WTO and China
...ghts will not only benefit the investors, both domestic and foreign, but also stimulate the Chinese economy. As evident, China had made great policies and standards to meet the WTO’s expectations. The increased presence of foreign investors in China will allow for a continuous monitoring and evaluation of the new policies and regulations. HUMAN and LABOR RIGHTS · CHINA AND ITS PROMISES IN HUMAN RIGHTS Besides setting fair policies and regulations to comply with global trading rules, China also committed itself to improve the treatment of its own citizens. The main problems that China has to resolve are legal and court systems directly affecting human and labor rights. First, the closing of state run enterprises may push workers to demand greater collective decision-making on workplace issues and the need for social security. Second, the Chinese government rejected the links between WTO participation and human rights. According to a Chinese trade official at the Geneva meeting on March 22, 2001, “Any attempt to link the debate on China's human rights record with its accession to the WTO would not be in other members' interests.” Although the Chinese government does not want WTO members interfering in China’s inner problems, its accession into WTO China will force it to act according to international laws. The United States and other members of WTO must also increase the pressure on China to improve its human rights. Without any pressure, the Chinese government will not be eager to take serious steps in these issues. China must be pushed to go beyond opening its markets into international trade, to opening its jails and protecting the rights of individuals and workers; otherwise, China will have advantages over other countries because of its low wages. Thus, human and labor rights in the law system are not only needed for humanity, but also needed for trade competition. It will not be fair to compete with China in its current human and labor rights’ conditions. · HUMAN RIGHTS REPORTS FOR CHINA OVER 10 YEARS Products manufactured in low-skill, labor-intensive factories employ low to middle income workers in underdeveloped countries but typically do not provide sufficient income in spite of the long workdays. In this way the underprivileged members of society produce wealth for the privileged, often upper-class factory owners. In addition to this core-periphery relationship, where the periphery supports and provides wealth to the more powerful core, the divide between industrialized and developing countries lies between North and South. With free trade, developing countries are economically integrated into the world market, but at different levels of power than industrialized countries. Therefore they also have different standards of living. The human rights community opposes the stratification of human rights protection among nations brought on by unregulated industries. In 1994, the U.S. State Department, Amnesty International and others reveal Beijing's human rights abuses continue to mount. Although the constructive engagement policy went into effect in 1995, the abuses have gotten worse since the Tienanmen Square massacre of 1989. As Wei Jingsheng, a leading democracy activist now in exile in the U.S. after 18 years of imprisonment in China, recently testified to Congress; “China only improves human rights when it feels outside pressure, such as the spotlight of annual congressional scrutiny.” Another report from the U.S State Department in 1998 stated that the Chinese government continued to commit widespread and well-documented human rights abuses in violation of internationally accepted norms. The abuses included instances of extra judicial killings, torture, mistreatment of prisoners, forced confessions, arbitrary arrest and detention, lengthy incommunicado detention, and denial of due process. The Chinese government also continued the restrictions on freedoms of speech, association, religion, and movement. Furthermore, an estimated several thousand people are detained in violation of international human rights instruments for peacefully expressing their political, religious, or social views. Former detainees and the press have reported credibly that officials used electric shocks, prolonged periods of solitary confinement, incommunicado detention, beatings, shackles, and other forms of abuse against detained men and women. Thousands of political prisoners detained without trial or convicted after unfair trials in previous years remained in jail, including many prisoners of conscience. At least 2,000 convicted political prisoners were serving sentences for “counter-revolutionary” offences. The government made no move to review these cases, even though such offences had been abolished in law in 1997. More than 200,000 people continued to be administratively detained without charge or trial in labor camps for “re-education through labor”. · LABOR RIGHTS AND WORKING CONDITIONS In addition, Chinese government continued to tightly restrict the worker rights and forced labor, which still remains a problem. Much of the forced labor occurs on farms and mines where conditions are harsh and safety is a low priority. Independent trade unions are illegal in China, as the government has attempted to stamp out illegal union activity. Moreover, Labor activists have been imprisoned and detained. According to Amnesty International's 1999 China Report, “More than 200,000 people continued to be administratively detained without charge or trial in labor camps for re-education through labor.” The demographics of workers in multinational factories, such as Nike and Adidas, reveal that 80% of the workers are women between the ages of 18 and 26. These workers are paid a standard piece rate of approximately 1.20 Yuan. When working overtime, workers