1. China and the World:
Trade, Innovation, and
Its Role in the WTO
Dr. Stephen K. Kwan
関嘉龄 博士
Professor, Service Science
服务科学
Management Information Systems
管理信息系统科 教授
College of Business Administration
商业管理学院
San José State University, CA, USA
美国加州圣荷西州立大学
http://www.sjsu.edu/ssme
Contact:stephen.kwan@sjsu.edu
Prepared for
UNVS 196 Provost’s Honors Seminar
September, 2012

2. 3

3. The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world’s trading
nations and ratified in their parliaments. The goal is to help
producers of goods and services, exporters, and importers
conduct their business.
157
members
Kwan 2012 4

4. Trade in History
Exchange between the Laplanders and Russians by Olaus Magnus, 1555
Kwan 2012 5

5. Silk Road – Trade between East and West
*
* Chris Lau, 2012
Less Complex – Need Less Rules
Kwan 2012 6

6. Broad Areas of Trade:
Goods
Services
Trade-related Aspects of Intellectual Property Rights
Ranging from architecture to voice-mail telecommunications and to
space transport, services are the largest and most dynamic
component of both developed and developing country economies.
Important in their own right, they also serve as crucial inputs into the
production of most goods. Their inclusion in the Uruguay Round of
trade negotiations led to the General Agreement on Trade in
Services (GATS). Since January 2000, they have become the
subject of multilateral trade negotiations.
Kwan 2012 7

7. Different Types of Trade in Services
Cloud
Adapted from WTO definitions
Computing?
Modes of TradeSome Examples
Cross Border Trade Software, Insurance, tele-diagnosis
from country B into A
Consumption Abroad A’s residents obtain education or
hospital treatment in B
Commercial Presence Bank, telecommunications firm,
hospital from B set up subsidiary in A
Movement of Natural Persons Engineers, doctors from B provide
services in A
The World is now more complex in Politics and Commerce.
Kwan 2010 8

8. Quick Facts about US Service Sector
World’s Large Labor Forces US shift to service jobs
A = Agriculture, G = Goods, S = Service 2010
2010
Nation Labor A G S 40yr Service (A) Agriculture:
% % % % Growth Value from
harvesting nature
China 25.7 49 22 29 142%
India 14.4 60 17 23 35% (G) Goods:
U.S. 5.1 1 23 76 23% Value from
making products
Indonesia 3.5 45 16 39 34%
(S) Service:
Brazil 3.0 20 14 66 61% Value from enhancing the
capabilities of people and their ability
Russia 2.4 10 21 69 64% to interconnect and co-create value
Japan 2.2 5 28 67 45%
Nigeria 1.6 70 10 20 19%
Bangladesh 2.1 63 11 26 37%
Germany 1.4 3 33 64 42% Employment Change
CIA Handbook, International Labor Organization
Note: Pakistan, Vietnam, and Mexico now larger LF than Germany Numeric change in wage-salary employment by industry sector,
projected 2004-14
The largest labor force migration in human (Thousands)
history is underway, driven by global
communications, business and technology Professional and business service4566
growth, urbanization and
Healthcare and social assistance4303
regional variations in labor and infrastructure
costs and capabilities. Kwan 2012

9. China’s Service Sector
Kwan 2012 10

10. China  Innovation in Modern Services
In its 11th Five-Year Plan, China had targeted an increase of the service
sector’s output to 43.3% of GDP by 2010, up from 40.3% in 2005
In its 12th Five-Year
Plan, China had targeted
an increase of the service
sector’s value-added
output to 47.3% of GDP by
2015, up 4%.
Member since
December 2001
Kwan 2012 11

11. Service Sector in China
$419 billion
6/23/2012
In 2011
4th largest in world
≈ 43% GDP
+ 11%
“Products will need more
support from service providers
such as marketing, branding
and packaging, so as to fetch a
better price.
An underdeveloped service
sector will hinder the technical
upgrading of the manufacturing
sector.”
Qiu Hong, assistant commerce minister Kwan 2012 12

12. Service Sector in China
WenJiabao
PRC Premier
Kwan 2012 13

13. Estimated China Per Capita National Income
25000
20000 20000
Maslow 15000
10000
8500
5000 4400
0 350 1000
1990 2000 2010 2020 2030
Disposable
Income &
Desire for
Services
Needs
vs.
Wants
Kwan 2012 14

14. Guangdong vs. China
China’s Internal Market for Services
Kwan 2012 15

15. What happened in the last few years?
Attempts at Purilateral Agreements
WTO Doha Round of Trade
Talks with goals of
Reduce Trade Barriers
Open Market Access….
“..fundamental disagreements between
the developed nations and the major
developing countries…”
BIC nations…
R
S
16

16. Doha Talks Aftermath
With plurilateral agreements derailed,
nations are now engaged in more (inefficient)
negotiations for
• Bilateral agreements
• Regional agreements – e.g., NAFTA – to be renewed soon
• Sector/Sector Agreements – US has service sector
agreements with Japan and EU
• Free Trade Agreements (FTA) – US has FTA (or
pending) with Australia, Andean
Countries, Bahrain, CAFTA, Chile, Colombia, FTAA, Korea, Israel, Jorda
n, Malaysia, Morocco, Oman, Panama, Peru, Singapore.
17

