China and the World Trade Organization: Values in Conflict
China and the World Trade Organization: Values in Conflict
The People's Republic of China has applied for membership in the World Trade Organization. As the application winds through the bureaucracy and politics of approval, proponents and opponents debate whether membership will discourage China from human rights abuses, harm the economy of the United States and other Western nations, and encourage China to move toward a more open and participatory system of government.
- China has a long history of oppressing political dissidents and religious believers. Opponents to China's WTO membership believe that China should have to demonstrate acceptance of differing views and a meaningful democracy, as well as putting an end to human and civil rights abuses before joining the WTO.
- Proponents of China's WTO membership believe that the requirements regarding the law and open decision-making regarding trade will encourage China's liberalization.
- Opponents feel that cheap Chinese manufactured goods—produced with low-wage or slave labor with no concern for the environment—will unfairly undermine Western manufacturing, causing the loss of jobs and harming the economy.
- Others feel that increased Chinese trade may undermine the existing Chinese government-controlled companies, causing economic dislocation and a too-rapid transformation in China.
The People's Republic of China seeks membership in the World Trade Organization (WTO). This wish has engendered debate within China, the United States, and throughout the world. Those opposing China's admission present a litany of grievances. China remains an authoritarian state with a communist leadership. Its people cannot vote for that leadership, opponents note, yet the United States wants to let China into an international organization formed under the principles of democracy and liberalism. The WTO is founded on the notion of fair competition, yet China engages in slave labor. American politicians speak of jobs for all Americans, yet China will surely take jobs away from the United States with the lure of its low wages.
Proponents of China's admission counter that such arguments are exaggerated and fail to examine the big picture. For example, while some jobs will be lost, others will be created, and prices for goods in the United States will fall. Moreover, supporters assert that while it is true that China is currently authoritarian, the best way to liberalize its society is to invite it into the community of nations, not to exclude it. WTO admission would serve to welcome China into the world. Finally an excluded, closed, and embittered China is a dangerous China. An isolated or ostracized China might start a war. Again, the best way to avoid this is to fully integrate China into the world's economy. To better understand this situation, a number of questions need to be answered in depth: What is the WTO? Why does China seek admission? What are the arguments for and against such admission?
The WTO, an international organization established on January 1, 1995, was formed to maintain and expand an open, liberal system of international trade. The WTO works to reduce barriers to free trade and open markets. It is an outgrowth of the 1947 General Agreement on Tariffs and Trade (GATT). GATT was developed in response to the closed international trading system, which reduces international trade by placing limits on imports and large tariffs, or taxes, on imports. Closed international trading exacerbated the Great Depression and helped lead to World War II. GATT was originally to be a temporary organization until the International Trade Organization (ITO) was approved. When the ITO failed to win ratification, however, GATT was itself used to maintain an open system of international trade among participants. This was far more than GATT was designed to accomplish.
Though GATT struggled for decades to maintain free trade, its flaws became more apparent as time passed. For example, GATT only covered goods, not services such as consulting and banking. Yet the world's economy has become increasingly service oriented, especially among more developed countries. GATT's dispute settlement system was subject to abuse by member states, who slowly made the system ineffective. GATT did not deal well with non-tariff barriers (NTBs), which are barriers to trade other than overt taxes at the border. All countries thus protected their economies from free trade using NTBs. Free trade was increasingly undermined. A long series of negotiations, such as the Tokyo Round, failed to invigorate the GATT. Finally, after eight years of negotiations ending in 1994, the Uruguay Round succeeded in establishing the WTO.
The World Trade Organization
The WTO provides a framework for open international trade by setting rules for such trade, by settling trade disputes, and by providing for continued negotiations toward further trade liberalization. A revised GATT remains a part of the WTO, but the WTO is now a broader umbrella organization. It has 136 members as of April 2000, with more seeking membership; the United States and the European Union are very influential in determining membership in the WTO.
The World Trade Organization is founded on the idea that free trade creates growth because it allows people to specialize in what they do best, what economists call comparative advantage. The organization seeks to lower barriers to free trade so that people can profitably concentrate on what they do best in their economies. The WTO also encourages predictability in world trade by setting certain rules that all members must obey. When all members obey the same rules, international trade and investment are encouraged. The WTO achieves predictability through a "rules-based system." Market access will not change suddenly or arbitrarily. Thus, businesses can effectively plan and real gains from trade be achieved. The WTO also creates something of a level playing field inasmuch as discrimination cannot occur within a market.