receive only 0.8 Yuan above the piece rate. According to most labor laws in the world, workers should be paid time and a half for working overtime on weekdays and double on weekends. Also, workers were forced to work 12 hour in low seasons and even more in high seasons. Although they were not physically forced to work the long hours, they were pressured by the incentives to keep their jobs. They worked 6 days a week with no holidays or paid vacations, and they only earn 500 to 700 Yuan a month. Although working conditions are poor, there are some signs of improvement for many of the factory workers in the multinational companies. Some workers had signed contracts with the factories for 6 to 24 months. These contracts will provide workers with health, safety, and medical insurance by law, but these benefits do come with a price. Most factories will charge their workers a fee for applications, ID cards and working tools. In addition, the workers will pay a residential tax, which really should be paid by the factories. Although the China Labor Law was passed in July 1994, none of the workers, especially women, were aware of their labor rights. They didn't know about the legal protections provided to them by law. This uncertainty clearly states that China does have some labor rights laws, and its government is not re-enforcing them. · CHILD LABOR According to Compulsory Education Law of the Chinese constitution all children under the age of 16 must go to school and are not allowed holding full-time jobs. However, the government does little to prevent privately owned industrial or commercial firms from hiring children. Up to ten percent of Chinese children hold full time jobs instead of going to school each year. Parents allow their children to work because they feel it is more beneficial. Moreover, parents feel schools do not provide skills that have immediate or realistic advantages. Many poor families cannot afford the expenses of school, and children go to work in order to support the family. Since human rights are not currently evaluated in the WTO, many in the human rights community advocate the integration of a Social Clause into the WTO terms of trade. The Social Clause includes a set of rules designed to protect workers and industries within society while subverting the negative aspects of free trade. Some of the main points of the Social Clause are: 1. Giving workers the right to organize into unions, which protect their interests 2. Outlawing forced labor and forced overtime in industries 3. Placing more controls on child labor through examination of working conditions and the sacrifices children may make of their health and education 4. Replacing the prevailing wage, which is below subsistence level, with a living wage which is sufficient to support a decent standard of living According to government statistics, more than 10 million children, aged 6-15 ("Far East Economic Review" claims 24 million) are out of school in China. A conservative estimation is that half of these children are working in factories. In other words, there are more than 5 million child workers in China. This is surely underestimated. In Sichuan, the most populated province in China, it was reported that 85% of children who drop out from school are working in other provinces. Even in some rural enterprises, 20% of work force is child labor. The exact number of children working in China is unknown. Furthermore, it is not possible to obtain any information directly from China because of China's repressive political system. It is also impossible to assess how diligently the Chinese Government enforces child labor laws or prosecutes child labor law violators, as well as to determine efforts by non-governmental organizations to address child labor in China. Child labor is used in a range of export industries including garments, textiles, fireworks, and toys. In some coastal areas and special economic zones, such as Fujian , Guangdong, Zhejiang, Sichuan, and Hubei, there are reported four to five million child laborers under the age of 16. Child laborers under 12 years of age are also found in Whenzhou and in some areas of Guangdong and Hainan. In these areas children usually work 10 to 14 hours a day from 7 a.m. to 10 p.m. with two one-hour breaks, but their wages are just about half of adult workers. Furthermore, child workers are often subjected to verbal, physical and sexual abuse. Frequently, reports have surfaced of actual slave labor, where children are kidnapped, forced to work with no pay, and locked up for the few hours each day when they are not working. In one case, reported by China Women's News in December 1994, brick shop owners in Gouzhao Village, Zhengzhou City, Henan Province were discovered using forced child labor. The children had to carry bricks for over ten hours each day and were only fed plain melon soup. Over 40 child workers shared a makeshift hut of less than 20 square meters. Moreover, they were not given a cent of the wages they had been promised. · EU’s EXPECTATIONS AS A SIGN OF HUMAN RIGHTS IMPROVEMENT WTO membership will not itself lead to political changes in human rights issues, but it will need consistent pressure from outside China. The European Union has a special policy for China. One of the categories is “to support China's transition to an open society based upon the rules of law and respect for human rights.” As signs of improvement to China’s human rights, the WTO members’ expectations for China in the future include: 1) Ratifications of the two UN covenants. 2) Serious steps by China to begin dismantling the huge system of “re-education through labor” 3) Open Tibet and Xinjiang to regular, unhindered access by United Nations human rights and humanitarian agencies, foreign journalists and independent monitors. 