Speech/00/395 Pascal Lamy European Commissioner for Trade

European Commissioner for Trade

Excellencies, ladies and gentlemen,

It is a great pleasure to be with you this morning - almost two years to the day since the first EU-China Business Dialogue meeting. Since then, much of course has changed. Not least, China has weathered the Asian financial crisis, and with flying colours.

Today, that crisis is a distant memory, and of course China is on the threshold of the WTO. On the threshold – but not yet in. So we will meet with the Chinese leaders to try and outline an agreement on the last remaining difficult issues together. Europe is ready to do that.

In particular, we need to complete China’s protocol of accession. This means confirming all the bilateral commitments made by China, and clarifying the way in which China will implement its WTO obligations. Without this, there would be much less certainty about effective market access. So we must focus on issues such as the need for transparent and predictable administrative commitment, e.g., in issuing services licences; clear and progressive implementation of trading rights; national treatment for imported products, e.g., in certification; and clarification of which of the developing country provisions are applicable to China, and which are not.

But let us remind ourselves why WTO accession is so important.

First, WTO accession brings unprecedented business opportunities for China herself and for EU companies.

China’s WTO commitments will in the first place benefit her own economy and people, both in the form of immediate commercial opportunities, but also in the substantial impact on economic reform and development in China. Sustainable growth and stability in China are of course vital not only in the country itself, but also for her neighbours in Asia, and indeed the rest of the world.

The changes engendered by accession should therefore run in parallel with the continuing domestic reform programme. That is why we agreed to step-by-step market opening in many areas, with implementation typically taking place within a three to five year period.

WTO accession must steer rather than strain the economy in China. Entering the world trading system will be a catalyst for Chinese firms to become more efficient over time to show that they can compete on fair terms with the rest of the world.

Beyond simple economics, WTO accession should also serve to boost the rule of law in China. The WTO seeks to uphold the fundamental principles of transparency, non-discrimination, efficient administration and independent judicial review. New and revised structures firmly founded on these principles should contribute to evolution of China’s economic, legal and social systems.

Opportunities for EU firms

But, as Minister Shi said at the press conference last May, this is a win-win agreement. China’s entry into the WTO will also bring a greatly improved access for EU firms to China’s market. The costs of exporting to China will be less, as tariff and non-tariff restrictions are sharply reduced. And the incentives to invest in China will be enhanced by a more attractive, and more predictable, business environment.

The key in this negotiation was to keep in our minds that the direction set by accession was more important than the race to reach some imaginary finish line. Of course we had to get results for Europe on market access: Spanish mandarin oranges could not lose out to the equivalent from Florida. These things are rightly important to individual companies, to specific regions, and to Member States.

But they are not, frankly, the most important questions. Nor will they ultimately weigh heavily in the implications of China’s decision to open up irreversibly to the outside world.

Let me cite just a few examples of systemic changes that I believe will help lead to a profound re-orientation of China’s economy and help attract more EU investments to China.

First, the gradual deregulation of banking services will allow easier access to capital in China. Joint-ventures in e-business, for example, will only thrive if they can find suitable creditors. And allowing foreign banks to carry out their business, in local currency, is a very important change.

Second, liberalisation of the distribution sector to foreign firms is also essential. Our goods must really be able to find their way to Chinese consumers, at the right time and in the right condition as well as at the right price.

Third, state control over inflows of basic commodities, like petroleum or fertilisers, had to be removed if these industries are to become responsive to market forces.

Looking back at the negotiations – those long days in March and May – we sought both positive responses to the specific requests of Europe’s firms while at the same time looked to promote the long-term, systemic process of economic reform in China. I think we achieved that.

But progress is incremental. No external negotiation could, or indeed should, make China move faster down the path of reform, or at least not any faster than it wishes to. Prime Minister Zhu made it clear to me last Spring where the limits of his room of manoeuvre lay. But he also said that those limits were today’s limits, and that China is determined to open up further when the time is right. So I believe the direction set by the terms of accession to be the right one, and it is one which has been chosen by China as much as negotiated by her WTO negotiating partners.

But what about its impact on the multilateral system? Sceptics have been quick to suggest that China’s membership will slow down progress towards global trade liberalisation and place more strain on the dispute settlement system. Several points in response.

First, Chinese entry will mean a huge step closer to a genuinely World Trade Organisation. As long as China remained outside, the WTO was some way from fulfilling its original and rightful vocation.

Second, China could and should become a key player in WTO. China has a fundamental interest in both the promotion and the proper regulation of trade at the global level. And – as I have already said – China clearly sees WTO membership and continuing domestic reform as proceeding hand in hand.

Third, China’s accession establishes a high standard of commitments to foreign imports, investors and businesses. A New Round of multilateral trade negotiations will provide China with the chance to press others to make equally forward-looking commitments.

The Challenges – making China’s accession work

The challenge now ahead is to ensure that the gains of accession are real; and that what has been agreed on paper is applied in practice. And it will be an enormous challenge. Implementation is a top priority for the Commission: it must cover both follow-up and assistance.

On technical assistance, as I have made clear to Minister Shi, the EU is committed to working in partnership with China, and determined to share its experience in the WTO, assisting as far as possible with the changes which China will have to introduce and sustain in its continuing economic transition.

But we also need the help of businessmen to follow-up on China’s adherence to WTO obligations. What we need to do is to build a new relationship here, particularly between business people. In concrete terms, this means the European Chamber of Commerce in China and the EU-China Business Dialogue. Both have their own role to play and both can contribute constructively and positively to even stronger relations between the EU and China.

Later today, Romano Prodi and I, together with the French Presidency, will discuss directly with Prime Minister Zhu, State Councillor Mme Wu Yi and Minister Shi, the remaining issues in China’s WTO accession. The most important thing at this stage is to ensure that both sides are fully aware, including at the political level, of our concerns to ensure the bilateral deal can be realised. Of course it is my hope that we will be able to agree, but it may be that more time is needed. One thing is clear, however: we want China in the WTO at the earliest opportunity and want to continue to work positively with the Chinese government on this.

To conclude on WTO, much has been said about the potentially far-reaching impact of China’s joining the WTO, an impact beyond the domains of international trade and investment. But the pace of change should not be exaggerated.

There are hugely difficult challenges of social cohesion and sustainable development. We in the West can theorise endlessly about these, but it is the Chinese who have to take the decisions which matter. But China’s accession to the WTO is undoubtedly one very big step. It can only lock in and deepen market reforms, empowering those in the leadership who support further and faster moves towards economic freedom.

In short, we in the Commission, look at our future relations with China in a spirit of great optimism and hope for the future. I am convinced that the geopolitical shifts in the century ahead will see China playing an increasingly pivotal global role. So I know that it is worth investing heavily in building a good relationship with China. I hope that you, as business people, will be convinced of the same. For I also believe that in the coming century, it will be business people like yourselves who will do more than politicians like me to effect change in China.

On a different note, it is with great pleasure that I would like to congratulate the European Chamber on its official recognition. The Chamber has done a great job in bringing together EU business in China. It can now give a voice to European business right here in the China market. This can help European business interests. It can also be useful to the Chinese authorities as they construct the framework and institutions to sustain a market economy. The Chamber has also played an important role for me in my negotiations on China’s WTO accession. I have listened very carefully to the views of EU businesses in China.

Finally, I would also like to congratulate the Co-Chairmen and the participants in the Second EU China Business Dialogue. I look forward to hearing the results of the deliberations.