China’s Accession to the World Trade Organization

1. China’s Accession to theWorld Trade Organization Presented Fawn Else Marjan Shallal Maria Angelica Fleetwood Pamela Hawe October 28, 2002

2. Population: 1.29 billion Surface area : 9.6 million sq. km Population density (per sq. km) : 135 Annual population growth : 1.07 % Life expectancy: Female – 70 years Male – 74 years GDP: US$ 1.1 trillion Govt Expenditure 20% Exports: US$ 232 billion Imports: US$ 197 billion GNI per capita : US$ 840 Labor force: 700 million (1998 EST.) Labor force (1998) Statistics for China General Economic

3. China’s Economic Development • Before 1949 Since 1949 • Great Leap Forward • Cultural Revolution • Deng Xiao-Ping's reform and open door policies: • Rural Area – household responsibility systems • Urban Industrial Enterprises – SOE autonomy • Reform in trade and investment • Cuts in tariffs • Elimination of export planning • Created economic zones • Banking – 1993 Peoples Bank of China made a federal reserve bank • Joined WTO in December 2001 – 143rd member

4. Why China Needs The WTO • China will be able to participate in the formulation of rules that govern international trade and investment • China will be able to facilitate increased competition in every sector of the economy • China’s economy will benefit from the expanded range of services—insurance, finance, distribution • Consumers and companies will benefit from higher degree of transparency and trade-related nondiscrimination • China will be able to attract even higher levels of foreign investments • WTO accession will help lay the foundations for political change and reform

5. China’s Entry into the Global Economy • Accession to WTO is an important step for the communist regime • One of the most important events into the WTO's history • Effects in bilateral trade with the US • China's economic relations with its neighbors • Likelihood that China will use its power to reshape the WTO in the future negotiations. • Big question:   Why has China voluntarily agreed to comply with the WTO's many and complex rules, if it was the seventh largest trading country while operating outside the WTO?

6. China’s WTO Commitments • Tariff Reductions • Service Commitments • Systemic Reforms • Adherence to Existing WTO Agreements • China-Specific Trade-Liberalizing Provisions • Safeguard Special, Pre-existing Trade Agreements

7. Challenges for China and WTO • Internal and external pressures on the Chinese government  to comply with the standards for the rule-based international trading system • How China's leaders expect to leverage the increased foreign competition created by WTO • The creation of a modern commercially oriented banking system and the access that foreign banks will gain to the Chinese domestic market • Country's ability to successfully generate new jobs (motor vehicle, banking, agriculture) • Degree in to which the terms of China's entry were more or less demanding that those imposed on other new members • The importance of maintaining open markets in the U.S. and other economies if China is to be successfully integrated

8. Benefits to the United States • Increase the access of US firms and farmers to the Chinese market • Increase American exports • Allow US companies to earn additional income through operations in China • Allow US consumers enjoy top Chinese imports and low prices • Reduction in tension between China and Taiwan is of strong political and economic interest to the US

9. U.S.-China Bilateral Relations Granting permanent normal trade relations was in the U.S national interest because: • Firms for Europe, Japan, Canada Australia would gain decisive advantage over U,S, Firms specially in the service sectors that China has agreed to open • Failure of the U.S. Congress to grant China would undermine the position of reformers in China • Failure of the U.S. Congress to grant permanent normal trade relations to China undermine the position of U.S.negotiators • Drafting of the protocol of accession and the report or the working party were the two key documents

10. Affect of Accession on Key Chinese Industries Steel Telecommunications Pharmaceuticals Semiconductors Financial & Legal Institutions

11. China’s Steel Industry PRODUCED 143.3 millions tons in 2001 (Largest producer in world, 13% increase from 2000) • Joint Ventures • Increased unemployment rate in steel industry • Promising market size • Dumping problems from Chinese steel companies are still a problem for U.S. steel industry • Demand for steel in China has increased relative to Western Europe, and the United States • If trends continue, China’s steel industry will become increasingly incapable of serving the country’s needs.

