U.S., China agree on trade; Historic agreement paves way for China to enter the WTO; Six arduous days of talks; Beijing must slash tariffs, eliminate export subsidies

THE BALTIMORE SUN

BEIJING -- After 13 years of intermittent negotiations and six days of exhaustive talks, Washington and Beijing reached an agreement yesterday that opens the world's most populous economy to broader foreign competition while greatly boosting China's chances of entering the World Trade Organization.

The accord offers foreign firms increased access to a variety of sectors in the Chinese economy -- such as banking, auto sales, movies and the Internet -- and marks a major step in the nation's continued opening to the outside world.

The ramifications, though, stretch well beyond economics.

Entry into the WTO would further integrate the world's last major communist country into the global community -- although there are doubts about China's willingness to play by WTO rules. The trade deal could also help stabilize and solidify the often-tumultuous -Sino-U.S. relationship, which practically collapsed in May after the NATO bombing of the Chinese Embassy in Belgrade, Yugoslavia.

"I think that all of us benefit when the most populous nation in the world is now going to be part of a rule-based system that will bring shared prosperity," President Clinton said in a news conference yesterday while visiting Ankara, Turkey. "The trade agreement is part of a broader agreement designed to bring China into global systems on issues from nonproliferation to regional security to environmental protection to human rights."

Chinese President Jiang Zemin said: "Without the participation of China, a country with 1.2 billion people, the WTO is incomplete."

The accord, which was negotiated by U.S. Trade Representative Charlene Barshefsky and Chinese Foreign Trade Minister Shi Guangsheng, would permit greater outside competition in a transitional economy that the Chinese government has jealously controlled and protected. Under the agreement, China must slash tariffs and eliminate export subsidies. Changes in other sectors, such as banking and automobiles, would be phased in over as much as five to six years. In exchange, the United States agreed to support China for membership in the WTO.

While details remained hazy yesterday, the accord drew praise from business groups and other free-trade advocates. American businesses predicted more investment would follow if China joins the WTO, a group of 134 nations that acts as a sort of United Nations of importing and exporting.

"This agreement is extremely positive for both countries," said Gary G. Benanav, chairman and chief executive officer of New York Life International Inc. "For China, it will help hasten market reforms already under way. For the U.S., it will open a massive market to our businesses and agricultural products."

New York-based Human Rights Watch said Chinese membership in the WTO could increase pressure for more press freedom, workers' rights and an independent judiciary. But some decried the agreement as hurtful to U.S. workers whose products could be newly vulnerable to inexpensive Chinese imports.

The deal is "a slap in the face not only to workers in America, but also to their counterparts in China," said James P. Hoffa, president of the Teamsters union. "The Chinese economic system is protectionist, exploits labor and represses human rights."

Question of fair play

Much of the optimism prompted by yesterday's announcement is based on the assumption that China will play fairly under WTO rules, liberalizing its economy at a good pace. That outcome is not necessarily guaranteed, some analysts said.

"I'm concerned about how we get them to live up to the terms of the agreement and what China in the WTO means for the future of that organization -- given how rudderless it seems," said Peter Morici, a professor of international business at the University of Maryland, College Park and former director of economics at the U.S. International Trade Commission.

China wants to enter the WTO before the organization begins meetings Nov. 30 in Seattle. But that seems unlikely.

Despite yesterday's agreement, China must reach accords with other trading partners, including Canada and the European Union, before its application can be taken up by the WTO's member states. And while China does not need congressional approval to enter the WTO, Congress still must endorse the country's favored trading status, which expires in June.

WTO membership is part and parcel of the agreement Barshefsky signed in Beijing; the concessions granted to the United States won't go into force unless China enters the WTO, trade-law experts said.

For Chinese consumers

Officials in Beijing predict that WTO membership will boost China's economy, which ranks seventh in the world, behind Italy. For some Chinese consumers, the agreement should mean more convenience and better service.

Until recently, Chinese could not get auto loans and often bought cars with bags of cash. Many young Chinese love American movies and will have greater opportunity to see Hollywood blockbusters on the big screen. Xie Songbai, business manager of the Dahua Cinema in Beijing, says he's looking forward to drawing larger crowds with more foreign films.

"Of course, it's good," Xie said last night, referring to China's potential accession to the WTO. "Our revenue will definitely increase."

But more foreign access to China's economy will also mean more suffering for millions who work in the nation's money-losing state sector. While the Dahua Cinema may draw more customers, more Hollywood movies will siphon business from China's already staggering domestic film industry -- just one of the many vulnerable sectors of China's economy.

A recent study by the Development Research Center, a Chinese government think tank, estimated that entry into the WTO could cost nearly 13 million jobs in cotton, wool and wheat production. The number of auto manufacturing companies is expected to decline by more than 25 percent.

"Access to the WTO implies a relatively dramatic economic structural adjustment," the report said.

Continuing on path

For China, entry into the WTO also represents a continuation of its path toward economic reform, which the late leader Deng Xiaoping began some 20 years ago. In the late 1970s, Deng began dismantling the failed command economy built by Mao Tse-tung. He permitted farmers to sell their own produce and encouraged entrepreneurs to start their own businesses.

The Chinese economy ignited and grew at a blistering rate. Now, most observers say, the government must continue to push through tough reforms, which require shutting down many enterprises and millions of additional layoffs.

"For the first 20 years, they did a lot of easy reforms; now they are getting into the complex institutional issues which cut close to the bone," said Deepak Bhattasali, chief of the economic unit at the World Bank office in Beijing. "By binding China to certain international agreements, both the Chinese government and the world community are ensuring that the reform program here will stay on track."

If some of the market-opening measures required to join the WTO prove too onerous or politically destabilizing, China may be able to find ways to postpone some of the pain, observers say.

"The WTO is not designed to destroy an economy," said a Western economist in Beijing. "There are so many ways in which they can govern the speed with which this is implemented."

Sun staff writer Jay Hancock contributed to this article.

Deal highlights

The U.S.-China trade deal will obligate Beijing to cut tariffs an average 23 percent and promises greater access to China's market. Here, at a glance, are some of the benefits for U.S. companies:

* Phone companies will be able to own up to 49 percent of all telecommunications service ventures upon China's entering the WTO and up to 50 percent two years later.

* Foreigners may invest in Internet companies, including the content providers.

* Manufacturers can import and export without government middlemen, and distribute and sell products directly to China's 1.2 billion consumers.

* China will import 20 foreign films a year, double the current number.

* U.S. banks can offer services in local currency to Chinese enterprises, two years after joining the WTO, and to individual Chinese, five years after joining.

* Automakers will have full distribution and trading rights. By 2006, China will reduce tariffs on automobiles to 25 percent from the current 80 percent to 100 percent. China will also allow foreign financing of car purchases.

* Tariffs on agricultural products will fall to 14.5 percent from 15 percent. China will also eliminate all export subsidies.

* Foreign firms will be allowed minority stakes in securities fund management joint ventures. Foreign stakes will be limited to 33 percent initially, rising to 49 percent three years after China joins the WTO.

Associated Press

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