China´s WTO Accession - United Nationsunpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN002159.pdf2000 China’s accession to the World Trade Organization (WTO) became as

China’s WTO Accession 1

China´s WTO Accessionproblems and perspectives

Philipps-Universität MarburgFachbereich 03 Gesellschaftswissenschaften und Philosophie

Institut für PolitikwissenschaftWS 2000/2001

Andrea Theocharis

ContentsI. Introduction 2

II. The World Trade Organization as a multilateral trade system 3

1. History and Function of the WTO 3

2. Accession procedures 4

3. The WTO and its critics 5

4. Developing countries in the WTO 6

III. China and the WTO 8

1. Changes inside the Communist Party of China 8

2. The Chinese Way to Market Economy 9

3. China and its relation to international organizations dealing12

with global economy

4. National perspectives 12

IV. Negotiations with the West 14

1. US and EU perspectives 14

2. China’s concessions to WTO accession 15

V. Future Outlook 16

1. China 16

2. Additional perspectives 20

VI. Conclusion 21

VII. Literature 23

VIII. Appendix 25


Trade conquers the world (Harold James)1

I. Introduction

With the conclusion of bilateral negotiations between the People’s Republic of

China and the US in November 1999 and between China and the EU in May

2000 China’s accession to the World Trade Organization (WTO) became as

likely as ever before. China had applied for WTO membership in 1987. Perhaps

no WTO accession process has been as complex as that involving China’s entry.

After 14 years of negotiations a sudden change was achieved. Since more than

two decades the economical system of China is in a fundamentally transforma-

tion period. But integrating China into the multilateral trading system will not

end with WTO membership. The task only begins there.

This paper examines in a first step the WTO objectives as a multilateral trading

system and criticism to the WTO. It then looks at the special relation between

developing countries and the WTO. The next Chapter examines China’s changes

in the last decades and includes a cost-benefit analysis of China’s entry into the

WTO. It looks at the challenge faced by China in its attempts to integrate its

economy into the global economic system. What are the motives of the Chinese

government and what objectives is it pursuing with the entry? What kind of con-

cessions were made to achieve agreements with the World’s most powerful

economies United States and European Union? The present report then reviews

the impacts of membership of the WTO for the Chinese economy, political sys-

tem and social stability.

The central thesis to be examined is the following: Only a small part of China’s

population will be able to profit from WTO membership in a short term. China’s

leadership will have to reform large parts of China’s system to prevent poverty

or even a total collapse of the country.

From an additional perspective a second thesis states that regarding impacts of

WTO agreements on nations and societies criticism to the WTO needs to be

taken as an indication for the extend the WTO needs to be reformed.

1 James, Harold: International Monetary Cooperation Since BrettonWoods. Oxford 1996


II. The World Trade Organization as a multilateral trade system

1. History and Function of the WTO

The World Trade Organization (WTO) is the only international organization

dealing with the global rules of trade between nations. It is representing a multi-

lateral trade system developed through a series of trade negotiations, or rounds,

held under the General Agreement on Tariffs and Trade (GATT).

The GATT was established in 1947 as a provisional forerunner of an Interna-

tional Trade Organization. Main goals of the GATT as written in the preamble

were (1) Enhancement of living standard in the member states (2) Realization of

full employment (3) A high and increasing real income (4) Full disclosure of re-

sources (5) Increasing of production and trade.2

Until 1994 its members managed already more than 90% of world trade and its

most significant achievement has been the reduction of tariffs on an average

from 40% to 10%.

As a result of the 8th International Trade Round, the so-called Uruguay Round

(1986–94), the GATT was replaced by the WTO. GATT Member States had de-

termined that international trade could be increased by structuring agreements

similar to the GATT that focus on trade in areas other than goods, such as serv-

ices and intellectual property rights. Thereupon three multilateral agreements be-

came the pillars within the framework of the new World Trade Organization: the

General Agreement on Tariffs and Trade (GATT), the General Agreement on

Trade in Services (GATS) and the General Agreement on trade-related aspects of

intellectual property rights (TRIPS). On the 1st of January, 1995 the WTO, now

having a status of a specialized agency in the system of the United Nations,

joined the International Monetary Fund (IMF) and the World Bank as a third re-

markable important international organization concerning global economy.3 Its

main principles are reciprocity, liberalization and non-discrimination as stated in

the treaty. Since its establishments, the main task for the WTO has been the im-

2 Nohlen, Dieter: Lexikon der Politik Binding 6. Internationale Beziehungen. München 1994.

p.1873 Institute of Southeast Asian Studies: ASEAN in the WTO. Singapore. 1996. p.13


plementation of the results of the Uruguay Round. Generally its main function is

to ensure that trade flows as smoothly, predictably and freely as possible4. The

UR-outcome effected that the mandate of the WTO considerably expanded from

that of its precursor, the GATT. Additional to its former task of setting tariffs

and quotas, the WTO now deals with non-tariff barriers to trade (such as health

and environmental standards) as well as with the liberalization of free flow of

goods and services. Furthermore its task includes other areas such as anti-

dumping and non-tariff measures.5

At the end of the year 2000, the WTO consisted out of 140 member states. 29

countries, with a majority of developing countries, are still seeking for member-

ship.

