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China’s WTO Setback: A Victory for Workers

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China’s WTO Setback: A Victory for Workers

by Robert E. Scott

China is not yet ready to join the World Trade Organization (WTO). Inviting them to join now would seriously disrupt both the American and Chinese economies. President Clinton’s action, rejecting a proposal to bring China into the WTO now, reflects a sea-change in U.S. trade policy. In the future, global trade and investment rules must be changed to give workers a better deal.

President Clinton was right for at least three reasons. First, China has a terrible record of repressing labor and human rights. The U.S. Department of State recently concluded that free and independent trade unions are not permitted in China. For example, in January China sentenced two railroad workers to a labor camp simply for protesting about unpaid salaries.

Repression in China is not only a human tragedy; it also results in extreme forms of economic exploitation that allows China to cannibalize U.S. markets for manufactured goods. As a result, the U.S. has a huge and rapidly growing trade deficit with China, which is now larger than with any other country in the world. In 1996, our $40 billion trade deficit with China eliminated over 600,000 jobs, most of them in the high paying manufacturing industries. Last year the deficit soared to $57 billion, destroying several hundred thousand more jobs.

Second, the huge trade deficit reflects the fact that fair trade with China is not a reality. China doesn’t adhere to trade agreements and has repeatedly refused to open its markets. It restricts imports of U.S. goods and services with a number of formal and informal barriers. The U.S. has negotiated several major market-opening agreements with China, including a Memorandum of Understanding on market access, and intellectual property accord, both signed in 1992. China has violated these and other agreements, at will.

In addition, if we grant China admission to the WTO, we will greatly limit our leverage in dealing with our trade problems — such as the illegal dumping of low-priced steel into the U.S. market — in the future. We will also lose the right to threaten or impose unilateral trade sanctions on China when they discriminate against our exports. China could appeal all trade disputes to the WTO where matters are decided in secret proceedings, by an international panel of “experts.” These proceedings take years to complete and the U.S. has lost several major WTO cases since 1995.

Finally, the major winners from the proposed WTO deal are the owners of large U.S. businesses, principally telecommunications firms and Hollywood studios. But these companies are less interested in job creation than in earning profits.

In the case of phone equipment, the U.S. has a large and growing trade deficit with China. Over the past four years, our exports to China in this sector increased by just 11% while our imports increased by 72%, causing our trade deficit to more than double. We export parts and U.S. jobs to China, and they send us assembled phones, resulting in huge profits for the firms that run China’s “export platforms.” Parts are exported to China for assembly in these foreign-owned factories, and final products are then shipped back to the U.S. The growth of such production in China and other low-wage countries has hollowed-out manufacturing and eliminated hundreds of thousands of U.S. jobs.

If China is allowed into the WTO, the big winners will include Microsoft CEO Bill Gates and Hollywood director Steven Spielberg. But American workers will lose jobs and wages.

President Clinton acknowledged that the time has come for a new approach to trade, when he insisted that any WTO deal with China had to include protections for U.S. steel and textile workers. But these measures, alone, will not solve our trade problems.

China must reform its economy before it enters the WTO. China must open its markets to the world, and keep them open. It also needs to improve worker rights and eliminate the use of child and prison labor. In this way, integration will support growth and prosperity in China and the rest of the world. Promises from its leaders — such as Premier Xhu Rhongji, who offers meaningless commitments to the U.S. while exploiting workers and trampling human rights at home — are not enough. China simply must show that it can and will play by the rules before it is allowed to join the world economy as a member in good standing.


Robert Scott is an economist at the Economic Policy Institute. He specializes in globalization and international trade issues.

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