2:46 PM Dec 21, 1994


Geneva 20 Dec (Chakravarthi Raghavan) -- In what was seen as a face-saving formula, the negotiations for China's "resumption of status" as a GATT contracting party and membership of the World Trade Organization are to be continued, with further round of consultations slated for January and a possible working party meeting in February.

With China, and GATT membership, formally accepting that China won't make it into the 'club' on 1 January, Taiwan too remains barred -- even though its negotiations are said to be virtually complete. The GATT membership has taken the political decision that Taiwan's entry would be after that of China and this is not likely to be altered at the working party on Taiwan due on Wednesday.

At the China working party meeting Tuesday, Chinese delegation formally acknowledged that its eight-year old effort to rejoin the GATT and be a member of the WTO when it enters into force on 1 January will not be achieved, but said China had no intention "to close the door of the negotiations" and, at the request of the Chairman of the working party, "will participate in working party sessions".

The Chinese vice-Minister for Foreign Trade and Economic Cooperation, GU Yongjiang, who made the statement at the working party, blamed the US and EU (without identifying them), and indicated that China was not closing the door to future negotiations but that, while maintaining its offers on the table, it would not be able to improve on them very much.

"China will be a member of the WTO," and excluding China from the WTO would be "unjust" and impair the smooth functioning of the WTO, GU said. But "since China cannot enjoy its legitimate rights before resuming its GATT membership and becoming a founding member of the WTO, China is not going to implement its responsibilities and obligations committed in the resumption negotiations and in the Uruguay Round," he declared.

Several developing country cps, even some very friendly to China, later described the Chinese as "angry" -- but understandable in that it was aimed at its domestic audience -- and reflecting the frustration and negotiating fatigue of Chinese officials who find WTO founding membership (on which political masters back home had placed such weight) barred by the two major trade entities who constantly kept upping their demands even as the Chinese negotiators were finding their room for manoeuvre limited.

But, a senior delegate of one of the major developing country trading nations said, it is not the two majors alone, but a number of developing countries too who are concerned about the terms -- both in regard to disciplines that would apply in China's exports and access to the Chinese markets. Without challenging China's developing country status some way has to be found, he said.

But if China's room for manoeuvre, in the economic concessions it could offer, was limited the US negotiators too in effect were handicapped, some GATT diplomats noted. The US law, the socalled Jackson-Vanik amendment effectively prevents the US administration from allowing China entry into the GATT/WTO and providing it full MFN status, without specific approval by the Congress.

However, with everyone anxious to avoid a break and prevent any serious damage to continued talks, no one responded to GU or comment on the carefully crafted summing up of the Swiss Chairman of the Working Party, Amb. Pierre-Louis Girard which could be read as meeting the Chinese position of "no substantive negotiations" beyond the year-end and the US-EU view that there was need for progress in bilateral talks.

Pakistan's Munir Ahmad, the only other speaker at the formal working party session, said after GU's speech: "We are gratified that China has announced it will not close doors on the negotiations. We hope this spirit of constructive engagement and flexibility on the part of all will continue to guide the negotiations".

Some developing country delegates privately said that both sides were making some serious mistakes and errors. The emerging WTO trading system is such that no trading nation -- neither China, nor for that matter even the United States -- could afford to remain outside and conduct its trade relations on a bilateral basis.

An important leading trading nation like China would be as much of a problem outside the WTO, and thus less bound by its disciplines, for the world's other trading nations, as being within the WTO but with ambiguous commitments and disciplines.

A balance has to be found, but finding one inside the trading system -- with complexity of country interests and, within countries, of domestic enterprises as well as different importing and exporting enterprises -- is more complex than the kind of multilateral negotiations in the UN to which China has been accustomed or in the runup to the WTO where the US made 'demands' and found most of the developing nations giving in.

But unless China, and soon Russia (which has just begun to knock at the doors and could face an even greater task) are brought in, the WTO would not only lack universality, but find itself at some point in difficulty as a credible system.

GU said that the concessions made by China in the package to the working party and offers made in bilateral negotiations would remain on the table, that China would maintain the substantive offers on market access and the principle position on key provisions of the Protocol, but would never accept "any discriminatory terms and conditions for its GATT resumption".

Earlier, in reporting to the working party on the informal multilateral consultations, Girard said the consultations and negotiations of the past few days had permitted what he considered to be "very substantive progress" and that all delegations had manifested a clear desire "to reach a balanced substantive agreement at the earliest possible date".

There was a framework for a Draft Protocol on China and they had reached "substantive agreement" on a number of its provisions -- subject to legal and technical cleaning up.

The areas of agreement, he said, covered administration of the trade regime (uniform administration, special economic areas, transparency), special trade arrangements, state trading, import and export licensing, foreign exchange controls, price controls, taxes and charges levied on imports and exports, agriculture, and "reservations" by WTO members.

A number of other specific points in particular paragraphs have also been subject of substantive agreement although the sections themselves required further negotiations.

While "points of central important remain open", he was encouraged that based on the experience of the last several days, progress could be made on these points in a further round of consultations and negotiations.