2. Accession procedures

Negotiations about the conditions of the membership of the applying countries

precede every WTO accession. A special WTO working party for every applying

country is occupied with the examination of the respective economy system. A

new member can profit from all agreements of the WTO (e.g. reduced tariffs)

right after accession. Hence applicants that have not yet liberalized their foreign

trade in the same way need to make concessions to WTO Members. Otherwise

the following multilateral and bilateral negotiations could be impeded. One can

say the negotiations on market access are the most critical element of the acces-

sion process. Because as explained above, Members want to ensure that acced-

ing governments grant concessions that are comparable to the concessions that

they will be benefiting from in the markets of Members. The resulting market-

access commitments of acceding governments can be considered to be the pay-

ment for the entry ticket into the WTO. Accession to the WTO needs a two-third

majority of all members.

China's Working Party was established on the 4th of March 1987. Discussion and

negotiation on the Protocol and Working Party Report are at an advanced

level.6

4 WTO Service Sides: www.wto.org/english/thewto_e/thewto_e.htm 2001-20-025 Deutsche Bundesbank: Weltweite Organisationen und Gremien im Bereich von Währung undWirtschaft. Frankfurt. 1997. p.1406 WTO Service Sides: www.wto.org/english/thewto_e/thewto_e.htm 2001-20-02


3. The WTO and its critics

Since its establishment, the GATT and since 1995 the WTO has to face criticism

from Trade Unions, protectionist lobbies, a wide range of Non Governmental

Organizations (NGOs)7 but also from politicians and developing countries. They

reproach the WTO for very different reasons. People have different views of the

pros and contras of the WTO’s multilateral trading system.8

The WTO is e.g. accused of being undemocratic, of being blindly for free trade

at any cost and only concerned about commercial interests. Critics believe that

these interests take priority over development and environmental protection in

WTO decisions. The WTO is also accused of dictating to governments on issues

such as food safety and human health. Again critics think commercial interests

override. Moreover some critics emphasize that the WTO destroys jobs in in-

dustrialized countries and widens the gap between rich and poor. Other voices

state that small countries are powerless in the WTO. Weaker countries would

have no choice; they were forced to join the WTO.

Some NGOs simply disagree with the postulation of causative connection be-

tween more trade and higher economic growth.

A culminating point of radical and less radical criticism to the WTO was shown

in Seattle, when the first real massive anti-globalization demonstrations took

place. The WTO ministerial meeting in Seattle, held from November 27 to De-

cember 3, 1999, that had been called to launch a new trade round was aborted

and wound up in chaos.

One can be certain that the debacle in Seattle is an indication of the extent to

which the WTO needs to be reformed.

Focusing on China’s entry, it is unfortunately not possible to discuss all aspects

of criticism to the WTO in this paper. Since one main issue during negotiations

for China’s entry has always been the question, whether China will have be

granted the status of a developing country within the WTO system and therewith

could profit from special treatment or not, it seems significant to briefly discuss

the relation between developing countries and the WTO.

7 E.g. Human Rights Watch, World Trade Watch8 WTO Service Sides: www.wto.org/english/thewto_e/thewto_e.htm 2001-22-02


4. Developing countries in the WTO

Over three-quarters of WTO members are developing countries. In all the WTO

agreements special provisions for these economies are included. They include

e.g. longer time periods for implementing agreements and commitments, meas-

ures to increase trading opportunities for these countries, to handle disputes and

to implement technical standards.9

After World War II and during a long time of the Cold War the “GATT view” of

world economy had been rejected by the communist states but also by a large

number of developing countries. In the 1960s, when decolonization resulted in

the formation of new states and economies, the Argentine economist Raúl Pre-

bisch made use of the conception called dependencia. He insisted that:

“The terms of trade and investment in the contemporary world are inevitably fa-

vorable to the developed industrial nations of the ‘center` and consequently at

the expense of developing nations at the ‘periphery`”.10

Keeping an open trade and investment relationship would deepen the depend-

ence. Thus developing countries pursued to shield themselves. Only after the

Oil-crisis in the 1970s many countries of the Third World started to integrate into

the multilateral economic order hoping to benefit from foreign trade and invest-

ment.

Today many developing economies inside the WTO system complain that they

have adapted the demanded standards, they have opened their markets, and in-

dustrialized countries have not. They have restructured and adjusted to global

market forces but industrialized countries have not. Developing Countries further

complain that while the WTO propagates the free flow of goods, services, infor-

mation and capital it does not propose the free flow of people for the purpose of

labour. Considering the stricter immigration controls in many industrialized

countries dissatisfaction grows, some call gain from “Globalization” even “illu-

sory”11. Furthermore they argue that only large corporations have been the satis-

fied beneficiaries of WTO treaties, while communities and small farmers around

the world would have suffered from WTO-promoted 'free trade'. Hence they as-

9 WTO Service Sides: www.wto.org/english/thewto_e/thewto_e.htm 2001-23-0210 Lehmann, Jean Pierre Developing economies and the demographic and democratic impera-tives of globalization. International Affairs. Volume 77. Number 1. January 2001.p.7011 ibid. P.76


sert industrialized countries would impose double standards. On the one hand

establishing rules and for example force developing countries to meet the envi-

ronmental standards of industrialized countries while on the other hand not ad-

mitting their protectionism against developing economies e.g. in agriculture. As

part of the implementation of the results of the UR developing countries still de-

mand further liberalization for textiles. The rhetoric of liberalization being a

'win-win' scenario for North and South is regarded as a fraud perception of real-

ity. What adds to these complaints is the fear of developing countries to be over-

run by improving modernization in technology.

Since many developing countries feel that they have no stake in the system12,

they rejected the proposed launching of a new round of trade negotiations in Se-

attle for the first time.

