The visit by President Bush later this week to China and speeches earlier this week by U.S. Trade Representative Rob Portman have increased attention on the role of China in the WTO trade policy negotiations. To date China has been mostly silent. They have too much to lose to sit on the sidelines.
Exports of goods and services by the U.S. account for about 10 percent of the nation’s GDP. All of Asia averages 25 percent, and for China it is 29 percent. China’s trade of $1.1 trillion accounts for 6.7 percent of total world trade. China is the third largest exporter and the third largest importer after the U.S. and Germany. When China joined the WTO in December of 2001, U.S. exports of goods to China that year were $19 billion per year and imports were $102 billion. In 2004 the respective numbers were $35 billion and $197 billion, resulting in a Chinese trade surplus with the U.S. of $162 billion. Chinese agricultural exports to the U.S. have increased from $0.8 million in 2001 to $1.6 billion in 2004, while Chinese imports from the U.S. have increased from $1.9 billion to $5.5 billion. The two biggest agricultural import items from the U.S. in 2004 were oilseeds at $2.4 billion and cotton at $1.4 billion.
China has greatly benefited from the more open trading systems in agricultural and non-agricultural products that have developed over the past 55 years under first the General Agreement on Tariffs and Trade (GATT) and now the WTO. These arrangements are not the “free trade” systems that are the most economically efficient, but they are far better than those in place in the early years after World War II. The biggest mistake the Chinese could make would be to assume that there will not be backsliding in these trade systems if the Doha Round talks are not successful.
Press reports indicate that Chinese President Hu Jintao said little or nothing about the WTO trade policy negotiations when he visited Europe last week. China is a member of the G20 group of developing countries that has made some proposals in the WTO talks, but they have kept a low profile. Brazil and India have done most of the heavy work in explaining and defending the group’s positions. China should have considerable influence as a relatively new member of the WTO and a major exporter and importer.
While the value of China’s currency and sharp increases in U.S. imports of clothing get most of the attention, the U.S. and other developed countries have additional issues they want addressed. At the top of the list is protection of intellectual property rights in products such as computer software and entertainment DVDs and CDs. The WTO agreement has a section called TRIPS (Trade Related Intellectual Property Rights) to deal with these issues. Violations of TRIPS occur in many countries, and China is among the worst. At a conference on U.S.-China relations, Ambassador Portman said, “China should roll up the illegal distribution networks that are known to bring millions of fake DVDs and CDs to market. Fakes on every street corner are an unbecoming symbol for a world power such as China. Likewise, government offices and government-controlled firms should not be using fake software.” Portman has also stressed that China will never develop industries of its own under these conditions. China has a substantial agricultural biotechnology effort and intellectual property rights issues will be increasingly important for their products and those from other countries.
Also on the list of issues are internal regulations that prevent foreign firms from having 100 percent ownership of factories, such as an automobile plant. Insurance companies face similar restrictions. Cumbersome and unequally applied rules also affect the telecommunication industries. Direct selling of consumer items like Tupperware is not allowed in China. That business model is used in most of the rest of the world and many entrepreneurial Chinese would be naturals in the business.
When these issues have been raised in the past, the official Chinese response has been some version of “It’s not true.” “It’s beyond our control.” Or “not so fast.” There is now too much evidence to make the “not true” defense even minimally plausible. The Chinese have had four years to make some of the most egregious abuses “controllable.” Given the rapid growth of Chinese exports over the last four years, the “not so fast” defense does not match the sweeping changes that have occurred in the Chinese economy. While China is a developing country and many conditions will take years to change, the U.S. is asking for changes in sectors of the economy that are already undergoing rapid change and in need of market and trade disciplines that are common in other developed and developing countries.
Ambassador Portman also related his experience as a member of Congress when he supported Permanent Normal Trade Relations (PNTR) status for China that was necessary for the U.S. to approve China’s accession to the WTO. The new role for China was seen as a win for both countries. Four year later the view is very different. Many people believe that the $162 billion trade deficit between the two countries is a direct result of China’s lack of fair and open markets and a good faith effort to follow the WTO rules.
The Chinese economy has grown too large and too integrated into the economies of other countries to have Chinese leaders not be full partners in the Doha Round of trade talks. The U.S. and other developed countries are asking China to do the same as they are asking other developing countries. In economic sectors where China competes directly in world markets with other developed and developing countries, China has an obligation as a member of the WTO to follow the same rules as its competitors.