china relation with wto final

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CHINA RELATION WITH WTO

INTRODUCTION

2011 marks the 10th year of China’s WTO membership and that of the Doha Round

Negotiations. International Centre for Trade and Sustainable Development (ICTSD)

organized a roundtable Discussion in Geneva on “A Decade in the WTO ,Implication

for China and Global Trade Governance” on June 29th, 2010, convening

government officials, academic faculties, business Leaders to review China’s role in

WTO in the past decade, examine its impacts on Global trade and WTO as a

backbone institute of global trade governance, discuss its trade Relations with other

countries, and look ahead China’s future position in world trade and Economy

landscape especially in face of more severe emerging issues as climate change,

International development and global economic governance. The Dialogue is

organized by the International Centre for Trade and Sustainable Development

(ICTSD) in Partnership with China Society for WTO Studies (CWTO), and the

Friedrich-Ebert-Sifting (FES) Geneva office

TEN YEARS OF ADAPTING

The past decade (2001-2011) has witnessed China's efforts in adapting to the WTO

rules and integrating with the world. Over the past decade, China abolished, revised

and adopted over 3,000 laws, regulations and department rules, fulfilled its

commitments to the WTO in tariff and non-tariff areas, and further opened its service

markets to the outside world.

The past ten years did not only witness China's efforts to embrace international rules

and norms, but also its growing experience to defend its own rights and interests

using these rules. This transformation that brought in foreign investment and

promoted market economy was then viewed as "wolf at the door" -- with tariffs to be

slashed and restrictions on foreign rivals to be eased, a shaky future might loom for

some of China's least competitive industries.

However, the industries did not get wiped out but managed to hold up well if not

thriving. "As a matter of fact, ambitious Chinese companies are now more like

wolves," said Lu Haiqng, corporate affairs senior vice president of Tesco China.

Tapping into the Chinese market in 2004, the UK-based grocery and general



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merchandising retailer now owns more than 100 outlets in China.

In the retail sector, international competitors, instead of taking over the whole

market, sparked the rise of domestic retailers such as Suning and Gome

"What we see on China's market now is greater competition and consumers gain

from the contest," Lu said. Joining the WTO and the introduction of international

rules helped China improve the socialist market economy, which will benefit the

country's economic and social development in the coming few decades, said

LongGuoqiang, director of the Research Department of Foreign Economic Relations

of the Development Research Canter of the State Council.

WHY CHINA NEEDS WTO China's explosive economic expansion over the past 20 years is a well-known

success story. Fueled by vigorous reform efforts, growth rates averaging nearly 10

percent annually have created a vast array of new job and investment opportunities,

making China more prosperous. The effect of China's transformation from an inward-

looking, planned economy to a more market-oriented, trading powerhouse has

reverberated throughout the global economy, influencing everything from consumer

choice to investment flows.

Rapid-fire growth has not been cost free, however. In particular, it has cast a harsh

light on some of the structural weaknesses of China's economic system, particularly

in agriculture, finance, and state-owned enterprises. The dilemma for China has

been, and will continue to be, how best to keep the dual momentum of economic

growth and structural reform going. For if one were to stall, the other might very well

stumble, potentially unleashing a whole new set of economic challenges and

difficulties. In many respects, WTO membership is China's best option for sustaining

the pace of economic growth and reform. As the world economy has become vastly

more complex and interconnected, China's participation in it -- according to the rules

of international trade -- has become that much more critical for China, as well as for

the United States, Asia, and the world. As a WTO member, China will be able to

participate in the formulation of rules that govern international trade and investment.

Similarly, it will be able to defend its trade interests using the WTO dispute-

settlement system. Chinese exporters will benefit from the certainty that their trading



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It would be unrealistic to expect the WTO membership to eliminate trade and

investment frictions between China and other economies since such frictions are not

uncommon between existing members. But these frictions will be better managed

under the WTO's trade rules and the organization's dispute settlement mechanism.

This will be a big improvement over the existing relationships, under which trade and

investment disputes tend to be settled by mutual threats and brinkmanship.

2) Economic Reform

From the experience of many countries undergoing economic reform, external

pressure and obligation have proven useful in countering the opposition of powerful

domestic interest groups. In the case of China, the state-owned enterprises are apowerful force against China's march toward a market economy. It would not be an

exaggeration to say that the bilateral and multilateral agreements behind China's

accession to the WTO are a summary statement of the China's economic reform in

the next decade or so. They not only constitute a road map for economic reform in

the coming decade, but as international treaties they also serve as the country's

commitment to the country's systemic reform and restructuring of the national

economy. Given the conditions of the WTO membership, there will be greater

competition between Chinese firms and foreign firms, both in China's domestic

market and in the foreign markets. As a result, there will be a large scale re-

structuring of industries. Except for a small number of industries selected as infant

industries and given some temporary protection, the restructuring to a large extent

will be based on China's comparative advantages and disadvantages vis-?vis other

economies. For example, labour-intensive industries would be in China's

comparative advantage, but natural resource-intensive industries, capital-intensive

industries, and technology-intensive industries are in China's comparative

disadvantages. It may have comparative advantage in some of the skill-intensive

industries but comparative disadvantage in others. Likewise, if firms are rewarded

and disciplined mainly by market forces, then the ownership structure of firms in

China will tend to reflect their relative efficiency in organizing production and delivery

of goods and services. The more efficient ownership structure will increasingly be

adopted while that less efficient ownership structure will diminish in importance.

