China’s WTO Accession: A New Chapter in Economic Globalization

On November 15, 1999, China and the United States finally reached a bilateral agreement on China’s accession to the World Trade Organization (WTO), laying the foundation for Beijing’s negotiations with other major trading partners. With the biggest roadblock removed on the way to WTO, China formally obtained the WTO membership on December 11, 2011.

 

 

The negotiations on the resumption of China’s membership in the General Agreement on Tariffs and Trade (GATT) and accession to the WTO lasted for 15 years, featuring twists and turns as detailed below:

 

Strenuous negotiations to the utmost. Such prolonged and arduous negotiations have been unique in the history of GATT and WTO. Especially in the last round of negotiations between China and the United States from November 10 to 15, 1999, the unrivalled arduousness of the talks has been indelible memories for the then negotiators even till this day.[1] Extremely tough negotiations were underway in Beijing, with the Chinese delegation led by Shi Guangsheng, Minister of Foreign Trade and Economic Cooperation, and the U.S. delegation led by Trade Representative Charlene Barshefsky and the Director of the National Economic Council Gene Sperling. Camp beds were sent and stationed at the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) for the conveniences of indefatigable hard work. During the 54-hour negotiations, Ambassador Barshefsky only slept for 20 minutes.[2]

 

Formidable obstacles to overcome. The year of 1999 was extremely unusual and thrillingly eventful for Sino-U.S. relations, and the same was true for China’s WTO negotiations. In April 1999, on the official visit to the United States, Chinese Premier Zhu Rongji and U.S. President Clinton issued a Joint Statement on the Status of Negotiations on China’s Accession to the World Trade Organization. The two sides stated that “significant progress” has been made toward “the common goal of admission of the People’s Republic of China to the WTO,” and that they would commit to work to resolve “the important remaining issues as soon as possible.” However, on May 8, 1999, the U.S.-led NATO blatantly bombed the Chinese Embassy in Yugoslavia, which not only shocked the Chinese government and public, but also transmuted the domestic atmosphere into anger and indignity. On May 10, China’s Foreign Ministry announced Beijing’s decision to suspend the high-level military-to-military exchanges, postpone China-U.S. consultations on nonproliferation, arms control, and international security, and suspend their dialogue on human rights (trade was not included in the suspension). China laid out its four solemn demands for the United States: apology, investigation, publicity of a detailed report of the investigation, and severe punishment for the perpetrators. Upon receiving Beijing’s stern message, Washington made timely response with a genuine apologetic gesture. On May 14, during a phone conversation with President Clinton, President Jiang Zemin accepted the apology made by President Clinton on behalf of the U.S. government, and reiterated that the top priority on the U.S. side was to conduct a comprehensive, thorough and impartial investigation into the missile attack, then to publicize the report quickly. In response, President Clinton once again expressed his sincere apology and promised to find out the cause of the incident and let the Chinese people know the truth as soon as possible, so that the bilateral relations could be brought back on track. From the series of China-U.S. interactions on crisis management, it can be seen that the top leaders of both countries did not want to see the retrogression of the hard-won Chin-U.S. cooperation on the bombing incident. China wished the bilateral trade ties to remain unaffected in continued WTO talks, while the Clinton administration hoped to restore the momentum of bilateral ties by restarting negotiations. Subsequently, the two governments began to actively work on restoring bilateral relations. On September 6, the negotiations on China’s WTO accession were reopened. On September 11, at the occasion of the APEC Leaders Informal Meeting held in Auckland, New Zealand, President Jiang Zemin and President Clinton exchanged views on the issue of China’s accession to the WTO. President Jiang Zemin expounded that China’s entry not only served China’s economic development and reform and opening up, but also met global needs to establish a complete and comprehensive international trading system. “I think that China and the United States should proceed with talks according to the principle of equality and mutual benefit,” Jiang said, urging the two sides to reach an agreement at an early date. President Clinton expressed the U.S. support of China’s early entry into the WTO and envisioned to successfully conclude the negotiations with China as soon as possible, with further efforts made by both parties to this end. Henceforth, both teams stepped up the pace of negotiations. In early October and early November, the two heads of state made two more phone calls and decided to expedite the completion of negotiations with a view to reaching an agreement before the Seattle WTO Ministerial Conference in November.[3]

 

