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 scene 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.

The non-discrimination principles of the General Agreement on Tariffs and Trade of 1947 as updated in 1994 (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.[2] 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, including 7 licenses to be granted immediately. And given the very specific niches covered by the EU-China agreement (for instance, dredging, NPK fertilizers, insurance company licenses in Foshan, advance access for banks to the local currency market in Zhuhai), 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, 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" as well as"to allow Chinese lawyers working for foreign law firms to advise on Chinese law" (emphasis added). The EU apparently claims that its negotiators also obtained the right for lawyers of WTO member countries to advise on Chinese law.

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 49-50%, depending on the specific sub-sector.[3] 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.[4] 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' WTO régimes will in practice influence the future decisions of international business. In this sense, were India's WTO régime to be far more favorable to foreign business, any victory today for China's protectionists might in the end prove to be pyrrhic.[5] 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 WTO, 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,[6] 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, including representation before the Chinese courts, 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 37 WTO member countries which to engage China in bilateral negotiations. As of the date of the early June, Costa Rica, Ecuador, Guatemala, Mexico and Switzerland had still not concluded accession agreements with China.

Once all these bilateral agreements have been filed with the WTO Secretariat (which can take several months from their signature), the Working Party will prepare the Schedules of Concessions on Goods and the Schedule of Commitments on Services, which reconcile and consolidate the results of the bilateral negotiations and which comprise annexes to the final Protocol of Accession. This can also be a time-consuming process since it involves reconciliation of all the provisions of the various bilateral agreements.

In parallel with the bilateral negotiations, China has been negotiating with the WTO Working Party the exact text of the Protocol, a process which remains unfinished, but which the Working Part has indicated it intends now to intensify. 

The Protocol of Accession and Annexes together with the Working Party's Report will then be presented to the WTO's General Council, that is the assembly of all WTO member countries. 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 approve the ratification of the Agreements and 30 days after filing of such ratification with the WTO in Geneva, China's accession would be enter into effect.

Conclusion

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.

In acceding to the WTO, the China will adhere to the following specific agreements:[7]

The Marrakech Agreement of 1994 instituting the World Trade Organization and its Annexes:

Annex 1A Multilateral Agreements with respect to Trade in Goods

-General Agreement on Tariffs and Trade 1994 

-Agreement on Agriculture 

-Agreement on Sanitary and Phytosanitary Measures 

-Agreement on Textiles and Clothing 

-Agreement on Technical Barriers to Trade 

-Agreement on Trade-Related Investment Measures

-Agreement on Implementation of Article VI (Anti-Dumping) 

-Agreement on Implementation of Article VII (Customs Valuation)

-Agreement on Preshipment Inspection 

-Agreement on Rules of Origin

-Agreement on Import Licensing Procedures 

-Agreement on Subsidies and Countervailing Measures 

-Agreement on Safeguards

Annex 1B - General Agreement with respect to Trade in Services and its Annexes including those

-with respect to exemptions from the obligations stipulated in article II

-with respect to the movement of persons supplying services covered by the Agreement

-to air transportation

-financial services (I and II)

-negotiations with respect to maritime transporation services

-telecommunications

-basic telecommunications

Annex 1C - Memorandum of Agreement on Trade-Related Aspects of Intellectual Property Rights,

Annex 2 - Memorandum of Agreement on Trade-Related Aspects of Intellectual Property Rights,

Annex 3 - Mechanism of examination of trade policies

Annex 4 -Plurilateral trade agreements with respect:

-commercial aircraft

-government procurement

-milk and dairy products

-meat

In addition, China has agreed with the US to sign the following agreements concluded since 1994:

-the Information Technology Agreement

-the Basic Telecommunications Agreement and 

-the Financial Services Agreement