In its operation, the WTO operates on a number of standards to help set the "rules." It does not forbid tariffs, a form of economic protectionism, designed to encourage the purchase of goods made within a country by making goods from outside a country more expensive. Rather, the WTO lessens the negative effects of protectionism through the application of certain of its principles. The first principle is "most favored nation" status, or MFN. MFN requires non-discrimination among trading partners. Any member state must treat all products from all other states equally. The best trade deal given to any single member state must be given to all other member states. Treatment can be no less favorable than that provided to the "most favored nation." So, for example, if the United States decides to allow Mexico to export shoes to the United States at a reduced tariff, all other states must also be granted the reduced tariff. All trading partners receive the same benefits.
One potential element of confusion is the difference between MFN and normal trade relations (NTR) or permanent normal trade relations (PNTR). NTR means the same things as MFN. NTR is simply the term used in U.S. domestic politics. Any state that has NTR with the United States has been granted MFN for purposes of the WTO.
China was a special case until the year 2000 because its MFN status had to be renewed every year in the United States. Title IV of the Trade Act of 1974, also known as the Jackson-Vanik legislation, barred MFN status to certain non-market, usually communist, countries. The U.S. president could waive this policy of withholding MFN status. Such a waiver could be overturned by a congressional vote, though Congress never overturned a presidential waiver to China. Instead, Congress used these votes to voice displeasure with various Chinese policies ranging from freedom of religion to human rights to weapons proliferation. The votes became convenient soapboxes for congressional members to complain about U.S.-China relations without ever having to actually harm U.S. economic interests by revoking the Jackson-Vanik waiver.
Most observers agree that Jackson-Vanik did not comply with the WTO requirement that all rights arising thereunder must be "unconditional." Consequently, once China joins the WTO, the United States would be in violation of the organization's principles because Jackson-Vanik creates a condition to MFN status. China's rights are not unconditional if the United States can revoke them each year, as allowed under Jackson-Vanik. Because of this conflict of law, China had to be granted PNTR by the United States. This occurred, with considerable debate, in mid-2000.
A second key WTO principle is national treatment. National treatment requires that, once a product enters any member state, it must be treated the same as all domestic products within that state. This means that, while tariffs are acceptable—though they must be applied equally according to MFN—foreign and domestic products cannot be treated differently once inside the country. Once imports enter a country, they must be treated the same as local products.
A third key WTO principle is transparency. If products are to be treated equally in a domestic market, it is important that the rules and regulations within that domestic market be available and accessible to all parties. It is important, in order to determine whether a state is complying with WTO rules, to be able to examine its domestic law. Clearly presented and accessible laws are necessary to determine the nature of domestic laws and to understand how they are being enforced. If the laws aren't transparent—clear and accessible—there is an opportunity for protectionism because local or domestic people can manipulate local rules to their own advantage. Clear rules reduce the opportunity for protectionism as well as provide predictability. Uncertainty, on the other hand, reduces opportunities for trade because of the greater potential for losses.
The fourth key WTO principle is that of "rule of law." The WTO relies on the rule of law in its member states. Rule of law broadly includes those elements of a liberal system of law designed to serve the people and limit government. In this regard, law should be applied fairly and equally to all; it should include due process, open knowledge of the law, the right to appeal, unbiased justice, and finally, the judiciary should be independent. Rule of law is important for enforcing the promises in the contract, for minimizing corruption, and for allowing a market economy to thrive. Moreover, the WTO dispute settlement system depends upon member states' legal systems to provide accurate information and to enforce WTO rulings.
A few additional points are important beyond these four key WTO principles. The WTO covers far more trade related issues that did GATT. While GATT mainly concerned itself with traded goods, the WTO also covers trade in certain services such as banking and finance, accounting, insurance, and distribution. Services make up the bulk of the U.S. economy and represent American "comparative advantage." Opening markets to services is thus important to the United States. Similarly, the WTO includes certain protections for intellectual property (IP). Intellectual property consists of patents, trademarks, copyrights, and other protections for ideas. It is important to reward and protect ideas in order to provide incentive for further innovation. The WTO seeks to reward creators and provide incentive for further creation.
