China and the World Trade Organization: An Economic Balance Sheet

Daniel H. Rosen is a visiting fellow at the Institute for International Economics. Senior fellows Gary Hufbauer, Marcus Noland, Jeffrey Schott, and director C. Fred Bergsten contributed to the analysis.

China's accession to the World Trade Organization (WTO) would affect the fundamental economic interests of both the United States and China. American opportunities to export to and invest in China would increase significantly. The United States would continue to apply the same, normal tariffs it has applied to imports from China continuously since 1980, but on a permanent basis instead of through annual renewals. China would ultimately be freed from quota restrictions under the Multi-Fiber Arrangement, which is being phased out as part of the WTO Agreement on Clothing and Textiles, enabling China to compete freely in the US market with other textile and apparel producers. The United States would agree to resolve trade disputes with China multilaterally as it does with the other 131 WTO members, rather than bilaterally.

The purpose of this balance sheet is to provide answers to six economic questions at the heart of the WTO accession debate in the United States:

• What would be the impact of China's WTO accession on US exports?
• What would be the impact of China's WTO accession on US imports?
• Are China's proposed terms of accession a good deal for the United States?
• Will the United States see its leverage to compel Chinese reforms diminish once WTO membership is granted?
• Will China abide by its WTO commitments and obligations?
• If the deal is so good for the United States, why is China willing to accept it?

These six questions reflect the economic aspects of the debate over China's accession to the WTO. In addition, of course, accession entails sensitive political questions for both China and the United States. Further, some raise the basic issue of whether a growing China is good for the United States-including in security terms. These issues are not addressed in this Policy Brief. Our answers to the economic questions, however, strongly support the case for Chinese accession to the WTO from the perspective of both US and Chinese national interests.

China in the WTO and US Exports

WTO accession will formally commit China to dramatically reduce its tariff and nontariff barriers to imports of foreign-made goods and services. The effect of WTO accession on world exports and US exports to China, given the provisional Chinese commitments summarized by the office of the US Trade Representative (USTR) in its press release of April 8, 1999,¹ can be estimated with a partial equilibrium model (see Appendix). Using this model, the induced increase in world exports of goods and services to China can be estimated at $21.3 billion. The immediate increase in US exports of goods and services to China can be estimated at $3.1 billion.

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This conservative estimate is based in large part on the widely cited Institute for International Economics study Measuring the Costs of Protection in China published in November 1998.² The $3.1 billion estimate represents about 13 percent of correctly measured 1998 US exports of goods and services to China of $22.9 billion.³ As a static analysis, the Institute's study-carried out by a team of prominent Chinese economists-provides the basis for a fairly secure minimum estimate of the potential US export gains from liberalizing Chinese import barriers.

This estimate reflects only the static impact of liberalization, because the 1998 Institute study examined dynamic effects only in a few selected markets. A fully dynamic analysis would show much larger gains as competition takes hold in the Chinese marketplace. For example, taking into account effects such as increases in foreign direct investment that could follow liberalization, Goldman Sachs estimates that China's accession to the WTO could translate into $13 billion in additional US exports by 2005.⁴

China will continue to reduce its import barriers to some extent regardless of WTO accession, in order to promote domestic restructuring and growth. Accession could help deepen and accelerate Chinese liberalization, however. Formalizing the commitments in the WTO would keep Chinese liberalization on track as resistance inevitably arises from affected domestic sectors. It would give China's trading and investment partners much greater predictability regarding Chinese commercial barriers. And it would provide better enforcement were central or provincial authorities to neglect their economic commitments.

US Imports and the US-China Trade Deficit

Opponents of China's WTO accession commonly point to Chinese bilateral trade surpluses with the United States, condemn them as malignant, and assert that they will continue growing at a rapid pace in the future "if China is allowed into the WTO."⁵ This chain of logic is bizarre: since the existing bilateral surplus takes place in the absence of WTO membership, it is not clear why accession would cause a further increase in the Chinese trade surplus. Indeed, if US imports from, and exports to, China grow at the same rate in the future, the bilateral deficit will continue to expand simply because the base level of imports exceeds the base level of exports.

