China in the WTO

A lso by Carlos A . Magariiios

REFORMING THE UN SYSTEM: UNIDO's Need-Driven Model (with George Assaf,Sanjaya Lall, John D.-Martinussen, Rubens Ricupero and Francisco C. Sercovich)

GEARING UP FOR A NEW DEVELOPMENT AGENDA - MARGINALIZATION VS.PROSPERITY: How to Im pro ve and Spread the Gains of Globalization (withFrancisco C. Sercovich)

THE ROLE OF THE STATE AND INDUSTRIAL POLICY IN THE 1990s (with thecollaboration ofJose L. Diaz. Perez and PabloSierra)

A lso by Francisco C. Sercovich

REFORMING THE UN SYSTEM: UNIDO's Need-Driven Model (with Carlos A.Magariiios, George Assaf, Sanjaya Lall, John D.-Martinussen and Rubens Ricupero)

GEARING UP FOR A NEW DEVELOPMENT AGENDA - MARGINALIZATION VS.PROSPERITY: How to Im pro ve and Spread the Gains of Globalization (withCarlos A. Magarifios)

COMPETITION AND THE WORLD ECONO MY: Com parin g In dustrialDevelopment Policies in Developing and Transition Economies (with Cheong­Yong Ahn, Claudio Ftischtak, Mojmir Mrak, Herman Muegge, Wilson Peres andSamuel Wangwe)

FOREIGN TECHNOLOGY IN ARGENTINE INDUSTRY (in Span ish)

China in the WTOThe Birth of a New Catching-Up Strategy

Edited by

Carlos A. MagarifiosDirector-General, UNIDOChair, UnitedNations High-Level Committee on Programmes

Long Yong tuChina's Vice-Minister ofTradeand ChiefWTO Negotiator

and

Francisco C. SercovichSeniorPolicy Advisor to the Director-General, UNIDO

UNITED NATIONS INDUSTRIALDEVELOPMENT ORGANIZATION

ISBN 978-1-4039-1438-5 (eBook)

*© United Nations Industrial Development Organziation 2002

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Contents

List ofBoxes, Tables and Figures vii

List of the Contributors ix

Foreword by Carlos A. Magariiios xi

Acknowledgements xiii

List ofAbbreviations and Acronyms xiv

1 China's Accession to the WTO: an Overview of Domesticand External Implications 1Carlos A. Magariiios and Francisco C. Sercovich

2 Negotiating Entry: Key Lessons Learned 25Long Yongtu

3 Implications of China's Accession for the Asia-PacificCountries 36Chae Wook and Han Hongyul

4 The Competitive Impact of China on ManufacturedExports by Emerging Economies in Asia 76Sanjaya Lall and Manuel Albaladejo

5 Industrial Environmental Management and the WTORules: the Case of China IIIRalph A. Luken and Casper van der Tak

6 China's and the WTO: a Developing CountryPerspective 143lulio I. Nogues

7 Implications of China's Entry into the WTO in the Field ofIntellectual Property Rights 165Long Yongtu

8 WTO, Globalization and New Technology: ChangingPatterns of Competition and New Challenges forSustainable Industrial Development 171Supachai Panitchpakdi

v

vi Contents

9 Concluding Remarks on the Implications of China'sAccession to the WTO for the Multilateral Trading Systemand Developing Countries 179Long Yongtu and Carlos A. Magariiios

Name Index 184

Subject Index 186

List of Boxes, Tables and Figures

Boxes

1.1 Summary of China's key concessions 101.2 China's socialist market economy: sequence of landmark

decisions and expected achievements 18

Tables

1.1 Projection of China's share in global exports in selectedsectors 15

3.1 Commodity structure of trade by region 383.2 Export structure of AP developing economies 403.3 Industrial products: tariff reduction schedule 443.4 Autos: tariff reduction schedule 453.5 Major service sectors: liberalization schedule 473.6 Top five suppliers in major markets (1998) 523.7 Market shares of AP economies in major markets 533.8 AP economies' market shares in China and US 563.9 Revealed comparative advantages of AP economies in

