China and the World Trading System
Attached is the full text of the speech delivered by WTO Director-General, Renato Ruggiero, earlier today (21 April) at Beijing University, China.
There is a simple reality which lies at the heart of our current negotiations and the real challenges of adjustment we all face: the reality that China is already a leading power in an ever more interdependent global economy. China increasingly needs the opportunities and security of the WTO system to fulfil its huge potential for growth and development. And the WTO increasingly needs China as a full and active member to be a truly universal system.
This reality is emphasized by the sheer force of China's rise in the world. During the last decade, output has been expanding by an average of 10 per cent a year, while merchandise export volume has been growing even faster, at about 15 per cent. In two decades, the value of China's merchandise exports has expanded more than twenty-fold, reaching US$151 billion last year. China is already the world's fifth largest trading power, and the second largest recipient of foreign investment. Today the Chinese economy represents between 5 to 10 per cent of global output, depending on the method used to calculate national production.
As China's economy expands into the future, so too will its ties to the global economy. Dependence on export markets will continue to grow rapidly, and not only for labour intensive products like footwear and toys, but for the higher technology goods and services that are an increasing proportion of China's output as it climbs up the production ladder. Imports will also rise, in part to fuel further industrialization and modernization, but also in response to consumer demand. And an ever expanding web of inward and outward investment will draw China deeper into the global financial system.
It is estimated that China's modernization will require imports of equipment and technology of about US$100 billion annually, and infrastructure expenditures during the latter half of this decade could amount to about US$250 billion. This is not to mention rising demand for energy, mineral resources, food and farming imports, which, despite the size and resources of the Chinese economy, cannot be satisfied by domestic output alone.
The basic fact is that China is moving to the very centre of the globalization process, and both China and other nations are benefiting from it. We live in a world where technology, capital, and trade move increasingly more freely; where the old economic tools have lost their edge; and where economic strength and security increasingly depend on economic openness and integration. China's path to growth and modernization is also a path to interdependence.
This process of globalization will not be reversed - it will accelerate. Throughout the world, economic and technological forces are breaking down walls, reaching across borders, and weaving together a single world economy. In the late twentieth century our new opportunities, as well as our challenges - in trade, in economics, in every facet of international politics - arise from our worlds moving closer together, not further apart. Deepening interdependence is the central reality for China and for the world. Managing interdependence is our shared responsibility.
A key step towards completing this interdependence is bringing China into the multilateral trading system. China's economic relations with the world are simply too large and too pervasive to manage effectively through a maze of arbitrary, shifting and unstable bilateral deals. China's best guarantee of coherent and consistent international trade policies is to be found inside the rules-based multilateral system.
By the same token, China, like all other countries, can best manage its growing economic relations with the world on the basis of rights and obligations agreed by consensus and reflected in enforceable rules and disciplines. This is the only way to resist bilateral pressures or threats of unilateral actions. It is also the only way to sustain and promote domestic economic reform knowing that China's efforts in this direction are being matched by its trading partners, members of the WTO, who share the same obligations under the WTO Agreements.
Joining the WTO means assuming binding obligations in respect of import policies - obligations which will necessitate an adjustment in China's trade policies and, in most cases, economic restructuring. But, in turn, China will benefit from the extension to it of all the advantages that have been negotiated among the 130 members of the WTO. It will be entitled to export its products and services to the markets of other WTO members at the rates of duty and levels of commitment negotiated in the Uruguay Round - this includes tariff bindings benefiting nearly 100 per cent of China's exports of industrial products to developed countries, with almost one-half of these products being subject to duty-free treatment. These tremendous market access opportunities will be underpinned and reinforced by the two cardinal principles of most-favoured-nation and non-discrimination.
Equally importantly, China will have recourse to a multilateral forum for discussing trade problems with its WTO partners and, if necessary, to a binding dispute settlement procedure if its rights are impaired. This greater level of security will benefit China immensely - encouraging even greater business confidence, and attracting even greater levels of investment.
