China and WTO

On December 11th, 2011, China finally joined WTO after its application from 1995. Nowadays, China has joined WTO for more than 12 years. How was China’s performance during the past decade? Is joining WTO really a wise choice for China? What kind of challenge is China facing in future as a member of WTO? This blog will answer these questions to you.

China’s performance: China has kept its promises on joining WTO.

For trade in goods, China has fulfilled its commitments earlier than the deadline of its promises.

China’s overall tariff decreased from 15.3% in 2002 to 9.8% in 2011. The average tariff of agriculture products decreased from 18.8% to 15.2% while the average tariff of manufactured goods decreased from 14.7% to 8.9%.

As we discussed in class, since China is a big trade country, the tariff that China sets will force the world price to reduce. As is shown in the figure below, the decrease of China’s import tariff will result in a smaller E since the influence on the decrease of world price will be smaller, in another word, the difference between the old world price and the new world price will be smaller. It will also result in smaller A, B, C and D, since the difference between the new world price + tariff and the old world price will be smaller. As a result, the decrease of tariff will lower the consumers loss –A-B-C-D, reduce the producers gain +A, and the government gain +C+E will also be smaller. But whether the total gain of China –B-D+E will increase or decrease cannot be determined.

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For non-tariff barriers, China has promised to cancel import quotas, import license and specific bidding for 424 specific products in China’s Accession World’s Trade Instrument. All these non-tariff barriers have been canceled by January 1st, 2005 as promised.

For trade in service, China’s openness has almost reached the level of developed countries.

With the decade China joined WTO, it has launched more than 40 laws and regulations on service trade, including finance, distribution, logistics, travel, construction. The law system on the openness of service trade has almost be completed. These laws and regulations enlarged the industry range and area range for foreign investors to enter China’s market, and also lowered the entry standard for related industry.

Within the 160 service trade department under WTO category, China has already opened 100 of the 160, as 62.5%, almost reaching the level of a developed country.

China’s benefits from WTO

Besides the market access China gets from WTO, WTO also helps improve China’s international economic environment. WTO provides chances for China to participate in multilateral trading system and enjoy non-discriminatory treatment as a WTO member. WTO also helps China with its internal reform. The trade laws and regulations that are set based on the WTO regulations are more comprehensive and normative. The joining of WTO stimulated China’s economic development and upgraded China’s industrial structure. On the whole, the importance for China’s joining WTO is undoubted, and China benefited a lot from joining WTO.

Challenges that China is facing in future

One of the key challenges that China faces is from the nature of WTO itself. With the boom of regional trade agreement and the trade protectionism after financial crisis, the importance of WTO has been threatened. In addition, the emergence of new economic issues such as environment, natural resources also bring new problems to the smooth operation of WTO.

Another challenge that China faces is the difficulty to fix the unbalanced status of China’s trade development. So far, China’s trade in service is still left behind the trade in goods. The rapid increase of resource products in the imports also leads concern on China’s sustainable trade industry. Furthermore, the expansion of trade volume has exceeded the development of branding, worsening the condition of China’s unbalanced trade.

To conclude, WTO provides both opportunity and challenge for China’s economic development, and China is also playing an important role in WTO. In future, China should not only take good advantage of WTO, but also be responsible for WTO’s development as a big country. The friendly corporation will help both China and WTO create a win-win future.

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