In this regard China’s WTO accession is certainly an important issue.

China is one of the most competitive and by far the largest developing country.

Consequently many developing countries hope that with China’s entry, a strong

partner would fight for their interests within the framework of the WTO.

In this context, social scientist Frederick M. Abbott questions how the WTO can

claim to govern world trade while more than one-fifth of the world population,

the second largest national economy and one of the top trading nations is still ex-

cluded from its ranks.13

Bruce Stokes, Senior Fellow for economy at the Council of Foreign relations in

New York affirms in his analysis of China’s relation to the WTO:

“On a more institutional level, WTO officials already privately worry that

China's admission to the WTO could inexorably lead to the UNCTADization of

the organization. If China anoints itself as the spokesperson for Third World in-

terests in Geneva, the WTO could be rapidly transformed from a functional body

dealing with the practical commercial concerns of the world's largest trading

economies into a talking shop focused on the political interests of nations who

are only marginal players in the world economy.”14

12 ibid. p.7813 Abbott, Frederick M.: China in the World Trading System. Boston 1998. p.3114 Stokes, Bruce: The WTO Dilemma.http://socrates.berkeley.edu/~briewww/forum/berkeley2/stokes.html 2001-02-23


III. China and the WTO

1. Changes inside the Communist Party of China

At the first decades of China’s existence the one-party system was defined by

ideological terms and based on Maoism. But already at the beginning of the

1960s his leadership was not stabile because of the failure of what was labeled as

“Great Leap Forward” which was a communistic mass-mobilization campaign

after an idea of Mao Zedong that should develop an ideal communistic society.

Because of mismanagement the years lead to an economic decline and three

years of dramatically famine. In the following years China’s leadership remained

divided about economic strategy. The years were characterized by inner conflicts

and changing political leaders, while Mao was in fact still the ideological and in-

stitutionalized leader of the Communist Party of China. But more and more a

majority within the party pushed for political economy reforms. After his death

in 1976 and after struggles inside the party several of Mao’s near assistants were

imprisoned and the economic reformers under Deng Ziaoping came to power.

The political reforms of the late 1970s and the 1980s were marked through an

unofficial political divert from Maoism, a step by step turning away from the

economic model of the Soviet Union and the maintenance of a one-party system.

In fact the time lead to a fundamental revision of maoistic policy.

The Chinese leaders of today under Jang Zemin still proclaim the five Chinese

Principles for Peaceful Coexistence as founded by the Chinese leaders in 1955:

1.Mutual respect of territorial integrity and sovereignty 2. Reciprocal non-

aggression 3. Mutual non –interference in domestic affairs 4. Equality of rights

and reciprocal advantage 5. Peaceful Coexistence15. But more and more they re-

fer to economical issues. The four Chinese “fundamental principles”, still

strongly stated by the CPC: - Leading role of the party, - Democratic dictator-

ship of the people, -Socialistic way of development, and - Marxism, Leninism and

Mao Zedong ideas, seem to be an anachronism.

China tries to meet with international approval. A more technocratic profit-

oriented elite pursuing a rather pragmatic policy replaces a former ideological

left political elite. Calling upon the achieved economical growth Beijing today

15 Staiger, Brunhild: Länderbericht China. Darmstadt. 2000. p. 112


propagates nationalism as a new energy for the Chinese society. For the reason

of justification of its legitimacy and to gain wide support in the population the

CPC presents itself as the protector of national sovereignty and dignity.

While China first condemned the GATT, multinational corporations, foreign di-

rect investment and all manifestations of market-driven Western capitalism, a

policy reversal took place under Deng Ziaoping after the death of Mao Zedong in

1976 and economical reforms started. The following section briefly views the

transitionally economical process in China.

2. The Chinese Way to Market Economy

After the People’s Republic of China came into existence in 1949, its foreign

relations were one-sided confined to socialistic countries, particular to the Soviet

Union. Due to the Cold War former relations to capitalistic countries broke

down. The UN-Trade-Embargo against China in 1951 signified a total stop of

economic connections between the West and the People’s Republic of China.

Only after China was granted the UN membership in 1971, integration into mul-

tilateral organizations started.

The economic system of the People’s Republic of China has changed twice since

its foundation. In the 1950s a system like the Soviet Union economic model was

established. The industrial and the agricultural sector were nationalized and mar-

ket and prices were replaced by a planned economy system. But in dissimilarity

to the Soviet Union, China’s point of main effort was the agricultural sector.

Following the strategy of developing an economic system that could be inde-

pendent from world market, China pursued to be economically self–sufficient

and therewith China was having autarchy as a part of the ideological principles

of Maoism in that time Asia. After Mao Zedong's death in 1976, the following

years were characterized by economical reforms. Initiated by Deng Ziaoping, the

Communist Party of China (CPC) started reforms, which led to a change in the

Chinese economic system. They can be regarded as the beginning of a system-

transformation.

Because of political and bureaucratically resistances, a double-tracked reform

policy evolved. Characterized through the coexistence of planned and market


economy elements, the changes led to an inefficient state-owned sector and the

dynamical development of a new market oriented private sector. That was the

release for an enhancing material prosperity for large parts of the Chinese society

and a qualitative change in the economical structure.

After the end of the Cold War many eastern European countries and Russia

transformed their economical system to market economy in a rapid way. In dis-

tinction to this “shock-therapy”16 China changed and is still changing its econ-

omy system gradually.

