United States Trade Representative Charlene Barshefsky pinpoints the value of reducing trade barriers. She has noted that since 1960, as world tariffs have decreased, global trade has increased 15 times, world production has increased five times, and world income per person has doubled. In turn, world standards of living and trade opportunities have increased considerably.

What is responsible for the decrease in global tariff barriers? The answer: the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT).

The WTO was formed in 1995 with 81 member countries, a total that has grown to 135, with 36 observer nations. The latest country to join, Estonia, was admitted in November 1999. About two-thirds of the members are developing countries.

GATT, established in 1947 in Geneva, Switzerland with 23 member countries, was designed to reduce or eliminate tariffs and, in some cases, non-tariff barriers among the contracting parties. GATT was responsible for reducing the international tariff average from 40 percent in 1947 to five percent in 1990.

The November 1999 WTO Ministerial Conference in Seattle was expected to initiate a new round of trade talks designed to identify sectors where parties could further pursue tariff reductions. Yet, due to widespread and highly publicized rioting, few meetings were held.

Sleepless in Seattle

Many demonstrators claimed that the WTO does not consider working conditions nor the environment. They charged, further, that it is not a democratic institution. WTO supporters acknowledged that improvements can be made. Additionally, they pointed out that in order to generate wealth, a prerequisite for raising living standards, each country must participate in the global economy.

According to the WTO, all its agreements are adopted by consensus. No agreement is binding on any nation unless that country first agrees to it, according to its own legislative process. And, WTO rules do not prevent countries from adopting and enforcing their own environmental and health standards.

The GATT-WTO Difference

GATT was a formal international agreement that specified the rules for conducting international trade. It led to an international organization created to support the agreement. GATT was ad hoc and provisional, never ratified in contracting parties’ parliaments.

On the other hand, the WTO and its agreements are permanent, and the body is comprised of full-fledged members. Whereas GATT dealt with trade in goods, the WTO covers services and intellectual property as well. Importantly, the WTO dispute settlement system is faster than its predecessor’s and more automatic than the old GATT system. Additionally, its rulings cannot be blocked.

Congressional Action

This spring or summer, the United States Congress is expected to vote on a very controversial issue. As surprising as it may seem to some, however, the vote is not over admitting China to the WTO. The issue, instead, deals with granting China Permanent Normal Trade Relations (PNTR) status.

On November 15, 1999, the United States and China signed a bilateral trade agreement that unofficially gave the thumbs-up to China’s WTO membership. Formal admission will occur after all remaining WTO members complete their individual agreements with China.

Under the WTO, members must grant each other PNTR status. To achieve this under current United States law, Congress must either amend or repeal Title IV of the Trade Act of 1974, known as the Jackson-Vanik amendment.

What’s at Stake?

Should Congress fail to grant China PNTR status, that country could invoke Article 13 of the WTO Agreement and elect not to apply multilateral WTO agreements to the United States. Such an outcome would deny the United States preferential market access to China, handing global competitors a significant advantage.

If Congress grants China PNTR status, the more likely scenario, the United States stands to gain unprecedented access to China’s markets for such leading American exports as high-technology products, capital goods, services, and agricultural crops.

China will reduce its average industrial tariff from 35 percent to 10 percent, while eliminating a multitude of non-tariff barriers that essentially prevent United States’ companies from significantly increasing exports there. In fact, the Congressional Research Service estimates that United States exports could almost double.

In reaching its 1999 accord with the United States, China made virtually all the concessions. And, as a member of the WTO, China must comply with the rules or be subject to trade sanctions under the organization’s dispute settlement procedures.

Will China’s Exports Threaten U. S. Manufacturers?

Most Chinese exports to the United States consist of inexpensive consumer products which are no longer manufactured in significant quantities in the United States. These include low-cost apparel, footwear, radios, televisions, toys, sporting goods, and consumer electronics.

Assembly of these items began shifting away from the United States in the 1960s. First came Japan, followed by Korea and Taiwan. Starting in the 1980s, Southern China entered the picture. As a result, China’s emergence as a consumer-goods assembler has come primarily at the expense of other developing countries, not the United States.

While apparel imports are likely to increase, that rise will take place irrespective of China’s joining the WTO. After 2005, imported apparel from India, Pakistan, and other developing countries will enjoy unrestricted access to the United States’ market. Preventing China from joining the WTO, therefore, will not protect the United States’ textile industry.

The Taiwan Issue

An agreement for China’s entry most likely would pave the way for Taiwan to join the WTO. When a working body was formed in 1992 to assess Taiwan, some WTO members felt that the Chinese and Taiwanese applications should be considered together. Recent developments in the China-WTO negotiations may open the door for Taiwan’s admission.

American business supports workable relations on the part of the United States with Taiwan and China, since most major American companies do business in both countries. A WTO package that admits China and Taiwan would improve American access to both markets and be a win-win proposition for American companies.

This article appeared in March 2000. (BA)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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