WTO ties rev up nation's growth

Zhou Houjian is one of the beneficiaries of China taking its place at the head table of trading nations.

Within the next few weeks, the country will mark eight years of membership of the World Trade Organization (WTO).

For Zhou, who is chairman of Hisense Electric Co Ltd, one of China's leading flat screen television makers, it has been a period of unparalleled growth.

Keith Rockwell, chief spokesperson for the WTO.

Before joining the WTO in 2001, the company, which is based in Qingdao in Shandong province, did not export at all. Now 20 percent of its sales are to the United States, Europe, Australia and Africa.

"Our major efforts are now focused on overseas markets. Our aim is to become a leading worldwide company with the majority of our sales being exports. Without China's entry into the WTO, this would have been unimaginable, " Zhou said.

Hisense is far from alone. In the first six months of this year, China overtook Germany as the world's largest exporter with total exports of $521.7 billion, compared to its rival's $521.6 billion.

According to WTO official statistics, China's exports have increased fivefold, or by 25 per cent a year, on average since its accession.

China now has a dominant position in world markets in many sectors, including electronics, textiles and machinery.

A major question is whether China could have achieved such extraordinary growth without joining the WTO.

Wu Changqi, professor of strategic management at the Guanghua School of Management at Peking University, said the answer cannot simply be found in its membership creating better exporting opportunities.

"The effect of joining the WTO has been in making the China economy more open to foreign firms and, consequently, Chinese firms have had to become more competitive. As a result, Chinese firms have also developed a greater edge in overseas markets, and that is why you have seen this rapid rise in trade," Wu said.

Jian Sun, a partner at management consultants A.T. Kearney in Hong Kong, said being a member of the WTO has created a whole new "mindset" in the country.

"Membership in the WTO is all too often just seen in the context of exports. I think it has helped accelerate the development of China because the government has had to become more open and transparent in terms of processes and policymaking," he said.

"I think it is also the case that China is clearly recognized now as part of the global economy as a result of it having joined," he added.

China's membership of the WTO recently came into sharp focus again as a result of the financial crisis. The prospect of major trade wars between countries currently lurks beneath the surface.

China has faced a barrage of accusations that it is failing to play by WTO rules and dumping goods in overseas markets.

According to the Ministry of Commerce, during the first nine months of this year, 88 trade remedy investigations from 19 nations and regions were brought against China covering some $10.2 billion of the country's exports. Fifty of the cases were from the United States and 22 were from India.

The most high-profile of the recent cases centers on China's tire exports. In September, President Barack Obama announced high-level duties on the import of tires -- the first trade action his administration has taken against China.

Yao Jian, a spokesperson for the Ministry of Commerce, said there is a danger of trade wars breaking out as countries turn against each other.

"When the economies entered into recession, they turned to blame and attack the other nations, including China, rather than find or create possible solutions to make their own industries get better. This is unfair and unreasonable. China is strongly against such moves," Yao said.

Rather than lying down in the wake of these trade actions, the Chinese government is becoming increasingly eager to use the legal framework of the WTO regulatory system to counter them.

Fu Donghui, general manager of Allbright Law Offices in Beijing, said this is in marked difference to when China first joined the WTO.

Armed with rules

"The government seldom did this after China first joined the WTO. Now it is more active in responding to the unreasonable actions by leveraging WTO rules and regulations," Fu said.

Some feel that if China is to make greater use of the law and respond to trade actions, it should also address problems in its own backyard.

The European Chamber of Commerce said in September that despite China being in the WTO, European companies were still denied complete access to the China market.

It also said in its annual position paper there was an "increasing threat of protectionism" coming from the Chinese government.

Joerg Wuttke, president of the European Chamber of Commerce in China, is particularly concerned about access given to major European automobile manufacturers.

"To operate in China, they are still forced to establish 50/50 joint ventures, just as they were 30 years ago when China implemented the reform and opening-up policy," Wuttke said.

Some believe, however, that when the climate is right, the Chinese government will begin to make concessions in this area

Li Xiaogang, director of the Foreign Investment & Research Center at the Shanghai Academy of Social Sciences, said changes might take place soon.

"Actually, China made quite a concession when it allowed foreign auto companies to enter a few decades ago. However, the time is ripe now for the government to consider making changes," Li said.

Market status

Pivotal to whether it does or not could rest on China being finally allowed "market economy status", which has been central to a lot of recent dumping disputes and is at the heart of the country's relationship with the WTO.

At present, China is not going to be allowed automatic market economy (MES) status until 2016, 15 years after joining the WTO.

So currently, any trade dispute with China is not dealt with as it would be against any other major country.

If a country accuses the United States, which has MES status, of dumping, the test used is whether it is trying to sell a particular product at less than the price it sells it for in the United States.

China has to meet different criteria because of its non-MES status. The price of what it is trying to sell goods for in overseas markets is not compared to domestic prices, but with those of a proxy country that has full status. Comparisons can be made with Brazil or Mexico, but often the US is used despite prices in the US often being well above those in China.

Zhou Shijian, standing counselor at the China Society for World Trade Organization Studies, said this is a huge problem for China in the current trade war environment.

"China will continue to be the major target of trade protectionist measures when the problem of market economy status cannot be dealt with," he said.

Trading partners still demand greater clarity on the part of China in terms of its actions.

The Chinese government's decision in March to block Coca-Cola's attempt to acquire Huiyan Juice Group, China's largest fruit juice maker, is seen by some as a case in point.

It was rejected under anti-monopoly legislation on the grounds it would have given the US soft drink giant a dominant market position.

The European Chamber of Commerce said in its recent paper, however, that there was "not enough explanation and analysis for important decisions and key cases" such as this one.

In Geneva, the headquarters of the WTO, China is increasingly influential. It has a whole army of meticulously prepared negotiators ready to attend any meeting fully briefed. As such, it is in a better position than many countries to shape policy.

Free trade areas

China has also set up a number of free trade areas with neighboring nations under the framework of the WTO such as the China-ASEAN (Association of Southeast Asian Nations). The effect of this is to create invaluable buffers with free trade zones around China.

Many are now looking to China to push forward the Doha round of talks, which were suspended in June last year after the United States and India could not reach consensus on agriculture.

"China is gaining more speaking power in the Doha round talks," said E. Defeng, deputy director general of the Department of WTO Affairs with the Ministry of Commerce.

Professor Wu at the Guanghua School of Management said one of the key benefits of membership has been the impact it has had on certain key industries, particularly the banking sector.

He said that WTO pressure on China to reform its banking system is one of the reasons why China did not suffer the same sort of banking crisis that has afflicted banks in the West.

"Chinese banks went through a thorough restructuring process in the past few years. It means that China banks were in an advantageous position when the financial crisis finally hit, " Wu said.

Potential trade wars might loom, but after eight years in the WTO, China is arguably in a stronger position than ever before. It has been instrumental in negotiating many of the WTO's current rules and has more to gain in seeing them adhered to.

Jian Sun at A.T. Kearney said the interests of China are now very much bound up in its membership of the WTO.

(China Daily 11/02/2009 page1)