China, U.S. sign trade pact
Risks, gains for both sides if deal lets Beijing enter WTO after 13-year wait
NEW YORK (CNNfn) - China and the United States signed a pact Monday that could lower barriers to reaching consumers in the world's most populous country and pave the way for China's entry to the World Trade Organization.
The agreement obligates China to cut tariffs an average of 23 percent and promises greater access to the relatively closed Chinese market for everything from financial services to telecommunications and Hollywood films, according to a statement released by the U.S. Embassy in Beijing.
Wins, risks for both sides
U.S. automakers will be permitted to offer vehicle financing, and banks will be allowed to offer local currency loans to Chinese enterprises two years after China's WTO entry and get into retail banking in five years. Insurers also will benefit, although there were no details. The Chinese tariffs on U.S. goods will be lowered from an average of 22.1 percent to 17 percent.
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But despite gains for U.S. exporters, critics of China are likely to challenge the effort to get the agreement through Congress. Labor has vowed to fight the agreement as well. And the support of other WTO members is needed before China is granted membership in the body and most of the benefits of the agreement become effective.
With Monday's agreement China gains the crucial support of the United States in its long-sought effort to join the WTO, which has authority to levy penalties to keep member nations on a level playing field in trade with one another.
Even that opportunity is not without costs for the Chinese, though. New competition is expected to exert pressure on inefficient government-owned Chinese enterprises and speed up changes in the society. With unemployment in the nation already at 8 percent, such competition could throw millions out of work.
Final negotiations tense
The deal came after six days of tense negotiations between U.S. Trade Representative Charlene Barshefsky and Chinese officials. Only two days of talks had been scheduled.
China has been attempting to join the WTO for 13 years, but one of the main sticking points was its refusal to open its own markets to goods from other countries, particularly the United States and Europe.
Monday's agreement was welcomed by the Chinese government.
"We are looking forward to the day when China will become a full member of the WTO," Foreign Trade Minister Shi Guangsheng said at a signing ceremony for the agreement with Washington.
Battle not over for Clinton
But while members of the Clinton administration also praised the agreement, support in the Republican-controlled Senate remains problematic.
The defeat of the measure would be a serious blow to Sino-U.S. relations, still strained by the accidental NATO bombing of the Chinese embassy in Belgrade, Serbia, in May. Clinton, who wants to see a Chinese trade agreement as part of his legacy, vowed an all-out fight for the agreement in Congress.
"Today China embraces principles of economic openness, innovation and competition that will bolster China's economic reforms and advance the rule of law," Clinton said during a visit to
Turkey Monday. He termed the agreement, "a profoundly important step in the relationship between the United States and China."
Details of the accord were not immediately available. But none of the changes in Chinese regulations and tariffs won't take effect until China gains entry to the WTO, and most would be phased in over five years or longer. China's entry to the WTO will require a similar agreement with the European Union.
Businesses praise, labor blasts pact
Major manufacturers such as Boeing Co. and General Motors Corp., along with such trade associations as the National Retail Federation and the Semiconductor Industry Association praised the agreement as an important opportunity for U.S. businesses.
"Continued liberalization of Chinese trade and investment rules would further permit growth in the Chinese market for semiconductors, to the mutual benefit of U.S. semiconductor producers and the Chinese information technology industry," said the statement from the SIA, which estimates China already is an $8 billion a year semiconductor market and will become one of the largest markets for the product in the next century.
Duff & Phelps Credit Rating Co. issued a statement predicting an upgrade in both Chinese and Hong Kong debt over the next two years due to the agreement.
"Foreign direct investment could increase steadily to close to $100 billion per year by 2005, which in turn would yield strong export growth for China," said the Duff & Phelps statement. "As the economy opens even more to international trade, the competitiveness of Chinese companies would be enhanced. Multinational companies have used China as a low-cost manufacturing base for exports, and this trend should now accelerate."
Of course, it is that concern about new low-wage competition for U.S. businesses and workers that could raise objections to the deal here. The AFL-CIO plans to have members rally when WTO officials meet in Seattle later this month.
