China joins the WTO: how, why, and what now? The overall, long-term, effects should be positive, but don't expect too much, too soon - Statistical Data Included

Business Economics, April, 2002 by Penelope B. Prime

This article analyzes the process and probable effects of China's entry into the WTO from several different angles. The prospect of China's membership has been controversial, both within China and in the international community, slowing the process considerably. A key factor pushing China's application forward has been China's significant move toward a market-oriented economy in the 1990s. However, adapting to the negotiated WTO package will be only part of the major changes China is likely to experience in the coming decade.

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The story of how China joined the World Trade Organization (WTO) is, on one level, a simple one: the advanced nations, led by the United States, let China in once they felt its economy had reformed sufficiently to meet WTO requirements. On another level, the technicalities of the bilateral and multilateral negotiations were by no means simple. China was too advanced in some sectors for WTO member countries to be comfortable giving it developing country status, which brings with it loose timetables and "differential and more favorable treatment" for meeting WTO obligations. (1) But China was also not a developed economy by most measures, as its delegation insisted. Hence every aspect of China's entry has been carefully negotiated, adding to the time it has taken for its application to be completed. In the end, the full protocol incorporated thousands of lines of tariffs and specific agreements, covering approximately 1,500 pages (O'Neil, 2001). (2)

Another piece of the story is that certain leaders in China championed this cause unflaggingly. In particular, key members of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) believed strongly in China formally re-joining the international economy. Premier Zhu Rongji, who has a reputation as a reformer, was a key supporter and probably the main reason the issue was kept alive. The Republic of China (Taiwan hereafter) had been an initial member of GATT when it was formed in 1948 but then resigned in 1950 in the aftermath of the civil war and the move to Taiwan (Tucker, 2000). The People's Republic of China (China hereafter) applied to regain its seat in 1986. The final chapter was not written until November 11, 2001, when the WTO trade ministers gave formal approval for China's membership at their annual meeting, with Taiwan's approval following a day later.

Somewhat unexpectedly, the terrorist attacks on the U.S. in September 2001 led to a flurry of negotiations and compromises that cleared the final hurdles for China's membership. President Jiang Zeming, in his call to President Bush immediately after September 11, reportedly asked that this issue among others not be lost in the events that would follow the attacks. The tenacity of China's leaders' push to join WTO over a decade and a half is remarkable in the light of difficult transition challenges and serious opposition at home.

Why China Wanted to Join

Faced with the complexities of joining WTO, and the fact that joining meant China's laws, trade policies, and domestic business regulation would have to change dramatically, why would China's leaders place such importance on this step? Part of the answer can be found in the dynamics between reforms in China, world events, and policy decisions made by WTO member countries, in particular the United States.

While China is not a democratic or particularly open society, people have competing interests that shape what happens there. Although it is not always apparent from the outside, Beijing does not represent all of China; MOFTEC does not represent all central ministries; and Zhu Rongji does not represent all of the central leadership. Debates, uncertainty, and foot-dragging within China about the benefits of changing to fit the norms of international capitalism are additional reasons why the process of joining took so long. Once a consensus was reached at the highest levels of leadership in early 1999, however, formal debate over the wisdom of joining was forbidden. Prohibiting debate angered academics, journalists, and others who understand the importance of airing different views; and the prohibition of debate did not end the opposition.

The roots of opposition are tied to the very beginnings of reform. In 1978, China had no foreign investment and very little trade. Contrast that with the present, where China has been the largest recipient of direct foreign investment in the developing world since 1992 and is among the top ten trading countries in the world. (3) Although the reforms that opened China to international markets were gradual, by the mid-1990s foreign invested enterprises began to gain serious market share. Coca Cola and Pepsi had basically taken over the entire soft drink market in China, and the presence of others like Procter & Gamble and Volkswagen was ubiquitous with products and advertising. In addition, multinationals looked invincible and overpowering. Some popular examples were that Microsoft's capitalization was one and a half times the size of both the Shanghai and Shenzhen stock exchange put together, and Wal-Mart's annual sales represented forty percent of China's total sales revenue (Wang, 2000, pp. 60, 62).