11:31 AM Mar 7, 1997

PROGRESS ON CHINA ACCESSION TALKS

Geneva Mar 7 (Chakravarthi Raghavan) -- A new round of multilateral talks at a Working Party on China's accession to the World Trade Organization ended Thursday evening, with the Working Party Chairman Girard and the Chinese vice-minister Long Yongtu reporting significant progress.

The Chinese vice-Minister, Mr. Long Yongtu, at a press conference after the conclusion of the working party, was satisfied they were on the right track, that important progress had been made, though many things remained to be tackled, but was cautious not to predict when China would be in.

China, he conceded, had still to make some efforts and tackle many questions and they would be doing so, "but it takes two to tangle, and it is not for China alone to decide how and when this agreement can be reached."

EC's WTO representative, Roderic Abbot, thought that some "very significant progress" had been made, including on the issue of trading rights where the Chinese had undertaken some difficult, in domestic terms, decisions to modify their present regulations and structures.

A major understanding at this round of talks has been over the crucial issue of 'trading rights' -- meaning that in most of the foreign trade, imports and exports would no longer have to be channelled through the designated state enterprises. The Chinese side has agreed to provide for this within three years of their accession.

It was clear that China's major trading partners and interlocutors have sought, in this round of talks, both to get the long-standing issue of "trading rights" resolved, and present a picture of progress in negotiations for China to get WTO rights, which Long could take back to Beijing, in the post-Deng Xiaoping transition, and use it to get some leverage over the other domestic ministries to get them to agree on other needed changes.

Trade diplomats at the talks, after the conclusion of the working party, were generally optimistic that the talks could be concluded over the next several months and China could be in the WTO by next year.

European negotiators stress the progress made, but note there are many difficult issues still to be sorted out, and would need lot of work between now and summer.

As envisaged, the working party will hold another round in May, with some bilateral talks between China and EC, US and others starting end of April. Though not set, another round is envisaged for July, and also in November. While EC Commissioner Leon Brittan, in a statement at Brussels, has expressed the hope that it could be completed by November, or atleast most issues settled, trade officials say many issues still need to be resolved, and they would take time.

Trade diplomats caution that their view that China could be in atleast early next year is in the hope that the trade talks won't get embroiled in other controversies, whether they relate to the political and human rights issues that US critics might use or the wider debates about 'globalization', where China which is drawing in major US and other TNCs with investments and technology deals, and with its sheer numbers of workers, and the exports, is being painted as the 'yellow peril' to the prosperity of the North and the villain.

Also while Deng himself perhaps did not concern himself or exercise any role in the trade and other issues, the post-Deng leadership could easily be pushed into a situation where they might feel the need to be assertive -- such as efforts of the US or elsewhere to use the WTO negotiations to gain political and other advantages (for e.g. visavis China's policies in Hong Kong after 1 July) or attempt to get Taiwan admitted into the WTO, ahead of China (as the USTR Ms. Bershefsky's comments would suggest).

On the issue of 'trading rights', and ability of traders to deal directly with imports and exports, rather than state monopolies (who could thus act to frustrate the tariff concessions), Long said that China would provide the right to all Chinese enterprises, including joint ventures and wholly owned foreign ventures in China, to have the right to import and export after a "short transition" period which would be three years.

This would provide a big market access for the business people and remove doubts that market access agreed to through tariff and other concessions would be frustrated by the state monopoly enterprises in the foreign trade sector, Long noted.

A draft protocol of accession, circulated to the working party, updating the progress made and the areas still to be agreed.

The latter includes issues about local content and export requirements, foreign exchange controls (to be settled in the light of China's acceptance of Art. VIII of the IMF articles), subsidies, balance-of-payments measures, product-specific safeguards (where some like the EC would like to be able to put in place safeguards to restrain imports from China in the event of a 'surge of imports' from China), a general safeguard provision (where some want a right to deal with disputes arising out of implementation of protocol, and withdraw concessions, without having to go to a dispute settlement process).

Some negotiators say they don't expect the draft in some of the areas not agreed so far, to survive without major modifications. This would apply among others, to efforts for settling disputes over non-implementation of protocol without going through the dispute settlement process.

