All change as China trades by WTO rules

By Rod Oram

Brace yourself for some seismic shifts in international trade and investment after China joins the World Trade Organisation early next year.

Much of the change will be good, since better market access works both ways: China will face lower tariffs abroad but pay for them by opening up its country to more imports, allowing each nation to do what it does best.

The downside lies in countries with tariff barriers, as they adjust to changes in the types and volumes of goods traded. China says it will import more US wheat, for example, forcing its farmers into higher-value crops such as fruit and tobacco.

Conversely, the US will import, for example, more Chinese garments, displacing some 150,000 US garment workers who will move into higher-value industries.

For New Zealand and other countries without tariff barriers, the adjustment issues don't apply. China already has free access to the New Zealand market so its WTO membership will force no changes on us. Thus, for us, the impact of China joining the WTO is all on the upside.

Our dairy exports to China, for example, face a tariff rate of 70 per cent. But this will drop to around 14.5 or 15 per cent early next year, thanks to the way countries negotiate their way into the WTO.

A candidate country negotiates bilateral membership deals with each of its main trading partners. But at the end of the process, the best bilateral deal applies to all countries.

Back in August, 1997, New Zealand signed a bilateral deal with China which included a cut to 25 per cent in Chinese dairy tariffs. But the US bilateral deal concluded this week knocked the tariffs down into the mid-teens.

Other big benefits flow from bringing China into the rules-based WTO system. Take wool, our biggest export to China: a highly arbitrary quota system in China made it hard for end-users such as carpet and textile plants to get consistent quotas to import New Zealand wool.

As part of our bilateral deal, China agreed to a better system. Last week a New Zealand negotiating team met in Beijing with Chinese WTO officials and reached agreement.

And the upside spreads well beyond China. Taiwan will join the WTO on roughly the same timetable as China, opening another market for us. Pre-WTO Taiwan has had a special relationship with the US. To pay for US diplomatic protection, it gave US farmers, for example, preferential access to its market.

Under the WTO, the economics of Taiwanese food trade will change dramatically. New Zealand farmers will have better access to Taiwan, making investment in food processing plants here more attractive to Taiwanese companies.

The wheels of international trade liberalisation certainly grind slowly but they eventually deliver.