12. China’s Telecommunication Industry • Mobile phone users: • Estimated current 145 million users • 55 million new mobile users in 2002, a reduction from last year's 60 million • If the 20% estimated growth rate materializes the result will be more than 260 million subscribers by 2005 • In 2001, China surpassed US in the number of mobile phone users • Foreign companies’ will experience increased access to ownership in mobile and fixed phone companies’ after China joins WTO • Tariffs on high-tech imports will be eliminated by 2005

13. China’s Pharmaceuticals Industry • Imitations, patent piracy - push to develop new drugs instead of copying • Foreign pharmaceutical companies' products have higher prices, compared to local companies’ generic drugs. • Traditional medicines account for almost half of all medicines sold in the country. • Western companies will be able to enter China, but it's hard for Chinese companies to meet their requirements in western markets. • Changes in the demographic profile of the Chinese population & increased awareness of health-related issues

14. China’s Semiconductor Industry • Biggest semiconductor producer in the world and semiconductors will be duty free in 2005 • Sales of semiconductor equipment in China should reach US$4 billion this year and grow to US$7 billion by 2003 • There are publicly announced goals of building 14 to 18 new manufacturing facilities over the next ten years • China is the world's No. 3 I.T. hardware producer. It has overtaken Taiwan and is now challenging Japan

15. China’s Banking Industry • China's banking system is dominated by state-owned commercial banks • China plans to open up its banking sector to international competition over the next five years as part of its entry to the WTO • Citibank was first foreign bank to offer foreign currency services to mainland customers • Until WTO foreign banks could conduct business only with non-Chinese residents or foreign companies

16. Securities Industry • China's stock market is currently the second largest in Asia • China's bond market is also one of the largest in Asia, while it is overwhelmingly dominated by government bonds • China has committed on JV securities houses and fund managers in the WTO deal • The opening-up could result in: • Short-term pains for securities houses and increased volatility for stock market • Long-term benefit on the modernization of China's stock market • China's stock market is expected to nearly quadruple over the next 10 years • A collapse of China's stock market is not anticipated

17. Biggest Foreign Policy Challenge for U.S. • US Trade Deficit with China • The bilateral trade between China and U.S. has grown rapidly since WTO with the US accumulating an imbalance 84 billion • In 1999, the U.S. imported approximately $81 billion in goods from China and exported $13 billion – a six-to-one ratio of imports to exports that represents the most unbalanced relationship in the history of U.S. trade • It will take 50 years before the U.S. trade deficit with China stops expanding • In reality, the deficit path would lead to a financial crisis long before the deficit with China reached anything approaching $600 billion • China is committed but changing old laws is a massive job • China's protocol of accession will be a document so complex it will generate its own army of legal, accounting and policy experts to deal with it. • The commitment to WTO is clear at the central level of the Chinese Government, but there is an absolutely massive job to do in rewriting laws, regulations, and commercial structures • Cooperation of local authorities • Chinese leaders say that they pursued Word Trade Organization (WTO) membership as a means to continue China’s rapid economic growth, which would also help the Chinese Communist Party maintain its monopoly on power • The U.S. Government has a limited understanding of the perceptions held by Chinese leaders and the Chinese people of the US

18. Conclusions • China’s import of U.S. high-tech might explode ($970 million in 1992, $4.6 billion in 2001) • Increased anti-dumping suit disputes • Foreign auto makers will be able to sell cars anywhere • Foreign banks will be able to operate anywhere in the country by 2005 • Distribution will improve • Foreign accounting, legal, engineering, management consulting, and medical service outfits will be able to have majority ownership • Telecom companies will be able to invest directly in phone and internet services • $2-a-day labor will effect nations whose exports rely on cheap labor (Mexico, India, Indonesia etc..) • China is a big threat for high-tech manufacturer Asia countries, Beijing has set machinery and electronic products to $360 billion by 2005

19. Sources • GDP discussion: • http://www.pitt.edu/~tgrawski/papers2001/gdp912f.pdf • http://www.dfat.gov.au/publications/catalogue/eaaubp8.pdf • http://english.peopledaily.com.cn/200207/27/eng20020727_100429.shtml • http://www.hhs.se/personal/suzuki/a-English/China.html • http://www.wto.org • http://china.jamestown.org/pub/view/cwe_001_002_001.htm • http://www.brook.edu/views/testimony/20010509.htm • http://www.citizen.org/trade/china/index.cfm • http://special.scmp.com/chinawtobid/news • http://www.fpif.org • http://www.uscc.gov • http://www.brookings.orghttp://www.csis.org/http://www.law.georgetown.edu/iiel/