2.8  Taiwan Straits Crisis and China's Accession to WTO under Clinton & Jiang (1993 - 2001)

1 January 2017

The Post-Cold War New Cold War against China

 

With the Cold War over, US self-defined role in maintaining the international order gradually gravitated during the 1990s towards maintaining its status as the sole remaining superpower. At this point, the sight of American leaders began to set on China, the Asian giant with potentially the capability to pose a future challenge to US’ global leadership. As underlying differences in areas such as human rights, trade and weapons proliferation began to reassert themselves, relationship between the two became increasingly antagonistic.

 

In September 1991, Deng Xiaoping said the re-emerged antagonisms between the two countries constituted “a new cold war”.  To help China stay away from conflicts with the Western powers, particularly the US, Deng espoused his idea of “Lying Low while building strength” (韬光养晦) as the guiding principle for the conduct of China’s foreign relations.

 

After President Bill Clinton took office in 1993 (served 1993 – 2001), he adopted “enlargement of democracies” as a principal foreign policy objective to “expand and strengthen the world’s community of market-based democracies” and to “enlarge the circle of nations that live under those free institutions”. The new administration’s aggressive human rights posture was more a sincere attempt to support practices that the President and his advisors believed in. The Chinese leaders, however, harboured a deep suspicion that, with the demise of the Soviet Union, the US might now turn to overthrow other communist governments all over the world.

 

By 1995, the Chinese government’s press agency reported that Sino-American relationship had reached its lowest point since diplomatic relations were established in 1979. In August 1995, President Jiang Zemin accused the US of plotting to Westernize and ‘divide’ China. By then, among the Chinese leaders and scholars, a broad consensus reportedly existed that the US was trying to “divide China territorially, subvert it politically, contain it strategically and frustrate it economically.”[1] In short, the objective of the US, as perceived by China, had shifted from containment of communism to containment of China.

 

By this time, the Chinese leaders no longer made any claim to represent a unique revolutionary truth available for export. Instead, they espoused the essentially defensive aim of working toward a world not overtly hostile to their system of governance or territorial integrity and buying time to develop their economy and work out their domestic problems at their own pace.

 

Despite their largely defensive foreign policy posture, the Chinese leaders left no doubt as to their determination to resist outside pressure. Nor did China’s leaders accept the interpretation of the end of the Cold War and the disintegration of the Soviet Union as ushering in a period of America as a hyperpower.

Relations with China soon came to head during Clinton’s first term with the administration’s attempt to link the approval of China’s most-favoured nation (MFN) trade status with improvements in China’s human rights record. In May 1993, President Clinton signed the executive order extending China’s MFN status for a year, after which it would be either renewed or cancelled based on China’s efforts to improve human rights. Meanwhile, negotiations over China’s accession to the General Agreement on Tariffs and Trade (GATT, later subsumed into the World Trade Organization, or WTO) were deadlocked over substantive issues while China’s bid to host the 2000 Olympics was also narrowly defeated because of its human rights policies. Collectively, the Chinese viewed the incidents as not single events but patterns reflecting an overall design.

 

In March 1994, just before the MFN status was due for renewal, when the Secretary of State Warren Christopher arrived in Beijing coincidentally on the day of the opening of the annual session of China’s legislature, the National People’s Congress, the Chinese went on offensive and took the opportune occasion to demonstrate their imperviousness to outside pressure.

 

During his meeting with Christopher, Chinese Premier Li Peng held that China’s human rights policy was none of US' business, noting that the US had plenty of human rights problems of its own that needed attention. Li then went on to say that “by feeding the people, the Chinese government was dealing with the most important human right”. To further register their displeasure, the Chinese also abruptly rescheduled Christopher’s meeting later in the day with President Jiang Zemin. The breakfast meeting with the American business leaders the following morning was also no less discomforting. Instead of a usual pep rally for such occasions, the Secretary of State was “blasted” by American business leaders for pressing the Chinese on human rights. [2]

 

Faced with Chinese resistance and American domestic pressures from companies doing business in China, the administration quietly abandoned its policy of conditionality. On May 26, 1994, Clinton announced that the policy’s usefulness had been exhausted and that China’s MFN status would be extended for another year essentially without conditions. Instead, he pledged to pursue human rights progress by other means, such as support for NGOs in China and encouraging best business practices.

