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An Analysis of the Prospect of the Impact of WTO 1
An Analysis of the Prospect of the Impact of WTO 1 We attempt to establish a China Industrial Prospect Assessment Method to comprehensively evaluate the near-term, medium-term and long-term impact of WTO accession on the various sectors of the manufacturing industry. The main components of this method are: (1) an industrial development prospect assessment method against the background of WTO accession that can be universally applied to different industrial sectors so as to carry out horizontal comparison of all industrial sectors under the same coordinate system; (2) a combination of the study of short-term policy options with the study of long-term trends so as to broaden the horizons of our study and to accurately chart a long-term development orientation of various sectors of the manufacturing industry after WTO accession; (3) a definition of the orientation and basic principles of government policy adjustment in the future through the assessment of industrial development prospect against the background of WTO accession. II. Method and Indicator Selection for Assessing the Development Prospect of China''s Manufacturing Industry after WTO Accession Our basic idea about the method of assessing the industrial development prospect after WTO accession is to make, through a comprehensive assessment of the following six indicators, an overall judgment on the short-term, medium-term and long-term impact (both positive and negative) of WTO accession on various sectors of the manufacturing industry as well as on their development prospect. Following are the six indicators: 1.The characteristics of globalization (or internationalization). The characteristics of globalization (or internationalization) are meant to determine whether a specific industry''s research and development, manufacturing, procurement, sales services, investment, trade, financing and other operations have a tendency of globalization or internationalization. Such a tendency is to a very large extent determined by the foreign direct investments by large transnational corporations. In the perspective of WTO accession, we can come to such a judgment that the more distinctive an industry''s characteristics of globalization or internationalization are, the more likely such an industry is subject to the impact of WTO accession and the degree of such an impact is determined by the degree of domestic industries'' participation in globalization. This is mainly because if an industry has more distinctive characteristics of globalization, the scope and method of resource allocation of its industrial chain will have closer links with external economic activities. As a result, such a domestic industry is likely to be more severely affected by external factors. As to those industries that have less characteristics of internationalization or have more characteristics of localization, they are likely to be less severely affected by WTO accession because their links with external economic activities are not close. For example, we can say for certain that from a global perspective, the chemical industry obviously have more characteristics of globalization than the building materials industry or the timber processing industry. As a result, WTO accession is likely to have a more severe impact on China''s chemical industry than on building materials industry or timber processing industry. The impact here refers mainly to direct impact, including tariff concession, the removal of non-tariff measures, market access, investment liberalization and facilitation, the protection of intellectual property rights and other factors that are directly related to WTO rules. As to the industries that have characteristics of globalization, we need to specif An Analysis of the Prospect of the Impact of WTO 1ically pinpoint whether these characteristics are manifested in the area of investment, or in the area of product and service trade, or in both. 2. The degree of marketization. The degree of industrial marketization means to what extent the process and mechanism of resource allocation of a specific industry are determined by market forces instead of non-market forces such as administrative regulation. The main factors that need to be considered include: (1) market access, whether the process of production factors entering into or exiting from a certain industry is free and smooth and whether there exist administrative restrictions on the entry and exit other than the capital and technological thresholds; (2) price control, whether the prices of products and production factors are set by market or by government; (3) ownership structure, whether a specific industry is dominated by state ownership or is shared by diverse forms of ownership; (4) market integration, whether the market is nationally unified or divided by different regions or departments. In the perspective of WTO accession, we can easily make a basic judgment that an industry with a higher degree of marketization will be less severely affected by WTO accession. 3. The degree of market opening. It determines to what extent a specific domestic industry is in a state of trade and investment liberalization instead of under the trade and investment protection by government. The main factors that should be considered include: (1) the degree of actual tariff and non-tariff protection and the degree of their adjustment after WTO accession; (2) the scale and structure of foreign direct investment. Under normal circumstances, an industry that is more open to the outside world will face less severe attacks after WTO accession. Conversely, an industry that has long been under the trade and investment protection by government is likely to face more severe attacks after WTO accession even though its products have long been dominating the domestic market. 4. The degree of industrial maturity. This indicator is mainly designed to assess the degree of "growth" of a specific domestic industry. The main factors to be considered include: (1) the domestic production capacity and market supply-demand situation; (2) the maturity of leading technologies; (3) the economics scale; (4) the scale and destinations of export; (5) the scale and destinations of external investment; (6) the price competitiveness; (7) the position of the domestic industry in international division of labor (in terms of the added value and technical contents of products) and the position of the industry''s large enterprises in the world. In general, an industry, with oversupply in domestic market, highly mature leading technologies, tangible economics scale, large-scale export, large amounts of external investment, stronger price competitiveness, a higher position in international division of labor and a higher international status for its large enterprises, has a higher degree of industrial maturity and is likely to face less severe attacks after WTO accession. 5. The potential of domestic demand growth. This indicator is mainly used to assess the space and ability of the potential and sustainable market growth of a specific industry. The main factors to be considered include: (1) the scale of potential demand and market structure; (2) the rate and sustainability of demand growth; (3) the characteristics of the growth of the related industries (for example, the changes in the supply, demand and cost&nb An Analysis of the Prospect of the Impact of WTO 1sp; of the upstream and downstream industries); (4) the domestic macroeconomic trend and personal income growth. The potential of domestic demand growth is an important indicator to assess the space for the medium- and long-term growth of an industry. Compared with those industries that have limited potential for domestic demand growth, the industries that have huge potential for domestic demand growth are likely to face less severe attacks after WTO accession. As to the industries (for example, the auto industry) that are likely to face greater attacks after WTO accession, they still have a great space for domestic development in the medium and long run because there exists a great potential of domestic demand. 6. The dynamic comparative advantages. This indicator is used mainly to assess the potential ability of a specific domestic manufacturing sector to participate in international division of labor and competition and to strive for long-term competitive advantages when changes (for example, government policy changes) occur to the quantity, quality and structure of production factors. Concerned about the static comparative advantages, we are more concerned about the dynamic competitive advantages, because the former emphasizes the structure of factor endowment and the latter emphasizes the industrial upgrading, experience accumulation and the nurture of comparative advantages. The dynamic comparative advantages (Redding, 1999) refer to a specific industry, whose development may not constitute a comparative advantage of a country at the current stage but will constitute one in the future when the industry grows to a certain scale. It is generally understood that the greatest comparative advantage for most of China''s industries is the cheap but high quality labor. Therefore, the labor-intensive products can obtain comparative advantage by way of cost and price advantages. On the other hand, the capital-intensive and technology-intensive industries are in a position of comparative competitive advantages. In recent years, however, with the entry of large amounts of foreign investment and the acceleration of technological advance, the processing and assembly links of some capital- and technology-intensive industries (such as the electronic information industry) have greatly enhanced their production capacities and manufacturing competence. As a result, their international competitiveness has become significantly stronger. Therefore, it is important to use static comparative advantages to assess the near-term impact on the main industrial sectors and it is even more important to use dynamic comparative advantages to assess the medium- and long-term impact on the related industrial sectors. Next, we will use the above six indicators to make a definitive judgment on the impact of WTO accession on the main sectors of the manufacturing industry. Of the six indicators, the degree of globalization, the degree of marketization and the degree of market opening have a greater impact on the immediate competitiveness of various sectors. They manifest themselves more in the near-term impact. On the other hand, the degree of industrial maturity, the potential of domestic demand and the dynamic comparative advantages are mainly used to analyze the medium- and long-term development prospect and potential competitiveness.
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