As details unfold regarding the deal struck between the US and China on the terms of accession for Chinese membership into the World Trade Organization, there is cause for rejoicing and cause for worry. Certainly, the market access provisions seem close to the liberal package China agreed to in April and is therefore heartening. But on key issues such as administered protection through the use of selective safeguards and antidumping actions and transparency (relating to commercial law and legal due process), the deal appears wanting and potentially retrograde.
Finally, it appears that US negotiators have also missed an important opportunity to use the accession process to force the Chinese to introduce greater transparency in their commercial laws and administrative procedures as they affect foreign businesses and investors.
First the good news on market access and tariff reduction. Despite adamant opposition from strategic industrial sectors and their allies in Beijing, President Jiang Zemin (
In a separate automobile package, China promised to phase down tariffs from 80-100 percent to 25 percent by 2006 and grant foreign car manufacturers the authority to provide financing for car purchases. In addition, foreign auto companies are given full distribution rights, so that henceforth all foreign industrial manufacturers will be able to import and export without Chinese middlemen and provide after-sales repair and maintenance.
The most difficult issues arose in the services area, particularly with regard to telecommunications and financial services. And here, too, the new agreement comes close to the liberal concessions of April. Telecommunications companies, now restricted to equipment sales, will be able to control 49 percent of telecommunications service companies upon accession and 50 percent two years later. Despite statements as recent as last week from China's Minister of Information Industries, Wu Jichuan, that foreigners will not be able to invest in China's Internet operations, the current agreement does allow for such investment.
Finally, in the financial services (banking, insurance, securities), foreign banks will be able to conduct business with local enterprises in local currency upon Chinese accession; and after five years, these banks will be able to provide services directly to individual Chinese consumers. On securities, for fund management 33 percent ownership is granted upon accession, with this figure rising to 49 percent after three years.
The downside of the new agreement stems from the very long periods carved out for the US and other industrial nations to "manage" trade with China. Safeguards are actions that permit supposed temporary protection against a sudden influx of imports that threatens sudden injury to a domestic industry. Under current WTO rules, nations can institute them for a four-year period (renewable once). They cannot single out individual nations for special action, and they must gradually phase out the protection. Under the new agreement, however, the US forced the Chinese to accept this highly protectionist action for 12 years (in the crucial textile sector the special safeguards are allowed for nine years).
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