 

The episode was a sobering lesson for the new president who, ironically, had “every intention to support the policies that had sustained relations with China for five administrations of both parties” and had put forward conditionality out of conviction “because he sought to protect China policy from the swelling congressional onslaught that was attempting to deny MFN to China altogether”. In the words of Kissinger, Clinton’s misstep was “as a recently elected President he was also sensitive to domestic American opinion, more so than to the intangibles of the Chinese approach to foreign policy.”[3]

The simultaneous creation of GATT, IMF and World Bank

The GATT* (General Agreement on Tariffs and Trade) came into being after the Second World War, at a time when new international organizations were being established to build an integrated world economic system. Three major issues had to be addressed for the global economy to emerge from the war and its previous disarray successfully: exchange rates, reconstruction and the organization of international trade in goods. In 1944, responding to each of these questions, the allied nations envisaged the establishment of three new international organizations.

The IMF (International Monetary Fund) and the World Bank were established by the Bretton Woods Agreements of July 1944, which were signed by 44 allied nations. The IMF was set up to manage the international monetary system. The management of exchange rates would henceforth be based on a new general principle: the fixed parity of currencies and cooperation between nations. It was implicit that States would no longer be able to freely manipulate the international exchange rate of their currency and all Member States were specifically prohibited from making competitive devaluations unjustified by their economic situation.

 

The World Bank, or as it was named at the time, the International Bank for Reconstruction and Development (IBRD), was initially intended to help the war-devastated European economies to finance production projects. Very soon, however, European reconstruction moved out of its sphere of competence and development financing became its main function.

 

In parallel with the Bretton Woods Conference, the idea of returning to an international trading system based on free trade appeared. This desire was manifested, on the one hand, in the United Nations, by a project for an International Trade Organization (ITO), and on the other hand, by the proposal for an international conference for the multilateral reduction of barriers to international trade. The two things led respectively to the “Charter Instituting an International Trade Organization”, adopted in March 1948 at the Havana Conference, and a General Agreement on Tariffs and Trade (GATT), which resulted from negotiations between 23 nations that took place from April to December 1947 in Geneva.

 

In practice, the ITO did not come into being in 1948 as the country that initiated the process did not ratify it. However, the agreement concluded in Geneva - resulting from the first “Round” of multilateral trade negotiations - gradually became institutionalized so that it became more than just a treaty; the GATT (also referred to as the General Agreement) went on to become, de facto, the main institutional framework for matters of international trade.

 

At the beginning of the 1980s, it became apparent that the General Agreement was no longer so well adapted to the realities of trade as it had been in the 1950s. The complexity and volume of world trade were now very different from what they had been 40 years earlier. As the globalization of the economy progressed, international investments saw an unprecedented growth, and trade in services - not covered by the GATT rules - began to be a major interest for more and more countries, and was closely bound up with the increase in global trade in goods.

 

The GATT rules were also deemed inadequate in other ways: in the agriculture sector, for example, where the loopholes in the multilateral system were widely exploited and where attempts at liberalization were essentially in vain - and in the field of textiles and clothing, where an exception to the normal GATT areas of influence had been negotiated in the form of the Multifibre Arrangement (MFA). The institutional structure of the GATT and its system for the settlement of disputes were also becoming sources of concern. All these factors were enough to convince GATT Members that a renewed effort should be made to strengthen and enlarge the multilateral system.

 

Extracted from “Globalization and Access to Drugs. Perspectives on the WTO/TRIPS Agreement - Health Economics and Drugs Series.” (1998).

But like all his predecessors and successors, he came to appreciate the strength of Chinese leaders’ convictions and their tenacity in the face of public challenge. During the remainder of his first term, Clinton toned down the confrontational tactics and emphasized “constructive engagement”. China, on the other hand, committed itself to renewed dialogue, essential for the success of not only its economic reform program but also a membership in the WTO.

 

In the ensuing years, with relations between China and the United States on the mend, Jiang visited Washington in 1997 and Clinton reciprocated by visiting Beijing in 1998. Despite the absence of a defining shared purpose such as the anti-hegemonism that characterized the anti-Soviet alliance of the Cold War era, the two countries established consultative institutions, dealt with a host of technical issues, and ended the atmosphere of confrontation of nearly a decade.

 

Third Taiwan Strait Crisis (1995 – 1996)

 

Another issue that rankled China during the time of Clinton’s presidency was the Taiwan issue which culminated in the Third Strait Crisis lasting from July 1995 to March 1996.

