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NOVEMBER 29, 1999 VOL. 154 NO. 21

Anatomy of a WTO Deal
Bluffs and brinksmanship kept both sides guessing until the U.S. and China finally signed the trade pact

In the days since China and the United States signed their historic trade agreement in Beijing, details have emerged about the haggling and brinksmanship that characterized the talks. The American negotiators, anxious to tell the world--and Congress--that they did everything in their power to get the best possible deal, keep retelling the tale of how they twice threatened to leave the Chinese capital, once huffily sending their suitcases to the airport. "They knew all our bags were packed," recalls U.S. Trade Representative Charlene Barshefsky, the head of the American negotiating team. "We had a quite heated exchange that morning."

But the drama in Beijing--which eventually gave China the breakthrough it needs to become a member of the World Trade Organization--was apparently less of a cliffhanger than it seemed. When U.S. President Bill Clinton called Chinese counterpart Jiang Zemin in early November to jump start the negotiations, he said he didn't want his team getting on the plane unless a deal was going to come through. Jiang's reply, according to the Americans: Don't worry, a deal will be done. When two days of talks--Washington's stated time limit--concluded without progress, a White House official told the front desk at Beijing's Palace Hotel that the Americans would be leaving the following morning. The desk clerk contradicted him. The reservation, he insisted, was for six days. The clerk, and the Chinese government officials who had booked rooms for the American guests, seemed to know something the U.S. official didn't: that's exactly how long it took for the Chinese to make the final concessions that resulted in the deal.

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Anatomy of a WTO Deal
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The People's Republic's likely accession into the World Trade Organization may make Hong Kong's lucrative role obsolete

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A roller-coaster ride, perhaps, but the Chinese made sure to keep the wheels in their groove. There are more chills and spills to come: Congress still has to approve the deal and a similar bilateral agreement needs to be reached with the European Union. If and when these take place, the entire trade group is sure to vote that China plug into the global economy and, as a consequence, open its markets in myriad tantalizing ways.

The world may never be the same. China's economy faces a WTO-mandated overhaul--that's precisely why the country's reformist leaders wanted the deal--and farmers and factories around the world will have greatly expanded access to China's vast consumer market. On varying schedules, Beijing will slash its protective tariffs on wheat, chemicals, computers, cars, steel and a host of other products. It also has agreed to knock out the compulsory middlemen, the bane of businesses trying to penetrate China, who currently have the sole right to import, export and distribute products. Hollywood and other foreign movie centers will be allowed to distribute 40 films a year immediately after accession, a number that will grow to 50 three years later. By 2005, foreign banks will be allowed to do commercial and retail business, and certain types of financial companies will immediately be able to offer car loans. The insurance industry is being pried open; so will the telecommunications sector, though that topic nearly busted the deal. China didn't want to allow 51% foreign ownership of telecoms companies. Only at the last minute did Premier Zhu Rongji agree to 50% foreign ownership two years after accession. "The China-WTO agreement is good for the United States," effused Clinton. "It's good for China; it's good for the world economy."

And good for Bill Clinton and a presidency in need of a foreign-policy success after seven lean years. "The Comprehensive Test Ban Treaty fiasco is not the way Clinton wants to be remembered," says David Lampton, director of China studies at Johns Hopkins University's School of Advanced International Studies, referring to the Senate's killing of the treaty last month. Clinton and his team emphasize that WTO membership will bind Beijing to international rules of commerce. China, at the same time, will escape the bashing it gets each year when Congress debates human rights, Tibet and other hot-button issues before deciding whether to grant "normal" trade relations to China. As for the WTO itself, bringing China in would not only open up what is potentially the world's biggest consumer market, but it would also ensure that China does not stand aloof from the trading rules that govern commerce in the globalized new century.

For China, there is prestige to be gained--and much more. Long Yongtu, vice minister of foreign trade and chief WTO negotiator, told Chinese television the event reminded him of the time when Beijing won its seat at the United Nations. He then made a more telling comparison. "This is like China's participation in the Olympics," he said. "We must participate in the Olympics if we are to raise our overall athletic standards." For if WTO was a prestige issue in the late '80s and early '90s, changes within China have made it into something more urgent and fundamental. China's reformers want the winds of outside competition to radically change the entire economy. "WTO could be just the thing to put China's reforms on the fast-track," says Dong Tao, senior regional economist at Credit Suisse First Boston. China's leaders want market forces to make the nation's factories competitive. They also, no doubt, will welcome the option of blaming the ensuing wave of layoffs and shutdowns on WTO regulations instead of their reforms.

