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WJS: Good marks for China's WTO obligations
By Murray Hiebert (The Wall Street Journal)
Updated: 2005-11-28 13:55

Four years after China joined the World Trade Organization, foreign companies give Beijing a fairly positive report card for moves such as cutting tariffs and opening up financial services -- but they say there is a lot left to do in other areas.

China's imports have surged since the country joined the trade body in December 2001 and opened its markets. US exports to China last year were up more than 80% from 2001. Companies abroad anticipate more benefits when China phases in additional market openings, particularly in services, in the next year.

Still, foreign companies in China continue to face some major challenges. Many of their complaints focus on rampant violations of intellectual-property rights, restrictions on distribution and a lack of transparency in regulations. China's exports to the US, by value, are six times as great as its imports from America and are expected to create a trade imbalance this year of $200 billion.

WTO member countries will open a crucial meeting in Hong Kong on December 13, shortly after the fourth anniversary of China's entry. The session, ending December 18, will try to jump-start the so-called Doha round on trade liberalization launched in late 2001 that has stalled largely because of differences between developed countries over agricultural subsidies.

While no country is expected to be singled out for criticism, the gathering in Hong Kong is likely to put a spotlight on China's performance in meeting its WTO obligations. Until this year, foreign business groups have generally praised China's efforts, but in recent months some, such as the Washington-based US Chamber of Commerce, have stepped up criticism and called on Beijing to move faster.

Chinese officials say they have done fairly well in meeting WTO obligations. They say they have amended 2,000-plus laws and regulations and abolished more than 800 others to comply with WTO rules.

Zhang Hanlin, a Chinese academic who advises the government on trade issues, gives China a grade of 95% for overall WTO compliance, though only an 80% for its protection of intellectual property.

Foreign companies also give China good marks in several areas:

Tariffs. Beijing cut its import tariffs to an average of 9.4% this year from 15.3% in early 2001. Tariffs on information-technology products, including computers and telecommunications gear, have fallen to zero from 13.3% over the same period.

Financial services. Since December 2004, Beijing has opened up 18 cities to local-currency operations by foreign banks -- some ahead of its WTO schedule. The government is due to lift remaining restrictions on foreign banks doing yuan transactions next month. Foreign banks complain, however, that China's high-capitalization requirements create an investment barrier.

Insurance. Foreign-invested insurance companies say they are selling more health, group and pension insurance policies to Chinese clients since Beijing lifted many earlier restrictions last December. But these companies say they are hobbled in their expansion efforts because Chinese rules require them to get approval to open new offices one at a time, instead of concurrently as with local rivals.

Government procurement. Beijing agreed this year to begin talks on joining the WTO Government Procurement Agreement, which would grant foreign companies nondiscriminatory access to government purchases. Currently, Chinese "government agencies are required to purchase equipment and technology from Chinese-owned companies, unless no commercially viable alternative exists," the 2005 position paper of the European Union Chamber of Commerce in China indicated.

In other important areas, foreign companies and governments say Beijing's execution of its WTO commitments is patchy. Myron Brilliant, head of the Asia division of the US Chamber of Commerce, has called China's implementation efforts this year "a mixed bag. Progress didn't go as far as it should have."

Sectors where foreign companies would like to see more improvement from Beijing include:

Intellectual property. The US Chamber of Commerce said in a recent report that "China's IPR [intellectual-property rights] enforcement remains wholly inadequate and is the most visible area of WTO noncompliance." The report said 70% of pirated goods seized at US borders in the first half of the year originated from the Chinese mainland and Hong Kong. US and European companies lose billions of dollars a year from piracy of such goods as computer software, pharmaceuticals, electronics, movies, clothing and car parts, say foreign-trade groups.

In joining the WTO, China pledged to significantly reduce the levels of counterfeiting and piracy before 2005, and Chinese officials regularly assure Washington they will step up antipiracy efforts. But foreign companies say China could do much more; of some 2,000 administrative enforcement cases dealt with by authorities in the eastern province of Jiangsu last year, only two were transferred to courts for criminal investigation, according to the US Chamber report.

Mr. Zhang, the government adviser and head of the China Institute for WTO Studies at Beijing-based University of International Business, says that while Beijing's protection of intellectual property has improved in recent years, one problem is that responsibilities are currently divided among too many administrative departments.

Distribution rights. The implementation of distribution rights for foreign companies is "disappointingly slow and characterized by vague and overly restrictive rules," the American Chamber of Commerce in China said in a recent report. Regulations governing direct selling by companies such as Amway Corp, the US cosmetics and soap marketer, were finally issued this month, 11 months after they were due under China's WTO obligations.

Government transparency. Foreign firms say Beijing frequently publicizes regulations right before they take effect and often without giving them reasonable opportunity to comment. The companies say it is often hard to get copies of laws and internal guidelines; in some sectors, such as construction and parts of the telecommunications industry, regulations effectively block access by foreign firms.

Standards. Beijing has begun to introduce national technology standards for a range of products that foreign firms say erect new nontariff barriers in violation of WTO rules requiring fair competition. They say China is developing standards that diverge from leading international technologies in such areas as Internet protocols, mobile communications and data protection.

Foreign companies also complain of some backsliding. For example, Beijing in April introduced a tariff on imported auto parts for cars assembled in China, with a rate equivalent to that for fully assembled, imported vehicles.

"This backtracking may indicate that Chinese officials believe they have made enough significant progress on WTO compliance that they can now yield to domestic pressures to protect vulnerable industries," the US-China Business Council, a trade association based in Washington and Beijing, said in a September report.

Write to Murray Hiebert at murray.hiebert@wsj.com

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