SPECIAL FEATURE: WTO - What's the Hold-up

(b) continuing vacancy in the office of the United States Trade Representative for a Deputy for China (who acts as America's chief negotiator with China in the WTO accession context);

(c) consequent inability of the parties to schedule a further meeting of the China (Accession) Working Party at the WTO; and

(d) continuing resistance in China itself to the radical changes to how China Inc. does business, which are required by WTO rules⁵.

All of the above factors could mean substantial delay to the accession process. Nevertheless, this might be an appropriate point at which to consider the current status (and sticking points) of the negotiations between the various parties, as well as to examine a number of unique issues related to China's WTO accession. Considering the size of China's economy and its position as the world's tenth largest trading nation, it might also be a good opportunity to anticipate difficulties that might arise after China's WTO accession and consider for how they can be prepared, if not avoided.

UNRESOLVED ISSUES

At the present time, one of the most significant unresolved issues dividing China and its principal trading partners is the level at which China will be permitted to subsidize domestic agricultural production once it has been admitted to the WTO. The issue is of utmost importance to China, with anywhere from 500 million to 900 million people involved in the agricultural sector, depending upon whose figures one believes. The worry in Zhongnanhai is that, without the ability to subsidize its vast number of farm workers at the required levels, they could become displaced persons, flood China's cities looking for non-existent jobs and eventually become an urban underclass subculture or turn to crime - a formula which the Chinese leadership apprehends could lead to very serious social unrest. Many observers would agree that this is not an entirely improbable or unfounded conclusion in a country whose vast numbers of rural farming poor live barely above subsistence level.

Developing country WTO members are permitted to subsidize domestic agricultural production up to a level of 10%, whereas developed country WTO members may only do so up to 5%.⁶ At the present time, the PRC is subsidizing up to a level of between 2% and 3%, but for the reasons outlined above, wishes to be treated as a developing country and thus retain the flexibility to be able to subsidize up to 10% of domestic agricultural production if it becomes necessary to prevent any nightmare scenarios from happening. ⁷

Interestingly, there also would appear to be a split between China's largest trading partners over this issue, with the Americans and the Cairns Group (Argentina, Australia, Canada, New Zealand, Thailand, and Chile) insisting that China be limited to the 5% developed country subsidy figure, while the EU has indicated that its position is more flexible⁸. This is perhaps the case because the Europeans have a 'don't throw stones in a glass house-complex' when it comes to agricultural subsidies. Another reason this issue is so intractable is because China's trading partners are also insisting that China agree to phased reduction commitments of whatever subsidy figure is finally agreed. Exactly what the ultimate resolution of this issue will be is anyone's guess as the Chinese side, with much justification, is digging in its heels.

THE SERVICES SECTOR

Contemporaneously, there are also what most would ordinarily consider minutiae related to the services sector being argued between China and the EU and America as a condition of its WTO accession. To give an idea of the level of nitty-gritty which such detailed trade negotiations can reach, particularly on the part of the developed countries, contentious sessions are being held with the Chinese in Brussels and Washington to focus on the definitions of such terms as 'large scale insurance risk' and the 'retail sector' so as to prevent any future misunderstandings subsequent to China's WTO accession. The realm of the trade negotiator is one that is arcane.

WTO DIARY

Against the backdrop of these plurilateral negotiations, the Chinese for their part, are unilaterally taking continuous steps at home to prepare for their eventual WTO entry. One of the most significant consists of an ongoing revision of old laws and regulations, as well as the enactment of new ones, to comply with the requirements of the 1994 GATT and with the WTO and Ancillary Agreements. Some notable recent examples include Investment within China by Foreign Investment Enterprises Tentative Provisions, effective as of September 1 2000, which clarifies and confirms the legality of alternative investment vehicles for FIEs, as compared to the holding company with its high capital requirements, and provide for an innovative appeal process directly to the Ministry Of Foreign Trade & Economic Cooperation (MOFTEC).⁹ Another example is the PRC Telecommunications Regulations (中华人民共和国电信条例), promulgated on September 25 2000, which both adopt and mirror the WTO categories of 'Basic' and 'Value-added' telecoms services and presage the expected Foreign Invested Telecoms Regulations that should reflect the PRC-US and PRC-EU Telecoms Agreements for WTO accession.¹⁰ Further examples include the revisions of the PRC Sino-foreign Cooperative Joint Venture Law (Revised) (中华人民共和国中外合作经营企业法) and the PRC Wholly Foreign-owned Enterprise Law (Revised) (中华人民共和国外资企业法), both with effect from October 31 2000, which eliminate local content and production export requirements specifically and explicitly to comply with WTO requirements.¹¹

Another area of internal activity now being undertaken by the Central People's Government (CPG) to prepare for eventual WTO membership involves the establishment of an official journal in which other WTO members, individuals and enterprises, can obtain (current) information regarding existing and proposed PRC laws, regulations and other measures pertaining to or affecting trade in goods, services, trade-related aspects of intellectual property (TRIPs) or the control of foreign exchange.¹² The Protocol Of Accession that China must sign and agree to prior to its WTO entry mandates the creation of such a journal.¹³ In the case of proposed laws, regulations and so forth, a reasonable comment period must be provided to interested parties after publication thereof.¹⁴ It is anticipated that such a journal will be published by MOFTEC.

