BEIJING -- It is not often appreciated that accession to the World Trade Organization is a one-sided process: The applicant country has to make a series of concessions to existing members in return for gaining access to the trade concessions that existing members have extended to each other over a period of years. In the case of developing countries such as China, they already have access to such concessions through the various Generalized Systems of Preferences schemes and the US MFN/NTR deals. The matching concessions that China has made in its bilateral negotiations with existing members are the membership dues it has paid to put these benefits on a permanent basis and also to get the protection through the disputes procedure processes of the WTO.
One of the commitments new members of the WTO have to take on when they join is an agreement to give up non-market-based, trade-policy instruments, for example quotas and state trading arrangements. Trade among WTO members is supposed to be determined purely by market forces.
I do not believe that many, probably most, of the state-owned enterprises in China have the capacity to engage in export trade or to meet import competition on a market-driven basis while covering costs of production plus a normal profit margin. The use of subsidies and resort to dumping (selling products abroad for less than they are sold for at home) are also ruled out by the WTO. As a result, I believe that at the end of the relatively short transition periods that China has agreed to, many SOEs will be bankrupted. The alternative is for the government to seek to support them illegally, according to WTO rules, and to subject itself to the dispute procedures processes of the WTO. Many WTO and China watchers confidently expect this outcome.