After China is accepted into the World Trade Organization next year, San Diego companies should find that doing business there will be much easier than before.
“It levels the playing field and enables companies to compete more effectively,” said Kathy Ward, president of the San Diego World Trade Center. Also, she said, “It would help reduce the high tariffs that China has now.”
Claire Wright, director of international accounting firm Ernst & Young’s WTO Center in San Diego and partner in the firm’s customs practice, said, “The purpose of the WTO is to remove tariffed and non-tariffed barriers to trade.”
The WTO has more than 140 member countries. Once China is a member, the government will have to agree to follow the organization’s international trade rules.
After 15 years of discussions, negotiators from the WTO and China recently agreed to the terms of China’s membership in the organization. Taiwan was cleared for membership a day later.
The agreement with China is scheduled to be accepted at a meeting of trade ministers in November. China’s legislature must then approve the agreement so the country can join the WTO early in 2002. “San Diego companies will be able to be more confident that China’s trade policies will be enforced equally and uniformly throughout the country,” said Kim Benson, vice president of San Diego-based Cange & Associates International Inc.
Benson’s firm is an international sales and marketing department for its three clients, high-end household appliance manufacturers.
“The movement of San Diego companies’ goods into China will involve far less cost and far less red tape once China enters the WTO,” Benson added.
Wait-And-See Attitude
For companies to import their products through a distributor in China right now, Benson said, an import permit is needed for each container shipped into the country, and a significant amount of red tape is involved.
Benson said there is an entity in China that wants to distribute products for Cange & Associates’ clients, but not until after the country enters the WTO.
“It’s not that they’re not interested (now), but it’s just not worth it to the distributors,” she said.
China will be subject to the GATT 94 , the General Agreement on Tariffs and Trade , once it is a member, but the government will have a phase-in schedule for reducing its tariffs over a period of years, Wright said.
Currently, China has strict regulations for agricultural imports. If an orange-grower wanted to export oranges to China, they could be required to pay a 35 percent import tax.
“Maybe they can do it now, but it could be prohibitively expensive and difficult to do,” Wright said.
Membership in the WTO requires countries to streamline its import regulations. Some countries require companies to go through five separate departments to ensure the safety of their products when it comes to health restrictions, Wright said.
The requirement is used as a means for protecting domestic companies from competition by creating a difficult regulation process, she explained.
Currently, companies need a joint distribution partner to distribute their products in China. That requirement gives companies less control over the quality of their products and the length of time it takes to deliver products to the market, Wright said.
Required Compliance
If China doesn’t comply with WTO trade regulations once it is a member, companies doing business in China can lobby the U.S. government to sue the Chinese governmenover infractions.
Wright identified three major issues that WTO members were especially concerned about in China.
Companies are highly concerned about China’s compliance with the WTO’s Trade-Related Intellectual Property Rights, or TRIPS agreement.
In the past, China has not had intellectual property laws, and Wright expects China will eventually be sued over intellectual property rights after the country becomes a WTO member.
Developing countries oppose the TRIPS agreement because they want intellectual property rights transferred to them, especially regarding AIDS drugs right now, Wright said. But in the eyes of the WTO, China is not a developing country.
Agriculture is another second hot-button issue in China. The government provides price supports for farmers, which would be a non-tariff barrier to trade under the WTO, she said.
The WTO’s Subsidies and Countervailing Measures agreement is a third touchy area for China.
“China’s government runs on subsidies,” Wright said.
For instance, a utility company may receive a 50 percent subsidy and government loans to build a power plant and a 10-year tax break to locate it in a certain province, Wright said. That subsidy would be an unfair barrier to utility companies outside of China, she said.
“It will be extremely difficult for China to make all the changes to comply with the WTO terms,” Benson said. “They’re not getting as much as they’re giving. There will be companies there that have to deal with increased competition.”
But China is gearing up for WTO membership. On Sept. 11, the day of the terrorist attacks in New York City and Washington, D.C., Wright was scheduled to instruct 40 lawyers from China about the WTO in a seminar at UCSD, where she teaches classes in addition to being an instructor at Stanford University.
Wright said the seminar will be rescheduled for sometime in the next six months.
“They’ll have clients concerned about new foreign competition,” she said.
Wright left the law firm of Baker & McKenzie in San Diego and joined Ernst & Young in June because the accounting firm wanted to create a WTO Center as a resource for its offices around the world.
“I think the timing is right, because the WTO is new,” Wright said. “It just came into effect in 1995. During the first few years, people didn’t know they had a WTO issue. They didn’t realize it’s countries suing countries, and you have to ask your country (to file a complaint with the WTO).”
