crossing the river by feeling the stones: why trade rules matter for poverty in china: keynote...

8/7/2019 Crossing The River By Feeling The Stones: Why trade rules matter for poverty in China: Keynote address for confe

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Crossing the river by feeling the stones: why

trade rules matter for poverty in China.

Kevin Watkins, Oxfam

Keynote address for conference on Harmonious trade and development, TsinghuaUniversity, Beijing, October 23-25, 2003.


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Crossing the river by feeling the stones: why

trade rules matter for poverty in China.

Let me start by thanking the organisers for granting Oxfam the privilege of deliveringthe keynote address for this important conference. As a non-government organisation,we may have a different perspective on some aspects of trade and the WTO from theChinese government. But we share many common concerns, including a concern toensure that the Doha 'development round' delivers something more than rhetoric. Andwe welcome the opportunity to deepen our dialogue with Chinese policy makers andthe wider research community.

Background

Membership of the World Trade Organisation (WTO) poses formidable newchallenges for China. How these challenges are addressed will have a profoundbearing on prospects for success in the two most pressing areas of public policy:poverty eradication and the reduction of inequality. But accession to the WTO alsoprovides China with new opportunities. These include not just the opportunity toadvance Chinas development prospects, but also the opportunity to play a larger rolein the world economy. WTO membership and Chinas political and economicstanding give the country a critical role to play in shaping the rules that govern worldtrade.

This has important implications for the future of the Doha development round.

China is now a major player in these negotiations. At Cancun, China worked closelywith Brazil, India, South Africa, and others in the Group of 20 (G20) to challenge thedominance of the WTOs traditionally dominant tribal chiefs the Group of 2,comprising the EU and US. And the G20, working with African governments,prevented what would have been a disastrous agreement based on US-EU demands.

There are many lessons to be learnt from Cancun. Perhaps the most important is thatdeveloping country alliances hold the key to reforming unfair trade rules. Maintainingthese alliances will be difficult. Led by the US, northern governments are alreadyapplying punitive measures against countries deemed to have 'caused trouble,' Chinaincluded. Differences between developing countries create another potential fault line.

The differences are well known. Least developed countries fear that liberalisation inindustrial countries will erode their preferential entry to markets. Agriculturalimporters are concerned to maintain the right to restrict food imports on the groundsof food security, while traditional exporters seek an unrestricted right to export.Special and differential treatment is another potential source of tension.

The list of divisions could be extended to a depressing length. And industrial countrynegotiators steeped in the colonial history are past masters of divide and rule. Witnessthe EU's attempt to defend the Common Agricultural Policy (CAP) by appealing toAfrican interests! But what Cancun demonstrated was a political maturity and resolve

on the part of a key group of developing countries willing to subordinate narrow self-


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interest to pursue shared goals. Preventing the fragmentation of these coalitions forchange is a precondition for successful advancement of the Doha round.

Another positive development that separates Cancun from Seattle was the relationshipbetween developing country governments and NGOs. Along with other NGOs,

Oxfam has worked closely with a number of developing country governments toaddress shared concerns in areas such as intellectual property, agriculture and marketaccess. The alignment of dynamic coalitions within the WTO with dynamiccampaigning and advocacy organisations outside has helped to shift the balance ofpower at the negotiating table.

It goes without saying that coalition building does not mean downplaying nationalinterests. As China comes to terms with WTO membership major public policy issuesare emerging. Some commentators liken Chinese membership of the WTO to a pair ofgolden handcuffs. The intention is to emphasise the benign effects of closing downpolicy choice in favour of rapid liberalisation. In my view the analogy is flawed on

two grounds. First, there is considerable scope for flexibility and policy choice builtinto WTO rules. Second, how benign membership becomes will depend partly ondevelopments beyond the WTO. This includes the extent to which Chinas tradepartners seek to use the WTO as a lever to secure reforms in other areas, such asfinancial market liberalisation.

This keynote address is on the theme of rules in world trade. Northern governmentsoften respond to our criticisms of the WTO by issuing stern warnings about theconsequences of a collapse of the rules-based system governing world trade. Thealternative, they remind us, is a law of the jungle under which the weakest will suffer.They are right up to a point. Poor countries and poor people need a functioning,rules-based multilateral system if they are to share in the benefits of globalintegration. What they do not need are rules dictated by the rich and powerful. Toextend the law of the jungle analogy, if you are a Thomsons gazelle you do notwant representatives of the lions dictating the rules of hunting.

All too often this is an apt analogy for what happens behind the faade ofmultilateralism provided by the WTO. In many areas of vital concern to developingcountries, the rules are dictated by Northern governments and Northern-basedtransnational companies. At risk of understatement, poverty reduction and theinterests of the poor do not figure prominently in the calculations. What Oxfam has

been working for through its trade campaign is not a rules-free trading system, but asystem governed by rules designed to overcome the disadvantages associated withpoverty and low income and to create a pattern of globalisation compatible with ourshared values and aspirations.

Deng Xiaoping once famously likened Chinas transition to a market-based economyto crossing a river by feeling the stones. Cautious pragmatism has been a feature ofChinas successful management of global integration. Now that China has joined theWTO, both caution and pragmatism remain essential, especially when responding todemands emanating from ideologically driven governments in North America andEurope. So, too, does a commitment to the development of public policies that

integrate poverty reduction into trade strategies.


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This lecture sets out to do three things that I hope will help set the scene for theconference. First, I want to reflect briefly on rules and on the theme of thisconference: Harmonious trade and development. Second, I want to touch on some ofthe pressing poverty and inequality challenges facing China. Any assessment of theimplications of WTO membership has to start with an assessment of these challenges.

I shall then turn to WTO membership and the rules affecting China in three criticalareas: agriculture, market access, and intellectual property.

1 Harmonious trade and development

Our conference theme is Harmonious trade and development. Cynics might askwhere is the harmony? That question has a particular resonance in the aftermath ofevents in Cancun, where the development round of World Trade Organisationground to a premature halt. Some in the anti-globalisation movement greeted thecollapse by celebrating what they saw as the impending demise of the rules-basedmultilateral system enshrined in the WTO. This reflects a widely held belief that, atsome fundamental level, trade and development are mutually incompatible and thatglobal integration is a one-way route to increased poverty and inequality.

Oxfam unequivocally rejects this view. Nobody can look at the experience of Chinasince the late 1970s and deny the potential benefits of global integration for povertyreduction. Let us not forget that we are holding this conference in a country that haslifted over 270 million people out of poverty, quadrupled its income in the space oftwenty-five years, and dramatically improved health and education indicators. WereChinas thirty provinces individual countries they would account for twenty of thefastest growing economies in the world.

