China’s stakes in the WTO and the role it could play

1. China’s stakes in the WTO and the role it could play Lin Guijun University of International Business and Economics Beijing WTO Public Forum September 26, 2012

2. I. How grateful is China to WTO when discriminated?

3. Most of China’s total exports (60%) were realized after the accession. • But the massive expansion in China’s export can not be explained by multilateral reductions in trade barriers. • A key factor is China’s participation in global vertical specialization.

4. China’s exports since the reform (USD100 bn)

5. However, China is discriminated in a non-discriminating organization as evidenced by: --the first creation of special safeguard mechanism; -- the invention of non-market economy status; -- consequently, a large number of anti-dumping and countervailing duties against China. --review mechanism after 8 years of accession +independent review.

6. II. China’s interests in WTO

7. 1. A relative stable exchange rate system • To protect its huge foreign exchange assets; • To reduce uncertainty in import and export caused by unpredictable exchange fluctuations; • In line with its underdeveloped financial system.

8. After the 2008 financial crisis, the imbalance in China’s current account surplus declined continuously with the BCA/GDP ratio to 2.8% in 2011.

9. Current account surplus and net oil exports: China and Arab countries

10. 2. To guarantee market access to OECD economies • With the enormous production capacity of consumer goods and global slowdown, China needs to stabilize its traditional market in EU and North America.

11. 3. To increase access to developing-country markets • In addition to stabilizing the markets in the developed countries, China also hopes to gain greater access to the markets in the emerging economies for the manufactured goods.

12. Average tariffs in emerging economies

13. 4. To desire a new approach to discipline by WTO to antidumping and safeguard measures • A large number of trade actions against China shows that the WTO, seemingly provides little discipline over such actions. • Now the question raised is ‘Can WTO help protect China’s interests? ’ • If not, …..

14. 5. To guarantee an uninterrupted and dynamic global supply chain • In quantity terms, China is the hub of Asia’s supply chain. China Hub and Spoke

15. Current WTO discussion is very useful for the smooth functioning of the global value chain. • Government actions and trade dispute should avoid disrupting the value chains.

16. 6. Regionalism can not protect China’s fundamental trade interests • China’s exports are more diversified across regions. • Increased access to global markets is in China’s interest. • Asia or other type of RTAs can not compensate for this, but only a supplement.

17. 7. To open up domestic markets more to foreign investors • Given the present slowdown in FDI inflows, China may be willing to take more liberal measures to improve the environment for foreign investors.

18. Export Growth pattern by region, 2012

19. III. China’s priorities in its agenda

20. 1. Expand domestic demand • In recent years, China’s growth has been criticized by export-oriented. • Trade disputes and economic slowdown in OECD countries have forced China to give more attention to the potential to its internal markets. • To expand domestic demand is an important task to rebalance the economy.

21. Composition of China’s GDP： 1995-2009

22. 2. Upgrading its industries • Move up along the global value chain. • Production pattern: Labor-intensive to capital intensive, skills- and knowledge-intensive; • develop new generation of export products.

23. China’s advantage exports: • office machines and automatic data processing machines(SITC 75); • telecommunications and sound recording equipment (SITC 76); • electrical machinery(SITC 77); • miscellaneous goods such as textiles and apparel, furniture and footwear（SITC 8）; • Road vehicles(SITC 78) ; • metalworking machinery (SITC 73).

24. Advantage of NAFTA and EU • Road vehicles (SITC 78), • Other transport equipment(SITC 79)， such as aircraft and helicopters; • power-generating machinery(SITC 71)， • Specialized industrial machinery(SITC 72)， • metalworking machinery(SITC 73)， • general industrial machinery (SITC 74).

25. To achieve the upgrading, a gradualist approach may be favored. • Some flexibility in industrial policies may be allowed.

26. IV. What bargaining chips China has?

27. 1. Commitment to further liberalization in goods and agriculture • China could further cut its average tariffs; • Open up more to foreign agricultural goods.

28. 2. commitments on further service liberalization • China still has potential to commit to further liberalization in professional services, computer services, telecommunications, construction and distribution services, etc.

29. 3. Huge foreign exchange reserves • At the end of June 2012, China’s total foreign exchange reserves reached 3.24 trillion dollars. • A substantial part of this has to be expended on imports.

30. 4. Growing domestic consumption and demand • Over the past decade, China’s real urban income increased by 151 percent, while real rural income rose 111 percent.

31. 5. The need to eliminate trade surplus • In 2011, China’s trade surplus decreased from 185.6 billion dollars to 155.1 billion dollars; • In the first half 2012, China’s trade surplus was 68.92 billion dollars, an increase of 6.4 percent over the previous period.

32. V. Was China more discriminated than Russia at accession?

33. V. Putin (December 2009): “We have the impression that for some reason some countries, including the US, are hindering our entry into the WTO.” • Alleged by some Russian officials that Russia is being discriminated against—asked to make more commitments than other nations that accede. • Russia negotiating accession since 1993 and China started in 1986

34. Russia and China: Accession commitments goods

35. Russia and China: accession commitments services • Russia has committed to more sectors than China (Russia 116 vs China 100）. • But the depth of liberalization vary. • Market access: • Russia tends to maintain more restrictions in commercial presence, natural person movements and to some extent, beyond the border consumption and cross-border delivery.

36. National treatment: • Russia has higher restrictions in commercial presence and natural person movements; • Both countries are similar in cross-border delivery and beyond border consumption; • Russia’s commitments in finance and telecommunication lag behind China.