The aftermath of China's accession to the World Trade Organization.

• Author: Hsiung, James C.

After almost fifteen years of long and hard negotiations, the People's Republic of China was finally, at the end of 2001, admitted to the World Trade Organization (WTO) ("WTO Ministerial" 2001). By prior agreement, its accession was followed in tandem by Taiwan, admitted under the nomenclature of "The Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu." The arrangement was a compromise to avoid the stigma of having "two Chinas" or "one China, one Taiwan" in the organization.

With few exceptions, the U.S. mass media treated the landmark development as a nonevent. For China, which is fully aware of the advantages and disadvantages of WTO membership, the most important political significance of the accession is that it confers the fight to act as a "player of equal footing" in the arena of trade and, by extension, on the world political stage. (1) Most analysts and U.S. government officials who had occasion to comment on the event focused on the economic aspect, such as its impact on the world economy as well as on the Chinese economy. (2)

Most available commentaries were positive, even exuberant, about the economic impact on both China and the world. The most exuberant and sustained comments came from the China Business Review (CBR), a publication of the U.S.--China Business Council in Washington, D.C., which ran a series of projections that began on the eve of China's actual accession. The CBR series focused primarily on the economic implications, touching only occasionally on collateral social or legal issues (for example, Chan 2001; Goldstein and Anderson 2002; Ma and Wang 2001; Zeng 2002). Elsewhere, other commentaries touched on the resultant challenge for domestic reforms, including reform of Chinese laws. On the latter, the Bush administration, quite atypically, seemed rather upbeat, expecting that WTO regimes will encourage application of the rule of law in China (Aldonas 2002). (3)

Some spoke of the social effects within China as it opens its previously closed doors, especially in agriculture and the service industry, to fellow WTO members. Such effects include social unrest--possibly even social turmoil (Eckholm 2002, 1)--stemming from the expected rise in unemployment and income disparity as well as in the growth of a more assertive middle class (Shen 2002, 30). Rarely, if at all, did any discourse explore the possible political impact on China's international status and on its role on the world stage. This omission is odd, considering that the inclusion of China among WTO's ranks "makes the WTO a truly global organization," as expressed by Ambassador Sergio Marchi (2002), chairman of the WTO General Council.

To be sure, some discussions did cover possible "political change" if China keeps its promise to live up to WTO rules and to the terms of the many agreements that it concluded with other members in the run-up to its accession (Pei 2001). As a whole, however, these possibilities were limited to the area of domestic change in China. Other discussions touched on political effects in the context of the changing relations between mainland China and Taiwan after both entered the WTO (Hsiung 2001a; J. Huang 2002; Sutter 2002). None of these discussions, however, considered the international political implications of the development. Much less could one find a comprehensive yet balanced and succinct presentation of the various key issues and ramifications of China's WTO entry.

In this article, therefore, I present such a comprehensive survey and analysis. To fill a glaring gap in the existing literature, the discussion pays special attention to the international dimension, in particular to ascertaining how WTO membership may bear on China's world status and affect Chinese relations with key players in the world. The word aftermath in the title indicates that the article does not go into the process of China's negotiations for its WTO accession, which is passe and adequately covered in the literature. (4) it is meant to convey a broad range of connotations such as "effects," "impact" "upshot" implications," and "significance" of the landmark development.

China's WTO accession should not be treated as a one-shot event in isolation. It should be viewed more appropriately in the context and as a culmination of the country's sustained economic success since the late 1960s, its economy having grown some eightfold in the past twenty-five years. In this broader view, it is easier to grasp the economic and political implications of what was actually a crowning event of China's post-Mao saga after a fifteen-year quest, an event with far-reaching consequences. Only thus viewed, moreover, will its larger implications for the international political economy come into focus.

