China rejoins G.A.T.T.

Press, 10 February 1986, Page 12

China rejoins G.A.T.T.

From “The Economist,” London

China’s decision to restore its membership of the General Agreement on Tariffs and Trade (G.A.T.T.) has caught the members of the world-trade club on the hop. It has been welcomed, in principle, as an opportunity to pull China into the world’s trading system. In practice, few have any idea of how to start negotiating accession to the G.A.T.T. with a country that, for all its economic changes, is still a planned economy with managed trade.

for the advantages of G.A.T.T. membership — including protection from the selective imposition of barriers to its exports — China is going to have to open its markets to foreign goods, however reluctantly. For a start, China’s complex bilateral trade deals will have to be reconciled with G.A.T.T.’s “most favoured nation” principle, which says members should trade with all others on the same favourable terms. China will also have to curb its export subsidies, relax its import restrictions and comply with G.A.T.T. anti-dumping rules (heaven only knows how G.A.T.T. officials are to gauge true production costs in a directed economy). Mr Deng Xiaoping may be forced to tackle the most important (and politically contentious) economic change that he has so far ducked, namely the dismantling of China’s internal price controls.

China took observer status at G.A.T.T. barely a year ago, although its membership two years ago of the Multi-Fibre Arrangement was seen then as a prelude to full G.A.T.T. membership. China has become a joiner of the non-communist world’s institutions — for example, the International Monetary Fund and World Bank in 1980 and the Asian Development Bank. China would have the rest of the world believe that it is merely reactivating its G.A.T.T. membership. Pre-Mao China was a founding member in 1948; Taiwan pulled out in 1950 in China’s name — which Dengist China now says it had no right to do.

G.A.T.T. has little by way of precedent to guide it. Other centrally planned economies that are members — Czechoslovakia, Hungary, Poland and Rumania — are negligible economies in world trade terms. True, China now only accounts for 1.3 per cent of world trade, but that is as much as Switzerland and Singapore. Negotiations will probably take

Whatever the niceties, the G.A.T.T. members have no intention of letting China back into their number for free. In return

several years. One proposal being mooted is that they should come under the auspices of the new trade round to be launched later this year. For that, at least, there are precedents. Both Colombia and the Philippines became contracting parties to the G.A.T.T. during the Tokyo round. Among the places that will be watching closely is Hong Kong (which accounts for a bigger chunk of world trade than China). It participates in G.A.T.T. by dint of Britain’s membership. Its continued participation after China resumes sovereignty in 1997 is seen in the colony as one of the essential guarantees of the Sino-British agreement on Hong Kong’s future. Britain could put that guarantee into effect early by giving the colony autonomy over its external commercial affairs. This would let Hong Kong take up full and separate membership before 1997 (there is a colonial precedent for Britain in what is now Zimbabwe).

Such a move was discussed by British and Chinese officials this month, but China seems happy to keep the existing arrangement, taking over Britain’s “umbrella member” role after 1997. To many in Hong Kong, that would scarcely enhance the separate image Hong Kong hopes to preserve.

Copyright, “The Economist.”