In addition to these new subject areas the WTO has improved dispute resolution and enforcement of its rules. In brief, members can bring other members before dispute settlement panels for violating WTO rules or even for violating the spirit of the WTO. An appeals system also exists. If the guilty party does not comply with a decision, the victim can impose penalties similar to the violations committed by the guilty party. It is much more difficult to delay or evade dispute settlement under the WTO than it was under GATT. The WTO is a more legalistic system than was the GATT system, and it is more clearly designed to guarantee rights arising under its authority.
The WTO seeks increased market access, economic competition, and fairness, while lowering transaction costs. The organization was not formed from a single agreement as was GATT. It is instead a complex international organization designed to administer numerous agreements, including, but not limited to, GATT. The WTO includes various new areas, which were previously domestic issues, such as intellectual property. In this regard, the WTO represents a significant expansion of international law. The WTO is expected to enhance world income by as much as one percent per year—though this figure is almost certainly exaggerated and these gains will probably be unevenly spread and likely benefit industrialized countries disproportionately.
Procedure for Joining the WTO
To join the WTO, China, like other nations applying for membership, must follow specific procedures. First, China must enter into bilateral agreements designed to open China's markets, called market access agreements, with a variety of states, including the United States and the European Union (E.U.) which represents its members as a single entity in the WTO. Because of the MFN requirement, China must provide all members with access equal to the most generous bilateral deal to which it agrees. Beyond this, China must engage in multilateral negotiations with a WTO working party in order to ensure China's compliance with WTO rules and regulations, including the key principles discussed above. These negotiations will specify how China will meet its WTO obligations. After the bilateral and multilateral agreements are concluded, the WTO General Council, which includes all member states, must approve China's admission by a two-thirds majority. The United States and China concluded their bilateral agreement in November 1999 under the U.S.-China Market Access Agreement. These concessions are generally to take effect one to six years after China becomes a WTO member. The European Union and China reached their bilateral agreement in May 2000. Other bilateral negotiations continue, as do the multilateral negotiations, and these should be concluded sometime in 2001. The WTO General Council would then presumably approve China. Six months thereafter China would officially become a WTO member.
China and WTO Admission
China's economy grew at a phenomenal rate since economic liberalization began in the late 1970s. This rapid transformation from a communist economic system, whereby the economy was directed by the government, to a mixed, though by no means market, economy is nothing short of amazing. A market economy allows prices and production decisions to be dictated by the market—by supply and demand for goods and services. A mixed economy has features of both a government-directed economy and a market economy. However, economic growth in China has begun to stagnate, while foreign investment has fallen off. China's leadership is looking for ways to renew economic growth, but it also fears social instability. China's reformers face challenges from hard-line Communist Party officials who feel threatened by having to give up the power inherent in a government-directed economy.
The hard-liners have allies in their opposition to free trade. Free trade is often opposed by groups seeking economic protection, and China is no different. Local people and the businesses for which they work fear international competition. Certain jobs, such as in farming, are threatened by more efficient foreign production. These local interests bring pressure on local authorities who, therefore, oppose further economic liberalization. It is a natural outgrowth then that a combination of hard-line communist officials at the national level, along with local officials, business managers, and their employees, oppose further economic liberalization in fear for their own positions.
Reform-minded Communist officials seek economic liberalization for a number of reasons. First, and most simply, economic growth is stagnating in China. Most particularly, two important sectors of the economy are ailing: state owned enterprises (SOEs) and the financial system, consisting of banks and other financial institutions.
SOEs are businesses owned by the Chinese state and have a reputation for gross inefficiency. Many are bankrupt, though the government will not allow them to fail and props them up with additional funding. China will not allow the failure of the SOEs because of their importance to the economy. Since, as Harry Broadman reports in "China's Membership in the WTO and Enterprise Reform: The Challenges for Accession and Beyond," SOEs account for perhaps "one-third of national production, two-thirds of total assets, two-thirds of urban employment, and three-fourths of investment;" they are very important to China's overall economy. Moreover, they provide a social safety net not provided by the government, including housing, schools, and medical services. Additionally, SOEs represent major economic sectors such as heavy industry and key services. They are protected from international competition through a variety of non-tariff barriers (NTBs), subsidies, and easy credit. On the one hand, SOEs are dragging the economy down. On the other hand, immediate economic competition would kill many SOEs, creating millions of unemployed and angry workers who lack any sort of social safety net. Political and social instability could follow.
