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The entry of China into the World Trade Organization is of major significance for both the WTO and China.

The WTO has to live down the fiasco of its conference in Seattle last autumn, which was disrupted by environmentalists and anarchists who have failed to grasp the fundamental fact that growth in world trade is essential if global prosperity is to be maintained and developed.

The WTO must first demonstrate that it is an effective organization. This means enforcing its rulings, which can only be achieved if the world’s major trading nations learn to accept rulings that they dislike and not try to undermine them with specious arguments. The worst offenders at present are, unfortunately, the European Union and the United States, but Japan’s record also leaves room for improvement. Many of the disputes that have caused so much friction between the EU and the U.S. are difficult for the layman to understand.

One such is the long-drawn-out dispute over bananas. Many observers think that the antagonists should try again to reach a compromise. Unfortunately, there are too many prima donnas on both sides who think that obstinacy is essential to the winning of points in trade negotiations. They end up harming the interests of world trade.

Another trade round involving liberalization and deregulation should be a priority for the WTO. However, U.S. President Bill Clinton’s failure to win congressional approval of a “fast-track” procedure for dealing with any trade bill that might emerge from a new round makes it difficult for fresh negotiations to be launched. Perhaps Congress will be in a more amenable mood after the presidential election in November.

Several difficult topics will have to be considered in a new round. These include rules further liberalizing foreign investment, especially in developing countries. Such changes will be difficult for developing countries to accept at this time and will therefore have to be staged at intervals. Another controversial topic will be how to police international mergers and deal with potential monopolies.

More controversial will be environmental issues. Developing countries in particular fear that environmental rules would hit their trade much harder than that of developed countries. While pollution levels in some developing countries are dangerously high, their use of hydrocarbons per head of population is much lower than in developed countries.

Yet another difficult issue that human-rights activists and trade unions in developed countries will press is labor conditions. These groups would like to be able to ban the import of products made with the use of child labor or forced labor. It is easy to sympathize with such aspirations, but banning products made by child labor would not necessarily help the children involved. In some cases at least, the earnings of those children may be necessary to their families’ survival. These problems cannot be solved by limiting trade. They need to be taken up with the International Labor Organization, the World Bank and individual aid agencies.

The WTO also has yet to focus on the huge question of electronic commerce or e-trade. This involves not only the question of content, but also of taxation and payment systems. The human-genome project, now nearing completion, also raises some complex patent issues in which the WTO could become involved.

Is issues such as these are not tackled in the WTO, it will not be long before ad hoc arrangements and purely bilateral deals are made that will inevitably undermine multilateral rules that are to the benefit of most trading nations.

There has been a tendency in Japan to promote bilateral deals such as a free-trade agreement between Japan and Singapore, not least because an Asian regional free-trade area appears to be, at best, a remote possibility. This is unfortunate when regional trade groups (apart from the EU) have developed — for example, in North and South America. Bilateral deals may be all that is possible for Japan at this stage, but it is to be hoped that they really will involve free trade — including trade in agricultural products.

China’s entry into the WTO will greatly enhance the organization’s reach, but enormous problems will be entailed in policing the terms. Beijing will be forced gradually to liberalize and deregulate in many areas where central or local governments currently control all the levers, but such liberalization will not be easily achieved — not least because of the existence in China of a large and generally unprofitable state sector. Chinese banks have vast amounts of bad loans and in a normal market economy would be bankrupt. The banking problem will be very difficult to solve. Another headache for the WTO, and ultimately for the Chinese authorities, will be how to enforce intellectual property rights.

American, European and Japanese firms will make a dangerous mistake if they think that Chinese entry into the WTO will open up a pot of gold. There are no easy profits to be made. Foreign firms will need to struggle hard to master the cultural and bureaucratic problems they will encounter at every turn. Nevertheless, Chinese entry is an undoubted plus for the WTO and for world trade in general.

Entry was strongly resisted by some of the old guard in China. They fear that the changes it will require, while contributing in the long run to Chinese prosperity, will force the controlling Communist Party to loosen its grip on power and may well lead ultimately to a significant liberalization of the political structure. However, this will take many years; there is no likelihood of revolutionary changes in the Chinese framework in the next year or two.

At the G8 summit in Okinawa next month, and in other international meetings, the Japanese government would be acting in the nation’s interest if it were to take the initiative in pressing for a new trade round and for measures that would strengthen the WTO as an international organization contributing to the promotion of trade and hence of world prosperity.

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