Regime type and international negotiation: a case study of US/China bilateral negotiations for China's accession to GATT/WTO

PDF

Download

Open document

Flip pages

Download a page range

Download transcript

Copy asset link

Request this asset

Transcript (if available)

Content REGIME TYPE AND INTERNATIONAL NEGOTIATION: A CASE STUDY OF US/CHINA BILATERAL NEGOTIATIONS FOR CHINA'S Copyright 2003 ACCESSION TO GA TT /WTO by Wei Liang A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (INTERNATIONAL RELATIONS) December 2003 Wei Liang UNIVERSITY OF SOUTHERN CALIFORNIA THE GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES, CALIFORNIA 90089-1695 This dissertation, written by under the direction of her' dissertation committee, and approved by all its members, has been presented to and accepted by the Director of Graduate and Professional Programs, in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Director Date_"i_/1_$' AL..---o ____ J _ Dissertation Committee DEDICATION To ANNA 11 ACKNOWLEDGEMENTS The eight years I spent at USC are an important part of my life. The tears and laughs I had in this beautiful campus are unforgettable. In writing this dissertation I have benefited from the advice, assistance, and good-will of a number of people. Most of my debts are to the individuals who helped me through this process. Professor John Odell, my dissertation committee chair, planted the first seeds when I took his negotiation class as the second-year graduate student. Once I decided to write on negotiation, Professor Jonathan Aronson, encouraged me to write on China's GATT /WTO accession negotiation, the topic I worked in the last four years. Professor Stanley Rosen, another committee member, is my 'China Study library' who always provided me the useful information about the relevant studies and publications. I greatly appreciate the time they spent carefully and constructively helping me improve the draft. I am particularly indebted to Professor John Odell. He and I spent many hours in his office batting around ideas that would eventually become those chapters. He spent a great deal of time reading and commenting on the all three drafts of my dissertation. For many years he has continued to encourage and inspire me. Without his support and advice, this dissertation would not exist. I also would like to express my thanks and appreciation to Professor Hayward Alker, Professor Saori Katada, Professor Daniel Lynch, Linda Cole, and Luda for their support and advices. iii TABLE OF CONTENTS Dedication Acknowledgements List of Tables Abstract Chapter 1 Chapter 2 Chapter 3 Chapter 4 Introduction 1.1 The Empirical Puzzle 1.2 Negotiation Process 1.3 Negotiation Outcome 1.4 Plan of the Dissertation 1.5 Methodology Theoretical Framework 2.1 Regime Type and International Behavior 2.2 Democracy and International Economic Cooperation 2.3 Regime Type and Democratic Difference in International Trade Negotiation 2.4 Free Trade, Fair Trade and Friendly Trade 2.5 Variables Other Than Power to Understand and Explain Negotiations 2.6 The Interaction of Institutions and Preferences of Domestic Actors First Stage: 1986-1989 3.1 Why China Applied to Rejoin the GATT in July 1986? 3.2 3.3 3.4 3.5 Major Parties' Opening Positions The Initial Negotiations Domestic Preferences and Institutions Summary of the Chapter Second Stage: 1989-1994 4.1 The Formation of the First Major Deadlock, 1989-1991 4.2 4.3 4.4 4.5 4.6 Breaking of the Deadlock in 1992 U.S. Domestic Preferences and Institutions China's Domestic Preferences and Institutions Negotiation Process Failed Cooperation: Why did Beijing Fail to 11 111 Vl lX 1 4 7 10 14 19 24 24 27 31 43 51 53 64 65 82 90 106 113 116 120 146 160 171 181 197 IV Chapter 5 Chapter 6 Bibliography Conclude Negotiation at the end of 1994? 4.7 Summary of the Chapter Third Stage: 1995-1999 5.1 China's Domestic Preferences and Institutions, 1995-6 5.2 5.3 5.4 5.5 5.4 U.S. Domestic Preferences and Institutions, 1995-6 U.S. Domestic Preferences and Institutions, 1997-9 China's Domestic Preferences and Institutions, 1997-9 A Comparison between Stage II and III Summary of the chapter Discussion and Conclusion 6.1 The Argument: The Role of Domestic Actor's Preference and Political Institutions 6.2 An Evaluation: the Terms of the Agreement Reached 6.3 6.4 An Evaluation: the Timing of the Agreement Reached Discussion and Conclusion 207 210 224 230 263 286 307 325 327 327 332 336 338 341 v LIST OF TABLES 2.1 International Negotiations between the Mixed Pairs 38 3.1 PRC Imports and Exports, 1978-1989 72 3.2 Deng Liqun's Ten-Year Cyclical Model 75 3.3 China's Major Trading partners, 1987 109 3.4 Flexibility shown by Both Sides on Their Opening Positions 114 4.1 . China's Trade with the World, 1990-1999 131 4.2 The U.S. Trade with China, 1989-1999 131 Trading Rankings for the U.S. Trade Partners in 1983, 1993 4.3 and 2001 139 4.4 Inflation, Growth, Money and Exchange Rate in China, 1985-1992 143 4.5 PRC's GDP Growth, 1987-1994 147 4.6 China's Import Regime in 1992 155 The opening positions of China and the U.S. and the terms 4.7 of the Final Agreement on 1992 Market Access Negotiation 158 4.8 Total and the U.S. FDI inflow to China, 1986-1994 171 4.9 The Major Requests made by the U.S. and EU in 1993 187 4.10 The Major Points of China's Service Concessions in 1994 189 The U.S. Demands and China's Final Offer by the End of 4.11 1994 195 VI In China's Perception, the U.S. Demands that were beyond 4.12 the GATT Requirements 200 In China's Perception, the U.S. Demands that were beyond 4.13 China's Development Level 201 4.14 In China's Perception, an Example of Moving Goalpost 208 Some Issues Included in the U.S. 'Roadmap' in November 5.1 1995 220 Table of List on China's New Offer to Lower the 5.2 Maximum NTM Phase-out Time Period, March 1997 244 China's new offer at the fifth session of the working party 5.3 held in July 1997 247 Two Sectors Included in the Outline Beijing Gave on 9 5.4 October 1997 for the November Services Offer 249 Beijing's first comprehensive offer on service sectors since 5.5 1994, December 3rd-5th, 1997, at 6th session of the China 251 working party 5.6 The Main Points of China's New Services Offer, July 1998 257 The Main Points of the Bilateral Agriculture Agreement 5.7 Reached in April 6, 1999 258 5.8 China's offer on Protocol issues, April 6, 1999 259 5.9 China's offer on services, April 7, 1999 259 5.10 China's offer on industrial goods, April 7, 1999 260 5.11 China's Trade with the World, 1990-1999 308 5.12 China's Trade with the United States, 1989-1999 308 Comparison of 1994 U.S.'s Demand and China's Final 5.13 Offer & the 1999 Agreement 309 5.14 US Trade Flows and Deficit with China 314 5.15 U.S. Total Contract & Realized FDI in China, 1986-1994 317 Vll .. 5.16 China's realized FDI by Selected Countries 318 5.17 Exports and Imports of Foreign-Funded Enterprises, 1985- 318 2000 The Variation of the Domestic Actors' Preferences in U.S. 5.18 between 1994 and 1999 319 Growth Rate of China's Foreign Trade by Percentage, 5.19 1986-2000 322 5.20 China's Economic and Financial Indicators, 1994-1999 323 5.21 The Expansion of Win-set in 1999 in the U.S. 325 Vlll ABSTRACT Despite the widespread interest in the effects of domestic political institutions on the international behaviors of the state, however, remarkably few studies have expanded that interest into the study of international economic cooperation between two regime types in the post Cold-War era. The unique function and interaction of domestic institutions and the coordination of policy preferences of domestic actors by a mixed dyad is the central focus of this case study. Negotiation process is examined through the lens of domestic interplay within two regime types and the interaction between them. The particular empirical puzzle, however, is why China's GA TT /WTO accession negotiation took as long as it did and how the negotiation outcomes could be explained as the consequence of the negotiation process. My central claim is that in international economic negotiations it is more difficult for a democratic country and a non-democratic country (mixed pair) to reach an agreement than do two democratic countries, and in order for the agreement to be reached, the preferences of the executive and business group must converge and the lobbying effort of the interest groups must be stronger in this situation than that required by negotiation on the same matter between two democracies to counterbalance the legislative resistance derived from ideological concerns. The higher degree of difficulty is not only caused by the different domestic institutional features (polyarchy in the democratic state and hierarchy in the non-democratic state) but also by the inescapable resistance of domestic political actors (executive and lX Congress) derived from the ideological concern. Consequently, political/security/ideologically considerations inevitably will interweave with commercial consideration in international trade negotiations between a mixed pair. This dissertation will be a good addition to the current research interests in 'Democratic Difference'. It should contribute to a broader understanding of the political economy of trade policy. It should also shed some light on the studies of the integration of transition economies into multilateralism. x Chapter 1: Introduction With the end of the Cold War and the demise of the Soviet Union, the system that had structured international relations since 1945 appeared to be undergoing a fundamental transformation. The bilateral Cold War confrontation between a communist bloc, led by the Soviet Union, and a western bloc, led by the United States, dissolved. The newly emerging system was much more likely to be characterized by complex multilateral relations roughly of the kind described as 'complex interdependence' . 1 Many in the West felt that a new age had dawned in which nations would, at last, pursue their national interests untainted by ideology. Unfortunately, that blessed international structure was more elusive than had been expected. It was not true that the ideological issues had disappeared from the agenda of international politics, but rather that these issues took on many new dimensions --- including economic, trade, cultural and social components along with the traditional military and security ones. It was true that the idea and the practice of democratic governance received widening acceptance, particularly during the 1990s. According to the most recent Freedom House Survey, the number of 'electoral' democracies increased from 69 in 1988-9 to 120 in 1999-2000. However, only 40.7% of the world's people were said to be living in 'free societies' (the highest percentage in the history of the survey), with 23.8% in 'partly free' and 35.5% in 'not free' societies in I Robert 0. Keohane and Joseph S. Nye, Power and Interdependence, znd ed. (Glenview, Ill.: Scott, Foresman, 1989), pp. 24-9 2000. 2 More importantly, many undemocratic states were under transition. For example, although Marxism as an ideology was waning, it retained in China a strong functional role both as a 'legitimizing' theory and as an organizational tool of the state, as China's introduction of market economy and its economic success for two decades had not brought political pluralism. China was still a non-democratic country by nature, a country termed by David Zweig as "undemocratic capitalism". 3 Even the 'coward' country, North Korea, recently opened its first 'Special Economic Zone' as experiment of the market economy, to further demonstrate this transition. On the other hand, this new feature among the non-democratic countries has not been fully captured by the scholarly work on international cooperation. Cooperation is defined by Robert Keohane as the policy coordination where "actors adjust their behavior to the actual or anticipated preferences of others." 4 Embedded in this definition of cooperation is the formation of national policy preferences. 5 Understanding what shapes interstate strategic interaction and how it alters national preference formation is necessary to explain how it affects behavior. Indeed, this theme has been well examined and emphasized by the recent scholarship on 2 Freedom House, Freedom in the World: Annual Survey of Political Rights and Civil Liberties 2000- 2001, Press Release (Dec. 20, 2000), at< http://freedomhouse.org/research/freeworld/2001> 3 David Zweig, "Undemocratic Capitalism: China and the Limits of Economism", The National Interest, no. 56 (Summer 1999): 63-72. 4 Robert Keohane, After Hegemony, (Princeton, N.J.: Princeton University Press, 1984), p.51 5 William J. Long, "Trade and Technology Incentives and Bilateral Cooperation", International Studies Quarterly, vol.40, Issue 1 (March 1996): 77-106 2 international cooperation among Western mature democracies. 6 The empirical finding that democracies do not fight each other has long suggested that regime type influences international behavior. Leeds and Davis find that states with more democratic characteristics tend to behave more cooperatively and less confrontationally in the international arena; these tendencies intensify when democratic states interact with other democracies. Non-democracies tend to treat democracies with more confrontational behavior and less cooperative behavior. 7 However, the claim about the less cooperative behavior of the non-democracies has not received the same scholarly attention as the cooperative behaviors among the Western mature democracies did. Most scholarly works reach this conclusion through the empirical studies of democracy. Particularly, the studies on international cooperation among democracies emphasize the effects of both the domestic political institutions and the divided preferences of the domestic actors. Few empirical studies have been done to study the international cooperation and negotiation between a democratic and a non-democratic state. And the current research on a mixed dyad only focuses on the institutional difference between the regime types and emphasizes that it is unnecessary to understand the variation and evolution of the preferences of 6 Harris Bliss and Bruce Russet, "Democratic Trading partners: The Liberal Connection, 1962-1989", The Journal of Politics, 60(4), November 1998: 1126-1147; Helen Milner, Interests, Institutions and Information: Domestic Politics and International Relations, (Princeton, N.J.: Princeton: Princeton University Press, 1997); Jongryn Mo, "The Logic of Two-Level Games with Endogenous Domestic Coalitions", Journal of Conflict Resolution, Vol. 38, Issue 3, (September 1994): 402-422; Lisa Martin, Democratic Commitments: Legislatures and International Cooperation (Princeton, N.J.: Princeton University Press, 2000); Brett Ashley Leeds and David R. Davis, " Beneath the Surface: Regime Type and International Interaction, 1953-1978", Journal of Peace Research, Vol.36, Issue 1, (January 1999): 5-21 7 Brett Ashley Leeds and David R. Davis," Beneath the Surface: Regime Type and International Interaction, 1953-1978", Journal of Peace Research, Vol.36, Issue 1, (January 1999): 5-21, p.5 3 domestic actors within each regime type. However, the preferences of domestic actors within each regime type do matter. This case study is aimed to fill this gap. The Empirical Puzzle Domestic politics and international negotiations are inextricably interrelated. A country's international position exerts an important impact on its internal politics, while its domestic situation shapes its international behavior. International Relations scholars have accumulated much knowledge about the characteristics of democratic governance and the effects of domestic institutions and their preferences on international cooperation among Western democracies, while little is known about the domestic complications of democracies when they deal with non-democratic countries. For example, does the domestic institutional structure exert the same influence on its international behavior toward a non-democratic state as it does to its democratic partners? Do domestic actors have the same preference coordination process when they deal with non-democracies? Without checks and balances from the legislative branch in non-democratic states, would it be easier for a democratic state to reach an agreement with a non-democratic state? The unique function and interaction of domestic institutions and the coordination of policy preferences by domestic actors by a mixed dyad is the central focus of this case study. Negotiation process is examined through the lens of domestic interplay in 4 two states with different regime types and the interaction between them. The particular empirical puzzle, however, is why China's GATT/WTO accession negotiation took as long as it did and how the negotiation outcomes could be explained as the consequence of the negotiation process. My central claim is that in international economic negotiations it is more difficult for a democratic country and a non-democratic country (mixed pair) to reach an agreement than for two democratic countries, and in order for the agreement to be reached, the preferences of the executive and business group must converge and the lobbying effort of the interest groups must be stronger in this situation than that required by negotiation on the same matter between two democracies to counterbalance the legislative resistance derived from ideological concerns. The higher degree of difficulty is not only caused by the different domestic institutional features (polyarchy in the democratic state and hierarchy in the non-democratic state) but also by the inescapable resistance of Congress derived from the ideological concern. Consequently, political/security/ideological considerations inevitably will interweave with commercial consideration in international trade negotiations between mixed pair. Issue linkages characterize this type of negotiation. The pace of the bilateral talks would be heavily influenced by matters unrelated or indirectly related to the negotiation agenda and seriously disrupted by unexpected bilateral incidents. The case of China's GATT/WTO accession negotiation has been chosen based on the following. China formally applied to rejoin GATT in July 1986. After protracted 5 negotiations, China reached a bilateral agreement with the U.S. in 1999 and with the EU in 2000 before it formally gained its WTO membership in 2001. The negotiation started with optimism from all sides (such as the development in early 1989 that pointed to a possible conclusion by the end of that year), however, it became more and more difficult and complicated. To answer the simple question of why the negotiation took as long as it did, the uniqueness of this case has to be emphasized (the negotiation took 15 years, while the average time for GATT/WTO accession negotiation is less than two). 8 Four aspects of the negotiation are noteworthy. First, China's GATT/WTO accession negotiation process is the most extended one on record. Second, China is the only country in the post-WWII era that was one of the world's top ten producers of traded goods but not a member of GATT/WTO. Third, China is the first transitional economy (from planned economy to market economy) seeking normal and full membership (through tariff reduction rather than import quota). Fourth, China's negotiation covers both the Cold-War and the post Cold-War eras. These four aspects have made China's GATT/WTO accession negotiation an interesting case to study. By introducing an intervening variable --- regime type, both the nature of the domestic political power sharing and the preferences of the domestic actors in the U.S. vary during the U.S./China bilateral negotiation, compared to that between the U.S. and another democratic country. The nature of the democracy --- divided 8 Seehttp://www.wto.org, the section on accession. 6 government --- remains unchanged; however, it inevitably becomes more 'divided' under the situation of the "mixed pair". The executive branch is more constrained by the domestic resistances and the international factors, and is more cautious to move toward reaching any agreement when the prospect of gaining ratification from Congress seems unlikely. Other than the ratification power, Congress is also more actively involved in the negotiation process by having the authority in the MFN annual renewal approval and by its general concerns over other trade-unrelated issues, such as Taiwan, human rights and arms sales, in this case. Issue-linkage and politicization becomes inevitable when negotiating with an ideologically hostile country. Lastly, the MNCs and exporters is also more passive to push for a deal unless the deal is extraordinarily attractive. The aim of this study is not only to demonstrate the difficulty to reach a trade agreement between a mixed pair but also to identify and specify under what conditions the agreement is more likely to be reached. The Negotiation Process The importance of negotiation cannot be exaggerated. Negotiation as a means of resolving disputes, managing relations and reaching mutual agreements has become a primary activity of nation states; therefore, the study of negotiation between mixed dyad is an indispensable effort to explain the effects of regime type on international cooperation. Any analysis of the future role for diplomacy and negotiation, however, 7 must necessarily be founded upon an understanding of how this process has operated. 9 There exist several definitions of negotiation emphasizing its different aspects. For example, Fred Charles Ikle emphasizes the coexistence of conflicting and common interests of all parties. He defines negotiation as 'a process in which explicit proposals are put forward ostensibly for the purpose of reaching an agreement on an exchange or on the realization of a common interest where conflicting interests are present.' 10 On the other hand, William Zartman notes that 'negotiation is considered one of the basic processes of decision-making ... That is to say, it is a dynamic or moving event, not simply a static situation, and an event concerning the selection of a single value out of many for implementation and action. This decision-making event is a sociopolitical process involving several parties, and not simply one individual's making up his mind.' 11 As Zartman emphasizes, the study of negotiation is very much a part of the analysis of decision making through which national leaders select from among a set of options a single policy they believe will enable them to achieve their international goals at the least domestic cost. Since multiple parties have influence on the process and the outcome, the outcome must be the product of compromise among all participating domestic actors. 12 Since the focus of 9 P. Terrence Hopmann, The negotiation process and the resolution of international conflicts, (Columbia, South Carolina: University of South Carolina Press, 1996) 1 ° Fred Charles Ikle, How Nations Negotiate ( New York: Frederick Praeger, 1964 ), pp.3-4 11 I. William Zartman, The 50% solution (Garden City, N.Y.: Doubleday, Anchor, 1976), p.7 12 P. Terrence Hopmann, The negotiation process and the resolution of international conflicts, (Columbia, South Carolina: University of South Carolina Press, 1996) 8 this case study is to use the domestic politics and the effects of the regime type to explain international behavior, the latter definition of negotiation as a particular form of decision-making fits better to the research goal of this case study. With the emphasis on negotiation as a particular form of decision-making, the negotiation process, in the case study, is better defined as the formula-detail process, as developed by Zartman and Berman. Their treatise, The Practical Negotiator, presents negotiation as a three-stage process: the diagnostic phase, the formula phase, and the detail phase. 13 At some point each side recognizes that a negotiated solution to their conflict is possible. The pre-negotiation activities leading to this realization is termed the diagnostic phase. After the parties have jointly determined that negotiation is both possible and desirable, they enter the formula phase of the negotiation. The formula phase is characterized by a search for general principles, or formula. Zartman and Berman define formula as 'a shared perception or definition of the conflict that establishes terms of trade, the cognitive structure of referents for a solution, or an applicable criterion of justice'. The detail phase consists of a long, tense search for agreement on the details in order to implement the general framework set out in the formula phase. It is the phase that most resembles the 'offer-counter offer' conception of the negotiation process. In the detail phase, the parties send signals (offers and demands), make concessions, exchange points (converge), arrange details, and finally bring the negotiation to an end. The reason 13 Zartman and Berman, The Practical Negotiator.( New Haven: Yale University Press, 1982), p.29, p.87, p.95, p.199 9 that this definition fits better to the goal of this case study than the 'offer- counteroffer' definition 14 is that it emphasizes the diagnostic (pre-negotiation) and the formula phases, which are the most difficult phases within the 15-year period of China's GA TT /WTO accession negotiation. In addition, these three stages are not necessarily sequential; they may overlap or go back and forth. 15 For example, Washington and Beijing spent a long period of time on whether to begin or resume the negotiation and to seek for a mutually acceptable formula before they went to the detail phase. On the other hand, they spent a relatively short period of time on the detail phase. Furthermore, the diagnostic phase went on throughout the entire course of the negotiation. As context events changed, the parties continually renewed their commitment to the negotiation. The parties began negotiating details before and simultaneously with reaching a clear defined formula. Finally, the formula itself was subjected to refinement throughout the negotiation process. The Negotiation Outcome An analysis of the negotiation process would not be complete without an evaluation of the results of that process --- the negotiation outcome. According to Arild Underdal, outcome may be defined in at least four different ways, all of which are 14 Fred Charles Ikle, How Nations Negotiate, (New York: Harper and Row, 1964), especially chapter 11; Jeffrey Z. Rubin and Bert R. Brown, The Social Psychology of Bargaining and Negotiation, (New York: Academic Press, 1975), p.14; Howard Raiffa, The Arts and Science of Negotiation, (Cambridge, Mass.: Belknap Press of Harvard University Press, 1982) p.128 15 Zartman and Berman, The Practical Negotiator, quoted in William Mark Habeeb, Power and Tactics in International Negotiations: How Weak Nations Bargain with Strong Nations, (Maryland: John Hopkins University Press, 1988), pp.29-32 10 important for an evaluation of the impact that the process has on the results --- agreement or no-agreement; efficiency of the outcome; stability of the outcome; distribution of benefits; and norm and justice sense of outcome. 16 Specific to this case study and the nature of the WTO accession negotiation, I am most interested in the timing and the terms of the agreement as the outcome of the negotiation process. The terms of the agreement are close to the distribution of the benefits as mentioned above. They refer to the extent that the gains from an agreement are spread equally or unequally across the parties to the negotiation. There maybe different criteria for evaluating the distribution of these gains. I depend mainly on the evaluation made by the negotiators and government officials I interviewed. The timing of the agreement is not included in the commonly defined categories of negotiation outcome, but it is crucial to explaining the effects of the negotiation process on the negotiation outcome in this case study. It is therefore applied in this case study to understand why the agreement was not reached earlier or later than it was. Alternative Explanations Besides the delay caused by the complication of bureaucratic politics in China, some would argue that it was not the non-democracy that imposed the extra complication to China's GATT/WTO accession negotiation, rather, it is the sheer size of the 16 For a complete summary of outcome, see Arild Underdal, "The outcomes of Negotiation", in Victor A. Kremenyuk ed., International Negotiation, Analysis, Approaches, Issues, 2nd ed. (San Francisco: Jossey-Bass, 2002) pp.110-126 11 Chinese economy, the fact that China was a transition economy and the significant consequences of China's membership to WTO as an international organization as well as to its current members that made the U.S. hesitate and delay any agreement. The hesitation and the delay naturally resulted in prolonging the negotiation time and complicating the negotiation process. This argument undeniably reflects one factor that led to the protracted negotiation. However, the factor it reflects is not the crucial one. First, the U.S. was able to benefit immediately from China's market access commitments without a need to make any change on its own trade regime, due to the nature of the WTO accession negotiation. Therefore, it should have been very attractive for the U.S. to speed up the pace of this negotiation, especially since the bilateral trade deficit of the U.S. had been widening dramatically throughout the 1990s and the U.S. firms were eager to enter into the Chinese market. Second, during the 15-year negotiation, the two parties spent a very short period of time on the detail phase (offer-counteroffer bargaining); instead, the two parties spent most of the time on the diagnostic and formula-building phases. Throughout the negotiation, the domestic consensus that the U.S. should grant China WTO membership on commercially viable terms was not reached. What changed was only that the domestic win-set expanded and that the domestic proponents of China's WTO membership slightly outnumbered the domestic opponents at the final stage of the negotiation (1999). Third, China's GA TT /WTO accession negotiation was too vulnerable to the ups and downs in its 12 bilateral political relations with the U.S. Many political events affected the progress of the negotiation and in some cases directly led to the suspension or the stalemate of the negotiation. For example, the 1989 Tian' anmen Square Incident, the Lee Tunghui's visit to the U.S., the Taiwan's Presidential election and China's military exercises right after and the accidental NA TO bombing of the Chinese Embassy in Belgrade all resulted in the negotiation stalemate. If calculated carefully, it becomes clear that the time spent on stalemate and stalemate breaking was longer than the negotiation itself. Fourth, too many issues unrelated to the accession negotiation itself were attached to or preconditioned in the progress of the negotiation during the process. For example, Washington refused to resume bilateral negotiations with China in 1991 after the 1989 stalemate until Beijing reluctantly agreed Taiwan's GATT application and its simultaneous accession negotiation. Throughout the course of the negotiation in the l 990's, satisfying Washington's market access demands based on the Super 301 investigations were always preconditioned into this bilateral GATT /WTO negotiation. Additionally and tacitly, any bilateral issues such as human rights conditions, arms sales, China's support of the U.S. in the UN Security Council in regard to the war and the sanctions against Iraq, etc., were all linked to negotiation process. This issue linkage inevitably complicated and prolonged the negotiation process. Finally, the breakup of the Soviet Union and the collapse of the Council for Mutual Economic Assistance, the economic and trading system that had tied the countries of East Europe closely to the Soviet Union, raised the prospect that a large number of additional transition economies would seek to become GATT 13 members. Slovenia became a member in 1994. Between the founding of the WTO in January 1, 1995 and the end of 2000 (before China's accession in early 2001) eight additional transition economies became WTO members --- Albania, Bulgaria, Croatia, Estonia, Georgia, the Kyrgyz Republic, Latvia, and Mongolia. 17 China was the first but not the only transition economy seeking GATT/WTO membership, and therefore the consequence of accepting a country with a transition economy such as China should not be over exaggerated. Due to these reasons, the sheer size of the Chinese economy and the nature of its transition economy themselves fail to satisfactorily explain the prolonged negotiation process of China's GATT/WTO accession negotiation. The Plan of the Dissertation This dissertation is divided into two main parts. Part 1, including Chapters One and Chapter Two, contains the theoretical arguments. Chapter Two first explores the current scholarship on international cooperation, regime type and negotiation. It explains that international negotiation is an important component and means to achieve international cooperation. Although regime type and the various characteristics of democratic governance (divided government, the role and indirect influence of the legislative branch, election, ratification, etc.) have been extensively studied by scholars who are interested in international cooperation and international 17 Seehttp://www.wto.org, accession session 14 trade, less attention has been paid on the effects of regime type on international negotiation. More importantly, the ideological concerns (different from competitiveness and security concerns) that only exist in the negotiation between ideologically hostile countries have been generally neglected by the current scholarship and therefore are explored here. Lastly, three hypotheses based on the effects of ideological hostility as an intervening variable to explain the terms and the timing ofreaching agreement is established. The idea of 'friendly trade', which is enacted in the U.S. trade laws, is also to be emphasized. Part two, Chapters Three through Chapter Five, is comprised of the three negotiation stages of the case studied in this dissertation --- China's GATT/WTO accession negotiation. In each empirical chapter, a sub-research question is asked and the three hypotheses developed in Chapter Two are to be tested. The detailed description of the negotiation process and the analysis on the roles played by domestic institutions and the evolution of domestic actors' preferences in two ideologically hostile countries are provided to explain the dependent variable --- the terms and the timing of reaching an agreement. For the purpose of explaining the process, I divide China's GATT/WTO accession negotiation into three stages: 1986-1989; 1990-1994; 1995-1999. For the first stage, I ask the sub-question of what made the negotiation process at this stage as smooth as it was. The conventional wisdom goes to the 'Cold War' security approach 15 explanation. The security approach indeed was predominant in the preferences of domestic actors. It also led to the inactivity of the legislative branch in the U.S., a contrast with what happened in the next two stages. Then in Chapter 4 and 5 I ask the question of why the U.S. and China failed to reach an agreement in 1994 but succeeded in doing so in November 1999. The comparison of these two stages turned out to be an interesting study on the dynamics at the domestic level and how they affected the negotiation process effectively (subsequently led to a different negotiation outcome) since most factors at the international level were kept constant. By contrast, what changed, after 1994, was President Clinton's China Policy, Chinese leaders' determination to embrace 'globalization' after the hesitation caused by the Asian Financial Crisis in late 1998 and early 1999 and the changing attitude of the U.S. business groups toward China's WTO membership. Once the leaders from both sides had the intentions to boost the negotiation process, the Chinese leaders were waiting for the right timing to make bold moves toward reaching an agreement. The active lobbying of the U.S. business groups and the clear message from President Clinton led Chinese leaders to believe that they had reached the final stage of the negotiation and it was time for 'centralism'. In 1999, Chinese leaders openly encouraged the U.S. business groups to lobby hard in the U.S. Congress, simultaneously; the Clinton Administration also emphasized the potential commercial gains that China's WTO membership would bring. President Clinton's hesitation to conclude the negotiation in April 1999 during 16 Premier Zhu's visit to the U.S. and the posting of China's concessions on the USTR website simultaneously was also a 'clear' maneuver to expand the U.S. domestic 'win set' to reach agreement internationally. This tactic worked well because the posted China's offer was unanimously supported by the U.S. business groups and the pro-trade members of the Congress. After the U.S. business groups endorsed the terms of the agreement and after sufficient members of the Congress criticized President Clinton for losing a great opportunity to sign a deal 'too good to be true' 18 , President Clinton put himself in a 'politically safe' position to conclude the negotiation. However the domestic politics taking place in one state had direct effect on the domestic politics of the other state. The posting also helped the Chinese public to know what went on for the first time within the 13-year period of the negotiation. The supports President Clinton gained to conclude the negotiation and the criticisms he received thereafter over missing a 'great deal' became the powerful evidence that Premier Zhu made 'more concessions to America than necessary'. Premier Zhu's April trip invoked unprecedented domestic opposition from the Chinese public, and more importantly, fueled domestic factional struggles between the liberal and the conservative leaders. From then on, the determination of the key leaders such as President Jiang Zemin and Premier Zhu Rongji to overlook strong domestic opposition and their realist logic of prioritizing international economic negotiation as part of their efforts to improve the U.S./China bilateral political relationship became a decisive factor. The ability of the key Chinese leaders to at 18 Quoted in Bruce Stokes, 'The China WTO Dilemma', Berkeley Round Table on International political Economy paper at <http://socrates.berkeley.edu/~briewww/forurn/stokes.html> 17 times completely ignore domestic opposition illustrated that Beijing's domestic policymaking process was, to a large extent, still colored by the 'old thinking' of the 'authoritarian' regime. By disaggregating the domestic constituencies to executives, ministries (in China), interest groups and Congress (in the U.S.) and by applying the different hypotheses to these three stages to explain the process, I conclude that, overall, the U.S. Congress imposed the most serious domestic constraints to the international economic bargaining between the U.S. and an 'unfriendly' state such as China. Similarly, the opposition of the domestic agencies in China was also another important factor for the delay of the negotiation process, although the intention of their resistance was to protect existing authorities and interests as legacies of the planned economy. The interest groups lobbying in the U.S. contributed greatly to the conclusion of the negotiation at the final stage of negotiation; however, the willingness of President Clinton to seriously consider China's WTO membership in his second term and the determination of the Chinese pro-liberal leaders (encouraged by the signal sent by President Clinton and the strong lobbying of the U.S. business groups in Congress) to make the necessary concessions were the key to explaining why both sides failed to reach any agreement in 1994 but did so in late 1999. 18 Methodology The method I employ in exploring this single case study should be considered that of new hypotheses generating. The method I am going to apply could be called 'disciplined configurative case study' by Harry Eckstein. 19 I plan to apply known theory to interpret a new case and at the same time, to generate new hypotheses that could be studied elsewhere. My intention is to build on the current scholarship on the relationship between regime type and international economic cooperation (negotiation) and push it a little further. The current scholarly work on the 'democratic difference' only emphasized the institutional differences between the regime types. Besides the institutional difference, this study also emphasizes the preferences of the domestic actors within each regime type. This study generates new hypotheses based on the latter. It is impossible to generalize through a single case study; however, this research can still be original through applying this body of knowledge to those uncovered areas. The current work of a single case study could be further developed later to include democratic states other than the U.S. and non- democratic countries other than China, thus making the generalization of my findings possible. 19 Harry Eckstein, "Case Study and Theory in political Science", In Fred Greenstein and Nelson Polsby, ed. Handbook of Political Science, (Reading, Mass.: Addison-Wesley Pub. Co., 1975), p.103 19 The reason that other research methods were rejected is that the China/U.S. WTO negotiation is a relatively unique case. It is necessary to learn the details of the negotiation process in this single case before doing it comparatively. In the meantime I believe that the single case study fits the objective of this project well. According to Yin, the case study method is the preferred strategy whenever how and why (explanatory and exploratory) questions are being posed; when the investigator has little control over events, and when the focus is on a contemporary phenomenon within some real-life context or the case represents an extreme or unique one. 20 Since I am most interested in the comparison between the domestic politics differences and how they affect the negotiation process and strategies in those two countries, I prefer to adopt a case study approach since it makes detailed research on each side possible. The limitation of this study, like any single case study, is in its inability to prove the new ideas it generates. Therefore, further studies on this theme, applying the idea to other cases and conducting comparative case studies, are necessary. Moreover, this dissertation tries to produce a fair and balanced interpretation. However, the efforts are constrained by the sources of evidence. Evidences on the China side are mainly based on personal interviews and those on the U.S. side are heavily based on government reports, Congressional hearings and media news. One justification is the limited availability of written information on the negotiation process on China side and relatively easier access to the information on the U.S. side of the story through 20 Robert K. Yin, Case Study Research: Design and Methods, (Thousand Oaks, Calif.: Sage Publications, 2003) 20 public media. While I have conducted interviews with Chinese negotiators, I have not yet been able to provide comparable evidence about the U.S. negotiators' viewpoints. For this reason it is possible that this account will seem imbalanced in some places. Sino-American relation is one of the focal points to the current prospects for great power cooperation in the 21st century. China is the only great power that is not a democracy (and democracies have rarely fought each other). China holds, but seldom uses, veto power in the U.N. Security Council, and has a credible nuclear arsenal. Its economy, especially as measured by purchasing power parity, is the world's second or third largest and is growing rapidly. The U.S. policy makers have held conflicting views about how to elicit cooperation from China on the range of issues now in play in the relationship. Some argue that friendly, cooperative behavior toward China will elicit a reciprocal response from China. Others argue that firm, even harsh behavior will achieve the result. The debate shadowed and re-shaped the U.S. positions throughout the process of China's 15-year GATT/WTO accession negotiation. The puzzle of 'friendly trade' --- a term I coined and explained in Chapter Two -- highlights the continuous puzzle "shall the U.S. trade or cooperate with a non-friend partner". The intervening variable --- regime type --- contributes to shape both the sharing of the domestic political power and the preferences of the domestic actors. As a result, the domestic preference coordination process is deemed to be more complex and prolonged and the final agreement more difficult to be reached in the 21 case than in the case of the U.S. negotiating with another democratic country where this intervening variable does not exist. As Rodrik states, "Theoretical and empirical work relating domestic institutional contexts to trade policy outcome is in its infancy but should be a promising area of research". 21 The importance to understand and improve the trade negotiation and cooperation between democratic and non-democratic states cannot be overemphasized. Particularly, since dense networks of intergovernmental organizations also appear to reduce conflict among their members 22 , the study of accession of non-democratic states to the WTO has gained particular importance. Numerous theorists of international politics have sought to explain the differential effects that the negotiation process has on outcomes, especially on the success and failure of the process in resolving conflicts and enhancing mutual benefits. This case study is no exception. However, the focus of this study is somewhat different by emphasizing the regime type as an intervening variable to explain negotiation outcome. In light of the recent interest expressed in how regime type influences various aspects of foreign policy, a study that examines not only the institutional differences between two regime types but also the policy preferences of the domestic 21 Dani Rodrik, "The Political Economy of Trade policy'', In Gene M. Grossman and Kenneth Rogoff, ed., Handbook of International Economics, (Amsterdam: Elsevier Science BV, 1995) Vol. III: 1457- 94, p. 1485 22 Bruce Russet, John Oneal, and David Davis, "The Third Leg of the Kantian Tripod for Peace: International Organizations and Militarized Disputes, 1950-1985", International Organization 52 (3) ( 1998): 441-67 22 actors within each regime type seems long overdue. This study help to shed light on whether there is a 'democratic difference' in foreign economic policies. It should contribute to a broader understanding of the political economy of trade policy. It should also shed some light on the integration of transition economies such as Russia and other previous centrally planned economies into the international trade system. With the method of comparison, this study will also help build a better understanding of the existing knowledge on how the U.S. domestic politics affects its international economic negotiations by adding one more particular case. 23 Chapter Two: Literature Review 2.1: Regime Type and International Behavior While those seeking to understand international relations have focused considerable attention on the nature and the influence of the structure of the international system and the characteristics of the foreign policy decision-makers, the attributes of the states have traditionally received far less attention. Historically, in the scholarly attempt to understand the international behavior of states under anarchy, the attributes of the states were ignored due to the dominance of the Realism paradigm. In the 1970s, the scholars who tried to challenge the Realism paradigm started to focus on the individual level of decision-makers (e.g. Allison, 1971; Bueno de Mesquita, 1981; Jervis, 197 6). 23 The empirical discovery of the democratic peace, however, rekindled interests in the second image (Bremer, 1993; Maoz and russet, 1992, Oneal and Russett, 1997, 1998) 24 . Statistical tests of the relationship between regime type and war suggest that institutional attributes of the state influence state behavior in the international system and affect international outcomes. Democracies 23 Graham Allison, The Essence of Decision: Explaining the Cuban Missile Crisis, (Boston: Little Brown, 1971); Bruce Bueno de Mesquita, The War Trap, (New Haven: Yale University Press~ 1981); Robert Jervis, Perception and Misperception in International Politics (Princeton, N.J.: Princeton University Press, 1976) 24 Stuart Bremer, "Democracy and Militarized Interstate Conflict, 1816-1965", International Interaction, Vol.18, 1993: 231-249; Zeev Maoz and Bruce Russet, "Alliances, Contiguity, Wealth, and Political Stability: Is the Lack of conflict among Democracies a Statistical Artifact?" International Interactions 17 :3 ( 1992), 245-67.; John R. Oneal and Bruce Russett, "The Classical Liberals Were Right: Democracy, Interdependence, and Conflict, 1950-85", International Studies Quarterly 41 :2 (June 1997), 267-93. 24 engage in fewer militarized disputes with each other than they do with autocracies, or than autocracies do with each other. 25 This is true even when the effects of other influences, such as proximity, alliance, relative power and wealth or economic growth rates are controlled. 26 How to explain and prove 'democratic peace'? A number of competing explanations have been advanced which purport to explain the same empirical evidence. 27 The norms-based explanation of the democratic peace was recently championed most notably by Bruce Russett. According to Russett, leaders choose to apply the standards and rules of conduct that have been successful and acceptable at home in their international interactions. Leaders who come to power in democratic states learn to view politics as a non-zero-sum game, to negotiate and compromise with opponents, and to bargain rather than to fight (In some cases, fighting internationally is more acceptable domestically than compromise). In democratic systems, political adversaries disagree and have conflicting views and interests, but they resolve these conflicts peacefully. Democratic leaders prefer to follow these same standards and rules in their international interactions as well, and do so when they have reasons to expect that such behavior will be reciprocated, namely when they face other 25 Stuart Bremer, 'Dangerous Dyads', Journal of Conflict Resolution 36(2), 1992: 309-41; Zeev Maoz and Bruce Russett, 'Normative and Structural causes of Democratic Peace, 1946-86', American Political Science Review 87(3): 624-38, 1993; Bruce Russett, Grasping the democratic Peace: Principles for a Post-Cold War World, (Princeton: Princeton University Press, 1993) 26 Harris Bliss and Bruce Russett, "Democratic Trading Partners: The Liberal Connection, 1962- 1989", The Journal of Politics, vol.60, issue 4 (November 1998), 1126-1147, p.1126 27 For a detailed summary, see Brett Ashley Leeds and David R. Davis, "Beneath the Surface: Regime Type and International Interaction, 1953-1978". Journal of Peace Research, Vol.36, Issue 1 ( Jan., 1999),pp 5-21 25 democratic states. 28 A competing approach to explain the lack of war among democracies focuses not on norms or culture, but on the institutional structures of the states and the levels of constraints on the chief executives charged with making foreign policy. Proponents of this executive constraint approach focus on the specific influence of the large numbers of domestic actors in the exercise of politics. When two highly constrained executives are in conflict with each other, war is less possible. 29 Recently, more research on the relationship between institutional structures of the state and their external behavior has extended the academic interests from the narrowly defined military action to a broader array of issues. As Leeds and Davis point out, if domestic political structures influence the state decision to go to war, the domestic political structures should also have implications for a much broader range of international behavior. 30 This new approach on examining the international behavior of the state through the lens of the unique properties of democratic political systems is labeled generally as 'democratic difference'. It has covered a wide range of issue areas beyond the original concern on war and peace. These interesting studies include those by Morrow, Siverson, and Tabares (1998), Gowa (1999), Busch 28 Bruce Russet, Grasping the Democratic Peace, (Princeton, N.J.: Princeton University Press, 1993), pp. 30-38 29 T. Clifton Morgan and Sally Howard Campbell, "Domestic Structure, Decisional Constraints, and War: So Why Kant Democracies Fight?" Journal of Conflict Resolution 35 (2): 187-211; T. Clifton Morgan and Valerie L. Schwebach, " Take Two Democracies and Call me in the Morning: A Prescription for Peace?" International Interaction, 17( 4): 305-320, 1992 30 Brett Ashley Leeds and David R. Davis, "Beneath the Surface: Regime Type and International Interaction, 1953-1978", Journal of Peace Research, 36(1) January 1999: 5-21, p.5 26 (2000), and Reinhardt (2000) on trade, Simmons (2000) on monetary commitments, Raustiala and Victor (1998) on environmental policies, and Slaughter (1995) and Alvarex (2001) on international law. 31 2.2: Democracy and International Economic Cooperation If democracy leads to peace among countries that share common democratic governance, then, will democracy impede or promote international economic cooperation? This is an open-ended question and each side is supported by various empirical and/or statistical evidences. Similarly, as the unique domestic institutional feature of the democracy, is 'divided government' a hindrance or an aid to international negotiation? Some analysts have suggested that the internal divisions in a democratic state may create international bargaining advantages for that state. When a domestic group strongly opposes certain concessions, the leader of the state maybe able to show his 31 James D. Morrow, Randolph M. Siverson, and Tressa E. Tabares," The Political Determinants of International Trade: The Major Powers, 1907-1990", American Political Science Review 92 (September 1998): 649-61; Joanne Gowa, Ballots and Bullets: The Elusive Democratic Peace, (Princeton, N.J.: Princeton University Press, 1999); Marc L. Busch," Democracy, Consultation and the Paneling of Disputes under GATT", Journal of Conflict Resolution 44 (August 2000): 425-46; Eric Reinhardt, "Aggressive Multilateralism: The Determinants of GATT/WTO Dispute initiation, 1948-1998", Emory University, Typescript; Beth Simmons," International Law and State Behavior: Commitment and Compliance in International Monetary Affairs", American Political Science Review 94 (December 2000): 819-835; Kai Raustiala and David G. Victor," Conclusions" In David G. Victor, Kai raustiala and Eugene Skolinikoff, ed. The Implementation and Effectiveness of International Environmental Commitments: Theory and Practice, (Cambridge, MA: MIT Press, 1998): 659-707; Anne-Marie Slaughter, "International Law and International Relations Theory: A Dual Agenda", European Journal of International Law12 (2) 1995: 205-39. 27 counterpart the constraints and avoid making those concessions. As a result, the leader of the state may secure a better international agreement. The classic Schelling conjecture states that an international negotiator can point to a hawkish legislature to extract greater concessions from the foreign country. 32 Putnam confirms that greater domestic resistance can be a bargaining advantage in international negotiations by means of a more realistic model of negotiator behavior. 33 Mo agrees and extends the conjecture by arguing that domestic actors take an active role not only in ratifying an agreement but also in negotiating domestically to put forth a single national proposal. 34 All of those scholars emphasize that the constraints to the negotiators and the leaders of the state brought by the democratic feature of 'divided government' in international negotiations can result in improved terms of the final agreement to its favor. Credibility, another feature related to the democratic political entity, can effectively increase the likelihood of reaching an agreement. A growing number of studies have paid attention to the argument that characteristics typical of democratic political systems advance the effort of the state in making credible commitments in the international arena (Cowhey, 1993; Fearon, 1994; Gaubatz, 1996; McGillivary and smith, 1998). Leaders from democratic states experience costs from not following 32 Thomas Schelling, The Strategy of Conflict, (Cambridge, Mass.: Harvard University Press, 1960), pp 28-9 33 Robert Putnam," Diplomacy and Domestic Politics," International Organization (42)1988: 427-60: Pp.440-1 34 Jongryn Mo, "The Logic of Two-Level Games with endogenous Domestic Coalitions", Journal of Conflict Resolution 38(3), September 1994:402-422 28 through on a planned course of action and find it difficult to adjust quickly to changing circumstance in the international environment. As a result, their commitments are likely to be credible, and they seek to form only secure agreements. If democracies are more capable of guaranteeing their own future behavior and if this ability is crucial to achieving cooperation under anarchy, then it may follow that democracies exhibit more cooperative behavior in the international system. Similarly, Lisa Martin finds that Congress plays an active and positive role in promoting international cooperation. 35 The institutionalized legislative participation process of international cooperation enhances the credibility of commitments through a number of mechanisms, relying on signaling and commitment dynamics. Institutionalized legislative participation provides the executive branch and the other states with better information about legislative and societal preferences, reducing the chance of reneging. It also creates institutional obstacles to change policies and thus improves the stability of existing policies. Enhanced credibility in tum leads to greater levels of international cooperation. By contrast, some other analysts show that divided government in the United States poses problems for the executive branch to make trade policy vis-a-vis Congress. 36 Helen Milner's prominent study in 1997, Interests, Institutions and Information, argues that the level of divided government, which refers to the degree of divergence 35 Lisa Martin, Democratic Commitments: Legislatures and International Cooperation, (Princeton, NJ: Princeton University Press, 2000) p.13. 36 Sharyn O'Halloran, Politics, Process and American Trade Policy (Ann Arbor: University of Michigan Press, 1994); Susanne Lohmann & Sharyn O'Halloran. "Divided Government and US Trade Policy." International Organization 48 Autumn 1994: 595-632. 29 between the executive and the legislative preferences, is an important factor affecting the possibility and the extent of international cooperation. With a formal model and three case studies, Milner suggests that as domestic divisions grow the problems the executive branch faces mount. The executive branch will have a harder time getting any agreement ratified and will be forced to negotiate agreements that meet the legislature's preferences. 37 Specifically, since there is more than one player that can veto a deal, the need for ratification by the hawkish player within a state places important constraints on the dovish player who is inclined to enter into cooperative arrangements with his counterpart, thus diminishing the prospects for international cooperation. The possibility for cooperation further declines and the likelihood of ratification failure increases as the policy differences between the two actors increase, because the dove is now increasingly forced to accede to terms favored by the hawk. The conclusion implies that domestic politics make international cooperation less likely. Even realists may have overestimated the likelihood that states will cooperate with one another. 38 A related study done by Milner and Rosendorff (1997), emphasized on how elections and divided government could impose constraints on governments to reach international trade agreements and get them ratified. Because of the uncertainty elections create, it makes the ratification of international agreements by legislatures problematic. This leads the executive branch to negotiate more protectionist agreements than otherwise. Milner and Rosendorff claim that this 37 Helen V. Milner, Interests, Institutions, and Information: Domestic Politics and International Relations, (Princeton, N.J.: Princeton University Press, 1997), p.97 38 Helen Milner, Interests, Institutions and information: Domestic Politics and International Politics (Princeton, N.J.: Princeton University Press, 1997), Pp.37-43 30 uncertainty connected with elections makes divided government more negative for cooperation. 39 Without questioning the positive role the 'divided government' plays to win a better 'term' of the negotiation, these scholars who hold pessimistic views only cast doubts in regard to the likelihood of reaching any agreement. 2.3 Regime Type and Democratic Difference in International Trade Negotiation Despite the widespread interest in the effects of domestic political institutions on the international behaviors of the state, however, remarkably few studies have expanded that interest into the arena of international behaviors of ideologically hostile countries. Most works on the political economy of trade policies that examine institutional factors focus only on variations in policies among democracies and avoid comparison of democracies with other types of regimes. 40 If there exist conflicting views toward the link between the democracies and their international economic cooperation, then, has any consensus been made on whether it is easier or more difficult to reach agreement between two countries that don't share the same regime type? When mixed pairs do reach trade agreement, which party will the terms of the agreement be in favor of? And why is this so? Does the cooperative nature of 39 Helen Milner and B. Peter Rosendorff, "Democratic Politics and international Trade Negotiations: Elections and divided Government as Constraints on Trade Liberalization", Journal of Conflict Resolution.41(1) February 1997: 117-146, P.140 4 ° For a few exceptions, see Edward D. Mansfield, Helen V. Milner and B. Peter Rosendorff, "Free to Trade: Democracies, Autocracies, and International Trade", American Political Science Review 94 (2), June 2000: 305-321; Harris Bliss and Bruce Russett, "Democratic Trading Partners: The Liberal Connection, 1962-1989", The Journal of Politics 60 (4) November 1998: 1126-47. 31 the democratic states only hold among democracies or does it also apply to the non- democratic countries? The origin of the "democratic difference" literature, democratic peace, suggests that leaders of democratic states, when facing leaders of non-democratic states, cannot expect their opponents to adhere to the same norms, and must give up those standards in favor of traditional power politics. 41 When the debate on 'democratic peace' is extended to cover a broader range of issues other than the military action, how does it explain the relationship between the domestic political institutions and their external behavior? Leeds and Davis discover that generally democratic states exhibit more cooperative and less confrontational behavior regardless of the characteristic of their dyadic partners. Non-democracies tend to treat democracies with more confrontational and less cooperative behavior. 42 Some scholarly works seek to explain from the security perspective. Bliss and Russett state that a democratic trading state feels its security less threatened by another democratic state than by any autocracy. Democratic statesmen need be less 41 William J. Dixon," Democracy and the Management of International conflict", Journal of Conflict Resolution 1993 37(1): 42-68; 1994; Zeev Maoz and Bruce Russett," Normative and Structural Causes of Democratic Peace 1946-1986", American Political Science Review 87 (3), 1993: 624-638; R.J. Rummel, Understanding Conflict and War, Vol.4 War, Power, Peace, (Beverley Hills, CA.: Sage, 1979 Bruce Russett, Grasping the Democratic Peace: Principles for a Post-Cold War World, ~Princeton, N .J.: Princeton University Press, 1993) 2 Brett Ashley Leeds and David R. Davis, "Beneath the Surface: Regime Type and International Interaction, 1953-1978", Journal of Peace Research 36 (1) (Jan., 1999): 5-21 32 concerned that a democratic trading partner will use gains from trade to endanger their security than when their country trades with a non-democratic state. Their countries can enter into relationships of economic interdependence for absolute gains, without worrying as much about the hazard of relative gains as they might with non- democratic partners. In Powell's term, 'If the use of force is no longer at issue, then a state's relative loss will not be turned against the state. Relative gains no longer matter, and cooperation now becomes feasible' . 43 Thus, the concern on the relative gains becomes an issue affecting the international economic cooperation. Since wealth is the main source of military capability and other means of influence, cooperation that creates and distributes wealth affects security as well as welfare. Rational states will thus weigh the security implications of cooperation alongside the benefits in its making foreign economic policy. As a result, the recent debate has been over whether, and under what conditions, states will limit mutually beneficial exchange with rivals who are obtaining disproportional gains. 44 Relative gain was a particularly salient issue during the Cold War era. Studies on the U.S. economic welfare and embargoes against the Soviet Bloc during the Cold War 43 Robert Powell, 'Absolute and Relative Gains in International Relations Theory', American Political Science Review 85(4) 1991: 1305-22 44 Joseph M. Grieco, Cooperation among Nations: Europe, America, and Non-tariff Barriers to Trade, (Ithaca, N.Y.: Cornell University Press, 1990); Michael Mastanduno, "Do Relative Gains Matter? America's Political Science Review 85 (3) September 1991: 701-726; Duncan Snidal, "International Cooperation among Relative Gains Maximizers", International Studies Quarterly 35 (4) December 1991:387-402. 33 have shown that relative gains can obstruct economic cooperation under bipolarity. 45 Theoretical analyses of relative gains in the literature have argued that relative-gains sensitivity is affected by the political-military relationship between the nations involved, the offense-defense balance, and system structure. 46 However, relative gains concern is not typical only to countries who don't share the common democratic governance. In the waning years of the Cold War, relative gains became an important bilateral issue between the U.S. and Japan as well as between the U.S. and the EC. Joseph Grieco and Michael Mastanduno claim to find instances of relative-gains conflicts that were motivated by security. 47 At the same time, some authors from the U.S. have urged restrictions on trade with Japan to stem disproportionate Japanese gains. 48 John Mearsheimer, for example, has argued that Western European states will worry about the imbalance in gains as well as the loss of autonomy that results from cooperation as the Soviet and the U.S. power recedes from Europe. 49 However, most of these studies were done during the late 1980s and the early 1990s, echoing with the broader picture of the economic decline of the 45 The definitive study is Michael Mastanduno, Economic Containment: CoCom and the Politics of East-West Trade (Ithaca, N.Y.: Cornell University Press, 1992) 46 Stephen D. Krasner, "Global Communications and National Power: Life on the Pareto Frontier,', World Politics 43 (3) April 1991 :336-366; Emerson M.S. Niou and Peter C. Ordeshook, "Less Filling, Tastes Great: The Realist-Neoliberal Debate", World Politics 46 (2) January 1994: 209-234; Robert Powell, 'Anarchy in International Relations Theory: The Neorealist-Neoliberal Debate", International Organization 48 (2) Spring 1994: 334-343; Robert 0. Keohane and Lisa Martin, 'The Promise of Institutionalist Theory', International Security 20 (1) Summer 1995:39-51. 47 Joseph M. Grieco, Cooperation among Nations: Europe, America and Non-tariff Barriers to Trade (Ithaca, N.Y.: Cornell University Press, 1990); Michael Mastanduno, 'Do Relative Gains Matter? America's Response to Japanese Industrial Policy", International Security 16( 1 )Summer 1991 :73-113; 48 See, e.g., Samuel P. Huntington, 'Why International Primacy Matters', International Security 17 (4)Spring 1993:68-83, p.81 49 John J. Mearsheimer, 'Back to the Future: Instability in Europe after the Cold War', International Security 15 (4) Summer 1990: 5-56, pp.47-8 34 United States targeting its bilateral trade relationship with EU and Japan. In short, the issue of relative gains is not the concern that only exists between countries with different regime types. Furthermore, the causality between trade and shared democratic polity is also questioned by some scholars. These scholars point out that alliance, rather than democracies, accounts for the close trade relationship between/among countries. Joanne Gowa and Edward Mansfield have shown that allies trade more with each other than do non-allies under bipolarity, but that this relationship virtually disappears under multipolarity. 50 Gowa has thus argued that the 'security externalities' of trade lead states to impose optimum tariffs against adversaries more often than against allies. 51 The security externalities of agreements to open borders to trade imply that these agreements are more likely to occur within than between military alliances. Several analyses (Gowa and Mansfield 1993; Mansfield and Bronson 1997a, 1997b ) 52 have found trade to be positively related to alliance ties. 50 Joanne Gowa and Edward D. Mansfield, "Power Politics and International Trade" American political Science Review 87(2) June 1993: 408-420. However, James D. Morrow, Randolph M. Siverson, and Tressa Tabares find that trade patterns correlate with common democracy and interests, but not with alliance, even under the bipolarity. Other Studies showing an inverse relationship between political-military conflict and trade levels in the bipolar Cold War period include Mark Gasiorowski, 'Economic Interdependence and International Conflict: Some Cross-National Evidence,' International Studies Quarterly 30 (1) March 1986: 23-38; Brian M. Pollins, 'Does Trade Still Follow the Flag?' American Political Science Review 83 (2) June 1989: 465-80; Brian M. Pollins, "Conflict, Cooperation, and Commerce: The Effects of International Political Interactions on Bilateral Trade Flows", American Journal of Political science 33 (3) August 1989:737-61. 51 Joanne Gowa, 'Bipolarity, Multipolarity, and Free Trade', American Political Science Review 83 (4) December 1989: 1245-1256; Joanne Gowa, Allies, Adversaries, and International Trade (Princeton: Princeton University Press, 1994) Pp.31-53 52 Edward D. Mansfield and Rachel Bronson," The Political Economy of Major-Power Trade Flows" in The Political Economy of Regionalism, ed. Edward D. Mansfield and Helen Milner, (New York: Columbia University Press, l 997a); Edward D. Mansfield and Rachel Bronson, "Alliances, 35 Both Gowa and Mansfield (1993) and Morrow, Siverson, and Tabares (1998) report that the polarity of alliance system affects the pattern of trade. Gowa and Mansfield (1993) 53 , in a study of trade among seven major powers at intervals during the 20th century, found that joint democracies were related to trade in only 1 of 42 cases. Verdier ( 1998) 54 contends that democracy promotes trade only between industrialized countries. Morrow, Siverson, and Tabares ( 1998) 55 , using a different research design, show that trade is significantly increased between democracies, as well as between states sharing certain alliance characteristics. Some other analysts believe that two countries that share the common democratic governance are more likely to reach a lower mutually acceptable agreement than that between a mixed pair. Mansfield, Milner and Rosendorff ( 1997) emphasize the role of legislature. The chief executive in a democracy needs the approval of a legislative majority to enact its preferred trade policies. By contrast, autocracies vest the chief executive with much more authority than democracies, who in tum does not need a legislative majority to pass his trade policy initiatives; either a legislative branch does not exist or it rubber-stamps proposals of the chief executive. The possible veto of a trade deal by the legislative branch in the dyad may lead the chief executive of Preferential Trading Arrangements and International Trade patterns", American Political Science Review 91(1):94-107, 1997b SJ Joanne Gowa and Edward D. Mansfield, 'Power Politics and International Trade', American Political Science Review 87(4): 408-20, 1993 s 4 Daniel Verdier, "Democratic Convergence and Free Trade", International Studies Quarterly 42(1):1-24, 1998 ss James D.Morrow, Randolph M. Siverson, and Tressa Tabares, "The Political Determinants of International Trade: The Major Powers, 1907-1990", American Political Science Review 92(3): 649- 62, 1998 36 the state to search for lower mutually acceptable levels of trade barriers. This, in tum, may explain why pairs of democracies are better able to lower their trade barriers than do the mixed pairs. 56 If credibility is the unique feature related to democracy, then, what would be the negotiation advantage of an autocracy? Leaders operating in different domestic institutional environments have differing abilities to commit credibly to the future courses of action, to accept the costs of policy failures, and to adjust to changes in the international environment. Leeds, using a formal model, suggests that jointly democratic dyads and jointly autocratic dyads will cooperate more readily than dyads composed of one democracy and one autocracy. 57 The chief executives of the democratic states experience costs from not following through on a planned course of action and find it difficult to adjust quickly to changing circumstance in the international environment. As a result, their commitments are likely to be credible, and they seek to form only secure agreements. Since autocratic states tend to be characterized by more policy-making flexibility and lower level of domestic constraints, leaders there can adjust more quickly and easily to changes in the international environment. As a result, they have more difficulty guaranteeing their own future behavior, but they are more likely to accept agreements with some risks 56 Edward D. Mansfield, Helen V. Milner and B. Peter Rosendorff, "Free to Trade: Democracies, Autocracies, and International Trade", American Political Science Review 94 (2) June 2000: 305-321. p.318 57 Brett Ashley Leeds, " Domestic political Institutions, Credible Commitments, and International Cooperation", American Journal of Political Science 43 (4) October 1999: 979-1002 37 of abrogation. Based on this logic, Leeds concludes that it is more difficult to reach an agreement between a mixed pair than between two democracies or two autocracies. However, an opposite conclusion may also be drawn from the above logic. Non- democracies are good at grasping timing which may be more likely to be missed by democracies; while democracies are more likely to negotiate a better terms with its rigidity to resist and counterbalance domestic constraints. With the credibility from the democracies and the flexibility from the non-democracies, it should be easier for the mixed pair than the joint pair to reach an agreement. If this is not the case, there must exist an intervening variable that further complicates the negotiation process. This intervening variable, as it appears, is the ideological difference between two hostile regime types. T bl 2 1 I a e - ntematlona lN egohatlons b h M. dP. etween t e 1xe arr Regime Type Flexibility Accountability Democracies - + Non-democracies + - The existing literature demonstrates that although there are conflicting views about whether divided government impedes or promotes trade and trade negotiations among democracies, the scholarly findings on the relationship between regime type and international economic cooperation are consistent. First, the cooperative nature of democracies have been generally recognized when it deals with an ideologically different country; second, it is more difficult to negotiate an agreement between 38 mixed pair, with different explanatory variables such as the concern of security and relative gains, the lack of the constraints of legislature and the lack of credibility that is also an attribute of legislature in autocracy. One factor is noteworthy since most studies overlap the bipolar period extensively and it is hard to control for any of the Cold War influence that might account for the effects of regime type on trade. 58 The Cold War was marked by the existence of two camps, with democracies concentrated in one and autocracies in the other. It is expected that more trade and more reached trade agreements took place among allies. Moreover, the concern on i;-elative gains is questionable. First, whether states resist adverse relative gains for security reasons is also important to the theoretical debate between neorealists and neoliberals about the sources of international cooperation. Neoliberal theories have generally assumed that states pursue absolute gains only, while Neorealists, on the other hand, contend that sensitivity to relative gains intensifies distributional conflicts and cannot be easily addressed by international institutions. The concern ofrelative gains is not the factor that solely applies to autocracies. To Neorealism, it could apply to any country. As shown from the above 58 Edward D. Mansfield, Helen V. Milner and B. Peter Rosendorff, "Free to Trade: Democracies, Autocracies, and International Trade", American Political Science Review 94 (2)June 2000: 305-321: Harris Bliss and Bruce Russett, "Democratic Trading Partners: The Liberal Connection, 1962-1989", The Journal of Politics 60 (4) November 1998: 1126-1147; William J. Long, Trade and Technology Incentives and Bilateral Cooperation, International Studies Quarterly 40 ( 1 )March 1996: 77-106; Brett Ashley Leeds and David R. Davis, "Beneath the Surface: Regime Type and International Interaction, 1953-1978 ", Journal of Peace Research 36(1 )January 1999: 5-21 39 literature review, more studies have focused on the relationships between the U.S. and the EU and between the U.S. and Japan. The theoretical studies also contend that relative-gains sensitivity should be attenuated by a low likelihood of war, by defense dominance and by multi-polarity, and that it should be heightened by the converse of these factors. As argued by Liberman, relative economic gains are unlikely to interfere with cooperation in the post Cold-War multi-polar international systems. He points out that those relative economic gains are likely to be fairly even, particularly among the nations most likely to care about them. 59 Third, the concern of relative gains is less relevant to China's GA TT /WTO negotiation. The bilateral trade between the U.S. and China is an anomaly. It has increased dramatically in decade that the U.S. and China share neither the same political entity, nor alliance. The increasing U.S. trade deficit with China did bring about the debate of fair trade within the U.S., especially during the domestic debates on whether or not to renew China's MFN status. However, the nature ofWTO accession negotiation determines that the issues under negotiation are how to lift the trade and investment barriers in China so that China can import more foreign products. The emphasis is somewhat different from the general discussion on trade and cooperation, nor relative gains. This is more a one-sided trade liberalization, which may share some concerns of bilateral trade, but less so since China's negotiation partners did not need to make any change on their own trade regimes, patterns and activities. 59 Peter Liberman, "Trading with the Enemy: Security and Relative Economic Gains", International Security 21(1)Summer, 1996:147-175. 40 The studies emphasizing the institutional differences between regime types are convincing, but not sufficient to explain the dynamics of international economic trade between mixed pairs. Mansfield, Milner and Rosendorffs' argument is solely based on the domestic institutional differences between democracies and autocracies. Furthermore, they believe that examining the influence of the division of the policy preferences of domestic actor is not necessary. 60 Our analysis focuses on variations between democracies and autocracies, not on variations within either regime type. Both our model and the data analysis treat each type of regime as homogeneous. Democracies are distinct from autocracies because they have a legislature that exercises ratification power, regardless of its preferences. The differences among regime types rest on institutional features, not on the policy preferences of decision makers .... Hence, examining the influence of such division (i.e., as the trade policy preferences of the executive and legislature diverge or converge) does not facilitate comparisons between democracies and autocracies, only between more divided and less divided democracies. 61 If both the domestic institutions and the norms-culture are applied to explain the phenomenon of 'democratic peace' among democracies by the current scholarship and both the domestic institution and the domestic preferences are emphasized to understand international cooperation among democracies, then why is the norms- culture side of the story intentionally neglected to understand international negotiations between countries with different regime types? Does it really not matter 60 Edward D. Mansfield, Helen V. Milner and B. Peter Rosendorff, "Free to Trade: Democracies, Autocracies, and International Trade", American Political Science Review 94 (2) June 2000: 305-321. 61 Edward D. Mansfield, Helen V. Milner and B. Peter Rosendorff, "Free to Trade: Democracies, Autocracies, and International Trade", American Political Science Review 94 (2) June 2000:305-321, p.318. 41 at all? Can the preferences of the domestic actors within each regime type be completely ignored? Can the political institutional difference between them itself explain the process and outcome of international cooperation/negotiation between two ideologically different countries? This study is aimed to answer these questions and the answers are "NO". The domestic political institutions and the preferences of the domestic actors together are able to explain the process and outcome of international cooperation/negotiation between the mixed pair. This case study on the U.S./China bilateral negotiations on China's GATT/WTO accession reveals that the norm--- friendly trade---- derived from the ideological difference between two regime types heavily shaped the preferences of the domestic actors both with the U.S. and China. As a result, the negotiation process, a reflection of the preferences of the domestic actors in both states, led to the negotiation outcome (both the timing and the terms of the final agreement) as such. Following the theoretical framework of Milner (1997), this study is aimed at demonstrating that both the domestic institutional structure and the influence of the division of domestic actors' policy preferences are indispensable in understanding and explaining the comparisons between democracies and autocracies. Different from the negotiations among democracies, the policy preferences of domestic actors are further shaped by the intervening variable --- ideological difference --- when the negotiations are held between the mixed pairs. 42 2.4: Free Trade, Fair Trade and "Friendly" Trade Although China's accession to WTO was overall a multilateral negotiation by nature, I understand that the bilateral negotiations between China and the other WTO members were separate and independent from its working party negotiations with all WTO members to some degree. The multilateral negotiations would stick strictly on WTO's general rules and principles and would consider the progress of negotiations made between each contracting country and China. The issues about free trade were usually addressed within this arena. Under the bilateral negotiations, on the other hand, the emphasis would be put on the specific situation of the two countries' trade relationships and how identified barriers and problems were solved. In addition, Countries that had many other interests (security, political, human rights, and ideological differences) involved in their relationships tend to have more complicated bilateral negotiations than countries that focused only on their economic links. Specific to the U.S./China case, fair trade and friendly trade were the main focus. This is the reason that I have singled out the US/China bilateral negotiations from the multilateral negotiations and the rest of the bilateral negotiations that took place simultaneously. Specific to the US/China bilateral negotiation over China's accession, three interrelated ideas or belief systems set the pace for reaching an agreement in the U.S. 43 They were the ideas that served as domestic constraints over this international economic negotiation --- namely, free trade, fair trade and friendly trade. There is a vast and growing literature on the role of ideas, cognitions, values, norms, and ideologies in the political process. Here, ideas refer to shared intellectual outlooks. In particular, the shared outlook is the efficiency of government pursuing one economic policy rather than another. I follow closely the way that John Odell uses 'idea' as a variable in U.S. International Monetary Policy: Markets, power and Ideas as Sources of Change, 62 where the emphasis of the essay is on the political influence of the content of an idea, not the cognitive process. Institutional structure alone is an insufficient explanation for the trade policies taken by governments, as critical is the belief system of those individuals who enforce the law. Debates on trade policies in the United States historically have centered on free trade versus protectionism. As the U.S. trade deficit worsened in the late 1980s, two additional types of trade policies were proposed in Congress and in some instances, enacted into law: fair trade and strategic trade. 63 According to Judith Goldstein ( 1988), 64 three sets of ideas --- free trade, fair trade and redistribution have a 62 John Odell, U.S. International Monetary Policy: Markets, Power and Ideas as Source of Changes ~Princeton, N.J.: Princeton University Press, 1982) 3 Stanley D. Nollen and Dennis P. Quinn, "Free Trade, Fair Trade, Strategic Trade, and Protectionism in the U.S. Congress, 1987-1988", International Organization 48 (3) Summer 1994: 491-525. 64 Judith Goldstein, "Ideas, Institutions and American Trade Policy", International Organization 42(1) Winter 1988: 179-217. 44 dominant role to explain the post WWII American foreign trade policies and to capture the dynamics of protectionism in the U.S. Built on it, I define another three sets of ideas --- free trade, fair trade and friendly trade, as the ideas embedded in the U.S. institutional design and laws that had great influence over China's GATT/WTO accession negotiation. Free trade --- the fundamental principle of neoclassical economics --- is the extension of the regime of free market to the international sector. The objective of free trade is to achieve maximum production and consumption possible for citizens of all nations. With this idea, American negotiators pushed for great market liberalization and transparency in China and for the elimination of all GA TT /WTO violating measures and regulations. During the post WWII period, the U.S. has always been the leader of free trade and trade liberalization. The objective of fair trade is to combat unfair trading practices by other countries in order to restore outcomes that would prevail under free( er) trade. The intended outcomes are gains for the U.S. firms in foreign markets as well as prevention of losses for the U.S. firms in the domestic market. As I.M. Destler and Judith Goldstein each note, the Anti-dumping Act of 1921 and the Reciprocal Tariff Act of 45 .. I 1934 are forms of fair trade. 65 These new fair trade policies appeared in legislation proposed during the 1 ooth Congress (traditional anti dumping measures typically are administrative actions). The Omnibus Trade Bill and its numerous amendments are fair trade proposals. The Super 301 section of the 1988 Omnibus Trade Bill requires the U.S. government (1) to identify foreign markets both where prices are not determined by market forces and where U.S. firms are adversely affected and (2) to use either bilateral negotiations or unilateral U.S. action to bring down barriers to U.S. products in those targeted foreign markets. 66 The exclusionary trade and industrial policy practices of Japan and other East Asian nations have been particular targets of congressional fair trade policies. As Goldstein notes, modem U.S. fair trade policies arise in part from concerns about foreign 'cheating' in the postwar trade regime. 67 The legitimate role of the government in trade is to ensure that American producers compete in a fair market. 65 See, I.M. Destler, American Trade politics, 2nd ed. (Washington, D.C.: Institute for International Economics, 1992) especially chap.2; and Judith Goldstein, 'The Political Economy of Trade: The institutions of Protection', American Political Science Review 80 (May 1986): 161-84. See also David Lake, Power, Protection and Free Trade: International Sources of U.S. Commercial Strategy, 1887-1939 (Ithaca, N.Y.: Cornell University Press, 1988) 66 Destler offers an extraordinarily comprehensive review of all Section 301 investigations from 1 July 1975 to 28 November 1990; see I.M. Destler, 3rd ed. American Trade Politics (Washington, D.C.: Institute for International Economics, 1995), pp.404-31; See also Stephen D. Krasner, Asymmetries in Japanese-American Trade: the Case for Specific Reciprocity, monograph no.31 (Berkeley, Calif.: Institute for International Studies, 1987). 