4) Review the sentences of more than 2000 counter–revolutionaries under Provisions of Chinese law repealed in 1997. 5) Abolition of the death penalty FOREIGN INVESTMENT The Notice and the Detailed Implementing Rules for Administration of the Current Account Foreign Exchange Accounts of Domestic Organizations introduce a unified legal regime for the current account foreign exchange accounts of both wholly Chinese-owned enterprises and foreign-invested enterprises. Of particular note are the unified rules for the caps on current account foreign exchange accounts, which replace the cap rules that previously applied to foreign-invested enterprises. The Notice and the Implementing Rules also provide for the consolidation of current account foreign exchange settlement accounts and special-purpose foreign exchange accounts. In principle, the cap on the current account foreign exchange account of a “domestic organization” (this term includes foreign-invested enterprises) is to be 20% of the domestic organization’s current account foreign exchange receipts in the previous year. When a domestic organization that had no current account foreign exchange receipts in the previous year opens a current account foreign exchange account, the initial cap should not, in principle, exceed an amount equivalent to US$ 100,000. It is unlikely that Beijing can implement all of its commitments, which could lead to harassment from its trading partners. For example, China has to gain the cooperation of far-flung provinces that will resist the widespread deregulation required by the WTO. It also has to amend more than 170 laws and regulations just to modernize its customs procedures, let alone all of its other statutes. It must establish an effective legal system for protecting intellectual-property rights, not to mention independent regulators for telecommunications and modern financial legislation. These are goals that took the U.S. at least a half-century to achieve. Foreign telecom operators will be able to freely own parts of Chinese networks. Multinationals will have the right to set up their own distribution networks rather than working through Chinese corporate middlemen, as they must now. Foreign carmakers will make and sell whichever models they wish and set up nationwide dealerships and service networks. In telecom gear, computers, and semiconductors--sectors that Beijing tried to protect for decades--imports will be duty-free by 2005. However, all eyes are in China’s telecom market. As a condition for the membership in the WTO, China has vowed to allow foreign investors hold 25% of its telecom firms upon accession, rising to 49% in three years. This change will be particularly momentous with respect to telecoms because at present foreign companies are prohibited from operating telecom networks. As a result, the global telecom giants are jockeying for a position in what could become the world’s richest market for the wireless telephone. China has been viewed by telecom players as one of the hottest potential markets going in Asia or anywhere else. China’s telecom market has come a long way in the past 15 or 16 years. According to the International Telecommunication Union figures (ITU), in 1984 China had just 2.8 million telephone lines – barely one fixed line for every 400 people. Ten years later that figure was up to 27 million, or 2.3 main line per hundred. By the end of 1998 there were 87 million, or nearly seven lines per 100 people and by the end of 1999 China had 141 fixed lines for a teledensity of 11%. Mobile growth has been even more spectacular. From just 1.5 million subscribers in 1994, the number of subscribers jumped to 13 million by the end of 1997, 23 million by the end of 1998, and 43 million at the end of 1999. The telecom industry has grown over three times the growth rate of the national economy as a whole. According to the Chinese authorities, China’s telecom market was worth over $52.8 billion in the year 2000, an increase of 44% over 1999. If this increase continues, by the end of 2005 China’s fixed and wireless markets will be the largest in the world. Vast opportunities for growth remain, because even with over 160 million fixed line subscribers at the end of May 2001, telephone penetration rates remain at a low 12%. The same holds true in the mobile market. China had a total of 111.1 million mobile phone subscribers, and authorities estimate that this will grow to over 200 million by 2003. Internet usage in China has also exploded over the last two years, with present estimates showing over 16 million subscribers and over 25 million users. These statistics show just how big and important China’s telecom market really is. China has built one of the largest public telecom networks in the world, including the world’s second largest fixed-line and mobile networks. The creation of the Ministry of Information Industry (MII) in 1998 and the recent restructuring of China telecoms into three parts (fixed-line, mobile and satellite), signal an end to the state’s total monopoly over telecom businesses and the beginning of a more liberalized and pro-competitive telecom market. The new companies are China Telecom (fixed line), China Mobile Communication (mobile) and China Satellite Communications (satellite). China’s eventual aim is for the MII to gradually emerge as a truly independent telecom regulator and for new entrants, both domestic and foreign-invested, to be allowed to engage and compete in the telecom industry. Under the Sino-US bilateral agreement for China’s accession to the WTO, China has agreed for the first time to allow gradual foreign investment in China’s telecom business upon accession to the WTO. In addition, China will become a party to the Basic Telecom Agreement (BTA). This agreement governs the liberalization of basis telecom