(By Jiangyu Wang)

        B. WTO ACCESSION AND COMMITMENTS

The process of China’s accession to the WTO left a unique legacy in the history of the organization. Indeed, as observed by an international trade law specialist, ‘‘The story itself is an epic saga, and no country currently seeking WTO Membership – Saudi Arabia, Iran, and Russia, for example – could possibly create a more complex array of issues than has the People’s Republic of China.’’ Though the sheer size of China’s population and territory, its political influence, its giant economy scale, as well as its status as a top global trader, brought an expectation that ‘‘China’s accession to the WTO will help strengthen and improve the multilateral trade system, promote world economic and trade development, and establish a new, open, and just international economic order.’’ Nonetheless, China spent 15 years convincing other members of the WTO that it was an acceptable partner, longer than anyWTOmember had experienced. The reason appeared to be complex, intertwined with both political will and commercial considerations such as the U.S.-China relationship and China’s demand to enjoy ‘‘developing countries’ status.’’ In the end, in 2001 China swallowed a set of obligations which was much stricter than it was originally prepared to accept, and joined theWTOneither as a developing country nor a developed country but as something in between.

In its accession instruments, China commits to the WTO that it will provide non-discriminatory treatment to all WTO Members. All foreign individuals and enterprises, regardless of whether they have invested or registered in China or not, will be accorded treatment no less favourable than that accorded to Chinese enterprises with respect to foreign trade rights. China will eliminate dual pricing practices – price control will not be used for the purpose of affording protection to domestic industries or services providers and will make no different treatment between goods produced for export and those for sale at home. China will not maintain or introduce any export subsides on agricultural products. In addition, China agrees to implement WTO Agreement in an effective and uniform manner by revising its existing domestic laws and enacting new legislation fully in compliance with the WTO Agreement. China pledges to administer all its laws in a ‘‘uniform, impartial and reasonable manner,’’ and ensure transparency in its legal system. What China achieved by giving up so much is a returned promise by WTO members that they will phase out existing WTO-inconsistent restrictions on Chinese exports, mostly within four years though Mexico has won a six-year transition period.

One of the most distinguished and ‘‘very unfair’’ obligations China was forced to undertake is that China’s accession agreement incorporates a unique, China-specific safeguard mechanism entitled ‘‘Transitional Product-Specific Safeguard Mechanism.’’ It allows other WTO members to impose restraints on any type of Chinese exports (embracing industrial goods including textiles and apparel, and agricultural goods) if a surge causes or threatens ‘‘market disruption’’ to domestic producers, the threshold lower than that required by ordinary safeguard measures under the WTO rule, and will be available for twelve years after China’s accession.

Specifically, the key points of China’s WTO accession agreement are as follows:

– Tariffs The central market access provisions of China’s WTO accession agreements aim to open Chinese markets to foreign exports. China has bound all tariffs for imported merchandises. By no later than 2010, the average bound rate for industrial goods must go down to 8.9 per cent, with a range from 0 to 47 per cent, and with the highest rates applied to photographic film and automobiles and related products. For agricultural products the agreed average rate by 2010 is 15 per cent, with a maximum of 65 per cent for cereal imports. China also acceded to the Information Technology Agreement (ITA), and as such committed to eliminate all tariffs on products covered by ITA. Tariffs on three-fourths of the ITA products are committed to be eliminated by January 1, 2003, and tariffs on all the remaining products were to be eliminated by January 1, 2005. Duties on cars were committed to fall to 25 per cent by mid-2006.

– Textiles After the date of accession China became a party to the Agreement on Textiles and Clothing and was subject to its rights and obligations. WTO’s members’’ quotas on Chinese textile exports would end by December 31, 2004, but there will be a special safeguard mechanism in place which will allow WTO members to impose restrictions in the event of market disruptions caused by Chinese exports of textile products to the end of 2008.

– Agriculture China has renounced the use of export subsidies for farm produce. Subsidies for agricultural production will be limited to 8.5 per cent of the value of farm output (per Article 6.4 of the WTO Agreement on Agriculture), rather than the 10 per cent normally granted to developing countries. By January 2004 duties on agricultural products should fall from 22 per cent to 17 per cent and on U.S. priority products from an average 31 per cent to 14 per cent.

– Trading and Distributional Rights While China will reserve the right of exclusive state trading for products such as cereals, tobacco, fuels, all enterprises (foreign or domestic) will have the right to trade in all other goods throughout the customs territory of China. With respect to domestic distribution and retail, while some restriction will be still in place, China will phase out restrictions on distribution services for most products within three years after the accession. China agrees to lift joint-venture restrictions on large department stores and virtually all chain stores, and to scrap space restrictions on foreign-owned stores. Foreign firms will be able to conduct their own distribution networks with no Chinese middlemen needed.