Table 1 summarizes best estimates of the US-China trade balance in goods and services, as carefully compiled and measured by Fung and Lau. However, bilateral trade balances are a misleading index of the gains from international trade. The United States gains from both exporting to China and importing from China. China likewise gains from trade in both directions.

Table 1: Adjusted Estimates of US-China Goods and Services Trade, 1992-98 (US$ billions)

	US Goods		US Services		US-China Bilateral
Year	Imports from China, f.o.b	Exports to China, f.o.b.	Imports from China	Exports to China	Balance, Trade in Goods and Services
1992	18.7	9.5	1.1	1.6	-8.7
1993	22.6	11.6	1.4	2.0	-10.4
1994	28.4	12.6	1.6	2.1	-15.2
1995	33.9	16.1	1.8	2.6	-17.1
1996	38.5	17.2	2.1	3.2	-20.1
1997	47.9	18.1	2.3	3.7	-28.4
1998	55.8	18.9	2.5a	4.0a	-35.4

Source: Fung and Lau, 1999
a. Estimated by the Institute based on historical growth.

Moreover, China does not run chronic global trade surpluses à la Japan. China's foreign exchange reserves are sizable, but they are only modestly, if at all, larger than the country's foreign debt; China is not a substantial creditor country. China has in fact run consistent global surpluses only since 1994, and may record a deficit in 1999.

Equally important, most of the growth in the US-China trade imbalance does not result from production moving from Toledo to Shanghai but rather from China's success in capturing US markets previously held by other East Asian economies. Noland uses a "constant market share" (CMS) model to demonstrate this point.⁶ The CMS model compares observed changes in trade flows with changes expected from past experience. Noland's model shows that, by 1997, China was shipping more to the United States than expected on the basis of China's average market share since 1993. In other words, China was taking production away from somebody else.

But the numbers show that the "somebody else" generally was not an American firm. In 1997 Chinese exports to the US market exceeded the "constant market share" expectation by $10.1 billion. Of this, the amount displacing third-country exports totaled $7.6 billion.⁷ Net US production displaced by increased Chinese export competitiveness in 1997 therefore stood at just $2.5 billion-about 5 percent of total US imports of goods and services from China. The conservative $3.1 billion estimate for increased US exports following implementation of China's WTO commitments more than offsets this marginal Chinese displacement of US production.

In sum, the trend in US-China trade has been for Chinese producers to take market share from Koreans and Thais, for example, rather than from US producers. In the important textile and apparel sectors, Chinese accession would mainly mean more Chinese competition with other foreign producers. As the phase-out date of 2005 approaches, the WTO's Agreement on Clothing and Textiles (ACT) will eliminate the quotas affecting all 132 WTO members. China's inclusion in this process would mean little if any net increase in US clothing imports but simply smaller shares of the US market for other exporting nations.

Some US officials have expressed a desire to negotiate a "surge provision like we got from Mexico in NAFTA" to cover unanticipated jumps in imports from China since the United States would forgo unilateral action to control the "surges" from China after it joins the WTO. NAFTA does indeed include such a provision, creating a mechanism to monitor trade so that parties to the agreement can anticipate rapid import growth that may cause harm to an industry before that industry complains. Its implementation requires agreement among the three NAFTA members, however, and it has been used only once: with respect to tomato shipments from Mexico to the United States.

The key issue again seems to be textiles and apparel. The United States has occasionally sought to use the "surge" provision of the Multi-Fiber Arrangement but has frequently been thwarted by the Textiles Monitoring Body of the WTO. The overriding economic point is the one made above: that any increase in US textile imports from China will simply replace similar imports from other countries, and that any special limitation on Chinese sales will, perhaps with a short time lag, lead to offsetting sales from other suppliers.

