THE EUROPEAN UNION-CHINA WTO ACCCESSION AGREEMENT
You zhi zhe cheng (in Chinese characters)
When there's a will, there's a way
(proverb dating from the Eastern Han Dynasty)
China Business Review, Hong Kong, July-August 2000
Daniel Arthur Laprès
Avocat à la Cour d'Appel de Paris
Barrister & Sollicitor (Nova Scotia)
Daniel Arthur Laprès
As the last major hurdle on China's route to the World Trade Organization (WTO), the negotiations with China afforded the European Union (EU) a historic opportunity to pry open the local market. Since the accession of China will in practice be subject to unanimous consent of the WTO's 135 members, the stage was set for the EU, China's second largest trading partner, to tee off on the gains achieved in November by the United States.
Instead, EU Trade Commissioner, Mr. Pascal Lamy, proclaimed from the outset his 80% satisfaction with the US agreement. After completion of the negotiations, he concluded that more than 80% of the EU's objectives for improvement had been obtained.
principles of the GATT (most favored national and national treatment) require
that any fresh concession obtained beyond those negotiated by the United
States should benefit all other WTO members in the same extent. In
addition, under the terms of each agreement, some gains will enter into
effect immediately, and both agreements reaffirm the grand-fathering principle.
In such circumstances, a comparison of the results of the two sets of negotiations may reveal opportunities for firms to achieve competitive advantages.
The achievements of the EU negotiators
Since the purpose of the negotiations was clearly understood to be the achievement of advantages for home country enterprises, it is useful to inquire to what extent the EU negotiators satisfied European economic interest groups' desiderata. In fact, significant duty concessions over and above the commitments given to the US were obtained on some 150 specific industrial products and agricultural products. For instance, the duty rate reduction obtained by the US on wine imports from the current 65% to 20% was considerably improved by the EU negotiators (the duty rate would become 14% upon accession). Spokesmen for the European insurance industry have been especially vociferous in their manifestation of satisfaction with the results of their negotiations, and European banks will also note with satisfaction the concessions obtained with immediate effect in favor of at least some seven among their number. And given the very specific niches covered by the EU-China agreement (for instance, dredging, NPK fertilizers, insurance company licenses in Foshan), one may suppose that the most proactive of the interest groups have been placated. Even in the field of telecommunications where the EU negotiators brought back less than a full bill of claims, industry reactions have been positive.
Especially noteworthy are the achievements
of the EU negotiators beyond what the concerned economic interest group
had sought. For instance, in the field of legal services, the Council of
the Bars and Law Societies of the European Union called upon China "to
allow foreign law firms to advise on home country, any third country and
international law". The EU has announced that its negotiators also obtained
the right for lawyers of WTO member countries to advise on Chinese law,
a domain expressly excluded from the agreement with the US.
What was not achieved
Perhaps the major disappointment of the US and EU agreements concerns the telecommunications and audiovisual sectors, including the internet.
The EU negotiators had specifically identified telecommunications as a sector in which they intended to improve upon the Chinese commitments vis-à-vis the US. Indeed, Mr. Lamy even declared publicly the EU goal of majority foreign ownership of telecommunications operations in China.
But in the end, even after full implementation of the terms negotiated by the US and improved in particular by the EU, China will be allowed to limit foreign investment in the telecommunications sector to 50%. Moreover, since the Ministry of the Information Industry currently treats Internet Service Providers (ISPs) as well as Internet Content Providers (ICPs) as telecommunications businesses, one must conclude that majority ownership or control by foreign investors in these nascent sectors will also be excluded for the foreseeable future.
That the EU negotiators did not set
as a priority the greater opening of the local market for movies and cultural
products more generally is puzzling. Perhaps the French predilection for
invoking "cultural exceptions" to justify local quotas on television content
and public subsidies of local productions was felt to have crippled the
EU's negotiating position.
Toward an overall assessment of the results
The negotiators of the US and the EU agreements, and indeed most commentators, have tended to evaluate their achievements by reference only to the present situation. Accordingly, since no investment whatsoever is today allowed, for example, in the telecommunications sector, then even 50% limits on foreign ownership after accession represent a considerable achievement.
But, at least two other references would seem to apply to the negotiations.
First, on the assumption that the principal country alternative to China is India, a comparison between these countries' GATT régimes will in practice influence the future decisions of international business. In this sense, were India's GATT régime to be far more favorable to foreign business, any victory today for China's protectionists might in the end prove to be pyrrhic. While a comprehensive analysis of this question is beyond the scope of this comment, a few points may be highlighted. Though India has been pursing a process of liberalization since 1991, and is indeed already a member of the GATT, China's terms of accession will cause it to leapfrog ahead of its South Asian rival in many aspects of opening and liberalization. For instance, whereas India's average rate of duty toward other WTO members has been reduced from an average of 71 per cent in 1993 to a current average of 35 per cent, this rate would be 2-3 times higher than the comparable Chinese rate after accession. On the other hand, in at least one important respect, China will remain less open than India: apparently, China will be allowed to maintain its exorbitant capital floors and other financial requirements imposed on foreign investors.
Secondly, in so far as the expectation
of democratic countries in accepting the application to Hong Kong of the
"one country, two systems" principle was, at least in part, that the liberal
capitalist régime in Hong Kong would spillover, if only by drips,
into China, a comparison of Hong Kong's and China's WTO régimes
governing the legal profession is especially significant. Because the Chinese
legal profession is notoriously understaffed and undereducated, its protection
from foreign competition has long been an avowed goal of the authorities.
For instance, the US negotiators did not succeed in obtaining the right
for their professionals to advise on Chinese law, though this has since
been obtained by the EU negotiators. The right, also obtained by the EU
negotiators, for foreign lawyers to instruct directly members of Chinese
firms will in effect allow foreign lawyers to offer services in Chinese
law while managing vertically their delivery. The net result will surely
be the more rapid improvement, and indeed the greater democratization,
of the Chinese legal system.
What remains to be done
While the EU was the last major holdout in the accession negotiations, it will not be the last of the WTO member countries claiming to negotiate directly with China. As of the date of the end of May, Costa Rica, Ecuador, Guatemala, Mexico and Switzerland had still not concluded accession agreements with China.
Once all these bilateral negotiations are completed, the Working Party will produce three documents: a "protocol of accession", which sets down the manner and schedule for adjustment of any remaining non-conform Chinese trading norms, a report summarizing all China's commitments to open trading and "market access schedules" which recapitulate what treatment China will give to each traded item.
All three documents will then be presented to the WTO's General Council, that is the assembly of all WTO members. In principle, any member would be entitled to call a vote whereupon a two-thirds majority would be required for China's accession to carry. But, a call for a vote is unlikely, as all members have expressed their desire that China should regain its place in the WTO.
Once the internal WTO procedures are
completed, it will be up to the Standing Committee of China's People's
Congress to ratify the Agreements and 30 days after filing of such ratification
with the WTO in Geneva, China's accession would be enter into effect.
In the end, the 14 year access negotiation
process proved to be loaded against the Chinese side. The requirement of
unanimous consent of current members encouraged China's negotiating partners
to implement coordinated strategies. While the EU seems not to have maximally
exploited its hold out position to pressure China into further concessions,
the hope remains that the benefits of opening and liberalization will be
so evident to the Chinese authorities and people that they will of their
own initiative seek to sweep away the remaining excesses of protectionism
in their country's international trade régime.