67 For a discussion of U.S. fair trade policies, see Judith Goldstein, 'Ideas, Institutions, and American Trade Policies', International Organization 43 (Winter 1988): 179-218, especially pp.197-209 46 Strategic trade is a new addition to the trade policy thinking. 68 The objective of strategic trade policy is to promote the competitiveness of domestic firms in key industries at the expense of foreign firms, either to enhance the nation's economic well-being or its military security. Strategic trade is a form of industrial policy that offers exclusionary benefits to selected domestic firms through non-tariff barriers. The argument that the proponents of strategic trade offer is that some technologies give rise to product lines that are produced within global oligopolies in which only a few very large companies in the world can compete. Supporters of strategic trade policy conclude that in such a global oligopoly, it is better for a country to be a producer than a consumer. 69 Strategic trade is mainly applied to the competition among the major industrial countries and less relevant to the U.S./China bilateral trade. Therefore, I replace it with 'friendly trade' in this case study, which is more crucial to the bilateral trade relationship and trade negotiation of the two countries under study. Friendly trade refers to the implication that the U.S. does not welcome trade with ideologically hostile partners. Throughout the years between 1980-89, the U.S. did not have any problem trading with China since China was treated as a strategic partner rather than an ideological enemy. In the post Cold War era, however, trade 68 See Paul Krugman, ed., Strategic Trade Policy and the New International Economics (Cambridge, Mass.: MIT Press, 1986); J. David Richardson, 'The Political Economy of Strategic Trade Policy', International Organization 44 (Winter 1990):107-35; and Robert E. Baldwin, 'Are Economists' Traditional Trade Policy View Still Valid?' Journal of Economic Literature 30 (June 1992):804-29. 69 Steven Cohen and John Zysman, Manufacturing Matters (New York: Basic Books, 1987) 47 became an insurmountable problem and invoked growing domestic oppositions from the groups with the same concern. The legislative tool to address this concern was the 1974 Jackson-Yanik Amendment, mutual non-application in international trade regime. The J ackson-Vanik amendment to the Trade Act of 197 4 requires the president to deny MFN treatment to a non-market economy that denies or seriously restricts the right of its citizens to emigrate. The president can waive the requirement of unrestricted emigration if doing so 'will substantially promote the objectives' of the act and if he has 'received assurances' from that the state that its emigration procedures 'will henceforth lead substantially to the achievement of the objectives' of the act. The president must submit an annual report to Congress in regard to such a waiver. Furthermore, the president may extend the waiver authority each year unless a joint resolution by Congress disapproves the extension either generally or with respect to a particular state. 70 A waiver allowing normal trade relations was first granted to PRC on October 23, 1979, and subsequently renewed annually. 71 In 1990, after ten years of complete inactivity, Congress formally re-asserted influence over the MFN renewal process and tied it directly to trade policies and human rights as a reflection of political reaction to the 1989 Tian'anmen Square Incident. The authorization of the annual renewal of MFN status grants Congress the influence it 70 Sean D. Murphy ed, "Contemporary Practice of the United States Relating to International Law", American Journal of International Law 94, 2000: 348-381 ,p.373 71 James R. Lilley and Wendell L. Willkie II eds., Beyond MFN: Trade with China and American Interests, (Washington, D.C.: AEI Press, 1994); "The Future ofUnited States- China Trade Relations and the Possible Accession of China to the WTO: Hearing before the Subcommittee on Trade of the House Committee on Ways and Means'', 105th Congress, (November 4, 1997). 48 does not have in negotiating with another democracy. Arguably, it transforms both the domestic power sharing structure and the policy preferences of domestic actors. These three ideas have been embedded in the U.S. policymaking of both the executive branch and the legislature branch. They together put China in a disadvantageous position in negotiating a bilateral agreement with the U.S. over its GA TT /WTO accession. First, due to the nature of China's transitional economy from a previous planned structure, the liberalization of the trade regime meant the coverage of all relevant areas, such as laws, regulations, from a planned socialist type regime to a market-friendly regime; Furthermore, the status as a transitional economy brought persistent doubts from China's trading partner about its determination and its capacity to implement free trade. Second, the dramatic growth of its annual trade made China a visible target, especially its increasing trade surplus with the U.S. Helping the U.S. companies to sell more in the Chinese market became the top priority of the U.S. government and Congress. Since 1990, bilateral bargaining on improving IPR, market access, and textile has never been stopped. The bilateral bargaining addressing the specific American business interests were directly linked to the progress of China's GA TT /WTO accession negotiation. If the idea of free trade emphasized on liberalizing the general trade regime and other trade-related areas, then the idea of fair trade targeted on greater market access of specific industries and sectors that the U.S. had competitive advantages over. As part of the broad discussions on the effectiveness and legitimacy of unilateralism and multilateralism, the U.S. found bilateral bargaining a more efficient means to pry 49 open the Chinese market, especially with the leverages of China's MFN status and China's eagerness to join GATT/WTO during most of the 1990's. Third, as a legacy of the Cold War, the idea of 'friendly trade' --- trading with friends rather than ideological enemies is also embedded in the trade policy of the U.S. government and Congress. It was not a problem in the 1980s since China was the strategic partner of the U.S. However, the subsequent change of the nature of Sino-American bilateral relationship since 1989 highlighted the ideological differences between them. The perception shift within the U.S. toward Beijing led to the lasting debate of whether to contain China or to engage China. The U.S. Congress started its annual review of China's MFN status in 1990. American negotiators refused to begin bilateral tariff reduction negotiation until China agreed that the U.S. could apply the mutual non application clause against China before China formally became a GA TT /WTO member. From the beginning of the second term of the Clinton Administration when it transformed its 'China Policy' and committed itself to serious negotiation for the first time, several bills were introduced in the House and the Senate to either impose conditions to the bilateral agreement or require a vote before President Clinton could formally sign the agreement. The root of all those efforts made by the U.S. government and Congress is the fact that the U.S. was not negotiating with an ally or a neutral but with a controversial state. On the other side of the coin, it is inevitable for states to attach political and security considerations when negotiating trade agreement with 'unfriendly' states since the decision to reach agreement or non agreement would bring more consequences to the bilateral relations or even 50 international relations far beyond the terms of trade agreement itself. This added more complication to China's GATT/WTO accession negotiation. Altogether, these three 'ideas' contributed to the protraction of reaching the US/China bilateral agreements. Ideas themselves cannot explain the variation of the negotiation process and the outcome; the ways the domestic constituencies apply the ideas matter. These three ideas never vanished during the bilateral negotiations in the 1990s, however, the domestic constraints or opportunities imposed by different domestic constituencies, such as the policy shifts of the U.S. government, the balancing and struggling within Congress and the changing keen concerns of the interest groups all shaped the process and the final terms of the bilateral agreement. Hence I emphasize the dynamic interaction of the domestic political institution and the policy preferences of the domestic actors in this thesis. 2.5: Variables Other Than Power to Understand and Explain Negotiation Among the scholarly works on negotiation, power has been naturally linked and well examined in relation to its effects on negotiation. The traditional view of power that power is the predominant determinant of the negotiation outcome 72 was prevalent in the decades immediately after WWII. Since the late 1970s, however, this view has 72 Arthur Lall, Modern International Negotiations: Principles and Practice,( New York: Columbia University Press, 1966), p.338 51 been challenged by a series of empirical studies on the cases of negotiations between asymmetrical pairs. 73 The contribution of these studies lies not only in emphasizing the importance of negotiation strategies and tactics, but also in starting the trend to explore other possible variables that influence the negotiation outcome other than power. Negotiation is no longer understood as the simple result of power calculation. Culture, negotiating strategies, market conditions and domestic politics can all shape the likelihood and terms of the final agreement. In this case study, therefore, regime type, an intervening variable, is developed to understand the negotiation process and the outcomes. The term of motivational orientation, also derived from the study on power and negotiation, is related to my case study on negotiation between ideologically hostile states. Zartman and Rubin argue that if the parties share a cooperative motivational orientation, the more efficiently they are likely to function; ifthe parties share a competitive motivational orientation, the less effectively they are likely to function. 74 This intervening variable, namely motivational orientation focuses on the 73 Glen H. Synder and Paul Diesing, Conflicts among Nations, ( Princeton: Princeton University Press, 1977), p.498; John Odell, 'The Outcome oflntemational Trade Conflicts: The U.S. and South Korea, 1960-1981 ',International studies Quarterly 29 (September 1985): 263-86; W. Howard Wriggins, "Up for Auction: Malta Bargains with Great Britain', in The 50% Solution, ed. I. William Zartman, (Garden City, N.Y.: Anchor Press, 1976): 208-34; I. William Zartman, The Politics of Trade negotiations between Africa and the European Economic Community, (Princeton, Princeton University Press, 1971 ). 74 William Zartman and the Late Jeffrey Z. Rubin ed., Power and Negotiation, (Ann Arbor, University of Michigan Press, 2000) 52 cooperativeness or competitiveness of the parties' attitude toward each other. 75 It is therefore similar to the meaning of the term 'friendly trade', though the latter is a term specifically used to describe the competitive motivational orientation between two ideologically different regime types. 2.6: The Interaction of Institutions and Preferences of Domestic Actors Three domestic actors are involved to share power over decision making. The chief executive (e.g., the president, prime minister, or dictator) and the legislators compose the two main political groups in which the chief executive includes the bureaucracy and the various departments and ministries of government. The third set of actors is composed of the societal interest groups. If the preferences of these three sets of actors differ in regard to an issue and they share control over decision making about that issue, the domestic politics is not unitary. The distinction between interests and preferences must be clarified first. Here I follow Milner's (1997) definition of these two concepts. 76 Actor's interests represent their fundamental goals, which change little. On any issue, the generic interests do not distinguish among political actors or economic ones. What differentiate them are their policy preferences, which are derived from their own interests. Preferences 75 M. Deutsch, The Resolution of Conflict: Constructive and Destructive Processes, (New Haven, CT: Yale University Press, 1973); J.Z. Rubin and B. Brown, The Social Psychology of Bargaining and Negotiation, (New York: Academic Press, 1975) 76 Helen Milner, Interests, Institutions and Information: Domestic Politics and International Relations, (Princeton, N .J.: Princeton University Press, 1997), P .15 53 refer to the specific policy choice that actors believe will maximize either their income or chances of reelection on a particular issue. Although all political actors will share the same interests, their policy preferences may vary according to their political situation. The end of the Cold War does not mean the end of the ideological differences between the U.S. and China. To the contrary, the difference was highlighted after the political changes took place in the former Soviet Union and the other East European countries. Under this new systemic structure, the context within which China's GA TT /WTO negotiation was carrying out did not lose its importance. Here context refers to aspects of the situation that are normally beyond the influence of the trade negotiator, at least in the short term, and are taken as given. 77 The tone of ideological confrontation between Beijing and Washington was too obvious to miss. The following two examples represent what could be randomly picked up from the public media in the two countries at the time that demonstrated this ideological confrontation. In late 1993, Jiang Zemin, in a meeting with Chinese military leaders, reportedly revealed a new internal policy line on dealing with the U.S. called the Four Noes (sibufangzhen): China would not want confrontation with the United States; China would not provoke confrontation with the United States; China would not avoid confrontation with the United States ifthe latter wants it; and 77 See John Odell, Negotiating the World Economy: Trade, Finance and the United States, (Ithaca: Cornell University, 2000), p. 87 54 China would not fear confrontation with the United States. Jiang also told the Chinese generals that while the U.S. wanted capitalism to develop in China, Washington did not want China to become a major regional power and there was thus a concerted attempt to hold China back. 78 Echoed to this statement, Clinton believed that it was the responsibility of the U.S. to improve China's human rights and democratization. On June 3, 1999, President Clinton announced his decision to renew the waiver once again based on the following logics: NTR with China is good for Americans. Our exports to China have quadrupled over the past decade .... Trade also remains a force for social change in China, spreading the tools, contacts, and ideas that promote freedom. A decade ago at Tiananmen, when Chinese citizens courageously demonstrated for democracy, they were met by violence from a regime fearful of change. We continue to speak and work strongly for human rights in China. I am determined to pursue an agreement for China to join WTO on viable commercial terms. A continued policy of principled, purposeful engagement reinforces these efforts to move China toward greater openness and broader freedom ... We pursue engagement with our eyes wide open, without illusions. 79 The fundamental goal of the chief executive in the democratic country is to seek reelection. 80 This assumption of an 'office-seeking' motivation suggests that the preferences of the chief executive need not follow his party platforms or his campaign promises. Instead, the chief executive picks and chooses policies that can 78 For a detailed report on Jiang's speech and the new sibu fangzhen, see Nayan Chanda and Lincoln Kaye," Circling Hawks'', Far Eastern Economic Review, October 7, 1993, pp.12-3 79 Statement on the Decision to Extend NTR Status with China, 35 WeeklyComp.Pres.Doc.1030, June 7, 1999 80 Glen Snyder and Paul Diesing, Conflict among Nations, (Princeton, N.J.: Princeton University Press, 1977), p.354 55 best serve his reelection needs. 81 Negotiating any agreement with an ideologically hostile country might risk the chief executive the chance for reelection because of the inevitable domestic resistance based on the ideological consideration. Therefore, it is always safer for the chief executive to take the risk in his second term when he has more confidence to face domestic resistance and sufficient time to coordinate domestic actors' preferences to favor his decision. Even so, negotiating a trade agreement may involve more considerations besides economic and commercial gains and losses. The political and security concerns may also influence the negotiation itself. Hypothesis 1: In relations between ideologically hostile states, economic negotiators (chief executives) will place greater weight on political-security objectives than in negotiations among democracies. Furthermore, political and security variations are more likely to have greater effects on the possibilities and terms of the international agreement. Congress --- the legislative branch--- has its own preferences and interests not necessarily mirrored by the societal actors, and this is especially the case when negotiating with a non-democratic state. The role of the legislative branch is one of the well-examined academic subjects. Proponents of the presidential dominance hypothesis argue that Congress has delegated much of its authority to set trade policies to the President. 82 According to I.M. Destler, delegating policymaking 81 Gene Grossman and Elhanan Helpman, "The Politics of Free Trade Agreement", American Economic Review 85 (September 1995): 667-90 82 See Arthur M. Schlesinger, The Imperial Presidency (Boston: Houghton Miffin, 1973); Robert Pastor, Congress and the Politics of U.S. Foreign Economic Policy, 1926-1976 (Berkeley: University of California Press, 1980); I.M. Destler, American Trade Politics (Washington, D.C.: Institute for International Economics, 1992); Stephan Haggard," The Institutional Foundations of Hegemony," International Organization 42 ( Winter 1988): 91-119; Judith Goldstein, "Ideas, Institutions and 56 authority to the President insulates Congress from interest group demands and allows legislators to shift the blame for the negative side-effects of trade liberalization. Proponents of the congressional dominance hypothesis, on the other hand, argue that the delegation of authority to the President does not imply a relinquishing of power. 83 Administrative procedures, 'fire-alarm' or 'police-patrol' oversight, and the credible threat of sanction effectively constrain the President's leeway to set policy. As a consequence, executive decision-making will mirror congressional interest. 84 The role of the legislative branch in international trade, an important type of international cooperation, has received substantial attention in books and articles by political scientists and economists. 85 How legislative pressures influence international negotiation is also the area where the democratic type of government has been well examined. 86 Even the proponent of legislative dominance, Lisa Martin, claims that legislators do influence international cooperation, often through indirect and non-obvious mechanisms. 87 However, in the international trade negotiations between the mixed pair, Congress plays a more active and direct role American Trade Policy", International Organization 42 ( Winter 1988): 179-219; and l.M. Destler, "U.S. Trade policy-making in the Eighties", in Alberto Alesina and Geoffrey Carliner, eds., Politics and Economics in the Eighties (Chicago: University of Chicago Press, 1991). 83 See Barry R. Weingast and Mark Moran, 'Bureaucratic Discretion or Congressional Control: Regulatory policymaking by the Federal Trade Commission", Journal of Political Economy 91 (October 1983): 765-800; 84 D. Roderick Kiewiet and Matthew D. McCubbins, The Logic of Delegation: Congressional Parties and the Appropriations Process ( Chicago: University of Chicago Press, 1991) 85 Helen Milner, Interests, Institutions and Information: Domestic Politics and International Relations, (Princeton, N .J.: Princeton University Press, 1997) 86 Helen Milner, 'Maintaining International Commitments in Trade Policy', in R.Kent Weaver and Bert A. Rockman, ed., Do Institutions matter?: Government Capabilities in the United States and abroad, (Washington, D.C.: The Brookings Institutions, 1993); E.E. Schattschneider, Politics, Pressure and the Tariff: A Study of Free Private Enterprise in Pressure Politics, as Shown in the 1929- 1930 Revision of the Tariff, ( New York: Prentice-Hall, Inc., 1935) 87 Lisa Martin, Democratic Commitments: Legislatures and International Cooperation, (Princeton, NJ: Princeton University Press, 2000)p.19 57 than that observed in the international cooperation among democracies. After all, Congress gains more power legally in terms of negotiation with non-democratic states with the authority to revoke the MFN status, which directly determines if Beijing can become a GATT/WTO member without the need to file non-application with the U.S. The Nature of power sharing domestically is determined by formal and informal political institutions. It also shapes the likelihood and the terms of international cooperation. Milner and many others emphasize the role of ratification the legislative branch plays in a broad notion. It refers to any situation in which some domestic actors can exert a veto over the executive's policy. The executive branch proposes policies and the legislators vote them up or down. The executive branch will anticipate the legislators' preferences and propose policies that they will ratify. 88 Anticipated reaction is a crucial element in the ratification game. However, when negotiating the trade agreement with an ideologically hostile state, Congress plays a more direct and influential role than the simply 'ratification game'. During the negotiation process of China's GATT /WTO accession, Congress passed clear message to the chief executive on what specific conditions had to be met and what restrictions had to be attached. Hypothesis II: When negotiating with ideologically hostile states, legislature is less willing to reach a trade agreement and the independent preference of legislature on 88 Helen Milner, Interests, Institutions and Information: Domestic Politics and International Relations, (Princeton, N.J.: Princeton University, 1997), p.237 58 issues unrelated to trade, such as human rights, security, and technology transfer, will put greater constraints on the executive than between democratic states. And the closer a deal is to the legislature's preferences, the more likely the executive is to accept it. The third set of domestic actors is the interest groups. Interest groups are rarely involved directly in the negotiating process, but they do play important roles at the domestic level to shape or alter the preferences of the political actors. They act as pressure groups and/or information providers. Much of the literature in political economy emphasizes the former. Some recent literature about U.S. politics begins to examine the second role that interest groups might play. 89 In reality, these two roles are inseparable. In order to influence the policy preferences of the legislators, making them informed is the very first step. On the other hand, providing information is not the goal of the interest groups, pressuring the legislator to support their own policy preferences is. Providing information and pressuring legislators are the two steps used together by the interest groups. The private sector is likely to be more confident in the continuity of business practices, and the rule of law in another democracy than in another autocracy, where such capricious acts as expropriations may threaten their interests. 90 If this is the case, 89 Mathew D. McCubbins and Thomas Schwartz," Congressional Oversight Overlooked: Police Patrols versus Fire Alarms", American Journal of Political Science 28:165-179, 1984; Helen Milner, Interests, Institutions, and Information: Domestic Politics and International Relations, (Princeton, N .J.: Princeton University Press, 1997) 90 Mancur Olson, 'Dictatorship, Democracy and Development', American Political Science Review 87(3): 567-76, 1993 59 then under what conditions can private sector feel the market in an autocracy sufficiently attractive that it would voluntarily lobby for that autocracy? Hypothesis III: Because of the extra executive and Congressional constraints and resistance derived from the ideological hostility when negotiating economic/trade agreement with the non-democratic state, the role of lobbying and information signaling played by the business groups is more vital on the possibility and terms of international agreement than with democratic states. Drawing conclusions in regard to international interaction based on the domestic politics of a single state is inappropriate. Instead, international policy coordination is better understood as an outcome of strategic interaction among state leaders responding to both domestic and international constraints and imperatives. The chief executive in an authoritarian regime cannot be treated as a unitary actor, if the chief executive refers to the executive branch of government including both the head of the government and the departments or ministries. Politics within the executive branch are too complex and consequential to be neglected. According to Grossman and Helpman, chief executives from democratic states have to worry about the overall economy and the preferences of the interest groups in order to win reelection. However, reelection is not the primary concern of the chief executives in authoritarian regimes. Instead, they care more about the legitimacy of their offices. In order to consolidate their position as national leaders, they need to maximize their popularity and gain support from the bureaucracies, including those who head the ministries. Because of the lack of power sharing with the legislative branch and the necessity to satisfy domestic interest groups, the conflicts and divergent preferences 60 within the government are highlighted and receive the sole attention to understand domestic politics and explain international behavior. 91 A non-democratic state may face equally strong domestic constraints, if not stronger, as a democratic state, but its domestic institutional feature may make it easier for its policy-maker to make decision when the time comes. Due to this institutional difference, most theories on the relationship between domestic politics and international cooperation are irrelevant to non-democratic states. First, without a divided government in the real sense comprised of the executive branch and the legislative branch, the numerous studies on the functions and influences of the legislative branch over policymaking are not applicable. Second, without the existence of public interest group lobbying, those works on the relationship between the preferences of interest group and international negotiation cannot help to understand the indirect, random and biased influence of the lobbying over government policy in the non-democratic states. Third, the domestic information distribution is not polyarchic but again hierarchic. The domestic institutional structure (power allocation over policy making) and the hierarchic flow of information all provide a different picture of domestic politics. In other words, the lack of legislators and interest group lobbying in a real sense highlights the complication within the government. The decision-making is largely hierarchic; in 91 For the slight role played by domestic interest groups to affect decision-making in China, see Margaret M. Pearson,' The Case of China's Accession to GATT/WTO', in David M. Lampton, ed., The Making of Chinese foreign and Security Policy in the Era of Reform, 1978-2000 (Stanford University Press, 2001), pp.337-370 61 the meantime, the factional struggle and conflicting ministerial interest also disaggregated the unitary nature of decision-making. Specific to China's GATT /WTO accession negotiation, the policy preferences of the same leader varied greatly over the time. The negotiators from the different ministries represented different ministerial interests. The decision-making procedures of 'democratic centralism' and 'policy coordination' reflected the interaction between the preferences of different domestic actors (central leaders, ministries and state-owned enterprises) and the domestic information distribution. More importantly, the channels available for the interest group lobbying were limited to the personal connections of the central leaders and ministry-level officials with specific industry or SOEs. By nature, this lobbying was destined to take the informal and indirect forms and have random influences over the shaping of the policy preferences among ministry-level officials or central leaders. Surprisingly, the available lobbying of SOEs and the ministerial interests all opposed to the executive's policy preferences toward reaching an agreement. And with the deepening of the negotiation, the resistance by the domestic actors rose to the peak in 1999 when the international agreement was reached. There is a puzzle that the current scholarship on domestic politics applies to the China's case. As Helen Milner explicitly states in her book: 92 92 Helen Milner, Interests, Institutions and Information: Domestic Politics and International Relations, (Princeton, N.J.: Princeton University Press, 1997), p.12. 62 The support of the professional military, the landed oligarchy, big business, and/or a political party is usually necessary for even dictators to remain in power and implement their policies. These groups, then, can often exercise veto power over the executive's proposals and in other ways, such as setting the agenda, may share power with the executive. In fact, if the liberalization process in China was the very process to deprive the existing privileges from the current government ministries and to bring more competition into SOEs, the two major supporting sources of the Beijing government, the reaching of the international agreement was not the product of compromising or balancing the preferences of domestic actors but an outcome opposite to the 'effective' preferences of domestic actors. This fact highlighted the relative 'unitary' nature of policymaking in Beijing. And more importantly, it reflected as an outlier of current studies on the relationship between domestic politics and international agreement. Hypothesis IV: For China's case, in the process of 'policy coordination', the conflicting ministerial interests and the indirect lobbying by SOEs are more likely to slow down the negotiation process and render international agreement closer to their preferences, but less likely to affect the possibility of reaching international agreement due to the largely hierarchic nature of decision making in China. 63 Chapter 3: 1986-1989 The aim of this chapter is two-fold. First, it is aimed at describing the first stage of China's GATT application negotiation process between 1986 and 1989. Second, it seeks to answer the question of "why the negotiation process was particularly smooth during this phase" from both the domestic and the systemic level. The emphasis is made on the preferences of the chief executives in the U.S. and Beijing. At the same time, this chapter explains why the other two domestic actors in the U.S. --- Congress and the MNCs and exporters --- were not closely involved in the negotiation, as they were at the later stages. This chapter serves to describe how the international trade negotiation/cooperation took place during the Cold War era between a democracy and one of its political allies that did not share its democratic governance. In the case of the U.S. and China, the ideological difference between the two states --- the intervening variable of regime type between international cooperation and domestic politics --- became less relevant at this time since Beijing was seen as a U.S. political ally. Consequently, the political/security considerations prevailed both in the U.S. and China during this stage, compared to later stages where the political/security/ideological/commercial consideration dominated and the ideological concern itself heavily shaped the preferences of the political domestic actors in the U.S. 64 In the meantime, some other factors also contributed to the smoothness of the negotiation process in this stage. First, due to China's limited trade volume and its overall trade deficits, China's application did not invoke domestic resistance from U.S. domestic interest groups. Second, the difficult time that GATT faced and its negligent role on the global trade liberalization led by the American public as well as the American MNCs and exporters downplayed the potential consequence of China's GATT membership. Third, China's GATT application fell into the category of foreign affairs at this stage as China was in its early days of its economic reform and opening up. Consequently, the Chinese negotiation was led by the Ministry of Foreign Affairs and supported by the Ministry of Foreign Economic Relations and Trade and the General Administration of Customs. The limited number of agencies involved and issues under negotiation helped to insulate the negotiation not only from the attention of the general Chinese public but also that of other government agencies. Without their interests at stake, domestic disagreement was not an issue at this stage. As a result, the ease at the domestic level in both states contributed to the overall smoothness of the negotiation process at this stage. 3.1. Why China applied to rejoin GATT in July 1986 China formally applied to rejoin GATT on 10 July 1986 when Qian Jiadong, the Chinese Ambassador to Geneva, submitted China's application to GATT to resume its contracting membership; however, China's preparation started long before this 65 date. In order to better understand the process of China's GA TT /WTO accession negotiation, the first and the foremost question of why Beijing decided to apply to rejoin GATT in 1986 needs to be examined. Furthermore, the two sub-questions of 'why apply to rejoin' and 'why in 1986' are closely related. I believe that the domestic reasons that prompted Beijing to initiate this action and the international political environment that encouraged Beijing to make the decision to apply are the key in explaining China's the opening positions and the negotiating strategies, as the acceding economy, and those of the major contracting parties led by the U.S. in this international economic negotiation. Today, many scholars emphasize the benefits that China could gain from the GATT/WTO membership with ad hoc methods. Some of those benefits are summarized as follows: • The membership would provide China greater defense against protectionism and discriminatory tendencies of the developed countries than what it had, namely sole reliance on bilateral negotiations; • The membership would exert external pressure for China to develop a more liberal trade regime and a more transparent and fairer legal and regulatory system on foreign trade, investment, services and IPR enforcement so that Chinese economy could become more efficient to enjoy sustainable development; 66 • The membership would reinforce China's right to receive unconditional most-favored -nation treatment because the General Agreement requires that all contracting parties be accorded such status; • The membership would provide China access to GATT's dispute settlement mechanisms; • The membership would help increase China's export and foreign direct investment; • The membership would help improve the U.S./China bilateral ties; • The membership would ensure China's accession before that of Taiwan It appeared that those above-mentioned reasons were the concerns of the Chinese leaders to some degree at the later stage of the negotiation; in the mid 1980s, however, the Chinese leaders had other concerns in mind. The interviews conducted by the author with the Chinese officials in Beijing confirm this assumption with the discovery of the following two prevailing concerns of the Chinese leaders at that time. Politically, the Chinese leaders appreciated, more than ever before, a stable and peaceful international environment after their initial economic reform started to show progress. Consequently, the Chinese leaders were willing to modify China's image so that it could become a "cooperative" member of the international community, and applying to rejoin GATT and voluntarily being bound by the "international norms" of GATT were the best posture. Economically, becoming a contracting member of GA TT would help the Chinese leaders to facilitate the domestic economic reform 67 and make it irreversible. Furthermore, after several years of indirect contacts with GATT, especially with China's experience as a MF A member in the early 1980s, the Chinese leaders also believed that China could benefit from multilateralism. Internationally The overall resumption of contact between China and the outside world started in 1971. Dr. Henry Kissinger's October 1971 visit to Beijing represented the breakthrough of the Sino-U.S. relations and ended the tension between the two countries since the Korean War. In exchange for China's assistance to counterbalance the Soviet Union, the U.S. supported China's intention to return to the international community. Accordingly, the UN voted to seat the PRC in October 1971. Also with tacit permission from the U.S., China acceded to the IMF and the World Bank in the spring and the summer of 1980 respectively, a year after China applied for membership. Due to the withdrawal of its seat in the UN, the contracting parties of GATT also agreed that Taiwan should no longer have the observer status. With this decision, GA TT in effect invited China to initiate direct contact, but the Chinese government did not act upon this opening. 93 Beijing's response did not surprise anyone either. Unlike returning to the UN, a symbol of being recognized as a sovereign and 93 Editorial, Beijing Review, November 5,1971 68 independent country by the international community, joining the keystone international economic organizations 94 (KIEOs) needed domestic support. On the other hand, China was still in the middle of its Cultural Revolution at the time with no political will to take such an action for ideological reasons. In 1971, China's total trade amount was $4.8 billion, accounting for only 0.175% of the total world trade. Trade was not an indispensable component of China's national economy either, but was just a mean to earn some foreign exchange. As a result, it was premature for China to join GATT both ideologically and practically. 95 China's application to join the World Bank and the IMF in 1979 showed its willingness to return to international organizations; however, China neglected to apply for GATT, one of the three components of the KIEOs, at the same time and waited until 1986. The reasons for this action must be sought on both the domestic and the international levels. The hesitation to apply for GATT after China won its membership in the World Bank and the IMF could be understood after analysis. Technically, the designed functions of GATT, the IMF and the World Bank are different. Additionally, the prices China had to pay for the 'entrance ticket' also varied. Participating in the IMF and the World Bank gave China access to advice and funds, and the requirements for China's entry were both clear and relatively limited. First, China had to release data that previously had been held secret, and second, China had to provide the necessary 94 Jacobson and Oksenberg define IMF, World Bank and GATT as KIEOs, in Harold Jacobson and Michel Oksenberg, China's Participation into the IMF, World Bank and GATT, (Ann Arbor: University of Michigan Press, 1990) 95 Long Yongtu, "Speech at Central Party School on September 18, 1992", Selective Speeches at Central Party School( Zhongyang Dangxiao Baogao Xuan), 1992, P.12 69 reserves for the increased quotas it sought after in the IMF and for any increases that there might be in its subscription to the IMF. The extent of the IMF' s conditionality would depend on how much of the Fund's resources Beijing chose to use. Thus it would be to a large extent under Beijing's control. Compared to joining the IMF and the World Bank, getting into GA TT required China's full-scale reforms and the determination to embrace the market economy. Consequently, it was obvious that China was not ready to apply to GA TT in 1980. As one trade official in MOFTEC made it clear "back then, market economy was an area no one dared to touch. We knew we missed a good opportunity to get into GATT, but what could we do? The overall political environment was like that. GATT was 'the capitalists' club' and 'the rich men's club'. I have to say, no one in China really understood how GATT ran then and they just assumed that it was bad and not suitable for China." 96 Why apply? Internationally, Beijing enjoyed a better international setting than ever before in the mid 1980s. The 'honey-moon' established between Washington and Beijing in the 1970s continued and strengthened, especially during the Reagan administration when the U.S.-Soviet 'Cold War' reached an unprecedented level. Furthermore, due to the fact that China was among the first socialist countries that conducted the open-door policy and the pro-market economic reform, China was seen as a role model for the 96 Interview on August 20, 2001 with a high-level trade official in MFOTEC, who was directly involved in China's early contact with GATT back in early 1980s. 70 Soviet Union and the other East European countries by the West. With its limited trade volume (accounted for only 1.32% of the total world trade in 1986) and its high trade deficit, China did not have serious bilateral trade dispute with the West (For the same reason, Chinese officials did not realize the importance of GATT 's dispute settlement mechanism either). Moreover, China was not worried or bothered by the U.S.'s annual examination of China's MFN status (it became an issue only after 1989). Meanwhile, China did not face such pressure to liberalize its trade regime from the tendency of globalization either, as it did in the 1990s. Consequently, the decision to rejoin GATT appeared to be based on its domestic calculation, rather than the international pressures. The voluntary decision of the Chinese leaders to bind China under the international rules echoed with the scholarly findings that China's opening up in the late 1970s was not driven by external influences but was the result of the domestic factional struggles and the political logic of the Chinese institutions. 97 Domestically, the turning point for China was the Third Plenary Session of the Eleventh Central Committee of the Chinese Communist Party in December 1978, when the major steps were taken to move forward with the economic reform, to radically change the agricultural sector, to introduce market influences through the personal responsibility system, to open up China's economy to the world, and to work decisively to expand exports and foreign exchange earnings. Of course, the fact 97 Susan Shirk, How China Opened its Door: The Political Success of the PR C's Foreign Trade and Investment Reforms, (Washington, D.C.: The Brookings Institutions, 1994), p. 6 71 that Deng Xiaoping came into power to replace Mao's legal successor Hua Guofeng made these changes possible. Deng decided to completely give up Mao's 'Leftist' route and chose to unite the 'Rightist' faction inside the CCP. T bl 3 1 PRC I dE 1978 1989 c B"ll" fU S D 11 a e - mports an xports, - m 1 ions o .. o ars Year Total Exports Imports Trade Surplus/deficit 1978 20.64 9.75 10.89 -1.14 1979 29.33 13.66 15.67 -2.01 1980 38.14 18.12 20.02 -1.90 1981 44.03 22.01 22.02 -0.01 1982 41.61 22.32 19.29 +3.03 1983 43.62 22.23 21.39 +0.84 1984 53.55 26.14 27.41 -1.27 1985 69.60 27.35 42.25 -14.90 1986 73.85 30.94 42.90 -11.96 1987 82.65 39.44 43.22 -3.78 1988 102.79 47.52 55.28 -7.76 1989 111.68 52.54 59.14 -6.60 Source: State Statistical Bureau of the People's Republic of China, China Statistical Yearbook, 1993 (Beijing: China Statistical Information and Consultancy Service Center, 1993), P. 633 Though the first phase of the economic reform (1979-mid 1980s) was very successful in the countryside for the agricultural sector, the economic reform did not progress significantly in the cities in the manufacturing and the foreign trade sectors. 98 Specifically, although the amount of export and import increased significantly due to the overall economic development, the decisions to import goods (amounts and types) were still made through central planning, and only a few state- owned trading companies had the trading rights. 98 For a detailed description of economic reform during this stage, see Susan Shirk, How China Opened its Door: The Political Success of the PRC's Foreign Trade and Investment Reforms, (Washington, D.C.: The Brookings Institutions, 1994). 72 'The Decision of the Central Committee of the Communist Party of China on Reform of the Economic Structure' passed on 20 October 1984 suggested that overly centralized planning had been responsible for stagnation in the economy, and that industrial invigoration required greater responsibility to be vested in individual enterprises represented another policy breakthrough. In principle, the aspects of the planned economy truly averse to the domestic function of comparative advantage seemed to have been removed. Enterprise decisions were no longer to be determined by the contents of the central plan, but by concerns of market demand and ultimately, profit. The price system was no longer to be arbitrary but was to be determined by 'economic criteria' of supply and demand. 99 Finally the party started to admit the merits of the market to some degree, though still insisting the essential role of central planning for economic stability and development. Liberalization was intended to be gradual. Moreover, the economy was neither to be entirely subject to market forces nor was to be 'capitalist' in the ownership of the means ofproduction. 100 The introduction of a price system reform was the precondition for China's application to GATT since prices did not necessarily reflect market values under the planned economy. 99 Selected Important Documents by Party and Government since the Third Plenary Session of the Eleventh Central Committee of CCP, 1978-1992; (Shi Yi Jie San Zhong Quan Hui Yi Lai Dang He Guo Jia Zhong Ya Wen Xian Xuan Bian, 1978-1992) (Beijing: Central Party School Press, 1998) f& 1 1 4 b 2 · -d 164 h d.f'&" b · 1. d · 1 . f: d. d 1 , t e 1 ierence etween socia 1st an capita 1st economy, as ar as a commo 1ty economy an the law of value are concerned, lies not in whether these are still functioning, but in the difference in ownership, in the different purpose of production. 73 Two contradictory domestic political phenomena coexisted in China in the 1980s. On the one hand, the factional struggles between the conservative hard-liners and the reformists in the party never stopped and neither side enjoyed absolute or lasting victory. Chinese economists were among the first to recognize the existence of a recurrent pattern ofreform and retrenchment. 101 Elaborating upon the concept of cyclical flux, the Chinese Communist theoretician Deng Liqun posited the existence of a biennial relaxation/contraction cycle spanning the ten years from 1978 to 1987 (see following chart) in early 1987. This unique character of the Chinese economic reform process has been identified and analyzed in detail by China specialists in the U.S. as well. 102 The implication of this model goes far beyond the economic arena to imply domestic politics. 'Burying Mao' (Richard Baum, 1994) is a comprehensive study of the Chinese domestic factional struggles and compromises between the reformists and the conservative hard-liners in the 1980s and the early 1990s based on this model. Viewing through this model, the severe degree of factional struggles is apparent. As the leader of China at the time, Deng had to compromise with other old conservative cadres, represented by Chen Yun, in his policy-making. 101 Caiwu Yu Kuaiji (Property and accounting), January 20, 1982, cited in Susan L. Shirk, " The Political Economy of Chinese Industrial Reform", in Victor nee and David Stark, eds., Remaking the Economic Institutions of Socialism: China and Eastern Europe (Stanford: Stanford University Press, 1989): 328-64, p.331 102 For variation on the theme of reform cycles in post-Mao China, see Harry Harding, China's Second Revolution: Reform after Mao, (Washington, D.C.: The Brookings Institution, 1987), Chapter 4; Lowell Dittmer, "Patterns of Elite Strife and Succession in Chinese Politics", The China Quarterly 123 (September 1990): 405-30. 74 J Table 3- 2 Deng Liqun's Ten-Year Cyclical Model Year/Phase Key Events 1st round: 1978 - 1979 1978 (fang) 1979 (shou) 2"d Round: 1980 - 1981 1981 (fang) 1982 (shou) 3rd Round: 1982 - 1983 1983 (fang) 1983 (shou) 4th Round: 1984 - 1985 1984 (fang) 1985 (shou) 5th Round: 1986 - 1987 1986 (fang) 1987 (shou) 6th Round: 1988 - 1989 1988 (fang) 1989 (shou) 'Criterion of truth' debate Democracy Wall Third Plenum of Eleventh Central Committee Wei Jingsheng arrested Four cardinal principles Gengshen reforms Local elections Economic readjustment Baihua criticized Constitution revised 'Humanism' and 'alienation' debated Anti-spiritual pollution campaign Urban reform and 'open cities' Cultural and artistic freedom Economic retrenchment Critique of bourgeois liberalization Revival of Gengshen reform Student demonstration Hu Yaobang dismissed Campaign against 'bourgeois liberalization' Neo-authoritarianism (late 1987) Administrative reform Economic reform frozen (late 1988) Tiananmen crackdown Source: Ruan Ming, Deng Xiaoping diguo, pp.168-71, quoted in Richard Baum, Burying Mao: Chinese Politics in the Age of Deng Xiaoping, (Princeton, N.J.: Princeton University Press, 1994), p.6 On the other hand, the 1980s, especially from 1985 to 1988, represented the period that China enjoyed an unprecedented level of political freedom and liberalization. Political reform was first raised after its feasibility had been seriously discussed among the elite. Speech freedom and intellectual freedom all reached the highest level ever. Many political science scholars, economists and college students began to 75 call on a western styled democracy. One convincing example was that almost all dissidents in China started their activities in that period, including Fang Lizhi and Wei Jingshen. To a large extent, the General Secretary of the Chinese Communist Central Committee, Hu Yaobang, and the Premier, Zhao Ziyang, were the key persons to push for greater political liberalization during this period. With the strong support of Deng Xiaopeng, Hu Yangbang stepped onto the position as the Central Committee Chairman at the Sixth Plenum in 1981 and Zhao Ziyang became the Premier around the same time. Due to harsh criticism from the conservative camp that Hu was too soft to deal with bourgeois liberalization movements, Hu was dismissed in 1987 and replaced by Zhao Ziyang. Unfortunately, Zhao ended his political career with the same fate as Hu, being dismissed in 1989 after expressing sympathy to the students in the Tiananmen Square. As both of them took the 'liberal' route, however, it was not surprising that they supported China's application to rejoin GATT. Based on the coexistence of the above-mentioned two contradictory political phenomena, the pro-reform leaders were interested in the GATT membership in the early 1980s to reinforce the 'open door' policy, to weaken the conservative hard liners' faction and to consolidate their own legitimacy. After all, one saw no factional struggle over the 'planned economy' versus the 'market economy' or the socialist spiritual construction versus the bourgeois liberation in the 1990s, with the deepening of the economic reform and the retirement of almost all of the old cadres 76 with revolutionary background, although one continued to see severe conflicts between radical liberalists and protectionists who wanted to protect their legacies from the old era. As some trade officials recalled, Chinese Premier Zhao Ziyang played the key role to make the decision that China should rejoin GATT. His chief economic policy advisor, economist Wang Jian, advocated to him the theory of international economic cycling. Wang made Zhao believe that the best development pattern for China was to adopt the processing trade policy. The beneficial cycle, by increasing import of raw materials and export of processed goods, required the opening of both the domestic and the international markets. Zhao agreed and approved the report from MOFERT that suggested China should start thinking about its GATT membership early in 1982. 103 On 10 January 1986, Zhao invited the director ofGATT, Sir Arthur Dunkel, to visit China. During the meeting, Zhao informed Dunkel that China was going to formally apply to rejoin GATT. Zhao also assured Dunkel that a planned commodity economy, the intended goal of China's economic reform, could be integrated into the market-orientated GATT without been damaged. In addition, re-entry was in line with China's open-door policy under which the government aimed to boost development by fostering foreign trade and investment. 104 103 Interviews, Beijing, January 2000 104 David Dodwell, "Chinese to apply for membership of GATT", Financial Times, January 13, 1986, p. 1. 77 The above section attempts to answer the question of why China wanted to apply GATT, while the following section explores why Beijing made the decision to apply to GATT in July 1986. In addition to Beijing's reconsideration of GATT as an important international organization, the trigger was that Beijing did not want to be left out of the Uruguay Round Negotiation. On 3 December 1982, the Chinese state council formally approved the MOFTEC report to apply to rejoin GATT. In August 1983, a seven-person study group comprised of members from the MOFTEC, the Ministry of Foreign Affairs and the General Custom Administration spent two weeks in Pakistan, Hungary and Yugoslavia. The mission of the group was to investigate the trade regimes and the changes these states were required to make after becoming GATT members. Upon returning to China, the group reached the conclusion that those countries' economies had not been hurt by their GATT memberships. 105 Additionally, China started its contact with GATT in 1980. The Beijing government had objectively reevaluated the importance of GATT to China. Although still with some biases ofGATT being seen as 'the Rich's Club', the Beijing government started to admit that developing countries could also benefit from being GATT members. In the early 1980s, the Chinese leaders began to realize two facts. First, 85% of the world trade was conducted among GATT members. Second, 85% of China's total trade was conducted between China and GA TT members. The understanding on the two '85%' was progress. "These two 85% made many of our comrades believe that no matter what, we could not ignore the existence of GA TT as 105 Interviews with one member of the delegation in Beijing, summer 2001. 78 an important international organization", said by Shen Jueren, China's first head delegate to Geneva and the former vice minister ofMOFTEC. 106 The essential change came from China's experience with MF A. Starting in 1980, China regularly sent its officials to participate in the commercial policy courses conducted by GA TT. In July 1981, China requested and received authorization to be an observer at a GATT meeting dealing with the renewal of the Multifibre Arrangement (MF A), which set the rules for textile trade. "We were not familiar with how GA TT was run. So after careful discussion, we decided to participate in 'MF A'. Our original thinking was that we would try one industry first, if we failed, only one industry would be affected. Picking up the textile industry was based on the very realistic consideration --- our main export products then were textile and agricultural products." 107 In December 1983, China applied for the membership in GA TT' s MF A, and its application was accepted immediately. In January 1984, China signed MFA in regards to international trade in textiles. In November 1984, China became an observer and was allowed to participate in GATT meetings. The Chinese leaders decided to participate in MF A because they wanted the assurance that the arrangement of MF A would provide the growing Chinese textile exports access to markets in industrialized countries. The MF A experience turned out to be very successful and useful. "In fact, MF A was designed to restrict export of textile 106 Shen Jueren, "Interviews with China's chief negotiators", Qiaobao Zhoumo, September 23, 2001, p Al2. 107 Li Zhongzhou, former director of Department of International Cooperation, MOFTEC, which has been in charge of international negotiations; "Interviews to Li Zhongzhou", Cankao Xiaoxi, August 30, 2001, P.9 79 from developing countries through quota. It violated the general principle of GATT. But the agreement assured China an annual quota increase of 6%. At the beginning, China's textile export was$ 6.6 billion; it increased to $18 billion. In addition, being a member of MFA helped China in its bilateral trade disputes. For example, the U.S. and China negotiated their second textile agreement in 1982. Although the Chinese textile exports accounted for only 6% of the total textile imports of the U.S., the U.S. domestic textile industry was worried about the competition of cheap Chinese textile products. The senators from North and South Carolina pressed the White House to limit the annual quota increase for Chinese textile products to 1 %. After the two sides failed to reach agreement, Washington unilaterally raised the restriction toward 30 Chinese textile products in 1983. At the time, Chinese textile exports to the U.S. accounted for over 1/3 of the total Chinese exports to the U.S. Under the pressure, China had to make concessions in its bilateral negotiation with the U.S. since China did not have much leverage at hand. On the contrary, when the same happened again in September 1984, GATT Textile Surveillance body examined the case and concluded in favor of China. The U.S. was urged to cancel the new restrictions imposed to the Chinese textile export. 108 "This was a live lesson to show the importance to participate in GATT. This comparison helped many of us to believe that as a developing country, we can also benefit from GATT." 109 108 Interviews in Beijing, summer 1999, with Liu Guangxi, who participated in China's GATT negotiation from 1988 to 1997, then he was the secretary of Long Yongtu, chief negotiator and vice minister of MOFTEC. 109 Li Zhongzhou, former director of Department of International Cooperation, MOFTEC, who has been in charge of international negotiations; "Interviews to Li Zhongzhou", Cankao Xiaoxi, August 30, 2001, P.9 80 Before the Uruguay Round of Negotiation officially began in September 1986, Beijing correctly recognized that the negotiation might create the most comprehensive and complicated trade liberalization agreement ever. Beijing also noticed that a group of developing countries joined GATT during this period, including Mexico. As a result, some trade officials at the Ministry of Foreign Economic Relations and Trade (MOFERT) concluded that it was a good time for China to apply to rejoin GATT. The ideal outcome they planned was that China could rush into GATT just like some other developing countries did. If not, China could at least participate in the Uruguay Round of Negotiation together with other GATT contracting members and 'graduate' when the negotiation was concluded. 110 GA TT General Council allowed China to participate the Uruguay Round of Negotiation from the very beginning. More than one Chinese trade officials revealed in the interviews that Beijing appreciated the decision and expected that the participation would help China's bid to rejoin GATT. As a result, China officially submitted its application on 11 July 1986. 110 Interview with a MOFTEC trade official, August 2001. 81 3.2: Major Parties' opening positions China China's initial position was straightforward. China had three principles. First, China insisted on resuming China's original GATT contracting party status instead of acceding as a new member. Second, China chose to access through normal means -- tariff reduction, rather than through the special treatment for the planned economy -- import quotas. In other words, China wanted to become a full-fledged member of the world commercial community. Third, China wanted to assure its developing country status in GA TT. In regards to the first principle, the PRC government felt compelled, legally as well as politically, to take the position in order to denounce the validity of China's withdrawal from GATT in 1950 by the Taiwan government. This position was accorded to Beijing's One-China policy. However, Beijing had never been too optimistic to believe that they could get in without paying for the 'entrance ticket'. Although Chinese officials emphasized resumption or restoration of China's membership in public, they knew they had to go through a very serious negotiation process. 82 Indeed, China's claim invoked controversy among legal scholars as well as GATT contracting parties. For countries like Australia, Japan and the United States, the difficulties had to do with matters of domestic law. If China resumed its membership in GA TT, the legal status of certain actions taken in the interim in each of these countries would be problematic. For example, it would be impossible for other contracting parties to invoke Article XXXV, the non-application clause, against China with regard to the MFN treatment if they were not satisfied with the term of China's resumption. In addition, this claim would strengthen China's bargaining position by enabling China to ask for the grandfather rights that GATT original members received. This 'resumption' problem raised by Beijing was not only unprecedented but also invoked legal controversy. Some legal experts argued that the PRC had confused the question of government representation with the question of treaty application. They did not follow the above-mentioned logic ofBeijing. 111 Finally the dilemma was solved when all sides reached the understanding that the resumption would serve as a legal formality only: the PRC would not inherit any right or obligation from its original contracting party status. 112 Second, China chose to access through normal means --- tariff reduction, rather than the special treatment for the planned economy --- import quotas. China preferred to 111 For a broad analysis of various legal issues raised by China's request, see Robert Herzstein, "China and the GATT: Legal and Policy issues raised by China's Participation in the GATT," Law and Policy in International Business 18(2): 371-415, 1986. Ya Qin, "China and GATT: Accession instead of Resumption'', Journal of International Trade, 27(2): 77-98, April 1993; Wenguo Cai, "China's GATT Membership: Selected Legal and Political Issues", Journal of World Trade 26 ( 1 ): 35-61 February 1992 112 See GA TT Doc.L/6 l 9/Rev:2, 26 April 1988 83 make tariff concessions since the commitment to increase the quantities of imports would run contrary to the thrust of China's economic reform program that emphasized decentralization and market forces. Politically China did not want to fall into the 'second class' by accepting discriminatory arrangements either, just as one Chinese trade official argued: "The acceptance of a discriminatory clause will prevent China from benefiting from international division of labor, and consequently serve to frustrate the adjustment process by diverting Chinese exports away from h d h . h . d " 113 t ose pro ucts w ere zt as a comparative a vantage. However, many GATT contracting members believed that the traditional obligations of GATT membership, such as reduction of tariffs and elimination of non-tariff barriers to imports, did not have much relevance to a country with a planned- economy whose import levels and import prices were determined by state directives. Moreover, GA TT members recognized that quantitative commitment would not result in fundamental changes ensuring market access. 114 Furthermore, the EC and the U.S. were concerned on how China's trading partners would be protected from unfair practices. International rules allowing retaliation against dumped or subsidized imports have little meaning when applied to an economy in which production costs depended upon prices arbitrarily established by government directives. 115 As a result, 113 Unnamed source, quoted in David Schlesinger, 'GATT: the membership maze', China Reporter 11(1987), published by Far Eastern Economic Review 114 Feng Yushu, "China's Tango with GATT", Journal of Commerce, 13 August 1987, p.8A. 115 William Dullforce, "US and EC Stress GATT Problems for China", Financial Times, 24 February, 1988, p.4 84 the compromising outcome each side could accept seemed to be that China followed tariff reduction procedures but agreed to accept extra protective measures. With the nature of the Chinese economy in 1986, this was not a difficult requirement for Beijing. Third, China wanted to assure its developing country status in GATT. It was the key for China's successful application because many difficulties imposed by China's semi-planned economy could be mitigated were China accorded the developing country status. 116 Article 18 of GATT allowed developing countries to protect 'infant' industries, impose import restrictions for balance of payment reasons with little international scrutiny and provide government financial assistance to industries for general developmental purposes. Part IV of GATT established the principle that the developed countries should not expect complete reciprocity from developing countries in negotiating reductions of tariffs or other barriers to trade. In 1979, the contracting parties decided that developing countries could be accorded preferential treatment without violating GATT's strictures against discrimination, thus legitimizing the GSP (Generalized System of Preference) program the preferential treatment to developing countries. 116 Wang Yaotian, "Guanyu woguo yu guanmao zongxieding youguan wenti de wenda", (The questions and answers on China and GATT), Guoji Maoyi (International Trade: 27-30), no.8, 1987, p28 85 Although some GA TT contracting parties were concerned about the shortcut that China could take toward its GATT membership, they did not oppose it partly because of the level of the development of China in the mid 1980s, with its GNP per capita less than $400 that ranked 8?1h in the world. Beijing also provided strong legal evidence. First, the second point of the U.S./China 1979 bilateral trade agreement explicitly stated that: 'due to China's current economic development level, the United States admits that China is a developing country'. Second, more than 20 developed countries had granted China developing country status and GSP treatment. Third, China joined GATT's Multifibre Agreement (MFA) as a developing country. Finally, the international organizations such as the UN, the World Bank and the Asian Development Bank all regarded China as a developing country. Furthermore, Chinese scholars pointed out that China's foreign trade bore the common characteristics and structure of that of developing countries. 117 For example, China's international balance of payment was vulnerable structurally. One half of China's export income was from the export of petroleum and textile goods. The uncertainty of petroleum export and the restrictions on textile goods made China's exports and overall balance of payment unstable and unpredictable. In addition, at the beginning stage of industrialization, similar to other developing countries, China needed to import a great deal of machinery and equipment, which led to a high trade deficit. Although China's developing country status became a contentious issue at the later 117 Xu Haining ({~#lj:'J-~), 'woguo huifu guanmao zongxieding diyueguo diwei de rumen xuanze'( China's choices regarding to the resumption of its seat at GATT), 'Guoji Maoyi' (International Trade:16-18), no.3, 1987, Pp16-17 86 stage of the negotiation, China took it for granted at this stage. On the other hand, major GATT contracting parties also had no objection and left this issue for further negotiation. U.S. The U.S. welcomed China's application. Politically, the U.S. was eager to pull China into this trade multilateralism led by the West. Mr. Clayton Yeutter, USTR, said his country was 'interested in having this major partner' immediately after China submitted the application. 118 Based on its financial contribution to the organization, its voting strength, and the size of its market in the world economy, the U.S. was the absolute leading state to negotiate the terms with China. Compared to the EC, the U.S. paid more attention to the general picture of the Chinese economic reform, raising questions about the speed and the effectiveness of the reform, the transparency of its trade regime, and the need for a sound legal system. International rules allowing retaliation against dumped or subsidized imports had little meaning when applied to an economy in which production costs depended upon prices arbitrarily established by government directives. The U.S. had special procedures governing anti-dumping and anti-subsidy claims against non-market economies, which involved the U.S. calculations of what the market prices would be in the home country were it to have a free market. China would have to agree to accept such a 118 Robert Thomson, "China hints at tariff cuts to ease GATT entry", Financial Times, I 0 July I 986, p.7 87 procedure until market forces assume a larger role in its economy. When USTR Clayton Yeutter conducted the bilateral talks with the Chinese negotiators in Beijing on 1 February 1988, he emphasized that Chinamust change significantly the functioning of its economy before China could rejoin GATT. The puzzle to GATT contracting parties was that of what responsibility China had to assume. EC The EC also welcomed China's application. The EC's major concern was to protect its own market from the possible damage imposed by China's dumping. Mr. Roderick Abbot claimed that the EC 'saw immeasurable potential' for China to increase exports at prices that were not related to those of world markets. "The EC needed to feel sure that they could defend themselves against injuries that could result from such elements in the Chinese system." 119 Consequently, the EC retained its framework of its existing import regulations relating to China. These regulations established precisely quantitative limits for all categories of China's exports to the members of the EC. 119 William Dullforce, "US and EC Stress GATT Problems for China'', Financial Times, February 24, 1988,P.4 88 Developing Countries Developing countries were relatively passive in the GATT working party as well as in the bilateral contacts, even though many of China's exports competed directly against theirs. Developing country representatives in Geneva had considered China's full participation in GATT as inevitable, and they lacked the bureaucratic support to seriously investigate China's trading practice. 120 More importantly, with the nature of GA TT, developing countries could be free riders. They knew developed countries would negotiate hard to pry open China's market. In addition, there had always been a subtle norm of 'third world solidarity' that none of the developing countries wanted to break in public. From Beijing's perspective, keeping close ties with the developing countries had always been the focus of China's foreign policy, especially during Mao's era, when China made great efforts to help many of the developing countries out of political and ideological reasons. Although China modified its foreign policy emphasis from 'world revolution' and 'leader of the third world' to internal economic development, the legacy of the past several decades would continue. Developing countries had been the major force in helping Beijing internationally, especially on assisting the PRC to gain its seat in the UN, on defending Beijing at the UN Human Rights Meetings, and on forestalling Taiwan from its endeavor to go back to the international community. Long Y ougtu once said in the Central Party School: "our so many years' diplomatic efforts were in vain if 120 Harold Jacobson and Michel Oksenberg, China's Participation into the IMF, World Bank and GATT, (Ann Arbor: University of Michigan Press, 1990), P. 96 89 we could not gain full support from 'third world' countries". As a result, developing countries chose to not to stand against China in its GATT application despite the fact that their own economic interests were at stake this time. Some of China's allies, including Pakistan, Cuba, and the Philippines even welcomed China's application from the beginning. Furthermore, it was also logical for developing countries to take into consideration that, once becoming a member, China, as an important political power, could take the lead to represent the interests of the developing countries to counterbalance the influence of the developed countries in general. 121 3.3 The initial negotiations Memorandum on Chinese Foreign Trade Regime Beijing submitted a 300-page memorandum on its foreign trade regime to GATT General Council in February 1987. The drafting of the memorandum was a difficult job for the Beijing officials because none of them knew technically what the format of a formal memorandum was or politically how the Chinese trade regime should be conceptualized. MOFTEC was in charge of drafting the memorandum with the help from the General Custom Administration and the Ministry of Foreign Affairs. The first draft of the memorandum was in Chinese, which went through many rounds of revisions. The Chinese received advice from the Australian trade officials on how 121 Interview in Beijing with trade official at MOFTEC, who participated China's GATT accession negotiation in late 1980s and early 1990s. Summer, 1999 90 best to frame the application, as Australia was among the countries that hoped China's entry would shift power away from the present U.S.-EC axis. 122 Beijing also showed one draft of the memorandum to the U.S. diplomats in Beijing and asked for comments before Beijing submitted it to Geneva. 123 The action not only served Beijing to better prepare its application, but also engaged the U.S. in a smart way. First, Beijing emphasized the areas where they had made progress and they thought could reinforce their negotiation position in the memorandum. Beijing explicitly claimed that the goal of China's comprehensive economic reform since 1979 was to establish a planned commodity economy with Chinese characteristics. The Beijing government named it the 'socialist planned commodity economy' in all its party and government official documents, but Beijing intentionally omitted the adj. 'socialist' in the application, the highlighted the advantage of the combination of' government planning' and 'market forces' to make it attractive to the West. Secondly, the memorandum summarized the ongoing economic reform. The economic reform started from the countryside. At the time of the application, 98% of the rural areas had implemented the household contract system and the living standard of peasants had dramatically improved. The next phase of the economic reform was to establish a series of special economic zones in the coastal areas. Those 122 Robert Thomson, "China hints at tariff cuts to ease GA TT entry", Financial Times, July 10, 1986, P.7 123 Harold Jacobson and Michel Oksenberg, China's participation in the IMF, the World Bank, and GATT, ( Ann Arbor: University of Michigan Press, 1990), p.98 91 coastal areas would become the frontline of China's economic reform --- enjoying special policies, flexible management and preferential tax treatment. At the time of the application, China had established four special economic zones, 14 open cities and the Hainan special administration district, affecting approximately 130 million in population. The economic reform stimulated the foreign trade, which reached $69.6 billion in 1985, 84.1 % more than that in 1980. Compared to 1980, exports increased by 49.8% and imports increased by 116.1 %. At the same time, the scale of China's trade was still very limited, only accounting for 1.42% of the total world trade. Furthermore, most export goods were textile and primary goods. On the other hand, China had a great need for certain raw materials, modem technology and machinery, and imports grew faster than exports, causing a widening trade deficit. In the end, China's trade structure was similar to that of other developing countries at the time. Thirdly, the memorandum introduced China's current trade regime and its direction for further reform. Encroaching upon MOFTEC's monopoly position (it used to conduct all foreign trade issues), provincial level governments and some large state owned enterprises were permitted to deal directly with foreign suppliers and customers. By 1986, China already had 800 state-owned trading companies as agents for manufacturers compared to a dozen before 1979. However, government planning and regulation still tightly controlled the types and the amounts of goods those companies could export or import. 92 Finally, the memorandum reported the basic principles to determine custom tariffs: 1) granting zero or very low tariffs to those goods China could not produce or could not produce enough to meet domestic demand; 2) granting lower tariffs on raw materials than on semi-processed products or processed products; 3) granting lower tariffs on machinery parts than on machines; 4) granting high tariffs to those products that China itself was able to produce; 5) granting extremely high tariffs to those products competing against domestic 'infant' industries; 6) levying no export tariffs on most export goods. On the issues, the first was China's import license system. The State Council issued the "Temporary Regulation on PRC's Import License System" in 1984. It became an important tactic for the government to manage imports under the consideration to 'spend limited foreign exchange on the most needed products of national economic development'. After 1 January 1987, China listed 42 kinds of products under import license system, and the amount of the import goods applicable to important license comprised about 1/3 of the total. Import licenses were issued only by MOFTEC. On the export side, 212 kinds of export goods were required to have export license after 1 January 1987. Among those products, the license to export about 30 kinds of goods could be issued by MOFTEC, 42 by MOFTEC subsidiaries, and the remaining 140 kinds could be issued by authorized provincial level trade administration. 93 The second issue was the price setting of China's export and import goods. After the reform, trading companies set prices for most import goods. For example, trading companies set prices for 70% of the import goods in 1985. To limit the import of goods that were important to national economic development, such as steel, fertilizer and grains, the state was in charge of setting domestic prices and distribution for those goods. With the deepening of the trade regime reform, however, price setting of import goods would become less and less. For export goods, prices were set based on the considerations of the domestic costs producing the goods and the international market prices of the goods. Trading companies would charge a certain agent fee for importing and exporting products that they conducted for the enterprises. The last issue was China's foreign exchange control system. As a developing country, China needed a large amount of foreign exchange to help its modernization. Consequently, it was necessary for China to implement a central and unified management of its foreign exchange. The Chinese currency, RMB, was not a freely converted currency. Its exchange rate was decided and issued by the National Foreign Exchange Control Administration. On 1 January 1985, China cancelled the old method of internal account settlement for RMB versus foreign currencies. Instead, RMB started to have a single floating exchange rate based on such factors as China's foreign exchange reserve, trade balance and the changes of foreign currencies' exchange rates in the world market. From 1January1985 to July 5 1986, the exchange rate of RMB versus US dollar was adjusted from 2.79:1to3.70: 1: 94 RMB devalued 24.5% in accordance to the increase of the domestic price level and China's international payment deficit. Examination of China's Trade Regime by China Working Party The GATT council could not organize a China working party to examine China's trade regime until May 1987, three months after China submitted the 300-page memorandum. The delay was caused by the disagreement over the term of the reference --- resumption or accession as a new member. After the establishment of the working group, the contracting parties submitted written and oral questions based on their examination of China's memorandum on the trade regime. China then prepared written answers to these questions. The answers were circulated among the contracting parties before another session of the working group meeting. The first China working party session was held in February 1988. GA TT held three more sessions in the same year and two more in the first half of 1989. Meanwhile, China was asked to respond to more than 3,000 questions, a record in GATT's history. At the first glance, China's memorandum failed to answer many questions fully to the satisfaction of the China working party. 124 Under examination, the nature of China's semi-planned and semi-market transitional economy was to blame. In 1986, 124 Anthony Rowley, "Contemplating a China Trade-off', Far Eastern Economic Review, March 10, 1988,p. 78 95 the World Bank undertook a detailed study of the Chinese trade regime and the reforms of the domestic system. The study acknowledged a degree of rationalization among commodity prices, but found continued price distortions caused by bureaucratic allocation and price setting of the foreign exchange, and under-pricing of raw materials and financial capital. 125 In short, the GATT contracting members could not understand how China's trade regime worked. Even worse, some Chinese negotiators admitted they also had a hard time to making themselves understood. Consequently, the process became a process of 'mutual learning'. The Chinese application to GA TT made no claim that all market distortions were to be removed or that the Chinese government had rejected the need for economic planning. Indeed, the Chinese carefully described the goal of liberalization as the creation of a 'planned commodity economy', wherein indirect state control of enterprises was going to be maintained through 'utilizing such economic factors such as prices, interest rate, taxes and salary'. Therefore, it was a difficult task for the Chinese negotiators to justify the possibility that the 'planned commodity economy' could fit into the GA TT framework. The central issue raised in many of the questions was the concern on the progress and the goal of China's economic reform, the very subject that had frequently caused sharp divisions within China. Unfortunately, the Chinese negotiators could just 'repeat again and again what was written in China's government document' . 126 125 The World Bank, China: external Trade and Capital (Washington, D.C.: World Bank, 1988) 126 Interview in Summer 2000, with a participating official at Ministry of Foreign Affairs 96 The China working party needed to better understand numerous specific issues to know how China's trade regime operated, including the content of China's trade regulations, administrative, tariff and non-tariff trade barriers and China's export price setting mechanisms before it could have the information needed to develop specific requirements in the protocol so that other GA TT members could be protected. GATT permitted its members to seek redress by way of countervailing duties or other remedies if unfair export subsidizations were taking place or manufacturers were 'dumping' at below domestic prices. Without access to the full data on how China arrived at export prices, or the basis on which China might subsidize certain aspects of its export, GATT members would be unable to prove abuse unless they resorted to 'constructing' Chinese costs based on those from other countries. The question and the response process was very difficult for the Chinese negotiators since they did not have any experience with international negotiations, and were especially unfamiliar with the 'common language and terminology' used in GATT, indicated by one Chinese negotiator. For the first round of 487 questions, the Chinese negotiators had to consult with scholars and economists in Beijing to discuss what the right answers would be. The Chinese negotiators soon discovered that those scholars were not very helpful either since few people in China knew GATT procedures and GATT legal documentations well. For quite a while the Chinese negotiators could not decide whether they should answer the questions one by one or 97 they should answer them together. Finally the Chinese negotiators came up with a 'White book on China's Foreign Trade System', trying to answer the questions systematically. Unexpectedly, their answers created more questions from the GATT contracting members. As Mr. Li Zhongzhou, the former director of the Department of International Trade, MOFTEC, recalled, the single issue they faced at this stage was the concept of the 'planned commodity economy in China style'. "Since back then 'market economy' was still a 'forbidden area' that no one would dare to touch, so we wasted too much time on explaining the difference and similarities between China's economic system and market economy." 127 Questions most frequently asked focused on three areas: 1) the systemic friction between China's trade system and the GATT rules, such as state pricing, government planning and administrative measures to control imports and exports, licensing and government subsidies; 2) the transparency and the uniformity of implementation of laws and regulations; 3) the commitment on the direction of future trade regime reform. 128 Long Y ongtu, a delegate member who later became the chief negotiator on China's WTO accession negotiation, gave the following question as an example in many occasions on the relations between a party secretary and a manager in an enterprise. "Their logic was very simple. They thought manager was the representative of the market economy and party secretary was the representative of the planned economy, and then came the question of who would prevail. We always stressed the integration of both. Then 127 Li Zhongzhou, "The Memory of China's Accession Negotiation by a Member of China Delegate to Geneva in 1980s, former director of the Department oflnternational Trade, MOFTEC", Cankao Xiaoxi, August 30, 2001,P. 9 128 Xu Yu (if~~), Guanmao Zong Xieding yu zhongguo waimao tizhi gaige( the GA TT and the Reform of China's Foreign Trade System), (Hong Kong: Midstream Press, 1995) p.24 98 there was the question on how the party secretary and the manager coordinate? We did not know how to respond so we asked our comrades at the Systemic Reform Commission to go to Geneva, but they also did not make it clear." 129 Price was the other important issue many contracting members questioned about. GA TT rules are founded on the premise that members' economies respond to market signals --- especially prices. Problems are posed by non-market economies where prices are often fixed and trade is planned and administered by bureaucracies. As a result, the U.S. wanted China to give a specific timetable for its price reform. On the other hand, China's economic reform, at the time, according to Deng Xiaoping, was 'crossing the river by touching the stone' that meant that the reform was gradual and experimental. Beijing always claimed that the speed and the content of the reform were to be based on the domestic situation; Beijing would not agree to reform by external pressure. The consultation stage --- questions asked and answered --- took about eight months. On 27 September 1988, the fifth session of the China working party started the assessment of those consultations that ended in April 1989. The conclusion of the review stage did not mean that the GATT contracting parties were completely satisfied with the Memorandum and the following clarifications given by the Chinese negotiators. In fact, the contracting party listed 12 points of discrepancies between 129 Long Yongtu, "Speech at Central Party School on September 19,1992", Zhongyang Dangxiao Baogao Xuan (Central Party School Speech Collection), 1992, p. 15 99 r China's trade regime and the GATT rules and left them for further discussions at the protocol drafting stage. Protocol Drafting After April 1989, the China working party moved on to draft China's GATT accession protocol after the bilateral negotiations on the same subject had already started between the U.S. and China and the EU and China. China maintained that its 'open door' policy and its subsequent economic reforms meant that its trade regime was consistent with the GA TT rules, and therefore pressed for full GA TT membership. Shen Jueren, assistant minister of the Foreign Economic Relations, told the China working party examining Beijing's application: "China's economic reforms had introduced drastic changes in the past nine years and would eventually bring its trade structure in line with the GATT system." 