An Interview with
Dr. Supachai Panitchpakdi,
2002 Director-General of World Trade Organization,
and Mr. Mark L. Clifford,
Asia Regional Editor of Business Week
On China and the WTO
Question 1 First of all, I would like to complement you both on what is a very readable and interesting new book on a topical subject. In this regard, could you tell us how you came to write this book and why China’s entry into the World Trade Organization (WTO) should be of interest to us all?
Answer China’s entry into the WTO is the single most important economic event for the world’s most populous country since economic reforms began there more than two decades ago. It signals the willingness of China to assume a more important international economic, and perhaps political, role. China is already the world’s seventh largest economy. A decade from now it will, if current projections are accurate, be about the same size as Germany’s economy is today. Given this sort of growth, what happens with China’s economy over the next decade is of great importance to anyone with an interest in the global economy. We wrote the book because of our interest in Asia’s economic development and in the evolution of the world trading order. China is central to both.
Question 2 China’s entry into the WTO has been prominently featured in the news for many months. Can the importance of this development be overstated – both for China and the world trading order? If not, why not?
Answer Certainly, if the impression is gained that China will change overnight, then the implications of China’s WTO entry are overstated. It will not become a wealthy and pluralistic country within the next decade. Many of the changes mandated by the WTO accession agreement are phased in over a period of up to five years. Others, such as the establishment of a more law-based, or rules-based, system, will take a long time to be fully implemented. But we think that the overall importance of what the WTO will do in terms of spurring economic reform and in laying the foundations for a more rules-based society cannot be overstated.
Question 3 Many skeptics note that Japan was a founding member of the WTO but that this has not necessarily resolved or assisted foreign companies seeking to enter the Japanese market. Couldn’t China just follow Japan’s lead and utilize non-trade barriers and other means to limit or greatly slow down its market opening requirements? How likely is such a result?
Answer China has made commitments as part of its accession process that Japan did not make. GATT was a voluntary organization and had no enforcement power. Neither Japan nor other founding members of GATT were held to the sorts of standards that China will be subject to. Indeed, no country that has joined the WTO to date has surmounted the sorts of barriers that have been put in front of China during the 15-year process of accession negotiations. Besides the formal Dispute Settlement Body, which all WTO members are subject to, China has promised a number of detailed sectoral reforms. On top of that, a number of WTO technical groups will be monitoring China’s performance for the first 8 years after accession. All of this should help ensure compliance. All that said, there will be enormous difficulties with implementation of the WTO agreements. The United States, the European Union, and a number of multilateral agencies and NGOs are all providing technical assistance to smooth the difficulties involved in fully implementing the terms of the agreement.
Question 4 In your first chapter you recount the history of development and trade in China and note at one point that "With WTO entry, China is simply at the end of the beginning of reform." Could you explain what you meant by this and how it applies to China’s current situation?
Answer China’s reforms to date have largely been experimental and pragmatic rather than systematic. They have above all been a matter of freeing groups from restrictions. For example, the liberalization of the agricultural sector resulted in large increases in farmers’ incomes as well as a greater and more varied supply of food. Now, reforms will have to bite deeper. Powerful vested interests in areas ranging from banking to telecommunications will face real competition. More broadly, WTO will help establish a law-based society, something that is critical to the development of an increasingly sophisticated market economy.
Question 5 In your book you note that China has a considerable challenge in accelerating domestic reforms. Among the areas that require attention you note such areas as China’s legal system, restricting the guanxi (relationship) system of favors and influence and of the challenges China faces in the Agriculture and State owned industries. Which of these areas do you believe will be the most difficult for China to change and why?
Answer All of these are difficult areas. Rising unemployment in both the agricultural and industrial sectors will put strong pressure on China’s leaders. It remains to be seen whether they slow down the process of adjustment (which might make trading partners unhappy) or move to ameliorate discontent by acting more vigorously to establish a social safety net. Legal reform may not present as dramatic an obstacle, but it is likely to prove a more intractable issue. It will take a long time to establish a rules-based system in a country where personal connections have long been so important. There is nothing in China’s two millennia of civil administration that will prepare officials for a truly impartial system.
Question 6 In your book you conclude that although the challenges facing China are daunting, that the skill with which China has navigated its way through the first two decades of reforms provides reason to believe that progress can continue. Given the diversity in development throughout China from the developed big cities and coastline to areas in the far west that are primitive in the extreme, do you believe that progress in implementing WTO measures will be uniform? Further, how do you see the regional diversity of peoples and conditions influencing China’s implementation of reforms?
Answer Implementation will not be uniform and the inland areas likely will lag behind. The issue of regional disparity is a source of major concern on the part of China’s leaders and they are devoting significant resources to developing the country’s interior. But continued strong economic growth—which WTO will contribute to—is a prerequisite for keeping regional disparities from becoming a more significant political problem.
