From transparency in financial services to protecting intellectual property rights, it's in Beijing's best interests to live up to its WTO commitments, argues this veteran Chinese diplomat. Long Yongtu should know: He spent more than 10 years of his life negotiating China's entry into the organization.
May 2006
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China's evolution from a planned economy to a market economy continues to be a complex, often subtly nuanced process. Perhaps the single most dramatic step in this transformation was the country's admission to the World Trade Organization in December 2001. Yet even this event did not occur overnight but was instead the culmination of negotiations that took more than a decade.
The impact has been profound—and global in its repercussions. In addition to the dramatic jump in China's international trade in the four years since the country joined the WTO, Chinese companies are now invested in overseas markets, while international investors in China are discovering an increasingly open economic environment. Meanwhile, inside the country, WTO membership has spurred changes and reforms that go far beyond trade.
Long Yongtu was Beijing's chief negotiator during the WTO talks. Born in 1943 in Hunan Province, Long graduated from Guizhou University with a degree in British and American literature and then joined China's Ministry of Foreign Trade and Economic Cooperation in 1965. After graduate studies at the London School of Economics in the early 1970s, Long served the ministry in various key posts at home and abroad, including a posting at the United Nations in New York.
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In 1992, as director-general of the ministry's Department of International Trade and Economic Affairs, Long participated in China's landmark General Agreement on Tariffs and Trade talks. Five years later, he was appointed vice minister and became China's first chief representative for trade negotiations, with primary responsibility for negotiating the country's entry into the WTO. In 2003, Long was named secretary general of the Boao Forum for Asia, a nonprofit group established to help improve economic integration in the region by organizing conferences and meetings between high-level government and business representatives from various countries in Asia.
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Earlier this year, in his book-lined office in one of the gleaming modern towers in Beijing's business district, Long talked frankly with Outlook correspondent Alexandra Seno about China's ongoing reforms, its international economic relationships and the "torturous" experience of negotiating WTO entry.
Never in his "wildest dreams," Long conceded, did he envision the explosive growth in China's international trade that came in the wake of WTO membership. During the wide-ranging interview, he also underscored the fact that Beijing has used WTO membership and the commitments it made as "leverage" to speed domestic changes. Some of the reforms, however, may take a while longer, he cautioned. Despite pressure from the United States and other countries, Long believes the revaluation of China's currency can take place only under the right conditions. He pointed to last year's move to link the renminbi to a basket of currencies as a significant sign of progress on this issue.
Outlook: Who do you think has felt the greater impact from China's entry into the World Trade Organization—China or the rest of the countries in the organization?
Long: I would say that China's WTO accession has changed China more than China has changed the WTO. The Chinese government has very skillfully used this entry into the WTO to accelerate the country's domestic reform and opening to the outside world.
Of course, we are trying to honor our commitment to the WTO, not only at face value. We even extend its concepts to other areas. For instance, we are committed to applying the principle of "national treatment," which means you have to treat foreign goods and enterprises the same way you treat Chinese enterprises and Chinese goods. We believe that national treatment is a principle of competition in a market economy. Now we are extending this national treatment concept to other areas which seem relevant to the WTO.
Such as?
Between 100 [million] and 120 million Chinese farmers have migrated from agricultural areas and are working in the cities. It is a big labor force. They are making a very important contribution to the development of China. A few years back, we had a lot of discrimination against these farmers in cities in terms of education, pensions and working conditions. And now we realize we have to apply national treatment to farmers working in cities. There is a big effort to eliminate discrimination.
Has this migration affected the economy in any other ways?
It also creates a big consumer group. The consuming style and capacity are very different for farmers and city dwellers. Farmers basically are self-sustaining. City dwellers need a lot of things: housing, education, and water supply, etcetera. That move from agricultural to urban areas will stimulate growth and domestic consumption.
We have to address this issue on two levels. In China, there have been complaints that we have been in low-end manufacturing for a long time and that we were exploited by international investors. This has happened because of China's development level. China still has so much surplus labor—150 million people. We have to create jobs for them.
Foreign investment is very important to create these jobs. This labor force is usually less educated. For some time to come, China has to count on this low-value-added manufacturing to provide labor-intensive jobs.
