China and the World Trade Organization

Last updated November 21, 2024

China became a member of the World Trade Organization (WTO) on 11 December 2001,^[1] after the agreement of the Ministerial Conference.^[2] The admission was preceded by a lengthy process of negotiations and required significant changes to the Chinese economy. Its membership has been contentious, with substantial economic and political effects on other countries (some times referred to as the China shock) and controversies over the mismatch between the WTO framework and China's economic model.^[3]^[4] Assessing and enforcing compliance has become issues in China-US trade relations,^[5] including how China's noncompliance creates benefits for its own economy.^[6]

Background

Until the 1970s, China's economy was managed by the communist government and was kept closed from other economies. Together with political reforms, China in the early 1980s began to open its economy and signed a number of regional trade agreements. China gained observer status with GATT and from 1986, began to work toward joining that organisation. China aimed to be included as a WTO founding member (which would validate it as a world economic power) but this attempt was thwarted because the United States, European countries, and Japan requested that China first reform various tariff policies, including tariff reductions, open markets and industrial policies.

Preparations

After the 1997 Asian financial crisis, China sold off or merged many unprofitable state-owned enterprises. In 1998, China reformed the State Council to greatly reduce the mandate of the State Planning Commission and increase the mandate of the State Economic and Trade Commission. This shift also corresponded to the change in premiership from Li Peng to Zhu Rongji, the latter of whom strongly believed that China needed deeper economic restructuring. This, which had been happening since the 1980s, included crackdowns on corruption and the establishment of chambers of commerce.^[10]

The World Trade Organization Ministerial Conference of 1999 and related 1999 Seattle WTO protests were the penultimate step before Chinese accession.^[11]

United States' role

Formal diplomatic relations between the United States and the People's Republic of China were not established until 1979, and even afterward, trade relations were hampered by the high tariff rates of the Smoot–Hawley Tariff Act of 1930. After the two governments settled asset claims dating from the Korean War in 1950, Congress temporarily granted China most favored nation status in 1980. Chinese-American trade was still hindered by the Jackson–Vanik amendment of 1974, which made trade with the United States contingent on certain human rights metrics.^[12]

By 1984, the United States had become China's third-largest trading partner, and China became America's 14th largest. The annual renewal of China's MFN status was constantly challenged by anti-Chinese pressure groups during US congressional hearings. For example, U.S. imports from China almost doubled within five years from $51.5 billion in 1996 to $102 billion in 2001.^[13] The American textile industry lobbied Congress for, and received, tariffs on Chinese textiles according to the WTO Agreement on Textiles and Clothing. In reaction to the 1989 Tiananmen Square protests' suppression, the Bush I administration and Congress imposed administrative and legal constraints on investment, exports, and other trade relations with China.^[12]

The Clinton presidency from 1992 started with an executive order (128590) that linked renewal of China's MFN status with seven human rights conditions, including "preservation of Tibetan indigenous religion and culture" and "access to prisons for international human rights organisations"—Clinton reversed this position a year later. Other challenges to Sino-American relations in this decade included the investigations into Chinese nuclear espionage which produced the Cox Report, the persecution of Taiwanese-American scientist Wen Ho Lee for unproven allegations of espionage for the PRC, and the 1999 United States bombing of the Chinese embassy in Belgrade. Jiang Zemin visited USA from October 27 to November 3, 1997 and Clinton paid a return trip June 25 to July 3, 1998. United States and China reached agreement on terms for China's entry into WTO after talks in Beijing in November 1999, subject to approval by Congress.^[14]

Relations warmed after the September 2001 initiation by George W. Bush of the War on Terror.^[15]

Conditions

These changes were difficult steps for China and conflicted with its prior economic strategy. Accession meant that China would engage in global competition according to rules that it did not make. China's admission was "an enormous multilateral achievement" that marked a clear commitment toward multilateralism.^[16]

When China joined the WTO, it agreed to considerably harsher conditions than other developing countries.^[17]^[18] After China joined the World Trade Organization (WTO), its service sector was considerably liberalized and foreign investment was allowed; its restrictions on retail, wholesale and distribution ended.^[19] Banking, financial services, insurance and telecommunications in China were also opened up to foreign investment.^[20] Furthermore, China had to deal with certain concerns linked to transparency and intellectual property that the accession to WTO underlined.^[21]^[22]

Non-market economy

Under Article 15 of the protocol by which China joined the WTO, China was recognized as a Non-market economy (NME). This status allows special treatment within the WTO. The status was set for 15 years and has been disputed after 2016, the year when the 15 years had passed.^[23]

Related Research Articles

The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its preamble, its purpose was the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis."