– Import/export Licensing and Quota China will maintain a transparent, predictable, uniform, fair and non-discriminatory system and fair procedure for trade licensing and quotas that would provide effective trade opportunities, and publish and report stipulated information to the public as well as to relevant WTO agencies. China also agrees to issue import licenses for a minimum duration of validity of six months, except in exceptional circumstances. And, foreigners should be accorded treatment no less favourable than that accorded to Chinese nationals in the process.

– Subsidies and Countervailing Practices; China has agreed to eliminate all subsidy programs falling within the scope of Article 3 of the WTO Subsidies and Countervailing Measures (‘‘SCM Agreement) by the time of accession, such as ‘‘export subsidies’’ (subsidies contingent upon export performance) and ‘‘import substitution subsidies’’ (subsidies contingent upon the use of domestic over imported goods). China also agrees that, in identifying and measuring the amount of certain subsidies provided to Chinese enterprises, WTO members may turn to foreign or other market-based criteria ‘‘if there are special difficulties’’ in applying the SCM Agreement (i.e., when internal Chinese benchmarks are deemed inappropriate). Moreover, when actionability of subsidies is considered in both WTO enforcement proceedings and national countervailing duty proceedings, China is subject to a special method in which subsidies that is provided predominately or in disproportionately large amounts to state-owned enterprises will be considered ‘‘specific,’’ even if such enterprises represent a broad and diverse cross-section of Chinese industries. As opposed to this, under standard WTO rules, a subsidy is actionable only when it is provided to a ‘‘specific’’ enterprise or industry or group of enterprises or industries within the jurisdiction of the subsidizing authority.

– Antidumping and China’s Market Economy Status In antidumping cases, China will not be regarded as a market economy for as long as 15 years, unless China can establish that it is a market economy under the national law of the importing WTO member, or that market economy conditions prevail in a particular industry or sector. As such, China has agreed that the United States and other WTO members can continue to apply its non-market economy methodology for measuring dumping in antidumping investigations again China. With respect to its own antidumping regime, China has agreed to bring its antidumping rules into compliance with the WTO Agreement. Furthermore, China commits itself to a standard that is higher than any other WTO member had agreed: to initiate sunset reviews for all outstanding anti-dumping measures no later than five years from the date of their imposition. This effectively obliges China to launch sunset reviews immediately upon its WTO accession for antidumping measures which had been existing for five years. Under standard WTO rules, a member is only obligated to initiate such sunset reviews five years after its accession to the organization.

– Telecommunications and Internet On accession, foreign service suppliers will be allowed to establish joint ventures, without quantitative restrictions, and provide services in several specified cities. Foreign operators will be able to take 25 per cent in joint ventures in those cities, rising to 35 per cent after one year and 49 per cent after three years. Geographic restrictions will be scrapped in five years after accession. In Internet, paging and other value-added services, foreign firms may immediately take 30 per cent share in Chinese companies in Beijing, Shanghai and Guangzhou, rising to 50 per cent in two years, when geographical constrains are limited. For fixed line and long-distance services, foreign firms will be allowed 25 per cent stakes after three years of accession and 49 per cent after six years. Tariffs on high-tech products in telecom equipment will be phased out and eliminated by 2005.

– Banking China has agreed to issue licenses solely on the basis of prudential criteria, with no economic needs test or quantitative limits on licenses. Upon accession, foreign financial institutions will be permitted to conduct foreign currency business in China without client restrictions. They will be able to provide local currency services to Chinese enterprises within two years of accession, and to all Chinese clients in five years, when geographic restrictions will be lifted.

– Insurance Again, licenses will be issued on the basis of prudential criteria. Foreign life insurers may establish a joint venture with 50 per cent foreign ownership and a Chinese partner of their choice, permitting ‘‘effective management control.’’ Foreign non-life insures will be permitted to establish branches or joint ventures with 51 per cent ownership on accession and wholly-owned subsidiaries within two years. For large-scale commercial risks, reinsurance and international marine, aviation and transport insurance and reinsurance, 50 per cent foreign ownership in joint ventures was agreed on accession, rising to 51 per cent in three years and 100 per cent in five years. In addition, geographic restrictions will be phased out within three years after accession.

– Securities With regard to their commercial presence in China, foreign securities may establish joint ventures, with a maximum foreign investment of 33 per cent. However, minority foreign-owned joint ventures can participate in fund management on the same terms as Chinese firms. Three years after accession, foreign firms will be allowed 49 per cent stakes in joint ventures.