Of course, global integration is only one part of this story, albeit an important part:exports of goods and services now represent over a quarter of GDP. And the benefitsreaped by China have not been automatic. They are the result of pragmatic policiesthat have combined gradual liberalisation with the development of new institutionsdesigned to spread and sustain the benefits of market reform. The contrast with LatinAmerica, a region that has swallowed in copious quantity the free marketprescriptions now being dictated to China, is striking. Over the past decade, LatinAmerica has combined rapid liberalisation with slow growth, increased poverty, andan abject failure to reduce inequality.

What China demonstrates is that, under the right policy conditions, trade can providepoor countries and poor people opportunities to develop through access to largermarkets, new technologies, and new ideas. Those celebrating events in Cancun mightalso usefully reflect on alternatives to a rules-based multilateral system. We havealready seen both the US and the EU threaten to unleash a new wave of regional,bilateral, and unilateral actions and in the case of the US, the threat deserves to betaken seriously. China is in the frontline of countries facing these threats. Whenpower politics displaces rules, those without power tend to lose.

But having stressed our positive approach to the potential inherent in globalisation,we believe that this potential is not being realised. The reason: the rules governing

global integration systematically disadvantage the poor. Most countries from Chinato Britain and the US operate domestic laws that, to a greater or lesser degree, seek


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to overcome disadvantage, restrict abuses of power, and extend opportunity. Anti-monopoly provisions and social insurance are obvious examples. The rules governingthe international trading system have the opposite effect: they reinforce disadvantageand legitimise abuses of power.

Unfair and unbalanced rules are hardly a new feature of world trade. Perhaps becausedebates on international trade tend to be dominated by lawyers and economists ratherthan by historians, the origins of the most favoured nation principle underpinningthe WTO has been forgotten. This principle emerged not from the Bretton Woodssettlement, but from the 1842 treaty of Nanking. Under this treaty, China was forcedto cede privileges wrung by force of British gunboats to other European powers.

In trade policy, unlike some other areas of international relations, gunboats have goneout of fashion. Yet many unfair trade practices remain. Like other developingcountries, China has suffered from Northern government trade policies, includingarbitrary protectionist practices, threats of trade sanctions, and the effects of

agricultural subsidies. And like other developing countries, China needs to remainacutely aware that, behind the formal democracy of the WTO system, the outcomes oftrade negotiations reflect informal power relationships. These relationships giveindustrialised countries, and powerful vested interests within them, a disproportionateinfluence over the design and implementation of WTO rules.

Through our trade campaign Make Trade Fair we have attempted to highlightspecific rules that disadvantage poor countries and poor people within those countries.Let me mention three of the starkest examples:

Agriculture: There is a Chinese expression that says two tigers cannot share thesame mountain. When it comes to the agricultural subsidy mountain that ancientwisdom does not hold: the US and Europe are happy to share the great $1bn a daysubsidy mountain that looms over world agriculture. While urging developingcountries to liberalise and embrace open market principles, the US and the EU directbillions of dollars towards support for agricultural production. Subsidies translate intosurpluses that are then dumped overseas. Northern consumers and taxpayers foot thefinancial bill, but producers in developing countries pay the highest price. US and EUsubsidies drive down international prices, depriving countries of foreign exchange andfarmers of income. They also facilitate dumping in national markets, destroying themarkets on which smallholders depend. WTO rules have been designed to

accommodate US and EU subsidies, in effect forcing the worlds poorest farmers tocompete against its richest treasuries.

Market access: A Chinese audiencehardly needs to be reminded of the problemscaused by arbitrary trade barriers. After all, China is one of the prime targets for suchbarriers. But arbitrary protectionism is one of the most potent forces behind theunequal distribution of benefits from globalisation. When poor countries export torich ones they face average trade barriers four times higher than those prevailing intrade between industrialised countries. The structure of protection reflects thedemands of powerful vested interests and the unwillingness of Northern governmentsto embrace their own principles when it comes to national trade policy.


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Intellectual property rights (IPRs): Nobody disputes the importance of IPRs.However, the WTO regime adopted in the Uruguay Round provides a profoundlyanti-developmental framework. As my colleague in Oxfam Ruth Mayne has shown, itis weighted far too heavily in the interests of rich countries and the corporations thatdominate global research and development. For poor countries, the Trade-Related

Intellectual Property Rights (TRIPS) agreement will translate into higher costs fortechnological innovation, balance-of-payments pressures, and potentially risingcosts for essential drugs. Peter Drahos, one of the contributors to this conference, hasdocumented the extensive role of corporate lobby groups in the US in dictating theterms on which IPRs were incorporated into the WTO, effectively subordinating themultilateral system to the pursuit of private self-interest.

Before considering how rules in these three areas might impact on China, let me firstsay something about the pressing poverty and inequality challenges now facing China.

2 Poverty and inequality: achievements and challenges

There is no shortage of bad news when it comes to global poverty. The vast majorityof developing countries are off-track for achieving the Millennium Development Goalof halving poverty. Whole regions notably Africa are being left behind.Globalisation appears to be failing a large section of humanity. If there is a good newsstory, China accounts for a disproportionate part of it.

Using the international $1 a day poverty line, income poverty has fallen from almostone third to 17 per cent since 1990. Use of national poverty lines dramatically lowersthe incidence. Whatever the precise picture, income-poverty reduction has been

accompanied, and in some cases exceeded, by progress in other human developmentindicators. As Amartya Sen has shown, China has been far more successful than otherdeveloping countries in converting growth into advances in health and education. Lifeexpectancy is four years longer than predicted by national income. Child mortalityrates by the end of the 1990s were less than half the level in the mid-1970s.

Inevitably, swift growth and structural change have created new challenges: persistentpoverty, rising inequalities, employment insecurity, environmental pressures, andrapid adjustments to market reform and global integration. Left unaddressed, thesechallenges could undermine even reverse what has been achieved. That is whythey must figure at the centre of any debate over WTO accession.

The challenges facing Chinese policy makers are well known. On poverty reduction,there is scope for debate over whether Chinas glass is half-full or half-empty. What isnot open to debate is the sheer scale of the challenge. Using the World Banks $1 aday indicator for absolute poverty (rather than the lower national poverty line),around one-quarter of the rural population more than 100 million people are stillin extreme poverty. This poverty is increasingly concentrated. In terms of regionaldistribution, almost two-thirds is in border provinces such as Sichuan, Gansu, andXianjiang. There are further concentrations of poverty in the northern China Plain andsome northeast provinces, linked to poor soil and problems of water availability andinfrastructure.