Since capital flows into and out of China will continue to be restricted before



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convertibility on the capital account is attained (which may take no less than a

decade), the banks will be key in deciding which ownership type gains or loses. If the

four state owned commercial banks continue to play a dominant role in the supply of

investment funds, their attitude toward firms with different ownership structures is

crucial. If their lending decisions are not based primarily on commercial principles,

then the march toward more efficient ownership structure may be slow. Apparently,

the ownership structure also depends on the government's policy on national and

regional government owned monopolies. Although China is still far behind the

developed market economies, the latter are definitely the guideposts for China's own

regulatory reform and institutional building. WTO membership will contribute to

regulatory reform and institutional building in China because WTO rules will be

translated into national laws and regulation. In addition, best practices in regulation

must be adopted to avoid systemic failures. Finally, WTO membership will help to

speed up the enforcement of existing laws on the books. A better legal system, in

particular the effective enforcement of the law, will not just benefit foreign investors,

but also protect honest Chinese companies and business people from poor ethical

standard and outright cheaters.

3) Long-term Growth

The economic benefits derived from China's WTO membership are not confined to

static gains in efficiency from the re-allocation of resources among industries and

among firms. In the long-run, dynamic gains from increased competition brought

about by China's entry into the WTO will be even more important. Increased

competition on level playing fields will reward efficient and innovative firms,

regardless of whether they are local or foreign, private or public. At the same time it

will weed out inefficient firms and technological laggards. The protection of

intellectual property rights will help to build an engine of economic growth based on

technological progress, because it protects the intellectual property rights of both

multinational corporations and indigenous Chinese firms. The serious duplication of

investment and excess capacity in many industries are due largely to a perverse

incentive of investing public funds, but the fact that there is too much money chasing

after a limited number of viable investment ideas may also be a factor. To the extent



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that is true, the problem of duplicated investment should be lessened when there are

many more new ideas and innovations.

4) Short-term Costs versus Short-term Benefits

Against the economic benefits identified above, there are significant short-term

adjustment costs in the form of bankruptcy of domestic companies and increased

unemployment. However, it should be pointed out that the companies with a

reasonable prospect for survival will likely be re-organized, whereas the bankruptcy

of hopeless firms will release resources to new firms for growth and existing firms for

expansion. A social security system and a health care system will be necessary to

provide a safety net for the unemployed. It would be less costly to society to payworkers the same wages without their producing goods that do not meet consumer

demand. As an example, the quality of some completed apartments in China is so

low that consumers will not buy even at very low prices. According to some

commentators in newspapers, the solution would be to tear down the low quality

apartments so that new apartments desired by consumers can be built on the same

sites. It should also be pointed out that China's WTO membership will reverse the

recent trend of declining FDI, which has caused a lot of concerns among the policy

makers. The Government has increasingly encountered the difficulty of reversing the

deflationary pressure by its prime pumping alone. A more stable external economic

relationship would mean that foreign markets can be relied upon to utilize the excess

capacities faced by many industries, provided that the quality of products is good

enough to meet the demand of foreign consumers. In addition, the development of

products to meet the consumers' new or latent needs will generate many gainful

jobs, in contrast to jobs that result in unwanted products. In particular, the opening of

the service industries to foreign investors, by speeding up the development of these

industries, will create many new jobs that can partially offset the loss of jobs by

bankrupt firms.



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FUTURE CHALLENGES

Reform and opening-up, which propelled China's rapid growth over more than three

decades, will continue to underpin China's future development, President Hu said.

China will implement a more proactive opening up strategy and open more areas to

the world, he said.

The target of the opening up strategy, however, should shift to supporting the

transformation of economic development pattern from previous "earning foreign

exchange reserve through export expansion," said Long Guoqiang.

China's export-oriented developing pattern, which relies on high inputs, high energy

consumption and capital accumulation, resulted in grave negative effects on the

sustainability of the economy. Its expanding foreign exchange reserves and growing

trade surplus complicated domestic policy decisions and sparked complaints from its

trade partners.

China's over-reliance on exports has made its economy more fragile, especially

during a time when downturn hit major developed economies, said Secretary

General of the UN Conference on Trade and Development Supachai Panitchpakdi.

China's GDP growth has been slowing this year, to 9.1 percent in the third quarter

from 9.5 percent in the second quarter and 9.7 percent in the first quarter.

To steer the national economy through the international financial crisis and its

aftermath, China strove to boost domestic consumption after external demand

weakened as the Eurozone, the country's largest trade partner, continued to wrestle

with a deepening debt morass.

CONCLUSIONS

It cannot be denied that there will be significant short-term costs associated with

China's accession to the WTO, but much of the costs will have to be incurred any

way. China's WTO membership will impose a time table within which it must deal

with its underlying economic problems. WTO membership will not only provide long-

term benefits to the Chinese economy, but also help to solve some short-term

difficulties. The challenge of the Chinese government is to manage the short-term

problems sufficiently skilfully that as time proceeds the longer-term benefits will

dwarf the short-term costs. In such a scenario, the WTO deal will only cause isolated

nuisances, but not social crises.



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REFERENCE

1) http://ictsd.org/downloads/2011/07/meeting-report.pdf

2) http://ictsd.org/i/events/ialogues/103519

3) http://english.cri.cn/6826/2011/12/11/1461s671120.htm

4) http://english.cri.cn/6909/2011/12/11/1461s671048.htm

5) http://paftad.org/files/34/05_SALLY_WTO.pdf

6) http://www.chinese-culture.net/html/china_wto.html

7) http://www.bm.ust.hk/~ced/nw_benefit.htm#top

http://ictsd.org/downloads/2011/07/meeting-report.pdf



http://ictsd.org/i/events/ialogues/103519



http://english.cri.cn/6826/2011/12/11/1461s671120.htm






http://paftad.org/files/34/05_SALLY_WTO.pdf



http://www.chinese-culture.net/html/china_wto.html



http://www.bm.ust.hk/~ced/nw_benefit.htm#top










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