The Magazine

TRADE WITH CHINA -- SOME SIMPLE RULES

Mar 8, 1999, Vol. 4, No. 24 • By GREG MASTEL
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Import targets are a tried and true method of ensuring that countries actually implement the trade promises they make upon WTO entry. Particularly in sectors closed to imports, such as agriculture, electronics, and telecommunications, market share or import targets are an effective approach to ensuring that China actually fulfills its commitments.


Another concept discussed in past accession agreements with non-market economies is the "general safeguard." This measure would allow the United States or other WTO members to impose sanctions if they felt China was not living up to the promises it made in its accession agreement. As the United States has learned, trade sanctions are never easy to impose and always have political and economic costs. The existence of the general safeguard would keep the threat of bilateral trade sanctions against China viable -- at least during a transition period. U.S. negotiators should ensure that the general safeguard, included in early drafts, remains in the final agreement.


Given past problems with enforcing agreements, special emphasis should be given to this topic in an accession agreement with China. A WTO review of that country's adherence to the terms of its accession agreement should be completed during the phase-in period of WTO discipline. At home, the United States should complete an annual review of China's participation. If China is found to be violating any of the conditions, the general safeguard should be employed to withdraw appropriate benefits.


China will no doubt vigorously oppose the inclusion of the safeguard and market access targets in its WTO accession agreement. Naturally, it would prefer the kind of standard accession arrangement negotiated with market economies, but China simply lacks the legal structure and market orientation that would make such an agreement meaningful. The only way to marry China to the WTO in a manner consistent with long-term American interests is to adopt some of the innovative devices discussed here. Otherwise, as the United States learned from previous bilateral agreements, a series of tariff concessions from China are unlikely to be worth even the paper they are written on.


A quick, diplomatic deal on China's induction might make for a successful visit by Zhu, but it would certainly undermine U.S. commercial interests, weaken the WTO, and sow the seeds for serious problems in the long term. Congress and other interested parties should insist that the right kind of agreement be concluded or that no agreement be concluded at all. The potential opportunity afforded by China's entry into the World Trade Organization is too significant to be sacrificed for short-term political gain.




Greg Mastel is vice president and director of studies at the Economic Strategy Institute.