China Accession to the World Trade Organisation - Research Paper Example

Research Essay - China and WTO Name Class Unit Introduction China accession to the World Trade Organisation (WTO) took place in December 2001 (Yang, 2003). The process was a major landmark for china integration into the world economy. The China quest to join WTO had taken 15 years a process which acted as a learning experience. The 15 years in which Chinese government had taken to join WTO involved a lot of negotiations which took a long time unlike from other countries. The length taken by China to join WTO was due to several barriers. One of the challenges that China faced was bringing down its tariffs in areas such as agriculture and the Non-Agricultural Market Access (NAMA). The industrialised nations wanted China to reduce tariffs in these areas while at the same time making sure that they protect their sectors using subsidies in agriculture and export. China had high tariffs in the agriculture and manufacturing sector before joining WTO. There were ideological differences between China and US. For example, China wanted the reforms to be carried out through a gradual process while US wanted rapid changes. China reduced the tariffs from 47.2% to 21.5% in a period of six years. Though this was a major step, the rates are still higher than other developing countries. This made china to commit to tariff reduction to be in line with other developing countries (Wang, 2000). There was a push for china to liberalise trade and foreign investment before becoming a member of WTO. These factors among others led to the slow accession of China to WTO (Rumbaugh & Blancher, 2004). WTO has six objectives on the members regarding trade. The body objectives are; setting rules for international trade, set a forum for negotiation and enable trade liberalisation, resolve trade disputes, increase transparency in decision making, cooperation with other global bodies engaging in global economic management and help the developing countries to gain from a global trade system (Mavroidis, 2012). China becoming a member of WTO had its effects on the international community and the advancements objectives of the WTO. This research paper will analyse whether China accession to WTO was a positive move by the international community and whether it have contributed to the advancement of the WTO objectives. China domestic preparations and their impacts Before joining WTO, China underwent domestic preparations. These preparations acted to help advance the WTO objectives. The domestic preparations that were carried out by China were in two sets. The first set was related to the commitment while the second set was related to structural and institutional adjustments. In order to be accepted by the WTO, China had to commit itself to several rules and standards. The first set of commitments involed adhering to the international rules and practices while the second set involved opening the country market to the outside world. To make these commitments, china was required to make major structural changes. The Chinese market economy was forced to evolve. Prior to joining WTO, the Chinese market lacked transparency. In the economic reforms, China was forced to commit to the international rules and regulations. The country had to revise their rules in accordance to the requirements set by the WTO (Rumbaugh & Blancher, 2004). This led to the changes in the existing market rules and regulations. Chinese government opened its market to the outside world, hence benefiting from increase in the foreign direct investments (FDI). The increase of the FDI has made China imports and exports to increase. International community has benefited by accessing the Chinese market. At the moment, FDI in China accounts to more than 50% of its imports and exports. The main concern of the FDI before china joined WTO was the lack of transparency and protection as the legal system was not predicable and stable. When China joined WTO, the legal system was made more transparent. The process made the Chinese legal environment to be more predictable, making it easy to set FDI (Rumbaugh & Blancher, 2004). Non discriminatory treatment Another positive effect of China joining WTO was the non-discriminatory treatment by China to all members of WTO. This meant that china was to accord fair trade treatment to all foreign investment irrespective of whether they had invested in China. This is a process that involved China making commitments such as elimination of the dual pricing systems. The Chinese government phased out the existing restrictions on trade and made more arrangements in the administration, which favoured open trade to the international community (Fewsmith, 2000). Creation of good FDI environment The Chinese government worked hard to make sure that the environment for FDI was improved after accession to WTO. The Chinese government had realised that FDI was key to economic growth. The legal and political environment was improved to enable FDI. The international community benefited from simplified procedures that the government sets for approval of FDIs in China. The growth of the FDI required an environment that was more legal and opens for them to operate smoothly. To enable this, the government undertook policy changes in line with the WTO requirements. The changes in policy were part of the provisions required by WTO as part of Protocol of Accession. According to WTO, transparency is critical for certainty in business. For the foreign firms to invest in a country, they need laws which are transparent in their operating environment. According to the protocol of accession for china, it was required that china undertakes measures to enforce all laws that are utilised in other WTO members. Chinese government was required to make official publications of all laws, regulations and measure and give a reasonable period before their implementation. The country was also required to ensure that they designate an enquiry point where all information and laws could be made available. The enforcement of transparency according to WTO guidelines helped in setting up environment where international community could