China's national government first attempted to deal with this situation by injecting competition into the SOEs. China decentralized political authority and allowed local government to supervise the SOEs in hopes that regional competition would follow. This only complicated the picture, however, as local authorities now have an even greater stake in SOE survival and therefore seek to prevent painful reforms that would threaten SOEs. The central Chinese government does not want large-scale privatization, which would help generate competition, because it is not willing to release its control on the economy.
The SOE problem is complicated by the fact that the Chinese government continually extends credit to the SOEs. China forces its banks, which are also state-owned, to make loans to the SOEs. Since the SOEs seldom make money, they seldom repay their debts. Thus the financial sector has come under severe strain. As the financial sector has come under pressure, economic problems have arisen. Essentially, the entire economy is being stressed because it is forced to carry the SOEs. This, in turn, has driven away much foreign investment. Yet without foreign investment, China's economic growth cannot continue. Foreign investors demand sound macroeconomic conditions, which means ending SOE subsidies. But the subsidies are the only way many SOEs manage to stay in business. Unwilling to let the SOEs float or sink on their own merit, China is in a difficult position.
Reformers seek to resolve the SOE dilemma by feeding greater competition into China in a new way. Their plan is to join the WTO, slowly open markets, and thus force the SOEs to become more competitive. The WTO allows the central government to demand painful but necessary, domestic adjustments. Domestic forces in China that are threatened by these changes, such as local interests and hard-liners, will surely fight these reforms, and WTO membership. China needs continued economic growth for social and political stability, yet this very growth will, at least in the short-term, intensify the very instability it is designed to reduce.
China's membership in the WTO should promote investment, encourage competition and economic growth, and enhance the political position of the reformers. If it succeeds it should provide social and political stability. This, in turn, should enhance China's position as a rising world power. Competition, it is hoped, will strengthen the domestic economy and encourage investment. Greater efficiency brings lower prices, increases production, and benefits consumers who therefore provide stability. The SOEs, it is hoped, can become profitable, taking stress off the financial sector, freeing up funds for other investment, improving macroeconomic conditions, and encouraging foreign investment. At the same time, corruption and bureaucratic red tape are acute and must be reduced. All of these goals, in turn, are dependent on implementing rule of law in China. This is perhaps the most difficult adjustment because it threatens the Chinese Communist Party's power: The party would no longer be above the law; the law would no longer exist to serve the state.
China's economy is likely to be buffeted by the changes demanded by the WTO. In particular, SOE employees and farmers are likely to suffer extremely high unemployment, possibly in the hundreds of millions. The financial system itself will be sorely tested, potentially resulting in the sort of currency instability that rocked Asia and Russia in the summer of 1998. The WTO also requires that the government give up some of its power, a notion China's nationalists will be uncomfortable with accepting. The increasing inequality of incomes that occurs with economic competition is antithetical to communism and will cause fundamental questions to arise about the country's political system.
Much short-term hardship will likely occur, and it is not clear whether China's political system can withstand the stress. China will likely attempt to gain the benefits of WTO membership while minimizing the costs by engaging in continued protectionism. This route, however, has dangers as well. The WTO may not accept this or could undergo considerable internal conflict attempting to resist China's intransigence. If China were to refuse to comply with the decisions of the WTO, the WTO's authority and ability to make and enforce laws would be questioned. In such an environment, other members might begin to refuse to comply and the WTO itself could collapse. Alternatively, without real liberalization, China may not reinvigorate its economy. Clearly, domestic Chinese arguments exist on both sides of the WTO question. The debate over the wisdom of allowing China membership in the WTO also rages in the United States.
