For U.S. Trade Representative Charlene Barshefsky, it all comes down to the week of May 22. That’s when a vote will be held in the U.S. House of Representatives on what Barshefsky calls "one of America’s most important trade and foreign policy goals": China’s accession to the World Trade Organization (WTO) and permanent Normal Trade Relations status. Barshefsky, who visited Wharton in early April as part of the School’s Gruss Public Policy Speaker Series, made it clear to her audience that rejection of a bill to grant permanent Normal Trade Relations (NTR) status to China would make a "very dark statement about the future possibility of a stable, mutually beneficial relationship with the world’s largest country." Since 1979, the U.S. Congress has voted every year on whether to extend trading rights to the Chinese, similar to the agreements that the U.S. has with most other countries. If approved, the legislation in May would grant those rights to China on a permanent basis, essentially clearing the way for China’s entry into the WTO. "The legislative grant of permanent normal trade relations is critical," Barchefsky noted. "All WTO members, including ourselves, pledge to give one another permanent NTR to enjoy the full benefits of one another’s markets. Were Congress to refuse to grant permanent NTR, we risk losing broad market access, special import protections and rights to enforce China’s commitments through WTO dispute settlement. Our Asian, Latin American, Canadian and European competitors will reap these benefits; Americans would be left behind." While the bill to grant China permanent NTR status is expected to sail through the Senate, the House is another issue. The administration’s lobbying efforts were dealt a setback last week when House Minority Leader Richard A. Gephardt announced that he will vote against the measure. Lined up against China’s entry into the WTO are, in addition to Gephardt, many other Democrats along with their traditional allies in organized labor who fear the potential loss of jobs in the U.S. should China gain WTO admission. Also opposed are a number of environmental and human rights groups. Strong supporters of the administration’s goal include business groups who see huge market potential in opening up trade with a country of 1.2 billion consumers. In her talk at Wharton, Barshefsky acknowledged that the business community has not been very aggressive in lobbying for the bill’s passage, but she predicted that would change now that the House leadership has scheduled a vote. In November 1999, Barshefsky, who is the Clinton administration’s principal trade policy advisor, concluded a seven-year negotiation on a bilateral market access agreement between China and the U.S. which sets forth the terms for China’s accession to the WTO. Under that agreement, the U.S. will benefit from lower tariffs on its exports to China, while China will gain new jobs, new technology and new foreign investment. Specific U.S. industries that stand to gain from the new trade policy include banking, telecommunications and insurance. The agreement, for example, will allow foreign banks to offer services in local currency to Chinese companies and individuals and permit joint ownership of money-management ventures. In the telecom area, U.S. and other foreign companies can own up to 49% of Chinese telecom firms and Internet companies in the first year after China joins the WTO, and up to 50% the second year. In her talk at Wharton, Barshefsky emphasized that the U.S. basically has nothing to lose and everything to gain from China’s accession to the WTO. For example, "China will allow direct foreign investment in the Internet," she noted at one point. "That is very, very significant. The idea that our companies can set up companies in China to create web sites, to expand the Internet, is very important from the point of view of our Internet Service Providers as well as our telecom companies. "Last year there were one million Internet users in China. This year there are nine million. Next year the projection is 25 to 30 million. What happens when you have 150 million people? 250 million? We are looking at extraordinary rates of growth…and extraordinary potential for America and other countries." Issues related to information control and management were among the most difficult topics for the Chinese negotiators to discuss, not just with respect to telecom, the Internet or satellite service but also in the area of entertainment, said Barshefsky, who during her tenure as U.S. Trade Representative has been instrumental in achieving more than 275 trade agreements. "What we view as entertainment – including films, books, movies – the Chinese government views as information … There was great sensitivity to these topics and it meant that we moved very, very slowly in these areas. "On the one hand the Chinese want and need a more efficient economy, one that is sustainable and that creates jobs. All of that, however, implies modernity, greater economic freedom and higher living standards. At the same time, the regime [tries to control] Internet content, doesn’t really want foreign films or music, restricts satellite service and ensures that telecom remains a monopoly. "I don’t think these two facets work well together over time," Barshekfsy said, predicting that the progress made in discussions over information issues will at some point lead to a more open economy and government. Barshefsky praised the Chinese negotiators as extremely "astute and very tough. And they have a characteristic that I particularly admire: If you can demonstrate that something is in their interest, they will do it, even if it is also in your interest. This is not true of all countries." The agreement reached last November with the Chinese included, in addition to the terms already mentioned above, such specifics as: "We have not given up anything in this agreement," emphasized Barshefsky. "[We have] secured comprehensive, one-way