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Pricing would clearly be critical. The Chinese had three conflicting systems: mandatory price controls, price parameters, and an open system. USTR were off the point in complaining that internal prices acted as a disincentive to imports. In reality, it was the erratic customs valuation system that was as much to blame. Of course, with no competition, there was nothing against which to gauge prices either of internal or imported goods. the market opened there would no doubt be a shakedown, companies would go bankrupt, and the Central Pricing Commission would have to start pricing competitively, and calculating the value of inputs more realistically. But this whole area was at a very primitive stage of development.
As
Autonomy: there were 1028 ostensibly autonomous foreign trade enterprises so far. But unless they had money, they could buy nothing, they might not have access to foreign exchange and there might be arbitrary changes in the distribution system, beyond their control, that would also affect them. Again, there was some way to go.
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Intra-Chinese trade: China was a federal republic, in which some power had been devolved to the provinces. Unlike any other federation, there was no provision for intra-Chinese trade to be free of provincial interference. The constitutional concept of what other Contracting Parties might want in the form of a fully harmonised internal market was anathema to the Chinese.
Hong Kong: the Chinese had not thought through the implications of agreeing independent status for Hong Kong in the GATT. At some stage, there would have to be Hong Kong/China and China/EC/US negotiations on Chinese goods exported to Hong Kong and sold on to the EC or American market, while having Chinese rules of origin applied to them. China would argue that these should not be counted against their EC/US quotas. But this need not be a major problem.
But
Transparency: there were many problems with Chinese rules. the Chinese acknowledged that the major problem for them was one of credibility. The US were frustrated by the opacity of the system. They would have to be able to convince Congressional critics that the Chinese system was changing. How could they judge this? The attitude of exporters was not a very reliable guide. The attitude of foreign banks in China, and the amount of financial investment that they were prepared to make might be a better indicator.
8. We spoke finally about the timetable. McDonnell said that the Chinese hoped for a declaration on participation within three to four years.
By that stage it should be possible to evaluate the creation of a new and independent entrepreneurial class. Deng Xiao-Ping's life expectancy could not now be very long. Entry into GATT would be the most effective lever to get the Chinese people to accept lasting economic reforms. But his window of opportunity was very limited: possibly only the 1987 and 1989 People's Congresses. And it was important to remember that the
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