In order to put the issues in proper perspective, we need to consider the hidden theoretical implications of Ambassador Marchi's point that China's entry makes the WTO a "truly global organization." The thinking behind the remark substantiates the claim of the onset of a putative age of geoeconomics that many believe is upon us with the turn of the century (Hsiung 2001b, 26-29, 345-47). Geoeconomics is a shorthand label for the rise to supremacy of nations' economic security (ecosecurity) over their traditional national-defense concerns (military security). Ecosecurity denotes access not only to vital natural resources and markets in the global economy, but also to a fair share of the collective goods produced and sealed through multilateral regimes and institutions (as epitomized by organizations such as the WTO) in the areas of international trade, finance, and investment. In this frame of reference, many of the seemingly unrelated economic implications of China's accession gain a coherent political meaning.

My discussion covers seven basic aspects of this situation: (1) the effects on China and the world economy; (2) the "China threat"; (3) the implications for the United States and U.S.--China relations; (4) the impact on the Asian region; (5) relations between China and the EU; (6) the significance for the future of "Greater China"; and (7) the possible meaning for China with regard to its role in world affairs--whether or not WTO membership confers a major-power status that has eluded it in the past. I have to be selective, but I also try to offer as broad a coverage as manageable within the space of an article. A caveat is also in order. Because China's entry into the WTO took effect only in December 2001, the analysis here has to rely in part on incomplete data and on reasonable projections, to be duly updated as new evidence becomes available.

Effects on China and the World Economy

WTO membership requires certain fundamental changes of trade and investment policies, which can be expected in the five years following accession. These changes include: (1) tariff reductions for both agricultural and manufacturing products; (2) elimination of nontariff barriers in industrial sectors; (3) agricultural trade liberalization, including the accelerated growth of import quotas for grains and plant-based fiber, the elimination of such import quotas, and the replacement of the quota system by a 15 percent tariff by 2005; (4) opening up of major service sectors; (5) phasing out of multifiber arrangement quotas on textiles and clothing by North American and European countries; and (6) an increase in actual foreign direct investment (FDI) flows by more than 11 percent in the next five years (Ma and Wang 2001, 22).

Analysts do not agree, however, on what all these changes will add up to. Pessimists and optimists obviously disagree widely. Ironically, there seems to be more pessimists in China than elsewhere (Cheng 2002, 4-7; Yong Wang 2000, 54). The CBR--which, as noted earlier, was the most upbeat--estimated that China's WTO accession and consequential FDI growth would add approximately 0.45 percentage point to the annual growth rate of Chinese gross domestic product (GDP) in the first five years. This gain would come from three sources: (a) more efficient allocation of production factors through increased specialization according to China's comparative advantage; (b) more rapid physical capital accumulation, which would accompany the gains in efficiency; and (c) more rapid growth of factor productivity as a result of technology transfer via the expansion of capital and intermediate-goods imports (Ma and Wang 2001, 22).

The model used in the CBR study showed that with China as a WTO member, Chinese exports and imports would grow at higher rates, by 6.7 percent and 5.2 percent, respectively, over the ensuing five years. It also predicted that the greatest increases in Chinese exports would involve labor-intensive products, such as apparel, leather, footwear, and nonagricultural products. The greatest increases in imports, on the other hand, would involve land- and capital-intensive products, such as grains, oilseeds, plant fiber, and motor vehicles. Sectors that would lose the most after China's accession include motor vehicles, grains and oilseeds, and plant-based fiber. The CBR model predicted that production in these three sectors would decline by approximately 4-5 percent in the first five years.

However, the dismal predictions for the automobile industry did not come true, as gauged by evidence from the first year of China's WTO membership. Instead of hurting, the Chinese auto industry showed signs of gaining new vitality, as the world's top automakers rushed to set up new ventures in China. The number of entrants was so large that, according to one study, it made China an "emergent major car maker" in the world (Cheng 2002, 16). In a landmark move, Japan's Honda Motor Co. announced in July 2002 that it planned to build a factory in China in which it would make cars exclusively for export to Asian and European markets. Honda's plan highlights a potentially significant shift in the global auto industry in that China is...