Nation Join World Trade Organization
---
Beijing Rejects 51% Stakes
In Companies but Allows
Safeguards From Imports
By Wall Street Journal staff reporters Ian Johnson in Beijing and Bob Davis and Helene Cooper in Washington
11/16/1999
The Wall Street Journal
Page A2
(Copyright (c) 1999, Dow Jones & Company, Inc.)
The U.S. and China signed a pact that could make China a member of the World Trade Organization by spring, enshrining its emergence from an economic backwater to a global trading powerhouse.
But after nearly a week of nonstop negotiations, U.S. Trade Representative Charlene Barshefsky and China's foreign trade minister, Shi Guangsheng, reached a deal that is remarkably similar to the one the U.S. rejected in April. China backed off its earlier offer to allow foreign companies to own 51%, or a controlling interest, in certain Chinese telecommunications companies and agreed to 50% ownership instead. But Beijing agreed to several measures that would protect U.S. companies from surges of imports from China for as long as 15 years.
President Clinton lauded the deal and said he would fight to win its approval in Congress. "Today," he said, "China embraces the principles of economic openness, innovation and competition that will bolster China's economic reforms and advance the rule of law."
Ms. Barshefsky credited Chinese Premier Zhu Rongji with interceding in the talks and making tough calls that could hurt uncompetitive Chinese industries. "In those areas where political flexibility was available," she said, Mr. Zhu "has the remarkable ability to be dispassionate and then make a decision."
The agreement covers broad areas of the Chinese economy. It slashes agricultural and industrial tariffs, permits foreign investment in Chinese Internet companies, promises banks the freedom to do business in local currency within a matter of years, and lets foreign companies set up automobile-finance businesses.
In exchange, the U.S. would back China's entry into the WTO. Under WTO rules, an entrant must negotiate separate accords with major trading partners; then it must offer the best terms pledged in any of the talks to all WTO members. Winning U.S. approval removes the biggest obstacle to China's 13-year quest to join the WTO because the U.S. had demanded the most significant trade liberalization.
However, China still must finish negotiations with the European Union, Canada and Brazil, which may make demands in areas not covered by the U.S.-China pact. Yesterday, the EU said it has a common position with the U.S. on "80%" of its negotiating agenda with China and now wants to talk to China about the other 20%. Areas in dispute include access to China's insurance market and tariff cuts on imports of cosmetics and agricultural machinery.
Nevertheless, China is expected to wrap up those talks quickly so it can play a significant role in a new round of globaltrade talks scheduled to be launched at the WTO's Nov. 30 meeting in Seattle. Anthony Gooch, spokesman for the EU's trade commissioner, said he expected it would take "a number of months" before China formally joined the WTO.
Separately, Congress must approve the pact, although in a fairly indirect way. Currently, Congress annually votes on whether to grant China the most favorable trade terms it offers other nations, known as "most favored nation" status. That vote becomes a vehicle for China's many opponents to pressure Beijing to make improvements in human rights, open trade and religious freedom.
Essentially, the administration must persuade Congress to scrap the annual vote and permanently grant China the favorable trade terms. Business groups are gearing up a $10 million lobbying campaign to persuade Congress to approve the change and will face determined opposition by labor unions and other opponents of liberalized trade.
"This is absolutely huge to the business community," said Chris Hansen, a Boeing Co. senior vice president who is heading the Washington lobbying campaign. "We'll win when people see their own economic interest is in this deal."
Although the U.S.-China pact deals with the minutiae of tariffs and trade, its proponents believe it may have broader effects on China. Complying with WTO rules and regulations, for instance, could require China to bolster its legal system. The agreement also promises a more stable bond between the U.S. and China, a relationship that has lurched from one crisis to the next in recent years.
Chinese officials also see the deal as a much-needed moment of accord between the two nations. "This will help regularize trade between our two countries and assist us in the reform and opening up of China," said Mr. Shi, the trade minister.
President Clinton rejected a similar deal in April because he feared Congress wouldn't support the agreement. But that was widely seen as a tactical error, which threatened to isolate China and dilute the WTO's relevance. U.S. officials now say yesterday's agreement achieved their goals, and U.S. executives were quick to hail the deal.
Under the pact, China would allow foreigners to own a 49% stake initially in telecommunications companies, which would increase to 50% two years after China joins the WTO. In April, China had agreed to allow a controlling interest, but the concession was sharply criticized by conservative Chinese officials who worry that foreigners will dominate what they see as a strategic industry.
"Fifty-one percent became politically impossible," Ms. Barshefsky said.
But Beijing also made concessions that were important politically to the U.S. For instance, China agreed that for 15 years, it would abide by provisions that make it much easier for U.S. companies to prove imports are being sold in the U.S. at below-market prices. Such a determination would lead the U.S. to impose heavy tariffs on the imports. In April, Beijing had wanted to limit the agreement to five years. China also consented to other procedures meant to protect U.S. industries such as steel and textiles from a sudden surge of imports.
Under other provisions of the deal, banks will be able to make local-currency loans to Chinese companies two years after China joins the WTO. They will be able to conduct local-currency business with individuals after five years, and there will be no geographic restrictions on their business. Although few foreign banks are expected to set up nationwide banking networks to win over ordinary Chinese, the banks are expected to take advantage of the new rules to lend to big corporate clients.
Foreigners also will be allowed to own 33% of fund management companies, increasing to 49% in three years. And they will be allowed to own 33% of firms that underwrite stock and bond offerings. The deal doesn't allow majority ownership in such companies, reflecting the government's conviction that too much foreign involvement in Asia's stock markets contributed to the region's financial crisis.
---
Journal Link: For video of The Wall Street Journal's John Bussey and Alan Murray discussing the trade deal, see The Wall Street Journal Interactive Edition at http://wsj.com
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
Bottom of Form 0