In the past, there has been discussion about the World Trade Organization's position and the role it plays in the development of developing countries such as China
Many people argue that countries, particularly developing ones, do not need to join the organization. While another school of thought feels that it is vital to join W.T.O.
Individuals opposed to the W.T.O argue that only industrialized countries benefit from the organization, while third-world countries suffer because to a lack of negation skills, power, and resources required to offer a better stake in the organization
With over 160 members across the globe both developed and underdeveloped, it is clear that cooperation serves to benefit its members. There would be no need to join if its function or objective was to build industrialized nations. Countries such as China have improved both economically and development wise since joining the organization. With GDP way above 9 percent on aggregate, it has indeed been beneficial to China just like any other developing world.
Theoretical Analysis based on Modernization and Dependency Theory
The dependency school of thought believes that resources often move from underdeveloped nations to developed countries and this ends up enriching established states at the expense of the emergency. The school of thought believes that industrialized nations serve to benefit while the developing countries help impoverished ones whenever the two categories engage in any form of trade (Amin 2). The dependency theory was a counter of modernization theory that asserts that any progress within a society is similar at every stage. Under the modernization theory, the challenges that underdeveloped society face are common and similar to those that developed nations experienced and that there is no need for worry since it's a stage towards maturity (Greig and Hume 3).
The developed nations thus in the past were in the same situation and that the third world countries should be assisted to eliminate poverty as part of societal development towards maturity. The theory proposes that the developing nations should be supported through technology transfer, integration to the world market and investment as a way of eradicating the poverty that exists in that country (Amin 5). The version of modernization theory is rejected and criticized by the dependency theory proposing that the third world nations are not a primitive type of industrialized state, but rather possesses unique characteristics and structures, and this put them in a disadvantaged position within the world economic status (Greig and Hume 4).
Critical Analysis of China's Benefit from World Trade Organization
The World Trade Organization has indeed benefited China to achieve economic prowess. China joined the cooperation in 2001 after 15 years of negotiation. It has since benefited from the primary purpose of the organization of ensuring free trade flow and eliminating negative side effects of trade. It has also offered China an avenue for solving any trade dispute and negotiating any form of trade biases (Greig and Hume 6). The effect of joining the organization has been beneficial to both world economy and China's economy at large. Whereas the dependency theory believed that whenever a trade existed between developed and developing nations, it happens at the expense of the underdeveloped. However, this has not been the case with China.
The Chinese government was forced to reduce tariffs on imports, and subsequently those levied on exports were eliminated. This type of arrangement allowed both the Chinese economy as well as the external economies to gain in an equal manner and thus never served to benefit only the developed nations. The eliminations of the restrictions increased the exportations, and this spearheaded the growth of the Chinese economy (Martí, Puertas and Fernánde 6). The accession requirement of the organization created mass structural reforms within the Chinese economy, thus creating greater trade liberalization. The liberalization weakened any form of state-owned businesses and placed more power to individual and private entities.
The international trade laws within China became more transparent and applicable in an equal manner. China immediately joined the organization and could access over 140 trade partners and thus had a greater impact on the economy of China through expansion of import and export. Aa dependency theory hold, China could gain better terms and economic growth. The Chinese share of export as a percentage GDP increased from 2.6 percent to 7.7 percent from the year 2002 to 2007 (Yang, Chen and Monarch 2). The trade led to increased current account balance as witnessed in 2010 when it stood at $305 billion. The primary focus of Chinese export is labor, and this is critical to economic growth. This mass export of cheap labor has led to decrease in workers in the agricultural sector from 50 percent in 2001 to about 11.2 percent in 2010. This export has had an enormous impact on the primary sector as the same has decreased to 11.7 percent of the GDP proportion up from 23.5 percent (Deepak, Li and Martin 15).
These developments can only be explained by the modernization theory that believed in the societal progression from one stage to another as opposed to the dependency that viewed these kinds of arrangement as a win-lose in favor of developed nations.
The liberalization of the Chinese market has created demand for home labor to match the demand for work in the manufacturing sectors (Fung, Pei and Zhang 3). Private entities have established some factories within the country and thus have been instrumental in creating a rise in a real wage across the companies. As from 2001 to 2006, there has been more than double of real annual salaries to 24,000 yuan down from 12,000 yuan both in low and upper class. There has been increased foreign direct investment, and this has been the product of liberalization of the economy to conform to the accession requirement of W.T.O.
