Chinese people try coffee from Burundi at an african commodities exhibition?in Beijing. [file photo/thefirst.cn]

At the recent G20 summit in Cannes, Chinese President Hu Jintao declared that China will give zero-tariff status treatment to 97 percent of the tariff items of exports to China from least developed countries (LDCs) which have diplomatic ties with China. China's tariff cut has a far-reaching significance at a time when the global economy has yet to step out of the shadow cast by the financial crisis.

After the Second World War, developing countries suffered as a result of trade protectionism and heavy duties. In the 1960s, developing countries proposed a tariff cut system on items exported to developed countries. This became the Generalized System of Preferences (GSP) passed by the United Nations Conference on Trade and Development (UNCTAD). This international trade system in which developed countries give generalized, non-biased and non- reciprocal preferential tariff treatment to products or semi-manufactured goods (including raw products) imported from developing countries. The system offers a preferential, Most Favored Nations' (MFN) tax rate and is an effective way to promote economic and trade cooperation between developed and developing countries. GSP was listed on the exemption provisions of the General Agreement on Tariffs and Trade (GATT), which was the forerunner of the World Trade Organization (WTO). GSP is also an exemption provision of the WTO. Thirty-nine countries, including the U.S., Japan, Russia, Belorussia, Ukraine and Kazakhstan once included 209 regions and countries in the GSP, in particular granting zero-tariff status to LDCs. China (including Hong Kong and Taiwan) received GSP benefits, which greatly encouraged the country's development. Now China, in granting zero-tariff treatment to LDCs, is in full compliance with WTO exemptions.

With the downgrading of the U.S. credit rating and the worsening of the eurozone debt crisis, the global economy is in a period of fluctuation and market demand remains. As a result, some major economies have applied trade protectionism policies under the guise of supporting free trade. Often, during times of great challenge, we see global trade disputes, and remedies, increase. According to WTO statistics, from the organization's establishment in 1995 to the end of 2010, there were two peak times when anti-dumping measures were implemented. The first was in 1998, when the Asian financial crisis broke out and Latin America's financial system was unstable. The second was in 2008, when the subprime-loans crisis in the U.S. triggered a global epidemic. Trade protectionism will seriously impact on developing countries and hinder their economic recovery. China, as a staunch advocate of free trade, is working with other developing countries at this difficult time to oppose trade protectionism and give zero-tariff status to the majority of items imported from LDCs with diplomatic ties to China. This will give those LDCs the belief that they can weather the crisis, as well as set an example for other developing countries. It also underscores China's determination to successfully tackle the financial crisis, and establish China's image as a responsible international player.

In 2003, not long after China's entry to the WTO, the government announced its decision to give zero-tariff status to some items imported from African LDCs at the Forum on China-Africa Cooperation. Since January 1, 2006, China has exempted tariffs on 84 products originated from Bangladesh, and given preferential tariffs with an average reduction of 77 percent to 162 products imported from Bangladesh and Laos. At the Forum on China-Africa Cooperation Beijing Summit in 2006, China announced that it would extend the zero-tariffs treatment from 190 products to more than 440. Now China is once again giving zero-tariff status to 97 percent of tariff items imported from LDCs. This will promote and stabilize the exports of LDCs, expand the production of their domestic enterprises, increase employment and improve living standards.

By 2010, China had become one of the top three countries whose import and export values both surpassed one trillion dollars. China's development would not be negatively impacted by importing a large volume of products from LDCs, as most LDC exports are raw materials or primary products, which account for a small part of China's import value. On one hand, the tariff cut is a good way for China to solve the bottlenecks in raw materials and resources during its urbanization and industrialization process. It is also a good way to optimize global resources through the international market; On the other hand, this will reduce the export costs of LDCs, expand their exports and domestic productivity as well as realize a multi-win situation and inclusive development.

The almost fifty-year development period of GSP has shown that a country needs to improve its GSP gradually. It's only a few years since China first gave the preferential tariff treatment to other countries. However, the system in China is not yet at the standard of GSP and more time is needed to perfect this system.

At present, China's per capita national income is less than half of the world average level, far behind those of developed countries. China is still a developing country. Given its developing phases and actual conditions, China needs to implement a reasonable, step-by-step GSP.

Furthermore, China needs to establish basic systems to ensure the zero-tariff treatments. The first step is to list the favored countries and regions or clarify what constitute a "favored country." Second is to set the scope of the tariff items and amount of preference. Third is to formulate the rules of origin. All imports affected by the preferential tariff need to meet the rules of origin and should be transported directly to ensure that they are actually from a favored country. Last is to protect domestic products or industries from any negative impact which could be created by imported products. All working protection provisions such as exemption rules and escape clauses should be referenced in formulating China's would-be GSP. For instance, once a country develops into a higher level, China will no longer grant it preferential or zero-tariff status.

China's import and export value will be further expanded. Special departments and institutions should be established to do the following things: Formulate specific regulations on GSP, train professionals, issue certificate of origin, correspond with favored countries on the standard of origin for imported products, and gauging the performance of China's would-be GSP with a view to improve the system.

The author is a researcher at the Development Research Center of the State Council.

(This post was first published in Chinese and translated by Li Shen.)

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