National interests in the first place. While the negotiations were in process, both parties put their respective national interests in the highest position. At that time, China had not resumed the contracting party status in GATT. Without the GATT status and WTO membership, China’s exports were often severely restricted. In particular, the textiles which accounted for 30 percent of China’s total exports were always unable to obtain the appropriate quota. Likewise, in America, the normal trade relations (NTR) status with China had to be reviewed each year, which was increasingly uncertain. For China, accession to the WTO was an effort to, from the very beginning, win equal status in the world community and suffer no more trade discrimination. For the United States, “Supporting China’s entry into the WTO, however, is about more than our economic interests. It is clearly in our larger national interest.”[4] “Trade with China will not only extend our nation’s unprecedented economic growth, it offers us a chance to help shape the future of the world’s most prosperous nation and to reaffirm our own global leadership for peace and prosperity.”[5]

 

Industry interests to bargain hard. During the negotiations, both teams encountered some policy difficulties back in their home countries. Many people in China had concerns about opening up market to the outside world, and feared that tariff cuts would have much impact on certain industries, i.e. automobiles, agriculture, telecommunications, and financial industries in particular. After China’s successful accession to the WTO, no official celebrations were held in any form, which reflected the great controversies of the WTO membership among all walks of life. Upholding a head-to-head tactic, the United States was still demanding China to expand market access in telecommunications, insurance, and automobiles at the last round of the negotiations. Chinese Premier Zhu Rongji later recalled the last round and said that “our agreement with the United States was reached nearly on the edge.”[6]

 

 

Globalization has entered a new stage. Through China-U.S. cooperation, China, the most populous country in the world, joined the WTO, thus advancing economic globalization to a new stage. Firstly, China’s accession has promoted economic globalization to a historic height before the 2008 global financial crisis. It reversed the downward trend of globalization at the beginning of the new millennium, by promoting the total value of global flows of goods, services and finance from approximately $12 trillion, or 37 percent of world GDP in 2000 to about $30 trillion, or 53 percent of world GDP in 2007.[7] During the same period, the number of international tourists rose from 674 million to 949 million in 2010.[8] Secondly, the shift to a more digital form of globalization has begun. Since the global financial crisis, “growth in global trade has flattened, financial flows have fallen sharply, and trade in services has posted only modest growth.”[9] Meanwhile, the Internet has developed from the infancy at the new millennium to a huge network that instantly connects billions of people and countless companies around the world, driving the transition from economic globalization to digitalization, shifting the global flows of goods, services, finance and people to those of goods, services, finance, people and data. “The global flows of goods, foreign direct investment, and data have increased current global GDP by roughly 10 percent compared to what would have occurred in a world without any flows. This value was equivalent to $7.8 trillion in 2014 alone. Data flows account for $2.8 trillion of this effect, exerting a larger impact on growth than traditional goods flows.”[10] Predictably in the post-pandemic world, the global flows of goods, services, finance and people will further slow, while the role of data flows in globalization will accelerate to enhance. Thirdly, the WTO rules and institutions have been extended and implemented more extensively worldwide. Globalization, by its nature, should focus more on the establishment of a global division system as well as the formulation and implementation of global rules. That said, globalization not only requires the building of a global division structure, but is also a process by which non-neutral institutions and rules be extended and implemented on a global scale.[11] China’s entry into the WTO further promoted the establishment and improvement of the global division system, and demonstrated socialist China’s acceptance of the WTO rules and regulations formulated under U.S. leadership.

 

The United States has reaped huge benefits. After the Cold War, the U.S. strategic focus shifted to economy and globalization of the new era boosted the competitiveness of the American economy. From 2001 to 2019, the U.S. foreign trade volume increased from $2391.105 billion to $5633.389 billion, an increase of 136 percent; foreign direct investment rose from $1460.352 billion to $5959.592 billion, an increase of 308 percent; GDP augmented from $10.58 trillion to $21.37 trillion, an increase of 102 percent; per capita disposable income increased from $27230 to $49763, an increase of 82.8 percent. Bilaterally, the accumulated U.S. direct investment in China rose from $12.081 billion to $116.203 billion, an increase of 862 percent; U.S. exports to China increased from $25.025 billion to $164.48 billion,^[12] an increase of 557 percent; in 2018, the U.S. majority-owned affiliates in China achieved $392.664 billion as total sales to China,[13] while the data in 2001 was only $36.547 billion,[14] showing an increase of 974 percent; China’s total purchases of U.S. treasury bonds soared from $78.6 billion in December 2001 to $1069.9 billion,[15] an increase of 1261 percent. The number of Chinese tourists to the United States increased from 249,000 in 2000 to 2.83 million in 2019, an increase of 1037 percent. The tourism revenue brought to the United States rose from $2.435 billion to $33.533 billion,[16] an increase of 1277 percent. In the 2000/2001 school year, there were 59,939 Chinese students studying in the United States. By the 2018/2019 school year, the total number of Chinese students studying in the United States reached 369,548, an increase of 517 percent. The percentage of foreign students studying in the United States rose from 10.9 percent to 33.7 percent.[17]

