You are here: UK Essays » Essays » Economics » China Wto

Free Essays - Economics Essays

Discuss the introduction of China into the WTO is a great opportunity for the world to increase their global trade performance.

Introduction

China joining the WTO in 2001 instantly added over one seventh of the world’s population to the accepted global market. This has created a large amount of opportunities for China and the world’s trading partners. Although an overall positive action, local countries including South Korea who have already been trading with China have reason to worry about their future trade relations. China offers a production engine that is similar to their Asian neighbours which focuses on labour intensive manufacturing to take advantage of their low labour cost. Effectively this could erase South Korea’s competitive advantage concerning global trade and is something that their government needs to strongly consider when analysing China’s WTO ascension.

Statistical Analysis China vs. Korea

WTO Trade Principles

Quota’s and Tariffs- WTO requires that each nation use a globally decided tariff on goods and that quota’s be dictated by individual nations to protect their internal economy. The use of these is to regulate the import of exportation of goods from nation to nation. If China wants to increase imports of a certain kind into the country they will lower the tariff or increase the quota on that product.

Affect on Korea- Current trading with China has not been affected to a degree worth noting as trading growth has remained constant with each nations economic growth. This could adversely affect Korea in future as they are becoming increasingly dependent on China.

WTO Policy- treatment of local and foreign good equally- China is now required to trade which ever assessable goods makes the most economic sense. This means if a nation within the WTO can produce a good of higher value then an internal manufacturer can produce, the exporter must be given the same trade opportunities as the internal supplier.

Affect on Korea- This could have mixed results for Korea as China currently has lower labor costs which is difficult to compete with exporting of textiles and agricultural goods. The positive side to this is Korea has a larger capacity to produce electronics and chemical products which should give them an advantage until China becomes more developed in the technological market.

WTO MFN Policy- A major concern with Korea and China’s WTO status is that within WTO policy one nation cannot give favorable trade agreements to another. Currently Korea is listed as a MFN (Most Favoured Nation) with China, which means that trade should be done on a regular basis with them without penalty but many other countries are that status including the United States and more are joining.

Affect on Korea- The goal of the WTO is for each nation to have freedom to trade fairly with another nation. Before China joined the WTO Korea was fortunate to have prior trade relationships with China. Since joining, China is required to give equal opportunity to all nations which can hinder Korea’s future trade performance. Current actions to protect Korea’s status involves a free trade agreement between the two nations being developed with the Korea Institute for International Economic Policy (KIEP) and the Chinese Development Research Center. This would decrease the future risk by making trading between the two nations more feasible.

Non-Tariff Barriers- The requirement for all WTO members to make all product or service requirements completely transparent to all other trading nations. What this means is China is required to completely standardise and publish what is required from any products that are imported to their country to ensure that other nations do not break any internal policy in China. This also works in reverse to ensure that any exporters in China are educated on the requirements to export products to another nation. Within this policies include a standard product price list for customs, quality control for technology, textiles, and agricultural products.

Affect on Korea- This will have a positive affect on China and Korea. Past problems with quality control including an incident in late 1999 where crab and blowfish was found to contain large amount of metal to increase selling weight could be avoided in the future with the employment of trade officials to check exports before delivery.

Anti-Dumping- A WTO policy stating that member cannot export products to another country for less then it would sell internally. The affect this would have on another nation is drive their own product prices down and give an unfair competitive advantage to the exploiting country.

Affect on Korea- This will have a positive affect on Korea as China’s production capacity and cost leadership is stronger then Korea’s in many different markets. Strong Anti-dumping enforcement will protect China on the short run from Korea’s steel and chemical dumping and on the long run Korea will benefit from China being unable to off load textiles or agricultural goods. The most famous of the Korea/ China anti-dumping disputes would be the “garlic wars” between the times of 1996-1998. In 1996 garlic imports from China was at about 10,000 tons, in 1998 this had increased to 36,000 tons and was priced between a third and a fourth of local prices. The end result is this gave a monopoly to the Chinese exporters as local growers could not compete with the prices. Since China joining the WTO in 2001 there have been a high volume of complaints against China but policy enforcement has enabled these to be dealt with in an effective matter. Every complaint and resolution results in another measure being instituted to elminate the same offense occurring twice, China current has 56 measures in place and Korea has 23. Compare this to the 293 that the United states currently operate with or the 165 that the UK uses and you can see that China will probably be charged with more offenses before their system is protected completely.