concessions, opening China’s markets to America’s industrial goods, agriculture and services … We don’t change any of our market access policies with China. In a national security emergency we can withdraw the market access China has now. We change none of our trade laws, and none of our laws controlling the export of sensitive technology. We agree only to maintain the market access policies we already apply to China, and have for over 20 years, by making China’s current NTR status permanent." In response to a question about the possible devaluation of the yuan as a result of entrance into the WTO, Barshefksy relayed the Chinese government’s own public statements on this subject: "They don’t believe that WTO accession will create strong pressure for devaluation in part because the commitments made are phased in over time. It’s not as though tariffs will go from 25% on average in industrial sectors to 9% in one year. It’s over five years. Most WTO accession agreements take country commitments and phase them in to avoid any shock to the system. We’ve done that in the case of China as well. The change will be substantial but the transition periods will help to mitigate the more brutal effects of market opening under WTO rules," she said. The area people will watch most closely, Barshefsky added, "is the one dominated by state enterprises. China’s state sector is not just inefficient, it’s non-competitive and non-productive. There is a concern the WTO accession may accelerate the privatization process [although] the agreement doesn’t require privatization. It doesn’t require that state enterprises be shut down, but it does require that state enterprise operate in purchases and sales on commercial terms. Just that alone will provide some jolt to the system." Another area of concern, Barchefsky said, is the Chinese army, "the least enamored of WTO accession, mainly because they see accession as a means through which Western values will be further [imported] to China. Being in part an economic entity and not merely a military one, they will try to subvert various aspects of the agreement. We should watch for that, and maybe even expect it. "On the other side of the equation, one of the advantages to WTO accession from the West’s point of view is that you have a set of rules and commitments which are enforceable and subject to multilateral scrutiny. There will be special mechanisms in the WTO to monitor’s China’s compliance. It’s not just us who will be watching but 134 other countries that have the same interest in China’s adherence to its commitments as we do." Barshefsky offered the audience a case study of the auto industry to illustrate what types of changes China’s accession to the WTO can mean for a particular business. Currently, she says, a combination of trade barriers and industrial policies makes it "virtually impossible to export cars to China." Last year the U.S. exported a total of 419 cars, of which 130 were used. (That 419 figure is less than the 688 motorized golf-carts sold by the U.S. to China during the same time period.) To sell in China, Barshefsky noted, "an auto company must build its factories and hire its workers there. In addition, China requires transfer of technology and local purchases for parts, and restricts the right to market, finance and repair cars." Last November’s bilateral agreement addresses these limitations, she said. "It reduces auto tariffs from 80-100% today to 25% in 2006 … it raises the current virtually prohibitive quota to $6 billion worth of autos and then eliminates the quota entirely within five years… "It opens distribution markets and guarantees trading rights, ensuring that firms and dealerships in China can import their autos directly from the U.S., that auto plants can buy American parts and that Americans can move their products freely within China … it requires China to allow auto firms to provide financing, set up dealerships, advertise their cars and provide repair and maintenance," in addition to other concessions. "Thus we have a comprehensive agreement on automobile trade; and we match it, though specific features differ, in every industry of concern to the U.S. economy, from autos to information technology, wheat, finance, law, fishery products, pharmaceuticals, environmental technologies, steel, citrus, telecom and all the way down the list." In response to a question about the recent protests in Seattle against the WTO and in Washington, D.C. against the World Bank/International Monetary Fund meetings, Barshefsky made two points. First, most of the groups protesting tend to be "philosophically unaligned one from another while coalescing around the vague notion that they don’t like trade or corporations or multilateral institutions." However, she added, they do point to important issues, including the transparency of these multilateral institutions. "The notion that multilateral institutions must be transparent is fundamental, including the idea that labor groups, environmental groups and others should be able to submit comments to these organizations or have forums with their [officials]. "There is also the question of how a trade agenda should be formulated. My view is that it should be broad enough to encompass questions about the intersection between trade and environmental concerns, or trade and labor rights, recognizing that the core mission, the critical mission, of the WTO is marketing opening … We now live in a world where it is very difficult to pretend that labor policy has nothing to do with trade or that environmental policy has nothing to do with trade. Either we live in a global world with all of its implications or we don’t. "As these types of dialogues get included in the WTO and as that dialogue become more enriched we will see a greater effectiveness of multilateral institutions like the WTO. Some of the perceived secrecy will be removed and the average person will feel that some part of his or her interests are also under discussion."
