China accession talks stall, may resume end February

by Chakravarthi Raghavan

Geneva, 18 Jan 2001 --   Talks on the Chinese accession to the WTO at the meetings of the Working Party remain stalled on some key issues  - some related to the change of guard in Washington and the difficulties of the outgoing Clinton administration in reaching compromises at this time,  and others of a more substantial nature, including Chinese domestic support in agriculture.

While the issue of Chinese domestic support in agriculture is a major point of contention, with China on one side and the US as well as some Cairns Group members like Australia on the other, there are other issues too that have been addressed in the China-US and China-EC bilateral accords and pacts, but remain to be resolved in the multilateral context.

The Working Party is to meet again end February or early March, but it is not all clear whether such a meeting so close to the Bush administration taking over in Washington could enable a conclusion.

China had come to Geneva hoping this time to conclude the negotiations, but other calculations appear to have intervened with other partners, and the talks have effectively stalled.

Some trade observers feel that if progress is not made in the next one or two meetings, and the accession talks concluded and China’s accession cleared, things may get complicated.

And political calendars in the US and Europe are not the only ones that count. The Chinese too have some upcoming dates: the party Congress next year, and the People’s Congress (Parliament) the year after.

In the anxiety to push through market reforms, and presenting the reforms as being also needed to change and gain WTO membership, the present leadership has staked a great deal, and has made many concessions on the trade front, whose full implications and details may not have been fully understood by the leadership. But the likely effects on the domestic enterprises and sectors are beginning to attract attention inside China.

The Chinese vice-Minister Long Yongtu spoke at the press conference, of China already having benefited by the imminence of accession - in the form of foreign investors and of Chinese enterprises getting ready for competition and the effects of the reforms.

But the negative effects of the trade concessions, both in specific market access terms and much more, in the rules and disciplines being accepted, should not be under-estimated.

The Chinese (unlike the Russians) have kept their controls in political terms, while liberalising in economic terms, but the two cannot move in dichotomy for long. And even the authoritarian regimes are sensitive to domestic pressures. The idea of the state and the instruments of power reflecting the dominant economic classes and interests is not completely a Marxian concept.

So, if a deal is not reached quickly, and sealed and signed, the counter-pressures from the domestic sectors on the political leadership in China should not be under-estimated by the majors who, in yielding to the neo-mercantilist greed of their corporations, are seen by some Chinese as trying to constantly raise their demands.

At some stage in the current round of consultations, China itself is reported to have felt that February might be too soon for a new administration to come in, fully acquaint itself and be able to clinch issues - even though the bilateral agreements negotiated by Washington and Beijing, and presented to Congress in relation to the grant of Normal Trade Relations (NTR or the more commonly known Most-Favoured-Nation) treatment, was approved in both houses with bipartisan support, as the Chinese vice-Minister Long Yongtu remarked at a final press conference.

However, the WTO secretariat itself appeared to have been anxious to have the next meeting soon, and perhaps too the US side, and China has agreed.

The attempts of the European Union to show up the US and its difficulties during a transition, some questionable procedures and limited consultations, to which the WTO secretariat became a party and convened consultations restricted to the Quad countries (Canada, EC, Japan and US) in an effort to  push the talks, have perhaps also complicated the talks, at least for the moment, if not in the future.

For, it led to the feeling among others that the US and EC, while trying to improve the benefits to them in areas not settled in bilateral negotiations, but not focussing in other areas where they have already reached bilateral (not necessarily multilateralized) deals with China, may tie the hands of others by presenting ‘package deals’ ala the old GATT/WTO style that produced the debacle in Seattle.

The two main questions that figured prominently and resulted in some discord this time were questions relating to:

·        whether in agriculture (where it has agreed not to use export subsidies), China could provide support to its rural sector and claim developing-country status and avail itself of a 10% de minimis percentage for product-specific and product-non specific in calculating Aggregate Measure of Support (AMS) subject to reduction, or whether China would be treated as a developed country and enjoy only a 5% de minimis exemption.

·        defining some terms in the services area -  where China has made market access concessions (to the US and EC) - like ‘franchising’, ‘chain stores’, and ‘large scale commercial risk’.

On the agriculture issue, China received some pointed support from a number of developing countries, including India, Pakistan and Malaysia, while the ASEAN and a few others made more general remarks about the unreasonable demands. While some press reports had said that the opposition to the Chinese domestic agriculture support issue included the opposition of the Cairns Group, Malaysia insisted that it was a member of the Cairns group and there had been no such stand. India said it supported China’s position with regard to developing-country rights in extending domestic support to its farmers.

While these came up front in the talks, there are also other issues of substance that need to be resolved, including issues relating to anti-dumping, product-specific safeguards, non-tariff measures etc.

