UNIT15 The World Trade Organization(WTO) and China
As China has been admitted to the World Trade Organization (WTO), it is very apt at this time to compile some important data about this international organization. The conception of the WTO took place during the 1995 Uruguay round of talks of the General Agreement on Tariffs and Trade (GATT). The WTO actually replaced GATT. This latter organization, a composite of many countries, was formed after the Second World War to preside over the stabilization of trade among nations. The new organization, the WTO, is dedicated to allocating the resources of the world by using fairer trade practices and providing economic security for the more vulnerable, less developed nations. The WTO provides the apparatus for making this happen through increased cooperation among member countries. The execution of such agreements will be instrumental in enhancing the esteem of less developed members and will provide a more stable infrastructure for profitable trade for members of the WTO Is there a way to describe in simple terms what this is all about? What underlies this international pursuit of free trade among nations? Students of introductory Economics would recognize the theory of “comparative advantage”. Briefly, this economic theory states that a country can produce all or most goods and services more efficiently than most or all other countries, but still gain from specializing in production and trading with other nations. They not only receive economic benefits for themselves, but also help other countries achieve similar benefits in the process. Let's look at a simple example. Assume that there are two countries, Alpha and Beta, that produce the same two products, bananas and office desks, and nothing else. We will assume that each country has 200 units of productive resources (resources such as land labour and capital, used in the production of bananas and desks). In this case we will use labour. Before trading each country, using the productive resources each has available, might produce the following combinations: Bananas（tons） Alpha 300 (100 units of labour) Beta 100(100 units) Totals 400 Desks Alpha 100 (100 units) Beta 25 (100 units Totals 125 Assuming that each country used the same amount of productive resources in the production of both bananas and desks, you will notice that Alpha produced more bananas and more desks than Beta but produced desks more efficiently (higher ratio 4∶1) than bananas (3∶1). Alpha produced four times as many desks as Beta given equal units of resources (100 units) and three times as many bananas as Beta. Alpha has a comparative advantage in producing desks and therefore could make economic gains by transferring some of its labour resources into the production of desks. If the two countries were agreeable to specialize and trade with each other, the following might be possible: Banana （tons Alpha 210(70 units) Beta 200(200 units) Total410 Desks Alpha 130(130 units) Beta 0(0 units Total 130 This example shows that, by specialization by each partner, total production of bananas would increase from 400 tons to 410 tons and the production of desks would increase from 125 to 130 desks. This means that more of each product would be available to both countries to share through specialization and trade. This may be an oversimplification of the concept of comparative advantage, but it is the economic principle which explains why countries want more free trade, and why China wants to join the WTO. It also explains the United State's ambitious pursuit of freer trade arrangements throughout the world Immersed for more than a decade in negotiations, the climax has been reached for China Its official membership in the WTO commenced in December 2001. It has not been an easy road to reach this goal and the country will now embark upon an even tougher road of more formidable challenges Many issues surrounding China's bid are not only economic, but also social in nature. For example, the United States has amplified the issue of human rights in discussions between itself and China. The reasons for this obsession over human rights are not readily evident, but in some quarters suggestions for it have been offered. Since the end of the Cold War, and the demise (or fall) of the Soviet Union, the United States has had no clear opponent to justify the work of its many agencies that were originally assimilated to deal with former Cold War opponents. The promotion of international human rights allegedly has filled part of this void, to become the major target of the new direction in American foreign policy, and it has become commonplace for China in particular. It should be noted that there are some current members of the WTO that have worse human rights records than that of China but were not treated in the same manner. Also, it is erroneous to suggest that the United States itself is completely innocent of human rights violations. This is a major contradiction in current American foreign policy. It is also suggested that the real threat to the United States is that China is a huge country with a robust economy that has been growing by leaps and bounds over the last twenty years. Henceforth, a fear is growing that the potential economic strength of China will threaten the prevalent position of the United States in world affairs. More recently during the spy plane incident over Hainan, American President Bush changed the American position toward China from that of being a world partner (the approach of the Clinton Administration) to that of being a competitor or an opponent in international affairs. This “bashing” propaganda about China is considered by many people a cover-up (or a smoke screen) for growing American insecurity in international affairs and this distortion is accumulative in the brain washed minds of the American people. It is also degrading to say the least. It is like a champion football team that does not want to play fairly any more because it is afraid of losing. It is the fear of being beaten fairly and decisively on the field, according to an agreed upon set of rules This obsession with human rights has flared up in many areas of American foreign policy in recent months. This rash, sometimes graphic ChinaBashing attitud is probably driven, in part, by powerful economic interests in the United States. The positions of these powerful interests will be seriously threatened by China's entry into the WTO. These industries, if they are forced to face stronger competition, fear losing their shares of their respective markets. These same interests also heavily support political parties financially and therefore have some indirect influence over government policies. China has enough ballots to get into the WTO. The United States alone cannot veto China's entry, but can make things difficult Both China and the United States will have to adjust themselves to raise economic efficiencies, a fact that normally results from greater competition. However, what must clearly be seen are the comparative advantages, which will benefit all trading partners. With the reduction of trade barriers, more efficient use of the world's productive resources will emerge through greater specialization by the various countries involved. In the short-run, (in the first few years) there will be dislocations of productive resources, particularly of labour. For some industries, the future will be bleak. There will be short run unemployment in some sectors of each country. It is important that these countries develop plans, such as retraining and increased technology, to make adjustments easier as productive resources shift from one sector to another. With greater sharing of international expertise, these transitions should become easier. The longrange result will mean more benefits for all countries; meaning higher standards of living all round. China has already made persistent strides in this direction through its partnership arrangements with foreign corporations over the last twenty years, since the reforms at the end of the Cultural Revolution. China has no alternative but to move forward into the international markets and in other areas of globalization of the twentyfirst century. Not to do so would mean inevitable deterioration or, perhaps, even complete evaporation of China's strong economy. Some sacrifices in socialist economic and political philosophies and policies are imperative if these goals are to be achieved. The big advantage that China has had over the former Soviet Union is that of cautious gradualism in economic policy. China's political hierarchy is slowly embracing the theories and practices of a new socialist market system. The knowledge and skills gained from this approach places China in an excellent position to succeed. The country sees quite clearly that a pure command economic system will not endure to the end under the inertia of this epoch of brisk globalization. In the end, China is destined to succeed. Much of what China will face in the WTO will be the coincidence of internal policies that have been formulated in recent years, although some reconfiguration will be necessary To suggest immediate success for China may be premature at this point, but there are precedents that are favourable to China's aspirations. Such success is difficult to quantify or generalize, as there are so many factors that are constantly changing It is a gamble. World recessions, strong economic growth periods, and disasters such as the September 11th, 2001 terrorist attacks, can drastically create economic casualties overnight followed by the “trickle down” negative impacts. All these being said, it would be a mistake to underestimate China's legitimate presence in this period of globalization. It is indicative, as well as fitting that almost all countries of the world will benefit from the potential contributions that China can make in the years to come. The WTO's success hinges on international cooperation and ceaseless pursuit of positive common goals rather than focusing on negative issues that could only handicap good economic and social relations along with progress in international trade. It is hoped that such barriers between China and other countries will dissipate now that its membership has finally been certified.
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