 

Unlike during the first two Taiwan Strait Crises in 1954-1955 and 1958 respectively, Taiwan had already undergone dramatic liberalization since 1987 when its aging leader, Chiang Ching-kuo, lifted martial law and press restrictions and allowed rival political parties to stand for legislative elections. In 1994, a constitutional amendment laid the groundwork for the direct election of the Taiwanese President by universal suffrage in 1996.

 

The build up to the crisis really started earlier when the Taiwanese leader Lee, whom China suspected had pro-independence inclinations, and his Cabinet sought to increase what they described as Taiwan’s “international living space” by embarking on a course of “vacation diplomacy” that found large delegations of Taiwanese officials traveling “unofficially” to world capitals, occasionally during meetings of international organizations, and then maneuvering to be received with as many of the formal trappings of statehood as possible.

 

In 1994, for example, Lee sought permission to stop in Hawaii to refuel his plane enroute to Central America. After a visa was not granted, Lee spent his night in his plane. What really got China agitated then was Lee’s June 1995 visit to Cornell University where he had obtained his economics PhD in 1958. Despite an earlier promise by Christopher to Qian that no visa would be issued, a concurrent resolution asking the State Department to allow the visit was passed by the House with 396-0 votes and by the Senate 97-1 votes. At Cornell, Lee launched into a rousing talk on the aspirations of Taiwan’s people for formal recognition. Lee’s frequent references to his “country” and “nation” and blunt discussion of the imminent demise of Communism incurred the wrath of Beijing. On 7 July 1995, the Xinhua News Agency announced missile tests which took place from July 21 to 26. The missiles, with dummy warheads, landed in an area only 60 kilometers north of Taiwan-held near the outlying island of Penghu, as a warning to Taiwan’s leaders.[4]

 

In the run-up to the presidential election on March 23, 1996, another set of PLA tests went off from March 8 to March 15. Missiles landed inside the Taiwan’s territorial waters off the ports of Keelung and Kaohsiung forcing commercial ships and airplanes to make detour. After the US announced on March 8 the deployment of Independence carrier battle group (CBG) to international waters near Taiwan, China also announced more live-fire exercises to be conducted near Penghu on March 12-20, deploying 150,000 troops, 300 airplanes, guided missile destroyers, and submarines. On March 11, Independence was joined by the Nimitz CBG, Both sides appeared ready to fight over the issue of Taiwan. Eventually, Li Heng-hui was elected but cool heads prevailed on both sides. China learned a lesson that its intimidation tactics had actually backfired. The missile tests ended up not only boosting Li’s share of the votes by 5% but also strengthening the arguments for more US arms sales to Taiwan.[5] But the posturing succeeded in allowing both China and the US to demonstrate their conviction in wanting to maintain the status quo with regard to the issue of Taiwan. While Beijing left no doubt that it would not countenance any efforts by Taiwan to go down the road of independence, US also made it clear that it would not stand idly Taiwan being forcibly recovered by China. In the end, war was averted because both sides realized that “they had no war aims over which to fight or terms to impose which would alter the overriding reality”.[6]

 

US display of overwhelming military capability, however, convinced China of the need to modernize its military, a process that had already been set in motion in 1991 after the Gulf War. The result was an intensive program of double-digit investment, foreign acquisitions (primarily from Russia and the Ukraine) and indigenous capability development based on an anti-access/area-denial (A2/AD) strategy aimed to keep US forces at a distance too far to be able to intervene with any possible future military actions by China within the region.

 

Bombing of Chinese Embassy in Belgrade in 1999

 

Relations between China and the United States soon recovered. Diplomatic efforts to further relations culminated in Jiang visiting Washington in October 1997 while Clinton visited China in June 1998. As symbolic gestures, China released dissident Wei Jingsheng in November 1997 and student leader Wang Dan in April 1998. Both were allowed to leave China and flew to the US.