China (1998) 573.10 Major areas of AP developing economies' export interest

in the Chinese market 593.11 Trade-weighted tariff reduction schedule and expected

import expansion 623.12 Export opportunities for individual AP developing

economies in the Chinese market 643.13 Major suppliers of textiles and clothing to the US 663.14 MFA quota utilization ratio, Asian suppliers 673.15 Factors of export growth: MFA category total (US) 683.16 Factors of export growth: total apparel (US) 694.1 Manufacturing value added 834.2 Technological structure of MVA 854.3 Total manufactured exports 884.4 Technological structure of manufactured exports and

growth rates 894.5 World market shares of manufactured exports by

technological categories 91

vii

viii List ofBoxes, Tables and Figures

406 Tertiary technical enrolments 98501 Major macroeconomic variables under China's WTO

accession scenarios in the year 2010 114502 Estimated changes in manufacturing output and trade

by year 2010 further to China's WTO accession 115503 Pollution intensities; kg per 1000 RMB (1995) 1185.4 Impact of WTO accession on total pollution loads 119505 Estimates of environmental damage and assumed costs

of abatement 123506 Pollution abatement operating costs by industry in the

US (1993) 125507 Pollution abatement operating costs by industry in

China in 1999 127508 Summary of simulation design assumptions 136601 Agricultural protection in the EU 144602 Dirty tariffication by the EU 146

Figures

301 China's import structure 54401 Rates of growth of world exports by technology

categories 81402 Correlation between export structures, 1990-97 92403 1997 world market shares in main electronics exports 934.4 1997 world market shares in dynamic MT products 94405 1997 market shares for dynamic LT products 95406a Ratio of wages to Chinese wages in all manufacturing 96406b Wage ratio in selected low and high-tech activities 964.7 R&D spending/USS1000 of total and MHT MVA (1998) 100408 Total R&D financed by productive enterprises in 1998 101409 Inward FDI flows (USS billion) 1024010 Technology licence payments abroad 1044011 Main ICT indicators (1998) 105601 The UR: access to markets 149

List of the Contributors

Albaladejo, Manuel

Chae, Wook

Han, Hongyul

Lall, SanjayaLuken, Ralph A.

Margariftos, Carlos A.

Nogues, Julio J.Sercovich, Francisco C.

Panitchpakdi, Supachaivan der Tak, CasperYongtu, Long

Researcher, University of Oxford,Centre for International DevelopmentResearch Fellow, Korea Institute forInternational Economic Policy,Republic of KoreaAssociate Professor, Department ofEconomics, Hanyang University,Republic of KoreaProfessor, Oxford UniversitySenior Industrial Development Officer,UNIDODirector-General, UNIDO and Chair,United Nations High-Level Committeeon ProgrammesConsultant, UNIDOSenior Policy Adviser to the Director­General, UNIDODirector-General designate of the WTOConsultant, UNIDOChina's Vice-Minister of Trade andChief WTO Negotiator

ix

The views expressed in this publication are those of the authors and donot necessarily reflect the views of the Secretariat of the UnitedNations Industrial Development Organization. The description andclassifications of countries and territories used, and the arrangementsof the material, do not imply the expression of any opinion what­soever on the part of the Secretariat concerning the legal status of anycountry, territory, city or area, or of its authorities, concerning thedelimitation of its frontiers or boundaries, or regarding its economicsystem or degree of development. Designations such as 'developed','industrialized' and 'developing' are intended for statistical convenienceand do not necessarily express a judgement about the stage reached by aparticular country or area in the development process. Mention of firmnames and commercial products does not imply the endorsement of theUnited Nations Industrial Development Organization.

x

ForewordCarlos A. Magariiios

Both in length and intricacy, the history of this book pales by compar­ison with that of the implementation of China's bold decision to jointhe World Trade Organization - a decision that took 15 years of toughnegotiations on multiple tracks before a successful outcome was ulti­mately reached. But, all the same, this book does have a history.