The decision for the so-called Chinese way to socialistic market economy in

1992 led to market oriented reforms in all economic sectors. Today China’s

economy still is in a transitional process. For a long time ideological discussions

within the CPC impeded a clear development towards market economy. Gradual

reform experiments seemed to be a more secure way of transformation to China,

because they easier could, in cases of mistakes, be cancelled. Step by step parts

of the industrial and agricultural quantitative determination and price planning

was liberalized. Due to decentralization of economical decision- and proceed-

rights on the agricultural level and according to the admission of private enter-

prises in cities and rural areas the private sector grew unexpectedly fast. State-

owned enterprises had to react on pressure caused by the new competition situa-

tion. Private enterprises and foreign investors became competitors of the state-

owned enterprises on the raw material market and on the market outlet. Hence,

state-owned enterprises were forced to adapt a more market-oriented policy and

this resulted in the loss of their monopoly in some branches. It also signified a

gradual cutting of influence of state-control for the central bureaucracy. For

those reason local governments were given share of profits. With this decision

the political leaders of the CPC protected their power against possible resistance

and tumults and above all Beijing could be sure of regional support for their

policy. A pattern of undertaking- and market-structures evolved. In the meantime

a close involvement between national officials and private and collective enter-

prises evolved.

Since the beginning of reform in 1978 China’s exports raise remarkable. The

value of exports grew from approximately $ 16 billion in 1978 to $ 138.4 billion


in 1995. Export volumes, which had doubled between 1970-78, rose more than

eight-fold from1978 to 1997. Foreign investment figures show that by the end of

1996 China had approved 283,793 foreign enterprises involving $ 466.8 billion

of foreign investment capital. Chinese overseas investors have played a major

role in China’s export success through foreign direct investment. A large major-

ity of foreign direct investment into China is from firms of overseas Chinese ori-

gin, with 60% from Hong Kong alone; when Taiwan is included this figure rises

to almost 70%. In 1995 it was estimated that 25,000 Hong Kong firms, directly

employing between 4-5 million workers were operating in China. In 1998 Tai-

wanese investment in China was considered to be on an average of $ 38 billion

and therewith employing 2 million workers. China’s trade GDP ratio rose from

10% in 1975-79 to 36% in 1990-94.17

In recent decades, China has had an unprecedented GNP growth of 8-10 percent.

Over the past fifteen years, the Chinese economy has grown at a nearly double-

digit rate.

Although China could record a rapid economical growth in the 1990s, which was

only marginal affected by the East-Asian financial crisis in 1997, it still has to

combat with many problems. The liberalization to free trade had no extensive in-

fluence on the social situation of the population. China’s unemployment-quota is

estimated at about 20%18. Corruption is another major problem, caused by the

tight relation between officials and private and collective enterprises concerning

decision processes. Looking at the current situation, one can say China’s eco-

nomic growth was not even and sustainable

The Chinese transformation-process from planning- economy to market-

economy is marked by phenomena like reciprocal penetration of the Chinese

state and a new economy society and the simultaneousness of different coordi-

nation-mechanisms from planned and market economy. To sum up, one can say

the economical modernization-process in China has never had a clear direction;

it was rather marked through uncontrolled development. But it was three decades

experience of foreign investment from Hong Kong that had taught the leadership

16 Schüller, Margot: Reform und Öffnung: Der chinesische Weg zur Marktwirtschaft. In: Län-derbericht China. Bundeszentrale für politische Bildung. Bonn 2000. p.27817 Gautam, Sen: Post-reform China and the international economywww.theglobalsite.ac.uk/press/103sen.htm 2001-21-0218 Because of censor in China no valid statistical figures are available


in Beijing about possible impacts. The existence of an already advanced econ-

omy in the form of neighbouring Hong Kong created kind of a buffer for China.

3. China and its relation to international organizations dealing with

global economy

Until 1979 China maintained in quite a restrained behavior in relation to the

three important global economy organizations, the International Monetary Fund

(IMF), the World Bank and the GATT. They were regarded as instruments of

imperialism and as institutions that supported the exploitation of developing

countries through industrial countries. During the economical reforms from the

late 1970s on, China, while still referring to its independence, decided to use

possibilities within the World Bank and the IMF in cases of advantages and for

pragmatic reasons leaving ideological questions behind. Today the People’s Re-

public of China is the biggest recipient of credits granted by the World Bank.

Beijing used technical help from IMF and the World Bank for example to im-

prove the infrastructure.

Because of the advanced integration of the Chinese economical area into world

market, China expresses its claim for appropriate representation in corresponding

international organizations. Since 1987 China is applying for WTO accession.

4. National perspectives

China’s main interest in WTO accession is the opening up of new markets since

the Chinese economy today is based on exports for more than 20% 19. China is

among the 10 biggest exporting countries in the world and by far the most im-

portant location for foreign investment among all developing countries. China’s

part of world trade grew from 0,5 % in 1987 to 4 % in 200020.

China’s comparative advantages are mainly the production of labour-intensive

manufacturing like textiles, toys or electronic machines.21 But profits from the

possibility of expanding new markets are expected not only in this sector. Next

19 Staiger, Brunhild: Länderbericht China. Darmstadt 2000 p.12620 Müller-Hofstede, Christoph: Reich und mächtig – Chinas Zukunft als Nation. In: Länderbe-richt China. Bundeszentrale für polische Bildung. Bonn.2000.p.53521 Song, Xueming: Der chinesische Wirtschaftsraum als Faktor in der Weltwirtschaft. In: Län-derbericht China. Bundeszentrale für politische Bildung. Bonn. 2000 p.315


to an export-oriented strategy, China is interested in foreign investment to ginger

up the economical development.