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)- This policy is in place to ensure protection for patents and brand identity in concerns to foreign trade. This has become a major concern for China whose previous policies allowed for cloning of any technology/ brand you can find.

Affect on Korea- Both Korea and China require these regulations to protect against breaking patent or copyright laws. Currently Korea has been better at enforcing these due to their exportation growth in the technological sector (51,550,000,000 USD in 2003 which is 12% of total exports) so they are required to protect companies such as Samsung who invest in their economy. This same effect has been occurring in China and is still being developed but once the issue is resolved Korea should be able to increase trade of their electronics within China without the fear of China cloning the products(Qingjiang, 2002).

SWOT Analysis

Strengths-
1. Standardised trading policies enables for competitive protection for Korea to export to China as Korean exports are of lower cost then most other trading nations
2. WTO policies protects Korea from China’s production engine and buyer/ supplier power by regulating any dumping and monopolistic actions
3.  Free trade negotiations between China and Korea will enable Korea to profit as China’s economy grows

Weaknesses-
1. Comparable exports will lower Korea’s market share form lessened competitive advantage
2. Economic growth in China from joining the WTO will lower foreign investment into Korea as the latter is the better opportunity
3. Past trade relationships between the South Korea and China are weakened as all WTO members are given equal opportunity to trade.

Opportunities- China has become one the fastest growing economies in the world . South Korea currently has a strong trade relationship with China and is currently negotiating to set up a free trade agreement to strengthen this. A free trade agreement between the two nations will give Korea an advantage over foreign markets in trading with the giant. The advantage of this will come from Korea now being tied economically to the success of China allowing for a continuation of trade growth (.

Threats- Korea’s and China’s competitive advantage on the global market are similar. They can produce a low cost labour intensive product. Over the years this has enabled Korea to prosper well within the WTO utilizing their strong relationship with Japan and the United States. This could be jeopardized as China now looks like a more favorable nation to trade with over Korea. Korea will need to diversify their strengths to combat this threat on the long run.

Conclusion

The introduction of China into the WTO is a great opportunity for the world to increase their global trade performance. With South Korea’s previous trade relation with China this could end in mixed results for their economy. On the up side China has had a strong past relationship with Korea and is trying to develop a free trade agreement that should enable intra-country trading to remain strong and profitable. On the negative end Korea and China work with similar a competitive advantage. Low labour production that Korea has become successful with now has to compete on the global market with a nation who can produce more for cheaper. It is hard to say at this point which will outweigh the other but Korea needs to diversify their production away from China’s strengths in order to maintain their current trading share with the world. There is little debate on the fact that as China’s economy will strengthen from joining the WTO, subsequently Korea will profit as well on the short term. As time goes on Korea may find that if they continue their current production methods with the same goods they will have little to offer over China to the world and may become less successful in the global market. This would lead to Korea being very dependant on their trade relation with the soon to be economic giant, China.

Bibliography

(2005) WTO homepage Statistical Profiles http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=CN,KR March 2005(accessed 25 March 2005)

(2005) WTO homepage Policy Description
http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm#intro March 2005(accessed 25 March 2005)

“World Fact Book-China” http://www.cia.gov/cia/publications/factbook/geos/ch.html 15, February, 2005.(assessed 20 March 2005)

Wulfin, Jared. “Economic Intelligence Unit-South Korea in 2004” Economic Intelligence Unit Report. 11, February 2005.

Muelling, Karen. “Economic Intelligence Unit-China in 2004” Economic Intelligence Unit Report. 3, March 2005.

Qingjiang, Kong.“CHINA AND THE WORLD TRADE ORGANIZATION:
A Legal Perspective”. University of Singapore. Sept 2002

All of the essays in this section were written by students and then submitted to us to publish and help others. Thanks to all of the students who have submitted their essays to us. You should not hand in our essays as your own. We do not condone plagiarism! If you need custom essays on your exact essay questions, then have a look at our essay writing service.

Sign up and be the first to receive our latest offers: