-ownedenterprises(SOEs), the backbone of this countrys socialisteconomy.Encouraged by the success of rural reforms and an open-door polic

Beijingbegan to transform SOEs in 1981, with the experiment of the proficon-tracting systemin some cities. Under this system, the government

contract-ed SOEs to individuals, who turned over a certain percentage of theprof-its to the government. Two years later, this practice developed into a

systemof replacing profit remission with tax payments ( li gai shui ). Sinc1992,greater efforts have been made to transform state-run enterprises int

state-owned, but corporately or privately run enterprises ( guoyou mingyqiye )through share-holding reforms. Beijings major reforms to SOEsinclude: Making a distinction between government administration and

businessoperation;

Establishing a modern enterprise system in several hundred giaSOEsunder the direct control of the StateCouncil;

Encouraging the merging and bankruptcy of medium-sized SOEand,

Privatizing small SOEs through restructuring, contracting, jointstockholding, merging, leasing andselling.In 1993, the 8th National Peoples Congress amended the PRC

consti-tution and promulgated a new Enterprise Law to legalize thesestrategicchanges. Meanwhile, the notion of the socialist market economywasofficially endorsed by the state during the Partys

14

th Congress in

1992,replacing the previous conceptual cohabitation of the socialistcommodi-ty economyand socialist plannedeconomy.This strategy of trickling down market and property rights reform

withinthe symbolical framework of socialism not only neutralizedconservativepolitical opponents within the Party, but also contributed to Chinacontin-ued and stable economic growth during the important transition.Thtrade-off, however, is the slow pace of Chinas marketization andprivatization.


State-Owned Enterprises under SiegeGang

LinAsia Program


25/46

Bejings dual policy of controlling big SOEs while leaving a freehandfor small ones reveals its reluctance to promote large-scale

privatization.Because of ideological constraints, the Chinese leadershipsefforts atreforming loss-making SOEs achieved only marginal results during

DengXiaopings era. The contribution of SOEs to Chinas gross value ofindus-trial output decreased from 65% in 1985 to 28% in 1998, while SOEsstillemployed more than 40% of urban workers and accounted for thelionsshare of Chinas fixed asset investments and financial resourceallocations.Post-Deng reformers perceive Chinas entry into the World

TradeOrganization (WTO) as both a great opportunity for acceleratingeco-nomic reform and growth, and a threat to Chinas industrial structureandfinancial security. In the past five years, Chinas SOEs havecontinued toshrink, with several million workers being laid off each year.Meanwhile,the urban private sector has increased its number of employeesdramatical-ly. Swift and stable economic growth has turned China into one oftheworlds largest economies and sharply raised the per-capita income oftheaverage Chinese. The benefits of growth, however, have not beenevenlyspread over the country, and there is a growing economic gap betweentheeastern coastal areas and the westernhinterlands.Chinese reformers hope that, with Chinas entry into the WTO,

inten-sive international competition will accelerate reforms of thecountrysmoney-losing state enterprises and create new industries andjobs.Although Chinas service industriesfrom banking and insurance to

theInternetand capital-intensive sectors are generally ill-prepared tocom-pete on the world stage, they believe China will move substantiallytowardenlarging its comparative advantage by developing its labor-intensivesec-tors as well as new technology industries. It is unclear, however, towhatdegree the benefits for certain industries will offset bankruptcies andlay-offs in otherindustries.Will Chinas WTO membership finally solve the problem of its

ineffi-cient SOEs, or strike the death knell for these incurable ventures?WillChinas membership in the WTO result in economic disorder andsocialchaos, or accelerate Chinas ongoing reforms? How does Beijing

evaluatethe benefits and costs of its membership in the WTO? How willBeijingtackle the issue of increasing urban unemployment in the wakeof itsadmission to the WTO? Who within China will be the economicandpolitical winners and who will be the losers? The panel on state-ownedenterprises addressed these and related issues with a focus on theimplica-tions of Chinas WTO membership for the countrys economicdevelop-ment and socialstability.


PRESSURES

13

Post-Dengreform-ersperceiveChinas entryintothe WorldTradeOrganization(WTO) as both a

greatopportunityforacceleratingeconomicreformand growth, andathreat toChinasindustrialstructureand financialsecu-rity. In thepastfive years,ChinasSOEs have

contin-ued to shrink,withseveralmillionworkers beinglaidoff each year.


