A Wto Rescue Mission

Some Chinese use a slang phrase to describe the fierce foreign competition Beijing will face after joining the World Trade Organization: "The tiger is coming," they say. Authorities say they'll make painful but necessary economic reforms to join the WTO. The question is, when? China seemed well on its way toward accession into the organization this year. But last month talks in Geneva to hammer out the final details surprisingly stalled. There were reports that Beijing was backing away from previous concessions--and unwilling to stipulate how it would enforce international trade rules and its own trade reforms.

To gain entry into the WTO, China's leaders are taking a risky step. The country must alter many of its business and trading practices. That means lowering tariffs on foreign goods and loosening tight restrictions on investments in key industries, such as telecommunications and financial services. Those changes will send shock waves through the economy. Tens of millions of rural livelihoods could be threatened by less expensive foreign food. Already shaky financial institutions will be vulnerable to outside competition. The heavily subsidized state-run sector is drowning in red ink and layoffs. Little wonder that Beijing's negotiators in Geneva were dragging their feet.

China has said that the terms of its WTO membership are more important than the timing. But U.S. President Bill Clinton has a slightly different agenda. Cracking open the China market has long been one of his top foreign-policy objectives. Fearing a stalemate, he dispatched Charlene Barshefsky, the hard-charging U.S. trade representative, to Beijing last week on a WTO rescue mission. Her goal: to nudge China back onto the free-market track. She met with Chinese Prime Minister Zhu Rongji--China's WTO architect--and then, at a press conference, proclaimed that there was no need for panic. Zhu, she declared, was "absolutely emphatic in declaring that China will not back away from its commitments with the U.S. and other trade partners. We can still envisage China's WTO entry this year, [and] we'll move as fast as China wants."

The WTO snafu aside, China is on the cusp of a revolution in its trade policies--and in its commercial relationship with the United States. Last week the U.S. Congress approved a historic bill establishing permanent normal trade relations with China. Beijing hailed the legislation as a major step toward improved relations between the two countries, and Clinton was optimistic about the long-term effect. "Opening trade with China will not in itself lead China to make all the choices we believe it should make," he said after the bill was passed. "But clearly the more China opens its markets, the more it unleashes the power of economic freedom, the more likely it will be to fully liberate the human potential of its people." The PNTR bill guarantees the Asian country the same low-tariff access to the U.S. market as other countries have. U.S. companies are also happy. A new bilateral deal, signed last fall, commits China to dramatically lowering its taxes on U.S. exports--and allows for more foreign investment.

China has been pursuing WTO entry, on and off, for 14 years. Up to now Beijing had largely been engaged in bilateral negotiations with various member states, including the United States and the European Union. But last month Chinese negotiators began more complicated multilateral talks at WTO headquarters in Geneva. Forty countries took part in the negotiations on Beijing's accession. It's an intricate process involving complex requirements and enforcement mechanisms. According to Barshefsky, Chinese officials seemed "overwhelmed" by the degree of detail required by the 138-member body, which regulates global commerce. She blithely waved off the WTO difficulties, saying the final hurdles were "nothing insurmountable." She added: "[It] happens with almost every country. There's a jumble of issues on the table, and it's hard to see the light at the end of the tunnel."

Politics have played a role in Beijing's slow march toward WTO membership. In the wake of the 1999 NATO bombing of China's embassy in Belgrade, Zhu and other reformists have been pilloried for kowtowing to Washington. Zhu has staked his career and his legacy on WTO membership. He believes the moribund state sector needs stimulation: an outside force that will help domestic industries become more competitive and transparent in their dealings. But there are critics--communist hard-liners and powerful ministers who stand to lose the most from deregulation. Some self-proclaimed "democratic nationalists" argue that China will lose some of its sovereignty after joining the WTO.

Political conservative Han Deqiang, an economics professor, recently wrote an antiglobalization book titled "Clash." In it he writes that Beijing isn't ready for the wrenching social change that WTO entry will bring. "Definitely, there are conservatives in the ministries and state companies who don't want China to join the WTO," says economist Cao Siyuan, who helped draft China's first bankruptcy legislation. "Zhu wants to join as soon as possible. But there still are leftists struggling against him to delay entry." (In Chinese political parlance, "leftists" are conservative ideologues, while "rightists" are the reformers.)

As any foreign investor in China will admit, the Devil is always in the details. The final WTO talks, for example, cover tricky issues such as how to limit the authority of individual Chinese provinces to mandate import quotas. While Beijing has promised to end favoritism--including the habit of setting higher-quality standards for imported products than for domestic ones--the WTO requires Beijing to spell out exactly how and when it will do so. "All countries try to do less if they can," said Barshefsky.

Foreign Ministry officials said they remained confident that Beijing could meet its own timetable. "China wants to realize its goal of joining the organization by the end of this year," said spokesman Zhu Bangzao. But given the enormous ideological issues involved--not to mention the concrete mechanisms being hammered out clause by clause--that deadline could slip.

Part of the problem is that Beijing is a sort of economic hybrid. It's clearly not yet a developed country--still, as Barshefsky points out, "China is an export powerhouse. This is a much bigger accession than anything we've done in many, many years." Washington's no-nonsense, hard-bargaining trade representative is probably just the person to help push Beijing over the finish line. One of her nicknames, in Chinese, is "Tiger Lady."