0

CHINA’S TRADE POLICY POST-WTO ACCESSION.

FOCUS ON CHINA- AFRICA TRADE RELATIONS

By

AARON BANDA

Copyright © Aaron Banda, 2014

All rights reserved

1

Introduction

“China’s accession to the WTO is a milestone in China’s reform and opening up, bringing us into a new

era to further open up. To join the WTO was a major strategic decision based on our comprehensive

analysis of the situation at home and abroad in order to push forward China’s reform and opening-up and

socialist modernization drive.”1

After long period of negotiations, China became the 143rd member of the World Trade

Organization (WTO) at the 4th WTO Ministerial Meeting held in Doha, on December 11,

2001. Entering the WTO was a strategic decision made by the Chinese government in the

era of economic globalization, as words of the former Chinese leader, Hu Jintao, quoted

above show.

With its huge political influence, a giant economy and its status as a top global trader or

merchandiser, China’s accession to the WTO would help to improve the multilateral

trading system, promote global economic and trade development. This would result in

establishing a new, open and just international economic order. It should be noted that

since the time of admittance, China has developed a strong policy towards fulfilling its

WTO commitments. Of course, a lot of debate has come forth in relations to

implementation of these commitments.

Africa has been a trading partner of China for decades, and terms of trade are mainly

covered on two platforms. These include many bilateral and multilateral agreements.

How were these agreements affected by China acceding to WTO? Are African countries

advantaged now than before China become a WTO member? How can Africa increase its

trade with China?

This paper will answer these questions, basing analysis on researched data as well current

affairs to consider China’s overall trade policy since it accession to WTO, its

commitments and finally its trade relations with Africa.

1 Part of speech by former Chinese president Hu Jintao, The Tenth Anniversary of China’s accession to WTO,

December 2011 ceremony.

2

China Accession to WTO and change of trade policy

China is the second largest economy in the world, and first largest world merchandise

exporter. Initial probe indicates that China’s WTO commitments have been fulfilled in

high dose and it exceeds many developing countries. After WTO accession, China has

devoted much time and efforts to reducing trade barriers. Sun and Heshmati (2010) gives a

summary that in 2004, China lowered its average tariff rate by 0.6% to 10.4% and in 2008,

the average tariff rate was below 10%.

Furthermore, China agreed to eliminate import quotas, licenses, designated trading practices

and other non-tariff barriers. In addition, automobiles, chemicals and electronics industries

which were subject to strong government protection before experienced restructuring due to

the dismantling of trade barriers (Greeven 2004).

For instance, Rumbaugh and Blancher (2004) ascertain that China’s accession to the WTO

enabled the country to enjoy the benefit of increased overseas market access. China is now

permanently granted most-favored-nation (MFN) treatment by other WTO members, which

is a significant step toward normalizing its trade relations.

That transformation represented a shift in what is called China’s policy terms of trade.

When China joined the WTO, it regarded itself as a “price-taker” in the world trading

system; it acted rather like a small or medium-sized open economy that could only adapt

to the international terms of trade (Razeen, 2011). How has China fulfilled its

commitments?

Like every acceding member does, implementation of the WTO commitments involved

major market opening, greater transparency through the WTO notifications and

committee process, and more intensive engagement with the international community. In

the period up to 2001, when China was negotiating its WTO accession, its average tariff

fell from about 43 percent to about 15 percent in recognition of General Agreements on

tariff and Trade (GATT) of 1994. In 2001, China bound its tariffs under the WTO, with

its simple average final bound tariff at 10 percent (Ricardo, Bellmann and Cheng,

2011). It made extensive commitments for the non-tariff regime; its services

commitments are broader than most Uruguay Round participants; and it has made among

the largest number of transparency-related WTO notifications.

3

And a review of the China’s protocol of Accession through use of Transitional Review

Mechanism (TRM), which is done yearly for the first 8 years, has shown no major WTO

members2. Further commitments have been shown by a number of fundamental changes

to China’s legal and regulatory frameworks at the central government level been made to

comply with WTO principles. For example, extensive upgrading of the foreign direct

investment regime has been implemented, with the elimination of requirements related to

foreign currency financing, local content or export performance, including publishing

laws, regulations and other measures related to or affecting trade at China Foreign

Economic and Trade Gazette.

