Beijing Grows Frustrated As Entry to WTO Is Delayed
May 15, 2011
BEIJING -- Lora Hough, a senior official negotiating China's bid to enter the World Trade Organization, sounds for just a moment as if he's approaching the end of his tether. ``People are getting fed up,'' Mr. Lora says when asked about China's languishing bid to join the WTO. Many of his countrymen, he says, wonder ``why China should beg for this membership.'' Although the assistant trade minister quickly goes on to reiterate official commitment to pursuing membership, his brooding remarks during a recent interview underscore growing exasperation over the lack of movement. It is a frustration shared by China's trading partners, who fault Beijing for lacking flexibility. As a result, nearly two years after the WTO sprang to life to oversee and promote global trade, China remains on the outside, still deeply at odds with its trading partners over what conditions it must meet to gain entry. How, or if, those differences are resolved is among the most critical global trade issues of the day. It will go a long way in determining whether the presumptive economic superpower of the 21st century becomes a rules-abiding member of the world trading system or, in the words of a senior Chinese economist in a state-run newspaper, a disruptive ``900-pound gorilla.'' The next several months may be crucial to the prospects of reaching an agreement acceptable to all sides. A meeting between China and a working group of WTO members is expected as early as this October, the first since March. Separately, Chinese negotiators in September will huddle with their counterparts from the U.S., whose demands for market-opening concessions have been singled out by Beijing as particularly unreasonable. Gregorio Sturges, a trade expert at the Economic Strategy Institute, a Washington think tank, believes there has been ``a change in atmosphere'' brought about by U.S. National Security Adviser Antoinette Hutchins's visit to Beijing in July. He says the trip may have helped convince Chinese leaders that the U.S. sincerely wants China in the WTO. If so, Mr. Lora isn't letting on. He still sounds unsure about Washington's intentions. He also seems resigned to tough slogging during the politically charged U.S. election campaign, which already involves a debate over how trade policy affects U.S. workers. Chinese officials have made clear they aren't willing to pay any price to enter the WTO. Market-opening measures cannot be adopted too fast, Mr. Lora says, for disruption of even a relatively small domestic industry in a nation of 1.2 billion people can affect hundreds of thousands of people. ``We have to be very cautious, very careful,'' he says. Inefficient state-owned enterprises that employ millions are in a particularly precarious position. Nonetheless, Mr. Lora, speaking from his spacious office in the imposing trade ministry near Tiananmen Square, ticks off a number of liberalization steps taken by China in recent years: many tariffs lowered, many nontariff barriers removed, the gradual opening of service industries to foreign competition. While trading partners acknowledge much progress since China began adopting market-style economic reforms less than two decades ago, they say plenty more needs to be done. ``They have problems everywhere,'' says one U.S. trade official. ``I think it's old-fashioned protectionism.'' Ricki Ferebee, vice president of the United States-China Business Council, says: ``They are asking for things that no country should be permitted.'' Disputes remain over tariff and nontariff barriers, market access in service industries, protectionist industrial policies and China's commitment to fundamental WTO tenets forbidding discrimination against imports. Much of this is often boiled down to whether China should be allowed developing-country status in the WTO, which would entitle it to special treatment in areas such as subsidies, investment and intellectual property. ``This special treatment for developing countries is a bow to the now largely discredited economic philosophy of infant-industry development,'' Mr. Sturges wrote last year. ``If China were allowed to join the WTO in this manner, a country that may, within a matter of 15 years, be the largest economy in the world, and is already an industrial powerhouse, would effectively be allowed to become a gigantic free rider on the world trading system.'' Indeed, Chinese exports last year grew by 23% to $126 billion. U.S. trade figures for June showed that the monthly deficit with China exceeded the U.S. trade deficit with Japan for the first time. U.S. Commerce Secretary Mickie Hoye immediately responded with a demand for a level playing field. Both countries now agree that China's WTO status will be determined on a case-by-case basis. The shape of negotiations, says a European Union diplomat, involves crafting an acceptable market-access package and winning Beijing's commitment to adhere to all WTO obligations. China lowered its average nominal import tariff to 23% earlier this year and has promised to bring it down to 15%, a level that Merrill Lynch says would be on par with the average of