set up a business (Wang, 2000). Judicial review Another reform that helped the international community and advanced WTO objectives was the independent judicial review. The government advocated for a transparent legal system where the companies could access law without discrimination. The decision for equal access to the law made it possible for foreign firms to invest in China confidently. The law was to be applied without favouring any side and companies were given the right to appeal. The way national laws were implemented in China was a major setback for foreign investors prior to joining WTO. The country ensured that their local rules and regulations conformed to the obligations under the WTO. The commitment of the country to observe international laws helped the country come up with a market based economy. The changes were not only important to the Chinese government but also helped to enhance Chinese image in the global arena (Rumbaugh & Blancher, 2004). Opening of service sector As the Chinese government joined WTO, the country service sector was opened up. Prior to joining WTO, the country service sector was underperforming with a GDP of 35% lower than most of the developing countries. The country opened up the sector to foreign firms with hope that it will flourish as its manufacturing sector. Foreign firms were able to invest in the country’s service sector. Many foreign firms have benefited in the Chinese service sector in area such as transportation, tourism and telecommunications (Wang, 2000). The country agreed upon accession to the WTO to liberalise the banking sector. This meant that foreign banks could open up branches in China. The opening of the banking sector enabled the country to benefit from development of commercial credit culture. This is a measure that benefitted international banking sector (Rumbaugh & Blancher, 2004). Reduction in trade control by Chinese government In the second set of domestic preparation to accession in WTO, china made major changes in order to be in line with WTO requirements. The next sets of reforms were in line with GATT rules. The country made a commitment to decentralise its foreign trade. The country had previously controlled all the trade through the ministry of foreign trade. The central government had controlled almost 98% of all trade in the country. Once the country became a member of WTO, it had to cease the control of trade (Mavroidis, 2012). The country also eliminated the export subsidies. This meant that all foreign trade corporations had to be responsible for their loss. The country opened its market to competition and increased transparency in foreign investment. The accession of the country to WTO enabled was meant to bring mutual benefits between Chinese government and other members of the body. The entry also helped a steady development in the world economy (Wang, 2000). With the entry to WTO, the country highly protected industries were opened to competition. The country committed that the foreign firms could own up to 50% of the value added services. Chinese government had also accepted WTO principles which advocated for competitive regulatory policy in the telecommunication sector. This helped in establishing a legal framework to regulate the telecommunication industry. The obstacles that existed to the foreign firms were eliminated. The foreign firms could participate in the industry through free and fair competition. The international community was then able to participate in the Chinese telecom industry through investment. All limitations and restrictions to foreign firms in the telecommunication sector were eliminated leading to a free and fair competition (Rumbaugh & Blancher, 2004). Environmental concerns China entry into WTO led to increased production due to market liberalisation. The country had increased their production which meant there were environmental issues to be looked at. WTO has an objective to liberalise the world trade, which also increases the level of pollution. The country had to take measures to ensure that increase in production does not affect the environment. The impacts of the country accession to WTO had profound effects on the environment. The six most affected sectors are agriculture, automotive, energy, forestry, textiles and marine. There have been several environmental impact assessments done by the WTO to ensure that China liberalisation of market does not have adverse effects on the environment. The involvement of WTO in the Chinese environment impacts shows that the country accession helped to advance WTO objectives in liberalisation of trade and attending to its consequences (Rumbaugh & Blancher, 2004). Advancement of WTO Chinese accession to WTO helped the organisation in its bid to be universal. WTO cannot be universal unless all the potential members are in it. Chinese economy had reached to a level where it could not be ignored in the global arena. World trade requires solidarity and hence the need for the developing countries to join WTO. One of the objectives of WTO is to enable trade liberalisation globally. The Chinese government had not liberalised its trade prior to joining WTO. By becoming a member of the WTO, Chinese government opened up its trade. The liberalisation of the Chinese economy helped in advancing the WTO objective (Rumbaugh & Blancher, 2004). Tariffs China market commitments were able to help the international community in a great way. To enable free market access, the Chinese government made several commitments. One of the commitments was the elimination of the non-tariff measures which were in its agricultural sector and make all tariffs in the sector binding. The country tariffs on the agricultural sector were bound. This meant that there was a set ceiling in which the country could not exceed its tariffs. The market access opportunities in China have increased for the international community. Previously, the market opportunities in China had been protected through the NTMs. NTMs used the Tariffs Rate Quotas (TRQs) which is a two tier tariff system. Through the use of the TRQs, a lower tariffs rate had been imposed on the imports on a specified quota. WTO discourages