Furthermore China expects that with its WTO accession critics (especially the

US) will not be able to put economical pressure on Chinese politics as done be-

fore (e.g. trade embargo). That means, to profit from the WTO Most- favored

national clause China will not anymore be dependent on its Human Rights

situation.

Beijing is also looking for international prestige after experiencing a long

time of international isolation. Claiming to be a major global player, China wants

to be acknowledged as an important part of the international community. Due to

this, a series of reforms concerning foreign economy took place in the last dec-

ade. But for a while the gap between the economical system of China and the

standard the WTO asked for seemed to be too large. Only since the successful

end of trade negotiations between the US and China in November 1999 the WTO

entry became likely.

The current status of Chinese economical and military development forces China

to recognize the US superiority as a superpower. But China states that it does not

accept that hence international rules are defined only by the US. In addition to he

Chinese Five Principles for Peaceful Coexistence (s.a.) as proposal for a multi-

polar world order, Jiang Zemin and President Jelzin signed a declaration in 1997

in Moscow that expresses three common goals for China and Russia: (1) Playing

the oppositional part for any power that attempts to be the “absolute leader” of

international policy (2) formation of a new world order (3) Building of a multi-

polar world.22

Critical voices inside China demand the protection of the national industry. They

fear a too rapid opening of the Chinese market which could result into an eco-

nomical disaster because Chinese enterprises are not yet competitive on the

world market. Many East-Asia scientists share this view. Peter Nolan, Sinyi Pro-

fessor of Chinese Management at the University of Cambridge even calls the

situation of Chinese enterprises “rotten”23. There is no Chinese enterprise yet,

that can keep up with enterprises like General Electric, Boeing and other major

22 Staiger, Brunhild.2000.p.13023 In his speech held on the fourth ECAN annual conference in Berlin, February 1st 2001(personalnote)


U.S. firms. Among the 500 most important enterprises of international economy

no Chinese enterprise can claim a ranking place.

IV. Negotiations with the West

1. US and EU perspectives

The US-foreign policy in relation to China can be divided into two directions:

containment versus engagement. Supporters of containment declare that China

would be a threat for world peace and therewith the US would have to prevent

China’s rise to world power or at least make sure that China’s integration into

the international system does not change international rules (e.g. concerning

Human Rights and international trade agreements).

Supporters of engagement start from the principle that China’s rise cannot be

stopped and due to this it would be necessary to ensure integration into existing

global structures. The former US President Clinton supported the policy of con-

structive engagement of China. In May 2000 the US granted China “Permanent

Normal Trade Relations” (PNTR).

The corporate campaign had to overcome the 79% of the U.S. public. Unions,

NGOs and politicians (e.g. Ralph Nader) started an intensive campaign of oppo-

sition that opposed enhancing U.S.-China trade terms absent addressing human

rights, religious freedom and labor conditions.24

The NGO Human Rights Watch declares:

“We believe the U.S. and China's other major trading partners must increase

pressure on Beijing for significant improvements in human rights. It makes little

sense to bring China into the WTO and expect it to abide by global trading rules

when Beijing flaunts international rules of human rights with impunity. China

must be moved to go beyond opening its markets to opening its jails, easing re-

strictions on the press and the Internet, and protecting the rights of workers.”25

24 Bhagwati, Jagdish: After Seattle: free trade and the WTO. In: International Affairs. Volume 77 Number 1. January 2001 p. 1525 Human Rights Watch: http://www.humanrightswatch.org/hrw/campaigns/china-99/china testimony0216.htm 2000. 2001-20.02


China ranks on the fourth place among all trade partners of the US and the Euro-

pean Union. Both are strongly interested in a fast and extensive lifting of all

trade barriers of the Chinese market.

In fact, since the US market is already open for Chinese goods (except textiles

and agriculture) negotiations between China and the US were mainly concen-

trated on special security clauses and on the security of intellectual property

rights.

Bilateral negotiations about China’s accession between the US and China ended

with an agreement in November 1999.

Negotiations between China and the EU contented questions about the Chinese

judiciary system and further concentrated on mutual opening of their markets.

Since the EU countries try to improve its economic position in the world the

opening up of Asian markets has also a strategic importance for the EU in its re-

lation to the US. Bilateral negotiations between the EU (as one party) and China

ended with an agreement in May 2000 in order to support Clinton’s policy of

granting China PNTR which had to be decided upon in US-Congress at the end

of May 2000.

2. China’s concessions to WTO accession

Although the “Accession protocol” is still not negotiated entirely, bilateral

agreements give information about the conditions one can expect of China’s en-

try. Generally China made several concessions.

Within the scope of far-reaching market opening China agreed on a transitional

period between three and five years for and the reduction of import duties for in-

dustrial and agricultural goods. China’s current system of import-quotas and im-

port-licenses shall be abolished in a period of five years. Tariffs have already

been reduced since the beginning of the 1990s:Synopsis 1: Development of China’s Import-tariffs

1992 1993 1994 1996 1997 2000Average of tariffs in percent 43 39,9 35,9 23 17 15Reference: Fischer, Doris. Kalkuliertes Risiko?. Köln. BIO. Volume13 2000.