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How long is "for some time to come"?
China cannot remain in low-end manufacturing, of course. We have to attract more foreign investment involving high technology. We have to encourage technology innovations in China, and also technology cooperation between Chinese and foreign investors. We also want to encourage more transnational organizations to move their research and development centers to China. This is also good for them.
What impact will the domestic Chinese market have on the value chain?
China's market is changing very fast. Chinese consumers are looking for high-quality goods. If foreign investors still think this is only a market for low-quality goods, they are wrong. Chinese are big buyers of luxury goods and are looking for high-quality cars. If you stay in the low-quality bracket, you are going to lose the Chinese market.
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Maybe someday we can move some of the labor-intensive projects to developing countries like Laos and Vietnam to create jobs for them. That would be a spillover of foreign investment in China. We have to think about not only the global perspective but also the regional perspective to create a kind of value chain across the countries in East Asia. This kind of cross-border value chain makes the trade relationship between China and Southeast Asia even closer.
As a WTO member, China undoubtedly shares the international com-munity's concern about piracy, intellectual property rights, high-tech standards, distribution restrictions and transparency.
The Chinese government is very serious about piracy. This is not only an issue for foreigners but also of national interest. China is advocating technical advancement. If China doesn't protect intellectual property rights, there will be no incentive for innovation, and China will stay with low-end goods.
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However, China is so big. For some people, there is always an incentive to infringe on intellectual property. We have special courts and have severely punished violators. The whole system is changing for the better. This is important if we want to invite more foreign investment in high technology. This is a matter of confidence and image. The government is starting to realize this. There needs to be cooperation between the Chinese and the foreign business community. For this kind of thing, it is less constructive if we complain and attack each other. China realizes it is an important matter.
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What about transparency?
Transparency is important to the WTO commitment. Transparency has improved tremendously. This is one of the most important achievements. Before the WTO, China had numerous so-called internal documents that were only for the access of Chinese, especially state-owned enterprises. We have abolished that. Any rules, regulations, laws that have been implemented must be published.
Transparency is especially critical in financial services. What can we expect in China this year—in banking, securities, insurance?
We have already done a lot to prepare. We have opened those sectors for years. We have a more open banking sector. We are still trying to find our way on how to make the opening process go hand in hand with reform in these sectors. If there is no sound reform in these sectors, opening is meaningless. We should not see the opening as an end in itself but [as] a means to make the Chinese banking sector more productive, healthy and consistent with international standards. If foreign investors come to China and they lose money, what's the benefit?
You spent more than 10 years in WTO negotiations. How would you characterize the process?
The more years that pass since the end of the negotiations, the more we realize the importance of the WTO [membership] for China. When the negotiations finally ended, nobody—not I in my wildest dreams—could imagine that trade could expand so much. We also didn't realize how deep it would affect China's domestic reform. So I think it is a success for China and its international partners.
What changed the most from the beginning to the end of the negotiations?
The biggest change was in attitude. In the beginning, our team was very resistant to the demands, assuming that there was some ulterior motive behind these many questions. Gradually, we took a positive attitude. This is a process with which China's systems can be reformed. It was a learning process for us. We changed our attitude.
Through the negotiating process, what pleased you most?
What pleased me most was the end—when the negotiation was finished, because it took so long and there was a happy ending. We realized that we [had] done something for our country, and there was a sense of satisfaction in that.
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There must have been many frustrations along the way.
Of course—it took so many years, ups and downs. And many times it looked like it could be ended, and then something unexpected happened. This kind of torturous process could be frustrating sometimes. Also, China was negotiating at the same time it was increasing in importance to the international community. The demands on the Chinese side also increased. We found that our target was moving all the time.
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A very basic issue through the negotiations was: Is China a market economy? Five years since the end of the negotiations, what would you say is the answer to this question?
I think China basically is a market economy. From an international point of view, there is no unanimous standard for what is a market economy. Everybody thinks that the United States is a market economy. Then if you look at farm subsidies—is this a market economy practice? Of course not—it distorts the price mechanism in the market. But you cannot say that because of its huge farm subsidies, the US is not a market economy. Every country, for one reason or another, is not perfect in its practice of a market economy. China still has a lot of room to deepen its economic reform.
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