As from 2001 to 2002, the foreign direct investment was on the rise having stagnated in the 1990s due to restrictions, inefficiency, and corruption in the country. The thirty percent increment within just a year of accession is a clear indication of the potential effect that reforms within the economy have in the wellbeing of a nation. The Foreign Direct Investment (FDI) has accelerated the exportation because many of the foreign investment firms have participated heavily in the export sector. The FDI has been critical in creating job opportunities for the Chinese market (Chen 6). Over 11 million jobs were added between the period of 2006 and 2001, an indication of the potential effect of the trade liberalization brought about by the W.T.O. These benefits cannot be explained by the dependency theory as it only asserts that the developed nations stand to benefit as opposed to developing countries in such kind of arrangement.
The modern theory thus becomes instrumental in understanding the steps that China is already making towards its maturity. In that connection, the development being witnessed by China is seen as a necessary path towards being a developed nation. Chinese use of the title, Most Favored Nation has allowed it to face similar trade conditions as any other competitor thus promoting fair competition among the member states (Fung, Pei and Zhang 5). The status has been critical in encouraging exportations and thus creating favorable terms of trade. Any form of trade discrimination has been phased out, and thus China can conduct its trade freely and in a fair manner. The phasing out period offered other nations time to adjust without experiencing any economic imbalance due to cheap products from the Chinese economy (Deepak, Li and Martin 13).
The fact that China’s domestic tariffs were reduced to conform to other contracting nations, offered it an opportunity to increase its efficiency due to the proper allocation of resources as opposed to the controlled status previously established in its economy (Yang, Chen and Monarch 2). The reduction in tariffs also benefited consumers due to reduced prices of commodities thus improving the welfare of the citizens. The foreign producers could access greater market access as well as reduced costs because of the reduced tariffs. From the observation, the involvement of China into the W.T.O. has created a positive impact both on the internal economy and the external economy at large (Deepak, Li and Martin 7).
The organization further prompted China to remove nontariff measures such as trade balancing, and this led to increased investment in the economy. Because of increased growth in foreign direct investment as well as the export, China has experienced increased growth of the domestic capital, and this is an evidence of the potential help that a nation drives from the W.T.O. The W.T.O has motivated China to experience growth in the capital stock, and this is contrary to what was witnessed in the year 1998 to 2001. During that period, the capital stock experienced a decrease in growth rate (Martí, Puertas and Fernánde 2).
The FDI increment has been instrumental in the development of capital since the accession. The FDI has provided the avenue for technological transfer thus improving the overall economic performance of the Chinese economy and the welfare of the people. Whenever FDI is encountered in an economy, the investing firms often introduce advanced foreign technological prowess. China’s economy was shifted towards the manufacture of high-tech products. The production capability of China has increased since the accession of the W.T.O. as evidenced in its exportation. The content of exports in the year 2004 rose higher than before out of which 80 percent were high-tech goods (Fung, Pei and Zhang 9). From 2000 to 2005, the amount of high-tech product exported rose to 32 percent all the way from 17 percent, and this is enough proof that FDI has the ability to cause the technological transfer. China prior to this was basically known for exportation of labor and the sudden increase in high-tech products could only be due to the FDI firms.
Although China initially controlled the FDI firms, its subsequent reduction in control promoted the development of capital through the constant technological exchange. The W.T.O provided the China’s economy with an avenue of joining the period of liberalization. The liberalization is indeed critical in shaping up the Chinese economy. Prior to the accession, China was regarded as one of the nations that is difficult to conduct business with be it for individual or private entities. The organization has indeed weakened the state-run businesses to allow for a fair and free competition which the organization serves to achieve it its functions (Yang, Chen and Monarch 4).
The state-owned and run businesses have now been provided with the opportunity to make decisions based on the prevailing market conditions and not on the basis of government policies or directions previously achieved. The non-state enterprises have since been allowed to own a percentage of trading rights in the agricultural sector. In that way, the private agricultural trade has been offered power to conduct business and make independent decisions. The reduction in government control has prompted efficiency and quality due to an increased level field for fair competition (Deepak, Li and Martin 3). As evidenced in the logistics sector, the liberalization of warehousing, transport, packaging and material handling has led to lower transport costs as well as better infrastructure.
The Chinese workers could form unions to agitate for their rights, and this has created more bargaining point for the employees for better terms of pay and working conditions. The trade union law of 2001, in particular, is evidence that the developing country stands to benefit from joining the organization. The accession of the W.T.O. has therefore served to shift the economic power from the state-owned enterprises to the interest of private sector too. The W.T.O. has also enabled China to offer transparency in the trade laws and information which has been instrumental in ensuring that both international and domestic market are aware of any existing trade barrier or restriction (Chen 7). The publicity of these laws has been evidenced and enabled by the government in the W.T.O. websites. Regular publication of manuals of trade laws has allowed smooth operation of the Chinese economy. In 2004, the country undertook to publish the administrative rules to facilitate information sharing. Conforming to these proposals has made China friendlier to other nations than before.
