THE RAMIFICATIONS OF CHINA'S ENTRY INTO THE WORLD TRADE ORGANIZATION:
Will The Global Community Benefit?

By PETER K. YU

Tuesday, Dec. 04, 2001

In early November, the trade ministers of the 142 member states of the World Trade Organization (WTO) met in Doha, Qatar, and approved the proposal to admit China into the international trading body. In the words of Director-General Michael Moore, the decision was a defining moment that changed the world for the better. United States Trade Representative Robert Zoellick agreed and called China's admission to the WTO "a decisive step in shaping a global economic and commercial system."

Yet, notwithstanding the historical significance of the Doha decision, the ramifications of China's accession remain unclear. Whether China's WTO membership benefits the global community will depend on the kind of member China turns out to be: a team player or a rogue state. Although China may intend to be a responsible member of the WTO, the current socio-economic conditions in the country may make it difficult for China to do so.

The Optimists' View of China's Entry into the WTO

When commentators analyze the effects of China's entry into the WTO, they usually fall into one of two camps - the optimists and the pessimists - or a hybrid between the two, which considers China's entry a "double-edged sword."

The optimists maintain that China's entry will benefit not only China, but also the global community. As they explain, the international trading system can ill afford to have a player as major as China not playing by the rules of the game. Involving China in the WTO and obtaining deadlines for compliance therefore is preferable to having China outside the organization with no deadlines whatsoever. And China may be more inclined to adhere to those international norms that it helps to shape.

Moreover, according to the optimists, China's WTO membership will benefit the local Chinese people by lowering prices through competition, by enabling a more efficient operation of the Chinese economy, and by integrating the country into the global community. It also will create new jobs, attract foreign investment, acquire human talents, and provide the needed capital for the country's modernization efforts.

In addition, the optimists say, China's entry will promote the rule of law in the country, undercut the power of state to control the lives of its citizens, and accelerate China's transition from a command economy to a market economy. The WTO membership also will help modernize the accounting, banking, legal, telecommunications, and transportation systems, while at the same time reducing corruption, favoritism, and local protectionism.

The Pessimists' View of China's Entry into the WTO

By contrast, the pessimists contend that China's accession to the WTO may disrupt the global trading system. As they point out, China has a poor record of fulfilling international obligations. And if China's rogue state mentality continues despite its joining the WTO, its actions eventually may result in the collapse of the organization.

After all, the WTO is already under siege - facing severe criticism by the less developed countries and heightened media scrutiny since the violent protests in Seattle and Genoa. China's irresponsible behavior, the pessimists say, could cause other member states to lose confidence in the already-fragile global trading system.

Whether one belongs to the optimists' or the pessimists' camp will depend on one's confidence in China's ability to honor promises and to fulfill treaty obligations.

Pessimists generally cite two basic reasons to explain why China will fail to abide by the WTO rules. First, China might prefer to compete unfairly against other WTO members by free riding on the benefits of the global trading system. Second, China's socio-economic problems may be so severe that the Chinese leaders will not be able to honor their promises even if they want to do so. Given Chinese leadership's strong desire to minimize friction with other WTO member states, the latter explanation is more likely than the former to account for China's future reckless behavior.

China's WTO Membership Will Exacerbate Existing Socio-economic Problems

Since the reopening of China in the late 1970s, China's economy has been growing at an enviable average annual rate of about 7 percent. Unfortunately, this rapid economic growth has brought about serious domestic problems. These problems include decreasing control by the state, decentralization of the central government, significant losses suffered by the inefficient state-owned enterprises, the widening gap between the rich and the poor and between the urban and rural areas, massive urban migration, widespread unemployment, corruption, and growing unrest in both the cities and the countryside.

With the opening of China's market to foreign competition, these problems will likely be exacerbated. For example, the streamlining, restructuring, and closure of state-owned enterprises may lead to massive layoffs while automation and high-technology equipment may transform labor-intensive industries. As a result, the Chinese economy will undergo major structural changes, and tens of millions of farmers and workers may lose their jobs over the next five years.

This daunting array of domestic problems will become even more important as the third-generation Chinese leaders - such as Jiang Zemin, Zhu Rongji, and Li Peng - are pondering retirement. To prepare for the internal battle over succession leadership, the various factions within the Chinese Communist Party are busy jockeying for position in the run-up to the 16th Communist Party Congress next year, in which new party and government leaders will be selected.

