China and the WTO the Impact of Becoming a Member of the WTO Term Paper

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Decontamination Plan

China and WTO -- the Impact of Becoming a Member of WTO

In 2001, China became one of the last countries to join the World Trade Organization (WTO). In accordance with WTO rules, which will ensure the integration of China into the world economy in addition to offering a more predictable environment for trade and foreign investment, China equally agreed to undertake a series of significant commitments that will not only open its economy but will also liberalize its regime. In this paper, I will examine the impact of China's membership of WTO. A fundamental premise to begin this analysis is to examine why China needs WTO.

China vs. WTO -- Potential Benefits

China can be considered to be a significant success story due to its explosive economic expansion over the past two decades. The country is equally a prosperous one given that its growth rate which averages nearly 10% per year and which has created a vast array of new investment and job opportunities -- a growth rate that was fuelled by the county's various reform efforts. It is important to note here that Chinese government's strategy was to transform the country from a planned economy to a more market-oriented economy. This strategy have made China to influence almost everything in the global economy because its reforms upgraded the country's status to that of a trading powerhouse whose activities has reverberated throughout the world market (Adhikari & Yongzheng, 2002; Hertel & Walmsley, 2000; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004).

From an economic standpoint, China's rapid growth is not cost-free. Centrally speaking, some of the structural weaknesses of the Chinese economic system, especially those that are related to state-owned enterprises, finance and agriculture, have been exposed by the country's rapid-fire growth rate. As such, the country faces an inevitable dilemma -- how to sustain the dual momentum of structural reform and economic growth simultaneously. This dilemma is predicated on the notion that a whole new set of economic challenges and difficulties will be unleashed in the country if either of this two is allowed to stumble. The implication of this is that, in many respect, to sustain the pace of economic growth and reform, the best option for China will be to become a member of WTO. In other words, WTO membership has become critical for China and other countries of the world given the level of complexity and interconnectedness of the world economy. As a member of WTO, China will enjoy the privilege of being one of the major players in the formulation and implementation of the rules governing global trade and finance (Adhikari & Yongzheng, 2002; Hertel & Walmsley, 2000; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004).

In addition to the above, the country can use WTO dispute settlement system to defend all of its trade interests. This will be very beneficial for the Chinese exporters given the high degree of assurance and certainty that their trading partners will become obliged to obey WTO rules. This further means that Chinese products will not be discriminated in the home markets of every WTO members. Hence China will become more attractive to foreign investors as a result of its WTO membership. It is also worth pointing out that more high paying jobs, more technology transfers and more government tax receipts will be the resultant outcome of more investment in China's economy.

It is equally hoped that increased competition in every sector of China's economy will be facilitated by its WTO's membership. Increased competition will bring a lot of benefits for the Chinese consumer. First, they will have access to a larger range of high quality goods at lower prices. Second, greater awareness of an appreciation of intellectual property rights and consumer right are virtues that generally emanates from competition. The Chinese economy will equally gain from increased competition which brings about more gains in efficiency and productivity -- an outcome that will not only strengthen the economy but will equally make Chinese firms to become more competitive in the world market. Furthermore, foreign companies will naturally want to bring an expanded range of services into China's economy given that it is now a full member of WTO. The Chinese homegrown service sector of the economy will be stimulated by competition in this area, a situation that will provide a broader range of choices both for the companies and the Chinese consumers (Adhikari & Yongzheng, 2002; Hertel & Walmsley, 2000; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004).

In this section, I have succeeded in explaining the benefits to China of becoming a member of WTO. In the following section, I will examine China's commitments as well as the opportunities and risks associated with its WTO accession.

China's WTO Accession -- From Margins to Mainstream

My organizing framework in this section will be to discuss China's commitments as a member of WTO. This will then be followed by an analysis of the country's opportunities, and market prospects of WTO accession. This, in turn, will be followed by an examination of the potential implications of the country's increased participation in world trade.

China's Commitments

Even though China plans to reduce its tariff level as a condition for joining WTO, this act is simply a continuation of a longstanding trend in the country. Broadly speaking, China started reducing its tariff as well as nontariff barriers since the 1990s. In addition, majority of Chinese imports were not subjected to any tariff in 2000 because past reforms in the country introduced widespread import tariff exemptions, particularly for the processing trades and foreign investment. It is important to note here that by the mid -- 1990s, China's domestic prices for most traded goods had largely converged with international prices due to the aforementioned reforms, as well as the Chinese government's continued domestic price liberalization (Adhikari & Yongzheng, 2002; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004).

When China became a member of WTO, it was then required that the country further reduce its average tariff to as little as 10 per cent by 2005. The country responded in January 2004 by lowering its average tariff rate by 0.6 percentage points to 10.4%. Since the country agreed to eliminate import quota, licenses and other trading barriers, the overall trade regime in the country was planned to be increasingly tariff-based. It is sufficient to note that the transparency of China's trade regime will be strengthened by its gesture that involves the substitution of import quotas with tariff rate quotas (TRQs) particularly for agricultural products (Adhikari & Yongzheng, 2002; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004).

It is worth pointing out that in order to review China's compliance with the WTO agreement, a special WTO procedure known as the Transnational Review Mechanism (TRM) was established to undertake this special assignment. According to the provisions of China's Protocol of Accession, a review of China's compliance in the first eight years of its WTO membership will be conducted by the TRM on an annual basis. The most striking thing about such reviews is that they provide opportunities for stock-taking on past progress as well as the areas that needs further efforts and improvements. In other words, they are not merely a "pass or fail" tests. The results of such reviews conducted separately by sixteen WTO sectoral councils do not, in any way, indicate or reveal any major source of contention with respect to China's early implementation of its WTO commitments. However, some of the China's trading partners did express some concerns in specific areas (for instance, intellectual property, finance and agricultural sectors). Such concerns are generally related to either transparency of the legal framework and enforcement issues or delays in implementation of the WTO requirements for the affected areas. Nevertheless, no formal complaint within the WTO was filed against China as of 2003. Hence, a widely shared assessment is that the problem or issues related to these areas do not reflect a broad pattern of non-compliance -- instead they merely reflect primarily technical difficulties (Rambaugh & Blanche, 2004).

Broadly speaking, China's compliance will be continually tested in the period ahead even though it had already implemented the key changes since its WTO accession. While the elimination of nontariff barriers (particularly in the country's agricultural sector) is proceeding, tariff reductions have taken effect in the country as scheduled. In addition, to comply with WTO principles, the Chinese government has made a number of fundamental changes to the country's legal and regulatory framework particularly at the central government level. For instance, the country has not only eliminated a significant portion of the requirements related to foreign currency financing, local content or export performance but have equally undertaken and implemented an extended foreign direct investment (FDI) regime (Adhikari & Yongzheng, 2002; Hertel & Walmsley, 2000; Ianchovichina & William, 2002; Rambaugh & Blanche, 2004). Nevertheless, China's commitment in this regard, has one important implications. China has to effectively tackle a dire need with respect to ensuring adequate enforcement of…[continue]

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