Over 2 decades ago, China applied to join the General Agreement on Tariffs and Trade, which later became the WTO. This led to 15-years of negotiations on China's entry into the world trading system. China's integration into the global economy has been one of the most outstanding features of the country's 30 years of opening up and reform.
In July 1986, China applied to resume its legal status as a contracting party to the international trade body, General Agreement of Tariffs and Trade (or GATT), which regulated about 80 percent of world trade at that time based on free-market principles. The move was in line with China's opening up policy and was expected to lead to an increase in both exports and imports. On the world export volume ranking, China rose from No.28 in 1980 to No.10 in 1984.
To discuss these issues,we caught up with Long Yongtu,China's former WTO Chief Negotiator.
Long Yongtu was the Chief Negotiator for China's resumption of GATT contracting party status and its accession to the World Trade Organization. He joined the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) in 1965. In April 1994, he was appointed the Assistant Minister of MOFTEC. And in February 1997, he was appointed the first-ever Chief Representative for Trade Negotiations of MOFTEC. He led the first Chinese delegation to the Organisation for Economic Co-operation and Development in Paris, January 1995, and established a dialogue with the organization. He was fully involved in APEC affairs and attended the APEC trade ministers meetings and informal meetings of economic leaders held in Seattle, Jakarta, Osaka, Manila, Vancouver, Auckland, and Shanghai. Mr.Long now is the Secretary-General of Boao Forum for Asia.
Motivation to join the WTO
Q: Mr. Long, welcome to the Maintalk.
L: Thank you.
Q: What was the triggering factor in 1986 that motivated China to go back into the GATT and later the WTO, what is the motivation?
L: Because 1986 is already 7 years after China’s opening and reform, and as you know in the early 70s when GATT followed the UN… United Nation’s resolution to get rid of Taiwan’s representative from GATT. GATT did invite China to participate. However, at that time, we saw that most of the members of the GATT were developed countries and its basic principle is the market economy. So I hesitated at that time that why China should join this rich man’s club? And market economy is a taboo for us at that time. So we did decide not to accept the invitation of GATT to come back to GATT. However, after China’s opening to the outside world, China’s export increased, and also the export is becoming more and more important for China’s economy and job creation. At that time, China’s textile export took about 30%--40% of China’s total export volume. And at that time the global textile trade was still governed by a Multi Fiber Agreement of GATT. That means you have to get some of the quotas before you can really get into the United State’s market and European markets.
Q: Otherwise you would encounter entry barriers into these countries.
L: Of course, you have no market access to many major products of textile. So at that time, we decided to first join the Multi Fiber Agreement negotiations in order to get a legitimate(8.41) part of China’s quota. Then we come to understand gradually that GATT is something which could be useful to us in expanding China’s trade. So we decided 1986 to apply for GATT membership.
In October 1992, China declared a transition from a planned economy to a socialist market economy, which significantly accelerated the country’s negotiations to integrate into the international trade system. However, GATT members, especially the Western countries, raised an additional issue each time China met their conditions. China had hoped to become a member of GATT before the end of 1994,but their goal fell short. On January 1,1995,the World Trade Organization,or WTO,superseded GATT. In May,Long Yongtu was appointed the fourth Chief Negotiator since China began its efforts to win entry into GATT and WTO.
Q: When you were appointed the member negotiation team for China’s WTO process, and later the chief negotiator, what sort of pressure or expectations did you feel put on you?
L: The pressure is that WTO, the former GATT, was a rule-based organization. The most important obligation you have to take is to commit itself to all these rules without exception. However, at that time, China’s market is still very much in quite disorder, and there was very little clear rules about China’s trade and economic life. So the pressure on us first is whether or not we can create this kind of environment in China, both legal and business environment to fit into the kind of rule-based system of GATT and WTO, so that’s a very, very complicated process. And secondly, to get into WTO, you have to open up your market gradually.
There were disagreements at home on China's quest to join the WTO. People were worried about the impact that would possibly be brought about by intensified competition.