Moreover China committed to give up its government monopoly in trade gradu-

ally step by step. Foreign enterprises shall have trade and distribution rights and


many restrictions in the service sector shall be lifted. This will affect especially

the fields of assurances, banks, communication and media where until now for-

eign enterprises can only marginally be engaged26.

V. Future Outlook

For several years China became a subject of innumerable publications and espe-

cially Western scientists discuss China’s social, economical, environmental and

political future imagining every possible future scenario. Some fear an expan-

sionistic and nationalistic superpower under the control of a repressive Commu-

nistic Party while others vision a peaceful evolution of a gradual modernization,

democratization and an open Chinese society.

As far as WTO accession is concerned one can say that since the end of negotia-

tions with the US and the EU China’s WTO entry is as close as never before. For

a long time the question was rather whether China will join WTO or not – now it

seems that it is only a question of time. Believing the official WTO working

party on China it can be expected that China’s accession is likely to happen be-

fore the Fourth WTO Ministerial Conference will be held from the 9th of No-

vember until the 13th of November in 2001 in Doha, Qatar.

After the given description of relevant circumstances of China’s early WTO ac-

cession the following chapter seeks to give a survey of consequences and prob-

lems that will result out of the implementation of WTO agreements in China.

The focus of this survey is not put on the economical impact on the world's larg-

est trading economies like the US and the EU so much the more on China transi-

tional future.

1. China

However the Chinese economy might develop, one aspect has not to be underes-

timated. In the next three decades the Chinese population will grow for about a

26 Ranft, Florian: Beitritt zur WTO: Accession Protocol bis Sommer 2001. In: China Contact.Volume12 Münster 2000. p.24


quarter of a billion people27. Consequently China will need a growing part of the

world’s energy and nature resources. But the Chinese population will also need

jobs and higher education.

• Unemployment

WTO entry means large changes on labour market in China. In any case, a huge

problem for the future will be unemployment. Official Chinese Journals pub-

lished an estimated value of 11 million people who will be out of work after im-

plementation of WTO agreements. Mainly concerned are the agricultural sector,

the motorcar sector and engineering. On the other hand China expects new jobs

in textiles, food and building trade. But since unemployment is already a major

problem in China WTO entry means a change for the worse.

• Enhancing migration from the country to the towns

Since an overwhelming part of investment, industry and therewith labour market

is concentrated on eastern seaport areas like Shanghai, Guangzhou, Hong Kong

or Hangzhou, migration from rural areas to urban areas will grow. This will lead

to various problems inside the towns while interior provinces will still suffer

from crushing poverty and a lack of economic development. Hence it will widen

the gap between rich and poor.

• Lack of qualified workers

In this regard a major problem of China is the insufficient educational system.

Still 22% of the population (=180 Million) is illiterate28. An average of 20% of

pupils interrupt school education. Compared to other developing countries China

spends only a minimal amount of its GDP on education.

Many Chinese students go abroad for qualified education and the majority does

not return to China. Today China is lacking in qualified human resources e.g. in

management, law and engineering. Foreign investors in China already employ

foreign workers because high-educated Chinese workers are too rare. It is likely

that more foreign investors will come to China and create a new labour market

but since only very few Chinese workers can do these jobs higher educated

27 Lehmann, Jean-Pierre 2001 p.7928 Schüller, Margot: Reform und Öffnung: Der Chinesische Weg zur Marktwirtschaft. In: Länderbericht China. Bundeszentrale für politische Bildung. Bonn 2000 p. 297


workers from abroad will migrate to China’s eastern metropolis. If the Chinese

regime will not change the educational situation no improvement for the whole

society can be achieved.

• Emigration

Already 50 Million Chinese people are living abroad. Masses of Chinese emi-

grated illegally throughout the world.29 Not all of them left China for political

reasons. As already mentioned China has an overflow of unskilled workers and

mass-unemployment. The future could see the situation deteriorate further. The

problem of out-migration already indicates a domestic crisis.

• Inefficient infrastructure

The growing urbanization will need changes not only in the towns that will have

to shelter millions of new inhabitants but especially in the rural areas where new

markets and therewith new ways of distribution of goods and services will bring

enormous changes. China will therefore need further credits from the World

Bank to overcome this challenge.

• New possibilities – more freedom or harsher restrictions?

The future years will lead to a new economical and cultural plurality in China.

Although surely a positive change for the Chinese society the upcoming plurality

can mean a threat to the political elite. It is possible that the opening of markets

will move along with rising of claims for more freedom in the society.

Furthermore the Internet will have an impact on various aspects of life in China.

In 1999 already 9 million people in China had access to the World Wide Web.30

It is estimated that already in the year 2003 China will have more than 33 million

Internet users.31 The bilateral agreement between China and the US provides for

a gradual opening of the Chinese market for communication sector and IT-

industry for foreign investors, goods and services. On the other hand East- Asia

scientists expect the Chinese regime to use the Internet as a new level for control

measures and propaganda. To sum up, the Regime will have to overcome insti-

29 Lehmann, Jean-Pierre 2001 p. 7930 Wecker, Gudrun: Hinter der virtuellen Mauer. Bericht des BIOst Number 6. Kiel 2000 p.331 ibid.


tutional challenges concerning leading and controlling the Chinese population.

Otherwise Beijing can probably hardly protect its weakened power.

• Nationalism – “Greater China”

East-Asia scientists expect the Chinese leadership to react on this threat with na-

tional campaigns propagating a new Chinese nationalism. Since Beijing already

stated that it would only use “Western” methods for the reason of profit without

letting it touch China’s claim on having a special independent and important

status in the world it might propagate every economical success as a gain of its

leadership and every failure as a mistake in the system of the WTO.

