Crossing the river by feeling the stones: why

trade rules matter for poverty in China.

Kevin Watkins, Oxfam

Keynote address for conference on Harmonious trade and development, Tsinghua

University, Beijing, October 23-25, 2003.
Crossing the river by feeling the stones: why
trade rules matter for poverty in China.
Let me start by thanking the organisers for granting Oxfam the privilege of delivering
the keynote address for this important conference. As a non-government organisation,
we may have a different perspective on some aspects of trade and the WTO from the
Chinese government. But we share many common concerns, including a concern to
ensure that the Doha 'development round' delivers something more than rhetoric. And
we welcome the opportunity to deepen our dialogue with Chinese policy makers and
the wider research community.

Background
Membership of the World Trade Organisation (WTO) poses formidable new
challenges for China. How these challenges are addressed will have a profound
bearing on prospects for success in the two most pressing areas of public policy:
poverty eradication and the reduction of inequality. But accession to the WTO also
provides China with new opportunities. These include not just the opportunity to
advance Chinas development prospects, but also the opportunity to play a larger role
in the world economy. WTO membership and Chinas political and economic
standing give the country a critical role to play in shaping the rules that govern world
trade.

This has important implications for the future of the Doha development round.
China is now a major player in these negotiations. At Cancun, China worked closely
with Brazil, India, South Africa, and others in the Group of 20 (G20) to challenge the
dominance of the WTOs traditionally dominant tribal chiefs the Group of 2,
comprising the EU and US. And the G20, working with African governments,
prevented what would have been a disastrous agreement based on US-EU demands.

There are many lessons to be learnt from Cancun. Perhaps the most important is that
developing country alliances hold the key to reforming unfair trade rules. Maintaining
these alliances will be difficult. Led by the US, northern governments are already
applying punitive measures against countries deemed to have 'caused trouble,' China
included. Differences between developing countries create another potential fault line.
The differences are well known. Least developed countries fear that liberalisation in
industrial countries will erode their preferential entry to markets. Agricultural
importers are concerned to maintain the right to restrict food imports on the grounds
of food security, while traditional exporters seek an unrestricted right to export.
Special and differential treatment is another potential source of tension.

The list of divisions could be extended to a depressing length. And industrial country
negotiators steeped in the colonial history are past masters of divide and rule. Witness
the EU's attempt to defend the Common Agricultural Policy (CAP) by appealing to
African interests! But what Cancun demonstrated was a political maturity and resolve
on the part of a key group of developing countries willing to subordinate narrow self-
interest to pursue shared goals. Preventing the fragmentation of these coalitions for
change is a precondition for successful advancement of the Doha round.

Another positive development that separates Cancun from Seattle was the relationship
between developing country governments and NGOs. Along with other NGOs,
Oxfam has worked closely with a number of developing country governments to
address shared concerns in areas such as intellectual property, agriculture and market
access. The alignment of dynamic coalitions within the WTO with dynamic
campaigning and advocacy organisations outside has helped to shift the balance of
power at the negotiating table.

It goes without saying that coalition building does not mean downplaying national
interests. As China comes to terms with WTO membership major public policy issues
are emerging. Some commentators liken Chinese membership of the WTO to a pair of
golden handcuffs. The intention is to emphasise the benign effects of closing down
policy choice in favour of rapid liberalisation. In my view the analogy is flawed on
two grounds. First, there is considerable scope for flexibility and policy choice built
into WTO rules. Second, how benign membership becomes will depend partly on
developments beyond the WTO. This includes the extent to which Chinas trade
partners seek to use the WTO as a lever to secure reforms in other areas, such as
financial market liberalisation.

This keynote address is on the theme of rules in world trade. Northern governments
often respond to our criticisms of the WTO by issuing stern warnings about the
consequences of a collapse of the rules-based system governing world trade. The
alternative, they remind us, is a law of the jungle under which the weakest will suffer.
They are right up to a point. Poor countries and poor people need a functioning,
rules-based multilateral system if they are to share in the benefits of global
integration. What they do not need are rules dictated by the rich and powerful. To
extend the law of the jungle analogy, if you are a Thomsons gazelle you do not
want representatives of the lions dictating the rules of hunting.

All too often this is an apt analogy for what happens behind the faade of
multilateralism provided by the WTO. In many areas of vital concern to developing
countries, the rules are dictated by Northern governments and Northern-based
transnational companies. At risk of understatement, poverty reduction and the
interests of the poor do not figure prominently in the calculations. What Oxfam has
been working for through its trade campaign is not a rules-free trading system, but a
system governed by rules designed to overcome the disadvantages associated with
poverty and low income and to create a pattern of globalisation compatible with our
shared values and aspirations.

Deng Xiaoping once famously likened Chinas transition to a market-based economy

to crossing a river by feeling the stones. Cautious pragmatism has been a feature of
Chinas successful management of global integration. Now that China has joined the
WTO, both caution and pragmatism remain essential, especially when responding to
demands emanating from ideologically driven governments in North America and
Europe. So, too, does a commitment to the development of public policies that
integrate poverty reduction into trade strategies.
This lecture sets out to do three things that I hope will help set the scene for the
conference. First, I want to reflect briefly on rules and on the theme of this
conference: Harmonious trade and development. Second, I want to touch on some of
the pressing poverty and inequality challenges facing China. Any assessment of the
implications of WTO membership has to start with an assessment of these challenges.
I shall then turn to WTO membership and the rules affecting China in three critical
areas: agriculture, market access, and intellectual property.

1 Harmonious trade and development

Our conference theme is Harmonious trade and development. Cynics might ask
where is the harmony? That question has a particular resonance in the aftermath of
events in Cancun, where the development round of World Trade Organisation
ground to a premature halt. Some in the anti-globalisation movement greeted the
collapse by celebrating what they saw as the impending demise of the rules-based
multilateral system enshrined in the WTO. This reflects a widely held belief that, at
some fundamental level, trade and development are mutually incompatible and that
global integration is a one-way route to increased poverty and inequality.

Oxfam unequivocally rejects this view. Nobody can look at the experience of China
since the late 1970s and deny the potential benefits of global integration for poverty
reduction. Let us not forget that we are holding this conference in a country that has
lifted over 270 million people out of poverty, quadrupled its income in the space of
twenty-five years, and dramatically improved health and education indicators. Were
Chinas thirty provinces individual countries they would account for twenty of the
fastest growing economies in the world.