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Persistent rural poverty is intimately linked to another challenge currently at thecentre of policy debate in China: rising income inequality. Chinese incomeinequalities are among the fastest growing in the world. The national Gini coefficientincreased from 0.24 in 1980 to at least 0.35 in 1999. Some analysts suggest that thereal figure today exceeds 0.40.

Rural/urban differences account for a major part of rising inequality. Lin Tai, a socialsciences professor at this university, estimates that the urban/rural income ratio maybe as high as 6:1 a figure that is extraordinarily high by international standards.

It goes without saying that there is nothing inherently virtuous in high levels ofequality. Low Gini coefficients in a context of stagnant growth are not indicators ofan outcome that is good for poverty reduction. However, in the Chinese contextinequality matters for at least three reasons. First, poverty reduction is a function ofthe overall rate of growth and the share of any increment to growth captured by thepoor: high inequality reduces the rate at which growth is converted into poverty

reduction. Second, high levels of inequality can be bad for long-term economicgrowth and dynamism, partly by restricting market development, and partly bylimiting entrepreneurial activity. Finally, high levels of inequality can represent athreat to social stability.

Progress towards rural poverty reduction in China has been hampered by a reductionin the rate of growth of rural incomes since the mid-1980s. Equally important, thoughless widely observed, has been the trend towards rising inequality within rural areas.Decomposition analysis suggests that average real per capita incomes in rural areashave increased by a factor of 3.4 since 1980. Over the same period, incomes for thepoorest quintile have risen by a factor of 2.5. Clearly, strategies for raising averagerural incomes and the incomes of the poor in particular must figure prominently inany strategy for poverty reduction.

Turning from income to health indicators further illustrates the scale of the challengefacing China. Economic growth has fundamentally changed the profile of Chinashealth problems. Non-communicable diseases account for an increasing share of thedisease burden. Cancer, cerebrovascular disease, and heart problems account for wellover half of all deaths. Respiratory disease also figures prominently. WhileHIV/AIDS prevalence rates are low, they are growing. It is estimated that over 1million people are living with the disease. In addition to addressing these evolving

problems, there is large unfinished agenda. For example, improvements in death ratesamong the under-fives appear to be slowing.

Inequality is a pervasive theme in health. National surveys suggest that almost two-thirds of rural households do not use public health facilities due to economicdifficulties. In large measure, this problem can be traced to deeper inequities in healthfinancing. Growing recourse to cost-recovery in health facilities has increased thefinancial burden on poor people. Out-of-pocket payments for treatment andpharmaceuticals now represents some 60 per cent of total spending. Health insuranceprovides little protection to those most in need: around 90 per cent of the ruralpopulation is not covered. The decentralisation of financial control to local and

provincial bodies has exacerbated inequalities in service provision. According to the


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World Health Report, China now ranks 188th out of 191 countries in terms of equityin health financing.

Much of the international debate on China tends to focus on rural-urban differences.The welfare of vulnerable urban populations is often overlooked. One consequence of

rapid global integration has been the creation of millions of jobs linked to exportmarkets. Women account for a large share of these jobs. Their conditions ofemployment, security, and income are determined partly by domestic policy choices,and partly by the terms on which China trades with its major partners. Northern policymakers sometimes forget that their policies on market access for Chinese importshave a direct bearing on prospects for poverty reduction in urban China.

Before leaving this subject let me touch briefly on the issue of labour rights. Whenthey hear these words, many Chinese policy makers immediately suspect protectionistinfluence. In some cases, they are justified: Northern protectionists do selectively uselabour rights to advance their interests. But not all advocates of stronger labour rights

are protectionists. As a country with a strong record in advancing the interests of thepoor, surely the Chinese government can indeed, must do more to strengthenlabour rights. This is especially true for the women and migrant workers who sufferthe greatest vulnerability.

3 WTO accession and its implications for poverty and

inequality

Chinas accession to the WTO at the November 2001 Doha Ministerial marked theculmination of fifteen years of negotiations the longest accession talks in the

institutions history. For the WTO itself, Chinese entry was a defining moment. Whennegotiations started in the mid-1980s, China accounted for less than one per cent ofworld trade. Today, the country is the worlds fifth largest exporter and one of itsbiggest traders. China is a vital part of the WTO jigsaw and WTO rules are a vitalpart of Chinas public policy framework. Now that the country is a member,adaptation to those rules will pose challenges even more formidable than those facedduring the accession negotiations.

Northern governments are likely to be vigilant both in monitoring implementation ofthe accession agreement, and in seeking to impose their interpretation of thatagreement. However, many WTO rules provide for a great deal of choice within a

range of options. Public policy choices will have an important bearing on thedistribution of winners and losers within Chinese society. In addition, the Chinesegovernment is well placed to challenge some of the rules that threaten to compromisenational poverty reduction efforts, especially if it acts in concert with otherdeveloping country governments.

The terms of the accession agreement

The accession treaty has been subjected to microscopic scrutiny. Rather than recitedetail, let me outline some of the broad provisions that have implications for policy

formulation in China.


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The general principle of non-discrimination requires that China grants equal treatmentto competing suppliers of goods and services (subject to extensive conditions),removing discrimination against importers. This has important implications for thecentral and provincial government bodies and state trading entities that operate dualpricing systems.

The market opening commitments undertaken by China are extensive. Havinglowered the weighted average tariff from 40 per cent to 13 per cent between 1992-2001, a further cut to 6.8 per cent will be implemented by the end of the accessionperiod. It is worth pointing out that these cuts are far deeper than anythingcontemplated by the US or the EU.

Under the terms of the agreement on agriculture, China has agreed to limit domesticsupport to farmers at less than 8.5 per cent of the value of production (lower than theceiling applied to other developing countries). Average tariffs will also be sharplyreduced. By 2007, the average applied tariff on in-quota imports will range from one

per cent (applied to rice, wheat, and cotton) to 15 per cent (for sugar). In some cases,out of tariff quotas will remain quite high. However, quota volumes are set to grow atrates ranging from 519 per cent. A further commitment by China is the eliminationof state trading monopolies.

Within these broad provisions, China has made major concessions in some areasregarded as a priority by the US. In agriculture, tariffs on ten such products will bemore than halved by 2004. With characteristic bluntness, the US Department ofAgriculture summarised the provisions on agriculture by celebrating what it describedas significant, one-way market-opening concessions across the board in agriculture,adding that: Chinas entry into the WTO will dramatically cut import barriersimposed on American agricultural products. This agreement locks in and expands ouraccess to a market of over 1 billion people.

