Good evening! It is a pleasure to be here with all of you tonight on the topic of what China's entry into the WTO means for San Diego businesses. I will be speaking to you tonight from the perspective of a San Diego business owner. I believe that significant opportunities exist for San Diego businesses in a number of specific industry sectors as a result of this historic event.

Our company, Cange & Associates International, Inc., is a small export management company and international business consultancy. Most of our business involves serving as the "outsourced" international sales and marketing department for companies which don't have one. Furthermore we have developed somewhat of an industry focus on high end home appliances. We establish international distributor relationships on behalf of our client companies and then manage those relationships on an ongoing basis.

Over the past two years we have begun to export products to China on a limited basis. We understood over these last few years that China's entry into the WTO was in the works, and we consciously decided to take this time to begin to establish some business relationships for the future and to strategize about how to approach the market and the culture. We still feel that we are in the beginning stages of this process, although we have succeeded in developing some good business and personal relationships which we believe serve as the basis of our success in China moving forward.

I'd like to make a few comments about the WTO itself, before commenting on specific sectors of the San Diego economy which I believe will be the strongest beneficiaries of China's entry into the WTO.

As a point of reference, I like to say that the WTO is to trade what the UN is to diplomacy. The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. The WTO is an organization of governments. The WTO's main function is to ensure that trade flows as smoothly, predictably and freely as possible. Decisions among these governments are generally taken by consensus, rather than majority rule. The goal of the WTO is to help the producers of goods and services, as well as exporters and importers, to conduct their business and thereby improve the welfare of the people of the member countries.

The World Trade Organization, located in Geneva, Switzerland, was established in January 1995. The WTO was created from the Uruguay Round trade negotiations, which were held from 1986 - 1994. On December 11, 2001 China will become the 143rd member country of the WTO. Trade among the WTO's member countries account for over 90% of the world's trade.

At the heart of the WTO are its agreements, which are negotiated and signed by the bulk of the world's trading nations and ratified by their respective governments. These agreements are the legal ground rules for international commerce. These agreements are contracts which guarantee member countries important trade rights. The agreements also bind governments to keep their trade policiies within agreed limits to everyone's benefit. Other key functions of the WTO are to provide a forum for trade negotiations and to handle trade disputes.

What makes China's entry into the WTO so historic?

Mike Moore, the WTO's Director-General, was recently quoted as saying, "China, one of the fastest growing economies in the world, has made tremendous progress in reducing poverty over the last decade, thanks to an economic system which is increasingly open to trade and foreign investment. Now this economy will be subjected to the rules-based system of the WTO, something which is bound to enhance global economic cooperation."

It is important to note that China's economy is already among the world's largest and over the past 20 years has expanded at a phenomenal annual rate of nearly 10 percent. During this period U.S. exports to China have grown from negligible levels to over $14 billion annually. China's entry into the WTO is the result of almost 15 years of negotiations between China and the Working Party of the WTO. Some 900 pages of legal text were submitted for formal acceptance of China into the WTO by the 142 existing member governments. As a result of these negotiations, China has agreed to undertake a series of important commitments to open and liberalize its regime in order to better integrate into the world economy and offer a more predictable environment for trade and foreign investment in accordance with WTO rules.

What does this mean for San Diego?

It is important to note first of all that San Diego has the 53rd largest economy in the world, according to a recent study done by the U.S. Conference of Mayors. San Diego's gross regional product (GRP) is growing at a faster rate than both the state of California and the nation.

Furthermore, San Diego is currently among the top 20 cities in the nation for exports (by dollar value). In the 1990s, exports grew more than 360%, a rate of growth faster than the Los Angeles and San Francisco areas. Between 1993 and 1999 alone, San Diego companies doubled their exports from $4.36 billion to over $8.96 billion dollars. This increase in exports supports literally thousands of San Diego jobs in manufacturing, transportation, distribution and administration, and generates billions of dollars of revenues from San Diego's service companies in support of import and export transactions.