Of course, global integration is only one part of this story, albeit an important part:
exports of goods and services now represent over a quarter of GDP. And the benefits
reaped by China have not been automatic. They are the result of pragmatic policies
that have combined gradual liberalisation with the development of new institutions
designed to spread and sustain the benefits of market reform. The contrast with Latin
America, a region that has swallowed in copious quantity the free market
prescriptions now being dictated to China, is striking. Over the past decade, Latin
America has combined rapid liberalisation with slow growth, increased poverty, and
an abject failure to reduce inequality.

What China demonstrates is that, under the right policy conditions, trade can provide
poor countries and poor people opportunities to develop through access to larger
markets, new technologies, and new ideas. Those celebrating events in Cancun might
also usefully reflect on alternatives to a rules-based multilateral system. We have
already seen both the US and the EU threaten to unleash a new wave of regional,
bilateral, and unilateral actions and in the case of the US, the threat deserves to be
taken seriously. China is in the frontline of countries facing these threats. When
power politics displaces rules, those without power tend to lose.

But having stressed our positive approach to the potential inherent in globalisation,
we believe that this potential is not being realised. The reason: the rules governing
global integration systematically disadvantage the poor. Most countries from China
to Britain and the US operate domestic laws that, to a greater or lesser degree, seek
to overcome disadvantage, restrict abuses of power, and extend opportunity. Anti-
monopoly provisions and social insurance are obvious examples. The rules governing
the international trading system have the opposite effect: they reinforce disadvantage
and legitimise abuses of power.

Unfair and unbalanced rules are hardly a new feature of world trade. Perhaps because
debates on international trade tend to be dominated by lawyers and economists rather
than by historians, the origins of the most favoured nation principle underpinning
the WTO has been forgotten. This principle emerged not from the Bretton Woods
settlement, but from the 1842 treaty of Nanking. Under this treaty, China was forced
to cede privileges wrung by force of British gunboats to other European powers.

In trade policy, unlike some other areas of international relations, gunboats have gone
out of fashion. Yet many unfair trade practices remain. Like other developing
countries, China has suffered from Northern government trade policies, including
arbitrary protectionist practices, threats of trade sanctions, and the effects of
agricultural subsidies. And like other developing countries, China needs to remain
acutely aware that, behind the formal democracy of the WTO system, the outcomes of
trade negotiations reflect informal power relationships. These relationships give
industrialised countries, and powerful vested interests within them, a disproportionate
influence over the design and implementation of WTO rules.

Through our trade campaign Make Trade Fair we have attempted to highlight
specific rules that disadvantage poor countries and poor people within those countries.
Let me mention three of the starkest examples:

Agriculture: There is a Chinese expression that says two tigers cannot share the
same mountain. When it comes to the agricultural subsidy mountain that ancient
wisdom does not hold: the US and Europe are happy to share the great $1bn a day
subsidy mountain that looms over world agriculture. While urging developing
countries to liberalise and embrace open market principles, the US and the EU direct
billions of dollars towards support for agricultural production. Subsidies translate into
surpluses that are then dumped overseas. Northern consumers and taxpayers foot the
financial bill, but producers in developing countries pay the highest price. US and EU
subsidies drive down international prices, depriving countries of foreign exchange and
farmers of income. They also facilitate dumping in national markets, destroying the
markets on which smallholders depend. WTO rules have been designed to
accommodate US and EU subsidies, in effect forcing the worlds poorest farmers to
compete against its richest treasuries.

Market access: A Chinese audience hardly needs to be reminded of the problems

caused by arbitrary trade barriers. After all, China is one of the prime targets for such
barriers. But arbitrary protectionism is one of the most potent forces behind the
unequal distribution of benefits from globalisation. When poor countries export to
rich ones they face average trade barriers four times higher than those prevailing in
trade between industrialised countries. The structure of protection reflects the
demands of powerful vested interests and the unwillingness of Northern governments
to embrace their own principles when it comes to national trade policy.
Intellectual property rights (IPRs): Nobody disputes the importance of IPRs.
However, the WTO regime adopted in the Uruguay Round provides a profoundly
anti-developmental framework. As my colleague in Oxfam Ruth Mayne has shown, it
is weighted far too heavily in the interests of rich countries and the corporations that
dominate global research and development. For poor countries, the Trade-Related
Intellectual Property Rights (TRIPS) agreement will translate into higher costs for
technological innovation, balance-of-payments pressures, and potentially rising
costs for essential drugs. Peter Drahos, one of the contributors to this conference, has
documented the extensive role of corporate lobby groups in the US in dictating the
terms on which IPRs were incorporated into the WTO, effectively subordinating the
multilateral system to the pursuit of private self-interest.

Before considering how rules in these three areas might impact on China, let me first
say something about the pressing poverty and inequality challenges now facing China.

2 Poverty and inequality: achievements and challenges

There is no shortage of bad news when it comes to global poverty. The vast majority
of developing countries are off-track for achieving the Millennium Development Goal
of halving poverty. Whole regions notably Africa are being left behind.
Globalisation appears to be failing a large section of humanity. If there is a good news
story, China accounts for a disproportionate part of it.

Using the international $1 a day poverty line, income poverty has fallen from almost
one third to 17 per cent since 1990. Use of national poverty lines dramatically lowers
the incidence. Whatever the precise picture, income-poverty reduction has been
accompanied, and in some cases exceeded, by progress in other human development
indicators. As Amartya Sen has shown, China has been far more successful than other
developing countries in converting growth into advances in health and education. Life
expectancy is four years longer than predicted by national income. Child mortality
rates by the end of the 1990s were less than half the level in the mid-1970s.

Inevitably, swift growth and structural change have created new challenges: persistent
poverty, rising inequalities, employment insecurity, environmental pressures, and
rapid adjustments to market reform and global integration. Left unaddressed, these
challenges could undermine even reverse what has been achieved. That is why
they must figure at the centre of any debate over WTO accession.

The challenges facing Chinese policy makers are well known. On poverty reduction,
there is scope for debate over whether Chinas glass is half-full or half-empty. What is
not open to debate is the sheer scale of the challenge. Using the World Banks $1 a
day indicator for absolute poverty (rather than the lower national poverty line),
around one-quarter of the rural population more than 100 million people are still
in extreme poverty. This poverty is increasingly concentrated. In terms of regional
distribution, almost two-thirds is in border provinces such as Sichuan, Gansu, and
Xianjiang. There are further concentrations of poverty in the northern China Plain and
some northeast provinces, linked to poor soil and problems of water availability and
infrastructure.
Persistent rural poverty is intimately linked to another challenge currently at the
centre of policy debate in China: rising income inequality. Chinese income
inequalities are among the fastest growing in the world. The national Gini coefficient
increased from 0.24 in 1980 to at least 0.35 in 1999. Some analysts suggest that the
real figure today exceeds 0.40.

