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WTO NEWS: SPEECHES — DG SUPACHAI PANITCHPAKDI

2 December 2004

CHINA AND THE WTO: CHALLENGES AND OPPORTUNITIES FOR THE FUTURE

“WTO Forum of the 6th Shanghai — International Industry Fair”

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I am delighted to join you today for a discussion on the WTO and the Doha Development Agenda. The pace of China's economic development has been electrifying and perhaps, no other Chinese city reflects this speed of progress better than Shanghai. It is indeed fitting that Shanghai should be the venue for this discussion.

Let me start by saying a few words about the current round of negotiations.

As you know, the Doha negotiations have entered a new phase after the adoption of the July Decision. I do not wish to spend too much time on the current state of play as I would like to devote most of my time on China and the WTO. Let me just say that after a period of some uncertainty, in particular following the setback at our Ministerial Conference in Cancún, the negotiations are back on track and moving forwards. In July this year, we succeeded in making significant progress in some of the areas that had been most divisive among Members in the past, most notably agriculture.

We are now focussing primarily on the technical work which needs to be done in each area to prepare the ground for the next major steps in the negotiations. This work may be technical, but it is very important and it must be done properly.

The challenge ahead of us is to negotiate greater levels of specificity. Hard political decisions will need to be taken in capitals, particularly as we gear up for our next Ministerial Conference scheduled for December 2005 in Hong Kong. This will require full engagement at the highest political levels. I have heard a good deal of support for the idea of a stocktaking in March/April of 2005, to evaluate progress in all areas as we begin our preparations for the Hong Kong Ministerial Conference.

I remain firmly convinced that if we can maintain the momentum of July and continue to build on the spirit of compromise, we have a unique opportunity to re-energize the Doha round in a lasting way and establish the conditions for its successful conclusion.

I would like to turn now to look more closely at China's impressive integration into the multilateral trading system. China joined the WTO with extensive and ambitious commitments. China is overtaking Japan as the world's third largest merchandise trader in 2004. The Chinese economy of 2004 is not only bigger and stronger but it is also more integrated with the rest of the world. China is not only a major exporter but also a major importer. China is now the world's third biggest importer, behind the US and Germany but ahead of Japan. Chinese imports have also become geographically more diverse. For the past five years Chinese imports have generally grown faster than its exports, with import growth outpacing export by about an average of 5 percentage points a year. This is not surprising since China's economic expansion requires billions of dollars worth of equipment, technology and raw materials. China's strong import growth has provided an important stimulus for export-led growth in the world during the past few years. China's economic boom is potentially an economic boom for the world.

In the next few years, I believe we will start to see a new phase in China's integration into the multilateral trading system. Let me explain why I say this. Three years ago when China joined the WTO, it gave an important signal of its commitment and willingness to bring its economy into harmony with the rules of the WTO. To China's credit it did not waver in its resolve. The task was not always easy but throughout this period we have seen China, in implementing the terms of its accession to the WTO, progressively lower its tariffs, phase-out non-tariff measures and reduce restrictions on trade in services. In trade in goods, China's simple average tariff rate dropped from 42.9 per cent in 1992 to 10.4 percent at the beginning of 2004. Overall, China's performance has been very good.

That being said, it would be fair to say that China has not settled all the issues and concerns of other WTO Members relating to bringing its trade regime into strict conformity with its terms of accession. For instance, I have been informed that the level of counterfeiting and piracy remains of concern to many WTO Members. Also in specific industrial and service sectors, there are still various obstacles confronting foreign companies. Retail businesses, scheduled to be further opened to foreign competition by the end of this year, are one such example. I understand new regulations have left investors concerned over vague expressions and definitions. China will have to strengthen its efforts in terms of transparency and information on relevant laws and procedures. This will help to alleviate any misconceptions about China's commitment to its reform agenda. Some sensitive service industries will have to further open up by 1 January 2005 – thus becoming more exposed to competition. A number of restrictions will be lifted in the areas of foreign equity participation, business scope and geographical presence.

With more open markets Chinese businesses will certainly face more competition but this is not necessarily a negative consequence. As the last decade of reforms has shown, a more open economy is the best way to boost competitiveness. With more open markets Chinese businesses will continue to improve their overall ability to respond.

Let me take the example of agriculture, an area that is much debated in the Doha Development Agenda. When China joined the WTO, many were concerned that China's farmers would be hardest hit by the country's new openness to trade. However, the results have not gone quite that way. Due to greater openness China's agriculture sector is going through a period of change. Admittedly this is difficult for some – but it is by no means entirely negative. In fact, China's agriculture is rapidly moving in the direction of national comparative advantage.