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Dorothy J. Solinger of the University of California at Irvihigh-lighted the negative impact of Chinas WTO membership on the

countrysrampant unemployment. According to Solinger, the rosy pictureof awin-win deal between Washington and Beijing laying thegroundworkfor Chinas entry into the WTO turns bleak when one considers theplightof the 45 to 60 million former state-employed workers who have bleftwith few economic opportunities. Solinger challenged fiveoptimisticassertions about Chinas entry into theWTO:1) More jobs will be gained than

lost;2)The pain will be short term, and the problems will all be solved

thelongerterm;

3) Chinese consumers will benefit from more choice and cheaperforeigngoods

4) Export-oriented sectors, such as textiles, will benefit;and,

5)The tertiary sector and privately-owned enterprises will provideplacesfor theunemployed.

14

ODROW WILSON CENTER SPECIAL REPORT

China s GDP Since 1960 in Current U.S.

Dollars

$0

$200,000,000,000

$400,000,000,000

$600,000,000,000

$800,000,000,000

$1,000,000,000,000

$1,200,000,000,000

1960 1965 1970 1975 1980 1985 1990 1995 2000

Year

CHINA'S GDP SINCE 1960 IN CURRENT U.S.DOLLARS

U.S.DOLLARS


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YEARSource: World Bank WDI 2001


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Solinger observed that several of Beijings efforts to help theunem-ployed have yet to bear much fruit. Started in 1995, the national

govern-ments Reemployment Project has targeted only a fraction of theunem-ployed. With entry into the WTO and heightened international

competi-tion, millions of better-placed citizens will rise to the challenges of amoreopen and exposed market economy. However, millions of lessfortunateworkers will sink further intopoverty.Wilson Fellow Lawrence C. Reardon of the University of

NewHampshire agreed with Solinger that Chinas WTO accession wouldforcethe closure of many SOEs, thus ruining the livelihood ofmillions ofworkers. It is precisely these dangerous transaction costs, however,thatare most valued by Chinese elites promoting a long-termmodernizationagenda. Stymied by conservative elites, state bureaucracies, andregionalinterest groups over the past several years, reformist leaders hope to usetheeconomic crisis created by international competition to merge,privatize,and close Chinas 75,000 inefficient SOEs. According to Reardon,Chinawas not forced into the WTO by some unseen hand ofglobalization.Rather, reformist elites consciously decided to give up a degree ofnation-al sovereignty, hoping to exert global economic power and to doublethecountrys economy to $2 trillion within ten years. Still, reformist elitesfaceobvious dangers in using WTO accession as a catalyst tomarketization. Itis unclear whether the lagging inland Chinese economy will beable toabsorb the onslaught of foreign competition, especially after direct

andnon-direct aid to SOEs are phasedout.In his commentary, Mark A. Groombridge of the U.S.Departmentof State argued that China has no choice but to integrate itself into

theworld economy. According to Groombridge, both ChinasinefficientSOEs and the resulting unemployment problem are the legacy of theMaoeras command economy. Despite severe social disparity anddislocation,the Chinese populations living standard has improved in general,thanks tothe economic reforms of the past twodecades.This panel stressed both the dangerous repercussions and the

hugeopportunities that Chinese SOEs face in the wake of Chinas entry

intothe WTO. As Reardon put it, Beijing is gambling on internationalcom-petition as the death knell of the command economy, and that thisoutsidechallenge will change China for the better. Chinas futuredevelopmenthinges upon whether Beijing can appropriately reconcile thetensionbetween economic efficiency and social stability, an old theme withinthenew context of Chinas economictransition.


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Stymied bycon-servativeelites,statebureaucra-cies, andregionalinterestgroupsover thepastseveralyears,reformistleadershope to usetheeconomiccrisiscreated byinter-nationalcompeti-tion to merge,pri-vatize, andcloseChinas75,000inefficient SOEs


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Joining the World Trade Organization is both a continuationand abreakthrough in Chinas decades-long process of reforming aninte-grating its economy into the global market. An examination othechallenges facing Chinas rural sector as the country enters theWTOhighlights the complex interactions between global economic

integrationand domestic policy dynamics. The three speakers on this panelstressedthat while Chinas accession into the WTO offers some benefits fo

ruralresidents and agricultural production, stable and sustained ruralprosperitywill depend much more on the ability of the Chinese government tcom-plete land, labor, and financial market reforms while adequatelyenforcingnatural resource protectionlaws.GROWTH, CHANGE, AND POVERTY IN RURALCHINAFor over 50 years Chinas agricultural sector has been heavilytaxed tofinance the countrys intensive industrialization program.Decollectivizationof agricultural production and the return of family farms in the 19her-alded Chinas broader national reform program and createdopportunitiesfor greater rural prosperity. These rural reforms stimulated bothgrowthand diversification of crop production besides releasing many fromagri-cultural labor. By 1997, however, growth rates for both rural incomandproductivity had stagnated. Since the 1980s, roughly 150 millionagricul-tural workers have left farming, several million of whom migratedthelower tiers of the urban service sector. Despite the reforms andmassmigration to the cities, rural areas, home to 70 percent of theChinesepopulation, capture only 30 percent of the countrys GDP. Incomforfarmers rose barely 1.8 percent in 2000, the lowest increase sin

