This has certainly been the case in China where industrial and fiscal policy has supported declining sectors of the state-owned economy that the Chinese Communist Party created from the 1950s onwards. In addition, whether such a strategy of protectionism and 'picking winners' did or did not work in the past, it is not feasible in a world of WTO. Rightly or wrongly, WTO regulations and practices try to prevent the kind of development strategy that was practiced throughout East Asia from the 1960s onwards.
It is clear that international pressure will force the Chinese government to undertake a more market-based strategy. Should China not adjust its policy it will run the risk of substantial friction with the world trading body and especially from the USA. It is clear that state-owned enterprises, on the whole, are struggling. Certainly rapid growth has been attained while maintaining a relatively large state-owned sector. Since 1978 gross domestic product growth rates have averaged ten per cent per annum, 10.
7 per cent in the 1990s; by contrast those for Russia declined by 6. 1 per cent per annum in the 1990s. Government strategy has been to let the non-state sector grow up around the state-owned core in a process that Naughton aptly refers to as 'growing out of the plan' , 13 The share of the non-state sector in China's industrial output rose from 24. 4 per cent in 1980 to 71. 8 per cent in 1999. The private sector has been growing at 41 per cent per annum between 1991 and 1997. 14 State-oriented sector (SOE) now provide only 38 per cent of urban employment.
Now we are going to say what extent WTO provisions for China will help the country’s economic development. The WTO’s main extent provision is to help its member states organize truly free-market economy to establish economic development throughout the world. China is still a mercantilist state with plenty of non-market, state-directive tools in its tool kit and an incomplete transition to market norms. But the state positively moves forward the democracy and tries to transit its economy into market forms with the help of WTO. Integration into the world economy ceases to progress.
Since initiating the application for WTO membership in 1986, China has reduced SOE’s contribution to industrial output from 62 percent to 20 percent (as of 2000); lowered tariffs from an average 36 percent in 1993 to an average of 15 percent in 2004 with a target of 10 percent in 2008; removed many nontariff barriers, including many import quotas, licenses, export subsidies, and restrictions of foreign trading privileges; improved its policies with regard to “national treatment” (the principle that a country is required to treat foreign products the same as domestic products once they are inside the country); and made significant improvements in the legal provisions for and enforcement of intellectual property rights.
Also the most important economic benefit associated with membership is the permanent most-favoured-nation (MFN) trading status in the market of member countries. The MFN rule requires that each contracting party apply its tariff rules equally to all other parties without discrimination. Article 1, paragraph 1, provides that “any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the product originating in or destined for the territories of all other parties”.
In contrast to the MFN rule, which requires non-discrimination at a country's border, the national treatment rule requires a country to treat foreign products equally with its domestic products once they are inside the country. Another major benefit that WTO offers only to its developing-country members is the General System of Preferences (GSP), which grants the developing country members privileges of a waiver of reciprocity in the negotiation of trade concessions from developed countries. This allows a developing country to obtain tariff concessions from a developed country on a nonreciprocal basis. The purpose of the GSP is to make the developing countries more competitive in the world market and less dependent on the production of raw and primary goods. Currently, China is one of the largest exporters in the world.
Manufactured goods have become the major part of its exports, instead of raw and primary goods. It has become clear that China will not be qualified for GSP, according to the officials who participated in the U. S. –China bilateral trade negotiations. Realistically, the best that China can hope for will be a status in between developing and developed nations. WTO membership may entitle China to benefit from the elimination of Multi-Fibber Arrangement (MFA) quotas. One of the major achievements of developing countries from the Uruguay Round agreement is that the developed countries agreed to eliminate restrictions under the MFA and to return textile and apparel to normal GATT disciplines.