Sep 22, 1989

(THE FOLLOWING IS IN TWO PARTS)

CHINA: GATT AND THE URUGUAY ROUND.

GENEVA, SEPTEMBER 21 (BY CHAKRAVARTHI RAGHAVAN) The decision in GATT last week to reconvene meetings of the working party on China's application for resumption of status as a contracting party (CP) appears essentially to be a procedural one and is no indication of progress on substantive problems relating to Chinese resumption of GATT status, according to GATT observers.

The working party meeting has been scheduled for late December.

In explaining U.S. difficulties in allowing China or USSR to enter GATT, white house spokesman Fitzwater has been quoted (early in September) as saying "...until they have a more privately operated and democratically run economy, they're not eligible for GATT membership".

The U.S., it is clear, would first like to successfully complete the Uruguay round of negotiations, and settle the contours and rules of international economic relations (going beyond trade and dealing with production, distribution, etc.) well into the next century, before considering the accommodation of China and the soviet union within the system.

While seeking resumption of status in GATT, China is also a participant in the Uruguay round, enjoying full rights as a participant except, in respect of decision-making on issues relating to changes in GATT articles and rules.

But China has so far taken a low profile in the discussions in various negotiating groups.

The June crackdown on the "pro-democracy" movement at Tiananman square brought in its wake several uncertainties, both for China and outside world.

Apart from the wider political and security issues and relationships, the uncertainties also relate to the future course of Chinese economic policy and relations with the outside world and how far China would go ahead with its liberalisation drive.

As in many other matters relating to China, it is difficult for outsiders to make easy assessments of the current situation or project it into the future. Over the last three or four decades, China watchers have as often been proved wrong as right. China is a society, and is more so after the crackdown. In such a situation speculation often is a substitute for lack of facts.

But subject to these caveats, a week's stay in Beijing and discussions there with officials and others involved in China's foreign economic relations left one with the impression that at technical level the expectations are for continuance of same policies as in the past, but with corrections for the mistakes of the past.

However, there are unexpressed uncertainties relating to the power struggle within the party and how the political masters at the top would react and decide responses.

The discussions, formal and informal, and involving Chinese technical people and academics, and international experts were on the occasion of a national symposium (august 12-17) on the new themes in the Uruguay round - TRIPS, TRIMS and services.

Inaugurated by the Chinese Vice-Minister in the Ministry of Foreign Economic Relations and Trade (Mofert), it was attended by nearly 50 officials and technicians in government departments and enterprises and agencies involved in foreign economic relations ranging from banking to tourism and China's space agency (trying to "sell" its satellite-launching service to customers abroad, in competition with European and U.S. space agencies).

As part of its "modernisation" and "liberalisation" drive, China (already a member of the IMF and the World Bank) has sought to "resume" its status as a GATT contracting party.

When the general agreement was signed in October 1947, kmt China was one of the signatories. Fleeing to Taiwan in 1949, after the revolution and establishment of the People's Republic of China on the mainland, the kmt regime withdrew from GATT - with the UN and GATT ignoring objections from the PRC's friends on the KMT's right to take decisions on behalf of China.

Subsequently, in 1965, GATT allowed Taiwan to be an observer in GATT, and expelled it in 1971 only after the UN general assembly decision to seat the PRC.

In 1981, China became an observer in the GATT and in June 1986 applied to "resume" its status as a contracting party and, by virtue of this, under the Punta del Este mandate became a participant in the Uruguay round.

China has repeatedly stated that it views itself as a "developing country", thus entitled to the application not only of GATT provisions like MFN, but special provisions for the third world like those relating to non-reciprocal benefits and its right to invoke provisions of article XVIII, including for import restrictions on grounds of balance-of-payments considerations.

Soon after the 1949 October revolution, and kmt China's withdrawal from GATT, a number of industrialised countries led by the U.S. applied economic sanctions against China and withdrew GATT concessions. China too retaliated by not observing the trade concessions and agreements under GATT (to which as a successor regime it was a party).

Subsequently, after 1960 particularly, a number of countries of the western world established trade relationships through bilateral agreements, with the U.S. doing so in the 1970s. Currently 85 percent of China's trade is with GATT CPS.

According to latest GATT data China ranks as the 14th in the world in imports (55 billion dollars or 1.8 percent of world imports it is the 16th in world exports (48 billion dollars worth and 1.6 percent share in world exports).

Between 1950 and 1986, a number of countries including the U.S. and EEC signed bilateral trade accords with the PRC, extending to the PRC MFN treatment but at the same time enabling continuance of discriminatory trade measures mandated by law. The U.S. gives the PRC MFN treatment on a yearly basis (through law), while the agreement with the EEC provides for gradual, removal of discriminatory quantitative restrictions (QRS) against China.

The Chinese application for "resumption" was referred to a GATT working party which has held several meetings, the last in April 1989, to examine China's trade policy regime and relevant economic policies and programmes.

Discussions in the working party show that while praising China's moves towards liberalising its economy and opening it to foreign relations, the U.S. and other industrial countries have been concerned over several aspects of its trade regime: the lack of transparency including in its import licensing system and customs valuation methods, China's production system and its pricing mechanisms which still are essentially "non-market", enabling China to compete "unfairly" on the world market by exporting goods at less than production costs.

It would appear that during the consideration of the issues in the working party, the U.S. and EEC had informally suggested to China that as part of its protocol of resumption, China should set a time-limit for completion of its liberalisation drive and reliance on market, agree as a part of its protocol of "resumption" to a GATT mechanism to supervise and monitor China's progress towards a market-based economy, and consent during the transition to application of "selective safeguards" against its exports.

China would appear to have baulked at these terms.

It was in this situation that the U.S. and others took advantage of the Tiananman square incidents to indefinitely put off meetings of the working party. While no formal statements were made informally GATT officials spread the word that the decision was due to the Tiananman incidents.

Subsequently, Chinese official teams have visited Washington and Brussels and this led to the informal agreement to rescheduled meetings of the working party.

In the resumed discussions China would appear to face basically three options: agreeing to U.S. terms, pressing for "resumption" on MFN basis with possibility of U.S. and others exercising the "non-application" option, or withdrawing its "request" altogether.

All these have political overtones, going beyond trade policy both for China and the U.S. and industrial nations.