thebeginning of reforms 22 years ago. It is perhaps not surprising ththemajor root of the discontent in rural areas is unrelieved poverty. Infact, inits 2000 year-end review of domestic affairs, the Communist Partyleader-ship singled out rural unrest as the biggest threat to its rule. Ininternaltalks, President Jiang Zemin gave top priority to three overridingtasks inthe countryside: boosting agricultural production, increasingfarmersincomes, and maintaining stability invillages.


(R)evolution of Rural ChinaJennifer L. Turner and Sun

LiangEnvironmental Change and Security Project


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THE NEED FOR STABLE LANDTENUREIn light of the rapid expansion of industrial and service sectors, thetrendof a declining share of agricultural value-added in the nationaleconomy islikely to continue in the coming decades. It is therefore crucial

for theChinese leadership to create new sources of income for Chinas ruralpop-ulation. Besides moving more rural laborers out of agriculture intoindus-trial and service sectors, the government needs to create a new landusesystem that will enable rural residents to share the benefits of rapidindus-trialization. Currently, rural residents rent the land from the state andeasi-ly lose user rights when local governments opt to lease farmland toindus-trial or urban developmentcompanies.

THE POTENTIAL SHIFT TO HIGHVALUE,LABOR INTENSIVECROPSSince abundant labor supply remains an important comparativeadvantagefor Chinas rural sector, under the WTO farmers could enjoy incomegainsthrough the development of labor-intensive, value-added farmingactivi-ties (e.g., vegetables, horticulture, and organic farming). However,such atransformation in agricultural production patterns must besupported bythe creation of a sound market-based distribution system. Specifically,fourtypes of market mechanisms are necessary to help farmers break intonewnichemarkets:1) An open and competitive agricultural product

market;2) An integrated labor

market;3) A mature land market with clearly-defined property rights;

and,4) A competitive financial market for more efficient resource

allocation.

THE WTO AND RURALCHANGEIt is in this context of half-completed rural economic reform thatChinanow enters the WTO. The main components of the WTOagreementsthat will affect Chinas agricultural sectorinclude:1) Elimination of sanitary and phytosanitary barriers on U.S.

exports ofwheat, citrus, andmeat;

2) Elimination of Chinas subsides to agriculturalexports;

3) Adoption of a tariff-rate quota (TRQ) system for grainimports;


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4) Reduction of tariffs on agricultural products to well below 20percentfor major agricultural imports from the United States;and,

5) Liberalization of state monopoly and allowing privatecompanies toengage in agriculturaltrade.

The impact of the WTO on agricultural production and thelives ofrural residents initially will not be as great as the immediate chan

theagreement will have on the industrial sector. Previous agriculturalreformsalready have cut subsidies to agriculture, so Chinas WTOcommitment todecrease agricultural subsidies will have little impact. Increasedgrainimports are expected to enable many of Chinas farmers to shift frlow-profit crops, such as wheat, corn, rice, and cotton, to the morelucrativeand less state-controlled fruit, vegetable, and meat markets. Forexample,WTOs tariff-cutting measures are expected to boost Chinasvegetableexport market by as much as five percent a year. Certainly, ruralworkerswill benefit if they find employment opportunities in these newnichemarkets or in agricultural production sectors that thrive as aresult ofWTOs lower restrictions for Chinas exportgoods.THE WTO AND RURAL REFORMS INCHINAMarilyn Beach from the National Committee on U.S.-China

Relationsstressed that while allowing farmers to change from food-security ctohigher value crops may raise rural incomes, the economic impact

suchshifts would vary widely throughout the country. In less prosperousareassuch as wheat, maize, and soybean growing regions, as well as foandtimber producing areasthe effects of the WTO on the rural qualitylifewill depend on how successful poverty alleviation efforts are in thecountry-side. The fear in some rural areas is that the WTO will only attract ftoalready wealthy areas, leaving poor, interior regions to lag furtherbehind.Many of the rural structural reforms needed in China are not

directlytackled in the WTO framework. In fact, many of the potentialgains ofWTO membership in the agricultural sectorparticularly the longover-due liberalization of the state monopoly of grain production and

permis-sion for private companies to engage in agricultural tradecan befullyrealized only when new rules of fair and open competition arecombinedwith sustainable investments in agricultural technology, marketexpansion,and education. Chinas farmers also need access to a greater sharthebenefits of rising landvalues.The rural people who may be displaced by the WTO will need

accessto information and training on how markets work. The Chinesegovern-


The fear insomerural areas is

thatthe WTO willonlyattract funds

toalreadywealthyareas,

leavingpoor,interior

regions tolagfurther behind.


