Reflection Paper on China in the World Trading System: Defining the Principles of Engagement

China's prospective membership in the World Trade Organization is one of the most significant developments relating to international institutions to take place in the past several decades. It comes in the midst of the broad transformation of post-World War II command economies to market orientation. It comes shortly after the transition of the GATT into a more comprehensive international economic organization, based on the rule of law. It represents the potential integration of over one-fifth of the world's population into the primary system established for the purpose of enhancing worldwide economic growth and employment. It will transform the WTO into an inclusive organization, and the WTO may become a less comfortable place from an OECD country standpoint than it has been for the past 50 years. China's prospective entry into the WTO is an opportunity and a challenge for China, for the United States and other industrialized states, and for the WTO.Despite grounds for concern, the advantages to the United States and other countries of bringing China into the WTO system seem obvious. China would agree to open its huge internal market to foreign goods and services. China would provide assurances of fair treatment to importers and foreign service providers. China would agree to be bound by the rule of law in the conduct of its trade relations. China would be anchored in the global economy in ways that would encourage stability in external security relations. On China's side, the advantages of membership in the WTO also seem obvious. As its economy gains strength and becomes more competitive with OECD economies, it would reduce the risk of being arbitrarily shut out of export markets. It would less likely be subject to ad hoc decisions by foreign governments about whether it would continue to enjoy trade privileges. The security of its access to foreign capital markets and foreign direct investment would be enhanced. It would have access to neutral dispute settlement. The integration of China into the WTO also means international economic relations will be playing a greater role in its external world view. Stable external economic relations are becoming increasingly important to the vitality of China's economy. Military-security relations and concerns of the Cold War era are being translated into economic relations and concerns. On the whole, this transition appears to be a positive one for the international community.There appears to be a consensus among United States and European Union trade negotiators strongly in favor of China's accession to the WTO, but on the condition that China accept the 'fundamental rules' applicable to WTO Members, and that China accept a level of commitments that 'is commensurate to the size and importance of that economy." This approach appears to have merit.The use of transitional arrangements intended to bring China's market access commitments in line with those of other major WTO economies appears to be a reasonable course. The OECD business community and financial markets are incessantly anxious for immediate results. Yet it is useful to recall that the member states of the European Economic Community agreed to liberalize the Community services market in 1957/58, and that major progress had been largely unrealized until implementation of the 1992 Plan. Whether China's services markets are open in 5 years, 10 years, or even 15 years, is not a burning question for the international economic system; provided that China is committed to meeting a defined timetable which ultimately produces a substantive result commensurate with that of other WTO Members.The end of the Cold War era is demanding more inclusive international economic institutions. The widening of membership in these institutions cannot be accomplished without some element of risk. This risk should be welcomed in a trade-off against the greater risk of isolating and alienating the major economic and political powers whose transition to market orientation may otherwise portend a very positive contribution to the international community.