GLOBAL ECONOMICS
With the growth in international trade and investment and the spread in market-based strategies for economic development, it is becoming increasingly important that the WTO rules-based international trading system be extended to cover all the world's economies. It is especially important that the larger economies of China and Russia be brought into the WTO club. Countries that are not members of the WTO tend to have much higher tariffs than members as well as more barriers to trade.
The benefits of an expanded WTO will accrue to all members, new as well as old. The newly-acceding countries will benefit from more secure access to the domestic markets of member countries on a most-favored-nation basis. This is vital for their continued growth and prosperity. In return, they will have to open up their domestic markets to exports from WTO members and subject their economic policies to the disciplines of the WTO agreements. The existing WTO members will benefit from improved access to the domestic markets of the acceding countries. Any disputes that arise with newly acceding countries will have to be settled under the WTO dispute settlement mechanism rather than by unilateral action. This will help to prevent the resort to beggar-thy-neighbor policies and trade wars.
Bringing China and Russia into the WTO and integrating their economies more closely into the global economy will also improve prospects for world peace. Countries that are dependent on each other to maintain their standards of living don't usually go to war. This was one of the main reasons that France and Germany joined together after the devastation of World War II to form the European Coal and Steel Community and later the European Economic Community. Robert Schuman and Jean Monnet, the co-fathers of the EU, were driven by a vision of an integrated and peaceful Europe that would never again be ravished by war as it had already been twice in the Twentieth Century.
Under Article XII:1 of the Marrakesh Agreement establishing the WTO, any state (or customs territory possessing full autonomy in the conduct of its external commercial relations and of other matters provided for in the WTO agreements) wishing to join the WTO and accede to the WTO agreements can apply for membership by communicating its desire to the Director-General. The General Council then considers the application and establishes a Working Party to examine it further and to prepare recommendations including a draft Protocol of Accession.
The Working Party begins its investigations by considering a memorandum provided by the applicant that describes its trade regime and tariff schedules in detail. The applicant then is required the defend before the Working Party the conformity of its regime with all the WTO agreements. Once this fact-finding is sufficiently advanced, bilateral negotiations commence either with the applicant tabling its initial offer on goods and services or with interested members presenting their requests for concessions.
The negotiated terms of accession includes acceptance of all the WTO agreements as well as the consolidated results of bilateral negotiations with current WTO members on schedules of concessions in goods and specific commitments in services. All WTO members benefit from the bilateral negotiations because they are extended to all members on a most-favoured-nation basis. The bilateral negotiations with the largest WTO members, namely the United States, the European Union, and Japan, are obviously the most important as these countries have a de facto veto on new members. Put another way, they can blackball new members in the club.
A decision on an accession is usually taken by the WTO's General Council after it receives the Draft Report, the Draft Protocol and Schedules on Goods and Services from the Working Party. But according to Article XII:2 of the Marrakesh Agreement the final decision is the prerogative of the Ministerial Conference like the one held at Seattle. Formally, the terms of accession must be approved by a two-thirds majority of the WTO members, but by custom a consensus is required. Following this approval, the Protocol of Accession enters into force. The applicant becomes a WTO member thirty days after it completes its own legal formalities for acceptance.
WTO/GATT membership has increased sharply since the fall of communism and the completion of the Uruguay Round. Everyone wants to join the WTO, which sets the rules for the global marketplace. The number of members is now 134 up from around 100 in 1990. More recently, there has been some further progress in extending WTO membership. The Kyrgyz Republic and Latvia have just joined and Estonia will officially become a member on November 13. A further 29 countries and customs territories have applied to join. China, Chinese Taipei (Taiwan), Russia, Saudi Arabia, Ukraine, Lithuania, and Vietnam are among 20 applicants with which active negotiations are proceeding. Seventeen of the countries negotiating accession are transition economies.
| Albania | Croatia | Moldova | Sudan |
| Algeria | FYR Macedonia | Nepal | Chinese Tapei |
| Andorra | Georgia | Oman | Tonga |
| Armenia | Jordan | Russian Federation | Ukraine |
| Azerbaijan | Kazakstan | Samoa | Uzbekistan |
| Belarus | Laos | Saudi Arabia | Vanuata |
| Cambodia | Lithuania | Seychelles | Vietnam |
| China |
Charlene Barshefsky, the US Trade Representative, told the Senate Agricultural Committee in June that the United States has completed its bilateral negotiations with Chinese Taipei, and has made significant progress with nine other countries including Albania, Armenia, China, Croatia, Georgia, Jordan, Lithuania, Moldova, and Oman. This provides a good indication of the countries that are next in line for accession.