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ment therefore needs to put a premium on investments in educationandtechnical training on how domestic and international markets functionandon how to promote post-harvesting technologies such as foodprocessing,packaging, and transportation. While setting up and funding such

trainingprograms for rural farmers would be challenging, such capacitybuildingactivities (as well as agricultural environmental investments) areexemptfrom WTO restrictions on subsidies. Zhou Qiren fromBeijingUniversity noted that a potential solution to the dilemma ofabundantlabor supply and low productivity would be for the government andbusi-ness communities in China to create a contract-based system thatlinksmodern, economy-of-scale agricultural businesses with the labor-intensivefarmerhouseholds.IMPACT OF THE SANITARY AND

PHYTOSANITARYAGREEMENTIn his presentation, Zhao Baoqing from the ChineseEmbassy inWashington, DC highlighted the Sanitary and Phytosanitary(SPS)Agreements (part of Chinas WTO accession packet) important effectsonthe adequacy of animal, plant, and human health standards in Chinasagri-cultural sector. The SPS agreement restricts China from potentiallytrade-distorting inspection and border control measures and imposeshighertransparency criteria. These requirements pose challenges to thecountryslimited technical and administrative capacities to protect Chinas

farmlandsand pastures from alien (including genetically-modified)products andspecies while complying with international SPS norms.Moreover,Chinese farmers, especially those in less developed inland areas, arenotequipped with adequate knowledge or technical support to identifyandcombat these risks. Notably, these gaps in capacity are addressed inthe1999 U.S.-China Agricultural Agreement. This bilateral agreementpro-vides the framework for bilateral cooperation on training andinformationsharing on environmental protection issues in the agriculturalsectorranging from measures to improve pest and disease management tosustain-able irrigation and land

use.LOCAL GOVERNMENTS LACK RESOURCESFORRURALREFORMSWhile Beijing is committed to fulfilling WTO requirements,domesticpolicy dynamics potentially hinder rural areas from takingadvantage ofWTO-related adjustments. Specifically, over the past twenty years thecen-tral government has decentralized by granting considerableadministrative


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and economic powers to the provincial and sub-provincialgovernments.While they possess the authority, local governments often lacksufficientresources (and incentives) to carry out the necessary structural refo

andpolicies that could help the agricultural sector. In short, local

governmentsin China face daunting challenges in improving the livelihood ofruralinhabitants, 15 percent of which are unemployed andunderemployed.Prior to the reform era, rural and urban inhabitants had littlefreedom ofmovement due to a household registration system that tied them theirworkplace.Throughout the 1980s and 1990s rural citizens have bemov-ing to urban areas without being granted the legal right to live incities.This meant they faced difficulties in acquiring housing and accessotherurban social services. The current proposed household registratiosystemreform to loosen registration requirements in cities may accelerathealready significant trend of rural unemployed migrating to cities afur-ther straining urbaninfrastructure.Ultimately, difficult policy reforms in rural areas will be key to

ensuringa smooth transition for farmers adjusting to more open markets amov-ing successfully to new crops. For instance, the government has m

ten-tative legislative moves to redefine rural property rights to encourmoreefficient and sustainable land use and conservation. Economicwelfare ofthe farmers can only be achieved when the farmers themselves ha

big-ger say in the allocation and use of rural resources in such forms asfarmersassociations. However, the increased fiscal burden on local

governments,particularly in poor inland regions, hinder their ability toinstitute theneeded agricultural reforms, especially investments in infrastructusus-tainable production andconservation.The WTO has outgrown the simple formula of numerical free

trade. InNovember 2001, at the same WTO ministerial meeting where Chinwasformally accepted as a member, the WTO put new emphases on tenvi-ronment and development programs in the Organizationsagenda.While itis difficult to predict how tariff reductions in primary commoditiessuch astimber and minerals will affect Chinas rural sector, it is clear thatdomesticpolicy choices in the changing international environment may

moredirectly and more profoundly impact the livelihood of Chinas rurapopu-lation in the coming decades than the fulfilling of the WTOagriculturalagreements.


Localgovern-ments in

Chinafacedauntingchallengesinimproving

thelivelihoodofrural

inhabitants,15 percentofwhich are

unem-ployedandunderemployed.


