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China Readies for Entry Into WTO - 2001-11-10

China's accession to the world trading system is expected to occur shortly after the World Trade Organization meetings in Qatar from November 9-13. While China's membership in the WTO may seem like a bureaucratic procedural step, it is expected to have a real impact on Chinese businesses, workers and consumers.

The government in Beijing has been working toward this for a long time, negotiating trade agreements with its trading partners and making policy changes with the goal of joining the world trading system on terms that will not hurt China's economy.

But analysts say WTO membership may lead to a radical change in China's economy. Vice President of the U.S.-China Business Council, John Foarde, says it means more than just lower tariffs on imports into China.

"It will mean a more competitive environment, both in manufactures and in services, as the Chinese economy is opened to much more participation by foreign companies, including American companies, and is expected to result in stronger Chinese companies over time. ... And everyone expects that this will mean practically more and better goods and services available in China at lower cost with some of the benefits of competition that we see in our own economy or in developed economies," he said.

Mr. Foarde, who recently held meetings in Beijing and Shanghai, says Chinese officials are comfortable with the requirements that come with WTO membership. For example, under the WTO, all participants in a member country's economy, domestic or foreign, must be treated equally.

Mr. Foarde has noted this has not been the case in China, where foreign companies have had to abide by special rules that were not applied to domestic companies. "Companies have had to import goods or raw materials for consumer products and then have them distributed by a middleman, because Chinese rules force that to happen. That is all going to disappear over the next three-years under WTO. Companies will be able to import either products or raw materials to make products and distribute them directly to their own manufacturing facilities, to their own customers," he said.

Alan Tonelson, author of a recent book on economic globalization called "The Race to the Bottom," is less confident that China's leaders will adhere to the WTO rules. Mr. Tonelson, a researcher with the U.S. Business and Industry Council - an organization of small and medium manufacturing companies - says China wants to have complete control over the pace of its economic reform. He says it will do whatever is necessary to promote its own economic strength.

In recent weeks, China has repealed dozens of regulations that would conflict with the WTO trading regime, but Mr. Tonelson dismisses that development. He says China does not abide by the rule of law.

John Foarde has said officials in Beijing seem intent on fulfilling their WTO commitments, but he says it remains to be seen if local Chinese officials are willing to do so. He says they are worried about the economic and social costs that might come with layoffs caused by increased competition.

"It is hard to say in the manufacturing or service sector whether there will be layoffs. ... But there is concern about dislocation in the agricultural sector, and that is something that the Chinese government has been grappling with in a very serious way. I think the overall hope is that a more robust economy and wider growth will absorb a great many of the people, either in the agricultural sector or elsewhere, that may be dislocated by more competition, particularly on price and quality, by foreign goods. But it is going to be a very serious problem in the short term," he said.

Alan Tonelson notes that layoffs have already occurred as China privatizes its inefficient state-run factories. Mr. Tonelson says that process would be accelerated if China follows WTO rules, but he has his doubts.

"If China did adopt the new WTO rules and did open its economy up to foreign competition, and also to more domestic competition quite frankly, because we have to remember China is still largely a communist economic system and competition within China is very closely regulated, but if the WTO rules were in fact followed, there would be very significant economic dislocations inside China. That is what makes me think that the rules, by and large, will be ignored by the Chinese leadership because they know they are sitting on an economic and social tinderbox," he said.

China's accession to the World Trade Organization is expected after the economic ministers meeting in Doha, Qatar, accept documentation it has met the requirements and is providing the same tariff concessions to all WTO members. Then, China must file a formal document certifying that its legislature, the National People's Congress, has ratified the WTO treaty.