However, progress in multilateral negotiations on a Draft Protocol on China was inextricable linked to progress in bilateral negotiations on market access and vice versa, Girard said in a prepared text distributed to newsmen later. "There is thus a dual track of priority tasks for China and members of the Working Party as we enter the final stage of the negotiations. We must not lose sight of this critical interlinkage".

In his statement, GU welcomed the establishment of WTO, but deeply regretted China's negotiations for resumption of GATT status could not be concluded before the WTO comes into being.

"In the light of China's current economic development levels and through a series of reform measures, we have drastically reduced our tariff levels, substantially decreased the number of non-tariff measures, progressively liberalized many domestic services sectors and greatly improved China's overall market access conditions. Furthermore, within a very short period of time, we formulated a legislation on high level of protection of intellectual property rights and are seriously enforcing relevant legal provisions."

These fully demonstrated China's sincere desire to resume its GATT membership and conditions for this were mature. China had also fully participated in the Uruguay Round negotiations and had signed the Final Act and the Agreement establishing the WTO, thus indicating that China would fully undertake its obligations in the global multilateral trading system.

It was on this basis that the majority of the cps were in favour of China being a founding member of WTO and it was only "fair, natural and reasonable" for China to request conclusion of the substantive negotiations before WTO's entry into force.

During the past month, to achieve this purpose, the Chinese delegation had shown "maximum flexibility", but the working party at this current had been unable to conclude the substantive negotiations.

"It is entirely because that, out of political consideration and lack of sincerity, a few contracting parties deliberately obstruct the negotiation process by making excessive demands.

"The current concessions reflect the maximum efforts China can make at its economic development levels as a developing country... (but) As a result of the delaying tactics and frustration of a few major parties, the principle of universality of the multilateral trading system has been seriously undermined, the normal order for multilateral trade negotiations disrupted, which prevents China from implementing the commitments already undertaken in its GATT resumption negotiations, damaging the interest of other contracting parties.

"The Chinese government has the legitimate concern whether the future WTO will be able to get rid of such arbitrary interference by a few members," GU declared.

"China will not initiate any bilateral consultations and meeting of the Working Party on China," GU said. However, China has no intention to close the door of negotiations. At the request of the Chairman of the Working Party we will participate in Working Party sessions, but we will maintain the substantive offers on market access and the principle position on key provisions of the protocol.

China, GU reiterated, would "never accept any discriminatory terms and conditions for its GATT resumption. China is a developing country with a huge population, low per capita income and weak economic foundation. Therefore, China will never accept any unrealistic and excessive demands beyond the extent that our economy can accommodate...

"..no matter when China joins the WTO, China's determination of building a socialist market economic system will not change and China's reform and open-up process will not stop. China will, on the basis of equality and mutual benefit, continue to expand bilateral economic and trade cooperation with other countries and regions around the world. However, China will proceed with its reform and pen-up according to its own time-table. China will formulate its industrial policies and implement the tariff and non-tariff measures necessary in the light of its own domestic situation and the needs of economic development"

Later at a press conference, China's chief negotiator, Long Yongtu, said that the two sides were "far apart" in terms of requests for market access and the offers China had made. There were excessive demands and constantly moving targets, he said, and cited the issue of financial services and permission for foreign banks to open business in China.

Originally, China had offered to allow foreign banks to open business in the coastal areas (involved in foreign trade), and the other side (presumably the US) wanted banks to be permitted also in Beijing and some important inland cities. About a week ago, China had made a fresh offer agreeing to allow the establishment of foreign banks in Beijing and some 10-12 provincial capitals when a request came that the entire country should be opened up for establishing foreign banks.

"Do they expect to set up banks in Sinkiang or Inner Mongolia, where foreign banking will not be commercially viable," Long asked.

He indicated that China would soon table its schedules in agriculture and services, and commit itself to the offers made in the last few weeks and hoped other contracting parties would consider and accept the offer.

Originally, China had wanted to become a founding member, but GATT legal experts had said that it would be difficult to do so beyond 31 December. But having participated in the Uruguay Round and signed the Final Act, China hoped still to be a original member when the resumption of its GATT status is completed, Long said.

Later, Long noted that along with the WTO, GATT 1947 too would continue for a year and hoped that China could still resume its status.

Girard himself in his summing up had said that for "practical reasons" the Draft protocol on China had been elaborated "along the lines of a WTO protocol, without prejudice to the ultimate decision to be taken on whether this should be a GATT or WTO protocol.

The EU officials, at one stage, had said that since China seems to have played such store on original membership, when the negotiations are completed, they could always declare China to be one.

Other GATT participants said that beyond political points, the concept of original membership did not mean anything and there was no difference between an original and a new member. Both sides had perhaps made a mistake -- China in setting such political point on it, thus making the US and others think that it could be pressured into yielding more than it should, and the US and others thinking that for the founding membership China would pay any price.

There are some GATT participants who think that in the New Year, with both sides having made their points, some modus vivendi could be evolved, though China would need to make some concessions.

Some Chinese officials themselves privately concede that they might have to make some more concessions, revisions of their offers, or provide technical clarifications to meet the viewpoints of the major trading partners. However, this would take some time, since in China too various interests and ministries and enterprises (state and private) were involved and all of them had to be consulted and their agreements obtained.