The trading rights clause provides that China "shall progressively liberalize the availability and scope of the right to trade, so that, within three years of entry into force of this protocol, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China...".

The 'right to trade' would be the right to import and export goods, which would include national treatment in terms of Art. III.4 of GATT (on their internal sale, offering for sale, purchase, transportation, distribution or use, including their direct access to end-users).

There will be a category of goods -- according to EC negotiators about eight categories -- listed in an annex where there would continue to be state trading - a right that all WTO members have, with a "fluffy" understanding that it should be in a "commercial" way.

There is an effort, not so far agreed, on the part of the majors, to get China to agree that even in the areas of state trading, there could be parallel trading by others so as to provide some competition.

For another category of goods, the limitations on right to trade would be phased out over an agreed period.

Long pointed out at a briefing that in 1978 when the Deng-inspired reforms began, there were some 18 enterprises who alone were authorized to engage in import-export trade. In a gradual liberalisation process, this number had increased to 8000 in 1995, and was over 12000 last year.

Nevertheless, many trading partners insisted on full trading rights as the cornerstone of a market economy and, after careful consideration, the Chinese government had decided to allow the right to all Chinese enterprises, including joint ventures and wholly-owned foreign enterprises, after a 3-year transition period to have the right to import, export and supply end-users, Long said.

The draft protocol also says on trading rights that "Except as provided in this protocol, all foreign individuals and enterprises, including those not invested or registered in China, shall be accorded treatment no less favourable than that accorded to enterprises in china with respect to right to trade."

This is capable of being interpreted as a Chinese commitment over a whole range of trading activities -- including a foreign enterprise buying some goods in Shanghai or any other area, and distributing and selling it in any other part.

Long however explained that the 'trading right' clause covered only the area of goods, and would not imply that foreigners could set up their enterprises to trade within China or set up whole-sale or retail business.

The talks on services and China's commitments under them fell into a different category and negotiations were continuing, he said.

Chinese sources explained that in the Chinese historical memory the 'trading right' was a sensitive issue, going back to the 'opium war' days when the British, unable or unwilling to pay for silk and other goods they wanted to buy from China, sought a right to trade within China (and the right to sell opium) to earn money to pay for their purchases. Hong Kong which thus came under British rule, revers to China this July.

But the Chinese have also found that the numerous trading enterprises authorized to engage in foreign trade, were becoming 'rentiers', using their right to get a fee, and that it was also becoming a source of corruption. They thus see the 'trading rights' in the protocol as a way of dealing with these issues.

Long said that China has also agreed to implement the WTO's Trips accord from the date of its accession, and would not seek a transition period.

Trade officials say it will undoubtedly create an anomaly that Hong Kong, which comes under Chinese control from 1 July, which is more advanced, would have time till 2000 to implement Trips.

But this is part of the negotiating game. Ecuador, for example, a relatively less advanced country than some of its other Latin American neighbours, was forced by the US as part of its accession terms to implement TRIPs in a much shorter period.

On the issue of 'subsidies' in general, as also the agricultural subsidies and support and the problems of tariffication, difficult negotiations are still ahead.

On subsidies, a WTO team is to visit China in April to advise and help them on the technicalities of their WTO obligations -- eschewing export subsidies on industrial products, notifying all subsidies etc.

As for agricultural tariffication, this too was a difficult area and the WTO was sending a technical team to China to advise them on this. As for use of tariff-quotas, Long said China was sending a team abroad to Canada to study this system and how Canada uses it. China will also have bilateral and plurilateral consultations with the agricultural exporting countries to sort out these issues too.

In the statement at the working party summing up the state of play, the Chairman Girard said that he felt good progress had been made on the issues of price controls and export duties. On others, he expected progress would be made in the next meetings.

The annexes in the present draft on subsidies and statutory inspections continued to present problems and a basis for meaningful negotiations is yet to be developed, he said. China is to get technical support from the WTO to enable it to develop more satisfactory texts on these.

Apart from the consensus on the trading rights issue, there has also been agreement on the 'judicial review'.