By early May 2000, when China was entering the final stage of negoti­ations, I led an official mission to Beijing, Shanghai and Xiang . At adinner offered by Mr Long Yongtu, China's Vice-Minister of Trade andChief Negotiator before the WTO, we addressed China's accession to themultilateral trade body, among other issues. This exchange captured myimagination, giving birth to the idea of organizing a Regional Forum toassess this particular topic and draw policy conclusions. The Forum tookplace on 4-5 December 2000 in Shanghai. My intention was to zero-inon a number of dimensions pertaining to what, in my view, clearlymarked a watershed in the evolution of the multilateral trade system ­one perhaps as significant in itself as an entire round of trade negotia­tions. Among such dimensions, at the core of my concerns was thepotential impact of China's WTO entry on the competitive standing ofother emerging Asian economies and on the developing world at large.

Later, when I examined the proceedings of the Forum with my friendand colleague Francisco Sercovich, we arrived at the conclusion that thevalue and originality of the material warranted publishing a book on thesubject. As is usually the case, our original idea was outgrown by events.Because of his unique experience and mastery of the subject, I invitedMr Long Yongtu to join us as co-editor and contribute with two keychapters of the book - as suggested by Palgrave Macmillan. Additionalchapters were also requested from other experts. In a nutshell, we endedup with having all chapters in the book expressly written for it, save fortwo - those by Mr Supachai Panitchpakdi, Director-General designate ofthe WTO and by Korean Republic researchers Chae Wook and HanHongyul, which were originally presented at UNIDO's Shanghai Forumand are included here with minor changes.

Among the great variety of challenges arising from China's accessionto the WTO, the following warrant particular attention . First, China

xi

xii Foreword

confronts the three-pronged challenge of sustaining its growthmomentum at a rate high enough to offer productive outlet to thelarge contingents of new entrants to the job market; complying withthe WTO agreements; and keeping up with economic opening andtechnological catch-up. Secondly, trade relations between China andits commercial partners, both in the developed and developing worlds,need to be deepened in the context of a fair and transparent reciprocaltreatment. And thirdly, the multilateral trade system requires takingadvantage of China's ascription to the multilateral trade rules in orderto build bridges between the agendas pursued by developed and devel­oping countries and thus help to overcome actual and potentialfissures in international trade relations.

One of the most valuable lessons from the last SO years of economichistory is that such things as the opening of the economy, fiscalbalance and macroeconomic stability are key to growth - and viceversa. However, they are not sufficient, neither should they be taken asmantras, since in and of themselves, they fall short of addressing issuesof equity and efficiency. Although they play an important role inachieving progress and prosperity, they are compatible with differentdistributional patterns both nationally and internationally, includingthose that segregate high concentration of wealth, on the one hand,and extend poverty, on the other. This problem is not limited just tothe developing countries. Social and human deprivation also prevailsin large sections of developed country societies.

I believe that the key challenge faced by the international communityis not how to foster wealth creation where it already exists, but how todo it where it does not. And here is where China offers an inspiringexample with its home-growth policies to switch from a commandeconomy to a market economy within just over a generation.

In historical perspective, development through rapid economic andsocial change and massive wealth creation are rather recent achieve­ments of civilization. Prior civilizations did produce importantadvances in science, technology, trade and entrepreneurship, but theimpact of these achievements on wealth creation, important as it was,proved not to be sustainable. The systematic use of scientific and tech­nological innovation in economic activity during recent times is animportant condition for sustainability. But it does not suffice either.Breaking the negative links between equity and efficiency is anotherkey condition. Indeed, civilization is at the dawn of development,whose mastery is a task that still remains largely ahead of us. China hasa key contribution to make to this goal.