Rural/urban differences account for a major part of rising inequality. Lin Tai, a social
sciences professor at this university, estimates that the urban/rural income ratio may
be as high as 6:1 a figure that is extraordinarily high by international standards.

It goes without saying that there is nothing inherently virtuous in high levels of
equality. Low Gini coefficients in a context of stagnant growth are not indicators of
an outcome that is good for poverty reduction. However, in the Chinese context
inequality matters for at least three reasons. First, poverty reduction is a function of
the overall rate of growth and the share of any increment to growth captured by the
poor: high inequality reduces the rate at which growth is converted into poverty
reduction. Second, high levels of inequality can be bad for long-term economic
growth and dynamism, partly by restricting market development, and partly by
limiting entrepreneurial activity. Finally, high levels of inequality can represent a
threat to social stability.

Progress towards rural poverty reduction in China has been hampered by a reduction
in the rate of growth of rural incomes since the mid-1980s. Equally important, though
less widely observed, has been the trend towards rising inequality within rural areas.
Decomposition analysis suggests that average real per capita incomes in rural areas
have increased by a factor of 3.4 since 1980. Over the same period, incomes for the
poorest quintile have risen by a factor of 2.5. Clearly, strategies for raising average
rural incomes and the incomes of the poor in particular must figure prominently in
any strategy for poverty reduction.

Turning from income to health indicators further illustrates the scale of the challenge
facing China. Economic growth has fundamentally changed the profile of Chinas
health problems. Non-communicable diseases account for an increasing share of the
disease burden. Cancer, cerebrovascular disease, and heart problems account for well
over half of all deaths. Respiratory disease also figures prominently. While
HIV/AIDS prevalence rates are low, they are growing. It is estimated that over 1
million people are living with the disease. In addition to addressing these evolving
problems, there is large unfinished agenda. For example, improvements in death rates
among the under-fives appear to be slowing.

Inequality is a pervasive theme in health. National surveys suggest that almost two-
thirds of rural households do not use public health facilities due to economic
difficulties. In large measure, this problem can be traced to deeper inequities in health
financing. Growing recourse to cost-recovery in health facilities has increased the
financial burden on poor people. Out-of-pocket payments for treatment and
pharmaceuticals now represents some 60 per cent of total spending. Health insurance
provides little protection to those most in need: around 90 per cent of the rural
population is not covered. The decentralisation of financial control to local and
provincial bodies has exacerbated inequalities in service provision. According to the
World Health Report, China now ranks 188th out of 191 countries in terms of equity
in health financing.

Much of the international debate on China tends to focus on rural-urban differences.

The welfare of vulnerable urban populations is often overlooked. One consequence of
rapid global integration has been the creation of millions of jobs linked to export
markets. Women account for a large share of these jobs. Their conditions of
employment, security, and income are determined partly by domestic policy choices,
and partly by the terms on which China trades with its major partners. Northern policy
makers sometimes forget that their policies on market access for Chinese imports
have a direct bearing on prospects for poverty reduction in urban China.

Before leaving this subject let me touch briefly on the issue of labour rights. When
they hear these words, many Chinese policy makers immediately suspect protectionist
influence. In some cases, they are justified: Northern protectionists do selectively use
labour rights to advance their interests. But not all advocates of stronger labour rights
are protectionists. As a country with a strong record in advancing the interests of the
poor, surely the Chinese government can indeed, must do more to strengthen
labour rights. This is especially true for the women and migrant workers who suffer
the greatest vulnerability.

3 WTO accession and its implications for poverty and

inequality
Chinas accession to the WTO at the November 2001 Doha Ministerial marked the
culmination of fifteen years of negotiations the longest accession talks in the
institutions history. For the WTO itself, Chinese entry was a defining moment. When
negotiations started in the mid-1980s, China accounted for less than one per cent of
world trade. Today, the country is the worlds fifth largest exporter and one of its
biggest traders. China is a vital part of the WTO jigsaw and WTO rules are a vital
part of Chinas public policy framework. Now that the country is a member,
adaptation to those rules will pose challenges even more formidable than those faced
during the accession negotiations.

Northern governments are likely to be vigilant both in monitoring implementation of

the accession agreement, and in seeking to impose their interpretation of that
agreement. However, many WTO rules provide for a great deal of choice within a
range of options. Public policy choices will have an important bearing on the
distribution of winners and losers within Chinese society. In addition, the Chinese
government is well placed to challenge some of the rules that threaten to compromise
national poverty reduction efforts, especially if it acts in concert with other
developing country governments.

The terms of the accession agreement

The accession treaty has been subjected to microscopic scrutiny. Rather than recite
detail, let me outline some of the broad provisions that have implications for policy
formulation in China.
The general principle of non-discrimination requires that China grants equal treatment
to competing suppliers of goods and services (subject to extensive conditions),
removing discrimination against importers. This has important implications for the
central and provincial government bodies and state trading entities that operate dual
pricing systems.

The market opening commitments undertaken by China are extensive. Having

lowered the weighted average tariff from 40 per cent to 13 per cent between 1992-
2001, a further cut to 6.8 per cent will be implemented by the end of the accession
period. It is worth pointing out that these cuts are far deeper than anything
contemplated by the US or the EU.

Under the terms of the agreement on agriculture, China has agreed to limit domestic
support to farmers at less than 8.5 per cent of the value of production (lower than the
ceiling applied to other developing countries). Average tariffs will also be sharply
reduced. By 2007, the average applied tariff on in-quota imports will range from one
per cent (applied to rice, wheat, and cotton) to 15 per cent (for sugar). In some cases,
out of tariff quotas will remain quite high. However, quota volumes are set to grow at
rates ranging from 519 per cent. A further commitment by China is the elimination
of state trading monopolies.

Within these broad provisions, China has made major concessions in some areas
regarded as a priority by the US. In agriculture, tariffs on ten such products will be
more than halved by 2004. With characteristic bluntness, the US Department of
Agriculture summarised the provisions on agriculture by celebrating what it described
as significant, one-way market-opening concessions across the board in agriculture,
adding that: Chinas entry into the WTO will dramatically cut import barriers
imposed on American agricultural products. This agreement locks in and expands our
access to a market of over 1 billion people.