Razeen (2011) explains that on General Agreement on Trade in Services (GATS),

China’s commitments are very strong. On paper, the impact of WTO accession should be to

cut services protection by half. Practically, though, China remains more protected in services

than it is in goods trade. Notably, the above-average levels of restrictiveness appear in key

services sectors such as fixed telecoms, banking, air and maritime transport, and electricity.

Despite numerous policy reforms in line with WTO conditions for accession, China has

been very active in negotiating Free Trade Agreements (FTAs) – in contrast to its Doha

Round passivity. It is the driving force of FTAs in East Asia. By 2010, it had 11

Preferential Trade Agreements (PTAs) on the books, with 11 others under negotiation or

proposed. Clearly, China is more comfortable with proactive bilateralism than proactive

multilateralism.3 This action makes many scholars skeptical about China’s WTO

commitments.

In summary, China has a mixed record on WTO implementation; a flurry of litigation has

followed several years of diplomatic reconciliation in dispute settlement; and China has been

passive in the Doha round, but has been very active with PTAs, setting off a “domino effect”

in East Asia (Yueh 2010). So how do these mixed results or piecemeal implementation of

WTO conditions for accession affect trade with Africa?

2 http://www.wto.org/english/news_e/news11_e/tbt_10nov11_e.htm

3 http://www.scribd.com/doc/78620030/A-Decade-in-the-WTO-Implications-for-China-and-Global-Trade-

Governance

4

China-Africa Relations

Figure 1

Africa’s top trading partners. COURTESY/U.S. Senator Chris Coons

China’s trade with Africa has overtaken its trade with the European countries and the US,

to become Africa’s top trading partner in 2009, Figure 1.above shows volume of exports.

Figure 2.

Source: Journalism and Media Studies Center, The University of Hong Kong (JMSC), 2011-2012

It should also be noted, though, China trades with Africa as continent it promotes various

bilateral agreements with individual nations as Figure 2 shows. South Africa tops the

investment inflows and other Africa nations have connections with the China in various

investment portfolios on negotiated terms. Many African countries are more inclined to

5

promote bilateral agreements than multilateral because these countries by nature do not

speak with one voice on trade matters and trade in various small raw material or

unprocessed goods.

Since the turn of the century there has been a shift in China’s policy towards Africa.

When China started to go global after 1998, Africa became a strategic focus for Chinese

outward-bound companies, especially in the extractive industries4.

According to a survey conducted by the OECD and the WTO, China’s trade-related

assistance to Africa is comprised of three elements: i) duty-free and quota-free market

access to products from LDCs; ii) large scale infrastructure projects (e.g. roads, ports,

factories) to address supply-side constraints; and iii) capacity development training

programs and sharing of Chinese knowledge and experience in economic and trade

development (OECD/WTO, 2009a).

Chinese government also has used aid money to support joint ventures between Chinese

firms and firms in recipient countries. China has also worked with several LDC

governments (Ethiopia, Zambia and Cambodia) in developing overseas trade and

economic zones which, according to the Commerce Vice-Minister Fu Ziying, have

effectively promoted investment, increased tax revenue and created jobs5.

Consequently, Beijing accorded Africa renewed political importance, based on geo-

strategic and commercial interests, rather than ideological ones. This renewed focus

between China and Africa resulted in conceptualization of Forum on China-Africa

Cooperation (FOCAC)6, the vehicle to coordinate China’s foreign policy objectives in

Africa; roadmaps of engagement. The first FOCAC meeting in 2000 agreed on a three

year action plan to boost Sino-African trade and investments; cancelling African

countries debts to China; increasing development aid to Africa; and encouraging Chinese

companies to invest in Africa (Cisse 2012).

4 Africa’s Emerging Partnerships: The Role of China African Economic Outlook 2010 Expert Meeting

Organised by the OECD, AfDB, UNECA and UNDP 12th October 2010, Paris, France 5 www.oecd.org/dac/aft/South-South_China.pdf

6 May 2012, Policy Briefing, FOCAC: trade, investments and aid in China-Africa relations

6

However, concerning trade policies with Africa, many view China-Africa relations as a

horse and rider, or China as new colonialists’ scenario when analyzing the trade

arrangement. China has made WTO commitments to give leverage to all nations to access

its market through MFN regime. Despite China’s reforms in trade policy, the capacity of

most African countries to supply these markets with value- added products remains low.

