WTO This Time?

The United States and China both understand that the often talked-about "window of opportunity" will close soon

Robert A. Kapp

US-China discussions on the terms of China's accession to the World Trade Organization are again intensifying in the run-up to the anticipated visit of Premier Zhu Rongji this spring. It is much too early to predict that agreement can be reached, but the wintry certainty that absolutely nothing is possible has melted a bit as the two sides increase the pace of their discussions.

At the dawn of China's reform era, in 1978, China's total foreign trade amounted to $20.6 billion; it ranked 32nd among the world's trading nations. Foreign investment in the PRC was negligible. In 1998, China's foreign trade reached an estimated $315 billion (in unadjusted dollars); China was the 10th-ranked trading nation on the globe in 1997. Total contracted foreign investment in China at the end of 1998 stood at roughly $567 billion. US contracted investment in China now totals roughly $46 billion, and installed American investment amounts to $21 billion. China is today the 4th-ranked US trade partner, and the United States is the 2nd-ranked Chinese trade partner.

China has been seeking full participation in the world's rules-based trade body-now called the WTO-for thirteen years. Ultimately the entire WTO membership will have to reach consensus on China's accession. But the critical step on the way to any accession is the achievement of bilateral agreements with individual trade partners, spelling out the commitments that the party seeking accession is prepared to make and live by. In the Chinese case, the bilateral negotiating process with the United States has been difficult and protracted. While China has yet to reach final bilateral understandings with other key trade partners including the European Union and Japan, most observers recognize that the bilateral with the United States is crucial-not only in the sense that no WTO membership is possible without a US-China deal, but also because the terms reached in a US-China understanding are likely to be satisfactory in most instances to the needs of China's other negotiating partners.

There seems little doubt that, if the United States and China do not settle their many WTO differences in the next few months, China's WTO prospects will dim markedly for a period of several years at least, thanks in part to the US political calendar. Meanwhile, the WTO will not sit still; the organization, whether China is a full-fledged member or not, is set to embark on a new round of rule-writing and system-building this fall. The United States and China both understand that the oft en talked-about "window of opportunity" will close soon. Thus the emergent signs of an intensifying US-China dialogue on WTO are of interest to US business, among others.

This is no time for bald predictions of brilliant success or abject failure. But it is time to think about what will happen if the two sides should cobble together a set of WTO terms in time for the premier and his American hosts to announce progress this spring.

In the end, substance is absolutely critical on WTO accession: the terms to which the two sides agree must clearly and convincingly demonstrate that unmistakable economic benefits will flow from China's accession on the agreed-upon basis. If a US-China WTO understanding should emerge from the current stepped-up negotiations, what will it be and what won't it be?

It will be substantive and far reaching. It will merit the most serious consideration by all interested parties. It should and probably will be intensely practical. It will not, however, be magical. Some say that a WTO package needs to be a "grand slam home run" if it is to survive in an unfriendly Congress, which must after all enact Permanent Normal Trade Relations if the United States is to enjoy the many benefits of China's inclusion in the WTO.
But no WTO deal is going to still all criticism. To believe that a Perfect Package welcomed by absolutely everyone is the only option is to set oneself up for a fall. We need to be ready to get behind a strong product that clearly demonstrates its critical economic benefits to the United States, and whose expected benefits are convincingly superior to the continuation of the present situation.
It will be declared a "sellout." Here at home, familiar themes will emerge: for example, that faint-hearted "peace at any price" types have sold out America. This is rubbish. US negotiators know perfectly well that a skeptical business community, a doubting media community ready to pounce at the drop of a hat, and at least some important members of a chilly Congress would diminish or demolish a package that smacked of "lowering the bar" or a "cave in" or a "political deal." No one knows better than US negotiators that froth will be blown quickly away in Washington.
Though some may say otherwise, it will NOT be a cornucopia of US "Gifts" to China. The burden of change will lie with China. In any acceptable WTO accession package, China, not the United States, will have to do the heavy lifting in terms of opening its trade regime and rearranging the ways it conducts its economic affairs. This is, perhaps, what makes the prolonged WTO negotiation so difficult for China to complete. We can be sure in advance that the predictable claims about US "gifts" and "freebies" to China will be wide of the mark.
It will be a complex amalgam of "end points" and "phase-in periods." Virtually no informed Americans, whether in business or in government, are oblivious to the magnitude of the economic and social tasks facing the Chinese government as it navigates cautiously between a fading Marxist-Leninist economic autarky and an uncertain future tied to market-based globalism. American and Chinese WTO negotiators must weave a fabric whose warp is time and whose weft is change. An acceptable agreement must clearly define the critical commitments to structural change in China's international trade and investment regime, and must ensure that progress toward these "end points" is continuous from the beginning to the end of transition periods of varying length.
It will require a careful and balanced evaluation, not only of the economic benefits embodied in the terms of the agreement, but also of the costs to be borne if China remains outside the grasp of WTO rules and obligations for an indefinite length of time.
The baseline question ought to be the long-term one: is the US national interest more likely or less likely to be served by China's entrance into the WTO under terms labo riously negotiated in the bilateral package? Part of that measurement must include an assessment of the implications of China's continued non-participation in the system. These include China's imperviousness to multilateral insistence on adherence to the requirements of a WTO that excludes it; immunity from multilateral dispute resolution mechanisms; and the continued vulnerability of US economic relations with China to the annual MFN/NTR crisis and to the possibility of mutually assured destruction in bilateral trade conflicts.
It will-because it must-offer to the US important long-term economic advantages unattainable without the WTO system. But it will not resolve all outstanding trade and investment conflicts between the US and China. The advantages will most likely lie in the application of core WTO principles and disciplines to China; in major tariff reductions; in modification or elimination of burdensome non-tariff barriers; in WTO-mandated non-discrimination against US goods; in the WTO dispute resolution process; and in a host of critical, specific provisions that broaden opportunities for US businesses in agriculture, manufacturing, trading and distribution services, financial services, and other key areas of US economic strength.
But the WTO's regime doesn't yet touch on each and every American problem in other countries' eco nomies, including China's. For example, WTO provisions affecting each member country's investment regime don't currently go as far as America would like.
It will be billed as both the Millennium and the Apocalypse, when in fact it will be neither. Accept that the political rhetoric on the WTO issue is likely to be out of sync with the substance of any WTO deal.

The United States and China have a vast and at times volatile relationship, characterized both by extensive cooperation and by sharply divergent perspectives on some basic issues. The rhetoric of public policy on China in the United States is seldom understated. Any US-China agreement on WTO terms is likely to be portrayed in stark, even overheated terms: on the one hand, by claims of a towering achievement that changes the course of history, and on the other hand by claims of grievous damage to the national interest.

Before the hyperbole takes hold, let's face facts: China's entrance into the WTO means neither the Creation nor the end of the world. If the US and China can forge a serious agreement and China proceeds to full WTO accession, it will represent a new stage in the process of China's step-by-step integration into the mainstream of world practice, which began in 1978 and needs to continue far into the future.

Should a WTO deal emerge, the real discussion of its acceptability must be carried out within narrower confines, closer to the center of the political and economic spectrum, on more finite issues. The US business community engaged with China will have a critical role in framing and answering these questions.

All this may prove moot; should nothing materialize this spring, these musings will turn out to be quaintly misdirected. But I'm not writing, "Dewey Beats Truman" here, as an unfortunate newspaper did on election night 1948. I'm only saying, "What if he does?" We should prepare to look hard at an emergent US-China agreement on the terms of Chinese accession to the WTO, and to advocate vigorously for it if it passes muster, according to measured and realistic criteria.

Last Updated: 1-Mar-99