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In 2000, the prospect of Chinas accession to the WTO triggeredanextensive debate in the U.S. Congress. To support Chinasapplica-tion formembership,

the Congress debated andeventuallyapproved the trade agreement with China and the granting of

permanentnormal trade relations (PNTR) status. This ended twenty years ofdebateon Chinas trade status with the United States. Previously, undertheJackson-Vanik (adopted in December 1974) provision of U.S. trade

laws,the Administration had to request and the Congress not disagreeon anannual waiver awarding normal trade status. Although theprovisionswere originally targeted at Soviet restrictions on immigration, thelan-guage of the statute encompassed China and a number of othercentrallyplanned economies. The question of NTR was more than ashift inlabels, for lacking NTR meant a country would have to pay theoneroustariff rates originally established by the Herbert Hoover eraSmoot-Hawleytariff.The yearly debates on granting normal trade relations to China

touchedon questions of U.S. national security, human rights, and thedevelopmentof Chinese democracy. For some in Congress, the annual debateswereviewed as a way to pressure the Chinese leadership over human rights,reli-gious freedom, and the failure to adhere to agreements limiting theexportof key weapons-related technologies. For these Members ofCongress,granting PNTR would eliminate a key point of leverage withChina.Much of the debate also focused on the promise and challenge oftheChinesemarket.CURRENT U.S. TRADE WITH

CHINAIn the decades since China began to open its economy to overseastradeand investment, China has become an active commercial partner oftheUnited States. Investment and technology flowed from the UnitedStatesand other industrial countries into China. Two-way trade also hasgrownsubstantially with American capital equipment, aircraft, and hightechnol-ogy goods going to the Chinese market while a growing array oflargelyChinese consumer goods are destined for the American market.Thebilat-


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Keeping an Eye on ChiKent H.



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eral trade balance is decidedly in Chinas favor. At $ 85 billion,Chinastrade surplus with the United States accounted for almost 25 percofthe $ 346.3 billion trade deficit in 2001. This increasing deficit waskeyfactor cited by congressional opponents of granting PNTR and

allowingChinas entry into the World Trade Organization(WTO).THE COSTS OF WTOCOMPLIANCEPreceding sections in this conference report summarize thefindings ofseparate panels on the expected impact of WTO membership onruralChina and Chinas state-owned enterprises. Beyond structuralchanges inthe economy, China has committed to lowering tariffs, expandingruleof law in commercial matters, and developing transparent, WTOconsis-tent regulations. How to monitor and encourage Chinas progress theseareas is of keen interest to U.S. policymakers andbusinesses.MONITORING CHINASCOMPLIANCEWTO compliance is a major challenge for China and is, at the samtime,critical for America and for other countries seeking access toChinesemarkets. The WTO itself has formed a group that will issue anannualreport on Chinese compliance with WTO rules for the first eightyearsand then again on the tenth anniversary of Chinese accession. ThU.S.Congress has charged a number of official bodies with theresponsibility ofreporting on trade-related developments in China. The monitoring

andreporting activities of the following organizations is seen as key inensuringChinese compliance to its WTOcommitments:The United States Trade Representative Office will provide periodic

reportson Chinese compliance with WTOrequirements.

The General Accounting Office (GAO), widely known as the watcforthe congressional branch, has established a separate unit to

trackChinese WTOcompliance.

Congress established two independent commissions to monitor

Chinasprogress on trade, human rights and other matters. The U.S.-ChinaSecurity Review Commission will focus on trade and nationalsecurityquestions. The separate Congressional-Executive Commission

China(often referred to as the Levin Commission) will devoteconsiderableattention to human rights while also monitoring compliancewithWTOstrictures.



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MISSION OF THE U.S.-CHINACOMMISSIONC.Richard DAmato provided an overview of the mission of the

U.S.-China Commission, a permanent body created by the Congress in2000.Commission members already have visited China and have planned a

seriesof hearings before their first report to the Congress in mid-2002.Chairman DAmato listed five key questions that would definetheCommissionswork:1) Does China have the will and the means to comply with

WTOrequirements?

2) Does WTO compliance risk triggering social and politicalunrest?

3) Will China promotedemocracy?

4) What is the impact of Chinese compliance on the U.S.economyincluding an assessment of the winners and losers from expandedeco-nomicties?

5) How will Chinese WTO membership and compliance affectotherAsian countries includingTaiwan?

Will China comply? DAmato thought that the current Chineseleader-ship was intent on meeting its WTO obligations. This was asentimentechoed by other panelists as well. In DAmatos view, the morereform-minded Chinese leaders see WTO membership as a way of forcing

thecountry to move toward a market economy while still maintainingtightcontrol from the center. He did think that the Chinese governmentwasprepared for many of the challenges arising from WTOcompliance,particularly the risk ofinstability.