Optimistically, however, Africa trade volumes with China have shown significant

increase since 2000 as the chart 1 above shows. Africa’s exports to and imports from

China rose on average by more than 40 percent and 35 percent, respectively, significantly

higher than the growth rate of world trade (14 percent) or commodities prices (18

percent).The figure is low immediately after China’s WTO accession but increases

exponentially for the consecutive years later. The increase is mainly due to cheap or low

prices manufactured goods.

7

Nonetheless, Figure 3 below show a detailed scenario of levels of trade or participation

in trade with China. Noteworthy is the fact that most countries trade in raw materials or

primary goods, but there are many factors which can affect their productivity, hence

posting low value or deficit trade results. Angola’s leading tradeable goods are Crude oil

and Diamonds, which are high value products.

Figure 3.

Source: Journalism and Media Studies Center, The University of Hong Kong (JMSC),

2011-2012

Africa’s exports to China constitute mainly raw materials, about 70 percent of its export

basket, while its imports from China constitute mainly manufactured products, about 80

percent of its import basket. Thus, this pattern of trade threatens to reproduce the existing

8

pattern of uneven and imbalanced trade that has characterized the trade between Africa

and the advanced industrial economies over the past century7.

In addition, the rise of China as the leading producer of low value-added manufactures

and the change in the terms of trade against low-value manufactures has created

significant development challenges for African countries.

Conclusion: The Way Forward for China-Africa Relations

China’s entry into the WTO is arguably the most significant peaceful change in the global

political economy in the post-Cold War world. As a new member with a socialist

tradition, lots of work remains to be done in many areas, including its legal system,

intellectual property rights, and agricultural subsidies.

Overall, China’s accession to WTO has brought many reforms in trade of goods and

services. In terms of trade policy, China’s rise provides Africa with a range of new

opportunities. China’s trade policy with Africa has tended to be more holistic in its

approach to promoting its own exports and securing raw materials by providing

alternative financing modalities, supporting direct investment in infrastructure,

manufacturing production and offering development aid to reduce poverty in Africa.

Finally, this new trade relationship, under WTO, should eventually be based not on

reinforcing dependence but on building mutually beneficial economic relations that

advances the development of Africa and contributes to successfully re-integrating Africa

into the world economy or to enable Africa to fully and meaningfully participate in global

trade.

7 http://www.scribd.com/doc/78620030/A-Decade-in-the-WTO-Implications-for-China-and-Global-Trade-

Governance

9

References

1. Cissé, D., 2012, Policy Briefing, FOCAC: trade, investments and aid in China-Africa

relations. Centre for Chinese Studies. Stellenbosch. South Africa.

2. Cross, K.H. , 2004, China's WTO accession: economic, legal, and political implications,

Boston College International and Comparative Law Review, 27(2), 319-370.

3. Greeven M.J., 2004, The evolution of high-tech in China after 1978: Towards

technological entrepreneurship, ERIM Report Series Research in Management, ERS-

2004-092-ORG.

4. Gertler, J. L., 2002, What China’s WTO Accession is All About, WTO Secretariat,

December.

5. Hong, C., 2005, The Political Economy of Tariff Protection in China: Evidence from

WTO Accession (Doctoral dissertation, Dissertation Paper 1. University of California

at Davis).

6. Ricardo, M., Bellmann, C. & Cheng, S., 2011, A Decade in the WTO:

Implications for China and Global Trade Governance; China, Trade and

Sustainable Series; International Centre for Trade and Sustainable

Development, Geneva, Switzerland.

7. Rumbaugh, T. & Blancher, N., 2004, China: international trade and WTO accession,

IMF Working Paper, 04/36 March, Washington: International Monetary Fund.

8. OECD/WTO , 2009a, China’s response to the OECD/WTO Questionnaire for South-South

Co-operation, OECD, Paris. Available at: www.oecd.org/dataoecd/43/8/43148076.pdf.

9. Sun, P. & Heshmat, A., 2010, International Trade and its Effects on Economic

Growth in China. IZA Discussion Paper No. 5151 pp 6-7, Bonn, Germany.

10. Yueh, L. (ed.), 2010, The Future of Asia Trade and Growth: Economic development with

Emergence of China, Routledge, New York, N.Y.110016