There is a third major reason for China's participation in the multilateral system. Only inside the system can China take part in writing the trade rules of the 21st century. This will be an unprecedented set of rights and obligations negotiated internationally by consensus.
The enduring power of the multilateral system is its power to evolve. In 1994 we concluded the Uruguay Round of the GATT which, at the time, was the most ambitious and far-reaching agreement in the fifty year history of the international economic system. Just three years later, we have moved on to negotiate path-breaking agreements to liberalize the global telecommunications industry and to remove tariffs on trade in information technology products - the combined value of which, at some US$1 trillion, matches global trade in agriculture, autos, and textiles combined. And their value reaches beyond trade figures; by opening up access to knowledge, communication and their technologies we are opening up access to the most important raw materials of the new century. This will be of immense importance to the development and competitiveness of all economies, not least China's.
There is every sign that we can also conclude a multilateral agreement on financial services by the end of this year - another area in which we are trading into the future. And this is to say nothing of the WTO negotiations on agriculture, services and other sectors, that will resume in three years time.
An outward-looking China cannot afford to stand on the sidelines while others write the rules of the game. A China with growing export interests cannot afford to be left without secure and expanding access to global markets - security which only the multilateral system provides. And perhaps most important, a China dependent upon technology and modernization cannot afford to fall behind the fast-moving pace of globalization - particularly in sectors like information technologies, telecommunication, or financial services which will be the key building blocks of the new economy.
China's economic success so far is directly linked to its impressive domestic reforms, including trade and investment liberalization. China has already benefited from the unilateral tariff reductions offered in the context of its accession negotiations; one study puts the gains at US$22 billion. But this is not the end of the road. Further liberalization - undertaken on the basis of WTO rules, and in exchange for benefits from other WTO partners - could prove the biggest stimulus yet to China's economic growth. And, by extension, a giant stimulus to the world economy.
I am not suggesting that joining the WTO is a simple step. Just the opposite. But many other countries that are already members of the WTO share a comparable level of development with China. They have subscribed to its rights and obligations and enjoy its benefits. The other accession candidates are also showing they have made the same choice.
The attraction of the WTO lies precisely in the strength and consistency of its rights and obligations - which we continue to broaden and deepen with the further expansion and integration of the global economy. Fifty years ago the focus was only on tariffs and other border measures; today WTO rules extend well inside the border, to encompass technical standards, services, intellectual property, trade-related investment, and a host of other economic policies that were once considered domestic. Fifty years ago, almost all GATT members were from the industrialized world; of today's 130 WTO members, eighty per cent are developing countries or economies in transition.
The growing complexity of the rules and diversity of membership, far from weakening the WTO, has strengthened it. In moving to broader participation we have done more than add a new rule here or a new member there. We have created an expanding network of interlocking interests and responsibilities - a system which grows more vital to all our trading interests as it grows stronger.
It is because China's accession to the WTO will profoundly shape the future evolution and direction of global economic relations that we must get the process right. China is too large and important an economic player - and its entry into the WTO will have too great an impact on the system - to compromise these negotiations.
We have recently seen important signs of momentum and creative flexibility we have recently seen in these negotiations - in difficult areas like trading rights, non discrimination, non tariff barriers, state trading, investment, and intellectual property where the negotiators have made quite remarkable progress, especially in recent months. None of this progress would have been possible without the vital - if time-consuming - technical groundwork that all parties to this negotiation have laid over the previous decade. But what is really driving this process forward is a shared recognition of the rewards that are riding on success.