SIGNIFICANT STEPS

Steps are also being taken to establish a new office or agency, most likely to be under MOFTEC, from which any individual or enterprise may request information regarding existing and proposed PRC laws, regulations and other measures pertaining to, or affecting trade, in goods, services, trade-related aspects of intellectual property (TRIPs) or the control of foreign exchange. Replies to such enquiries by individuals or enterprises must be provided to them within 30 to 45 days and they "....shall represent the authoritative view of the Chinese Government".¹⁵ Thus, the CPG will be required to provide what may be looked upon as legal rulings or opinions on the effect of trade-related legislation, once China becomes a WTO member, insuring much more transparency and certainty for foreign traders and investors than previously existed.

To further comply with WTO requirements, the PRC is also in the process of establishing a quasi-judicial body which is to hear complaints of administrative misconduct by PRC governmental agencies in connection with the ".... implementation of laws, regulations, judicial decisions and administrative rulings of general application..."¹⁶ relating to "import and export licenses, application of measures for safeguard or balance-of-payments (sic.) purposes or to protect against unfair trade, and any other measures within the scope of the WTO Agreement"¹⁷, as well as with respect to matters referred to in the TRIPs and GATS (General Agreement on Trade in Services) Agreements. ¹⁸ Decisions of this new tribunal shall be appealable as of right to a judicial body.¹⁹

Demonstrating the seriousness with which the CPG undertakes this particular WTO obligation, a high level official of MOFTEC was quoted as saying, "They (foreign investors or enterprises) can even sue the Trade Ministry there if necessary!" ²⁰ . Thus, after China's WTO accession, foreign investors and traders will have recourse to this new quasi-judicial body for administrative abuse by PRC governmental agencies involving trade-related decisions. To be fair, the appeal of decisions by such a body back to the PRC courts may render the establishment of such a tribunal nugatory unless, of course, the courts themselves greatly improve the quality of their work in the meantime.

ROADBLOCKS

A possible roadblock on China's road to Geneva and its seat at the WTO may come about in a few month's time unless there is dramatic and speedy negotiating progress in the meantime - a prospect which seems entirely unlikely. This will come about because the US law granting China permanent normal trade relations (PNTR) was conditional upon China's WTO accession prior to June 2001. Accordingly, we can look forward to the requirement of another US presidential certification and Congressional vote in June 2001 on the subject of again granting China merely normal trade relations (NTR) with the United States. This process will unfortunately unite the extremists of the left and the right in the US Congress to engage in a period of China bashing which will, of course, be widely covered by the media. The Chinese are rather sanguine about this daunting prospect, indicating that they do not feel that the 'media circus' will affect the trade relationship, that cooler heads in the Congress will prevail and that the NTR status for China will sail through in June, to be followed by being accorded PNTR status once China is eventually admitted to the WTO.²¹ Hopefully, this scenario will not be complicated by the decision soon to be made by the Bush Administration on arms sales to Taiwan under the provisions of the US Taiwan Relations Act.

TAIWAN AND THE WTO

An issue also impacting China's WTO accession, which has been given scant attention, is the effect that Taiwan's own accession to membership in the WTO as a separate customs territory will have upon its trade (and even diplomatic and political) relations with the PRC, as once Taiwan and China are both members of the WTO, mutual normal trade relations, non-discrimination and national treatment requirements will kick-in. This will happen unless Taiwan elects to opt-out of according such treatment to the PRC²², particularly with respect to the direct movement of goods and service providers (and tourists and family members) between the two customs territories. According to official sources, the government of Taiwan does not want to particularly rush into normal trade relations with the PRC (including direct transport links between their respective territories and PRC direct investment in Taiwan) once both are WTO members, but will adopt a gradualist approach pegged to whether the PRC shows 'good will' towards Taiwan in the future. However, apparently no final decision has been made in Taipei regarding the necessity of Taiwan employing the 'opting-out' clause. PRC negotiators do not seem to be too concerned, perhaps sensing that the bait of continued access to the mainland market and its cheap supply of land and labour are too attractive and that time is on their side. ²³

A FEW WORDS ABOUT THE FUTURE

Notwithstanding the commendable efforts of the CPG previously mentioned, to recast its legal system and economy into a WTO-compliant mode in preparation for its inevitable and hopefully near-term WTO accession, mistakes will happen. WTO membership will neither prove to be a magic pill nor a silver bullet for a country that is continuing a process of evolution over a very short period of time from a command and control economy to one that will be market-driven. In the context of the vast size of the country and the conventional wisdom to the effect that the further one is from Beijing the less likely it is that legal norms will be adhered to, it must be recognized that a totally WTO-compliant Chinese legal system and economy will not appear the morning after its WTO accession.