1

China has the will,does it have the way? It was less clear whether thecen-tral leadership had the means to assure full compliance. There isstill alack of transparency in making and applying laws andregulations. Inmany cases not even the Chinese text is available. The Chineseleader-ship also faces the challenge of strong provincial governments

andvibrant regional economies. Implementing the WTO will demandcon-siderable political skill as well as technical expertise to rewrite orcreateneededregulations.

The U.S. role. DAmato thought there was an important role fortheUnited States government in helping China to comply with theWTO.Technical assistance is one obvious area where the United Statescanprovide assistance. The United States will also have to be aware thattoo


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DAmatothoughtthat thecurrentChineseleader-ship wasintenton meetingitsWTO obligation


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sudden a change could overwhelm Chinas good intentions.DAmatothought that bilateral discussions and some economic confidencbuild-ing measures also could be important. Early resort to the formaWTOdispute resolution process could be a mark of

failure.U.S. BUSINESS AND CHINESE COMPLIANCE WITH THEWTOAs the president of the Emergency Committee on AmericanTrade(ECATa thirty-year old organizationcomposed of

majorU.S.exporters), Calman Cohen gave an American business perspecti

onChinese compliance with the WTO. Cohen saw a twin missionforAmerican businesssecuring Chinese compliance with the WTOandpromoting a constructive role for China within theWTO.Opportunities for U.S.business: Cohen noted that Chinesemembership inthe WTO was the product of fifteen years of bilateral andmultilateralnegotiations and Chinas participation holds great

potential forAmerican business. Notably, U.S. and other businesses are in theprocessof creating global webs of production in which China will import

andexport components that are part of larger, global valuechains.

U.

S.business helps with Chinese WTO compliance: Many of Chinacom-mitments under the WTO will be phased in over a number of

years,which will provide time for the Chinese government to changelawsand reform institutions. Cohen saw an important role for U.S.

businessin providing advice to China on how best to meet variousWTOrequirements. In the past China has not always fully met its tradobliga-tions and also has missed technical deadlines. Moreover, whiledisagree-ments over the nature and pace of change are almost inevitableCohenstressed that in choosing to dispute specific cases, the U.S.busine

com-munity needs to be strategic in its thinking and keep the long-terela-tionship in mind. He did not anticipate any early rush to use theformalWTO dispute mechanism vis--visChina.

Taking the long view: Cohen also urged the U.S. government andbusiness

community to adopt a long-term perspective in monitoringChinesecompliance with the WTO. China sought and achieved WTOmem-bership because of the benefits it offered. At the same time, the

Chinesegovernment is attempting an economic transformation that hasneverbeen attempted in such a short period of time. Looking forwardit isalso important to put Chinese efforts in a broad context thatincludesthe current slowdown in the globaleconomy.


Cohen sawatwinmissionforAmericanbusiness

secur-ingChinesecompliance

withthe WTOandpromotingaconstructive

rolefor Chinawithin the WTO.


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OPPORTUNITIES FOR U.S.BUSINESSESPeter Hale , who currently serves as the senior advisor on Chinaandother key trade matters to William Lash III, the AssistantSecretary ofCommerce for Market Access and Compliance, stressed the

opportunitiesfor American firms created by Chinas membership in theWTO. Working with American business and the Chinese government: To help

makesure potential benefits of Chinas WTO membership becamerealopportunities for U.S. businesses, the Department of Commercehascreated a department-wide WTO monitoring team. Their Chinateamis currently working with American businesses and the Chinesegovern-ment to secure full compliance with WTO rules. This cooperativeini-tiative includes training Chinese trade officials, holdingseminars onstandards setting, and helping strengthen the regime of

intellectualpropertyprotection. To coordinate thiswork, officialsfromCommerces Market Access and Compliance Division meetregularlywith officials from the Chinese Ministry of Foreign TradeandEconomicCooperation.

Deliberate speed, not disputes: Hale shared the view of the otherpaneliststhat there needs to be a concerted effort to settle the expecteddisagree-ments over how to interpret specific provisions of the bilateraltradeagreement with China or the application of WTO rules. He didnotexpect any early resort to the formal WTO dispute settlement

mecha-nism. Chinese access to the American market: Hale noted that the bilateral

agree-ment with China provided some protection for import sensitivesectorsof the American economy. For instance, limitations on mostapparelimports are due to disappear in 2005 under the terms of thelast orUruguay Round of trade negotiations. China, however, agreed tolimitits apparel exports for an additional three years. Hale also noted thattheDepartment of Commerce (through its Import Administration)wasmonitoring certain sensitive sectors for any surges in Chinese

imports.NOTES1.The question of potential instability has been raised by a

number ofChina specialists. As an example, DAmato mentioned Gordon Changandhis recent book, The Coming Collapse ofChina.