The US effort to insist on China not availing itself of developing-country status in relation to domestic agricultural support, which has the support of some of the Cairns group members, resulted in the exhibition of some emotion at a press conference (after the Working Party ended) by the Chinese vice-Minister and chief negotiator, Long Yongtu, who criticised the attempts to tie China’s hands over domestic agriculture support  and said: “If you want to bind our hands and not allow support for our farmers, nobody could back that. Our agricultural subsidies are peanuts compared with those offered by the US and EU to their farmers.”

Of the 900 million Chinese farmers, one-third are below poverty level, having an income less than the $1 a day standard set by the UN, Long said.

[In fact, the UN has not set the $1 income standard; that yardstick was set by the World Bank which though using that yardstick, has put the Chinese population below poverty level at 17% in its World Development Report 2000. But whatever the level or numbers, there is not much doubt about the problems of rural farmers and agricultural development in China, particularly after old communes have disappeared, and the agriculture economy has been ‘marketised’]

The WTO deputy director-general, Paul-Henri Ravier, who is chairing the Working Party in the absence of the Chairman, Mr.P.L.Girard of Switzerland, underscored the need for highest level political involvement of governments to enable the talks to be successfully concluded. While the agriculture and services issues had figured in the talks, and remained unresolved, he stressed that there were other issues too that had to be resolved and a package evolved.

Long agreed with Ravier and said the accession process had become complex, but felt the final package was within reach. However, having made some predictions in the past that had not come true, Long was reluctant to say how soon the talks would be concluded.

Long also said that on the Chinese side, they recognized that their present laws and regulations relating to issues covered by the WTO’s Technical Barriers to Trade (TBT) agreement were not fully compliant, and they would take steps to ensure compliance.

At the formal Working Party meeting, following at least two informals, Ravier said as a result of the testing process they were engaged in, a ‘viable’ multilateral text was being circulated on product-specific safeguards, and progress had been made in two other areas - non-tariff measures and anti-dumping - though problems still remained. However, he felt these would rapidly fall into place, once breakthroughs occurred in other subjects that were of central political and trade concern to China and the members.

Ravier told the Working Party that political breakthroughs and texts were needed in some core areas: agriculture, industrial subsidies, TBT, trading rights and services. Intensive discussions had taken place to achieve breakthroughs. But it was clear that more time was needed in capitals to adjust positions and approach the issues afresh. There was hence no texts in these areas, but it should not be taken negatively.  Ravier hoped that by the time the Working Party met next, all necessary inputs, substantive and technical, should be available to conclude the substantive part of the negotiations.

“Overall, I feel that none of the outstanding problems are insurmountable,” said Ravier. “In each case, political decisions are now very clear and unambiguous. The session has been a successful one in sharply defining the political decisions needed.”

In his statement, Long noted that the Chinese accession talks had now entered the fifteenth year, and like major negotiations, it was tending to become more difficult when approaching the final end. “We Chinese are famous for our patience and my delegation will continue these negotiations with patience and perseverence,” Long said. “China’s WTO accession is conducive to its development as well as strengthening the multilateral trading system. These are the sources of our patience and perseverence.”

Long regretted that agreement could not be reached due to one or two major issues. But China firmly believed that the positions it was insisting on were correct and were supported by the majority of WTO members.

In agriculture, China had a total agricultural population of 900 million, and ensuring the stability of agriculture was of the utmost importance for China’s social stability and economic development.  China’s agriculture faced inferior natural endowments, inefficiency of the labour force and backward technology. While it was willing to promote restructuring in this sector, and participate in international competitiveness through market openings, China needed to maintain WTO-consistent agricultural support measures.

China was committed to deeply cut tariffs on agricultural products like grain, cotton, vegetable oil and sugar and would apply an open and transparent tariff quota system reflecting market conditions. At the same time China had also agreed not to introduce trade-distorting export subsidies.

“Even the majority of developed countries had not yet done so, and this effort demonstrated the enormous flexibility of China.. However the precondition for this commitment is that China cannot be deprived of the rights of invoking developing country provisions with regard to domestic support".

Long also stressed the need for a package approach and solution, though he saw risks in such an approach. Disagreement on one issue might result in failure of the whole package. China was still willing to continue negotiations on a balanced package, but would urge relevant countries to make political decisions.

The Chinese position on agriculture and developing-country status received strong support from India, Pakistan and Malaysia among others.  Brazil confirmed Malaysia’s contention that the issue of Chinese domestic support was not a coordinated position of the Cairns group.  Pakistan said any delay in Chinese accession would have a negative impact on the multilateral trading system and would have vast implications for further trade liberalization and new negotiations.