The introduction of China into the W.T.O. served not only to benefit it alone but also other developing and developed countries especially in Asia like Japan and South Korea. The raw materials for the Chinese industry come from the neighbor Asian country (Deepak, Li and Martin 8). In 2007 the Chinese import had accounted for 24.59% of the new industrialized Asian economy. The reduction in barriers within China has specifically assisted United States consumers who can purchase their products at a lower price (imports from China). This argument although tend to borrow from the dependency theory that asserts that the developed nation stands to benefit from the developing country, both the US and China have earned equally since the opening of the Chinese market. The accession indeed was a win-win situation for both the developed and underdeveloped nations within the contracting members (Yang, Chen and Monarch 3).
There is no good without consequence. The China's entry into the W.T.O has been criticized for creating imbalance trade. Analysts believe that the firms that have direct receipt of the foreign direct investment in China have had undue advantage over the domestic firms. The productive of these companies were only short-lived especially when the country joined the organization. Those businesses that possessed unfair advantage due to high FDI in 2001 had experienced labor productivity of about 1.6 times that of the local industries (Martí, Puertas and Fernánde 7). The labor fertility, however, decreased over time and by 2006, the productivity was 1.02 times the local ones. This is enough proof that the foreign investment firms were no longer productive compared to the local firms (Chen 10). The frequent valuation of yuan has been a worrying trend in the Chinese economy. The currency has been undervalued, and any sudden revaluation is expected to cause economic shock which could be difficult to absorb.
Once the evaluation is done, the export level is expected to reduce which subsequently cause a reduction in employment. The Chinese farmers are believed to be experiencing stiff competition from the United States which does export oilseed and grains to the China's economy. The type of match may cause local industries to collapse due to underperformance (Cheong and Yee 4). The fact that China can produce cheaper exports has created a worrying trend among the trading partners. This type of trade is likely to hurt the partners if measures are not put in place to safeguard them. For instance, the case of US anti-dumping policy and China is an example of the challenges that the countries to the convention are likely to face (Yang, Chen and Monarch 6).
Conclusion
Based on the evaluation of the benefits that China has derived from the World Trade Organization, it plays a critical role in the development of the economies of the member states. The cooperation develops a free and fair ground for members to compete and goes ahead to establish necessary institutions that can settle any conflict arising among the member countries. The minimum requirements before accession puts the intended member at task to ensure that liberalization of the domestic market is achieved before acceptance into the organization. Although the dependency theory argues against trade involving developed and underdeveloped nations, the assessment of China's scenario has proven the school of thought wrong.
The tremendous performance that the Chinese economy has experienced since accession has been promising. The organization specifically has led to increase in exports and imports in the Chinese economy thus leading to favorable terms of trade. The free flow of goods in and out has promoted the growth of foreign direct investment in the country. The employment has greatly improved, and the real wage earnings have also been affected positively. The GDP of the country has been rated slightly above 9 percent on the annual aggregate since accession with double digits in certain periods. China can access wider market since signing into the organization. With increased membership, there is no doubt that the economy of China will remain on constant growth.
Works Cited
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Chen, Chunlai. China’s Integration with the Global Economy: WTO Accession, Foreign Direct Investment, and International Trade. Cheltenham, UK: Edward Elgar , 2009.
Cheong, Ching and Ching Yee. Handbook on China’s WTO Accession and Its Impacts. NEW Jersey: World Scientific, 2003.
Deepak, Bhattasali, Shantong Li and Will Martin. China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategies. Washington, DC: World Bank, 2004.
Fung, Hung-gay, Changhong Pei and Kevin Zhang. China and the Challenge of Economic Globalization: the Impact of WTO Membership. Armonk, NY: Sharpe, 2006.
Greig, A., Hume, D. and Turner, M. Challenging Global Inequality: Development Theory and Practice in the 21st Century. Great Britain: Palgrave Macmillan, 2007.
Marti, Luisa, Rosa Puertas and Ismeal Fernande. “Industrial Productivity and Convergence in Chinese Regions: The Effects of Entering the World Trade Organisation.” Journal of Asian Economics, no. 22, 2011, pp. 128-141.
WTO. 2011. “Understanding the WTO – Principles of the Trading System.” Accessed 22 Oct. 2017.
World Bank. 2011. “Employment in Agriculture.” Accessed 22 Oct. 2017.
Yang, Dennis, Vivian Chen and Ryan Monarch. “Rising Wages: Has China Lost Its Global Labor Advantage?” IZA, 2010.