130 This would rule out the caveats or reservations applied to the Eastern European members of GA TT, since there was consensus among GATT's 96 members that China should be readmitted. Rather, the emphasis was on designing a protocol that would ensure both GATT rules being able to be applied in non-market circumstances and the momentum of China's economic reform being maintained. 131 130 William Dullforce, "U.S. and EC Stress GATT Problems for China", Financial Times, February 24, 1988,p.4 131 "China's bargaining over GAIT membership", Far Eastern Economic Review, May 11, 1989, P.57 100 , The general request China had toward protocol was the following: As a developing country, China is entitled to the same treatment as other developing countries. At the same time, China is prepared to undertake obligations consistent with the level of its economic and trade development in accordance with the relevant GATT regulations and rules. 132 Specifically, Beijing wanted to achieve three goals --- MFN status from the U.S., GSP treatment from the U.S. and the elimination of the discriminatory quantity restrictions from the EC. 133 China asked for unconditional most-favored-nation treatment especially from the U.S. However, this requirement invoked complications. Since Section 402 of the U.S. Trade Act of 1974 granted only conditional MFN status to communist countries, the law violated the GATT's principle that every contracting member should have the right to receive MFN treatment from other contracting parties. The only solution was for the U.S. to apply for non-application. In fact, when Hungary and Romania joined GATT, the United States did exercise the opt-out rights in order to satisfy the requirement of the domestic legislation. China's request imposed a dilemma to the U.S. since the U.S. was the predominant negotiator on China's entry into GATT. Before the 1989 incident, the U.S. position was quite cooperative and practical. In regard to China's concern of receiving the unconditional MFN status from the U.S., the American 132 Editorial, 'China to regain GATT seat', Beijing Review, July 12, 1986, p.29 133 Wang Yaotian(ff% Eil) and Zhou hanmin (fifHJl~), Guanmao zong xieding zonglun (On General Agreement of Tariff and Trade), (Beijing: China Foreign Trade Press, 1992), p.253 101 negotiators specifically explained that such a request would require that Congress modify the Jackson-Vanek amendment, which was something that they could not promise would happen. However, if the protocol contained serious commitments from China, the American negotiators felt that the U.S. administration would be in a strong position to ask Congress to modify the Jackson-Vanek amendment, at least as it applied to China. 134 This was a quite reasonable answer and it was well accepted by Beijing. Another request China had toward the U.S. was to accord China the Generalized System of Preference (GSP). Since 1979, more than 20 developed countries (including EEC, Japan and Canada) had granted China developing country status and provided Chinese export goods GSP. The U.S. was the only exception. According to the U.S./China bilateral trade agreement, the U.S. offered China MFN, but no GSP. 135 According to the U.S.'s 1974 Trade Act, communist countries could enjoy this treatment only when they satisfied the following requirements: 1) the subject country was named as a developing country by the U.S. president; 2) the export goods of that country enjoyed non-discriminatory treatment; 3) the subject country is the contracting party of GATT; 4) the subject country is an IMF member; 5) that country is not controlled by international communism. Among them, the first condition should not become a problem since the U.S. granted China the developing 134 Harold Jacobson and Michel Oksenberg, China's Participation into the IMF, World Bank and GATT, (Ann Arbor, University of Michigan Press, 1990), P. 100 135 U.S. International Trade Commission, Pub. No. 1610, Tariff Schedules of the United States Annotated 4-5 (1985), (List of G.S.P. Beneficiary Countries) 102 country status in the 1979 bilateral trade agreement; China also met the second and fourth conditions given that the U.S. and China offered each other MFN status. In regard to the fifth condition, it was irrelevant to China because it was designed for those East European countries who traded within the 'Soviet bloc', while China had disconnected all political and economic relations with the Soviet Union due to their ideological difference in the 1960s. Therefore, the only obstacle for China to receive GSP was the third requirement, namely being a GATT member. However, some U.S. domestic industrial groups opposed the U.S. government offering China GSP with the fear that China might dump some sensitive industrial products in the U.S. market. Consequently, the best strategy was to question China's developing country status during China's GATT accession negotiations so that China could be prevented from receiving GSP from the U.S. At this stage, the U.S. negotiators expressed 'a president committed to free trade might be willing to disregard likely opposition from Congress and various interest groups in return for concessions by China.' 136 China's request China to the EC was to gradually eliminate its import quantity restrictions toward Chinese goods. At this stage, China had three rounds of bilateral negotiations with the EC. The bilateral negotiations were constructive, and substantial progress was made during the third meeting on 2 March 1989 when the EU made a written suggestion that if China accepted the Selective Safeguard, the EC 136 Harold Jacobson and Michel Oksenberg, China's Participation in the IMF, World Bank and GATT, (Ann Arbor: University of Michigan Press, 1990), P .100 103 would promise to seriously consider the gradual removal of the quantity restrictions over Chinese exports. 137 Beijing thought it was a breakthrough. During their fourth bilateral talks held in Washington, D.C. from 12-13 December 1988, the U.S. and China exchanged the drafts of the Protocol that had been prepared by each side. The U.S. included five requirements within the draft of Protocol it provided: 1) a requirement for China to continue the path of reform towards a market-oriented economy; 2) provisions on transparency (such as the publication of trade plans and revisions); 3) rules on the use of non-tariff measures; 4) special transitional arrangements to apply until the economy responds to market signals; and 5) a timetable for price reform. 138 Close to the deal On purely technical criteria, the protocol could be drafted and endorsed within a year. There was one practical deadline for China. The fact that the U.S. legislation giving the president negotiating authority would expire at the end of 1990 made a credible deadline for the Uruguay Round of Negotiation. So it was generally believed by GA TT contracting members that China would get its membership by then, especially after the U.S. and China concluded their fifth round of bilateral talks from 24 - 28 137 Ren Quan( 1f 7~), Zhongguo Jiaru Shimao Zuzhi Wenda( Questions and Answers on China's Entry into GATT/WTO),(Beijing: Modem World Press,1997), Pp.265-66. 138 Williamson, "The last lap'', Far Eastern Economic Review, May 11, 1989, p56; Ren Quan(1f7~), Zhongguo Jiaru Shimao Zuzhi Wenda( Questions and Answers on China's Entry into GATT/WTO),(Beijing: Modem World Press,1997), P.265 104 May 1989 in Beijing with a preliminary agreement setting the basis for China's entry into GA TT. It was the fruit of months of talks. Under this preliminary agreement, China agreed to conduct a single, unified national trade policy and to make it 'transparent' by publishing trade rules and statistics. China also agreed to sign existing GA TT codes, such as codes on import licensing and customs valuation. China further pledged to move to a 'priced-based' economy and in the interim to allow other GA TT countries to take unilateral trade actions if its exports prove disruptive. The U.S. officials believed that the agreement represented a major Chinese concession. China's admission to GATT appeared to be imminent with the agreement since only the exact language spelling out the agreement remained to be put in place. 139 The next scheduled working party meeting was on 10 July 1989, when the draft of the protocol would be discussed multilaterally. Unfortunately, it was put on hold due to the unexpected Tiananmen Square Incident that took place on 4 June 1989. 139 Richard Lawrence, 'China's political crackdown imperils its economic gains', Journal of Commerce, June 14, 1989, p.3A 105 3.4 The Domestic Preferences and Institutions U.S. First, before the end of the Cold War, China was more likely to gain support from the U.S. and win a 'political pass'. Within the bipolar world system, political and ideological considerations outweighed all other differences and conflicts such as ideological differences, human rights issues and economic disputes. Since the U.S. and China reached detente in 1972, the bilateral relationship was in honeymoon until 1989. During this period, as an important ally of the U.S. to counterbalance the Soviet Union, China quickly went back to international society with the help of the U.S. after two decades of isolation. Rejoining GATT was an important part of this effort after China successfully gained its seat in the UN, the World Bank and the IMF. China's image in GATT was favorable. To a large degree this was due to political considerations by the U.S., the EEC and Japan, but China's open door policy also helped. 140 The West believed that China's open door policy brought the 'truly revolutionary social and economic reforms' in China and 'the ultimate success of this undertaking by Deng Xiaoping is of historical significance and will have a major impact on the rest of the world and on the U.S.' 141 It was this perception that China was one step forward in its reform than the other socialist countries put China 140 William Dullforce, "Politics intervene to encourage discrimination in GATT", Financial Times, October 9, 1986, p.7 141 Alan D. Romberg, "New Stirrings in Asia", Foreign Affairs, 1985, p.515 106 in a very advantageous position in its GATT accession negotiation at this stage. It came with a straight contrast to the Soviet Union. The Soviet Union first wanted an observer status, but was unlikely to get even that. "Soviet lobbying has won but scant support among the 65 members of the GA TT council. America and the EEC are against. To them, accommodating China will be hard enough for GATT, for all Mr. Deng's changes". 142 Then the Soviet Union expressed their hope to participate in the new round of the negotiation, the overall response from the GA TT members was negative. To reflect Washington's initial reaction, the White House spokesman, Larry Speakes, said that Soviet participation would 'not provide any benefit to the GATT process.' Separately, a State Department analyst warned that the Soviets could seek to 'exploit the GATT and politicize it' . 143 Second, the ideological difference between the U.S. and China was not a major concern within the U.S. at this time. The softening position toward the ideological counterpart would not harm their efforts of domestic mobilization. Congress made no attempt to constrain the effort of the executive branch in its international negotiations or had any intention to get involved into such negotiations. As Beijing was treated as one of the political allies, Beijing was not the target for human rights violations, the arms sales, the Taiwan issue or the MFN renewal. 142 Editorial, "Clubland", Economist, March 29, 1986, P. 58 143 Clyde H. Farnsworth, "GATT expected to bar Soviet bid to join talks", New York times, August 26, 1986, P.12, 107 Third, in the mid and the late 1980s, the influence of GA TT was at its lowest point historically and was generally seen as 'eroding'. 'There is in many sectors of the United States --- in Congress, labor, and the electorate --- a basic perception that GATT is ineffective and of little or no benefits to the United States.' 144 The mushrooming of VERs (voluntary export restraints) and other non-tariff barriers to regulate trade outside of GATT was clear evidence that the perception was not groundless. Moreover, GATT was never intended to become an international organization. Fourth, the U.S. business groups did not have many interests at stake in its commercial relationship with China. China was at the first stage of its economic reform with limited trade. From Table 3-2 one can see that at the time Hong Kong was Beijing's biggest trading partner and Beijing had a large trade deficit with the EC, Japan and the U.S. With limited trade volume (it accounted for about 1.3% of world trade) and a sizable trade deficit, China had little trade conflicts with its trading partners. Apart from the trade, the FDI of the U.S. companies into China were limited too. Therefore, it was natural that there was little domestic opposition (bureaucratic politics, interest group lobbying or public media debates), or attention, within the U.S. on China's GATT accession negotiation at this stage. 144 Penelope Hartland-Thunberg, "China's modernization: a cha1lenge for the GATT", Washington Quarterly, 10(2), 1987, p.80 108 I ~ T bl 3 3 Ch. ' M . T d. 1987 b p f T a e - mas aJOf ra mg partners, ' y ercentage o ota China's Principal Trading partners, 1987, by Percentage of Total Export Import EC 9.9 16.8 Japan 16.2 23.3 United States 7.7 11.2 Hong Kong 34.9 19.5 Source: IMF, Direction of Trade Statistics Yearbook, 1988 (Washington, D.C.: IMF, 1988), Pg.136 Fifth, at this stage the negotiation was centered on the reform of the trade regime in China, a subject that the U.S. MNCs and exporters would welcome anyway. The less concern over the tariff cuts and the market access issues also invoked little enthusiasms from the U.S. MNCs and exporters. The Uruguay Round of Negotiation just started at the time when China applied for GATT. Consequently, China's obligation was limited to tariff and non-tariff reduction for goods. Other issues such as IPR, investment and services were irrelevant. Because of the nature of the Chinese economy and the lack of the intention by Beijing to change it at that time, the GATT contracting parties paid more attention on creating a series of preventive measures to ensure China's participation would not negatively affect multilateralism as well as the commercial interest of the contracting parties. Although Beijing formally invited GATT contracting members to start bilateral tariff reduction negotiations during the fifth session of the China working party on 27 September 1988, the major contracting parties had always believed that tariffs simply did not govern foreign trade in China and therefore regarded it as a less important issue. Both bilateral and multilateral negotiations at this stage focused on the general principles of the Chinese trade system. The nature of Chinese economy, namely semi-market and semi-planned, became the only single concern of the GATT contracting members, 109 especially the U.S. and the EC. Their concerns centered on five areas, including the transparency of the trade laws, a timetable for price reform, selective safeguard, and reduction of tariff and non-tariff barriers. The issues involved were relatively narrow and implicit in terms of content and scope and all pointed to China's trade systemic management but did not touch China's domestic economic or financial policies. With hindsight, the requirements from the GA TT contracting members were very basic, a result of their low negotiation objectives. China Apart from economic considerations, China's GATT application served as a 'political posture' of Beijing to be voluntarily bound by international rules. Beijing further decided to show its cooperation and flexibility in the negotiation. At this stage Beijing worked closely with Washington. This was a smart strategy to engage the U.S. Even before the first China working party was held, the U.S. and China had met three times while EC and China had only one bilateral talk to discuss China's accession issues. These arrangements set the tone that China's accession to GATT was a mixture of political and economic considerations, between which the political consideration prevailed. Beijing consulted the U.S. before it formally applied. Beijing also showed the draft of the Memorandum to the U.S. diplomats in Beijing 110 and asked for comments before it submitted it in Geneva. 145 During the period that the intensive multilateral negotiations were held, the bilateral talks also played the role to reinforce and lead the multilateral negotiations. For example, in the fourth round of the bilateral talks held from 12 - 13 December 1988, the U.S. and China each submitted their own draft of China's accession protocol. Since the China working party had not completed its assessment of China's trading system at this time, this bilateral move helped to send a strong signal to the multilateral arena. In addition, after the China working party completed its review on China's trade system in its seventh session started on 18 April 1989, the U.S. and China conducted their fifth round of bilateral talks a month later in Beijing in which the U.S. agreed to support China's entry into GATT before the end of 1989. This progress made Beijing as well as other GATT contracting members believe that Beijing's accession negotiation could be concluded soon. Furthermore, China chose to set realistic goals for its negotiation. China's opening position was very general and in a sense easy to be satisfied. For example, China's persistence to 'resume' its seat was acceptable by GATT contracting parties after China expressed it just wanted to 'resume' politically and was willing to negotiate the terms as a new member. China's insistence to get unconditional MFN, GSP treatments from the U.S. were related to the U.S. domestic legislations, so China did 145 Harold Jacobson and Michel Oksenberg, China's participation in the IMF, the World Bank, and GATT, (Ann Arbor: University of Michigan Press, 1990) P.98 111 not really expect it would be resolved right away. In fact, China never thought it would acquire the unconditional MFN status from the U.S. through its GA TT accession negotiation and what China expected was to gradually improve it within the multilateral framework after China became a GATT member. 146 As a result, the Chinese negotiators were satisfied when the American negotiators agreed to 'convince' the Congress with no obligation to guarantee the success. The Chinese application to GA TT made no claim that all market distortions were to be removed or that the Chinese government had rejected the need for economic planning. In short, all parties involved were practical on China's bid. To China, it was tolerable to agree on the Selective Safeguard and other special arrangements since it never denied the existence of the role of state planning in its national economy. At this stage, the Ministry of Foreign Affairs, MOFERT, and the General Administration of Custom were the only organizations inside China involved in the . negotiation. More importantly, the issues under negotiation were limited to the 'shallow' reform of foreign trade regime that did not touch the fundamental economic and financial policies. There was little conflict between the state interests and the ministerial interests since the subjects of the negotiations were irrelevant to most of the ministries. Those ministries did not face the danger of being deprived of their authorities or their economic interests by the concessions the Beijing 146 Long Yongtu, director of Department of International Trade and Cooperation, MOFERT, 'Guanyu Guanmaozongxieding Wen ti' ( Issues regarding to GA TI), Selected Speeches of Central Party School (Zhongyang dangxiao baogaoxuan), 1992, p.16 112 government made to rejoin GATT, as they did in the later stages. In 1986, China established a GATT policy-coordination body, the State Council Interministerial Coordination Group on GATT Negotiations (Guowuyuan Guan Shui ji Maoyi Zong Xieding Tanpan Buji Xietiao Xiaozu). State Councilor Zhang Jingfu was the first director of this group. The vice directors included the minister of foreign trade, the minister of foreign affairs, and the general director of the Customs. However, the coordinating work at this stage was limited to organizing the relevant ministries on writing the Memorandum of China's trade system and on answering the subsequent questions. Public media was not involved during this period of time either. Only scattered pieces of brief news could be found from the People's Daily reporting the events such as China's official submission of its GATT application. Since information on China's GA TT application was practically limited to a small circle of decision makers, negotiators and trade officials, no public opinion could be formed and therefore the influence of public opinion on China's GA TT accession did not exist at this time. 3.5: Conclusion As the table 3-4 shows, the major powers in GATT, the U.S. and the EC, all took the cooperative positions in China's bid to rejoin GATT, unlike what they did at the later stages. The U.S. and the EC did not ask for any specific market access issue from Beijing but general trade systemic management issues at this time. 113 T bl 3 4 h fl .b T Sh a e - : t e ex1 11ty own b B h s·d y ot 1 es on Th. 0 eir ipemng p os1tlons China's opening position U.S. /EU( last one only) Major GATT contracting parties Resumption of its GA TT seat Did not oppose but avoid to use the Tacitly agreed politically but willing to negotiate term 'resume' or 'assume', only the terms as the new member use the word 'participate' Tariff reduction as the means to Tariff reduction plus necessary Same negotiate the membership protective measures Developing country status Unsolved and left for protocol Tacitly agreed but with a drafting stage specific graduation date or graduation criteria MFN from U.S. Related to domestic legislation so can not promise the repealing, but promised to work on it. GPS from U.S. Unsolved because it is related to China's developing country status, but a less thorny issue compared to MFN status Commitment to gradually eliminate Promised to provide a timetable for quantity import restrictions by EU gradual elimination of those on Chinese products restrictions once China agrees to accept Selective Safeguard Conditions US requested to be included in the Protocol China's response Commitment to continue the path of reform toward a Yes, it is generally in line with the goal of China's market-oriented economy economic reform to reinforce the role of market; Provisions on transparency Yes, promised the publication of trade plans and revisions Gradually make the non-tariff measures compatible Yes with GA TT rules Special transitional arrangements to apply until the Yes, but only with the temporary nature. It must economy respond to market signals be eliminated with a specific timetable and review criteria A timetable for price reform Yes, China will reform it step by step; Source: interviews in Beijing and Shanghai, fall and winter 2000 In addition, the tacit permission on China's developing country status solved many difficulties imposed by China's semi-planned and semi-market economy, such as the continued import restriction for the need of balance of payment, the application of the 'grandfather clause' to keep those laws and regulations incompatible with GA TT rules, the protection of the 'infant industries' and the government financing support. Under those conditions, Beijing did not feel obligated to pay a high price for to enter 114 either. The concessions that was in Chinese negotiators' mind at this stage were only limited to the granting of the MFN status to all GA TT contracting parties, assuring the non-discriminatory nature of its import restrictions, increasing the transparency of the functioning of the foreign trade management and making certain tariff reductions. 147 The first stage of China's bid to rejoin GATT went on smoothly and Beijing's early entry would have been possible if the Tian'anmen Square Incident did not take place. The factors at both the systemic and the domestic levels explained the smoothness of the negotiation process at this stage. Being an ally of the U.S. minimized the domestic constraints derived from the ideological difference. As a result, the intervening variable on the causality between international cooperation and domestic politics, regime type, became less relevant at this stage. This formed a sharp contrast with what happened in the later stages. As a result, the executive in the U.S. was more easily to have its own policy preference embodied at the negotiation table. 147 Feng yushu (i!?i~IJ), 'Liyong guanmao zongxiedingjiben yuanze wei wo waimao shiye fuwu' (Taking the advantages of GA TT principles to serve China's foreign trade), Guoji Maoyi (International Trade: 12-14), No.11, 1986, Pp12-4; Wang Yaotian (¥.I% ffi), 'Guanyu woguo yu guanmao zongxieding youguan wen ti de wenda', (The questions and answers on China and GA TT), Guoji Maoyi (International Trade: 27-30), no.8, 1987, p28 115 Chapter Four: June 1989-1994 This chapter will examine the second stage of China's GATT/WTO accession negotiation. The central question is why China failed to reach an agreement with the U.S., as Beijing had hoped to do, by the end of 1994? To explain the variations of the preferences of domestic actors and the influence of political institutions in the U.S. and China since 1989, it is necessary to trace back the negotiation process during this stage. This chapter begins by explaining how the first negotiation deadlock was broken with the efforts of Beijing. Then the second half of the chapter will focus on the bilateral and the multilateral negotiations held in 1994, especially the negotiating positions and strategies taken by China, the U.S. and the EU to explore the domestic reasons behind the negotiation outcome. The puzzles related to the failure of reaching an agreement are the following. First, Beijing showed great eagerness to join GATT by the end of 1994 in order to become a founding member of the WTO. The question is why Beijing did not make bold concessions compatible with its political eagerness and at least meet the EU's demands (which were viewed as relatively more conciliatory) at the final phase of the negotiation. Second, any cooperative agreement creates winners and losers domestically; therefore, they generate supporters and opponents. The question is how the prevailing resistance of the U.S. domestic constituencies, including the White House and Congress, as well as the silence of U.S. MNCs and exporters might be explained. Washington's decision to apply 'non-application' to China's GATT accession implied that they had 116 little interest in reaching any agreement with Beijing. Until the last day of the negotiation at this stage, the 15th of December 1994, the gap between China's final offer and the U.S. final demand remained wide. The implications drawn from the comparison of this stage and the previous stage are more complicated than what a simple 'Neorealism' explanation can offer. The implications for this paradox are three-fold. First, the end of the Cold War and specifically the 1989 Tiananmen Square Incident in June 1989 fundamentally transformed the bilateral relations between the U.S. and China. Accordingly, Washington and Beijing reevaluated their interests toward China's entry into GATT. In other words, the previous convergence of the preferences from two governments in regard to this issue was diluted. The chief executives from both countries did not treat the conclusion of this negotiation as a priority of theirs and both leaders were constrained by the domestic oppositions on this issue. To understand the negotiation process, following the diagnostic-formula-detail approach, as developed by Zartman and Berman in The Practical Negotiator, 148 China's GATT accession negotiation faced a setback from the formula searching phase to the diagnostic phase. The 'diagnostic phase' is defined as pre-negotiation activities leading to the realization of a 'turning point of seriousness' while formula searching refers to the phase when the parties have jointly determined that negotiation is both possible and desirable and 148 I.W. Zartman and Maureen Berman, The Practical Negotiator, (New Haven: Yale University Press, 1982) 117 is characterized by a search for general principles. 149 Second, Congressional activism and its broad political and security concerns toward Beijing put great constraints on the policy preferences of the chief executive. The annual renewal of China's MFN status became the legal tool for the involvement of Congress after 1990. It legitimized the issue linkage between the bilateral trade negotiation and other political concerns such as concerns over Taiwan, over human rights and over arms sales of China. Third, the unexpectedly rapid growth of trade and the growing Chinese trade surplus against the U.S. made China a visible target. With the limited FDI penetration of the U.S. firms into the Chinese market, demonstrated by the amount of FDI invested, the preferences of the U.S. business groups were limited to improving the overall investment environment and to the reform of the Chinese trade regime (in order to gain more and better market access). In order to achieve this goal, the Special 301 rendered more direct impacts. For example, during this period Washington and Beijing reached three bilateral memorandums on IPR protection and market access (although the implementation of these memorandums was not straightforward). Moreover, Beijing did not make a comprehensive offer on the market access of service sectors, partly because many areas were not covered in the initial Uruguay Round Agreement, and as a result the private sectors were not excited about the benefits that Beijing's GATT membership could bring. 149 I.W. Zartman and Maureen Berman, The Practical Negotiator, (New Haven: Yale University Press, 1982), p.29 and p.95 118 • Consequently, U.S. MNCs and exporters did not lobby intensively for Beijing at this stage. Since this stage, the difference in the regime type became an intervening variable in the real sense and complicated the negotiation. The political/security considerations to contain an ideologically hostile and economically threatening country replaced the previous logic of bringing a strategic ally into the West Camp. A series of changes in the preferences of domestic political actors and the power sharing of domestic political actors (political institutional structure) greatly shaped the process of China's GATT accession negotiation and directly led to the deadlock from June 1989 to 1992, the slow down in 1993 and the failure of Beijing's efforts (at least MOFTEC's efforts) to conclude the negotiation in 1994. Part I: The formation and the break up of the first deadlock (June 1989- October 1992) This section examines the formation and the break up of the first deadlock. Druckman distinguishes two types of turning points: those that occur after an impasse or stalemate (a period of no progress), and those that occur after a crisis (a threat to the continuation of the negotiation). 150 This distinction characterizes the two 150 Daniel Druckman," Stages, Turning Points and Crises: Negotiating Military Base Rights, Spain and the United States", manuscript, 1985, quoted in William Mark Habeeb, Power and Tactics in 119 • major deadlocks in China's GATT/WTO accession negotiation, one starting after June 1989 and the other starting at the end of 1994. The first stalemate occurred after a crisis and imposed a serious threat to the continuation of the negotiation, while ~ second stalemate occurred after a period of no progress. Hence this second turning point was more likely to lead to the progression to the next phase in the process. Clearly, the June 1989 political crisis in China directly led to the first stalemate in the negotiation and the overall deterioration of the diplomatic relationship between Beijing and the W estem countries. The ideological hostility intensified to a high degree and quickly ended the one-decade honeymoon between Beijing and the West. As a result, both Beijing and Washington re-adjusted their policy preferences, including that of China's GA TT accession negotiation. The fundamental change was the renewed Congressional activism on 'China Policy' in general, with China's GATT accession negotiation becoming part of the change. This change made the breaking-up of the negotiation stalemate more difficult and the pace of the negotiation slower. Thereafter, China's GATT/WTO accession negotiation was characterized by the frequent back and forth moves between 'diagnostic phase' and 'formula searching' phase. In short, the root lies in the domestic uncertainty within the U.S. --- 'shall America let China join' and within China --- 'shall China give in under the U.S. pressure'. International Negotiation: How Weak Nations Bargain with Strong Nations, (Baltimore: John Hopkins University Press, 1988), p.6 120 4.1: The formation of the deadlock China's GATT /WTO accession negotiation went into a deadlock in June 1989 right after the Tiananmen Square Incident. In April 1989, Hu Yaobang, the former reform-minded Communist Party general secretary, died. Hu was purged from the party leadership in 1987, and Zhao Ziyang replaced him as general secretary since then. Hundreds of thousands of students mourned Hu's death by staging large demonstrations in Tiananmen Square in Beijing. The students demanded an end to government corruption, greater personal and political freedom, and improved conditions in China's colleges. In May, thousands of students occupied Tiananmen Square and went on a hunger strike. Behind the scenes, Chinese officials argued over what they should do. Moderates such as Zhao Ziyang advocated peaceful dialogue with the students. Hardliners such as Chinese senior leader Deng Xiaoping, who led the country through an economic reform process that limited political change, insisted on using military force to crack down on the demonstrations. The hardliners eventually prevailed. As demonstrations spread to other cities in May, martial law was declared. On the night of June 3-4, Chinese army troops moved into Tiananmen Square and dispersed crowds, killing and imprisoning hundreds. In protest, Zhao Ziyang resigned and was later placed under house arrest. This political earthquake was not an isolated incident. It closely echoed the pro-democratic movements in the former Soviet Union and other Eastern 121 European socialist countries. It is the 'Domino effect' of the systemic change in late 1980s and early 1990s. The Western world was shocked and immediately reacted. They unanimously exerted economic sanctions towards China. President Bush ordered the suspension of official contacts with China at the level of assistant secretary and above followed by a series of economic sanctions. The World Bank pressed by the Western Countries, also put on hold about 1. 7 billion loans and suspended the approval of further loans to China. As an important part of the economic sanction, China's GATT application process was in a halt, too. This deadlock lasted more than two years, until October 1992. On the surface, the West changed its policy towards China's GATT membership solely because of the Tiananmen Square Incident; however, a broader picture of systemic change --- the end of the Cold War and the bipolar system contributed to this adjustment of attitude. Communist China took the similar action against the pro democratic movements during the Cold War. Other autocracies, such as South Korea had the similar experience in early 1980s. However, both countries were treated as the Cold-War allies of the Western camp and their actions were well tolerated. With the collapse of the former Soviet Union and the democratization of the other Eastern European countries, Beijing became the last important holdout of the Communist ideology. The cornerstone of the ties between Beijing and Washington shifted from 122 strategic to economic, a less compelling one. Consequently, human rights issues became increasingly contentious and emotional, especially after the June 1989 Tian'anmen Square Incident. Although most economic sanctions against China were lifted within a year, the Congressional opposition over China's human rights status and the U.S. trade deficit with China heavily affected China's GATT accession negotiation. The successful conclusion of the three Memorandums of Understanding (MOU) on IPR, Prisoner Labor Products as well as Market Access and the tacit agreement on the status of Taiwan's GATT application eased the dissatisfaction of the U.S. Congress and helped to put China's GATT negotiation back on track. The scheduled working party session on 10 July was postponed after the Tiananmen Square Incident on 4 June. As GATT's spokesman, Mr. David Wood, expressed in the postponing notice that 'the general view among the participants was that in the present circumstances the working party was unlikely to be able to make any progress.' Three reasons were voiced by the heads of the delegations to GATT: first, many participants felt obliged to make a political statement on the then current situation in China, whereas traditionally politics were kept out of GATT; second, China's assurance that its economic reforms were moving toward a market orientated regime compatible with that of GATT now lacked credibility; third, the US Congress was in no mood to allow the Chinese exports to enjoy the 123 unconditional MFN tariff treatment which would be needed in the next phase of the . . 151 negotiation. The next two sessions of the working party (eighth and ninth) did take place, however, they were just futile gatherings without any real agenda. When the GATT talk was finally resumed in December 1989, Beijing hoped to break the deadlock and continue the pace of the previous negotiations. Mr. Li Zhongzhou, director of the Department of International Trade and Economic Cooperation, MOFERT, told reporters that they planned to conduct substantive talks on a protocol defining China's rights and obligations and they hoped there would be no delay in drafting the work. 152 Unfortunately, the negotiators from the EC and the U.S. did not get the authority to break the stalemate and to continue the negotiation on protocol drafting. The situation was worsened to the point that the objective of the December meeting became the one to consider whether the option of China's application was still viable. 153 The Beijing delegation confronted a hostile audience and was questioned if China was going to return to centralized planning economy. As one Chinese negotiator recalled, 'when we stepped into the same negotiation room in Geneva again in December 1989 and started the negotiation with the same group of negotiators, we realized immediately that the atmosphere was different and the 151 William Dullforce, 'Peking rebuffed in attempt to join GATT', Financial Times, 6 July 1989, p.6 152 P.T. Bangsberg, 'China risks rebuff in GATT bid', Journal of Commerce, 8 December 1989, p.lA 153 Jeanne-Marie Claydon Gescher, 'GATT's problems with China', Far Eastern Economic Review, 11 January 1990, p.46 124 attitude of our counterparts was changed. We were not welcomed anymore.' 154 Even worse, several important tacit understandings reached between China and the U.S. and the EU prior to June 1989 became faltered, including the U.S. commitment to persuade Congress to modify its domestic legislation so that China could be granted unconditional MFN, and the gradual lifting of import quotas in the European market. Instead, the working party went back to review China's trade regime, a task it had completed in the seventh session of China Working Party in April 1989. Domestic Preferences and Institutions in the U.S. The Executive Branch The Bush Administration was in a policy dilemma after the 1989 Tiananmen Incident. As the chief executive, President Bush faced unprecedented congressional pressure to 'punish' Beijing. In the meantime, he had to maintain a stable relationship with Beijing in order to win its support on several key international security issues. Although the President undertook a series of economic sanctions and halted high-level contacts on the surface, he dispatched a secret high-level mission to Beijing led by the National Security Advisor Brent Scowcroft and Deputy Secretary of State Lawrence Eagle burger after the visits by former President Nixon and his then Secretary of the State Kissinger. Additionally, President Bush made some other 154 Interviews with MOFTEC trade officials fall 2000 125 conciliatory moves including the approval of the Boeing aircraft sale, the authorization of the continued export-import Bank activity in China, and he even barely sustained the veto of the Pelosi Bill pertaining to Chinese students in the U.S. President Bush argued publicly that 'even from the human rights perspective, it has been engagement with China that contributed to the changes of the late 1970s and 1980s that the U.S. applauded. Now it is time for more engagement, not less.' 155 The heavy criticism from Congress on Bush's China policy put President Bush under tremendous pressure. After CNN broke the news that Scowcroft and Eagleburger had made a trip in July, 1989, less than two weeks after the ban of high level contacts was imposed, the furor was intensified in Congress. George Mitchell denounced the mission as 'embarrassing kowtowing to the repressive Communist government' . 156 Beijing government appreciated the goodwill of President Bush and responded positively. It lifted martial law in Beijing, released 573 detainees and pledged not to export ballistic missiles to the Middle East. But Beijing's actions were not viewed as sufficient or significant measures, as one U.S. official said: 'we made a big unilateral effort to prevent relations from getting worse, and so far, the Chinese have been unwilling to take reciprocal measures, politically significant measures.' 157 155 Raymond Shafer and David Lampton, chairman and president of the National Committee on U.S. China Relations, 'Rebuild China-U.S. Relations', Christian Science Monitor, 18 April 1990, p.18 156 James Mann, About Face: A History of America's Curious Relationship with China, From Nixon to Clinton, (New York: Alfred A. Knopf, Inc, 1999), p.223 157 Lena Sun, 'Stance of Chinese government disappoints Bush Administration', Washington Post, May 7, 1990, p.A30 126 Taiwan's Application to join GATT Internationally, Taiwan picked the right time to apply for GATT membership on January 1 8 \ 1990. By invoking Article 33 ofGATT, Taiwan applied in the name of the 'separate tariff territories of Taiwan, Penghu, Jinmen and Mazu Islands. Taiwan's application raised both political and legal issues. Article 33 states that a government 'acting on behalf of a separate customs territory possessing full autonomy in the conduct of its external commercial relations' may apply for membership. The controversy was centered on whether this clause was designed for the accession of sovereign states or non-sovereign states because no government of separate customs territories had joined GATT under its aegis. 158 Taiwan regarded the application as a rightful return to the international body and a step toward greater political recognition. An inter-agency task force represented by USTR Carla Hills endorsed Taiwan's proposal as economically sound, as the first step. The application then traveled to the National Security Council for an evaluation of its political consequences. On the other hand, other agencies within the Administration, represented by State Secretary James Baker III, worried that US relations with Beijing had become so sour that serious consequences might result from even a relatively benign step such as 158 Yu-shu Feng, "One GATT, Two Systems", Far Eastern Economic Review, March 8, 1990, p.48 127 endorsing GA TT membership for Taiwan. 159 Furthermore, Washington appreciated Beijing's support on its sanctions against Iraq. As one of the five permanent members of the UN Security Council, China voted for imposing sanctions against Iraq (SCR 600 and SCR 601) on August 2°d and August 6th, 1990 respectively. 160 This was quite unusual since China had always voted to abstain on similar issues. Moreover, Beijing supported the Bush Administration's search for a peaceful settlement in Cambodia and the US' s position in the Persian Gulf Crisis. Heavy pressure from Beijing and the U.S. foreign policy concerns made President Bush halt an internal political review that might have led to the official U.S. endorsement of Taiwan's GATT application. Avoiding taking a position publicly, Washington let Brussels take the lead in supporting Taiwan. Special 301 When the political relationship was troublesome, the bilateral trade problems became salient. During this period of time, the American trade negotiators' unilateral actions served as the 'foreign policy achievements' of the Bush Administration against the Congressional criticism and the proof that there existed a more effective way to change Beijing's behavior and to protect the domestic economic interests of the U.S. other than revoking China's MFN status. In terms of trade-related issues, the U.S. and China held three major talks on IPR, Market Access and Prisoner-labor Products. 159 Art Pine and Jim Mann, 'China blocks Taiwan's request to join GATT', Los Angeles Times, 26 March 1990, p.2 160 See UN website, http://www.un.org 128 All of these issues faced strong resistance from Beijing initially due to the domestic politics in Beijing that restrained the policymaker from making concessions to Washington within the stalemate period of 1990-1991. The first issue was about China's lack of protection of American IPR. IPR protection had always been an issue between the U.S. and China. When the U.S. and China negotiated their first trade agreement in 1979, IPR protection was one of the most difficult issues since any innovative and valuable intellectual work was free for use by all social units across the country in a socialist setting. It was finally solved when Deng Xiaoping intervened and promised to protect patents and other intellectual properties. 161 The first PRC patent Law went into effect in April 1985; however, the scope of patent protection in China was narrower compared with the W estem standard. For example, pharmaceutical and chemical formulas were excluded, just as in most other developing countries. The denial was on the ground that those products are essential to people's health and wellbeing and therefore should be widely produced and sold at the lowest possible price. During the Reagan Administration, Americans doing business with China loudly complained the lack of protection for intellectual property. However, in a normal and friendly bilateral relationship, such a problem would have been regarded as 'one of the normal difficulties' 162 • Only after the 1989 Tiananmen Square Incident did Congress pay attention to this issue. In both 161 Doak Barnett, China's Economy in Global Perspective (Washington, D.C.: Brookings Institution, 1981 ),p.522 162 Jerome A. Cohen, 'Legal Framework for Investment', in U.S. China Trade: Problems and Prospects, Eugene K. Lawson, ed. (New York: Praeger Publishers, 1988), p.124 129 1989 and 1990, the U.S. placed China on the 'priority watch list' due to the deficiencies in China's IPR regime. According to the investigation, the losses to the U.S companies from all IPR piracy in China were estimated at about $799 million a year.1 63 As the tide of hostility seemed to increase, protection of IPR emerged as an outstanding issue, and the Bush Administration took a tougher stand. In April 1991 the USTR moved China from the 'watch list' to a 'target priority foreign country' designation and began investigation under the Special 301 provisions. However, the first five rounds of talks were not productive, and the Bush Administration announced the failure of the negotiation in December 1991 and began the legal process for a list of punitive tariffs of $300 to $500 million should China fail to meet the U.S. demand by 16 January 1992. One of the sticking issues dealt with patent protection on pharmaceutical products. The U.S. asked China to go well beyond a proposed international standard for patent protection advanced by GATT Uruguay Round talks, which would allow developing countries at least ten years to meet its rules. Beijing's proposal that it would follow the same rules as contained in the GATT text was rejected by Washington as 'unacceptable'. The second issue was on market access. Since the end of the 1980s, the imbalance in bilateral trade began to widen. In 1990, China's trade surplus with the U.S. grew to $10.4 billion (see table 4-2), making it the third largest after Japan and Taiwan. 163 By John Maggs, "US, China expected to settle trade disputes", Journal of Commerce, January 17, 1992, pg. IA 130 Table 4-1: China's Trade with the World ($ billion) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Exports 62.l 71.9 84.9 91.7 121.0 148.8 151.1 182.7 183.8 194.9 Imports 53.3 63.8 80.6 104.0 115.6 132.l 138.8 142.4 140.2 165.7 Total 115.4 135.7 165.5 195.7 236.6 280.9 289.9 325.1 324.0 360.6 Source: PRC General Administration of Customs, China's Customs Statistics Table 4-2: The U.S.'s Trade with China($ billion) Year Exports Imports Trade Deficit 1989 5.8 12.0 6.2 1990 4.8 15.2 10.4 1991 6.3 19.0 12.7 1992 7.5 25.7 18.2 1993 8.8 31.5 22.8 1994 9.3 38.8 29.5 1995 11.7 45.6 33.8 1996 12.0 51.5 39.5 1997 12.8 62.6 49.7 1998 14.3 71.2 56.9 1999 13.l 81.8 68.7 Source: US Department of Commerce The U.S. and China conducted two rounds of unproductive talks (June and August 1991) that led to the formal investigation by the U.S. on China's market barriers to U.S. exports under Section 301 of the Trade Act of 1974 in October 1991. The investigation suggested much of the growth of China's trade surplus resulted from a range of new or tightened restrictions, including higher investment. "It is the only significant market out there which has had an actual decline in exports from the U.S.," one American trade official said. 164 USTR targeted four areas to force China to make concessions: the lack of transparency in China's trade laws and regulations; import bans; import licensing requirements and technical barriers such as testing and certification standards. The negotiation faced several difficulties. First, the U.S. 164 John Burgess, "Bush Administration Includes China in list of trade-restriction offenders", Washington Post, March 30, 1991, pg. 14 131 required China to make public its annual import-export targets which China considered commercial secrets and unwilling to reveal. Second, the U.S. demanded that most barriers, including import license, controls and tariffs, be lifted within a year--- a demand that the Chinese negotiators believed not 'feasible' even when they wanted to. Unlike previous trade-related bilateral negotiations, the requirements of the U.S. this time were directed toward profound changes in the practices, polices and regulations of the Chinese government governing trade. China submitted a list of concessions on 30 September of the previous year just before the investigation was launched. Import tariffs on 225 items were lowered, some by up to 50%, and 27 previously secret trade regulations were published. However, USTR believed that Beijing's pledge to lower tariffs, to discuss testing standards and to abolish the import-control system were not concrete enough to meet the U.S. demands. For their part, the Chinese trade officials complained that even such a vague proposal took them months to negotiate within the cumbersome bureaucracy of the Chinese government. Domestically, the state-controlled press billed these moves solely as measures to regain China's GATT seat without mentioning the existence of the bilateral talks at all. To other relevant ministries, MOFTEC also persuaded them that the concessions were necessary and closely related to the progress of Beijing's GATT accession negotiation. This is a face saving strategy that would allow more concessions to be made to meet the U.S. 132 demands without being criticized by the public as well as the conservatives within the government as 'opening up China's market solely under U.S. pressure' . 165 After ten more months of fruitless talks, USTR announced on 21 August 1992 a list of $3.9 billion Chinese exports to the U.S. that could face prohibitive tariffs if China failed to reach an agreement with the U.S. by 10 October 1992. China responded by threatening to raise tariffs to punitive levels on $4 billion of the U.S. imports including chemicals, automobiles, computers, medical equipment and wheat. Just like the IPR protection negotiation, American negotiators faced great resistance from Beijing and had to make credible threats to press for substantial concessions from Beijing. U.S. Congress The 1989 Tiananmen Square Incident was the watershed by which the human rights issue and the active involvement of the U.S. Congress were introduced into the bilateral economic relations between China and the U.S. The annual review of China's MFN status became an effective tool for Congress to bring almost any factor that could affect the bilateral relations into the discussion --- China's human rights status, missile sales, Taiwan's GATT application, the overall Taiwan policy of the U.S., the U.S./China bilateral trade deficit, the IPR disputes, etc. Both the 165 Interview in Beijing, fall 2001 133 ~ i I l .. • comprehensive scope of the issues covered and the nature of the annual review itself made the consistency of the president's economic policy toward China impossible. During this period, Congress played a salient role to delay or obstruct the overall recovery of the bilateral relations, and as a result, China's GATT accession negotiation was hit particularly. China 's MFN Status When Washington and Beijing negotiated their first bilateral trade agreement in 1979, the Carter Administration raised the condition that Beijing should agree to free emigration. Beijing hesitated first, but then Deng Xiaoping told Carter that Beijing could offer as many millions of emigrants as Carter needed. Interestingly enough, this commitment scared the officials from Washington and they expressed the concern that the U.S. could accept only a limited number of emigrants. 166 After the discussion that year, the requirement of free emigration attached to granting MFN status was permanently met. China had had its MFN status renewed every year since 1980 without invoking any controversy between the U.S. President and Congress, and the renewal of the waiver for the PRC, permitting continued MFN treatment, was routine. 167 Even in 1989, Congress did not question the continued MFN 166 Long Y ongtu, "Woguo fuguan tanpan de zuixin qingkuang he qiantu zhanwang" ( the new development and prospect of China's GATT negotiation),Speech of Long Yongtu at Central Party School, former director of department oflnternational cooperation, MOFTEC, 5 October 1993, Central Party Selected Speech, 1993, Pg.39 167 James Montgomery, 'China's entry to the WTO and the Jackson-Vanek amendment', Journal of Northeast Asian Studies Fall 1996: 60-69, p.65 134 treatment for the PRC in the wake of the 1989 Tiananmen Square Incident. Instead, Congress pushed for other economic sanctions. Congressional opinion of Beijing deteriorated dramatically after Beijing's crackdown on its political dissidents in 1989. Congress began to intensively attack Bush's renewal of the MFN treatment for China in 1990. In May and June, many Congressional members pushed for an end of MFN for China as an answer to the previous year's crackdown on the pro-democracy protests. Starting in July, Congress began to switch from the previous radical attitude and suggested the possibility of extending China's MFN while making it subject to new human rights conditions. Under these standards, China could lose the trade privileges the following year if it failed to ease political repression inside the country. The list of human rights conditions specified by the House Ways and Means Subcommittee on trade included: 1) substantial, demonstrable progress to reverse the pattern of human rights violations; 2) releasing significant numbers of Chinese citizens arrested during political protests; 3) significant steps to ensure freedom of expression; 4) an end to the Chinese resistance to allowing Taiwan to join GATT . 168 In the end, the House voted overwhelmingly in October to take away MFN status from China, the Senate did not act, and as a result China acquired the unconditional MFN status for one more year. 168 David Schaefer, 'Panel sets conditions for China trade', Seattle Times, 13 July 1990, p.D4 135 In the spring of 1991, the same issue invoked congressional debates again. By the end of May when President Bush sent to Congress the annual notification of his intention to renew China's MFN status without conditions, some half-dozen bills on the issue had been presented to the House and the Senate. Different from the previous year, some senators started to question the effectiveness of their endeavors on the MFN issue this time. In a letter to President Bush, signed by Senator Max Baucus, chairman of the International Trade Subcommittee, and 14 other senators from both parties, those senators expressed their concerns on China's human rights violations, missile sales to Syria and Pakistan, failure to protect IPR, and trade barriers. They criticized the administration for allowing China to dictate the U.S. policy toward Taiwan by pressing the U.S. to decline its support of Taiwan's GATT application despite its clear economic benefits to the U.S. However, they agreed that MFN was the 'wrong tool' for the job of changing China's behavior. The letter urged Bush to 'take appropriate action' against China in other areas. 169 The Baucus Plan won support among key Republicans, including Senate Minority Leader Robert Cole. But the powerful Senate Democrats, led by the Majority Leader George Mitchell had their own proposal that called for renewal of China's MFN status for only six months and imposed stringent and specific conditions on the human rights actions and on other matters. Two of the key conditions was to restrain China from transferring M-9 and M-11 missiles to 'unstable regions or terrorist states' and to link China's MFN to 169 Nancy Dunne, 'Senators press for initiatives against Beijing', Financial Times, 25 June 1991, p.6 136 the U.S. support of Taiwan joining GATT. 170 As always, Bush insisted that 'we have the necessary policy instruments to address the U.S. concerns effectively without denying MFN.' He also emphasized that 'the most compelling reason to renew MFN and remain engaged in China is not economic; it's not strategic, but moral. It is right to export the ideals of freedom and democracy to China' . 171 Additionally, Bush promised to the Congress that if China did not make 'real progress' in the on-going IPR talks, 'trade actions will follow'. 172 The House voted by a narrow margin to revoke MFN status for China, and by a vote of 313 to 112 to attach conditions to any renewal. A week later, on 24 July the U.S. Senate voted 55 to 44 to put strict conditions on renewing China's MFN status, but the vote fell 11 short of the two- thirds majority Congress needed to override a certain President veto. The U.S. Congressional debate over granting Beijing MFN status imposed a serious constraint on Beijing's GATT application. It is also true that when Washington was stuck in the MFN debate, negotiators in Geneva were not able to make any progress on China's GATT accession negotiation. On the other hand, enjoying permanent MFN treatment from the U.S. was the most important benefit GATT/WTO membership could bring to Beijing. Hence it was unsurprising that Beijing's 170 John Maggs, Hills studies plan linking China MFN to membership in GA TT for Taiwan, Journal of Commerce, 17 June 1991, p.3 171 'President Bush elaborates on China policy', New York Times, 28 May 1991, p.Al 172 Nancy Dunne, 'Victory for Bush on China policy: US Senate vote falls short of majority needed to override veto', Financial Times, 24 July 1991, p.4 137 GATT/WTO negotiation was stalled when Beijing felt that even the annual renewal of MFN was at risk. Taiwan's application to join GATT In the U.S., the debates were intensified between the congressional and the executive bodies. Members of Congress, already dissatisfied with the Administration's insistence on maintaining close contacts with China in the wake of the 1989 Tiananmen Square Incident, had begun to pressure the White House to support Taiwan's GATT Application. In a bipartisan move, 23 members of the House Ways and Means Trade Subcommittee wrote the President urging his support. The Senate Finance Committee drafted a similar letter. 173 Taiwan, as the 13th largest trading nation in the world, was the sixth largest trading partner of the U.S. in 1993 while Beijing ranked the seventh (see table 4-3). Added to this qualification, Taiwan committed to join as a 'developed' country and promised to provide $1 billion in aid to developing nations should it be admitted to GATT. 174 Congress took the united position to encourage Taiwan's GATT application and heavily pressed the Bush Administration to give up its neutral stance. In 1991, some senators linked directly the issue of Taiwan's GATT application with the renewal of China's annual MFN status. In order to win some votes from Congress, Bush wrote a letter to a group of 173 Art Pine and Jim Mann, 'US may back Taiwan bid to join world trade body', Los Angeles Times, 27 February 1990, p.6. 174 Clyde Farnsworth, 'Bush Administration is split on Taiwan's' joining GATT', New York Times, 8 November 1990, p. l 138 15 senators led by Senator Max Baucus. In the letter, Bush withdrew his opposition to Taiwan's GATT application and the insistence of China's prior entry and committed to 'work actively with other contracting parties to resolve in a favorable manner issues relating to Taiwan's GATT accession.' 175 T bl 4 3 T d R nk fi US d rtn . 1983 1993 2001 a e - ra e a mgs or .. tra e pa ers m ' ' Export Import Total Trade 1983 1993 2001 1983 1993 2001 1983 1993 2001 China 21 13 9 23 5 4 22 7 4 Taiwan 12 6 10 6 6 8 6 6 8 Source: http://www.ita.doc.gov/td/industry/otea/usfth/aggregate/hOl t58.html Beijing's Domestic Preferences and Institutions The 1989 Tiananmen Square Incident was not a single episode. It took place within a broad picture at the end of the Cold War. After China was isolated by the Western sanctions, China's GATT accession issue was subordinated to China's effort to resume normal state-to-state relations. On the other hand, GATT accession negotiation also became a tool for China to break the isolation and a barometer for China to test its status. Responding to the unexpected collapse of socialism as an ideology in the East European countries and the former Soviet Union, the paramount leader of China Deng Xiaoping developed two guiding principles for Beijing's foreign relations: 'observing with calmness, bringing the situation under control and responding with a 175 Nancy Dunne, 'Victory for Bush on China policy: US Senate vote falls short of majority needed to override veto', Financial Times, 24 July 1991, p.4 139 cool-head' (lengjing guancha, wenzhu zhenjia, chenzhuo yingfu) and 'be expert at show incompetence, never taking the lead, keeping a low profile, making progress to improve national power (shanyu shouzhuo, juebudangtou, taoguangyanghui, yousuozuowei). In essence Deng called for keeping a low profile under this sudden change and to avoid becoming the target. Facing new Western isolation, Beijing chose to hold a relatively hard line. When Former President Nixon visited China on 18 October 1989, Deng Xiaoping met the former President and asked him to send the message back to Washington that "it is about time to reverse the deterioration in relations between China and the United States; but the U.S. should and has to take the initiative ... It is impossible for China to beg for the lifting of the sanctions even if we have to wait for a hundred years. It matters too much. No Chinese leader would take the risk to do things like that. Chinese people wouldn't forgive it. I am telling you the truth ... " 176 No matter how much the Chinese leaders wanted to recover the bilateral relations, their hands were tied. The fundamental reason behind this difficulty was still the ideological consideration. Any 'friendly' move or even slight signal to the other would lead to the domestic criticism. In the wake of the 1989 Tiananmen Square Incident and the fear of the 'peaceful evolution' (presumed Western efforts to subvert the Chinese government and replace it with a democracy), especially the 176 See 'Compilation of Deng Xiaoping's Writings', Third Volume, (Beijing: People's Publisher, 1993), Pp330-332, Pg. 350. 140 ouster of Zhao Ziyang, the General Secretary of the Chinese Communist Party who was responsible for the 'encouragement' of the 'peaceful evolution', the Chinese conservative hard-liners dominated again. As the successor of Zhao Ziyang, Jiang Zemin was promoted to the position of the General Secretary of the CCP from the Mayor of Shanghai. Although Jiang was picked and backed by Deng Xiaoping, he had little political capital in Beijing, especially in the PLA (People's Liberation Army). Jiang did not have any other choice but to closely follow the tone of the conservative hardliners (represented by Premier Li Peng). The top leaders were locked in a succession struggle in which flexibility toward foreigners, especially the U.S., was portrayed internally as weakness. Making concessions that Washington required provided the regime's domestic critics with evidence that the current power holders had gravely mismanaged a national crisis. From there on, the ideological color again was added into the Sino-American relationship. The leaders in both countries who had not stabilized their positions domestically were reluctant to make any concession to the other in the international economic negotiations. This became an explanatory factor that was held true during the later stages of China's GATT/WTO accession negotiation. 141 The phase of 'improving the environment and rectifying the order' in China, 1988- 1991 Domestically, Beijing came up with a series of administrative decrees in order to "improve the environment and rectify the order to deepen the reform" during 1988- 1991. This shift of macroeconomic policy was parallel with the dominance of political conservatism in this period. The fast growing economic development brought a series of side effects such as overheating of the economy, the imbalance of the economic structure and the high inflation rate. The Chinese monetary policy had been very stable until several prices were liberalized in 1985. During the 1985-87 period, prices rose at an average of 7 .4% while money supply rose at an average rate of23.2%. The following two years were more alarming. When further deregulatory measures were implemented in 1988, prices soared by 18.5% in 1988 and 17 .8% in 1989. 177 The two-year high inflation created a sense of panic and began the run on bank deposits. The high inflation rate was also the direct cause of social instability and the main reason of the active participation of the general public during the 1989 Tiananmen Square Incident. Starting in late 1988, the Beijing government restricted credit, dropped fixed asset investment, scrapped further decontrol measures and postponed the elimination of the two-tier pricing system. 177 Gang Yi, Money, Banking, and Financial Markets in China (Boulder, Colorado: Westview Press, 1994) 142 T bl 4 4 I fl . G th M .a e - : n atlon, row ' oney an d h exc ange R . Ch. ate m ma 1985 1986 1987 1988 1989 1990 1991 1992 GDP Growth rate 12.9 8.5 11.1 11.2 4.3 3.9 8.0 13.6 Inflation rate 12.0 6.5 7.3 18.0 18.0 3.1 3.4 6.4 Money supply increase 23.2 27.9 18.5 20.0 6.3 20.1 28.2 20.3 Source: China Statistic Yearbook, selected years Specific to the foreign trade system, a series of measures were taken to control imports, raise tariffs for some products and limit the growing number of trading companies. Initially, the intention of those government interventions was presented as corrections of the market imperfection since China did not have a mature market economy for self-adjustment. 178 Theoretically, China should have at least committed to a 'standstill' principle to keep the tariff and the non-tariff levels, however, during the period of 1986 to 1989, the average tariff level rose 5%. The increasing number of trading companies also brought unexpected disorder to the trade regime. By the end of 1987, there were approximately 2,200 trading companies. In 1988, MOFERT began to grant provincial government the authority to approve new trading companies. Within a year, the number of trading companies increased to over 5,000. These new trading companies, flushed with newly found export freedom but inexperienced in the international markets, exhibited a costly lack of market discipline. By failing to honor export contracts and pushing down market prices in a bid to secure market shares, these companies damaged not only the export earnings but also the export market. After three years' of rectification, the number of trading companies shrunk to 3,800 in 1992 that finally restored the order of the foreign trade 178 Jeanne-Marie Claydon Gescher, 'GATT's problems with China', Far Eastern Economic Review, 11 January 1990, p.46 143 ~ I I system. 179 However, this movement lost its direction after 1989. With the domination of the conservative hard-liners in the government, as well as the sensitive time period (right after the 1989 Tiananmen Square Incident and later the changes in the former Soviet Union and other East European countries), the reformists within the government lost their voice, and accordingly, a series of new policies with a strong 'state-planning' color were promulgated. The turning point was the Fifth Plenum Session of the Thirteen Central Committee of the CCP. Conflicting with the historical document 'The Decision by Central Committee, the CCP on Economic Systemic Reform' passed in December 1984, 'The Decision by the Central Committee, the CCP to Further Improve the Environment and Rectify the Order to Deepen Reform' passed in November 1989, emphasizing the importance of the state macroeconomic planning and setting the goal to implement those administrative measures for three more years or longer. It also hinted at the policy failure of a series ofreform measures taken in the early and mid l 980s. 180 These moves upset the West and made the West question whether China was moving back to its planned economy. Beijing was asked to submit a supplementary document on China's trade system in November 1989 to explain these policy changes and to 179 Yao Sufeng( tzjE!Jt~), 'Xunxujianjin de fangquan: zhongguo jiaru shimao zuzhi yu waimao jingying quan' (opening up trading rights gradually: China's entry into WTO and foreign trading right), Guoji Maoyi, (International Trade: 11-13), no.11, 1997, p.13 180 The decision by central committee of CCP to further Selected important documents by party and government since the Third Plenary Session of the Eleventh Central Committee of CCP (1978-1992) Shi Yi Jie San Zhong Quan Hui Yi Lai Dang He Guo Jia Zhong Ya Wen Xian Xuan Bian, Central Party School Press (inside edition), 1998, Pp266-287 144 assure the West that China would continue its "opening up" policy. However, the contracting parties did not accept the explanation made by the Chinese negotiators and required more clarification of China's trade regime as well as the general economic policies at the next scheduled working party session. Taiwan's application to join GATT Beijing's first reaction was anger and strong opposition. One sign of this unusual response was shown in the titles of the three editorial articles on the front page of the official People's Daily: 'As a part of China, Taiwan does not have the right to apply to join GATT' on 20 October 1989; 'Taiwan is an indispensable part of China, GATT should refuse Taiwan's illegal application' on 12 January 1990; 'The Chinese government requests GATT to tum down Taiwan's illegal application' on 17 January, 1990. 181 Beijing believed that it was impossible for GATT to contain two Chinas or one China and one Taiwan. Taiwan could join only after Beijing and then only under Beijing's sponsorship, similar to Britain's sponsorship of Hong Kong's application. When the Director-General ofGATT Arthur Dunkel received Taiwan's application, he realized it would further complicate the existing deadlock on China's GA TT 181 Editorial, 'As a part of China, Taiwan does not have the right to apply to join GATT', People's Daily, 20 October 1989, p.1; Editorial, 'Taiwan is an indispensable part of China, GATT should refuse Taiwan's illegal application', People's Daily, 12 January 1990, p.1; Editorial, 'Chinese government requested GATT to turn down Taiwan's illegal application', People's Daily, 17 January, 1990, p.4. 145 application. As a result, he chose to put Taiwan's application on hold first and had it circulated to GA TT contracting parties for discussion on 16 January by GA TT Secretariat. It was up to the major GATT contracting parties to handle this delicate political issue. Initially, both the EC and the U.S. did not take a position publicly. Beijing had always used its diplomatic clout to block any move toward Taiwan being recognized by the international community, so it was not surprising that Beijing opposed Taiwan's application at the first glance. For quite a long time, Beijing insisted that 'authorization by the central government is essential for Taiwan to function as an independent tariff region of China. This is the legal issue of the principle of state sovereignty'. 'We have repeatedly expressed our wish to the Taiwan authorities to conduct negotiations on participating in GATT with us. But, the Taiwan authorities have not only refused to hold discussions but have opposed postal service, trade and air and shipping service across the Taiwan Straits. Their way of doing so has itself violated the basic principle ofGATT.' 182 Therefore, the initial position of Beijing on Taiwan's application was to not compromise. 182 Editorial, 'Talks on Taiwan participation in GATT', Beijing Review, 16-22 September, 1991, p.37 146 4.2: The Breaking of Deadlock in 1992 Beijing's Domestic Preference However, the difficulties Beijing faced internationally and the worsened domestic economic conditions that Beijing desperately needed to improve forced Beijing to soften its position toward the West. In the end, the shortage of everything from foreign exchange to high technology and the dramatic decrease of foreign investment helped Chinese leaders to make up their minds. In the spring of 1992, Deng Xiaoping staged what amounted to his last political comeback. On a carefully designed trip to Southern China, especially Shenzhen (the first special economic zone) and Shanghai, Deng galvanized the leadership to open the way for a new bursts of economic growth, overcoming the resistance of those conservative hard liners who maintained the policy restraints that had been applied since 1989. Freed by Deng's speech, China's economic growth rate leaped from little more than 4 percent in 1990 to more than 12 percent in 1992 (See table 4-5). Thereafter, it was possible for the pro-liberal leaders to take more accommodating steps toward the West, especially the U.S. Table 4-5: PRC's GDP ~rowth percentage) 1987 198 1989 1990 1991 1992 1993 1994 8 GDP growth 11.6 11. 4.1 3.8 9.2 14.2 13.5 12.6 3 Source: World Bank, China: Weathering the Storm and Learning the Lessons, (Washington, D.C.: World Bank, 1999) 147 At the following fourteenth Session of the Chinese Communist Party Congress held in Beijing in October 1992, China announced a historical breakthrough in policy and in ideology in that the goal of China's economic reform would be to build a "socialist market economy". 183 This was the first time the Chinese Communist Party openly gave up the ideology of the 'planned economy' and boldly embraced the market economy. The political breakthrough served to fuel the new momentum for China's GATT accession negotiation. As Liu Guangxi, who had participated China's GATT accession negotiation since 1988, pointed out: "We spent six years (from 1986 to 1992) to explain the 'planned commodity economy' but could not make ourselves understood. In October 1992, we could easily tell our negotiation counterparts that we were going to work on the 'market economy' too. We finally found the 'common language'; in the meantime, we felt that we had wasted six years on this single term." 184 The commitment to observe the Missile Technology Regime, to show flexibility toward Taiwan's GATT application, to participate in the non- proliferation treaty, to improve on human rights and the completion of the three memorandums on IPR, Market Access and Prison Labor issues were the direct outcomes of Beijing's diplomatic efforts. These actions conformed to the proposition that China tended to make more concessions to break this prolonged deadlock. 183 Jiang Zemin, 'Jiakuai gaige kaifang he xiandaihuajianshe bufa, duoqu you zhongguo tece shehui zhuyi shiye de gengda shengli' <12 October 1992>( quickening the pace ofreform, openness and modernization and making more success on the construction of socialism with Chinese characteristics), (Shisi Da yilai zhongyao wenxian xuanbian)Compilation of Important documents since the 14th Party Congress I, ( Beijing: People Press, 1995), p.21 184 Interviews in Beijing, November 2000. 148 The Preferences of the Bush Administration The domestic electoral cycle of the U.S. has been a key factor shaping the preferences of the President. In order to win the reelection, President Bush toughened his stance on his 'China policy' in 1992. Also in this year, Washington intensified its bilateral negotiations with Beijing on IPR protection and Market Access by making serious threats with specific deadlines to implement those threats. On 2 September 1992, President Bush's decision to sell 150 F-16 jets to Taiwan along with a showdown between Bush and Congress over the conditions for China's MFN trading status cast shadow over the Sino-American relations. After all the Taiwan issue had long been a sensitive point of China's grand strategy and the annual approval of the MFN status had always annoyed China. However, Beijing understood that all those actions were parts of the necessary steps for Bush to win the election. Although the Chinese Foreign Minister Qian Qichen .. warned that it was 'a very serious incident' and that Washington would be held I accountable for the 'serious consequences' 185 on the day that the sale of the F-16s was announced, Beijing did not take any specific action. The interesting comparison came a few months later when Taiwan proceeded to buy 60 Mirage jets from France to complement the F-16s. China countered the French sale of Mirage jets by closing down the French consulate in Guangzhou and by denying French companies the 185 Associated Press story in New York Times, 3 September 1992, P.A20 149 chance to bid on a contact to build the Guangzhou's subway. The French protested that China punished France much more severely than it did the U.S. It was not always easy for the Chinese to deal with Bush, who had imposed sanctions on China after the 4 June 1989 crackdown. On the other hand, however, the Chinese leaders felt that they understood Bush, who had been the head of the U.S. liaison office in Beijing in the 1970s. Privately, the Chinese leaders recognized that Bush had done China a number of favors, the biggest being his vetoes three years in a row of bills to rescind or put conditions on China's MFN trading status. 186 This decision for the arms sales to Taiwan was made one month before the deadline of the U.S./China bilateral market access negotiation. Surprisingly, it did not affect China's move to be more accommodating. One reason the Sino-U.S. trade negotiations on the market access ended with significant Chinese concessions could be the widely held speculation that China felt it better to strike a deal with the Bush Administration, rather than having to negotiate one with the Clinton Administration. 187 Bush needed the bilateral agreement to strengthen his reelection and Beijing chose to support his reelection, especially after candidate Clinton publicly denounced Bush for "appeasing the butchers of Beijing". 188 This speculation might not be groundless. According to the Chinese chief negotiator Tong Zhiguang, who was in charge of the market access negotiation, an unidentified White House 186 Interviews in Beijing, Winter 2000 187 John Kohut, "China prepares for Clinton", South China Morning Post, October 25, 1992, p.11 188 Ted Galen Carpenter," A New President, A New China Policy'', see http://www.cato.org/cgi bin/scripts/printtech.cgi/dailys/11 01 00.html, November 1, 2000 150 official met with him on October 9th, one day before the deadline. That official told Tong in a straightforward manner that in the morning of October 11th Bush would have a TV debate with the Democratic Party candidate Clinton, and Bush needed this Sino-US bilateral agreement as one of his foreign economic policy achievements. The official asked the Chinese side to cooperate. 189 China acted accordingly with the hope that President Bush could win the reelection. After the conclusion of the agreement, in a language clearly aimed at voters, Michael Moskow, the Deputy USTR, said at a news briefing, 'today's successful conclusion provides American business, farmers, and workers with unprecedented access to a rapidly growing market with 1.2 billion people' . 190 The conclusion of this agreement signaled the end of the two-year long stalemate over China's GATT accession negotiation by having the U.S. commitment to 'staunchly support China's early entry.' Reaching agreement on Taiwan's Application to Join GATT To break the stalemate on its GATT accession negotiation, Beijing had to solve the issue of Taiwan's GATT application status since the U.S. and the EU were not going back to the negotiation table before they could reach an agreement with Beijing on the matter. As one Chinese negotiator recalled, Beijing did not have any other choice. Beijing was afraid that in that bad climate it was not impossible that Taiwan 189 Yang Jufang, "Fifteen Years to Open the Door of WTO--- Interviewing Four Chinese Chief Negotiators", Begtng Youth Daily, November 10, 2001, p.1 19 Steven Greenhouse, 'China trade pact with U.S. is singed', New York Times, 11 October 1992, p.7 151 could get into GATT before Beijing--- the last thing Beijing wanted to see. 191 In the meantime, Taiwan did not want to have direct talks with Beijing but chose to depend on the mediation of the U.S. and the EC. Furthermore, developed countries strongly opposed Beijing's insistence to sponsor Taiwan's entry after its own admission. To developed countries, this formula meant that Taiwan could get a free ride into GATT. This opposition can be summarized in the statement of one Western official: 'forget it, a lot of us want to sit and negotiate concessions with the Taiwanese before they come into GA TT.' 192 Consequently, Beijing softened its position to go along with Taiwan's GATT application in 1992, with the three preconditions specified in the letter Premier Li Peng wrote to Sir Arthur Dunkel as well as the national leaders of all contracting parties: First, the PRC is the only legitimate government of China and Taiwan is Part of China. Taiwan could only join as 'Chinese Taipei; Second, Taiwan could join GATT as a separate customs territory only after the PRC joins GATT; Third, Taiwan's application should be consulted and agreed on by the PRC. 193 The U.S., Taipei's principal sponsor, opposed the link between the two sets of membership talks but failed to gain the support of other GATT members. 194 Under the terms of 191 Interviews with MOFTEC officials, Winter 2001 192 John Zarocostas, 'Beijing stalling impeded Taiwan bid to join GATT', Journal of Commerce, 24 April 1992, p.3A 193 Feng Yu-shu, 'China and GATI', Far Eastern Economic Review, December 19, 1999, P. 65 194 Frances Williams, 'Taiwan, China couldjoin GATT on same day', Financial Times, 25 March 1992, p.5 152 this informal understanding, China would join GA TT first, possibly only minutes ahead of Taiwan. With the mediation and the active involvement of the U.S and the EC, Taiwan agreed to consider Beijing's three principles. Then came the question of how this agreement could be made into a legal document. After six months of intensive negotiation, Beijing stopped pushing for a formal understanding and agreed to live with an informal, tacit approval by the GATT contracting parties. Eventually, all sides accepted that it should be in the form of a presidential statement by the Chairman of GA TT council. It took four diplomats, including the American representative, the EU representative, China's Ambassador to Geneva Wang Tiance and his assistant Wang Lei, eight more months to finish this statement. Wang Lei later recalled that the U.S. and the EU representatives first developed several drafts of the statement, but none satisfied the Chinese negotiators. The four-person team worked word by word to revise the statement. To state the principle of "Beijing joins first and then Taiwan second", for an example, the U.S. and the EU representatives wanted to use "many" to describe the GA TT contracting parties who supported Beijing's position and "some" to describe those who supported Taiwan's position. However, Beijing insisted on using "the majority" and "a few" instead. The issue took a long time to resolve in a compromise in which the U.S. and the EU won the 153 format and China secured the three principles embodied in the statement. 195 On 29 September 1992, the GA TT council chairman announced the statement as one of the issues on the agenda of the day. The conclusion of three MO Us The first MOU was on the IPR protection. After six rounds of intensive negotiations, the two states reached an agreement just several hours before the deadline specified by the American negotiators and signed a memorandum resolving the issue on its due date. China agreed to make significant improvements in its patent, copyright and trade secret laws, including the commitment to provide product patent protection starting on 1 January 1993, and to adhere to the international copyright standard by joining the Berne Copyright Convention and the Geneva Phonograms Convention that would require amendments of China's copyright law so that computer software could be treated as a literary work and thus be subject to copyright protection with a term of 50 years. 196 The second MOU was on the market access. Beijing's final concessions on market access were substantial, especially considering the real situation of China's import regime at the time. Unlike the export regime, the reform of the import regime did not 195 Yang Jufang, "Fifteen Years to Knock at the Door to WTO", Beijing Youth Daily, November 10, 2001, p.1 196 Nicholas Lardy, China in the World Economy, (Washington, D.C.: Institute for International Economics, 1994),pg. 80 154 start until 1992, and there were many discrepancies between China's import regime and GATT rules 197 , according to Wu Jiahuang, the head of the Chinese GATT tariff reduction negotiation group and a director at the General Custom Administration. T bl 4 6 Ch' a e - ma s import regime b ti th US/Ch. k . 1992 e ore e ma mar et access negotiation m High tariff level The average tariff was 42.5%. Among them, tariffs for 975 products ranged from 80%-100%; 111 products ranged from 120%-220%. These two categories accounted for 17% of all tariff items. Tax exemption and 63 regulations and preferential policies on tax exemption and reduction in reduction policy total. Both in 1990 and in 1991, the government tariff incomes were lower than the amount of tax exemption and reduction. In 1990, tariff income was 18.9 billion yuan compared to 22.2 billion Yuan for exempted and reduced tariffs. As such, the actual tariff level was only 22.5%. Non-tariff measures In China, there were six types of NTM: plan restriction; licenses restriction; operational scope restrictions; foreign currency restriction; import review system; price restriction. Among them, import mandatory and guidance plan accounted for 30%-40% ofNTM; import licenses 40%; mechanical and electrical products had their own special review system. Lack of transparency General Custom Administration published 'Compilation of Custom Laws and Regulations' (the most transparent and complete compilation ever) in 1991. It included 256 laws and regulations. In the meantime, General Custom Administration published the 'Internal Compilation of Custom Laws and regulations' which included 135 internal regulations. The ratio of public decrees and internal decrees was 2: 1. Regional different tariff In SEZs, a half tariff was levied for most imports and a zero tariff for policy machinery, raw materials and petroleum. Coastal areas allowed a zero tariff on imported machinery and seeds. Pro-market reform China was no longer a highly central planned economy. Mandatory plan only constituted for about 17% of the industry output; with only 60 industrial products fell into mandatory plan and 27 products centrally allocated and distributed. Price reform The mixture of state pricing, guiding pricing and market pricing; among them, state pricing accounted for less than 30%, guiding pricing and market pricing accounted for 70%. Source: selected information from Wu Jiahuang, 'Guanmao zong xieding yu zhongguo de shuizhi gaige (GATT and China's tariff system); Li Gang (Researcher at International Trade Research Institute, MOFERT), 'Guanmao zong xieding yu zhongguo waimao tizhi gaige, (GATT and the Reform of China's Foreign Trade System)', in Hua Can (New China Agency) ed. Guanmao Zong Xieding: Jiyu, Tiaozhan Duice (Beijing: China Encyclopedia press, 1992), pp.59-60; pp50-55. 