China inducted into the WTO: Now what? by Julie Reinganum, President of Pacific Rim Resources, Inc. for the 2002 Haas Asia Business Conference U.C. Berkeley March 2, 2002

In August 2000, I was asked to discuss the impact of WTO on US-China business, in particular, on business in California. At that time, it was easy to point out all of the changes that China would need to make in order to meet the accession requirements. In virtually every sector of the economy tariffs would reduce protection to nascent industry; new regulations would need to be drafted; and there would be increased competition from non-Chinese entrants into industries such as banking and insurance. As of January 22, that picture has changed. For individual US or California companies, there indeed are increased opportunities such as decreased tariffs on imported product in to China. And, in fact, it is important to keep in mind that the WTO is intended to replace the earlier GATT agreements. Thus, the important changes WTO addresses are for trade rather than for investment. But, the question of "Now what?" gets at a much more fundamental question. How will China manage the implemenation of the WTO and what role can or should the US play?
	1. The challenges of implementation
		a. China does not have widespread understanding of what the WTO means
			--regulatory changes "need to rewrite all the regulations"
		b. There will be winners and losers with WTO implementation. Local authorities will likely loss some autonomy. And, the Central government tax revenue will likely increase.
			--Nick Lardy estimates that 40% of US exports to China are not reported, they come in indirectly via Philippines, HK, etc.
		c. China does not have a legal system which has the ability to enforce WTO
			--few trained judges. Most current judges are former military and did not have legal training
			--corruption common at the local level
	2. What might happen?
		a. China will need to educate its officials on the meaning of WTO. It will also need to educate its business sector
			--China has instituted broad programs to educate government officials. There is a center in Guangzhou and other cities
		b. The US government and the EU have adopted broad programs to "capacity build", ie to develop local expertise in the meaning of WTO
			--Outreach programs from the FCS and the embassy
			--Asia Foundation grants to educate lawyers
		c. US companies will need to redefine their "friends and enemies" in China business
			--Used to avoid the Central government if at all possible, now the Central government will be the only entity of recourse.
		d. There will be more disputes between the US and China.
			--what types of cases will actually be heard?
		e. Certain US industries will need to give on areas previously protected such as steel.
	3. What are China's options and why has China agreed to these terms?
		a. China set the terms of its accession to the WTO
		b. China wants to be accepted as a player in the international arena
		c. China sees this as beginning a process.
	4. What are the business opportunities?
		a. Trade. Any products can be imported to China with reduced or no tariffs over the next 5 years.
		b. Distribution. Companies will now have the ability to engage in distribution without manufacturing and without the high hurdles previously enforced by the government
		c. Other opportunities in the Service Sector. Financial institutions
			--interbank lending
			--consumer credit

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