The United States can of course use the general safeguard, antidumping, and countervailing duty provisions of the WTO against China once it becomes a member of the organization. This combination of WTO-consistent devices should be sufficient to enable the United States to maintain adequate protection against unfair competition from China and even from fair competition that injures an American industry.

Report Card

Opponents of Chinese accession want to keep China out of the WTO so that retaliatory restrictions and punitive duties can more easily be placed on imports from China. The critics argue that China has a long way to go before becoming a market-oriented economy: they therefore want to retain a "non-market economy" (NME) designation for China and thus use a "comparator" market economy for the purpose of calculating antidumping duties. The comparator most often suggested is India.

In light of these arguments, it is worth looking at a "report card" on China's provisional terms of accession, as summarized by the USTR in its April 8, 1999, press release. These terms can be compared with the international WTO commitments of India, a GATT member since 1947.

Our scorecard ranges from better (than India), to equal, to worse for eight key areas compared in table 2.

The results show that, while India today has a more predictable trade regime than China (largely thanks to its membership in the WTO), the provisional Chinese accession commitments are significantly more liberal than India's current obligations. As China moves to fully implement its WTO commitments, it could achieve a greater degree of market orientation than exists in India today. In fact, China's accession would put pressure on existing WTO members, including India but perhaps also Korea and even Japan, to further open their own markets in a bout of competitive liberalization. It is also important to note that Chinese entry will be immediately followed by the entry of Taiwan, which will therefore further liberalize its trade regime as well.

Table 2: Scorecard on China v. India

	India	China	Score
Accession to GATT	1947	1947; vacated 1950
Population (1997)	961 million	1,227 million
GDP (1997)a	$374 billion	$1,055 billion
GDP per capita	$390	$860
Share of world trade: Exportsb Imports	$33.9 billion (0.8%) $40.4 billion (0.9%)	$182.7 billion (4.4%) $142.4 billion (3.3%)
Tariff bindings	By 2005, 40% for finished goods; 25% for intermediate. 67% of tariff lines bound. Weighted average tariff will be about 30%.	By 2005, average tariff about 9.44% (with a few exceptions). All tariff lines bound.	Better
Agriculture	Tariffs in 0-300% range from WTO tariffication.	Average tariff of 17% by end 2004. All tariff lines bound. No agricultural export subsidies. TRQs on soybean oil, wheat, corn, rice, wool, sugar, palm and rapeseed oils.	Better
Trade-Related Investment Measures	Notified and phased out nonconforming. Measures, except special auto local content, measure under WTO dispute.	Fully comply upon accession; no transition measures.	Equal/Better
Information Technology Agreement	Zero tariffs on 95 tariff lines by 2000; 4 by 2003; 2 by 2004; and remaining 116 IT products by 2005.	Most tariff lines to zero by 2003; rest by 2005.	Equal
Quantitative Restrictions	Remain on 2,714 tariff lines, 32% of total (mostly consumer goods). India seeking 6-7 year phaseout period from 1997.	Most phased out by 2002; rest by 2005 (incl. autos).	Equal/Better
Services	Limited commitments in banking, non-life insurance, reinsurance with regard to commercial presence; 51% ceiling for foreign equity stakes. Telecom: committed to 25% foreign equity stake.	Financial services: 51% share in joint ventures in insurance within one year/wholly owned subsidiaries in non-life and reinsurance in 2 years. Telecom: Up to 49% foreign stake and 51% in value-added and paging services within 4 years. Accept regulatory principles in basic telecom pact. AV: 49% foreign participation in dis- tribution of video and sound recordings.	Equal
Trade-Related Intellectual Property	Implement fully by 2000, except for product patents on pharmaceuticals, chemicals, microorganisms.	Agreed in 1992 MOU with US to comply with TRIPs standards and give pipeline protection to pharmaceutical patents. Upon accession would fully comply with TRIPs requirements.	Better
Subsidies	No industrial export subsidies.	No industrial export subsidies.	Equal

a. World Bank Atlas Method.
b. Data for 1997; excludes intra-EU trade.
Source: Compiled by Jeffrey Schott, Institute for International Economics, based on USTR press release of provisional Chinese commitments (for China), and Uruguay Round Final Texts (USTR: Washington, 1994) (for India).

