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Tuesday, November 16, 1999 - Page updated at 12:00 AM

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WTO Membership No Picnic For China

Special To The Times

MANY in this country, in Washington, D.C., or Washington state, have the perception that by letting China join the World Trade Organization, the United States is rewarding China despite all of China's wrongdoings and imperfections. They believe the Chinese have been taking advantage of American naivete and goodwill all these years and are now trying to rip off the United States in the bilateral negotiations that clear the way for WTO admission.

But perceptions are just that, perceptions. They are neither necessarily true nor factual. There are always two sides or even multiple sides in everything. I am not promoting the Chinese interest. But being a former Chinese citizen, I am doing my bit to promote mutual understanding between my new country and my old country.

China, which started market-oriented reforms only 20 years ago, has been trying to join the WTO for most of those 20 years. But for a large developing economy with more indigenous and vulnerable industries and sectors to protect, it is natural that China would have more pain than joy in the prospects of competing equally with other WTO members such as the United States, the European Union, Japan and other developed economies. But to the Chinese, it is a necessary step to take even though it would be very painful.

Here is a brief look at the pain China can expect from its bilateral agreement with the United States and subsequent WTO membership:

Agriculture. During Chinese Premier Zhu Rongji's visit to the U.S. last April, the U.S. and China signed a bilateral agreement on agricultural cooperation. China dropped the ban on Northwest wheat, along with citrus, beef and poultry from other parts of the U.S., thus ending a three-decade-old agricultural dispute between the two countries.

Though technically separate from the WTO deal, this agreement embodied a significant amount of goodwill on the part of China. Under it, China will increase its import of Northwest wheat to 5 million tons from the current 2 million tons annually. The increase would mean $200 million worth of business for the wheat farmers of Washington state, according to Sen. Patty Murray. But the Northwest's gain would mean a huge loss to the Chinese farmers, who will have to brace hard for the coming competition.

Automobiles. China's automobile industry is the sector that will face the biggest onslaught of foreign competition once the country is in the WTO. Still at a relatively early stage of development, with small scale and scattered production, low output, high cost and high prices, the Chinese auto industry is the softest part of the soft belly of the country's industries. With the expected cut of auto tariffs from the current 80-100 percent to 25 percent, and auto parts tariffs to 10 percent by 2005, plus more foreign controlling stakes in auto and auto-parts firms, China's automobile industry is in for a life-and-death struggle.

Telecommunications. Telephone rates in China are about seven times that of the U.S. Together with low-quality service and slow growth, they are the result of the state-monopolized operation and lack of competition. By joining WTO, the Chinese telecommunications market will be open for fierce and strong competition from foreign companies. Also under agreement with the U.S., China will allow up to 49 percent foreign ownership of all telecom services and 51 percent foreign ownership in value-added and paging services within four years of entry into the WTO. From a monopolized market to one of open competition, China's telecommunications industry is under its greatest pressure ever. The good thing is that Chinese consumers will benefit.

High tech. High tech is the fastest-growing industry in China. The current tariffs for information products are, however, at an average of 13.3 percent. By joining WTO, this tariff will be reduced to zero. By 2005, China would no longer have any tariffs for semiconductors, computers, computer products, telecommunication equipment, etc. China will also stop the "technology for market" practice toward foreign high-tech companies, thus offering them a more friendly investment environment and easier access to the market. While all the relaxation means greater opportunities for foreign competitors, it will mean steep and desperate competition for Chinese companies.

Banking and insurance. At present, foreign banks are operating only in a limited number of Chinese cities. They are also allowed to handle only non-local currency business. As for insurance, there has been a limit in place on the number of foreign insurance companies allowed to operate. By joining the WTO, China will phase out geographic as well as number restrictions by 2005 both for banks and insurance companies, allow banks to offer all-around services in local currency and allow insurance companies to have 50 percent stakes. It is easy to imagine what challenge these changes will mean to China's own aging and reforming banks and its nascent insurance industry.

Other industries. From pharmaceutical to timber, from hotel management to movie theaters, by joining the WTO, China will either import more products from those industries or allow foreign companies more ownership in those businesses. With the WTO, China will also drop the ban on commodity wholesale business by foreign companies.

All in all, China is facing serious challenges on many economic fronts with membership in the WTO. Those challenges look more like a roller-coaster ride in a storm than a reward in sunshine. But the Chinese people have been preparing for these challenges for years.

As the Chinese language characters for "crisis" indicate, there is always opportunity in crisis. To get better opportunities to trade in the world community and to enhance its economy, China is willing to face the "crisis" of great competition from the developed economies, including the most developed of them all, the United States.

If one would still like to think of the WTO membership as a reward to China, think of it as a reward to the effort and courage of the Chinese people, who have lived in a closed and stagnant economic system and are now ready to embrace the world.

Wendy Liu is a freelance writer and businesswoman who lives in Federal Way.

Copyright (c) 1999 Seattle Times Company, All Rights Reserved.

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