Question 7 You set aside a complete chapter to look at how much of a threat and how much of an opportunity China’s entry into the WTO is for Asia. You note that over the last year Asian leaders have discussed the issue and generally comedown on the side of seeing China’s entry as being a threat. You particularly note the challenge that entry poses to all of Southeast Asia. Now that China’s entry has in fact happened at the Qatar meeting, are there countries in the region that you could name that are moving ahead firmly to embrace the challenge and if so which ones are they and what are they doing?
Answer ASEAN has conducted several studies on this subject. China’s WTO entry has the potential to hurt the region, by diverting foreign direct investment that would have otherwise gone to ASEAN. But China will be a major market for ASEAN. China’s growth will mean increased export opportunities for the region, especially in agricultural and other primary products. Import liberalization for China’s farm sector will be a major boon for producers of high value-added agricultural products. Thailand has been increasingly active in this area but other ASEAN nations are also trying to take advantage of these opportunities.
Question 8 You note in this same section that "China’s rise in manufacturing will force Southeast Asian countries either to get better in this field or find another area." You also go on to note that Southeast Asia’s comparative advantage may lie in more sophisticated and higher value-added agricultural products. Could you explain how you believe Southeast Asia could respond effectively to promote development in light of China’s entry into WTO and the acceleration of reforms that it will entail?
Answer ASEAN must speed up the development of the ASEAN Free Trade Area (AFTA). Political resistance among some countries has slowed this down. But it would be a mistake for ASEAN to let the opportunity presented by the free trade area to be squandered at a time when China is ascendant. Indeed, AFTA ideally should be expanded to cover other neighboring countries, such as Australia and New Zealand.
Question 9 In your book you counterpoint China’s entry into the WTO and the opportunities it represents and the September 11 attack on the World Trade Center and what it represents to the world. Could you explain how these two relate and how the issues of globalization and international terrorism affect each other?
Answer Economic globalization, epitomized by a liberal trade order, has led to the highest sustained growth rate in history. The past half-century has been a time of extraordinary growth, one that has lifted many hundreds of millions of people out of poverty—200 million in China alone. But globalization must be managed in such a way as to ensure that more of the benefits go to the poor. It would be a mistake to equate poverty with terrorism, and to simplistically imagine that poverty breeds terrorism. Terrorists generally are not the poorest of the poor. But terrorism is more likely to find fertile ground in areas of social and political discontent. The September 11 attacks were, among many other things, a reminder to the citizens of the rich world that they ignore the many festering problems in the rest of the world at their peril.
Question 10 Most people who would pick up this book might be led to conclude from the title that this is a book about China and WTO. I note, however, that the subtitle under the main title is "Changing China, Changing World Trade" and that nearly one-third of the book focuses on the WTO as an organization and the need for change in both the organization and in supplying the benefits of world trade to the poorest nations. How does China’s entry to the WTO and the need for change in the WTO go hand-in-hand?
Answer China can add momentum to efforts to re-direct the WTO to help ensure that trade serves both development and growth. It remains to be seen what role China plays, but potentially China can act as a bridge between the developed world and the developing world. At the same time, China’s success in using more open trade policies to further economic growth is a powerful advertisement for the benefits of globalization.
Question 11 In discussing the WTO and the issue of globalization, you note at one point that "the problem isn’t too much globalizaton; it’s too little." Could you explain what you mean by this and how you think that we can resolve this lack of globalization through the WTO and other means?
Answer Developed countries still restrict imports of goods in a variety of areas where developing countries have a comparative advantage, notably in farm products and textiles and clothing. If developing countries truly are to realize the potential of trade, they must be given a chance to sell what they produce more efficiently. More broadly, globalization opens up opportunities for economic advancement that would not exist otherwise. Critics of globalization forget or ignore the fact that most workers are better off when they work in the tradable goods sector (producing products that can be sold internationally or compete against internationally produced products) than when they work in purely domestic areas. Countries that have followed more open economic policies grow faster than those that do not.
Question 12 To follow-up on this issue, do you believe the issue of removing agricultural subsidies which primarily are used by developed nations – the United States, the EEU, Japan, etc. and which are a critical issue for increasing trade in developing countries will be resolved in the near term? Say the next 3-5 years? Is this an issue the WTO can help in and if so how?
Answer You are right to say that it is a critical issue. OECD member countries spend about $360 billion annually on agricultural subsidies. This is both wasteful for rich-country taxpayers and unfair to developing-country producers. The agreement at the WTO ministerial meeting in Doha in November to launch a new round of trade talks opens the way to reforming these practices. Ultimately, it is a matter for WTO members to resolve through negotiation.
Question 13 Lastly, at one point in the book you point out that you both come from highly different backgrounds. For example, one of you is a Thai, the other an American. One of you is a politician, the other a journalist. How did you both come together to write this book, what other projects are you currently working on and will you be collaborating on future projects?
Answer Our strengths complement one another’s. We both have a strong interest in Asia and in economic development and in trade policies. It’s far too early to think about other projects but we found this a stimulating and rewarding partnership.
About the Interviewer:
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
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