China's Long March

U.S. membership in the World Trade Organization (WTO) has proven to be a good thing. To witness wacko demonstrators (unionists, environmentalists, and protectionists) in Seattle last November and in Washington in April, prompted reassessment of what has happened under WTO and what the future holds, especially with China.

In December 1994, the WTO experiment was launched and it should be finally accepted in Congress by 3 July 2000, depending on political winds. For the U.S., the world's largest importer and exporter, average tariffs are now 2.6% and trade accounts for 25% of GDP (13% of world consumption or sixteen times the 1950s volume). Global foreign direct investment (FDI) has grown from $206 to $827 billion in the 1990s with 80% of that sum placed in industrialized nations. The WTO will be fully implemented by 2005 and should increase global income by over $200 billion and for the U.S. by $27 to $37 billion annually.

Claims of "giant sucking sounds" as jobs leave the nation due to NAFTA or WTO participation have proven unfounded. Critics of trade expansion cannot point to a single year when falling imports were associated with falling unemployment. And claims of declining wages are unfounded. Non-monetary benefits as a share of wages have grown from 32.7% in 1973 to over 42% today; real disposable income is up 17% in the last decade; and real average household incomes have risen between 9.9% to 11.7% for every quintile of income distribution. Department of Labor statistics show that 81% of new jobs since 1993 pay above median wage and 65% are in the highest-third category. Since 1992, output of mines, utilities and factories has risen 37% and all manufacturing is up 42%, employing slightly more people (18.4 million total) than in 1992.

The bottom line is that troublemakers that have tantrums in Seattle and Washington do not have the foggiest clue about what makes our world go round and these demonstrations cost the public and private sectors greatly. America is better by far with WTO than without it because WTO adherence stabilizes and unifies merchandise trade exchange.

In July 1986, China sent a delegation to Geneva to apply for membership in GATT (General Agreement on Tariffs and Trade), the WTO predecessor, because by 1978 Chinese communist leadership recognized that the Great Leap Forward had bankrupt the nation. The general view is that acceptance by two-thirds of the 135 member WTO would reduce American hegemony and eliminate the annual need for a U.S. President (not Congress) to extend normal (NTR) or permanent normal (PNTR) trade relations with China. Currently, the (Jackson-Vanik) amendment to the Trade Act of 1974 requires the President to notify Congress by 3 June each year of NTR status and Congress has sixty days after 3 July to issue a Joint Resolution of Disapproval in a straight majority vote, whereupon the President can veto and Congress can attempt to override the veto. It is a ponderous and foolishly political process.

The growth of Chinese civil society has not translated immediately into political freedom as deemed acceptable by you or me, because the nascent structure is weak. Remember that 100 million Chinese people have risen above poverty ($77 per year) over the past two decades, that 103 million work directly for government (a third also have outside employment), and that 35% of the 140 million employees of collectives and state-owned-enterprises (SOEs) are superfluous. SOEs still account for 28% of gross output (down from 80% in 1978). China continues to be a curious place with 6.5 million internet users spending $96.7 million in on-line shopping in 1999 that will grow to $1.2 billion by year after next. Instead of thinking "big deal," it is essential to understand the context: last year half of the 75,000 SOEs incur loss totaling $83 billion, SOEs absorb 75% of domestic bank credits, and 20% of SOE bank loans are non-performing.

When the President grants PNTR status for China as is expected, it is not a reward for bad behavior; the Chinese people continue to suffer from the devastating policies of their communist past, policies that are in process of change. And the PNTR designation does not expand Chinese access to U.S. markets, but makes permanent the conditions of the past score of years. With the bilateral agreements encompassed by PNTR agreed upon (covering reduced tariffs and market access primarily), both the U.S. and China can continue work on economic developments that expand into WTO. Membership there does not guarantee continued Chinese reforms, embracing democracy, or protection of human rights, but it provides a forum for progress in these directions.