Introduction:

    China, the world's tenth largest trading nation, has been campaigning for 13 years to be admitted to the world Trade organization, the body which sets the rules on international trade. Chinese leaders have been making strenuous efforts to bring about economic reforms- and show them off in an effort to win a seat at the WTO. But organization members have insisted the country open up its markets to international competition first. A series of liberalization measures has been adopted by china in recent years to accelerate its economic reform and bid for WTO admission.
     At the beginning of 1993, China reduced its tariffs on 3,371 import items and abolished import control of more than 367 commodities. The action reduced the trade-weighted average tariffs by 7.3 percent. At the APEC summit meeting in November 1995, China promised to cut its tariffs at least 30 percent. Despite the dramatic decline in tariff barriers, however, the average nominal tariff rate is still too high to justify China’s WTO membership. An average tariff of 15 percent is currently maintained by most developing countries. After implementation of the Uruguay Round, the tariff rate of WTO contracting parties will fall even further. China is necessary to continue implementing its commitment to further trade liberalization in order to access WTO.

Rights and Obligations that China has if it enters WTO:

    There should be a balance between obligations and rights for its members. Joining the WTO means bringing China into a rules-based trading system. WTO accession represents an important opportunity for China to create and implement a rules-based trade regime. To meet WTO requirements, China must make laws public, require judicial review of all trade actions, apply all trade laws uniformly, and submit to WTO dispute settlement to ensure compliance with WTO rules. All of these measures will enhance the rule of law and the application of international norms in China's trade regime, to the benefit of China and the rest of the world.

1.MFN: Upon entry into the WTO, China will be given MFN with all WTO members, accesses to the strengthened dispute settlement mechanism, and the ability to influence future WTO rules through negotiations. The strengthened WTO dispute settlement rules enable WTO members to obtain redress for trade complaints. The chief benefits, however, accrue from the gains from liberalized and more efficient trade practices, which promote lower costs and increase commerce and investment.
2.more beneficial for less developed country: by giving China more time to adjust, greater flexibility, and special privileges. China is allowed to take a longer time period to make the transition to barrier free trade and fulfil their obligations.
3.more competitive: by discouraging unfair practices such as export subsidies and dumping products at below cost to gain market share. China has already agreed to remove some export subsidies.
4.predictable: foreign companies, investors and governments should be confident that trade barriers such as tariff should not be raised arbitrarily; more and more tariff rates and  market-opening commitments are "bound" in the WTO. Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition for greater choice and lower prices.
If China follows the WTO guideline closely, the business environments for foreign investors will be more stable and predictable than right now, which will benefits China itself and rest of the world.

Nov. 15 's agreements between China and the United States:

    China and the US signed a pact that could lower barriers to reaching consumers in the world’s most populous country and pave the way for an average of 23% and promises greater access to the relatively closed Chinese market for everything from financial services to telecommunications and Hollywood films. Opening up the service sector is the key to the expansion of the economy, according to the World Bank, which sees a great potential for the investment.
1. Average Tariff Levels: China agreed to cut its average tariff level to 17% from 22.1%.
2. Telecommunications: China will allow 49% investment by foreign teleccoms providers from the date of accession, with the figure increasing to 50% after 2 years.
3. Internet: US companies will be allowed to invest in Chinese internet content providers.
4. AUTOS: China will cut its import tariffs on automobiles to 25% from 80-100% by 2006. US firms will be allowed to provide auto financing in china.
5. Banking: Banks will be allowed to offer local currency loans to Chinese enterprises 2 years after china’s WTO entry and get into retail banking in 5 years.
6. Agriculture: China agree to cut import tariffs on Agricultural products to between 14.5% and 15% and establish tariff rate quotas for wheat, corn, rice, and cotton, with a substantial share reserved for private trade. China also agreed to phase put state trading of soy oil.
7. Export Subsidies: China will eliminate export subsidies.
8. Distribution: China will allow distribution rights for US exporters.

    But none of the changes in Chinese regulations and tariffs will not take effect until china gains entry to the WTO. China must still sign agreements with several other WTO rations, including the EU, before it can admitted to the trade group.
WTO Accession for China: Potential Trade Impacts

Changes in Agricultural/(Manufactural) Trade Flows:

