Accession to the WTO is a two-track process. The bilateral agreements
have to be concluded and deposited with the WTO secretariat as a first
step. These then need to be accepted by all WTO members, and upon acceptance,
automatically get multilateralized. Simultaneously, the second track
of multilateral agreement also has to be negotiated to the satisfaction
of all member countries. Only after that, the accession by consensus
takes place. If any member country raises an objection at any stage
of negotiation, the membership cannot be granted.

As regards the current status of negotiations for China, a total of
45 bilateral agreements are to be concluded before China gets an entry
into the WTO. Out of these, 36 have been signed, chiefly triggered by
the November 1999 agreement between the U.S.A. and China. Out of the
remaining nine, the three most important ones that have not been signed
are with New Zealand (dispute over kiwis, oranges and fruits), Israel
and Mexico. The Chinese believe that the Mexicans have been put up by
the Americans to make life difficult for them. The issue at stake between
China and Mexico is the grandfather clause on anti-dumping duties. According
to this clause, all the anti-dumping duties imposed by Mexico would
be withdrawn once the bilateral agreement is concluded. The Mexicans
however, want the duties to be retained.

It is worth nothing that at present there are 29 countries waiting in
the wing to join the WTO. The most recent entrant was Moldova and that
was done fairly recently. Russia is an important non-member and the
Russian entry into WTO is seen at least 10 to 12 years ahead. Iran wants
to join the WTO but again serious negotiations have not taken place
with Iran. However, Chinese entry into the WTO would be a critical test
not just for Chinese ability and willingness to become a member of the
WTO, but also of how robust the WTO accession process is.

China and the WTO- Five Points of Disagreement

There are certain fundamental issues that still divide China and the
WTO working party in the context of multilateral negotiations.

A major issue relates to China’s stand that it should be treated as
a developing country, since their per capita income at $790 is below
the threshold. On the WTO Agreement on Agriculture, this has bearing
on how the AMS (aggregate measure of support) is determined. The AMS
calculations for China, however, reveal that in 2000 the AMS was about
2 per cent of the value of production. This is within the de minimus
level irrespective of whether China is treated as a developing or developed
country. Since the flexibility that the Subsidy and Countervailing Measures
Agreement (in WTO) gives to developing countries is much more than for
developed countries, this is another reason the Chinese want to be treated
as a developing country .The Europeans, Americans and the Japanese,
however, are worried about dumping from China. Hence they do not want
China to be accorded the status of a developing country.

Another important difference relates to technical agreements with respect
to the use of safety, assessment, and certification processes. Chinese
regulations exist only on paper and are pretty non-transparent. According
to article X of the erstwhile GATT, transparency is a very essential
element of the accession process. This is the Achilles heel of the Chinese
entry into the WTO since there is virtually no transparency. This is
particularly true for technical barriers to trade.

Trading rights are not available to foreign firms in China. A Chinese
firm can import for local distribution, but foreign firms cannot. The
Chinese law distinguishes between Chinese firms, Chinese firms with
foreign equity and wholly owned foreign firms.

Only wholly-owned Chinese firms can import for trading, i.e., for local
distribution. Other two categories also are allowed to import, but only
for use in their own manufacturing process. The Europeans, the Americans
and the Japanese are insisting on market access for trading firms in
non-wholly owned enterprises, whereas the Chinese are reluctant to grant
trading rights to foreign firms. A related issue is that there is no
national law in relation to trading rights of foreign firms in China.
Shanghai may have its own regulations, which might be different from
that of Beijing which is an independent municipality. Since the WTO
accession requires a single point access to all these regulations in
a transparent manner, national regulation is important.

Finally, there are some technical issues relating to services sector
offer, particularly in relation to insurance and financial services,
where the Americans are not happy with the national treatment provisions
that the Chinese have put ill. Incidentally, the Chinese offer on services
is far more liberal than that of India. In telecommunications India
has still not offered 50 per cent foreign equity directly in basic telecommunication
services, whereas the Chinese have done so. In Insurance, by law, we
do not permit more than 26 per cent, whereas China is much more liberal.
They are much more liberal in banking as well as in. most other services
like accountancy and legal professions. This may well be because they
do not have a large enough base of domestic accountancy firms and domestic
law firms. The Americans and the Europeans, however, feel that the Chinese
offer does not go far enough, particularly so far as national treatment
is concerned.

Is Chinese membership of the WTO likely by November 2001?

With most of bilateral agreements in place and with the multilateral
agreement now in its concluding stages of negotiation, the expectation
is that China would join the WTO’ by the time the next Ministerial meeting
takes place at Qatar in the first week of November. There are impediments,
however.

