China’s stakes in the WTO and the role it

could play

Lin GuijunUniversity of International Business and EconomicsBeijingWTO Public Forum September 26, 2012

I. How grateful is China to WTO when discriminated?

•Most of China’s total exports (60%) were realized after the accession.

•But the massive expansion in China’s export can not be explained by multilateral reductions in trade barriers.

•A key factor is China’s participation in global vertical specialization.

China’s exports since the reform (USD100 bn)

0. 001. 002. 003. 004. 005. 006. 007. 008. 009. 00

10. 0011. 0012. 0013. 0014. 0015. 0016. 00

(中国出口总额 仟亿美元）

•However, China is discriminated in a non-discriminating organization as evidenced by:

--the first creation of special safeguard mechanism;

-- the invention of non-market economy status; -- consequently, a large number of anti-

dumping and countervailing duties against China.

--review mechanism after 8 years of accession +independent review.

II. China’s interests in WTO

1. A relative stable exchange rate system

•To protect its huge foreign exchange assets;

•To reduce uncertainty in import and export caused by unpredictable exchange fluctuations;

•In line with its underdeveloped financial system.

•After the 2008 financial crisis, the imbalance in China’s current account surplus declined continuously with the BCA/GDP ratio to 2.8% in 2011.

Current account surplus and net oil exports: China and Arab countries 

2. To guarantee market access to OECD economies

•With the enormous production capacity of consumer goods and global slowdown, China needs to stabilize its traditional market in EU and North America.

3. To increase access to developing-country markets

•In addition to stabilizing the markets in the developed countries, China also hopes to gain greater access to the markets in the emerging economies for the manufactured goods.

Average tariffs in emerging economies

India 48.5%

Brazil 31.4%

S. Africa 19.0%

Indonesia 37.1%

Mexico 36.1%

Argentina 31.9%

US 3.50%

EU 5.30%

China 9.10%

4. To desire a new approach to discipline by WTO to

antidumping and safeguard measures

•A large number of trade actions against China shows that the WTO, seemingly provides little discipline over such actions.

•Now the question raised is ‘ Can WTO help protect China’s interests? ’

•If not, …..

5. To guarantee an uninterrupted and dynamic global supply chain•In quantity terms, China is the hub of

Asia’s supply chain.

China

Hub and Spoke

•Current WTO discussion is very useful for the smooth functioning of the global value chain.

•Government actions and trade dispute should avoid disrupting the value chains.

6. Regionalism can not protect China’s fundamental trade

interests•China’s exports are more diversified

across regions.•Increased access to global markets is in

China’s interest.•Asia or other type of RTAs can not

compensate for this, but only a supplement.

7. To open up domestic markets more to foreign

investors•Given the present slowdown in FDI

inflows, China may be willing to take more liberal measures to improve the environment for foreign investors.

Export Growth pattern by region, 2012Jan-May Jan-Aug

Chongqing 230% 170%

Henan 110% 63.4%

Sichuan 78.7% 47.8%

Jiangxi 57.2% 43.3%

Hunan 21.7% 13.2%

Guangxi 22.7% 15.9%*

Fujian 9.3% 6.3%

Guangdong 6.9% 5.8%

Zhejiang 5.3% 2.2%

Beijing 4.8% 2.9%

Jiangsu 2.0% 2.5%

Shanghai 3.1% -0.2%

Shandong -0.5% -0.2%

China 8.7% 7.1%

III. China’s priorities in its agenda

1. Expand domestic demand•In recent years, China’s growth has been

criticized by export-oriented.•Trade disputes and economic slowdown in

OECD countries have forced China to give more attention to the potential to its internal markets.

•To expand domestic demand is an important task to rebalance the economy.

Composition of China’s GDP ： 1995-2009

2. Upgrading its industries

• Move up along the global value chain.•Production pattern: Labor-intensive to

capital intensive, skills- and knowledge-intensive;

•develop new generation of export products.

China’s advantage exports:

•office machines and automatic data processing machines (SITC 75);

•telecommunications and sound recording equipment (SITC 76);

•electrical machinery (SITC 77);•miscellaneous goods such as textiles

and apparel, furniture and footwear （ SITC 8 ） ;

•Road vehicles (SITC 78) ;•metalworking machinery (SITC 73).

Advantage of NAFTA and EU

•Road vehicles (SITC 78), •Other transport equipment (SITC 79) ，

such as aircraft and helicopters;•power-generating machinery (SITC 71) ，•Specialized industrial machinery (SITC

72) ，•metalworking machinery (SITC 73) ，•general industrial machinery (SITC 74).

•To achieve the upgrading, a gradualist approach may be favored.

•Some flexibility in industrial policies may be allowed.

IV. What bargaining chips China has?

1. Commitment to further liberalization in goods and

agriculture•China could further cut its average tariffs;•Open up more to foreign agricultural

goods.

2. commitments on further service liberalization

•China still has potential to commit to further liberalization in professional services, computer services, telecommunications, construction and distribution services, etc.

3. Huge foreign exchange reserves•At the end of June 2012, China’s total

foreign exchange reserves reached 3.24 trillion dollars.

•A substantial part of this has to be expended on imports.

4. Growing domestic consumption and demand

•Over the past decade, China’s real urban income increased by 151 percent, while real rural income rose 111 percent.

5. The need to eliminate trade surplus

•In 2011, China’s trade surplus decreased from 185.6 billion dollars to 155.1 billion dollars;

•In the first half 2012, China’s trade surplus was 68.92 billion dollars, an increase of 6.4 percent over the previous period.

V. Was China more discriminated than Russia

at accession?

•V. Putin (December 2009): “We have the impression that for some reason some countries, including the US, are hindering our entry into the WTO.”

•Alleged by some Russian officials that Russia is being discriminated against—asked to make more commitments than other nations that accede.

•Russia negotiating accession since 1993 and China started in 1986

•

Russia and China: Accession commitments goods

Russia China

Average tariff, bound 8.0% 9.1%

Average tariff, manufactured

7.3% 8.9%

Import tariff, agriculture 10.8%, with tariff quotas allowed

15%

Tariff on IT products 0 0

Export subsidy, agriculture no no

Tariff, automobiles 15% 25%

GPA join willing to join

Specific safeguard No Yes, 12 yrs.

Russia and China: accession commitments services

•Russia has committed to more sectors than China (Russia 116 vs China 100 ） .

•But the depth of liberalization vary.•Market access:•Russia tends to maintain more

restrictions in commercial presence, natural person movements and to some extent, beyond the border consumption and cross-border delivery.

•National treatment:•Russia has higher restrictions in

commercial presence and natural person movements;

•Both countries are similar in cross-border delivery and beyond border consumption;

•Russia’s commitments in finance and telecommunication lag behind China.

Mode 1 cross-B

delivery

2 beyond-B

consumption

3 commerce

presence

4 Nat-person

move

Scope No

Res.

With

res.

No

com

No

res

With

res.

No

com.

No

res.

With

res.

No

com.

No

res.

With

res.No com

M

access

Russia 64 30 6 75 19 6 25 71 4 2 93 5

China 21 21 57 52 3 45 1 52 46 0 55 45

NTRussia 63 33 4 69 26 5 17 81 2 2 96 2

China 44 1 54 55 0 45 30 20 50 0 55 45