Acknowledgements

Thanks are due to the following UNIDO staff from the Asia and thePacific Bureau: ] .-W . Suh, Director; S. Miranda-da-Cruz, UNIDORepresentative in China; C. Scaratti, UNIDO Representative inThailand; and Ci-P. Chua, Field Operations Officer, for their valuablecooperation. D. Liang, Director of the Industrial Promotion andTechnology Branch also provided kind assistance. Nicola Viinikka,Senior Editor of Palgrave, gave continuous support to the project.E. Crawley did the style editing. M.-A. Yap was responsible for thecopy-editing.

xiii

List of Abbreviations andAcronyms

APASEANATCATCABITCESTTCGECMSCPACPCCTEDSMECLAC

EIAsEIUEKCEMITEMSEPBESTsEUFDIFTAAFYPGATTGDPGNPHSHTICTILOIPPSIPR

Asia-PacificAssociation of Southeast Asian NationsAgreement on Textiles and ClothingAgreement on Trade in Civil Aircraftbilateral investment treatiesCenter for Environmentally Sound Technology TransferComputable General Equilibriumconstant market analysisCertified Public AccountantsCommunist Party of ChinaCommittee on Trade and EnvironmentDispute Settlement MechanismEconomic Commission for Latin America and theCaribbeanEnvironmental Impact AssessmentsEconomics Intelligence UnitEnvironmental Kuznets CurveEnvironment Measures and International TradeEnvironmental Management SystemsEnvironmental Protection Bureauenvironmentally sound technologiesEuropean Unionforeign direct investmentFree Trade Agreement of the AmericasFive-Year PlanGeneral Agreement on Tariffs and Tradegross domestic productgross national productHarmonized Systemhigh technology manufacturesinformation and communications technologiesInternational Labor OrganizationIndustrial Pollution Projection Systemintellectual property rights

xiv

ISOITITALDCsLTMFAMFNMHTMNCsMOFTEC

MTMVANAFTANGOsNIENPCNTBsOECD

OEMPCMCPCPPCSPLSPNTRPRCEEPROPERR&DRBRCAS&TSEPASEZSICSITCSMES02SOEsSPSSSA

List ofAbbreviations and Acronyms xv

International Standard Organizationinformation technologyInformation Technology Agreementleast developed countrieslow technology manufacturesMulti-Fiber Agreementmost-favoured-nationmedium and high technologymultinational companiesMinistry of Foreign Trade and Economic Cooperation,Chinamedium technology manufacturesmanufacturing value addedNorth American Free Trade Associationnon-governmental organizationsnewly industrialized economiesNational People's Congressnon-tariff barriersOrganization for Economic Cooperation andDevelopmentoriginal equipment manufacturepara-chloro-meta-cresoIpentachlorophenolpersonal communication servicespollution levy systemPermanent Normal Trade RelationsPolicy Research Center for Environment and EconomyProgram for Pollution Control Evaluation and Ratingresearch and developmentresource-based manufacturesrevealed comparative advantagescience and technologyState Environmental Protection AdministrationSpecial Economic ZonesStandard Industrial ClassificationStandard International Trade Classificationsmall and medium-sized enterprisesulphur dioxidestate-owned enterprisesSanitary and PhytosanitarySub-Saharan Africa

xvi List ofAbbreviations and Acronyms

TBTTCMTBTFPTNCsTPATRIMsTRIPTRQTSPTVEsUNCTADUNDPUNEPUNIDOURUSUSEPAUSITCUSTPAWIPOWTO

Technical Barriers to Tradethiocyanatomethylbenzothiazoletotal factor productivitytransnational corporationsTrade Promotion ActTrade-Related Investment MeasuresTrade-Related Industrial Propertytariff rate quotatotal suspended particulatesTown and Village EnterprisesUnited Nations Conference on Trade and DevelopmentUnited Nations Development ProgrammeUnited Nations Environmental ProgrammeUnited Nations Industrial Development OrganizationUruguay RoundUnited StatesUS Environmental Protection AgencyUS International Trade CommissionUS Trade Promotion ActionWorld In tellectual Property OrganizationWorld Trade Organization