China Trade Pact to Widen Access for U.S. Firms
The landmark U.S.-China trade deal signed here Monday offers U.S. companies unprecedented access to China’s 1.2 billion consumers and is good news for such bellwether California industries as technology, Hollywood and agriculture.
Over the long term, the agreement also promises benefits for U.S. Internet and telecommunications firms, the auto industry, banks and Wall Street. And it stands to hasten the economic integration of the two superpowers, giving them a growing commercial stake in a transpacific relationship valued at more than $85 billion.
“China’s accession to the WTO is a very, very important guarantee to the rest of the world that they can expect certain things from China’s economic and commercial behavior,” said Robert Kapp, president of the U.S.-China Business Council, the nation’s leading China business group.
One disappointment was the inability of the United States to win the right for American firms to acquire more than 50% ownership of Chinese telecom companies, a concession to powerful pressures within China against relinquishing control over that lucrative arena.
The biggest losers will be U.S. apparel and textile makers, which lost a battle to have restrictions on China’s exports of apparel and textiles kept in place until 2010. China, which depends heavily on apparel and textile exports, succeeded in getting those quotas lifted at the same time as other WTO members in 2005.
“We are very disappointed in the agreement,” said Doug Ellis, owner of Southern Mills and president of the American Textile Manufacturers Institute, which estimates the pact will cost the beleaguered industry 150,000 jobs, many of them in Southern California.
But U.S. Trade Representative Charlene Barshefsky scored a huge victory for powerful U.S. tech firms such as America Online Inc., Yahoo Inc. and Microsoft Corp. by persuading China’s Ministry of Information Industry to allow foreigners into the highly sensitive Internet industry.
“The forces of darkness in the Chinese telecom bureaucracies are going to have to slink under the rocks again,” said Dan Rosen, director of corporate research and development for ChinaOnline.com, a Chicago-based provider of China research.
American business leaders hailed the WTO agreement as an eventual boon to the U.S. economy and a spur to Chinese economic reforms, with estimates that it could lead to a doubling of China’s global trade to $600 billion by 2005. China is the United States’ fifth-largest trading partner and ranks No. 11 for California, already a leading gateway for goods to that region.
The agreement paves the way for China’s entry into the Geneva-based World Trade Organization, although the Chinese must first negotiate similar agreements with the European Union, Japan and other industrialized regions to gain entry to the powerful trade group.
While some question whether China will keep its promises, U.S. business is anxious to have the world’s third-largest economy in a rules-based trading system with penalties for misbehavior.
“The fear has been that in the next century they would be the unguided missile in trade,” said Willard Workman, an international specialist at the U.S. Chamber of Commerce in Washington.
For Hollywood, the agreement promises a doubling, to a still modest 20, of the minimum number of foreign films allowed into China annually--with U.S. firms receiving 50% of the box office. It also allows direct foreign participation in distribution of films and videos.
“On the face of it, I’m very pleased,” said Jack Valenti, chairman of the Motion Picture Assn. of America, who was awakened at 3 a.m. Monday with the news.
For American farmers, it offers a guaranteed steady increase in Chinese purchases of corn, wheat, rice and cotton and an end to China’s export subsidies. Greater access to China’s market is especially critical to California cotton growers, who have been suffering from depressed global prices due in part to China’s massive production and subsidies to its farmers.
The WTO agreement also is expected to open doors for California citrus growers such as Sunkist, which predicts the China market could add at least $500 million in sales over the next five years because of decreased tariffs and relaxed import curbs. That would make China the second-largest U.S. citrus export market behind Japan.
For Silicon Valley and the telecommunications industry, it raises the ceiling on foreign ownership of companies and ends a ban on foreign participation in Internet companies.
China is believed to have agreed to sign onto a global technology agreement designed to bring tariffs on everything from semiconductors to personal computers to zero next year, according to Anne Craib, a trade expert at the San Jose-based Semiconductor Industry Assn. U.S. high-tech firms sold $1.6 billion worth of goods to China in 1998, an 11% increase over the previous year.
And for foreign banks, the deal would in theory allow them to be treated just like their domestic Chinese counterparts. Chinese securities companies, meanwhile, could be up to 33% foreign-owned, while foreign auto companies will be allowed to offer financing even as they enjoy lower tariffs.
For politically sensitive U.S. industries such as textiles and steel, the administration said it negotiated safeguards against import surges, including a continuation of certain controversial U.S. anti-dumping measures.
By and large, Asia has reacted favorably to the news of the long-awaited WTO deal.
Konkiat Opaswongkarn, president of Thailand’s Asset Plus Securities Ltd., said having China in a forum with clearly accepted rules should improve regional stability, although Southeast Asian nations will need to sharpen their skills to better compete against Chinese companies.
Hong Kong’s stock market rose 2.6% on the news Monday.
On Wall Street, where China’s admission to the WTO has been expected and any earnings payoff for U.S. firms is years away, markets had little reaction.
For China, the prospect of WTO entry is a significant milestone in the history of a nation certain to expand its global presence in coming decades.
Over time, China’s export opportunities should expand faster than they might have otherwise in areas such as electronics, toys, textiles and garments.
By tying China to a set of rules that make foreign investors more comfortable, the agreement also sets the stage for a greater inflow of foreign capital, desperately needed to help employ the growing armies of unemployed. In particular, one of the most promising job creators is the service sector, which also happens to be an area of great interest to foreign firms.
U.S. banks, insurance firms, attorneys, architects and accountants would be among those who would benefit from increased access to the China market.
In a country that boasts one of the world’s highest savings rates, the Chinese government has agreed to allow foreign banks to handle local currency transactions for Chinese firms and individuals.
Specifically, the deal:
* Cuts Chinese import taxes on all products, which will decline to 17% on average from the current 22.1% even as those on agricultural products fall to under 15%.
* Gives Wall Street less than the full access it sought to China’s budding capital markets, but more than it now has. China would allow up to 33% foreign ownership of fund management companies immediately, a figure that would rise to 49% over three years, and up to a 33% stake in the case of securities underwriters with no upward adjustment.
* Allows foreign telecom companies, currently limited to equipment sales, to take stakes of up to 49% in Chinese companies on the day China joins the WTO and 50% two years later. The U.S. wanted 51%, but political sensitivities in China precluded a majority stake, negotiators said.
* Begins gradually reducing to 25% the tariffs on autos and auto parts by 2006. While this is a year later than originally outlined in the April agreement, the rate of decline from the current 80%-100% tariff level would be faster in the earlier years. Auto companies would also be allowed to offer financing and control the distribution of their vehicles.
* Opens China’s banking, tourism, transportation, distribution and other service markets. Caterpillar Inc. believes it could boost sales of its earthmoving equipment in China, presently worth about $200 million a year, by eliminating “inefficient and bureaucratic” middlemen, according to spokesman William Lane.
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Magnier reported from Beijing and Iritani from Los Angeles.
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More on Trade Deal
AN OPENING--Advocates of the pact see it as signaling fundamentahanges ahead for China.A10
HURDLES--For U.S. negotiators, achieving a deal was a topsy-turvy, sometimes comical process. A10
THE OUTLOOK--Congress is expected to OK the deal next year, but not without a fight. A10
