China and the WTO
Agricultural Challenges after its Accession to WTO
Who is really benefiting from it?
The membership of Taiwan Province of China in the International Monetary Fund and the World Bank in the early 1980s contributed to ending China’s isolation of its economy from the world.
By 1986, China had started lobbying to be readmitted to the General Agreement on Tariffs and Trade after it had left it in 1949 when the People’s Republic of China was founded.
As the result of 15 years of laborious negotiations, on December 11 2001, China officially became the 143rd member of the World Trade Organization, and while an economy as large as China can cause commotion for ...view middle of the document...
China has also promised to end quantitative restrictions, to cut the average tariff from 24.6% to 9.4% by 2005, and sign the Information Technology Agreement, which should result in the elimination of all tariffs on telecommunications equipment, semiconductors, computers and computer equipment and other information technology products. China has promised to open its telecommunication, financial services, distribution and many other industries to foreign services providers.
In addition, China has agreed to eliminate all prohibited subsidies, liberalize trading rights and require state trading companies to conduct their operations in a commercial manner. China has agreed to subject its state-owned enterprises (SOEs) to applicable WTO rules, to refrain from establishing new non-tariff barriers to trade, and to phase out existing GATT-inconsistent quotas and related measures in accordance with schedules
The United States in return has granted China, permanent most favored nation (MFN) status, which was previously subject to an annual US Congress renewal, and as such the level of trade concessions expected to make in negotiations is reduced.
Quotas on textiles and clothing will end by 2005 in accordance with the ATC (Agreement on Textiles and Clothing) and other quotas will also end according to negotiated schedules under the WTO.
Even though China has a lot to gain from opening up its economy to the world, there are certain risks to these gains.
Under a 12 years transitional product specific safeguard mechanism China’s trading partners may impose restrictions on Chinese imports based on “market disruption or threat of market disruption”. Unlike the normal WTO standard, which only calls for restrictions to be imposed only in the event of “serious injury” or “threat of serious injury”.
Although all quotas in the textile and clothing exports of China are to end by January 1 of 2005, there is a special safeguard mechanism in place until the end of 2008, which allows importing countries to restrict Chinese imports when they stem from market disruption.
In addition Chinese exporters can be faced with dumping charges, in which case the importing countries can also use the prices or costs of similar products in third countries instead of Chinese prices to determine whether Chinese firms are dumping. Similar rules apply to determine whether Chinese exporters are being subsidized.
There is no question however of the economic impact the WTO will have on China. The Chinese consumers will benefit greatly from a more efficient economy even though in the short run the heavily protected sector will be harmed as their barriers fall.
Studies indicate that: “Chinese industries will need to adjust. Labor intensive industries such as textile and clothing will expand, and heavily protected industries like automobile and petrochemicals will contract”. Following adjustments can lead to Cournot Equilibrium where each firm concludes that their...