China, U.S. sign trade pact
Risks, gains for both sides if deal lets
Beijing enter WTO after 13-year wait
November 15, 1999: 3:50 p.m. ET
NEW YORK (CNNfn) - China and the United States
signed a pact Monday that could lower barriers to
reaching consumers in the world's most populous
country and pave the way for China's entry to the
World Trade Organization.
The agreement obligates China to cut tariffs an
average of 23 percent and promises greater access
to the relatively closed Chinese market for everything
from financial services to telecommunications and
Hollywood films, according to a statement released
by the U.S. Embassy in Beijing.
Wins, risks for both sides
U.S. automakers will be permitted to offer vehicle
financing, and banks will be allowed to offer local
currency loans to Chinese enterprises two years after
China's WTO entry and get into retail banking in five
years. Insurers also will benefit, although there were
no details. The Chinese tariffs on U.S. goods will be
lowered from an average of 22.1 percent to 17
percent.
Click here for more on the pact from CNN.
Click here for highlights of the pact.
But despite gains for U.S. exporters, critics of China
are likely to challenge the effort to get the agreement
through Congress. Labor has vowed to fight the
agreement as well. And the support of other WTO
members is needed before China is granted
membership in the body and most of the benefits of
the agreement become effective.
With Monday's agreement China gains the crucial
support of the United States in its long-sought effort
to join the WTO, which has authority to levy penalties
to keep member nations on a level playing field in
trade with one another.
Even that opportunity is not without costs for the
Chinese, though. New competition is expected to
exert pressure on inefficient government-owned
Chinese enterprises and speed up changes in the
society. With unemployment in the nation already at
8 percent, such competition could throw millions out
of work.
Final negotiations tense
The deal came after six days of tense
negotiations between U.S. Trade Representative
Charlene Barshefsky and Chinese officials. Only two
days of talks had been scheduled.
China has been attempting to join the WTO for 13
years, but one of the main sticking points was its
refusal to open its own markets to goods from other
countries, particularly the United States and Europe.
Monday's agreement was welcomed by the
Chinese government.
"We are looking forward to the day when China
will become a full member of the WTO," Foreign
Trade Minister Shi Guangsheng said at a signing
ceremony for the agreement with Washington.
Battle not over for Clinton
But while members of the Clinton administration
also praised the agreement, support in the
Republican-controlled Senate remains problematic.
The defeat of the measure would be a serious
blow to Sino-U.S. relations, still strained by the
accidental NATO bombing of the Chinese embassy
in Belgrade, Serbia, in May. Clinton, who wants to
see a Chinese trade agreement as part of his legacy,
vowed an all-out fight for the agreement in Congress.
"Today China embraces principles of economic
openness, innovation and competition that will bolster
China's economic reforms and advance the rule of
law," Clinton said during a visit to
Turkey Monday. He termed the agreement, "a
profoundly important step in the relationship between
the United States and China."
Details of the accord were not immediately
available. But none of the changes in Chinese
regulations and tariffs won't take effect until China
gains entry to the WTO, and most would be phased
in over five years or longer. China's entry to the WTO
will require a similar agreement with the European
Union.
Businesses praise, labor blasts pact
Major manufacturers such as Boeing Co. and
General Motors Corp., along with such trade
associations as the National Retail Federation and
the Semiconductor Industry Association praised the
agreement as an important opportunity for U.S.
businesses.
"Continued liberalization of Chinese trade and
investment rules would further permit growth in the
Chinese market for semiconductors, to the mutual
benefit of U.S. semiconductor producers and the
Chinese information technology industry," said the
statement from the SIA, which estimates China
already is an $8 billion a year semiconductor market
and will become one of the largest markets for the
product in the next century.
Duff & Phelps Credit Rating Co. issued a
statement predicting an upgrade in both Chinese and
Hong Kong debt over the next two years due to the
agreement.
"Foreign direct investment could increase steadily
to close to $100 billion per year by 2005, which in
turn would yield strong export growth for China," said
the Duff & Phelps statement. "As the economy
opens even more to international trade, the
competitiveness of Chinese companies would be
enhanced. Multinational companies have used China
as a low-cost manufacturing base for exports, and
this trend should now accelerate."
Of course, it is that concern about new low-wage
competition for U.S. businesses and workers that
could raise objections to the deal here. The AFL-CIO
plans to have members rally when WTO officials
meet in Seattle later this month.