The World Trade Organization (WTO) is an intergovernmental organization headquartered in Geneva, Switzerland that regulates and facilitates international trade. Governments use the organization to establish, revise, and enforce the rules that govern international trade in cooperation with the United Nations System. The WTO is the world's largest international economic organization, with 166 members representing over 98% of global trade and global GDP.

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) which entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.

A trade agreement is a wide-ranging taxes, tariff and trade treaty that often includes investment guarantees. It exists when two or more countries agree on terms that help them trade with each other. The most common trade agreements are of the preferential and free trade types, which are concluded in order to reduce tariffs, quotas and other trade restrictions on items traded between the signatories.

The status of permanent normal trade relations (PNTR) is a legal designation in the United States for free trade with a foreign state. The designation was changed from most favored nation (MFN) to normal trade relations by Section 5003 of the Internal Revenue Service Restructuring and Reform Act of 1998. Permanent was added to normal trade relations some time later.

In international economic relations and international politics, most favoured nation (MFN) is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favoured nation" by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country.

The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties". The Round led to the creation of the World Trade Organization, with GATT remaining as an integral part of the WTO agreements. The broad mandate of the Round had been to extend GATT trade rules to areas previously exempted as too difficult to liberalize and increasingly important new areas previously not included. The Round came into effect in 1995 with deadlines ending in 2000 under the administrative direction of the newly created World Trade Organization (WTO).

The Doha Development Round or Doha Development Agenda (DDA) is the trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001 under then director-general Mike Moore. Its objective was to lower trade barriers around the world, and thus increase global trade.

A free trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occur when two countries agree to loosen trade restrictions between the two of them, generally to expand business opportunities. Multilateral trade agreements are agreements among three or more countries, and are the most difficult to negotiate and agree.

<span class="mw-page-title-main">Market access</span> Ability to sell goods and services across borders

In international trade, market access refers to a company's ability to enter a foreign market by selling its goods and services in another country. Market access is not the same as free trade, because market access is normally subject to conditions or requirements, whereas under ideal free trade conditions goods and services can circulate across borders without any barriers to trade. Expanding market access is therefore often a more achievable goal of trade negotiations than achieving free trade.

The Fourth Ministerial Conference of the World Trade Organization, also known as the WTO Fourth Ministerial Conference or MC4, was held at the Sheraton Doha Hotel and Resort, Doha, Qatar from November 9–13, 2001. At this conference, ministers from all WTO members launched the Doha Development Agenda.

The original members of theWorld Trade Organization are the parties to the General Agreement on Tariffs and Trade (GATT) after ratifying the Uruguay Round Agreements, and the European Communities. They obtained this status at the entry into force on 1 January 1995 or upon their date of ratification. All other members have joined the organization as a result of negotiation, and membership consists of a balance of rights and obligations. The process of becoming a World Trade Organization (WTO) member is unique to each applicant country, and the terms of accession are dependent upon the country's stage of economic development and the current trade regime.

Since its creation in 1995, the World Trade Organization (WTO) has worked to maintain and develop international trade. As one of the largest international economic organizations, it has strong influence and control over trading rules and agreements, and thus has the ability to affect a country's economy immensely. The WTO policies aim to balance tariffs and other forms of economic protection with a trade liberalization policy, and to "ensure that trade flows as smoothly, predictably and freely as possible". Indeed, the WTO claims that its actions "cut living costs and raise standards, stimulate economic growth and development, help countries develop, [and] give the weak a stronger voice." Statistically speaking, global trade has consistently grown between one and six percent per annum over the past decade, and US$38.8 billion were allocated to Aid for Trade in 2016.