From a Chinese perspective, generosity on market opening appears distinctly one-

sided. Accession provisions on anti-dumping and safeguard measures place China at a
disadvantage. Non-market economy status means that dumping margins can be
assessed on the basis of constructed value a framework that dramatically increases
both the likelihood of dumping margins being discovered, and the scale of anti-
dumping duties.

Trade-related Intellectual Property Rights (TRIPS) figure prominently in the

accession agreement. Over the past decade, China has updated its laws on copyright,
patents, integrated circuits, and plant varieties. Accession will involve further
strengthening. Public policies in this area will have important implications for the
prices of pharmaceutical products and by extension public health, as well as
technological innovation.

In other areas, accession to the WTO will interact with wider pressures. One
assessment by the World Bank suggests that Chinas commitments on the
liberalisation of services are the most radical ever undertaken in the WTO. Even so,
far more radical commitments are being demanded, including the rapid opening up of
financial services, banking, and wider capital markets.
4 Assessing the impact of WTO rules
In recent years a small industry has emerged producing economic models to assess the
implications of Chinese accession to the WTO. Most of these models predict
aggregate welfare gains. However, aggregate pictures mask important underlying
factors: including the distribution of winners and losers. They also divert attention
from the underlying rules that can shape the distribution of costs and benefits between
rich and poor. In this section we look at the rules in three areas: agriculture, market
access, and intellectual property.

Agriculture: trade liberalisation in a distorted world market

Perhaps no aspect of WTO accession has raised more serious concerns than the
implications for agriculture. The pace, scope, and design of liberalisation policies will
have important consequences for two of the central development challenges facing
China: namely, the eradication of rural poverty and the promotion of greater equity.

Rapid industrialisation has tended to divert attention from the scale of these
challenges. It is sometimes forgotten that agriculture still accounts for 16 per cent of
GDP and around one half of all employment. Currently, China has around 238 million
farm households, the vast majority operating on small plots. Poverty is increasingly
concentrated in rural areas, with around one quarter of the rural population surviving
on less than $1 a day.

Such facts suggest that there are very large numbers of poor people acutely vulnerable
to even minor income shocks resulting from shifts in relative prices. It is no
exaggeration to say that the welfare of literally millions of farmers is at stake.
Moreover, adverse changes in the rural economy will be transmitted through off-farm
employment markets and town-village enterprises, weakening growth linkages
between the farm and off-farm sector. Losses of income could potentially translate
into widening inequalities and deprivation in other areas, such as health and
education.

US surplus dumping priorities

Negotiations on agriculture have highlighted an important feature of WTO accession.

Chinese policy makers and non-government organisations have been concerned
principally with the implications for national poverty. On the other side of the
equation, major agricultural export powers see the WTO agreement as a mechanism
for prising open a potentially lucrative export market.

The US is a particularly forceful proponent of rapid market opening - and in the

current climate of US-Sino trade relations it is not difficult to see why. Agriculture is
one area in which the US maintains a trade surplus with China, amounting to $1bn in
2002. Projections by the USDA predict that accession to the WTO will expand
exports of grains, oilseeds and cotton alone by $1.6bn. China is also seen as a major
potential market for fruit, nuts and vegetables. From a Chinese perspective, the
obvious problem is that an increase in imports through trade liberalisation could
depress prices for goods produced by poor rural households.
This is an area in which tensions between commercial interests and development
imperatives loom large. It is also the area in which China confronts some of the most
serious double standards in current WTO rules.

The implications of liberalisation

What are the implications of accession for rural poverty? That question has been
addressed through a large number of economic modelling exercises. No conclusive
answer has emerged, partly because of the complexity of the policy environment.
Relationships between border measures (such as tariffs) and behind-the-border
measures (such as taxation), price transmission effects, and supply elasticities are not
well understood.i Notwithstanding these problems and the widely divergent
conclusions that have emerged from current debates, there are clearly causes for grave
concern. Of particular concern is the possibility that farm incomes may fall,
exacerbating inequalities in farm, non-farm, and regional incomes, and slowing the
rate of rural poverty reduction.

Simple observation of average nominal protection rates (NPRs) tells part of the story.
For wheat, the average protection rate is around 12 per cent, rising to 17 per cent for
cotton, 20 per cent for oilseeds, and 32 per cent for maize. The NPR for sugar is
variable, but also relatively high at between 1740 per cent. Although NPRs for some
crops notably maize and cotton are inflated by export subsidies, there are
significant gaps between domestic and world prices in many years. Protection rates
for rice, fruit, and vegetables are negative.

Adopting a simple other things being equal model of import liberalisation, with
domestic prices declining towards world levels as import barriers come down, points
to some potentially serious problems. Many of Chinas domestic producers of major
commodities such as wheat, maize, cotton, sugar, and soybean could suffer income
declines as lower import prices are transmitted through domestic markets. The
following might merit headline status:

Wheat: Imports are expected to increase sharply under WTO membership

because of high demand for high-protein wheat in urban areas (for noodles, cakes
and pastries) and a decrease in barriers against US soft white wheat. Allied to
changes in procurement policy, import liberalisation appears likely to reduce
production in marginal areas in northwest and northeast China. OECD projections
suggest that imports could rise from $220m in value to $800m by 2005.
Maize: Even though China has been a net exporter of maize, imports are expected
to increase as the tariff rate quota expands. Demand for imports is expected to be
especially strong in south China, where import restrictions have forced feed mills
to procure maize from north China. These restrictions have created a protected
market, counteracting the large price differential in favour of imports. Less
government support is likely to curtail production in the north China corn-belt,
and to lower prices and reduce output in more marginal areas, particularly in east
and south China. The elimination of export subsidies, as required under the terms
of WTO accession, will exercise a further downward pressure on prices.
 Cotton: Cotton imports are expected to increase sharply, partly because two-
thirds of the quota is reserved for non-state trade. Joint-venture mills in east China
in particular are expected to increase their demand for imports. While shifts in
relative prices remain uncertain, domestic prices are expected to decline towards
world market levels. As for maize, elimination of export subsidies will add further
price pressure in domestic markets.
Soybean: Imports of soybean have increased dramatically in recent years.
However, there is still a price gap of around 15 per cent between international and
domestic prices, pointing to the importance of behind-the-border measures. The
size of the remaining price gap suggests that import levels will be highly sensitive
to reforms in domestic marketing. This has important implications for the major
soybean producing areas, especially in the northeast.