Given the number of countries seeking accession, Maude Barlow should ask herself, "If the WTO is so damaging to the economies of developing countries, why do so many of them want to join it?"
By far the most important accession negotiations have been those underway for thirteen years with China, a country that exported $184 million US in 1998 and is one of the world's top five traders. The international trading system can hardly be considered global as long as China with its 1.3 billion people or over one-fifth of the world's population remains outside the WTO.
The bilateral negotiations between the United States and China have been very prolonged and difficult. This stemmed from the fundamental philosophical differences that were played out at the negotiating table. The United States wanted China to introduce the stringent liberalization measures imposed on developed countries in the WTO. China felt that it should be allowed to adopt the more lenient measures allowed developing nations.
The seemingly never-ending bilateral negotiations between China and the United States and other countries over accession seemed to be finally nearing an end when Premier Zhu Rongji visited the United States last April. China offered a very attractive package containing concessions on agriculture, including improved access for citrus, wheat and beef and tariff cuts of more than a half. Non-tariff barriers on a range of agricultural products were to be replaced by tariff rate quotas, which were substantially above current import volumes. Foreigners were to be allowed to own 49 per cent of telecommunication ventures. Tariffs on automobiles were to be cut from 80 per cent to 25 per cent. At that time, the remaining sticking points included U.S. demands for more opening of financial services and telecommunications and U.S. insistence on additional protection for its steel and textiles and clothing industries.
With the benefit of hindsight, it appears that this deal offered by the Chinese Premier may have been the best China was prepared to offer and that many of its elements may no longer be on the table. The Chinese Premier and other Chinese negotiators lost much face when they had to return home from the United States empty handed. This strengthened the hand of those who oppose the economic liberalization required to join the WTO. In contrast, in the United States, business groups criticized the Administration for walking away from what looked to them like a pretty good deal.
If the Chinese Premier's failure to reach agreement after going out on a limb wasn't bad enough, China's prospects of joining the WTO suffered another major setback. Shortly after he returned home, NATO accidently bombed the Chinese Embassy in Belgrade on May 7 precipitating a wave of anti-American demonstrations, including some that vandalized the U.S. Embassy and consulates in China. Meanwhile in the United States, the release of the Congressional report on Chinese nuclear espionage didn't do much to help assuage Congressional opposition to a trade deal with China. Nevertheless, in July the House approved a bill extending normal trade relationships with China for another year.
By early September, the situation had cooled enough for substantive talks to resume. President Bill Clinton and President Jiang Zemin met at the APEC Summit in Auckland on September 10-12. But even if the Chinese manage to reach an agreement with the United States soon, there are other hurdles to clear. Bilateral negotiations with other WTO members including the EU and Canada must be completed. This will, of course, all take time. Consequently, it now looks increasingly unlikely that China will be admitted into the WTO before the Seattle Ministerial begins in late November. This is unfortunate, as it is desirable that China be a full participant in the next round of multilateral trade negotiations.
Bringing China fully into WTO presents some unique challenges. Much of China's economy is run by state-owned enterprises (SOEs) whose purchasing decisions can be subject to political pressure. This is the reason the United States wants China to sign the Agreement on Government Procurement. In addition, government regulation of the financial sector and telecommunications and other sectors tend to favour SOEs. Finally, much of China's trade is conducted by State Trading Enterprises (STE).
It will be impossible to resolve all the outstanding issues prior to China's accession. That will take several rounds of trade negotiations. This is why it is important to bring China into the WTO before the Millennium Round gets well underway. It will subject China to the disciplines of another round of negotiations.
Russia is the other most important country that is not a member of the WTO. Negotiations over accession have been underway since 1993. While some progress has been made, the process was slowed by the Russian financial crisis in August 1998 when Russia defaulted on its debt and the ruble collapsed. However, a goods and market access offer and a service offer have recently been circulated. It's important to bring this process to a reasonably swift conclusion. But unfortunately the signs point otherwise. Michael Moore, the new Director General of the WTO who began his three year term in September, offered his assessment that "Russia won't be in my time."
The state-owned sector in Russia has been reduced by privatization, and is no longer as important as it is in China. Nevertheless, there is still a crying need to subject the Russian economy to the disciplines of the WTO agreements as protection against the widespread corruption in Russian business and politics that makes trading with Russia so difficult.
Because of the size of the markets concerned and the extent of the barriers to trade at issue, the accession negotiations are very important for Canada. The Canadian Government, representing Canadian interests, has been an active participant in the WTO Working Parties set up to examine the new applicants trade regime and to identify required reforms. The Canadian Government is also pursuing Canadian interests through bilateral market access negotiations, including most importantly with China and Russia.