L: Opening up the market is not a very easy thing because you have to face many strong resistance from the domestic manufactures, because they were concerned about whether the foreign products flood into Chinese market. Their factories could be wiped out. So there were some strong resistances from the manufacturing sectors. So we have to convince them that competition might be good for us. Then we have some successful stories like television and other electrical home appliance products then we gradually built up our confidence. People come to realize in order to make China more competitive, we have to open up our market gradually.
Q: What was the toughest decision for you to make? What was the biggest challenge for you to overcome during the whole process?
L: The biggest decision is to convince some of the key industry to accept the terms of WTO, like automobile industry because automobile industry is a very strong industry in China, and traditionally there are very influential. They are also getting used to manufacture China’s cars within closed doors. So they were very worried about the prospect of so many giants of foreign car manufacturing coming to China. So we have to convince them, we have to work on them and we have to work on one sector by one sector. We are going to the banking system, insurance sector, telecommunications sector to convince them that opening up would not be disastrous things and it might create some good job opportunities for them to develop. Our banking sector would be one of the most vulnerable sectors in all the sectors to be opened. So, we negotiate very hard to get the longest transitional periods for them to achieve a kind of opening of the banking sector.
Hardest time in WTO negotiation
China’s entry into WTO had to complete bilateral negotiations with all WTO members. The negotiations with the US ,the world's largest economic force, were especially critical and tough. When the China-US negotiation came to a deadlock, high level political discussion played a decisive role. In 1997,then Chinese president Jiang Zemin talked with President Clinton. The two sides agreed to intensify efforts for the bilateral negotiations. In 1999,then Chinese Premier Zhu Rongji visited the United States. The US side decided to firmly support China's accession within the year 1999. In November that year, the United States trade representative, Charlene Barshefsky, arrived in Beijing. The two sides started six days of day-and-night arduous round the clock negotiations, which finally reached a landmark agreement.
Q: You had a lot of difficult negotiating partners to deal with, for example the US. What kind of concessions did China have to make to the US in order to achieve a breakthrough really?
L: I do not like the word concession because in any trade negotiations, so-called concession has to be made by both sides, it’s not a unilateral concession made by China. The United States also made a lot of concessions in order to achieve the agreement. The both sides have to build up their consensus on the basis that China is still a developing country. So China can not accommodate all the requests from the USA or European Union. So our opening process should be a gradual process, should have a lot of terms on transitional arrangement, in order to make Chinese manufacturing sectors or service sectors get prepared for the opening of the market. So, finally, we have found the bases of the consensus that China is willing to open up its market. But, China needs time to adjust its manufacturing and service sectors in order to cope with the new situation when the market is open.
On November 15, 1999, China and the United States signed a bilateral agreement on China's accession to the WTO.
Q: Do you think that the agreement with the USA in 1999 was the great breakthrough?
L: Of course, US is the biggest player in WTO, and the biggest the trading power. So, once the agreement with the United States is reached then the other things we will fall into part.
On December 11,2001, after 15 years of negotiations, bitter disputes and stand offs, China finally joined the WTO. The move was approved unanimously at the WTO's ministerial meeting in the Gulf state of Qatar and brought a market of 1.3 billion people into the global trading system.
Q: Did you ever think this would take 15 years to complete when you first joined the negotiation.11:25
L: Yeah, we did not realize that would take so long, but however, along with the negotiation we come to realize the complexity of the negotiation and kind of complicated issues both internationally and domestically. Then we think that maybe will take a very long time for China to get into the WTO. In hindsight, I even think that it’s a good thing for China to take so many years to get into WTO. Because if you get into the WTO when the general public and many of the manufactures were not prepared then the result could be disastrous. There would be a backfire everywhere. Then it doesn’t make any sense for China to get into WTO. There’s a Chinese saying that when the tunnel is ready, the water comes, and that’s the kind of situation we get into WTO.
Q: How do you describe your role within the whole negotiation process?
L: I think I’m basically, of course, it’s an implementer of the government policies and tactics and negotiations. I think my contribution is that I have built up a kind of very good and smooth communication line with my negotiation partners. We have built up that trust. They trust me, and they think I’m a very good communicator. If I say no, they know that I’m not cheating them. So, even years after negotiation finished now when they come to visit China they always say ok Mr.Long you are tough, but one thing we are sure is that you never cheat us, you are a man of integrity, integrity is very important Because if you cheat your trading partners, if you cheat your negotiation partners, there will be no trust. If there’s no trust, there will be no agreement.