Aggregate modelling for welfare change provides some insights into the dangers
inherent in liberalisation. One reform scenario, explored through the GTAP
simulation model, predicts an average fall in rural wages of between 0.7 and 1.6 per
cent, with returns to farmland falling by 5 per cent. Most models predict that rural
households will tend to lose, and urban households to gain. The most vulnerable
households are those in rural areas most heavily dependent on agriculture. In some
such areas, welfare losses of around 35 per cent of income are predicted. For
households below or narrowly above the poverty line, these are substantial losses.
There is a very real and legitimate concern that such losses will add to the pressures of
rural-urban migration.

Naturally, the figures can be contested. Some commentators claim that they overstate
the problem since they do not take into account the dynamic second-round effects of
liberalisation. Yet it can equally be argued that they may understate the problem. This
is because losses of agricultural income can produce strong multiplier effects.
Research carried out by the International Food Policy Research Institute in other
contexts suggests that for every dollar generated in farm income, another four dollars
are added through exchange in the rural economy.

From a poverty-reduction perspective, there would appear to be strong grounds for

Chinese policy makers to carefully assess the balance of winners and losers from
agricultural liberalisation. As I have already mentioned, they can expect to come
under sustained pressure from other governments interested in access to Chinas
markets. This is reflected in the United States Trade Representatives 2002 Report to
Congress on Chinas WTO Compliance. The report strongly criticises China for
failing to open its markets in bulk agricultural commodities, notably wheat, corn and
cotton, and for continued use of export subsidies. It attributes the problem to what it
describes as "protectionist pressures within China. The theme resurfaces in the WTO
dispute between the US and Brazil over cotton. As part of its defence, the US blames
Chinese cotton subsidies for the problems faced by producers worldwide, including
Americas own cotton farmers.

The strength of the language contained in the report reflects the extent of lobbying by
organised agricultural lobbies. But it also reflects a long-standing strategy to redress
the US trade deficit by opening new markets for the countrys agricultural surpluses.
Reinforcing balance-of-trade considerations, the high level of export dependence in
US agriculture for agricultural commodities creates an export imperative. President
Bush summarised that imperative with characteristic bluntness when signing the 2002
Farm Bill into law:

Americans cannot eat all that Americas farmers and ranchers produce. And
therefore it makes sense to sell more food abroad access to foreign markets is
crucial to the livelihoods of our farmers and ranchers. Let me put it as plainly as I
can: we want to be selling our beef and our corn and beans to people around the
world.

The Presidents remarks are accurate in one respect: America does depend critically
on access to foreign markets to maintain farm incomes. Around one quarter of total
US farm income is dependent on exports. The EU is also heavily dependent on
exports. In both cases, export dependence goes hand-in-hand with global market
domination. This is illustrated by Figures 1 and 2.

Comparative access to subsidies

The received wisdom of American policy makers is that WTO rules are doing nothing
more onerous than forcing China to adjust to the realities of comparative advantage.
Many policy makers within China and beyond appear to accept this proposition. To
cite one example, a deputy director of the OECD introduces a recent volume on the
theme of agricultural policies in China after WTO accession with the following
comment: "As markets open, the focus of policy will need to respond to market
demands and to compete globally on the basis of comparative advantage."

Such pronouncements display an Alice in Wonderland detachment from market

realities. In agriculture, more than any other area of world trade, competitiveness is
determined less by comparative advantage than by comparative access to subsidies
and this is an area in which Chinas farmers suffer a marked disadvantage.

This is not the place to examine in detail the protracted discussion over agricultural
subsidies within the WTO or the tortured background to agricultural reform in the
US and the EU. However, these apparently remote subjects ought to figure at the
centre of the debate on agricultural trade liberalisation in China. Let me briefly try to
explain why.

Each year, industrialised countries spend around $1bn a day supporting agriculture.
The US and the EU, both of whom like to emphasise their free market credentials in
negotiations with China, account for about 60 per cent of these subsidies. Europe
provides more support in absolute terms and its subsidies represent a larger share of
the value of output. However, US support is larger on a per farmer basis. Because US
support is more concentrated on a narrower range of commodities it also represents a
significant share of the value of output in key sectors, including the bulk sectors of
major concern to China.

It has been said that every picture tells a story. In which case, snapshot pictures of the
patterns of agricultural support in rich countries provide a story of encyclopaedic
proportions.
Figure 3 tells the subsidy story. Using the OECDs Producer Support Estimate (PSE),
it shows the percentage of final value accounted for by implicit and explicit
government transfers in the US, the EU, and China. The important conclusion that
emerges is that China is not a member of the subsidy superpower league, raising
questions about the USTRs assessment and demands for market opening.
Notwithstanding the NPR data summarised earlier, Chinese producers in most sectors
are either marginal recipients of support, or pay taxes that outweigh government
transfers. However, they are integrating into markets where they will compete with
the worlds most subsidised farmers. Outcomes are unlikely to provide an insight into
comparative advantage, at least as that term is understood by anyone who has
completed a first year undergraduate course in economics.

One important microcosm in the story merits special mention. The US has been
sharply critical of Chinese production subsidies in cotton. However, on any
comparative basis US cotton subsidies dwarf those provided by the Chinese
government. In most years, the overall level of assistance provided by the US is more
than double, as is support per kilogram of cotton produced. More importantly, the US
is the worlds largest exporter of cotton. According to the International Cotton
Advisory Committee, its subsidies lower world prices by around one quarter. Unlike
the US, China is not an exporter.

Figure 4 suggests that US energy might be better placed in reforming its own cotton
sector than in providing advice on the merits of liberalisation to China. The data
provided show that, in some years, government payments to cotton farmers are almost
equivalent to the market value of output. Such facts might bring a tear of nostalgia to
the eyes of former Gosplan officials in the Bolshevik party of the Soviet Union,
recalling as they do practices common in the heyday of state-managed collective
agriculture. But they rest uneasily with a stated commitment on the part of the US to
open markets.

Agricultural trade was one of the mines that detonated during the Cancun ministerial
meeting of the WTO. Developing countries including China went to Cancun
demanding action from the US and the EU to cut agricultural subsidies. In articulating
their demands, a wide spectrum of developing countries extending from the
governments of West Africa, South Africa, Brazil, India, Thailand, and others, also
called for an end to the various subsidy exemptions built into the Uruguay Round
Agreement on Agriculture (AoA) at the insistence of the US and the EU. These
exemptions, clustered under the Green Box and Blue Box provisions of the AoA,
relate to a large category of supports deemed to be decoupled from production, and
therefore minimally trade-distorting.

