Transcript 1.5 China and the WTO 2

Michael Ochs
Econ 508
Belton M. Fleisher
China and the WTO
Geography
Located in E. Asia
 4th largest country in the world (size wise)
 Terrain: mostly mountains, high plateaus,
deserts in west; plains, deltas and hills in
the east
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Population
1.3 Billion
 Age 0-14: 21.4%
 Age 15-64: 71%
 Age 65 and older: 7.6%
 Median age in China is 32
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Economy
 4th
largest GDP (ppp)
 9th largest GDP Real Growth Rate
 GDP By Sector:
-Agriculture: 14.4%
-Industry/Construction: 53.1%
-Services: 32.5%
Labor Force
Largest Labor Force in the world (791.4
billion)
 Half of Labor Force is in agriculture
 Industry and Service provide the other
50%
 Unemployment rate is 4.2%
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Trade
4th largest in exports
 4th largest in imports
 Main Trade Partners:
-USA
-Japan
-Hong Kong
-South Korea
-Taiwan
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What is the WTO?
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World Trade Organization
International, multilateral organization which
sets rules for global trading system
Resolves disputes between member states
As of December 2005, there were 150 member
states
All member states must be signatories to its
about 30 agreements.
Main goal is to encourage smooth and free trade
China entry to WTO
China was voted in as a member on November
11, 2001 but became an official member one
month later, December 11, 2001
 In order for China to gain member status, China
had to agree to separate negotiations with all of
the current WTO members
 China tried to get member status for 15 years
prior to 2001
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Timeline for Qualification
1986 -- China applies to join General Agreement on Tariffs and Trade (GATT),
predecessor to WTO.
1989 -- China's suppression of pro-democracy demonstrators in Tiananmen Square on
June 4 derails negotiations.
November 1995 -- China unveils economic and trade reforms aimed at winning U.S.
backing to enter the WTO. It plans to slash import tariffs by 30 percent and allow joint
venture companies to be set up.
April 8, 1999 -- President Bill Clinton and Premier Zhu Rongji sign a joint statement in
Washington welcoming substantial progress and committing them to completion of a
WTO deal by the end of the year. The gap is closed on about 90 percent of WTO
issues.
May 7, 1999 -- China freezes WTO talks after NATO forces accidentally bomb the Chinese
embassy in Belgrade.
September 11, 1999 -- Clinton and Chinese President Jiang Zemin agree on the sidelines
of the Asia-Pacific Economic Cooperation (APEC) forum in New Zealand to resume
WTO negotiations.
November 15, 1999 -- U.S. and China announce a WTO pact. China agrees to open a wide
range of markets, from agriculture to telecommunications. Clinton must persuade the
U.S. Congress to grant China permanent normal trade relations (PNTR).
Timeline for Qualification
May 19, 2000 -- The European Union signs a WTO accession pact with China
October 10 -- Clinton signs a law giving China normal trade status with U.S.
January, 2001 -- Further multilateral talks end in acrimony as China and some WTO
members disagree on farm subsidies.
June 9 -- China and the U.S. announce consensus on issues holding up China's entry,
including farm subsidies, after meetings on the sidelines of an APEC trade ministers'
meeting.
June 20 -- The European Union says it has resolved outstanding bilateral issues with
China over its accession.
September 14 -- WTO members agree on terms for China's entry at an informal meeting,
clearing the way for the nation to join by the end of the year.
November 10 -- Trade ministers from across the world officially approve China's entry.
The move was approved unanimously at the WTO meeting in the Gulf state of Qatar
December 11 -- China ends its 15-year quest to join, officially becoming a fully-fledged
member of the international trading system.
http://archives.cnn.com/2001/WORLD/asiapcf/east/09/18/china.wto.timeline/
What has been changed/reformed?
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China’s entry into the WTO set in motion the most far-reaching
reforms since Beijing since 1978.
Over 1100 laws and regulations have been changed since 2001
China can not impose one level of barriers (e.g., tariffs) against one
member country and another level for others
China will participate in the WTO's dispute settlement system
Manufactured goods saw the largest decrease in tariffs.
Tariffs were eliminated on computers, semiconductors and other
information technology products in compliance with the Information
Technology Agreement
In agriculture, it has pledged to bind all tariffs and reduce them
from an average level of 31.5 percent to 17.4 percent
Foreign car makers will be able to distribute and retail vehicles on
their own, and provide financing to buyers.
What has been changed/reformed?
China has promised to open its telecommunications,
financial services, distribution, and many other industries
to foreign service providers.
 Pledged to apply its trade policy uniformly across the
country and to enforce only those laws, regulations, and
other measures that have been published beforehand.
 Agreed to eliminate all prohibited subsidies (including
those to state-owned enterprises), liberalize trading
rights, and require state trading companies to conduct
their operations in a commercial manner.
http://www.imf.org/external/pubs/ft/fandd/2002/09/adhi
kari.htm
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WTO Entry Boosts Economy
GDP grew by 7.9% in the year following entry to
WTO
 Increase of 18.4% in trade volume with the
United States after one year
 China’s exports increased by 19.7% after one
year
 Due to improved trading environment, China
became the 4th largest trade body in the world
behind only the United States, EU and Japan
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Foreign Investment
Influx of foreign investment has increased
rapidly since entry to WTO because of increased
confidence from multinationals
 China experienced an increase of 22.55% in
foreign direct investment one year after WTO
entry
 Foreign Investment has exceeded the United
States, making the country the largest foreign
investment destination in the world
 Low cost labor and vast market, which provide a
great scope for profit, make investors confident
in investing time and resources into China
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Private Sector
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Private Sector has seen rapid growth after being discriminated
against in the past
Private Sectors have been barred from direct foreign trade
Financing had been blocked by government policies which blocked
growth
WTO policies forced China to treat all enterprises, whether state
owned or not, equally
All domestic enterprises can trade freely and idependently in foreign
trade
In Zhejiang Province, for example, 80 % of the 1,700 enterprises
that were granted the right to conduct foreign trade this year are
private firms. In the first nine months of this year, the foreign trade
volume of those private companies was 3.5 times that for the same
period last year.
Benefits for United States:
Agriculture
China’s entry into the WTO will cut barriers to the
sale of American Agricultural products
 This agreement will expand America’s access to a
market of over a billion people
 Tariffs have dropped from an average of 31% to
14%
 beef, poultry, pork, cheese, and other
commodities will experience a more significant
drop
-China is the world’s largest consumer of pork and
up until recently they have had high import tariffs
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Tariff Reductions
What does the future hold for
China in the WTO?
Economic growth will continue and more reforms will be
made
 China will have access to advanced technology
 By 2010, all of China’s tariffs will eventually be reduced
to 15%
 Banks will begin to launch massive market oriented
reform programs to prepare for competition from
outside markets
 Business standards will continue to rise
 Chinese citizens will begin to receive 3 key things:
1. More Rights
2. Better Government Services
3. Equal Treatment
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Final Question
As China’s economy grows, so does their
demand for energy. This is reflected
through examples like cnooc’s attempted
acquisition of Unical and China’s
involvement with anti-American nations
like Iran and Sudan.
-How will China’s acquisition of energy in
anti-American countries change the ChinaU.S. relationship?
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The End