Similar conclusions are reached when comparing the tariff and nontariff barrier estimates for China against those of two more advanced economies: Japan and South Korea. Table 3, based on Institute for International Economics studies of all three nations' protection regimes, compares the barriers in these three Asian economies.

The results of these three studies on the costs of protection are not perfectly comparable but do suggest that the Chinese economy is more open than commonly thought. This is impressive given the less developed character of the Chinese economy, which stands decades behind South Korea and Japan in overall economic development yet compares well in trade protection terms. It suggests that WTO accession, with its further liberalization of China's economy, should start the countdown to the end of China's designation as a "nonmarket economy" for purposes of calculating antidumping or countervailing duties. China's provisional offer opened the door to an NME designation for a reasonable period beyond WTO membership; the United States should seek no further prolongation of that treatment.

Table 3: Import Barriers in China Compared to Japan and South Korea

Tariff equivalent of tariff and nontariff barriers
	China	Japan	S. Korea
Tariffs	21.7	5	7.9
Tariff equivalent of nontariff barriers	22.1	173	30.7

Sources: Sazanami et al. 1994, Measuring the Costs of Protection in Japan; Kim 1996, Measuring the Costs of Visible Protection in Korea; and Zhang et al. 1998, Measuring the Costs of Protection in China, all from the Institute for International Economics, Washington.

Losing Leverage Or Gaining It?

With China in the WTO as a regular member, will the United States have gained or lost leverage to compel fair Chinese commercial behavior? With China in the WTO, the United States will no longer be able to use unilateral trade remedies such as Section 301 with abandon. However, enforcement of trade rules is a hallmark of the WTO. As of June 1998, the United States had won 17 of 19 cases it had brought to the organization's Dispute Settlement Mechanism (DSM) -an almost 90 percent success rate.⁸ The DSM can authorize retaliation by the United States and other countries against China for failure to make good on its commitments.

Under Premier Zhu Rongji's provisional terms of accession, China would commit to standards of behavior and liberalization that could not be expected were China to remain outside the WTO system. For example, China not only agreed to comply with DSM rulings but also consented to make non-compliance with TRIMs and TRIPs (see table 2) immediately actionable-a standard that China could not otherwise be held to. The enforcement leverage gained with China inside the WTO is superior to the present toolbox of unilateral US remedies, not least because it would have the authority of multilateral approval.

Is WTO Just "A Scrap of Paper"?

Opponents of Chinese WTO accession assert that China seldom abides by its international agreements. Hence, they assert, there is no reason to expect China to honor WTO commitments in the future. Is this a fair criticism?

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A team of scholars at the Georgetown University Law Center have compiled a record of China's compliance with its recent obligations.⁹ Excerpts from their scorecard (table 4) suggest that China's record, though mixed, is better than the detractors think. This list grades compliance as either good, fair or poor.

According to this scorecard, China's compliance record is a mixed bag-like that of many emerging countries. China does not have an exemplary record, but it is wrong to say that China is a consistent cheater on international sovereign commitments. For example, as the USTR notes in the 1999 Trade Barriers Estimate (p. 61), regarding compliance with the 1995 and 1996 Memoranda of Understanding on Intellectual Property:

Based on the 1995 and 1996 bilateral IPR agreements and extensive follow-up work with Chinese officials, China now has a functioning system to protect intellectual property rights (IPR). Enforcement of intellectual property rights has become part of China's nationwide anti-crime campaign; the Chinese police and court system have become actively involved in combating IPR piracy. According to Chinese Government statistics, China seized some 35 million illegal audio-visual products from 1994 to year-end 1998. It has shut down or fined 74 assembly operations for pirated VCDS and seized over 20 million smuggled VCDs during the same period.