Arguments Favoring China's Accession to the WTO
Arguments favoring China's accession to the World Trade Organization are varied and sometimes inconsistent. Perhaps the most obvious, though by no means most convincing, U.S. argument asserts that allowing China to join the WTO will create American jobs, especially in higher-paying professions. Jobs should be created in high technology, professional services, and other areas where the United States has comparative advantage.
Perhaps a sounder argument is that U.S. corporate profits should grow as a result of China joining the WTO. U.S. companies will have a huge new market open to them. More U.S. firms should be able to sell products in China as tariffs drop. More U.S. companies, especially in banking and insurance will be able to do business in China. U.S. agricultural concerns should also benefit, with $1.5 billion in profits estimated per year. As profits rise so do the incomes of Americans holding stock in these companies. More Americans hold more stock today than ever before. Similarly, the protection of intellectual property envisioned by the WTO can only help U.S. firms, individuals, and the overall American economy. Still, if one only examines sales in China, it is not immediately obvious that America is a net-winner in terms of value derived from trade. However, if U.S. companies move some production to China, corporate profits should rise substantially as the costs of production decline. China's membership in the WTO, it is argued, also locks in all these economic benefits. Overall, the benefits of China's entry are an improvement over the current situation. It opens markets and keeps them open. Ultimately the entire world benefits from trade because more goods can be produced using comparative advantage.
Others favor China's accession in order to more fully integrate China into the world economy under liberal, free market rules and, therefore, the broader liberal world order. A host of benefits allegedly arise from China's integration. For example, if China abides by WTO rules it should rapidly expand economically after an initial adjustment period. The quickest way for China to develop economically is to take advantage of its comparative labor advantage. All sorts of benefits arise out of China's economic growth. For example, China's middle class should expand. A large middle class has been identified as a prerequisite to democracy. Similarly, this dispersion of wealth to new groups and areas should create groups autonomous from the Communist Party and, potentially, a more civil society. Civil society is also often identified as a prerequisite for democracy. One advantage to China's becoming a democracy is that democracies do not generally disagree ideologically and may be less likely to engage in violent conflict. Thus, the more democracies there are in the world, the less war. This is especially important among "great powers" such as China and the United States, where a war could become a nuclear one. Democracies also typically do not abuse the human rights of their citizens.
A richer, more liberal China, it is argued, is a more cooperative China. Hence, greater cooperation may be expeected in areas as varied as nuclear proliferation, the environment, and resolution of world disorder. A more cooperative China might peaceably resolve different issues such as the contested Spratly Islands and Taiwan. In the alternative, a China kept out of the WTO may be angry and bitter. Such a China has less invested in the status quo and may become an anti-status quo player, such as Nazi Germany or the Soviet Union. Such powers seek to change the status quo, often violently.
On a narrower level, membership in the WTO not only solidifies current reforms but also promotes the rule of law. More foreign investment is likely when the rule of law is present because the system becomes more predictable. The rule of law, in turn, grants certain rights, which incrementally improves human rights. For example, as Sylvia Ostry explains in "China and the WTO: The Transparency Issue," the WTO grants individual rights inasmuch as protection for IP demands protection of individual rights and the ability to assert those rights. Such a process ultimately yields increased human rights because individuals have been granted legal personality to use against the government.
China will gain more from integrating into the world economy by maximizing its comparative advantage: labor. To truly maximize its comparative advantage, however, China must allow others to maximize their comparative advantage. That is to say, for maximum gain China would make only what it is best at and trade for the rest. So the more efficient economic development will see China importing various goods, in turn more fully ensconcing China in the liberal world order. The process appears to be self-perpetuating. Reformers are also likely to be bolstered by success and therefore continue supporting integration. Success makes it more difficult and less likely for China to reverse reforms. The real question, claim proponents of China's accession, is whether the United States wants to support or fight reform in China.
Yet another positive arising out of China's accession to the WTO, some argue, is improved dispute resolution between China and its trading partners, especially the United States. Currently, China resolves economic disputes bilaterally. This allows China to play parties against one another. For instance, if the United States claims China is not playing fairly, China may simply take its business to another country. This method allows China to extract concessions out of its trading partners. Under the WTO, however, disputes will be resolved in a multilateral forum. In such a forum, it is more difficult for China to play one country against another. It is the rules of the organization that are important, not individual member states.