services among WTO member states, and is designed to impose pro-competitive regulatory principles on all WTO members alike. As with other BTA signatories, China will prepare and submit a schedule of specific liberalization commitments in relation to the provision and supply of basic telecom services and this schedule will adopt the core regulatory principles set out in the Reference Paper which forms part of the BTA. In essence, the BTA requires member states to commit to the following six regulatory principles: 1) to establish a regulator independent from any service supplier 2) to utilize transparent criteria in licensing 3) to establish terms and conditions for non-discriminatory interconnection 4) to adopt cost-based pricing and safeguards to protect against anti-competitive behavior 5) to utilize “objective, timely, transparent and non-discriminatory” procedures for the allocation of scarce resources 6) to administer non-discriminatory universal service obligations As regards to the telecommunications regulations, the MII is the authority in charge of supervising and administering China’s telecom industry as a whole. The MII is in charge of the overall planning of the construction and administration of public telecom networks, specialized telecom networks and broadcast and television transmission networks. The telecom administrative authorities of the provinces, autonomous regions and municipalities under the direct administration of the central government are responsible for supervising and administering the telecom industry within their respective areas of administration. The telecom business is classified into two types: “basic telecom business” and “value-added telecom business”. Basic telecom business (BTB) refers to the business that provides public network infrastructure, transmission of public data and basic voice communications services. Specific types of telecom business classified as BTB include domestic long-distance and local telephone services on fixed-line networks, telephone and date services on mobile networks, satellite communications and mobile satellite communications services, internet transmission, and paging services. Value-added telecom business (VATB) refers to the business that provides telecoms and information services by using the public network infrastructure. Specific types of telecom business classified as VATB include electronic mail, voice mail, online database storage and retrieval, internet access services, and video-telephone conference services. The pre-requisites for the operation of BTB are extensive. An applicant must satisfy the following requirements: 1) it must be a company established in accordance with the law to specifically engage in BTB and the percentage of equity or share capital owned by the state must not be less than 51% 2) it must have feasibility study report and network formation technical plan 3) it must have appropriate financial resources and professionals 4) it must have an operation site and corresponding resources 5) it must have the goodwill or ability to provide long-term services to users 6) other conditions stipulated by the state The pre-requisites for the operation of VATB are less extensive than for BTB. To operate VATB, an applicant must satisfy the following requirements: 1) it must be a company established in accordance with the law 2) it must have appropriate financial resources and professional 3) it must have the goodwill or ability to provide long-term services to users 4) other conditions stipulated by the state Unlike the BTB, there is no requirement that a certain percentage of the equity of share capital of a VATB operator must be owned by the state. Therefore, it is possible that 100% of the equity or share capital of a VATB operator may be by non-state owned or private domestic entities. Under the terms of the Sino-US bilateral WTO agreement, foreign investment in VATB will be capped at 30% initially and at 50% within five to six years of China’s WTO accession. A non-state owned or private entity can thus hold 70% of the equity initially of any proposed Sino-foreign VATB joint venture. One telecom company, Vodafone of Britain, jumped on the joint venture wagon very early on. Vodafone and China Mobile joined forces and promised to be a “win-win” move for the shareholders and investors of both companies. Vodafone, the world’s largest mobile-phone firm in terms of subscribers, invested $2.5 billion in cash for a 2% stake in China Mobile, the listing vehicle for mainland-based parent company China Mobile Communications Corporation. This deal will help finance China Mobile’s $32.84 billion purchase of the additional seven cellular networks from its parent. This acquisition will add another 15.4 million subscribers to China Mobile’s rosters, bringing the company’s total subscriber base to 39.3 million users and making it the world’s second-largest cellular-phone company. The Vodafone and China Mobile deal is the first of many more tie-ups to come. Motorola is another multinational company that has moved quickly in China’s telecom frontier. Motorola, the world’s second-biggest telecom equipment manufacturer, increased its stake in China. This Schumburg, Illinois based company is already the largest foreign investor in China and is expanding its presence in China to take advantage of rocketing demand for its mobile phone. Motorola announced in September 2001 that it will have $10 billionaccumulated investment, $10 billion annual production, and $10 billion local purchasing in China before 2006. The company is currently the biggest player in China’s mobile handset market, with a 30% market share. Moreover, China’s two mobile carriers, China Telecom and China Mobile, have adopted Motorola’s equipment. However, not all the glitter in China’s telecom market is