Over the almost two decades of its membership, China has been a good citizen in the International Monetary Fund and the World Bank despite the many doubts raised about China's behavior prior to its Fund/Bank accessions. China should likewise be a "good citizen" in the WTO.

For their part, the Fund and especially the Bank have played critical roles in China's development. The Bank helped China develop its basic marketization strategy and contributed substantially to its integration into the world economy. Chinese observance of trade rules, whatever one's view of its past and present performance, will clearly improve more rapidly with China in the WTO as a full member than left outside as a perpetual aspirant.

Table 4: Chinese Compliance with International Agreements

While there is controversy about the degree of Chinese adherence to international agreements (treaties governed by public international law as well as private commercial contracts) it is clear that a mixed, and somewhat improving, picture is the norm. Notably, Chinese compliance with sovereign treaties and agreements is superior to their enforcement of commercial agreements between private parties. The table below considers four areas relevant to China's WTO accession.

Area of Agreement	Compliance History	Scorea
Environment	Appears to meet core obligations of each agreement. Implementing agencies designated to "increase contact with the international community" taking their duties seriously and implementing enforcement protocols. However, China limits actions to the strict letter of agreements rather than spirit while efforts are underfunded, subject to regional inconsistency, and hindered by poor technical skills.	Fair
Intellectual property	Enacted first copyright law in 1991 and harmonized laws with international standards in 1992. Enforcement efforts have shown fruit, as seen by the closure of 15 of the 31 factories investigated following the 1995 US-China memorandum of understanding on enforcement of intellectual property laws. However, the United States complains that China cracks down on distributors more than producers of counterfeit goods. Compensation for infringement is inconsistent due to dearth of specific provisions and judges' inexperience. Awards inadequate by international standards but increasing recently.	Good
Private agreements	China International Economic and Trade Arbitration Commission (CIETAC) dominates arbitration of foreign-related disputes inside China. CIETAC is known to ignore some evidence presented by foreign parties and sometimes favor Chinese parties. Outcomes of venture capital disputes are mixed but even when favorable judgments for foreign parties are rendered, they are very difficult to enforce. Overall, far less dependable outcomes than when sovereign obligations are involved.	Poor to Fair
Nonproliferation	China acceded to the Nonproliferation Treaty (NPT) in 1992 and in 1995 supported efforts to make the NPT permanent. Currently, Chinese compliance appears to be fairly comprehensive, but a colorful history of noncompliance and negligent oversight exists as well. For example, as of 1997, China continued to export specialized nuclear equipment and technology, primarily to Pakistan and Iran. Rogue Chinese enterprises, as opposed to government agencies, were partly to blame. Subsequently, pledges to stop nuclear exports to Pakistan and Iran were extracted and duly honored, but only in response to heavy pressure and compromise. As of 1999, China has terminated nuclear assistance to Iran, committed not to provide assistance to unsafeguarded nuclear facilities in Pakistan or elsewhere, and has strengthened internal export controls of nuclear weapons-related materials.	Fair

Source: Adapted from James V. Feinerman and Daniel Chang, Georgetown University Law Center, Washington. Based on research for Chinese Practice of International Law in the Post-Mao Era, forthcoming, Georgetown University.
a. The score assigned to Chinese compliance in each area is the author's, based on Feinerman and Chang's text.

Is Growth Strategy Destiny?

Reasonable people can examine the same Chinese WTO offer and come to very different conclusions about the value of individual accession terms for the United States. Washington experts may be intimately familiar with the nuances of phyto-sanitary barriers but fail to grasp the fundamental Chinese strategy that will determine that country's long-term trajectory.