member countries from using any TRQ commitment (Wang, 2000). Increase in global trade Since accession to the WTO, China has become the largest exporter in the manufacturing sector among the developing countries. The country has low labour costs, which makes it possible for the manufacturing sector to reduce production costs. The country trading volume made it the fifth largest exporter globally which made it surpass other global economies like the United Kingdom. These statistics shows that the accession to WTO enabled the international community to invest heavily in the country. The country has the largest FDI after the United States of America. The increase in the country exports, which is an indicator that WTO has fulfilled its objective in helping the developing countries access the global market. Chinese products have been able to enter the global market in mass as opposed to when it was not a member of the WTO. Chinese competitive position in the global economy has also been elevated (Rumbaugh & Blancher, 2004). Prior to joining WTO, China exports faced opposition in some markets who saw the country to engage in unfair trade terms (Fewsmith, 2000). The country was not a member of WTO hence did not engage in fair trade agreements set by the members. Most of the countries dismissed trading with China in order to protect their domestic industry. Upon accession to the WTO, the world perception of Chinese trade changed. The country was seen as a fair trading partner (Mavroidis, 2012). The country phased out the quotas, which prevented imports. These changes apart from increasing exports, they improved imports, making the international community to benefit in the process. The country was able to have credibility to the international community and hence ability to deal with the trading issues (Rumbaugh & Blancher, 2004). To join WTO, china had to make a lot of agreements with international community which led to change in a lot of policies. The deal on policy change was required for them to be accepted as a member by the international community. The country had to stay within the WTO set boundaries which meant that it had to uphold all the WTO objectives. This meant that in order for china to remain as a legitimate member of the WTO, they had to follow all the set policies and guidelines (Wang, 2000). Trade deficit Chinese entry into WTO has been a major milestone for the international community. The country had to change its policies which affected free and fair trade and ensure the market is liberalised. The country had a large trade deficit with other countries as it exported less prior to joining WTO. Upon entry to WTO, the international community expected that the trade deficit would be reduced. One of the countries which were mostly affected by China trade deficit was US. China had engaged in trade practices which involved more exports and fewer imports which US expected to be eliminated with reduction in trade deficit. At the moment, market liberalisation has reduced trade deficit (Mavroidis, 2012). China accession to the WTO led to a greater impact on the East Asian economies. The country is the largest economic power in East Asia. The economies in East Asia were able to increase their access to the Chinese domestic economy. There has been an increase in the market competition and trade predictability among China trade partners. China has a large market which has been powerful driver for the East Asian economy. The access to Chinese economy by the East Asian countries has enabled their increased growth (Rumbaugh & Blancher, 2004). The trading partners have thus benefited immensely through increased trade. The countries have been able to increase their exports to China since its accession. Reduction in Trade protection has helped the country to lower their export prices, making them to be more efficient in supplying. At the moment, multinational firms have been able to heavily invest in China and other East Asian countries. China accession to the WTO will also help other countries to adopt its model as a major developing country. The countries that want to follow the Chinese model will be able to learn how to avoid problems by adopting a model that has worked (Fewsmith, 2000). Conclusion In conclusion, the paper have been able to establish that China accession to the WTO have been a positive move for the international community and it have indeed contributed to the advancement of the WTO objectives. The entry of China into WTO showed that the international community recognised its growing economic power. The move enabled the international community to benefit from the large Chinese market with its liberalisation. Prior to joining WTO, Chinese market had been under government control in most sectors. There was a large balance of trade before joining WTO which meant that China exported more than it imported from most countries. Chinese government had to make commitments to WTO which enabled the advancement of set objectives. The country had to remove restrictions which have discouraged FDI in china. At last, the decision was able to open the Chinese market and allow free and fair trade. Being part of the WTO, China has an obligation to follow all the set rules and regulations which promotes the set goals by WTO. The Chinese market is now open and has the highest number of FDI, which have increased the country’s production and international participation in trade. From the research, the decision by the international community to allow China into WTO has benefitted all and advanced the WTO objectives. References Fewsmith, J 2000, ‘Politics of China’s Accession to the WTO’, Current History, 99(638), 268- 273. Mavroidis, PC 2012, Trade in Goods (2nd ed.), Oxford University Press, retrieved 28 August 2014, books.google.com/books?isbn=0191636606 Panitchpakdi, S & Mark, C 2002, China and the WTO, J Wiley & Sons Asia, Hong Kong. Rumbaugh, T & Blancher, N 2004, ‘China: Internatonal Trade and WTO Negoatitions’, IMF Working Paper, pp: 1-24. Wang, Y 2000, ‘China’s Domestic WTO Debate.’ The China Business Review, p. 54-62. Yang, Y 2003, ‘China’s Integration into the World Economy’, IMF Working Paper, p. 1-30. Read More