Self-sufficiency and expensive business:
    Over the past 20 years, Chinese grain production met, on average, 98.6% of demand, according to a recent study of China’s agriculture by the organization for economic cooperation and development. That figure was achieved at enomous cost. According to a US agriculture Department report, China's grain bureau system lost an estimated $1.8 billion a month in 1997.  China's  insistence on food self-sufficiency had been frayed prior to recent internal debate on the merit of WTO membership. Four years of bumper crops since 1996 strained the resources of the state to procure, store and market the abundant grains. The slump in world agricultural commodity prices further widened the gap between domestic and international grains prices, making most of them cheaper to buy than to produce. It was uneconomical to produce certain grains that China could buy cheaply from overseas.
    The OECD study predicted domestic grain production would fall to 95% of demand over the next 10 years and to 90% by 2030. The implication is that grain imports would rise to 33million tonnes by 2010 and 63 million tonnes by 2030.
Factor Endowments and Net Trade Patterns:Differences in resources available for use as inputs in country’s various production processes are important for understanding the direction of net trade flows.USA, Canada, and Japan, EU, and AUS account for 15 percent of the global labor force with more than 75 percent of the world’s capital stock. In contrast, ASEAN, China and South Asia account for more than 50 percent of the global labor force with less than 4 percent of the world’s capital. The U.S. is relatively abundant in arable land relative to labor. China is poorly endowed with arable land relative to labor. The level of land intensity greatly influences the direction of net trade flows in food and agricultural products. The U.S. is net exporters of all food and agricultural products categories. China is the only exception to the trade pattern. It imports wheat while being a net exporter of rice, feed grains, and nongrain crops, and it is largely self-sufficient in live stock products. China’s aggregate surplus in agricultural trade is a consequence of its government’s food self- sufficiency policies rather than the result of taking comparative advantage of its factor endowments. China is net exporter of labor-intensive manufactured goods and net importer of capital-intensive manufactured goods. Because of China's comparative advantage in labor-intensive products, it has gained more than a 10-percent share of world exports of labor-intensive goods, even without the privileges of WTO membership. After accession to the WTO, China could further expand production of labor-intensive manufactured products such as textiles and apparel. At the same time, China has to import more cotton and wool in order to supply its mills. The expansion of labor-intensive manufacturing also would cause resources to be bid away from farming. As a result, China's agricultural exports decline while its food and agricultural imports increase. U.S. agricultural exports would see the greatest expansion in the processed food sector.

Changes in Factor Prices:

    The expansion of production and trade induces higher demand for capital intensive goods, thus driving up the world prices for such products, which are major exports from developed countries. The price changes account for the terms of trade improvement for the United State. The increased agricultural import demand from China when it joins WTO pushes up world food prices, resulting in the expansion of production and exports of agricultural products from U.S., that is, export prices for U.S. food and agricultural products would increase in every sector, raising farm incomes. China's joining the WTO will increase the competitive pressure on labor intensive products, pushing the prices for textiles and apparel into further decline. Wages of labor will also increase in both China and the U.S. However, it is interesting to note that wages of unskilled workers in the U.S. might suffer a slight loss in wages. The wage differentials between skilled and unskilled workers widen slightly as the export prices of skill-intensive products such as machinery and equipment increase in the developed countries, favoring skilled workers.

Integrating China into WTO could have the following advantages:

1.Removing trade barriers allows a country to export more of those goods which it produces relaticely efficiently, with the proceeds applied to import moreof the goods it produces less efficiently,therefore, admission of China to the WTO would increase agricultural exports from almost all regions of the world. The China’s net agricultural import will increase as well. Reduction in rice exports from China to global markets would be replaced by increased exports from south and southeast Asia.
2.Demand for capital and technology-intensive products would go up,  causing prices for capital-and technology-intensive goods to increase worldwide, thus improving USA's terms of trade.
3. Removed Tariff: The table shows that China has a relative high tax on agricultural production. When China cuts its tariffs unilaterally after joins WTO, social welfare increases in all regions. Developed countries, especially the United State, would gain more from China'sWTO accessions. The United States enjoy both a substantial improvement in terms of trade and an expansion in real export volume. A unilateral tariff cut would worsen China's terms of trade further but expand its real exports by almost US$20 billion (more than 85 percent of total additional world exports). One Chinese government official said that the decrease in the tariff revenues might be offset by the increase in the imported goods.
 Xt = Total revenue  if  t drops to certain levels, X will increase. Total revenue might increase as well.  X = amounts of goods   t = tariff

Auto:

    There is no perfect competition in the auto sectors currently. The markets will be opened to the foreigners after China joins WTO. In order to survive from the foreign firms' competitions, the government has to restructure its auto industries by imposing some domestic policies, to sell off or close down some unproductive factories. After lowering the tariffs on the imported automobiles, consumers will be benefited from the cheaper prices with more choices. The costs of production and maintenance will be lower as well. The auto producers might suffer from the revenue loss caused by the dropping in the prices.
Because of the rapid economic progress in China, more and more families have ability to support a car. In the nearly 5 years, there will be 30 percent growth in demand. The market has large potential due to the large population in China. China would better having its own auto industries than being operated totally by the foreign firms. The best way that the China might do is cooperate with the foreign firms by importing the technologies and skills. The GM principle predicts that within 20 years, the biggest auto markets will be in China. And in the nearly future, the global prices of automobiles will drop due to the development of production lines in China.

