TCYONLINE

WE COACH THE NATION

China and the WTO

The last two decades have seen China emerge strong as an economy, from the one that issued
coupons for food. The year 2000 saw it as the worlds seventh-largest exporter of merchandise. In
the course of the 1980s and 1990s China emerged as a major player in the global economy; indeed
no other country has ever expanded its role so rapidly. Its foreign trade increased explosively, from
about $20 billion in the late 1970s to $475 billion in 2000. After Chinas inward looking Cultural
Revolution decade (1966-1976) drew to a close, Chinas trade began to grow dramatically faster
than world trade.
On November 11, 2001 the country signed up for the entry to the WTO. Yet, as the skepticism
evident in many Chinese themselves WTO entry is not being viewed as a route to the El Dorado. The
move spells the closure of factories, massive layoffs, and doom for the primary sector employees
and still more negative shades.
Given the rapid growth of the Chinese economy after 1978, the explosive growth of its trade, and its
ability to attract record amounts of foreign direct investment, the reasons for accession to the WTO
are not easy to arrive at. The enigma is deeper because the scope and depth of demands placed on
entrants into the formal international trading system have increased substantially since the formal
conclusion of the Uruguay Round of trade negotiations in 1994, which expanded the agenda
considerably by covering many services, agricultural, intellectual property and certain aspects of
foreign direct investment. Since 1994, the international community has added agreements covering
information technology, basic telecommunications services, and financial services.
Chinas market access commitments are much more far-reaching than those that governed the
accession of countries only a decade ago. Despite its extraordinary performance, China remained in
certain respects only shallowly integrated into the world economy. High tariffs and an array of nontariff barriers meant that some critical sectors of the Chinese economy remained relatively insulated
from international competition. And certain sectors of the economy such as distribution,
telecommunications and financial services, remained entirely or largely closed to foreign direct
investment.

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The broader and deeper commitments China has made inevitably will entail substantial short-term
economic costs. These costs will be reflected in rising rates of unemployment in sectors that will
shrink as they face increased international competition, both from imports and from goods and
services provided by foreign-invested firms in China.
In the first leg, China has agree to suspend immediately all agricultural tariffs a risky move in a
country of some 800 million peasants, and where 50 million farmers are already out lion farmers are
already out of work. Chinas average import tariffs are to be reduced by almost 5 percentage points,
from 22.1 percent to 17 percent. Tariffs on some farm products exported by the US are to be
reduced sharply to 15 per cent. And tariffs on automobiles, currently ranging up to 100 percent, are
to be subject to a front-loaded reduction to 25 percent over a six year period. And in five years,
China will allow foreign banks to operate under the same rules that govern domestic banks, a
change that will allow foreign companies to save millions of dollars on standard trading rights and
distribution.
China now has to significantly improve its already burgeoning export-market position in the global
economy, especially in Asia. China had been the largest trading country outside the system; its
participation is essential for future effectiveness of the World Trade Organization. Its commitments
would prove to be a leaver for its reform-oriented leadership to bring in complete transition to a
more market-oriented economy.
Indian industry is likely to face serious competition from China in the case of products that India also
exports or has the capability to export, but this is likely to happen only after another year or two. In
the mean time Indian industry has to gear up to meet this significant challenge.
Chinas entry to the WTO is also likely to improve the bargaining standing of developing countries
and introduce greater equity in multilateral trade negotiations, may attract greater FDI inflows to the
Asia Pacific region and also catalyze the development in intra-industry trade specialization in the
Asia Pacific region, which will also be triggered by intraregional trade agreements already under
way.
China has also become party to the Agreement on Textiles and Clothing (ATC). While quotas for all
members will cease be the end of 2004, they would be at livery until the end of 2008 to invoke

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safeguard mechanisms to curb imports of Chinese textiles if they threaten domestic producers. A
recent World Bank study forecast that Chinese export of textiles and clothing could more than treble
within a decade. This obviously is a cause for worry for India and other traditional exporters.
Textiles constitute 35 percent of Indias exports and were valued at $ 10.5 billion in 1999-2000
(April-March). The country accounts for 21 percent

of the worlds spindles and 15 percent of the

worlds cotton production but its share of the worlds textile exports is only 2.8 percent. Twenty five
percent of textile exports go directly to the United States and a large chunk of yarn, which is sold to
other nations, gets routed to the US in the form of garments. The abolition of textile export quotas
under the World Trade Organisation (WTO) by 2004 would throw up immense opportunities for India
but the industry needs to be geared up to grab them.

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