Kebijakan LN dan Keamanan RRT 7;

Cina, Multilateralisme, dan Global Order II

Dosen Pengasuh:
Nanda Avalist, S.IP, M.Si

Jakarta
2014
 WTO – A Big Event
• Joining WTO is one of the important event in
the History of Modern China
• 1949
• 1978
• 2001
• Various dimensions, social, political,
institutional, cultural
 Economics
• But We start from economics

• Efficient – allocation – scarce resources

• Economic theories and Specialization

• Economies of Scale, Welfare

 History of SOE’s
• Like other centrally planned Economies Before
改革开放 SOE’s were in Control
• Where the governments -not the markets-
determined prices & quantities
 China SOE’s
• SOE produced 78% of total industrial output at their
peak in 1978 and 28% in 1999
• Inefficiency of central planning
• communism ideal, remove the unemployment that
plagues capitalist economies
• SOE annual losses of 6% of GDP
• No incentive to be efficient
• entrenched interest with in the structure
 SOE’s
• Inefficiency and problem
• State face hurdles (Status quo)
• bilateral agreements are lengthy process
• China want to integrate
• WTO an opportunity
 SOE’s
• The SOE enjoy administrative monopoly
• That prohibited the development of private
sector
• First, the government tried to restructure the
SOE’s on the line of conglomerates in Asian
economies such
• as Chaebol or
• keiretsu
 China SOE’s
• 1981, self-employment and collectively-
owned enterprises. (RS system)
• In 1983, instead of profit – taxes
• 1993, small and mid size SoE’s reformed
• capital markets, labor markets, and stock
markets
 What is WTO?
• International, multilateral organization which
sets rules for global trading system 设置规
则
• All member states must be signatories to its
about 60 agreements. 必须签署 60 个协议
• Main goal is to encourage smooth and free
trade 顺利和自由贸易
 What is the WTO?

• Resolves disputes between member states

争端
• Non-discrimination
• Reciprocity
• Binding Commitment
• Transparency
• Safety
 Six main parts of agreements
• The Agreement Establishing the WTO
• Goods and Investment (TRIMS)
• GAT&S
• IPR (TRIPS)
• DSU
• TPRM (review of govt trade policies)
Conditions for China to enter WTO

• (1) the lowering of tariffs for imports,

• (2) the permission of foreign firms to sell

directly in the Chinese domestic markets
and

• (3) opening of the telecommunication and

financial sectors to more foreign
competition.
 China entry to the WTO

• China was voted in as a member on November 11,

2001 and became official member 成为正式成员 on
December 11, 2001
• In order for China to gain member status, China had
to agree to separate negotiations 谈判 with all of
the current WTO members
• After 15 years of negotiations China got member
status in 2001
 Timeline for Qualification