Proponents of China's accession do not ignore the arguments against accession. One argument against accession claims China's membership in the WTO will increase the current trade deficit the United States has with China. Supporters argue, however, that the U.S.-China deficit is simply a manifestation of a broader U.S. deficit with the world. China has simply taken some share of that deficit from other states that export to the United States. Job losses will thus be felt more heavily in those states already exporting to the United States. Supporters of China's entry also note that trade deficits are really caused by aggregate domestic spending, not trade. So trade is not to blame for America's deficit; rather the purchasing choices of the American public are to blame. Thus both the deficit and job loss arguments are overstated. Proponents of China's accession also note that the United States and China have agreed to various "safeguard" clauses designed to protect the United States from a flood of Chinese exports.
Many opponents assert that China is unlikely to comply with the WTO and that all of the alleged benefits are simply academic hallucinations. Supporters would agree that compliance would be exceptionally difficult. The alternative, however, is even bleaker. China must be brought into a liberal world trading system, the sooner the better. The WTO will assist in ensuring compliance far better than individual countries could force liberalization on China. The incentives of participation are clear. WTO enforcement mechanisms offer the greatest leverage over China and any attempts it may make at non-compliance. If China wants to reinvigorate its economy, attract more foreign investors, and improve the lot of its people, membership in the World Trade Organization is the way to do so. China's leadership, however, must be willing to make concessions and comply with the rules of the organization in order to take its place in the international community.
Arguments Against China's Accession to the WTO
Those in the United States and other Western nations arguing against China's accession to the WTO would chafe at the claim that the United States has a moral obligation to bring China into the WTO. China's government itself is morally repugnant, they would say. In fact, objectors argue the United States should use WTO membership to force political liberalization in China. To reward the government of the Tiananmen Square massacre (1989), to reward the country that holds Tibet against its peoples' wishes, to reward a destroyer of human rights, an opponent of religion, and a neglector of women's rights—it is this that is morally unacceptable to many objectors. China's workers are paid pennies per hour. China engages in child labor and in forced prison labor. Of course, opponents would say, China has comparative advantage, but it has been achieved by coercion. China has no unions; hence its workers are not paid enough to buy U.S. products. To think that China will provide a market for U.S. products is unreasonable.
As to the contention that trade will somehow improve China's human rights record, opponents of admission to the WTO point out that, since President Clinton decided to "de-link" trade from human rights in 1994, human rights abuses have actually increased in China. The real way to improve human rights, then, is to retain the ability to reject China's MFN status. China should not be allowed to join the WTO and PNTR should be rejected. The ability to withdraw China's MFN status through Jackson-Vanik is the only sanction the United States has against Chinese abuses. Congress also would prefer not to give up the valuable public relations tool of the Jackson-Vanik waiver debate each year. Critics contend that China abuses human rights, is hostile to religious freedom, threatens its neighbors, and abuses its workers. It is not, they claim, the sort of country that the United States should support for admission to the WTO. Indeed, Taiwan's move to democracy is far more deserving of reward than China's continued rejection of liberalism. U.S. support only legitimizes China's authoritarian regime.
U.S. labor unions are especially hostile to China's membership in the WTO. They argue two points. First, China allows no independent labor unions and thus artificially maintains comparative advantage. Second, U.S. labor stands to lose the most if China enters the WTO. Many U.S. labor unions are made up of blue collar and/or semi-skilled workers. These are the workers who are most likely to immediately lose their jobs to China. But others stand to lose as well. Increasingly, China is producing more sophisticated products such as computers and telecommunications equipment. Moreover, labor unions argue that the motivation of U.S. corporations supporting China's membership in the WTO is not to open its markets. It will be decades or more before the average Chinese citizen can afford U.S. products. Instead, labor unions allege that U.S. corporations will move production to China because of its lack of labor unions and lower wages. American corporations will benefit, say the opponents, but American workers will suffer. Some see hundreds of thousands of lost jobs in the United States. One group of American workers most likely to suffer is textile workers. Overall, U.S. textile workers may lose one hundred fifty thousand jobs. Indeed, textile workers all over the world will lose jobs to China. Light manufacturing across the board should suffer as well. Opponents of China's accession to the WTO argue that the trade deficit with China will balloon as a result of admission to the WTO, at a rate of perhaps ten percent per year. China already ships one third of its exports to the United States, but only accepts ten percent of its imports from the United States. Opponents claim that the benefits to the U.S. economy are vastly overstated and the negatives are understated.