 

The final crisis that rocked relations between the two countries during Clinton presidency is the bombing of Chinese Embassy in Belgrade by an American B-2 bomber that took off from Missouri on May 8, 1999. It happened when NATO struck hundreds of targets over Serbia and Kosovo during its 1999 air war over Yugoslavia. The target list also included political-military targets inside the Yugoslav capital of Belgrade itself. The embassy, mistaken for a Yugoslav military facility, was struck by five Joint Directed Attack Munition (JDAM) satellite-guided bombs. Three Chinese journalists were killed while twenty others were injured.[7]

 

Alternative reports, however, speculated that NATO deliberately bombed the Chinese embassy after discovering it was being used to transmit Yugoslav army communications. The Chinese embassy was removed from a prohibited targets list after NATO electronic intelligence (Elint) detected that it was acting as a 'rebro' [rebroadcast] station for the Yugoslav army. It was thought that the Chinese did it as a trade for the remains of a stealth fighter shot down in the early days of the air campaign by the Yugoslavs. The Chinese wanted to get their hands on the stealth technology. They may have calculated that NATO would not dare strike its embassy. Of the three people who died in the attack, two of whom were, reportedly, not journalists but intelligence officers.[8]

 

Another persistent rumor was that the attack was conducted to destroy the wreckage of the US stealth fighter already sitting in the embassy. A US colonel was quoted as saying: “That was great targeting… we put three JDAMs down into the (military] attache’s office and took out the exact room we wanted….”[9]

 

Across China, the general consensus was that the destruction of the embassy in Belgrade was intentional. Even the Chinese government did not believe that the embassy was bombed because of an out-of-date map. The attack, intentional or not, tapped into a deep vein of anti-foreigner sentiment in China dating back hundreds of years. Naturally, China was gripped by a firestorm of protests. Students and the government seemed united in their outrage at what was assumed to be another demonstration of American disrespect for China’s sovereignty.

 

China’s Motivations for Joining GATT/WTO

 

In the course of the 1980s and 1990s, China emerged as a major player in the global economy. No other country has ever expanded its role so rapidly like China did. Its foreign trade exploded from about $20 billion in the late 1970s to $475 billion in 2000, by which time, its share of total world trade had sextupled as compared with 1977. As early as 1995, China had become one of the top ten trading countries in the world.

 

During this period, China also attracted record amounts of foreign direct investment (FDI). By the 1990s, China was the world’s second largest recipient of FDI, coming after the US. By the end of the 1990s, China’s total FDI stock accounted for almost a third of the cumulative FDI in all developing countries. At the same time, Chinese firms had also become major investors abroad. By the mid-1990s, China had become country with the largest overseas direct investment (ODI) among developing countries and the eighth largest among all countries.

 

Finally, China raised significant amounts of capital on international bond and equity markets. Initially most of the funds were raised by the sale of sovereign bonds, but by the latter part of the 1990s major Chinese companies sought listings and raised billions of dollars on overseas equity markets. China Mobile (Hong Kong), PetroChina, Unicom, and Sinopec together raised more than $15 billion through equity sales in New York and Hong Kong in 2000.

 

Despite this extraordinary performance, however, China remained in many respects only shallowly integrated into the world economy. In sensitive sectors of the economy, such as distribution, telecommunications, and financial services, investments by foreign companies were prohibited. In many of the other sectors, high tariffs and an array of nontariff barriers insulated the Chinese economy from international competition. To control the use of foreign exchange and to protect domestic industries, for example, the state controlled imports by limiting both the type and number of companies authorized to carry out international transactions; imposing onerous inspection and safety licensing requirements on imports; developing technical standards designed in part to protect domestic industries; discriminating against foreign goods in government procurement, and imposing high local content requirements on foreign and joint-venture firms producing in China. Hence, despite the ground-breaking reform and opening up measures promulgated by Deng, there were limited linkages between the domestic economy and the global economy.

 

The shallow integration was reflected in the foreign-invested enterprises’ (FIEs) dominant contribution to China’s foreign trade contrasted against domestic firms’ limited roles. The influx FIEs began soon after the passage of a joint venture law in 1979 and the creation of four coastal special economic zones in 1980. The initial contribution of these FIEs to China’s exports was quite modest, accounting for only about 1% of total exports in 1985. As FDIs continued to grow, however, that share soon spiked, exceeding 10% by 1990. By 2000, FIEs were responsible for almost 50% of China’s exports even though they accounted for only about 12.5% of all manufacturing output. But these exports were assembled or processed largely from imported parts and components. Their rapid growth thus created only a limited demand for inputs produced by domestic firms.[10]

 

Meanwhile, after two decades of rapid economic growth, an increasing number of expanding Chinese industries were also seeking new markets to export their rising outputs. In other words, not only were there limited direct linkages between the domestic and external economy through the vibrant FIEs, there were also limited direct linkages between the growing domestic sectors with the external economy. Despite the two decades of reforms and opening up, the domestic economy fell gravely short in terms of integration with the global economy.