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For over 50 years Chinas agricultural sector has been heaviltaxedto finance the countrys intensive industrializationprogram.Liberalization measures introduced in the 1980ssignificantlyincreased farmers autonomy and income. Still, low productivity

andregional disparities persist owing to chronic under-investment andpopula-tion pressure. As a result, ongoing agricultural reforms continue tfaceboth economic and socio-environmental

challenges:Technology and cost structures of agricultural production areinterna-tionallyuncompetitive;

The urban-rural divide also triggers massive migration into citiecaus-ing significant demographic, infrastructure, and social strainsthrough-out all of Chinas regions;and,

Exploitative production leads to accelerated resource depletion eco-logicaldegradation.

Against this backdrop, Chinas entry into the rule-based opentraderegime embodied in the World Trade Organization arguablypresentsChinas farmers with their greatest challenge. Membership in theWTOwould generally enhance the transparency of the Chinese regulatostruc-ture and rule of law for the rural communities; yet exposure tointerna-tional competition and enforcement of international standards invsub-stantial barriers and opportunities for Chinas most vulnerableeconomicsector. Each of the two agriculture-related agreements in Chinas

accessionpackagethe Agricultural Agreement and the Sanitary andPhytosanitaryAgreementposes specific challenges and opportunities for

agriculturalreform.1. THE WTO AGRICULTURALAGREEMENTKeyelementsTariff reduction from an average level of 22 to 17 percent and

establish-ment of tariff ratequotas;


Appendix A

China Joins the WTOImpact on Rural China


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Liberalization of trading rights for agricultural rights that giveforeignfirms direct access to Chinese customers;and,

Commitment not to use export subsidies, and to cap and reduce

certaindomestic subsidies, with the exception of certain domesticagriculturalsupport policies not directly related to trade (green-boxpolicies).

EconomicImpacts Increased access to foreign agricultural products and firms

throughreduction of tariff and non-tariff barriers and improvedregulatorytransparency;and,

Challenges to Chinas inefficient grain production sector; withmoreheavy impacts to the farmers and rural population in the less

developedinlandareas.Socio-EnvironmentalImpacts Possibilities of loss of market share and income deterioration for

domes-tic farmers, especially those already lagging behind othereconomicplayers;

Associated effects on rural migration patterns, regional inequalities,andsocialstability;

Greater international dependence that might reverse the trend ofpreda-tory resource uses including inappropriate dependence onirrigation,use of marginal land, and high use of chemical fertilizers andpesticides;and,

Greater incentive to switch to more value-added andenvironment-friendly crops and organicagriculture.

2. SANITARY AND PHYTOSANITARYAGREEMENTSPS are measures taken to protect humans, animals, and plants fromrisksto life and health, including risks arising from additives,

contaminants, ortoxins in foods. Together with the Technical Barriers to Trade(TBT)Agreement it constitutes the backbone for the regulatorytransparency ofenvironmental and other technical standards of WTOmembers.KeyElements Increased transparency and international monitoring of Chinas

techni-cal, ecological, and health standards for animal and plant products;and,


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Removal of non-WTO-consistent SPS measures that have serveasbarriers totrade.

Economic

Impacts Increased access to foreign animal and plant products throughsimplifi-cation of SPS procedures and standards;and,

Increased access for the commercialization of internationalagriculturalgenetic research inChina.

Socio-EnvironmentalImpacts Challenges to technical and administrative capacities of Chinese

SPSstaff to ensure security of Chinas farmlands and pastures whilecomply-ing with international rules on transparency and open trade;

and, Greater exposure to genetically modified plant and animal prodandvarieties of which the farming community has insufficientknowledgeor technicalsupport.

This fact sheet was compiled by Sun Liang at the Wilson CentersEnvironmentalChange and Security

Project.



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Appendix B

Chinas Entry into the World Economy 1949-20

Itdoesntmatterwhetherthe cat isblackor white,aslong asitcatchesmice.eng Xiaoping

1949 The Peoples Republic of China isfounded.

19581960 The Great LeapForward

19661976 The CulturalRevolution

1972 February Nixon visits China. The United States and China sign

theShanghai Communique in which both countries pledgetowork toward normalizing diplomaticrelations.

1974 December Title IV of the 1974 Trade Act, also called theJackson-Vanik Amendment, is passed conditioning MFN onanon-market economys policy towardemigration.