 

China has also received huge rewards. After accession to the WTO, China’s reform and opening up have further accelerated, and the growth of economy, trade, and investment has sped up. From 2001 to 2019, China’s foreign trade volume increased from $509.65 billion to $4576.126 billion,[18] an increase of 798 percent; the cumulative actual use of foreign capital rose from $395.5 billion[19] to $2287.3 billion,[20] an increase of 478 percent; GDP rose from $1.34 trillion to $14.4 trillion, an increase of 975 percent; the per capita disposable income of residents increased from RMB4,070 yuan to RMB30,733 yuan, an increase of 655 percent,[21] and China has made significant progress in poverty alleviation. Bilaterally, China’s accumulated direct investment in the United States increased from $385 million in 2002 to $37.685 billion in 2019, an increase of 969 percent; U.S. imports from China rose from $105.886 billion in 2001 to $472.321 billion in 2019, an increase of 346 percent; in 2017, the Chinese majority-owned affiliates in America numbered $64.995 billion as total sales to the United States, while the figure was only $4.652 billion in 2010.[22] The number of American tourists to China soared from 644,000 in 2000[23] to 1.568 million in 2019, an increase of 143 percent. Tourism expenditure rose from $1.474 billion in 2000 to $4.878 billion,[24] an increase of 231 percent. There were 3,693 American students studying in China in 2003[25] and 20,996 in 2018.[26]

 

China’s Accession to the WTO Posing New Challenges to Both Sides

 

The first challenge is that the wave of anti-globalization has been surging. By China’s entry into the WTO, people’s discontent with globalization had already lingered incessantly. Firstly, the benefits and opportunities brought by globalization were highly concentrated in a few countries, with internal distributions also uneven. Secondly, there has been an imbalance in recent decades. On the one hand, powerful rules to promote the expansion of global markets have been successfully formulated and implemented; yet, on the other hand, support for the same just social goals, be it labor standards, environment, human rights or poverty reduction, has lagged behind. Thirdly, globalization has meant, for many, more vulnerability to unfamiliar and unpredictable forces, which may cause economic instability and social disorder at a lightning speed. People are worried day by day about cultural integrity and state sovereignty, which are both in danger today. Even in the most powerful countries, people don’t know who is in charge, worrying about their jobs and fearing their voices might be buried in the waves of globalization.[27] Obviously, anti-globalization is a problem faced by both China and the United States.

 

The second challenge is what China has encountered after joining the WTO. Firstly, in China, there were plenty of opponents of the WTO accession, including leaders at various levels; Premier Zhu Rongji said when he recalled China’s entry that “in fact, I was criticized unanimously.”[28] Secondly, many sectors of industry, agriculture, and service industries as well as state-owned and private enterprises were very afraid of joining the WTO, fearing that once the market was opened, they would be subject to great negative impacts. Later, these concerns became realities in many areas. Agriculture, such as soybean planting, was almost completely wiped out. With regard to industry, a large number of state-owned enterprises (SOEs) collapsed. In particular, the economy of the Northeast provinces where many SOEs concentrated was hit hard and has not yet recovered from the heavy blow. Thirdly, the air, water and soil were seriously polluted due to unprecedentedly fast economic development since the opening. As of today, China is still paying the high price for this. Fourthly, some farmers lost their land because of policy adjustment. Fifthly, the gap between the rich and the poor has widened. In all, China has experienced a lot of transitional pains and social turbulences after its entry into the WTO, and it has been making great efforts to deal with these aftereffects even till today. Despite the pains and struggles, China still firmly believes that “accession to the WTO promotes progress through competition, and this is no doubt the right thing to do.”[29]

 

The third challenge is that the United States did not resolve the problem of uneven distribution of benefits domestically while reaping the huge rewards of globalization. Firstly, as practitioners of neoliberalism, most American companies have long been upholding the operation principle of “shareholders’ interests first,” resulting in large-scale industrial transfers and increased income inequality. Secondly, Congress and the executive branch have not been able to put forward and ratify effective policies to deal with the intensified problem of unemployment caused by globalization. Thirdly, the Federal Reserve, did not really have the tools to address the problem of inequality.[30] Fourthly, it has been a long process for the U.S. political, economic, and social systems to take shape to the current form, so any reforms, for example, on tackling uneven distribution of benefits are bound to face huge challenges.

