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　　An analysis of the WTO’s first trade policy review of China 　　The World Trade Organization’s Trade Policy Review Body formally released the first Trade Policy Review of China on April 19, more than four years after China joined the WTO. But this is not China’s first trade policy review by the WTO. According to Section 18 of the Protocol on the Accession of China, it should accept a review of the Trade Policy Review Body every year from the date of its entry to WTO on December 11, 2001, up to 2010, which is called the Transitional Review Mechanism. But the WTO does not release the transitional review report.
　　WTO members are required to hold review meetings regularly as per their ranking in global trade: biennially for the top four members, once every four years for those ranked 5-20 and once every six years for other members, with more flexible arrangements for least developed countries. China joined the WTO in December 2001, and its trade volume ranked No. 6 in the world. Therefore, the first review of the trade policy of China was held in 2006. At present, China ranks third in foreign trade worldwide. Hence the review meeting will be held biennially in the future, with the next review meeting due in 2008.
　　After scrutinizing the report of nearly 300 pages summarized by the WTO as “economic reform has produced impressive results but important challenges remain,” my deepest impression is that it is not only a report card of China’s implementation of its commitments in the four years since it joined the WTO, but also a comparatively objective summary and evaluation of China’s economic performance, or even a memorandum for China’s future trade policy. What is worth mentioning is that the review report’s evaluation of China’s economic development and analysis of problems are not confined to the four years of it being a WTO member, but go back to 1978, the beginning of China’s reform and opening up. The report also says, “Ongoing reforms have been given added impetus by China’s membership in the WTO in 2001; its commitments have provided a catalyst for reform, paving the way for continuing strong growth in the foreseeable future.”
　　
　　Fulfillment of commitments
　　
　　In its review of China’s trade, investment and intellectual property rights protection (IPR), as well as related policies, the report points out that China has fulfilled its commitments well.
　　First, in trade of goods, the average tariff had gone down from 15.3 percent in 2001, just before China entered the WTO, to 9.9 percent in 2005. Duty on agricultural products has gone down substantially. Export subsidies for most agricultural products have been eliminated. “Non-tariff measures have also been falling progressively as China implements its commitments under its Protocol of Accession,” says the report. Since January 2005, China has phased out import quotas, import licenses and other import restrictions on 424 products. Tariff quotas have been set for grain, cotton, oil, sugar and fertilizer. Some commitments have been fulfilled in advance. For example, trading rights for merchandise, except some important agricultural and mineral products, were granted to all trading firms half a year before the committed deadline.
　　Second, the report lauds China’s record in service trade, saying its specific commitments are relatively extensive by developing country standards, covering more than 60 percent of 143 service sectors. This is more than the average for developing countries and exceeds those of some developed countries. China’s efforts reflect its respect for the liberalization of service trade.
　　Third, in IPR, China is dedicated to strengthening and completing the establishment of the legal environment and systems. The Copyright Law and the Patent Law have been revised. Public awareness of protecting IPR has also been raised.
　　In addition, the report points out, “Since becoming a member of the WTO in December 2001, China has been an active participant in the multilateral trading system... At the same time, however, it is actively pursuing regional and bilateral free-trade agreements. China has signed Closer Economic Partnership Agreements (CEPA) with the Special Administrative Regions of Hong Kong and Macao, a Framework Agreement with ASEAN countries, a free-trade agreement with Chile, and a preferential trade agreement with Pakistan, and is currently negotiating bilateral agreements with a number of other countries.”
　　
　　Achievements of reform and opening up
　　
　　The report begins with an assessment of China’s economic environment. It points out that gross domestic product (GDP) and per-capita GDP both saw nearly a nine-fold increase from 1978 to 2005. GDP grew at an annual rate of 9 percent. “The proportion of China’s population living below the poverty line ($2 per day) fell from nearly 73 percent in 1990 to 32 percent in 2003.” China has also become a major recipient of foreign investment. In 2005, it absorbed more than $60 billion in foreign investment, ranking only after the United States and Britain. All these are the concrete results of China’s reform and opening up and are evidence of its participation in the international market and the opening up of its domestic market. With regard to foreign trade, it points out the pivotal role played by it in China’s rapid economic development. From 1978 to 2005, foreign trade volume totaled $660 billion, with the dependence on foreign trade rated as higher than 60 percent. The rise in the number and scale of export-oriented foreign-funded companies also facilitated the increase in China’s foreign trade. The report also mentions that China’s “fiscal policy has operated in a stabilizing fashion; the overall fiscal situation is seemingly sound with rapid growth of tax revenues and tight control over expenditures bringing the overall budget deficit down to around 1.3 percent of GDP and keeping the public debt stable at around 20 percent of GDP.”
