China and WTO Negotiation for WTO membership in a changing environment Dr. Ma Xiaoye Academy for World Watch, Shanghai
Outline China s commitment to join WTO was based on the need for pushing domestic reforms Accession and economic reforms were interactive processes Multilateral negotiations interacted with bilateral negotiations a dynamic process China s gains from WTO accession new momentum in reforms and rapid growth in export What to do and not to do personal opinions What lessons could be learned from China? These may or may not apply to Vietnam
1, Reform and GATT/WTO negotiation: an interactive process Accession process 1983, decision to resume membership in GATT 1984, observer status and MFA agreement 1986, applied to GATT at eve of Uruguay round of negotiations Because of 1989 s June 4th incidence, multilateral negotiation suspended for a year and eight month Economic Reform and Macro economic background 1979,Transition from planning to administrative control; Four SEZs, reduced barriers to trade 1984, started urban economic reform (dual price system and tax reform) 1986, socialist planned commodity economy 1988, planning supplemented by market forces 1989, combining plan and market forces
(continued) Accession process 1990, failed attempt to conclude Uruguay round in Brussels gave a break for Chinese negotiators Continue bilateral negotiation in multilateral background In the end of 1991, US-China MFN treatment, market access and IPR negotiations revitalized the process 1994, major settlement of trade conflict between USA and China Dec. 1994, the 19th working party on China failed to make decision on China s request to join GATT before ending of Uruguay round. Reform process Plan only takes care of macro market parameters while market itself will take care the rest June 1992, Socialist market economy formalized market oriented reform, Guidance plan replacing mandatory/compulsory plan 1994, tax reform 1994, eliminated: planning target for foreign trade and preferential loans to foreign trade companies; consolidation of dual exchange system After 1994, fought inflation through tightening monetary policy led to a export boom
(continued) June 1995, WTO accepted China s application for accession; WP on China s accession established and inherited the heritage of WP on China in GATT First meeting of WP on China took place in March 1996 1999, suspension and restart (US) May 2000 US congress passed the bill to grant China PNTR and US president signed into law on 10th Oct. 2001, China acceded WTO 2005, Concerns for China s benefit of MFA phase-out New aim: solution before Doha round 1997, Asia financial crisis a serious adjustment of national economic policy in responding to instability outside 1998, from scarcity to over-supply; a new demand for a better external trading environment Scenario change: a rising trade dependence ratio made China a big open economy From 1997 onwards, large scale efforts to coordinate the domestic industry policy and external negotiations, as well as effort to improve transparency in economic policies
Tariff Declines Began in the 1990s- reinforced with WTO 50 45 40 35 30 % 25 20 15 10 5 0 1981 1985 1989 1992 1993 1994 1996 1999 2001 2007 Source: Will Martin, Elena Ianchovichina, Economic Impacts of China s Accession to the WTO Ave Tariff
2, A new negotiation base after 1994: milestones in reform and economic background New three principles for negotiation in Nov. 1993 Ending of Uruguay round, continue negotiation from pursuing resumption of China s seat to accession Moving from a dual foreign exchange system to a single exchange system Domestic prices were liberalized most prices were market determined except for a few basic means of production Simplified tariff regime (tariff exemptions and reductions were phase out or eliminated) Relatively transparent trade laws and policy with much simplified nontariff barriers (NTBs) Promulgated IPR protection laws 1997 Asia financial crisis and changing of China s economic situation from scarcity to over-supply Deflation
3, China s bilateral and multilateral negotiations : a dynamic process New Zealand was the first country who entered into bilateral negotiation with China in Nov. 1992 China negotiated with 37 countries on market access issues Trade regime introduction: more than ten years clarification took centre stage of negotiation Sino-USA: Why USA was important Trade agreement of 1980 Bilateral MFN annual review under Jackson-Vanik law of 1973 become substantial after 1989 Meaning of MFN under GATT article 2 to China and to other countries Bilateral negotiation with multilateral guidance and fired Duoglas Newkirk PNTR in 2000, designed to avoid annual review under Jackson-Vanik law of 1973, Trade imbalance concerns Oct. 1997, Early accession is in conformity of US interest, a consensus reached between two leaders May 1999, suspension of negotiation caused by the bombing of Chinese Embassy in Yugoslavia The dynamic /interactive process of bilateral and multilateral negotiations
