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 You are in: Special Report: 1999: 11: 99: Battle for Free Trade
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Wednesday, 24 November, 1999, 14:59 GMT
China deal to boost economy

China's drive to join the World Trade Organisation is a crucial part of its plan to reform its economy.

The battle for free trade
In the past 20 years, the Chinese economy has grown rapidly as the country embraced foreign trade and investment.
WTO membership would safeguard these achievements.

Under WTO rules, China would be guaranteed non-discriminatory access to the markets of all major industrial countries, who are all members of the WTO.

In return, foreign companies would be given the right to trade and invest in China, with the confidence that any concessions granted by the Chinese government could not be reversed.

As a precondition, China will have to cut its tariffs and gradually end protectionism of its state-run industries. The competitive pressure will lead to quicker progress in modernising China's economy; at least that's the hope of reformist leaders like Prime Minister Zhu Rongji. The drawback is that free trade could trigger widespread unemployment in the short-term.

And it may mean that Western companies can finally overcome years of frustration, where large investments were frustrated by red tape and failed to make a profit.

John F. Smith, chief executive of General Motors, the world's biggest car company, said:
"(The deal) will result in improved market access for American products and services in China, one of the world's largest and fastest growing markets."

Boost for the world economy

The full opening of the Chinese market - with its 1.2 billion people - will provide increased opportunities for Western businesses, particularly in the areas of financial services, telecommunications and agriculture.

Although China's per capita income is only a fraction of that in many industrial countries, it has grown by an average of 10% a year for the last two decades, and will overcome France and the UK in the next few years in absolute terms. China's economy is now double that of India, the next most populous developing country.

The trade deal also means that Western consumers will have guaranteed access to cheaper Chinese goods, especially in areas where the country's firms have comparative advantage, like textiles and clothing, toys, and consumer electronics.

As a trading partner, China is even more significant for the world economy, with exports two-thirds the size of the UK's and half as big as Japan's.

Economists argue that if countries specialise in areas of trade where they are most efficient, then overall the world economy will benefit.

But the deal could have negative consequences for some workers both in China and the West.

Millions of people from rural areas have already flooded into China's cities, adding to the pressures on jobs and accommodation.

Many employees of state-run enterprises in China now could be laid off if their firms fail to compete with more efficient Western rivals.

The same holds true for some workers in Western countries, for example in the textile industry.

Western countries would also lose the possibility of using trade restrictions as a weapon to force China to respect human rights.

But some restrictions on "export surges" are likely to be inserted in any agreement to limit the impact on specific Western industries.

WTO membership awaits

Under WTO rules, all 134 members have to approve the application.

Rickshaws are now sculptures in new shopping malls
But traditionally it has been the United States that has set the toughest terms of entry.

The long drawn-out negotiations have centred around US demands that China opens up sensitive areas like telecommunications and financial services more quickly.

The US has also wanted to ensure that its agricultural products could be sold in China without restriction.

Now the EU and Canada will want to move quickly to try and resolve their demands for trade concessions from China.

But the timetable is still tight if China is to join the next round of world trade talks which begin in Seattle at the end of November.

German foreign minister Hans Eichel warned:
"In principle we support China's entry into the World Trade Organisation, but it is important that American demands not supercede European Union demands."

A detailed series of trade protocals covering thousands of products will need to be published and agreed in the near future.

"It would take a miracle for them to be in this year, let alone in time for Seattle," said one envoy close to the talks.

However, if China does manage to participate in the WTO negotiations, it will give the new trade round an added boost.

So far, plans to move further to liberalise world trade have been mired in growing disputes between the United States and Europe over imports of beef and genetically modified food.

China is also likely support other developing countries in pushing for more access for manufactured goods, and resisting demands for labour and environmental standards to be included in the new round of trade talks.
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See also:
18 Oct 99 |  The Economy
Eastern promise comes West
23 Aug 99 |  The Economy
China bans new investment
29 Sep 99 |  China 50 years of communism
The economy's long march
20 Oct 99 |  The Economy
UK investment boost in China
19 Aug 99 |  The Economy
China proves fragile investment
14 Sep 99 |  The Economy
China's growth to slow

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