For example, the latest paper from the Economic Policy Institute (EPI) suggests that China is experiencing relatively strong growth and high inflation.¹⁰ In fact, growth is now far slower than in earlier years of the reform period (perhaps as low as 4 percent in 1999) while the country is mired in profoundly serious deflation (prices fell more than 3 percent in the latest quarter). No wonder the EPI conclusions opposing Chinese entry seem odd.

A review of basic Chinese conditions is essential so that all parties to the debate can agree on the fundamental forces motivating Chinese economic interests and behavior. Three key macroeconomic factors dominate the landscape of China's economic development today:

• Exports in traditional export sectors are flat or falling, and growth in the stock of foreign direct investment (FDI) is stalled. With China's trade surplus falling 61 percent in the first 5 months of 1999, economists are openly discussing the possibility of a Chinese current account deficit this year. FDI, meanwhile, has fallen markedly from 1998 levels, especially from overseas Chinese investors least likely to attach demanding strings to their investments.
• Bold fiscal policy outlays are priming the economy but they may also be stretching the government's borrowing capacity. With the debt-to-GDP ratio growing rapidly, the tax base barely growing at all, and large new demands emerging for government social spending, the government spending route faces real limitations.
• Domestic consumption is stagnant despite interest rate cuts and other incentives designed to stoke demand, largely due to widespread economic insecurity. Deflation threatens to erode confidence further. Spurring private consumption among conservative Chinese households has proven so difficult that authorities are talking up fragile stock markets in hopes of engendering a US-style "wealth effect."

Faced with this confluence of problems-none of which has been a major issue since 1978, let alone all three together-China's leadership has chosen to push ahead with the WTO process. With export-led, investment-led, and consumption-led growth strategies on the ropes, Premier Zhu is attempting a radical "fourth way": competition-led growth.

China's entrance into the WTO is a key instrument needed to heighten foreign and domestic competition against entrenched state-owned and monopolistic firms. If it succeeds, competitive pressures will galvanize Chinese companies and foreign enterprises in China alike. Competition would then in turn spur productivity, boost profits, inspire investment, and make clear where scarce resources are to be deployed most productively. If Premier Zhu fails to set China on this "fourth way," however, there is a significant chance that the economy will run out of steam. Projections of 6 percent-plus growth over several decades could become a curiosity.

Conclusion

For China, WTO membership is not a tactical step to outsmart its trading partners. Rather, the WTO is part of a broader strategy to lock in a tenuous transition from communism to a market economy. The United States has taken a very tough negotiating stance in the 13-year history of bilateral WTO accession talks with China. To a great extent, that position has been compatible with China's self-selected policy of rapid economic reform and opening, which is why opportunity exists for agreement in 1999.

But WTO accession is just one tool that China's reformist leaders can use to manage the most populous nation in the world. They cannot deplete their energies on WTO concessions to the exclusion of all other agendas. That would be a recipe for their ouster.

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The United States, in turn, must recognize its own clear interest in Chinese accession. Chinese economic gains would complement, not diminish, other US policy goals. Further Chinese consumption growth and marketization, for example, will continue to abet political reforms. In light of these interests, the three remaining US "demands" used to justify failure to embrace Zhu Ronji's bold overtures-indefinite protection for textiles and apparel, indefinite extension of NME designation, and indefinite application of a less liberal surge protection mechanism-look particularly foolish.

We know from history that it is critically important to engage rising superpowers in the global leadership structure on a timely basis. Germany was declared a pariah by the Treaty of Versailles after the First World War and had already felt rejected by the global leadership in the late nineteenth century, with results that were disastrous in security as well as economic terms. Japan perceived similar rejection, both before and especially after the First World War, with equally calamitous consequences. A failure to integrate China now would risk repeating these historic follies, on the downside, and risk passing up an opportunity to bolster a highly desirable reform process on the upside.