From a Chinese perspective, generosity on market opening appears distinctly one-sided. Accession provisions on anti-dumping and safeguard measures place China at adisadvantage. Non-market economy status means that dumping margins can beassessed on the basis of constructed value a framework that dramatically increasesboth the likelihood of dumping margins being discovered, and the scale of anti-dumping duties.

Trade-related Intellectual Property Rights (TRIPS) figure prominently in theaccession agreement. Over the past decade, China has updated its laws on copyright,patents, integrated circuits, and plant varieties. Accession will involve furtherstrengthening. Public policies in this area will have important implications for theprices of pharmaceutical products and by extension public health, as well astechnological innovation.

In other areas, accession to the WTO will interact with wider pressures. Oneassessment by the World Bank suggests that Chinas commitments on theliberalisation of services are the most radical ever undertaken in the WTO. Even so,far more radical commitments are being demanded, including the rapid opening up of

financial services, banking, and wider capital markets.


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4 Assessing the impact of WTO rules

In recent years a small industry has emerged producing economic models to assess theimplications of Chinese accession to the WTO. Most of these models predictaggregate welfare gains. However, aggregate pictures mask important underlying

factors: including the distribution of winners and losers. They also divert attentionfrom the underlying rules that can shape the distribution of costs and benefits betweenrich and poor. In this section we look at the rules in three areas: agriculture, marketaccess, and intellectual property.

Agriculture: trade liberalisation in a distorted world market

Perhaps no aspect of WTO accession has raised more serious concerns than theimplications for agriculture. The pace, scope, and design of liberalisation policies willhave important consequences for two of the central development challenges facingChina: namely, the eradication of rural poverty and the promotion of greater equity.

Rapid industrialisation has tended to divert attention from the scale of thesechallenges. It is sometimes forgotten that agriculture still accounts for 16 per cent ofGDP and around one half of all employment. Currently, China has around 238 millionfarm households, the vast majority operating on small plots. Poverty is increasinglyconcentrated in rural areas, with around one quarter of the rural population survivingon less than $1 a day.

Such facts suggest that there are very large numbers of poor people acutely vulnerableto even minor income shocks resulting from shifts in relative prices. It is no

exaggeration to say that the welfare of literally millions of farmers is at stake.Moreover, adverse changes in the rural economy will be transmitted through off-farmemployment markets and town-village enterprises, weakening growth linkagesbetween the farm and off-farm sector. Losses of income could potentially translateinto widening inequalities and deprivation in other areas, such as health andeducation.

US surplus dumping priorities

Negotiations on agriculture have highlighted an important feature of WTO accession.Chinese policy makers and non-government organisations have been concerned

principally with the implications for national poverty. On the other side of theequation, major agricultural export powers see the WTO agreement as a mechanismfor prising open a potentially lucrative export market.

The US is a particularly forceful proponent of rapid market opening - and in thecurrent climate of US-Sino trade relations it is not difficult to see why. Agriculture isone area in which the US maintains a trade surplus with China, amounting to $1bn in2002. Projections by the USDA predict that accession to the WTO will expandexports of grains, oilseeds and cotton alone by $1.6bn. China is also seen as a majorpotential market for fruit, nuts and vegetables. From a Chinese perspective, theobvious problem is that an increase in imports through trade liberalisation could

depress prices for goods produced by poor rural households.


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This is an area in which tensions between commercial interests and developmentimperatives loom large. It is also the area in which China confronts some of the mostserious double standards in current WTO rules.

The implications of liberalisation

What are the implications of accession for rural poverty? That question has beenaddressed through a large number of economic modelling exercises. No conclusiveanswer has emerged, partly because of the complexity of the policy environment.Relationships between border measures (such as tariffs) and behind-the-bordermeasures (such as taxation), price transmission effects, and supply elasticities are notwell understood.i Notwithstanding these problems and the widely divergentconclusions that have emerged from current debates, there are clearly causes for graveconcern. Of particular concern is the possibility that farm incomes may fall,

exacerbating inequalities in farm, non-farm, and regional incomes, and slowing therate of rural poverty reduction.

Simple observation of average nominal protection rates (NPRs) tells part of the story.For wheat, the average protection rate is around 12 per cent, rising to 17 per cent forcotton, 20 per cent for oilseeds, and 32 per cent for maize. The NPR for sugar isvariable, but also relatively high at between 1740 per cent. Although NPRs for somecrops notably maize and cotton are inflated by export subsidies, there aresignificant gaps between domestic and world prices in many years. Protection ratesfor rice, fruit, and vegetables are negative.

Adopting a simple other things being equal model of import liberalisation, withdomestic prices declining towards world levels as import barriers come down, pointsto some potentially serious problems. Many of Chinas domestic producers of majorcommodities such as wheat, maize, cotton, sugar, and soybean could suffer incomedeclines as lower import prices are transmitted through domestic markets. Thefollowing might merit headline status:

Wheat: Imports are expected to increase sharply under WTO membershipbecause of high demand for high-protein wheat in urban areas (for noodles, cakesand pastries) and a decrease in barriers against US soft white wheat. Allied to

changes in procurement policy, import liberalisation appears likely to reduceproduction in marginal areas in northwest and northeast China. OECD projectionssuggest that imports could rise from $220m in value to $800m by 2005.

Maize: Even though China has been a net exporter of maize, imports are expectedto increase as the tariff rate quota expands. Demand for imports is expected to beespecially strong in south China, where import restrictions have forced feed millsto procure maize from north China. These restrictions have created a protectedmarket, counteracting the large price differential in favour of imports. Lessgovernment support is likely to curtail production in the north China corn-belt,and to lower prices and reduce output in more marginal areas, particularly in eastand south China. The elimination of export subsidies, as required under the terms

of WTO accession, will exercise a further downward pressure on prices.


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Cotton: Cotton imports are expected to increase sharply, partly because two-thirds of the quota is reserved for non-state trade. Joint-venture mills in east Chinain particular are expected to increase their demand for imports. While shifts inrelative prices remain uncertain, domestic prices are expected to decline towardsworld market levels. As for maize, elimination of export subsidies will add further

price pressure in domestic markets. Soybean: Imports of soybean have increased dramatically in recent years.

However, there is still a price gap of around 15 per cent between international anddomestic prices, pointing to the importance of behind-the-border measures. Thesize of the remaining price gap suggests that import levels will be highly sensitiveto reforms in domestic marketing. This has important implications for the majorsoybean producing areas, especially in the northeast.