197 Wu Jiahuang( ~*~i), guanmao zong xieding yu zhongguo de guanshui tizhi ( GATT and China's tariff system: 56-62), in Huacan ed. Jiyu, tiaozhan, duice (Challenge, change and Policy), (Beijing: China Encyclopedia Press, 1992), Pp59-60 155 Although China's stake in the trade with the U.S. was considerably larger than that of the U.S., China had also emerged as the fastest growing large market for the U.S. firms. The U.S. export to China grew 54% between 1991 and 1992. The U.S. export to China grew almost 20% in 1992 alone, more than 10 times the average rate of growth of the U.S. export to markets in the developed countries and almost half as rapidly as the average rate of growth of the U.S. export to all developing countries. 198 As a result of this relatively rapid growth, China became the sixth largest developing-country market for the U.S. exporters in 1992 after Mexico, Taiwan, South Korea, Singapore, and Hong Kong. On the other hand, the Chinese market consumed less than 2% of the total U.S. exports, compared to the U.S. market that absorbed approximately 30% of China's total exports. In 1992, the United States ranked as the third largest trading partner of China, following Japan and Hong Kong. Consequently, China depended heavily on the U.S. market at the time especially when export had always been the engine of China's rapid economic growth. This heavy dependence enabled Washington to employ trade retaliations in both the IPR and the market access negotiations and succeeded in both cases. Additionally, political and bureaucratic considerations gave the prospect of sanctions a solid impact, as pointed out by Franklin L. Lavin, the American negotiator who participated in both the negotiations, "the threats allowed the Chinese negotiators to go to their superiors and say that although the Americans were being as irresponsible 198 Nicholas R. Lardy, China in the World Economy, (Washington, D.C.: Institute for International Economics, 1994 ), P .117 156 as ever, we would be better off working something out with them". 199 Early in the morning on 10 October 1992, the U.S. and China started their bilateral negotiation in Washington. It was not until 10:00 pm when the two sides finally reached consensus on the major outstanding issue --- Beijing agreed to lower tariffs on automobile and auto part imports and remove the import quota permit gradually. In exchange, the Chinese chief negotiator Tong Zhiguang insisted that the agreement contain the phrase that "the U.S. staunchly supports China's entry into GATT." After reporting to the White House, USTR Hills reluctantly accepted this demand at 11 :45 pm. The terms of the agreement were sweeping. China agreed to dismantle, over five years, 90% of all import restrictions, including licensing requirements, quotas, controls and so forth. In addition, China agreed to eliminate import substitution regulations, to reduce tariffs (not made public in the agreement at Beijing's request), and to eliminate the import regulatory tax. Beijing also agreed to increase the transparency of its trading system by publishing all laws, regulations, policies and guidance on the operations of its import and export system. Beijing further agreed that all sanitary and phytosanitary standards and testing would be based on sound science and administered so as to avoid creating barriers to the import of U.S. agricultural products such as fruits, wheat and tobacco. In return, the U.S. promised to 'staunchly support China's entry into GATT.' The successful conclusion of this 199 Franklin L. Lavin, 'Negotiating with the Chinese or how not to Kowtow', Foreign Affairs July/August 1994: 16-22, p.21 157 .. negotiation was a key step to break up the two-year deadlock on China's GATT accession negotiation. Table 4-7: the opening positions and the final agreement on 1992 bilateral market access talks Beijing's position Washington's position Final agreement Publish all secret regulations Publish all secret regulations Publish all its laws, regulations, within three years upon agreement polices, official 'guidance' upon agreement Cut by two-thirds the number Cut import licenses by two- Phase out 'vast majority' of trade of products requiring import thirds within a year restrictions-Quotas, controls to licenses import-licensing requirements, among them, 75% will be eliminated within two years Remove all import substitution Welcomed, but not one of the All import substitution regulations regulations four core objectives in this being removed negotiation Lowering tariffs on those key Significantly reduce tariffs that were U.S. export goods raised since 1988 in the following sectors: Edible fruits and nuts, other edible preparations, vegetable oils, photographic or cinematographic goods, miscellaneous chemical products, articles of iron or steel, machinery and mechanical appliances, electrical machinery and parts, perfumery, cosmetic and toiletry preparations. and games. These reductions will take place no later than December 31, 1993. Maintain the restriction on auto The key issue in this talk to lift All other offers on the removal of joint ventures to procure parts such restrictions quotas can be multi-lateralized, but the and assembly kits from their lift of restrictions on auto parts only home countries effective to U.S.-Chinajoint ventures; Source: Selective information on opening positions is based on the interviews in Beijing in the winter of2000 and the spring of 2001, for information on the final agreement see the official U.S. government trade agreement at http://www.mac.doc.gov/China/ Agreements.html The third MOU was on export of Chinese goods made by prisoners. Evidence that some Chinese goods imported into the United States were produced in the prison-run factories first surfaced in the late 1980s. Bilateral discussions led to the signing of a memorandum of understanding between the U.S. and China on this issue on 7 August 1992. China pledged to take steps to halt such export and agreed that the U.S. 158 could post a U.S. Custom official in the American Embassy in Beijing. That official was to have access to facilities suspected of using prison labor to produce products for export purpose. China waged both a public and a behind-the-scene campaign to revive its membership application including Premier Li Peng stating publicly that China was eager to abide by all international trade rules. The effort produced results, evidenced by the support China received from developing countries such as India and Mexico. 20 ° Finally, the stalemate broke up in the tenth session of the working party held in February 1992. Although the session continued to review China's trade regime since the U.S. and the EC believed that many questions about the Chinese economy remained unanswered --- China was to answer written questions for another few weeks, it also began discussing a draft protocol of China's accession. Part II: The Failure to reach agreement by the end of 1994 Since the 1989 stalemate was a direct result of the political/ideological crisis in China, it fundamentally changed the preferences of the domestic political actors as well as the domestic power sharing in the U.S. on this matter. The chief executives from both countries, especially the chief executive from the U.S., lacked the political interests to accelerate the negotiation. Consequently, the preference of the U.S. 200 Frances Williams, 'China and Taiwan membership drive tests GATT loyalties', Financial Times, 17 February 1992, p.4 159 MNCs and exporters became more important for any progress to be made for the negotiation --- it had to have sufficient incentive to lobby and it had to lobby sufficiently to influence the preferences of the two political actors (the chief executive and the legislators). Unfortunately, such support was also missing. In the end, the effort of the technocrats from MOFTEC was destined to be in vain regardless how eagerly those technocrats wanted to win the GA TT membership by the end of the 1994, as the gap between the two sides continued to widen, instead of to narrow, at the end of 1994. This section examines Beijing's effort to speed up the negotiation in 1994 and the change of the preferences of the executive branch, the legislative branch and the interest groups during the same period. The domestic opposition from Beijing was also noteworthy during this period since bureaucratic politics in an autocracy usually do not produce credible influences to the preferences of its top leaders especially during the period of power consolidation when domestic concerns overweight foreign economic policies. 160 4.3 U.S.'s Domestic Preferences and Institutions The Clinton Administration In March 1993, USTR Newkirk explicitly informed his counterparts in Beijing that the 'permanent MFN' status was non-negotiable as it was legally prohibited in the U.S. at the first official bilateral contact on China's GATT accession negotiation after the 1989 deadlock. Newkirk also emphasized that 'the U.S. was not in any hurry' to conclude an agreement. 201 This latter point embodied the first explicit position taken by the new Clinton Administration. The new president-elect was not going to keep the promise made by the Bush Administration to 'staunchly support China's GATT membership'. China's entry into GATT was not the immediate priority of the new president. In fact, Clinton did not want to devote much of his time and energy to foreign policy of any kind as the central message of his 1992 campaign had been that Bush was too preoccupied with the foreign policy to manage the domestic economy. Furthermore, Clinton's attention was on the ongoing NAFTA negotiation and later on the conclusion of the Uruguay Round of negotiations within his arena of foreign policy and international bargaining. In the end, Clinton was hardly expected to invest any of his political capital to promote China's accession into GATT. 201 Tony Walker, 'U.S. in no hurry over China talks', Financial Times, 3 March 1993, p.6 161 The priority of Clinton's China policy was to keep his commitment on the human rights issue. In April and May 1993, the administration conducted several rounds of talks with Mitchell in the Senate and Pelosi in the House on what Clinton's executive order should say to attach the human rights issue onto the renewal of China's MFN status by June 3. 202 The administration's goal was to come up with a unified policy on China's MFN benefits, one that represented both the White House and Congress to stop the prolonged skirmishing between the executive and the legislative branches during the Bush Administration. This executive order was formally signed on 28 May 1993. Clinton's order was a product of compromises. The administration weakened the conditions Congress had imposed in its bills of the prior two years to link China's MFN status with comprehensive issues covering trade and arms proliferation but just focused on requiring China to make human rights improvements. Although The Republican National Committee accused this conditionality as 'a complete reversal of his campaign rhetoric' , 203 it went far beyond the position of the Bush Administration to veto Congress bills on imposing conditions on the renewal in both 1991 and 1992. The official media in China thundered opposition on this executive order and warned the new administration not to 'interfere in China's internal affairs' . 204 202 James Mann, About Face: A history of America's curious relationship with China, from Nixon to Clinton, ( New York: Alfred A. Knopf, 1999), p.279 203 Thomas W. Lippman, 'U.S. gives China renewal of favored status in trade', Washington Post, May 29, 1993, p.21 204 Mike Jendrzejczyk, 'No waffling on China', Washington Post, 16 February 1993, p.Al3 162 Then, a subtle policy change took place at the end of 1993 after many developments- --- the unhappiness of the MN Cs and exporters, the pressure from the Pentagon, Mr. Kissinger's efforts and the series of acrimonious public confrontations with Beijing-- --- all led to a less confrontational approach by the Clinton Administration to deal with China. The theme was that the Clinton Administration would be willing to talk to Beijing at all levels of government and on a wide range of subjects. 205 The meeting between Clinton and Jiang in Seattle during the APEC Summit in November 1993 signaled the first step toward a joint effort to improve the bilateral relations although Clinton and Jiang did not reach any common understanding over China's MFN status or GATT accession. Furthermore, President Clinton's attention was also distracted by the decision he had made earlier on China's MFN status, namely to maintain the conditionality or to give up the linkage. By early 1994, there were different voices within the Clinton Administration in regard to China's MFN status. The economic team was virtually in open revolt against the conditionality, as the Secretary of Commerce, Ron Brown, spoke of unconditional MFN for China as a matter of 'economic security' . 206 In evident frustration, the U.S. Ambassador to China J. Stapleton Roy revealed the administration's internal division in a newspaper interview. When asked whether China would meet Clinton's standard of 'overall significant progress' on human rights, the ambassador stated: 'I can't answer those questions, because the administration is going to have to define what it views as 205 James Mann, About Face: A History of America's Curious Relationship with China, from Nixon to Clinton, (New York: Alfred A. Knopf, Inc. 1999), p.290 206 Clay Chandler, 'Bentsen to push China on economic reform', Washington Post, 6 January 1994, p.DlO; Cable News Network interview with Ron Brown, 14 March 1994. 163 significant progress. ' 207 Finally, on 26 May 1994, Clinton announced his decision to de-link the human rights issue from granting China annual MFN status by acknowledging that 'not all the requirements of the executive order were met but we have reached the end of the usefulness of that policy, and it is time to take a new path' .20s The Clinton administration changed the policy on China's annual MFN status in 1994 partly because the policy of linkage was ineffective and partly because the human rights issue was downgraded by the growing commercial interests in China. At the same time, however, the administration did not change its tough stance on China's GATT accession negotiation despite the fact that the decision on China's MFN status was essential to China's future GA TT accession, since such a tough stance would help to ease the dissatisfaction of Congress toward the President in regards to the withdrawal of the linkage. These different positions taken by the Clinton Administration on China's MFN status and on China's GATT accession application were also partly derived from the consideration that the MFN status could meet the immediate and direct needs of the U.S. economic interests while the benefits that China's GATT accession could bring to the U.S. were still vague and uncertain. 207 Patrick Tyler, 'Rights in China improve, Envoy says', New York Times, 1January1994, p.5 208 Transcript of President Clinton announcement of MFN decision, White House, May 26, 1994 164 Clinton had more reasons to decelerate the negotiation than accelerate. The domestic 301 investigation and the following bilateral negotiations turned out to be very powerful (despite its questionable effectiveness) at solving the direct concerns of the U.S. MNCs and exporters. China's GATT accession negotiation became the last leverage the U.S. had toward China after the U.S. de-linked the human rights issue from China's MFN status in May 1994. Additionally, it also appeared unlikely that China would give up its bid to enter GATT as it would yield significant long-term benefits for China, even ifthe U.S. blocked China's entry at this time. A U.S. report released by the Economic Strategy Institute stated, 'China's accession is the biggest international economic issue faced by the U.S. and is a 'unique window of opportunity to influence China's economic and trade policies'. Greg Mastel, author of 'China and the WTO', also warned: 'once we commit ourselves, even in principle, to give China WTO status, we lose the leverage we have. ' 209 Therefore, at the time, continuing the bilateral contacts with China, utilizing GATT as an important leverage toward China and maintaining the current trade relations with the existing three MOUs on IPR, Market Access and Prisoner Labor would better serve the U.S. interests than making China a founding member of the WTO. 209 John Zarocostas, 'China sweetens market offers in its quest to join', Journal of Commerce, 26 September 1994, p.lA 165 U.S. Congress During this period, the US Congressional politics also helped to explain the uncompromising position of the U.S. While some members of Congress had realized the ineffectiveness and inappropriateness of using the MFN as a tool to press China to improve its human right conditions, President Clinton's de-linking decision was nonetheless strongly opposed by others in Congress. The third-ranking Democrat in the House, Rep. David E. Bonior of Michigan, joined a coalition of 11 human rights groups in urging the President to pull the plug on China's MFN status. "The United States should not be in the business of licensing torture," Mr. Bonior said. 210 Another factor was the new political balance of power in Congress. After the 8 November 1994 election, the Republicans took control of both chambers of the U.S. Congress for the first time since 1954. The election took place during the most sensitive period of time of China's GATT negotiation in Geneva, and President Clinton was very cautious not to cast any shadow over his coordination with the position of the new Congress. Clinton's concern directly led to the rigid position of the U.S. at the final days of the negotiation when great flexibility was most needed. The Republican majority, represented by Senator Jesse Helms (the new chairman of the Foreign Relations Committee) and Senator Frank Murkowski (the incoming chairman of the Subcommittee on East Asian and Pacific Affairs), was expected to launch a China- 210 Mark Matthews, 'U.S. backing down on trade with China', The Baltimore Sun, 24 May 1994, p.lA 166 bashing campaign, focusing on China's conduct in Tibet and its alleged export of military technology to Iran and Pakistan, while trying to tilt the U.S. policy in a more pro-Taiwan direction. The Republicans would probably be supported in their efforts by many liberal Democrats in Congress, who backed Taiwan's democracy movement and wanted to protect the American market from the Chinese trade competition. 211 During this period of time, Congress became a restraining power to affect the government as well as the American negotiators in their consideration of whether China should be offered the accession. U.S. MNCs and exporters Beside the constraints on the leadership in both countries, the changing market conditions also made it difficult for the U.S. and China to reach an agreement. The boom of the Chinese economy, especially its trade, caused an 'image change' problem. The West started to see China as an 'export house' and a potential threat rather than a weak transitional economy that needed their support. The IMF both captured and fueled this scene in May 1993 when it published figures showing that the Chinese economy, when figured in terms of purchasing price parity (PPP), was already the third largest economy in the world and was projected to become the largest economy in the early 21st century. With this calculation, China's GDP grew to four times the conventional figures. It resulted in a series of disputes and 211 Leon Hadar, "US-China ties: a hardening of attitudes", Business Times, 9/29/1994, Pg.13 167 controversy on the requirements China needed to meet to get into the club, such as the developing country status, the general safeguard clause, and more market access demands. The position of corporate America also reflected the growing trade deficit with China. In 1990, China ranked the third largest trade surplus with the U.S. In 1991, China ranked the second largest, exceeded only by that of Japan. "The 'China- is-the-next-economic-superpower' euphoria is overwhelming in Washington," commented one U.S. official. 212 Unlike the situation in the late 1990s, when the so-called "China Lobby" representing companies doing business in China led the campaign to support China's WTO membership, most American companies supported the tough position of the U.S. on China's GATT accession and on the intellectual property issue during the 1993-4 period. However, more and more companies began to join the 'China lobby' for China's MFN status. Every year since 1990, leading U.S. corporations had worked longer and harder in supporting China's MFN status renewal. The campaign in 1994 well demonstrated this trend, when nearly 800 major American companies and trade associations wrote President Clinton urging continuation of China's benefit in the weeks before his decision. 213 The coexistence of strong support of the U.S. MNCs and exporters on renewing China's MFN status and their relative indifference on China's GATT accession application is not difficult to explain. One main force of 212 Leon Hadar, US-China ties: a hardening of attitudes, Business Times, 912911994, Pg.13 213 Peter Behr, 'Major U.S. Companies lobbying Clinton to renew China's trade privileges', Washington Post, 6 May 1994, p.19 168 the 'China lobby' on China's MFN status came from the companies that imported from China as they desired continued low tariff rates on Chinese imports. Jill Barad, the president and chief executive officer of Mattel, the American toy company, warned President Clinton of the consequences of withdrawing China's MFN status as she claimed that duties on Chinese-made toys would go up from 12 to 70 percent which might cause American companies such as Mattel to lose their market share to foreign competitors. She went on to claim that the toy companies would not be the only ones to be hurt: American shoe companies imported 60% of their products from China, and American imports of textiles from China totaled to $4 billion a year (see figure 4-1 and 4-2). GA TT had very limited requirements on the depth and scope of the trade in service and agriculture in 1994 because the powerful American services and agricultural sectors (where American firms had advantages) could not see the benefits the 1994 market access package would bring to them. As a result, those sectors were not the supporters of China's GA TT membership, a clear contrast to the situations in 1999. In the 1980's and the early 1990s, American firms were cautious investors in China. This trend changed in 1993. 1993 became the peak year for new investment into China, both from the U.S. and from the rest of the world. China signed 6,700 contracts with American companies (out of a total of 83,437 contracts worth $111 billion, shown in table 4-8). The investment from the U.S. was booming, but was at 169 its beginning stage historically. In the 1993-4 period, the primary preferences of these internationally orientated companies were to improve the overall investment environment in China --- transparency, IPR protection and non-discrimination. U.S. MNCs and exporters lobbied heavily for these issues, and the three memorandums reached between Washington and Beijing during this period of time covered exactly their concerns. As the 'new China lobby' spoke of the comparison in 1996: "five years ago, when U.S. companies talked about investing in China, they were worried about the political and economic risks in China; now they see the risk as coming from Washington". 214 The improvement was slow to come. As the implementation of the 1992 IPR agreement appeared to be unsatisfactory, a new round of IPR negotiation was held in 1994 that did not reach any agreement until 1995. Under such a situation, the U.S. MNCs and exporters continued to focus on improving the overall investment environment and the transparency of the trade regulations in China. In general, the private sector is likely to be more confident in the continuity of the business practices and the rule of law of another democracy than of another autocracy, where such capricious acts as expropriations may threaten their interests. 215 Consequently, the private sector is interested in the market of an autocracy and is willing to lobby its government to pry open that market only when it feels that that market is 214 "China's Hired Gun", Multinational Monitor, Vol. 17, No.4, April 1996, http://multinationalmonitor.org/hyper/mm0496.09.html 215 Mancur Olson, 'Dictatorship, Democracy and Development', American Political Science Review 87(3): 567-76, 1993 170 sufficiently attractive and there are commercial interests at stake for it to do so. In this period started the stage that many started to see the improvement of the general business environment in China and found the Chinese market attractive. Table 4-8: Total and U.S. Contractual and Realized FDI in China (1986-1994, in$ Millions) Year Total Total Realized FD I Contractual FDI Realized FDI Contractual FDI by U.S. by U.S. 1986 2,244 3,330 326 541 1987 2,314 3,709 263 342 1988 3,194 5,297 236 370 1989 3,393 5,600 284 641 1990 3,487 6,596 456 358 1991 4,366 11,977 323 548 1992 11,008 58,124 511 3,121 1993 27,515 111,436 2,063 6,813 1994 33,767 82,680 2,491 6,010 Source: Ministry of Foreign and Trade Economic Cooperation, http://www.moftec.gov.cn 4.4: Beijing's Preferences and Institutions China has no electoral cycle; however, a Chinese new leader has to experience a process of power consolidation that is likely to take a longer time to complete than in a democracy, typical of an autocracy. This process of power consolidation might explain why Jiang continued to stress the danger of the 'peaceful evolution' in 1991, two years after the 1989 Tiananmen Square Incident. Only after Jiang' s position as the official successor of Deng became relatively stable did he slowly begin to slowly relax his concern of being accused by the domestic conservative factions of being soft. It appeared that Jiang' s concern caused him to be reluctant to provide his rhetorical support in 1993 for the full market-based price system and still 171 emphasized the necessities and merits of the state planning and some price controls. 216 At the end of 1994, two years before Deng Xiaoping passed away, Jiang began to change from his initial position of indifference to 'cautiously and half-heartedly support' the China's GATT membership while retaining his concern over domestic oppositions. 217 Jiang had great concerns on China's state-owned enterprises that accounted for only 30% of the total industrial output but employed large numbers of urban workers and maintained their strong political clout. Jiang could not bear the thought of being labeled as surrender to American pressure to harm in any way the fundamental economic interests of China before he won the domestic factional struggle and to successfully become the formal successor of Deng Xiaoping. In summary, both Jiang and Clinton needed to mobilize domestic support to achieve the goal of leadership legitimacy during this period of time, and neither was eager to initiate any cooperation or to reach any agreement in the arena of international negotiation because any softening position toward any ideological adversary would harm their effort of domestic mobilization. In 1994, the MOFTEC wanted the GATT membership desperately. Being the founding member of WTO was just one of the reasons. China needed the 216 Jiang Zemin, "Speech at the Second Plenary Session of the Fourteenth Central Committee of CCP, March 7, 1993", Selected Important Party and Government Documents Since the Fourteenth Central Committee ofCCP, (Beijing: People's Press, 1995), p.123 217 Interviews in Beijing, Winter 2000 172 membership to further stimulate its reforms, to safeguard the market for its export industries and to provide a stable framework for foreign investment. With the change of its market conditions, China was the 11th trading power in the world in 1994. As its overall trade volume and its trade surplus grew, the stake of being a GATT member grew accordingly. GATT became the best vehicle for China to shield itself from increasingly protectionist policies and discriminatory groupings in world trade and provide China the access to dispute resolution mechanisms. Since 1992, disputes between China and its trading partners never stopped, mostly with the U.S. and the EU. Consequently, China was eager to become a member of the multilateral organization and avoid the bilateral discriminatory measures resulting from those disputes. Most importantly, MFN from the U.S. became more important and less of a sure thing to China. The annual MFN renewal by the U.S. became more and more intolerable to Beijing. Even after Clinton announced the de-linking of the human rights issue from the MFN status in 1994, no one in China knew what would happen the next year, as Long Yongtu said: 'even though we may not get the commitment of the permanent MFN status from the U.S. upon entry, being a GATT member can at least provide us a forum to discuss this with the U.S. ' 218 As the series of bilateral negotiations taking place between Washington and Beijing over IPR, prisoner labor, market access and transit textile all put Beijing in a disadvantaged position, China realized that GATT/WTO could not only provide some protection to China's 218 Long Yongtu, 'Guanyu Guanmao Zong Xieding' (Issues Regarding to GATT), Zhongyang dangxiao baogao xuan ( Selective speeches at central party school: 10-19), 1992, p.16 173 interests, but also help China participate into the rulemaking process rather than simply being told to follow the rules made by others. Equally important was the concern that with the progress of Taiwan's accession negotiation, its 'more GATT friendly trade regime' and the help from the U.S., Taiwan would have a chance to obtain the membership first. Although China reached a tacit understanding with the GA TT contracting parties that the PRC would be admitted first, China was concerned that the understanding might become ineffective under the new WTO framework. To China, it did not have other attractive BA TNA to seek. This was the root of China's desperation. One specific reason behind China's keenness was the phase-out of the Multi-Fiber Arrangement (MFA) and its replacement by Agreement on Textile and Clothing (A TC). It was the first time that textile trade was included in the multilateral trade system. As the largest textile exporter, China would be one of the principal beneficiaries of A TC should China become a WTO member. Based on the stipulation of the A TC provisions, Chinese textile and clothes export was valued as $20 billion in 1993, in which textile export accounted for 10% of the world market share and clothes accounted for 19. 7% of the world market share. 219 Based on A TC, import quotas in the developed countries would be phased out in four steps to liberalize trade in textile, in the meantime, it required an extra annual increase rate: a 16% annual increase from 1995-1997; a 25% annual increase from 1998 to 2001; 219 GATT document: COM.TEX/W/268/Add.1 174 and a 27% annual increase from 2002-2004. By 2005, textile trade would be completely bound by the WTO free trade system. At the time, China could not benefit from ATC without becoming a WTO member. For the other sectors, China could still maintain its trade status with its trading partners even if China failed to enter GATT. However, China might lose its relevant textile trade benefits gained under MF A in addition to not being able to enjoy any benefits under A TC since China was a member of MFA and TSB. Moreover, the Chinese textile industry depended heavily on the world market: more than 60% of the textile products produced in China were for export at the time. Even as a member of MF A, China had always received more discriminatory treatment from the U.S. than other textile exporters. In the third U.S./China bilateral textile agreement, the U.S. lowered China's annual increase rate to 5%-6%. In the fourth bilateral agreement in 1994, the U.S. further lowered the annual increase rate of Chinese textile exports to 1 %-2%. By the end of 1994 when MF A and TSB would expire, China would not have any legal ground to negotiate with the U.S. The chair of the China working party, Girard, put in the draft protocol on 19 December 1994 the suggestion of singling out textile as an independent issue to explore the feasibility of applying the Second Article of ATC on China before China became a GATT member. However, the initiative was never discussed because China's negotiation was completely stalled during the 19th session of the working party. 220 To China, the textile export was not only its number 220 Wang Yi, 'Wulagui huihe fangzhiping fuzhuan xieyi dui woguo fangzhiping maoyi de zhongda yingxiang' (the important influence of ATC over Chinese textile exports), Duiwai Jingmao Yanjiu, (Foreign Trade Research: pl-7), no.7and 8 (total 662 and 663), February 1995, p.4 175 one export sector but also one of the largest employers of its urban workers. The potential loss of both the multilateral protection and its market share in the world textile market would be disastrous to China's economic development as well its social stability. Ministerial Interests During this stage of negotiation, vested ministerial interests in China began to play an influential role on the bargaining process. Ministerial interests represent those benefits and privileges that gained by the ministries through their 50 years of running the socialist regime. Although the opening-up policy would lead to long-term benefits to the state, the ministries chose to defend their privileges since those privileges not only brought them financial benefits (such as revenue gained from the enterprises they owned or supervised, as well as benefits gained from their networks of firms), but also authority (such as the power to issue trading right licenses, to approve foreign investment over a certain limit, and to set import quotas). Furthermore, different ministries did not enjoy equal power and influence within the central government. Therefore, the amount of protection that could be given to each ministry mirrored by some degree the importance of that ministry as perceived by the central government. Throughout the negotiation process during this period of time, Beijing carefully protected several specific sectors' interests by choosing to make 176 more concessions on the other sectors in exchange for the high tariff levels or the remaining NTBs for these sectors. In general, the service sectors were the ones Beijing chose to protect, especially the financial services, the telecommunication and the insurance sectors. In the end, Beijing made the decision to open ten more cities including Beijing for the market access of the financial sector, but was reluctant to give ground on the other two. In terms of the industrial sectors, the auto industry was the one Beijing made clear as the 'infant industry' that should be granted more protection. One powerful piece of evidence was that the Chinese State Council continued to promulgate its first comprehensive 'Industrial policy on Automating' on 1 July 1994, at the time of the final phase of the negotiation, with a series of provisions incompatible with the basic GATT principles, including: 1) preferential treatment on choosing China-made auto parts; 2) a specific plan on the number and types of imported automobile; 3) preferential loan interest rates based on the percentage of automobile exports; and 4) preferential tax treatment based on the requirement of local content. At the end of 1994, Beijing appeared to want to become an original member of WTO for its political prestige, if not for other reasons. Based on conventional wisdom, the decision should be interpreted as 'Beijing was willing to pay any price to get it'. It was true that with the successful conclusion of the Uruguay Round, the bar for the entry was raised in 1994. However, as some of the Chinese negotiators argued, the requirements were still manageable. Professor Zhang Hanlin, a leading Chinese 177 WTO expert at the WTO Research Center in Beijing, continued to insist that 'it was a mistake that China failed to make sufficient concessions to get in by the end of 1994.' He believed that the world back in 1994 had seen a new trade regime around the comer, and it was natural for the West to incorporate some requirements on market access for services, investment and IPR into the package. After all, those requirements were relatively 'easier' to overcome compared to what China had to offer later. Professor Zhang also insisted that if China joined GATT by the end of 1994 with a relatively low 'entrance fee', the overall Chinese economy would have been better off than it would be. 221 Several trade officials I interviewed also shared this view. Unlike the researchers, the negotiators better understood the strong domestic resistance. On the eve of China's formal accession to WTO, four chief negotiators of the Chinese GATT/WTO accession negotiation team accepted an interview from the Beijing Youth Daily, a major Chinese newspaper. When asked about the reasons that China failed to join GATT at the end of 1994, Long Y ongtu recalled, "I was trying my best to conclude this negotiation. Actually it was not totally impossible to achieve our goal at the time. Unfortunately we did not have enough support and coordination among different ministries. I failed to make concessions I could have made because I did not have the authority to do so. This was the major reason we failed to win negotiation as planned, to a large extent". Gu Yongjiang, the head of the Chinese delegation in Geneva, also shared this view. "In 1994, I faced more internal pressure than external pressure. One influential 221 Interview I did with Professor Zhang Hanlin in Beijing, January 2001 178 newspaper in Beijing had a series on how our delegation betrayed China's national interests. I was very sensitive because I was the head of the delegation and I was . b "bl fi h " 22 ') gomg to e respons1 e or t e consequences. - Similar to how most policy decisions are made in many parts of the world, the routine bureaucratic process in China is the consensus building process among agencies with different policy agendas. It is known as policy coordination (Zhengce Xietiao ). However, it is always a difficult goal to achieve. One example given by Wang Yong in his article was that "harmonizing automobile policies with WTO norms would affect the interests of the Department of Automotive Industry under the Ministry of Machine-Building Industry, the Department of Machinery State Planning Commission (which had project approval authority and was responsible for the biggest state-owned auto makers); the Ministry of Finance, and other ministries and local governments that were in charge of smaller auto factories. Even within the same agency, there could be several departments with disparate views. Within the State Planning Commission (SPC), the Department of Long-Term Planning and the Department of Industrial Policy had different views and interests from the Department of Machinery". 223 Wang's statement reflected the typical difficulty the Chinese negotiators faced when they coordinated every issue under negotiation. 222 Yang Jufang, Fifteen Years to Open the Door ofWTO--- Interviewing Four Chinese Chief Negotiators, Beijing Youth Daily, November 10, 2001, p.1 223 Wang Yong, "Why China Went for WTO", The China Business Review, July-August, 1999, p.43 179 The nature of the agency in charge of the accession negotiation also caused difficulties for the Chinese negotiators to cope with the vested ministerial interests. In 1988, the agency was renamed as the 'State Council Committee on Interministerial Coordination on GATT', with Vice Premier Tian Jiyun as chairman. It included several vice-chairman-level agencies including the State Development Planning Commission and the State Economic and Trade Commission. The member agencies of this committee included the Ministry of Finance, the Ministry of Machine-building Industry, the Ministry of Posts and Telecommunications, the Ministry of Textile Industry, the State Council Office of Imports and Exports of Mechanical and Electronic Products and others. According to its mandate, this interministerial coordination committee was to coordinate policy on issues related to the GA TT /WTO accession. However, some of the negotiators I interviewed, not only those from MOFTEC but also those from other ministries, complained that the committee malfunctioned. The reasons were multiple. First, it was not a standing agency but only a temporary platform for consultation. Second, all members were vice ministers from different ministries and MOFERT was not in a position to be in charge. The meetings turned out to be unproductive since every member spoke for his own ministry. Consequently, the pros and the cons of an issue were well summarized by the relevant ministries but policy coordination was difficult to achieve. Each ministry had its own channel to report its views to the politburo member who was supervising that ministry. If there existed too much conflict of interests in one contentious issue, the top national leaders would step in; however, 180 that type of intervention happened rarely. The routine of this 'policy coordination' process dominated--- this is the characteristic of Chinese politics. The relationship between bureaucratic structure and policy-making behavior in China has been well examined. 224 China's GA TT /WTO accession negotiation, as part of its foreign economic policy-making, is no exception. In most of the cases, that issue would be put away for further consensus building and policy coordination at the ministerial level. Each new package of concessions was the result of prolonged discussion and bargaining at the ministerial level and the State Council level before it was submitted for approval at the Politburo meetings. Because of the nature of this process, Beijing's negotiating team lost flexibility as they had limited authority and could not agree or disagree on the plan their counterparts would suggest if it differed from what they were advised from home. 225 4.5 Negotiation Process From October 1992 to October 1993, five sessions of the working party were held in Geneva. The pace of China's accession negotiation sped up noticeably. In the twelfth session of the working party held in October 1992, the chair of the working party, Mr. Girard, drafted 'a preliminary list of the issues might be included in the protocol'. The following 13th and 14th sessions of the working parties focused on this document. In the fourteenth session of the working party held in May 1993, Beijing pledged to 224 David M. Lampton, ed., The Making of Chinese Foreign and Security Policy, (Stanford, CA: Stanford University Press, 2001 ). 225 Interviews in Beijing and Shanghai, Winter 2000. 181 bring the tariff reduction of agricultural products in line with the negotiating text of the Uruguay Round of global trade liberalization talks. China also pledged to adhere to the GATT code on Technical Barriers to Trade (TBT). Furthermore, China pledged to remove the current dual-track exchange rate system and make it a unified system within five years, which China actually achieved within five months. In the fifteenth session held in September 1993, the memorandum on China's economic and trade system was finally approved by the working party and therefore concluded the six-year questioning stage. Nevertheless, the Sino-American bilateral negotiation that resumed in Beijing in March 1993 disappointed both sides. The U.S. delegation was the first of such a high level to visit China since the Tiananmen crackdown. It was also the first bilateral contact between Beijing and Washington since President Clinton had taken the office. Beijing was eager to assure Washington that it had made substantial progress since 1989. China pledged it would be able to meet necessary GATT requirements as it progressively evolved into a mixed economy over the years and expressed its hope for an early entry. However, USTR Newkirk told reporters after the talk: "I am going to be retired in 7 years. I am not sure to be able to wrap it up at the current pace". 226 The U.S. made it clear that its five points must be included in this agreement --- a single national trade policy common to all provinces and regions; full transparency of the trade regulations (until then trade was governed by a plethora of secret rules); 226 David Holley, "China World Trade Talks May Take Years, U.S. Says", Los Angeles Times, March 3,1993, P. 18 182 the gradual removal of non-tariff barriers; a commitment to move to a full market economy; and acceptance of safeguards to protect GA TT signatories from a possible surge of Chinese exports. Among the five points, China rejected the demand to accept safeguard restrictions and a pledge to embrace full market economy as a final goal. 227 The U.S. charged that China had backed away from its earlier commitments. China accused the U.S. of blocking China's entry with an unreasonably high entrance fee. For Beijing, the demand of a special protocol seemed to put a cap on China's exports to the U.S. and Europe, and thus negating GATT's perceived benefits. Beijing felt unfairly singled out for such a treatment, which Newkirk admitted was not imposed on any other contracting party of GATT. In terms of the criticism, Beijing was offended by the blame of 'less commitment to market economy than in Springl 989' since China was seeking to achieve a 'socialist market economy', compared to only a reform goal of achieving a 'socialist planned commodity economy' back in 1989. Newkirk further questioned "'Chinese market economy' and maintained 'socialist market economy is not the same thing as a market economy. GATT was not written with a 'socialist market economy' in mind. Taiwan has a full market economy, and this gives Taiwan 'a leg up toward GATT accession'". 228 In the meantime, Newkirk refused to make the commitment that the U.S. would grant China unconditional MFN after China joined GATT. Apparently, Beijing was quite disappointed by the outcome of this bilateral talk, as one negotiator 227 John Zarocostas, "No Movement Seen in Negotiations over China's Bid to Rejoin GATT", Journal of Commerce, March 16, 1993, Pg. 3A 228 Lincoln Kaye, 'Slow boat for China, Peking's application to join GATT appears stalled', Far Eastern Economic Review, 11March1993, pp56-7. 183 recalled: 'we all believed that China could win its membership by the end of 1993. After the visit of Newkirk, we knew that Washington was not going to keep its promise to support China's membership. We immediately sensed Washington's policy change under the new administration. ' 229 The U.S./China bilateral negotiation appeared to change its course again when the U.S. provided China a "Discussion Document on the Drafting of China's GATT Accession" through its embassy in Beijing on 21 June 1993 and invited a high-level Chinese delegation to Washington. In the eyes of the Chinese, this action was interpreted as a goodwill gesture. 230 On 22 July 1993, the opening day of the seventh round of the bilateral talks, Gu Yongjiang, the new head of the Chinese delegation and the deputy minister ofMOFERT whose appointment was aimed to boost the pace of negotiation, told the reporters right before the talk started that "the talks opening today should result in a draft protocol agreement to pave the way for the next meeting of the GATT working party on China, to be held in September. The talks will focus on resolving differences between China's earlier draft and one drawn up by the U.S." 231 Unfortunately, Gu was overoptimistic. Right after he gave the above-mentioned cheerful comments, he was surprised by the fact that the U.S. also sent a new face, the Assistant USTR Dorothy Dwoskin, to the negotiation table. 229 Interview in Beijing, December 2000. 230 Long Yongtu, "The New Progress and Future Prediction of China's Accession Negotiation", speech made on 5 October 1993, Selection of Central Party School Speeches, 1994, pg. 45 231 P.T. Bangsberg, "China Amends Proposal, Expects Accord on GATT Entry", Journal of Commerce, 27 July 1993, Pg.3A 184 What depressed Gu further was the opening remark of Dwoskin when she said: "I am new to the U.S./China bilateral negotiation and I need a familiarization process. I will go through every aspect of the framework we had established and do my homework." 232 This statement was a clear signal that the U.S. had fundamentally changed their overall negotiating position. It was obvious that the U.S. was going to overthrow the tacit understandings reached before. More importantly, the U.S. brought to the bilateral negotiation table some new issues on market access for US service sectors such as banking, insurance and telecommunication due to the fact that GA TT members started to see the hope to reach an agreement on the multilateral Uruguay Round negotiation. China never expected this would happen since they were not the issues within the GATT framework. When Long Y ongtu, the director of the department of international trade and cooperation under MOFERT at the time, gave his speech at the Central Communist Party School on 5 October 1993, he continued to emphasize the unfeasibility for China to open up its service sectors to foreign competitions. 233 After Beijing sent out an invitation to the GATT contracting parties to conduct bilateral negotiations on market access of trade in goods, trade in service and IPR enforcement in mid 1992, about 30 countries responded. However, the EU and the U.S. were reluctant to respond. Japan sent a research delegation to China to study the 232 Yang Jufang, "Fifteen Years to Open the Door ofWTO--- Interviewing Four Chinese Chief Negotiators", Beijing Youth Daily, November 10, 2001, p.I 233 Long Yongtu, "The New Progress and Future Prediction of China's Accession Negotiation", speech made on 5 October 1993, Selection of Central Party Speeches, 1994, pg. 45 185 Chinese trade system in September 1992 and consequently paved the way for the bilateral tariff negotiation that planned to start in early 1993. Japan's move was an attempt to take the initiative among the industrial countries. 234 During the Uruguay Round negotiation, the U.S. was the only one requesting the revision of Article 35 and its approval. Unlike the old requirement that the contracting party who decided to apply non-application could not have any tariff reduction negotiation with that acceding state, (which was the reason that American negotiators chose to use the term 'market access negotiation' rather than 'tariff reduction negotiation' in the 1992 bilateral talk), after revision, the new clause allowed the contracting party to negotiate the terms with the acceding state while applying the non-appliances with the acceding state. The U.S. pressed China to accept this article before it agreed to start tariff negotiation with China. With the understanding that there would be no hope for China to conclude its GATT negotiation without having concluded the bilateral tariff negotiation with the U.S., China had to accept Article 35. On the other hand, it was then highly likely that the U.S. would apply non-application toward China in the end since China's GATT membership did not automatically guarantee China the right to acquire the unconditional MFN status from the U.S. based on the domestic law of the U.S. Consequently, how decisions on this negotiation could be made depended totally to the political relationship between Washington and Beijing. As in 1993, the Chinese negotiators hoped that if the U.S. and China maintained a 234 Yorniuri News Service, "Japan to help China get back into GATT mainstream", 9 September 1992 186 good relationship, then Washington would able to find a solution to compromise on its domestic law. 235 In 1993, both the EC and the U.S. gave China their drafts of the Protocol on China's GATT accession. Their concerns were very similar but with a different emphasis based on their own interests. T bl 4 9 Th a e - h dr f1 . d d b EU d U S B . . . . 1993 e mawr requests m t e a t protoco prov1 e •Y an . to e11mg m EU Quota EU wants to maintain the quantity quotas on imports of toys, tableware, gloves, footwear and car radios from China. Tariff Slash import duties by limiting them to a range of 15% to 25% Non-tariff Remove all export subsidies; make remaining non-voluntary licenses compatible with measures GATT; Protocol Liberalization of exchange rates, the rights to invest (eliminate the requirement of local issues content, technology transfer and export percentage of foreign companies), the rights to engage in foreign trade (make it available to more companies and individuals); IPR protection, curtailing export subsidies; selective safeguard and review system; antidumping clause (allow U.S. and EU to apply special treatment to China as a non- market economy); uniform implementation of trade policy nation-wide; Trade in Discussing the openness of banking, insurance and transportation sectors; Service Market Reaching a comprehensive market access agreement similar to the US/China one; access Others Requiring China to join government procurement, civilian aviation, TRIP, TRIM, Source: Summary of Ren Quan ( D D), Zhongguo jiaru shimao zuzhi zhishi wenda (Questions and answers regarding to China's entry ito WTO), (Beijing: Modem World Press, 1997), Pp 265-266 Although the Newkirk's visit to Beijing disappointed China's enthusiasm for early entry, the following conclusion of the Uruguay Round negotiation in December 1993 gave new momentum to China's campaign. Wu Yi, Chinese minister of MOFERT, made it clear to Assistant USTR Dorothy Dwoskin after the two-day talk in Beijing on 22 February 1994 that China was ready to show flexibility on certain issues concerning the restoration of China's signatory party status in GA TT. 236 235 Ren Quan (ff ;1t}t), Zhongguo jiaru shimao zuzhi zhishi wenda (Questions and answers regarding to China's entry into WTO), (Beijing: Modem World Press, 1997), p.282 236 Editorial, 'Talks boost China' s reentry into GATT', Beijing Review, 7-13 March 1994, p.4 187 What Wu Yi referred to was China's previous resistance to the special safeguard. This time China agreed to accept the special safeguards under the conditions that the special safeguard was to be used as stipulated by GA TT and that would not single out China for discriminatory treatment. In order to show China's sincerity and determination, China enacted a series of trade regime reform measures. In January 1994, Beijing abandoned the import permit and quota management for over 283 products, removed 253 international regulations published by MOFTEC and cleaned up 93 foreign trade management regulations. In February 1994, Beijing promulgated the "Measures on export goods quota bidding" and the "Decisions regarding the further deepening of foreign economic and trade system reform". In May 1994, Beijing published its first foreign trade law. In June 1994, Beijing eliminated import quotas and licensing requirements over 208 products. In August 1994, Beijing submitted a comprehensive package of concessions, promising to reduce tariffs on all agricultural and industrial products and remove 90% of the non-tariff measures. The package also contained a preliminary concession list on market access for the service sectors, as shown in table 4-5. It was the first time that China conceded on trade in service, in which China pledged to open up 16 sectors to different degrees. However, this concession did not satisfy but affronted the W estem countries. 188 Ta bl 4 e -10: Major pomts o rch· · k h ma s concession pac age on t e service sector, A ugust 1994 Banking Allow foreign financial institutions to invest and do business in 13 coastal cities; Foreign banks can take the form of foreign capital banks, joint-capital banks, the branches of foreign banks; The business scope is limited to foreign currency and foreign exchange, excluding Reminbi business from their operations; lnsurance Can either open branches or joint-capital insurance company in Shanghai; Law firm After being approved by the Ministry of Justice, foreign law firms can open representative offices in China. The scope of the business includes: providing consulting services for clients under the foreign country's legal system and international laws; representing foreign clients in China; representing Chinese clients on legal issues; Accounting firms Qualification: accounting firms with an annual income $20 million, employees over 200 can be allowed to open representative offices in the developed areas of China. They can also take the form of joint ventures. Source: Summary of Ren Quan ( {b'R), Zhongguo jiaru shimao zuzhi zhishi wenda (Questions and answers regarding to China's entry into WTO), (Beijing: Modem World Press, 1997), pp 271-2 During the 16th session of the China working party, China made a series of concessions on tariff and NTB reductions, including the reduction of tariff rate by 8.8% to an average rate of 36.4%, the elimination of import quotas and licensing requirement for nine product categories such as steel, processing equipment and aircraft, the removal of import quotas on commodities in 1,000 areas by the year 2000, and the commitment to bind tariffs at a ceiling of 40% and to bring the binding level to 35% by 1998. China's willingness to accept a long list of special safeguard measures was seen by its trading partners as a sign of breakthrough. Consequently, China's effort to join the GATT by the end of 1994 was backed in principle by most GATT members including the EU, and supported by Peter Sutherland, GATT director-general, who wished the WTO to have near-universal membership. 237 The U.S. became the only exception that was seeking the means to apply 'non-application' to China. The row between the U.S. and China over human rights stalled China's GA TT negotiation. Both parties were concerned about the 237 Frances Williams, "China-GATT talks to resume today', Financial Times, 15 March 1994, p.6 189 coming decision by President Clinton on China's MFN status. When Sutherland visited China in May, he pointed out that a U.S. failure to extend China's MFN status would complicate China's GATT negotiation. 'The U.S. attitude is of central importance and that attitude will be signaled in one way or the other by the event on the MFN issue.' 'I believe it's very important that the U.S. as a leading country with an absolute interest in the development of the multilateral system should provide leadership in this area. I would consider it inconceivable that the U.S. would retard the progress of something not just desirable for the world as a whole, but for the U.S. itself. ' 238 Clinton's decision in May 1994 to de-link human rights from China's MFN status lifted a cloud over the Geneva talks. In the coming 1 ih session of the China working party held in June 1994, the chairman of the working party, Jean Pierre Girard, circulated a 13-page 'non-paper' which aimed to bring together the highest demand of all the main participants on all issues under negotiation, including those from the EU, the U.S. and Japan for the basis of discussion. Some negotiators called it the 'maximalists' and said it appeared to set tougher conditions for China than considered appropriate by some GATT members. 239 The U.S. wanted China to accept all GA TT obligations and to eliminate in particular 400 specified NTBs on entry. The EU took a more flexible line and suggested granting China a transitional 238 Tony Waker, 'GATT chief warns over China's status with U.S.', Financial Times, 12 May 1994, g·~ Guy De Jonquieres and Tony Walker, 'Beijing optimistic over new talks on rejoining GATT', Financial Times, 28 June 1994, p.5 190 arrangement. The Chinese negotiators preferred the suggestion from the EU, as Long Y ongtu, one of the negotiators, said: 'without this China may not get into GATT for 5-10 years, and we assume this is not the wish of the U.S.' He called it 'ridiculous' of the U.S. argument that if China were granted a transitional period, it would have no incentive to assume its obligations after it entered GATT. 'China is not adopting its reform simply for the sake of joining GATT.' 240 The reaction of the Chinese negotiator over this 'non-paper' was 'totally unacceptable' because some demands were 'GATT-plus'. 241 In the 18 1 h session of the China working party in July 1994, the U.S. made the request that China could only join GATT as a developed country. It was the first time that the U.S. officially put this issue on the table. In addition, the U.S. presented China a new non-paper as a guideline for the reforms it had to make to enter GATT. Long Y ongtu responded that China was neither able, nor willing, to work on the basis of the new non-paper, and accordingly, he presented a ten-point list of 'non-negotiables' in the Girard paper. 242 The ten points included: • The demand that China is not given any special provisions on balance of payment reforms open to developing countries, and the imposition of provisions which are, according to Mr. Long, even more harsh than those for developed nations. • The setting up of a special safeguard to protect against market disruption caused by a perceived surge of cheap exports into world markets, once China enters GA TT. (Long said 240 Guy De J onquieres and Tony Walker, 'Beijing optimistic over new talks on rejoining GA TT', Financial Times, 28 June 1994, p.5 241 Interviews in Beijing, Summer 1999 242 Sheel Kohli, "Beijing attacks US stance on GATT re-entry; Mainland attacks US GATT position", South China Morning Post, 29 July 1994, p.1 191 this would completely deviate from the accepted criteria of serious injury, in which case Chinese exports would be restricted discretionally.) • Preventing China from invoking relevant provisions of the Uruguay Round Agreement on Agriculture, which Long warned would trigger social unrest among China's 800 million farmers. • Compelling China to sign the otherwise optional Agreement on Government Procurement and Agreement on Civil Aircraft. • Requiring China to bind its export duties at zero across the board. • Demanding that China implement the agreement relating to intellectual property protection within one year instead of five years. • Asking China to accept immediately the agreement on investment measures, rather than allowing a phase-in time. • Compelling China to apply "national treatment" unconditionally in the trade in services. • Creating a special trade dispute mechanism, purely for China, outside the Dispute Settlement Mechanism, which would be established in the GATT successor body, the World Trade Organization? • Forcing China to abolish price controls across the board. Long insisted that the denial of the developing country status in agriculture could trigger 'social unrest' among 800 million farmers and many more of SOE- employed workers. 243 China also presented a non-paper, which the Chinese chief negotiator Long Y ongtu said was an attempt to compromise. 'This version of ours incorporated many of the elements of the earlier non-papers, which we think can be negotiated. This non-paper was not 'take it or leave it' but open for further discussions.' 244 Western trade officials thought there had a very wide gap between 243 Frances Williams," 'Unacceptable' TenllS for Entering GATT Anger China'', Financial Times, July 29, 1994, p.5 244 Sheel Kohli, 'Beijing attacks US stance on GATT entry', South China Morning Post, 29 July 1994, p.1 192 China's 'minimalist' version and the 'maximalist' version compiled by Girard. 245 After the meeting in Geneva, Washington sent a team to Beijing to further discuss trade in service. The American team presented China its market-access demands and held talks on custom evolutions and sanitary inspections. At the end of August 1994, China submitted to the China working party its final 900-page comprehensive package of concessions on agriculture goods, industrial goods and services. According to Li Zhongzhou, the director of the department of international trade and economic relations, MOFERT, stated that 'GATT can take it or leave it, but it's final. IfGATT accepts our package deal, we are ready to continue the negotiation on the remaining issues. If GA TT rejects China's latest offer, there is no room for further talks. We would continue our reform in our own interests. We will have no obligation to honor the commitments we have already made in the eight-year course ofnegotiation.' 246 Facing the resistance, on 28 November 1994 the Chinese delegation in Geneva formally announced Beijing's decision to set the end of 1994 as its deadline to negotiate a final protocol with the GATT contracting parties. Long Yongtu, China's chief negotiator, made the threat to the GA TT members by claiming that unless a 245 Frances Williams," 'Unacceptable' terms for Entering GA TI Anger China", Financial Times, July 29, 1994, p.5 246 P.T. Bangsberg, 'China offers GATT ultimatum on joining', Journal of Commerce, 13 July 1994, p.5A 193 1"' 'substantive' agreement is reached by the end of that year China was not going to offer further concessions or to seek to restart talks. 247 Clearly, China's resistance to those ten issues became the major obstacles for China to conclude the negotiation. After the l 8 1 h session of the China working party, the Chinese delegate spent 50 more days in Geneva and continued its negotiation with the major GATT contracting parties, including a 22-day bilateral negotiation with the U.S., the longest in China's accession negotiation. Unfortunately, Beijing's final offer on market accesses in the service and the agricultural sectors fell short against the expectation of the West, and the West blocked China from reaching its GATT membership resolution. With no surprise, China announced on 15 December 1994 its failure to become an original member ofWTO and laid the blame on the U.S. opposition. 247 Guy De Jonquieres and Frances Williams, High-risk strategy in global game: Talks on China's Application to Rejoin GATT are Nearing a Climax, Financial Times, 19 December 1994, Pg.17 194 Table 4-11 The demands by US. and China's final offers by the end of 1994 Negotiation issues U.S. final demands in the end of 1994 China-end of 1994 Transparency Provide full information on its quota Most of them will be made public. A system minority of them related to national security will remain unpublished; National treatment Grant GA TT members similar market China reluctant to agree to a timetable MFN Developing country status Selective Safeguard Review system Anti-dumping clause Trading rights access privileges to grant the foreign service provider national treatment in banking, insurances; Washington made clear that US law prevents it granting China unconditional MFN China is no longer a developing country A specially designed complex safeguard is a 'must'; All contracting parties can stop their multilateral trade relations whenever necessary; A review system specially designed for China to monitor its reform progress within 15 years after China's entry; it will review not only the enforcement of China's GA TT accession protocol but also the macroeconomic polices in China The 'price comparing provision' allows contracting party to decide if China's export is dumping without comparing to its domestic price of that product; All trading entities and individuals are eligible to engage in foreign trade China should get permanent MFN from all contracting parties once it becomes a GA TT member China's developing country status non negotiable China could accept selective safeguard once it is made compatible with GA TT rules, with a time framework to expire after the transitional period; China reserved the right to retaliate against attempts to 'single out' China for trade penalties, by withdrawing some of its concessions on market access. Accept in principle. China only agreed to GA TT members' review of the enforcement of the content of protocol, but not the macroeconomic policies and the overall economic reform policies, because there has been no true criteria to judge if a country is 'market economy' or not. China has committed to a full market economy, so it is unfair to compare Chinese exports with a third country price since China has a cheaper labor and raw materials. Public ownership is the only form of the firms eligible for foreign trade (over 4,000 trading companies); privately owned companies were not allowed to have trading rights; some industrial enterprises and all foreign and joint ventures have the right to export their own products and import necessary raw materials for their production. Only 16 exported products and 14 imported products remain being traded by designated state-owned trade companies. 195 Table 4-11 : continued Negotiation issues U.S. final demands in the end of 1994 China-end of 1994 Price control Eliminating all price controls upon entry Under price controls were the 'essential natural resources and .. products of vital importance to people's livelihood.' 95% of import goods are based on market price and 5% are state pricing, mainly grains and fertilizers, subsidized by the government. Tariff reduction EU asked to lower average tariff to 8% China offered to keep 90% products under 35% and further reduce to 30% upon entry; China agreed to U.S. demands to cut tariffs on 1, 119 products; Non-tariff barriers Eliminate all NTB including those on China has cut its NTB from three auto and auto parts thousand to 400. China needs more time to gradually eliminate the rest. In addition, U.S. and EU all hold quantity restrictions on Chinese exports of textile, footwear, etc. Service Among others, the U.S. asked China to China offered to pen 36 sectors among open its security market, video-audio the total of 150, with some restrictions market, and import quotas on foreign attached. But China refused to open up movies and TV programs; its security market and restricts the imports of foreign video-audio products to protect its domestic industries and for ideological reasons. Banks Market access to US and EU companies Adding open cities from previous 13 to more cities and with wider scopes of designated areas to another 10 cities business including Beijing. Also China offered market access for foreign capital banks (before only joint ventures); China also agreed to open Renminbi business on the experimental basis; allowing foreign banks to provide services to local Chinese and Chinese firms. Insurance U.S. and EU asked for market access China agreed to open Shanghai as throughout China and for all types of experimental city; insurance business Value-added U.S. asked to operate business directly China agreed foreign companies to Telecommunication in China provide service through cross-border payments; Convertibility of Immediate convertibility of the Chinese Demand is outside GA TT' s mandate. Renminbi Yuan Beijing's goal is to make it fully convertible by 2000. 196 Table 4-11: continued Negotiation issues U.S. final demands in the end of 1994 China-end of 1994 Tariff reduction on I.To join the zero-tariff agreement I .Promised to make deep cut in this industrial goods reached among developed countries and group, but feel as a developing country, to reduce tariff to zero in ten categories it need not go as far as eliminating such as steel, chemicals, beer and these duties; China's final offers on agricultural machinery; beer 65% (from current 120%) distilled liquor 65% (from current 150%); reduce tariff of steel from 17% to 9%; construction equipments from 17% to 10%; agricultural equipment from 18% to 9%; medical equipment from 17% to8%; furniture duties from 80% to 24%; paper and paper products from 31% to13%; 2.Specifically, the tariffs for chemical raw materials, semi-finished products and finished products are 0%, 5.5% and 2.China's final offers for chemical raw 6.5%; materials, semi-finished products and finished products are 7.7%, 9.1%, and 3.0n textile, the tariffs for yam, textile 14.9%; semi-products and clothes are 5%, 10%, 17.5%; 4. automobile: at least lower than 20% 3.China's final offers for yam, textile semi-products and clothes are 17%, 29.4%, 28.6% from the current 44.1 %, 78.3%, 87.7%; 4. The final offer is 85%. Currently emission level over 2.5 liter 150% and below 2.5 liter 110%; Agricultural goods Modify China's sanitary standards to be China committed to eliminate all NTB compatible with GA TI rules; U.S. set for agricultural products China's acceptance of U.S. citrus from California and wheat from the south states as the precondition for accession negotiation; US required China to eliminate state trading within a short period on some key U.S. exports (vegetable oil), open non-state-owned trading companies to part of the tariff quotas on rice, wheat, oil, cotton, sugar and all others without tariff quotas Sources: Beijing's offer is based on selective interviews by the author in Beijing and Shanghai in the summer of 1999, the fall and winter of2000, and the summer of 2001. The U.S. demands are quoted from selective articles in major Western newspapers such as Financial Times, New York Times, Los Angeles Times, Far Eastern Economic Review, etc. in 1994. There is no single newspaper or government document available addressing the complete list of the U.S. demands in 1994. 197 4.6 Failed Cooperation: Why didn't Beijing conclude its GATT negotiation as planned? In 1993, most of the bilateral and multilateral negotiations focused on the issues related to the drafting of the protocol. In the second half of 1993, when all sides moved to tariff reduction and market access negotiations, Beijing suddenly found itself facing a lot more issues than it expected. On the first day of the tariff reduction negotiation with the U.S., the U.S. negotiators made it clear that the U.S. had the interests to negotiate tariff reduction on more than 4,000 tariff items. In addition, the approaching conclusion of the Uruguay Round made the W estem countries believe that the scope of the negotiation should be expanded to cover IPR protection, market access on services, trade of agricultural and textile products, and a series of other GATT related codes such as the agreement on government procurements, the agreement on civil aircraft, and the zero tariff accord on 11 categories of industrial goods among developed countries. Furthermore, due to the specialty of the Chinese economy, China was asked to provide additional information on the general government's economic and legal systems such as its judicial review system, government financial and duty policies, and the details of the government's five-year and annual economic plans. 248 248 Interviews with trade officials at MOFTECT in Beijing, fall 2000; 198 Clearly the claim made by the U.S. on its intention to apply 'non-application' toward Beijing's GATT membership reflected its unwillingness to negotiate a final agreement with China. It meant that no matter what the negotiation outcome would be, it would be irrelevant to the U.S. As several Chinese negotiators recalled, throughout the second half of 1994 the rhetoric of the U.S. negotiators were 'here are our demands, we know how desperately you want to get this membership, and you have to pay for it. ' 249 More importantly, different from the EU, the U.S. insisted that Beijing accept all GATT obligations upon entry. Facing the U.S. demand that China could only join GATT as a developed country, Li Lanqing, a vice-premier responsible for trade, countered it would be 'ignorant and absurd' for China to be regarded as a developed country for the purpose of GATT entry. 'lfwe assume the duties of a developed country, why would we want to rejoin GATT? If the U.S. does not let us rejoin GATT, China will manage. I just don't believe that the world can exclude China. It serves nobody's interests.' 250 In general, such pure claiming strategy would gain the most from its counterpart only with the high risk of failing to reach any agreement. In the eyes of the Chinese negotiators, the demands from Washington were too 'tough' and too 'many' to handle. As summarized in the following two tables, one set of the U.S. demands centered on the strategy of preventing China from enjoying the transitional period or other special treatments designed just for developing countries and the other set of demands centered on the 249 Interviews in Beijing, winter 2000 250 Martin Wolf and Reuter, 'China vows to defy U.S. on GATT entry terms', Financial Times, 6 October 1994, p.4 199 special arrangements designed to keep contracting parties from the possible harm of Chinese exports. The comparison between the U.S. demands at this time and the final agreement reached in 1999 demonstrated that the U.S. showed more flexibility on most of its demands in the third stage. Table 4-12: The demands beyond the requirements by GATT/Uruguay Round on the protocol . d' Ch' . 1994 issues accor mg to mese negotiators, Negotiation issue U.S. and E.U demands The quantity restrictions U.S. deprived China of the rights to apply the article l 2and article 18 or under the international the stipulation under the new Uruguay Round agreement, but insisted to balance of payment specially design a clause only applied to China. In this way China does not have the right to apply quantity restrictions when it needs to do so with the difficulties of international balance of payment. National treatment Under the GA TT provisions, national treatment was only targeted to the products, rather than the legal or natural persons. The Uruguay Round agreement loosened it on the basis of bilateral negotiations and case by case method. However, Washington required Beijing to make commitment to provide the same national treatment to all firms and natural persons in all sectors in its accession protocol. Judicial review According to GA TT article 7, the requirement on this issue was only limited to trade related custom administrative measures; The U.S. insisted on expanding it to all trade laws, and the enforcements of all trade related administrative measures (including the judicial review on all the commitments China made for its GA TT accession). MFN Washington made clear that US law prevents it granting China unconditional MFN Developing country China is no longer developing country status Selective Safeguard A specially designed complex safeguard is a 'must'; All contracting parties can stop their multilateral trade relations with China anytime they like; Anti-dumping clause The discriminative 'price comparing provision' allows the contracting party to decide if China's export is dumping without comparing to its domestic price of that product Review system A review system specially designed for China to monitor its reform progress within 15 years after China's entry; it will review not only the enforcement of China's GATT accession protocol but also the macroeconomic polices in China Source: interviews with Chinese trade officials in Beijing, Winter 2000, Spring 2001 200 T bl 4 13 D a e - d d. Ch. ' d eman s excee mg ma s eve opment eve accor mg to ch· mese negotiators Infant industry protection EU and the U.S. do not agree that China can apply the GATT cal use 18 to protect its auto industry Trading rights Immediately lift all restrictions on trading rights toward legal and natural persons; Currency convertibility Full convertibility upon entry; China asked for a five-year transitional period; IPR protection Fully abide by all requirements within a year (as a developed country); China offered to meet the requirements within five years (as developing countries); Export subsidy Eliminate all export subsidies upon entry (as a developed country); China offered to do this within a transitional period Market access for service Open all service sectors including telecommunication, insurance, distribution and sectors stock market to foreign participation; China insisted that its service sectors were too weak to fully open. It offered to open some cities on an experimental basis and then expand it to others when feasible Zero tariff and tariff This is the requirement among industrial countries and China could not lower some coordination agreement of their tariffs from over I 00% to 0% overnight. It will cause an economic crisis if doing so GA TT related government China is not required by the GA TT rules to join them; China will consider its procurement and civil participation later aircraft agreements Uruguay Agreement on The U.S. insisted that China not apply the provisions written in the agreement for agriculture developing countries TBT The U.S. insisted that China not apply the provisions written in the agreement for developing countries Custom evaluation The U.S. insisted that China not apply the provisions written in the agreement for agreement developing countries Investment The WTO grants a developing country five years transitional period; The U.S. insisted China eliminate foreign exchange balance, export balance, local content, etc. restrictions upon the entry Source: interviews with Chinese trade officials in Beijing, the winter of2000 and the spring of 2001 In contrast, the EU took a more flexible strategy toward China's entry. After Beijing gained the strong momentum to speed up its negotiation after the conclusion of the Uruguay Round, the EU gave Beijing its full support at least rhetorically. The EU also criticized the U.S. oflinking trade and human rights together. 251 In the draft protocol Brussels provided to Beijing in early March 1994, the EU suggested the approach of a transitional period, an idea that Beijing welcomed and called 'constructive'. Long Y ongtu, the vice-minister of MOFERT, said that the EU' s draft 251 Reuter, 'China may enter GATT this year', Financial Times, 2 March 1994, p.4 201 contained 'many positive elements. ' 252 China was prepared to negotiate a transitional period --- to the end of the century --- during which it would remove most of its NTBs, align its technical standards with the international norms and make its currency fully convertible. In November 1994, as the wide gap between the U.S. demands and China's offers remained, the EU stood up again to press for a flexible solution. Sir Brittan warned that China's re-entry was in danger of 'grinding to a halt' and called for flexibility on the terms of China's accession. 'We have insisted that China should show its intentions to pursue reform within the WTO by making a down payment in the form of progress now toward open markets. But we have also accepted that not all the changes can come immediately and we have argued with our GATT colleagues that timetabled and committed changes ... are a more realistic basis for progress than expecting full reform overnight. ' 253 In December 1994, the EU again raised another suggestion that China be accorded 'founder-member' status of WTO pending completion of negotiation of its protocol for entry. Under this strategy, Beijing would win a six-month extension to conclude the negotiation. However, Washington did not support this view either. During the last months of the negotiation, the U.S. determination of taking a tough stance dominated. Compared to the first stage (1988-1989), the EU played a more visible role, although still subordinate to the strong position of the U.S. Among the factors that led the EU to a more visible role was the growing importance of the EU itself. After the unification 252 Tony Walker and Andrew Gowers, 'China looks beyond MFN horizon-Beijing sets sights on GATT concessions', Financial Times, 6 May 1994, p.7 253 Tony Walker, 'Speed up China talks says Brittan', Financial Times, 8 November 1994, p.7 202 of the EU in 1993, the unified position of its member states made the voice of the EU louder than ever. The other reason was that more EU interests were at stake than they were in the first stage with the rapid growth of China's foreign trade. In addition to the concern of the surge of Chinese exports to the EU markets, the EU was also eager to have its share of the Chinese market, especially in Services. The different strategies taken by the EU and the U.S. are noteworthy. First, it shows that there are no fixed criteria on the conditions required by GATT /WTO to become its members. Second, the flexible approach the EU chose --- granting China the transitional period rather than lowering the demands --- helped to break the deadlock that lasted until 1 ate 1996 and finally led to the successful conclusion of the bilateral agreement between the U.S. and the EU. This strategy was eventually accepted by the U.S. at the third stage. The question is: what made the U.S. refuse the same suggestion in 1994? Beijing made concessions in 1994 from its previous offer, but they were far from enough. Beijing agreed to give grounds on almost all demands made by Washington but asked for a transitional period. Wu Yi, the Minister ofMOFERT, explained Beijing's position after the failure of the negotiation. She divided the issues under negotiation into four categories: 1) what China had done, China would commit to continue; 2) what China was going to do, China would commit to do as soon as possible; 3) what China believed that China might do in the future, but was not ready 203 ,. to do right now, China could give out a timetable and could gradually achieve; 4) what China could not accept, no matter what, China wouldn't do. "Regarding the transparency of the trade regime management, the national treatment and the uniform implementation of the trade policy nation-wide fall into the first and second category defined. The foreign exchange system, the elimination of the NTBs and the expansion of market access fall into the third category, 'China can promise a timetable and gradually achieve it'. In the fourth category was the outstanding issue of China's developing country status, 'which China can never agree to deny'. 254 Beijing's insistence for the developing country status was not just for the reason that it could grant Beijing a transitional period, but also for the political meaning attached to this status. The self-positioning of the PRC had always been the largest developing country in the world and for many years the top priority of the Chinese foreign policy was to make China a leader of the developing world. After the initiation of the economic reform, this goal became subordinated to the goal of economic development. However, Beijing depended heavily on its good relationship with other developing countries to influence world affairs, especially on its effort to contain Taiwan. Although it seemed irrelevant in the GA TT negotiation, it was the biggest concern of Beijing to maintain this title because Beijing thought this title was too important to them. 255 Throughout China's GATT accession negotiation, the 254 Ren Quan ( 1f JR), Zhongguo jiaru shimao zuzhi zhishi wenda (Questions and answers regarding to China's entry into WTO), (Beijing: Modem World Press, 1997),pp 280 255 interviews with negotiators from different ministries, winter 2000 204 developing country status was the only unchanged insistence of Beijing and Beijing held it to the very end, at least rhetorically. The nature of the accession negotiation decides that acceding economies has to take a conciliatory position to win membership, but this does not necessarily mean that the acceding economies will not have any leverage in hand. If that were really so, there would be no need for negotiation. The essence of the negotiation is to 'give and take'. To the acceding economies, what they can give is the access to their home markets. In this sense, with a 1.3 billion population representing huge market potential, China should have had tremendous leverage in hand. After all, there were no explicit or minimum criteria for entry into GATT and the protocol of accession could be likened to a contract --- all of the terms would be open to negotiation. Therefore, it would be too vague to say an acceding economy was 'unqualified' or 'did not meet minimum criteria'. Beijing's mistake lay in that it did not take the advantage of its market potential; rather, it was hurt from its own growing trade power. As one key Chinese negotiator pointed out, 'in those months of intense negotiation in Geneva in 1994, the most disturbing problem to us was that whenever we tried to negotiate, no matter what, our American and EU counterparts would point out one of the two 'reasons'. One was their emphasis on the uniqueness of the Chinese economy, so China had to accept a series of discriminative measures never imposed to any other GATT members, such as no MFN status from the U.S., special safeguard measures to all Chinese exports where China had comparative advantages, 205 and a 15-year review system to monitor China's economic reform. The other was their emphasis that China was not special. China had to make all the adjustments if it were to enter the GATT. Frankly, facing these two reasons we did not have any room to negotiate. ' 256 In retrospect, setting the negotiation deadline unilaterally proved to be a mistake. The decision itself was the product of domestic politics --- the lack of domestic coordination among the ministries as well as between the government and the Chinese negotiators in Geneva. The clear demonstration of how eagerly Beijing wanted the membership caused the tougher demands from the other side. Compared to what those major GATT members asked for in the first stage and what they asked for by the end of 1994, the changing market condition could not explain fully the differences. Another factor that should be taken into account was that everyone realized that China was willing to give grounds in exchange for a symbolic title --- to be a founding member of WTO. After all, being a founding member of WTO had no practical advantage besides the political prestige that China had become an important economic actor in the world. This prestige might only help the domestic leadership to strengthen its political clout. Moreover, Long Y ongtu gave formal notice to each contracting party on 28 November 1994 that once China failed to reach agreement by the end of that year, China was not going to make any offer or restart the talk. One 256 interview with Liu Guangxi, one of the key figures in Chinese delegation in Geneva and Long Y ongtu' s secretary, winter 2000 206 negotiator recalled that until 19 December 1994, the last day of China's efforts, those twenty days in between were extremely difficult for the negotiators. Because China made the threat with such a short deadline and there existed a wide gap between China's offer and the U.S. demands, the Chinese negotiators could not expect anything but a miracle. Most importantly, the Chinese negotiators did not have any new authorization from home. 257 This meant they did not have any room to bargain. Although this threat did not bring Beijing the agreement it wanted, it did serve to ease the demands from the U.S. at the beginning of the next stage of the negotiation. As one negotiator emphasized: 'the difficulty that the Chinese delegation faced in the last several months' negotiation was that there were no fixed number of issues under negotiation. When one demand was satisfied, the U.S. and the EU would ask for more from that area or add demands on another issue. We expected to narrow the issues under discussion as the deadline was coming; unfortunately we found we were facing a lot of more than before. ' 258 Another negotiator gave the example of what they called 'moving goalpost', as shown in the table 4-14. 