China signed an agreement in November with the US on the terms for the Mainland's entry into the World Trade Organisation. By early December, similar deals remained to be signed with other countries and groups, including the EU, but the way appeared to be clear for China to gain accession to the WTO some time in 2000.
China took part as a member-in-waiting in December's WTO ministerial conference in Seattle. Attending the conference, Shi Guangsheng, Minister for Foreign Trade and Economic Cooperation, said the global trading system had "obvious defects." Hinting at Beijing's determination to become added: "Its failure to fully reflect the rights, interests and demands of the developing countries shows how incomplete and unbalanced this organisation is."
Shi said that Taiwan, which also holds WTO observer status, would violate WTO regulations if it continued its ban on direct trade, postal and transport relations with the Mainland. Taiwan's economic affairs minister Wang Chi-kang responded by saying that Taiwan would make some adjustments to its trade policy but it would not consider shipping or aviation links. Taiwan is understood to be eligible for membership of the WTO as a separate customs territory provided it meets the approval of other members.
Trade pact clears way for accession
After 13 years of negotiations, Beijing's landmark agreement signed with the US in November paves the way for China's admission to the WTO.
On November 15, 1999, China and the US signed a trade agreement that secured US support for China's application to join the World Trade Organisation. Previous rounds of negotiations earlier in the autumn had left the two sides apparently even further from agreement than they had been last April during Premier Zhu Rongji's visit to America. However, President Clinton reportedly spoke personally on the telephone to President Jiang Zemin early in November and obtained his agreement to one more round of talks.
The negotiations were difficult but both sides wanted to reach an agreement. In the end, compromises were reached on the out-standing problems and at the signing ceremony Long Yongtu, the chief Chinese negotiator, described the resulting deal as a "win-win" situation with gains for both sides.
The principal points of the agreement were given in a text released by the office of the US Trade Representative.
-Tariffs, to be reduced to an average of 9.4 percent overall and to 7.1 percent on US priority products.
-Tariffs on autos to be cut from 80-100 percent to 25 percent by 2006, and on auto parts to an average of 10 percent.
-Special low tariffs agreed for wood and paper and for most chemicals.
-China will participate in the Information Technology Agreement, eliminating all tariffs on products such as computers and telecommunications equipment.
-Quotas, licences and other quantitative restrictions to be eliminated for US priority products on accession and for most other products by 2002 with all quotas, including autos, abolished by 2005.
-Tariffs to be cut to an overall average of 17 percent and on US priority agricultural products to 14.5 percent by 2004.
-Tariffs on increasing proportions of quota quantities to be between 1 and 3 percent.
-Tariff-rate quota system to be established for imports of bulk commodities, ensuring that imports occur and that a growing share of business goes to private traders.
-Foreign firms can cover large property and casualty risks nationwide immediately on accession, and can cover group, health and pension lines within five years.
-Licences to be awarded according to prudential criteria, with no economic needs test or quantitative limits on the number of licences issued.
-Life insurers to be allowed 50 percent ownership of joint ventures, and non-life insurers 51 percent allowed on accession, and wholly-owned subsidiaries allowed within two years.
-Reinsurance market to be completely open on China's accession to the WTO.
-Import and export trading and onwards distribution, including wholesaling, transport and all auxiliary services, to be completely open to foreign firms in China within three years of accession.
-Foreign banks to be able to conduct local currency business with Chinese enterprises two years after accession, and within five years all geographic and customer restrictions will be removed.
-Minority foreign owned securities joint ventures to be allowed to operate on the same terms as Chinese firms.
-Restrictions on a broad range of other professional services to be relaxed, with foreign majority control permitted in every field except Chinese law practice.
-Unrestricted access for foreign hotel operators, with wholly owned hotels allowed three years after accession.
-Video and sound recording distribution joint ventures with 49 percent foreign ownership to be permitted.
-On accession 40 foreign films a year to be imported, rising to 50 after three years.
-China will implement the pro-competitive regulatory principles of the Basic Telecoms Agreement and allow foreign suppliers to use any technology to provide services.
-Geographic restrictions on paging and value-added services to be phased out over two years, on mobile/cellular over five years and wireline services over six years.
-Across all services, 49 percent foreign ownership is to be allowed, with 50 percent ownership of value-added services allowed within two years of accession and of paging services within three years.
-China will eliminate trade and foreign exchange balancing requirements and will only require technology transfer in accordance with WTO agreements.
-In anti-dumping cases, Washington will treat China as a non-market economy for 15 years after accession, and will retain product-specific safeguards to protect US industries against higher imports that threaten market stability for 12 years after accession.
-The 1997 agreement that restricts US imports of Chinese textiles is to continue to remain in force until 2008.
Although the agreement itself does not need to be passed by the US Congress, it would be ineffective if Congress, which has been very critical of both China and President Clinton's policy of engagement, did make permanent China's Normal Trading Relations with the US by repealing the act providing for annual extensions. President Clinton promised to wage an "all-out effort" to persuade Congress to endorse the deal and US business and agriculture spokesmen have also welcomed it, stressing both the opportunities for US exporters and investors and the continued protection against imports.
Leaders of the majority Republican party in Congress indicated that they would closely examine the terms of the agreement but that they could accept a deal which suited US interests. However, the leader of the US organised labour movement criticised the deal, and the US textile industry warned that it would mean further job losses. In addition, environmental groups and human rights activists have promised to campaign against it.
In China the government has given little publicity to the details of the agreement, but the official media have been instructed to hail it as a diplomatic victory for China and to emphasise the benefits to the country of entering the WTO. Public opinion appeared to be divided between the threat of greater unemployment, as domestic industries and agriculture face increased competition from imports, and the attraction of greater consumer choice, as more foreign products come onto the Chinese market, and of increased employment opportunities in new foreign-invested enterprises.
Threat of greater unemployment
Domestically, the effect of the agreement will be to reduce or remove the barriers erected to protect Chinese industry and agriculture from imports or foreign-invested competitors. Sec-tors identified as being particularly at risk are agriculture, where prices of many domestic products are up to 30 percent higher than on the international market, and manufacturing industries such as petrochemicals, steel, cement and particularly autos, including the joint ventures set up by foreign car makers within China's existing tariff barriers. In these cases, increased competition from cheaper imported products is forecast to lead to an intensification of government programmes for rationalisation and greater efficiency, which carries the threat of even greater unemployment.
Banking, insurance and other financial services will also face foreign competition but industry leaders expressed confidence that domestic companies can use the time before full opening of the market to improve their services.
Observers agreed that the benefits to China of increases in exports and foreign investment would be experienced much later than the pain of increased imports. Some analysts questioned whether China would observe the new rules and remove non-tariff barriers to foreign imports and investments where local interests were threatened, and cited previous difficulties in getting China to implement agreements such as ones that out-law intellectual piracy. However, most foreign observers and business leaders have hailed the agreement as marking significant progress in the construction of an open, market-based economy based on transparency and the rule of law.
The agreement with the US removed what had been the greatest obstacle to China's membership of the WTO but the chief Chinese trade negotiator said that his country would not formally join the organisation until the middle of 2000. Agreements had still to be reached with several member countries requesting bilateral negotiations. These included Brazil, India and Switzerland, but the most important was the EU. Officials of the EU said that the content of the US deal covered about 80 percent of their requirements. The remaining 20 percent included further reductions of tariffs on priority products, including autos, and more concessions on ownership of telecoms operators.
In early December, the European Trade Commissioner Pascal Lamy said that the EU and China would resume negotiations "as soon as possible." Long Yongtu responded by saying that he hoped agreement with the EU could be reached in December and with other WTO members by the end of February.