"The fevered rush to admit China to the WTO is a
grave mistake," said a statement from John
Sweeney, president of the AFL-CIO. "At a time when
WTO rules protecting workers' and human rights and
the environment are yet unwritten, this agreement
undermines that possibility and squanders a chance
for the WTO to achieve the legitimacy it and other
international institutions lack among people around
the world. The agreement reached this weekend
would deal away our democratic principles and most
cherished values, and we will fight it."
U.S. businesses still face problems
There still will be barriers and obstacles for U.S.
businesses that try to expand operations or sales in
China, even if the agreement goes through smoothly,
according to experts.
Chris Dickerson, an analyst at Global Market
Strategists Inc., said there still would be stifling of
competition, as Monday's agreement lowered tariffs
only on some products.
"It [the agreement] is obviously a good thing, but I
doubt whether it is going to have any salutary effects
in the short term," he said.
Dickerson compared the agreement to the fall of
the Berlin Wall, where trade with previously closed
markets took years to realize.
"China has been closed for so long, they're still
going to be very protectionist. The agreement retains
some pretty high tariffs on U.S. goods, and it will
take a while for businesses to benefit," he said.
Larry Horwitz, senior economist at Primark
Decision Economics, added: "U.S. companies with
joint ventures in China find difficulties actually running
businesses in China, and that's going to take years
to work out, with or without a trade agreement. That's
the single biggest problem."
Rocky road to membership
Although the deal was hailed as a major step
forward, some trade experts cast doubts on whether
China's WTO entry will follow smoothly.
In particular, the lengthy administration procedure
that must be pursued, as well as the requirement for
more talks with other WTO members, means China
will be unlikely to join the organization this year,
especially before the WTO's ministerial meeting in
Seattle starting Nov. 30.
"You could envision a situation where they were
essentially in by the end of January," said
Barshefsky in a conference call with reporters
Monday. "Maybe it's another month or two longer."
The European Union and Canada both have
outstanding issues they want to discuss before
agreeing to China joining the WTO, and many
developing countries, which make up the vast
majority of the WTO's current membership of 135,
had yet to even start talks with China, diplomats
said. Others, such as Brazil and India, have a
number of outstanding issues to settle.
"There are a lot of other WTO members involved,
and some of them may not be happy about the way
this agreement with the U.S. has been put together,"
one trade envoy said. "There is still a rocky road
ahead before Beijing can get in."
Mike Moore, the former prime minister of New
Zealand who is director-general of the WTO, said the
agreement shows that, "Despite
what the critics say, everybody wants to be in the
WTO."
But he also stressed that the agreement, no
matter how important, is not the final word on China's
admission to the body.
"A historic door has been opened. Now we all have to
walk through that door together," he declared.
Champagne celebrations
Barshefsky and Chinese Foreign Trade Minister
Shi celebrated with champagne as negotiators from
both sides signed dozens of documents at the
Ministry of Foreign Trade and Economic Cooperation.
"The conclusion of this agreement serves the
interests of both China and the U.S., and is
conducive to the development of Sino-U.S. relations,
to China's becoming a WTO member as soon as
possible and to the development of the world
economy and trade," Shi said in a speech.
Barshefsky met Chinese premier Jiang Zemin
Monday.
Time has been pressing for agreements on
China's entry to WTO because at month's end the
WTO members will discuss launching new global
trade liberalization talks. China wants to be part of
those talks, but there has been concern that once
trade ministers start negotiating new trade
liberalization measures they would be too busy to
take up Beijing's entry for several years.
Short-term changes unlikely
The agreement should be a major boost for other
Asian countries as it will lower trade barriers into
China without raising the risk of a yuan devaluation,
fund managers said Monday.
But investors advised against a short-term
increases in allocations to Asian assets, as
managers cited strong gains over the last year and
the likely slow progress of the opening up of China's
vast internal markets as reasons for caution.
"This is fantastic news for Asia, but in the
short-term it's not an issue," said Ashok Shah,
emerging market fund manager at Old Mutual Asset
Managers.
Fund managers were optimistic that China would
avoid having to devalue its currency in the face of a
likely rise in imports following the deal. They noted
strong recent export data and the prospect of rising
foreign direct investment if China opened up.
"We don't see China's trade surplus slipping into
a deficit in the foreseeable future," Christine Rowley,
a portfolio manager at Invesco in London, said.
The threat of a yuan devaluation has cast a
shadow across Asia's fragile economic recovery.
"The deal is positive for WTO membership but the
implementation process will take time, and anyway
the Chinese borders have been a permeable
membrane for imports for some time," she said.
-- from staff and wire reports