Jan 4, 2012

China and the WTO: 10 Year Anniversary

Wednesday, January 04, 2012
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There's a very interesting article in December 10, 2011 edition of The Economist about the effects of China's joining the World Trade Organization (WTO) ten years ago. While there are many critics that want to blame much of the United States' economic woes on China, the economic reforms which began 10 years ago have resulted in substantial changes in China's economy, many of which are beneficial to countries doing business with China.
To join the WTO, China has had to eliminate or limit thousands of tariffs and quotas restricting importation of foreign goods. Largely as a result, many foreign companies have developed profitable business relationships in China. Another WTO benefit for foreign businesses is that China publishes draft laws and allows 30 days for comment. Even if China doesn't respond to the comments, at least this gives foreign firms the opportunity to know what the rules are (although it is still often difficult to know when and to what extent rules will be enforced).

Despite all of the change, China is still a very protectionist economy in some ways. For example, there are strict limitations on entertainment-related businesses such as a limit of 20 foreign films shown in Chinese movie theaters a year (an increasingly important restriction as the number of Chinese cinemas has been expanding rapidly). So far, China has refused to modify this quota despite a WTO ruling ordering it to do so which is unusual since China has generally complied with WTO rulings. Additionally, the Chinese government owns more than 100,000 companies (especially many of the big companies in major industries). Intellectual property protection, another important WTO obligation, also remains very weak.
Overall though, I'd say that China's WTO accession has been beneficial for China and most of its trade partners. Another Economist article looks at the political effects of China's WTO accession and concludes that the political reform envisioned by many Westerners have been much slower in coming about (if at all) than the economic reforms. While there has been some political reform, substantial political change (if it comes about at all) will likely take much longer than economic change. China has clearly wanted the economic change brought about as a WTO member, but political reform is not really part of the WTO process and China may not want the same degree of change as many of its Western critics do.


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