Progress or Procrastination: China's First Year in the WTO
Almost a year after China joined the World Trade Organization (WTO), the Asia Program and the Project on America and the Global Economy (PAGE) sponsored a panel discussion on China's progress on implementation of its WTO obligations. Wendy Cutler, Assistant United States Trade Representative of North Asia, Patrick Mulloy, Commissioner on the U.S.-China Security Review Commission, and Karen Sutter, Director of Business Advisory Services for the U.S.-China Business Council detailed areas where China has made substantial progress in meeting expectations of the international trade community. Ms. Cutler's comments were off the record and have been omitted from this summary. While noting the very early stage of China's bureaucratic, legal, and economic reforms, they also pointed out significant barriers still blocking the Chinese government's efforts for full compliance with WTO mandates.
China's Reforms in the First Year
In the first ten months since China joined the international trade organization, China has kept many of its WTO commitments. In addition to removing substantial trade barriers and restrictions, individual Chinese government agencies are examining and clarifying procedures for business licensing and entry into China's markets. Most of the changes that China has successfully implemented are in their "hardware," altering laws and regulations in accordance with the WTO's expectations. Difficulties in the enforcement of these new laws will present added challenges for the central Chinese government.
At the same time, aligning Chinese markets with international standards grows increasingly complex with each passing month. Chinese bureaucratic efforts dramatically differ across market sectors with securities, financial, and insurance regulators leading the efforts at reform and making changes ahead of schedule while regional, agricultural and state-owned industries lagging behind, reluctant to change old laws and implement new ones. China's compliance is therefore uneven and may become increasingly unbalanced in the next three to five years.
Speakers emphasized that although China has not met all of the international trade community' expectations and requirements, the "process" of bringing China into the WTO is working. China's first year commitments focused on the goods market: 70 percent of the goods markets' tariff categories experienced reduction and 60 percent meet target levels. The largely services-based U.S. economy would be more affected in the second and third years when China begins reforms in their service sector.
China and the United States
The U.S. takes in 41 percent of Chinese exports but sends just two percent of American exports to China. A wide range of European, Japanese and U.S. based multinationals have invested in China with an eye to exporting to the U.S. and other markets. Many economists have raised warning flags about the size and persistence of the U.S. current account deficits and the concomitant growth in U.S. external debt. When the United States does start to adjust its external accounts, the openness of China's and other emerging market economies will be a factor in how smoothly the adjustment occurs.
Still, the United States needs to be careful about how hard and how fast it pushes for full Chinese compliance with WTO standards. Large, sudden shifts in the Chinese economy could undermine the central government's control and exacerbate growing social and political problems at the time when power in China is shifting to a new generation of leaders. At the same time, the U.S. needed to be vigilant of any attempts to use the period of political accession as means of evading China's WTO obligations.
Meanwhile, the United States should help promote legal and democratic reforms by restarting the U.S. funding for the promotion of transparent and fair electoral procedures that ended after the Tiananmen conflicts. China joined the WTO to maintain their levels of economic growth, make themselves more attractive to foreign investors (especially high-tech industry), and assure access to the large American market (gain permanent most favored nation status in trade). Many Americans argued that liberalized Chinese markets would lead to a more stable, equitable, and rule of law-based Chinese society. Recent events such as the shutting down of the Google search engine and a continued lack of personal and press freedoms show a contrary trend. The United States might see more progress in the civic arena if they increased support for changes in Chinese governance and civil society as well as the economy.
Global Expectations for China
The United States is one of many countries working with and evaluating China on its progress in the WTO. The WTO based Transitional Review Mechanism (TRM) will report on China's progress in meeting its WTO obligations with a final report being issued in the tenth year of Chinese membership. The TRM is designed to assure that China is meeting multilateral expectations for fundamental changes in its markets and legal structures.
The Chinese national leadership is eager to see China become a strong economy and world power and but cautious about the implementation and effect of WTO strictures on state-owned enterprises (SOEs) and agriculture. As a result, China's adherence to WTO requirements has been uneven, varying by sector and geography. both driven and held up by mixed geographic and market sector interests. The move to join the WTO was a top-down effort that would take time to filter down to the rest of China's bureaucracy and regional governments. In the long run, joining the WTO should push the Chinese government to make fundamental political reforms and combat corruption.