Aggregate modelling for welfare change provides some insights into the dangersinherent in liberalisation. One reform scenario, explored through the GTAPsimulation model, predicts an average fall in rural wages of between 0.7 and 1.6 per

cent, with returns to farmland falling by 5 per cent. Most models predict that ruralhouseholds will tend to lose, and urban households to gain. The most vulnerablehouseholds are those in rural areas most heavily dependent on agriculture. In somesuch areas, welfare losses of around 35 per cent of income are predicted. Forhouseholds below or narrowly above the poverty line, these are substantial losses.There is a very real and legitimate concern that such losses will add to the pressures ofrural-urban migration.

Naturally, the figures can be contested. Some commentators claim that they overstatethe problem since they do not take into account the dynamic second-round effects of

liberalisation. Yet it can equally be argued that they may understate the problem. Thisis because losses of agricultural income can produce strong multiplier effects.Research carried out by the International Food Policy Research Institute in othercontexts suggests that for every dollar generated in farm income, another four dollarsare added through exchange in the rural economy.

From a poverty-reduction perspective, there would appear to be strong grounds forChinese policy makers to carefully assess the balance of winners and losers fromagricultural liberalisation. As I have already mentioned, they can expect to comeunder sustained pressure from other governments interested in access to Chinasmarkets. This is reflected in the United States Trade Representatives 2002 Report to

Congress on Chinas WTO Compliance. The report strongly criticises China forfailing to open its markets in bulk agricultural commodities, notably wheat, corn andcotton, and for continued use of export subsidies. It attributes the problem to what itdescribes as "protectionist pressures within China. The theme resurfaces in the WTOdispute between the US and Brazil over cotton. As part of its defence, the US blamesChinese cotton subsidies for the problems faced by producers worldwide, includingAmericas own cotton farmers.

The strength of the language contained in the report reflects the extent of lobbying byorganised agricultural lobbies. But it also reflects a long-standing strategy to redressthe US trade deficit by opening new markets for the countrys agricultural surpluses.

Reinforcing balance-of-trade considerations, the high level of export dependence inUS agriculture for agricultural commodities creates an export imperative. President


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Bush summarised that imperative with characteristic bluntness when signing the 2002Farm Bill into law:

Americans cannot eat all that Americas farmers and ranchers produce. And

therefore it makes sense to sell more food abroad access to foreign markets is

crucial to the livelihoods of our farmers and ranchers. Let me put it as plainly as Ican: we want to be selling our beef and our corn and beans to people around the

world.

The Presidents remarks are accurate in one respect: America does depend criticallyon access to foreign markets to maintain farm incomes. Around one quarter of totalUS farm income is dependent on exports. The EU is also heavily dependent onexports. In both cases, export dependence goes hand-in-hand with global marketdomination. This is illustrated by Figures 1 and 2.

Comparative access to subsidies

The received wisdom of American policy makers is that WTO rules are doing nothingmore onerous than forcing China to adjust to the realities of comparative advantage.Many policy makers within China and beyond appear to accept this proposition. Tocite one example, a deputy director of the OECD introduces a recent volume on thetheme of agricultural policies in China after WTO accession with the followingcomment: "As markets open, the focus of policy will need to respond to marketdemands and to compete globally on the basis of comparative advantage."

Such pronouncements display an Alice in Wonderland detachment from marketrealities. In agriculture, more than any other area of world trade, competitiveness isdetermined less by comparative advantage than by comparative access to subsidies and this is an area in which Chinas farmers suffer a marked disadvantage.

This is not the place to examine in detail the protracted discussion over agriculturalsubsidies within the WTO or the tortured background to agricultural reform in theUS and the EU. However, these apparently remote subjects ought to figure at thecentre of the debate on agricultural trade liberalisation in China. Let me briefly try toexplain why.

Each year, industrialised countries spend around $1bn a day supporting agriculture.

The US and the EU, both of whom like to emphasise their free market credentials innegotiations with China, account for about 60 per cent of these subsidies. Europeprovides more support in absolute terms and its subsidies represent a larger share ofthe value of output. However, US support is larger on a per farmer basis. Because USsupport is more concentrated on a narrower range of commodities it also represents asignificant share of the value of output in key sectors, including the bulk sectors ofmajor concern to China.

It has been said that every picture tells a story. In which case, snapshot pictures of thepatterns of agricultural support in rich countries provide a story of encyclopaedicproportions.


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Figure 3 tells the subsidy story. Using the OECDs Producer Support Estimate (PSE),it shows the percentage of final value accounted for by implicit and explicitgovernment transfers in the US, the EU, and China. The important conclusion thatemerges is that China is not a member of the subsidy superpower league, raisingquestions about the USTRs assessment and demands for market opening.

Notwithstanding the NPR data summarised earlier, Chinese producers in most sectorsare either marginal recipients of support, or pay taxes that outweigh governmenttransfers. However, they are integrating into markets where they will compete withthe worlds most subsidised farmers. Outcomes are unlikely to provide an insight intocomparative advantage, at least as that term is understood by anyone who hascompleted a first year undergraduate course in economics.

One important microcosm in the story merits special mention. The US has beensharply critical of Chinese production subsidies in cotton. However, on anycomparative basis US cotton subsidies dwarf those provided by the Chinesegovernment. In most years, the overall level of assistance provided by the US is more

than double, as is support per kilogram of cotton produced. More importantly, the USis the worlds largest exporter of cotton. According to the International CottonAdvisory Committee, its subsidies lower world prices by around one quarter. Unlikethe US, China is not an exporter.

Figure 4 suggests that US energy might be better placed in reforming its own cottonsector than in providing advice on the merits of liberalisation to China. The dataprovided show that, in some years, government payments to cotton farmers are almostequivalent to the market value of output. Such facts might bring a tear of nostalgia tothe eyes of former Gosplan officials in the Bolshevik party of the Soviet Union,recalling as they do practices common in the heyday of state-managed collectiveagriculture. But they rest uneasily with a stated commitment on the part of the US toopen markets.

Agricultural trade was one of the mines that detonated during the Cancun ministerialmeeting of the WTO. Developing countries including China went to Cancundemanding action from the US and the EU to cut agricultural subsidies. In articulatingtheir demands, a wide spectrum of developing countries extending from thegovernments of West Africa, South Africa, Brazil, India, Thailand, and others, alsocalled for an end to the various subsidy exemptions built into the Uruguay RoundAgreement on Agriculture (AoA) at the insistence of the US and the EU. These

exemptions, clustered under the Green Box and Blue Box provisions of the AoA,relate to a large category of supports deemed to be decoupled from production, andtherefore minimally trade-distorting.

Figure 5 cuts through a larger technical debate to underline why developing countrieswere fully justified in their position at Cancun. Under the AoA, both the US and theEU were able to comply with their commitment to reduce subsidies largely byrepackaging and transferring support to decoupled areas. The gap betweenAggregate Measure of Support (AMS), or WTO restricted transfer, and the PSEillustrates the point.

While nobody is arguing that all support to agriculture is equivalent in its effect, manyof the support measures currently categorised as decoupled are manifestly distorting


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production and trade. Let me illustrate this by reference to two examples. In 2001, theUS was exporting cotton produced domestically at an average cost of around 80 centsa ton for less than 40 cents a ton, without using an export subsidy. In the same year,the EU was exporting wheat at prices some 80 per cent below the real incomereceived by farmers for their output. Without dissecting the underlying policy regimes

that produce these results, it is clear that both arrangements facilitate the export ofproduce at prices far below costs of production.

If the highly distorted state of international competition is one reason for Chinesepolicy makers to reflect seriously on the underlying premises of the case forliberalisation, the direction of US and EU policy reform is another. Under the 2002Farm Act, the Bush administration increased overall budget support for agriculture byup to $8bn a year. It also established a closer link between production and paymentsto farmers, notably by introducing a new class of counter-cyclical payments. InEurope, the reform of the CAP agreed in June 2003 has the effect of maintainingoverall levels of support, guaranteeing continued structural surpluses and export

dumping.

Experience from other countries cautions against rapid liberalisation in internationalmarkets distorted by Northern subsidies. In India, import liberalisation in the wheatand dairy sectors in the mid-1990s resulted in surges of imports, disrupting localmarkets, pushing down incomes, and forcing government to raise tariffs. Evidencefrom Mexico provides another cautionary tale of great relevance for China. Rapidliberalisation of the maize sector under the North American Free Trade Agreementhas led to rapid increase in imports from the US, displacing local producers. Researchhas shown the transmission of price effects to household incomes of the poverty-beltstates in the south of Mexico, where falling prices have lowered household incomesand fuelled rural-urban labour migration.

China should fully exploit the flexibility built into WTO rules on agriculture. It couldlearn something from the post-Uruguay Round US and EU practice of averaging outtariff cuts, reducing overall levels while retaining protection in vulnerable sectors.There is also scope to maintain financial incentives that direct traders towards localproduce rather than imports.

Looking beyond national policies, agriculture is an example of the type of issue inwhich China has much to gain from co-operation with other developing countries. In

bilateral negotiations with the US, Chinese policy makers will come under seriouspressure to trade-off concessions in agriculture for gains in other areas, such as anti-dumping. However, aligned with Brazil, India, South Africa, and others, China canuse the mechanisms of multilateralism and the WTO as a lever for demanding reformsin the US and the EU, and for retaining the right to protect agriculture in the interestsof food security. The fact that the alliances emerging before and during Cancun spanthe traditional divide between Cairns Group exporters (such as Brazil and Thailand),importers (sub-Saharan Africa), and countries motivated by a strong concern toprotect local markets from distorted competition (India) is a source of strength.

As a major player in the new alliance, China has a pivotal role to play in articulating

demands for reform in three key areas. These are:


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Export subsidies: The key challenge here is to secure early agreement on a time-bound schedule for phasing out all of the subsidies that generate surpluses andfacilitate exports at prices lower than production costs. US export credits shouldbe covered by this prohibition.

Production support: Some support to agriculture in rich countries is justified on

ecological and social grounds. However, it is vital that WTO systems restrictsubsidies that distort global markets.

Food security provisions: Developing countries need to ensure that WTO rulesprovide the space to exempt products from liberalisation commitments on foodsecurity grounds. The debate here has focussed on automatic safeguard provisionsto prevent import surges and the identification of strategic food security products.

Market access and beyond

Negotiations surrounding the implementation of the accession agreement will

inevitably be influenced by developments beyond the WTO. That is especially truewith regard to negotiations with the US. Since the breakdown of the Cancunministerial meeting there have already been worrying developments in this area, mostevident in an increasingly aggressive US posture on market access and financialreform. The concern here is that an already unfair set of rules enshrined in the WTOwill become yet more unbalanced in the process of enforcement.

Post-Cancun sabre-rattling syndrome

The dust had hardly settled on the Cancun breakdown before the US commercesecretary, Donald Evans, announced the creation of an unfair trade practices team to

investigate product-dumping and other abuses deemed to be contributing to US joblosses. The US Chamber of Commerce has complained that its members are winninginsufficient market share in China, and several of its members allege widespreaddumping by China in the US market. More than 40 members of the House ofRepresentatives have called for the Bush administration to end normal trade relationswith China and more than 60 have sponsored legislation that would raise tariffs onChinese goods.

As the top trade lobbyist for the US National Association of Manufacturers recentlytold the Financial Times: "You can see the protectionist sentiment growing rapidly,but you havent seen anything yet." President Bush himself used the October 2003

APEC summit to supplement his standard diet of free trade rhetoric with copiousreferences to the need for fair trade a euphemism, in the context, for protectionismagainst China.

The factors behind the war of words being conducted from Washington are wellknown. Viewed from official policy circles in the US, Chinas main crime is a$100bn trade surplus with America. The surplus has become the scapegoat for theslow recovery in employment experienced by the US and the rationale for aconcerted attack on Chinese currency management. Since Cancun, the US Treasuryhas cranked-up its demands for a revaluation of the renimbi, aided and abetted by theIMF.


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It is difficult to avoid the conclusion that US claims about Chinese cheating aredetached from the underlying economic facts. No substantiated evidence has beenproduced to prove that imports from China have had anything but a marginal directimpact on US manufacturing companies. Moreover, believers in international tradetheory and the underlying premise that countries export in areas where they have an

advantage should not be surprised at the pattern of ChinaUS trade: America now hasa relative disadvantage in manufacturing, while China has an advantage. At the sametime, if a country invests more than it saves it will need to borrow and thecounterpart to that borrowing is a trade deficit. The trade deficit that so alarms theBush administration is a result of its epic mismanagement in turning a fiscal surplusinto a huge deficit.

China is right to reject American entreaties on currency realignment. Appreciating theexchange rate would undermine job creation, exacerbate problems associated withagricultural liberalisation, and contribute to deflation. It might be added that floatingthe exchange rate would expose China to capital market instability, which would in

turn create instability in trade and production systems. The problem faced by China isnot the weight of US argument, which is exceptionally light, but the combined weightof US trade power and unfair WTO rules.

