Both national leaders involved in the deal took political gambles: Bill Clinton wanted America’s re-engagement with China to be a crowning foreign-policy success, after a series of blunders. But a much bigger gamble was taken by China’s leaders. The Clinton administration’s looming battle with Congress over China’s accession to the WTO will be a minor skirmish compared with the fight by Jiang Zemin, China’s President, and his “reformist” allies within the Communist Party. Joining the WTO will bring China a great deal of short-term pains. The timetable for dismantling many local protections is brutally swift. With luck, the benefits of membership - in terms of new jobs in a reinvigorated economy and of fresh flows of foreign investment - will quickly follow. But the leadership’s readiness to undergo the pain suggests a deeper commitment to reform. Membership of the WTO, of course, is first and foremost about external trade rather than domestic reform. The value of China’s exports to the rest of the world has climbed on average by 15% a year for 20 years, and imports have grown by an annual 13%. That beats even the expansion of Japan’s trade in the golden years between 1953 and 1973. This does not give the whole picture, however. By 1995 Japan was already the world’s ninth-biggest exporter. China only became the tenth biggest in 1992, fully 15 years after its “trade miracle” began. And, with annual average income per head today of $773, it is still a desperately poor country. Before liberation in 1949, China’s two-way trade had reached a peak in 1928, when it accounted for 2.3% of the world total - a level not surpassed until 1993. In 1977, before the reforms, China’s share had fallen to a mere 0.6%. None of this is to belittle China’s trade achievement. Last year the country shipped $184 billion of goods, and imported over $140 billion. To America alone, it shipped over $70 billion of goods last year, up from just $324 million in 1978. Two out of every three toys sold in America are made in China. The World Bank estimates that at least one-third of suitcases and handbags sold elsewhere in the world are Chinese-made, along with a quarter of the world’s toys and one-eighth of the world’s footwear and clothing. China has a bottomless pool of cheap, reasonably efficient labor. When that is combined with the skills of buyers in Hong Kong and Taiwan who understand shifting fashions in the West, China displays its competitive advantage. The country is unbeatable in low-margin, quick-to-market manufactures. World Bank research showed that some 62% of Chinese exports to America and 48% of exports to the European Union faced non-tariff barriers in 1993. Since then, America has imposed new quotas on Chinese-made silk, and Europe has slapped quotas on a range of Chinese goods, including footwear, toys and kitchenware. Under the deal with America, deep cuts in tariffs will be made by 2004. China’s trade potential is much improved by WTO membership. But in the long run, it is upon the structure of the domestic economy that the deal would have a truly, dramatic effect. The outcome, if China’s commitments are stuck to, will be a vastly more efficient economy, shorn of most of its socialism. China’s deal with America is a big step towards WTO membership. But many obstacles remain: At least 24 of the WTO’s 135 members, notably the European Union, have yet to agree entry terms with China, and America’s Congress has to endorse the deal. These bilateral market-access deals then have to be stitched together into a multilateral agreement at the WTO. The WTO also has to assess whether China complies with its rules in areas such as intellectual property and health standards, and China will need to amend its laws where necessary. All of this will take at least six months, and probably longer. The biggest hurdle for Chinese membership of the WTO, however, is Congress. Under American law, normal trade relations with China are conditional on an annual vote. But, this is incompatible with WTO rules, which forbid countries from placing conditions on access to their markets. America could ask for a waiver of WTO rules. But China, which wants an end to the annual uncertainty, would not accept that. So Congress has to agree to change the law. Worse, the issue is unlikely to come before Congress in the near future, when it could fall victim to electoral politics. If the Congress Republicans decide to play tough, China’s accession to the WTO may have to wait until 2001.
Not all will welcome the
changes in China, in particular, China’s farmers, most of whom make a living from
tiny plots, now face competition from America’s efficient agribusiness. Industrial
state companies will no longer be able to hide behind high tariffs and other barriers.
State trading companies will no longer have a lock on imports. The telecom industry will
be thrown open to foreigners. Foreign banks will no longer face limits to what they can do
and where they can go. |