On the other questions yet to be resolved, India said that considerable progress had been made, but agreement was still to be achieved in the price-comparability clause on anti-dumping, product-specific safeguards and textiles safeguards provisions.

[These are areas where China has reached bilateral agreements with the US and the EC which would enable these countries, which already have laws on their statute books that sanction special procedures vis-a-vis China and other non-market or transition economies, to be able to use them without a WTO challenge by China. Having reached accords to safeguard their domestic markets and constituencies, the US and EC are not concerned over how these accords would be ‘multilateralized’ in the WTO through the protocol. But a number of developing countries including India, Mexico and several others, including some ASEAN countries  and others, who feel concerned about possible Chinese competition through ‘dumping’ and the problems they would face in investigations on price-comparisons when the Chinese market system is not very transparent in price-formation, are pressing for clearer multilateral provisions in the Chinese protocol.]

During the current talks, in what was claimed to be an EC-led effort to evolve a package on the core issues identified by Ravier in his final statement, the EC appears to have tried to work out a package within the Quad group, covering Chinese agriculture domestic support, the services issue and the definitions, product-specific safeguards, and the TBT questions.

The EC appears to have put together a package on these, and presented it to the Quad at a limited consultation convened by the secretariat, and at which the secretariat was present. But the US was not prepared to or unable to accept the compromise, given the fact that the Clinton administration was winding down and the there would be a change of guard at Washington from Saturday. The EC itself made clear that it had no difficulty in accommodating China on the agriculture domestic support issue. Whether it was just an attempt to score points against the US (gaining some ‘brownie scout points’ as one trade diplomat caustically described it in private on Tuesday) or an attempt to use the ‘compromise’ to gain more advantages with China on services, both for itself and the US, is not very clear.

But this prolonged meeting and consultation on Tuesday, while other members waited around in the coffee shop of the WTO for the informal plenary to start, raised some strong criticisms of the return of the secretive and non-transparent negotiating process. The EC which became aware, tried to hold a meeting with a few others including Australia and India, where they received some sharp criticism and concerns that if the EC and the secretariat used such methods to evolve a package that took care of the interests of the majors, others would be placed in a very difficult situation.

While India, Mexico and others were concerned over issues like price-comparability in anti-dumping, product-specific safeguards, and the special textiles safeguards (negotiated between the US and China), Australia and some other agricultural exporters are concerned over agriculture issues and did not want any talks without their own participation, more so in meetings sponsored by the secretariat.

Fuel was added to the fire when the outcome of the limited consultations was reported on to the informal plenary by Ravier, and a number of countries including Mexico, Norway, Switzerland, Australia and several others objected to the procedures.

In its intervention in the formal Working Party Wednesday afternoon, India made a reference to this and noted that at the morning informal a number of delegations had expressed the view that transparency should be explicitly ensured in whatever process was adopted by the Working Party in order to advance the work rapidly and achieve a breakthrough on the outstanding issues. India’s position on need to promote active participation of all Members in various WTO consultative as well as decision-making processes was well-known. Informal consultations among groups of Members, India said, were an integral part of the negotiating process in the WTO, but Members not involved in the consultations had a legitimate expectation that the groups of Members involved and the Chairman would keep them informed of the proposals under discussion.  This would ensure that Members not involved would be able to contribute to the process in whichever they deemed appropriate. Otherwise, any package worked out by the group of Members would put other Members at a disadvantage during the consideration of the package in the Working Party. India hence endorsed the remarks of Mexico at the informal session.

At his press conference, Long appeared to understand the concerns of other members, but noted that any compromise or package necessarily could be reached only in smaller consultations, and not through a drafting exercise involving all the members.

He tried to put at rest the reported concerns of trade and industry in other developing countries (the questioner made a specific reference to India) on the danger of Chinese dumping. He also said that while China and Mexico had not yet been able to conclude a bilateral accord, he had been assured by Mexico that they would not block a consensus on this ground, but that China and Mexico would resume bilateral talks later.

It was not clear from his remarks whether Mexico would invoke the non-application clause, pending further consultations and agreement or something else.

On the services definitions issue, Long said at his press conference that he saw no reason why the terms like franchising or chain-stores or large-scale commercial risk (in insurance and reinsurance) should be defined in the Chinese protocol. If any definitions were needed, they should be in the multilateral rules, he said.

The Chinese have agreed to market openings in negotiations with US on enabling US ‘chain-stores’ to be set up and in franchising trade. The US is either concerned now that without a definition China could restrict access or it is seeking to gain more than it has achieved in bilateral deals, one trade diplomat said.

However, the diplomat said, China itself would appear to have opened the way for the idea of defining some terms in its protocol -  perhaps for a different reason, namely, not to allow the runaway dispute settlement system and the Appellate Body to ‘define’ what these terms mean.

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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