Completing WTO Reforms
Lieberthal, Kenneth, The China Business Review
The United States and China have enjoyed the fruits of Beijing's WTO entry, but insufficient change in China's political economy may spell trouble for the future
The United States had great expectations concerning China's entry into the World Trade Organization (WTO) in December 2001. Washington looked forward to the opening of China's economy as dictated by China's accession agreement. It hoped to see a reduction in bilateral trade frictions through China's implementation of its WTO commitments and through the opportunity to use the multilateral WTO dispute settlement mechanism to address serious trade issues. And it anticipated important liberalizations not only in China's economy itself, but also in the way the Chinese state interacts with the economy-that is, in China's political economy.
Much of this ambitious agenda has come to pass, and China has on the whole met the letter, if not the full spirit, of its WTO agreement obligations. In particular, commitments that were easy to implement-such as tariff reductions-were largely met in full and on time. China's attempts to implement more difficult commitments have yielded mixed results, however. For example, in the area of intellectual property (IP) rights, the PRC government has adopted appropriate laws and regulations, but it has fallen far short of its commitment under the WTO Agreement on Trade-Related Aspects of IP Rights to create an adequate deterrent against piracy. Overall, the Chinese economy has become significantly more open to foreign participation, and its regulatory environment has become far more transparent, though foreign businesses see room for further improvements. In this broadly positive context, American exports to China shot up by 118 percent from 2001 to 2005, growing far more rapidly than US exports to other top export markets.
US-China economic relations have also been relatively calm since China's WTO entry, though recent controversies surrounding Chinese investment in the United States and other subjects have produced growing tensions. Beijing's cooperation in the global war on terror after September 11, 2001 contributed to the calm, as did the decision by many in the US government and business communities during the first few years after accession to take a "wait-and-see" attitude on China's fidelity in implementing the letter and spirit of its WTO commitments. The opening of China's financial services sector in December 2006, in accordance with Beijing's WTO commitments, should be a major step forward, with many US firms planning to take full advantage of the new opportunities this much-anticipated change will offer.
Not everything, of course, has gone as expected. The Asian dragons-Japan, South Korea, Taiwan, Hong Kong, and Singapore-have taken advantage of China's WTO implementation to integrate their own manufacturing systems into that of China, by exporting high value-added parts and components to China for final assembly. The finished products are then sent to North American and EU markets. As a result, the US trade deficit with China has soared to unprecedented levels, reflecting the reality that China has largely become the funnel through which manufactured items from all over Asia are being exported into the US market. While Asia's share of the global US trade deficit has shrunk over the past two decades, China's share of Asia's portion has grown dramatically (see the CBR July-August 2004, p.40). The emergence of this East Asian regionally integrated manufacturing system-and the consequently ballooning US trade deficit with China-has caused increasing political frictions. But this deficit does not represent a failure by the United States to achieve WTO aspirations vis-à-vis China. Rather, it reflects the creativity and skill with which the Asian dragons have taken advantage of China's WTO-mandated reforms.
On the whole, China's record has largely borne out the hopes of those who supported its …
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Publication information: Article title: Completing WTO Reforms. Contributors: Lieberthal, Kenneth - Author. Magazine title: The China Business Review. Volume: 33. Issue: 5 Publication date: September/October 2006. Page number: 52+. © U.S.-China Business Council Mar/Apr 2009. Provided by ProQuest LLC. All Rights Reserved.
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