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U.S./China: Russia, Iran Left Behind In Trade Deal

  • Michael Lelyveld

Boston, 18 November 1999 (RFE/RL) -- The U.S. agreement with China on admission to the World Trade Organization may close deep rifts between the two nations, but it may also widen the gap between major trading partners and countries such as Russia and Iran.

While China has taken a big step toward membership in the global trade body, there seem to be no similar advances on the horizon for Iran or Russia. There is little doubt that the WTO will grow in importance with the accession of the world's most populous nation, but other countries that remain outside may risk being left behind. If China does become the 136th member of the WTO, the gap seems certain to widen.

The meaning of the agreement with China goes far beyond tariff cuts and breaks for market access. There is also historical resonance whenever the term "opening" is used. China has viewed Western traders with some measure of suspicion since the earliest times. The colonial experience of the 19th century and the trading concessions gained by Western powers in China's port cities are inseparable parts of the past.

But China may now see opening as the only way to preserve and expand its power, rather than retreating into its vast interior. Past reactions to Western influence no longer work in a world where advancement is driven by global finance. Similar logic has yet to prevail in either Russia or Iran. Both countries have sought the benefits of WTO membership but neither has been willing to pay the price in market reforms.

In Russia, the early drive for reforms has been mired corruption, turning many of the benefits of opening into opportunities missed. Russia agreed several years ago, for example, to give Western banks the same kind of market access that China has now granted to U.S. financial institutions. But the competition and reform of the Russian banking sector that was supposed to follow has dissolved into profiteering, capital flight, default and shady deals.

Notions of corporate governance have been abandoned despite gains in market access. For example, the power play that has led to BP Amoco's loss of investment in the oil company Sidanko has sent a chill through the industry, making Russia an implausible candidate for the WTO.

In Iran, there have been periodic complaints that the United States has blocked its WTO membership. But it is far from clear that it would be ready to join if all barriers were removed. Much may depend on the upcoming election for the Majlis, Iran's parliament, and progress toward a unified exchange rate. But transparency in trade and finance may still be far in the future. Iran's system of subsidies also remains deeply ingrained.

But in Iran, the scope of the problems is becoming clearer. On Monday, Industry Minister Gholamreza Shafei blamed the slowing of the country's industrial growth on an excess of bureaucratic intervention and a lack of hard currency. Both problems point to the need for competition and foreign investment. The economic question is whether Iran's government can respond to its own problems, rather than what the future of U.S.-Iranian relations will be.

Another key benefit for China in its bid for WTO membership is that it may be able to move beyond the constant threat of trade and economic sanctions in its often-tense relationship with the United States. Although its rules include exemptions for national security issues, the WTO provides a forum for challenging restrictive trade practices. In that sense, the U.S.-China agreement implies a commitment to settle disputes instead of relying on sanctions regimes.

Such an understanding could soon separate China from Russia and Iran in relation to the United States. But it remains to be seen whether the benefits of WTO membership will be enough of an incentive to pursue reforms.