September 25, 1999	atimes.com

China COMMENT: Domestic politics jeopardize WTO deal By Jin-Kyu Joung* China's entry into the World Trade Organization (WTO) is once again in the international spotlight. American and Chinese negotiators have come to the negotiating table in hopes of reaching a deal before the November WTO ministerial meeting in Seattle. During meetings in New Zealand, the two sides could not even agree on what concessions Chinese Premier Zhu Rongji had offered the US in his visit to Washington in April. Next week's negotiations are likely to be even more contentious. Both China and the US are increasingly viewing the WTO negotiations through the lens of domestic politics. China's entry into the WTO is in serious jeopardy. Chinese domestic politics have shifted since Zhu's visit to the US, narrowing the maneuvering room for Chinese negotiators. Reformers are on the defensive, while conservatives are on the rise. The economy is suffering from ballooning unemployment rates and 23 long months of deflation. The reformist Zhu has been blamed for the sorry state of the economy and has been forced to cede public leadership on economic issues to more conservative President Jiang Zemin. The country's top priority has become domestic stability, not membership to the WTO or radical economic reform. Chinese negotiators are acutely aware that too many concessions could spark a political backlash at home. Although China's membership in the WTO will boost exports and attract more inward foreign investments, such benefits are largely long term. In the short run, China will experience more pain than gain by further opening its markets. Chinese negotiators will refuse any terms of WTO entry that might upset China's tenuous political consensus, spark a protectionist backlash, or jeopardize domestic stability. China will drive the toughest bargain possible with the US. American negotiators are also in no position to back off. They too face a complex political environment that limits their room for maneuvering. The Clinton administration came under harsh criticism - especially by powerful business interests - when it rejected Zhu's more-generous-than-expected concessions back in April. Having realized its mistake, the administration is eager to bring China back to the negotiating table and clinch a deal. But presidential politics restricts the US bargaining position vis-a-vis China. The administration fears that a trade deal with China might alienate core Democratic support bases, such as labor unions and environmentalists, at a time when the party wants to mobilize electoral support for next year's presidential race. The climbing trade deficit with China - from little over $10 billion in 1991 to $57 billion in 1998 - also constrains the negotiating team. US negotiators want to avoid giving the impression that they are caving into Chinese demands. Not only is the negotiating process difficult, it is also on an extremely tight timetable. If China and the US reach an agreement on WTO membership, the US Congress will have to grant China permanent normal trade relations - formerly known as most-favored-nation status. This must all happen before November's WTO ministerial meeting in Seattle, which is due to launch a new round of world trade negotiations. The schedule gives China and the US just a few weeks to finalize the deal, especially since the congress adjourns for the year in November. If China misses this opportunity, it will face even tougher entry requirements in the future. China could be locked out of the WTO for the next few years. Failure to clinch a deal will prove a major setback for China and the world. China's economic reform process and integration into the world economy will be slowed, or even derailed. China lacks strong political and economic institutions. Therefore, if new leadership with different political views comes to power, there is a high risk that the current course of liberal reform will be reversed. But if China is given membership to the WTO, the country will be ''locked'' in to a reformist path. The country will be forced to abide by international rules and regulations. The liberalization of trade and finance will accelerate institutional changes. Greater international competition will improve economic efficiency, transparency, and predictability. Time is running out for China to join the WTO. Both China and the US must stop tactical posturing. The more they stall, the more likely that domestic political expediency will win out over the long-term economic benefits of WTO membership, and the two sides will fail to reach a deal. In the interests of the global political economy, both sides must act now. China and the US cannot afford to miss this golden opportunity to integrate one quarter of world's population into the global economic system. *J K Joung is Lead China Analyst for Marvin Zonis + Associates, a political risk consulting firm based in Chicago.

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