By joining the WTO China is making market-opening concessions across virtually every economic sector, including increasing access to its markets for agriculture, manufactured goods, and three sectors in which San Diego has world class companies: services, technology and telecommunications.

At present, exports generate 25% of U.S. farm revenues - so exporting is absolutely a critical area for U.S. farmers (and particularly those in our state of California simply due to the huge percentage of farming which is done in our state). In joining the WTO, China will cut its agricultural tariffs by more than half on priority products - on average, tariffs will drop from an average of 31% down to 14% by January 2004, with even sharper drops for beef, poultry, pork, cheese and other commodities. Furthermore, U.S. agricultural producers will now be able to export and distribute directly inside China without going through state trading enterprises or middlemen. Sales into the Chinese market will provide a big (and sorely needed) boost for American farmers who have continually faced tough times.

Tariffs on manufactured goods will be slashed - cut from an average of about 25% in 1997 down to an average of 9.4% by 2005. Considering that manufactured goods comprise a large proportion of U.S. exports, and certainly also exports from San Diego, this drop in tariffs is good news for our San Diego high tech manufacturers as well as for basic industries. Reductions in tariffs do not only mean that the imported products can be priced more competitively in the market - these reductions can also make it possible for an exporter to establish two step (vs. just one step) distribution in the target market. This has been the case for our company selling products into Mexico. The NAFTA agreement resulted in tariffs for our appliance products being reduced from 25% to 0%, which enabled us to establish a two-step distribution structure in Mexico. Mexico is now our company's largest export market as a direct result of this effect. Tariff reductions do not just address the issue of price competitiveness - they also address the issue of market access.

The entire process of importation will also be streamlined. For example, there will no longer be import permits required per shipment as there are now.

China's entry into WTO will greatly expand the right to import and distribute goods. Up till now, China has severely restricted the right to import and export, as well as the ability to own and operate distribution networks, both of which are essential in order to move goods and compete effectively in any market. Under the agreement, China will phase in trading rights and distribution services over three years, as well as open up sectors related to distribution services such as repair and maintenance, warehousing, trucking and air courier services. What this means for San Diego companies: Our San Diego businesses will be allowed to export to China directly (from here at home), and to establish their own distribution networks in China, rather than being forced to set up factories in China to sell products through Chinese partners. This is a top priority particularly for manufacturers and agricultural exporters.

China represents a huge new market for information technology, which is a key industry for San Diego. China will eliminate tariffs on products such as computers, semiconductors and related products by 2005. Our San Diego-based leading I.T. firms stand to profit handsomely by participating in this huge, rapidly expanding and information-hungry market.

There will be broad new access for services such as telecommunications, insurance and banking. For the first time in its history, China will open its telecommunications sector and will significantly expand investment and other activities for financial services firms. It will also greatly increase the opportunities open to professional services such as law firms, management consulting, accountants and environmental services.

These sweeping changes now being undertaken in China are, of course, not without substantial risks for companies both inside and outside of China. Clearly there is much current debate about how quickly China will be able to be in compliance with WTO requirements in various industries. Nonetheless, my purpose in describing the broad reform goals now in place in China will create more and more opportunities for San Diego companies who are willing to be committed to doing what it takes to enter the Chinese market now, and then to build a presence there over the long term.

The types of businesses active in San Diego, be they large or small, are now being given an opportunity to enter the very large market of China in truly unprecedented ways. San Diego is uniquely positioned to take advantage of these opportunities: 1) San Diego has one of the most ideal geographic locations in the U.S. vis a vis China 2) San Diego already has a rapidly growing economy and as a region, San Diego is already a key player in terms of U.S. exports. This affords us a favorable reputation internationally from which to continue to build the presence of our San Diego companies in China. 3) San Diego is literally filled with companies which are involved in the specific industries which will be key to China's future growth - information technology, computer/software development, financial services, telecommunications.

China's entry into the WTO is truly historic - I believe that it will prove to have a more significant impact on international trade than any other trade-related decision made during our lifetimes. I look forward to seeing how San Diego companies will take advantage of this new set of opportunities being presented to them. .