To gain political capital, the conservative hardliners may use the domestic problems caused by China's entry into the WTO to discredit their reformist counterparts. Meanwhile, the reformist leaders may take a cautious approach and put off difficult and risky policies until they consolidate their political power. Under such a political climate, reforms - including those that are needed for China's transition efforts - will likely slow down, if they continue at all.

Furthermore, the WTO membership may bring about changes that redefine the way people conduct business, achieve success, and obtain power in China. While foreign businesspeople are generally frustrated by the lack of rules and certainty in China's business environment, many local Chinese entrepreneurs have been very successful and are able to master the rules of the game, conquer the bureaucratic maze, and develop guanxi (personal connections) that enable them to prosper in society.

However, with the introduction of new rules required under the WTO, these people may have to play a different game - a game that is new, unfamiliar, and very different from the one they had mastered. Even worse, many of them may have difficulty in adjusting to the new system and thus will suffer from reduced income, lower career satisfaction, and deteriorating living conditions.

As a result, many of those who used to prosper under the old system will find the new system very unappealing, or even irritating. Social unrest may become widespread, and people may question the legitimacy of the Chinese Communist Party's leadership.

Finally, to provide social control and curtail instability in light of the challenges posed by China's accession to the WTO, the Chinese authorities may adopt harsh policies and draconian measures that undermine civil liberties and human rights. The authorities also may tighten their information control policy to minimize criticism of the government and to reduce channels through which people can voice their grievances.

The Next Five Years Will Be Critical

In the next five years, China will face significant challenges as it makes its transition to the new regime under the WTO. Combined with the existing socio-economic problems, these challenges will make the transitional period critical.

If, despite these challenges, China can remain stable and overcome the short-term hardships created by its entry into the WTO, joining the organization will benefit the country. The WTO membership also will benefit the international community - for it likely will induce China to become a team player in that community.

However, if China fails to cope with its upcoming challenges, the country may suffer setbacks that have the potential to erase the progress China has made in the past two decades. Under this scenario, the conservative leaders may replace their reformist counterparts, and China may retreat into a new kind of isolationism.

In addition, the Chinese may blame the Western developed countries and the international global trading system for the country's failure to modernize. There also might emerge new forms of nationalism and xenophobia that are more radical than the ones we saw shortly after the U.S. bombing of China's embassy in Belgrade or after the recent spy plane incident.

The Irony of China's Accession to the WTO

It took China four U.S. presidents, two paramount leaders, 15 years of negotiations, and dozens of negotiators to complete its quest to join the WTO. Yet, when the decision was finally announced, the world was not particularly excited about it.

When one recalls the fanfare two years ago when China reached its accession accord with the United States, the media's treatment of the recent WTO decision makes this historic moment seem like a non-event. This stark contrast was brilliantly captured by a cartoon in the South China Morning Post, in which a panda jumps over the final hurdle only to find out that nobody is watching.

Undeniably, the United States and its Western partners are preoccupied with their war against terrorism. However, terrorism is not the only reason why global leaders are lukewarm about the Doha decision.

After all, a lot of questions remain unaddressed: Will China be a team player or a rogue state? Will China keep its promises, comply with deadlines, and fulfill its treaty obligations? Will China play an active role in future WTO rounds of talks? Will China take an active stance in setting the new international trade agenda? Will China's WTO membership give Asian countries greater bargaining power within the international trading body? Will China create tension within the WTO by alienating those less developed countries that have to compete with China for foreign direct investment and export markets?

There are no easy answers to these questions, and the future prospects of China's entry into the WTO remain uncertain. But at least we now can confidently answer one question that has been asked repeatedly in the past decade: When will China finally become a member of the WTO? By the end of this year, it will.


Peter K. Yu is Acting Assistant Professor of Law, Executive Director of the Intellectual Property Law Program, and Deputy Director of the Howard M. Squadron Program in Law, Media & Society at the Benjamin N. Cardozo School of Law, Yeshiva University. He also is Research Associate of the Programme in Comparative Media Law & Policy at the Centre for Socio-Legal Studies, University of Oxford. Professor Yu's book Reinventing U.S.-China Intellectual Property Policy: Forging a Sustainable Partnership in the Twenty-first Century is forthcoming from Kluwer Law International.

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