Us And China Business Issues

Summary:

The US trade deficit with China swelled to $201 billion last year up from $161 billion a year earlier. The strength of China's manufacturing sector in everything from clothing to electronics means that it is being blamed for the misfortune of the US workers. This paper critiquess on these statements and assesses the trading and business issues between the US and China, including the pressure for China to open its domestic markets to foreign competition and to allow it's currency, the Yuan, to trading freely since joining the World Trade Organization.

Why China wanted to be a member of the WTO

One of the main reasons China wanted to become a member of the WTO is that joining the WTO would help the general population of China in a numerous of ways, such as improving the economy and living conditions. It would help China avoid economic standstill, increase productivity of economic resources and stimulate economic growth. Employment would increase, especially in light manufacturing. More trading partners also cuts the cost of living for all involved parties. WTO membership would give China a more stable access to foreign markets because it would make trade smoother and undisrupted. With this stability, China will be in a better position to attract foreign investors who are more confident about developing China's domestic market. Foreign investment brings in capital, management, technology, market information and global production and distribution networks that would link China more firmly to the other economies.

Joining the WTO would help China to become acknowledged as one of the world's great powers. The opportunity had arisen for China to ascend to the role of the leading Communist super-power country. China's entry would give them greater access to foreign markets and offer a larger variety of better quality merchandise to import and more opportunities for export. Lower tariffs on imports also mean cheaper prices that consumers have to pay. Lower tariffs on exports means that more goods can be produced and sold, bringing more money into the country. Tariff reductions help eliminate trade distortions and facilitate more efficient distribution of resources among the trading partners, thus further promoting economic growth globally.

China has a few areas of high potential that WTO status could greatly aid China's economy. These include telecommunications, financial services, distribution industries and many other technological aspects. China also wanted many of these areas to be opened to external investors who would give them further assistance by opening the channels for technology transfer from the outside. Also, increased foreign competition in these areas would force Chinese enterprises to speed up their reforms to meet the challenges of outside investors.

China wanted to be admitted to the WTO ahead of Taiwan, which is also seeking membership. This would presumably make China appear to be more important and more powerful. The accession of China to the World Trade Organization is helping a country with a booming population and a less-than-stable economy become one of the great super-powers of the world.

What China had to do for WTO Membership

China was admitted to the WTO on the condition of submitting to an annual review of its implementation process otherwise known as the Transitional Review Mechanism (TRM). This mechanism is intended to serve as an enhanced consultation and coordination mechanism for WTO members to confirm that China complies with WTO trade rules and regulations. But there have been problems with this mechanism from the very beginning.

China views the TRM as a discriminatory process since it is the sole WTO member subjected to such a review. The TRM in the Chinese perspective serves as a special platform from which other WTO member states can bring singular focus upon China's WTO compliance record. From the US perspective, China is becoming increasingly clever at challenging the fundamental procedures of the review mechanism itself.

China has resisted providing complete and concrete evidence of its compliance record and has not responded to some written inquiries and comments submitted within the TRM. The Chinese mission to the WTO is seen by many as a work in progress. The frustration with China is also aimed at the Chinese government, which has apparently not urged its WTO mission in Geneva to take the TRM process more seriously.

The first review of China's WTO compliance in December 2002 was generally positive. The report noted that China had made "significant progress" in fulfilling its obligations as a new member of the WTO, although there are many remaining issues to be addressed.

However, subsequent reviews conducted by the US Chamber of Commerce, the US - China Business Council and the USTR, revealed unfulfilled commitments. These appraisals found that China lost momentum in fulfilling its WTO commitments. Some observers noted that China's leadership change in 2002 and the Severe Acute Respiratory Syndrome (SARS) outbreak in early 2003 could be blamed for its lagging compliance record. But greater concern was voiced for the increased Chinese practice of trying to reinterpret its WTO entry terms line-by-line as questions arise about implementation problems. As expressed by the US - China Business Council (USCBS). "China's interpretations of the certain WTO terms violate the spirit, if not the letter, of its commitments and new barriers China has erected in some areas make matters worse"

China currently has regulations in place that in theory, fulfill many of its market openings it promised when it entered the WTO. However several of those commitments remain unfulfilled, while other implementations are unclear, leaving many foreign companies unable to take advantage of changes.

Below is a summary of the WTO commitments China had to meet by the 11 December 2005 deadline.

Advertising

China met its commitment to allow wholly foreign-owned enterprises (WFOEs) in advertising services when the Regulation on Management of Foreign-Invested Advertising Companies, issued by the State Administration of Industry and Commerce and Ministry of Commerce (MOFCOM) in March 2004, took effect on 10 December 2005.

Banking

China also met its banking commitment when the China Banking Regulatory Commission announced on 5 December 2004 that it would allow foreign banks to expand their local currency