Michael Ochs Econ 508 Belton M. Fleisher

China and the WTO

Geography

 Located in E. Asia   4 th largest country in the world (size wise) Terrain: mostly mountains, high plateaus, deserts in west; plains, deltas and hills in the east

Population

 1.3 Billion  Age 0-14: 21.4%  Age 15-64: 71%  Age 65 and older: 7.6%  Median age in China is 32

Economy

  4 th 9 th largest GDP (ppp) largest GDP Real Growth Rate  GDP By Sector: -Agriculture: 14.4% -Industry/Construction: 53.1% -Services: 32.5%

Labor Force

 Largest Labor Force in the world (791.4 billion)  Half of Labor Force is in agriculture  Industry and Service provide the other 50%  Unemployment rate is 4.2%

   4th largest in exports 4 th largest in imports Main Trade Partners: -USA -Japan -Hong Kong -South Korea -Taiwan

Trade

What is the WTO?

      World Trade Organization International, multilateral organization which sets rules for global trading system Resolves disputes between member states As of December 2005, there were 150 member states All member states must be signatories to its about 30 agreements.

Main goal is to encourage smooth and free trade

China entry to WTO

   China was voted in as a member on November 11, 2001 but became an official member one month later, December 11, 2001 In order for China to gain member status, China had to agree to separate negotiations with all of the current WTO members China tried to get member status for 15 years prior to 2001

Timeline for Qualification

1986 -- China applies to join General Agreement on Tariffs and Trade (GATT), predecessor to WTO. 1989 -- China's suppression of pro-democracy demonstrators in Tiananmen Square on June 4 derails negotiations. November 1995 -- China unveils economic and trade reforms aimed at winning U.S. backing to enter the WTO. It plans to slash import tariffs by 30 percent and allow joint venture companies to be set up. April 8, 1999 -- President Bill Clinton and Premier Zhu Rongji sign a joint statement in Washington welcoming substantial progress and committing them to completion of a WTO deal by the end of the year. The gap is closed on about 90 percent of WTO issues. May 7, 1999 -- China freezes WTO talks after NATO forces accidentally bomb the Chinese embassy in Belgrade. September 11, 1999 -- Clinton and Chinese President Jiang Zemin agree on the sidelines of the Asia-Pacific Economic Cooperation (APEC) forum in New Zealand to resume WTO negotiations. November 15, 1999 -- U.S. and China announce a WTO pact. China agrees to open a wide range of markets, from agriculture to telecommunications. Clinton must persuade the U.S. Congress to grant China permanent normal trade relations (PNTR).

Timeline for Qualification

May 19, 2000 -- The European Union signs a WTO accession pact with China October 10 -- Clinton signs a law giving China normal trade status with U.S. January, 2001 -- Further multilateral talks end in acrimony as China and some WTO members disagree on farm subsidies. June 9 -- China and the U.S. announce consensus on issues holding up China's entry, including farm subsidies, after meetings on the sidelines of an APEC trade ministers' meeting. June 20 -- The European Union says it has resolved outstanding bilateral issues with China over its accession. September 14 -- WTO members agree on terms for China's entry at an informal meeting, clearing the way for the nation to join by the end of the year. November 10 -- Trade ministers from across the world officially approve China's entry. The move was approved unanimously at the WTO meeting in the Gulf state of Qatar December 11 -- China ends its 15-year quest to join, officially becoming a fully-fledged member of the international trading system. http://archives.cnn.com/2001/WORLD/asiapcf/east/09/18/china.wto.timeline/

What has been changed/reformed?

        China’s entry into the WTO set in motion the most far-reaching reforms since Beijing since 1978.

Over 1100 laws and regulations have been changed since 2001 China can not impose one level of barriers (e.g., tariffs) against one member country and another level for others China will participate in the WTO's dispute settlement system Manufactured goods saw the largest decrease in tariffs.

Tariffs were eliminated on computers, semiconductors and other information technology products in compliance with the Information Technology Agreement In agriculture, it has pledged to bind all tariffs and reduce them from an average level of 31.5 percent to 17.4 percent Foreign car makers will be able to distribute and retail vehicles on their own, and provide financing to buyers.

What has been changed/reformed?

   China has promised to open its telecommunications, financial services, distribution, and many other industries to foreign service providers. Pledged to apply its trade policy uniformly across the country and to enforce only those laws, regulations, and other measures that have been published beforehand. Agreed to eliminate all prohibited subsidies (including those to state-owned enterprises), liberalize trading rights, and require state trading companies to conduct their operations in a commercial manner. http://www.imf.org/external/pubs/ft/fandd/2002/09/adhi kari.htm

WTO Entry Boosts Economy

    GDP grew by 7.9% in the year following entry to WTO Increase of 18.4% in trade volume with the United States after one year China’s exports increased by 19.7% after one year Due to improved trading environment, China became the 4 th largest trade body in the world behind only the United States, EU and Japan

Foreign Investment

    Influx of foreign investment has increased rapidly since entry to WTO because of increased confidence from multinationals China experienced an increase of 22.55% in foreign direct investment one year after WTO entry Foreign Investment has exceeded the United States, making the country the largest foreign investment destination in the world Low cost labor and vast market, which provide a great scope for profit, make investors confident in investing time and resources into China

Private Sector

      Private Sector has seen rapid growth after being discriminated against in the past Private Sectors have been barred from direct foreign trade Financing had been blocked by government policies which blocked growth WTO policies forced China to treat all enterprises, whether state owned or not, equally All domestic enterprises can trade freely and idependently in foreign trade In Zhejiang Province, for example, 80 % of the 1,700 enterprises that were granted the right to conduct foreign trade this year are private firms. In the first nine months of this year, the foreign trade volume of those private companies was 3.5 times that for the same period last year.

Benefits for United States: Agriculture

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China’s entry into the WTO will cut barriers to the sale of American Agricultural products This agreement will expand America’s access to a market of over a billion people

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Tariffs have dropped from an average of 31% to 14%

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beef, poultry, pork, cheese, and other commodities will experience a more significant drop -China is the world’s largest consumer of pork and up until recently they have had high import tariffs

Tariff Reductions

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2.

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What does the future hold for China in the WTO?

Economic growth will continue and more reforms will be made China will have access to advanced technology By 2010, all of China’s tariffs will eventually be reduced to 15% Banks will begin to launch massive market oriented reform programs to prepare for competition from outside markets Business standards will continue to rise Chinese citizens will begin to receive 3 key things: More Rights Better Government Services Equal Treatment

Final Question

 As China’s economy grows, so does their demand for energy. This is reflected through examples like cnooc’s attempted acquisition of Unical and China’s involvement with anti-American nations like Iran and Sudan. -How will China’s acquisition of energy in anti-American countries change the China U.S. relationship?

The End