Mexico and China Agree on Tariffs

One of the last obstacles to China’s entry into the World Trade Organization was overcome Thursday when China and Mexico reached agreement in Geneva on their trade differences.

The principal remaining barrier is China’s alleged preferential treatment of U.S. insurance giant American International Group, which has prompted objections by the European Union. But trade experts are optimistic it will be settled by the WTO ministerial meeting in Qatar in November, when China’s admission is expected to be formalized.

China’s long-awaited admission to the 142-nation WTO has depended on bilateral accords with all major countries, deals that have followed rapidly since it and the United States came to terms in the spring of 2000. The WTO is an organization that promotes global trade by reducing tariffs and barriers and providing dispute-resolution mechanisms.

Mexico has been slow to agree with China because of concerns for its apparel, toy and shoe industries, which will have a difficult, if not impossible, time competing against Chinese imports. To protect those industries, Mexico imposed anti-dumping tariffs of as much as 1,005% on 1,300 separate products in 1993. The tariffs are still in place.

In previous negotiations, Mexico had demanded an eight-year “adjustment period” during which it could keep the tariffs in place. China had offered only three years.

Terms of Thursday’s agreement in Geneva, which came during a WTO meeting, seem to indicate a victory for Mexico. It will be able to keep duties in place at least six years, with an extension if it can prove dumping persists.

Attention now turns to solving an insurance dispute, centered on the rights given by China to AIG to maintain 100% ownership of its Chinese company and open unlimited numbers of branch offices. All other insurance companies can own only as much as a 49% interest in China operations, and the Europeans complain that that’s unfair.

Chinese negotiators also must contend with recent signs of domestic dissatisfaction with the WTO. Employees of China’s state-owned companies are worried that the WTO deals their government has struck will cost them their jobs in protected industries.

“China has its own internal problems,” said Barry Bosworth, a fellow at the Brookings Institution in Washington. “There is a domestic backlash against some of these deals.”

Gary Hufbauer, a senior fellow at the Institute for International Economics in Washington, said he believes most such worker groups will fight foreign intruders “at the next barricade,” which he described as “implementing regulations and all sorts of newly invented domestic controls.”

The Mexican government said Thursday’s agreement gives Mexican companies better access to China’s markets. Trade statistics reflect how limited that access was. Last year Mexico exported only $204 million worth of goods and services to China but imported $2.88 billion.

Industrialized WTO countries are trying to launch talks in Qatar to extend and refine existing rules in agriculture, the environment and bidding for government services, among other areas.

That effort is being resisted by a dozen lesser-developed countries, led by India, that want some of the last round’s rules implemented before continuing.