In the meantime, while a culture of WTO compliance is being developed over the initial years of China's WTO accession, a wise lawyer or businessman would be well advised to thoroughly consider the many routes to effective dispute resolution, alternative to the use of the courts in China, until such time as it is clear that they have become permeated and infused with the notions fostered by China's participation in the rules based global trading system administered by itself and its WTO trading partners.

ENDNOTES

1. Sean (John C.) Leonard is a Hong Kong-based trade and China law consultant who holds an L.L.M. in PRC Law (with distinction) from the University of Hong Kong. He is author of The Dragon Awakens: China's Long March To Geneva (London: Cameron May Publishers Limited 1999).
2. While China had been an original participant in the GATT of 1947, the Nationalist regime established in Taiwan after the end of the civil war in China purported to withdraw from the GATT in March 1950 for political reasons, an act continuously disavowed by the PRC Government. The actual date of the PRC's application to 'resume' GATT status was July 11 1986. 'Contracting Party' was the term of art used to refer to member nations of the original 1947 GATT Agreement, as at the time of its establishment, there was no supranational trade organization such as the present WTO. Therefore, participating nations were signatories of the GATT Agreement or 'Contracting Parties', rather than members of an organization. Today, as the WTO was established to act as the administrative body of the superseding 1994 GATT and WTO and its ancillary Agreements, participants are known as 'members'.
3. The latter factor resonates with the 'opening up' and reform of the economy and legal system championed by the late Paramount Leader Deng Xiaoping, commencing at the end of the 1970s. It is widely acknowledged that those in the PRC leadership who carry the flag of Deng's wide-ranging reforms today anticipate that China's participation within the rules-bound WTO framework will reciprocally reinforce the continuation of such reforms within the PRC. Of course, there are other factors and forces at work within the PRC in this connection, but such political analysis is not the function of this article.
4. Having said that, this author must admit that he previously went out on a proverbial limb and, in a burst of misguided or unfounded exuberance, predicted China's WTO entry by the end of 1999 in his book on the subject. See Leonard, Sean, The Dragon Awakens: China's Long March To Geneva (London: Cameron May Publishers Ltd., 1999), pp. 10, 153.
5. 'Prospect of WTO entry looks distant for China', By Edward Alden and James Kynge, Financial Times, March 14 2001, downloaded from website at: www.ft.com.
6. Article 6, WTOAgreement On Agriculture.
7. 'China farm row hits WTO talks', By Frances Williams, Financial Times, January 13 2001, downloaded from website at: www.ft.com. See also: 'WTO talks collapse after China stands firm on farm subsidies', By Peggy Sito, South China Morning Post, January 19 2001, downloaded from website at: www.scmp.com.
8. Sito, n. 6 supra. Speech of EU Foreign Trade Minister Pascal Lamy at Hong Kong EU Chamber Of Commerce Luncheon, Shangri-La Hotel, February 19 2001, as transcribed by the author.
9. See 'New Opportunities For FIE Investment', By Douglas C. Markel and Tarrant M. Mahony, China Law & Practice, Vol. 14, No. 8, October, 2000, p. 18.
10. See an excellent and comprehensive treatment of the present and post-WTO accession PRC telecoms sector in 'Revealing the New Telecoms Regime', By Andrew McGinty, China Law & Practice, Vol. 14, No. 9, November, 2000, p. 18.
11. See 'New Law Digest: National Legislation', China Law & Practice, Vol. 14, No. 10, December, 2000/January, 2001, p. 4.
12. Conference between the author and Vice Minister Long Yong-tu of MOFTEC in Beijing, February 21 2001.
13. Protocol On China, Paragraph 2(C)2, World Trade Organization (Geneva: 1997), p. 3.
14. Ibid.
15. Ibid., Para. 2(C)3, p. 3.
16. Ibid., Para. 2(D)1, p. 4.
17. Ibid., Para. 2(D)2, p. 4.
18. Ibid., Para. 2(D)3, p. 4.
19. Ibid., Para. 2(D) 4, p. 4.
20. Conference, n. 12, supra.
21. Ibid.
22. Under Article XIII of the WTO Agreement. It is also possible that Taiwan could invoke the provisions of Article XXI of the GATT 1994 on security grounds.
23. Conference, n. 12, supra. Moreover, perhaps a little-known factor, apropos Taiwan's WTO accession, provides the PRC with something of an insurance policy against Taiwan's being obstreperous regarding direct trade, transport and investment links. Although the Hong Kong SAR Government has completed bilateral negotiations with Taiwan for its WTO accession, it has so far refused to sign a final deal with Taiwan, thus, in the minds of some, providing a good degree of leverage.