WTO Lifts Barriers to China Entry

The final hurdles in China’s 15-year struggle to join the World Trade Organization were cleared away Friday, paving the way for the Asian nation to join the world’s most powerful trade group.

Working under deadline pressure, WTO officials finalized a package that will allow China to join the WTO at its ministerial meeting in Doha, Qatar, in November, Richard Mills, a spokesman for the U.S. trade representative’s office, confirmed late Friday. The deal must then be formally approved by the Chinese government, which probably will act early next year.

The final issue holding up the deal was a dispute between the U.S. and Europeans over entry to China’s insurance market.

China’s entry into the WTO marks a watershed in the Communist country’s decades-long move from an isolated, centrally controlled economy to the world’s fifth-largest trading partner. This comes just months after President Jiang Zemin highlighted his country’s dramatic turnaround by welcoming capitalists into the party.

To join the WTO, China has agreed to a formidable set of painful economic changes that will require the closure of thousands of state-owned firms and create new competition for its beleaguered farmers. Those measures include the lowering of tariffs, the opening of its financial markets and the end of government support for its heavily indebted state-owned sector. Specifics of the agreement were not released.

China’s leaders agreed to pay this heavy price because it gave momentum to their economic liberalization efforts and offered them greater influence in the global economy. Exports have been an engine for China’s 8% annual growth rate.

“This really paves the way for China to play a much more active role in the international trading system and anchors further reforms of their own domestic economy,” said Nicholas Lardy, a China expert at the Brookings Institution in Washington, on hearing Friday’s long-awaited news.

China’s entry into the WTO, which sets the rules for trade, will be felt throughout the global economy. It is already one of the world’s largest agriculture producers and a leading manufacturer of high-tech components, textiles and apparel. Though China is expected to be a strong voice for the developing world, it also poses a threat to many countries in Asia and Latin America that fear its low-cost work force. Lardy said little is known about “what views China will articulate within the WTO process.”

For U.S. multinationals, Friday’s announcement was long overdue. In recent months, American farmers, insurance firms, retail giants and telecom companies have been jockeying for deals that would put them at the head of the line when the doors to China finally opened. As a WTO member, China will be forced to strengthen its legal system and abide by international rules protecting intellectual property. For the first time, foreigners will be allowed to get involved in lucrative areas such as trading and trucking that have been reserved for Chinese government firms. They also will be allowed to own as much as 50% of telecom companies.

“The biggest development for the U.S. side will be the opening of the services sector, such as telecoms, financial services and distribution,” Lardy said. “Some things could start soon, which is important given that it is the world’s second-biggest telecom mobile market.”

Lardy said he was surprised that China was able to reach a deal this week in Geneva, given the thorny issues that remained as late as Monday and the two-day delay resulting from Tuesday’s terrorist attack on the U.S.

Negotiators resolved a critical issue on Thursday when Mexico and China reached a bilateral accord. Like many developing countries, Mexico, the last WTO member to finalize a deal with Beijing, wanted some protections from a surge of cheap Chinese goods.

That left a final dispute, involving the United States and the 15-nation European Union over access to China’s lucrative insurance market. European firms were unhappy because U.S. insurance giant American International Group wanted to continue a special deal that allows it to have fully owned subsidiaries in China. Under the proposed WTO agreement, foreign companies would be allowed only up to 50% ownership of insurance companies. Europeans cried foul, saying they should have the same privileges as any U.S. firms.