1986 -- China applies to join GATT

1989 – negotiations derailed due to certain political events.
November 1995 -- China unveils economic and trade reforms.
slashed import tariffs by 30 percent
April 8, 1999 - President Bill Clinton and Premier Zhu Rongji
May 7, 1999 -- NATO forces bombing of the Chinese embassy in
Belgrade.
September 11, 1999 -- Clinton and Jiang Zemin agreement
November 15, 1999 -- U.S. and China announce a WTO pact.
Clinton must persuade the U.S. Congress to grant China
permanent normal trade relations (PNTR).
 Timeline for Qualification
May 19, 2000 -- The European Union signs a WTO accession pact with China
October 10 -- Clinton signs a law giving China normal trade status with U.S.
January, 2001 -- China and some WTO members disagree on farm subsidies.
June 9 -- China and the U.S. announce consensus on issues holding up China's entry,
including farm subsidies, after meetings on the sidelines of an APEC trade
ministers' meeting.
June 20 -- The European Union says it has resolved outstanding bilateral issues with
China over its accession.
September 14 -- WTO members agree on terms for China's entry at an informal
meeting, clearing the way for the nation to join by the end of the year.
November 10 -- Trade ministers from across the world officially approve China's entry.
The move was approved unanimously at the WTO meeting in the Gulf state of
Qatar
December 11 -- China ends its 15-year quest to join, officially becoming a fully-fledged
member of the international trading system.
 SOE’s and WTO
• In 2000, the SOE sector produced 24% of industrial
output, and accounted for 42% of urban
employment
• two types of subsidies: direct and capital
• Agreement on Subsidies and Countervailing
Measures (SCM)
• economic gains of restructuring the SOE sector
derived from WTO accession
• Taking in account the benefits of SOE’s, the benefits
of trade liberalization is substantial
 Effect
• distribution system or mode of doing
businesses, ownership structure, and human
capital
• scale and scope economies
• FDI: Learning by doing and by Watching
• Government overcame on bureaucracy
 Winners vs Losers
• Winners The private sector
Consumers Exporters
Transport: containers
Services: household and
professional Textiles and
apparel Light manufactures,
e.g. electronics, toys Non-
farm activities in rural areas
• Losers Many state-owned
companies Banking
Insurance
Telecommunications
Automobiles Heavy
industry, e.g. steel,
aluminum Farmers; e.g.,
grain, soybeans & cotton
State trading companies
• China had to relax over 7,000 tariffs, quotas
and other trade barriers. Some feared that
foreign competition would uproot farmers
and upend rusty state-owned enterprises
(SOEs), as to some extent it did.
 WTO as a Panacea 万应灵丹
• the enforcement of reforms is much easier through
the WTO than through the domestic bureaucracy.
• Entire SOE’s in debt and WTO was an agenda
• The former Premier Zhu Rongji stated explicitly that
WTO accession was a decision made by the
government to promote further reforms and open
up the economy
What has been changed/reformed?

• More openness and access

• Transparency
• Got rid of inefficient organizations and
management
• China participation in the WTO's dispute
settlement system
• Eliminate trade subsidy 补助金
• Efficiency and proper allocation of
resources
 Effect on SOE’s
• The term ‘efficiency’ can be termed in
different ways,
• as Pareto efficiency,
• technical efficiency,
• allocative efficiency,
• exchange efficiency,
• X-efficiency and market efficiency
 Alternate
• Simply by formally changing the state
enterprises to share-holding companies does
not lead to the replacement of former
managers and the adoption of new ways of
managing the enterprises. As pointed out in
Chow (2002, p. 391) private ownership is
neither sufficient nor necessary for enterprise
efficiency
 success
• Chinese State-owned Enterprises (SOEs) are
making news with a number of them
appearing on the global lists
• Geely’s volvo marque from Ford
 Incentives
• In summary, through different stages the SOE
reform went from microeconomic
adjustment, to limited autonomy, to
privatization; and from giving no economic
incentive to workers and managers, to giving
partial incentives, to full incentive in the case
of privatized SOE.
 Effect of WTO Entry
• GDP grew by 8% in the year following entry to the
WTO
• Increase of 18.4% in trade volume with USA

• China’s exports increased by 19.7% in a year

• WTO , increase in confidence and Influx of foreign

investment
 Private Sector
• WTO policies forced China to treat all enterprises
equally
• Private Sector has seen rapid growth
• Ban on Private sector to engage in foreign direct
trade removed
• Private sector got access to finances
• In Zhejiang Province, for example, 80 % of the 1,700
enterprises that were granted the right to conduct
foreign trade in 2005 were private firms.
Tariff Reductions
 WTO and Economic Growth
• first is the gain from specialization through
international trade.

• The second is the gain from increase in

efficiency within each industrial sector and
economies of scale
• Western firms got from China’s joining the
WTO
 Cost and Benefits
• WTO and competition
• Encouragement of market power
• private ownership is neither sufficient nor
necessary for enterprise efficiency
• Consumer cost and benefits
• Decline in state control
What does the future hold for China in
the WTO?
• Economic growth will continue and more reforms
will be made
• China will have access to advanced technology
• China’s tariffs will eventually reduce
• Banks/stock will begin to launch massive market
oriented reform programs to prepare for
competition from outside markets
• Business standards will continue to rise
TERIMA KASIH