Why has so little attention been given in Canada to the ramifications of China’s predicted accession to the World Trade Organization later this year? In the U.S., the bilateral accession agreement with China – and the subsequent debate in Congress over the granting to China of unconditional Most Favored Nation trade status, now called Permanent Normal Trading Relations (PNTR) – were front page stories, as President Clinton enlisted the support of former Presidents Ford and Carter, as well as such fading luminaries as Henry Kissinger, to eke out a majority for PNTR in the House of Representatives. (The Senate is expected to give its approval next month.)

The subsequent "me-too" Canada-China bilateral agreement, announced in mind-numbing bureaucratese by International Trade Minister Pettigrew last November, prompted little interest – regrettably, in view of the scope of the Chinese trade and investment concessions and the consequent potential for enhanced opportunities for the Canadian economy. Earlier this summer, I participated in a CIDA-sponsored conference in Beijing dealing with the legal and judicial ramifications of China’s expected accession. While the various presentations were, in the main, technical and academic in nature, the larger political and economic ramifications were the grist for much corridor discussion amongst participants, including senior Chinese jurists.

At first blush, China’s significant concessions seem out of proportion to the potential advantages of WTO membership. The way the system works, all 137-odd WTO members get the benefits of all the most favourable concessions obtained in all pre-accession bilateral bargaining. Not surprisingly, the two most powerful and successful negotiators were the U.S. and the E.U. Largely as a result of American and European bargaining efforts, China’s industrial tariffs will fall from an average exceeding 24% to just over 9% by 2005. In the information technology sector, tariffs on computers, semiconductors and all internet-related equipment, now averaging over 13%, will be eliminated by 2005. In the agricultural sector, China is committed to eliminating export subsidies, a concession believed to be unattainable before last fall. Similar liberalizing measures have been promised in relation to direct party-to-party trade (eliminating intervention by state agencies) and a variety of break-through concessions in services, distribution rights and joint venture (and in some cases outright) ownership. For example, in life insurance, existing geographic limitations will be phased out and 50% joint venture ownership will be permitted. In the non-life sector, 100% ownership will be allowed after two years. Foreign banks will have full market access within five years, with the right to deal in local currency, now prohibited, phased-in after two years. The concession list goes on and on. If implemented in a timely and enforceable fashion, the commercial face of China will, within half a decade, have undergone a profound, if not revolutionary, change.

Are there reasons for caution, even skepticism? It would seem so. During my recent visit, a number of potential impediments were identified:

• The Chinese government has aggressively pursued WTO membership, and committed itself to significant market opening measures of the sort outlined above, despite dissent from influential segments of the Chinese Communist Party. Already, with the privatization of some giant state-owned enterprises (SOEs), unemployment is rising sharply. Efforts to create social safety net protection to replace the SOE’s "iron rice bowl" support for workers are lagging. Increased foreign competition is a further threat to employment. If there is a widespread, grassroots backlash from the labour force, China might be forced to retrench – if not by reneging on its original bilateral commitments, at least by seeking longer phase-in periods.
• If so, U.S. Congressional opposition may well resurface, driven by the powerful interest groups who have opposed China’s membership from the outset: organized labour; environmentalists; human rights advocates; those sectors of U.S. business harmed by cheap imports; persecuted religious organizations; the pro-Taiwan lobby; and others. These groups, spanning the political spectrum, contend that China cannot be trusted to fulfill its contractual undertakings. (John Sweeney, the President of the AFL-CIO, put it bluntly in recent testimony before a Congressional committee: "China ... has broken every agreement it has signed with the U.S. over the past 10 years." Even less charitable is the comment made to me by an executive of a Canadian company, frustrated by his attempts to conclude a joint venture agreement with the Chinese: "For the Chinese, an ‘agreement’ seems to be simply a pause in negotiations.") Any renewed U.S. opposition is likely to be strong – based on arguments from differing lobbying interests – under either a Gore or a Bush Administration. And should the Democrats regain control of the House of Representatives, the Speaker of the House will be Richard Gebhardt of Missouri, one of the most adamant and vocal opponents of China’s admission to the WTO on the terms negotiated by the Clinton Administration.
• Another risk is that the sheer magnitude of the task of enacting and amending statutes and regulations necessary to give effect to the concessions made by China is so great that, with the best of intentions, it may not be possible to put the array of changes in place within the time frame set out in the bilateral agreements. The challenges faced by China would be difficult even in a society with long-established legislative traditions, operating under the rule of law and having an effectively functioning system of enforcement through an independent judiciary. In China, the modern legislative and judicial systems are in their infancy, having been recreated, literally from the ground up, following their destruction during the Cultural Revolution. Moreover, Chinese laws, unlike Western statutes, are characterized by vague statements of intent which many critics in the West see as ineffective in guaranteeing the full and adequate enforcement necessary to fulfill the market-opening commitments upon which WTO membership depends. As well, the complex accession protocol document is still to be concluded by the WTO’s China Working Group, in Geneva, whose task is to merge and reconcile the various bilateral agreements in a manner satisfactory to China and to existing WTO nations. If this process becomes fractious and protracted, the main players may be driven to re-evaluate the wisdom of the concessions made in their bilateral agreements.

What are these pros and cons of Chinese membership for China and for existing WTO members?

• There are two principal advantages for China: first, gaining the right to participate in global trade policy-making; and second, avoiding the U.S. Congress’s annual review of China’s trading practices and controversial human rights record. The disadvantages relate to jobs and competitiveness. Eliminating subsidies to the SOEs is said to endanger the jobs of over 100 million workers. Similarly, dramatically-lowered tariffs expose Chinese domestic producers to potentially fatal offshore competition. The counter-argument is that foreign competition will force Chinese industry to restructure, eliminate inefficiencies and increase productivity. Further, under the liberalized ownership rules, increased foreign investment should provide substitute employment for Chinese workers displaced from the SOEs.
• For the West, Chinese concessions greatly enhance export opportunities, which if realized will promote domestic job growth. (This assumption is vigorously rejected by organized labour in the U.S. and Canada, who fear that the shifting of production facilities to low-wage locations in China, will result in job losses in North America.) Western proponents say that under the WTO, China will be compelled to give all member states Most Favoured Nation and National Treatment status and to abide by the WTO’s dispute settlement processes, which require it to submit to the decisions of external arbitration panels. Granting WTO membership engages, rather than isolates, China, subjecting it to a rule-based international commercial order and forcing its domestic economic and political systems to become more transparent, liberalized and democratized. Propensities in China for repressive activities (e.g. Tiananmen Square), destabilizing military initiatives (e.g. Taiwan), and other domestic policies and activities repugnant to the international community should be dampened. This implicit restraint on sovereignty (which the opponents of accession claim is illusory) is assumed by the proponents to have been weighed and accepted by the Chinese in the complicated calculus leading to its decision to press forward for membership.

Both sides, by proceeding, run carefully calibrated risks. The process is well advanced and the credibility and operational stakes for all are high. International pressure will be intense to stay the course, make the system work, promote further economic and political reform, and capitalize on the enormous commercial opportunities in the world's fastest-growing market. But the road ahead will be longer and more difficult than predicted in the upbeat government press releases from Washington, Ottawa, Beijing and elsewhere.