{"id":271,"date":"2011-12-13T16:46:15","date_gmt":"2011-12-14T00:46:15","guid":{"rendered":"http:\/\/savingusmanufacturing.com\/blog\/?p=271"},"modified":"2011-12-13T16:46:15","modified_gmt":"2011-12-14T00:46:15","slug":"what-have-been-the-consequences-of-china%e2%80%99s-accession-to-the-wto","status":"publish","type":"post","link":"https:\/\/savingusmanufacturing.com\/blog\/general\/what-have-been-the-consequences-of-china%e2%80%99s-accession-to-the-wto\/","title":{"rendered":"What Have Been the Consequences of China\u2019s Accession to the WTO?"},"content":{"rendered":"

The recently-released U.S.-China Economic and Security Review Commission<\/a><\/span> report states that is has been ten years since China joined the World Trade Organization (WTO), and \u201cthe concerns that originally surrounded China\u2019s accession to the WTO\u2014that China\u2019s blend of capitalism and state-directed economic control conflict with the organization\u2019s free market principles\u2014have proven to be prophetic.\u201d\u00a0 What have been the consequences of China\u2019s accession to the WTO and what are the implications for the future?<\/p>\n

At that time, China did not meet all of the traditional requirements for accession, but the WTO took a calculated gamble that China could effectuate the reforms necessary to conform to those requirements within a reasonable period of time. The U.S.-China Economic and Security Review Commission was established by the United States Congress in part to monitor the outcome of that gamble.<\/p>\n

Ten years later, it\u2019s obvious from the reports that the WTO lost the gamble.\u00a0 The recent Commission reports that China\u2019s state-directed financial system and industrial policy continues to contribute to trade imbalances, asset bubbles, misallocation of capital, and dangerous inflationary pressures\u2026China\u2019s adherence to WTO commitments remains spotty despite the decade that the country\u2019s rulers were given to adjust.\u201d\u00a0 As a result, these circumstances create an uneven playing field for China\u2019s trading partners and threaten to deprive other WTO signatories of the benefit of their bargain.\u00a0 This is an understatement of the effect on the economy of China\u2019s main trading partner ? the United States.<\/p>\n

Chapter one analyzes these issues, beginning with an examination of U.S.-China trading and financial relations and concluding with an evaluation of China\u2019s role in the WTO. \u00a0\u00a0\u00a0It also examined the implications of China\u2019s being relieved of its burden of facing an annual review by the WTO of its compliance due to the fact that the ten-year probationary period ends this year<\/p>\n

U.S.-China Trading Relations<\/strong><\/p>\n

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For the first eight months of 2011, China\u2019s goods exports to the United States were $255.4 billion, while U.S. goods exports to China were $66.1 billion, yielding a U.S. deficit of $189.3 billion.\u00a0 This represents an increase of nine percent over the same period in 2010 ($119.4 billion). During this period China exported four dollars\u2019 worth of goods to the United States for each dollar in imports China accepted from the United States. In 2010, the United States shipped just seven percent of its total exports of goods to China; China shipped 23 percent of its total goods exports to the United States.<\/p>\n

In the ten years since China joined the WTO, the U.S. trade deficit with China has grown by 330 percent<\/strong>.\u00a0 This trade deficit is not explained by a broader trend of American dependence on imports. \u00a0In the first eight months of 2011, Chinese goods accounted for 20 percent of U.S. imports, while U.S. goods accounted for only five percent of Chinese imports.\u00a0 China\u2019s portion of America\u2019s trade deficit has nearly tripled\u00a0 ? from 22 percent in 2000 to 60 percent in 2009 and 55 percent in 2010 – while the overall U.S. trade deficit with the world has grown from $376.7 billion in 2000 to $500 billion in 2010.<\/p>\n

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China\u2019s Share of the U.S. Global Trade Deficit (by percentage), 2000\u20132010<\/p>\n

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Source: U.S. Bureau of the Census, U.S. Trade in Goods and Services <\/em>(Washington, DC: U.S. Department of Commerce, August 15, 2011).<\/p>\n

The Commission states \u201cThese data suggest that the growth in the U.S. global trade deficit reflects growth in the U.S. trade deficit with China and that other emerging economies are being replaced by China as a final supplier of finished exports to the United States.\u201d\u00a0 Of more serious concern is not the size of the U.S. trade deficit with China but the composition of goods. \u00a0\u00a0Chinese manufacturing has undergone a dramatic restructuring during the last ten years, away from labor-intensive goods toward investment-intensive goods. \u00a0Production now is driven less by low-cost labor and more by low-cost capital, which is being used to build next-generation manufacturing facilities and to produce advanced technology products for export. \u00a0This is demonstrated by the decrease in Chinese exports of labor-intensive products, such as clothing, footwear, furniture, and travel goods as a percentage of total exports. \u00a0In 2000, exports of these labor-intensive products constituted 37 percent of all Chinese exports. By 2010, this percentage had fallen to just 14 percent.<\/p>\n