 

For the reform-minded Chinese leaders, gaining access to WTO would thus help to establish the missing linkages to give new momentum to economic reforms in China. It was their hope the deeper integration with international trade regimes and hence greater access to global markets would help the Chinese economy, particularly the growing domestic sectors, reap greater efficiency gains.[11]

 

Moreover, in the aftermath of the Asian Financial Crisis that erupted in 1997, Chinese economy had also begun to slow. There were mounting pressures for China to look for new ways to boost exports, shore up foreign investment, and, most importantly, make Chinese industries more internationally competitive. The Asian Financial Crisis was also a wake-up call to the Chinese leadership because many of China’s large state-owned enterprises (SOEs), which made up the backbone of the domestic economy, exhibited the same symptoms as those of Korea and some other nations affected by the crisis. Subsidies for the inefficient and debt-ridden SOEs had become an increasingly heavy fiscal burden for the State. The leadership in Beijing thus came to realize that state sector reform to develop a market economy is a “reform or die” proposition and the best way to achieve that is to infuse much needed competition by joining the WTO.

 

As a Vice Premier since 1991, Zhu Rongji had at first wanted to concentrate his attention on reforming the SOEs. He thus had little interest in Jiang’s push to join the GATT/WTO negotiations initially. By the time Zhu replaced Li Peng as the Premier in 1998, however, he had become more predisposed to the idea of joining WTO. Because of the resistance he ran into while trying to restructure the state sector, Zhu began to see international influence as useful in pressuring SOEs to become more competitive or to go out of business.[12]


Finally, there was also the realization that the upcoming Seattle Round of the WTO Ministerial Conference in 1999 would cover several issues of interest to China, including agriculture and labour standards. It would make more sense for China to be participate in the formulation of the trade rules than to sit out and watch as the price for admission went up.[13]

 

Challenges China Faced in Joining GATT/WTO

In their quest to bring China into WTO, Jiang, Zhu and the other pro-reform Chinese leaders faced two daunting challenges. First, WTO membership entailed liberalization of a much broader range of domestic economic activity than was required under the GATT. To begin with, GATT rules applied only to trade in goods. The WTO, in contrast, covers not just goods, but also agriculture, trade in services, trade-related aspects of intellectual property rights, and certain aspects of foreign direct investments (FDI). Since the Uruguay Round of trade negotiation in 1994, the international community had added agreements covering also information technology, basic telecommunications services, and financial services, all of which are areas that were traditionally regarded by most countries as among the most sensitive and hence gingerly protected from foreign participation.

 

Second, accession to WTO would result in increase in international competition both from imports and from goods and services provided by FIEs in China. Short-term economic adjustment costs in the form of rising business failures and unemployment rates could be substantial. In fact, by the mid-1990s, millions of Chinese once employed by SOEs had already being laid off as a result of Zhu’s efforts to restructure the public sector. In a socialist country like China where unemployment due to market forces was previously unheard of, the spectre of millions of unemployed Chinese taking to the streets to vent their anger could easily evolve into another Tiananmen Square incident.

 

Moreover, as a condition for membership, China was required to make protocol commitments that substantially exceed those made by any other member of the World Trade Organization, including those that have joined since 1995. The broader and deeper commitments China would inevitably exacerbate the aforementioned short-term economic costs.[14]

 

As a result of significant concessions made during negotiations, the pro-reform Chinese leaders constantly came under attack by nationalistic opposition leaders for being soft to the capitalist and imperialist US and for selling out the country while also turning China’s back on socialism. When China’s list of agreed concessions were published online by the USTR in April 1999, articles on the internet as well as student demonstrators in May labelled Zhu as a "traitor" (卖国贼). Some old cadres even compared the government's readiness to accept globalization to Wang Jingwei's (汪精卫) willingness to serve as head of Japan's puppet government in occupied China during World War II. Others also called Zhu compromises made to the US the "new 21 Demands selling out the country" — a reference to Japan's infamous demands of 1915 that sought to reduce China to a colony.[15]

 

It is important to note that opposition to the WTO agreement was not limited to stodgy bureaucrats and hardline ideologues. There was a prevailing view among the Chinese people then that the GATT and the WTO were “clubs of the rich,” in which wealthy, developed countries imposed rules on poor, weak developing nations.[16] Some intellectuals also blasted US’ attempt to co-opt China into the WTO as a neoliberal ploy to ensure that China would not deviate from the track of US-led globalization.[17] Sceptics included even Zhu, who despite his pro-reform zeal, shared hardliners' concerns about perceived Western efforts to undermine Communist Party rule in China. According to one of his now-declassified speeches made four months after China had joined the WTO, Zhu asserted that “Western hostile forces are continuing to promote their strategy of Westernizing and breaking up our country”. He accused such people of conducting “infiltration and sabotage” in an effort to foment instability, pointing to large-scale protests early in 2002 by workers in SOEs as evidence of foreign involvement.[18]

