U.S., China OK Breakthrough Trade Accord

After years of talks, missteps and posturing, Beijing and Washington finally signed a deal this afternoon at China’s Trade Ministry, paving the way for China to enter the World Trade Organization by the beginning of the next round of negotiations starting in Seattle on Nov. 30.

Although details were sketchy, the agreement holds out the promise that American companies will gain greater access to China’s telecommunications, financial and other service markets.

U.S. Trade Representative Charlene Barshefsky and China’s foreign trade minister, Shi Guangsheng, signed the agreement after six days of intense negotiations. Barshefsky was scheduled to leave the Trade Ministry, where the signing ceremony took place, to meet President Jiang Zemin at the government headquarters.

After shaking hands, Barshefsky and Shi--along with special economics advisor Gene Sperling and China’s lead WTO negotiator, Long Yongtu--raised champagne glasses in a toast.

In Ankara, Turkey, President Clinton said today, “This agreement is a major step forward in bringing China into the WTO and a profoundly important step in the relationship between the United States and China.” The agreement “is good for the United States, it’s good for China, it’s good for the world’s economy,” he said. Beijing, for its part, should come out of the deal with greater assurance that Washington won’t suddenly block Chinese imports over a bilateral tiff. The U.S. now accounts for more than 30% of Chinese exports, a level too important to jeopardize. The deal should also provide more security to U.S. and foreign investors, making them more willing to build factories and expand ties with China.

In addition to the obvious economic benefits, the deal should also strengthen the bond between the two nations, analysts say, and by expanding their shared economic interests, help smooth the often tumultuous relations seen in recent years. With more at stake, issues like last May’s bombing of the Chinese Embassy in Yugoslavia, strains over Taiwan and the recent Los Alamos spy scandal should be easier to handle.

“This really could be a landmark between the two countries,” said Qu Hongbin, consultant with the Bank of China. “It’s hard to imagine once there’s a financial deal that you’d have very ugly things between the two countries.”

Equally important is the turning point this represents for China. Joining a body once viewed as part of a grand capitalist plot shows how far China has come in the past two decades--both in its economic reforms and its way of viewing the world. By agreeing to follow rules of behavior it once condemned, it shows a growing willingness to accept the responsibilities as well as the benefits of being a larger global player.

This dovetails with a longstanding strategy among U.S. and other Western leaders to encourage China’s entry into the fold.

“Bringing China into the global framework is part of U.S. objectives over the longer-term,” said Yukon Huang, chief of the World Bank’s resident mission in China.

Finally, in a domestic political context, the deal signals a willingness by top Chinese leaders to ally with foreign capitalists--as well as their own emboldened business community--in their bid to shake up the old economic guard and further domestic reforms.

Economic reformers in any nation face enormous resistance. This is even more true in China, where the problems are enormous, resources are limited and the baseline is central planning and smoke-belching state factories. In the ongoing battle between reformers and hard-liners in China, this places another arrow in the reformers’ quiver.

That is not to suggest that China’s enormous problems, widespread corruption, questionable local justice and unique way of doing things will disappear overnight. Furthermore, China has some huge areas that won’t be tackled easily. Its inefficient farm sector still employs some two-thirds of its population and could come under strong pressure from highly efficient U.S. producers. And greater competition in China’s banking and financial sector could spur the default of more state factories.

Still, China’s WTO entry is a significant milestone in the history of a nation only expected to expand its presence in coming decades. And it should be a big win for consumers on both sides able to enjoy the benefits of more choice and expanded competition.

Further down in the trade trenches, meanwhile, analysts cite several more tangible benefits China can hope to gain from the deal. Over time, China’s export opportunities should expand faster than they might have otherwise in areas like electronics, textiles and garments.

By tying China to a set of rules that make foreign investors more comfortable, China 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. This is also an area where foreigners want to invest. In the cliched world of business-speak, it’s a win-win situation.

Finally, the deal will be a benefit for one leader in particular--Premier Zhu Rongji. He is most directly associated with China’s economic reforms and its WTO entry bid. Since last April, when Zhu was publicly humiliated after the Clinton administration turned down his offer during his trip to the United States, the responsibility for WTO talks has been switched to Jiang, analysts say. With the deal accomplished, his position should be enhanced.

“As other countries increase their market share in China, they increase their social and political influence,” said Hu Biliang, senior economist with SG Securities. “Social change will happen.”