259 257 Interview in Beijing, fall 2000 258 Liu Guangxi, 'zhongguo fuguan shizhixing tanpan toushi ji xia yibu gongzuo jianyi' ( the examination of China's GATT accession negotiation and the working plan for the next stage), Duiwai Jingmao Yanjiu (Foreign Trade Research), no.13+14, total 668 and 669, April 1995, p.6 259 Interview in Beijing, November 2000 207 T bl 4 14 A a e - f h t EU' d n examp e o t e movmg goatpos: s d h "ff l eman son t e average tan eve Negotiation EU demands in EU demands in EU China's tariff China's final issues 1992 1993 demands in level m off er by the end 1994 1/1/1994 of 1994 Tariff Make the tariff The tariff ceiling for Lower the Keep 90% of reduction ceiling 30% industrial goods average 36.4% imports under 15%-20%; tariff to 8% 35% and further agricultural goods lower to 30% 20%-25%; upon entry; Source: interviews with Chinese trade officials in Beijing in the winter of 2000 and the spring of2001 4. 7: Conclusion The analysis of the preferences of domestic actors in both countries and the changing power sharing structure in the U.S. on this negotiation demonstrates some striking differences compared to the first stage of the negotiation. First, the strategic security concern by the West declined greatly toward its China policy in the post Cold War era. In contrast, political and human rights considerations began to prevail. This change of policy emphasis brought a new domestic constituent into play. A central aspect of the complexity was congressional involvement. Congressional concerns over China's ideological difference, human rights condition, and growing trade surplus with the U.S. created negative effects over China's GATT accession negotiation. Second, as part of the context change, the variation of the market conditions also became a key factor in shaping the negotiation process. China's fast growing foreign trade and its economy overall made China a visible target (1993- 1994), especially when it coincided with the successful conclusion of the Uruguay Round negotiation and the subsequent increasing importance of global trade 208 liberalization. The change of conditions further complicated and delayed the negotiation. Third, another factor came into play in this stage, namely the resistance of some of the Chinese government ministries whose existing authorities and commercial interests were in conflict with the trade liberalization measures necessary to gain Beijing the GATT membership. Forth, the business communities in both countries at this stage had not become determinants to shape the negotiation process and outcome yet. The major concern oftheU.S.MNCs and exporters was limited to the renewal of the annual MFN status renewed so that the dynamics of the bilateral trade could continue. 209 Chapter 5: 1995-1999 Why did Beijing fail to reach an agreement in 1994 but succeeded in 1999? What determinants remained unchanged and what determinants changed? The comparison between the second and the third stages is noteworthy in the sense that most of the systemic level factors and the domestic factors held constant between the two stages. For instance, both stages took place in the post Cold-War era and the relative positions of China's international trade remained approximately unchanged. Furthermore, the national leaders in both states remained unchanged. Finally, the Congressional confrontation toward Beijing also continued. On the other hand, more resistance from the Chinese ministries whose interests were at stake was expected with the negotiation expanding to more areas and going into more depth as it reached the final stage. For example, when China's concessions were posted on the USTR website during Zhu Rongji's visit to the U.S. in April 1999, it invoked significant opposition from many Chinese intellectuals. Consequently, it is interesting to analyze what factors counterbalanced the above-mentioned negative determinants to shape the negotiation process. I find that two new factors that were missing at the second stage contributed to the variation of the final negotiation outcome. The first was the strong support and personal involvements of the key leaders in both states, namely Clinton from the U.S. and Jiang Zemin and Zhu Rongji from China. The second was the active and effective lobbying of U.S. MN Cs and exporters in the 210 U.S. The change of Clinton's policy was part of the overall 'China Policy' shift of the administration from containment to engagement. The change of the preferences of the U.S. MNCs and exporters eventually influenced the change of the preferences of some members in Congress, which led to the vote of China's PNTR status --- a final policy goal and a key condition of China's WTO membership. I. Stalemate, 1995-1996 China's GATT/WTO accession negotiation remained deadlocked in 1995 and 1996. This second major deadlock was the result of Beijing's negotiation failure in the end of 1994. The stalemated two years were characterized by the domestic reluctance and difficulties of breaking deadlock within both countries. Although Beijing threatened to discontinue the negotiation should it fail to reach an agreement by the end of 1994, this stalemate should be viewed differently from the one that took place in 1989 that was caused directly by a political crisis. All parties involved, including Beijing, knew that it was almost impossible for Beijing to really give up the negotiation and forever stay outside of WTO, the new and rejuvenated successor of GA TT, since such a decision would violate the fundamental economic interests of the PRC. Therefore, from the very beginning the threat from Beijing was not seen as credible. This stalemate lasted for approximately two years because theU.S.MNCs and exporters largely remained silent and the key leaders in both countries chose not to be engaged during that period. 211 Beijing condemned the U.S. for blocking China's entry into GATT by the end of 1994. In particular, Beijing pointed to the U.S. commitment in the 1992 Accord and felt humiliated when Washington failed to keep its word. 260 At the news brief immediately after the failure, Chen Jian, the spokesman for the Chinese Foreign Ministry, claimed that 'China signed the final document of the Uruguay Round of Trade Negotiation and the agreement of WTO, which fully reflects its sincerity. Only a few of the signatory countries persisted in demanding a high price out of political consideration, and thus there was no consensus on the substantial issues. It is not wise to exclude China since the world trade system can't be considered complete. ' 261 On 31 December 1994, Beijing decided to temporarily suspend the 1992 Accord. Beijing sent Washington a notice to suspend the lifting of import barriers on 155 categories of American products. Wu Yi, Minister of MOFTEC, bluntly accused the U.S. of violating 'the most important commitment' in the 1992 Accord to 'staunchly support China's GATT entry'. He stated, "very regrettably, the American side took the lead to block that process and as a result, China failed to become the original member of WTO. Now that the American side has not seriously implemented its commitment, the Chinese side is entitled to express its displeasure and take corresponding action." 262 This reaction reflected the countermove of Beijing to link 260 Interviews in Beijing, Winter 2000 261 "News Briefing by Chinese Foreign Ministry", Beijing Review, January 2-8, 1995, p.14 262 Patrick E. Tyler, 'New Dispute Imperils Trade with Chinese', New York Times, 12 March 1995, p.21 212 the implementation of its bilateral agreement with the progress on its multilateral negotiation. While this reaction was necessary for Beijing to 'save face', Beijing showed flexibility on the bilateral IPR negotiation by putting an end to this 20-month long negotiation especially at such a sensitive period of time, after calling Washington's threat of trade sanction 'barbarous'. 263 After USTR Mickey Kantor issued a proposed determination that China's IPR enforcement practices were unreasonable and burdened or restricted the U.S. commerce and published a proposed retaliation list of $2.8 billion Chinese goods after the negotiations with China had been underway for 20 months, including 8 months under the Special 301 investigation on December 31, 1994, the U.S. and China reached an agreement shortly after on 26 February 1995. When the agreement was reached, the U.S. officials insisted that there was no direct linkage between the resolution of the copyright disputes and a resumption of the negotiations on China's GATT/WTO entry, but they acknowledged that the issue 'was in the background' during the lengthy negotiation that spanned twenty months and nine negotiating sessions, as USTR Kantor said in Washington, D.C. that the agreement would 'help create a better atmosphere' for the resumption of negotiation. 264 The main points that China agreed in this 'landmark agreement' included: 263 Jurek Martin," U.S. Decision 'Barbarous': China Angry at Threat of Trade Sanctions over Copyrights", Financial Times, January 2, 1995, p.3 264 Tony Walker, 'A Maturing Marks Copyright Deal', Financial Times, 28 Februarys 1995, p.8 213 • Carry out over three-five year period an enforcement policy on intellectual property rights; • Set up taskforces in various cities and provinces to curb infringements raid factories involved in illegal manufacturing and retailers selling pirated goods; • Revoke factories' operating licenses for repeated offences • Give greater authority to customs officials to halt exports of pirated products • Open up its market to imports of software and, audio-visual products and make its censorship policy on imports more transparent; • Invite US software and audio-visual companies to establish a commercial presence in China; In March 1995, USTR Kantor led a delegation to Beijing. After the negotiation, Kantor and Wu Yi, the Minister of MOFTEC, reached an eight-point accord. China pledged to resume the implementation of the bilateral memorandum on market access. The U.S. agreed to grant China the special developing-nation exemptions that would allow it to phase out trade barriers over a number of years on China's GATT /WTO bid. However, Washington insisted that Beijing drop some of its trade barriers more quickly, using timetables required of more advanced industrial nations. The agreement reflected a hybrid formula that looked at China's demands for exemptions issue by issue. In this sense, China was granted a middle position between a developing and a developed country that could be called either a 'relative developed country' or a 'special developing country'. Although China was not completely satisfied because the 'product by product' negotiation would bring more complication into its accession negotiation, this agreement was viewed as a progress of the U.S. from its previous position that China must join as a developed country, especially when the U.S. also pledged at this time that it would pursue China's GATT/WTO accession talks on a flexible, pragmatic and realistic basis. 265 265 Patrick E. Tyler, "US, China Will End Trade Rift", New York Times, March 13, 1995. P I 214 The accord was designed to put an end to the atmosphere of enmity that had characterized the Sino-American negotiations over China's entry into the world trading system. However, China's foreign ministry spokesman denied that China had agreed to return to Geneva in mid-April 1995 to resume talks after the signing of the accord. Beijing emphasized it would evaluate the attitudes of its GATT /WTO negotiating partners before deciding on whether to resume talks. 266 While promising to shift from Washington's previous position to accelerate China's GATT/WTO accession negotiation at the signing of the bilateral market access accord in Beijing, Kantor defended the earlier U.S.'s position a week later in Congress on 15 May 1995 by telling the U.S. International Business Council that "all we said and agreed to is that for certain purposes the U.S. position on China's entering the WTO remained unchanged." 267 The rhetoric of Washington and Beijing showed that neither side was ready to step out of their negotiation impasse at this time. Beijing kept its word of 'not offering further concessions and not seeking to restart talks'. However, an analysis of the abovementioned threat statement made by Beijing in the late 1994 showed that the threat was carefully framed to avoid rejection of future multilateral meetings in Geneva. It appeared that Beijing was somehow prepared for the failure and did not plan to disengage with GATT /WTO. Unlike the 266 Tony Walker, Beijing Denies Kantor Claim on WTO Talks, Financial Times, March 17, 1995. P.5 267 'U.S. Insists Position Remains Unchanged on China Entry into WTO', Inside US Trade, March 17, 1995 215 previous deadlock during the 1989-1992 period in which the Western countries did not have the intention and the willingness to initiate further negotiation with China unilaterally, both China and the major GATT/WTO members were waiting for the other side to initiate this time because the side that would initiate would be expected to take a more flexible position thereafter. The flexibilities Beijing showed on the bilateral IPR talks with the U.S. and its controlled 'anger' on the failure to meet its self-imposed deadline (the gesture of the suspension of the 1992 Accord and the fast return to the multilateral negotiation table) all showed that Beijing still hoped to be admitted before the end of July 1995 so it could still be regarded, retroactively, as one of the founding members of WTO. In May and July of 1995, the Chinese delegation conducted two 'very informal talks' with the major GATT/WTO contracting parties in Geneva by the invitation of Mr. Girard, the chair of the working party. The Western media described these two talks as 'water-testing' since the negotiation was still in stalemate and both China and the West were waiting for the other side to take the initiative. These two preliminary talks were described as 'informal, 'cautious' and a 'symbolic gesture' by the western media. 268 Beijing brought a few new offers to Geneva each time but failed to attract the interest of the U.S. and the EU since the U.S. and the EU were expecting a comprehensive new package. In May 1995, the Chinese team revealed its plan to 268 Tony Walker, 'China Inks Improvements in Sino-U.S. Relations with WTO Bid', Financial Times, June 26 1995, p.3; Lu Ning, 'Beijing's Long March to Join Trade Group', Business Times (Singapore), September 5 1995, p.15 216 work on the liberalization of its trading rights and allowed foreign insurance companies to be established in 13 cities by the year 2000, an improvement from its final offer at the end of 1994 that only Shanghai was to open to foreign insurance companies. In July 1995, the Chinese team put forward a package proposal that included a five-point plan to liberalize its trading right system and to phase out its NTBs and export subsidies. The main points are listed as follows: 269 • Remove designated trading in six categories of imported products, including wool and timber within five years. Previously China only allowed 60-100 designated SO Es to import these products; • Trading rights of domestic enterprises within five years be liberalized from a registration system to an automatic approval system; • Trading rights for joint ventures within eight years be given the status of Chinese domestic enterprises, upholding the principle of national treatment; • Rules on the status for companies seeking a presence in China will be gradually relaxed over an eight-year period. At present many companies are only allowed a representative office when setting up in China; • State trading enterprises reserve the trading rights on eight crucial categories of agricultural products, including grain and sugar; • Meeting WTO trading standards by phasing in the measures over time, during which WTO members are entitled to safeguards in case of a surge of Chinese exports; • China agreed to open up six service sectors including banking, insurance, transport, offshore oil exploration, advertising and tourism. However, the U.S. negotiators thwarted this fresh offer. Long Y ongtu, the Chinese negotiator, expressed his frustration: 'all the other working party members had viewed our new proposals positively. But the U.S. said that they don't have the authority to start drafting the text for the protocol. They pay a lot of lip service, but 269 Sheel Kohli, "Beijing Slams Washington for Snubbing Trade Plan", South China Morning Post July 28, 1995, p.1; plus Lu Ning, "Beijing's Long March to Join Trade Group", Business Times (Singapore), September 5, 1995, p.15 217 they are not interested when we want to start a program ofliberalization' . 270 This package was substantially the result of Sir Leon Brittan's visit to Beijing in early July. The package, regarded by the EU, Japan and Canada as having clarified many of the thorny issues at stake, was rejected by the U.S. delegates. Claiming lack of authorization, the U.S. negotiators refused to accept a transitional period and an unconditional granting of the MFN status. 271 Consequently, the proposal by the chairman of the China working party to begin drafting China's protocol failed to materialize. Washington's stiff position showed its clear unwillingness to push for China's entry at this point. Beijing's hope to join GATT/WTO by the end of July 1995 was dashed again when the second round of the negotiation ended on 28 July 1995 without a breakthrough. China's chief negotiator Long Y ongtu bitterly criticized the U.S. for being "hypocritical" in its recent promise to support China's . 272 accession. The EU proposed to extend the negotiation for another six months to the end of 1994 in order to help China to gain a seat as a founding member of WTO since WTO and GATT would overlap for one year. Although China did not openly applaud this suggestion since the U.S. opposed to the proposal and since China had to keep the threat it made in November 1994, the Chinese negotiators in Geneva were aware of 270 Sheel Kohli, 'Beijing Slams Washington for Snubbing Trade Plan', South China Morning Post, July 28 1995, p. l 271 Lu Ning, 'Beijing's Long March to Join Trade Group', Business Times (Singapore), September 5, 1995, p.15 272 John Wong, "China Still out ofWTO", Business Times, September 30, 1995, p.10 218 this possibility and made policy suggestions to the high-level officials in MOFTEC. 273 As a result, Beijing's moves in early 1995 could be understood as a further test of Washington's resolve. Beijing felt that the existing gap was unsurpassable, and given the lack of political will from Washington to resume the negotiation, the 'water-testing' talks were destined to be futile since 'there was no water to test'. 274 The next round of negotiation, slated to begin in Geneva on 23 October 1995, was postponed at the request of Beijing after a series of unproductive bilateral and multilateral talks, especially after the quad meeting in New England at the time during which USTR Kantor stated that China had failed to meet 'even the minimum criteria' for WTO entry. 275 The Quad meeting was held one day before the Summit of President Clinton and President Jiang Zemin at the Lincoln Center on 25 October 1995. President Clinton reiterated the U.S. position that while Washington supported eventual WTO membership for China, Beijing had to greatly liberalize its market before it could join. As one result of the summit, the U.S. provided China a 'road map' through its Embassy in Beijing on 28 November 1995. The 13-page document, consisting of some 25 categories, was a complete list of the U.S. requests toward China on its WTO accession application including trading rights, non-tariff measures, price 273 Liu Guangxi, 'The New Operational System of the Multilateral Trade Regime' ( duobian maoyi tizhi yunxing de xinjizhi), Duiwuai Maoyi yanjiu (The Foreign Trade Studies), no.4 (total 659), January 24, 1995, p.1-9 274 Interview with one key Chinese negotiator at this stage, March 2000. 275 Guy De Jonquieres, 'China Fails to Make WTO Grade', Financial Times, 23 October 1995 219 controls, subsidies and safeguards. The Chinese negotiators believed that this 'roadmap' incorporated some flexibility by relaxing some of the previous insistences of the U.S. For example, China's admission would be on a partially-developed nation status rather than on a complete developed country status, as China was allowed the special treatment accorded to developing countries in a few industries, subject to a case-by-case negotiation process. The following are some of the issues being covered by the roadmap: 276 T bl 5 1 S a e - ome I ssues I 1 d d . h U S 'R d ,. N nc u e mt e oa map m b 1995 ovem er Issues Beijing's position US demands Trading Staged liberalization over eight years; state Restrictions on the rights of companies to rights trading companies now dominate engage in foreign trade liberalized in three years NTB Phased elimination Eliminate upon entry Price Maintain price controls over those Dramatically reduced them controls products 'essential to people's basic needs' Subsidies NIA Provide greater transparency on export subsides on agricultural products and to agree to their phasing out Safeguard Oppose any discriminatory safeguards in Both general and product-specific safeguards the protocol. China wants to limit the on most of Chinese exports scope of the safeguards Transitional Long transitional period overall China is asked to indicate which areas will period require special transitional period; Source: Interviews in Beijing, Winter 2000 Publicly, Beijing hailed this 'roadmap'. At the meeting between Mickey Kantor and Wu Yi, Wu expressed that 'To react positively on such flexibility, China has agreed to send the WTO negotiation team to Geneva in December 1995 to resume formal talks with the China WTO accession working party. ' 277 However, when Sun Zhenyu, 276 Interviews with trade officials in Beijing, March 2000. 277 Vivien Chan, 'China to Resume Talks on WTO Entry', South China Morning Post, November 20, 1995, p.8 220 the Vice Minister ofMOFTEC, met Ambassador Barshefsky in February 1996 in Washington, Sun declared the roadmap was too demanding, while welcoming the spirit of the non-paper that clarified what was expected of China. Some members of WTO, led by the U.S., he said, asked more than what were required under WTO and more than what had been asked of other applicants of the membership. Furthermore, Sun stressed that China was aiming to become a market economy and therefore operating an import-target, such as the one suggested by Barshefsky, which applied during the Cold War to non-market economies upon entry into GA TT during the Cold War, would not be consistent with China's economic reform objectives. 278 In November 1995, Beijing decided to move on and transfer its GATT application to a WTO application. Accordingly, the name of the 'GATT working party on China's accession' was changed to the 'WTO working party on China's accession'. Since Beijing had insisted there would be no new concessions to secure its membership, announcing further liberalization measures at the APEC F arum held in Osaka, Japan in November 1995 was a smart choice. At the Forum, President Jiang Zemin announced a new plan that pledged to reduce import tariffs on up to 6,000 products and to abolish import quota on 170 categories of goods. It was China's largest trade 278 'Chinese officials says roadmap too demanding for WTO accession', Inside U.S. trade, February 16,1996, pp.1-2 221 liberalization package since the beginning of the economic reform in 1979. The main points included as follows: 279 • Substantial tariff cuts on more than 4,000 tariff lines, which would lower China's simple average tariff by no less than 30% to the average level of 23% from current 35% • Elimination of quotas, licensing and other import controls on about 170 tariff lines, or more than 30% of commodities subject to these restrictions • Foreign exchange transactions by foreign companies to be 'incorporated in the banking system of foreign exchange procurement and sale' • Designation of Shanghai and other, unnamed, cities as 'pilot bases' for joint ventures between Chinese and foreign partners, extension of a trial scheme for joint retailing ventures with foreign partners • The restrictions that prohibit private companies from engaging in foreign trade might be lifted over five years rather than the eight years Beijing demanded in July The U.S. also softened its demand on the service sectors, presented as part of the 'roadmap' to senior Chinese trade officials, at the APEC Forum. Long Yongtu revealed that 'the U.S. now specifies it wants national treatment for goods but has not requested a similar condition for trade in services. ' 280 National treatment for goods is required under WTO rules, but such treatment is not automatic for services. Equal opportunity for foreign services is extended to those sectors where countries specifically agree to open their markets. The softened demand of the U.S. agreed to seek for a broad geographic coverage but allowed China to prohibit foreign service providers from operating in certain regions of the country, a compromise from its previous demand that China should open nation-wide. 279 Shada Islam, 'It's not that easy', Far Eastern Economic Review, 21 December 1995, p.58; plus Guy De Jonquieres and William Dawkins, 'China plans reform to break trade stalemate: Beijing to cut tariffs and ease investment rules in attempt to join WTO', Financial Times, 20 December 1995, p.1 280 John Zarocostas, 'U.S. eases key conditions of China's WTO entry', Journal of Commerce, p.lA 222 However, the flexibilities shown by both sides had not reached a point that a true breakthrough was possible. At the December talks in Geneva, all parties expressed their pessimism by predicting that a breakthrough was unlikely at this stage. The then current round 'is but a trick to hook China up again' in the WTO talks, said Li Enheng, the Deputy Director of the Department of International Trade and Economic Affairs of MOFTEC. The major differences in the positions and the strategic outlooks led China's trade negotiators to be wary of lip service. Li Zhongzhou, the Director of the abovementioned department, stated that China would not enter WTO as a 'relatively developed member and China had no intention of sacrificing its economic growth for WTO membership. 281 The deadlock continued during the following March 1996 talks in Geneva, China's first formal session of the WTO working party. China offered only to seek a shorter transitional period for the auto and the other strategic industrial sectors (from previous 15 years to 5-7 years) as well as to introduce the tariff quota system for 26 grains and edible oils after April 1996. Additionally, China did not publish its list of reductions for politically sensitive agricultural goods announced in November 1995. Consequently, China's major trading partners believed that the Chinese bid had lost its momentum. As it appeared, the problem was indicative of the difficulty that China faced in resolving its internal dispute over meeting its own targets for tariff cuts. 281 Tan Tarn How, 'US Using 'Tricks' to Delay WTO Entry', The Strait Times (Singapore), December 11, 1995, Pg. 2 223 5.1 China's domestic preferences and institutions Drawing conclusions in regard to international interactions based on the domestic politics of a single state is inappropriate. Instead, international policy coordination is better understood as an outcome of strategic interactions among state leaders responding to both domestic and international constraints and imperatives. Beijing's failure to conclude its accession by the end of 1994 brought opportunity to the conservatives domestically. Their criticism directly led to the hardening of Beijing's positions thereafter. After China realized that it had missed the final chance to be a founding member of the WTO, it found the time to slow down the negotiation and recalculate the potential benefits and the losses of the WTO membership. Consequently they highlighted the importance of the developing country status and the unconditional MFN status from the U.S. again. These two conditions would fundamentally shape the overall gain or loss of China's WTO membership. During this period of domestic policy adjustment that stalemated the negotiation, any breakthrough would be less likely to take place. As discussed earlier, Beijing did not make a credible threat either. When the Chinese chief negotiator Long Y ongtu made the announcement on November 28, 1994 in his meeting with GATT director-general Peter Sutherland in Geneva, Long told Sutherland that the decision bore two specific implications. "First, after the deadline, 224 China will not make any new, substantive offers in the negotiation of the protocol and the market access. However, it will still draft the protocol and report to the GA TT working party on China, as well as verify the three schedules on the agricultural products, the non-agricultural products and the service sectors. Second, beyond that deadline, China will not, on its own initiative, seek bilateral negotiations with the GATT contracting parties to meet with the working party. However, at the request of the GA TT Secretariat or the Secretariat of WTO, China will continue to participate in the negotiations until its GATT status is resumed." 282 Clearly, Beijing left itself some room to negotiate even if it failed to achieve its goal. As one negotiator recalled, the above expression was carefully prepared so that a multilateral channel would be kept open to Beijing. 283 As a result, Beijing's preferences were presented with two considerations during the 1995-6 stalemate. First, Beijing hoped to continue its tie with this important (even more important after GA TT was replaced by WTO) international economic organization. Second, the key leaders in Beijing felt that a new negotiating strategy was necessary, after facing growing domestic criticism and resistance, especially those on Beijing's diplomatic failure at the end of 1994. The key Chinese leaders felt they lost face domestically. The conservatives who opposed China's early entry prevailed and wanted to slow down the negotiation and draw the lessons from the failure. The opinion surfaced in an internal paper prepared 282 'China Sets Deadline for GA TT Re-entry', Beijing Review, December 5-11, 1994 283 Interview in Beijing, winter 2000 225 by the senior Chinese economic officials who warned the key leaders in Beijing against rushing into the WTO. Those economic officials pointed out that it was unlikely that China could enter the WTO anytime soon. They further stated: "We should have a cool attitude. Let them come to us so we can put forth China's conditions. We don't need to change our conditions". 284 In one of the following politburo meetings, Jiang defined Beijing's new WTO accession negotiation principles: be very patient and not rush; let nature takes its course; adroitly guide action according to circumstances; when conditions are ripe, success will be achieved (Buji buzao, Shunqi Ziran, Yins hi Lidao, Shuidao Qucheng). 285 This new principle represented the radical change of China's position from the previous year. Under this new guiding principle, those U.S. demands that Beijing felt were 'unacceptable' and led to the collapse of the negotiation at the end of 1994 became totally 'intolerable' during 1995-6 without the deadline pressure. Those demands included the arrangements specially designed for China such as the general and product-specific safeguard, the non-market economy category on the anti-dumping investigation, the open-ended review mechanism, and the developed country status. More than one key Chinese negotiator wrote articles in the internal (neibu) journals to express their deep concerns about the difficulties to break the current negotiating stalemates since it was impossible for China to accept the list of the U.S. demands, 284 Dede Nickerson, "Officials Warn on Fast Entry to WTO'', South China Morning Post, Pg.1 285 Long Yongtu, "Regarding to the Issue of China's Accession Negotiation, speech made on April 17,1998", Zhongyang Dangxiao BaogaoXuan (Selection of Central Party School Speeches), 1998, P.13 226 especially on the market access and the service sector liberalization in the near future. 286 Beijing insisted that it would not restart its application to join WTO until the Western nations modified their 'exorbitant demands'. "At a time when the major developed contracting parties haven't modified their exorbitant demands, it is of no meaning to convene the meeting of the working party", claimed the spokesman for the Chinese mission in Geneva. 287 After the collapse of the negotiation at the end of 1994, Beijing lost the motivation and the urgency to push for its membership. More importantly, the setback of the negotiation in 1994 pressured those 'liberal' leaders. The 'liberal leaders' were criticized that their eagerness backfired and their subsequent failure was a mistake of the relevant decision-makers. 288 In 1995, Beijing started to emphasize that "China needs the WTO and the WTO needs China too". Beijing hardened its positions on several key issues. The first was China's developing country status, one of the key disagreements between China and the U.S. that contributed to the failure of China's entry at the end of 1994. This time, Beijing insisted on clarifying China's developing country status in the Protocol since 286 Liu Guangxi, Secretary of Long Yongtu, Zhongguo yu jingji lianheguo ( China and Economic UN), (Beijing: zhongguo jingji maoyi chubanshe <China Foreign Trade and Economics Press> 1998) Pp. 301-307; Li Zhongzhou, director of department of international trade and economic cooperation, MOFTEC, 'the Difficulties and Prospects of China's Entry into WTO' (Zhongguo Jiaru Shimao Zuzhi de Nanti yu Qianjing), International Trade ( Guoji Maoyi), no.11, 1996, Pp.4-5 287 Irene Ngoo, 'China Won't Restart Talks to Join WTO', The Strait Times, January 30,1995, p.8 288 Interview with trade officials in Beijing, March 2000. 227 the WTO would grant developing countries more time to phase out trade-distorting measures, putting the political significance Beijing had always attached to this title aside. On the other hand, the U.S. softened its previous position that China had to meet all requirements upon accession and agreed to consider them on a sector-by- sector basis. The second key issue was the unconditional MFN status by the U.S. This issue had always been the most contentious one throughout the negotiation. Clearly, the status represented the biggest practical gain of China's GATT/WTO membership. The U.S. trade representatives told Beijing in the first stage of the negotiation (1986-1989) that the U.S. government would try to resolve this issue after China joined GATT but it could not guarantee any success since granting China unconditional MFN status would conflict the domestic law of the U.S. However, the U.S. changed its position in the second stage, due to a series of political changes, by claiming that the domestic law of the U.S. was superior to the international law and the U.S. did not have any intention to revoke its domestic law. That was the reason that the U.S. refused to conduct the 'tariff-reduction negotiation' with China until mid-1994 when China agreed that the U.S. would invoke the 'non-application' clause and there was no chance ofrevising the Jackson-Vanek Amendment. 289 Beijing's position in 1994 was to rejoin GATT first and then to fight for its MFN status under the WTO framework 289 James M. Montgomery, 'China's entry to the WTO and the Jackson-Vanek Amendment', Journal of Northeast Asian Studies Fall 1996, Volume XV, No.3: 59-70, p.67 228 since the conditional MFN status violated the founding principles of GATT/WT0. 290 For Beijing, the eagerness to join GATT before the deadline had overshadowed its practical concerns in 1994. In 1995 after Beijing missed its self-imposed deadline, it renewed its previous position: the U.S. must grant China permanent MFN status once China is admitted into WTO. In April 1995, Wu Yi wrote a letter to USTR Kantor. She questioned whether the WTO talks could succeed unless the U.S. repealed a 20-year-old law that conditioned China's trade status on its policy toward allowing its citizens to emigrate. 291 When the negotiation first resumed in May 1995, Beijing insisted putting into the Protocol the provision that all WTO members must grant China unconditional MFN status. The negotiators from Washington rejected Beijing's request by arguing that they did not have the rights to revise their domestic laws. The chairman of the China working party, Pierre Girard, persuaded China to withdraw this demand by arguing that the negotiation was less likely to progress if this issue became the precondition to resume the talk. 292 However, the issue remained outstanding during the following bilateral negotiations and Beijing never missed any opportunity to address it, both bilaterally and multilaterally. For example, Beijing initiated a diplomatic campaign for 'nondiscrimination' to international economic 290 Interviews in Beijing, Fall 2001 291 John Maggs and John Zarocostas, "China Presents Another Piece to WTO Puzzle", Journal of Commerce, April 21, 1995, P. 3A 292 Long Yongtu, "Regarding to the issue of China's Accession Negotiation (Guanyujiaru shijie maoyi zuzhi de wenti)", speech made on 4/17/1998, Selection of Central Party School Speeches, 1998, P.14 229 organizations. During the APEC Forum in Osaka in November 1995, Japan joined the China to press the U.S. for its acceptance to include the principle in the final document. After the negotiation, the U.S. agreed to modify the expression and committed itself to 'apply or endeavor to apply the principle of nondiscrimination'. 293 In 1997, the two sides finally reached an understanding on the issue. 5.2 The U.S. domestic preferences and institutions The Executive Branch This period is the preparation phase for the change of the preferences of the executive branch. Externally, the bilateral diplomatic tension over the Taiwan issues (Lee Tung-hui's visit in 1995 and the presidential election in 1996) reminded President Clinton the importance of maintaining stable relations with Beijing. To Clinton, China's WTO accession negotiation should be viewed as part of the general effort to bring China into the international community, although Congress might not necessarily share the same foreign policy concern. Moreover, Washington's allies, the EU and Japan, began pressuring for a faster conclusion of the negotiation although they continued to defend Washington's leading position. For example, when Long Y ongtu led a delegation to Brussels in July 1996 to explore the 293 The Osaka Action Agenda: Implementation of the Bogor Declaration, Selected APEC Documents 1995 (Singapore: APEC Secretariat, 1995), p.5 230 possibility for China to conclude the bilateral negotiation with the EU first, the EU negotiators told Long that China had better talk to the U.S. first. 294 In short, the negotiation approaches of the U.S. and the EU (flexible or inflexible) differed obviously at this time. Meanwhile, the executive branch of the U.S. was greatly constrained by the Congressional opposition. The White House started to show flexibility on the key issues such as the unconditional MFN status and the transitional period, under the threat that Beijing would suspend the implementation of the 1992 Accord and the pressure from its allies, especially during the 1995-6 period. Unfortunately, the White House also had to assure its 'unchanged' position in Congress after being questioned. No significant change could be made by the White House especially with reelection ahead. In an election year, the chief executive of a democracy tends to be reluctant to make any dramatic preference change and to be cautious about not signing any controversial trade agreement with an autocracy. It was probably true that Washington did not intend to conclude the negotiation with Beijing by 1994, but just as before, Washington wanted to pull China into the international community. It was not in the interest of the U.S. if China gave up its GATT /WTO application and began to reform and to liberalize completely on its own 294 Yang Jufang, "Fifteen Years to Knock at the Door ofWTO'', Beijing Youth Daily, November 10, 2001, p.l 231 pace and follow its own plan. As a result, the U.S. wanted China back after China left the negotiation table in late December 1994. Two weeks after the Chinese GATT negotiation delegation went back to Beijing from Geneva, Washington asked a Japanese trade official to take a message to Beijing to express the hope of the Western countries that China would resume the negotiation. In March 1995, President Clinton sent USTR Kantor to visit China and expressed Washington's willingness to be flexible once China agreed to resume the talks. On the other hand, the gestures of Washington did not lead to substantial concessions on any of its previous demands. On the contrary, Washington tried hard to stay 'tough' toward Beijing, especially in front of Capitol Hill and during the 1996 presidential election year. Since 1989, American Presidents had always chosen to keep a distance from Beijing in an election year since such a move would be too sensitive. It became a rule that the U.S. government appeared to carry out more of a 'pro-Taiwan' policy in the election year that inevitably made the Sino-American bilateral relations more sensitive and unstable. Mimicking the Bush sales of the F-16 jets to Taiwan four years before, Clinton decided to approve the visit by Lee Tung hui, President of Taiwan, to Cornell University this time after several years' of continuous refusal. Clinton did not make his decision alone or all at once. Instead, he consulted with congressional leaders and his foreign policy team for many times. Although the State Department wished to tum down Taiwan's request, as they did in the previous years, President Clinton assured the senators that he had had discussions 232 in which he leaned towards granting Lee a visa. 295 Ultimately, the Chinese ambassador was given a day's notice of the decision that a president of Taiwan would for the first time in history visit the U.S. Unexpected, this action chilled the Sino-American relations to an unprecedented point. Beijing condemned Washington for violating the three Sino-American communiques, the basis of the bilateral diplomatic, and warned that the consequences would be "troubles and even retrogression". Such an invitation was a major diplomatic insult to Beijing especially as it came after the refusal by the Clinton administration to accord Jiang Zemin the honor of a state visit to Washington. In contrast to the low-profile reaction to President Bush's arms sale to Taiwan in 1992 in the desire to not hurt Bush's chance for reelection, Beijing had no intention to support Clinton by beginning its retaliatory campaign with a series of diplomatic actions. It postponed a series of high-level meetings between the two states and recalled its ambassador from Washington. The Chinese also delayed giving the formal acceptance necessary for President Clinton's appointee, former U.S. Senator James Sasser, to take his post as the next American ambassador to China. As a result, the U.S. and China found themselves in the summer of 1995 with no ambassadorial representation on each other's territories for the first time since the establishment of the formal relations in 1979. 296 That was not all. On 19 July 1995, the Chinese army announced that it planned to conduct a week- long series of military exercises in the East China Sea north of Taiwan. As planned, 295 'How Taipei outwitted U.S. policy', Los Angeles Times, June 8, 1995 296 Elaine Sciolino, "Angered over Taiwan, China recalls its Ambassador in U.S.", New York Times, June 17, 1995, p.5 233 the army fired four M-9 missiles near the Taiwan Strait. The military action escalated the tension between both Taipei and Beijing and Washington and Beijing. Once military encounter became a possibility, both Beijing and Washington started to think 'rationally' about their bilateral relations. In August 1995, Secretary of State Christopher held an amicable meeting with the Chinese foreign minister in Brunei and handed him a letter from Clinton to Jiang Zemin. In the letter, the Clinton Administration secretly extended the possibility of a state visit by Jiang for the first time. 297 On 24 October 1995, Jiang and Clinton had their third Summit when Jiang went to New York to attend the UN's 50th Anniversary. At the Summit, Jiang restated China's U.S. policy of 'increasing trusts, reducing trouble, reinforcing cooperation and avoiding confrontation' (Zengjia Xinren, jianshao Moca, jiangqiang hezuo, bimian Duikao). President Clinton reassured Jiang of the U.S. support of PRC's One-China policy. Both sides agreed that the Summit was a great success in fixing the deteriorating bilateral relations. Unfortunately, another crisis emerged in 1996. On 23 March 1996 Taiwan started its first direct 'presidential election'. As a means to defend its 'One-China' policy, Beijing conducted two military exercises on 8 and 12 March 1996 respectively, firing M-9 surface-to-surface missiles into the waters off Taiwan. It was the most serious threat against Taiwan in 40 years. To respond, the U.S. sent two aircraft 297 James Mann, About Face: A history of America's curious relationship with China, from Nixon to Clinton, (New York: Alfred A. Knopf, 1999), p.330 234 carriers to the Taiwan Strait, taking Washington and Beijing to the brink of confrontation. In the post Cold-War era, frictions and complications characterize the Sino-American relationship. On the other hand, maintaining stable bilateral relationship was also important to both sides. As a result, it became an endless cycle of trouble and troubleshooting. In April 1996, former President Bush and former Secretary of State Kissinger visited China separately. They were the messengers and mediators sent by Washington. A series of visits and official exchanges mended the bilateral relations; nevertheless, the political crisis on the Taiwan issue seriously affected the bilateral relations. In the end, China's WTO accession negotiation suffered. The special nature of the Sino-American relations ensured that no progress could be made on the international economic negotiation between the two countries while political-security incidents were taking place. In this case, the detente of the bilateral political relations is the prerequisite for breaking out of the negotiation deadlock on China's WTO accession negotiation. The Chinese negotiators were also aware of the importance of the election year to Beijing's WTO accession. Wu Jianmin, the deputy head of the Chinese delegation, told the media during the first formal session of the China WTO working party in Geneva: "we are realists. We won't get in this year for sure because the U.S. can not afford to make any gesture to Beijing in an election year". 298 298 'China talks on WTO resume in Geneva', http://sdt.com/files/librarywire/ ... 3- 96/DN96_ 03 _ 20/DN96 _ 03 _ 20 _fr.html, 20 March 1996 235 If the bilateral relationship essentially pushed Washington and Beijing's attentions away from China's WTO accession negotiation during the period of 1995-1996, the split of the negotiating positions of the EU, Japan and the U.S. toward China's accession negotiation helped to press Washington to show some flexibility for the sake of position coordination among those countries. One of the big headaches for Beijing throughout the 15-year negotiation process was the solid coalition and the information sharing of the 'Quad Economies' --- the U.S., the EU, Japan and Canada. 299 Those countries met regularly to coordinate their positions toward China's accession negotiation. The united position split first in 1994 when the EU and Japan orally supported China's original WTO membership. This somewhat different position taken by the EU and Japan continued. During the negotiation stalemate in the 1995-6 period, the chief trade negotiator of the EU backed China's bid, suggesting a clear split with the U.S. Addressing China's 96 Summit in Beijing in November 1996, the Vice President of EC, Sir Leon Brittan, expressed his impatience with the insistence of the U.S. that China join the organization as a developed rather than a developing country. "The U.S. has erected 'very high hurdles to be surmounted' by China", Sir Leon said, "The prime target for Sino-European cooperation must be the early conclusion of long-overdue negotiations for the Chinese membership. Europe has always made clear its willingness to do so". He suggested that China agree to a more flexible formula for WTO admission proposed 299 Interview in Beijing, Winter 2000 236 by the EU. Should China agree, Leon Brittan guaranteed that he would 'take the . h ' w h' 300 matter up wit extreme urgency to as mgton. Japan shared the view of the EU to support an early entry of China into WTO with a flexible arrangement. Japan organized a two-day seminar during which some 30 government officials, academics and businessmen brainstormed the problem concerning China's stalled WTO entry. Recognizing that the Chinese economy was undergoing reform, most participants agreed that China could be accorded the developing nation status for certain areas of its economy, but not the blanket status Beijing demanded. There was also consensus that no new condition should be imposed on China at the Geneva talks. 301 The compromising phase-in method suggested by the EU and applauded by Japan was the key to pull China back to the negotiation table. The tactic protected those areas that China had great concerns with a transitional period while forcing China to make concessions on the rest. In order to coordinate a united negotiating position with its allies, Washington modified its rigid position toward Beijing, at least on the surface. Washington softened its previous position on the two issue areas that Beijing had great concerns over. However, in both cases the U.S. officials moved back from their rhetoric when facing Congress. For example, after agreeing to consider China's application with a 300 Joe Studwell, "EU, US Split on China's WTO Bid, EU Negotiator Presses for Entry at Talks", Journal of Commerce, November 18,1996, P.IA 301 Kwan Weng Kin, "US Trying to Help Solve China's WTO Problem", The Strait Times, October 26,1996, P. 2 237 developing country status on a case-by-case method in Beijing in May 1995, USTR Kantor denied it in the subsequent Congressional hearing. 302 The same tactic also applied to the pe1manent MFN status. Washington committed to 'apply or endeavor to apply the principle of nondiscrimination' in the document made during the Osaka APEC Forum in November 1995. Shortly thereafter, this commitment was interpreted by the U.S. officials to only mean that they would continue to seek yearly extensions of the MFN treatment for Beijing. USTR Kantor confirmed the Administration's unwillingness to seek the repeal at a public appearance on 31 January 1996. In response to a question about a bill submitted in the House of Representatives by Thomas Ewing, Republican of Illinois, repealing the Jackson- Vanek Amendment for a number of countries including China, Kantor said, 'of course, we support Jackson-Vanek. It has been very helpful. ' 303 The difficulties to gain the permanent MFN status from the U.S. seriously stalked the negotiation process since Beijing had less incentive to make broad and often difficult concessions without it. Congress If Beijing faced growing go-slow pressure domestically, forging a consensus in Washington seemed insurmountable given the China-bashing atmosphere on Capitol 302 John Maggs," GOP Lawmakers Says U.S. Tread Old Ground in China Pact", Journal of Commerce, March 16, 1995, p.5A 303 James M. Montgomery, "China's entry to the WTO and the Jackson-Vanek Amendment", Journal of Northeast Asian Studies Fall 1996: 59-69, p.67 238 Hill at the time. In summary, the attention of Congress over its China policy continued to center on the human rights issue, the Taiwan issue and the increasing trade deficits of the U.S. with China. Congress continued to be the main domestic actor to resist any compromise and to encourage toughening the position on China's WTO accession negotiation. Any flexibility shown by the executive branch on China's WTO negotiation was severely questioned and forced to give up. The human rights record in China had always been a thorny issue since 1989. The 1995-6 period was of no exception. The sentencing by Beijing of democracy activist Wei Jingsheng to 14 years in prison and the decision by Beijing to select a Panchen Lama in Tibet all produced a storm of anti-China resolutions in Capitol Hill. As USTR Barshefsky explained, 'though the administration maintains a consistent position that linking trade and human rights was 'not productive', Beijing's human rights policies were bound to 'color' its trade ties with the U.S., especially when it comes to the U.S. position on Beijing's WTO entry. ' 304 Congress played a pivotal role on the controversial visit by the Taiwan President Lee Tung-hui. The Clinton Administration officials complained that Beijing's anger at Washington was caused by its unfamiliarity with the U.S. politics. After the crisis took place, they assured Beijing that the administration's engagement policy was unchanged but Congress and the press projected a hostile attitude toward Beijing. The administration had little choice in this matter after the House in May backed a resolution approving Lee's 304 Leon Hadar, "Clinton firm on delinking China trade'', Business Times (Singapore), December 19, 1995, p.11 239 visit by a 427-0 margin, with the Senate supporting it by a 97-1 tally. 305 Another factor was the pressure of the coming election in 1996. As early as December 1995, Senate republican leader Bob Dole tested the water on making China a campaign issue. In a major policy address on China, he accused Clinton of being too eager to admit China to WTO, and called for a delay in letting China join after the 1996 election. 306 In fact, Congress was directly involved in the progress of China's WTO membership bid. For instance, after Washington reached the Eight-Point Accord with Beijing by agreeing on a transitional period method to negotiate in return for Beijing's continuous implementation of the 1992 bilateral accord, many members in Congress expressed their anger during the subsequent Congressional hearing. Rep. Nancy Pelosi, D-California, said that Chinese officials "were probably having a good laugh" about that Eight-Point Accord, because they had "sold the same horse twice". USTR Mickey Kantor charged China for deliberately dragging its heels to get more leverage over China's WTO bid and further denied that they had agreed to a 'product-to-product' transitional period approach. He assured that in return for the commitment from China to remove those trade barriers, the administration pledged 305 Leon Hadar, "Clinton's confused and chaotic China policy", Business Times (Singapore), October 17, 1995, p.11 306 John Maggs, "Dole looks for political safe haven on China; Senator expected to call for delay of WTO entry'', Journal of Commerce, December 18, 1995, p.lA 240 nothing to China other than to resume the WTO negotiations in mid-ApriI. 307 The activities clearly showed that the executive branch was constrained by Congress on making any progress on China's WTO bid. Furthermore, the root of the opposition in Congress lies in their fundamental distrust and disengagement toward China, an ideologically hostile trade engine. II. The final conclusion of the bilateral agreement, 1997-1999 During the second session of China's WTO working party held from 28 October to 3 November 1996, China provided WTO with a complete and detailed description of the measures in place and the products still subject to restrictions. China was committed to a standstill on new trade measures inconsistent with international fair trade rules (the principle of standstill). The Chinese negotiators admitted that they had encountered 'a more pragmatic and positive' approach from the U.S. in the recent bilateral talks, confirming a clear change of the U.S. stance. China also revealed its new tariff reduction plan to be announced at the APEC Forum that would reduce the tariff levels from the current 17% three years after joining WTO to 15% by 2000. In the following Singapore WTO ministerial meeting, the Chinese chief negotiator Long Y ongtu stated that China was committed to the currency convertibility under the current account since 1 December 1996. In addition, China 307 John Maggs," GOP Lawmakers Says U.S. Treads Old Ground in China Pact", Journal of Commerce, March 16, 1995, p.5A 241 formally dropped the demand that it should enter WTO with a comprehensive developing country status and was prepared to negotiate a transitional period for implementing WTO commitments on a case-by-case basis and would only seek the transitional period in the areas where it would face serous adjustment difficulties. Furthermore, China might also relax the restrictions on foreign financial services companies and allow foreign owned banks to conduct Yuan business. After several months of negotiation, the U.S. renewed its bilateral textile agreement with China in February 1997. The U.S. agreed to treat China as an 'original party' to the Agreement on Textiles and Clothing (ATC) when it joined WTO. But a special textiles import safeguard mechanism would remain in effect until four years after the WTO ATC terminated. For the first time, the U.S./China textile agreement provided market access for the U.S. textiles and apparel into the Chinese market. China also agreed to reduce tariff rates over the next four years and ensure that NTBs would not impede the achievement of the real and effective market access for the U.S. textile and apparel export. The U.S. further reduced China's quotas in fourteen apparel and fabric product categories that China agreed that it had violated the 1994 agreement through transshipment or over-shipment. The EU, the U.S., Japan, and Canada negotiators spent most of the time in December 1996 and January 1997 in Beijing separately working on a new package of liberalization with China. The outcome of this one and half months' 'productive' 242 interaction led to the 'true breakthrough' taken place during the third session of the China working party in March 1997. As the U.S. demanded, China committed to grant trading rights to all companies (domestic private companies and foreign companies) within three years after admission and comply with Trade Related Intellectual Protection Agreement {TRIP) upon accession without seeking for a transitional period any further. These two issues were the key issues under negotiation which China had always refused to make concessions. 308 China also promised to enforce only those laws, regulations and other trade-related measures that were published. As for the trading rights, China agreed to progressively increase the availability of the rights to import and export products so that at the end of the three years all foreign individuals and companies and all companies in China would have the right to import and export all products throughout China. This commitment represented a major change in China's trade system since only a comparatively few companies in China prior had the right to import goods directly from the U.S. companies. This change was an important step in providing national treatment to the U.S. exports. It ended the requirement for companies from the U.S. to conduct import and export businesses in China through an authorized Chinese trading company and allowed the U.S. companies to gain access to six sectors in which they had previously only been allowed to trade in partnership with SOEs. The agreement also outlined the basis on which China intended to maintain the state trading rights, 308 Testimony of Susan G. Esserman before the Ways and Means Committee Subcommittee on Trade, November 4 1997, http://www.newsrelease.ustr.gov 243 permissible under WTO rules, related to the eight products Beijing regarded as basic human needs and over which it felt it must have control of prices and supplies, including grain, fuel, and wool. China also asked for a longer transition of 3-5 years for another six products, among them timber and rubber, where 60-100 state companies at the time had the exclusive trading rights. Moreover, China committed to shorten the transition period of a list of products characterized as the 'strategically important sectors'. The following were those products Beijing decided to lower the maximum phase-out time period from previous 15 years to 12 years. Table 5-2: Table of List on China's New Offer to Lower the Maximum NTM Phase-out Time Period, M h 1997 Th. d S f Ch" W k. P arc ' lf ess10n o ma or mg arty Auto and auto parts 12 years phase-out period Motorcycles and diesel trucks 8 years Satellite earth stations for TV, color satellite TV receivers, television tuners, 12 years ultrasonic diagnostic apparatus, machines for balancing mechanical parts, plasma cutting machines, machines tools, buses, cargo vessels, gasoline, lathes; Source: Interviews in Beijing and Shanghai, Winter 2000, Summer 2001 The western delegates hailed the result of this meeting as the most positive outcome since the negotiation on China's WTO membership began. The EU trade commissioner said China could be allowed to join the world trade body by the end of the year. 309 At the following fourth session of the China working party held in May, China reached agreements on the principle of judicial review and nondiscrimination. As for non-discrimination, China agreed to eliminate practices that discriminated against imported goods and foreign producers of goods in China. For example, China 309 Sheel Kohli, "Mainland wins support over breakthrough reform", South China Morning Post, March 7, 1997, p.16 244 would eliminate its system of dual pricing for products and services related to production, distribution, marketing and sales of goods in China. Under the old system, foreigners would be charged much more for air or rail freight, or preferential access to these services would be granted to a domestic producer. As for the judicial review of administrative decisions, China would have independent tribunals for the review of administrative actions related to the implementation of the WTO agreements and grant the right to seek judicial review of these administrative actions. Both of these issues were central for bringing WTO into China. However, the diplomats in Geneva warned that the scale of the progress seen at the March meeting was unlikely to be repeated as it was not at the pace suggestive of a dramatic breakthrough. One senior EU negotiator analyzed that "this meeting and maybe the next one are preparatory meetings for the next breakthrough, and that needs to be made in market access." 310 Although China made progress liberalizing its goods market and trade-related rules, it did not show any movement on the service sectors. Market access in services became the biggest concerns of China's trading partners. The Chinese negotiators' failure to submit any offer for further liberalization thwarted the U.S./China bilateral talks in January and February 1997. In Geneva in May 1997, Beijing promised that serious bilateral talks on services would finally get under way in the next few weeks 310 Sheel Kohli, "Beijing seen giving way in WTO talks", South China Morning Post, May 22, 1997, P.12 245 and the new liberalization offers on services would hit the table by July 1997. To move the process forward, Beijing planned to hold talks with its major partners in July, to unveil new concessions on the service sectors and to follow up with six weeks of bilateral talks culminating with a major package in October, ahead of the U.S.-China Summit. If the package appealed to Washington, the two Presidents would urge the WTO talks to enter the final stretch so that it could be wrapped up in time for China to attend the ministerial meeting, slated for May 1998 to celebrate the soth anniversary of the trade regime. 311 Unfortunately, the Chinese negotiators failed to bring the new service sectors offer with them as promised when they attended the fifth session of the China working party in Geneva. The Chinese officials told the working party that "Beijing has not finished internal consultations and are not yet ready to talk about services" and that such a decision would take place at the end of August, 1997. Beijing again offered to further lower the trade barriers on industrial sectors at the session with the major components in Table 5-3. 311 Interview with trade officials in Beijing, March 2001. 246 T bl 5 3 Ch' ' N Offi h F'fih S a e - mas ew er at t e 1 t fh wk' p ess10n o t e or mg arty H Id. J I 1997 e m uy Total 86 items including Passenger and Phase out import quotas and licenses over 8 years, from commercial vehicles sector( nearly 40 lines 12 years; to ensure a smooth elimination ofNTMs, China of vehicles) proposed annual growth rate of the quota volume, ranging from 8% to 12% during the transition, which would provide foreign suppliers of autos, other machinery and electronic products of all WTO members with a gradually expanding market access. Motorcycles, cameras, compressors From eight to six years Air conditioning machines, some machine From 6 to 4 years tools, Tape, videocassette recorders From 6 to 3 years Washing machines From 3 to 2 years Agricultural products Will not claim any right to export subsides, pledged never to re-introduce export subsides to the important agricultural sector Elimination of NTR on accession On 67 items, including wool, sugar, cigar, cotton goods. Source: interviews in Beijing in the fall and the winter of 2000 During this period China held tariff reduction negotiations with nearly 20 WTO members and substantially improved its offer to all of its counterparts, tabled harmonized tariff proposals for over 2000 chemical and textile products, and further improved offers on auto and auto parts, paper and paper products, home electrical appliances and agricultural products. 312 However, China's trading partners were not satisfied with Beijing's offer. For example, the EU demanded China to further lower tariffs on auto, chemical and textile products. The EU also deemed a maximum eight-year period proposed by China for removing tariffbarriers was too long. 313 Beijing was running out of time to have a negotiated package ready ahead of the summit between Jiang and Clinton scheduled on 28 October 1997. USTR Barshefsky planned to go to Beijing in mid-August to help pave the way for a successful summit, a declaration on China's bid to join the WTO. Japan's Prime Minister Ryutaro Hashimoto, who had been a prominent supporter of China's WTO entry, would also 312 FBIS, 1 August 1997 313 FBIS, 29 August 1997 247 be in Beijing in September. During the news conferences after the 15th CPC National Congress, Vice Minister ofMOFTEC, Sun Zhenyu, said he was not optimistic about reaching any agreement during Jiang's visit to the U.S. since the major differences on agriculture and services remained. 314 The major problem existed in the Sino-U.S. bilateral trade in agriculture was the quarantine of animals and plants. The U.S. side wanted China to import American wheat, including TCK wheat (wheat infected with tilletia controversa kuhn fungus) from the seven states of the U.S. and the citrus containing fruit fly from California. In mid-August 1997, Beijing and Washington decided that the next round of the bilateral talks scheduled in September in Beijing would center on the following issues: a further reduction of China's overall tariff; a timetable to phase out NTBs; and the Chinese commodity inspection system, agricultural imports and the opening of the service sectors. Long Y ongtu expressed his hope to reach some agreement before the upcoming summit. He assured the West that Beijing was working very hard to achieve this goal when he stated that ifthe U.S. expectations were reasonable, their demands would be satisfied. 315 Unfortunately, Beijing was not ready to show its hand on the service sectors once more. The U.S. negotiators conveyed that until China had on the table a revised offer on services, 'there was no basis for a new 314 FBIS, 6 September 1997 315 Lu Ning, "US-Beijing WTO deal unlikely on Jiang's trip", Business Times (Singapore), September 16, 1997,p.8 248 round of WTO-sponsored talks'. 316 As a result, the next round of the working party slated for early October was put off indefinitely. But the Chinese negotiators still showed up in Geneva to hold the two-week bilateral talks beginning on 13 October with the EU and 30 other trading partners in Geneva. China made new offer on 9 October 1997 to abolish agricultural export subsides as soon as it joined WTO and to end all remaining licensing requirements once industrialized countries met their commitment to remove textile quotas early next century. Furthermore, the Chinese negotiators outlined Beijing's service proposals to WTO members that would be improved and formalized in a document at the end of November. China's trading partners believed the outline fell far short of the liberalization required. China had offered to open its market slightly in each of the sectors covered by the talks, including financial and professional services, transportation, telecommunication and distribution. But in each case, Beijing's offer ofliberalization appeared to be nullified by other restrictions. The following are the two examples. Table 5-4: Two Sectors Included in the Outline Beijing Submitted on 9 October 1997 for the November Services Offer Accounting China proposed to allow any foreign accountant who had internationally recognized qualifications to practice in China. But it would still prohibit foreign accountancy firms from hiring Chinese accountants, forming partnerships with local firms or auditing Chinese companies Securities Relax restrictions on foreign securities firms, but only provided they engaged in non- profit making activities Sources: interviews in Beijing, Fall 2000 316 John Zarocostas, 'China's tardiness stalls talks on admission into the WTO', Journal of Commerce, 6 October 1997, p.3A 249 On the other hand, the talks in Geneva were quite 'productive' with other developing countries. After having reached bilateral agreements with New Zealand and South Korea in August 1997, Beijing also signed bilateral market access agreements with Hungary, Czech, Slovak and Pakistan and reached consensus with a dozen other developing countries. Japan also concluded the bilateral market access agreement on trade in goods with China. In addition, Brussels and Beijing signed a statement of principle that, they believed, should speed up China's entry to WTO. Beijing decided in principle to phase out all remaining quotas (about 300) on imports with a clear timetable and by a fixed deadline (by 2005) and drop its previous demand that western countries first honor their WTO pledge to scrap quotas on textiles and clothing before China eliminate all of its quotas. More importantly, Beijing agreed to consider reducing substantially its 'tariff peaks' with 'very limited' exceptions for unspecified products. 317 For example, the highest tariffs were 80% on automobile and alcoholic spirits. 317 FBIS, 14 October 1997; Guy de Jonquieres and James Harding, "Brittan in WTO deal with China'', Financial Times, October 15, 1997, p.3 250 Table 5-5: Beijing's First Comprehensive Offer on Service Sectors Since 1994, December 3rd-5th, 1997 6 1 h S . f h Ch. W k. P , at ess1on o t e ma or mg arty Sectors Current off er Banks The removal of many capital requirements for foreign entities in banking joint ventures; open up local currency business to foreign banks, including accepting deposits, lending, trading in national debt and financial bonds. Offered the nine foreign banks with the right to undertake Yuan business, permission to extend their operations from the Pudong financial district of Shanghai to the five special economic zones two years after China joins WTO; foreign banks allowed to operate with the same amount of registered capital and guaranteed fund as Chinese banks Insurance Allow foreign insurers to establish operations in Shanghai and Guangzhou in the two- year 'experimental' liberalization period and gradually expand to other coastal cities; within two years of China's WTO entry, insurance subsidiaries will be allowed in the country, following a change in Chinese law. But this also will depend on the effect evaluated by Beijing of the experimental investments. Wholly-owned foreign insurance companies are allowed into China Telecommunicati Continued insistence on preventing foreign telecommunication companies from owning on: or operating networks in the region. Distributions: Increasing the number of joint ventures allowed in retail distribution services in Beijing and Shanghai to four in each city, up from two. The limit remains two in other targeted economic areas. Foreign investment in distribution services would be limited to 49%; two years after its entry into WTO, China will begin to gradually open up distribution services to include 'all provincial capitals and cities of economic importance' and the quantity limit will be relaxed. After five years of WTO membership, China would remove all geographic and quantitative limitations on foreign investment in the distribution service sector, except for the 49% investment cap. Wholesale Foreign suppliers can set up joint ventures in Shanghai and Shenzhen. The only services suppliers who would be accepted, however, are those that can show more than $5 billion in annual revenue in the previous years; an average annual volume of $30 million or more in business with China over three years; a representative office in China for more than three years; or investment in China of $30 million in registered capital. These suppliers would not be allowed to wholesale Chinese products in the first two years of China's WTO membership. After five years, foreign joint-venture partners with the maximum 49% equity would be allowed to set up fully owned subsidiaries to sell products of parent companies. Air transport Allow foreign providers of aircraft repair and maintenance services to participate in joint ventures, providing Chinese have a controlling share. Freight Allow freight-forwarding agencies to market their services in China from abroad forwarding Law Firms It also promises to lift the maximum ceiling of 80 foreign law firms allowed to be established on the mainland within the first year of China's entry, but has failed to lift the bar on foreign law firms hiring Chinese nationals. Sources: Interviews in Beijing, Fall2000; John Zarocostas, 'To revive WTO bid, China reworks offer on service sectors', Journal of Commerce, 25 November 1997, p.lA After having shown the U.S. during the summit, China officially circulated its long- awaited offer for access of its services sectors before the 6 1 h session of the working party slated for December 3-5, 1997. This time, China's trading partners were more positive toward the improved package than the outline Long unveiled one and half months ago in Geneva. In the new off er China agreed to sweep away certain 251 geographical and quantitative restrictions. The western delegates thought the package was a 'good move but not sufficient' since it contained nothing on basic telecommunications. The unsatisfying services package would not bring the negotiation back to a standstill because Beijing's other initiative driven by the November Summit, the reduction proposal of tariff levels on industrial and agricultural goods unveiled on 23 November was more impressive and welcomed. Minister Wu Yi gave the offer to USTR Barshefsky at a pre-APEC meeting in Vancouver. As a result, two national leaders asked the trade representatives to continue the talk based on this new offer. President Clinton expressed his hope for China's early entry and assured China that he would personally show great concern over this issue. 318 In this proposal, China confirmed that they would adopt a different track on tariffs, based on a general formula rather than the item-by-item bargaining. This formula, first proposed by the EU and then supported by the U.S., would cut the average industrial tariffs and set a maximum for peak tariffs which the EU demanded for no more than 15%-20%. In Minister Wu Yi's proposal: 319 • Beijing agreed to lower its average tariff on industrial and agricultural goods to about 8% as demanded by EU and U.S as well as to cut the tariff peaks with only few exceptions such as auto and auto parts. • China promised to eliminate all NTB affecting manufactured products, generally by the year 2000, and to provide substantial import growth during the phase out period. 318 Simon Beck, "Beijing offer boosts trade bid; White House enthusiastic as China move sweetens negotiations for entry to world body", South China Morning Post, November 26 1997, p.1 319 Remarks of the Honorable Charlene Barshefsky U.S.T.R. Before the U.S.-China Business Council, January 29, 1998, htpp://www.pressrelease.ustr.gov. 252 • Furthermore, Beijing was prepared to participate fully in other zero-for zero sectoral arrangements. This proposal would affect hundreds of items form refrigerators, consumer electronics, textile products and cosmetics. • Beijing committed to bring the import duties on computers, telecommunication equipments, software, and semiconductors to zero by abiding by the IT A agreement. • Beijing provided a new offer on services. While it remained far apart from the demands of U.S., both sides for the first time began to discuss the defining principles of market access for services, principles such as the form of establishment-whether wholly owned, branch, or joint venture--- comprehensive coverage of services sectors, and elimination of geographic and numerical restrictions. In the following seventh China working party began on 28 March 1998, the Chinese delegation submitted the complete list of tariff reductions based on the proposal it submitted in December 1997. This document included the details of tariff reductions on 5,600 industrial goods on a line-by-line basis that reduced the average tariff level from 15% in its previous offer to 10.8% by 2005. But the offer still included more than 1,000 tariff lines with duties of more than 15%, many of them 25% (cars and photo films were the highest at 50%). After raising expectations for those details since December 1997, the U.S. and the EU were disappointed by the inadequate offer. Washington even criticized Beijing for purposefully slowing the pace of the talks. 320 Madeleine Albright explicitly said that 'there is a long way to go before the U.S. and China could make headway on WTO talks.' 321 In response, Beijing made a surprisingly strong attack against its main trading partners, accusing them of ignorance and of making absurd and irresponsible statements after the Geneva talk. Long Y ongtu, China's chief negotiator, refuted the adverse comments made on Beijing's latest package by cutting tariffs from 17% to 10.8% in his opening speech 320 John Zarocostas, "China offers few concessions in its quest for WTO membership; Talks with Japan and the U.S. start today", Journal of Commerce, April 6 1998, p.6A 321 Guy de Jonquieres and James Kynge, "U.S. in push for China's WTO entry", Financial Times, May 22, 1998, p.7 253 at the seventh session of China working party meeting on April 8, 1998 . "The comments by a few members are unfair during this session of the working party meeting on the new package tariff offer from China. Thus it has made me feel deeply that all the members of the working party have to reach a consensus on the criterion of China's WTO accession. In terms of tariff level, there must be objective parameters to decide whether or not the level of tariff reduction by China already qualifies its WTO membership. In our view, these parameters are the outcome of the tariff negotiations after the Uruguay Round. I have in my hand a document analyzing the results of the Uruguay Round of multilateral trade negotiations prepared by the then-GATT Secretariat in November of 1994. This document contains the statistics of post-Uruguay tariff levels for industrial products of 13 members of the developed economies and 27 members of the developing economies. According to the statistics, in terms of trade-weighted tariff average of industrial products, five out of the 13 members of developed economies are higher than China's current offer, and the tariff level of China's offer is lower than that of23 out of the 27 members of the developing economies. With regard to the so-called tariff peak, according to the document, developed economies on average have 15% of their total tariff higher than the peak tariff, and the developing economies have 75% of their total tariffhigher than the peak tariff, whereas only 19. 7% of the tariff lines in the current offer from China are higher than the tariff peak. These statistics show that the China's latest tariffs offer for industrial products is much lower than the average level reached by parties to the Uruguay Round tariff negotiations. Without referring to the average 254 level of the Uruguay Round results as the parameters, it would be absurd and irresponsible to say that China "still has a long way to go" to make a tariff offer to meet the conditions as a WTO member. They should be aware that the current negotiations are multilateral trading negotiations on China's WTO accession and are not for the purpose of satisfying the insatiable demands of certain members." 322 Although China did make impressive progress on the reduction of tariff rates, trade of agricultural products had yet to be seriously negotiated and an improved service offer was needed. With the obvious difficulty of opening up its financial sector, Beijing chose to apply a new strategy to negotiate the service sectors. Based on a sector-by-sector basis, Beijing chose to first complete the negotiations on distribution, legal services and accountancy. The difficult and sensitive areas which had received strong resistance from certain ministries, notably the ministries in the financial services and the telecommunication sectors, would be left until the final phase. 323 Between late April and June 1998, Washington and Beijing intensified the bilateral negotiations. However, there was no sign of any decisive shift in the logjam. Some in Beijing apparently hoped the June summit between Jiang and Clinton would yield an outline agreement on the membership terms, or at least a commitment to achieve one by the end of the year. However, there were severe domestic constraints on Clinton to strike a political deal of that kind, even if he wanted to, while China continued to 322 Long Yongtu, Speech by Vice Minister Long Yongtu at the Seventh Session of the Working Party Meeting on China's Accession to the WTO (April 8, 1998), http://www.china-un.ch/eng/13766.html 323 Interviews in Beijing, Fall 2001 255 shy away from more aggressive trade liberalization. During the weeks of intense negotiation, China gave ground on opening its telecommunication and financial services markets to foreign players by presenting an offer on basic telecommunication services and securities for the first time, in addition to the concessions on the critically important issues of distribution, which, according to USTR Barshefsky's testimony in Congress, still fell short of the demands of the U.S. Moreover, Barshefsky emphasized that little progress was made on agriculture that was one of the key export sectors of the U.S. but the most vulnerable sector of China. 324 When President Clinton arrived in Xi'an on June 25, 1998, Barshefsky was continuing the talk with her Chinese counterparts in Beijing. Unfortunately, no significant agreement was reached during President Clinton's visit. Consequently, the two presidents only made a similar commitment to negotiate a 'commercially viable agreement' at the earliest possible date in the joint statement released by both sides. During the following eighth session of the China working party began on 21 July 1998, Beijing submitted the new services offer based on the bilateral negotiation in the last two months with the U.S. and the EU. The main points are as follows. 324 Testimony of Ambassador Charlene Barshefsky USTR on the Renewal of Normal Trade Relations with China, Senate Committee on Finance, 9 July 1998 256 T bl 5 6 h M . P . a e - : t e am omts o fCh. ' N S mas ew erv1ces Offi J 1 1998 er, u,y Distribution China agreed to remove all quantitative, geographical and foreign-equity restrictions within five years of joining WTO. Sectors excluded from this offer are automobiles, pharmaceuticals, crude oil, chemical fertilizer and alcoholic beverages. Telecommunication China agreed to open paging services on accession; to open mobile phone and so- called 'value-added' telecommunications services such as data transmission within five years of accession. Foreign telecom operators would be limited to a 30% equity stake for value-added services and 25% stake for paging or mobile services, and these limits were still negotiable. China did not offer to allow foreign carriers to enter its fixed-line basic telephone services market. Source: interviews in Beijing, Winter 2000 As such, China finished the major part of the protocol negotiation and left only several contentious issues such as agriculture, financial services, insurance, and telecommunication for further bilateral discussion. On 23 February 1999, the U.S. sent a large delegation to Beijing and stayed for more than a month of intense negotiation. A deal was pretty close to complete in March 1999. The U.S. and China narrowed the gap on many issues, including tariffs of industrial goods, non-tariff measures, tariffs for agricultural goods, tariff quota and some issues on the service sectors. From then on, both sides were seeking for a right moment to conclude. As a result, signing the final agreement was the major task of Premier Zhu's visit to Washington in April 1999. At the first stop in Zhu's visit --- Los Angeles, Zhu presented his first gift to President Clinton --- the signing of the bilateral agriculture agreement. It was an impressive gift in the sense that agriculture had been the thorniest issue for years' of the bilateral negotiation. More importantly, Beijing abruptly agreed to all the U.S. demands. In the meantime, the Chinese negotiators, led by the State Councilor Wu Yi, brought an impressive package of concessions covering all the remaining issues. After Beijing put this package on the table, Beijing expected the signing ceremony to be arranged by Washington. 