WTO Working Party Finally Approves Chinese Membership

18 September 2001

The Working Party will now forward some 900 pages of legal text to the WTO's 142 Members. Formal acceptance is expected to take place at the forthcoming Ministerial in Doha from 9 to 13 November. Thirty days after China notifies its acceptance of the agreement, it will legally become a Member of the WTO.

"With China's membership, the WTO will take a major step towards becoming a truly world organisation. The near- universal acceptance of its rules-based system will serve a pivotal role in underpinning global economic cooperation," said WTO Director-General Mike Moore.

The Working Party will now forward some 900 pages of legal text to the WTO's 142 Members. Formal acceptance is expected to take place at the forthcoming Ministerial in Doha from 9 to 13 November. Thirty days after China notifies its acceptance of the agreement, it will legally become a Member of the WTO.

The "long and painful" talks, as the EC's chief negotiator Karl Falkenberg called them, eased when, on 13 September, Mexico announced the achievement of a bilateral deal with China. The deal allows Mexico to keep its antidumping measures covering some 1300 Chinese products for six years after China's accession (see BRIDGES Weekly, 12 June 2001). According to a Mexican statement, the possibility of implementing antidumping measures after the six-year period is subjected to the demonstration that China is still dumping goods in Mexican markets.

Insurance impasse breached

Talks had also been stuck over the enduring issue of foreign ownership in Chinese-based insurance ventures. The US demanded that life insurers already settled in China should be allowed to maintain their existing ownership structures in future branches. Although the US remarked that their stand did not endorse any single company's interest, such a provision would have guaranteed New York-based American International Group (AIG) the right to retain 100 percent ownership of its Chinese ventures. The EU had resisted such concessions unless they were extended also to its insurers (namely France's Axa and Germany's Alianz) according to the most-favoured nation principle (see BRIDGES Weekly, 24 July, 2001).

The phrasing used in the revised deal, trade sources said, specified that any concession granted on branching should be automatically extended to all Members, thereby granting to EU life insurers future market access benefits on a par with AIG in the life insurance sector. China in turn reassured the US that its accession would not lead to any reduced market access for US firms already in China (notably the AIG). At the same time Long Yongtu denied that China was forced to make a significant concession on insurance, saying that "the final agreement did not alter China's negotiating stance". One South-east Asian trade official complained that this outcome grants AIG-Axa-Allianz a market access advantage over newcomers.

China's entry shuffles cards on the WTO table

Once in the WTO, China will represent the world's fifth largest trading power after the Quad group (composed of the US, the EC, Japan and Canada). Several analysts conjecture that China's entry will change the balance of forces in the body, adding weight on the side of developing countries. Conversely, easier access to a market of one billion people is widely believed to offset Quad concerns over the stance China might take in the trade organisation.

However, many developing countries with labour-intensive export- oriented economies fear that northern markets will reallocate their demand toward cheaper Chinese goods, especially in the clothing, textiles and footwear industries, as well as other industrial goods. In an attempt to mitigate the Asian country's potential impact on the trading system, during the accession process many developing countries negotiated bilateral agreements with China.

However, some developing country diplomats have said these deals are palliatives, as they will not make much difference to Chinese dominance of global trade in consumer goods. Developing countries are also concerned about the expected diversion of current flows of foreign direct investment from other developing countries following China's WTO accession.

Accession shuffles cards on Chinese table too

Chinese chief negotiator Long Yongtu told the press that formal accession "is a long process for China to implement and enforce the Agreement and to [be] a good WTO Member." The weekly news publication The Economist indirectly supported Long's view this week stating that, "although some of the economic change necessary to prepare China for membership has already taken place, much painful restructuring still remains to be carried out, and with it the risk of growing public resentment."

The commitments undertaken will oblige China to cut import tariffs and give foreign businesses much greater access to potentially lucrative markets in services industries. Such major concessions are expected to affect many of those directly or indirectly exposed to new foreign competition.

Recently, China's leadership has tried to convince its public that membership will bring no great benefits or disadvantages. Long Yongtu said earlier this year that, "anything that is against our country's interests, we simply won't do."

According to analysts, widespread underemployment in the Chinese countryside, already a major social problem, will worsen due to cheaper agricultural imports. On 17 September, Long Yongtu admitted that more competition would also deepen the income gap, especially between wealthier coastal regions and the mainland. However, he said, the problem will be tackled with the creation of a social security system and a development strategy for western China.

Taiwan likely to follow in China's footsteps

With China's major accession constraints out of the way, Taiwan's long- delayed entry was also finally cleared. Analysts expect that Taiwan's accession will closely follow that of China's, though the details of the process have yet to be specified.

"WTO successfully concludes negotiations on China's entry ," WTO Press Releases,17 September 2001, "WTO Group Agrees on Chinese Membership," REUTERS, 14 September 2001; "EU-US deal paves the way for China to join WTO," The Business Times, 17 September 2001; "The marathon negotiations on Chinese membership of the WTO are ending. For the government, the hard part may only now be beginning' The Economist, 15 September 2001; WTO Members Agree on China's Accession; Compromise Reached on Insurance Clause" WTO Reporter, 17 September 2001; "China, Mexico Bilateral Agreement Signed Clearing Final Hurdle to Beijing WTO Entry," WTO Reporter, 14 September 2001; "Mexico Inks Accord With China, Gets Shield For AD Measures," Inside US Trade. 14 September 2001. "Analysis- China, set for WTO this years raises fears," Reuters, 16 September 2001; ICTSD Internal Files.                                                                                                     

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