Opponents also argue that China's government ignores environmental issues when making economic decisions. As an example they point to China's insistence on using unclean, coal-burning fuel plants. China's environment is severely degraded. It has very few environmental regulations, and those it has are routinely ignored, especially by the SOEs. This policy should not be rewarded and allowing China to join the WTO will only increase pollution in China. China also shows little, if any, interest in improving its environmental record.
Opponents of China's admission to the WTO find fault at every turn with China's government. For some, the fact that China is authoritarian is the problem. For others it is more specifically that China remains dominated by the Communist Party, though it is no longer strictly a communist state in reality. The anti-communists would have the United States reward Taiwan for becoming democratic rather than China for remaining authoritarian. They feel that the West, led by the United States, is sending the wrong signal around the world by considering China for membership. The reality for these opponents is that China is not democratic and is, in fact, hostile to democracy and to Western-style liberalism. Yet it is Western-style liberalism that underlies the WTO, a factor that seems irreconciliable with the Chinese government.
These opponents point out that China has consistently broken international agreements. China has entered three memoranda of understanding (MOUs) with the United States designed to protect IP rights, and has promptly violated each accord. Given that it has a poor record of complying with other international commitments, there is little reason to believe it will comply with the WTO. Indeed, China's legal advisors have stated unequivocably that China will protect its markets beyond the WTO-mandated time period requiring compliance. China is not reducing NTBs as required by the WTO, but instead is actually increasing them. It appears that China has chosen the Japanese model of protectionism through close interaction between government and business. Yet, given its non-market based economy, its authoritarian state, and its large state-owned sectors, China may be more adept at this game than even Japan. China is engaged in an export-led growth strategy that the United States cannot afford to support.
Opponents of China's membership believe that command, or government-directed, economies like China's are antithetical to liberal trade rules such as those promulgated by the WTO. Non-market economies are especially well suited to break WTO rules because of the incestuous relationship between the state and firms. State trading is itself essentially a non-tarrif barrier, and the WTO is not prepared to deal with such issues because its dispute settlement system is designed to deal with market economies operating under the rule of law. China's government has shown itself time and again to be a government of bad faith, repeatedly introducing politics into economic decisions. If the United States were to displease China politically, say, on the issue of Taiwan, China could turn around and revoke a Boeing contract. Such actions clearly violate the WTO principle of national treatment. Similarly, China frequently demands technological transfers in exchange for market access. This too violates WTO principles.
Opponents believe that another problem with China's government is that it remains hostile to democracy and thus a threat to both U.S. national and international security. China refuses to renounce the use of force against Taiwan. It proliferates nuclear weapons technology and missile technology to Pakistan and perhaps to other unstable states. In doing so, it remains a threat to the United States and to U.S. interests. Not only are China's government and its policies problematic for WTO accession, but the structure of China's society, as it currently exists, is also problematic. The government has established no security net for its citizens; thus the people rely on their employers for basic necessities such as housing and education. If the employer's business fails, the employees are also at risk.
In addition, opponents suggest that China lacks the underlying structural reform to support the general commitments it has already made to open markets. Promises alone are not enough. China lacks the ability to comply with WTO rules and regulations. Even if China wanted to comply with the WTO, opponents argue, it could not do so anytime soon because it lacks the trained administrators and regulators necessary to impose WTO rules upon its economy. It lacks the capability to meet WTO standards on assorted levels.
Critics of China's accession to the WTO argue many strong points against that country's membership in the liberal trading organization. As mentioned earlier, China lacks the rule of law. Its court system is not impartial or independent. It caters to Chinese citizens in general and Communist Party members in particular. It allows selective application of the law so as to protect local interests, to the detriment of outside interests. Foreigners are systematically held at a disadvantage in China's legal system. Contracts may sometimes be unenforceable, as the system is subject to political manipulation and corruption. Provincial leaders often see fit to ignore court rulings. The Chinese system of justice leaves a great deal of discretion to the state. All of these factors are inconsistent with the WTO principle of rule of law. Furthermore, the system lacks transparency, another WTO principle. Rules are unclear or even purposely hidden. Individuals sometimes do not know what is acceptable or unacceptable, when or how rules will be applied, or what outcomes are likely under the legal system. Thus the system is unpredictable, contrary to another WTO goal.