257 When Zhu arrived in Washington on 7 April, however, Clinton decided not to sign the agreement at this time with the excuse that he was not sure if Congress could ratify it. On 8 April, without the permission from the China side, the U.S. unilaterally released a 'joint statement' and publicized all the concessions China made on the USTR website. China fiercely objected this action. Under China's pressure, the U.S. admitted that the release of the statement was a 'mistake' and agreed to issue a new 'joint statement' with China. The negotiation of the joint statement started in the evening of 9 April 1999 and lasted until the next morning. The two sides then conducted another round of negotiation over several 'unresolved issues' and finally reached agreement on their new 'joint statement'. In the new joint statement, the U.S. government stated that it 'staunchly supports China's entry into WTO in 1999'. T bl 5 7 Th M . P . f th B"l I A . I A R h d . A ·1 6 1999 a e - e am omts o e 1 atera ,gncu ture ,greement eac e m ,pn ' Issues Previous position Under the agreement Sanitary and China refused to accept imports of China lifted the long-time for the imports of phytosanitary U.S. TCK wheat from 7 pacific- TCK wheat, meats and affected citrus. Citrus standards northwest states and affected citrus alone can mean up to #700 million in new from California exports; TRQs China will liberalize its purchase of bulk agricultural commodities like wheat, corn, soybeans, rice, cotton, and so on. With the newly adopted TRQ system, China committed to import these products at tariff level of 1 % for the specified amounts; Export subsides Already agreed in the earlier China will not provide agricultural export bilateral talks in 1997 subsides cro~ the board; an issue agenda for the next WTO round negotiation Tariffs The level before the agreement Under the agreement overall 31% 14% and be bound at the applied levels Beef 45% 12% Pork 20% 12% Poultry 20% 10% Citrus 40% 12% Grapes 40% 13% Apples 30% 10% Cheese 50% 12% Wine 65% 20% Beer 70% 0% Source: http://www.ustr.gov 258 T bl 5 8 Ch. p 1 I A ·16 1999 a e - ma so er on rotoco ssues, .pn ' ' Issues China's commitments Special safeguard Agreed to put product-specific safeguard provisions to ensure effective action in case of import surge for twelve years after China's accession; Anti dumping U.S. will continue to use its current 'non-market' economy methodology in anti- dumping cases for fifteen years after China's accession; TRIM Fully comply with TRIM: Commitments to eliminate requirements of local content, export percentage requirement, investment requirements or import and technology transfer restrictions Textiles Quotas will remain in effect until 2005; until 2009 U.S. will have a special safeguard enabling it to address market-disrupting import surges from China in the textile sector. This is in addition to the broader product- specific safeguards. Source: http://www.ustr.gov Table 5-9 China's Offer on Services, April 7, 1999 Sectors China's new offer Grandfathering China will protect the existing rights and market access of all services providers operating in China; Insurance In 1999, only two U.S. insurers operate in China and two others were expected to begin operation soon. With the new offer, the China agreed to end restrictions on large-scale risk insurance throughout China immediately, grant licenses solely on prudential criteria phase out restrictions on international branching and remove restrictions on majority control or joint ventures, gradually eliminate geographical and numerical limits on licenses. China committed to offer group, health and pension lines of insurance within 5 years; for non-life insurance, branch and joint-ventures at 51 % equity share are permitted on accession, wholly-owned subsidiary within 2 years. For life insurance, joint ventures are permitted with the partner of choice at 50% equity share upon accession; Telecommunication In 1999 China still prohibited foreign investment in telecommunication. With this new offer, China agreed to join the Basic Telecommunication Agreement. It will end the geographic restrictions for paging and value-added services within four years, mobile and cellular within five years; and domestic wireline and closed user groups in six years; It will also end its ban on foreign direct investment in telecommunications services, phasing in 49% foreign equity in all services in 6 years and 51 % foreign ownership for value-added and paging services in four years. Banking The status quo in 1999 in banking was also highly restrictive. Foreign banks cannot conduct local currency business with Chinese clients, and only a few can engage in local currency business even with foreign business or individuals at designated cities. With this new offer, China committed to full market access in five years for American financial institutions established in China; China will allow internal branching and provide national treatment for all newly permitted activities. Geographic restrictions will be lifted on a set schedule, and abolished within 5 years. Foreign banks will be guaranteed the right to conduct business in foreign currency with all clients, and in local currency, with foreign clients on accession. They will be able to conduct business in local currency with Chinese enterprises starting two years after accession and with Chinese individuals within five years. Financial leasing will be allowed for foreign-owned banks when allowed for domestic banks. Upon accession, non-bank financial institutions will be permitted to provide auto-financing without any market access or national treatment limitations. Distribution In 1999 China generally prohibited firms from distributing products other than those they make in China, or from controlling their own distribution networks. With this new offer, China agreed to liberalize the wholesaling and retailing services for most products, including imported goods, throughout China within three years. This will remove all restrictions on wholesaling, retailing, maintenance and repair, marketing, customer service and transportation. 259 Source: Testimony on U.S. Trade Policy in China, Ambassador Barshefsky USTR, Senate Committee on Finance Washington, DC, April 13, 1999, Progress Thus Far; http://www.ustr.gov T bl 5 10 Ch' ' Offi I d . 1 G d A ·1 7 1999 a e - mas er on n ustria 00 s, .pn ' Issues China's offer Trading rights China will grant American companies, over a three-year phase-in period, rights to import and export most products without Chinese SOEs as the middleman Tariffs China will make substantial tariff cuts on accession with further cuts phased in, two thirds of which will be completed in 3 years and almost all of which will be completed within 5 years. On U.S. priority industrial items, tariffs will drop on average to 7.1 %--- a figure comparable to any of U.S. important trading partners ITA China will participate in the ITA, eliminating all tariffs on most information technology products by 2003 and a few by 2005 Autos China will reduce tariffs on autos from rates of 80%-100% in 1999 to 25% in 2006 and on auto parts to an average of I 0% from an average of 23 % in 1999. Chemicals China will commit to the vast bulk of chemical harmonization, reducing tariffs from present 105-35% to an average of 6.9% Other U.S. Furniture from current 22% to 0%; Wood and paper products to 5% and 7.5% from priority goods current high levels NTB China will eliminate quotas and other quantitative restrictions upon accession for top U.S. priorities, including fertilizers and fiber-optic cable Source: Testimony on U.S. Trade Policy in China, Ambassador Barshefsky USTR, Senate Committee on Finance Washington, DC, April 13, 1999, Progress Thus Far; http://www.ustr.gov After the content of the U.S./China bilateral negotiation was released on the USTR website, many interest groups, media and some members of Congress in the U.S. criticized Clinton for losing a precious opportunity to end the negotiation due to his last-minute hesitation. Under the pressure, Clinton called Zhu to delay his next-stop visit to Canada to continue the unfinished negotiation, but it was too late since Zhu's political prestige was at stake. Zhu refused this suggestion and asked Washington to send a delegation to Beijing for further talks. Unfortunately, talks held in Beijing in the end of April were not productive at all. What happened during Zhu's visit cast a shadow over both sides. Washington wanted to ask for more concessions from China to show domestically that no-agreement in early April was not a mistake. In the 260 meantime, China was eager to take back their promises since those concessions did not lead to an expected agreement. Worse yet, what the U.S. released on the internet invoked tremendous opposition among Chinese bureaucrats as well as the public. Zhu was blamed for making 'the giveaways of the century' 325 and 'betraying China' 326 . There were reports that Wu Jichuan, the minister of Information Industry, was threatening to resign. 327 It was in that delicate situation that Washington requested another round of negotiation in mid-May, which Beijing declined. After a five-month stalemate due to the unexpected the U.S. bombing of the Chinese embassy in Belgrade, the final talks between the U.S. and China resumed on 10 November 1999 when Clinton sent his economic advisor Sperling along with USTR Barshefsky to Beijing. The following six-day negotiation could only be described as dramatic. Several times during the long-drawn six-day talks, the U.S. delegation threatened to leave. They literally packed their bags, checked out of the Palace Hotel where they stayed and sent their luggage to the airport. Premier Zhu stepped in twice to save the show. On the sixth day, after the two sides had cleared several hundred pages of documents, seven issues were left unresolved and neither side was going to give in because both claimed that those were the bottom lines they had kept for 13 years. These seven issues included management control (stake majority) over certain 325 Willy Wo-lap Lam, "Zhu Goes for Broke: the Premier is gambling his reputation", South China Morning Post, April 18, 1999, p.10 326 Michael Laris, " Battle over Trade Escalates in China; Reformers Defend Plan to Open Market as Push Continues for WTO Membership'', Washington Post, May 28, 1999, P.A25. 327 Mark O'neill, "WTO talks begin again with Zhu pushes for April Deal", South China Morning Post, April 23, 1999, p.4 261 telecommunication service providers, banking, insurance, fertilizer, the U.S. lifting quotas on Chinese textile imports, etc. 328 Zhu stepped in again and told Barshefsky: "Among these seven issues, I am going to make concessions on two of them and you will make concessions on the rest. If you agree, then we sign the agreement. I am not here to negotiate. I am here to make decisions". After USTR Barshefsky called and got approval from Clinton to solve the fertilizer issue at another occasion, the 13- year long U.S./China bilateral negotiation was concluded. President Jiang played a pivotal role at the end by giving his full backing to Premier Zhu. 329 Although more difficult than China first expected, the EU/China bilateral agreement was finally signed on 19 May 2000. History repeated itself. At the last minute, Premier Zhu stepped in and the EU gave up its once non-negotiable insistence on 51 % foreign ownership of telephone networks and insurance companies --- the Americans acquired only 49% and 50% respectively in their WTO deal with China. The EU accepted instead a range of compensations from China that included a generally faster timetable for market access in telecommunications and insurance, and a reduction in tariffs on 150 EU export goods. The EU Trade Commissioner Mr. Pascal Lamy said: "We could have said - give us 51 per cent or we will block you. But that is not my style, not when someone looks you in the eye and tells you 'I can't do that'." 330 The person who looked Mr. Lamy in the eye was Premier Zhu Rongji. 328 Interviews with MOFTEC officials, Winter 1999 329 Editorial, People's Daily, November 17, 1999, p.1 33 ° Conor O'Clery, "China Poised for Membership ofWTO, China and the EU Finally Bridge Gap on Contentious Trade Issues", Irish Times, May 20,2000, P.18 262 The signing of the U.S./China and the EU/China bilateral agreements cleared the biggest obstacles on China's WTO accession. After finishing its bilateral talks with the other WTO members and the multilateral bargaining on China's accession Protocol, China formally joined WTO on 10 December 2001. 5.3 U.S.'s domestic preferences and institutions Washington The Clinton Administration transformed its China policy in its second term from containment to engagement. Bringing China into WTO was one of the important steps of engagement. However, the preference of the administration on China's bid to join WTO was not easy to implement. The administration was always constrained by the domestic oppositions both in the U.S. and in China. The two sides looked intensively, especially in 1998, for an appropriate time to conclude the negotiation. November 1999 was a good time for Clinton because he had intentionally publicized the April offer and successfully won the domestic supports from and built coalitions with those members in Congress as well as the MNCs and exporters that found the terms of the agreement sufficiently attractive. The support from the latter was crucial especially when reaching any agreement with an ideologically hostile country. 263 Practically, the negotiation stalemate lasted until the end of 1996, when President Clinton was sufficiently confident of his re-election. Thereafter, President Clinton was ready to transform his China policy. On 17 May 1996, Secretary of State Christopher raised a new line of thinking toward the Clinton Administration's China Policy: the overwhelming American interest was to restrain a booming Beijing's potentially challenging nationalism not by confrontation or containment but by "deepening China's integration into the international system," as Mr. Christopher put it. 331 This was the lesson Washington drew from the U.S.-China confrontation over the Taiwan Strait during the 1995-6 period. In early July 1996, the U.S. national security adviser Anthony Lake's visit that included talks with top Chinese leaders marked the turning point. Sino-U.S. relations were back on track after months of contention. Lake's visit also paved the way for the mutual visits of the two top leaders for the first time since 1989. Lake's visit could also be seen as the watershed of Clinton's China policy and the beginning of a new bilateral relationship between Washington and Beijing. Lake sent several messages to the Chinese leaders. First, he made clear that Clinton stood a 'good chance' to be reelected. Second, he indicated Clinton's policy change toward China: American wanted China to be part of the system governing the world in the 21st century; indeed, America wanted China to help design that system. 332 Finally, he offered the Chinese leaders one more incentive to support Clinton's reelection by inviting President Jiang for a state visit. 331 Editorial, "Mending Relations with China", Washington Post, July 26,1996, P. A26 332 Jim Mann and Doyle McManus, "Officials says U.S. taking softer approach to China", Los Angeles Times, July 18, 1996, p.18 264 This offer was secretly extended in the previous year in President Clinton's letter to Jiang during the Taiwan crisis, but Beijing's specific request two months later was turned down by President Clinton since he did not want to do it at the time of his reelection campaign. Specific to China's WTO accession negotiation, the U.S. gave China a clear timetable: to finish China's accession negotiation sometime in 1997 or 1998. 333 President Clinton also promised Beijing that if reelected, he would consider asking Congress to grant China the permanent MFN status 334 , the biggest obstacle and the largest incentive for China's WTO membership. In addition, Lee Sands was to be in charge of China's WTO accession negotiation in Geneva in October 1996. Mr. Lee Sands was more familiar with China affairs than his predecessors. This change was aimed at giving new impetus to Beijing's bid. In the midst of the campaign, President Clinton dispatched a new team of the U.S. trade negotiators to Beijing with instructions to explore the possibility of a deal for China's WTO membership. Within a week after the election, officials suggested that the bilateral agreement could be concluded within a year and be used as the centerpiece of the state visit by Jiang.335 333 Interview with Liu Guangxi, (one of the key Chinese negotiators and secretary of Long Yongtu), Beijing, 10 March, 2001. 334 Lu Ning, "Clinton's victory may help Sino-US relations", Business Times (Singapore), November 7, 1996, p.8 335 David £.Sanger, "U.S. to spur Beijing and trade group entry", New York Times, November 13, 1996, p.2 265 As a result, Beijing silently supported Mr. Clinton's reelection. Second-term presidents are generally expected to be able to launch bold policy initiatives and make tough and sometimes unpopular decisions. This policy transformation was not based on improving the bilateral political relationship, rather, a fruit of the escalation of tensions between them in the 1995-6 period. The policy that placed human rights at the center of the U.S. agenda did not serve Washington's own commercial interests. More importantly, the U.S. started to recognize that it would gain economically if China entered the WTO. This recognition represented a significant change of perception caused by a series of factors, including the fast growing Chinese economy, the more active involvement of the MN Cs and exporters of the U.S. on the China/WTO issues, and the progress made in the negotiation process. Make no mistake, the U.S. did not recognize that it would commercially benefit from China's WTO membership until late 1996. Although the U.S. had always criticized China for seeking a 'political pass', the consideration to grant China this membership or not by Washington was also based on political calculations to a large degree. This change was marked by the emphasis of the 'obvious' linkage between China easing trade barriers and the U.S. giving China permanent MFN status instead of having a yearly battle for MFN renewal during Warren Christopher's November 1996 visit. 336 Only after admitting the negotiation would bring the U.S. commercial benefits did 336 Nancy Dunne, "Christopher prepares for Sino-US summit", Financial Times, November 20, 1996, , p.6 266 Washington gave up its long-standing position to apply non-application to China's membership. The state visits by President Jiang to the U.S. in 1997 and by President Clinton to China in 1998 greatly improved the bilateral relationship. The White House first set Clinton's China visit in mid-November 1997. It was about one year after Jiang's visit. Since the annual gathering of the APEC leaders was always held in November, Clinton could do both on the same trip. However, at the beginning of 1998, the Clinton Administration decided to move it to an earlier date without explanation. The possible considerations might be that the mid-term congressional elections and the annual debate over China's MFN benefits might bring some uncertainties to the bilateral relationship. This trip also served to distract the political debate and news coverage from his personal scandal. During the summit in June 1998 in Beijing, the two leaders reached an agreement which would stop targeting each other's territory with nuclear missiles. This agreement had a significant symbolic meaning, as expressed by President Clinton, showing that 'China and the United States did not view one another as adversaries. ' 337 In addition, Clinton offered Beijing another reward, an acknowledgment on Taiwan that the Chinese leadership had eagerly sought after. In Shanghai, Clinton for the first time publicly embraced the so-called three-nos and 337 Fact Sheet: Agreements ofU.S.-China Summit, Office of the \Vhite House Press Secretary, 27 June 1998. 267 made the strongest ever statement on America's Taiwan policy. "I had a chance to reiterate our Taiwan Policy, which is that we don't support independence for Taiwan; or Two Chinas, or one Taiwan and one China; and we don't believe that Taiwan should be a member in any organization for which statehood is a requirement." 338 The two leaders also committed to develop the notion of 'constructive strategic partnership' formulated at the first Jiang-Clinton summit in 1997. 339 The 4 7 agreements that were reached showed that the relationship had "considerable momentum" on a broad range of issues. The Asian financial crisis to some degree underlined China's growing importance in a different way. The China-bashing atmosphere continued and intensified in Congress in 1998 and 1999, as new reports appeared on campaign finance violations, nuclear espionage, and China's criticism toward NATO's bombing of Yugoslavia. Within this context, Clinton decided to continue to push for China's WTO membership. Although the progress had been very slow throughout 1998, facing the obvious difficulties by the Chinese leaders to give further grounds on the above- mentioned issues, Washington started to take the initiative. On 6 November 1998, Clinton wrote a letter to Jiang in which he clearly expressed his hope to conclude the U.S./China bilateral negotiation before the end of the first quarter of 1999 and thereafter resolve China's NTR problem completely. In another letter to Jiang on 338 Transcript of Remarks by the President and the First lady in Discussions of Shaping China for the 21 51 Century, Office ofthe White House Press Secretary, June 30, 1998 339 'Clinton in China', New York Times, June 28, 1998, p.9; "President Jiang Stages Grand Formal Ceremony Welcoming President Clinton; Chinese and American Heads of State Hold Talks at the Great Hall of the People." People's Daily, June 28, 1998, p.l 268 February 8 1999, Clinton explicitly described his plan to sign the agreement during Zhu's visit to the U.S. to pave the way for a permanent solution of the NTR issue. In the meantime, the U.S. provided a complete draft package to finish the bilateral negotiation. In the November 6 1998 letter he wrote President Jiang Zemin in which he expressed a desire to resolve the WTO issue in the first quarter of 1999. 340 Beijing positively responded to the initiative from Washington that led to the bold concessions made by Premier Zhu Rongji during his April 1999 visit to the U.S. On the eve of Zhu's departure from Beijing to Washington, Clinton met with his advisors over the weekend of April 4-5. Clinton's foreign policy advisors, National Security Advisor Samuel Berger, Secretary of State Madeline Albright and USTR Charlene Barshefsky favored the deal, however, Clinton's domestic advisors, including Treasury Secretary Robert Rubin, head of National Economic Council Gene Sperling and Domestic Political Advisor John Podesta, argued that unless there were guaranteed protections for the labor unions and the industries that competed directly with their Chinese counterparts, Congress would vote against the deal, which would be worse than a no-agreement. 341 President Clinton pulled out at the last minute based on the consideration intended to mollify Congress, some of whose members had been whipping up anti-China sentiment following the reports of Chinese espionage of American nuclear secrets and the transfer of sensitive 340 Interview in Beijing, Spring 2001 341 Joseph Fewsmith, 'China and the WTO: the Politics behind the agreement', in South Korea, China and the Global Economy, NBR analysis, vol.10, no.5 (Seattle, Washington: National Bureau of Asian Research, December 1999), p.29 269 technologies to the Chinese military. As a result, Premier Zhu failed to secure the final bilateral agreement during his U.S. visit. President Clinton had more interests to conclude the negotiation after being criticized by the American MN Cs and exporters and many members of Congress that he missed a great opportunity with the mistake in April. Then came the U.S. accidental bombing of the Chinese embassy in Belgrade on 8 May 1999. The Chinese public, especially the college students, reacted with great anger. In Beijing, thousands of furious demonstrators protested near the U.S. Embassy. In order to avoid the further deterioration of the bilateral relations, Clinton made nine phone calls to Jiang to explain what had happened was an accident. Clinton also offered a personal, public apology to Beijing. 342 In addition, Clinton granted China MFN status on 3 June 1999, earlier than the previous years. On 10 July 1999, Clinton visited the Chinese women's soccer team after the World Cup championship match in Los Angeles. Six days later, Mr. Andrews, the Legal Advisor of the U.S. State Department, went to Beijing and paid the bombing victims $4.5 million in compensation. With direct interference from both Clinton and Jiang, the U.S./China bilateral talks were resumed on 9 September 1999, after four months of suspension. Those talks led finally to the successful conclusion of the bilateral negotiations on China's WTO membership two months later. 342 White House Report, "Clinton again Apologizes for NA TO Bombing of China's Embassy in Belgrade", May 10, 1999. available at http://www.freeserbia.net/Documents/Kosovo/Apology.html 270 Congress During this period, the anti-China campaigns continued to grow in Congress. The annual MFN debates were sustained. In the meantime, many new issues emerged. For example, the human rights concern over Hong Kong's handover in 1997, the allegation of the financial contributions by the Embassy, the technology spy scandal and the subsequent Cox report, etc. were all important issues questioned and examined by Congress and eventually connected to China's bid to join WTO. What differed this time from the previous stages was the direct and specific Congressional concern over the terms of the agreement. Responding to the changed preference of the executive branch and the MNCs and exporters, Congress began to pay attention to what was going on at the negotiation table instead of simply stating that the U.S. should not grant China WTO membership. This Congressional activism on the specific negotiation issues might have imposed difficulties on the negotiation and delayed the time to conclude. However, it did help to create more favorable terms to U.S. interests in the final agreement. In 1997, an unusually broad array of neoconservatives, religious groups, liberal human rights advocates and labor unions joined forces in a campaign to defeat MFN status for China. Outraged by the Chinese behavior on a number of issues, ranging from trade policy to Taiwan, from human rights to Hong Kong, the critics asserted that the policy of engagement had yielded scant results, and the U.S. had strategic 271 and moral imperatives to confront China. 343 In 1997, three more issues added fire to the already complicated annual MFN debates. The first one was the allegation that the Chinese Embassy in Washington coordinated contributions to Clinton's reelection campaign. The scandal had broken out during the two months before the election with revelations that some of Clinton's campaign money had come from foreign sources. Following a series of press inquiries, the Democratic National Committee began returning hundreds of thousands of dollars in donations, and the Republicans quickly set up formal investigations and public hearings in Congress which they still controlled. Two Chinese Americans were involved, among other Asian Americans. One of them was Charlie Tie, and the other was John Huang. The scandal at first seemed to have little direct connections to China or to the administration's policy toward Beijing, but that changed quickly. Senator Fred Thompson charged that China tried to 'pour illegal money into American political campaigns' and to 'subvert our electoral process' . 344 Senator Mitchell McConnell, chairman of the Senate Republican's Campaign Committee, sent out a mass mailing accusing Clinton of accepting cash from the world's 'strongest remaining Communist' regime. In the same vein, Republican Bill Paxon, R-NY, said in May that Beijing 'thumbs its nose at the U.S. and places its 343 Carroll J. Doherty, "U.S. Agonizes over China Policy: Engagement or Confrontation", Congressional Quarterly, April 26, 1997, p.967 344 Opening Statement of Fred Thompson at Hearing of Senate Governmental Affairs Committee, July 8, 1996 272 heel on the neck of freedom'. 345 During the 1997 hearings, the investigative committee led by Senator Fred Thompson failed to produce evidence to substantiate these allegations. 346 Nevertheless, the issue provoked great public attention and gave rise to an extraordinarily nasty public discourse on China in the U.S. The accusations and news stories on the scandal restrained Clinton's far-reaching policy adjustment toward China. As China specialist Nicholas Lardy analyzed: 'the Chinese Embassy involvement in the election donation could blow up in Clinton's face, it puts him in an awkward position domestically, even if it is shown that China was not trying to influence policy, but simply to get better intelligence about it. '3 47 As a result, the effort to work out a deal for China's WTO membership faltered. China did not make as many concessions as the administration sought, and the political climate in Washington made it questionable that any such deal would win congressional support. In April 1997, the U.S. negotiator Lee Sands who had been assigned to try to reach the agreement with China resigned. The second issue was the handover of Hong Kong to Beijing in July 1997. Capitol Hill paid great attention to the way Beijing handled the Hong Kong issue. A successful handover of Hong Kong to China was essential in maintaining the progress on the new bilateral relationship. Moves were made in Congress to defer a 345 'Bashing Beijing', Journal of Commerce, May 14, 1997, p.6A 346 David E. Rosenbaum, 'One Phase of Fund-Raising Hearings Ends, with a Shortage of Evidence', New York Times, September 7, 1997, p.28 347 Guy de Jonquieres and Tony Walker, 'New Dawn in the East': Chinese Membership of the WTO Now Looks Closer,' Financial Times, March 3, 1997, p.21 273 decision on MFN renewal to grant China the privileged MFN until it could be seen how Beijing treated Hong Kong. 348 The third issue was the emergence of the religious groups as a new source of opposition to China's MFN status. The alarm was triggered by the decision of the Family Research Council, a coalition ofrightwing religious groups in the U.S. to campaign for trade sanctions toward China due to its family planning policy. The religious right was an influential lobby, particularly among the Republicans who controlled Congress. Newt Gingrich, Republican speaker in the House and his deputy, Dick Armey, both staunch supporters of China's MFN status in the past, were hedging their bets due to the objection of their power base --- Family Research Council. 349 Finally the House voted 259-173 to continue NTR with China in 1997. Opponents ofNTR with China narrowed the difference from 1996's 286-141 vote by enlarging a coalition of liberal Democrats and conservative Republicans unhappy with China's human rights, abortion and weapons export policies. All the topics against China discussed on Capitol Hill cast a shadow over China's WTO bid. In particular, 'Donorgate' put Clinton Administration in a politically embarrassing position since he risked further criticism of any action --- including WTO accession of China --- that might be seen as a payback to his campaign backers. 348 'The long march: Peter Montagnon on the Obstacles to Better Sino-U.S. Relations', Financial Times, February 11, 1997, p.20 349 Guy De Jonquieres, "Held Back by Other Interests: Clinton Is Running Into Opposition From Diverse Sources Over Renewing China's Trade Relations'', Financial Times, May 2, 1997, p.23 274 In addition, the abrupt resignation of two US negotiators, assistant USTR Lee Sands and his deputy, led many to guess just how politically problematic China and its WTO bid had become. As one China specialist at the Economic Strategic Institute, Greg Mastel, analyzed, "no one wants to touch China. In my view, Clinton administration doesn't want to push China's WTO bid in the short term ... I wouldn't want to be the person charged with selling this to Congress. Ironically, the anti-China crescendo is rising at a time when Beijing is showing its first real sign of bargaining honestly over WTO bid." 350 China had never faded as a political issue on Capitol Hill. In 1998, the congressional investigations of Clinton's fund-raising were winding down. However, the furor erupted once again with a new series of disclosures on Clinton helping the U.S. satellite companies to do business with China. Clinton overrode the Justice Department objections and gave his authorization to Loral, an American Satellite company and one of the major contributors of the Democratic Party, to export another satellite to China. The Republicans highlighted this event by accusing Clinton of jeopardizing national security. The Congressional leadership initiated a series of new investigation. Also based on this condemnation, Congressional leaders recommended that Clinton cancel his trip to China. As Gingrich argued,' I don't believe this President can go to China unless he clears up, in public, everything about Chinese illegal campaign funds and everything about national missile secrets going 350 Leo Abruzzese, "China, Politics and WTO', Journal of Commerce, April 25, 1997, p.7A 275 to China' . 351 More importantly, some Congressmen complained that Clinton's visit granted legitimacy to a regime that did not deserve it. More than 160 Republican members of Congress signed a letter urging Clinton to postpone his trip. As Senator Richard Lugar (R-Ind.) claimed: 'it was inappropriate for Clinton to have formal ceremonies at Tiananmen Square. ' 352 Having seen the 'soft' stance taken by Clinton and the concessions he made on many contentious issues between Washington and Beijing, such as the Taiwan issue, China's WTO membership, and the human rights concerns during his visit to Beijing in 1998, some members of Congress intensified their attacks on Clinton's China policy. One sensitive issue that deepened the hostile perceptions of China in the U.S. was the release of the full version of the Cox report, a 700-page document prepared in the wake of a congressional investigation into American high-technology transfer to China in March 1999. It alleged theft of nuclear secrets from the Los Alamos facilities in New Mexico and immediately sparked off the latest wave of anti-China feelings within Congress and among the public. Although President Clinton insisted that Premier Zhu Rongji should visit the U.S. as scheduled, he had always kept the pressure from the Congress in mind that led to his decision not to conclude the bilateral agreement with China at the last minute. 351 John Diamond, 'Gingrich Urges Clinton to Postpone China Trip', Associated Press, May 19, 1998 352 Jim Mann, "GOP shifts curbs Clinton's goals for China trip", Los Angeles Times, June 8, 1998 276 Besides the continuous anti-China campaigns within Congress, Congress started to pay more attention to the issue of China's WTO entry in 1996, a change from the early and mid 1990's. In the past, attentions only went to the annual debate on China's MFN status. This time, top lawmakers from both parties sought to get involved with the negotiation over China's admission to WTO. Signals from the White House indicated that it would consider softening its long-stated conditions in order to speed up China's entry to the end of 1996. 353 While Congress did not get to vote on China's membership, as it did on NAFTA, Congress made it clear that congressional leaders wanted to be involved in any deal. House Democratic leader Richard Gephardt, with 43 cosponsors including 11 Republicans, introduced a bill in September 1996 aimed at carving out a new role for Congress in negotiation over admitting China to the WTO. The bill required that a majority of House and Senate approval of China's entry to the WTO before President Clinton and his administration pledged U.S. support for such a move. Under WTO rules, even ifthe U.S. objected, China could still be admitted to the WTO with a 2/3 majority of the more than 120 members. In this case, the bill would require the U.S. withdrawal from WTO if China joined on terms that Congress considered too lenient. 354 In another letter to Clinton in November 1996, a bipartisan group of eight members of the Senate Finance Committee outlined areas that they would be watching, including IPR, investment barriers, NTBs to trade and technology transfer. In the meantime, 353 John Maggs, "Congress cautions Clinton on China minimal conditions for WTO entry sought", Journal of Commerce, November 21, 1996, p.lA 354 John Maggs, "New Bill Would Expand Congress' WTO Role", Journal of Commerce, September 13, 1996, p.5A 277 House Democratic leader Richard Gephardt sent a letter insisting that the administration delay agreeing to China's WTO membership until a comprehensive study was done on its impact on the U.S. economy. 355 Another move in Congress was the introduction of the bill to change the status, long known as MFN treatment, to be renamed as 'normal trade relations'. Congress had substantial power over one bargaining chip: legislating permanent MFN. This step was necessary as long as the U.S. wanted to benefit from the concessions China made. If not, then the U.S. would continue its bilateral trade relationship with China and would have recourse to the same trade sanctions it then had. China experts and many U.S. business leaders started to believe that the best course for Congress and the administration was to discuss in detail the terms under which China became a WTO member so that everyone understood the negotiations and had a stake in the outcome. 'There is need for some congressional involvement in this', said Robert T. Matsui, D-Califomia, ranking member on the House Ways and Means Committee's trade subcommittee and a strong free-trader. 'I don't think the president should be in the position that he has to take the hit by himself. China has 22% of the world population. It's an economic giant, and he should have some congressional input. ' 356 Although Congress never supported China's GA TT /WTO membership throughout the negotiation, it clearly changed its attitude from the previous indifference in the early and mid 1990s to the great concerns in the late 1990s. Furthermore, the loud 355 Foo Choy Peng, "U.S. Holds to Line on WTO; Applause for Beijing as Christopher Offers Intensive Talks', South China Morning Post, November 22, 1996, p.4. 356 Alissa J. Rubin, "United States Takes Strong Interest in China's Bid to Join Trade Group", Congressional Quarterly, April 26, 1997, p. 969 278 criticism raised leading Clinton's hesitation to sign the final agreement in April 1999, in one sense, was very helpful to President Clinton in gaining the support he needed from Congress, specifically sufficient votes to grant China PNTR status after the signing of the final bilateral agreement, a tacit precondition for China's WTO membership between Beijing and Washington. Interest groups lobbying The MNCs and exporters in the U.S. switched its position on China's bid to join WTO at the end of 1996. The reasons behind that were two fold. First, higher participation of American MNCs in the Chinese markets made more U.S. commercial interests at stake. And their interests would be best protected after China bounded itself within the WTO rules. Second, as WTO had made a series of progress in further liberalizing the service sectors since its founding, many issues were included in China's WTO accession negotiation. Subsequently, China's offer became more and more attractive to theU.S.MNCs and exporters. In particular, theU.S.MNCs and exporters could benefit immediately from China's substantial market access offers once China joined. Hence, it was also in their interests to push for China's early entry. The preference change of the MN Cs and exporters played a pivotal role to help to gain both the attention and the support from some members of Congress. In the end, the preference oftheU.S.MNCs and exporters empowered the 279 chief executive who had committed himself in concluding the negotiation during his second term. The MN Cs and exporters in the U.S. started to pay attention to the issue of PNTR and China's WTO membership at the beginning of 1996. In early 1996, several domestic organizations including the US-China Business Council, the National Retail Unity, etc. created an entity called 'Normalizing trade relations with China.' The organization actively lobbied Congress to push for granting China PNTR. In September the organization also set up the 'Illinois Alliance' to support granting China WTO membership. 357 In supporting China's request for permanent MFN status, U.S. MNCs and exporters proposed to the government in late 1996 that, in return, the administration could press China to agree to meet all WTO obligations within a specified timeframe. 358 As for their specific concerns, the U.S.-China Business Council collected the major demands of its members and submitted to the USTR in the 1996 paper, 'China and the WTO: A Reference Guide' . 359 All these methods gave USTR and Congress clear guidelines of how to negotiate a deal in the best interests of U.S. MNCs and exporters. This was just the beginning of the active and effective involvements of the relevant MNCs and exporters to China's WTO accession negotiation. 357 Richard Bernstein and Ross Munro, The Coming Conflict with China, Translated by Xinhua News Agency, (Beijing: Xinhua Press, 1998) pp102-7. 358 This course was proposed by the US-China Business Council in a paper dated February 1, 1996, submitted to USTR office. See 'China Council calls on U.S. to Change WTO Negotiating Strategy,' Inside U.S. Trade, Washington DC, March 1, 1996, p.26. 359 http://www.us-china.org; Robert Weissman, "The China lobby's Campaign for Two-way Trade with China', Multinational Monitor18(6), June 1997, p17. 280 In 1997, despite the strong opposition from diverse sources, the unprecedented influential China lobby made the Republican leaders and the moderate Democrats support the renewing of China's MFN status by arguing that cutting off trade would only hurt the U.S. influence over China. 360 The MNCs and exporters spent tens of millions of dollars lobbying. So powerful was the lobbying to renew the MFN status that the issues involved in a debate about what kind of trade policy America ought to have were lost. Instead, members of Congress gave in to the unrelenting commercial pressure. The 1990s version of the 1950s-era McCarthyite query 'Who Lost China?' became 'Who wants to be responsible for losing jobs created by trade with China'? 361 The leading organization of the new China lobby was the ad hoc Business Coalition for U.S.-China trade. The coalition was coordinated by the Emergency Committee for American trade, headed by Cal Cohen, a $1 trillion bloc of 55 major U.S. MNCs committed to free trade, including almost all top-500 U.S. companies including GM, Mobil, Exxon, IBM, Boeing, Phillip Morris, etc. Since 1996, MNCs and exporters started to give great concerns over the progress of China's WTO accession negotiation. For example, in June 1998, the Council submitted to USTR a paper entitled 'China and the WTO: Critical Issues and Objectives'. In this paper, the 360 John Maggs, "House Votes to Retain China's MFN Status; Opponents Turning Attention to Asian Giant's WTO Entry Bid', Journal of Commerce, June 25, 1997, p.lA 361 Robert Dreyfuss, 'The China Lobby', The American Prospect, Jan-Feb 1997, 8(30) p.30 or http://www. prospect. org/print/V8/3 0/ dreyfuss-r .html. 281 Council listed comprehensive demands of its members that covered protocol issues, industrial and agriCultural concessions and services market access. 362 Under the umbrella of the Business Coalition were the National Association of Manufacturers, the US Chamber of Commerce, the Business Roundtable, and various trade associations for specific industry groups. Those specific industry groups whose interests were at stake on China's WTO accession negotiation also actively and aggressively sought to influence the government. To take agriculture sector as an example, in January 1997, groups representing the U.S. grain and meat producers sought to lay down a series of conditions for China's accession to WTO. 'The industry is trying to organize and figure out where our problems are and what we need to do with China', said Barbara Spangler, director of government relations for the American Farm Bureau Federation. At the same time, Senator Richard Lugar, R-Indiana, chairman of the Senate Agriculture Committee, met with then USTR nominee Barshefsky to discuss a range of issues. Meanwhile, a group of senators from agriculture states wrote letters to President Clinton and pushed for market access and lifting of sanitary and phytosanitary barriers for the U.S. agricultural products. The letter said treating China as a developing country for the purpose of entry to the WTO, as Beijing sought, would allow China to compete unfairly with 362 See http://www.us-china.org 282 the U.S. producers in some cases. 363 This was the beginning of USTR placing market access in agriculture on the top of its agenda. The industry's insistence on not granting China the preferential treatments of developing countries in terms of government domestic support became the last thorny issue that delayed the final conclusion of the multilateral protocol drafting after China reached the bilateral agreements with the U.S. and the EU until 2001. The effectiveness of interest group lobbying lies in the fact that the interest groups worked closely with the government and Congress to maximize their interests. As one Chinese negotiator recalled, 'at the final stage of negotiation, the American negotiators spent a lot of time working on calculation --- they informed us that if we made concessions on this issue to this level, then they were pretty sure which congressman or senator would support China's bid and say yes at the PNTR vote. This gave us great pressure in the sense that we were not sure that she was helping us to gain the support from Congress or that was just one negotiating strategy to exaggerate domestic pressure ... But it turned out to be a useful strategy, which our Chinese negotiators can't utilize. ' 364 363 William Roberts, "Farm Interests Question China's Entry Into WTO', Journal of Commerce, January 16, 1997; Du Houwen, ed.,Yingdui WTO Tiaozhan: Shimao Zuzhi Guize yu Zhongguo Zhanlue Congshu( Meeting the challenge of WTO: the WTO rules and China's strategy), (Beijing: Xinhua Press, 1999), ISBN7-5011-4701-9/F.668, p.1009. 364 Interview in Beijing, Spring 2001 283 Public Opinion Since the early 1990s, various theories such as the 'China threat' and 'containing China' were developed in the West as a response to the fast economic growth in China. 365 It reached its peak in the period of 1996-1998. With the rise of these theories and their publicity, many became convinced that China was a monster. According to a poll conducted towards the end of 1994, 57% of the American public regarded the 'development of China as a world power' to be a 'critical threat' to the U.S. --- up from 40% in the previous poll in 1990. 366 Another Poll in August 1997 found that China remained, by a substantial margin, the country that Americans most commonly viewed as unfriendly or an enemy. 367 The policy debate related to China's WTO accession was centered on the controversy over when to grant China WTO membership and whether the terms of China's entry should be satisfied upon accession or with a long transitional period. To some, because of its size and importance, China should be admitted and then persuaded to assume further responsibility by agreement. The thought was that Beijing was more likely to respond constructively to multilateral proposals, consultations and negotiations than to bilateral pressures. For others, after China 365 Richard Bernstein and Ross H. Munro, The Coming Conflict with China, (New York: Knopf Press, 1997); Samuel Huntington, 'Political Conflicts After the Cold War', in Arthur Melzer(ed), History and the Idea of Progress, (Ithaca, New York: Cornell University Press, 1995): 137-54; Nicholas D. Kristof, 'The Rise of China', Foreign Affairs, no.72, issue5, (November/December 1993):59-73; Charles Krauthmmer, 'Why we must contain China', Times, no.146, issue 5, 31 July 1995, p.72 366 'American's Dose of Sinophobia', Economist, 29 March 1997, p.29-30 367 'How American See China', Economist, 25 October 1997, p.22 284 joined the WTO it would be much more difficult to secure specific commitments from China precisely because of its size and importance. Many in the administration were anxious to avoid a repetition of what they perceived happened with Japan. Robert Ross, in his policy-orientated article, criticized the failure of the U.S. foreign policy. He argued that while it was in the interests of the U.S. and other industrial countries that China establishes a liberal economic system as soon as possible, it was in China's interests to prolong its current policies. On the contrary, this membership would increase the international leverage over China. Current efforts to coerce China to reform its economic system depended entirely on the U.S. efforts. WTO would tum out to be a 'united front' toward China. 368 A free-market system, fostered by trade ties with the West, would be the best promoter of democracy and human rights in China. Trade was part of the solution, not part of the problem, said Calman Cohen, coordinator of the Business Coalition for the U.S.-China Trade. 369 An opposite argument was that ultimately, China's membership in WTO seemed clearly to be in the best interests of the U.S., China and the world. However, currently the fallout would be serious if China participated without undertaking substantial reforms. The negative consequences of allowing China to enter the WTO would go beyond damaging the economic interests of China's trading partners and slowing the pace of reform in China. Furthermore, the GATT /WTO system has been 368 Robert Ross, 'Enter the dragon', Foreign Policy, Fall 1996, p.18 369 Bruce Stokes, 'playing favorites' , National Journal, 26 March 1994, p.713 285 one of the great engines of global growth in the postwar era, and destroying the system as a political favor to China would be an enormous economic and political mistake. 370 The essence of the debate was the controversy between engagement and confrontation and on whether to treat China as a market economy or a planned economy. 5.4 China's domestic preferences and institutions Beijing Beijing reacted positively to the preference change of Clinton. After all, the title of the 'strategic partner' and the two state visits were the gifts Jiang did not receive in Clinton's first term. However, during this period the key leaders in Beijing were constrained by the domestic oppositions in both the U.S. and China. When Beijing accelerated the negotiation in 1997, Clinton was deeply constrained by Congress because of the allegation regarding the election contribution made by the Chinese Embassy. On the other hand, Beijing was slow to make an offer on market access in service in 1998, partly because of the domestic difficulty to come up with one and partly because of the uncertainty of the key leaders in Beijing whether it was a good timing to extend their final offer. November 1999 was also not good timing for 370 Greg Mastel, 'Beijing at bay', Foreign Policy, Fall 1996, p.27; Peter Morici, 'Barring Entry? China and the WTO', Current History, September 1997, no.96(611): p274-7 286 Beijing in the sense that the hands of the liberal leaders were tied by the domestic criticisms that emerged after Zhu's offer in the U.S. and the rising nationalism provoked by the NATO accidental bombing of Chinese Embassy and further manipulated by domestic conservative officials. The successful conclusion of the negotiation at that time was an illustration of the different influences of domestic politics in democracies and autocracies. The chief executive in an autocracy is also constrained by the domestic opposition, mainly the bureaucratic politics and ministerial oppositions, but the key leaders in such an autocracy can make a decision ignoring the domestic restraints as long as they have stabilized their power. Since 1996, President Jiang's position was further stabilized, particularly after the death of Deng Xiaoping in early 1997 and the handover of Hong Kong on 1 July 1997. The 15th People's Congress held in September 1997 formally consolidated his position as the paramount leader of PRC. At this conference, Jiang emphasized in his report that 'big country diplomacy' had become the center of China's future foreign policy, a shift from the previous focus on the developing world. The other theoretical breakthrough was the recognition of the status of the private economy in the national development. He also proposed to rephrase the expression that 'China is currently at the preliminary stage of socialism' to the expression that 'China will stay in the preliminary stage of socialism for a long period' in the new constitution. 371 371 Jiang Zemin, 'Gaoju Deng Xiaoping Lilun Weida qizhi, ba Jianshe you Zhongguo Tece Shehui Zhuyi Shiye Quanmian Tuixiang 21st Shiji'( Raising the flag of Deng Xiaoping theory and build the socialism with Chinese characteristics in the 21st century), 12 September, 1997, in 'Shiwuda yilai 287 Undoubtedly, the October 1997 state visit to the U.S. was politically important to President Jiang Zemin could use the state visit to enhance his standing at home as a leader who had overcome the stigma of the Tiananmen Square massacre and restored international regard for China. Deng Xiaoping's visit to the U.S. in 1979 normalized the Sino-U.S. relations after more than 30 years of confrontation and separation. Jiang's visit would be seen to further normalize the bilateral relationship that had been unstable since 1989. On 28 October 1997, Chinese President Jiang Zemin started his first formal visit to the U.S. Without reaching a tentative agreement on China's WTO membership, as planned, the nuclear deal became the centerpiece of the summit. Beijing gave its written promise on ceasing nuclear cooperation with Iran, and in return, Washington agreed to open the way for American companies to sell nuclear power equipment and technology to China. Clinton described the deal as a 'win-win-win ... ' 372 In addition, Beijing decided to buy another 50 Boeing jets, a sale valued at $3 billion. In the joint statement released, Clinton and Jiang concurred that China's accession was in the interests of both countries. In order to achieve this goal, both sides agreed to intensify the bilateral market access negotiation. During the Summit, China made two announcements relevant to the WTO. First, China expressed its intention to join the Information Technology Agreement (IT A) as soon as possible, although zhongyao wenxian xuanbian (the Compilation of important documents since the fifteenth People's Congress), (Beijing: People's Press, 2000), p.43 372 Transcript of Press Conference by President Clinton and President Jiang Zemin, Office of the White House Press Secretary, 29 October 1997. 288 participation to IT A was voluntary and not a requirement of China's WTO entry. The IT A called for elimination of tariffs on all information technology products by the year 2000. Even USTR Barshefsky believed that this move represented a dramatic shift in China's policy since, previously, China had refused to participate in any zero-for-zero sectoral arrangements by arguing that this commitment was independent of China's WTO accession. 373 China's second announcement at the summit indicated a willingness to make further substantial cuts in its current 17% average tariff rate. In order to show Beijing's good will, Jiang brought a large trade delegation with him and signed contracts of $4.26 billion with U.S. companies. Not surprisingly, foreign market access on China's services sectors became the thorniest issue on the negotiation table in 1997 and 1998 and directly delayed the negotiation process. One apparent explanation was the difficulties in coordinating conflicting ministerial interests in Beijing. However, several Chinese negotiators revealed that in 1997 another important reason that China's service offer was delayed repeatedly was based on Beijing's judgment and prediction of the domestic politics of the U.S. Those negotiators confirmed that although it was extremely difficult to coordinate domestic ministerial interests, especially in banking, insurance and telecommunication, everything in China was possible once the central leaders stepped in and intervened, especially before Jiang's state visit to U.S. At the eve of Jiang's visit, talks about a partial deal that would lead to the final agreement between 373 Remarks of the Honorable Charlene Barshefsky U.S.T.R. Before the U.S.-China Business Council, 29 January 1998, htpp://www.pressrelease.ustr.gov 289 .. the U.S. and China broke down because China refused to ease restrictions on American exports of citrus fruits. 374 By contrast, as part of the bilateral agreement on the agricultural sector signed at the eve of Zhu's visit to Washington less than two years later, Beijing made the offer to lift all restrictions on the U.S. export of citrus fruits and wheat and satisfied almost all the U.S. demands on the agriculture sector. Apparently with the strong anti-China bashing in the U.S. Congress in 1997, the Chinese leaders did not see the opportunity of China's early entry in 1997, as both governments hoped. "Like any other country, we had to hold some key concessions in hand until the last minute, rather than wasting them in vain". 375 The Asian financial crisis in 1997-8 effectively halted Beijing's plan for further liberalization. The growth of exports, which had tripled between 1990-7, stalled entirely in 1998. It was China's worst export performance in more than two decades. FDI inflows, which had soared continuously, plateaued in 1998 and then declined in 1999. As a result, China's rank as a destination for FDI on a worldwide basis slipped from the second, a rank it had held for several years to the third in 1998 and the fifth in 1999. 376 The spillover effects of the Asian financial crisis among its neighbors invoked unprecedented debate on globalization. Beijing had already faced a hard task squaring WTO entry terms with powerful domestic interests that were deeply suspicious of the membership, but the deteriorating performances of exports and FDI 374 'East and West Still Divided Despite Summit', Los Angeles Times, 1November1997, p.1 375 interview in Beijing, Winter 2000 376 Financial Indicators: Cross-Border Investment, Economist, 12 February 2000, p.105 290 and the potential threat to China's banking system gave the opposition groups more leverage to bargain with the central government. Those groups believed that maintaining protectionism was necessary to weather the upheaval based on the fact that China had been shielded from greater impact because its currency was not fully convertible. Within this context, a coalition of a handful of central government ministries and representatives of the provinces petitioned the Beijing leadership to postpone its accession to WTO. The dozens of petitioners, including cadres in the areas of automobiles, agriculture, machine-building and telecommunications, blamed the MFOTEC for 'excessive impetuosity' in pushing for an early entry to WTO. Alleging that the interests of the native industries were being sacrificed, those conservatives claimed the ideal time for WTO accession would be in the later part of the first decade of the next century. 377 The PLA official newspaper published an article in April 1998 warning that the financial market had proven to be a more effective means for capitalist countries to dominate the world than the military means. 378 The Asian Financial Crisis disrupted China's new momentum to intensify the negotiation at the end of 1997. China obviously went slower on the market access offer, especially the opening of its financial market in 1998. Furthermore, deep in its heart Beijing was hoping for the recognition or even rewards from the international :\ 1 : Willy Wo-lap Lam, "Open door may be closed", South China Morning Post, 26 November 1997, p.19 378 Joseph Fewsmith, China since Tiananmen: the Politics of Transition, (Cambridge: Cambridge University Press, 2001 ), chapter 7. 291 community, especially from the U.S., for its efforts not to devalue its currency since such a move would definitely trigger further turmoil in the regional recovery. On 9 March 1998, the day before the new round of the U.S./China bilateral talks, Long made the clearest link that Beijing has yet drawn between its WTO entry and its stance against devaluing the Yuan. 'We hope that this decision will help the international community to increase their awareness of China's attitude and image in the international trade affairs. China's refusal to devalue showed it was a 'responsible' member of the global community and did not harbor a mercantilist urge to export at any cost. In this sense it will contribute to the process of negotiations on China's accession to WT0.' 379 After the Asian Financial Crisis, Beijing decided to reassess its original goal of making its currency fully convertible by 2000. Prior to the crisis in 1997, the Chinese leaders appeared to be targeting an aggressive timetable of making RMB fully convertible. To that end, the PRC government declared in 1996, several years ahead of the target date, that the country's currency was convertible for current account transactions, making the RMB officially convertible for profit repatriation and for trade in goods and services. The PRC officials also offered to abolish the foreign exchange balancing requirements and the export quotas for FIEs as part of the offer for its WTO bid. But the financial crisis halted the process. As a result, Beijing 379 James Kynge, 'China seeks to capitalize on currency stance', Financial Times, 10 March 1998, p.6 292 enforced tighter foreign-exchange controls, making full convertibility of RMB a more distant prospect. Speaking at the APEC forum in November 1997, Jiang asserted that 'China will continue to steadily open its markets, beginning with the immediate opening of its energy, communication, and other infrastructure industries and the gradual opening its financial services industries, such as banking and insurance. '3 80 Wu Yi, Minister of MOFTEC, echoed this statement and told Leon Brittan at the following meeting in Beijing that 'it was unrealistic and unfair to expect China to achieve quickly something that developed countries had achieved over 100 years. China was opening up its financial market gradually. '3 81 After being criticized for not having included any concessions in the financial sector at its comprehensive concession package submitted to the 7th session of the China working party, the Chinese chief negotiator Long Y ongtu refuted that 'in the light of the recent regional financial turmoil, it is scarcely surprising that Beijing should have become more cautious about responding to WTO demands to open up financial services. The U.S. and the EU were clearly taking little account of the present economic realties in Asia. ' 382 Even in the June 1998 summit with President Clinton, Beijing's posture on WTO seemed indifferent. Zhu articulated a take-it or leave-it attitude: If the U.S. would allow China to join on what were described as reasonable terms, China would join. Otherwise China would stay out. 383 380 Willy Wo-lap Lam, 'Open Door Maybe Closed', South China Morning Post, 26 November 1997, p.19 381 James Kynge, 'Beijing in Offer on Services', Financial Times, 18 February 1998, p.7 382 'WTO stalling', South China Morning Post, 11 April1998, p.12 383 China Won't Accept 'High Demands' in WTO Entry-Trade Minister', Dow Jones Newswires, 17 December 1998, ( http://interactive.wsj.com <17 December 1998>) 293 Another reason behind Beijing's unresponsiveness was the domestic bureaucratic change. In March 1998, Zhu Rongji replaced Li Peng as the Premier. At first, this seemed to make little difference since domestic issues were at the top priority of Zhu's agenda. Zhu focused first on the domestic reform, particularly the plight of state-owned enterprises (SOEs). China still maintained more than 300,000 SOEs, which accounted for nearly one third of China's GDP and employed more than 100 million Chinese urban workers. Most SOEs operated at a loss and required heavy ongoing state subsidies. Resolving SOEs became the precondition to commercialize the banking system, another goal of Zhu's three-year reform. The consensus was that achieving this goal was hard enough and unless it was achieved, SOEs could not compete with foreign companies after China joined WTO. Premier Zhu made the commitment to solve the SOEs problem within three years at his inaugural press conferences. Growth in early 1998 increased much slower than the government had anticipated. Consequently, the rest of 1998 became a catch-up effort, as the government tried to ensure that it met its much-publicized annual GDP growth target of 8%.384 Zhu Rongji's support for China's entry into WTO had grown by the end of 1998. As Zhu tried to restructure the Chinese industries in the face of stiff resistance, he came to see the international influence as useful tool in forcing SOEs to become more 384 World Banlc, China: Weathering the Storm and Learning the Lessons, 1999, pg.19 294 " ~ I • , competitive. 385 By then, China's economy faced serious problems, characterized by deflation, shrinking of exports and FDI due to the Asian Financial Crisis and the stagnation of SO Es reform. Zhu started to believe that entering WTO could stimulate China's economy, bring back more FDI and introduce more competitiveness into China. Beijing's position shift in late 1998 and early 1999 was based on a broad perspective that globalization was unstoppable and that China could either join the trend or be left behind. 386 Responding to the strong and clear signal from the U.S. (mainly Clinton's three letters in late 1998 and early 1999), the Chinese leaders decided to take the assertive steps to conclude the bilateral negotiation. On 13 February1999, Zhu convened an expanded State Council meeting that included all the ministries to discuss the U.S. draft. After consulting and coordinating with the ministries, the State Council developed a broad-gauged concession package and submitted it to the Politburo for approval. On 22 February 1999, Jiang set up the central monetary and economy small group conference. All major agencies were represented in the conference and were given the opportunity to present their views, while those who had different opinions representing specific ministerial interests did not insist on their positions publicly after sensing the obvious determination to resolve the issue from the top. Jiang Zemin gave specific guidance and the offer of a package submitted by the State 385 Joseph Fewsmith, 'The politics of China's accession to the WTO', Current History (268-73), September 2000,p.269 386 Ibid 295 Council was approved in principle by the conference. 387 This package was the one that Premier Zhu brought to the U.S. in April. It was clear that the key Beijing leaders had made up their mind to go for the WTO membership, although it was a hard decision to make under the circumstances. The timing for Zhu' s visit seemed inappropriate in any sense. Besides the growing anti-China sentiment in the U.S. Congress and the U.S. public due to the recent release of the Cox report, the anti-American feeling was also pervasive in China. Beijing could not countenance the NATO strikes, led by the U.S., which began on 24 March 1999 in Yugoslavia. The strikes were ordered without the authorization of the UN Security Council in which Beijing was a voting member and were seen as a 'severe violation of the UN Charter and established principles of international laws'. Beijing blasted NATO over the strikes because of the fear that there could be similar outside interference in Tibet or Taiwan some day, which Beijing considers part of China. At the same time, the U.S. began to study a theater missile defense (TMD) system together with Japan, and to consider bringing Taiwan into the orbit of the TMD as well. This idea directly threatened Beijing. These sensitive issues all surfaced in a few weeks and caused new strains to the bilateral relations. From the available Chinese sources, it appeared that there was an intensive debate among the Beijing decision-makers over whether or not Premier Zhu should visit the U.S. as scheduled. Zhu Rongji in 1999 is the book written by Zong Hairen, the pseudonym 387 Interviews with trade officials from MOFTEC, winter 2000 296 of the authors (who was identified by the editor of the book, Professor Andrew J. Nathan at Columbia University as high-level government officials close to the decision-making circle). 388 In this book, the authors revealed the decision-making in a series of contentious episodes. Among them is the debate over Premier Zhu Rongji's visit and his offer on the WTO in April 1999. The authors clearly stated that the trip and the offer were both based on the political consideration. President Jiang Zemin, allegedly, told Zhu Rongji before his departure: "The WTO may become a bright spot. The object of signing this agreement is by no means limited to economic considerations. We are all quite clear on this matter. Do not have any qualms". Similarly, before he left, Zhu Rongji, in an interview with the Wall Street Journal, began to drop hints, saying "The reason we have made such big concessions is that we have given due consideration to the overall situation of friendly cooperation between China and the United States, including China 's long-term development d Ch . ' . . l " 389 strategy an ma s znternatzona strategy . After Zhu failed to secure the final bilateral agreement with President Clinton as planned, and after the significant domestic opposition surfaced after the information on the agreement became available to the Chinese public, Beijing wanted to back away from its offers. Shortly thereafter, the unexpected NA TO bombing on the , 388 Zong Hairen, "Zhu Rongji in 1999", Chinese Law and Government, January- February 2002, p. 3 ·. 389 Ibid, p.42 297 Chinese Embassy in Belgrade on 7 May 1999 took place. Furious Chinese college students demonstrated in front of the U.S. Embassy, and nationalistic sentiment among the Chinese public reached a new peak. The bombing came right after an accumulation of the 'anti-China' wave including the accusations of illegal campaign contributions, the alleged nuclear technology spy incident, the new criticism of China's human rights record, and the failure of China to reach an agreement with the U.S. on its WTO accession negotiation during Zhu's U.S. visit. As a result, the U.S./China bilateral WTO negotiations were suspended immediately. The rising of nationalism and anti-American sentiments among the Chinese public directly led to the negotiation stalemate. Beijing decision-makers had to carefully balance and manipulate public opinion and at the same time not risk a further deterioration of the Sino-American relations. Ultimately, the resolve of Beijing of early 1999 was unchanged due to the consensus reached by the key leaders including Jiang Zemin and Zhu Rongji that overall China would benefit from its WTO membership. At the following Central Finance and Economic Leadership Small Group meeting, Jiang brought up a specific 16 -word principle to guide the conclusion of the U.S./China bilateral negotiation--- have a positive attitude; use flexible methods; be good at negotiating; don't be naive (Taidu Jiji, Fangfa Linghuo, Shanyu Cuoshang, Buke Tianzhen). 39 ° Clearly, this principle was designed to guide how to conclude bilateral negotiation. Long Y ongtu gave his interpretation to this 390 Based on my interview with anonymous trade officials from MOFTEC, Winter 2000 298 principle in his speech given to provincial level officials at the Central Communist Party School in May 1999. First, Having a positive and aggressive attitude --- due to the reason that the U.S. is the key for China's entry and that the U.S. is showing good will to China in 1999, China should grasp that chance to conclude its bilateral negotiations with the U.S., to contain the anti China faction within the U.S., to alleviate the tremendous pressure caused by the large trade deficit in the bilateral trade and to develop the recently established strategic partnership between the U.S. and China. Second, using flexible methods --- in the key areas of market access that Washington and Beijing had most disagreements in the negotiation, China could have more flexibility. After all, it is in China's basic interest to open up the market, so it will benefit both rather than making concessions to the U.S. It is also important to understand international trade rules. For example, a tariff quota is just a business opportunity, not an obligation. It is the area that China could be more flexible. Furthermore, as long as we hold the approval rights of the government, we can be very flexible on the number of restrictions on establishing joint ventures in the areas of insurance, telecommunication and financial services. Third, being a good negotiator --- as an experienced negotiator, we should be very skillful at the negotiation table. We should know what strategy is most effective and how to defend our bottom line successfully. Be well prepared with several different packages. Try to exchange the U.S. concerns with our concerns. Fourth, never be naive --- we should keep in mind our bottom line and protect our national economic security. For example, we insist not to open up our capital market, the establishment of the telecommunication and the financial joint ventures must be approved by our government. We have to have majority share (51 %) and management rights in the telecommunication and the insurance joint ventures. We also have to have the approval rights to imported video and audio products. 391 391 Interviews in Beijing, Winter 2001 299 Chinese bureaucratic Politics Bureaucratic politics exert more important influence over the preferences of the key leaders in a socialist regime than that in democracies because it is the only reflection of domestic politics. In China's case, the ministerial conflicts greatly delayed the pace of the negotiation because it made the policy coordination extremely difficult. On the other hand, bureaucratic politics may affect the terms of an agreement by influencing the key leaders with its own preference on specific issues under the negotiation in an autocracy; it is less likely, in the meantime, for bureaucratic politics to affect the timing of the negotiation once the key leaders had made the decision. Furthermore, the key leaders in an autocracy can weaken or strengthen certain policy preferences through the administrative means of government restructuring. The government restructuring indirectly played a positive role to boost China's WTO accession negotiation by easing the pressure of certain ministerial interests. In March 1998, China's legislature adopted the most ambitious government restructuring in 20 years proposed by Premier Zhu Rongji. The plan called for a cut of 15 government ministries and elimination of up to 4 million Communist bureaucratic jobs. The plan helped to clear the way for China's WTO negotiation in the sense that it weakened the authority of some powerful agencies that was a legacy of the planned economy and downgraded some ministries into bureaus. For example, the State Planning Commission, which once controlled the Chinese economy, was expected to lose most of its power. In the new government structure, the State Planning 300 , Commission's 1,200 member staff would be cut to 300. It no longer set production quotas for large and medium-sized state-owned enterprises, and some of its functions and staff would be transferred to an expanded Economic and Trade Commission. Nor would its approval have to be sought by foreign investors pursuing large projects. Instead, it would chiefly act as a think-tank, called the National Development Planning Commission, which would draw up macro-economic policy proposals. In the new government structure, the Economic and Trade Commission would be given wider control over the economy, formulating long-term strategic plans. It would also take the responsibility for drawing up policies for the metallurgy, the chemicals, the textiles, the domestic trade, the coal, the machine-building and the light-industry sectors, because the respective ministries were to be downgraded to bureaus. Although bureaucratic inertia compounded by a restructuring aimed at whittling away a third jobs in the central government delayed the negotiation process to some degree at first, the outcome of the restructuring --- intensifying the authority of the pro-free trade factions and simplifying ministerial-level policy coordination was positive to the later WTO accession negotiation in 1999. During this restructuring, the State Council Committee on Interministerial Coordination on WTO was dissolved. A new WTO Negotiation Leadership Small Group was established and State Councilor Wu Yi became the head of this agency. The fundamental change was that MOFTEC was granted more authority to coordinate and to report directly to the State Council. This way, MOFTEC had more 301 influence relative to other ministries on the WTO negotiation issues. As one trade official said: "after this new arrangement, MOFTEC was in a more advantageous position to coordinate different ministerial interests domestically and to negotiate with more flexible strategies externally." 392 Also during this period, some MOFTEC officials, particularly those who were involved in the WTO negotiations (specifically those working at the Department of International Trade and Economic Affairs and Department of Foreign Trade) and the chief negotiator Long Y ongtu gave seminars and speeches to the heads of large SO Es and local cadres on the WTO and the possible effect after China joined. When the negotiation slowed in 1998, several MOFTEC officials wrote articles in trade magazines to discuss the benefits of joining and the consequences of delaying. The main points in those articles included: 1) the delay of the negotiation would affect China's political prestige --- joining or not is the signal that if China is a responsible participant in the international community; 2) the delay would foster the spread of the 'China threat' theory; 3) the delay could weaken the basis of China's developing country status; 4) it could cause serious 'sovereignty' issues if Taiwan joined before China. 393 392 Interviews with anonymous government officials, Winter 2000 393 Liu Guangxi, 'Yu yu Xiongzhang: Jianxi Woguo Jiaru Jingji Lianheguo Jiutuo Bujue de Daijia' ( Analysis on the price China has to pay for the delay of its WTO negotiation), Guoji Maoyi (Journal of International Trade), no. I, I 998, p.6-9; Yi Xiaozhun ( deputy director of department of international trade and cooperation, MOFTEC), 'Shinian Mojian: Ruhe Kandai Woguo Jiaru Shimao Zuzhi Wenti' (Ten Years' Efforts: How to Analyze the Issue of China's WTO Accession), Guoji Maoyi, (Journal of International Trade), no. I, 1998, p.4-5 302 As an example of the growing independence and decreasing policy coordination among the ministries, some powerful ministries boldly resisted the pressure from the central government to abide by free-trade rules and continued to promulgate the WTO-unfriendly measures to protect the SO Es under their ministries. In March 1997, the Ministry of Machine-Building Industries released its industrial policy for imports. The policy required that 'the National Machinery and Electrical Equipment Import- Export Office, MOFTEC, and the Ministry of Machine-Building Industry use imports as bargaining chips to obtain technologies that China needs at a relatively low cost --- it should apply even to technologies that the foreign company is not willing to surrender under most circumstances. By utilizing this policy, the product manufacturing level of domestic enterprises can be raised and technical progress can be pushed forward.' 394 Meanwhile, ministerial interests started to show fierce contradiction against state interests, especially in banking, telecommunication and insurance sectors. Representatives sent by each ministry to participate in WTO negotiations began to fight for their existing ministerial interests. During the last stage, the negotiators from the ministries other than MOFTEC more and more often participated in the international negotiations along with MOFTEC negotiators. In some occasions, they were told to provide views different from that ofMOFTEC negotiators' at the negotiation table. MOFTEC negotiators unpleasantly referred to them as 'backseat 394 Matt Forney and Nigel Holloway, 'In two minds', Far Eastern Economic Review, June 19, 1997, p.66 303 drivers'. MOFTEC officials felt that they lost control over the negotiations. However, those negotiators from the other ministries had different stories. 395 They blamed MOFTEC officials for not understanding the real situations of their sectors and further, that there was no reason for MOFTEC officials to speak on behalf of them. Some of them even criticized MOFTEC officials as 'Chinese negotiators sitting on the American side'. The ministerial conflicts became fiercer and fiercer as negotiation came to the last stretch when only the most difficult issues were left unresolved. The tension was not just limited between MOFTEC and the other ministries. One good example was that after Premier Zhu Rongji's U.S. visit in April 1999, the minister of the Ministry of Telecommunication, Wu Jichuan, submitted his resignation at a meeting of China's cabinet called to discuss the reforms that Zhu proposed during his recent trip. The resignation was a reflection of the intense domestic resistance to the bold economic reforms. "He was really angry that Zhu made those concessions to the Americans", said the head of a department under Mr. Wu's ministry. 396 In short, the U.S. and China could have not reached the agreement, especially in 1999, ifthe key leaders, mainly Jiang and Zhu, did not step in and intervene. 395 For examples, negotiators from ministries such as agriculture, banking and insurance 396 Ian Johnson," Chinese Official Offers to Resign in Sign of Anger on WTO Reform", Wall Street Journal, May 3, 1999, p.16 304 Interest Group Lobbying How did the various sectors or large state-owned enterprises voice their interests and affect the negotiation? When I asked MOFTEC negotiators this question, they all told me that there did exist interest group lobbying in China, but in an indirect and informal way. On some occasions, the interests of some sectors or large state-owned enterprises would be automatically represented by the ministry when the ministerial interests, the sector or the enterprises interests overlapped (such as ministry-owned enterprises) or were closely related. On other occasions, personal networking was the key to having the interests of the sector or the enterprise heard or reflected. Usually, central leaders would go back to the local government or the state-owned enterprises they used to lead and asked the local officials or the current heads of those state owned enterprises for their opinions on the change. The lobby was effective, as some of the negotiators assured me of the influence of this informal channel 'feasibility study'. 397 In other cases, those local officials who used to work with current ministers or other central officials might go to Beijing and complain to them about the serious consequences of their sectors or enterprises without government protection. In short, the indirect and informal communications between the local and the central government officials conducted through their personal connections is the Chinese version of interest group lobbying. Meanwhile, it is important to notice that the heads of most of the state-owned enterprises would not bother to 'lobby' since 397 Interviews in Beijing, Winter 2000 305 the companies or the enterprises they managed were 'state-owned'. In addition, no matter how successful or influential those private-owned enterprises are, they had little ability to affect government decisions and the international negotiation except when they had personal connections with government officials. Public Opinion Shortly after President Clinton turned his back on the WTO deal in April 1999, details of China's concessions appeared in a 17-page document posted on the USTR website. The posting was aimed to win domestic support from the MNCs and exporters and from some members of Congress. However, the posting exerted unexpected pressure in China on the Chinese pro-liberal leaders, especially on Zhu Rongji because Beijing had successfully blocked any concrete information of the negotiation from being revealed until the posting that gave many Chinese government officials, intellectuals and ordinary citizens their first full look at the package that had been put together. As a result, the posting made it possible for the first time in China that public opinion could be formed to influence over the negotiation to a great extent. Even before Zhu came back to Beijing, he was said to ask about those articles posted on the Internet. In one sense, it reflected a kind of progress. Large enterprises and provinces that would be affected by China's entry began to calculate the impact themselves. Many students and intellectuals expressed their concerns that China had offered to pay too high a price. It is fair to say that the 306 public discussions (mainly on the Internet) reflected the first and the only time in China that public opinion affected the process of decision-making of China's WTO accession negotiation. Unfortunately, the Chinese public lost their channel of information on the negotiation again thereafter. Until lately, China's accession protocol had not been officially released to the public after China formally joined WTO in 2003. As a result, when the Chinese leaders required the government officials at all levels to learn more about the norms and the principles of WTO and to be aware of the potential damages or challenges that can be imposed to their relevant sectors, many complained that they could not be well-prepared since they had never seen the accession protocol that the Chinese government signed and had no idea about what concessions the government had made. In short, the role of public media over international negotiation was still very limited in China because of government control of information. 5.5 A Comparison between Stage II and Stage III This section aims to explain the reasons behind the failure of the bilateral negotiation on China's GATT/WTO membership in 1994 and its ultimate success in 1999 by making use of the analysis of the interaction between various preferences of domestic actors and domestic institutions in both states. The significance of this comparison lies in the fact that the major systemic factors can be kept constant, such as the post-Cold War climate and Clinton and Jiang as the heads of the states. 307 Additionally, the Chinese export was heavily dependent on the U.S. market during both periods with the dependence rate of the U.S. market for Chinese exports at 32% in 1994 and 42% in 1999 respectively (Tables 5-11 and 5-12). The question is: what variations are accountable for the different negotiation outcome? Table 5-11: China's Trade with the World($ billion) 1990 1991 1992 1993 1994 1995 1996 1997 Exports 62.l 71.9 84.9 91.7 121.0 148.8 151.1 182.7 Imports 53.3 63.8 80.6 104.0 115.6 132.l 138.8 142.4 Total 115.4 135.7 165.5 195.7 236.6 280.9 289.9 325.l Source: PRC General Administration of Customs, China's Customs Statistics, http://www.moftec.gov.cn Table 5-12: China's Trade with the United States~ $billion) 1998 183.8 140.2 324.0 Year Exports Imports Trade deficit 1989 5.8 12.0 6.2 1990 4.8 15.2 10.4 1991 6.3 19.0 12.7 1992 7.5 25.7 18.2 1993 8.8 31.5 22.8 1994 9.3 38.8 29.5 1995 11.7 45.6 33.8 1996 12.0 51.5 39.5 1997 12.8 62.6 49.7 1998 14.3 71.2 56.9 1999 13.1 81.8 68.7 Source: US Department of Commerce, http://www.doc.gov 1999 194.9 165.7 360.6 Table 5-13 lists the U.S.'s demand and China's final offer by the end of 1994 as well as the compromises they reached in the 1999 final bilateral agreement. The comparison of the positions shows that both states made significant concessions in 1999 on what they had refused to do in 1994. There was a large gap between the U.S.'s demand and China's offer in 1994. In 1999, the U.S. gave ground on two of the substantial issues. One was to grant a transitional period to some of the key sectors that China had difficulties meeting the requirements of the developed 308 countries upon entry and the other was to promise China the PNTR status, which many considered the principal gain of China's WTO membership. Table 5-13 Companson of 1994 U S.'s Demand and China's Final offer & the 1999 Agreement Negotiation U.S. final demand China final offer Bilateral agreement in issues 1994 1994 1999 Transparency Provide full information Most of trade laws, Beijing agreed to U.S. MFN Developing country status Selective Safeguard Review system on its trade system, laws, regulations and NTMs will demands regulations, NTMs be made public. A minority of them related to national security will remain unpublished Washington made clear that US law prevents it from granting China unconditional MFN China is no longer a developing country Specially designed general and product-specific safeguards are a 'must' A review system specially designed for China to monitor its reform progress within 15 years after China's entry; it will review not only the enforcement of China's GA TT accession protocol but also the macroeconomic polices in China China should get permanent MFN from all contracting parties once it becomes GATTmember China's developing country status non-negotiable China could accept selective safeguards once it is made compatible with GA TT rules, with a time framework to expire after the transitional period; China reserved the right to retaliate against attempts to 'single out' China for trade penalties, by withdrawing some of its concessions on market access. Accept by principle. China only agreed that the GA TT members could review the enforcement of the content of protocol, but not the macroeconomic policies and the overall economic reform policies because there has been no true criteria to judge if a country is 'market economy' or not. U.S. offered China PNTR Mixed-a few areas developing and most developed by granting China a transitional period China agreed to the U.S. demand of applying a transitional product-specific safeguard specially designed for China for 12 years China agreed U.S. demands 309 Table 5-13: continued Negotiation U.S. final demand China final offer Bilateral agreement in issues 1994 1994 1999 Anti-dumping The 'price comparing China has committed to a China agreed to U.S. clause provision' allows the full market economy, so it is demands; China agreed to contracting party to decide unfair to compare Chinese maintain the current U.S. if China's export is exports with a third country antidumping methodology dumping without price since China has (treating China as a non- comparing to its domestic cheaper labor and raw market economy) in future price of that product; materials. anti-dumping cases. This provision will remain in force for 15 years after China's accession to the WTO. Moreover, when we apply our countervailing duty law to China we will be able to take the special characteristics of China's economy into account when we identify and measure any subsidy benefit that may exist. Trading rights All trading entities and Public ownership is the only China agreed that trading individuals are eligible to form of firms eligible for rights and distribution engage in foreign trade foreign trade (over 4,000 services be progressively trading companies); privately phased in over three years. owned companies were not However, Chinese citizens allowed to have trading are not eligible for this rights; some industrial treatment enterprises and all foreign and joint ventures have the right to export their own products and import necessary raw materials for their production. The key products imported and exported by designated state- owned trade companies were only 16 exports and 14 imports. Price controls Eliminating all price Under price controls were China submitted a complete controls upon entry the 'essential natural list of the products, public resources and products of utilities and service charges vital importance to people's that are subject to state livelihood.' pricing. The U.S. accepted 95% of import goods are China's position based on market price and 5% are state pricing, mainly grains and fertilizers, subsidized by the government. 