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The China Trade

Membership in the World Trade Organization won't liberalize Beijing unless America insists on compliance with the rules

Mar 6, 2000, Vol. 5, No. 24 • By GREG MASTEL
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Both the private sector and the Clinton administration have made enforcement of this agreement a priority for the better part of a decade. Yet glaring violations remain. Were it not for the high-level American enforcement effort, there is no reason to believe that China would have made much effort to keep the promises it made in 1992.


P Market Access, 1992. Unfortunately, other trade agreements have not benefited from the same high-level commitment to enforcement. The sweeping agreement on market access struck with China in 1992 is a case in point.


Through the early 1990s, China followed an unabashedly protectionist policy, excluding many foreign products with trade barriers. Threatening sanctions similar to those used later on intellectual property, the Bush administration successfully negotiated improved market access for U.S. exports.


In its latest reports on the subject, the Clinton administration states that China has "generally" fulfilled its commitments. On some of the easily verifiable points, like elimination of formal barriers and lowering of tariffs, China does seem to have implemented the agreement. In other areas, however, there have been obvious problems. Only three will be discussed here.


First, China agreed in 1992 to eliminate import-substitution policies. In the past, economic planners had developed strategies for replacing particular imports used in the manufacture of automobiles, pharmaceuticals, power-generating equipment, electronics, and so forth, with domestic products. Time and time again, the Chinese government has ignored this commitment.


China also agreed to phase out import licenses and not to raise new barriers. Shortly after phasing out import licenses, however, China announced new import registration requirements for many of the products previously covered by licenses. And a number of other new barriers on products ranging from electricity-generating equipment to pharmaceuticals have sprung up.


Finally, China agreed to make public all its laws and regulations relevant to foreign trade -- a major change. As a result, many trade directives are now publicly available. Yet, this elementary provision has not been implemented in a number of areas, including government procurement regulations.


These are unambiguous violations of the 1992 market-access agreement. It is difficult to estimate their economic importance. Washington has officially noted them over a number of years, and Beijing has offered neither denial nor explanation.


One obstacle to pursuing these matters, Clinton administration trade officials argue, is that other U.S. government agencies have other priorities, and many private companies oppose trade sanctions that could compromise their business in China. If, however, agency indifference and private sector grumbling are sufficient to halt enforcement, it is doubtful that any trade agreement, particularly with a country willing to intimidate U.S. companies, will ever be enforced.


P Textile Transshipment. For decades, trade in textiles and apparel has been governed by the Multi-Fiber Agreement. Under the MFA, importers and exporters of textiles negotiate what amount to quotas on textile imports on a bilateral basis. As the world's largest textile exporter and the world's largest textile importer, respectively, China and the United States concluded a number of bilateral MFA agreements.


For some years, there have been reports of "transshipment" of textiles and apparel by Chinese entities: Chinese companies label textiles made in China as having originated elsewhere, usually Hong Kong or Macao, to avoid MFA limits. Because transshipment is illegal, accurate figures are not available, but a past U.S. Customs commissioner estimated that transshipment from China into the U.S. market amounted to about $ 2 billion annually. A more recent U.S. Customs study noted that Chinese textile exports worth as much as $ 10 billion were not officially accounted for, and much of this undoubtedly found its way into the U.S. market.


The Customs Service has undertaken a number of enforcement efforts, including reducing China's official MFA quotas as a penalty for transshipment. In 1997, China and the United States reached a four-year textile trade agreement that, among other things, strengthened penalties and reduced quotas in 14 apparel and fabric categories where there had been repeated instances of transshipment. Nevertheless, in May 1998, the U.S. trade representative and U.S. Customs brought an action against China under the agreement, imposing $ 5 million in charges on textiles illegally transshipped.