• Human Rights conditions in China

With WTO accession China will commit itself to respect global trade rules. But

this will not automatically lead to political changes. It is clear that WTO mem-

bership itself cannot guarantee the rule of law, respect for worker rights or sig-

nificant political reforms. Looking at human rights conditions of workers as an

example, still the most basic human rights in China are not protected. Workers

are not permitted to form independent Labor Unions. The changes resulting out

of WTO membership could push workers to insist on greater collective decision-

making on workplace issues and the need for a social safety net. They may in-

creasingly insist on exercising the worker rights guaranteed in the UN Interna-

tional Covenant on Economic, Social and Cultural Rights.

• Changes in China’s Administration

China is far from having an independent legal and court system. It still subjects

to the control of the party and the state. China's legal system needs to be mod-

ernized to handle commercial disputes, protect contracts and combat corruption.

Only this could help to lay the groundwork for an independent judiciary and the

rule of law that might extend to the political and security level. As already ex-

plained the influence and importance of state-owned industry will be reduced.

Thus central bureaucracy needs to be reformed to manage new kind of market

structures. That also includes consolidation for China’s administration of justice.


2. Additional perspectives

• Impact on the work of the WTO

China’s entry will certainly change the WTO. Since WTO decisions are based on

consensus in fact every member has a veto. China as a self-defined counterpart

of every world power will not be an easy partner but it will be an important one.

One can say that until now WTO is mainly a ploy of industrialized countries. It

cannot be answered yet if China’s influence will result in improvement. But re-

quired reforms could be pushed on.

• Impact on the Asia-Pacific region

WTO entry will strongly influence the path of economic development in the

Asia-Pacific region. Although interested in China’s WTO accession because of

its political importance as a developing country other developing countries will

not profit from China’s entry in the same way industrialized countries expect to

do. They will rather have to compete with Chinese exports in textiles and elec-

tronic machines. This will lead to changes inside national labour markets in

many developing countries.

• The relation between China and the US

While China’s integration was a central concern of the Clinton administration

during his second legislature the new President of the United States George W.

Bush already showed that he would not continue this policy. The new US-

Foreign Minister Colin Powell replaced the conception “strategic partnership”

with the conception “competition-relation”.32 The Bush administration is ex-

pected to support the former US-containment policy as mentioned in Chapter

IV.1.

Although not directly related to WTO concerns the impact of the US plans for

National Missile Defense (NMD) cannot be underestimated. Although Condol-

eza Rice declared that the US would further support China’s WTO entry a dete-

rioration of US-China relations is already in process.

32 Blume, Georg: Kalter Krieg im Fernen Osten. In: Die Zeit. Hamburg 15.February 2001 p.9


The American Political Scientist David Shambaugh prophesies: “The American

Foreign Policy could be captured by China’s enemies.33”

Nobody knows yet what kind of impact this development will have on the Asia-

Pacific Region. But it will bring changes that also concern China’s relation to

Japan and Taiwan.

VI. Conclusion

As shown in this examination China’s WTO accession is likely to happen in the

near future and will have an enormous impact on various complexes. China’s

entry is in any case a necessary step for the WTO but it has to be seen as a start-

ing point of a new development in International Relations.

First it has to be recognized that WTO membership means an end of China’s tra-

dition of gradually and therewith cautiously strategy of changing its economical

system. China’s unique procedure will then be over and the decision can hardly

be annulled. Suggesting that China’s market will be opened quickly and compre-

hensively, one has to regard the social impact that will result out of China’s

WTO entry as described in Chapter V. Although one can say the accession will

have an impact on China as a whole only a small part of China’s population will

be able to profit from WTO membership in the short term. Beijing and the Chi-

nese society will have to overcome the risk of a collapse of their system. The ex-

pectation of large gains from WTO membership seems to be based on a vague

hope that in the long term profits would outweigh the costs. To overcome struc-

tural problems China will further need financial help from the World Bank but it

will also have to improve its court system as well as many other parts of the po-

litical system. But it would be credulous to believe that China’s leadership will

react prompt. Looking at China as an example for economical development one

can see that economical growth is no guarantee for a good working economical

system and a good working society. Although China’s economical growth during

the past 15 years can be called incredible one cannot say that the impact was ei-

ther on public welfare. Unemployment, corruption, an inefficient educational

system and detriment and poverty in rural areas indicate typical problems devel-

oping countries have to face. On the other hand, the political elite and a minority

33 In his speech held on the fourth ECAN annual conference in Berlin, February 1st 2001


of high-educated workers profit from foreign investment and create a new rich

elite.

Today the notion of “Globalization” is mainly regarded in the center of economi-

cal development and the spread of communication through the Internet. But in

the future “Globalization” might lead to a changeover of the world’s labor mar-

ket. It is in the responsibility of international organizations to pay heed to that

development. It seems obvious that the WTO will have to react to these changes

as well. The WTO can no longer justify excluding questions concerning social

stability from its task. While on the one hand as explained in Chapter V China

necessarily needs to reform large parts of its economical, educational, judiciary

and political system to prevent social instability and poverty the WTO on the

other hand necessarily needs reforms to prevent becoming an instrument of pow-

erful corporate lobby groups. Since the WTO claims to be an international or-

ganization between nations, represented by governments it should not only pur-

sue economical growth without handling with related aspects. Hence it is obli-

gated not to view trade in isolation from other issues, such as environmental, so-

cial, consumer and health considerations.