17. Doha Talks Aftermath
G20 and APEC meeting in November 2008
agreed on a “standstill” policy:
• revive Doha talks
• no imposition of new trade barriers
• 12 months
Global
Financial Ineffective
Crisis
18

18. Global Financial Crisis
•Less imports, less exports
• less consumption, particularly for services (less disposable income)
• stimulus of domestic markets (more protectionist measures)
“The US Service Sector contracted for the
11th straight month, …”
“Global trade is expected to shrink 10% in 2009.”
19

19. Doha Talks might be out of reach
20

20. Potential Problems for US Trade in Services
• Complacency – “We have a huge trade surplus…. We are doing fine…”
• Other countries that are “top-down” will catch up or exceed US in their
service sector abilities
• No Intellectual Property protection on Service Concepts – no patents
• Very little International Service Standards – potential for national and
domestic standards development
• Continued weak economy – shrinking of global trade
• Loss of confidence in US services – e.g., financial services
21

21. G-20 Ministers Meeting in Korea
22

22. Growth of Protectionist Measures
Global Trade Alert:
G20 members passed over 100
“blatantly discriminatory
measures”.
WTO reported 53 new
measures this year.
Everyone sinned a
little, or a lot…
23

23. Russia’s Accession to the WTO
24

24. August, 22nd, 2012
Russia’s Accession to the WTO
25

25. 26

26. 27

27. World Trade in Services
Imports vs. Exports
28

28. US Services Surplus with China
US $ 3.7 Billion
Trade surplus
with China in
2007
29

29. Problems of doing business in China
“2009 Joint Commission on Commerce and Trade (JCCT)
Input on Standards and Conformance Issues in China”
cited the following concerns:
•Transparency – national “GB” standards are easily accessible but not so
with regulatory agencies, local/provincial, professional, decrees, etc.
• Uneven Enforcement – inadequate enforcement for local
companies, tedious procedures put US companies at a competitive
disadvantage, etc.
• Conformity Assessment Policies – only by designated Chinese
bodies, does not recognize external certifications, etc.
• Revisions to “China Compulsory Certification” Program
• Foreign Participation on Chinese Technical Committees
Will what happened to Manufactured Goods going to happen with Services?
30

30. Technical Barriers to Trade (TBT)
Technical regulations and product standards may vary from
country to country. Having many different regulations and
standards makes life difficult for producers and exporters.
If regulations are set arbitrarily, they could be used as an
excuse for protectionism. The Agreement on Technical
Barriers to Trade tries to ensure that
regulations, standards, testing and certification procedures
do not create unnecessary obstacles.
Conformity Assessment Problems
31

31. China maturing in the Standards game
Research Completed
Directions Service
Standards
32

32. More Complaints against China
33

33. China – Complainant and Respondent
Kwan 2012 34

34. US – Complainant and Respondent
Kwan 2012 35

35. Service Sector Challenges
Kwan 2012 36

36. Innovation
혁신
創新 Innovation resides at the intersection
of invention and insight, leading to the
创新 creation of social and economic value.
革新 National Innovation Initiative
CREATING Innovation can happen
SOMETHING anywhere on the Value Chain!
(business
NEW model, organization, environment, proce
ss, technology, etc.)
Kwan 2012 37

37. Some Thoughts on Innovation
“Creativity can be taught.
Innovation can be learned.”
David Blakeley, Director
“Incremental Innovation vs.
Radical Innovation”
Judy Estrin
“Closing the Innovation Gap”
“Open innovation argues that the future
belongs to those who do the best job of
integrating the best of their internal ideas
and capabilities with the best external ideas
and capabilities. Designing and
orchestrating a global network of capabilities
is the basis for a brighter future for us all.”
Henry Chesbrough
Kwan 2012 38

38. Levels of Innovation
Radical Innovations
 Major Innovation: new service that customers did not
know they needed.
 Start-up Business: new service for underserved market.
 New Services for the Market Presently Served: new
services to customers of an organization.
Incremental Innovations
 Service Line Extensions: augmentation of existing service
line.
 Service Improvements: changes in service delivery
process.
 Style Changes: modest visible changes in appearances.
Kwan 2012 39

39. Indigenous Innovation in China
自主创新
Kwan 2012 40

40. Innovation in China
Kwan 2012 41

41. Current Issues
Kwan 2012 42

42. Current Issues
Kwan 2012 43

43. ?
Greater China
2012 – 2013?
How can Service Science Help
China develop its Service Industry?
Kwan 2012 44

44. Conclusion
•US cannot become complacent – real/potential trade barriers
• Learn from (non-protectionist) best practices in other countries
• Sustainability of Competitive Advantage requires Innovation
Much more details
Available in this new book
J. Bradford Jensen (2011)