America has finalized its negotiations over permanent normal trade relations (PNTR) with China. The move was approved by an 83-15 vote in the US Senate in September and signed into law by President Clinton. Chinese goods can now enter the US with the same tariff treatment as products from most other countries. Despite this positive move, China's bid to join the World Trade Organization (WTO) lost some of its momentum. European Union officials have withdrawn their complaint that Beijing broke its promise to liberalize its domestic market for insurance. After agreeing to provide seven new licenses to European insurance companies within 60 days of their agreement in May, only two have been issued so far. There was also a pledge to allow foreign firms into its mobile phone market, but it was suggested that foreigners must do this by working with one of China's three state-owned telecom enterprises.
Beijing continues to refuse to concede to demands made by the US and other Western countries to undergo major legal reforms and to give details on how other obligations relating to trade will be met. Of course, this is not surprising. Supporters of China's application seem to have failed to notice that China has few trained judges to administer the rule of law if it were to be implemented. This raises serious questions over China's capacity to enforce its obligations. While enforcement is impaired by the lack of adherence to the rule of law, Beijing also seems unable to control widespread corruption or to impose its will on the provincial authorities.
In all events, China has combined some backsliding with overheated rhetoric that assailed WTO members for having the temerity to request details on Beijing's plan for implementing its commitments. This sort of behavior confirms this skeptic's view that China is incapable of honoring its commitments consistently. Meanwhile, Western consensus in favor of WTO membership has been weakened. In particular, the US is unhappy over a lack of details on Beijing's enforcement of WTO rules on intellectual property. China has also failed to provide specifics on the treatment of foreign companies seeking to operate there.
Expect considerable squawking by the business groups that lobbied so aggressively on China's behalf during its earlier round of bilateral WTO negotiations. But this noise should be seen for what it is. They are arguing for changes that serve their own self-interest while disguising their claims as being based upon (illusory) benefits to be shared with wider groups. Beijing must offer concrete proposals for the implementation of trade-opening commitments it has made to indicate its willingness to uphold them while providing evidence of a capacity to do so. This is because there are so many opponents to WTO membership inside China, including Beijing's own security services and many state-owned enterprises. These naysayers obviously have little appreciation for the win-win prospects of free trade, a notion introduced two centuries ago by Adam Smith and confirmed by continuous evidence since then. Joining the WTO will force dramatic changes in business operations of Chinese enterprises. Export subsidies provide significant support for its domestic enterprises while many of the loans by state banks are essentially gifts to failing state-owned enterprises. Along with subsides, tariffs must also be cut on agricultural and industrial products as China's domestic markets open up to more foreign competition. Most foreign companies were required to take on a local Chinese partner to assist them in selling, distributing and marketing their products.
Beijing will have to adopt and rigorously enforce copyright and trademark laws while establishing transparent rules on issuance of business licenses. There is a need for a competent and independent judiciary to preside over contract disputes in a non-discriminatory manner. As it is, Beijing does not exercise full control over either external or internal trade. Although protectionist barriers between provincial frontiers have been banned, this practice continues. There can be no guarantee of foreign access to its markets unless Chinese products can move unhindered within its own borders. Officials at the local level must join central government regulators to administer their obligations of WTO membership. Non-discrimination relating to foreign products or businesses is a key element of WTO principles. However, China currently has two separate agencies to inspect and certify goods depending upon whether they are produced domestically or imported.
One element of WTO participation is divorcing trade issues from political considerations. Beijing agrees fully to this point when it comes to questions about internal questions about human rights or its suppression of pro-democracy campaigners or religious minorities. However, China's leaders masterfully combine the two when it serves their interests, such as threatening retaliation against countries that recognize Taiwanese sovereignty. It is fatuous to believe that Beijing's participation in the world trade body will motivate and speed up economic and political reforms. This is because China's pace of reform is much more dependent upon political intrigue and economic realities generated internally than it is upon any external conditions.
In all events, it matters little when or if Beijing enters the WTO. If the purpose of membership is to engage in more free and open trade or to motivate internal reform, formal agreements with outside parties are unnecessary. Instead, China should pay heed to the slogan for Nike and just do it!
Christopher Lingle is global strategist for eConoLytics.com and author of The Rise and Decline of the Asian Century. His e-mail address is: CLINGLE@eConoLytics.com
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