A SUMMARY OF SOME U.S. VIEWS ON THE CHINA-U.S. WTO ACCORD

Richard H. Steinberg

UCLA School of Law

January 2000

This paper responds to Stephen Cohen's request for a summary of U.S. analyses (i.e., by U.S. analysts or appearing in U.S. media) of the November 1999 China-U.S. accord on WTO accession for China. This summary is intended to help frame a discussion of the accord at the January 2000 meeting of the Trilateral Forum.

U.S. reactions to the accord may be classified into three categories:

(1) Analyses Pertaining to U.S. Interest Group Politics. Analyses in this category reflect and suggest how U.S. interests are lining up in the domestic political debate over the accord and the forthcoming legislative battle over establishing normal trade relations (NTR) with China;

(2) Analyses of Chinese Domestic Politics. Analyses in this category pertain to consequences of the accord for Chinese domestic politics; and

(3) Analyses on the Future of China-U.S. Trade Relations. Analyses in this category pertain to the nature of the China-U.S. trade relationship likely to emerge as a result of WTO accession under the terms of the accord.

There is overlap, of course, across these categories.

I. Analyses Pertaining to U.S. Interest Group Politics

Most supporters have offered sector-by-sector evaluations of the accord, suggesting immediate benefits that can be expected by U.S. industry under its terms. For example, in a November 26, 1999 editorial in The Washington Post , Robert J. Samuelson wrote:

Tariffs on industrial goods would drop from an average of 24.6 percent in 1997 to 9.5 percent in 2005. China would quadruple the number of foreign films it permits annually, from 10 to 40 (50 after three years). Rules to invest in China's banking, insurance and telecommunications industry--including the Internet-- would be liberalized. Restrictions on farm imports would be relaxed. China now imports about 2 million tons of wheat a year; the agreement immediately permits 7 million tons with almost no tariff. . .

This is typical of trade accord analyses that are of most immediate interest to the U.S. business lobby, and expanded analyses like this one are usually good predictors of which sectors are likely to support a trade agreement. The White House offers its own expanded analysis (Attachment A). A "confidential" elaboration on the details of that analysis has been generated by the U.S.-China Business Council for its members.

Labor unions have not been friendly to the accord, which has been attacked as a "grave mistake" by AFL-CIO President John Sweeney and as a "slap in the face" by Teamster President James P. Hoffa. (For Hoffa's full comments, see <http://www.teamster.org/99news/nr_991115_1.htm>.) Union attacks have been framed in terms of expected adverse impacts on workers, but also in terms of negative effects on human rights (see, e.g., "Human Rights for Workers," Attachment B). It remains to be seen, however, how labor unions will reconcile a campaign against the accord with support for a Democratic Presidential candidate, since both Al Gore and Bill Bradley have embraced the accord.

The accord is not expressly supportive of human rights, yet analyses by human rights activists and organizations have been divided. At one extreme, Xiao Qiang, Executive Director of Human Rights in China, wrote in a December 10, 1999 Asian Wall Street Journal editorial that the accord is "shameful." However, Human Rights Watch has endorsed the accord as "good for trade but also for human rights and the rule of law," with the argument that "over the long term, China's membership in the WTO could increase pressure for greater openness, more press freedom, enhanced rights for workers, and an independent judiciary." (For the full statement, see <http://www.hrw.org/press/1999/nov/china1115.htm>.) Some other human rights organizations (such as Amnesty International USA and the International Campaign for Tibet) have used conclusion of the accord as an opportunity to criticize China's human rights record and to argue that the coming legislative debate over NTR offers a chance to exert maximum leverage for human rights changes in China (See, e.g., Amnesty International USA's position in Attachment C.)

II. Analyses of Chinese Domestic Politics

Several analyses have argued that the accord will strengthen the hand of Chinese reformers (especially Jiang Zemin and Zhu Rongji). Boston University Professor Joseph Fewsmith makes this argument in the attached report published by the National Bureau of Asian Research (Attachment D). Consistent with that argument, several analyses have projected net macroeconomic gains that China may expect from WTO accession. For a clear example of such projections-- although of questionable objectivity and not a U.S. source-- see, "WTO Means Jobs," in China Daily, December 13, 1999, which projects the creation of 12 million jobs in China as a result of accession.

