Ten Years of WTO Membership

Gains for China and the US, but More Must Be Done

By John Frisbie

This column is adapted from a speech US-China Business Council (USCBC) President John Frisbie delivered at a panel with PRC Minister of Commerce Chen Deming and Ambassador to the PRC Permanent Mission to the WTO Yi Xiaozhun during the April 2011 Bo’ao Forum for Asia. The forum is held annually in Hainan, China, and it brings together top Chinese officials, including PRC President Hu Jintao; foreign leaders; and Chinese and overseas executives.

The US-China Business Council (USCBC) was established soon after President Nixon’s visit to China and is now in its 38th year. Throughout this time, USCBC has sought the expansion of the US-China economic and commercial relationship on a mutually beneficial basis. In my view, the most important economic event during our 38 years of existence has been China’s entry into the World Trade Organization (WTO). USCBC was a strong supporter of China’s WTO entry and a strong voice in the United States on the importance of China’s WTO entry to the US economy.

China’s WTO entry agreement set out a series of market opening measures that China was obligated to implement over a period of roughly five years. China made great efforts to achieve these openings. For example, it had to review and revise thousands of laws, regulations, and administrative processes to comply with its WTO commitments.

Benefits to US-China commercial relations

China has clearly benefited from its WTO entry. China’s foreign trade has grown rapidly, and foreign investment has poured into the country. This trade and investment has created jobs, helped to raise incomes, and contributed to China’s extraordinary economic growth.

China’s WTO entry also has clearly benefited American companies. As a result of the significant market openings mandated by the entry agreement, American companies enjoy far greater market access than they did 10 years ago. China has

•     Cut import tariffs by nearly 40 percent;
•     Virtually eliminated import licenses and quotas;
•     Relaxed many—but not all—ownership restrictions on foreign businesses in China; and
•     Allowed foreign companies to participate in many sectors in which they were previously prohibited.

These changes have greatly impacted the US-China trade relationship. US imports from China have been rising quickly as China has replaced traditional Asian suppliers. But US exports to China have also increased rapidly since China’s WTO entry, jumping from more than $19 billion in 2001 to nearly $92 billion in 2010.

China is now the third-largest market for US exports, after only Canada and Mexico—both neighbors with which the United States has free-trade agreements. As China continues its economic development and increases domestic demand, American manufacturing and services companies should be able to increase their sales and operations in China, bringing real economic benefit to the United States.

But there is another positive aspect of China’s WTO entry: dispute settlement. WTO membership brings a neutral, third-party dispute settlement mechanism that de-politicizes trade disputes. Both the United States and China have used the WTO to resolve trade cases that they have been unable to resolve through bilateral discussions and negotiation. This is a positive development, one that USCBC supports and encourages.

Challenges to bilateral commercial relations

At the same time, there are areas in which further work must be done for China to be a more fully integrated member of the WTO. In general, the main areas of concern are

•     Inadequate protection of intellectual property rights;
•     The need for greater transparency in formulating laws and regulations, in government decisionmaking, and in the setting of product and technology standards;
•     Incomplete market openings and foreign ownership restrictions, particularly in certain service sectors; and
•     Innovation, government procurement, and technology transfer policies that have captured the attention of foreign companies in the United States, Europe, and Asia over the past year or so.

The next 10 years

As we look forward to China’s next 10 years in the WTO and work to build a durable, mutually beneficial trade relationship, we should keep two points in mind.

The first is the rise in protectionist voices that we are hearing today in both the United States and China. We must ensure that the opponents of trade and investment do not use “economic security” for protectionist purposes. Neither side will benefit from protectionist measures, and those of us who support trade and investment must continue to speak to policymakers and the general public in both countries about the benefits of trade and investment to our respective economies. At the same time, we must demonstrate that dialogue and engagement can successfully resolve problems, so that protectionist measures can be avoided.

Second, as we recognize and applaud the great achievements China has made in its first 10 years of WTO membership, it is important to think about the next 10 years. To take its economic development to the next level, to move to an economy that depends less on exports and fixed-asset investment and more on domestic consumption, to create innovative, world-class companies, China will have to make even more changes. The terms of China’s WTO entry agreement 10 years ago cannot be the end of the story. Services sector reforms and market openings, innovation and technology transfer policies that are based on global best practices, and a level playing field for Chinese and foreign companies are all areas that will be crucial to China’s continued economic growth, job creation, and the development of a more balanced economy incorporating greater domestic consumption.

The first decade of change resulting from China’s WTO entry is just the beginning. China has achieved much in a short period, but it will need to make more adjustments to integrate fully into the world economy. Such integration is the best way for China to achieve long-term economic growth and prosperity, as well as to ensure a mutually beneficial commercial relationship between the United States and China for decades to come. USCBC is committed to working with China to meet this goal, just as we have for the past 38 years.

John Frisbie is president of the US-China Business Council.