Figure 5 cuts through a larger technical debate to underline why developing countries
were fully justified in their position at Cancun. Under the AoA, both the US and the
EU were able to comply with their commitment to reduce subsidies largely by
repackaging and transferring support to decoupled areas. The gap between
Aggregate Measure of Support (AMS), or WTO restricted transfer, and the PSE
illustrates the point.

While nobody is arguing that all support to agriculture is equivalent in its effect, many
of the support measures currently categorised as decoupled are manifestly distorting
production and trade. Let me illustrate this by reference to two examples. In 2001, the
US was exporting cotton produced domestically at an average cost of around 80 cents
a ton for less than 40 cents a ton, without using an export subsidy. In the same year,
the EU was exporting wheat at prices some 80 per cent below the real income
received by farmers for their output. Without dissecting the underlying policy regimes
that produce these results, it is clear that both arrangements facilitate the export of
produce at prices far below costs of production.

If the highly distorted state of international competition is one reason for Chinese
policy makers to reflect seriously on the underlying premises of the case for
liberalisation, the direction of US and EU policy reform is another. Under the 2002
Farm Act, the Bush administration increased overall budget support for agriculture by
up to $8bn a year. It also established a closer link between production and payments
to farmers, notably by introducing a new class of counter-cyclical payments. In
Europe, the reform of the CAP agreed in June 2003 has the effect of maintaining
overall levels of support, guaranteeing continued structural surpluses and export
dumping.

Experience from other countries cautions against rapid liberalisation in international

markets distorted by Northern subsidies. In India, import liberalisation in the wheat
and dairy sectors in the mid-1990s resulted in surges of imports, disrupting local
markets, pushing down incomes, and forcing government to raise tariffs. Evidence
from Mexico provides another cautionary tale of great relevance for China. Rapid
liberalisation of the maize sector under the North American Free Trade Agreement
has led to rapid increase in imports from the US, displacing local producers. Research
has shown the transmission of price effects to household incomes of the poverty-belt
states in the south of Mexico, where falling prices have lowered household incomes
and fuelled rural-urban labour migration.

China should fully exploit the flexibility built into WTO rules on agriculture. It could
learn something from the post-Uruguay Round US and EU practice of averaging out
tariff cuts, reducing overall levels while retaining protection in vulnerable sectors.
There is also scope to maintain financial incentives that direct traders towards local
produce rather than imports.

Looking beyond national policies, agriculture is an example of the type of issue in

which China has much to gain from co-operation with other developing countries. In
bilateral negotiations with the US, Chinese policy makers will come under serious
pressure to trade-off concessions in agriculture for gains in other areas, such as anti-
dumping. However, aligned with Brazil, India, South Africa, and others, China can
use the mechanisms of multilateralism and the WTO as a lever for demanding reforms
in the US and the EU, and for retaining the right to protect agriculture in the interests
of food security. The fact that the alliances emerging before and during Cancun span
the traditional divide between Cairns Group exporters (such as Brazil and Thailand),
importers (sub-Saharan Africa), and countries motivated by a strong concern to
protect local markets from distorted competition (India) is a source of strength.

As a major player in the new alliance, China has a pivotal role to play in articulating
demands for reform in three key areas. These are:
 Export subsidies: The key challenge here is to secure early agreement on a time-
bound schedule for phasing out all of the subsidies that generate surpluses and
facilitate exports at prices lower than production costs. US export credits should
be covered by this prohibition.
Production support: Some support to agriculture in rich countries is justified on
ecological and social grounds. However, it is vital that WTO systems restrict
subsidies that distort global markets.
Food security provisions: Developing countries need to ensure that WTO rules
provide the space to exempt products from liberalisation commitments on food
security grounds. The debate here has focussed on automatic safeguard provisions
to prevent import surges and the identification of strategic food security products.

Market access and beyond

Negotiations surrounding the implementation of the accession agreement will
inevitably be influenced by developments beyond the WTO. That is especially true
with regard to negotiations with the US. Since the breakdown of the Cancun
ministerial meeting there have already been worrying developments in this area, most
evident in an increasingly aggressive US posture on market access and financial
reform. The concern here is that an already unfair set of rules enshrined in the WTO
will become yet more unbalanced in the process of enforcement.

Post-Cancun sabre-rattling syndrome

The dust had hardly settled on the Cancun breakdown before the US commerce
secretary, Donald Evans, announced the creation of an unfair trade practices team to
investigate product-dumping and other abuses deemed to be contributing to US job
losses. The US Chamber of Commerce has complained that its members are winning
insufficient market share in China, and several of its members allege widespread
dumping by China in the US market. More than 40 members of the House of
Representatives have called for the Bush administration to end normal trade relations
with China and more than 60 have sponsored legislation that would raise tariffs on
Chinese goods.

As the top trade lobbyist for the US National Association of Manufacturers recently
told the Financial Times: "You can see the protectionist sentiment growing rapidly,
but you havent seen anything yet." President Bush himself used the October 2003
APEC summit to supplement his standard diet of free trade rhetoric with copious
references to the need for fair trade a euphemism, in the context, for protectionism
against China.

The factors behind the war of words being conducted from Washington are well
known. Viewed from official policy circles in the US, Chinas main crime is a
$100bn trade surplus with America. The surplus has become the scapegoat for the
slow recovery in employment experienced by the US and the rationale for a
concerted attack on Chinese currency management. Since Cancun, the US Treasury
has cranked-up its demands for a revaluation of the renimbi, aided and abetted by the
IMF.
It is difficult to avoid the conclusion that US claims about Chinese cheating are
detached from the underlying economic facts. No substantiated evidence has been
produced to prove that imports from China have had anything but a marginal direct
impact on US manufacturing companies. Moreover, believers in international trade
theory and the underlying premise that countries export in areas where they have an
advantage should not be surprised at the pattern of ChinaUS trade: America now has
a relative disadvantage in manufacturing, while China has an advantage. At the same
time, if a country invests more than it saves it will need to borrow and the
counterpart to that borrowing is a trade deficit. The trade deficit that so alarms the
Bush administration is a result of its epic mismanagement in turning a fiscal surplus
into a huge deficit.

China is right to reject American entreaties on currency realignment. Appreciating the

exchange rate would undermine job creation, exacerbate problems associated with
agricultural liberalisation, and contribute to deflation. It might be added that floating
the exchange rate would expose China to capital market instability, which would in
turn create instability in trade and production systems. The problem faced by China is
not the weight of US argument, which is exceptionally light, but the combined weight
of US trade power and unfair WTO rules.