My purpose is not to underestimate the work before us, especially as we approach the next negotiating session scheduled in May this year. Like all negotiations, much of the important work - and the toughest issues - have been left to the end. My purpose instead is to urge all concerned to redouble their efforts - and to stretch their imaginations - now that we can claim to be entering the final phase and there is a widely shared need to move forward with urgency. There still remain crucial issues pertaining to China's terms of accession to the WTO. Equally important, there are the bilateral market accession negotiations with China's major trading partners which, as you know, are a critical and essential element of any successful negotiation. Once again we should recall that China's position as the 5th world exporter reinforces the need for its own market to be accessible to others. These are all important issues that will need to be resolved to everyone's satisfaction before China can be brought into the WTO.
Throughout the period of China's accession process, the GATT/WTO Secretariat has been ready to facilitate negotiations and to render any assistance which may be needed on all possible fronts. I need hardly add that this commitment of the Secretariat stands equally firm as we approach the final stages of the accession process.
The challenges ahead do not alter the basic reality that no aspect of China's economic and trade relations will be easier to handle outside the multilateral system. On the contrary, everything would be more difficult, for China and its partners - more arbitrary, discriminatory and power-based. No-one can want such a scenario.
The international debate about globalization vividly illustrates this last point. Implicity or explicitly, China is moving to the very centre of this debate. The wonder is not that the accession negotiations have been so long and so complex. The wonder is that this immense country has moved so far into the mainstream of the global economy in so short a time.
The walls that divided us are falling down; but some still see disparities and differences, rather than our common interests. Globalization is weaving the world together as never before; but it is a world of different cultures, different systems, and different levels of development.
Interdependence demands that we respect our unique cultures and civilizations. Interdependence also demands that we find common solutions to our common problems. These include the concerns of China's major trading partners about its persistent trade surpluses. Equally, the world will have to understand the immense challenge China faces in transforming itself with a modern and competitive society - and all in a matter of decades. China is not alone in making this effort of restructuring. Globalization obliges all nations, small or large, rich or poor, to take part in a continuous process of adjustment. More than ever before, the world's problems will be China's problems; and China's problems will be the world's.
Yet our world of dramatic change is also a world of dramatic possibilities. China's living standards have doubled in the last decade, and will no doubt double and triple again. New opportunities are opening up for Chinese workers and Chinese entrepreneurs. New choices are opening up for Chinese consumers. And out of this economic opening springs new hope. I would argue, from the evidence of the huge success of reform so far, that the real cost would lie in keeping doors closed, in slowing the restructuring process, and in maintaining inefficient public structures.
What is true for China is true for the world. The global economy could easily double by 2020, raising global living standards by almost two-thirds - among the greatest advances in world history. Technology and communications are weaving together an interconnected planet, spreading the tools of economic and social progress, and equalizing the human condition. And we are breaking down the barriers, not just between economies, but between people, giving us a shared interest in prosperity and peace.
We must be clear about what is at stake: China's entry into the global trading system is about more than trade. It is about China's future r˘le as a world economic leader. And it is about the future direction of the global economy and our global community.
I began by saying that we are at a turning point in China's relations with the world. One of those moments in history, which come but rarely, when the choices we make shape the course of events for years and even decades to come. The Cold War landscape has been swept away, as if by an historical earthquake. The next era of globalization has yet to take shape. We have a unique opportunity - between eras as well as between centuries - to lay the foundations of a new kind of international system, one which offers the best chance yet of lasting world prosperity and peace. For the first time we have in our grasp the possibility of creating a universal system based on rights and obligations agreed by consensus and binding all its members.
I repeat - the successful integration of China into the global economy is the key to many of the international challenges we face. We will need creativity in the days ahead. We will need resolve. And we will need vision. Change will come whether we like it or not. We can either engage it positively and steer it to positive ends or ignore it to our peril. The choice before us is an obvious one.
I have come to China, not as a negotiator, but as a man with one interest - to help build a truly global trading system which can bear the weight of the twenty-first century. I leave you with the message that China must be a central pillar of this system - otherwise we risk building the new century on the foundations of economic instability and an even more uncertain peace. I am confident China will bring an equally great breadth of vision to this task.