The draft protocol on this requires China to set up tribunals and procedures etc for prompt review of all administrative actions, with tribunals that are independent of agencies entrusted with administrative enforcement of provisions. The administrative actions to be subject to judicial review would include availability and distribution of import and export licences, permits or quotas; application of measures for safeguard or BOP purposes or to protect against unfair trade and other measures within scope of the WTO accord. The judicial review would also cover actions under TRIPs and GATS.

The review procedures would include an appeal process, and an opportunity for appeal to a judicial body.

The Chinese want the latter to be qualified by excepting those cases where the relevant laws exclude it. This has not been accepted by others, and Girard told the working party that this issue is yet to be resolved.

In the coming meetings, Girard said, participants should be able to focus on core issues such as on BOP, safeguards, transitional review mechanism and price comparability. He stressed the need to build up on the existing momentum, both on completing the annexes and resolving sensitive issues.

"We need through sustained bilateral and multilateral discussions to progress on all four fronts so as not to be put in a position where lack of progress on one instrument prevents timely completion of our work," he added.

In his statement to the working party, Long stressed the major step China had taken in providing the 'trading rights', and this would provide foreign business community an unprecedented opportunity to explore the huge market in China. This major step demonstrated the sincerity of the Chinese government to observe the rules of the WTO, and an important commitment to eliminate trade barriers and expand market access to foreign countries. The elimination of control on trading rights was a big challenge to China, but they were ready to face this. Agreement on this and other important particulars at this meeting of the working party clearly demonstrated the resolute determination of the Chinese government to continue implementation of the reform policy and opening to the outside world initiated by Deng Xiaoping, he added.

The draft protocol, in a text yet to be agreed, provides for Chinese notification of all subsidies, with as specific information as possible. Over and above the requirements on this under the WTO's subsidies agreement (Art. 25), the protocol in an annex also would require Chinese notifications on matters identified in an annex.

On the statutory inspection issue, the draft has a para which requires that government-mandated inspection agencies "shall not inspect" imported products for compliance with terms of commercial contracts!

EC officials in noting the work still ahead said the services issue had not been discussed so far. In terms of their Uruguay Round schedule, China had tabled some offers, and had revised them last year. But these did not go far enough. EC has been asking China to agree more on various services sectors, and remove many of their limitations in the existing offers. But negotiations on these are yet to take place.

Much remains to be done, EC officials said, and this means that a lot of work has to be done from now right till summer. The Chinese leadership in the days would have some political distractions -- the handover of Hong Kong on 1 July, as well as other internal leadership changes leading to their national party Congress in October.

Even if the leadership can't be involved, momentum needs to be kept up at level of trade negotiators, they add.

On the issue of internal distribution, the Chinese feel that distribution -- trucking of imports to end users, or transport and rail services for them as well as retail distribution -- was a 'services' issue. The trading rights only provides for right of access to the distribution system and linking the end user and the exporter.

The Chinese accession issue, European trade officials say, is also an issue of public confidence about its gains and benefits for the world, and some of the provisions being sought about transition and product specific safeguards would help create a basis for such mutual confidence, and hopefully need never be used.

European officials say that much greater progress has been made on the Taiwan accession talks. But this was because, Taiwan negotiated as a 'developed' country and there were fewer conceptual and other problems.

While Chinese accession to the WTO, and the rights they would gain, could be viewed in terms of the globalization debate and the millions of Chinese workers, at relatively lower wages, producing and exporting -- and perhaps more of it would be heard in the coming months in the US and Europe -- it could also be viewed in terms of the demand on the Chinese market, European officials say.

And while US Trade Representative, Ms. Charlene Bershefsky, has come out arguing for accepting Taiwan membership, without waiting for China -- and provoking some harsh comments from China - EC officials are more circumspect. When the Taiwan working party was set up, there was an understanding that the report of that working party would be taken up only after that of China. But this is seen as clearly a big political issue with other ramifications, and many trade diplomats believe that China has enough friends to prevent Taiwan's accession ahead of China or even the issue allowed to be brought up at the WTO General Council.