Discriminatory measures in dumping and safeguards

In joining the WTO, China has undertaken far-reaching commitments both to lower
trade barriers, and to make trade policy more transparent. Unfortunately, industrial
countries have failed to reciprocate. Discriminatory provisions will enable the US and
the EU and, it has to be said, other developing countries to exploit Chinas non-
market economy (NME) status, notably through anti-dumping and the so-called
transitional product-specific safeguard provision. It has to be noted that no other
WTO member faces the problems now confronting China, raising serious grounds for
concern over the non-discriminatory nature of WTO rules.

China is already the main target of anti-dumping actions worldwide, accounting for
around one fifth of all such measures. The EU and the US are the top users of anti-
dumping measures in terms of absolute numbers of cases, though large developing
country users of such actions target China more on a trade-weighted basis. Moreover,
Chinas exports are concentrated in the sectors such as textiles, garments, and
electronics that figure most prominently in anti-dumping actions. The five most
anti-dumping intensive sectors account for almost three-quarters of total Chinese
exports. Anti-dumping duties tend towards punitive levels, averaging over 100 per
cent in the US and 40 per cent in the EU.

Even under standard WTO rules it is possible for governments to discover dumping
margins where none exist. NME status exacerbates this problem by allowing anti-
dumping investigators to use proxies for constructing the prices of exports, making
the proof of dumping easier. Constructed value investigation also inflates the dumping
margins discovered, in the case of the EU and the US by over 40 per cent.

China is burdened with NME status until 2017 at the earliest, under the terms of the
accession agreement. The inherent disadvantages China will face are compounded by
the TPS mechanism. This makes it easier for WTO members to impose safeguard
measures until at least 2014. All of the standard provisions designed to prevent WTO
safeguard rules from being used in an arbitrary fashion have been weakened. These
include requirements for establishing a causal link between imports and domestic
injury, weaker evidence for establishing material injury, and no requirement that
imports have created unforeseen problems. Potentially the most devastating aspect
of the special rules applied to China relate to the trade-diversion clause. Briefly
summarised, this means that when one WTO member implements a TPS against
China, all others can enforce a similar measure.

Taken together, these various measures amount to an unprecedented departure from

WTO rules. It is hardly an exaggeration to suggest that they recall the spirit of the
Treaty of Canton, rather than the principles of a non-discriminatory, rules-based
regime. The more immediate concern for China is that the WTO now enshrines an
institutional framework designed to accommodate and encourage, rather than to
contain and dissuade, protectionist attacks on China. Given the current tenor of US
China trade relations, that has to be a grave cause of concern.

The Chinese government has rightly set great store on using the Doha round to
diminish the scope for discriminatory action. In its 2002 EU Policy Paper and other
documents it calls for an early review of NME status. Looking beyond bilateral
negotiations, it has also elaborated an agenda for establishing stricter rules on anti-
dumping and safeguards.

Part of this agenda overlaps with the concerns raised by other developing countries
including India and Brazil subject to frequent arbitrary actions in the US and the
EU. However, SouthSouth co-operation faces major problems in this area, partly
because of the proliferation of SouthSouth anti-dumping measures; and partly
because of developing country concerns over the impact of Chinese exports. An early
litmus test for the future effectiveness of G20 will be its success in addressing these
conflicting priorities.

It is difficult to avoid being struck by the contrast between China's radical approach to
market access under the General Agreement on Trade in Services (GATS) on the one
side, and the approach of industrial countries to Chinese market access on the other.
China has pledged to eliminate restrictions on foreign entry and ownership, as well as
most forms of discrimination against foreign firms. The World Bank describes this as
"the most radical services reform programme negotiated in the WTO." However,
powerful corporate lobby groups in the US and the EU are demanding even more far-
reaching measures.

One recent example is provided by the Coalition of Service Industries (CSI), an

association representing major US banks and insurance companies. In September,
2003 the CSI petitioned the USTR and the US Treasury to demand that China reduce
its capital requirements for foreign companies in insurance, banking and asset
management, while at the same time removing limits on refinancing through inter-
bank loan agreements. Foreign banks have also complained about limits placed on
their right to attract foreign capital for investment on local markets.

The Stated Administration of Foreign Exchange is a major target for corporate lobby
groups. This is the body that approves all flows of money in and out of China. It is
also the body that oversees rules banning the repatriation of funds in the first year and
restricting them to 20 per cent a quarter in the second year. The aim of these rules,
which have been tightened recently, is to prevent investment banks developing
currency speculation operations of the type that have wrought havoc from Thailand
and Indonesia, to Russia, Brazil and Argentina. It is no coincidence that China has
thus far escaped the enormous social and economic costs associated with capital
market instability. And the development of a stable capital account remains one of the
keys to reaping the benefits of global integration through trade.

Intellectual property rights

Perhaps no issue has come to symbolise the unbalanced nature of WTO rules as has
intellectual property. Much of the debate in this area has focussed on the implications
of patenting for the affordability of medicines, with the spotlight having been fixed
firmly on HIV/AIDS and sub-Saharan Africa. Pharmaceutical patenting could raise
serious concerns for China as public policy seeks to address the widening health
inequalities discussed earlier.

Intellectual property protection has become a flashpoint in trade relations between

China on the one side and the US and the EU on the other. The way in which these
issues are addressed will have important implications both for poverty and for long-
run growth prospects.

Reduced to their essentials intellectual property rights (IPRs) seek to balance two
potentially conflicting objectives: the creation of incentives for private innovation,
and encouragement to make newly invented products available on terms that enhance
public welfare. The Trade-Related Intellectual Property Rights (TRIPS) agreement of
the WTO strikes a dubious balance. By extending US-standard IPRs through
multilateral rules it enshrines a system geared towards the interests of technological
leaders, rather than technological importers and adapters. As has been extensively
documented elsewhere, TRIPS was the product of a sustained lobbying campaign led
by the US pharmaceutical industry and other sectors concerned to increase the rents
attached to patents and other IPRs.

Chinas IPR regime was substantially strengthened to facilitate WTO entry. The
Patent law was substantially revised in 2000, bringing China into full compliance with
WTO patent regulations. Subsequently, trademark and copyright laws were also
strengthened.

