TCA Srinivasa-Raghavan: China and sovereignty

LINE & LENGTH

Why did China crawl before the US to get into the WTO? Because of the benefits of joining.

The politburo of the CPM has made a big song and dance about India's sovereignty in the context of the Indo-US nuclear deal. It has also said the same thing in respect of defence co-operation between India and the US.

It is easy to see why the politburo is so worked up about the latter. If India and the US join hands militarily, China suffers.

But sovereignty is a little more complex. So let us see how China approaches it. Specifically, let us see how it abridged its sovereignty when it wanted to enter the WTO. The US made it crawl on all fours, and China agreed because it assessed the benefits of crawling correctly.

Given below is a very brief summary what China agreed to do. You can get the full Protocol of Accession from the WTO website.

Thus, China agreed to:
1. Undertake systemic reforms for making the system transparent, predictable and fair to the US and other foreigners in business dealings;

2. Observe all obligations of WTO agreements, with very brief transition periods and only where necessary (necessity was determined by the US);

3. Liberalise its trade in a way that would improve foreigners' (mainly US) market access across all sectors. Compare this to the Unfair Treaties of 1841. There isn't much difference;

4. Hugely reduce tariffs on industrial and agricultural goods of importance to US businesses and farmers;

5. Make massive commitments on services that would substantially increase market access for US services suppliers; and so on. The details of the surrender are embarrassing.

The kicker came in enforcement. China agreed to a special multilateral mechanism that would undertake an annual review of its performance and to "special safeguard mechanisms" for protecting businesses, farmers and workers of WTO members (read US). It also agreed to several conditions that would apply only to China, which meant that there was to be no reciprocity.

It agreed to do away with the trading rights system, under which only some companies had had such rights. Henceforth all would be free to trade. Joint ventures with foreigners were granted full rights. China bowed on distribution rights also. All restrictions on foreigners (read US firms) went. It also agreed to abolish all quotas and licences that covered hundreds of things.

It agreed to end the monopoly of state-owned enterprises on imports and to provide full information on the pricing mechanisms of these enterprises. Indeed, henceforth the SOEs would "limit the mark-up on goods" that they imported and to ensure that the state-owned or state-invested enterprises would be subject to WTO rules. And there was an Annexure to the agreement. In this China agreed not to "use price controls to restrict the level of imports of goods or services".

China agreed to totally eliminate tariffs on computers, semiconductors and other information technology products by January 1, 2005. It agreed to implement tariff reductions "on more than two-thirds of the 1,100-plus products covered by the WTO's Chemical Tariff Harmonization Agreement". Tariffs on cars were to be cut by 100 per cent, on autos to 9.5 per cent. It agreed that tariffs on farm products that the Americans were interested in would be reduced from 31 per cent to 14 per cent.

But the US was not done yet. There were services, too, to be opened up. China committed itself to opening up its markets in banking, insurance, telecommunications and professional services. Guess who benefited the most. The US, naturally.

For enforcing all this, a mechanism was created which required China to report, hat in hand, to all WTO members. And, there was a unique China-specific safeguard that allowed members to limit imports from China if they felt like. There was a textiles safeguard as well for the same purpose.

The US also forced China to grant to it the sole right in deciding what was acceptable. "Where the US government finds compliance problems, it will act quickly to resolve them through all available mechanisms... bilateral means, including US trade laws... as necessary." This was the American interpretation.

The US legislature passed a law in 2000 which, among other things, established a "special Congressional-Executive commission to monitor, and report on, various aspects of China's policies on human rights, including labor practices and religious freedom; codified the anti-surge mechanism established under the November 1999 U.S.-China trade agreement and establishes procedures for obtaining relief from import surges; set up a special government task force to halt U.S. imports from China of products suspected of using prison labor; and authorized funding for programs to promote the development of the rule of law in China."

But enough said. The point is clear. The results of this surrender of sovereignty, which is what it was, were entirely beneficial to China. Its trade surplus with the US for the first seven months of 2007 was almost $25 billion and it holds almost $900 billion in US securities. Even if the US wants to, it can't implement the utterly humiliating conditions it made China accept in 1999. There is simply too much at stake for it.

How could proud China bow and scrape like this? Could it be because there is no CPM in China?