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China: WTO $40 Billion A Year, But Unevenly Shared

Accession To WTO Delivers $40 Billion A Year To China’s Economy But Gains Unevenly Shared: World Bank Study

HONG KONG, February 21, 2005 — Market liberalization and other reforms associated with China’s accession to the World Trade Organization (WTO) are delivering gains worth more than $40 billion a year to China’s economy, and adding about $75 billion a year to real incomes worldwide, says a World Bank study. But the same report recommends that China make policy adjustments to balance the uneven distribution of benefits between the country’s rural and urban regions.

China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategies, a major study recently produced by the World Bank’s Research Group, and edited by Will Martin, Deepak Bhattasali and Shantong Li, found that reforms associated with China’s accession to the WTO had contributed strongly to the doubling of China’s trade since 2001. Economies with close trading links to China—such as Hong Kong—gained substantially, with some economies competing in third markets suffering smaller losses. The study is to be presented Tuesday, February 22, at a conference on China and the WTO at Hong Kong University.

“While China has experienced remarkable growth in its trade as a result of its WTO accession, it now faces the challenge of adjusting labor market policies to improve productivity in the rural sector, and to allow workers to move to more competitive sectors,” said Will Martin, a co-editor of the study and Manager of the World Bank’s Trade Research Group.

The book includes contributions from a wide range of experts, and addresses the impacts on China’s economy of WTO-related reforms including liberalization of tariffs and non-tariff measures, measures that address intellectual property rights, and services and telecommunications among others. Overall, it concludes that WTO accession has already delivered significant benefits and offers the potential for many more, if China adjusts its domestic policies to seize the opportunities arising from its trade opening.

The findings on the uneven nature of benefits between urban and rural areas are based on a survey of 84,000 Chinese households. Almost 90 percent of urban households reported income and consumption gains since WTO accession, while rural households, overall, experienced a modest average income loss of 0.7 percent. The poorest rural households however, suffered a sharp six-percent drop in their living standards, as measured by consumption, due to the combined effect of a drop in real wages and an increase in the prices of consumer goods.

Sustaining the gains from China’s WTO accession will depend heavily on the ability of China’s labor markets to help those experiencing short-term losses, by providing ways for rural workers to shift from agriculture to other sectors. The study advocates reforming the hukou system, which regulates movement from rural to urban areas in China. The study estimates that reforming hukou could result in an increase in rural wages of almost 17 percent, allowing about 28 million people to leave agriculture.,.

The study also calls for increased access to education and for efforts to deliver improved agricultural technology to farmers, thus enable them to increase their productivity and competitiveness. Another way of helping rural workers adjust to the impact of WTO accession, the study says, would be to improve China’s network of social protection programs, for example, by extending the country’s urban unemployment insurance schemes to wage-earners in village and township enterprises.

After joining the WTO, China committed to comply with the market opening principle, which included reducing tariffs and abolishing non-tariff barriers, as well as opening its economy to investment by overseas companies in the services sector. As part of China’s WTO accession deal, other countries agreed to abolish their quotas on textiles and clothing imports from China, imposed under the now-expired Agreement on Textiles and Clothing (ATC). This is ultimately expected to allow China to increase apparel exports by 100 percent.

China implemented substantial tariff cuts and modernized the trade regime,as part of its WTO accession arrangement, greatly increasing competitiveness in world markets.

The report expresses concern about the antidumping and safeguards measures facing China’s exporters, especially the product-specific safeguards that apply for up to 12 years after accession, and the textile safeguards which some countries have begun to invoke against China. But increasing use of antidumping and safeguard actions in China would only compound the damage. It would be far better for China to take the lead in tightening the excessively lax-WTO rules on antidumping.

In agriculture, the World Bank study suggests that China take steps to improve the quality of its food products for export, as part of a shift toward higher-value labor intensive commodities. China faces higher tariffs than virtually any other agricultural exporter—four times as high as those on exports of manufactures.

The study also suggests that China seek improvements in its access to agricultural markets in OECD countries, as this would help China increase exports of labor-intensive products and reduce rural poverty. Meantime, the report predicts that China will benefit substantially from its reforms in the services sector, which it describes as the most radical reform ever negotiated in the WTO.

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