310 Table 5-13: continued Negotiation U.S. final demand China final offer Bilateral agreement in issues 1994 1994 1999 Tariff U.S. asked to lower China offered to keep 90% China offered an average reduction average tariff to 8% products under 35% and tariff rate of 8.9% further reduce to 30% upon entry; China agreed to U.S. demands to cut tariffs on I, 119 products; Non-tariff Eliminate all quotas, China has cut its NTB from China will eliminate barriers licenses, tendering three thousand to 400. China existing quotas upon requirements, and other needs more time to gradually accession for the top U.S. NTB including those on eliminate the rest. priorities (e.g. optic fiber auto and auto parts In addition, the U.S. and EU cable). It will phase out all hold quantity restrictions remaining quotas, generally on Chinese exports of textile, by 2002, but no later than footwear, etc. 2005. Auto quotas will be phased out by 2005. In the interim, the base-level quota will be $6 billion (the level prior to China's auto industrial policy), and this will grow by 15% annually until elimination Service Among others, the U.S. China offered to open 36 China agreed to open asked China to open its sectors among the total of important service markets, security market, video- 150, with some restrictions including audio market, and import attached. But China refused telecommunications, quotas on foreign movies to open up its security banking, insurance, and TV programs; market and restricted the securities, audiovisual, and imports of foreign video- many professional services, audio products to protect its with a 3-5 year transitional domestic industries for period ideological reasons. Convertibility Immediate convertibility Demand is outside GA TT's Convertibility within current ofRenminbi of the Chinese Yuan mandate. Beijing's goal is to account began since July make it fully convertible by 1997 2000. 311 Table 5-13: continued Negotiation U.S. final demand China final offer Bilateral agreement in issues 1994 1994 1999 Tariff I .To join the zero-tariff I .Promised to make deep 1. China agreed U.S. reduction on agreement reached among cuts in this group, but argued demands by joining the zero- industrial developed countries and to as a developing country, it tariff agreement goods reduce tariff to zero in ten need not go as far as categories such as steel, eliminating these duties; chemicals, beer and China's final offers on beer 2. China agreed to cut agricultural machinery; 65% (from current 120%) average tariff levels to 8.9%; distilled liquor 65% (from current 150% ); reduce tariff 3. In the auto sector, China of steel from 17% to 9%; will cut tariffs from the construction equipments current 80-100% level to from 17% to l 0%; 25% by mid-2006, with the agricultural equipment from largest cuts in the first years 18% to 9%; medical equipment from 17% to8%; after accession. Auto parts tariffs wi11 be cut to an 2.Specifically, the tariffs furniture duties from 80% to average of l 0% by mid- for chemical raw 24%; paper and paper 2006. In the wood and paper materials, semi-finished products from 31 % tol3%; sectors, tariffs will drop from products and finished present levels of 12-18% on products are 0%, 5.5% and wood and 15-25% on paper 6.5%; 2.China's final offers for down to levels generally chemical raw materials, between 5% and 7.5%. 3.0n textile, the tariffs for semi-finished products and yam, textile semi-products finished products are 7.7%, and clothes are 5%, l 0%, 9.1%, and 14.9%; 17.5%; 4. Automobile: at least 3.China's final offers for lower than 20% yam, textile semi-products and clothes are 17%, 29.4%, 28.6% from the current 44.1%, 78.3%, 87.7%; 4. China's final offer is 85%. Currently emission level over 2.5 liter 150% and below 2.5 liter 110%; 312 Table 5-13: continued Negotiation U.S. final demand China final offer Bilateral agreement in issues 1994 1994 1999 Agricultural Modify China's sanitary China committed to China agreed to cut tariff rate goods standards to be compatible eliminate all NTB for to 15% by January 2004. with GA TT rules; U.S. set agricultural products Establishment of a tariff-rate China's acceptance of quota system for imports of U.S. citrus from California bulk commodities, e.g., and wheat from the wheat, corn, cotton, barley, southern states as the and rice that provides a share precondition for accession of the TRQ for private negotiation; US required traders. Specific rules on China to eliminate state how the TRQ will operate trading within a short and increased transparency period on some key U.S. in the process will help exports (vegetable oil), ensure that imports occur. open non-state-owned Significant and growing trading companies to part quota quantities subject to of the tariff quotas on rice, tariffs that average between wheat, oil, cotton, sugar 1-3 percent. Immediate and all others without elimination of the tariff-rate tariff quotas quota system for barley, peanut oil, sunflower-seed oil, cottonseed oil, and a phase-out for soybean oil. The right to import and distribute products without going through a state-trading enterprise or middleman. Elimination of export subsidies on agricultural products. China has also agreed to the elimination of SPS barriers that are not based on scientific evidence. Sources: information on the U.S. demand and China's final offer in 1994 is based on the author's interviews conducted in 1998, 1999 and 2000 in Beijing and Shanghai, China. For information on the final bilateral agreement in 1999, see "Summary ofU.S.-China Bilateral WTO Agreement", February 2, 2000, http://www.uschina.org/public/wto/ustr/generalfacts.html Puzzle 1: The scope and the depth of the demands placed on entering the WTO was increased since the formal conclusion of the Uruguay Round of Trade Negotiations in 1994; however, the U.S. softened its position on many of the contentious issues in the final bilateral negotiation stage in 1999. Why did Washington decide to show flexibility and encouragement on its market access negotiation with one of its major trading 313 partners (with whom the U.S. has the largest trade deficit) at a time when the U.S. sustained continuous economic growth? Table 5-14 shows that the U.S. trade deficit with China increased continuously in the 1990s. Based on conventional wisdom, the U.S. should have hardened its negotiation position on China's WTO accession negotiation in 1999 because of the trade deficit. Why, then, did Washington act just the opposite and promise to grant China the PNTR status to ensure China's continued access to the U.S. market? As discussed in Chapter Four and in this chapter, U.S. MNCs and exporters was indifferent on China's GATT accession negotiation in 1994, but lobbied heavily for China's WTO membership in 1999. It appeared that the fast-growing inflow of the U.S. FDI into China served as an important reason for this change of attitude of U.S. MNCs and exporters. Table5-14: US Trade Flows and Deficit with China (Billions U.S. Dollar) Year Imports Exports Trade Deficits 1989 5.8 12.0 6.2 1990 4.8 15.2 10.4 1991 6.3 19.0 12.7 1992 7.5 25.7 18.2 1993 8.8 31.5 22.8 1994 9.3 38.8 29.5 1995 11.7 45.6 33.8 1996 12.0 51.5 39.5 1997 12.8 62.6 49.7 1998 14.3 71.2 56.9 1999 13.1 81.8 68.7 2000 16.3 100.1 83.8 Source: http://www.doc.gov 314 American firms invested cautiously in China in the 1980s and the early 1990s. The trend changed in 1993. 1993 was the peak year for new investment into China, both from the U.S. and from the rest of the world. China signed 6,700 contracts with American companies (out of a total of signed contracts of 83,437 worth collectively $111 billion) in that year (Table 5-16). The investment boomed, but it was at its early stage. During the 1993-4 period, foreign investors in China sought to improve the overall investment environment, specifically in terms of transparency, IPR protection and non-discrimination. The three memorandums reached between China and the U.S covered exactly these issues. However, the implementation of the 1992 IPR agreement was not satisfactory. Consequently, a new round of IPR negotiation was held in 1994 and but no agreement was reached until 1995. Under such a situation, the relatively indifferent attitude chosen by U.S. MNCs and exporters on China's GATT membership was driven by their reliance on the unilateral actions of the U.S. under Special 301 to improve the rule-related aspects in China and by the lack of any potentially significant gain the China's GATT package was able to offer. Table 5-15 shows that the amount of realized FDI invested from the U.S. increased from $2,491 million in 1994 to $4,200 million in 1999, up more than a 40%. With this increase, the U.S. became the second largest foreign investor in China in 1999, just behind the EU (see table 5-16). The Chinese government encouraged the foreign-funded enterprises to export their products with a series of tax and import preferential incentives. Consequently, the import and the export activities of the 315 foreign-funded enterprises in China grew to account for a large share of the total Chinese import and export, with the foreign-funded enterprises exports representing 45% of total Chinese exports in 1999 (table 5-17), compared to 29% in 1994 in which year the U.S. FDI was 7% of the total. In the meantime, raw materials imports of foreign-funded enterprises increased from $52.9 billion in 1994 to $85.9 billion in 1999 (up 38%), which made the bold tariff reduction plan offered by China on imports very attractive. As a result, multinational corporations from the U.S. became less concerned on the bilateral trade balance, allowing the trade deficit to become a less thorny and sensitive issue in 1999 than it had been in 1994. Additionally, the requirements of the 1994 China's GATT accession on the depth and the scope of trade in the services and the agricultural sectors were very limited. As a result, American firms from those sectors could not see the benefits the market access package would bring to them and rendered no support to China's GA TT accession. By contrast, China's WTO offers on trade regime liberalization, trading rights, and market access of service sectors in 1999 offered opportunities to American firms to make substantial gains in those sectors. The U.S. International Trade Commission (ITC), at the request of the U.S. Trade Representative (USTR), conducted a confidential study that computed the effects on the U.S. economy should China join WTO under the terms that Zhu Rongji offered in April 1999. USTR declassified the Executive Summary of the report on September 2 and requested that ITC release this portion publicly. 398 Using what the authors of the study call a "global computable 398 According to an ITC press release issued on September 2, "The USTR indicated that it is 316 general equilibrium model," ITC estimated that China's membership in WTO would result in an increase of 9.0 to 10.1 percent (or $2.4 to $2. 7 billion) in additional U.S. export to China. In short, significant economic gains stimulated the significant change of attitude of U.S. MNCs and exporters over China's GATT/WTO accession. Table 5-15: U.S. vs. Total Contract & Realized FDI in China (1986-1994, in$ Millions) Year Total Total U.S. % of U.S. U.S. % of U.S. Realized Contractual realized realized FOi contractual contracted FOi FOi FOi FOi vs. FOi vs. total total realized FOi contractual FOi 1994 33,767 2,491 7.38% 6,010 7.27% 1995 37,521 3,083 8.22% 7,471 8.18% 1996 41,726 3,443 8.25% 6,915 9.44% 1997 45,257 3,239 7.16% 4,937 9.68% 1998 45,463 3,898 8.58% ~,484 12.44% 1999 40,400 4,200 10.46% ~.ooo 14.59% Source: Ministry of Foreign and Trade Economic Cooperation, http://www.moftec.gov.cn The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the State Statistical Bureau provided the data. The statistics on contractual FDI are simple data collected by MOFTEC at the point of contract approval. The statistics on realized investment are based on required reporting by FIEs of committed capital. Cumulative values for both contractual and realized FDI are simple totals of data collected each year. As such, they are not adjusted for inflation, do not take into account divestment, nor do they reflect investment stock. More sophisticated data on foreign investment is not currently available in China. However, MOFTEC has been working with the Organization for Economic Cooperation and Development on ways to improve statistical gathering and computation. reviewing the body of the ITC report and 'intend[ s] to complete this review expeditiously and will provide further guidance to the Commission on those portions of the report which are to be declassified."' 317 Table 5-16: China's realized FDI by Selected Countries (in $ millions) Country Realized FOi in 1999 Hong Kong 16,400 Japan 3,000 Republic of Korea 1,300 Singapore 2,600 Taiwan 2,600 United States 4,200 European Union 4,500 Germany 1,400 United Kingdom 1,000 France 900 Total (All Sources) 40,400 Source: Ministry of Foreign Trade and Economic Cooperation State Statistical Bureau Note: Many foreign firms, including those from the U.S., are registered in the Virgin Islands and the Cayman Islands for tax considerations, and therefore do not appear in these country by country figures. Table 5-17: Exports and Im 1 :)0rts ofForeign-Funded Enterprises, 1985-2000 ($in billions) Year Total Export FFE exports Percent Total Imports FFE imports Percent 1986 30.9 0.5 2% 42.9 2.6 6% 1994 121.0 34.7 29% 115.6 52.9 46% 1999 194.9 88.6 45% 165.7 85.9 52% Sources: Nicholas R. Lardy, Integrating China into the Global Economy, (Washington, D.C., Brookings Institutions, 2002), p. 7 Furthermore, multinational corporations from the U.S. became more interested in China from the market perspective, which became the fundamental reason behind their unprecedented active lobbying. In the case of the U.S/China bilateral negotiation, this support had to be sufficiently compelling to counterbalance the ideological and political concerns of Congress to eventually win support from Congress. The active lobbying of the U.S. firms in 1999 achieved just that. The U.S. MNCs and exporters' lobby was substantial, but by itself was not sufficient to explain the variations of the outcome between the 1994 and the 1999 negotiations. After all, decisions are made and actions are taken by the political actors, and interest-group lobbying can only be an influential factor of the decision-making in 318 any democratic states based on the concerns of (re )elections or financing of (re )elections of the domestic actors. Table 5-18 outlined the variations and the interactions of the domestic actor's preferences among the U.S. government, Congress and the MN Cs and exporters. The preferences of these actors again interacted with the preferences of domestic actors in Beijing. The interactions resulted in the 13-year negotiation process and the different negotiation positions and strategies taken by the two governments in different stages. Table 5-18: the Variation of the Domestic Actors' Preferences in U.S. between 1994 and 1999 1993-4 1997-9 U.S. 1. March 1993 USTR Newkirk 1. Clinton was ready to transform his China policy at Government explicitly stated in Beijing that the 2nd half of 1996, when he was confident about the 'permanent MFN' was non- reelection. In July 1996 Anthony Lake visited Beijing negotiable because US law and sent clear messages: engagement with China by prohibited it. He emphasized that inviting Jiang for a state visit. In addition, the US the 'U.S. was not in any hurry' to handed China a clear timetable to finish China's conclude an agreement. 399 accession negotiation during some appropriate time in 1997 or 1998. 40 ° Clinton also promised Beijing that if 2. June 1993 Clinton linked China's reelected, he would consider asking Congress to grant annual MFN status to its human China permanent MFN4° 1 ; rights condition 2. During his state visit in 1998 in Beijing, Clinton 3. May 1994 Clinton withdrew the gave Beijing the 'three nos' commitment: the U.S. conditionality but toughened does not support the independence of Taiwan, not China's GA TI negotiation demands supporting two China or One China and One Taiwan, to ease the dissatisfaction from not supporting Taiwan to join any international Congress organizations constituted only by sovereign states. 3. On 6 November 1998, Clinton wrote a letter to Jiang in which he clearly expressed his hope of concluding the U.S./China bilateral negotiation before the end of first quarter of 1999 and then completely solving China's NTR problem. In another letter to Jiang on February 8 1999, Clinton explicitly described his plan to sign the agreement during Zhu's visit to the U.S. to pave the way for a permanent solution of the NTR issue. In the meantime, the U.S. provided a complete draft package to finish the bilateral negotiation. 399 Tony Walker, 'U.S. in no hurry over China talks', Financial Times, 3 March 1993, p.6 400 Interview with Liu Guangxi, (one of the key Chinese negotiators and secretary of Long Yongtu), Beijing, 10 March, 2001. 401 Lu Ning, 'Clinton's victory may help Sino-US relations', Business Times (Singapore), 7 November 1996, p.8 319 • ) Table 5-18: continued Congress 1993-4 l. The House's third-ranking Democrat, Rep. David E. Bonior of Michigan, joined a coalition of 11 human rights groups in urging the president to pull the plug on China's MFN status. 2. The new political balance of power in the Congress. After the 8 November 1994 election, the Republicans took control of both chambers of the US Congress for the first time since 1954. The Republican majority, represented by Senator Jesse Helms (the new chairman of the Foreign Relations Committee) and Senator Frank Murkowski (the incoming chairman of the Subcommittee on East Asian and Pacific Affairs), was expected to launch a China-bashing campaign, focusing on its conduct in Tibet and its alleged exports of military technology to Iran and Pakistan, while trying to tilt the US policy in a more pro-Taiwan direction. 1997-9 1. In 1997 an unusually broad array of neoconservatives, religious groups, liberal human rights advocates and labor unions joined forces in a campaign to defeat MFN for China. Three issues added fire to the China-bashing campaign-the allegation that China's embassy in Washington coordinated contributions to Clinton's reelection campaign; the handover of Hong Kong to Beijing in July 1997; and the joining of religious groups as a new source against Beijing. Opponents ofNTR with China narrowed the difference from 1996's 286-14lto 259-173 . 2) The China-bashing campaign continued in Congress in 1998 and 1999---campaign financing violations, Cox report, nuclear espionage, human rights violation, etc. 3) Top lawmakers from both parties sought to get involved into the negotiation over China's admission to WTO since 1997. (as the result of the policy transformation by Clinton and the growing interests expressed by business groups) House Democratic leader Richard Gephardt, with 43 co-sponsors including 11 Republicans, introduced a bill in September 1996 aimed at carving out a new role for Congress in negotiation over admitting China to WTO. The bill required that a majority of the House and Senate approve China's entry to the WTO before President Clinton and his administration pledged U.S. support for such a move. Under the WTO rules, even if the U.S. objected, China could still be admitted to WTO with a 2/3 majority of more than 120 members. In this case, the bill would require U.S. withdrawal from the WTO if China joined on terms that Congress considers too lenient. 402 In another letter to Clinton in November 1996 a bipartisan group of eight members of the Senate Finance Committee outlined areas that they would be watching, including IPR, investment barriers, NTB to trade and technology transfer. In the meantime, House Democratic leader Richard Gephardt sent a letter insisting that the administration delay agreeing to China's WTO membership until a comprehensive study was done on its impact on the U.S. economy. 403 Another move in Congress was the introduction of the bill to change the status, long known as MFN treatment, to be renamed as 'normal trade relations'. Congress had substantial power over one bargaining chip: legislating permanent MFN. 402 John Maggs, 'New bill would expand Congress' WTO role', Journal of Commerce, 13 September 1996, p.5A 403 Foo Choy Peng, 'U.S. holds to line on WTO; Applause for Beijing as Christopher offers intensive talks', South China Morning Post, 22 November 1996, p.4 320 Table 5-18: continued 1993-4 1997-9 Interest Most American companies Business groups started to lobby for China's WTO Groups supported the tough position of US membership only since late 1996. In September 1996 on China's GA TT accession and they also set up 'Illinois Alliance' to support granting intellectual property issues in 1993- China WTO membership. 404 In supporting China's 4. In the meantime, more and more request for permanent MFN treatment, business companies joined the 'China lobby' groups in the U.S. proposed to the government in late for China's MFN status. 1996 that, in return, the Administration could press China to agree to meet all WTO obligations within a specified timeframe. 405 As for their specific concerns, the US-China Business Council collected the major demands of its members and submitted to USTR in its 1996 Paper, 'China and the WTO: A Reference Guide' . 406 In June 1998, the Council submitted to USTR a paper entitled 'China and the WTO: Critical Issues and Objectives'. In this paper, the Council listed comprehensive demands of its members that covered protocol issues, industrial and agricultural concessions and services market access. 407 Source: summarized by author, 2003 Puzzle 2: Political leaders are rarely willing to impose high short-term economic costs in order to reap medium and long-term benefits, especially during the periods of national economic difficulties, such as those caused by the Asian financial crisis (critics about globalization). Why does China appear to be an exception? The Chinese growth of exports, which had tripled between 1990 and 1997, stalled entirely in 1998. It was China's worst export performance in more than two decades. FDI inflows, which had soared continuously, plateaued in 1998 and then declined in 404 Richard Bernstein and Ross Munro, 'The Coming Conflict with China', translated by Xinhua News Agency, Xinhua Press, 1998, pp 102-7 405 This course was proposed by the US-China Business Council in a paper dated 1 February 1996, submitted to USTR office. See 'China Council calls on U.S. to change WTO negotiating strategy,' Inside U.S. Trade, Washington DC, 1March1996, p.26. 406 http://www.us-china.org; Robert Weissman, 'The China lobby's campaign for two-way trade with China', Multinational Monitor, June 1997, v 18 no6p17( 4) 407 http://www.us-china.org 321 1999. As a result, China's rank as a destination for FDI on a worldwide basis slipped from the second, a rank it had held for several years, to the third in 1998 and the fifth in 1999. 408 China's macroeconomic performance also deteriorated during this period. The losses of the SO Es had soared from RMB 6 million in 1987 to RMB 83 billion in 1997. 409 When Zhu became the new Premier in March 1998, he pledged to solve the problem of the money-losing state-owned enterprises within three years, which became his focus in 1998. More than 36 million state workers, one-third of the total, lost their jobs in the three and a half-year period from 1998 through the middle of 2001. 410 Unemployment caused serious problems for social stability. T bl 5 19 G a e - rowt hR ate o fCh. ' F mas ore1gn T d b P ra e 1y ercentage, 1986 2000 - Year Total exports and imports Exports Imports 1986 6.1% 13.1% l.5% 1987 11.9% 27.5% 0.7% 1988 24.4% 20.5% 27.9% 1989 8.7% 10.6% 7.0% 1990 3.4% 18.2% -9.8% 1991 17.6% 15.8% 19.6% 1992 22.0% 18.1% 26.3% 1993 18.2% 8.0% 29.0% 1994 20.9% 31.9% 11.2% 1995 18.7% 23.0% 14.2% 1996 3.2% 1.5% 5.1% 1997 12.2% 21.0% 2.5% 1998 -0.4% 0.5% -1.5% 1999 11 .3% 6.1% 18.2% 2000 31.5% 27.8% 35.8% Source: http://www.moftec.gov.cn 408 Financial Indicators: Cross-border Investment, Economist, 12 February 2000, p.105 409 State statistical Bureau, China Statistical yearbook 1998, p.H61 410 National Bureau of Statistics, China Statistical Yearbook 2000, p.126; China Statistical Abstract 2001 (Beijing: China Statistics Press, 2001), p.39 322 Table 5-20: China's Economic and Financial Indicators, 1994-1999 China's Economic and Financial Indicators, 1994-99 (All fiKures are in billions of RMB or percent unless otherwise indicated) Main indicators 1994 1995 1996 1997 1998 1999 Gross Domestic Product (GDP) 4,675 .9 5,847.8 6,788.5 7,477.2 7,955.3 8,319.0 Real GDP growth 12.6 10.5 9.6 8.8 7.8 7.1 Retail price index 21.7 14.8 6.1 0.8 -2.6 -2.9 Consumer price index 24.1 17.1 8.3 2.8 0.8 -1.3 Urban per capita income 3,496.2 4,283.0 4,838.9 5,160.3 5,425 .0 5,859.0 (RMB) Rural per capita income (RMB) 1 ,221.0 1,577.7 1,926.0 2,090.1 2,160.0 2,205 .0 Urban unemployment rate(%)* 2.8 2.9 3.0 3. 1 3.1 3. 1 Financial indicators Exchange rate (RMB/$) 8.6 8.4 8.3 8.0 8.3 8.3 Foreign exchange reserves 51.6 73.6 105.0 139.9 145.0 154.7 (US$ billion) Government revenue (total) 5,218.1 6,242.2 7,408.0 8,651. 1 985.3 -- tax revenue 5,126.9 6,038.0 6,909.8 8,234.0 855.1 1,031. 1 Domestic debt (Treasury bond 102.9 151.1 184.8 241.2 270.0 60.0 issues) Foreign debt (US$ billion) 9.3 10.6 11.6 13.1 -- Government deficit 57.5 58.2 53.0 57.0 96.0 -- Sources: Almanac of China's Finance and Banking 1996; PRC State Statistical Bureau (SSB); China Statistical Yearbook, 1997, 1998; China Monthly Statistics; Dow Jones News Service; Foreign Broadcast Information Service, CNN, Financial Times, Inside China Today (www.insidechina.com). At the same time, China's WTO accession negotiation apparently slowed down due to domestic difficulties. By early 1999, however, the view of Premier Zhu and other Chinese economic reformers evolved as they came to believe that one of the principal benefits of becoming a member of the WTO was the increased competition the membership would bring into China's domestic market. The additional competition was seen as an essential source of pressure on the state-owned enterprises that would force them to undertake badly needed structural reforms, as Zhu put it himself at his joint press conference with Clinton in Washington that 'the competition arising from the WTO membership will also promote a more rapid and 323 healthy development of China's national economy. ' 411 Furthermore, Zhu told Greenspan that Beijing was ready to extend 'it's most credible offer yet for entry into WT0' 412 in February 1999. The complete package of offers was presented during Zhu's April 1999 visit to the U.S. Some scholars believe that China's market access commitment, included in this package, exceeded those made by any member that had joined WTO since 1995. 413 However, the key leaders' embracement of globalization itself could not be the sole reason to explain Beijing's determination to gain the WTO membership. When I re- examine the prolonged process of negotiation, it is clear that Beijing always put great political and security weights on this international economic negotiation. The decision-making of Beijing on the negotiation positions and strategies were never based solely on the calculation of pure commercial gain or loss. As analyzed above, the main goal of signing the bilateral agreement, in the eyes of the leaders of Beijing, was to maintain and improve the U.S/China bilateral relations, which was crucial for both China's economic development and Beijing's foreign policy goals. With the roughly 'hierarchic' structure of the domestic institutions in China, the strong resistance from domestic ministries could only delay the negotiation process when the key leaders had not yet made up their minds. 411 The White House, Office of the Press Secretary, 'Joint Press Conference of the president and Premier Zhu Rongji of the People's Republic of China', April 8, 1999 412 James Kynge and Guy de Jonquieres, 'China to make determined efforts for entry into WTO', FT, 15 February 1999, p.3 413 Nicholas Lardy, Integrating China into the Global Economy, (Washington, D.C.: Brookings Institutions, 2000), p. I 0 324 T bl 5 21 h E a e - : t e xpans1on o fW' . s m-sets m tage III Stages Domestic factors Stage-I The support of chiefs of government(+); Congressional activism-(0); MN Cs and exporters- (O); ministerial resistance in China-(0); Stage-2 Support of the chiefs of government--- (-); Congressional activism-(--);MNCs and exporters- (O); ministerial resistance in China-(-); Stage-3 Support of the chiefs of government---(++); Congressional activism-(-); MN Cs and exporters-(++); ministerial resistance in China-(--); Source: Summarized by author,2003 Table 5-21 is a simple version of the outline of the preference variations in the different stages in both states that shows the expansion of the domestic win-sets in stage III and the shrinkage of the domestic win-sets in stage II. 5.6:Conclusion Both the timing and the terms of the final bilateral agreement of China's WTO accession were shaped by the variations and the coordination of the preferences of the domestic actors in the two countries. For the U.S., the existence of a legislative branch that does not share the same policy preference with the executive branch delayed the timing to conclude the negotiation with the non-democratic country of China, meanwhile it helped to create the terms more in favor of the U.S. interests. The preferences of the private sectors played a pivotal role in negotiating with an ideologically hostile country like China. On the one hand, the private sectors would not support a negotiation unless the prospective agreement was attractive and/or important to them. On the other hand, private sector lobbying would help to influence the preferences of both the executive and the legislative branches and 325 eventually push for an earlier and more satisfying agreement. For China, the key leaders in such an autocracy were still able to reach the agreement; however, with flexibility it was less likely for such an autocracy to bargain for good terms. 326 Chapter 6: Conclusion 6.1: The Argument: The Role of Domestic Actor's Preferences and Political Institutions This study examines the role played by the interaction of the structure of domestic actor's preferences and the political institutions on international negotiation between the ideologically hostile countries. A key finding is that domestic politics in countries that do not share the common democratic governance made international economic cooperation more difficult between them in the post Cold-War era. This is the extension of Milner's (Milner, 1997) general pessimism on the effect of 'divided government' in democratic states on international cooperation. However, Milner's study only examines the domestic politics among democratic states. This study, instead, studies the domestic politics between two states which don't share the common democratic polity and tries to understand the effect of domestic politics within two regime types and its interaction on international cooperation/negotiation. An element important to my finding is the introduction of an intervening variable--- regime type. The existence of the consideration on regime type can alter the structure of domestic actor's preferences and the power sharing of domestic institutions; and as a result, the interaction of them may lead to more diverged policy preferences than those between/among the democracies and a different nature of domestic political institutions. 327 The Executive branch is neither a unitary actor insulated from the policy preferences of the legislators and the interest groups nor a pure reflection oflegislature and societal preferences. The executive branch forms a policy preference based on both the domestic political situation and its own national focus. This explains the Clinton Administration's policy preference change on China's GATT/WTO accession negotiation from its first term to its second term. In the eyes of executives in both Washington and Beijing, China's WTO accession negotiation is not simply a trade negotiation. It has implications beyond the economic term. Undoubtedly it is a political negotiation at the same time. The decision to grant China the WTO membership well represents the U.S. commitment to bring China into international institutions designed for promoting free market and free trade among the capitalist countries. Security extemality, relative gains, and technology transfers are all relevant to the Congressional resistance throughout the course of the negotiation and the executive's reluctance in his first term and hesitation in his second term. However, the root of the resistance is the political hostility to the authoritarian regime. The fundamental doubt on whether the U.S. should engage China or contain China has never been answered satisfactorily. This political hostility is deeply rooted in the U.S. politics. The enactment of 1974 trade law and its requirement of annual review of the socialist countries' MFN status, if granted, is the reflection of this political culture, which I term as 'friendly trade'. In this type of case, the attention of legislators also goes 328 well beyond the local focus and the responsibility to represent the districts they serve. A number of general principles the Congress holds determine the active involvement of the legislature to the trade negotiation with a non-democratic state. Specific to this case, the political culture rooted in the Congress include the legislature's concerns on containing communist regime, the human rights conditions in China and the support to Taiwan based on the 'Taiwan Relations Amendment'. This active involvement also changes the domestic power sharing structure with the executive between negotiating with countries that share the democratic governance and negotiating with ideologically hostile countries. Rather than simply playing the role of ratification, Congress exerted direct influence during the negotiating process by specifying which conditions must be met and even what strategies must be applied. The close involvement was legitimized and strengthened by its authority in the annual MFN renewal, which only applies to the socialist countries. Legislators did this not only through the activities in the Congress such as proposal makings and numerous hearings, but also through writing letters, sending fax and making phone calls to the President and the USTR office. This close involvement enabled the USTR Barshefsky at the final phase of the bilateral negotiation to tell the Chinese negotiators which specific concession Beijing had to make in order to satisfy which legislator and exactly how many votes Beijing still needed to win the passage of the PNTR status. 414 This may well have been the 414 Interviews in Beijing, December 2000 329 negotiation tactics used by Barshefsky, but its proven effectiveness was based on the understanding of Congressional activism by both parties. Shared democracies or alliances have been found to promote peace and cooperation among them, trade is one salient component of that. However, the bilateral trade between the U.S. and China increased markedly in the last two decades when the U.S. and China shared neither the same political entity nor alliances. How to explain this phenomenon and its implication? Why did private sectors decide to invest heavily in China? The existing literature shows evidence that the private sector is likely to be more confident in the continuity of business practices and the rule of law in another democracy than in an autocracy, where such capricious actors as expropriations may threaten their interests. 415 To answer these questions the evolution of the policy preferences of MNCs and exporters toward trading and investing China are noteworthy. As discussed in detail in Chapter 4 and 5, the MNCs and exporters generally held a passive attitude towards China's GATT membership application in the first half of 1990s because of its lack of confidence in China's 'market economy in transition' and the obvious problems of transparency, IPR protection and trade regime liberalization in the Chinese market. With the further development of China's economic reform and its steady economic 415 Mancur Olson," Dictatorship, Democracy and Development", American Political Science Review, 87 (3): 567-76, 1993 330 growth, American firms, like their European and Japanese competitors, began to penetrate into the Chinese market and seek their market share in a market that showed great potential. The more capital invested and the more joint ventures built by the U.S. firms have resulted in the drastic policy preference change of the MNCs and exporters. Those firms lobbied vigorously to grant China the PNTR status and the WTO membership in order to ensure their continuous and growing interests in China. It is well known that lobbying by the MNCs and exporters can shape the policy preferences of the Congress and the executive branch and therefore influence political actors' decisions on the international negotiation. 416 However, this case study on the trade negotiation between ideologically hostile economies shows that on the one hand, interest group lobbying plays a crucial role in affecting the policy preferences of the political actors. On the other hand, interest group lobbying has to be sufficiently strong in order to counterbalance the preexisting resistance toward cooperation with a non-democratic regime. Therefore, to specify the conditions necessary to achieve cooperation and reach agreement between ideologically hostile countries, the determination from the executive branch to cooperate and the extraordinary strong lobbying from the MNCs and exporters must be decisive within democratic states. 416 Charles E. Lindblom, Politics and Markets: The World's Political Economic Systems, (New York: Basic Books, 1977)~ Helen Milner, Resisting Protectionism: Global Industries and the Politics of International Trade, ( Princeton, N .J.: Princeton University Press, 1988) 331 6.2: The Terms of the Agreement Reached The U.S. and China reached their bilateral agreement on China's WTO accession in November 1999. The terms of the agreement refers to the distribution of the benefits. They indicate whether the gains from a mutually beneficial agreement are spread equally or unequally across the parties to the negotiations. There may be different criteria for evaluating the distribution of these gains. Particularly for the WTO accession negotiation, there does not exist a fixed formula to follow--- each country negotiated its own accession protocol bilaterally and multilaterally. To describe the terms of the agreement reached between the U.S. and China, I depend mainly on the evaluation made by the negotiators and government officials I interviewed and the comparison of China's accession protocol with that of other comparable economies. China not only made generous market access commitments which will immediately benefit American firms, but also agreed to a number of extra conditions to protect U.S. firms from the possible dumping of Chinese exports in the long run. President Clinton described it as an 'opportunity that comes along once in a generation' . 417 The U.S. Trade Representative Charlene Barshefsky said the bilateral U.S.-China trade agreement, which was rolled into China's accession package, "will open the world's 417 "Remarks by the President to the Business Council", February 24, 2000 (http://www.chinapntr.goc < September 21, 2000>) 332 largest nation to our goods, farm products and services in a way we have not seen in the modem era." 418 The scope and the depth of China's market access commitments compare favorably with those of other WTO members. China has committed to reduce its average statutory tariff on industrial products to 8.9 percent by 2005; for Argentina, Brazil, India, and Indonesia, four other large countries, the comparable figures are 30.9%, 27.0%, 32.4% and 36.9%, respectively. 419 And China agreed to bind all tariffs at the new low statutory rates as they are phased in. Very few countries have done this. India, for example, has bound only two-thirds of its tariff. And some industrialized economies that bind their tariffs have set the bound level well above their statutory or applied rates. Either approach provides the opportunity to legally raise tariff rates. 420 Similarly China's market access commitments on services also compare favorably with most WTO members. China has made commitments in all of the services covered by the WTO General Agreement on Trade in Services. According to WTO document, only 11 members out of 122 have made commitments in as many as eleven or twelve of the total of twelve different types of services. 421 In this sense, 418 Charlene Barshefsky, "China's WTO Accession: American Interests, Values and Strategy," Hearing before the House Committee on Ways and Means, 106 Congress 2 session, February 16, 2000 (http://www.fnsg.com) 419 General Agreement on Tariffs and Trade, The Results of the Uruguay Round of Multilateral Trade negotiations: Market Access for Goods and Services: Overview of the Results, app. Table 6 420 Nicholas Lardy, Integrating China into the Global Economy, (Washington, D.C.: Brookings Institute Press, 2002), pg. 79 421 WTO, "Summary of Specific Commitments", http://www.wto.org/wto/services/websum.htm[June 12, 2000]. 333 China's market access and other commitments are not only far more reaching than those that governed the accession of countries only a decade ago; they exceed those made by any member that has joined the WTO since 199 5. 422 Besides market access commitments, a number of rule-based issues are also included in a country's accession protocol and working party report. China has agreed to comply with almost all rules provisions with full compliance. However, in two important areas--- safeguards and antidumping--- China was pressed to accept discriminatory treatment, that is, it is subject to WTO-plus requirements which are inore onerous than those accepted by any other member of the WT0. 423 Under the terms of the transitional product-specific safeguard clause in China's protocol of accession to the WTO, a WTO member may impose a quota or other restrictive arrangement solely against goods originating in China, even when imports of the same product from other countries have increased. 424 The U.S. Trade Representative General Counsel refers to this as the "China-specific" feature of the transitional safeguard" 425 because it was solely designed for China. This unique and 'WTO- unfriendly' clause China has agreed to, according to the USTR Charlene Barshefsky, 422 Nicholas Lardy, Integrating China into the Global Economy, (Washington, D.C.: Brookings Institute Press, 2002), pg. I 0 423 Nicholas Lardy, Integrating China into the Global Economy, (Washington, D.C.: Brookings Institute Press, 2002), p.80 424 For the complete document on the protocol and working party report on China's accession, see http://www.wto.org. 425 "Statement by General Council Davidson to U.S.- China Security Review Commission," US. China Security Review Commission Hearings on Bilateral Trade Policies and Issues between the United States and China, august 2, 2001 www.uscc.gov/testav.htm [August 9,2001] 334 "exists for no other country in the world". 426 Besides this transitional product- specific safeguard, China also agreed to allow the United States and other WTO members to utilize, until December 31, 2008, a special textile safeguard, instead of ATC, which requires a phase-out of all trade restrictions by December 31, 2004. Antidumping is an issue many countries are concerned about, due to the export boom from China. China has agreed to allow the United States and other WTO members to use the nonmarket economy methodology in dumping cases for fifteen years from the time of its accession. China committed to eliminate agricultural export subsidies on entry--- a commitment neither the U.S. nor the EU made. Finally, China agreed to a transitional review mechanism in which it will be subject to an unprecedented annual review for the first eight years of membership. The official media in China called this bilateral agreement a 'win-win' agreement. 427 China undoubtedly will benefit greatly from its WTO membership, but only in the long run. First and foremost, after the U.S. Congress voted for China's PNTR status, China can forever forget the nightmare caused by the annual review of its MFN status. On the surface, the vote for PNTR and China's WTO accession negotiation were separate. Indeed, granting China permanent MFN was one of the toughest issues on the negotiation table throughout the course of the negotiation. Having MFN status from all WTO members is a fundamental principle of the GA TT /WTO. 426 Charlene Barshefsky, "Briefing to the National Conference of Editorial Writers at the U.S. Department of State," March 10, 2000 427 People's Daily, November 20, 1999 335 Therefore it became the leverage the Congress held in hand to influence the negotiation process. Without the endorsement from the Congress on enacting PNTR to China, Washington had to apply 'non-application' status with China if China is acceded. This is the result neither side wanted, after so many years' tough negotiation. Second, bringing into China free competition would be an effective way to continue its domestic economic reform, especially the reform on the state-owned enterprise. Some scholars argue that there must be a domestic reason behind every international agreement or in joining any international organizations. China is no exception. It has its own domestic reasons regarding its intention to join the WTO. Though gaining the WTO membership is in Beijing's interests, the terms of the agreement have been controversial. One negotiator frankly pointed out that "this negotiation is a complete failure. We know we could get a better deal than this. We made too many concessions then we should have and could have." 428 6.3: Timing of the Agreement Reached The timing of the agreement is not included in the commonly defined categories of negotiation outcome. It is applied to understand why the agreement was not reached earlier or later than it did. The issue of timing is particularly important to the negotiations between the mixed pairs. It refers to the moment when the gap between the two negotiating parties has been narrowed down to certain degree so that only a 428 Interview in Beijing, November 2000 336 final push is needed; the preferences of domestic actors have been coordinated sufficiently; and meanwhile the bilateral political relationship is stable. Only when these three conditions are all present can the final agreement be signed. The first condition was hard to meet because of the scope of issues covered by the WTO accession negotiation. Beijing was so eager to conclude negotiation by the end of 1994 that it underestimated the gap between Beijing's offer and Washington's demands. However, the latter two were not easy to satisfy either. The coordination of domestic actors' preferences took time. The executive has to take the initiative in this process because it is the one to 'negotiate'. The preference of the interest groups has to be strong enough to win some support from the Congress. In Congress, the proponents of reaching agreement must outnumber the opponents. During Premier Zhu Rongji's visit to the U.S. in April 1999, two parties failed to sign the agreement only because the coordination among domestic actors' preferences was not sufficient. The U.S. executive was not sure about the structure of preference within the Congress. If the first two conditions were hard to meet, then the third condition was rare and easy to miss. In retrospect, throughout the 15-year negotiation course (1986- 2001) there were not many periods that the bilateral political relationship was stable and free from the disruption by other bilaterally-sensitive issues. Too many unexpected incidents and expected difficulties (human rights, Taiwan, arms sale, espionage, election donation, etc.) took place and affected the pace and progress of the negotiation. Therefore, the timing the final bilateral agreement was signed was 337 tenuous. The timing of reaching agreement also needs to be explained by the domestic variables. 6.4: Conclusion Issue linkage is distinctive in the process of reaching international cooperation between the mixed dyad. Though issue linkages do not happen just because one party is a democratic state and the other is a non-democratic state, the fact that one is authoritarian enables the domestic actors in the democratic state to strengthen and legitimizes the linkage of issues more than otherwise. The current scholarship addressing this question analyzes two regime types separately, by emphasizing the difficulty that comes from the 'divided government' feature characteristic with democratic governance and therefore leading to the conclusion that agreement would be easier, in general, if at least one of the parties is not a democracy, where domestic divisions can be overlooked or overcome to a great extent. This direction is somewhat misleading, as it overlooks the factor of regime type adds more complication to the diverging domestic policy preferences within the democratic states than between the pair who shares the same democratic political entity. This difficulty can not be easily overcome by the flexibility enjoyed by the authoritarian state. The fundamental doubt of a democracy about the question "shall we cooperate/negotiate with a non-democratic regime" imposes an obstacle that would not exist between two democratic states. If the bilateral/multilateral 338 cooperation/negotiation between/among democratic states is about under what terms the cooperation/agreement is desirable, then within the mixed pair the fundamental question is if cooperation/negotiation is justifiable at all, under what extra political conditions/issue linkages the democratic state is willing to cooperate/ reach agreement with the non-democratic regime. This finding clarifies the Schelling conjuncture that internal divisions increase the external leverage of the executive internationally. 429 Internal divisions play a positive role to help make the terms of the agreement more favorably. However, as the other side of the coin, inflexibility can then hinder the effort to find the right timing to conclude the negotiation. This led to the lesser likelihood of reaching an agreement. This is especially the case when negotiating with an ideologically hostile state. In other words, domestic divisions within the democratic state make the agreement more difficult to reach but once it is reached, the terms of the agreement reached is in favor of the democratic states. This case study aims to describe the different structure of policy preferences and nature of domestic political institutions and the unique interaction between them in the democratic state when it negotiates with an ideologically-hostile state. This empirical study emphasizes the difficulty of cooperation resulting from the domestic politics and identifies the conditions under which reaching agreement is possible by 429 Thomas Schelling, The Strategy of Conflict. (Cambridge, Mass.: Harvard University Press, 1960); Robert Putnam, "Diplomacy and Domestic Politics." International Organization 42:427-60, 1988; Jongryn Mo, "Domestic Institutions and International Bargaining: The Role of Agent Veto in Two Level Games'', American Political Science Review, 89: 914-924, December 1995. 339 highlighting the role of executive determination and business groups lobbying. The unique dynamics of the domestic politics within the mixed pair has been generally neglected by the international cooperation/negotiation scholars and this study is an effort to fill that gap. Besides adding knowledge to the growing academic interests in the general effects of regime type/democratic governance on peace and general international cooperation, this study has policy implications. Of the 30 applicant countries at the end of 1998, approximately 20 can be characterized as transition countries from the centrally-planned economies, including ten CIS countries such as Kazakhstan, Ukraine, Russia, Cambodia, Albania, Lao PDR and Vietnam. 430 They are all at the various stages of negotiating WTO membership. The study of China's accession case will help gain more understanding of the effects of domestic politics on international negotiation and therefore shed some light on the current negotiations. 430 Rolf J. Langhammer and Matthias Lucke, "WTO Accession Issue", World Economy, August 1999, 22 (6): 837-873, p.838 340 Bibliography Abruzzese, Leo. 1997. "China, politics and WTO." Journal of Commerce, April 25, p.7A. Allison, Graham. 1971. The Essence of Decision: Explaining the Cuban Missile Crisis. Boston: Little Brown. APEC Secretariat. 1995. "The Osaka Action Agenda: Implementation of the Bogor Declaration" Selected APEC Documents 1995. Singapore. Arild Underdal, 2002. "The outcomes of Negotiation'', in Victor A. Kremenyuk ed., International Negotiation, Analysis, Approaches, Issues, 2nd ed. San Francisco: Jossey-Bass: p.110-126 Baldwin, Robert E. 1992. "Are Economists' Traditional Trade Policy View Still Valid?" Journal of Economic Literature 30 (June), p.804-29 Bangs berg, P.T. 1989. "China Risks Rebuff in GATT Bid." Journal of Commerce, December 8, p.lA Bansberg, P .T. 1993. "China Amends Proposal, Expects Accord on GA TT Entry." Journal of Commerce, July 27, p.3A Bangsberg, P.T. 1994. "China offers GATT Ultimatum on Joining." Journal of Commerce, July 13, p.5A Barnett, Doak. 1981. China's Economy in Global Perspective. Washington, D.C.: Brookings Institution. Barshefsky, Charlene. 1998. "Remarks of the Honorable Charlene Barshefsky U.S.T.R. Before the U.S.-China Business Council'', January 29, htpp://www.pressrelease.ustr.gov Barshefsky, Charlene. 1998. Testimony of Ambassador Charlene Barshefsky USTR on the Renewal of Normal Trade Relations with China, Senate Committee on Finance, July 9 Barshefsky, Charlene. 2000. "China's WTO Accession: American Interests, Values and Strategy'', Hearing before the House Committee on Ways and Means, 106 Congress, 2nd Session, February 16 Beck, Simon. 1997. "Beijing Offer Boosts Trade Bid; White House Enthusiastic as China Move Sweetens Negotiations for Entry to World Body." South China Morning Post, November 26, p.1 Behr, Peter.1994. "Major U.S. Companies Lobbying Clinton to Renew China's Trade Privileges." Washington Post, \1ay 6, p.19 Bernstein, Richard, and Ross H. Munro. 1997. The Coming Conflict with China. New York: Knopf Press Bernstein, Richard, and Ross Munro. 1997. '"The Coming Conflict with China', translated by Xinhua News Agency." Beijing: Xinhua Press Bliss, Harris, and Bruce Russett. 1998. "Democratic Trading Partners: The Liberal Connection, 1962-1989." The Journal of Politics 60 Issue 4, November, p.1126-1147 341 Bremer, Stuart. 1992. "Dangerous Dyads." Journal of Conflict Resolution 36 (2), p.309-41 Bremer, Stuart. 1993. "Democracy and Militarized Interstate Conflict, 1816-1965." International Interaction 18, p.231-249 Burgess, John. 1991. "Bush Administration Includes China in List of Trade-Restriction Offenders." Washington Post, March 30, p.14 Busch, L. Marc. 2000. "Democracy, Consultation and the Paneling of Disputes under GATT." Journal of Conflict Resolution 44 August, p.425-46 Chan, Vivien. 1995. "China to Resume Talks on WTO Entry." South China Morning Post, November 20, p.8 Chanda, Nayan, and Lincoln Kaye. 1993. "Circling Hawks." Far Eastern Economic Review, October 7, p.12-3 Chandler, Clay. 6 January 1994 "Bentsen to Push China on Economic Reform." Washington Post, DIO Clinton, Bill. 2000. "Remarks by the President to the Business Council", February 24, (http://www.chinapntr.gov< September 21, 2000>) Cohen, Jerome A. 1988. "Legal Framework for Investment" in Eugene K. Lawson, ed. U.S. China Trade: Problems and Prospects, New York: Praeger Publishers Cohen, Steven, and John Zysman. 1987. Manufacturing Matters. New York: Basic Books Deng Xiaoping, 1993. Deng Xiaoping Wenxuan- Di San Juan, (Compilation of Deng Xiaoping's Writings, Third Volume). Beijing: People's Publishers Deutsch, Morton. 1973. The Resolution of Conflict: Constructive and Destructive Processes. New Haven, CT: Yale University Press Destler, I. M. 1991. "U.S. Trade Policy-Making in the Eighties", in Alberto Alesina and Geoffrey Carliner, eds., Politics and Economics in the Eighties. Chicago: University of Chicago Press Destler, l.M. 1992. 2"d ed. American Trade politics, Washington, D.C., Institute for International Economics Destler, l.M. 1995. 3rd ed. American Trade Politics, Washington, D.C., Institute for International Economics Diamond, John. 1998. "Gingrich Urges Clinton to Postpone China Trip." Associated Press, May 18 Dixon, J. William. 1994. "Democracy and the Management oflnternational conflict." Journal of Conflict Resolution 3 7 ( 1) p.42-68 Doherty, Carroll J. 1997. "U.S. Agonizes over China Policy: Engagement or Confrontation." Congressional Quarterly, April 26, p.967 Dreyfuss, Robert. 1997. "The China lobby." The American Prospect 8(30), p.30-8 342 Druckman, Daniel. "Stages, Turning Points and Crises: Negotiating Military Base Rights, Spain and the United States", manuscript, 1985, quoted in William Mark Habeeb, Power and Tactics in International Negotiation: How Weak Nations Bargain with Strong Nations, (Baltimore: John Hopkins University Press, 1988) Du Houwen, ed., 1999. Yingdui WTO Tiaozhan: shimao zuzhi guize yu zhongguo zhanlue congshu( Meeting the challenge of WTO: the WTO rules and China's strategy), Beijing: Xinhua Press Dullforce, William. 1989. "Peking Rebuffed in Attempt to Join GATT." Financial Times, July 6, p.6 Dunne, Nancy. 1991. "Senators Press for Initiatives against Beijing." Financial Times, June 25, p.6 Dunne, Nancy. 1991. "Victory for Bush on China Policy: US Senate vote falls short of majority needed to override veto." Financial Times, July 24, p.4 Dunne, Nancy. 1996. "Christopher prepares for Sino-US summit." Financial Times, November 20, p.6 Eckstein, Harry. 1975. "Case Study and Theory in political Science", In Fred Greenstein and Editorial, 1989. 'As a part of China, Taiwan does not have the right to apply to join GA TT', People's Daily, October 20, p.1 Editorial, 1990. 'Taiwan is an Indispensable Part of China, GATT Should Refuse Taiwan's Illegal Application', People's Daily, January 12, p.1 Editorial, 1990. 'Chinese Government Requested GATT to Tum Down Taiwan's Illegal Application', People's Daily, January 17, p.4 Editorial, 1991. 'Talks on Taiwan Participation in GA TT', Beijing Review, September 16-22, p.3 7 Editorial. 1994. "Talks Boost China's Reentry into GATT." Beijing Review, March 7-13, p.4 Editorial. 1996. "Mending Relations with China." Washington Post, July 26, p.A26 Editorial, 1997. "American's Dose ofSinophobia." Economist, March 29: 29-30 Editorial, 1997. "How American See China." Economist, October 25, p.22 Esserman, Susan G. 1997. "Testimony of Susan G. Esserman before the Ways and Means Committee Subcommittee on Trade'', November 4, http://www.newsrelease.ustr.gov Farnsworth, Clyde. 1990. "Administration is Split on Taiwan's' Joining GATT', New York Times, November 8, p.1 Feng, Yu-shu. 1990. "One GA TT, Two Systems." Far Eastern Economic Review, March 8, p.48 Feng, Yu-shu. 1991. "China and GATT." Far Eastern Economic Review, December 19, p.65 Fewsmith, Joseph. 1999. "China and the WTO: the Politics behind the Agreement", South Korea, China and the Global Economy, NBR analysis, vol.10, no.5. Seattle, Washington: National Bureau of Asian Research, December 343 Fewsmith, Joseph. 2000. "The Politics of China's Accession to the WTO." Current History (September), p.268-73 "Financial Indicators: Cross-border Investment", Economist, 12 February 2000, p.105 Freedom House. 20 December 2000. "Freedom in the World: Annual Survey of Political Rights and Civil Liberties 2000-2001." < http://freedomhouse.org/research/freeworld/2001> Forney, Matt, and Nigel Holloway. 1997. "In two minds." Far Eastern Economic Review, June 19, p. 66 Gasiorowski, Mark. 1986. "Economic Interdependence and International Conflict: Some Cross National Evidence." International Studies Quarterly 30 (I): 23-38 General Agreement on Tariffs and Trade, The Results of the Uruguay Round of Multilateral Trade Negotiations: Market Access for Goods and Services: Overview of the Results, (http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrml_e.htm) Gescher, Jeanne-Marie Claydon. 1990. "GATT's problems with China." Far Eastern Economic Review, January 11, p.46 Goldstein, Judith. May 1986. "The Political Economy of Trade: The institutions of Protection." American Political Science Review 80, p. 161-84 Goldstein, Judith. Winter 1988. "Ideas, Institutions and American Trade Policy." International Organization. 42 (1 ), p.179-217 Gowa, Joanne, and Edward D. Mansfield. June 1993. "Power Politics and International Trade" American political Science Review 87 (2), p.408-420 Gowa, Joanne. 1989. "Bipolarity, Multipolarity, and Free Trade." American Political Science Review 83(4), p.1245-56 Gowa, Joanne. 1994. Allies, Adversaries, and International Trade. Princeton: Princeton University Press. Gowa, Joanne, and Edward D. Mansfield. 1993. "Power Politics and International Trade." American Political Science Review 87 (4), p.408-20 Gowa, Joanne. 1999. Ballots and Bullets: The Elusive Democratic Peace. Princeton, N.J.: Princeton University Press Greenhouse, Steven. 1992. "China Trade Pact with U.S. is Signed." New York Times, October 11, p.7 Greenstein, Fred and Nelson Polsby, ed., 1975. Handbook of Political Science, Reading, Mass.: Addison-Wesley Pub. Co. Grieco, M. Joseph. 1990. Cooperation among Nations: Europe, America, and Non-tariff Barriers to Trade. Ithaca, N.Y.: Cornell University Press Grossman, Gene, and Elhanan Helpman. 1995. "The Politics of Free Trade Agreement." American Economic Review 85 (September), p.667-90 344 Habeeb, William Mark, 1988. Power and Tactics in International Negotiations: How Weak Nations Bargain with Strong Nations, Maryland: John Hopkins University Press. Hadar, Leon. 1994. "US-China Ties: a Hardening of Attitudes." Business Times, September 29, p.13 Hadar, Leon. 1995. "Clinton's Confused and Chaotic China Policy." Business Times (Singapore), October 17, p.11 Hadar, Leon. 1995. "Clinton Firm on Delinking China Trade." Business Times (Singapore), December 19, p.11 Haggard, Stephan. 1988. "The Institutional Foundations of Hegemony." International Organization 42, p. 91-119 Hopmann, P. Terrence. 1996. The negotiation process and the resolution of international conflicts. Columbia, South Carolina: University of South Carolina Press Holley, David. 1993. "China World Trade Talks May Take Years, U.S. Says." Los Angeles Times, March 3, p.18 Huntington, Samuel P. 1993. "Why International Primacy Matters." International Security 17(4), p.68-83 Huntington, Samuel. 1995 'Political Conflicts after the Cold War', in Arthur Melzer ed., History and the Idea of Progress. Ithaca, New York: Cornell University Press Ian Johnson, 1999. "U.S. and Beijing Made Little Headway in Resumed Talks on China's WTO Bid," Wall Street Journal, May 3 lkle, Fred Charles, 1964. How Nations Negotiate, New York: Harper and Row Islam, Shada. 1995. "It's not That Easy." Far Eastern Economic Review, December 12, p.58 Jendrzejczyk, Mike. 1993. "No Waffling on China." Washington Post, February 16, p.A 13 Jervis, Robert. 1976. Perception and Misperception in International Politics. Princeton, N.J.: Princeton University Press Jiang Zemin, 1995. 'Jiakuai Gaige Kaifang he Xiandaihua Jianshe Bufa, Duoqu you Zhongguo Tece Shehui Zhuyi Shiye de Gengda Shengli' <12 October 1992> (quickening the pace of reform, openness and modernization and making more success on the construction of socialism with Chinese characteristics), Shisi Da yilai Zhongyao Wenxian Xuanbian (Compilation of Important documents since the 14 111 Party Congress I), Beijing: People Press, p.21 Jiang Zemin, 2000. 'Gaoju Deng Xiaoping Lilun Weida Qizhi, ba Jianshe you Zhongguo Tece Shehui Zhuyi Shi ye Quanmian Tuixiang 21th Shiji '(Raising the flag of Deng Xiaoping theory and build the socialism with Chinese characteristics in the 21th century, Speech made on September 12, 1997), in 'Shiwuda yilai Zhongyao Wenxian Xuanbian (the Compilation of important documents since the fifteenth People's Congress), Beijing: People's Press. Jonquieres, Guy De. 1995. "China fails to make WTO grade." Financial Times, October 23. p.4 Jonquieres Guy De, and Tony Walker. 1994. "Beijing optimistic over new talks on rejoining GATT." Financial Times, June 28, p.5 345 Jonquieres Guy De, and Frances Williams. 1994. "High-risk strategy in global game: Talks on China's Application to Rejoin GA TT are Nearing a Climax." Financial Times, December 19, p.17 Jonquieres, Guy De, and William Dawkins. 1995. "China plans reform to break trade stalemate: Beijing to cut tariffs and ease investment rules in attempt to join WTO." Financial Times, December 20, p.1 Jonquieres, Guy De, and Tony Walker. 1997. "New dawn in the east': Chinese membership of the WTO now looks closer." Financial Times, March3, p. 21 Jonquieres, Guy De. 1997. "Held back by other interests: Clinton is running into opposition from diverse sources over renewing China's trade relations." Financial Time, May 2, p.23 Jonquieres, Guy De, and James Harding. 1997. "Brittan in WTO deal with China." Financial Time, October 14, p.3 Jonquieres, Guy De, and James Kynge. 1998. "U.S. in push for China's WTO entry." Financial Time, May 22, p.7 Kaye, Lincoln. 1993. "Slow boat for China, Peking's application to join GA TT appears stalled." Far Eastern Economic Review (March 11), p.56-7. Keohane, Robert. 1984. After Hegemony. Princeton, N .J.: Princeton University Press. Keohane, Robert. and Joseph S. Nye. 1989. Power and Interdependence. 2nd ed. Glenview, Ill.: Scott, Foresman. Keohane, Robert. and Lisa Martin. 1995. "The Promise of Institutionalist Theory." International Security 20 (1): 39-51 Kiewiet, Roderick D and Matthew D. McCubbins. 1991. The Logic of Delegation: Congressional Parties and the Appropriations Process. Chicago: University of Chicago Press. Krasner, Stephen D. 1987. Asymmetries in Japanese-American Trade: the Case for Specific Reciprocity. Berkeley, Calif.: Institute for International Studies. Krasner, Stephen D. 1991. "Global Communications and National Power: Life on the Pareto Frontier." World Politics 43 (3), p.336-366 Krauthmmer, Charles.1995. "Why we must contain China." Times 146 (5), July 31, p.72 Kristof, Nicholas D. 1993. "The Rise of China." Foreign Affairs 72(5) November-December, p.59-73 Krugman, Paul. ed. 1986. Strategic Trade Policy and the New International Economics. Cambridge, Mass.: MIT Press Kohli, Sheel. 1994. "Beijing attacks US stance on GA TT entry." South China Morning Post, July 29, p.1 Kohli, Sheel. 1995. "Beijing slams Washington for snubbing trade plan." South China Morning Post, July 28, p.1 Kohli, Sheel. 1997. "Mainland wins support over breakthrough reform." South China Morning Post, March 7, p. 16 Kohli, Sheel. 1997. "Beijing seen giving way in WTO talks." South China Morning Post, May 22, p.12 346 Kohut, John. 1992. "China prepares for Clinton." South China Morning Post, October 25, p.11 Kynge, James. 1998. "Beijing in offer on services." Financial Times, February 18, p. 7 Kynge, James. 1998. "China seeks to capitalize on currency stance." Financial Times, March 10, p.6 Kynge, James and Guy de Jonquieres.1999. "China to make determined efforts for entry into WTO." Financial Times, February 15, p.3 Kwan, Weng Kin. 1996. "US 'Trying to Help Solve China's WTO Problem'." The Strait Times, October 26, p.2 Lake, David. 1988. Power, Protection and Free Trade: International Sources of U.S. Commercial Strategy, 1887-1939. Ithaca, N.Y.: Cornell University Press Lall, Arthur. 1966. Modern International Negotiations: Principles and Practice. New York: Columbia University Press Lam, Willy Wo-lap. 1997. "Open door may be closed." South China Morning Post, November 26, p.19 Langhammer Rolf J. and Matthias Lucke. 1999. "WTO Accession Issue." World Economy 22(6), p.837-873 Lardy, Nicholas. 1994. China in the World Economy, Washington, D.C.: Institute for International Economics. Lardy, Nicholas. 2002. Integrating China into the Global Economy. Washington, D.C.: Brookings Institute Press Lavin, Franklin. 1994. "Negotiating with the Chinese or How not to Kowtow." Foreign Affairs 73(4) Leeds, Brett Ashley. October 1999. "Domestic political Institutions, Credible Commitments, and International Cooperation." American Journal of Political Science 43 ( 4), p. 979-1002 Leeds, Brett Ashley, and David R. Davis. January 1999. "Beneath the Surface: Regime Type and International Interaction, 1953-1978." Journal of Peace Research 36(1), p.5-21 Li, Zhongzhou. 1996. "The Difficulties and Prospects of China's Entry into WTO' (Zhongguo Jiaru Shimao Zuzhi de Nanti yu Qianjing), International Trade (Guoji Maoyi) 11, p.4-5 Liberman, Peter. Summer 1996. "Trading with the Enemy: Security and Relative Economic Gains." International Security 21 (1), p.147-175 Lindblom, Charles E. 1977. Politics and Markets: The World's Political Economic Systems, New York: Basic Books. Lippman, Thomas W. 1993. "U.S. Gives China Renewal of Favored Status in Trade." Washington Post, May 29, p.21 Liu, Guangxi. 1995. "The New Operational System of the Multilateral Trade Regime (Duobian Maoyi Tizhi Yunxing de Xinjizhi)". Foreign Trade Studies (Duiwuai Maoyi Yanjiu), January 24, 4 (659), p.1-9 347 Liu Guangxi, 1995. 'Zhongguo Fuguan Shizhixing Tanpan Toushi ji Xiayibu Gongzuo Jianyi' (The examination of China's GATT accession negotiation and the working plan for the next stage), Duiwai Jingmao Yanjiu . (Foreign Trade Research), combined 13 and 14 (668 and 669), p.6 Liu Guangxi, 1998. Zhongguo yu Jingji Lianheguo (China and Economic UN), Beijing: Zhongguo Jingji Maoyi Chubanshe (China Foreign Trade and Economics Press). Liu Guangxi, 1998. 'Yu yu Xiongzhang: Jianxi Woguo Jiaru Jingji Lianheguo Jiutuo Bujue de Daijia' (Analysis on the price China has to pay for the delay of its WTO negotiation), Guoji Maoyi (Journal of International Trade), no. 1 Lohmann, Susanne and Sharyn O'Halloran. 1994. "Divided Government and US Trade Policy." International Organization 48, p.595-632. Long, William J. 1996. "Trade and Technology Incentives and Bilateral Cooperation." International Studies Quarterly 40( 1 ), March, p. 77-106 Long Yongtu, 1992. 'Guanyu Guanmao Zong Xieding' (Issues Regarding to GATT), Zhongyang Dangxiao Baogao Xuan (Selective Speeches in the Central Party School), p. l 0-19 Long Yongtu, 1993. "Woguo Fuguan Tanpan de Zuixin Qingkuang he Qiantu Zhanwang" (The new development and prospect of China's GATT negotiation: Speech of Long Yongtu at Central Party School on 5 October 1993), Zhongyang Dangxiao Baogao Xuan (Selective Speeches of the Central Party School) Long Yongtu, 1998. "Speech by Vice Minister Long Yongtu at the Seventh Session of the Working Party Meeting on China's Accession to the WTO on April 8, 1998" http://www.china-un.ch/eng/13766.html Long Yongtu. 1998. "Regarding to the issue of China's Accession Negotiation (Guanyu Jiaru Shijie Maoyi Zuzhi de Wenti): Speech on April 17, 1998", Zhongyang Dangxiao Baogao Xuan (Selective Speeches in the Central Party School) Lu, Ning. 1995. "Beijing's long march to join trade group." Business Times (Singapore), September 5, p.15 Lu, Ning. 1995. "US-Beijing WTO deal unlikely on Jiang's trip." Business Times (Singapore), November 16, p.8 Lu, Ning. 1996. "Clinton's victory may help Sino-US relations." Business Times (Singapore), November 7, p.8 Maggs, John. 1991. "Hills studies plan linking China MFN to membership in GATT for Taiwan." Journal of Commerce, June 17, p.3 Maggs. John. 1992. "US, China expected to settle trade disputes." Journal of Commerce, January 17, p. lA Maggs. John. 1995. "GOP Lawmakers Says U.S. Treads Old Ground in China Pact." Journal of Commerce, March 16, p.5A Maggs, John, and John Zarocostas. 1995. "China Presents Another Piece to WTO Puzzle." Journal of Commerce, April 21, p.3A Maggs, John. 1995. "Dole Looks for Political Safe Haven on China; Senator Expected to Call for Delay ofWTO Entry." Journal of Commerce, December 12, p. lA 348 Maggs, John. 1996. "New Bill Would Expand Congress' WTO Role." Journal of Commerce, September 13, p.5A Maggs, John. 1996. "Congress cautions Clinton on China minimal conditions for WTO entry sought." Journal of Commerce, November 21, p.1 A Maggs, John. 1997. "House Votes to Retain China's MFN Status; Opponents Turning Attention to Asian Giant's WTO Entry Bid." Journal of Commerce, June 25, p.1 A Mann, James, and Doyle McManus. 1996. "Officials Say U.S. Taking Softer Approach to China." Los Angeles Times, July 18, p.18 Mann, James. 1998. "GOP Shifts Curbs Clinton's Goals for China Trip." Los Angeles Times, June 8 Mann, James. 1999. About Face: A history of America's curious relationship with China, from Nixon to Clinton. New York: Alfred A. Knopf. Mansfield, Edward D. and Helen Milner. 1997. The Political Economy of Regionalism. New York: Columbia University Press Mansfield, Edward D., and Rachel Bronson. 1997. "Alliances, Preferential Trading Arrangements and International Trade patterns." American Political Science Review 91 (1) p.94-107 Mansfield, Edward D., Helen Milner and 8. Peter Rosendorff. 2000. "Free to Trade: Democracies, Autocracies, and International Trade." American Political Science Review 94 (2) p.305-321. Maoz, Zeev, and Bruce Russet. 1992. "Alliances, Contiguity, Wealth, and Political Stability: Is the Lack of conflict among Democracies a Statistical Artifact?" International Interactions 17(3), p.245-67 Maoz, Zeev, and Bruce Russett. 1993. "Normative and Structural causes of Democratic Peace, 1946-86." American Political Science Review 87 (3), p.624-38 Margaret M.Pearson, 2001. 'The Case of China's Accession to GA TT/WTO', in David M. Lampton, ed., The Making of Chinese foreign and Security Policy in the Era of Reform, 1978-2000, Stanford: Stanford University Press, p.337-370 Martin, Jurek. 1995. "U.S. Decision 'Barbarous': China Angry at Threat of Trade Sanctions over Copyrights." Financial Times, January 2, p.3 Mastanduno, Michael. 1991. "Do Relative Gains Matter? America's Response to Japanese Industrial Policy." International Security 16 ( 1 ): 73-113 Mastanduno, Michael. 1992. Economic Containment: CoCom and the Politics of East-West Trade. Ithaca, N.Y.: Cornell University Press Mastel, Greg. 1996. "Beijing at Bay." Foreign Policy, 104 (Fall). Matthews, Mark. 1994. "U.S. Backing Down on Trade with China." The Baltimore Sun, May 24, p.lA McCubbins, Mathew D., and Thomas Schwartz. 1984. "Congressional Oversight Overlooked: Police Patrols versus Fire Alarms." American Journal of Political Science 28, p.165-179 Mesquita, Bruce Bueno ed., 1981. The War Trap. New Haven: Yale University Press 349 Mearsheirner, John J. Summer 1990. "The Future: Instability in Europe after the Cold War." International Security 15 4: p.5-56, p.47-8 Milner, Helen. 1988. Resisting Protectionism: Global Industries and the Politics of International Trade, Princeton, N.J.: Princeton University Press. Milner, V. Helen. 1993. "Maintaining International Commitments in Trade Policy", in R.Kent Weaver and Bert A. Rockman, ed., Do Institutions matter?: Government Capabilities in the United States and abroad. Washington, D.C.: The Brookings Institutions. Milner, Helen. 1997. Interests, Institutions and Information: Domestic Politics and International Relations. Princeton, N.J.: Princeton University Press Milner, Helen and B. Peter Rosendorff. 1997. "Democratic Politics and International Trade Negotiations: Elections and Divided Government as Constraints on Trade Liberalization." Journal of Conflict Resolution 41 (1 ), p. 117-146 Mo, Jongryn. September 1994. "The Logic of Two-Level Garnes with Endogenous Domestic Coalitions." Journal of Conflict Resolution 38 Issue 3, p.402-422 Mo, Jongryn.1995. "Domestic Institutions and International Bargaining: The Role of Agent Veto in Two-Level Garnes", American Political Science Review, 89: 914-924. Montgomery, James M. 1996. "China's Entry to the WTO and the Jackson-Yanik Amendment." Journal of northeast Asian studies XV (3), p.59-69. Morgan, T. Clifton, and Sally Howard Campbell. 1991. "Domestic Structure, Decisional Constraints, and War: So Why Kant Democracies Fight?" Journal of Conflict Resolution 35 (2), p.187-211 Morgan, T. Clifton, and Valerie L. Schwebach. 1992. "Take Two Democracies and Call me in the Morning: A Prescription for Peace?" International Interaction 17 (4): 305-320 Morici, Peter.1997. "Barring Entry? China and the WTO." Current History, September, p.374-7 Morrow, James D., Randolph M. Siverson and Tressa Tabares. 1998. "The Political Determinants of International Trade: The Major Powers, 1907-1990." American Political Science Review 92 (3), pp.649-61 Murphy, Sean D. 2000. "Contemporary Practice of the United States Relating to International Law." American Journal of International Law 94, p.348-381. News Briefing by Chinese Foreign Ministry, 1995. Beijing Review, January 2-8, p.14 Ngoo, Irene. 1995. "China won't restart talks to join WTO." The Strait Times, January 30, p.8 Niou, Emerson M.S., and Peter C. Ordeshook. 1994. "Less Filling, Tastes Great: The Realist Neoliberal Debate." World Politics 46 (2), p.209-234 Nollen, Stanley D. and Dennis P. Quinn. 1994. "Free Trade, Fair Trade, Strategic Trade, and Protectionism in the U.S. Congress, 1987-88." International Organization 48 (3), p.491- 525 O'Clery, Conor. 2000. "China Poised for Membership of WTO, China and the EU Finally Bridge Gap on Contentious Trade Issues." Irish Times, May 20, p.18 350 Odell, John. 1982. International Monetary Policy: Markets, Power and Ideas as Sources of Change. Princeton, N.J.: Princeton University Press. Odell, John. September 1985. "The Outcome of International Trade Conflicts: The U.S. and South Korea, 1960-1981." International studies Quarterly 29: 263-86 Odell, John. 2000. Negotiating the World Economy: Trade, Finance and the United States. Ithaca: Cornell University. O' Halloran, Sharyn. 1994. Politics, Process and American Trade Policy. Ann Arbor: University of Michigan Press Olson, Mancur. 1993. "Dictatorship, Democracy and Development." American Political Science Review 87(3), p.567-76 Oneal, R. John, and Bruce Russett. June 1997. "The Classical Liberals Were Right: Democracy, Interdependence, and Conflict, 1950-85." International Studies Quarterly 41(2), p.267-93 Pastor, Robert. 1980. Congress and the Politics of U.S. Foreign Economic Policy, 1926-1976 Berkeley: University of California Press. Peng, Foo Choy. 1996. "U.S. holds to line on WTO; Applause for Beijing as Christopher offers intensive talks." South China Morning Post, November 22, p.4 Pine, Art and Jim Mann. 1990. "US may back Taiwan bid to join world trade body', Los Angeles Times, February 27, p.6 Pine, Art and Jim Mann. 1990. "China blocks Taiwan's request to join GATT." Los Angeles Times, March 26, p. 2 Pollins, Brian M. June 1989. "Does Trade Still Follow the Flag?" American Political Science Review 83 2, p.465-80 Pollins, Brain M. August 1989. "Conflict, Cooperation, and Commerce: The Effects of International Political Interactions on Bilateral Trade Flows." American Journal of Political science 33 (3), p.737-61 Powell, Robert. 1991. "Absolute and Relative Gains in International Relations Theory." American Political Science Review 85 ( 4), p.1305-22 Powell, Robert. 1994. "Anarchy in International Relations Theory: The Neorealist-Neoliberal Debate." International Organization 48 (2), p.334-343 Putnam, Robert. 1988. "Diplomacy and Domestic Politics." International Organization 42, p.427- 60 Raiffa, Howard. 1982. The Arts and Science of Negotiation. Cambridge, Mass.: Harvard University Press. Reinhardt, Eric. 1999. "Aggressive Multilateralism: The Determinants of GATT/WTO Dispute Initiation, 1948-1998." Delivered at the 1999 Annual Meeting of the International Studies Association, Washington, D.C., February p. 17-20 Ren Quan (ffJR), 1997. ZhongguoJjiaru Shimao Zuzhi Zhishi Wenda (Questions and answers regarding to China's entry into WTO), Beijing: Modem World Press. Reuter. 1994. "China May Enter GATT This Year." Financial Times, March 3, p.4 351 Richardson, J. David. 1990. "The Political Economy of Strategic Trade Policy." International Organization 44, p. l 07-35. Roberts, Williams.1997. "Farm Interests Question China's Entry into WTO." Journal of Commerce, January 16. Rodrik, Dani. 1995. "The Political Economy of Trade policy", In Gene M. Grossman and Kenneth Rogoff, ed., Handbook of International Economics, Amsterdam: Elsevier Science BY, Vol. III, p.1457-94 Rosenbaum, David E. 1997. "One Phase of Fund-Raising Hearings Ends, with a Shortage of Evidence." New York Times, September 7, p.28 Ross, Robert. 1996. "Enter the Dragon." Foreign Policy, Fall, p.18 Rubin, Alissa J. 1997. "United States Takes Strong Interest in China's Bid to Join Trade Group." Congressional Quarterly, April 26. Rubin, J.Z., and B. Brown. 1975. The Social Psychology of Bargaining and Negotiation. New York: Academic Press Rubin, Z. Jeffrey, and Bert R. Brown. 1975. The Social Psychology of Bargaining and Negotiation. New York: Academic Press Rummel , R.J. 1979. Understanding Conflict and War. Vol.4. War, Power, Peace. Beverley Hills, California: Sage Russett, Bruce. 1993. Grasping the democratic Peace: Principles for a Post-Cold War World. Princeton: Princeton University Press Russett, Bruce, John Oneal, and David Davis. 1998. "The Third Leg of the Kantian Tripod for Peace: International Organizations and Militarized Disputes, 1950-1985." International Organization 52 (3), p.441-67 Sanger, David E. 1996. "U.S. to Spur Beijing and Trade Group Entry." New York Times, November 13, p.2 Schaefer, David. 13 July 1990. "Panel Sets Conditions for China Trade." Seattle Times, p.D4 Schattschneider, E.E. 1935. Politics, Pressure and the Tariff: A Study of Free Private Enterprise in Pressure Politics, as Shown in the 1929-1930 Revision of the Tariff New York: Prentice-Hall, Inc. Schelling, Thomas. 1960. The Strategy of Conflict. Cambridge, Ma&s.: Harvard University Press. Schlesinger, Arthur M. 1973. The Imperial Presidency. Boston: Houghton Miffin Snyder, Glen, and Paul Diesing. 1977. Conflict among Nations. Princeton, N.J .: Princeton University Press. Sciolino, Elaine. 1995. "Angered over Taiwan, China recalls its Ambassador in U.S." New York Times: June 17, p.5 Selected Important Party and Government Documents since the Third Plenary Session of the Eleventh Central Committee ofCCP, 1978-1992. 1998. (Shi Yi Jie San Zhong Quan Hui Yi Lai Dang He Guo Jia Zhong Ya Wen Xian Xuan Bian), Beijing: Central Party School Press 352 Shafer, Raymond, and David Lampton. 1990 "Rebuild China-U.S. Relations." Christian Science Monitor, April 18, p.18 Simmons, Beth. 2000. "International Law and State Behavior: Commitment and Compliance in International Monetary Affairs." American Political Science Review 94, p.819-835 Snidal, Duncan. 1991. "International Cooperation Among Relative Gains Maximizers. " International Studies Quarterly 35 (4), p.387-402 Synder, Glen H. and Paul Diesing, 1977. Conflicts among Nations. Princeton: Princeton University Press. Slaughter, Anne-Marie. 1995. "International Law and International Relations Theory: A Dual Agenda." European Journal of International Law 12 (2), p.205-39 Stokes, Bruce. 1994. "Playing Favorites." National Journal, March 26. Stokes, Bruce. 2000 'The China WTO Dilemma', Berkeley Round Table on International political Economy working paper at http://ist-socrates.berkeley.edu/~briewww /forum/berke ley2/stokes.htm I Studwell, Joe. 1996. "EU, US Split on China's WTO Bid, EU Negotiator Presses for Entry at Talks." Journal of Commerce, November 18, p. lA Sun, Leon. 1990. "Stance of Chinese Government Disappoints Bush Administration." Washington Post, May 7, p. A30 Tan, Tarn How. 1995. "US Using 'Tricks' to Delay WTO Entry." The Strait Times (Singapore), November 12, p.2 The White House, Office of the Press Secretary, 1999. "Joint Press Conference of the President and Premier Zhu Rongji of the People's Republic of China", April 8 Thompson, Fred. 1996. "Opening Statement of Fred Thompson at Hearing of Senate Governmental Affairs Committee", July 8 Tyler, Patrick. 1994. "Rights in China Improve, Envoy Says." New York Times, January 1, p.5 Tyler, Patrick E. 1995. "New Dispute Imperils Trade with Chinese" New York Times, March 12, p.21 Tyler, Patrick E. 1995. "US, China Will End Trade Rift." New York Times, March 13, p.1 U.S.-China Business Council. September 1998. "Understanding the US-China Balance of Trade", http://www.uschina.org/public/wto/balancing uschina trade.html Verdier, Daniel. 1998. "Democratic Convergence and Free Trade." International Studies Quarterly 42( 1 ), p.1-24 Victor, G. David, Kai Raustiala and Eugene Skolinikoff. 1998. The Implementation and Effectiveness of International Environmental Commitments: Theory and Practice. Cambridge, MA: MIT Press. Walker, Tony. 1993. "U.S. in no Hurry over China Talks." Journal name missing: March 3, p. 6 Walker, Tony, and Andrew Gowers. 1994. "China Looks beyond MFN Horizon-Beijing Sets Sights on GATT Concessions." Financial Times, May 6, p. 7 353 Walker, Tony. 1994. "GATT Chief Warns over China's Status with U.S." Financial Times, May 12, p.6 Walker, Tony. 1994. "Speed up China Talks says Brittan." Financial Times, November 8, p.7 Walker, Tony. 1995. "A Maturing Marks Copyright Deal." Financial Times, February 28, p.8 Walker, Tony. 1995. "Beijing Denies Kantor Claim on WTO Talks." Financial Times, March 17, p.5 Walker, Tony. 1995 . "China Inks Improvements in Sino-U.S. Relations with WTO bid." Financial Times, June 26, p.3 Wang Yi, 1995. 'Wulagui Huihe Fangzhiping Fuzhuan Xieyi dui Woguo Fangzhiping Maoyi de Zhongda Yingxiang' (The important influence of ATC over Chinese textile exports), Duiwai Jingmao Yanjiu, (Foreign Trade Research: p.1-7), no.7and 8 (total 662 and 663) Wang Yong. 1999. "Why China Went for WTO." The China Business Review (July-August), p.43 Weingast Barry R. and Mark Moran. October 1983. "Bureaucratic Discretion or Congressional Control: Regulatory Policymaking by the Federal Trade Commission." Journal of Political Economy 91, p.765-800 Williams, Francis. 1992. "China and Taiwan Membership Drive Tests GATT Loyalties." Financial Times, February 17, p.4 Williams, Francis. 1992. "Taiwan, China Could Join GATT on Same Day." Financial Times, March 25, p.5 Williams, Frances. 1994. "China-GA TT Talks to Resume Today', Financial Times, March 15, p.6 Williams, Frances. 1994. "'Unacceptable' Terms for Entering GATT Anger China." Financial Times, July 29, p.5 Weissman, Robert. 1997. "The China Lobby's Campaign for Two-Way Trade with China." Multinational Monitor 18(6), p.17-24 Wolf, Martin and Reuter. 1994. "China Vows to Defy U.S. on GATT Entry Terms." Financial Times, October 6, p.4 Wong, John. 1995. "China Still out ofWTO." Business Times (Singapore), September 30, p.10 World Bank. 1999. China: Weathering the Storm and Learning the Lessons. Washington, D.C.: World Bank. Wriggins, Howard. 1976. "Up for Auction: Malta Bargains with Great Britain" in The 50% Solution, ed. I. William Zartman, (Garden City, N.Y.: Anchor Press, 1976):208-34. WTO, "Summary of Specific Commitments" http://www.wto.org/wto/services/websum.htm[June 12,2000]. Wu Jiahuang( *~U.fil). 1992. "Guanmao Zongxieding yu Zhongguo de Guanshui Tizhi" (GATT and China's tariff system), in Huacan ed. Jiyu, Tiaozhan, Duice (Challenge, change and Policy). Beijing: China Encyclopedia Press, p.56-62 Yang, Jufang. 2001. "Fifteen Years to Knock at the Door of WTO--- Interviewing Four Chinese Chief Negotiators." Beijing Youth Daily, November 10, p.1 354 Yao Sufeng( tzj~!JJ~~). 1997. 'Xunxu Jianjin de Fangquan: Zhongguo Jiaru Shimao Zuzhi yu Waimao Jingying Quan' (opening up trading rights gradually: China's entry into WTO and foreign trading right), Guoji Maoyi, (International Trade), 11 (3) p.11-13 Yi Xiaozhun(Deputy Director of Department of International Trade and Cooperation, MOFTEC), 1988 'Shinian Mojian: Ruhe Kandai Woguo Jiaru Shimao Zuzhi Wenti' (Ten years' efforts: How to Analyze the Issue of China's WTO Accession), Guoji Maoyi, (Journal of International Trade), no. t. Yin, Gang. 1994. Money, Banking, and Financial Markets in China. Boulder, Colorado: W estview Press Yin, K. Robert. 2003. Case Study Research: Design and Methods. Thousand Oaks, California: Sage Publications Zarocostas, John. Time missing. "U.S. Eases Key Conditions of China's WTO entry." Journal of Commerce, p. 1 A Zarocostas, John. 1992. "Beijing Stalling Impeded Taiwan Bid to Join GA TT', Journal of Commerce, April 24, p.3A Zarocostas, John. 1993. "No Movement Seen in Negotiations over China's Bid to Rejoin GATT." Journal of Commerce, March 16, p. 3A Zarocostas, John. t 994. "China Sweetens Market Offers in its Quest to Join." Journal of Commerce, September 26, p. lA Zarocostas, John. 1997. "China's Tardiness Stalls Talks on Admission into the WTO." Journal of Commerce, October 6, 3A Zarocostas, John. 1998. "China Offers Few Concessions in its Quest for WTO Membership; Talks with Japan and the U.S. Start Today." Journal of Commerce, April 6, p.6A Zartman, William. 1971. The Politics of Trade Negotiations between Africa and the European Economic Community. Princeton, Princeton University Press Zartman, William. 1976. The 50% solution. Garden City, N.Y.: Doubleday Zartman, I.William, and Maureen Berman. 1982. The Practical Negotiator. New Haven: Yale University Press Zartman, William, and Jeffrey z. Rubin ed. 2000. Power and Negotiation. Ann Arbor, University of Michigan Press Zweig, David. 1999. "Undemocratic Capitalism: China and the Limits of Economism." The National Interest, no. 56, Summer, p.63-72. Zong, Hairen, "Zhu Rongji in 1999" Chinese Law and Government, January- February 2002 355