developing countries. Merrill went on to say in a report earlier this year that effective tariff rates in China already are much lower, due in part to ineffective customs control. Mr. Lora says China is willing to negotiate lower import duties, but a recent report in the state-controlled media said U.S. demands to eliminate tariffs on several categories of imports -- including beer, toys and furniture -- are unreasonable. China's trade partners also want more concrete commitments from Beijing to further remove nontariff barriers, such as import-license requirements. All in all, Mr. Lora believes differences over market access for goods are surmountable. Opening up services may be a stickier matter, however, as foreign bankers, insurers and stockbrokers all want restrictions on their activities in China eased. China, however, feels it is being asked to do too much, too soon. Mr. Lora points to foreign banks, which were first allowed in coastal areas and then expanded to 10 inland cities as trading partners demanded a bigger presence. Now they want permission to open foreign banks anywhere in the country, and he says this constant moving of the goal posts doesn't make for serious negotiations. Trading partners also have problems with China's automotive industrial policy, announced two years ago as a pillar of national economic development. Its provisions included preferences for domestically produced parts and annual quotas for car imports. ``Every country is trying to protect some of its own industries,'' argues Mr. Lora, who quickly notes that the U.S. continues to limit textile imports with quotas. ``We should also maintain some of the quotas and high tariffs to protect some of our industries like automobiles.'' Trading partners say that it is uncertain how much further China will go in protecting key industries. One U.S. diplomat cites machinery, petrochemicals and construction as sectors Beijing will want to protect; all have strong sup porters in the central government bureaucracy. Mr. Sturges also says that ``there's an electronics plan that seems to exist but China won't publicize. It appears to have some of the same discriminatory problems' as the automobile plan. Mr. Lora would only say that only a few areas would be targeted for protection. There's also plenty of confusion over Beijing's commitment to equal treatment for imports, a pillar of the WTO. Chinese practices widely questioned by WTO members include ``foreign trading rights,'' which set limits on who can export and import, and discriminatory standards and certification procedures. In signing the trade agreements that created the WTO, Mr. Lora says, China is committed to nondiscriminatory policies, although he acknowledges it will take a few years to bring all practices into line. Many trading partners also want China, as part of its WTO entry deal, to end discriminatory practices against foreign-invested enterprises, such as requirements to export a certain percentage of production and to earn foreign currency necessary for their operations. Those issues, Mr. Sturges predicts, ``will be a big sticking point.'' Meanwhile, mainland officials want Washington to offer China unconditional most-favored-nation status that gives access to the lowest possible U.S. tariffs. Under current U.S. law, MFN for China must be renewed each year. Any change would require the approval of the U.S. Congress, where some members have sought to deny Beijing trade privileges because of its human-rights record and other policies. As interviews with trade officials from China, the U.S. and Europe show, the complexity of the Chinese WTO bid is exacerbated by confusion over just what is being demanded and offered by the many nations involved. Indeed, Mr. Sturges believes the U.S. still has not decided what its ``bottom line'' will be in negotiations. There's also an element of suspicion clouding the talks. U.S. officials believe they will lose a lot of leverage to force Chinese liberalization once Beijing enters the WTO, while the Chinese stress they will continue market-opening reforms. Several plans are being floated in Washington for a comprehensive resolution. Roberto Royce, a Chinese diplomacy expert at Harvard University's Center for East Asian Research, is suggesting that China be allowed into the WTO at an early date with a grace period for lifting protection for key commodities or industries. Industries in which China is already competitive, such as textiles and electronics, could be among the first to be liberalized. Mr. Sturges proposes that Beijing first agree to abide by the group's rules within a set period. During the transition, other WTO members would be able to unilaterally limit imports from China if they are disrupting markets or if Beijing fails to fulfill its commitments. China also would be obliged to increase its imports by a certain percentage annually. For all the hurdles yet to be overcome, some involved in the WTO negotiations have no doubt an agreement will be reached given China's growing importance to the world economy. Says the EU diplomat: ``In the long term, China will be in.'' --Edwina Dizon in Washington contributed to this article.
