Preface: China, the EU and the WTO after Chinese accession


Preface: China, the EU and the WTO after Chinese accession

The Rt Hon The Lord Brittan of Spennithorne QC, Vice-Chairman of UBS Warburg and consultant to Herbert Smith, Former EU Commissioner for external trade relations and competition policy

There are three aspects to China's accession to the WTO and its impact on EU business. Firstly, the impact on the European Union; secondly, the business opportunities that arise for Europe in China as a result of its WTO membership; and thirdly China's role as a WTO member in the Doha Development Round and in the workings of the WTO more generally .

As far as China's access to the European market is concerned , it is important to stress that the new rights that China has, either vis-  -vis Europe or other members of the WTO, are now legally enforceable rights. Whether we are talking about China's access to the EU market or the EU's access to the Chinese market there are bound to be disagreements , which are not a reflection of the good faith of either side but rather of the fact that in any major agreement there are certain to be ambiguities and uncertainties. These should be resolved as far as possible by discussion and negotiation but if that is not possible then both China and the EU should not feel in any way inhibited in going to a dispute settlement procedure, because that is what it is there for. To use it is not to embark on a 'trade war', but is rather a sign of readiness to use the machinery that exists to deal with disputes and resolve ambiguities and I hope that both China and the European Union will look at it in that spirit.

In terms of the actual economic impact on the EU, there is a certain degree of phasing in but the most important opening up of the European market for China will consist of the ending of quotas by 2005 and the fact that it will probably be harder to apply safeguard measures, if anyone is inclined to do so, even before that period expires . The end of quotas is of considerable significance and European industry has to prepare for that. The biggest impact of China's membership in terms of access to the European market is likely to be in the area of textiles , where one can expect enhanced competition and increased exports from China. It is not clear how active China will be in seeking to enforce its rights with regards to Europe. China has focused more on the impact of WTO membership on its own market than on the opportunities it gives it in other markets such as Europe. But even if this is the case to begin with, it will change as membership gathers momentum. It is interesting for example to see that China itself is now taking an interest in imposing anti- dumping measures, which previously was not something that China did at all.

The other side of the equation is EU opportunities in China. To gauge what is actually going to happen it is enormously important to understand why China wanted to join the WTO. China's huge growth since 1979 has very much been associated with growth in trade. China's share of world trade grew five fold between 1978 and 1998, but more important (because we are talking about growth from a very low base) is the fact that exports as a proportion of China's GDP increased from 5 to nearly 25 per cent. Thus, the growth of the Chinese economy was associated with the growth in exports and the Chinese leadership understood very well that while this was beneficial, it was not sustainable without China opening up to the rest of the world and, moreover, that opening up would be beneficial. For the Chinese leadership, opening up the economy is not a favour to the rest of the world, nor is it even just a political gesture done in order to join the WTO because China wishes to participate actively in all international organizations. Rather it is a crucial part of the Chinese reform and modernization programme. The leadership believes that the spur of foreign competition, with foreign entry into the market, not only in terms of trade but also in terms of investment, will help the Chinese economy to modernize. As far as the leadership is concerned, this idea has been internalized. It is not just a question of reluctantly accepting obligations hardly negotiated in the discussions on the terms of Chinese membership of the WTO.

It is also important to note that, in spite of the far reaching nature of China's WTO commitments, it would be wrong to regard the results as just providing an opportunity for Europe, the United States or Japan to grab business. We can already see that the prospect of liberalization is having the effect that it is intended to have, namely to help strengthen the Chinese economy. Financial services are a good example. Foreign banks will be able to conduct local currency business with domestic corporate customers two years after accession and with any Chinese after five years . This process has led to the reform of the 'Big Four' state owned banks. This is a very painful process, but they are getting rid of non performing loans, introducing principles of corporate governance, hitherto unknown, and the Bank of China has restructured its Hong Kong operations and floated on the Hong Kong stock exchange. So what you are seeing is the strengthening of the Chinese economy to handle the new foreign access to it. We should not, therefore, assume that there will simply be rich pickings and that the Chinese will sit and wait to have their markets scooped up by foreigners.

The question sometimes asked, though, is: can China implement these reforms ? It is a huge task and the results are bound to be patchy. We can't ignore the possibility of new barriers being erected if the going gets tough or if there is a strong political desire to resist in a particular area. That can be done in all sorts of ways which are difficult to penetrate through the WTO rules such as in the grant of state approvals for the setting up of banks. But I don't believe that this will be the norm.

I think that we will see the capacity as well as the intention to implement the reforms, and good faith in doing so.

Finally, a word about China's role as a member of the WTO. It is hugely important. It is a major player but it is not yet clear how China is going to play it in the WTO. I don't think China has made up its own mind yet. One thing I am quite sure about is that it is not right to assume that China is just going to be a cheerleader for the developing world. It has distinctive interests of its own which are often, but not always, the same as developing countries , and this was reflected in the negotiations. I was constantly being asked: is China a developing country? The answer is yes, in certain respects it is, but it is also a very large country and therefore it can't expect to be treated in exactly the same way as an ordinary developing country. By the same token it is not now going to behave as an ordinary developing country.

I hope that China will conclude that further liberalization of the world economy is in its interests. It is a great exporter and further liberalization must be in its interest. China will certainly be difficult if there are any excessive attempts to impose new environmental obligations, which do not at present operate in the world trading system. While we can expect China to resist that, I hope it will be a supporter of Europe in the belief that agreements on competition and investment are a legitimate part of the new round and that negotiations for these should be effectively launched in the review period. I do believe that the total impact, the net impact of China's presence, will be a positive one, but China, I suspect, will be feeling its way and I hope that those who have close contacts with and are friends of China will use their influence to try and help it see that the further liberalization of trade is in its interest and try to persuade those who are less sure that this is the right way forward.




Doing Business with China
Doing Business with China
ISBN: 1905050089
EAN: 2147483647
Year: 2003
Pages: 648
Authors: Lord Brittan

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