China did not succeed in its bid to join the General Agreement on Tariffs and Trade (GATT) during the Uruguay Round. A key stumbling block was China's mechanism of exchange rate controls. From the mid-1980s to the end of 1993, China used a dual-rate currency mechanism, administering these rates through a loose network of about 100 exchange centers ("swap centers"). The swap centers helped to create partial convertibility of the Chinese currency and were instrumental in creating incentives for China's exporters and in attracting foreign investment. However, the swap centers also caused trade conflicts with the U.S. and within GATT. China was accused of using its dual rates to subsidize its state sector, and of using the swap centers as a means to block imports by limiting access to foreign exchange. Meeting privately, the GATT working party was no doubt concerned that GATT and IMF rules would be inadequate to police China's exchange rate policies if China was admitted to GATT. Not surprisingly, the working party decided to reject China's bid. In 1994. China unified its dual-rate regime and established an inter-bank market for foreign exchange. While China continues to seek a seat within GATT's successor, the World Trade Organization, it is still far from clear whether China has established a currency mechanism that comports with GATT principles. In particular, there are legitimate concerns about the transparency of the new inter-bank market and the extent to which China will continue to use currency measures to hinder imports.
China's GATT Bid: Why All the Fuss about Currency Controls,
3 Pac. Rim L & Pol'y J.
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