When China finally enters the World Trade Organization (WTO) the event might not be as earth-shaking as some believe.
For one thing, China has been gradually introducing some trade reforms in advance of entering WTO. Many were demands that foreign trading partners insisted upon before they would even consider approving China's admission.
So China has been selectively granting some foreign companies the right to deal directly with domestic customers rather than the traditional edict of going through Chinese agents and middlemen. After China is in WTO a broad range of foreign firms will be able to sell direct. That could hurt agents but probably help domestic customers who can get better access and closer relations with foreign suppliers.
Even when direct selling becomes widespread, many foreign suppliers will probably still want to use domestic agents and Chinese-owned channels to reach the legions of small and middle-size customers in the country. It simply isn't practical for most foreign suppliers to sell directly to this huge base of customers. And Chinese channels with long-standing relationships with these buyers may still have a strong place in the market even under WTO.
China agreed to join the global Technology Information Agreement (IFA) upon joining WTO. That requires a phased-in elimination of duties on semiconductors, chip production equipment, computers, and a range of telecommunications equipment.
Eliminating these duties can only help China, which probably should have removed the tariffs long ago, except for the desire to capture import revenues.
China has only a modest domestic semiconductor industry --- and these companies need 0.15-micron and 0.18-micron processing technology more than they need tariff protection. In fact, China imports 80% to 85% of its chip needs. With such a massive dependence on imported devices, it doesn't make much sense to penalize domestic OEMs and customers by forcing an added import duty cost burden on the chips.
Duty-free chip and computer imports, when they finally phased in in several years, will likely put a big crimp in smuggling these goods into China. With no need to evade tariffs, clandestine customers in the country can go legit. That should help legal businesses who until now have faced unfair cost disadvantages competing against "duty-free" smuggled goods.
Even before joining WTO, China has put many foreign trade complaints to rest --- simply because the still-strong PC and wireless phone markets are a boon to global suppliers struggling in the rest of the world. As long as cash registers continue to ring strongly in China, foreign vendors aren't likely to cause any rumpus.
One big change for China coming with WTO is the trade dispute mechanism --- both pro and con. China will gain access to a formal process to lodge its complaints when it feels it is a victim of unfair trade practices. China can ally with other Asian countries in trying to put limits on the aggressive U.S. antidumping penalties in a vast array of products. At the same time, China may find itself a target of WTO complaints against its own practices.
But for sure, having China on the inside of the global trading community will be better than on the outside causing trouble.