In contrast, several analysts have argued that the accord will have the reverse effect, catalyzing a challenge to the regime. A dissenting Chinese view of the accord (offered by Jing Zhao and interpreted by Fei-Ling Wang) was circulated widely by electronic means in the United States, suggesting that the accord and its effects could catalyze an anti-government coalition of (1) dislocated and disaffected anti-government groups (unemployed workers, squeezed peasants, political dissidents, etc.) and (2) nationalistic intellectuals and a "new-left," who are suspicious of the West, the WTO, and the United States. In his November 26 Washington Post editorial, Robert Samuelson offered a scenario in which greater imports could worsen unemployment in China, engendering a backlash against reform; he cites macroeconomic projections in a report described by Nick Lardy that China could lose 11 million jobs from more liberalized trade. In a November 21 Los Angeles Times editorial, Walter Russell Mead suggests a risk of "social and political upheaval" in China associated with WTO accession. While it is not a U.S. analysis, a clear argument of this type appeared in The Hindu (a relatively conservative and well-respected Indian newspaper), offering scenarios in which the accord and its effects could have a backlash in China-- against economic reform and against the Chinese leadership (Attachment E).

III. Analyses on the Future of China-U.S. Trade Relations

Several analyses have critiqued the accord from the perspective of its likely impact on future China-U.S. trade relations.

One set of arguments criticizes the accord for failing to ensure improved transparency and institutional reform in China aimed at developing the "rule of law" and a legal system with less administrative discretion for economic and regulatory decisions. This point of concern, raised in some past Trilateral Forum meetings, was echoed, for example, by Stanley Lubman (an occasional Trilateral Forum participant) in an editorial in The Financial Times (Attachment F).

Second, Claude Barfield and Mark Groombridge have built on that concern, combining it with a critique of the accord's broad latitude for U.S. use of "trade remedy laws," to suggest that China and the United States

may be entering a period of "managed trade." In their November 17 Asian Wall Street Journal editorial, Barfield and Groombridge lament the "very long periods carved out for the United States and other industrial nations to 'manage' trade with China." They write:

This will be done using "safeguards," actions that permit supposed temporary protection against a sudden influx of imports that threatens sudden injury to a domestic industry. Under current WTO rules, nations can institute safeguards for a four-year period, renewable once. They cannot single out individual nations for special action, and they must gradually phase out the protection. Under the new agreement, however, the United States forced the Chinese to accept this highly protectionist action for 12 years, or in the crucial textile sector for nine years.

Similarly, the U.S. demanded long-term manipulation of trade flows through the application of special anti-dumping methodology. Dumping in trade terms is defined as selling below costs at an "unfair" price. Even for market economies, economists with virtual unanimity condemn anti-dumping actions as a protectionist front for uncompetitive domestic industries. The Clinton administration, however, proposes to worsen the situation by continuing to define China as a "nonmarket economy" for 15 years, thereby perpetuating an even more arbitrary methodology to determine whether Chinese exports are "unfairly" traded. Using non-market criteria allows the complainant to ignore local Chinese prices and use surrogate or constructed prices, a practice which allows large-scale manipulation of data, as the U.S. Commerce Department has ably demonstrated over the years. Cynically, U.S. Trade Representative Charlene Barshefsky stated that U.S. laws do "provide for the graduation of sectors or an economy as a whole from [non-market] rules," knowing full well that U.S. government agencies in recent years have cravenly succumbed to interest groups pressure against such graduation. China will be in anti-dumping limbo for the full 15 years.

There is a two-fold danger in this result. On the one hand, protectionist interests within WTO countries will become accustomed to the protection afforded by "managing" trade and will move heaven and earth to perpetuate the system in the future. On the Chinese side, it sends just the wrong message to government bureaucrats who will preside over the export quotas on Chinese companies which will surely result from the safeguards and antidumping actions. The old-style Communist "command and control" attitude thus will be all the more difficult to eradicate.

Presumably, after fifteen years of "managed trade," China and the United States might finally engage in more laissez-faire trade relations.

A third set of analyses have suggested that the accord solidifies a China-U.S. trade relationship that is harming U.S. jobs and manufacturing competitiveness. For example, an editorial by Alan Tonelson (Attachment G) suggests that under the accord the United States will not export substantially more products or services to China because China's growth rate is slowing, its purchasing power is low, and most exports to China will be of components for processing into final products that are then exported back to the United States.

Fourth, some have suggested that Chinese accession to the WTO may result in slower progress for the U.S. agenda there, a theme that has been sounded by some in the Trilateral Forum. For example, Nicholas Lardy argued at a recent Brookings Institution briefing that China "can be counted on to oppose serious progress or even discussion of labor rights" in the WTO.

These analyses suggest several interesting questions, including: