The U.S. Senate voted on Tuesday to grant China permanent normal trade-relations status. That will provide an impetus to international negotiations on China’s bid to join the World Trade Organization. Those talks are entering the homestretch with the start of the final round of negotiations in Geneva. It now seems certain that the WTO General Council will decide in favor of Chinese entry perhaps as early as October and that China will be formally admitted to the organization before the end of the year, following Beijing’s ratification of the decision.
Still, things may not develop as anticipated. The European Union worries that China is not abiding by its bilateral agreements with EU member states. In China itself, drastic changes in domestic systems — preconditions for its WTO entry — and the resulting discord between central and local governments are reportedly fanning antiforeign sentiment.
No deadline has been set for entry negotiations, but countries involved need to speed up preparations by reaffirming their commitment to admitting China by the end of 2000. If China is criticized while being left out of the global free-trade system, its isolation from the international community will only grow.
Negotiations for Chinese entry have been conducted both bilaterally and multilaterally. In the multilateral talks in Geneva, workshops have examined China’s economic and trading systems to draft a set of rules for its accession to the world trade body. At the same time, WTO members have negotiated individually with Beijing over specifics such as tariff cuts and market-opening steps. Promises made by China in these bilateral negotiations will apply equally to other WTO members.
Bilaterally, China has accepted lists of trade and related demands submitted by 36 countries, including the United States, EU members and Japan. In July last year, Japan wound up its negotiations, and in November the U.S. completed its own talks after many twists and turns. China has made a series of drastic concessions, including agreement to cut tariffs on industrial products from an average 24.6 percent to just 9.4 percent.
Negotiations with EU countries ended in May this year, but in August frictions with China surfaced after Britain, France, Germany and the Netherlands criticized Beijing for failing to observe parts of the May accords. Noting that Beijing had promised to grant European companies permission to go ahead with seven new life- and nonlife-insurance projects within 60 days of signing those accords, the four European states complained that only two projects had been approved.
The U.S. government, similarly concerned over Chinese compliance, has indicated that it will post a “watchdog team” in Beijing to make sure that China keeps its promises. There is also concern — particularly in trade unions, Congress and the Democratic Party — that an influx of low-cost Chinese goods might throw many Americans out of work. The result has been persistent opposition to giving China most-favored-nation status, a common trading privilege granted to WTO members. But many Americans oppose Chinese entry for other reasons, such as concern over human-rights violations, protection of intellectual property rights and independence for Taiwan.
Meanwhile, some Japanese companies that have expanded into China have failed or met formidable difficulties because investments there have gone sour or because of the selective way that local governments there treat foreign ventures. But there is no question that China’s WTO entry will expand business opportunities, not only for Japan, but also for the U.S., EU member states and other nations. But Japan, in particular, is likely to be the largest beneficiary.
WTO membership will bring China the benefits of free trade, but it will also expose the country to the rigors of free competition. In the short run, domestic industries — particularly those protected by the government, such as manufacturing, agriculture and banking — will be hit. As a result, many more Chinese workers may be laid off. In the long run, however, competition will encourage reforms in inefficient state-owned enterprises. Moreover, trade expansion and inward foreign direct investment will bring China closer to the free-market model.
Japan needs to demonstrate leadership in the Geneva talks so that China can join the WTO by the end of this year. If the deadline is missed, Beijing’s pride will be wounded. But there is also the possibility that delay will undercut its chances of entry, since preparations for a new round of WTO talks, starting next year, could take the steam out of entry negotiations. It has been 14 years since Beijing applied for WTO membership. The negotiations should be accelerated to integrate that country — a vast market of 1.25 billion consumers — into the world trading system.
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