– Professional Services For legal services, foreign law firms could only establish a commercial presence in China in the form of a representative office. Representative offices may engage in for-profit activities including various legal services, but may not engage in Chinese law practice. Also, according to China’s service schedule, ‘‘the representative office may not employ Chinese national registered lawyers outside of China.’’29 For accounting, management consulting, and taxation services, foreign service suppliers may provide management consulting and taxation services through joint ventures, with foreign majority ownership permitted (after December 11, 2007, wholly foreign-owned subsidiaries are allowed). Foreign accounting firms may establish wholly foreign-owned subsidiaries, and may also affiliate with Chinese firms. Foreigners can take China’s national CPA examination and acquire license. Suppliers of accounting, auditing, and bookkeeping services as well as taxation services and management consulting services will be accorded national treatment. For architectural, engineering, integrated engineering, and urban planning services, foreign presence should be in the form of joint ventures for five years after accession, with foreign majority ownership permitted. For medical and dental services, foreigners are permitted to establish joint venture hospitals or clinics with Chinese partners, with foreign majority ownership permitted, but, the majority of doctors and medical personnel of the personnel of the joint venture hospital and clinic shall be of Chinese nationality.

– Computer Services Foreign service suppliers can establish joint venture to provide software implementation services (including systems and software consulting, system analysis, system design, programming, and systems maintenance services) and data processing (including input preparation service), with foreign majority ownership permitted. National treatment is accorded to foreign services suppliers providing consultancy services related to the installation of computer hardware, as well as data processing and tabulation services and time-sharing services.

– Intellectual Property Rights China has agreed to adhere to the TRIP’s agreement upon the date of accession to WTO and to comply with internationally accepted norms for protecting and enforcing intellectual property rights of U.S. and other foreign enterprises and individuals in China.

C. CHINA’S COMPLIANCE WITH WTO OBLIGATIONS

Views are mixed with respect to China’s compliance with the WTO. In its report to the WTO Trade Policy Review Body, the Chinese government stated that ‘‘Ever since WTO accession China has abided by WTO rules, lived up to the extensive commitments made in the accession and made comprehensive adjustment of its trade regime and trade policy’’ (WTO 2006, p.12).30 Leaving aside the self-praising sentiment, the statement was generally supported by voices from the WTO. Pascal Lamy, the WTO’s Director-General, indicated that he would give China an ‘‘At’’ for its WTO compliance performance when interviewed by China media. Specifically, he notes:

In June [2006] the WTO conducted the first review of China’s trade policy. The overall appreciation is a positive one. Even if there are still areas that need some improvements, the political commitments and determination showed by the Chinese government is serious and responsible and all members have acknowledged it.

The Chinese implementation of WTOcommitments in many areas has set a good example. China’s agricultural tariffs are today lower than most developing countries; they are even lower than some developed countries such as the European and Japan. China also provides less trade distorting subsidies than that of the United States or the EU. Or on industrial tariffs which are today the lowest in developing countries.

Needless to say, not everyone is satisfied. The Office of the United States Trade Representative (USTR), in its 2006 report to U.S. Congress on China’sWTO compliance, states that

Developments . . . over the past year make clear that China has not yet fully institutionalized market mechanisms, and that some Chinese government agencies and officials have not yet fully embraced the key WTO principles of market access, non-discrimination, national treatment and transparency.

One of the major allegations of the USTR is that

China has continued to use industrial policies that limit market access for non-Chinese origin goods and foreign services providers, and that provide substantial government resources to support Chinese industries and increase exports.

IV. INDUSTRIAL POLICY AND CONTROLLED LIBERALIZATION AS TOOLS FOR DEVELOPMENT IN CHINA’S TRADE REFORM

Standing among the most significant contributors as well as beneficiaries of trade liberalization, China’s economic reform experience can be, at best, characterized as experimental gradualism which features ‘‘selected adaptation’’ and ‘‘controlled liberalization’’ as noted by some commentators.

A. SELECTIVE ADAPTATION

Pitman Potter observes that the ‘‘recent record of China’s ‘open door’ policy has included ongoing tensions between local and international norms and practices of economic regulation’’ and the ‘‘extent to which globalized norms of economic regulation can influence practices in China will depend on the dynamic of selective adaptation.’’ Selective adaptation is described as ‘‘a process by which foreign ideas are received and assimilated into local conditions.’’ It is noted that the element of selectivity depends on factors such as perception (which determines understanding about foreign and local norms and their origins and implications), complementarity (whereby contradictory priorities are combined for new effect so that both global challenges are addressed and local values are retained), and legitimacy (which defines the extent to which members of local communities endorse the particular adaptation efforts).