With more than 20 per cent of the world's population and only 7 per cent of its arable land, China is rightly shifting towards labour intensive, high value added production, and away from land intensive grain production. As a result, China's agricultural sector is more competitive and exports have improved. Agriculture productivity is increasing because of greater openness. Opening up new market access opportunities around the world can have potentially big gains for China. It should be in China's interest to ensure that its trading partners also undertake reforms in agriculture. After all, as a result of accession, China's agriculture market is already relatively open and subsidies are used in only a very limited way. If this is true for agriculture, it is even more so for manufactured goods and services.

China has so far devoted much attention to implementing its accession commitments. This year, the amended Foreign Trade Law which took effect on July 1, changed the foreign trade rights approval system which had been in effect for 50 years into a registration system. This means that China has met its commitment of opening up foreign trade rights 6 months ahead of schedule. This is highly commendable. China is also an active player in the Doha Round. However, I believe that as China's membership of the WTO matures we will need to see it participating even more actively in the current round of negotiations. Being able to participate in trade negotiations was one of China's key objectives for joining the WTO. Many developing countries look up to China for leadership. They also see in China's experience concrete evidence that the path to economic openness and integration is also the path to growth and modernization.

Let me be frank, the Doha negotiations have been put back on track but much work remains to be done to finish the Round. Whether we can successfully negotiate the challenges over the next period depends very much on the commitment of all Members to build on the July Decision. Few countries have a greater interest than China in progressive trade liberalization and the strengthening of the rules-based multilateral trading system. China also holds the unique position of being both a developing country and a trading superpower. With this status, of course, comes responsibility. In its own interests and in the global interest, China must do even more to help bring the Doha Round to a timely, successful conclusion.

Given the limited time that I have left, let me refer to a couple of current trade issues that are of particular significance to China.

First, the end of 2004 will herald the historic expiry of the Agreement on Textiles and Clothing (ATC). This puts an end to more than 40 years of discriminatory quota restrictions and will bring considerable welfare and efficiency gains for the global economy. There is also potential for more South-South trade as this sector liberalizes. We should also not forget that the abolition of quotas in this sector was a very important objective for developing countries in the Uruguay Round.

I am therefore pleased to confirm that expiry of the Agreement on Textiles and Clothing is on track. Restraining countries have notified the Textiles Monitoring Body that they will eliminate all remaining quota restrictions on 1 January 2005. I welcome the role that China together with other WTO Members have played.

It would be remiss of me if I did not also mention that there is anxiety on the part of some countries about the short-term, but considerable, adjustment costs that may result from quota abolition. The issue has been raised in Geneva in the Council for Trade in Goods and China's initial reaction has been constructive and helpful. Adjustment challenges are complex. The starting point is domestic reform. There is a role for International Financial Institutions in facilitating a coordinated response in support of domestic reform efforts. In WTO discussions, China has also usefully suggested that it and other countries could play a positive role through South-South cooperation. All these contributions will count, but there will be no simple solutions.

That being said, it is important to stress that adjustment and domestic industry restructuring is a necessary part of the process of reform and liberalization. China has had to undergo adjustment in several areas. No country in today's global economy can afford not to undertake domestic policy reforms. I should also highlight that there is support for adjustment such as through the IMF's Trade Integration Mechanism, the World Bank's Country Assistance Strategies and the World Bank and IMF's Poverty Reduction Strategies. We need to work together in the most appropriate forums to find solutions.

My second point relates to the strengthening of existing WTO rules. In the current round of negotiations, we are looking at how to strengthen WTO disciplines on anti-dumping. It is important that we have strong disciplines to prevent unfair trading practices, but at the same time these should not be used to undermine trade liberalization. As the negotiations progress, the rules negotiations will take on even more significance. It is important to ensure that the rules negotiations continue to progress in parallel with other areas under the Doha work programme.

Sixteen WTO Members initiated 101 anti-dumping investigations against exports from a total of 23 different countries or customs territories during the first half of 2004. This is slightly more than the 98 investigations initiated in the first half of 2003. While it is important that we protect Members' rights to act against trading practices which the GATT condemns, we must also ensure that anti-dumping measures are not used as a pretext for protectionism. For systemic reasons, I believe it is vital that we use the opportunity of the current round to clarify and improve WTO disciplines in this area.

As you know, a few major users of anti-dumping duties continue to treat China as a “non-market economy”. I know that this is a vexed issue and it would not be for me, nor for the WTO, to comment on it. This is an issue between China and its trading partners. But I do think that the best answer that China can give is to stay firmly on its impressive road of reform. Membership of the WTO and participation in the current round of negotiations has proven China's firm commitment to the market economy. By powering ahead with its programme of broad and continuing reforms, China will make it clear to all its trading partners that the process is irreversible.

Let me conclude by reminding us all that we all share a joint responsibility to strengthen the multilateral trading system and to keep international trade policies liberal. I look forward that as a major trading nation China will do its utmost to maintain a strong commitment to the DDA and together with all the WTO Members ensure further progressive momentum of the negotiations in 2005 that will pave the way for the final success of the Round in the near future.