The United States will achieve substantial economic and political benefits from Chinese entry to the WTO. President Clinton therefore should have accepted Premier Zhu's offer in April. Developments in both countries have made it harder to reach agreement subsequently, and further delay may complicate the process even more. It would be an enormous blunder for the United States to slam the door on China's reformist leaders and deny itself, and the world, the trade liberalization that those leaders are prepared to offer in the middle of 1999.

Appendix: Estimated Static Impact of WTO Accession On Chinese Imports, 1997 (US$ billions)

Total c.i.f. value of Chinese importsa
Merchandise, of which		$150.0
Highly protected	54.2
Other	95.8
Service, excluding insurance and freight on goods imports		16.7
Total		$166.7
Projected increase in Chinese importsb
Merchandise, of which		$18.2
Highly protected	10.2
Other	8.0
Services, excluding insurance and freight on goods imports		3.1
Total		$21.3
US exports to China, 1998
Merchandise total, of which		$18.9
Direct	14.4
Via Hong Kong	4.5
Services		4.0
Total		$22.9
Projected increase in US exports to China
Merchandise, of which		$2.3
Highly protected	1.3
Other	1.0
Services		0.8
Total		$3.1

Source: Gary Hufbauer, Institute for International Economics
Notes:
a. Fung and Lau, 1999.
b. Based on calculated WTO-induced gains in Chinese imports as follows: (1) highly protected merchandise and all services, 18.8%; (2) other merchandise imports, 8.4%. These calculations reflect the assumption that tariff (21.7%) and nontariff barriers (22.1%) on highly protected merchandise add to a 43.8% tariff equivalent; that the tariff barriers are cut by 60%; and that the nontariff barriers are cut by 40%, yielding overall liberalization for the goods of about 50% from pre-WTO levels. For other merchandise, the average pre-WTO tariff is estimated at 24.6%, and tariff liberalization is assumed to be 60%. The response parameters are based on Zhang et al.'s 1998 Measuring the Costs of Protection in China, Institute for International Economics, Washington.

Notes

1. The summary is available at http://www.ustr.gov/releases/1999/04/ch-memo.html. While it is not a jointly agreed text, Chinese officials confirmed informally at the time that the content reflected the state of negotiations. In the wake of the US rejection of their proposals, these officials have emphasized that they no longer feel bound by them.

2. Zhang et al., 1998.

3. K.C. Fung and Lawrence Lau, "New Estimates of the United States-China Bilateral Trade Balances," Asia/Pacific Research Center, Stanford University, April 1999. The Fung and Lau corrections address varying custom valuation methods, reexport and markup of trade through Hong Kong and trade in services.

4. Fred Hu, Goldman Sachs (Hong Kong), Global Economics Paper No. 14, April 1999.

5. See "China Can Wait," (p. 7), by Robert Scott, Economic Policy Institute, Washington, June 1999.

6. Marcus Noland, "US-China Economic Relations," in Robert S. Ross, editor, After the Cold War: Domestic Factors and US-China Relations. Armonk, NY: M. E. Sharpe, 1998.

7. While the model does not say which third countries, we do know for example that the US bilateral trade balance with Hong Kong has improved in recent years despite large increases in our global deficit.

8. Jeffrey J. Schott, "The WTO: Progress to Date and the Road Ahead." In Jeffrey J. Schott, ed., Launching New Global Trade Talks: An Action Agenda (Institute for International Economics: Washington, 1998.)

9. The author is grateful to James Feinerman and Daniel Chang of the Georgetown University Law Center for contributing this material. The characterizations of Chinese compliance performance based on Feinerman and Chang's analysis are entirely the author's.

10. Robert Scott, "China Can Wait," available on-line at http://www.epinet.org/briefingpapers/china.html.

The views expressed in this publication are those of the author. This publication is part of the overall program of the Institute, as endorsed by its Board of Directors, but does not necessarily reflect the views of individual members of the Board or the Advisory Committee.