The Magazine

TRADE WITH CHINA -- SOME SIMPLE RULES

Mar 8, 1999, Vol. 4, No. 24 • By GREG MASTEL
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Zhu Rongji, premier of China, will visit Washington in April. As preparations go forward in both countries, some officials are expressing the hope that the visit will complete the more than decade-long negotiations over China's accession to the world trading system. China's membership in the World Trade Organization (WTO) holds out some promise for both sides, but there are real risks to going forward with a quick, politically driven deal that fails to solve the problems that have kept the Chinese out for so long.


Zhu and his followers seem to have a true commitment to market reform. For them, China's entry into the trade group would amount to recognition of how far their country has come on the path of economic reform; it would also give China new international prestige and some protection from trade retaliation by the United States and other countries. In addition, membership would help Zhu resist anti-market pressures at home. With a new round of trade negotiations and a U.S. presidential campaign about to begin, Zhu probably calculates that if China does not join soon, events will keep it out for several more years.


American advocates of China's membership also have strong arguments: If the Chinese could be made to live under WTO rules, they would be more reliable trade and investment partners. Locking China onto the path of true market reform not only would strengthen the foundations of U.S.-China relations but would give the Clinton administration a tremendous diplomatic victory.


It is important, however, to temper the enthusiasm for China's entry into the WTO. Membership for China has not materialized because the United States has rightly sought to ensure that it take place only under commercially viable terms, which China has been unwilling to meet. To break the deadlock, some in the administration seem prepared to substantially soften the U.S. position and allow China to join now and phase-in WTO discipline over a long period, perhaps even one without a fixed endpoint. Such a political compromise would substantially undermine U.S. commercial interests, essentially lock in the existing billion-dollar-a-week trade deficit with China, and threaten the world trading system.


To understand why a quick political deal to bring China into the organization is not in the best interest of the United States or the world, it is first important to understand the WTO. Although China apparently perceives it as such, the World Trade Organization is not a simple trading club or a United Nations for trade. It is a complex agreement that sets detailed requirements regarding tariffs, intellectual property, investment, and subsidies -- essentially a set of rules for running a market economy.


The fundamental problem is that China is neither a rules-based country nor a market economy. In recent years, Chinese leaders have spoken frequently about the need for a stronger rule of law. The former head of the National People's Congress, Qiao Shi, was fond of saying, "China is a country of strong leaders, not strong laws." Nevertheless, the primary result seems to be a series of anti-corruption campaigns targeted at officials without political connections.


China's weak rule of law is widely seen as a barrier to political reform, notably to dissidents' injecting their views into Chinese society. But it also raises questions about China's ability to meet the requirements of the WTO, an organization premised on its members' ability and willingness to change their behavior in accordance with its rules.


Thus, in bilateral agreements, Beijing's record of compliance has been mixed at best. In 1992, China and the United States struck an accord under which China adopted a legal standard of protection for intellectual property matching that of most Western countries. Unfortunately, little changed on the ground. In fact, piracy of computer programs, movies, music, and other products dramatically increased, and China became a major exporter of pirated products. Seven years later, the United States has twice been on the verge of imposing trade sanctions on China for not enforcing its own laws. Despite a few high profile crackdowns, no credible observer would deny that piracy still runs rampant there.