6:32 AM Jul 28, 1994


Geneva 28 (Chakravarthi Raghavan) -- Talks on China's resumption of status as a GATT contracting party resumed Thursday.

The two-day meeting, informals to be followed by a brief formal session Friday, is the 18th in the series of the meetings of the working party that was named before the launch of the Uruguay Round.

If China is to resume its status in the GATT, in time to become an original member of the World Trade Organization, as it wants to be, time is running out.

The Chinese protocol has to be drawn up and completed, adopted by the GATT Council (whose next meeting is set for October), sent for a vote of the contracting parties, where a two-thirds 'yes' vote is needed, and 30 days later, China can sign up and join.

Only if all these are completed before December, can China become an original member of the WTO.

Would this be accomplished?

"It is at the moment like a 'huge poker game', with almost everyone knowing the other's cards and yet a game of bluff and counter-bluff involving the US and China," one participant put it Wednesday.

Another, changing the metaphor, said it was more a 'cat-and-mouse' game, but one where it was difficult to know who is the cat and who is the mouse or whether each is a transgenic animal with a mixture of the genes of both.

The informal and formal discussions are on the basis of a new non-paper, "Elements for a Draft Protocol on China", put forward by the Chairman of the Working Party, Pierre-Louis Girard of Switzerland, and based on an earlier elements paper of his and other elements submitted by members of the Working Party.

China is expected to put forward its own draft proposals this week.

The Girard paper is seen by most participants as presenting a "maximalist" approach, with everyone's demands on the table, and with some demands seen by many developing countries as 'outrageous' in that even the industrialized countries don't obey same disciplines.

From a political perspective, developing countries have expressed full support for China's accession and for speeding up the negotiations.

But in terms of content of the terms of accession, several of the major trading nations of the South share some of the concerns and apprehensions of the North -- in terms of the Chinese system, its transparency in trade policy, price formation, and problems to themselves of 'unfair' competition, whether as exporters or importers.

From this perspective, they too would like to put in place some 'safeguard' and processes for periodic review until they could be satisfied with the Chinese 'transition' to a market economy system.

A major point of contention between the United States and China is over the 'status' of China -- whether it would be treated as a 'developing country' and thus be entitled to the longer periods for compliance (e.g. for TRIPs under the WTO) and in some cases the exceptions (as in Agriculture) or greater de minimis limits for subsidy etc.

The United States is insisting that China as a major player in the world market should assume all the obligations from day one of the WTO as any developed country.

The poker game involves the attempt to use the application of Taiwan (or Chinese Taipeh, as it is technically called) and the latter's willingness to accept most of the obligations of developed country members to force the hands of Beijing.

However, whatever might be views of developing countries on the economic content of the protocol, most of them would block Taiwan's entry in terms of the understanding that China's accession should precede that of Taiwan's.

This political perspective would remain even if neither are able to join GATT before the end of the year, and have to apply and join the WTO as the new body, one Third World diplomat said.

For the generality of developing countries, support to China on this would be almost 'costless', and the small price involved (of opposing the US and EC or Japan) would be acceptable to them in terms of earning the political goodwill of the only member of the UN Security Council which is standing up to the United States, the diplomat believed.

There have been a number of bilateral exchanges between the US and China, with China, as reported in the western press from out of Beijing, threatening to walk away from the talks and insisting it was not willing to pay any price for joining the WTO.

At a recent GATT symposium on trade and environment, a US NGO (which has been pushing for maintaining US unilateralism and S.301 against developing countries for securing environment and other standards), referred to President Clinton's action in having delinked the Chinese trade status (MFN privileges in the US) with the human rights issue, and bemoaned that China had become so powerful that the US was no longer able to assert its will unilaterally.

Many westerners agree that with China emerging with such a large market, and as a big player in world trade, it would be better to have it inside the WTO, with suitable agreed conditions, than outside.

The new Girard non-paper lists several maximalist demands on China.

One requires China to publish all proposed trade policy measures in goods, services and TRIPs and provide a period (to be agreed upon) for comments from others before implementation -- thus making these including failure to take account of comments subject to WTO dispute settlement processes.

Another would set time limits (of days) for China to respond in writing to queries about its laws and measures, with one inquiry point for the Central Government and another for each of its first level of administrative divisions.

Other cps, with a federal structure, have only the central government to undertake any such obligation applicable to all WTO members.

There are also to be special provisions in the Chinese protocol relating to trading rights granted to domestic enterprises.

Reflecting the apprehensions of some about the price-forming mechanisms inside China, another provision would require China's state trading enterprises to provide full information for its exported goods, including domestic procurement prices, contract terms for delivery of exported goods and financing terms and conditions.

Any 'price pooling mechanism' for export of goods will be prohibited.

There are also proposals for special provisions on foreign exchange restrictions on payments and transfers, requirement to maintain a uniform exchange rate, for elimination of price controls and multi-tier pricing for goods and services, and restrictions on domestic price controls.

The provision on subsides is to be on same footing as for developed countries.

The Girard paper will give China a period, to be negotiated and settled as part of the protocol negotiations, presumably less than that for developing countries.

The WTO agreement on subsidies exempts LDCs from its prohibition on subsidies, some specified developing countries so long as their annual per capita is less than 1,000. Other developing countries will have an eight period to comply.

China will also be required, in terms of the protocol, to agree not to invoke any of the special and differential treatment provisions for developing countries in agriculture: permissible special input subsidies for agricultural and rural development, the ten percent de minimis level of domestic support that could be excluded from any calculations of AMS, exemptions from some export subsidy reduction commitments and disciplines, prohibition against new export subsidy instruments, and the special and differential treatment provisions and the flexibility for developing countries.

Similarly, China is asked not to invoke the S & D provisions of the Customs Valuation agreement.

It will be obliged to apply the entire TRIPs agreement, like other industrial powers, within one-year period.

While the WTO does not require any member to become a party to any of the plurilateral agreements, China as a price for entry would be obliged to join the Agreement on Trade in Civil Aircraft.

It will similarly be required to join any Multilateral Steel Agreement.

The Chinese protocol and its functioning would be periodically reviewed every two years.

China is opposed to such a perpetual 'damocles sword' over it and wants such a review process to end after six years.

The Girard paper also has provisions for special 'selective' safeguards against imports from China.

China would also be obliged to bind its entire tariffs at a maximum rate. While the developed countries have bound most of their tariffs, they still do have some unbound tariff lines.