China and the World Trade Organization: Moving Forward without Sliding Backward

With considerable fanfare, the United States and China struck a historic agreement on China's membership in the World Trade Organization (WTO) in November 1999. The agreement is one of a series of bilateral understandings, to be followed by a multilateral WTO protocol of accession, that must be completed before China's WTO membership is finalized. In political terms, however, the agreement between Washington and Beijing is the most important step in the process and the one that has blocked progress in recent years. It now appears that it will take some months for China to complete the WTO accession process, but China seems almost certain to join by the end of 2000. In recent years, it has been the United States that has pushed China hardest to embrace reforms as the price for WTO membership. Other countries with a strong economic interest in pressing China to abide by trading rules, notably the European Union (EU) and Japan, seem quite happy to allow Washington to do the lion's share of the work vis-a-vis Beijing's WTO application. Nonetheless, after Washington declared victory, the EU and other countries have sought to improve the bargain on particular issues of interest to their exporters. Although it has received only limited attention thus far, perhaps the most fundamental issue raised by China's accession concerns the readiness of the WTO to handle the unique challenges posed by China's legal and regulator), system. The WTO has had difficulty handling similar challenges in countries, such as Japan, that maintain a legal and regulatory system much more similar to the Western model. The accession of China and a number of other form non-market economies that are likely to join in the next several years, such as Russia, could present an insurmountable challenge both to WTO dispute settlement and future negotiations. I. HISTORY OF CHINA'S WTO MEMBERSHIP EFFORT Before delving into some of the details of the issues surrounding China's compatibility with the WTO, a brief review of the events that led to the current state of affairs is useful. After WW II, the Republic of China (ROC) was an original member of the General Agreement on Trade and Tariffs (GATT), now known as the WTO. When the Communist Revolution succeeded in driving the ROC government from the mainland to the island of Taiwan, the ROC withdrew from the GATT.(1) Initially, the People's Republic of China had little interest in Western economic institutions like the GATT. With its opening to the world in the 1970s, however, China became increasingly interested in Western markets for its products, investment, and loans. China's early achievements in textile and apparel exports induced it to establish ties with a GATT-affiliated organization known as the Multi-Fiber Agreement (MFA) to secure markets for its textile exports.(2) In the mid-1980s, China's increasing success in exporting to western markets and expanding economic ties with the West drove it to seek GATT membership under the leadership of then leader Deng Xiao Peng. The process of membership in the WTO, however, was complicated by the reality of an economy still dominated by the government and by increasingly difficult relations with the West on other fronts. In 1989, the Tiananmen Square massacre brought on a chill in relations between Beijing and most western powers, notably Washington. This effectively froze progress on the issue until the mid-1990s. As is always the case with requests to join the world trading system, a working group was formed to consider China's WTO application. The working group is made up of WTO members that express a particular interest in trade with the applicant country. In China's case, several dozen countries, including the United States, the EU, Japan, and Canada, became members of the working group. An applicant must complete bilateral negotiations with each of the members to gain membership. Usually these agreements involve commitments from the prospective member to lower tariffs and make other concessions of interest to the existing member. …

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