Application of TRIPS to pharmaceutical products has posed a major threat to public

health. Prices for patented versions of drugs are typically much higher than for
generic versions. Even today, after successive rounds of price-cutting by
pharmaceutical companies, triple cocktail therapies for treating HIV/AIDS are more
costly than their generic equivalents. In other areas it is not uncommon for brand-
name drugs to market at a multiple of five or more the generic equivalent.
Importantly, market entry by generic drugs is a major factor in forcing down the price
premium attached to patents.
China has a long-standing policy of providing drugs for public health services through
negotiated price arrangements. Even so, groups concerned with public health
inequalities in China have grounds for concern over the implications of the TRIPS
agreement on three counts. First, the poor, the constituency that will face the most
serious problems attendant on any price inflation, already face acute financial
pressures. Out-of-pocket payments currently account for 60 per cent of total health
spending and these payments represent a disproportionate burden on poor people.
As a proportion of non-food household expenditure, user charges absorb three times
more of the income of the poorest 20 per cent than that of the richest. Virtually none
of the poorest fifth of the population is covered by health insurance. Drugs represent
the second largest item of expenditure.

Second, China devotes a far larger share of its health spending to pharmaceuticals
than most countries at comparable levels of income. Over-prescribing, and the
misallocation of resources towards drugs are part of the problem. Both traits would
appear to be linked to the decentralisation of financing, one consequence of which has
been an increasing role for pharmaceutical sales in financing health services.
Whatever the underlying causes of the problem, it is clear that any inflation in
pharmaceutical prices would have a major effect on public financing for health.

The third factor relates to Chinas changing health profile. Looking to the future,
demand for medicines is likely to increase most rapidly in areas associated with rising
life expectancy, including the treatment of cardiovascular disease, cancer, arthritis,
respiratory tract ailments, diabetes and so on. These are precisely the areas in which
Northern-based pharmaceutical companies will be most vigilant in defending patents,
not least because they coincide with disease patterns in the major markets of the
industrialised world.

It goes without saying that the TRIPS agreement of the WTO does not hold the key to
success in closing Chinas health gaps. Reducing health costs for the poor by rolling
back user charges, extending public provision, and improving health insurance
coverage would appear to be critical. However, a badly implemented TRIPS regime
could widen the gap.

The threats should not be understated. China may have a strong generic industry, but
that industry is not immune to pressure from the global pharmaceuticals industry.
Consider the recent experience of Brazil another world leader in the generic drugs
sector. In March 2001 Brazil announced that it would issue compulsory licenses for
the production of two patented drugs Nelfinavir and Efavirenz used in the
treatment of HIV/AIDS. The high cost of these drugs was absorbing around one third
of the national AIDS pharmaceuticals budget, and local suppliers were in a position to
market at substantially lower costs. Following pressures from Roche and Merck, the
US announced that it would take Brazil to a WTO dispute if compulsory licenses for
local production were issued. Although the threat was subsequently withdrawn, it
highlighted the way in which rules can be distorted by political power.

Public campaigning on patents and health culminated in the Doha Declaration on

Public Health. This established the important principle that the TRIPS agreement can
and should be interpreted in a manner supportive of WTO members rights to protect
public health and, in particular, to promote medicines for all. As Ruth Mayne will
show in her lecture, the battle to translate these fine words into operational rules is not
yet won and there is a pressing need for simpler and more transparent procedures at
the WTO.

From a Chinese perspective a number of priorities suggest themselves. By virtue of its

generic industry, China is well placed to issue compulsory licences for local
production, and to strike hard bargains with patent holders over price. It is vital that it
uses this power under its existing patent law.

Looking beyond China, countries lacking a generic industry face serious difficulties in
making effective use of compulsory licensing. The current agreement fails to address
the concerns of these countries. In particular, it enshrines cumbersome bureaucratic
standards with a rule requiring dual compulsory licensing. That is, both the
exporting and the importing countries must issue licences. Inevitably, this
arrangement opens the door to a proliferation of legal challenges, corporate arm-
twisting in weaker countries, and delay.

Working with other generic suppliers such as India, Brazil, and Thailand, China could
do a great deal to help engineer a WTO regime that acts on the Doha commitment to
resolve tensions between patenting and public health. For example, China is a major
exporter of active ingredients used in the generic industries of other countries,
including weak industries in countries such as Bangladesh. Any curtailment in supply
would undermine capacity and leave importing countries vulnerable to pressure from
patent holders. Similarly, China is a major producer of drugs needed to combat
infectious and non-communicable diseases in some of the worlds poorest countries.
These drugs are vital to public health. And it is vital that China rigorously monitors
the TRIPS agreement to ensure that it is implemented in a way that does not erode
export capacity.

Looking beyond pharmaceutical, several commentators have asked whether, in one

area, China may have erred too much on the side of introducing strong IPRs. In the
copyright area, China provides TRIPS-standard protection for creative goods such as
software for up to fifty years. It is now considering the extension of patents to
computer programmes. As one commentator puts it: "For a software sector that
remains young and subject to considerable cross-fertilisation of software through
reverse engineering, such as choice seems questionable."

Conclusion
Chinese policy makers face immense challenges in balancing accession to the WTO
with public policies that address the underlying causes of poverty and inequality. In
some respects the country is in an ambivalent position. As a large, high-growth
market, China has become a natural focal point for northern governments and
corporate lobby groups seeking commercial advantage. Few other countries are under
such intense and systematic pressure to adopt externally-driven liberalisation models
in trade and finance. On the other side of the equation, market size confers a certain
degree of bargaining power, enhanced in China's case by a strong government that has
learnt the art of WTO negotiations over the past seventeen years. However, like other
developing countries China faces a problem of unequal bargaining power. Acting
alone, it is not well placed to change the rules that discriminate against Chinese
exports, or the double-standards that perpetuate unfair agricultural trade and threaten
the rural poor.

Forming coalitions and working with others is a natural response to systemic

inequality in many fields - and trade is no exception. As it showed at Cancun, China is
a potential leader of developing country coalitions within the WTO. It also stands to
gain from membership of coalitions in terms of securing reforms that widen the space
for domestic policy reforms. Stated differently, the developing world needs a strong
China at the WTO, and China needs allies in the WTO and beyond. For those
concerned to strengthen the links between trade and poverty reduction, there is no
alternative to working together. And saving the 'development round' by overcoming
northern intransigence is the place to start.
i
For example, tariffs on imports of soya are around 1 per cent. However, imported soya faces a
domestic value-added tax of 13 per cent, compared with a rate of 1 per cent for national soya
production.