Asset Metadata

Creator Liang, Wei (author)

Core Title Regime type and international negotiation: a case study of US/China bilateral negotiations for China's accession to GATT/WTO

Contributor Digitized by the USC Digital Imaging Lab (provenance)

Degree Doctor of Philosophy

Degree Program International Relations

Publication Date 08/01/2015

Defense Date 12/01/2003

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Commerce-Business,OAI-PMH Harvest,political science, international law and relations

Format application/pdf (imt)

Language English

Advisor Odell, John S. (committee chair), Aronson, Jonathan (committee member), Rosen, Stanley (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c3-629914

Unique identifier UC11306716

Identifier etd-Liang-200312.pdf (filename),usctheses-c3-629914 (legacy record id)

Legacy Identifier etd-Liang-200312.pdf

Dmrecord 629914

Document Type Dissertation

Format application/pdf (imt)

Rights Liang, Wei

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the a...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus MC 2810, 3434 South Grand Avenue, 2nd Floor, Los Angeles, California 90089-2810, USA

Abstract (if available)

Abstract Despite the widespread interest in the effects of domestic political institutions on the international behaviors of the state, however, remarkably few studies have expanded that interest into the study of international economic cooperation between two regime types in the post Cold-War era. The unique function and interaction of domestic institutions and the coordination of policy preferences of domestic actors by a mixed dyad is the central focus of this case study. Negotiation process is examined through the lens of domestic interplay within two regime types and the interaction between them. The particular empirical puzzle, however, is why China's GA TT /WTO accession negotiation took as long as it did and how the negotiation outcomes could be explained as the consequence of the negotiation process. My central claim is that in international economic negotiations it is more difficult for a democratic country and a non-democratic country (mixed pair) to reach an agreement than do two democratic countries, and in order for the agreement to be reached, the preferences of the executive and business group must converge and the lobbying effort of the interest groups must be stronger in this situation than that required by negotiation on the same matter between two democracies to counterbalance the legislative resistance derived from ideological concerns. The higher degree of difficulty is not only caused by the different domestic institutional features (polyarchy in the democratic state and hierarchy in the non-democratic state) but also by the inescapable resistance of domestic political actors (executive and Congress) derived from the ideological concern. Consequently, political/security/ideologically considerations inevitably will interweave with commercial consideration in international trade negotiations between a mixed pair. This dissertation will be a good addition to the current research interests in 'Democratic Difference'. It should contribute to a broader understanding of the political economy of trade policy. It should also shed some light on the studies of the integration of transition economies into multilateralism.