Although the concept of selective adaptation was used by Potter to describe China’s legal reform, it could also be used as a conceptual framework to understand China’s trade reform, especially with respect to the balancing of trade-related international norms and institutions with local concerns. For instance, with the influence of the Confucius tradition, China’s regulatory culture had long been featured with opaqueness. Confucius emperors and officials believe that promulgation of law sends wrong messages to the subjects so that they, knowing the bottom line of the discipline, would not pursue li – the virtue. Even for a long period in the reform era (from 1979 to present), it is unlawful to publish state statutes in the absence of permission from the government. Further, for a long period, China’s trade regulation was overwhelmed with enormous amount of ‘‘neibu guiding’’ (meaning ‘‘internal documents’’) to which no one outside the relevant ministry or department could have access. Although it is difficult to argue that this secrecy is designed to safeguard the Confucius virtues, the secret bureaucratic practice, which, treating citizens as ‘‘the ruled,’’ tends to hide information from the public.

From the perspective of the rule of law, transparency is one of the key elements of a legal system, encompassing mainly its key principle of promulgation but also relevant to the principles of clarity, stability, and prospectivity. Transparency is also one of the pillar principles of the WTO, underpinning all the substantive areas of the world trading system. It is also a legal obligation embedded in GATT Article X, GATS Article III and TRIPS Article 63. All the three legal provisions require that all laws, regulations, judicial decisions and administrative decisions relating to trade (and probably all economic activities) of a Member should be made public. China’s WTO accession documents, reflecting WTO members’ concern of implementing rule of law in China, requiring China to make public all relevant laws before they are enforced, to establish an official journal to publish all relevant laws, and to establish an entry point where published laws can be obtained (WTO 2001).

Years before China’s WTO entry, the government had taken steps to enhance transparency in the trade system. WTO accession has certainly accelerated this process. As early as 1989 and 1987 the National People’s Congress (NPC) and the State Council promulgated rules to require laws passed at the level of the NPC and the State Council level be published. The Legislation Law of 2000, the Regulation on the Procedure for Formulating Administrative Regulations of 2001 and the Regulation on the Procedures for Formulating Administrative Rules of 2001 now mandate that laws, regulations and administrative decisions at all levels of the government to be published.

The disturbing ‘‘neibu guiding’’ had been gradually eliminated since the early 1990s. From 1993 the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), now the Minstry of Commerce (MOFCOM), has been publishing a periodical journal entitled the Gazette of the Ministry of Foreign Trade and Economic Cooperation of the People’s Republic of China, disclosing to Chinese and foreigners all laws, administrative regulations and decrees including those which were previously ‘‘internal documents’’ related to foreign trade and investment. In the meantime, thousands of previously undisclosed internal documents were repealed and the decisions for repealing were also published in the Gazette. On January 1, 2002, twenty days after China’s accession to the WTO, the MOFTEC issued a circular establishing the WTO Information and Inquiry Bureau as the ‘‘single inquiry point’’ where WTO Members, foreign and Chinese businesses or individuals can request information regarding Chinese laws, regulations, judicial decisions or other rules. The circular provides that the Chinese government will render authoritative views on the application or interpretation of its laws to WTO members and accurate information to business and individuals.

In spite of the improved visibility of China’s trade institutions, it is premature to say that transparency has gained foot in the regulatory system. Most significantly, at both central and local level, citizens virtually have to access the government’s decision-making process. Discussions in the Politburo of CCP, which is the highest decision-making institution of the country, are always classified as top state secrecy and have never been disclosed to public, except in an extremely small number of cases. Similarly, meetings, debates, and discussions in the State Council and various local level government administrations, as well as in various legislatures from the National People’s Congress (NPC) to local legislative body, are largely closed to the public and the media. Except in limited occasions, such as the annual conference of the National People’s Congress for which a limited number of journalists were chosen to attend and only a small faction of them were allowed to watch the whole process, the public and media could not cover even the legislative debates, not to mention the meetings and discussions in the administrative branch of any level.

Whether this type of opaqueness is good or bad for China is an open question. Certainly, an alternative is larger public participation through democratic institutions. To accept this, one also has to take it for granted that democracy serves China better with respect at least to economic development through world trade, assuming expansion of trade is conductive to economic growth. However, as Peerenboom states, ‘‘Democratization at low levels could lead to political instability, chaos and state repression, and hence an increase in personal integrity violations, as it has in so may other countries.’’ He notes that democratic accountability tends to come rather late in the developmental sequence in East Asian countries, and China can hardly be an exception. In fact, the soft-authoritarian regime of China, despite its ruthlessness to political dissents, has been very efficient in facilitating economic development. For one example, after the 1989 Tiananmen tragedy, despite strong opposition from the conservatives who wished to bring China back to socialist plan economy, China’s former paramount leader Deng Xiaoping almost single-handedly revived market-oriented reform and substituted ‘‘market economy’’ for plan economy in the Party’s ideology, using mainly his political authority which mandated ‘‘no debate’’ on public policies.

(Edited by: China West Lawyer)