China WTO accession terms settled

by Chakravarthi Raghavan

Geneva 16 Sep 2001 - Last minute compromises, at an informal meeting of the China Working Party (that actually ended at about 0100 local time on Saturday) on a few major outstanding issues, have cleared the way for the adoption at a formal session of the Working Party Monday of the report and the annexed protocol of accession, and its being forwarded to the Ministerial Conference of the World Trade Organization.

The compromise language used on the Chinese ‘commitments’ in the insurance sector, and access to be provided to foreign suppliers of life insurance in the Chinese market, and the way the existing ‘privileges’ of the very powerful (and highly politically connected in the US administration and Congress) American Insurance Group (AIG) have been ‘grandfathered’ and preserved, and the manner in which China would treat others, however, holds the potential of disputes on this landing before dispute panels and the dispute settlement process, once China completes its domestic processes of ratification and joins the WTO.

China will become a member of the WTO thirty days after it ratifies and signs the protocol. The report and protocol cleared by the Working Party has to be adopted by the WTO ministerial conference, or in its absence, by the General Council.

Before the “terrorist attacks” in New York and Washington last week, and the US counters under way in a “war against global terrorism” and the prospects of some military actions, it had been hoped that if nothing else, the WTO ministerial conference scheduled for Doha would be able to adopt China’s protocol of accession, and thus give some prestige and visibility (even if no new round of negotiations may be agreed upon and launched there).

But the ‘events’ of last week have created many uncertainties (economic, political, security and others) and there a re persistent reports among trade diplomats and ambassadors that the Doha meeting, if it brings ministers and leaders from around the world, and providing high visibility, may not be feasible at this point, and the ministerial meeting, if at all, may have to be held in Geneva.

In that event, rather than holding up action on the Chinese protocol, many WTO members would prefer actions to be taken at the General Council to seal the agreements.

Apart from the AIG issue, on another outstanding question, China’s bilateral agreement with Mexico relating to the over 1,400 and odd (at tariff line level) of WTO inconsistent anti-dumping and countervailing (AD/CV) duty measures, appears to have been settled in effect on Mexico’s terms - with Mexico securing a 6-year transition period for phasing out or bringing these into conformity with the WTO.

On China’s market access concessions, vis-a-vis the Dominican Republic and the Honduras (relating to beer and sugar), the problem is unlikely to be resolved until China joins the WTO, and invokes the provisions of Art. XXVIII of GATT to ‘renegotiate’ these concessions.

On the insurance issue, the US has been insisting that its own bilateral agreement with China preserves the right of AIG, which has a wholly-owned operation in China, to continue its operations not only in the places where it is now ‘established’, but expand to other cities and centres through opening of branch offices.

The Chinese commitment in other bilateral accords (with the EU principally) provides for issue of licences on a 50-50 joint venture basis. The EU has been insisting that the Most-Favoured-Nation (MFN) principle requires that everyone needs to be treated alike, and if the AIG is to be enabled to open new branches on a wholly owned basis, the others must be able too.

The compromise language in resolving this dispute appears to be that China would permit internal branching by the Chinese. The ‘compromise’ worked out between the US, the EU and China, with the US insisting at the Friday night meeting on its acceptance by everyone, appears to provide for allowing for operation of life insurance suppliers, as a branch or sub-branch, but not as separate entities, and in compliance with China’s schedule of specific commitments. This will apply to those that “requested” in the past for such ‘access’ for supplying insurance.

The actual final language when it becomes public, and the way China is going to interpret the word ‘requested’ - whether it be in relation to the AIG, or the several foreign suppliers that have applied for licences (as some of the EU companies have done) remains a potential source of future disputes.

And given the nature of the WTO dispute settlement process, which is not exactly the impartial judicial process it is claimed to be, there will be problems - pitting China, the US, the EU and others against each other.

While the Chinese trade representatives have negotiated a difficult agreement to enter the WTO (and appear to have consulted widely within the other parts of the government), there are enough signs that there are some ‘second thoughts’ on the WTO accession and its effects on Chinese development and growth.

Part of the problem may arise from the way the documents, both the final ones and the various earlier versions, when translated in Chinese (which is not an official WTO language, unlike in the UN system), is read and understood in the higher echelons of the government (both political and economic).

As long ago as the 1955 Afro-Asian conference in Bandung, where the Chinese Prime Minister Chou En Lai and the Indian Prime Minister Jawaharlal Nehru, had jointly drafted (in English) and co-sponsored the draft political declaration, in second the draft, Chou En Lai began moving amendments, and told a flabbergasted conference that the English draft, when translated into Chinese (a language of ideographic writing) did not read right. The Bandung conference agreed to some linguistic changes to accommodate the meaning in Chinese.

And Nehru wondered aloud afterwards how Marx would read in Chinese.

Hence, what may appear to others as China going back on its commitments in the future may well turn to be a case of the Chinese having accepted something that carried a different meaning to them.

In relation to Mexico, the informal session of the Working Party was advised that Mexico and China have at last completed their bilateral agreements. Mexico had earlier said that even if no agreement was concluded, Mexico would not withhold consensus but would merely invoke the non-application clause as between Mexico and China, so that negotiations could continue even afterwards.

The agreement, now concluded, other trade diplomats said, was perhaps one that gave Mexico “a very good deal.”

As part of its NAFTA membership (and at that stage perhaps with US encouragement), Mexico had initiated a very large number of AD actions, and has in place AD/CV measures, on imports from China of products, of some 1,420, at tariff line levels. All these are said to be WTO-illegal.

In their prolonged talks, Mexico had wanted 15 years to phase them out, while China held out for five years. The compromise would appear to involve an 8-year time period for Mexico to phase out or bring its AD/CV measures into compliance with the WTO agreements.

The China accession protocol provides for a “Transitional Review Mechanism”, with WTO bodies (within their competence) mandated to review Chinese implementation of its commitments.

At an overall level, the WTO General Council has been directed to take up for review the Chinese implementation. These are to include reports and issues covered in the reports of the subsidiary bodies on their annual reviews; the development of China’s trade with WTO members and other trading partners, including volume, direction and composition of trade; and recent developments and cross-sectoral issues regarding China’s trade regime.

This review process would also enable China to bring up “all prohibitions, quantitative restrictions and other measures” maintained by WTO members against imports from China and are inconsistent with the WTO agreements. And all such prohibitions, QRs and other measures being phased out or dealt with in accordance with mutually agreed terms and time-tables specified in the annex to the Chinese protocol, setting out the various bilateral agreements and market access commitments.

This review process is to be with preconditions or the precluding of the consultation and dispute settlement process of the WTO.

On the question of the market access bilateral concessions exchanged and agreed to between China and the Dominican Republic, the problem has arisen out of the ‘tariff rates’ agreed to by China on the out-of-quota imports of beer and sugar - which are lower than agreements with others.

In terms of the multilateralisation of various concessions and commitments in bilateral accords, the lower concessions with the Dominican Republic and Honduras would prevail. The latter two, until last week, do not appear to have agreed to any re-wording, but appear to have indicated that in regard to sugar exports, they would stick to the concessions received, and would at best

consider Chinese requests for renegotiation, after its entry into the WTO, in terms of Article XXVIII of the GATT (which provides for modification of schedules, and negotiations with those having initial negotiating rights and offer of compensation to them). – SUNS4968

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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