 

Clinton’s Reasons for Pushing for China’s Accession to WTO

 

Clinton’s reasons for embracing trade with China had as much to do with geopolitics as economics. By the late 1990s, the People’s Republic was a fast-growing but relatively cloistered economy dominated by a government whose human rights record could be summed up with the words Tiananmen Square.

 

Embracing those sorts of economic liberties, Clinton argued, might one day lead the Communist Party to allow more political liberties as well. “By joining the WTO, China is not simply agreeing to import more of our products; it is agreeing to import one of democracy’s most cherished values: economic freedom,” the president said in a March 2000 speech.

 

In 1999, the White House hashed out its agreement with Beijing. China would drop tariffs and other trade barriers tripping up U.S. farmers and companies. In return, the U.S. would support China’s WTO application, phase out some quotas that limited Chinese textile imports, and (most importantly) give it permanent most favored nation trade status.

 

Most experts did not see this as a particularly large concession, since nothing, as far as they could tell, would fundamentally change about the U.S. and China’s trade relationship. Clinton, for his part, argued the U.S. was essentially getting something for nothing. “Economically, this agreement is the equivalent of a one-way street,” he said in March 2000. “It requires China to open its markets—with a fifth of the world’s population, potentially the biggest markets in the world—to both our products and services in unprecedented new ways. All we do is to agree to maintain the present access which China enjoys.”

 

Supporters of the deal didn’t just tout its benefits for Americans. They also argued that voting against it would handicap U.S. businesses in the future. China technically only needed support from two-thirds of the WTO’s members, even if it was expected to strike bargains with all of them, so it would join the group regardless of Washington’s qualms. And if Congress refused to grant China trade permanent status, Beijing would be allowed to continue shutting out American companies even as it opened its market to their foreign competition. “If Congress votes yes, the United States will benefit. If it votes no, only its economic competitors will benefit,” wrote the Washington Post’s editorial board, in support of normalization.

 

It’s striking, in retrospect, just how small supporters of normalization seemed to think the economic stakes of the deal really were. The U.S. International Trade Commission, for instance, produced an analysis suggesting that if Beijing joined the WTO, the U.S. economy would grow by just $1.7 billion. Gary Hufbauer and Daniel Rosen of the Peterson Institute for International Economics suggested that, with permanent normal trade relations, U.S. exports to China would enjoy a one-time jump of $5.4 billion. Without it? They’d pop up $2.4 billion.

 

Labour unions and their allies thought otherwise. Already angry over the North American Free Trade Agreement, which had drawn some manufacturing production into Mexico, they argued that a deal with China would send more factory work overseas. Some of their predictions seemed apocalyptic. The Economic Policy Institute’s Robert Scott suggested that our roughly $70 billion deficit with China might double or more in 10 years, costing the U.S. some 817,000 jobs.

 

In hindsight, the fears weren’t absurd at all. In the months immediately after Congress voted to normalize trade with China, dozens of U.S. corporations announced that they were moving manufacturing overseas. And once China officially joined in the WTO in 2001, the country rapidly began transforming into an export behemoth as foreign investment and factory work flooded into the country—its surplus with United States alone rose from $83 billion in 2001 to more than $295 billion in 2011. During the same 10-year period, U.S. manufacturing employment, which had stayed essentially steady in the years after NAFTA, declined from about 17.1 million to 11.8 million. Manufacturing had been withering as a share of America’s labor market for many, many years. But the shockingly fast collapse of the early 2000s simply convulsed blue-collar communities.

 

Negotiating for China’s WTO Accession

 

China’s interest to be an integral part of international trade regimes started as early as 1986 with its application for membership in the General Agreement on Tariffs and Trade (GATT), the predecessor organization of the World Trade Organization (WTO). Progress on a GATT agreement, however, was interrupted by the Tiananmen Square incident in 1989. When WTO was inaugurated in 1995 in place of GATT, Jiang Zemin again indicated keen interest in joining the organization. This was no small commitment as gaining membership would require China to strike individual deals with the group’s 135 members to ease tariffs and open itself to foreign companies.[19] Given that US was China’s biggest trading partner, concluding an agreement with US proved to be the most difficult and instrumental in China’s quest to join the WTO.

