China and the WTO

WITH THE EUROPEAN Union clinching a trade agreement with China, the decks have been cleared for Beijing's entry into the World Trade Organisation (WTO), probably before the year-end. Only five out of the 136 WTO members have yet to wrap up a deal with China and endorse its entry into the rules-based world trade body. Though a couple of the hold- outs such as Switzerland and Mexico could cause some headache for Beijing, it is now almost certain that WTO membership will be only a formality. Late last year, the U.S. signed an agreement with China and signalled a breakthrough in protracted negotiations and opened the doors for China. The E.U. took five months of hard bargaining to sign up last week, removing a major obstacle in Beijing's bid to enter the WTO. It is an irony that the world's most populous country and one of the fastest-growing economies should be out of the WTO and hence not bound by any of its rules or agreements. Though it was in every country's interest to get Beijing on board, they all wanted to drive a hard bargain on a bilateral basis before finally endorsing China's membership of the Geneva-based WTO.

Though Beijing was keen on joining the WTO and prepared to make some extra concessions to the E.U. to clinch this deal, it can create problems on the domestic front. The pro-reforms Premier, Mr. Zhu Rongji, stepped in at the eleventh hour to sort out the hurdles with the E.U.'s Trade Commissioner, Mr. Pascal Lamy, in much the same way that he did with the U.S. negotiators. Mr. Zhu has already been criticised by conservatives within China's communist party for giving away too much to Washington and now to Brussels. What they have failed to realise is that entry into the WTO can be a mutually-beneficial arrangement for all its members. To become part of that apex trade body, every economy has to open up and loosen the controls. There has to be a time-bound trade liberalisation arrangement, ending state monopolies, cutting down on tariffs and non-tariff barriers and allowing foreign companies in all sectors. Accordingly, China had to open up its telecommunications and financial sectors, though in a phased manner. But once it joins the WTO, there can be no going back. The sensitive areas of insurance, internet, agriculture and automobiles too will have to be opened up to foreign players with a cap on ownership. The U.S. House of Representatives has voted in favour of granting permanent MFN status to China, doing away with the 20-year-old annual review.

It is now a matter of time before China and Taiwan become members of the WTO, just as they are members of the Asia Pacific Economic Cooperation (APEC) forum. That should provide an interesting twist to the cross-straits relationship, which has entered a critical phase with the swearing-in of Mr. Chen Shui-bian as the new Taiwanese President. Though Taiwan may be granted only a `Customs State' status in the WTO, it could open the way for increased interactions and ultimately establishing a suitable mechanism to open negotiations on possible integration in the medium or long term. By getting into the WTO, China will also be subject to the dispute settlement mechanism and all rules of the game. All Beijing's moves can be questioned. It is a sad reflection on the WTO not to have a 1.2-billion-strong nation, whose economy has grown at about 8 per cent for nearly a decade and which exports nearly $ 200 billion worth of goods and services annually, as its member. East Asia has shown it may be wiser to engage and encourage China to play a responsible role on the global stage, instead of trying to contain or confront it. As China becomes an economic superpower over the next two decades, it must also grow into a responsible player in international relations. Joining the WTO will be part of that process.

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