What WTO membership really means
By Xu Binglan (China Daily)
Updated: 2004-06-07 10:44

China's farmers might not be in for such a hard time resulting from the nation's World Trade Organization (WTO) membership if a range of policies and reforms are introduced.

That is the view of a study jointly conducted by the State Council Development Research Centre and the World Bank, which challenges the accepted notion that the nation's rural workforce will face enormous pressures due to the further opening of the agricultural products market and caps on agricultural subsidies.

The study, which will be published soon by the Oxford University Press, offers a comprehensive analysis of what China's WTO membership really means. But what makes it stand out from the mass of material published on the topic is that it also offers a number of policy recommendations.

Special attention is also paid to poverty in China, with a number of recommendations being made on how to help the nation's poorer people cope with the consequences of WTO membership.

Li Shantong, director of the centre's development strategy department, is a co-editor of the book, entitled "China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategy."

She explains that it " provides empirical research on the topics we focused on. In agriculture, the conclusions are based on many first-hand surveys, which are of significant important to our research and in supporting the government's decision-making process."

The study contends that, if people merely look at the initial impact of an issue such as increased grain imports, they will then consider the impact of WTO membership to be unambiguously negative with grain farmers' incomes falling as a result.

But a long-term perspective shows that market opening will also be accompanied by greater flexibility in goods, services, labour and capital markets.

Grain farmers will dynamically adjust to the impact of lower prices by diversifying to higher value crops or moving to higher value occupations, something which was actually taking place in the economy well before WTO accession, noted Deepak Bhattasali, the World Bank's chief economist in China and a co-editor of the book.

Bhattasali said that allowing farmers to move into higher value crops and not restricting them to grain production will probably do more in the long term for their income than any feasible level of production subsidy.

Further relaxation of controls on labour mobility in China is one of the many suggestions offered by the authors. They said this will play a vital role in assisting low-income earners like farmers to adjust to the changes and move to non-agricultural jobs. China may also need to reconsider its ban on selling farmland use rights to facilitate this movement, the book said.

One of the themes of the book is how China should efficiently integrate its reforms with the implementation of its WTO commitments.

"Successful development requires an active focus on doing what is right for development, rather than merely on meeting minimum requirements," the book said.

There is every indication that China's policy-makers see China's WTO accession agreements as a means to achieving broader goals.

One key objective is the broader strategic goal of China's peaceful emergence as a great trading nation and avoiding the trade tensions which were previously associated with the emergence of major new traders.

Another is accelerating the process of domestic reform, the book said.

China will need to be more open in some sectors than the WTO terms stipulate to achieve its reform goals, but this has already happened.

"There are some areas where China's reforms have gone beyond what is required by WTO, simply because China's policy-makers judged that deeper reforms promoted China's development," noted Will Martin, a senior World Bank economist and co-editor of the book.

In addition to their recommendations on how to alleviate poverty, the book's authors also make a host of policy recommendations based on a solid analysis of the impact of WTO accession.

The researchers said geographical restrictions on foreign players' participation in the service sector should be phased out quicker than is required by the WTO commitments, as these restrictions will further increase the substantial inequalities between the nation's coastal and inland provinces.

Such restrictions are a product of an era when market-oriented experiments needed to be isolated because of the inconsistencies between, for instance, planned and market prices.

But confining foreign ventures to five cities for five years, as is the case in the insurance sector, might encourage the agglomeration of these activities in these cities, which will not be reversed when these restrictions are subsequently removed.

This may reduce the opportunities for other parts of China, such as interior cities with a potentially comparative advantage in these activities, to get started in these fields.

Concerning the logistics sector, the authors believe the commitments outlined in the agreement are insufficient to achieve its full potential in China. Regulatory reforms are needed to remove discrimination against enterprises of particular enterprise types, to remove administrations from enterprises and to eliminate local protectionism.

Radical action to cut operating costs and financial re-engineering will be required in the banking sector.

State-owned banks will come under serious pressure as a result of their non-performing loan problems, weak management systems, low operating margins and the strong competitive pressures they will face.

But the rehabilitation of State-owned banks is unlikely to pose a major problem if sufficient reforms take place, the study concludes

In the trade sector, the study suggests that China should use existing international bodies to mount a stronger campaign to change the rules of the international trading game, especially with regard to anti-dumping.

Economic analysis makes clear that WTO rules are biased towards finding dumping, even where no economically meaningful dumping exists, said the World Bank's Bhattasali.

The situation is actually worse for China than for other WTO members, as nearly 70 per cent of China's exports are products that are highly vulnerable to anti-dumping measures.

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