 

Negotiations with the US were understandably complex on the Chinese side because of the long history of ideological enmity between the US and China. Because of the strong ideological undertones, debates over issues of national interest often became enmeshed with deeply entrenched Chinese politics. In addition to the vested interests of ministries and state-owned enterprises, the reform-minded Chinese leaders had to contend also with the conservative party hardliners represented by Li Peng, who had taken over the premiership in 1988 and had since become a powerful actor frequently standing in the way of bold reforms. The situation really improved only when Zhu took over as Premier from Li in 1998.

 

In addition to domestic politics, negotiations with the US were also stalled by events that created stress in the Sino-American relations. The first of such events was the Third Taiwan Strait Crisis set off by Lee Teng-hui’s June 1995 visit to Cornell University and by the March 1996 Taiwan presidential election. It was only when relations warmed in the wake of Jiang’s visit to Washington in October 1997 and Clinton’s visit to China in June 1998 that serious negotiations on China’s accession to WTO became possible again. After his successful visit, President Clinton, who was eager to pin China’s accession to WTO on his China policy to leave a lasting legacy, wrote three letters to Jiang Zemin between November 6, 1998 and February 12, expressing hope for a successful conclusion of a package deal. On the Chinese side, the improved relations strengthened Jiang's hand by suggesting that an amicable relationship with the US was possible and beneficial. Hence, by January 1999, the Chinese, led by Premier Zhu, was prepared to offer substantial concessions to make a renewed push for the completion of the agreement. Zhu flew to the US in April 1999 expecting an agreement to be concluded. Unfortunately, that fell through when the US demanded additional concession and an exasperated Zhu left empty handed.[20]

 

In May 1999, the final phase of negotiation was almost scuttled in May 1999 by yet another crisis triggered by the ‘accidental’ bombing of Chinese Embassy in Belgrade by an American B-2 bomber. Fortunately, despite the initial anguish and indignation felt by the Chinese government, cool heads eventually prevailed. The Chinese leaders were determined not to let anything stand in the way of sealing a deal which could allow the burgeoning but still underdeveloped Chinese economy to be fully integrated with the global economy. In his May 13, 1999 speech welcoming the return of embassy staff from Yugoslavia, Jiang reiterated that China "must continue to unswervingly take economic construction as the central task". Chinese government’s weak response to the incident contrasted with the anger shown by the general public which held that the Chinese government had been too soft with the US in the face of various slights to China. This sentiment was clearly visible in the 1996 best-selling book “The China that Can Say No” (中国可以说不) written by a group of young intellectuals, which was as much a criticism of the Chinese government as it was an expression of anti-Americanism. The book sold 3 million copies in China, excluding pirated copies which counted 400,000 copies in a single raid in just Changsha alone.[21]

 

On November 15, 1999, the United States and China finally signed a landmark agreement after China agreed to open a wide range of markets — from agriculture to telecommunications in exchange for US granting China permanent normal trade relations. It was another historical agreement following President Richard Nixon's decision to open state-to-state relations with China and President Jimmy Carter's extension of full diplomatic relations.

 

On May 24, 2000, the House of Representatives voted to award China permanent normal trade relations. Approval from the US Senate followed suit in September. In October 2000, President Clinton signed into law a historic bill granting permanent normal trade relations to China thus ending the 20-year-old annual ritual of reviewing China’s trade status. More importantly, it also served as US’ backing to Beijing’s bid to join the WTO.[22]

 

Finally, on December 11, 2001, China officially joined WTO, marking China’s readmission to the international trade regime having quit the organisation's predecessor, GATT, shortly after the Communist revolution of 1949.

