CHINA - Asked to join the WTO, didn't it?

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Washington Post

China Asked To Join The WTO, Didn't It?

By Steven Mufson

Sunday, April 29, 2001; Page B01

Last autumn, China achieved a goal its government had been aiming forsince 1986 -- it finished lining up the necessary agreements to get into the World Trade Organization. It had won permanent normal trade relations from the United States. It had ironed out differences with the European Union. All but one of the then-137countries in the WTO had approved its membership.

Everything was set for the communist giant to join the ultimate capitalist club, ushering in a new era of foreign investment and economic progress for China. A Hong Kong newspaper trumpeted it as the "biggest milestone since 1978," when Maoism gave way to Deng Xiaoping's reform campaign.

Except it hasn't happened.

What went awry between the champagne toasts of October 2000 and the sour standoff of today? Why is the U.S. Congress likely to open a new round of debate over a trading status that was supposed to have been permanently settled seven months ago?

The answers to those questions reveal some important truths about a very complex country.

What happened is that the Chinese Communist Party leaders -- despite what we journalists routinely call a "monopoly on political power" -- have been reluctant to force the trade agreement down the throats of the country's farmers, laborers, corporate bureaucrats and other entrenched interest groups. The moment China joined the WTO it would have to eliminate tariffs and other barriers that have protected these groups from competition with well-financed, high-tech international conglomerates. And so China has not put the finishing touches on its WTO application, opting to haggle over a handful of points -- and thus delay the need to confront vocal trade pact foes at home.

Americans often have a black-and-white image of China. They see a government that detained 24 American military personnel for 11 days last month, and which has missiles aimed at democratic Taiwan. They read about government suppression of the Falun Gong, police detentions without charge or trial, and the Tibetans' futile appeals for greater autonomy and religious freedom. And they think, on such evidence, that the Chinese government can afford to disregard the will of the Chinese people.

But that's not entirely true. A few years ago, an American economist told me about visiting a key Communist Party elder named Bo Yibo, and telling him how China, then suffering rapid inflation, should use monetary policy to slam on the brakes. Afterward, making small talk, the American asked Bo what it was like to help lead such a huge country. Bo said, "It is like being at the head of a parade with 1.2 billion people behind you and then having some smart foreigner tell you to stop the parade."

Bo's point was plain. China's leaders have to worry about those they govern. The situation is far different than it was 25 years ago, when Mao Zedong could cling to paramount status even after his disastrous Great Leap Forward campaign led to the starvation of tens of millions of people.

Today, much like democratic governments, the ruling Chinese Communist Party and its official hierarchy have to respond to domestic constituencies, albeit in ways far different from the way we do here. That's why, when a deadly explosion took place last month in a school where students had been put to work making firecrackers, popular outrage forced Chinese Premier Zhu Rongji to apologize and promise an investigation. That's why, when villagers upset over arbitrary local taxes rioted recently, the government didn't just send in troops -- President Jiang Zemin also issued a conciliatory statement about standardizing rural taxes.

And that's why the WTO deal hasn't gone through.

The biggest of those domestic constituencies is the country's agricultural sector. Farming has also wielded tremendous power over trade positions in such countries as the United States and France, but in China, farmers have even more clout: Forty-seven percent of Chinese workers are in agriculture -- compared with less than 3 percent of their American counterparts. China is, at heart, a rural nation. Just past the Beijing city limits, high-rise buildings quickly yield to flat farmland. In Sichuan, hillside after hillside is awash with the yellow flowers of rapeseed plants, raised for their oil. In the small towns in Jinan province, giant grain warehouses dominate the landscape. And the soggy soil along the roadways in the south is planted in sugar and rice.

China's farmers have good reason to fear they could be trampled by the corporate behemoths that dominate American farming. Even after two decades of economic reforms and better incentives, most of them lack the equipment and the economies of scale that foreign agriculture has. If American firms didn't wipe the local farmers out, they could at least drive down food prices. Those anxieties may explain why a separate accord to eliminatecertain barriers to beef, wheat and citrus imports -- considered an indication of Chinese commitment to WTO -- hasn't been fully implemented yet.

China's aging industries make up another big and nervous constituency. A price war is going on in the color television market, where Dutch-owned Royal Philips Electronics has recently cut prices of three models by 10 percent to 13 percent. Banks (where until recently some tellers did their calculations by abacus) soon will face direct competition. And the once-sleepy insurance business is scrambling so it can compete with U.S. firms such as AIG as they seek to replace the vanishing government safety net.

The country also has scores of automobile factories, only a few of which will survive competition from foreign imports or foreign-funded Chinese-based manufacturers. Honda has set up a factory in Guangzhou, Ford hasentered a joint venture in Chongqing, and General Motors is churning out cars from Pudong. Even before these were these were launched, Volkswagen was selling almost half the new sedans in China.

When I worked in China, I visited a number of township and village enterprises (TVEs) -- poorly funded, poorly managed ventures that survived in rural areas essentially because pent-up demand for any goods was great. TVEs accounted for an increase of more than 100 million local jobs over a 15-year period ending in the mid-'90s. But as foreign ventures arrive, the TVEs could easily die, giving way to Hong Kong, Korean, Japanese or American chain stores and distribution networks. I remember an earnest furniture salesman near the town of Zibo. Business was slow and the quality of his merchandise was bad. Think what Home Depot could do to him.