The Ministerial Conference is the top decision making body of the World Trade Organization (WTO). There have been thirteen ministerial conferences from 1996 to 2024, usually every two years.

Iran officially submitted an application to join the World Trade Organization (WTO) on 19 July 1996. From July 1996 to May 2001, Iran’s application had not been considered, mainly as a result of US objections and the US veto power in the WTO Council. From May 2001 Iran’s application for WTO membership has been brought up 22 times. At the 22nd time, on 26 May 2005, Iran’s application for WTO membership was approved unanimously by the organization’s members. Thus the process of Iran’s membership in the WTO started. Once Iran’s application was accepted and examined by WTO General Council, Iran became WTO observer member and started the process of full membership in the organization. In November 2009 Iran submitted the Foreign Trade Regime Memorandum as the process of accession entered a new phase.

The spaghetti bowl effect is the multiplication of free trade agreements (FTAs), supplanting multilateral World Trade Organization negotiations as an alternative path toward globalization. The term was first used by Jagdish Bhagwati in 1995 in the paper: “US Trade policy: The infatuation with free trade agreements”, where he openly criticized FTAs as being paradoxically counter-productive in promoting freer and more opened global trades. According to Bhagwati, too many crisscrossing FTAs would allow countries to adopt discriminatory trade policies and reduce the economic benefits of trade.

The U.S.–China Relations Act of 2000 is an Act of the United States Congress that granted China permanent normal trade relations (NTR) status when China becomes a full member of the World Trade Organization (WTO), ending annual review and approval of NTR. It was signed into law on October 10, 2000, by United States President Bill Clinton. The Act also establishes a Congressional-Executive Commission to ensure that China complies with internationally recognized human rights laws, meets labor standards and allows religious freedom, and establishes a task force to prohibit the importation of Chinese products that were made in forced labor camps or prisons. The Act also includes so-called "anti-dumping" measures designed to prevent an influx of inexpensive Chinese goods into the United States that might hurt American industries making the same goods. It allows new duties and restrictions on Chinese imports that "threaten to cause market disruption to the U.S. producers of a like or directly competitive product."

U.S. - Vietnam Trade Relations refer to the bilateral trade relationship between the United States of America (U.S.) and the Socialist Republic of Vietnam (Vietnam) from 1990s to 2012. After more than two decades of no economic relationship since the end of the Vietnam War, the two governments reestablished economic relationship during the 1990s. The bilateral trade between the U.S. and Vietnam grew slowly afterwards, and it has developed rapidly after the signing of the U.S.-Vietnam Bilateral Trade Agreement in December 2001. Total bilateral trade turnover has increased 1200% from $1.5 billion in 2001 to over $20 billion in 2011. The bilateral trade relations further developed after the U.S. granted Vietnam permanent normal trade relations (PNTR) status as part of Vietnam’s accession to the World Trade Organization (WTO) in 2007. The U.S. and Vietnam also came to a Trade and Investment Framework Agreement (TIFA) in 2007. Vietnam was recently the United States' 26th largest goods imports partner with $17.5 billion in 2011, and was the 45th largest goods export market with $3.7 billion in 2010. Vietnam with six other partners are now in the ongoing Trans-Pacific Partnership (TPP) negotiations with the U.S. The growth in bilateral trade has also been accompanied by issues and problems, e.g. anti-dumping cases, worker’s rights, non-market economy, Intellectual Property Rights (IPR) protection and Vietnam’s exchange rate policy.

Afghanistan received membership to the World Trade Organization (WTO) at the 10th WTO Ministerial Conference in Nairobi, Kenya, December 17, 2015. Afghanistan is 164th in the world and 36th among the less-developed countries that have received WTO membership.

<span class="mw-page-title-main">History of the World Trade Organization</span>

The World Trade Organization (WTO) is an intergovernmental organization which regulates international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948. The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which is signed by representatives of member governments and ratified by their parliaments. Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986–1994).

References

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