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ECON 0602: Lecture 5

Topics
China and the WTO
WTO and its rules
China’s entry to the WTO
Trade frictions

China’s Foreign Trade:
Special Issues

China’s FTA: CEPA
Sino-US trade imbalance
China’s exchange rate
Export and employment
1

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What is WTO?

China and the WTO: Questions/issues

General Agreement on Tariffs and Trade (GATT,
1947-1994)

What is WTO?

1947, Geneva, 23 (including China), now 148+
Most Favored Nation Principle (MFN)
National Treatment Principle (NT)

What are WTO’s rules and principles?

Why did China want to enter?

The World Trade Organization (WTO, 1995-)
It deals with the rules of trade between nations at a
global or near-global level.
= GATT + Dispute settlement mechanism + others

What had China promised?

Why are there still trade frictions?
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Rules are set through negotiations
NT
MFN
=
=

3%

F
D

3%

?

Annual renewal

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WTO/GATT negotiation rounds
120
predicted duration of Doha round

The Sixth WTO Ministerial
Conference, Doha Round
was held in Hong Kong, China from 13
to 18 December 2005.
Successful? Agreed to extend the talk

100

d ra n (m n s)
u tio
o th

January 1, 2005? 39 months

http://www.wto.org/english/thewto_e/minist_e/m
in05_e/min05_e.htm

Tokyo
60

regression
line

40
Kennedy

20

Geneva

0
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Torquay
Geneva II

0
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April 1, 2010: 102 months

Dillon

Annecy

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Uruguay

80

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30

60

90

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120

number of participants

150
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China’s WTO accession

Agreement and implementation
Bind all tariffs. The average tariff for industrial goods
will fall to 8.9% and to 15% for agriculture. Most tariff
cuts will be made by 2004; all cuts will occur by 2010.

Why enter?
MFN status renewed every year
DSB helps

Implementation: tariff-rate quotas introduction

How to enter?
WTO re-entry (1986)
Requirements (laws and policies to confirm with WTO
rules)
Negotiations (2/3 members’ support)

Result?
Dec 11, 2001

Limit subsidies for agricultural production to 8.5% of
the value of farm output and will not maintain export
subsidies on agricultural exports.
Implementation: only in corn and cotton exports

Within three years of accession, grant full trade and
distribution rights to foreign enterprises (with some
exceptions, such as for certain agricultural products,
minerals, and fuels).
Implementation: ok

Conditions and promises (next slide)
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Agreement and implementation (cont’d)

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Agreement and implementation (cont’d)

Provide non-discriminatory treatment to all WTO
members. Foreign firms in China will be treated no
less favorably than Chinese firms for trade purposes.
Dual pricing practices will be eliminated as well as
differences in the treatment of goods produced in
China for the domestic market as oppose to those
goods produced for export. Price controls will not be
used to provide protection to Chinese firms.
Implementation: VAT export rebate

Implement the Trade-Related Aspects of Intellectual
Property Rights (TRIPs) Agreement upon accession.

Accept a 12-year safeguard mechanism, available to
other WTO members in cases where a surge in
Chinese exports cause or threaten to cause market
disruption to domestic producers.
Implementation: textile export case

Fully open the banking system to foreign financial
institutions within five years. Joint ventures in
insurance and telecommunication will be permitted
(with various degrees of foreign ownership allowed).
Implementation: Restrictions and higher demand

Implementation: new laws, but weak implementation
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