CHINA LIKELY TO JOIN GATT, DIPLOMATS SAY
China is likely to succeed in joining
GATT despite policies that contradict free trade, because
western countries support its entry, western diplomats said.
    China applied to join the General Agreement on Tariffs and
Trade (GATT) in July 1986. The organisation, formed in 1948 to
integrate the world's free market economies, now regulates 80
pct of world trade.
    The GATT secretariat is expected to submit a list of
detailed questions to China next month at the start of long and
complex entry negotiations, the diplomats said.
    One diplomat said China's prospects are good, with its
application supported by the United States, Japan and the
European Community for political and economic reasons.
    "The fear is that if China was refused entry, it would draw
back the bamboo curtain and go back to the way it was," he said.
    Another said the Soviet Union was waiting in the wings.
    "If GATT accepted China, it would be hard not to accept the
Soviet Union," he said.
    "China's agreement will be seen as a model for the Soviet
Union. GATT is not a political body."
    But serious problems have to be tackled during the talks,
including China's pricing system and trade subsidies.
    GATT is based on free trade and aims to lower tariffs and
promote trade, with prices alone dictating who buys what.
    One diplomat said it was very hard in China to establish
the real cost of goods because many prices are set by the state
and often contain subsidies.
    "Even when you go in person to a factory or a company to try
to find out the real cost of something, officials do not give
you a clear answer. The political meaning is evident. They do
not want to answer," he said.
    China's position, as set out in a memorandum to GATT in
February, is that it is gradually reforming its price system to
bring prices in line with real production costs and replace
administrative controls with market ones.
    Another diplomat said countries with centralised economies
such as Hungary and Yugoslavia had joined GATT. However, China
would not apply for membership on similar terms, but rather as
a less developed country entitled to preferential treatment.
    He added that the economies of Hungary and Yugoslavia are
small, while China's is huge and its weight would be felt.
    "It (China) is the world's number two producer of coal, for
instance," the diplomat said. "It could have a very large impact
on world trade."
    Another sticking point is the subsidies China pays its
companies to export so it can earn foreign exchange to pay for
vitally needed technology, equipment and raw materials.
    A Japanese trader said China lost money on every tonne of
grain it exported, because it had to make up the difference
between a low world price and a high domestic price.
    A western diplomat said an official of a foreign trade
bureau of a major inland Chinese city told him export subsidies
might be as high as 100 pct for some products.
    "When I asked what the subsidy figure was for the whole
country, he referred me to the Ministry of Finance, adding with
a grin that they would not tell me," he said.
    He said officials were unwilling to give figures because of
the sensitivity of the subject.
    "Unless something is done to change this, China will find
many countries in GATT putting restrictions on imports from
China," the diplomat added.
    In a major speech on the economy late last month, Planning
Minister Song Ping made an indirect reference to this problem.
    "While trying to expand exports to earn more foreign
exchange, we must improve economic accounting practices and
reduce the cost of exports," he said.
    One diplomat said China's freedom to change its foreign
trade and pricing system to bring them more in line with GATT
principles could conflict with domestic pressures. China has
said there will be no major price reforms this year following
widespread discontent in 1985 and 1986 from a public used to
stable prices since the Communist takeover in 1949.
    "So the question is how fast and how thoroughly can China
reform its economy?," the diplomat said. "How can it balance the
requirements of GATT membership with domestic political needs?"
    But he added the advantages of China's entry would in the
end outweigh these problems.
    "China's entry would force it to modernise and become more a
part of the world economy," he said.
    "Just as China would get increased access to foreign
markets, so it would have to give more access to its domestic
market to foreign countries."
 REUTER
