China and GATT
Not So Fast

Immanuel Giel/wikimedia

Article Highlights

  • It will be difficult to force new market reforms on these countries after they have been admitted.

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  • Chinese officials argue that it would be a mistake to create the new WTO without the participation of China.

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  • World trade leaders are just beginning to comprehend the enormity of the substantive and administrative tasks

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With the disastrous controversy over most-favored-nation status for China now behind it, there's a danger the Clinton administration will compound the original errors of its trade policy with a weak-kneed stance regarding the terms of Beijing's entrance into the General Agreement on Tariffs and Trade.

Sensing the vulnerability and indecisiveness of the president and his advisers, the Chinese are set to exploit the situation with a highly public campaign to rush the negotiations in order to become a founding members of the new World Trade Organization to be established next January.

"A hasty agreement that papers over the glaring deficiencies in China's economic and trade policies, however, would be a great mistake and an unfortunate precedent. "--Claude Barfield

A hasty agreement that papers over the glaring deficiencies in China's economic and trade policies, however, would be a great mistake and an unfortunate precedent. The real issue is not China but the future of the WTO and the integration of the former socialist economies into the multilateral trading system.

Now that the celebrations regarding the conclusion of the Uruguay Round are over, world trade leaders are just beginning to comprehend the enormity of the substantive and administrative tasks that will be faced by the fledgling WTO.

Each of the new program areas -- services, intellectual property, agriculture, investment -- presents complex and difficult issues of implementation. Each projects the multilateral trading system much deeper into what had been the domestic commercial concerns of individual countries.

Even with the best of wills, there inevitably will be important conflicts over the next few years, as the WTO secretariat and leaders of the major trading nations attempt to put flesh on the bone structure of the agreement.

If, on top of this formidable challenge, the WTO admits a series of countries whose economic structure and policy still retain large elements of the socialist, command economy that guided them for a half-century, the future of the organization will be bleak indeed.

Given the one nation/one vote rules of the WTO, and the provision for a two-thirds majority for new rules for the organization, it will be difficult if not impossible to force new market reforms on these countries after they have been admitted.

With virtually no meaningful economic reforms in the former Soviet republics and with voters in Eastern European countries (Poland and Hungary are recent examples) swinging back toward socialist-oriented governments, the permanence of internal market reforms and outward-looking trade policies is by no means certain.

Both because of its size and because it stands first in line, China is a key test case. Chinese officials argue with great force that it would be a mistake to create the new WTO without the participation of the nation that holds one-fifth of the world's population and ranks 11th among world trading nations (up from 31st in 1980).

These facts notwithstanding, GATT and U.S. officials should take firm positions on the major issues that present barriers to Chinese membership in the new WTO. These include questions of market access, transparency of rules and regulations, intellectual property rights and -- most important -- the role of state enterprises.

If China is granted provisional membership, the transition period should extend until all of these issues are settled to the satisfaction of WTO officials.

Regarding market access, China recently has abolished 400 quotas and licenses, but more than 700 such restrictions remain. A firm schedule for elimination of remaining restrictions on market access should be negotiated as part of the membership agreement.

On intellectual property, stronger patent and copyright regulations are needed, but the key is actual enforcement, which should be monitored closely by the WTO even after membership is granted. Enforcement also is the key to achieving transparency of rules and regulations: China's top officials should be held strictly accountable for secret provincial or local ordinances that block foreign competition.

Finally, the thorniest issue is that of state enterprises. Though now accounting for slightly less than 30 percent of total industrial production, these enterprises retain strong political clout and large concentrations of industrial workers. They present the most daunting political and economic problems for the Chinese government. They also present the most dangerous issue for the new WTO.

Allowing China to enter GATT without strict provisions for privatization and an end to subsidies will create major problems for the WTO in coming years. Once it achieves WTO membership, China will undoubtedly become an influential voice in the new multilateral organization; if it retains a strong element of state ownership, with the inevitable attendant subsidies, it will almost certainly assume leadership in attempts to block market-based competition in industrial sectors.

While the future of the WTO does not depend upon the terms of Chinese membership, the outcome of these negotiations will have major consequences for future battles within the new organization.

For this reason, the Clinton administration should stick to its demands for real reform of the Chinese economy and firm deadlines for complying with WTO trade rules before agreeing to vote for China's re-entry into the multilateral trading system.

Claude E. Barfield is a resident scholar, director of science and technology policy studies , and coordinator of trade policy studies at AEI.

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About the Author

 

Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
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