New environment for SFTEs after China s entry into the WTO

New environment for SFTEs after China's entry into the WTO

China's commitments to the WTO

Commitment over foreign trading rights
China is implementing an approval system for foreign trading licences. China has pledged, within the next three years after China's WTO entry, to gradually reduce the registered capital requirement over its applicants and speed up its approval process. China will also expand the foreign trade business scope for foreign invested enterprises (FIEs). After three years of its WTO entry, China will phase out its approval system and all Chinese enterprises will be eligible for foreign trading rights upon registration.

The system of state foreign trade
After entry into the WTO, China will continue the state system regarding the import of those commodities that are fundamental to its national economy. The eight big-ticket commodities, ie grain, cotton, vegetable oils, sugar, crude oil, refined oils, chemical fertilizers and tobacco , will still be retained in the hands of a few SFTEs appointed by the government. In the meantime a certain portion will be set aside for non-SFTEs with a quantity restriction. The licensing restrictions for vegetable oils (soybean oil, palm oil and rapeseed oil, etc) will be lifted to enable free competition by 2006.

Tariff -rate quotas
Tariff-rate quotas are simply an opportunity for market access instead of an obligation to import. The size of import will be left to the discretion of the importing country. After WTO entry China will continue the tariff-rate quotas over those agricultural products such as wheat, corn, rice, cotton, sugar, soybean oil, palm oil, rapeseed oil and wool, as well as industrial products like chemical fertilizers and wool tops. The quantity of tariff-rate quotas, the rates of tariff within and without quotas, the percentage allocated to non-SFTEs and the implementation schedule have been specified. While the products under tariff-rate quotas are subject to the management of SFTEs, a certain portion is carved out to benefit the non-SFTEs.

In light of China's WTO commitments, therefore, SFTEs will have to face the challenges from both fronts. On the one hand, domestic competition will be intensified as a result of the shift from the foreign trade approval system to a registration system. Their disadvantages in management style, financial sources and operating cost will be further exposed. On the other hand, their monopolistic position in import quota allocation over the key commodities will be slackened when more private and FIEs earn their legitimacy . For those items (imports in particular) subject to state operation, however, SFTEs will continue to play a dominant role for some time to come. For example, 90 per cent of grain, 10 per cent of vegetable oils (which has been reduced from 34 per cent), 70 per cent of sugar and 33 per cent of cotton will still be vested in the hands of SFTEs.

SFTEs will face fierce competition over human talents

Relatively speaking, fixed assets are insignificant for foreign trade firms. Much of their success depends on the availability of the right people and their corporate reputation. In foreign trade firms only a small number of people are responsible for the bulk of business revenue and profit. The core competence of the SFTEs is generally based on their workforce talents that are specialized in management, trade practices, finance, foreign languages, laws, negotiation and market intelligence. As more and more different kinds of enterprises such as foreign-invested, shareholding, private and production based firms come into the field of foreign trade, their competitive advantage in management mechanism, financial flexibility and products becomes more visible. The salaries, other incentive packages and job satisfaction offered by these firms will entice more human talents from the uncompetitive SFTEs which are still impeded by their system and other burdens carried over time. Rivalry over human talents is the toughest challenge that SFTEs will encounter. Loss of talents means loss of market, and eventually, the capability for the survival of SFTEs. In order to maintain their competitiveness and momentum for expansion, SFTEs are left with no choice but to expedite their reform process, dismantle barriers and invigorate their management mechanism so as to retain and attract more expertise into their talent pool.