There is a general weakening in the US-Chinese relations. China has
shifted from being a strategic partner of the us to its strategic competitor.
Besides, China does not figure at all in President Bush’s legislative
agenda for 2001 which includes a global round of negotiations, a regional
round of negotiations for the free trade agreement for the Americas
by January 2005 and a bilateral route for negotiations. In the bilateral
route, three countries- Jordan, Singapore and Chile -have been identified
for further bilateral negotiations towards a free trade agreement in
addition to a bilateral preferential trade agreement with Vietnam and
Laos. This is unlike during the Clinton administration when China’s
entry into the WTO was seen to be a major achievement for the US.

There is also a technical problem. The US Congress extended PNTR to
China in 1999 and then subsequently in May 2000 on the condition that
the US President would certify to the Congress that the WTO multilateral
agreement is as beneficial to the Americans as the bilateral agreement
that China and America had signed in 1999. The last date for fulfilling
this condition is June 3, 20011. The multilateral agreement however,
has not been concluded yet. If this certification does not take place
by June 3, China loses its PNTR status with the US. It reverts to a

There was a provision in last year’s (2000) legislation approving
PNTR that China join the World Trade Organization by June 2001. Because
China failed to meet that deadline, US lawmakers had been preparing
for another PNTR vote. But on June 11, 2001, US and Chinese trade negotiators
reached an agreement on key outstanding bilateral issues. “It now appears
that Congress need only one last time -for the span of just a few months
-before China becomes a full member of the WTO.” China has now completed
all of its bilateral talks on WTO entry except for Mexico and Central
America. Source: Asia Times Online, 12 July, 2001 in WTO Press review
dated 12 July 2001.

conditional MFN regime which then means Dalai Lama, prison labour, ‘three
gorges project’ etc. All the non-trade issues come into the fore during
negotiations for the MFN renewal. As of now it appears that the June
3 deadline is unlikely to be met which means that the negotiations on
the multilateral agreement would slip. In that event, China’s entry
into the WTO will certainly not take place in November 2001. It would
slip, if not till the next Ministerial in 2003, then certainly until
sometime towards the latter part of next year. As of now it does look
that Chinese entry into the WTO is not on the cards in November 2001.

Opposition to WTO in China I went to China at the invitation of the
National People’s Congress which is their equivalent of the Indian Lok
Sabha. My interlocutors were Members of provincial Congresses and the
National People’s Congress. I saw that there is opposition to the WTO
membership in China as well. Zhu Rongji is a great moderniser. He is
the man spearheading Chinese membership of the WTO. He gives up his
office of Premier in May 2002. He wants to go down in history as the
man who got China into the mainstream of international trade and international
economics, exemplified by the WTO. Jiang Zemin, unlike Zhu Rongji, is
much more lukewarm. He has never come out openly in favour of China
joining the WTO. Li Peng is a hardliner. He is the third most important
man in the Chinese hierarchy. He is the Chinese counterpart of the Lok
Sabha Speaker. He was the prime mover in the Tiananmen Square incident.

The National People’s Congress would not be unhappy to see the delay
in China’s entry into the WTO. They are aware of the fact that China
has become the world’s tenth largest trading nation, with international
trade at US$ 470 billion constituting 40% of GDP. China has also cornered
the world market for garments, for plastics, for toys and for semi-conductors.
And all this was achieved while remaining outside the WTO. Then, why
enter the WTO and be subject to Anglo-Saxon nuisances like transparency
laws? There is a very strong lobby in China which would not be unhappy
-although they are not actively opposing the WTO -if there is a delay
in the WTO entry process. But Zhu Rongji and the Ministry of Foreign
Trade and Economic Cooperation (MOFTEC) have made China’s entry into
the WTO almost a prestige issue.

It is remarkable how proactively the Chinese political leadership is
talking about the benefits of China’s entry into the WTO and what it
means for China. The day I landed in China there was a big trade war
between Japan and China. Japan imposed 300 per cent duty on the import
of Chinese spring-onions which the Japanese felt was flooding their
market. Chinese political leadership seized this opportunity to publicly
talk about the benefits of WTO membership. On State-owned television,
Zhu Rongji’s people were seen talking that such unilateralism by the
Japanese would not have been possible if China was a member of the WTO!
It was a remarkable expression of aggressive intent on the part of the
political leadership to come out and say that there are benefits of
WTO membership. The government is continuously reinforcing this message
through print media that to sustain China’s 8 per cent plus economic
growth performance, its extraordinary export performance and its FDI
drive, WTO membership is a sine qua non.