Discriminatory measures in dumping and safeguards

In joining the WTO, China has undertaken far-reaching commitments both to lowertrade barriers, and to make trade policy more transparent. Unfortunately, industrialcountries have failed to reciprocate. Discriminatory provisions will enable the US andthe EU and, it has to be said, other developing countries to exploit Chinas non-market economy (NME) status, notably through anti-dumping and the so-calledtransitional product-specific safeguard provision. It has to be noted that no otherWTO member faces the problems now confronting China, raising serious grounds forconcern over the non-discriminatory nature of WTO rules.

China is already the main target of anti-dumping actions worldwide, accounting foraround one fifth of all such measures. The EU and the US are the top users of anti-dumping measures in terms of absolute numbers of cases, though large developingcountry users of such actions target China more on a trade-weighted basis. Moreover,Chinas exports are concentrated in the sectors such as textiles, garments, andelectronics that figure most prominently in anti-dumping actions. The five most

anti-dumping intensive sectors account for almost three-quarters of total Chineseexports. Anti-dumping duties tend towards punitive levels, averaging over 100 percent in the US and 40 per cent in the EU.

Even under standard WTO rules it is possible for governments to discover dumpingmargins where none exist. NME status exacerbates this problem by allowing anti-dumping investigators to use proxies for constructing the prices of exports, makingthe proof of dumping easier. Constructed value investigation also inflates the dumpingmargins discovered, in the case of the EU and the US by over 40 per cent.

China is burdened with NME status until 2017 at the earliest, under the terms of the

accession agreement. The inherent disadvantages China will face are compounded bythe TPS mechanism. This makes it easier for WTO members to impose safeguard


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measures until at least 2014. All of the standard provisions designed to prevent WTOsafeguard rules from being used in an arbitrary fashion have been weakened. Theseinclude requirements for establishing a causal link between imports and domesticinjury, weaker evidence for establishing material injury, and no requirement thatimports have created unforeseen problems. Potentially the most devastating aspect

of the special rules applied to China relate to the trade-diversion clause. Brieflysummarised, this means that when one WTO member implements a TPS againstChina, all others can enforce a similar measure.

Taken together, these various measures amount to an unprecedented departure fromWTO rules. It is hardly an exaggeration to suggest that they recall the spirit of theTreaty of Canton, rather than the principles of a non-discriminatory, rules-basedregime. The more immediate concern for China is that the WTO now enshrines aninstitutional framework designed to accommodate and encourage, rather than tocontain and dissuade, protectionist attacks on China. Given the current tenor of USChina trade relations, that has to be a grave cause of concern.

The Chinese government has rightly set great store on using the Doha round todiminish the scope for discriminatory action. In its 2002 EU Policy Paperand otherdocuments it calls for an early review of NME status. Looking beyond bilateralnegotiations, it has also elaborated an agenda for establishing stricter rules on anti-dumping and safeguards.

Part of this agenda overlaps with the concerns raised by other developing countries including India and Brazil subject to frequent arbitrary actions in the US and theEU. However, SouthSouth co-operation faces major problems in this area, partlybecause of the proliferation of SouthSouth anti-dumping measures; and partlybecause of developing country concerns over the impact of Chinese exports. An earlylitmus test for the future effectiveness of G20 will be its success in addressing theseconflicting priorities.

It is difficult to avoid being struck by the contrast between China's radical approach tomarket access under the General Agreement on Trade in Services (GATS) on the oneside, and the approach of industrial countries to Chinese market access on the other.China has pledged to eliminate restrictions on foreign entry and ownership, as well asmost forms of discrimination against foreign firms. The World Bank describes this as"the most radical services reform programme negotiated in the WTO." However,

powerful corporate lobby groups in the US and the EU are demanding even more far-reaching measures.

One recent example is provided by the Coalition of Service Industries (CSI), anassociation representing major US banks and insurance companies. In September,2003 the CSI petitioned the USTR and the US Treasury to demand that China reduceits capital requirements for foreign companies in insurance, banking and assetmanagement, while at the same time removing limits on refinancing through inter-bank loan agreements. Foreign banks have also complained about limits placed ontheir right to attract foreign capital for investment on local markets.

The Stated Administration of Foreign Exchange is a major target for corporate lobbygroups. This is the body that approves all flows of money in and out of China. It is


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also the body that oversees rules banning the repatriation of funds in the first year andrestricting them to 20 per cent a quarter in the second year. The aim of these rules,which have been tightened recently, is to prevent investment banks developingcurrency speculation operations of the type that have wrought havoc from Thailandand Indonesia, to Russia, Brazil and Argentina. It is no coincidence that China has

thus far escaped the enormous social and economic costs associated with capitalmarket instability. And the development of a stable capital account remains one of thekeys to reaping the benefits of global integration through trade.

Intellectual property rights

Perhaps no issue has come to symbolise the unbalanced nature of WTO rules as hasintellectual property. Much of the debate in this area has focussed on the implicationsof patenting for the affordability of medicines, with the spotlight having been fixedfirmly on HIV/AIDS and sub-Saharan Africa. Pharmaceutical patenting could raiseserious concerns for China as public policy seeks to address the widening healthinequalities discussed earlier.

Intellectual property protection has become a flashpoint in trade relations betweenChina on the one side and the US and the EU on the other. The way in which theseissues are addressed will have important implications both for poverty and for long-run growth prospects.

Reduced to their essentials intellectual property rights (IPRs) seek to balance twopotentially conflicting objectives: the creation of incentives for private innovation,

and encouragement to make newly invented products available on terms that enhancepublic welfare. The Trade-Related Intellectual Property Rights (TRIPS) agreement ofthe WTO strikes a dubious balance. By extending US-standard IPRs throughmultilateral rules it enshrines a system geared towards the interests of technologicalleaders, rather than technological importers and adapters. As has been extensivelydocumented elsewhere, TRIPS was the product of a sustained lobbying campaign ledby the US pharmaceutical industry and other sectors concerned to increase the rentsattached to patents and other IPRs.

Chinas IPR regime was substantially strengthened to facilitate WTO entry. ThePatent law was substantially revised in 2000, bringing China into full compliance with

WTO patent regulations. Subsequently, trademark and copyright laws were alsostrengthened.