It\u2019s apparent that this shift has serious implications for the U.S. economy. \u00a0When China joined the WTO, the United States had already lost production of low-value-added, low-wage-producing commodities such as clothing and toys.\u00a0 But America\u2019s export strength lay in complex capital goods, such as aircraft, electrical machinery, generators, and medical and scientific equipment. \u00a0\u00a0\u201cFrom 2004 to 2011, U.S. imports of Chinese advanced technology products grew by 16.5 percent on an annualized basis, while U.S. exports of those products to China grew by only 11 percent.6 In August 2011, U.S. exports of advanced technology products to China stood at $1.9 billion, while Chinese exports of advanced technology products to the United States reached $10.9 billion, setting a record one-month deficit of more than $9 billion. On a monthly basis, the United States now imports more than 560 percent more advanced technology products from China than it exports to that country.<\/p>\n

U. S. Exports to and Imports from China of Advanced Technology\u00a0 Products in the Month of June ($ billion) 2004-2011 <\/span><\/a>\"\"<\/a>Source: U.S. Bureau of the Census, U.S. Trade in Goods and Services <\/em>(Washington, DC: U.S. Department of Commerce, August 15, 2011).<\/p>\n

The Commission states that \u201cthe weakness in U.S. exports of advanced technology products to China is explained in part by barriers to market access experienced by U.S. companies attempting to sell into the Chinese market.\u201d\u00a0 Import barriers are part of China\u2019s policy of switching from imports to domestically produced goods.\u00a0 China\u2019s policy of \u2018\u2018indigenous innovation\u2019\u2019 protects domestically produced goods by discriminating against imports in the government procurement process, particularly at the provincial and local levels of government.<\/p>\n

Seventy-one percent of American businesses in China believe that foreign businesses are subject to more onerous licensing procedures than Chinese businesses according to a recent survey conducted by the American Chamber of Commerce in China.\u00a0 A similar 2011 study by the European Chamber of Commerce in China found that inconsistencies in the procurement process employed by the Chinese central government resulted in a lost opportunity for European businesses that is equal in size to the entire economy of South Korea, or one trillion dollars.<\/p>\n

China\u2019s Role in the WTO<\/strong><\/p>\n

<\/strong><\/p>\n

Since the last Report, the U. S. brought three new, China-related disputes to the WTO.\u00a0 \u201cOn December 22, 2010, the United States requested consultations with China over its subsidies for domestic manufacturers of wind power equipment (DS419). \u00a0The European Union (EU) and Japan joined the consultations in January. \u00a0The case has not yet advanced to the hearing stage. \u00a0In the second case, the U. S. requested consultations with China regarding its imposition of antidumping duties on chickens imported from the United States. \u00a0\u00a0In addition, on October 6, 2011, the U.S. Trade Representative submitted information to the WTO identifying nearly 200 subsidies that China, in contravention of WTO rules, failed to notify to the WTO. \u00a0Three previous WTO cases involving U.S.-China trade are both open and active. The Raw Materials <\/em>case, which resulted in a decision favorable to the United States, is under appeal as of August 31, 2011. \u00a0The Flat-rolled Electrical Steel <\/em>case and the Electronic Payments <\/em>case have both advanced to formal dispute settlement, though no decision has been reached\u2026The United States has brought a total of seven cases against China at the WTO concerning subsidies or grants. Of the seven, four were settled through consultation, two were decided in favor of the United States, and one remains undecided.\u201d<\/p>\n

<\/strong><\/p>\n

China\u2019s WTO Probationary Period Ends This Year<\/strong><\/p>\n

<\/strong><\/p>\n

During the 15 years of negotiations leading up to China\u2019s accession, the United States and the European Union expressed concern about potential negative consequences that might befall the WTO due to China\u2019s sheer size and lack of a market-based economy and they insisted on a series of China-specific admission requirements.\u00a0 \u201cThe centerpiece of this \u2018WTO\u2013Plus\u2019 admission package was the Transitional Review Mechanism, which required China to submit to an annual review for the first eight years of its membership in the organization, as well as a final review in the tenth year. \u00a0The Transitional Review Mechanism is in addition to, rather than in lieu of, the normal review procedure, known as the Trade Policy Review Mechanism that all WTO members must undergo every few years in perpetuity.\u201d<\/p>\n

The temporary Transitional Review Mechanism appeared to be more stringent than the Trade Policy Review Mechanism.\u00a0 \u201cHowever, the procedural aspects of the Transitional Review Mechanism rendered it a paper tiger.\u00a0 Reports produced by the Transitional Review Mechanism require the unanimous consensus of all members involved, including China. \u00a0This puts China in the position of acting as judge in its own trial,\u201d so that the result consistently has been \u2018\u2018light and generally unspecific criticism,\u201d according to trade scholars such as William Steinberg.<\/p>\n

The Transitional Review Mechanism provided the United States with a somewhat useful tool for fact-finding and focusing attention on controversies within the U.S.-China trade relationship, but this is the final year of the Transitional Review Mechanism as China\u2019s tenth year of WTO membership.\u00a0 The consequences of this are:<\/p>\n