China must now tackle its next WTO challenge

PUBLISHED : Monday, 11 December, 2006, 12:00am
UPDATED : Monday, 11 December, 2006, 12:00am

When China gained membership of the World Trade Organisation five years ago, some observers worried that the perceived benefits would be vastly outweighed by the potential disruptions to the nation's economic, political and social development. Such scepticism was unwarranted as the extraordinary success of accession to the global trading body has since shown.

The achievements are testament to the vision of the chief proponents of China joining of the WTO, former president Jiang Zemin and ex-premier Zhu Rongji . Their hopes that desperately needed reforms would be spurred have been proved right and a path unimaginable a decade ago has been forged.

This is not to say that all is rosy; serious failings remain, most notably when it comes to transparency and intellectual property rights. Nonetheless, a remarkable transition has taken place and China is moving forward in leaps and bounds.

Such an outcome was unthinkable in the 1990s when talk turned to the WTO and the benefits that might be gained from membership. Towards the end of the decade, the reform process to keep stimulating economic growth and usher in an era of modernisation was petering out; agricultural changes had been implemented and the Asian economic crisis in the latter quarter of 1997 had buffeted the financial and industrial sectors.

The WTO's promotion of lowering and eventually eliminating trade barriers among member nations fitted perfectly with plans by the mainland authorities. Membership rules meant that a strict process of reform would have to take place in all sectors to ensure that requirements were met.

Those goals were achieved and as a result the process of reforms has been taken to a new phase. There is no better evidence of the commitment by leaders to drag China from being a poverty-stricken backwater as it was when economic reforms were implemented in 1978 to a prosperous industrialised nation.

The ramifications of that decision have been stunning. China is now the world's third biggest trading nation and fourth largest economy, and a burgeoning middle class has emerged. As significantly, the mainland has arrived on the international diplomatic stage and carries great influence in determining global decisions.

While the commitment for reform is strong, though, the process has not always been as smooth as it should be. Today marks not only the fifth year of ascension to the WTO but also the end of a grace period during which most of its concessions were to have been implemented - and there are still glaring gaps.

Most pressingly for the WTO is the opening of the banking and financial services sectors to foreign firms. Some barriers are still in place and only with their removal will China have complied with its pledges of half a decade ago.

For the US and Europe, though, the large number of counterfeit goods being produced on the mainland violates any agreements signed. The problem is a global one but especially problematic for Chinese authorities, whose efforts to clamp down on infringements of intellectual property rights have so far made little dent on the problem.

Similarly, opening up all sectors to public scrutiny has been done so with obvious reluctance. Only with transparency can China truly move forward, and this cannot happen until steps are fully implemented to make the economic, judicial and political systems accountable.

Until such matters are resolved, other WTO nations will continue to raise objections over the mainland's trade imbalances, currency valuation and human rights violations. Tariffs will remain a weapon against perceived disadvantage.

Given the magnitude of China's difficulties and the challenges posed by the WTO's demands, the government has done extraordinarily well in meeting its pledges.

This is the end of only the first phase, though. For the success story to continue, China must make a concerted effort to fill the gaps to fully meet its WTO obligations.