4, Experiences of other socialist or other acceding countries Cuba as founding member in1948 Romania: import commitment in line with 5-year plans Poland: annual import commitments Hungary: tariff concessions China: tariff concession plus a waiver of MFN by other members Japan: rather non-application than appreciation of Japanese yen Thailand: not to change immediately but agree to review the influence of the practice in question after five years No compensation by LLDCs when they seek membership in WTO
5, Highlights of WTO International public law governing government policies over trade, services, trade related investment, trade related IPR and more Concession of sovereign right Constant changing: free trade v.s. fair trade Distinguish between principles and objectives and commitments and obligations Co-existent of disciplines and loopholes Nature of dispute settlement process ---- enforced procedure compare with GATT and reversed consensus approach, but same enforceable ability Different attitude to dumping and subsidies ---easily be abused in practice Reciprocity v.s. MFN in GATS and TRIMS Four problematic sectors: agriculture, steel, footwear and textile/apparels Trade weighted negotiation power and cross-sector retaliation s deterrent effects Consensus is the main form of decision-making process in WTO
6, Feature of China s negotiation WTO Accession /negotiation was a process of Learning by Doing (strategic goal? Flexible principle?) Shooting a moving target Educating /consensus building combined into negotiation process Sequencing the negotiations on sectoral concession and non sectoral arrangements for three-fold negotiation Coordinating across sectors /ministries: not good at making a tradeoff package Satisfying the Long term objectives of other members Serving as a counter-balance to domestic interest groups attempts to stop reforms, as other economies did in the past Opportunities to streamlining industry policy It was the first time in history to coordinate domestic economic reform in response to outside demands/requests Capacity building among negotiators, personnel in trade and other ministries Institutional readiness Commencement instead of graduation?
7, What to do and not to do in Negotiations These are based on personal opinions, and may or may not apply to Vietnam What not to accept: pre-emptive legal conditions should be avoided Special safeguards: worse than remain outside of WTO [but it may not be the same as to Vietnam's situation] Non-market economy treatment: better not to be multilateralized. Agriculture: It is not a give-and-take issue, and should be viewed from development perspective in the process of industrialization Setting up social and economic coordination mechanism in responding to WTO negotiation is beneficial for economy in transition like Vietnam Transparency in trade regulations is a win-win proposition for accession country and members of WTO Constraint subsidy while protecting the right of transfer-payment according to domestic needs Never set deadline for negotiation Avoiding addict of negotiation process
8, What lessons can be learned from China s Accession process International obligation v.s. domestic laws and regulations: a law on legislation prescribing the ultimate decision-making power by legislation is the watch dog for national interest Requirements on coordination and on the negotiation team; What US and EU were doing? What China has gained: Greater momentum for reforms and more efficiency in the economy share the benefit of liberalization in the textile sector. right to participate in the decision-making process of WTO a debatable issue What China has lost needs to be negotiated back with great efforts equal treatment provided by bilateral treaties flexible remedy means for agriculture sector Non-market economy status Special safeguards in textile Is the gain bigger than loss? We can see from the data.
China s Exports and Global Market Share Have Risen Rapidly 500 450 400 350 300 250 200 150 100 50 0 1980 1990 1995 2000 2003 Export growth (15%) much more rapid than GDP growth (9%) Source: Will Martin, Elena Ianchovichina, Economic Impacts of China s Accession to the WTO 9 8 7 6 5 4 3 2 1 0 Exports Share
Growth of Exports and Imports $billion 700 600 500 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 35 30 25 20 15 10 5 0 % Exports Imports Exports growth Imports growth Source: World Bank GDF and WDI 2005.
Exports Transformed % 100 90 80 70 60 50 40 30 20 10 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Source: Will Martin, Elena Ianchovichina, Economic Impacts of China s Accession to the WTO Oth. Manuf Textiles Resources Agric