Recalling the central thesis, only a small part of China’s population will be able

to profit from WTO membership in a short term and that China’s leadership will

have to reform large parts of China’s system to prevent poverty or even a total

collapse of the country. As explained in Chapter V, a sum of social problems

will follow WTO membership. But one has to see, that all problems mentioned

in the text already exist in China of today. WTO accession will not ease China’s

social situation but it will have a negative impact on various aspects in the short

term. Thus the thesis can be verified. Reforms are needed to widen the possibil-

ity for the Chinese population to profit from new market structures.

(Personal note)


VII. Literature:

Abbott, Frederick M.: China in the World Trading System, Den Haag,

London, Boston 1998

Betz, Joachim: Internationale Handelspolitik. In: Nohlen, Dieter

(Ed.): Lexikon der Politik. Volume 6. Internationale

Beziehungen. München 1994. pp.184-197

Bhagwhati, Jagdish: After Seattle: free trade and the WTO. In: Interna-

tional Affairs. Volume 77 Number 1 2001 pp. 15-30

Blume, Georg: Kalter Krieg im Fernen Osten. In: Die Zeit. Ham-

burg. 2001-02-15. p.9

Corporate Europe Observer: The WTO Millennium Bug: TNC Control over

Global Trade Politics. Issue 4, Special WTO Edition.

Rev. 1999-07-01

http://www.xs4all.nl/~ceo/observer4/index.html#bug

2001-02-20

Deutsche Bundesbank: Weltweite Organisationen und Gremien im Bereich

von Währung und Wirtschaft. Frankfurt am Main

1997

Fischer, Doris: Kalkuliertes Risiko? China und die WTO.

Berichte des Bundesinstituts für ostwissenschaftliche

und internationale Studien.13/ 2000. Köln 2000

Gautam, Sen: Post-reform China and the international economy

http://www.theglobalsite.ac.uk/press/103sen.htm.

2000-03-03

Herrmann-Pillath, Carsten(Ed.): Länderbericht China. Bundeszentrale für politische

Bildung. Bonn 2000

http://www.xs4all.nl/~ceo/observer4/index.html#bug


Human Rights Watch: Testimony Before the House Committee on Ways

and Means. Hearing on U.S.-Bilateral Trade Agree-

ment and the Accession of China to the World Trade

Organization. February 16, 2000

http://www.humanrightswatch.org/hrw/campaigns/ch

ina-99/china-testimony0216.htm. 2001-02-23

Institute of Southeast Asian Studies: ASEAN in the WTO. Singapore 1996

James, Harold: International Monetary Cooperation

Since Bretton Woods. Oxford 1996

Langhammer, Rolf J.: The WTO and the Millenium Round: Between

Standstill and Leapfrog. Kieler Diskussionsbeiträge.

Volume 352. Kiel 1999

Lehmann, Jean-Pierre: Developing economies and the demographic and

democratic imperatives of globalization. In: Interna-

tional Affairs. Volume 77 Number 1. 2001 pp.69-82

Ranft, Florian: Beitritt zur WTO: Accession Protocol bis Sommer

2001. In: China Contact.12/2000 Münster 2000. p.24

Staiger, Brunhild: Länderbericht China. Darmstadt 2000

Bruce, Stokes: The http://socrates.berkeley.edu/~briewww/

forum/berkeley2/stokes.html. 2001-02-23

Wacker, Gudrun: Hinter der virtuellen Mauer: Die VR China und das

Internet. Berichte des Bundesinstituts für ostwissen-

schaftliche und internationale Studien. 6/2000. Köln

2000

WTO service sides: www.wto.org/english/thewto_e/thewto_e.htm

February 2001

Yuzhuang, Deng: Development: China’s entry into the WTO

http://www.carleton.ca/e-

merge/v1_art/v1_deng_abstract.html

2001-02-21

http://socrates.berkeley.edu/~briewww/

http://www.wto.org/english/thewto_e/thewto_e.htm

http://www.carleton.ca/e-merge/v1_art/v1_deng_abstract.html

http://www.carleton.ca/e-merge/v1_art/v1_deng_abstract.html


VIII. Appendix

Synopsis 2: Important dates of China’s relation to the WTO

Date Occurrence

10/30/1947

1951

1971

Nov. 1982

07/11/1986

03/04/1987

06/04/1989

Jan. 1990

04/15/1992

Dec. 1994

01/01/1995

Nov. 1995

March 1996

11/15/1999

05/19/2000

Establishment of the General Agreement on Tariffs and Trade

(GATT)

The UN-Trade-Embargo comes into force

China gets UN-membership

The People’s Republic of China receives observer status in the

GATT

China moves for membership to GATT

GATT sets a working party on Chinas membership

Tiananmen incident

Taiwan applies for membership

China ratifies the endnote of the Uruguay Round

The China working party of GATT obtains no agreement

GATT is replaced by the World Trade Organization

China receives observer status in the WTO

Unofficial multilateral negotiations on Chinas WTO accession

in Geneva

Ratification of the bilateral Agreement with the US for Chinas

accession conditions

Closing of negotiations with the EU

The US grants China PNTR = the status of a `most-favored na-

tion´References: Fischer, Doris. Kalkuliertes Risiko?. Köln. BIO. Volume13 2000.

Staiger, Brunhild. Länderbericht China. Darmstadt. 2000.


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