Why I'm an optimist about WTO implementation in China

Aviation standards-setting in China dates back to the normalization of US-PRC relations, when China regained its seat in the International Civil Aviation Organization (ICAO), the international standards-setting organization for aviation. Aviation, like banking and telecommunications, is an industry without borders, and implementation of international standards is critical to the safety and efficiency of the system.

As is true of the WTO today, when China rejoined ICAO, there were many ICAO standards it did not meet. But over the past 25 years, the ICAO standards and recommended practices have clearly become the framework that guides China's aviation leaders.

Chinese government officials' reliance on ICAO standards came about as a result of a mixture of pressures. While the specific pressure points are likely to vary in other sectors covered by the WTO, the aviation standards-setting experience provides examples of the types of forces that can prompt change in Chinese standards and methods of governance.

Round one: commitment and cooperation

The aviation story illustrates that the success in this sector has involved strong leadership from the General Administration of Civil Aviation of China (CAAC), and its effective and consistent interaction with its US counterpart, the Federal Aviation Administration (FAA), as well as the US aviation industry.

Twenty years ago China, like many countries around the world, had a strong, nationalistic desire to develop its own air-transport manufacturing capability. In the 1980s it found a Western partner in the McDonnell-Douglas Co., which was seeking entry into this potentially lucrative market. The result was one of the largest technology-transfer deals in aviation history, which included the assembly of MD-82 aircraft in Shanghai.

But the deal hit a snag--it needed approval from the FAA, the US safety regulatory organization. If an American aircraft manufacturer was going to assemble aircraft overseas, the FAA insisted there be a competent safety oversight authority in that country that could provide surveillance.

This was a new concept for the CAAC, at that time organized along the Soviet-style central-planning model under which a single organization controlled all aviation functions. Regulatory safety standards did not exist, nor was there any independent, Western-style oversight of the industry. The regulatory and oversight concepts that the FAA required, while new to CAAC, were in fact based on those of ICAO.

The institutional changes that the FAA's requirements implied were no doubt highly controversial within China's aviation circles, as the structure that the FAA advocated meant fundamentally changing the relationship between CAAC and China's aircraft and equipment manufacturers. There is also no doubt that CAAC's ultimate success in building an aircraft-certification oversight organization from scratch was due to strong, visionary, and persistent l eaders who were committed to establishing this new government-oversight system.

Credit also goes to the FAA, whose safety-regulatory leaders made a commitment to provide (CAAC-funded) technical assistance. Together, the FAA and CAAC devised a technical-exchange program through which CAAC developed a manufacturing-oversight capability meeting international standards. Both government and industrial collaborations were successful, and China assembled 35 MD-82s in Shanghai, some of which fly in the US fleet today. Most significantly, CAAC had taken its first major step toward organizational reform and implementation of internationally recognized standards.

Round two: carrier oversight

For nearly a decade, the application of international standards was primarily limited to aircraft manufacturing--until new circumstances in China again challenged CAAC's traditional way of governing. The decentralization of air carriers that began in 1988, combined with rapid growth of the aviation system, resulted in a problem other countries have faced in times of rapid expansion--a poor safety record. By 1994, a series of Chinese air-carrier accidents had resulted in some 400 deaths.

China's leaders were again forced to react. As a first step, CAAC's leaders used a patchwork of administrative guidance to bring the accident rate under control, though these measures had very limited enforcement authority. CAAC looked inward and determined that China needed to craft a new organization to oversee air carriers.

CAAC, remembering its positive experience working with the FAA and US industry in the manufacturing area, began looking for international partners to tackle this new problem. In addition to seeking assistance from US industry, CAAC invited an FAA team to China to help evaluate its current airline-oversight capabilities and lay out a plan for the future. Again, the standards used were not those of the FAA, but those of the ICAO.

By 1996, CAAC had made progress in writing a new air-carrier oversight regulation based on ICAO standards. An example of an important ICAO standard that CAAC adopted was China Civil Aviation Regulation Part No. 121, implemented in 1998, which provides the operational safety standards for China's 27 commercial air carriers.

Chinese air carriers vehemently resisted CAAC implementation of these new standards, as it meant putting in place procedures that would be subject to CAAC scrutiny. But at the same time a new pressure emerged: Chinese carriers were demanding greater access to the US market. To expand, FAA regulations required that CAAC base oversight of i ts air carriers on ICAO standards. If PRC air carriers were to have the market access they desired, they had no choice but to implement the new ICAO-based regulations and allow CAAC inspectors to review their operating and maintenance procedures extensively.

That desire for international market access broke the impasse. Today CAAC continues its work of implementing these standards with all of its airlines, the result of which has been a safer aviation system.

This partnership has served American interests well. Most important, it has resulted in a safer aviation system for the 60 million people who fly in China each year. The use of ICAO standards has also benefited US aviation manufacturers and suppliers competing for business in the China market.

Lessons for WTO implementation

As we look toward developing the architecture of the US-China economic relationship in the WTO framework, we should take advantage of the lessons learned from our success in the aviation sector. For China to devise modern tools and policies for governing under WTO rules, it will need input from a variety of sources. The US insurance industry, among many other well-organized US sectors, already provides advice to the Chinese government bureaucracies that govern its PRC operations.

However, our aviation experience suggests that we should also encour age a policy that builds strong, long-term ties between US government regulatory organizations and their Chinese counterparts. To take the WTO standards from concept to implementation, Chinese regulators need role models, coaching, and advice from colleagues who have faced similar policy challenges.

And as we have seen with the aviation relationship, when the bureaucratic pressures emerge, a trusted partnership between US and Chinese technical governmental bodies can be helpful in brokering solutions and moving the international standards-setting agenda forward--which is in all of our interests.