China-U.S. Discussions on WTO Entry Stall Amid Increasing Political Tension
May 14, 2001
Business and Finance - Asia
By PETER WONACOTT and MICHAEL M. PHILLIPS
Staff Reporters of THE WALL STREET JOURNAL
Talks between Beijing and Washington on finalizing China's entry to the World Trade Organization have ground to a halt, opening the door for bilateral tensions to further complicate negotiations.
More than a month after the U.S. offered a compromise deal on farm subsidies -- a key sticking point in China's 15-year effort to join the global trading body -- Beijing has responded with silence, diplomats say. While Chinese officials publicly state their desire to join the WTO, some worry that political tensions between the two countries have now become a factor.
1Join a discussion: What lies in store for relations between China and the U.S.?
Few hold hope for quick resolution from informal staff-level consultations scheduled to resume in Geneva this week. China hopes to resolve differences with other countries as well. "At the senior levels, it's recognized that WTO is something China has to do," said one Western official involved in talks. "But politics is a big constraint."
Since narrowly missing a deal in the final days of the Clinton administration, China and U.S. trade talks have been ensnarled in the transition of a new U.S. president and dragged through another trough in political ties. Last month's collision of U.S. and Chinese military aircraft, recent U.S. weapon sales to Taiwan and a failed U.S.-sponsored effort to condemn China's human-rights record in the United Nations have ushered in the latest fractious period.
Another Battle in Congress
China has been on the trade club's doorstep for months. Beijing has already struck broad framework pacts with most members that sought them, including the U.S. in November 1999, followed by an accord with the European Union. But China's WTO talks over the last half year have floundered on different interpretations of language and nitty-gritty bargaining, such as a U.S. effort to ensure it is granted the same number of insurance licenses to operate in China as the EU.
The delay threatens to drag U.S. politics into the equation. Next month, the U.S. Congress will debate whether to give China permanent normal trading status. The Clinton administration won congressional support for the measure in a bruising political battle last year, but, because the rules don't take effect until China becomes a full WTO member, the same debate will arise again this year, when U.S. critics are especially eager to bash China's military and human-rights record.
The strained ties could also be giving the Chinese leadership pause. Some foreign observers involved with WTO talks say the final steps of membership have become big leaps for Chinese leaders who see political risks in compromising with the U.S. That could explain why Beijing hasn't formally responded to a late-March proposal seeking middle ground on the ultrasensitive topic of how much the government can subsidize the rural sector. "The reformers don't want to push the envelope when the political balance is once again a very delicate one," says another Western diplomat in Beijing.
'New Vitality'
Most agree China isn't about to abandon its WTO bid. Small differences with not only the U.S. but also European and Latin American countries may be bridged through the Geneva meetings. China's hosting of the annual Asia-Pacific Economic Cooperation forum, or APEC, summit in October provides an impetus to reach a WTO agreement by then. The October meeting is also when U.S. and Chinese presidents George W. Bush and Jiang Zemin are expected to hold their first face-to-face talks.
Ready or Not
Industries that would be affected by China's membership in the WTO
Ready
Electronics, home appliances
Some telecom services
Processed food, packaged consumer goods
Textiles
Not
Agricultural
Autos
Banking, insurance, securities
Chemicals
Distribution
Energy
Internet services
Pharmaceuticals
Steel
Source: AWSJ Research
Mr. Jiang last week signaled that membership remains a key goal. "China's entry into WTO will instill new vitality in economic growth," he told a business forum in Hong Kong. "The Chinese people will benefit from it, and so will the people of other countries in Asia and the world."
But China's leaders are aware that much of its economy isn't ready for foreign competition. Restructuring at many state industries has bogged down amid delays in drafting a pension scheme and new bankruptcy laws as well as worries about social unrest due to massive layoffs. The government is also fighting an uphill battle to raise incomes for China's more than 800 million farmers. That has hardened its stance on agricultural subsidies, with Beijing arguing it should be permitted to spend up to 10% of its gross domestic product to support the rural sector. The U.S. and other countries want lower ceilings.
For their part, Chinese officials say WTO preparation is moving ahead whether or not its bid is making progress. They note that enrollment in an array of WTO-related training programs for local governments and corporate executives has soared; WTO case studies are being translated into Chinese; and state companies, such as steel and paper makers, are paring work forces and forming strategic alliances.
Chinese officials also contend the Bush administration has been slow to put a China team in place under new U.S. Trade Representative Robert Zoellick. "When you're negotiating and there's a vacant seat in front of you, that's a problem," says an official with China's Ministry of Foreign Trade and Economic Cooperation.
Write to Peter Wonacott at peter.wonacott@awsj.com2 and Michael M. Phillips at michael.phillips@wsj.com3
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