gold. To several dozen companies that already have sunk $1.4 billion into around 40 different telecom joint ventures in the mainland, the signals coming out of Beijing are as gloomy as ever. Chinese officials have been warning the likes of Sprint, France Telecom, and Bell Canada to unwind partnerships they had forged since 1994 with state-owned China Unicom. Since the WTO deal was signed, Beijing has only intensified its pressure to sell their stakes at a minimum profit. Many multinational companies are still facing the hard fight of making their mainland investments pay off. Even though investment barriers are supposed to fall, the protectionist mindset of Beijing toward industries ranging from telecom to financial services will not easily change. Furthermore, while non-state owned or private telecom entities are allowed to hold up to 49% of the equity or share capital of a basic telecom (BTB) business operator, the requirement that 51% of the equity or share capital of a BTB operator must be owned by the state reflects the People’s Republic of China government’s determination to retain state control over the operation of BTB. Under the terms of the Sino-US and Sino-EU bilateral WTO agreements, foreign investors can gradually take up to 49% ownership in the operation of BTB within five to six years of China’s WTO accession. Unless a potential foreign investor is willing to accept an ownership interest of less than 49% in any proposed Sino-foreign BTB joint venture, the chances of the foreign investor successfully partnering with a non-state owned or private domestic entity would appear to be minimal. Another obstacle for foreigner investors in the telecom market is China’s regulatory system. The MII is responsible for regulating various aspects of China’s telecom sector, including operational licensing, interconnection, the setting of telecom rates and standardization of telecom services, the allocation of telecom resources, and the selection of universal service providers. Given the close relationship between the MII and China Telecom in the past and the perceived continuing association between the MII and new telecom companies, it remains to be seen whether the MII will in practice be impartial with respect to all telecom operators (including new entrants) in exercising its regulatory power under the Telecommunication Regulations. In reality, it may take a considerable period of time, even after China’s WTO accession, before the MII will become a truly independent telecom regulator. One more gloomy sight is that China joins the WTO at a time when the world’s economy is in a downturn. With multinational’s traditional consumers buying less, these businesses will work harder to penetrate Chinese markets to make up the shortfall. After only two months into the WTO accession, foreign telecom companies are seeing a slowdown in China business due to a much-delayed restructuring of China Telecommunication Corp. While the framework of splitting the fixed-line monopoly China Telecom is clear, issues still undecided include personnel assignments and the messy details of splitting a fiber-optic network that stretched across the country. The indecision has immobilized China Telecom, stalling purchasing and business decisions and a planned stock offering originally estimated at $6 billion. The uncertainty is hurting business for telecom equipment suppliers around the world. The restructuring is hitting not just equipment sales but also China Telecom’s willingness to contemplate new projects, just when foreign investors are eager to explore that area after China’s entry into the WTO. The hold-up could herald a sour mood among investors in China’s telecom market. This slowdown in the telecom market demonstrates that increased foreign business presence in China is pretty much a “zero-sum” gain in the short-term. However, it will benefit everyone in the long-term. TARIFFS and TRADE BARRIERS · CHINA’S TRADE HISTORY The final major area upon China’s entrance into the WTO concerns tariffs and trade barriers. First, most tariffs (approximately 17%) will be cut on a variety of imports by 2004, and the rest will be cut by 2010 (Exhibit 3). Tariffs on high-tech goods like telecommunications equipment will be taken away by 2005, and duties on cars will decrease to 25% by 2006. In addition, by 2010, ceiling tariffs will average 8.9% for industrial goods with a maximum of 47%, and 15% for farm goods with a maximum of 65%. Second, many non-tariff barriers will be eliminated. For example, all companies within three years will have the right to import, export, and distribute goods throughout the countries. All exclusive trading rights will stay for products like cereal, tobacco, fuels, minerals and some steel, but some products such as pharmaceuticals and fertilizers will still be subject to price controls. Third, in December 2004, all quotas on Chinese textile exports will end due to WTO’s textile agreement. Until the end of 2008, a special safeguard mechanism in the agreement will allow WTO members to impose restrictions if there are any disruptive import surges. Fourth, China has abandoned the use of export subsidies for farm produce, and it will increase its agricultural imports. In addition, farm subsidies will be capped at 8.5%. Finally, China will authorize oil imports by 2005. Although China must reduce its tariffs substantially upon entrance into the WTO, it is allowed to use tariff-rate quotas (TRQ). These quotas will give China, as well as other countries, the option to purchase a limited amount of imports at low tariffs while separating additional imports at much higher rates. China is expected to implement TRQs on its key commodities including wheat, corn, rice, sugar and cotton. In China’s history, trade did not play an important role in its overall