 

In his speech in 2000 to win over the Congress to accord China permanent normal trade relations (PNTR), President Clinton asserted that the new trade agreement with China “creates a win-win result for both countries”. Specifically, he argued that exports to China “now support hundreds of thousands of American jobs” and that “these figures can grow substantially with the new access to the Chinese market the WTO agreement creates”. His advisors also echoed the president’s optimism claiming that trade deficit with China would over time shrink with the agreement.[23] These optimistic claims by the Clinton Administration appeared to be supported by US International Trade Commission’s (USITC) simulations which projected a higher growth rate of US exports to China at 10.1% compared to the 6.9% projected growth rate of US imports from China because China’s accession to WTO.[24]  

 

Critics, however, were quick to point out that the analysis by the US International Trade Commission (USITC) actually suggested the contrary that, after China’s accession to the WTO, the US trade deficit with China would expand, not contract. This is because even though US exports to China could increase by a higher rate, the absolute level of the trade deficit with China would still continue to grow because the volume of imports ($81 billion in 1999) was so much larger than the volume of exports ($13 billion). Moreover, assuming that the said rates of imports and exports could be maintained, it would take 50 years before the US trade deficit with China would stop expanding, peaking at $649 billion in 2048. The trade deficit would not fall below the year 1998 level until 2060, more than 60 years after the completion of the China-WTO agreement. As for impacts of rapid growth of trade deficit on American jobs up to 2010, the growth in exports to China would create 325,000 jobs in this period, but imports would eliminate 1.142 million domestic job opportunities. On balance, 817,000 jobs could be eliminated by the growth in the trade deficit with China within a decade after China’s accession to WTO. These losses would come on top of the 880,000 jobs the US had already lost due to its trade deficit with China as of 2000. [25]

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REFERENCES

[1] See Huntington S.P. (1996) Pg. 223 citing quotes from various sources.

[2] See Warren Christopher. (2001). “Chances of a Lifetime.” New York: Scribner. Pg. 238 – 239..

[3] See Kissinger. (2011). Pg. 631.

[4] Ibid. Pg 637.

[5] See Xiaobing Li. (2012). “China at War: An Encyclopedia.” ABC-CLIO.

[6] See Kissinger. (2011). Pg. 641.

[7] See Kyle Mizokami. (2017). “In 1999, America Destroyed China's Embassy in Belgrade (And Many Chinese Think It Was on Purpose).” National Interest. January 21, 2017.

[8] See John Sweeney, Jens Holsoe, & Ed Vulliamy. (1999). “Nato bombed Chinese deliberately.” The Guardian. October 17, 1999.

[9] See Peter Lee. (2015). “The Bombing of the Chinese Embassy in Belgrade in 1999, Reconsidered.” Counterpunch. May 25, 2015.

[10] See Nicholas R. Lardy. (2001). “Issues in China’s WTO Accession.” Brookings Institution. May 9, 2001.

[11] See Margaret M. Pearson. (1999). "China's Integration into the International Trade and Investment Regime" in Elizabeth Economy and Michael Oksenberg, eds., “China Joins the World: Progress and Prospects.” New York: Council on Foreign Relations.

[12] See Joseph Fewsmith. (1999). “China and the WTO: The Politics Behind the Agreement.” The National Bureau of Asian Research.

[13] See Joseph Fewsmith. (1999). “China and the WTO: The Politics Behind the Agreement.” The National Bureau of Asian Research.

[14] See Nicholas R. Lardy. (2001).

[15] See Joseph Fewsmith. (1999). “China and the WTO: The Politics Behind the Agreement.” The National Bureau of Asian Research.

[16] See Ben Baden. (2011). “WTO Accession, Globalization, and a Changing China.” China Business Review. October 1, 2011.       

[17] See狄荫清. (1999). “美国为什么急于与中国重开入关谈判”. 《改革内参》1999 年第 08 期 第 39-42 页

[18] See Economists. (2011). “Chinese politics and the WTO: No change.” December 10, 2011.

[19] See Jordan Weissmann. (2016). “Waking the Sleeping Dragon.” Slate. September 28, 2016.

[20] See Joseph Fewsmith. (1999). “China and the WTO: The Politics Behind the Agreement.” The National Bureau of Asian Research.

[21] See宋强、张藏藏. (1996). “中国可以说不.” 中华工商联合出版社

[22] See ABC News. (2010). “Clinton Signs China Trade Bill into Law.” ABC News. October 10, 2010.

[23] See Clinton, Bill. (2000). “Expanding Trade, Protecting Values: Why I’ll Fight to Make China’s Trade Status Permanent.” New Democrat, Vol. 12, No. 1, pp. 9-11.

[24] See U.S. International Trade Commission (USITC). (1999). “Assessment of the Economic Effects on the United States of China’s Accession to the WTO.” Investigation No. 332-403. Washington, D.C.: USITC, Publication 3229.

[25] See Robert E. Scott. (2000). “The High Cost of the China-WTO Deal.” Economic Policy Institute. Issue Brief #137. February 16, 2000.