The job of the U.S. negotiators was to get as many concessions as possible. Beijing wanted the infusion of competitiveness but could not agree to sell the farm--and whole other industries--to foreigners. Before a deal could be signed, however, Washington and Beijing had to overcome layers of hostility. Clinton had nixed what appeared to be a done deal when Zhu was in the U.S. last April (the President thought Congress would reject it). Then came the May bombing of China's embassy in Belgrade. To get things restarted, Clinton had to woo Jiang vigorously. At an economic summit in New Zealand in September, he asked Jiang to reopen talks. In mid-October he phoned the Chinese President and, contrary to normal practice, sent a position paper to Beijing outlining six concessions Washington was willing to make. Jiang didn't reply. Clinton called again on Nov. 6, reminding Jiang that if China didn't get into the WTO this month, it would be excluded from a new round of trade-liberalizing talks set to start in Seattle at the end of November.

The deadline pressure and cajoling worked, and Jiang assured Clinton a deal could be made. But he didn't promise it would be easy. On Nov. 10, Barshefsky's negotiating team landed in Beijing. The group included Clinton economic adviser Gene Sperling, who had persuaded the U.S. President to ditch Zhu's deal in April. Sperling's presence was another piece of deference, showing Beijing that Clinton was serious this time.

The U.S. team committed itself to two days of talks. During that time, the Chinese team, led by Foreign Trade Minister Shi Guangsheng, accepted the Americans' six concessions but pushed for more. Barshefsky and team packed their bags after Friday's talks and booked flights for the following morning. At 3:15 a.m. Saturday, however, the phone rang with word that Zhu would see them. A few hours later, they met Zhu at the Zhongnanhai leadership compound, and he outlined the issues that were most bothersome to the Chinese military and hard-liners. One sticking point was that foreigners could not own a controlling stake in telecommunications companies. "This was the most sensitive item," says Barshefsky. Another was that foreigners couldn't control audio and video entertainment. Together, the points were described as "the two nevers." Nonetheless, the meeting with Zhu was "pivotal," according to Sperling. "It was in that meeting that we saw the first significant movement."

But Sunday's talks went badly. Recalls Barshefsky: "Lots of backsliding. Lots of pull-offs from the table, indicating to me that they were treading water. They were not yet sure what final concessions they could make." Frustrated, the team went back to the hotel and packed their bags once more. Then they were summoned to the Trade Ministry at 3 a.m., Monday morning. When the Chinese side complained about the agreement, Barshefsky gave, in her words, "an exceptionally strong response." She retired to a hallway to huddle with Sperling, when she bumped into Wu Yi, a State Councillor, who announced that Zhu had come to the building for a meeting. That was the moment, Barshefsky says, that she knew the leaders had made up their minds. Zhu, Barshefsky and Sperling met, and the deal was done.

Or so the Americans thought. The signing was expected to take place Monday afternoon, but Barshefsky, back in her hotel room, was visited by more negotiators from the Trade Ministry. They wanted to rejigger several of the agreements. For Barshefsky, it was no time for arguing, pleading or even anger. She simply blew them off. "I said: 'Oh, please. Too complicated. Can't possibly deal with it. What time is the signing?' And that was the end of the negotiation."

No walk in the park, for sure. But after the signing ceremony, Barshefsky had the privilege of getting a tour of a private pavilion in Zhongnanhai, conducted by Jiang himself. "He was obviously elated and relieved," she says. "He put on his overcoat and took us to a pavilion to show us the South Lake. He chatted for a while in a little bit of English and a little bit of Chinese. And that was his way of saying 'Thank You' and sending his best regards to the United States, without ever saying either." For Barshefsky, the WTO saga was over. But for Jiang and China, a whole new economic era is just beginning.

Reported by Hannah Beech/Hong Kong, Jaime A. FlorCruz/Beijing and Barry Hillenbrand/Washington

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