November 2002 China’s membership in the WTO – a headache for neighbouring labour markets? Norbert von Hofmann/ Erwin Schweisshelm When China joined the WTO in 2001, numerous studies were made to assess the impact of this decision on both the growth of trade and investment in the Republic and on the potential effects on its labour markets. While the long-term projections are positive, short-term effects on the labour market will be negative in certain sectors. Enormous adjustments in agriculture, car manufacturing, in the electrical industry or in mining will cause more than 20 million job losses. But there is another side of the coin. At least under the present scenario, the admission of China to the WTO does not result in a“win- win-situation” for the Asian region. China already is the fourth­largest industrial producer in the world at present behind the US, Japan and Germany. In the future, China will“suck in” investments like a huge vacuum cleaner to an even greater extent. Foreign direct investment will probably rise from USD 40 Billion in 2001 to about USD 100 Billion in 2005, if China really opens up, especially in services such as telecom and financial services. All this may take place at the expense of workers in neighbouring countries, with ASEAN at the centre. These countries have similar export industries to those of China, and have focused in the past on labour­intensive export industries with limited intensity of capital and technology.There will be both pressure on their domestic markets as a result of cheap imports from China and a further reduction in exports and the relocation of manufacturing and foreign direct investment. Yet in the last ten years ASEAN`s share in FDI for developing Asia has already dropped from 30% to 10%. It will be primarily the developed countries which will benefit from this shift in the multilateral trading system by gaining both better access to the Chinese markets and greater opportunities for investment, in particular in the services sector. Producers of agricultural and other primary resources will also benefit from an increased demand for such products in China. However, producers of, for example, textiles and garments such as Vietnam and Indonesia, and also of high- value electronic equipment such as Thailand and Malaysia will be affected. And South-Asia and beyond will also feel the effects. By the end of 2004, the Multi-Fibre Agreement will expire and be replaced by the WTO-Agreement on Textiles and