　　
　　Problem areas
　　
　　The report also homes in on the problem areas and the analysis is incisive. The gap between urban and rural areas, as well as coastal and inland cities, is widening. The labor market is not flexible, with adverse consequences for future employment. Extensive growth in manufacturing investment has led to bottlenecks in energy and land use. Low added-value manufacturing, mainly dealing with primary processing, should give way to processing and manufacturing with high added-value. In July 2005, the RMB was revalued by 2.1 percent, marking a crucial step in China’s move to a managed floating exchange rate regime. But China still has a long way to go in making its capital and money markets more market-oriented; they have not played their due role in resource allocation. Protecting IPR is also an important question. While improving the legislation on IPR, trans-sector cooperation and more severe punishment will bolster the implementation of IPR protection.
　　We should face these problems with an objective and dispassionate attitude. China’s economy is in a transitional period. The domestic economy still has many long-standing problems. Among them is the structural problem, which is also mentioned in the report. The economy has long been a dual one, leading to wide disparities in incomes. But this is inevitable in the transition from a planned economy to a market one. These problems will be resolved when China completes its market economy system.
　　China is still a new member of the WTO. Fulfillment of its commitments and the application of international practices cannot be accomplished overnight. Establishment of the legal environment, including legislation with regard to IPR, needs to be consolidated step by step. We can see that in the four years that China has been a WTO member, the Chinese Government has improved a lot with regard to transparency of legislation, government information and government affairs. The State Council abolished 756 administrative regulations passed before the end of 2000 and publicized this list in 2001. This action brought China’s trade system in accord with WTO rules and commitments. The Administrative License Law passed in August 2003 cut a lot of trade-related government approval proceedings and substantially raised transparency. Government actions have become more standardized. The Ministry of Commerce has set up the Chinese Government Notification and Inquiry Bureau for WTO to answer all queries on China’s trade policies, according to specific WTO agreements. To help foreign businesses, all laws and main administrative regulations after the reform and opening up have been translated into English.
　　
　　Sectoral analysis
　　
　　The report’s assessment of China’s trade and economy not only concentrates on the macro economy, but also looks into specific industrial sectors. The final part of the report is an assessment and analysis of environment, opportunities and challenges of China’s agriculture, including domestic trade and foreign trade; energy; manufacturing, including iron and steel, automotive sector, textiles and clothing, electronic and communications equipment; and services. The analysis of China’s energy shortage and high dependence on imported energy, the liberalization in service trade being slower than in trade of goods, and the high market concentration and high proportion of state ownership in banking, insurance, electronics and communications and aviation, are also very profound.
　　The report summarizes the challenges China’s economy faces, and “suggests it may be necessary to reappraise the current policy to attract investment to export-oriented capital intensive manufacturing and to place greater emphasis on removing impediments to the expansion of the services sector. The government also needs to accelerate its efforts to raise the quality of the labor force in order to move away from traditional low-skilled, labor-intensive industries into higher value-added production. Other challenges include bottlenecks in infrastructure as well as the continued need to restructure the financial sector and capital markets by making them more market oriented.”
　　These are similar to the tasks set by the country’s 11th Five-Year Plan passed in March―doubling GDP by 2010 relative to 2000, narrowing the income gap, using energy efficiently, strengthening environmental protection and building a harmonious society, indicating China’s resolution and strategic arrangement in solving and coping with realistic problems and future challenges of economic development.
　　The author is a professor at the University of International Business and Economics (UIBE), Director of the China National Institute of WTO under the UIBE

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