 

 

First of all, the big-picture vision and the strategic determination of both leaders are crucial. At the last minute of the bilateral negotiations, the NATO bombing of the Chinese embassy in Belgrade severely undermined the then cooperative atmosphere. Yet the top leaders on both sides were fully aware that China and the United States share major common interests and that the bilateral relations are utterly important to both countries. In a word, when met with challenges, no matter how formidable, there has been a consensus that both sides should address the problems in constructive ways and not let things get out of hand, so that the mode of confidence and collaboration will not be disrupted. When difficulties arose during the WTO negotiations, China defined its position from a strategic height: while China opposes hegemony of any form, the country commits to further developing relations with the United States. Likewise, the United States showed its determination on not letting the horrible bombing incident, caused by the American side, derail the efforts of building, together with China, a constructive strategic partnership. It was exactly the Chinese strategic stance and the American firm determination that led the two sides out of the muddy lane, with problems solved, trust restored and atmosphere improved gradually. At the same time, China has always maintained a positive attitude towards the WTO accession, while the U.S. commitment to supporting China’s entry stayed firm.[31] With the above strategic consensus in place, China and the United States were able to finally transcend huge obstacles together, concluded the bilateral WTO agreement and promoted the full restoration of China-U.S. relations.

 

Second, the two sides should handle issues in the spirit of mutual understanding and accommodation. Because seeing the big picture and strategic determination of the leadership alone are not enough, both countries need to keep the other side informed of their respective progress and potential space for mutual compromise on common goals. In so doing, the convergence of diverse interests can be found and the spirit of mutual understanding and accommodation be honored. As a matter of fact, China made a great deal of compromises in the WTO negotiations, which were phrased by the then U.S. Trade Representative as unimaginable three or five years ago (as of 1999).[32] Hence, in order to achieve the common goals shared by both sides, it is necessary to adhere to principles and defend the core national interests, while also heeding to key concerns and interests of the other party and making concessions when necessary. As for any negotiations to achieve a common goal, no agreements can be made without compromises and concessions from both sides.

 

Third, each party must do a good job of internal coordination. To safeguard the big picture, decision makers on both sides need to rally domestic support to minimize interference from varied interest groups internally. External negotiations and commitments to the outside need to be promoted in parallel with internal elaboration and reforms from within. At difficult times in the negotiations, in order to win the support of domestic WTO opponents, Li Lanqing, the Vice Premier then in charge of foreign trade and economic cooperation, “requested the leaders of ministries, commissions, offices and state-owned enterprises that opposed the WTO accession to personally participate in the negotiations. Let them listen directly what the foreigners have to say and let the foreigners hear their thoughts, instead of letting the negotiators of the MOFTEC speak for them. This will give these WTO opponents a more comprehensive view. When these departments and ministries participate in negotiations, they will not only see from their own sectors and industries, but also will be able to perceive their respective roles from the perspective of the country as a whole.”[33] On the other end, the Clinton administration has also spared no efforts in promoting the U.S.-China Relations Act of 2000 (China Trade Bill) in the Congress. President Clinton delivered a speech at the Paul H. Nitze School of Advanced International Studies on March 8, 2000, asking for Congressional support of China’s WTO accession.[34] One of the key challenges that hinders the China-U.S. negotiations on WTO accession was that in order to win a majority of house support, the Clinton administration went all out to gain as much access to the Chinese market as possible for the constituencies of the Congress members.

 

In the 19 years since the WTO accession, China has deepened domestic reforms at all levels of theories, perceptions and institutions to cope with the WTO requirements, promoting the country’s full integration into globalization. More than 2, 300 laws, regulations and sectoral rules have been revised at the central governmental level, and more than 190,000 local policies and regulations have been rectified at the provincial level, covering various aspects of trade, investment and intellectual property protection, etc. The Chinese enterprises have participated in the bidding competitions with the transnational corporations in the global value chain and learned to respond to trade frictions by the rules. The general public gradually accepted the concept of globalization as in line with international standards, and the society as a whole became increasingly aware of rules. What’s more, the Chinese government has also worked hard to implement re-employment projects for those laid-off workers and land-lost farmers, establish and improve social security system, coordinate works on targeted poverty alleviation and pollution prevention, thereby preventing and resolving major risks brought by China’s entry into the WTO. Through years of arduous work, China has made its own way in striking a balance between in-depth reform and social stability. In sum, what China has learned from its own experience is that the negative effects brought by globalization can only be eased through deepened domestic reforms and further opening up to the outside world. Transferring the problems to other countries will not help. This education of China’s WTO accession has been vitally important for the advancement of an open world economy.

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