Q: What is your take on market economy? Some people say it is essential for China to get involved into WTO system, but it’s even more important that China act as an active market economy. What is your take?
L: To large sense China is already a market economy. And now sometimes we are talking about some country recognize China’s market economy status. That is in the strict narrow sense of implementation of WTO’s anti-dumping rules. It’s nothing to do with the economic system of China. China is an market economy, and that does not need any recognition from other countries, because there is no universal criterion for market economy. You see the United States provide so much agriculture substitutes to its farmers. Do you think that is market economy? That is a direct intervention from government on a very important sector. So, in that sense U.S is not market economy. So every country has its own problem, and because there is no universal criterion for so-called patched 100 percent market economy. China is also in that case. We are basically a market economy country. We also have some problems in build up a full market economy and I think that’s the efforts that we are making ourselves. We do not need others to teach us how to do it.
After entry into WTO, China's global trade surplus has continued to surge and reached a record high in 2007 of $262.2 billion. China's rapidly increasing trade volume has created growth in another area as well: the amount of trade disputes. In 2006, China received one third of the world's trade disputes, up from 15 percent in 2001 when it first joined the organization.
Q: We know ever since 2001 when China entered into WTO, China’s trade has been growing at about 20% annually. With that growth is an ever widening trade surplus with the rest of the world, and multi-pressure on anti-dumping accusations. So was this something you had expected back in 2001?
L: Yes, we did expect that there will be an export surge for China’s foreign trade, and I think that was also natural because China is a very big country. And in terms of the percentage of China’s total trade volume in the world, is still very, very small, and now it’s coming to gradually normal rate inconsistence with its size of economy and influence on the world trade and economy.
Q: Were you surprised, or were you also prepared for such trade fluctuations?
L: As a matter of fact, there are some trade fluctuations, but comparing with China’s total trade volume, especially it’s export volume, the trade volume affected by anti-dumping cases and other trade fluctuations, is only about 0.5%--1% of China’s total export (Q: very small percentage) very small.. As a matter of fact, this trade fluctuation should be considered as normal situation between the trade of different countries.
Q: So it’s the natural progress that China has to go though.
L: Yes, for every country the same. for instance, in the 80s, and the 70s, Japan was the major target of anti-dumping and trade fluctuations because at that time Japan’s exports increased very fast. So the similar situation now is coming to China’s export.
Q：We know the US sub prime crisis has caused a reduction in consumption demand, and this might affect China's export to the US and Europe. On the other hand, some people say the potential slowdown in China's trade surplus growth this year could alleviate some pressure pm RMB revaluation and also anti-dumping cases. What is your take on that?
L: As a matter of fact, China’s export market has been diversified in the last few years even though US market is still a very important market. So it’s not decisive market. So, there will be some negative impact on China’s export, and especially to the United States and other European countries. However, I would think that might become a kind of pressure for the Chinese manufacturers and exporters to improve the quality and readjust the structure of the export because the Chinese government has always advocated this kind of readjustment, and also moving from no-value-added products to middle and high value added products for export. And without this kind of pressure, it will be very difficult for the Chinese manufacturers and exporters to achieve that goal. Now, with the kind of declining export demand and that might impose some really good, to some extent, positive pressure to the Chinese exporters so as to improve the quality as well as the high value added products. In that sense, maybe it’s a positive thing. Of course we also see there might be some negative impacts on some of the manufacturers because of the employment of some the workers might be negatively impacted. As that’s the price you will have to pay for any economic adjustment.
Q: Do you think that might help alleviate the pressure on RMB revaluation as well?
L: Yeah, because if China’s trade surplus reduced, it might alleviate some of the pressure. And, because of the quality and the price of export improved, there is also good chance to reduce the trading fluctuations, including in some of the anti-dumping cases.
2008 may be the most arduous year for China's foreign trade exports since its entry into the WTO.Chinese exporters are facing a difficult time due to the credit crunch and previous macro control measures. However, there is always a positive side.The current financial crisis might work as an opportunity to help China shift its economic growth pattern from export led to domestic consumption driv