Other Sectors:

    1. state-run enterprise: China wants to encourage foreign investments, and reform the state-run enterprise because the growth-and that strategy- is under threat. Growth and foreign investments are slowing down, and modernization of state-run industries has stalled. The biggest problem is reconstructing China's large state-run industries, which are inefficient and over-staffed. China's extraordinary success in attracting foreign investment may not last. Foreign investors are becoming concerned about the lack of financial controls, which have led to a number of international investment trusts to go bankrupt. China's modernization is counting on the foreign investment to help manage the next stage of the transition. Opening the door to greater international competition would force inefficient Chinese industries to adopt reforms that the government has been pushing for some times.
2. equipment: Currently, China has no bound tariff rates. This means they can raise their rates as high as they want. In the WTO talks, we have the opportunity to have China reduce its base tariff rates from over 20 percent on wood, paper, construction equipment, medical equipment recreational equipment, telecommunications equipment, aluminum plates and power generation equipment. Some tariffs are even higher and should also be reduced.
3. Basic industry and semiconductor: One of the sectors that stands to benefit first is basic industry, needed to continue to develop the infrastructure to sustain the expected surge in trading volume. Those include companies involved in shipping, road building and transportation. "Continued liberalization of Chinese trade and investment rules would further permit growth in the Chinese market for semiconductor producers and the Chinese information technology industry”said the statement from the SIA, which estimates China already is an $8 billion a year semiconductor market and will become one of the largest markets for the product in the next century.
4. Stock market: While bringing increased prosperity to the people of China WTO membership will help boost Chinese stock prices in several ways. The move is expected
to dramatically increase trade flows in and out of China, giving a boost to Chinese industries like textiles, transportation, and shipping. But it will also accelerate the reform process that is moving state-owned businesses into private hands. Increased private ownership, in turn, will help China's profile among international investors and draw more capital to an emerging stock market.

Arguments:

Could membership raise unemployment?
Unemployment, already running at 8% in cities, will swell short-term as state factories and small family farms fail. Exposing China's sheltered state-run industries to international competition won't be easy. In the short term, it will mean more layoffs with unemployment in the nation. But China's leaders are taking the longer view. Since then  fear that WTO membership could create mass labor redundancies have dissipated somewhat. The impact would be manageable. In the first year after WTO entry, it will affect China's employment situation, but in the longer term it will help china, noting Beijing's progress in providing a welfare system to cushion the blow of unemployment.

Will Chinese Dollar depreciate after it joins WTO?
Chinese government plans to induce its economic growing by fiscal policies. In June, the central government has budgeted 1200 million for constructing the public goods, they don't need to devalue their currency to induce the economic growth. The Singapore Senior Minister, Lee Kuan yew, has warned the United States and the European Union not to exclude China from WTO. He said any such attempt could mean encouraging a nationalist crisis, because its currency was pegged to the US dollar. He said HK needed low interest rates like the rest of Asia, but its hands were tied by the American Federal Reserve.

Impacts on Hong Kong:

    Hong Kong is China's  bridge to the rest of the world. There is no doubt that China's  entry into the WTO will directly help the HK economy. In particular, it will have instant, positive effects on its trade, transport industry and financial service industry. The government has already set up a task force whose duty is to find out what opportunities China's WTO membership may being likely to join the WTO soon. It should also make public its findings as soon as possible so that people can opportunely make necessary preparations. It is hoped that Hong Kong can avail itself of the chance to stimulate economy, which is now weak.

Conclusion:

    Integration of China into the World Trade Organization’s global system would expand world trade significantly. By largest benefits of WTO enlargement, when measured as a portion of national income, would accrue to the new members. The gains result from China undertaking reforms when joining the WTO, thereby improving resource allocations and increase economic efficiency. Both China and the U.S. would benefit, mainly because of the two countries' complementary resource endowments.  They will be forced to specialize in certain products that have comparative advantages over the other. China will sell its labor-intensive products in the U.S. market and attracts the investments by the U.S. firms. The terms of trade improve in all developed regions.
    Many of China's liberal performers believe that without a deal on WTO, conservative opponents of market reforms would have grown politically stronger. With WTO, they say they have new power to dismantle the old socialist ways, because now they have to comply with global rules of market competition and free trade. The biggest winner from china's WTO accession is China itself. WTO membership would raise social welfare in China by about $20 billion per year, substantially more than the welfare gains for the united States from China's membership.

 

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