More reforms needed before global club welcomes China

Date: 11/02/1999

By Chris Johnstone

ALTHOUGH the year of the rabbit which starts next week is not one of the most auspicious in the Chinese calendar, there are strong signs that 1999 could be the year of the great leap forward for the country's bid to join the World Trade Organisation.

Diplomats in Geneva, Brussels and Washington all agree that China faces a window of opportunity this year to wrap up its 13-year-old membership application, before attention shifts at the tail-end of 1999 to the opening of the Millennium Round of global trade negotiations.

China is clearly determined to have a place at the table when those talks on the future rules to govern world trade get started.

However, Beijing still has to meet EU and US calls for it to improve its offer to open up opportunities for foreign companies to provide services in China's massive domestic market.

The EU set out all its demands at the end of last year in response to Chinese complaints that Brussels kept shifting the entry requirements.

Although a series of official statements in recent weeks have confirmed that China's enthusiasm for WTO accession is undiminished, they have still provided no answers to the Union's request for fresh offers to liberalise the highly-regulated Chinese markets for goods and services.

“There is a yawning gap between the statements from politicians and what is actually happening on the ground,” said one diplomat.

The pace of reform is the main battlefield between liberals and conservatives within China's ruling Communist Party. Early hopes that an ambitious domestic reform process involving the closure of heavy industries and sale of businesses and property would be accompanied by trade liberalisation have dimmed.

The EU and the US are working hand-in-hand to press Beijing to end its insistence that foreign companies must form joint ventures with local business if they want to provide banking, telecommunications or retail services. Foreign companies are usually limited to a minority shareholding, with all the uncertainties that creates for the investors.

Although China has moved to cut import tariffs, Washington and Brussels argue that there is still a lot more to be done, and cite the current 60&percent; import duties on cars as a prime example.

“They are still nowhere near getting an acceptable tariff offer,” said an EU source. “Whole chunks of their economy are not covered and there are unacceptable peak rates for some products.”

Diplomats in Geneva are more generous in their assessment of China's progress so far. “In 1992 it had 1,247 indirect market barriers but, last year, that had fallen to around 400. That is actually a reduction of two-thirds,” said one.

Pressure for China to push ahead with its negotiations is coming from across the straits of Formosa, where Taiwan has almost satisfied all the demands made of it to qualify for WTO membership.

Although diplomats deny that the 'Taiwan card' is being used against China, the undeniable fact remains that only politics stands in the way of rapid membership for the island claimed by Beijing.

The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), tacitly agreed in 1992 that Taiwan would not become a member before China, although diplomats say there is nothing binding in this agreement.

The real test of whether Chinese politicians will come up with measures to justify the optimism of their officials could come as early as April, when Prime Minister Zhu Rongji visits the US.

China-watchers expect Beijing to use the visit to offer foreign retailers the opportunity to set up joint ventures in all provincial capitals and administrative cities, and lift restrictions on the sale of telecoms equipment and services. If that is the case, the summit between the EU and China in May could be an opportunity for further progress to be made.

More ominously, Zhu is also expected to seek guarantees that Taiwan will not be let into the WTO before the mainland.