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China Summary


China emerged as a major player in the global economy over the course of the 1980s and 1990s. After the People's Republic of China (PRC) government adopted an open door policy in 1978, its export volume rose rapidly, promoting economic growth and financing the inflow of increased imports. [1] By the mid-1990s China had become the 10th largest trading country in the world, yet it remained only shallowly integrated into the global economy. The U.S. Congress finally approved permanent normal trade relations with Beijing in 2000 and after a total of 15 years of negotiations, China entered the WTO on 11 December 2001.

China's member status has brought about numerous policy changes to promote openness, including tariff cuts and non-discriminatory treatment of domestic and foreign companies, which are expected to have a major impact on the formerly well-protected state-owned enterprise sector. Although China experienced growth and success while only shallowly integrated, its reform-oriented leadership is consistently looking to increase the pace of integration. The government has decided to incur the high short-term costs of opening the economy in order to reap the benefits of increased competitiveness that deeper international trade and investment will bring. Despite these policy changes, China's compliance with its WTO commitments has and will continue to be subject to intense international scrutiny as its role in the global economy expands.

Summary of China's WTO Commitments

WTO membership commits China to comply with the international trading system's rules and its principles of non-discrimination, transparency, free trade and fair competition. Specifically, this involves reductions in tariffs that will bring the average tariff level under 10 percent by 2005 from an initial average of 45 percent in 1994. As of January 2004, China's average tariff rate had been cut to under 11 percent. [2]China was also required to introduce a tariff-rate quota system, with the aim of eliminating non-tariff barriers and encouraging a more transparent system of trade regulation via import taxes. [3]In addition, China must make a substantial reduction in the use of state trading as an instrument to control the volume of imports of agricultural and other key commodities. The purging of these non-tariff barriers and the installation of the tariff-rate quota system should gradually reduce duties almost to zero in key agricultural commodities for a significant volume of imports. China has made substantial progress toward openness in its services markets, including distribution, law, accounting, banking and insurance. For instance, in December 2003, the nation made a substantial move in opening its legal services market, doing away with restriction on the number and location of foreign law firms in the country. [4]Meanwhile, its liberal foreign investment regime and low-cost labor markets present new opportunities for cross-border production networks.

State-Owned Enterprise (SOE)

Despite the progress China has made, trading partners and would-be investors remain somewhat dissatisfied with efforts toward improving some aspects of market-access as well as its business environment. One of China's greatest challenges remains the comprehensive reform of state-owned enterprises (SOEs) to comply with WTO market-access requirements. These often small-scale and inefficient enterprises have remained a stumbling block in the advancement of China's transition economy, and block market opportunities for capital-rich foreign enterprises. In 2003, however, China initiated a host of large-scale mergers and acquisitions (M&A) among SOEs, demonstrating a decisive commitment towards restructuring. Foreign funds and private domestic capital were invited to participate in the M&A process. [5]A number of improved management initiatives have been undertaken by the Chinese government: attracting leadership from the private sector, instituting corporate governance and improving transparency in transactions involving state-owned assets. [6]Even in light of China's unremitting efforts to improve SOE efficiency, it remains difficult to establish an adequate framework for this sector of the economy which has long been propped by the crutches of state support.

Piracy and Intellectual Property Rights

An equally substantial task and a priority reform for China is overcoming the prevalence of piracy and the general weakness of its intellectual property rights regime. Despite having enacted a number of top-down copyright protection efforts in recent years, progress has been slow. [7]As the largest consumer market in the world, this matter is of utmost importance if China is to attract the attention from the international business community its demographics warrant. As private domestic business develops, Chinese firms will develop their own intellectual property interests. Perhaps as these domestic interests and international pressures begin to converge, we will see substantial progress in enforcement and intellectual security.

Relations with Taiwan

Mainland China has repeatedly challenged Taiwan's designation and status within the WTO. Beijing declined to conduct official consultations with Taipei unless the "one China" issue was settled (Taipei refused to be ruled under the same mechanism of "one country, two systems" by which Beijing governs Hong Kong and Macao). Insisting that Taiwan was a part of its own territory, the mainland argued that economic disputes between the two were "domestic" affairs, irrelevant to the world trade body. But in December 2002, at Taiwan's insistence, China agreed to hold landmark consultations to discuss steel trade under the WTO framework. The growing potential for the organization to become the forum for cross-strait dialogue has attracted the attention of other members.

China and the US

The United States has recently expressed concerns regarding China's currency and trade policy. [8]With regards to currency, the Bush administration is particularly critical of Beijing's peg of the Chinese Yuan to the US dollar, which seems to be undervalued and hurting US manufacturing, making US exports less attractive to Chinese buyers due to higher relative costs. Most market-access complaints hinge on remaining reform of SOEs as well as other lingering non-tariff barriers. The US' sentiment has now been echoed by other major trading parties, such as the EU.

In November 2003, the US Committee for Implementation of Textile Agreements (CITA) voted to invoke safeguard measures on a number of textile products imported from China, following petitions filed by the U.S. Textile industry under a special provision of China's accession agreement. The provision allows WTO members to impose temporary quotas on textile imports from China in the event that those imports are found to cause market disruptions. The safeguard measures cap any increase in China's exports to the U.S. market at 7.5% of the base level calculated based on the prior 14 months, according to the WTO accession agreement. [9]Just a week after the imposition of these duties on textiles, the Bush Administration imposed another set of tariffs of 28% on color television set imports from China. While these measures are sanctioned by the WTO, they are disruptive of Sino-US trade relations and, more generally, point to dissatisfaction on the part of the developed world regarding China's incomplete attendance to its WTO obligations.


China's ongoing transition from Communism to a market system has been one of the great economic experiments of the past 25 years, and has understandably attracted the attention of the international community. Consequently, its implementation of WTO commitments has been subject to unrelenting international scrutiny and dissatisfaction growing no doubt from impatience as onlookers are eager for access to China's potentially enormous markets. However, China has already established itself as the world's fourth largest trading body today (behind the US, EU and Japan), which suggests its progress in reforms has not be unsubstantial.

As a nation unrivaled in potential purchasing power there is no doubt that China brings considerable weight to the negotiating table. Though some are looking to the country to take on a leadership role, China's readiness for this remains unclear: it has been a relatively quiet player in WTO proceedings to date. Where will its alliances fall? Uniquely positioned between the developing and developed worlds, China could potentially play a powerful role in the advancement of the Doha agenda.

Last updated January 2004

[1] China's Open Door Policy, initiated by Deng Xiaoping in 25 years ago, opened China to foreign investment and began the transformation of China's economy that has produced an annual growth rate to ten percent.
[2] China begins cutting average tariff rate to 10.4 percent. Channel News Asia. 1 Jan 2002.
[3] Under the Quota Rate system, limited amounts of a product can be imported at a preferential tariff. These quotas must be obtained in advance by individual trading partners, and all imports of the product in excess of the quota are subject to a higher tariff.
[4] China Opens Legal Services Market. Xinhua News Service. 9 Dec, 2003.
[5] China to Reforms State Owned Enterprises through Mergers and Aquisitions. Xinhua News Service. 9 Dec 2003.
[6] China's SOE Reform Focuses on Corporate Governance. Xinhua News Service. 2 Jan 2004.
[7] Though piracy crackdown is harsher, difficulties remain. Xinhua News Service. 16 Nov 2003.
[8] Concerns voiced in a September 2003 report by US Chamber of Commerce,
[9] US to impose Safeguards to stem China Textile Imports. Dateline: Washington. 19 Nov 2003.