Interestingly, India views the WTO largely in the context of international
trade but Chinese view it complementarily with investment because of
the intimate nexus. between Chinese trade and foreign investment. When
they talk about WTO they talk about not just international trade but
also about creating a hospitable environment for foreign investment.
Here is a country that is getting US$ 40 billion plus of foreign investment
every year and is talking about creating a hospitable environment for
foreign investment. They realize that getting US$ 40 billion is not
enough and they need much more. My interlocutors at China were from
provinces and they advanced arguments which are similar to those advanced
in India. These provinces were as opposed to the WTO as my colleagues
in the Congress party or many colleagues in the BJP and CPM.

The federal map of China is being re-drawn. China is moving from being
a decentralized dictatorship to a centralized democracy. This is one
of the great paradoxes of political economy. We tend to think that democratic
India is more decentralized than dictatorial China. All fiscal indicators
in China indicate that China is much more decentralized. For instance,
the Centre’s share of revenue collection is about 62.5 per cent in India,
whereas in China the Centre’s share of revenue collection is 40 per
cent. India has been more of a centralized democracy and China has been
more of decentralized dictatorship. But in the last five years the WTO
has been used creatively by Zhu Rongji and others to take power away
from the provinces and the municipalities and vest it with the federal
government. China, for instance, has only one rate for value added tax
(VAT). Even though this was opposed by the provinces as well as by people
in the National People’s Congress. The unstated principle in the discussion
was that the Chinese would like to see an increasing share of revenue
being collected not by the provinces but by the Central government.
It is interesting that India is consciously moving in the opposite direction.

One of the requirements of article X of GA TT is transparency. China
does not have one law. There are provincial laws and municipal laws.
The Mayor of Shanghai is more powerful than perhaps even the Prime Minister
of India. With the WTO membership the provincial powers would be curtailed.
They would be subjected to some centralized bureaucracy. This is a big
fear in the provincial Congresses, although they are all part of the
Communist party.

It is also worth noting that although it is a one party system in China,
the Chinese Communist Party is more democratic than the Congress Party
and the BJP put together. Neither the Congress nor the BJP would ever
have the courage to pass a resolution and say Jawaharlal Nehru or Deen
Dayal Upadhyaya were 60 per cent right and 40 per cent wrong! This is
precisely what the Chinese communist party did in 1982. They passed
a resolution saying that Mao was 70 per cent right and 30 per cent wrong.
It is called the 70-30 rule. In China, despite a one party system, the
level of discussion and debate that takes place is of a very high order.
It is a plurilateral system of discussion. Once the discussion is over
and a decision is taken, the implementation and enforcement is easier.

One important feature of China which cannot be ignored is that the politics
of China is changing. China is growing from being a fiscally decentralized
conglomerate to a fiscally more centralized system of political management,
and what this does to province-centre relations time alone will tell.
But it is certain now that the dice is heavily loaded in favour of the
federal government. The provinces which have enjoyed great fiscal autonomy
are now beginning to react negatively, and they are now forming a phalanx
of opposition to the WTO.

The WTO and Law

In India, there are many trade experts, and only a few lawyers, dealing
with the WTO issues. The Chinese have realized that the WTO is increasingly
about law, and have sought German assistance in building up their legal
system. The Chinese feel more comfortable with the Germans, and are
not too happy with the Americans.

Perhaps because Germany is seen to be one of the very few countries
that did not impose their will in pre-Communist China. The Japanese
occupied China, the British put the treaty of Nanking and the opium
trade and the Americans had their own protestant missionaries. Germany
is seen to be much more friendly. The Germans

Sixty per cent of all cars sold in China are volkswagon cars. So
there is a special relationship. Germany gets treated differently in
China and there is a great respect for Germany.

have a big project with China for redrawing their entire legal apparatus.

There are three pillars of law, viz., the law itself, the enforcement
of the law and the conflict resolution mechanism available in the law.
The Chinese have laws covering everything. The enforcement of the law
and the conflict resolution are big question marks. For example, they
have intellectual property rights protection; they have trade mark laws;
they have patent laws. But it is common knowledge that they are the
largest software piracy market in the world. In fact, the story in the
IT industry is that copyright means right to copy! And the Chinese have
mastered that.

In China, the distinction between administrative regulation, internal
directive and law is very thin. A transparent set of regulations which
are enforceable and which are contestable judicially are steps in the
legal process that the Chinese have yet to take. And this is actually
becoming a big constraint to them in their WTO accession. It would remain
a constraint even after they have entered the WTO. Chinese would absorb
a large share of WTO’ s dispute settlement time.

India too cannot boast of its legal system. India has laws, but the
enforcement remains weak. And the conflict resolution in terms of WTO
laws remains to be tested. India certainly has more lawyers than China
has. But it is contestable if India has far greater body of trade law
than China. However, India does score over China in terms of having
greater experience in the enforcement machinery through the court system.