economy. As time passed, China began to realize that in order to modernize its economy and rid itself of its large trade surpluses; it must pay more attention to trade. Beginning in the 1950s, China began to open itself up to foreign trade. A large portion of trade between China and developing nation at this time was financed through credits, grants and other forms of assistance. During the 1980s and 1990s, most of China’s imports consisted of industrial supplies and capital goods, like machinery and motor vehicles. These imports usually came from developed countries like Japan and the United States. Within China itself, about half of its imports came form East and Southeast Asia, which is also where approximately a quarter of its exports go. Approximately 70 percent of China’s exports constituted manufactured goods; the most important ones were textiles and clothing. Other exports included agricultural products, chemicals, and extractive products like coal and oil. During China’s reform process, it introduced tariffs as a method of regulating trade, which was more consistent with the principles of the market economy. China began to cut its tariffs more quickly in an effort to develop better relations with key trading partners and to facilitate a quicker acceptance into the WTO. The benefits of lowering tariffs outweigh the costs. Although lowering the tariffs may hurt China’s investments, create unemployment, and ignite competition causing some companies to go bankrupt, it will allow the Chinese market to expand and open up to new opportunities. Furthermore, high tariffs will stand in the way of domestic reform, as China is trying to improve inefficient state owned enterprises. The higher tariffs were a means of protecting China’s industries from foreign competition, but many of the Chinese industries are now capable of competing against foreign importers for goods such as home appliances. Currently, higher tariffs are burdensome to consumers who must pay more, and to domestic and foreign investors who pay high prices for imported equipment and raw materials. These high unnecessary tariffs could lead to corruption, smuggling, and tariff invasion. CHINA’S CURRENT TRADE SITUATION: Over the past twenty years, China’s exports have shifted from primary to manufactured products. This shift is due to China’s increase in industrial capital and due to the increased similarity of its internal prices with international prices. China’s exports reveal it is rich in labor and has poor capital in comparison to other large economies. Most of its exports include labor-intensive manufactured items such as footwear, sports equipment, cloths, toys, and games. Other capital-intensive goods China is increasingly exporting consist of mineral fuels, plastics, professional instruments, and iron and steel products. China’s imports, like its exports, have also shifted to manufactured items over recent years, but they tend to be more labor-intensive than its exports especially because it’s a low-wage country. There has also been an increase in imports of both fruits and vegetables, but a decrease in exports of fruits. In addition, there has been a rise in exports of vegetables, and animal and aquatic products. Also, China is continuing to import mineral fuels and oils. Over the past few years, there has been a large decrease of motor vehicles and parts imported into China. This decrease is mainly due to China’s new auto motive policies in 1994. These policies promote domestic auto production as a “pillar industry” and also encourage import substitution, such as new joint ventures with automakers. Currently, many of China’s automobile sectors are very vulnerable as they are struggling with old technology. In an effort to strengthen their position, China has lowered import tariffs in order to decrease production costs. In addition, in recent months, a few Chinese automakers have cut their prices in order to compete with foreign imports as the tariffs drop. · Wheat, Corn and Rice The United States as well as other exporting countries should begin to see increased market access in China. The products of most interest to these countries, especially the United States, are wheat, corn, rice, soybean, oil, and cotton. Corn and winter wheat is grown mainly in the north of China and rice in the south, but China tends to be grain inefficient in the south. Thus, China needs to import grain from northern China or abroad. China’s trade strategy of reducing imports and increasing exports in the late 1990s reflects the government’s decision to stimulate and control domestic agriculture. China implemented various trade measures to decrease the number of imports. First, corn imports were allowed only if the corn was re-exported as a finished product, like starch or other processed products using the imported corn. Moreover, corn imports were not permitted if they were used as feed for livestock being exported as meat, fish or poultry. Finally, in an effort to promote domestic local rice consumption due to the excess supply because of overproduction in the past three years, the Chinese government banned most rice imports. One exception was made in 1998, when China agreed to import some rice from Thailand. Thus, China became a net exporter of grains, instead of a net importer. In an attempt to support farm prices and reduce financial losses in the provincial grain bureaus, China’s grain reform increased state control over the grain system in 1998. Moreover, grain imports are controlled mainly through quotas and licensing. During this time period, the United States faced competition in the Chinese market with Canada and Australia for wheat, Argentina for corn, and Thailand for rice. Upon accession into the WTO, China will have to reduce its tariffs. By 2004, China’s agricultural tariff...