Chinese intellectuals, especially the more nationalist ones, also have reservations about the WTO. While U.S. business executives and policymakers want to bind China by international rules and in so doing promote the rule of law, China worries that WTO rules are fundamentally American ones. Even in April 1999, when Zhu was in the United States trying to make a WTO deal, one Chinese commentator published an article called "Behind Globalization: An analysis of the U.S. and British strategic trap." Recent talk of the WTO imposing environmental and labor standards must only increase China's fears of foreign meddling.

If all that is true, why did China's leaders seek WTO membership in the first place? Because they knew it would bring tremendous benefits as well as prestige to their country. Already the program of economic reform and opening to the outside world launched by Deng in 1978 has vastly improved the lives of ordinary Chinese.

Trade makes up roughly 40 percent of China's gross domestic product. China had a trade surplus of more than $80 billion with the United States last year; it sells Americans six times what it buys from us. The export industries along the coastal areas have transformed quiet fishing towns into bustling cities, and people who flock to work there send hundreds of millions of dollars back to the poorer inland areas they came from. Now China needs economic engines for the future. WTO membership would bring new infusions of foreign investment as well as foreign technology and expertise.

In short, for all the dislocations that come with opening up its economy, new investment and open markets hold out the only hope for China to keep a growth rate rapid enough to keep the average person happy -- and employed. Moreover, foreign competition could force state-owned industries to adopt reforms that the central leadership has been unable to bring about by command.

And given the Communist Party's virtual abandonment of communist ideology, huge helpings of economic growth and slices of nationalism are the new staples of political stability.

China will almost certainly plunge ahead with the next step of "reform and opening up" -- and get back on track to join the WTO. A delegation of trade negotiators came to the United States in March, before heading to Europe. A Shanghai municipal committee was here last week to talk about WTO implementation. Some American business executives say they hope that a deal can be completed in Geneva by July. The final sticking points affect the insurance industry, the definition of a chain store, and whether China should, as a developing country, be able to dole out farm subsidies equal to 10 percent of output, or as a developed country only 5 percent. These are not insurmountable problems.

Meanwhile, however, politics can create some uncomfortable interludes. The May 1999 U.S. bombing of the Chinese Embassy in Belgrade during the Kosovo war led to a short break-off of talks. Now the Navy surveillance plane standoff and the U.S. sale of arms to Taiwan have strained ties some more. As one American business leader with interest in China wondered last week, how much diplomatic burden can trade carry on its own?

At times like this, China wants to stand up to the West, particularly the United States, while simultaneously realizing that it needs the outside world's help.

"America is both a source of hope and frustration, an unwieldy giant holding the key to China's future," Yong Deng, a U.S. Naval Academy assistant professor, and Sherry Gray, a Stanley Foundation program officer wrote in a recent issue of the Journal of Contemporary China. "This ambivalence has proven hard to overcome."

There's ambivalence on this side of the globe as well. Those who have promoted China's entrance into the WTO see its membership as a way to tame the unruly giant, getting Beijing accustomed to playing by international rules. But there is also fear that China is so big that if it fails to live up to those rules, it could wreck the WTO. And there are those who worry that China, once admitted to the WTO, will be even less concerned about world opinion and less respectful of human rights than it is now.

Many of those feelings will undoubtedly come out in Congress in the coming weeks, when debate likely begins again on the one-year renewal of China's normal trade status. Even though lawmakers felt they had cast their final votes on the issue last fall, until China actually enters the WTO, the old rules apply here in the United States as well as in China. That means that at any time before June 3, a member of Congress can introduce a measure to block China from getting a one-year renewal of the tariff treatment that almost every other country in the world receives.

Last week, China's newly arrived ambassador, the urbane Yang Jiechi, spoke to a sympathetic group of U.S. policy analysts. In the wake of U.S.-China discord over the EP-3 and the announcement on Taiwan arms sales, Yang said pointedly that when international markets failed during the Asian economic crisis, China had been able to look inward to sustain rapid growth. "Whatever happens in the world economy, the Chinese government and people can always fall back on the nation's vast domestic market," he said.

In the end, though, China will almost undoubtedly dot the i's, cross the t's and make its long-sought entry into the WTO, not as a gesture to the United States but because of its own calculated self-interest.

"China's leaders have some domestic interests they need to mollify," said an American businessman following the talks anxiously. "But they all recognize that this is what they have to do."

Steve Mufson, who covers the State Department for The Post, was a foreign correspondent in Beijing from 1994 to 1998.

© 2001 The Washington Post Company

-- Anonymous, April 28, 2001

Answers

Excellent article. Many people are afraid that China will just ignore WTO rules, once it gets in.

-- Anonymous, April 29, 2001

Good article OG.. The sabre rattling may be useful cover to keep the parades attention focused while ones executes some complex dance steps..

-- Anonymous, April 29, 2001

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