The lack of rule of law, naturally, encourages corruption and local politics reflect this. The Chinese government has been gradually lending greater authority to the local levels of government. In an attempt to inject competition into the economy, economic power has been decentralized and local/provincial governments have far more power than in the past. The devolution of power from the center to local authorities grants assorted local party officials the ability to prohibit almost any private project. Bribery is often employed to gain authorization for such projects. The rampant corruption within the government in regards to the economy runs counter to the WTO's operating principles.
Beyond China's internal structure, there are additional arguments against allowing China to accede to the WTO. Some, for example, argue that WTO dispute resolution takes too long and China may choose to ignore it. They argue that U.S. laws—unilateral threats and sanctions—are more likely to be effective against China because China needs the U.S. market to help spur its economic growth. Others argue that the bilateral and multilateral agreements leading up to China's accession are incomplete and that WTO members will be unable to force more concessions from China in the future due to its size and importance. Still others argue from a more nationalist position: China and the United States are bound for an eventual conflict; the United States should do nothing to strengthen China. Nationalists in both countries are uncomfortable with the WTO's assault on traditional notions of sovereignty.
To opponents of WTO membership for China, China appears unready for such a commitment. Most of the country still lacks market institutions and rule of law. One sees continuing state intervention throughout the breadth and width of the economy. It is not clear that the leadership, locally or centrally, is committed to market liberalization, upon which the WTO depends. China has not demonstrated the level of cooperation necessary to make the WTO work, and may not be able to demonstrate this due to internal, or local, constraints. An intransigent China in the WTO threatens that organization's credibility as both a "rule maker" and a "rule enforcer." The WTO stands as one of the most significant achievements of international law to date. Critics contend that China's membership is too big a potential threat to the WTO's existence when it is so young and vulnerable. China can wait, they say. It can demonstrate true liberalization and then be allowed to join.
Recent History and the Future
Notwithstanding the strident and sometimes convincing opposition to China's accession to the WTO, accession is likely and is likely soon. The United States and the European Union have completed their bilateral market access agreements with China. The remaining states still required to do so are likely to reach agreement shortly. The multilateral agreement with the WTO working party must follow. While there remain differences, agreement should be reached here as well in relatively short order. The WTO will then almost certainly approve China's admission. From there, accession is certain. The corporations of the world want this result, and the governments they influence are unlikely to withhold it. Indeed, there is a strong argument that China's growth can drive the world economy well into the twenty-first century. China needs that growth even more than does the rest of the world. The WTO allows China to make the painful economic changes necessary to attract investment and continue growth. However, China can also be expected to maximize its utility under the WTO. Judging from past agreements China has entered into, it will likely attempt to get all it can out of the international trade organization to take advantage of others' open markets, while opening its own markets as little as possible. China may demand compliance from others, while attempting to protect its own industries. In this, however, China is not alone. The United States, the European Union, Japan, and other countries do the same thing. Operating in respect to the WTO's principles, however, these actions are moderated and subject to restraint. Whether or not China would respect these boundaries is as yet unknown.
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1948 The General Agreement on Tariffs and Trade (GATT) is established. Twenty-three countries sign the charter in Havana, Cuba, to reduce customs tariffs.
1994 A GATT ministers meeting in Marrakesh, Morocco, establishes the World Trade Organization (WTO).
2000 China is granted Permanent Normal Trade Relations status by the United States, a major hurdle to securing membership in the WTO. Protests regarding China's membership in the WTO take place at major trade conferences around the world.
List of Abbreviations
General Agreement on Tariffs and Trade (GATT)
Intellectual Property (IP)
International Trade Organization (ITO)
Memoranda of Understanding (MOUs)
Most Favored Nation (MFN)
Non-Tariff Barriers (NTBs)
Normal Trade Relations (NTR)
Permanent Normal Trade Relations (PNTR)
State Owned Enterprises (SOEs)
World Trade Organization (WTO)