CHINA: THE OTHER SIDE OF THE COIN

By Pascal Lamy Reprint | | Print |

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GENEVA, Sep 1 2006 (IPS) - Since its accession to the WTO five years ago, China has been the fastest-growing trading nation in the world and now the third- largest trading economy, after the EU and US, writes Pascal Lamy, Director-General of the Word Trade Organization (WTO) In this article, Lamy writes that a successful Doha Round can provide China with a stable and predictable global trading environment and offer the prospects for another 10-15 years period of peaceful economic development. In the Doha Round, we are negotiating the trade regime which will apply to all its members for the next 10 years. A trading system based on strong multilateral rules is the least expensive insurance policy against the risks of protectionism available to China and to the world economy. There are some signals that trade protectionism whether in developed or in developing countries could be on the rise. Given China\’s insertion into the world economy, multilateral trade opening and strong multilateral discipline are the best means to safeguard China\’s trade interests whether home or abroad. Without the Doha Round and without a well-functioning WTO, China could well be one of the biggest victims.

Since its accession to the World Trade Organisation (WTO) five years ago, China has been the fastest- growing trading nation in the world. As a result today China is the world’s third-largest trading economy, after the European Union and the United States.

This is in keeping with China’s long tradition of trade. The famous Silk Road opened trade between China and the West. In the Tang dynasty, Chang An was the largest and most prosperous city in the world. When Zhen He sailed 600 years ago to Southeast Asia, to India, and to the east coast of Africa in the largest fleet in the world, the Ming Dynasty spread its civilisation and technology, together with silk and porcelain.

China was strong when it opened to the world, but when the Middle Kingdom closed its door, it fell behind.

China’s extraordinary expansion in exports is well-known throughout the world. Less well known is its opening to imports. In the last few years, the Chinese government has substantially reduced barriers to imports, which today are among the lowest in developing countries. The average applied import duty dropped to 9.7 percent in 2005, down from 15.6 percent in 2001. In the same year, average applied rates in India, Brazil, or Mexico were 20 percent, 11 percent, and 12 percent respectively.

Furthermore, China’s ratio of imports to GDP, which is a measure of an economy’s openness, is high: it has moved from 5 percent in 1978 to 30 percent in 2005, about twice that of the US and more than 3 times that of Japan.

Moreover, the number of imported products subject to import licenses or quantitative restrictions has dropped substantially. In the late 1980s, China imposed licensing requirements on almost 50 percent of all imports. By the time China joined the WTO in 2001, this figure had dropped to around 4 percent. In 2005, the government eliminated all licensing requirements.

From 2001 to 2005, China imported nearly USD 2.2 trillion worth of goods, with an annual growth rate of 28 percent. Throughout the 1990s China was the fastest-growing export market for US companies. This trend accelerated from 2000-2005, as US exports to China rose by 160 percent while US exports to the rest of the world rose only 10 percent. But China has also become a destination for other developing country exports: it is the world’s third largest importer from the world’s poorest countries after the EU and the US, absorbing nearly 40 percent of their exports.

For a country with such a large domestic market and where trade comprises over 60 percent of GDP, which ranks third in world trade and with the world fastest growth of exports, it is easy to understand why trade is so critical for China’s growth and development.

In June the WTO conducted the first review of China’s trade policy. The overall assessment is a positive one. Even if there are still areas that need some improvements, the political commitment showed by the Chinese government is serious and responsible, and all members have acknowledged it.

The Chinese implementation of WTO commitments in many areas has set a good example. China’s agricultural tariffs are today lower than in most developing countries; they are even lower than in some developed countries, such as the European Union or Japan. China also provides fewer trade-distorting subsidies than the US or the EU. And its industrial tariffs are today the lowest of all the developing countries.

There are, however, other areas where work needs to continue. For instance, in the area of Intellectual Property Rights (IPR) protection, we have seen important progress made by China this year. We know that it will take some time to solve and will require the collective efforts of all countries involved. The review has also identified new, creative non-trade barriers replacing some of the old tariffs; these will need to be addressed.

A successful Doha Round can provide China with a stable and predictable global trading environment and offer the prospects for another 10-15 years period of peaceful economic development. In the Doha Round, we are negotiating the trade regime which will apply to all its members for the next 10 years. A trading system based on strong multilateral rules is the least expensive insurance policy against the risks of protectionism available to China and to the world economy.

There are some signals that trade protectionism whether in developed or in developing countries could be on the rise. Given China’s insertion into the world economy, multilateral trade opening and strong multilateral discipline are the best means to safeguard China’s trade interests whether home or abroad. Without the Doha Round and without a well-functioning WTO, China could well be one of the biggest victims. (END/COPYRIGHT IPS)