1978 December Beijing announces open-door economic reformpolicies.

1979 January

The US and China establish full diplomaticrelations.

July

The CCP makes plans for the creation of fourSpecialEconomic Zones (SEZ) along the Chinesecoast:Shenzhen, Zhuhai, Shantou, and

Xiamen.December Agricultural reforms returning responsibility for landtoindividual farmers. This initiates the process of phasingoutcommunes.

1980 March-April

China is admitted to the World Bank andtheInternational MonetaryFund.

1981 Profit contracting system is established in state-ownedenterprises encouraging greater productivity andgrowth.

1983 September Regulations governing joint ventures are enactedinChina.

1984 Fourteen coastal cities are opened to investment

fromothercountries.

1986 China begins the process of applying for membershipinthe General Agreement on Tariffs and Trade(GATT).

March China becomes a member of the AsianDevelopmentBank.


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1992 January

Deng tours the Shenzhea and Zhuhai SEZs andothercities in the South to support the open doorpolicies.Pudong Development Zone is established inShanghai.Beijing and Washington agree on trade measures to

pro-tect intellectual property rights inChina.October The Market Access Memorandum of Understanding

withthe U.S. called for the Chinese government tosubstantiallyreduce import barriers to facilitate two-way trade,especial-ly in the product categories of great interest to U.S.firms.

1993 China reduces tariffs on over 3000 import items andabol-ishes import control for over 350commodities.

1994 Fiscal reforms enacted to improve macroeconomicpolicyin China. Exports and imports grow by 97% and66%respectively in

1994.June

The U.S. House of Representatives renews theextensionof most favored nation (MFN) trading status forChinadespite concerns about human rightsviolations.

1997 July

The UK returns Hong Kong to China. The citybecomesan autonomous Special Administrative Region of thePRC.Severe fluctuations in the Thai currency (bhat) touchoffcrisis in the Asianeconomies

1998 Chinas GNP rises to 7th largest in the worldoverall(nearly $930 billion) and 2nd (behind the U.S.) intermsof purchasing power

parity.1999 November U.S.-China agreement struck on the terms ofChineseadmission into the

WTO.2000 September U.S.Senate passes bill no. H.R. 4444 granting

ChinaPermanent Normal Trading Relations (PNTR) statusandestablishing the Congressional-ExecutiveCommission(LevinCommission).

October U.S.-China Security Review Commission chartered bytheNational Defense Authorization Act chartered by

H.R.4205, the Floyd Spence National Defense AuthorizationAct.

2001 Tenth five-year plan continues to stress development of

therural interior provinces. Realized Growth for fiscal year:7.3%.December China admitted to the WTO on December 11.

China receives permanent normal trade relations(PNTR)from the United States prior to entry into theWTO.

2002 January

Taiwan admitted to theWTO.

(Fall) The Chinese Communist Party convenestheir16th National

Congress


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SOURCES

Tongzon, Jose L. Chinas membership in the World Trade Organization(WTO)and the exports of the developing economies of East Asia: a computable

gen-eral equilibrium approach Applied Economics ,Dec 15, 2001, v33 n15,p1943-1959.

Huaping Luo and Robert T. Golembiewski Budget Deficits inChina:Calculations, Causes, and Impacts Public Administration and

Management:AnInteractive Journal, 1996, v1 n1, .Chen, Rai-Ruenn U.S.-China trade: trends and prospects Business America,Jan25, 1993, v114 n2, p6-

8.BBC Business News Chinas economy to overtake Italys BBCOnline,

December 31,2001.Yolanda Fernandez Lommen and Plamen Tonchev China: From Isolation toa Regional Superpower Status, Institute for International Economic

Relations(IIER), Athens, Greece ,

1998.Nolt, James H. China in the WTO: The Debate Foreign Policy inFocus,December 1999, v4 n38, .A Chronology of Modern China - a resource of the Asia

Society,.Committee on Ways and Means, Full Committee Action Release

CraneAnnounces Hearing on Renewal of Normal Trade Relations WithChina, June 28,2001.Dumbaugh, Kerry China-U.S. Relations, CRS Issue Brief for

Congress,IB98018, Jan 17,2001.The Economist Intelligence Unit Country Reports, New York: The

EconomistIntelligence Unit , 2002Wendy Dobson and Pierre Jacquet Financial Services Liberalization in theWTOWashington DC: Institute for International Economics,

1998PBS A Timeline of US-China Relations from 1945-1979 Nixons ChinaGame.Financial Times China: A closing door, November 6,

1998.World Bank, World Development Report Washington DC,1998.

This timeline was compiled by Matthew Case at the Wilson Centers Project

onAmerica and the GlobalEconomy.


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