Beyond WTO

The time has come for the United States and China to scale the WTO mountain and move on

Robert A. Kapp

The time has come for the United States and China to scale the World Trade Organization mountain and move on. Business needs to contemplate its opportunities--and its very real challenges--in a post-accession world.

The yet-unrealized commitments by China to market liberalization and a truly extraordinary array of structural changes in the Chinese economic and trade regime represent a far, far greater commitment to a market- and competition-oriented Chinese future than US observers had dreamed possible only a few weeks before.

These commitments are "yet-unrealized" because the United States and China must first close the full bilateral agreement on terms of China's WTO accession; because China must then work out similar bilateral understandings with a couple of dozen other WTO-member trade partners; and because China must then fully accede to WTO membership.

While President Clinton and Premier Zhu were not quite able to complete the arduous US-China dialogue on WTO in time for the Premier's very striking visit to the United States in April, the momentum to complete the negotiation was very much intact as the Premier departed the United States.

Assuming that the US and China really do close on their bilateral WTO agreement, and that we could be looking at China's accession to the WTO in calendar 1999, we need to focus our energies on two questions: Permanent Normal Trade Relations (NTR) treatment for Chinese goods entering the United States, and life in a post-accession world trade system.

Permanent NTR: approve it on the merits

The reasons to support the elimination of annual renewal of ordinary US tariffs on Chinese goods are straightforward:

We don't win the benefits if we don't play the game. The opportunities garnered by our negotiators for American companies, workers, farmers, exporters, and investors--as well as American consumers--cannot be fully brought home to American communities until the United States takes the legal steps to treat China as a WTO member.

Permanent standard WTO tariff treatment--NTR--both given and received is at the top of the roster of WTO member obligations and benefits. It would be self-defeating, to say the least, if the United States, after signing the PRC on to an extensive list of fundamental commitments to world standards of economic and trade behavior, were to reject the fruits of its labors while America's own competitors moved to enjoy them.

Chinese accession to the WTO is a key step toward the global rule of law. No one understands the powerful value of universally accepted and binding commitments to orderly behavior better than do Americans, who pride themselves on this nation's adherence to the rule of law and yearn to see the rule of law grow and thrive around the globe.

The predecessor of today's WTO, the General Agreement on Tariffs and Trade (GATT), was created at the end of World War II to substitute a "Trade Code of Conduct" for the predatory international economy of the 1930s, which had led many nations to catastrophic impoverishment, social and political collapse, and ultimately world war. The original GATT "rules of the road," now broader and more enforceable under the WTO, bring a degree of economic predictability and security to the world economy that has benefited the United States on many, many occasions. China's participation in the WTO system, on the basis of the long list of commitments the United States has managed to secure, is a contribution to US international economic security.

The US retains its arsenal of laws with which to defend the American economy in time of need, over and above the effective WTO arrangements for the bringing and adjudicating of trade disagreements. This requires no elaboration, but it is critically important to US domestic economic security.

China in the WTO: the case against, so far

Faced with the unusual revelation by the US side of China's negotiating concessions--the so-called "Market Access and Protocol Commitments" (see the Council's website: www.uschina.org for the full text) that will, we hope, be retained when the two sides finally seal a bilateral WTO package--the old claim that the US-China WTO agreement would be a cheap "political deal" is in ruins. Arguments against proceeding to closure have instead made the following points:

China doesn't abide by the rules or by its solemn contractual commitments anyway, so why let them in? The evidence, however, suggests otherwise. A remarkably timely book, China Joins The World, edited by Elizabeth Economy and Michel Oksenberg for The Council on Foreign Relations, portrays a China that acts self-interestedly but responsibly in a wide range of international regimes that it has entered over the past 20 years, from the United Nations to multilateral financial institutions. The editors note that, while US relations with China in most fields will continue to move forward and back from time to time,

American bilateral efforts are most effective when reinforced through multilateral efforts and supported by the bilateral efforts of others.... Integration proceeds best when there is an international consensus on the norms to which the outside world expects China to adhere. (30-31)

Scholar Margaret Pearson, in the same volume, notes,

Thus far, China's integration into the world trade and investment systems has occurred without significant disruption to the regime [i.e., the global trade regime]. China has not forced a change of rules on those systems; rather, the dominant trend has been for its reformers to adjust their rules to fit those of the [global trade] regime. (184)

Finally, it is worth noting that the US business community that has, over more than two decades, actually negotiated and implemented commercial contracts with China, sometimes clashing bitterly with Chinese counterparts, overwhelmingly supports the finalization of China's accession to the WTO along the lines outlined in the USTR's "Market Access and Protocol Commitments" paper. The consensus is clear: China committed to the world's trading rules and restraints is better by far than China adrift outside the system.

Preserving the annual threat of US trade punishment against China, outside of WTO norms, is too good a tool for compelling China to change various objectionable non-trade behaviors; the US must not relinquish it. Again, political scientists Oksenberg and Economy speak succinctly to this:

The threat of well-targeted and limited sanction, especially in the trade realm, is more effective... than efforts to link two broad and diverse areas of Chinese behavior....Establishing linkages between widely separate spheres of Chinese behavior is much more difficult....Only top leaders have the authority to make the trade-offs such linkages require. Only they can issue binding and connected orders to such diverse bureaucratic domains as the public security apparatus and the manufacturing sector. And China's top leaders are unlikely to yield often to such pressures; their colleagues and subordinates would perceive them as weak.... (36)

The "limited and credible" sanctions in the area of trade and economics, of course, are what the WTO represents. Just ask the parties who have lost to the United States in numerous WTO disputes in recent years.

Looking ahead

The full implications for American companies of the pending WTO-driven market openings and measures to normalize China's trade and investment regime have not yet fully sunk in. But, looking a bit ahead, we can guess at a few obvious prospects.

Business with China is still not going to be "just like home." Opportunities will expand markedly with WTO, but companies are going to have to work to turn those opportunities into successes.

Competition will increase. One of the most striking things about Premier Zhu's demeanor during his recent US tour was his blunt confidence that China was now just about ready to take on foreign competitors without the wedding cake of protectionism that has dominated the Chinese trade and investment regime so far. If he's right--and I suspect he is, in most fields--the opening of China's markets for US goods and services will engender tremendous competitive efforts within China.

In short, get set for an exciting ride, in a world both familiar to business veterans and yet--in important ways--new, once we all start down the other side of the WTO accession mountain.

Last Updated: 1-Mar-99