"The fevered rush to admit China to the WTO is a grave mistake," said a statement from John Sweeney, president of the AFL-CIO. "At a time when WTO rules protecting workers' and human rights and the environment are yet unwritten, this agreement undermines that possibility and squanders a chance for the WTO to achieve the legitimacy it and other international institutions lack among people around the world. The agreement reached this weekend would deal away our democratic principles and most cherished values, and we will fight it."
U.S. businesses still face problems
There still will be barriers and obstacles for U.S. businesses that try to expand operations or sales in China, even if the agreement goes through smoothly, according to experts.
Chris Dickerson, an analyst at Global Market Strategists Inc., said there still would be stifling of competition, as Monday's agreement lowered tariffs only on some products.
"It [the agreement] is obviously a good thing, but I doubt whether it is going to have any salutary effects in the short term," he said.
Dickerson compared the agreement to the fall of the Berlin Wall, where trade with previously closed markets took years to realize.
"China has been closed for so long, they're still going to be very protectionist. The agreement retains some pretty high tariffs on U.S. goods, and it will take a while for businesses to benefit," he said.
Larry Horwitz, senior economist at Primark Decision Economics, added: "U.S. companies with joint ventures in China find difficulties actually running businesses in China, and that's going to take years to work out, with or without a trade agreement. That's the single biggest problem."
Rocky road to membership
Although the deal was hailed as a major step forward, some trade experts cast doubts on whether China's WTO entry will follow smoothly.
In particular, the lengthy administration procedure that must be pursued, as well as the requirement for more talks with other WTO members, means China will be unlikely to join the organization this year, especially before the WTO's ministerial meeting in Seattle starting Nov. 30.
"You could envision a situation where they were essentially in by the end of January," said Barshefsky in a conference call with reporters Monday. "Maybe it's another month or two longer."
The European Union and Canada both have outstanding issues they want to discuss before agreeing to China joining the WTO, and many developing countries, which make up the vast majority of the WTO's current membership of 135, had yet to even start talks with China, diplomats said. Others, such as Brazil and India, have a number of outstanding issues to settle.
"There are a lot of other WTO members involved, and some of them may not be happy about the way this agreement with the U.S. has been put together," one trade envoy said. "There is still a rocky road ahead before Beijing can get in."
Mike Moore, the former prime minister of New Zealand who is director-general of the WTO, said the agreement shows that, "Despite
what the critics say, everybody wants to be in the WTO."
But he also stressed that the agreement, no matter how important, is not the final word on China's admission to the body.
"A historic door has been opened. Now we all have to walk through that door together," he declared.
Barshefsky and Chinese Foreign Trade Minister Shi celebrated with champagne as negotiators from both sides signed dozens of documents at the Ministry of Foreign Trade and Economic Cooperation.
"The conclusion of this agreement serves the interests of both China and the U.S., and is conducive to the development of Sino-U.S. relations, to China's becoming a WTO member as soon as possible and to the development of the world economy and trade," Shi said in a speech. Barshefsky met Chinese premier Jiang Zemin Monday.
Time has been pressing for agreements on China's entry to WTO because at month's end the WTO members will discuss launching new global trade liberalization talks. China wants to be part of those talks, but there has been concern that once trade ministers start negotiating new trade liberalization measures they would be too busy to take up Beijing's entry for several years.
Short-term changes unlikely
The agreement should be a major boost for other Asian countries as it will lower trade barriers into China without raising the risk of a yuan devaluation, fund managers said Monday.
But investors advised against a short-term increases in allocations to Asian assets, as managers cited strong gains over the last year and the likely slow progress of the opening up of China's vast internal markets as reasons for caution.
"This is fantastic news for Asia, but in the short-term it's not an issue," said Ashok Shah, emerging market fund manager at Old Mutual Asset Managers.
Fund managers were optimistic that China would avoid having to devalue its currency in the face of a likely rise in imports following the deal. They noted strong recent export data and the prospect of rising foreign direct investment if China opened up.
"We don't see China's trade surplus slipping into a deficit in the foreseeable future," Christine Rowley, a portfolio manager at Invesco in London, said.
The threat of a yuan devaluation has cast a shadow across Asia's fragile economic recovery.
"The deal is positive for WTO membership but the implementation process will take time, and anyway the Chinese borders have been a permeable membrane for imports for some time," she said.
-- from staff and wire reports