China in the WTO

NOVEMBER 11 witnessed the historic accession of China to the WTO, following formal approval at the Ministerial Plenary the previous day. Shortly after he signed the documents formalising China's membership of the organisation, Trade Minister Shi Guangsheng deposited the instruments of ratification with the WTO Secretariat. There was a clearly demonstrated intent not to lose time. China's membership will officially commence on December 11, that is 30 after it deposited the instruments of ratification with the WTO.

The formal approval of China's accession was greeted at the Ministerial Plenary with a standing ovation. Trade delegation leaders from the U.S., the E.U., India, Pakistan, South Korea and Japan, among other countries, warmly welcomed the world's largest nation on board the WTO. Shi Guangsheng, in his address, endorsed the attempt by WTO members to narrow differences and agree on an agenda for future trade negotiations. At the same time, he strongly urged the body to put the interests of developing countries uppermost.

China's signing ceremony the next day was preceded by the Ministerial Plenary granting formal approval for Taiwan's membership. The delay of one day in bringing Taiwan into the trade body was meant to honour a tacit agreement between the WTO and China that the latter would have precedence in pursuing its membership claims, even if in a symbolic sense.

China's arrival signals a fundamental change in the rules of engagement within the WTO. Its substantial economic power is undeniable. With a 4 per cent share in global trade, it ranks fourth among the world's exporters. Equally important is the diplomatic weight it brings to the bargaining table at the WTO, with its record of assertively pursuing its interests in global forums.

Equally crucial would be the demonstration effect that Chinese actions would have. India, for instance, has only bound 61 per cent of its tariff lines and maintains a relatively high average bound tariff of 58 per cent on industrial goods. In comparison, China comes on board the WTO with all its tariff lines bound and a commitment to bring down the average bound tariff for industrial products to 8.9 per cent. In future negotiations on market access for industrial goods, the Chinese example is likely to weigh heavily upon India.

The Chinese membership agreement is a voluminous document of more than 1,500 pages. It contains a wide diversity of clauses and conditions, which have been bilaterally negotiated with every member of the WTO and will govern the terms under which China will participate in world trade. India concluded its accession agreement with China in February last year. The E.U. and the U.S., however, dragged on their negotiations much longer, with each seeking to ensure that it was not outbid by the other in securing terms from the world's largest nation.

Some of the terms of accession seem to indicate that China has had to accept conditions more onerous than those that govern other members, particularly developing countries. It would, for instance, have to maintain agricultural subsidies within a ceiling of 8.5 per cent of the total value of output, while developing countries are allowed up to 10 per cent.

For a period of 12 years from China's accession, a special Transitional Safeguard Mechanism will be in place, which would enable other member-states to adopt measures to protect domestic producers against possible market disruptions caused by imports from China.

China becomes, from the moment of accession, a party to the Agreement on Textiles and Clothing (ATC). While quotas for all members will cease by the end of 2004, they would be at liberty until the end of 2008 to invoke safeguard mechanisms to curb imports of Chinese textiles if they threaten domestic producers. Textiles is an area where the new member could have an immediate impact in world markets. A recent World Bank study forecast that Chinese exports of textiles and clothing could more than treble within a decade. This obviously is a cause for worry for India and other traditional exporters.

All WTO member-states would be obliged to phase out quantitative and other forms of restrictions on Chinese goods in accordance with a mutually agreed timetable. WTO membership also brings obligations on China to adopt pricing practices that are consistent with international practice. Dual pricing of products sold domestically in relation to exportable goods would, for instance, be banned. Price controls employed for purposes of protection and export subsidies on agricultural products would also not be allowed.

The terms of accession also involve obligations on China in the field of services, notably in telecommunications, banking and insurance. Foreign telecom companies would be able to open up services in several Chinese cities with an equity share of up to 25 per cent with immediate effect. Within one year, more cities will be opened up to foreign telecom service providers and the equity ceiling will be raised to 35 per cent. Within three years, the foreign equity allowed would be raised to 49 per cent, while all geographical restrictions would be removed within five years.

Banking institutions would be entitled to commence operations for foreign currency business with immediate effect. Local currency business would be opened up within two years for enterprise clients, and within five years without further restrictions. There is a similar timetable for quick entry of overseas insurance companies into China. Observers believe that the services sector is likely to be the arena where the most intense contests could take place between European and U.S. corporations. U.S. Trade Representative Robert Zoellick and E.U. Trade Commissioner Pascal Lamy, have already served notice of their keen interest in this domain. The first disputes between the E.U. and the U.S., over the terms at which they are afforded access to the Chinese market, could also be witnessed in the services sector.