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http://www.truthabouttrade.org/article.asp?id=4798

Commentary:
Prioritizing China at the WTO

by: Alan Oxley
The Wall Street Journal

In recent weeks, there has been many a forecast that the future of the world trading system hangs in the balance ahead of December's World Trade Organization ministerial conference in Hong Kong. Such predictions may turn out to be correct. But not for the reason that so many are touting, the seeming collapse of efforts to reach agreement on agricultural reform. Instead it is because the WTO is in danger of losing sight of a far more important task today -- that of keeping China on the path of free-market reform.

China's 2001 accession to the WTO was one of the most important developments in world trade since the establishment of the multilateral trading system under the General Agreement on Tariffs and Trade in 1948. China is becoming a major trading partner for almost every nation, and moving toward becoming the world's largest trading economy. Its share of world trade has expanded to 6.7% last year, up from 1.2% 20 years ago. Four years ago, it was the world's ninth largest exporter and tenth largest importer. By last year, China was third in both categories -- behind only the U.S. and Germany.

But all too often, Beijing has sought to use its economic clout to pursue foreign-policy goals. Take, for instance, the hints during President Hu Jintao's current visit to Germany that Berlin should push for an end to the European Union's arms embargo if Siemens wants to win a major bullet train contract in China. That's one reason why integrating China into the global trading system is so vital. By joining the WTO, Beijing is forced to play by the rules -- and can be penalized for playing politics with trade.

Moreover, China's transition to a market economy is far from complete. The main reason why former Premier Zhu Rongji fought to hard to tie China's economic-reform program to the rules imposed by WTO membership is that he knew pressures to backtrack on free-market reforms would continue for many years to come. Although China is now a WTO member, many of its market-opening commitments -- such as in the banking sector -- have yet to be implemented, and offer scope for backsliding in how they are enforced.

Almost every week brings reports of tussles within Chinese government agencies over how far to press reforms, and how much to promote national champions. Despite substantial tariff cuts in recent years, local customs officials often continue to insist on collecting much higher levels of duty. China's patchy record of enforcing of intellectual-property rights remains a cause of concern.

WTO membership creates legally enforceable obligations that both support the efforts of economic reformers in China, and give its trading partners a means by which to insist that China sticks to its obligations. That makes the organization's authority and effectiveness in enforcing its rules crucial to China's transition toward a free-market economy.

Given the huge stakes involved -- China's trade with the rest of the world rose to $1.1 trillion last year -- that ought to be the top priority for the WTO and its member states. Instead they are battling over the smaller, and declining, share of world trade devoted to agricultural products, which amounted to $783 billion last year. The arguments over agriculture hinge on an erroneous contention. Oxfam claims developing nations won't benefit unless richer economies remove the tariff barriers that protect their farmers. Even British Prime Minister Tony Blair accepted this contention at the Gleneagles G8 Summit.

While that would be a welcome step, it is not a necessary one. According to a World Bank study, the removal of farm trade barriers in rich countries would benefit developing countries to the tune of $30 billion annually. However that is dwarfed by the $110 billion in benefits that would follow if developing countries lifted their own -- much higher -- barriers to free trade in agricultural products.

The most productive course would be for developing countries to look to their own backyards first. Instead many have swallowed Oxfam's mantra and insist rich countries reduce protection of their farm sectors, while they maintain their own trade barriers. Such double standards don't just make it difficult to reach agreement on the agricultural issue. They also weaken the WTO's authority in enforcing its rules in other areas, such as China's transition to a market economy.

Those who want the WTO to work should think carefully about whose interests the global body is meant to serve. Is it meant to be anti-globalization NGOs and developing countries in Latin America and Africa with little real interest in trade liberalization? Or the global trading community, which benefits so much from encouraging China to become a fully-fledged market economy?

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