Application of TRIPS to pharmaceutical products has posed a major threat to publichealth. Prices for patented versions of drugs are typically much higher than forgeneric versions. Even today, after successive rounds of price-cutting bypharmaceutical companies, triple cocktail therapies for treating HIV/AIDS are morecostly than their generic equivalents. In other areas it is not uncommon for brand-name drugs to market at a multiple of five or more the generic equivalent.Importantly, market entry by generic drugs is a major factor in forcing down the pricepremium attached to patents.


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China has a long-standing policy of providing drugs for public health services throughnegotiated price arrangements. Even so, groups concerned with public healthinequalities in China have grounds for concern over the implications of the TRIPSagreement on three counts. First, the poor, the constituency that will face the mostserious problems attendant on any price inflation, already face acute financial

pressures. Out-of-pocket payments currently account for 60 per cent of total healthspending and these payments represent a disproportionate burden on poor people.As a proportion of non-food household expenditure, user charges absorb three timesmore of the income of the poorest 20 per cent than that of the richest. Virtually noneof the poorest fifth of the population is covered by health insurance. Drugs representthe second largest item of expenditure.

Second, China devotes a far larger share of its health spending to pharmaceuticalsthan most countries at comparable levels of income. Over-prescribing, and themisallocation of resources towards drugs are part of the problem. Both traits wouldappear to be linked to the decentralisation of financing, one consequence of which has

been an increasing role for pharmaceutical sales in financing health services.Whatever the underlying causes of the problem, it is clear that any inflation inpharmaceutical prices would have a major effect on public financing for health.

The third factor relates to Chinas changing health profile. Looking to the future,demand for medicines is likely to increase most rapidly in areas associated with risinglife expectancy, including the treatment of cardiovascular disease, cancer, arthritis,respiratory tract ailments, diabetes and so on. These are precisely the areas in whichNorthern-based pharmaceutical companies will be most vigilant in defending patents,not least because they coincide with disease patterns in the major markets of theindustrialised world.

It goes without saying that the TRIPS agreement of the WTO does not hold the key tosuccess in closing Chinas health gaps. Reducing health costs for the poor by rollingback user charges, extending public provision, and improving health insurancecoverage would appear to be critical. However, a badly implemented TRIPS regimecould widen the gap.

The threats should not be understated. China may have a strong generic industry, butthat industry is not immune to pressure from the global pharmaceuticals industry.Consider the recent experience of Brazil another world leader in the generic drugs

sector. In March 2001 Brazil announced that it would issue compulsory licenses forthe production of two patented drugs Nelfinavir and Efavirenz used in thetreatment of HIV/AIDS. The high cost of these drugs was absorbing around one thirdof the national AIDS pharmaceuticals budget, and local suppliers were in a position tomarket at substantially lower costs. Following pressures from Roche and Merck, theUS announced that it would take Brazil to a WTO dispute if compulsory licenses forlocal production were issued. Although the threat was subsequently withdrawn, ithighlighted the way in which rules can be distorted by political power.

Public campaigning on patents and health culminated in the Doha Declaration onPublic Health. This established the important principle that the TRIPS agreement can

and should be interpreted in a manner supportive of WTO members rights to protectpublic health and, in particular, to promote medicines for all. As Ruth Mayne will


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show in her lecture, the battle to translate these fine words into operational rules is notyet won and there is a pressing need for simpler and more transparent procedures atthe WTO.

From a Chinese perspective a number of priorities suggest themselves. By virtue of its

generic industry, China is well placed to issue compulsory licences for localproduction, and to strike hard bargains with patent holders over price. It is vital that ituses this power under its existing patent law.

Looking beyond China, countries lacking a generic industry face serious difficulties inmaking effective use of compulsory licensing. The current agreement fails to addressthe concerns of these countries. In particular, it enshrines cumbersome bureaucraticstandards with a rule requiring dual compulsory licensing. That is, both theexporting and the importing countries must issue licences. Inevitably, thisarrangement opens the door to a proliferation of legal challenges, corporate arm-twisting in weaker countries, and delay.

Working with other generic suppliers such as India, Brazil, and Thailand, China coulddo a great deal to help engineer a WTO regime that acts on the Doha commitment toresolve tensions between patenting and public health. For example, China is a majorexporter of active ingredients used in the generic industries of other countries,including weak industries in countries such as Bangladesh. Any curtailment in supplywould undermine capacity and leave importing countries vulnerable to pressure frompatent holders. Similarly, China is a major producer of drugs needed to combatinfectious and non-communicable diseases in some of the worlds poorest countries.These drugs are vital to public health. And it is vital that China rigorously monitorsthe TRIPS agreement to ensure that it is implemented in a way that does not erodeexport capacity.

Looking beyond pharmaceutical, several commentators have asked whether, in onearea, China may have erred too much on the side of introducing strong IPRs. In thecopyright area, China provides TRIPS-standard protection for creative goods such assoftware for up to fifty years. It is now considering the extension of patents tocomputer programmes. As one commentator puts it: "For a software sector thatremains young and subject to considerable cross-fertilisation of software throughreverse engineering, such as choice seems questionable."

Conclusion

Chinese policy makers face immense challenges in balancing accession to the WTOwith public policies that address the underlying causes of poverty and inequality. Insome respects the country is in an ambivalent position. As a large, high-growthmarket, China has become a natural focal point for northern governments andcorporate lobby groups seeking commercial advantage. Few other countries are undersuch intense and systematic pressure to adopt externally-driven liberalisation modelsin trade and finance. On the other side of the equation, market size confers a certaindegree of bargaining power, enhanced in China's case by a strong government that haslearnt the art of WTO negotiations over the past seventeen years. However, like other

developing countries China faces a problem of unequal bargaining power. Actingalone, it is not well placed to change the rules that discriminate against Chinese


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exports, or the double-standards that perpetuate unfair agricultural trade and threatenthe rural poor.

Forming coalitions and working with others is a natural response to systemicinequality in many fields - and trade is no exception. As it showed at Cancun, China is

a potential leader of developing country coalitions within the WTO. It also stands togain from membership of coalitions in terms of securing reforms that widen the spacefor domestic policy reforms. Stated differently, the developing world needs a strongChina at the WTO, and China needs allies in the WTO and beyond. For thoseconcerned to strengthen the links between trade and poverty reduction, there is noalternative to working together. And saving the 'development round' by overcomingnorthern intransigence is the place to start.


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i For example, tariffs on imports of soya are around 1 per cent. However, imported soya faces adomestic value-added tax of 13 per cent, compared with a rate of 1 per cent for national soyaproduction.

crossing the river by feeling the stones: why trade rules matter for poverty in china: keynote...

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