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China gears up for WTO-compatible trade rules

SHANGHAI: China's willingness to revamp its regulations to conform with WTO rules could lead to a more transparent trade regime, but not all the changes will appeal to foreign investors, trade experts say.

Foreign Trade Minister Shi Guangsheng has made it clear China would make sweeping changes on foreign trade, joint ventures and foreign investments according to the demands of the market economy and membership of the World Trade Organisation.

Shi, however, has not given a timetable for the changes.

China, which holds key talks with the European Union on Monday to hammer out an accession deal, expects to enter the world trade group this year after a 13-year quest.

It has already surmounted the biggest hurdle by reaching an agreement with the United States in November.

American companies are lobbying Congress to put its seal on the deal. They are excited by the prospects of the world's most populous nation opening up to their goods and services.

But the Chinese market is far from an easy one.

Foreign companies operating in China face a myriad of restrictions ranging from geographic areas, equity limits, export requirements and foreign exchange balances.

The changes China must make will be big and difficult to put into action in a country where local governments frequently find ways to circumvent orders from Beijing if they are not in their own interests.

Trade consultants also say foreign investors may lose some of the perks, such as the preferential tax treatment they have enjoyed since the early 1980s.

Zhang Zhiyong, chief of the international section of the State Tax Bureau, was quoted in a Hong Kong newspaper as saying China would have to consider unifying taxes for foreign and domestic enterprises as it prepares for the WTO.

"In theory, foreign enterprises could lose their perks," said an accountant with an international firm. "It could directly affect the rate of returns on their investments."

Foreign funded enterprises, for example, are exempt from paying duties on imported machinery. Domestic firms have long complained that was unfair, he said.

Since WTO membership would bring more competition to bear on domestic companies on many fronts, the clamour to repeal the preferential treatments would get stronger, he said.

Huang Zeming, an economics professor at Huadong Normal University, said China could either take proactive steps to make its trade rules more acceptable to other WTO member states now, or do it reactively later under pressure from them.

"The Chinese leadership has shown a great deal of willingness to make the changes," he said. "Rules enacted in laws would be far more transparent than the administrative directives as they exist now."

But the rule changes would amount to a reshuffling of domestic interests to the benefit of some groups and the expense of others, Huang said.

Conservative bureaucrats were likely to use their political clout to slow the dismantling of the barriers in the name of protecting national industries and preserving jobs, he said.

"We can expect tussles and resistance."

Foreign investors will also have to remember that China wants to join the WTO because it sees advantages for itself and making its system work better for foreigners was not the main objective, the trade experts said.

Edward Epstein, an attorney at the law firm Altheimer and Grayhe, said China had already started legal changes by enacting laws on anti-dumping, unfair competition, and trade rights, but the process was likely to be long and tortuous.

"If anybody think changes happen quickly in China, they are going to be disappointed," he said.-Reuters