Call edition 2012

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China’s entry into the World Trade Organisation: consequences for the diamond industry

Kenneth VERSCHOOTEN student laureate
kennethverschooten@hotmail.com

°1978 Belgium
Commercial engineer, Vrije Universiteit Brussel, Belgium, 2002

De toetreding van China tot de Wereldhandelsorganisatie: gevolgen voor de diamantindustrie

The consequences of China’s joining the World Trade Organisation are analysed in this dissertation. The World Trade Organisation aims to liberalise world trade, and therefore wants to ensure that trade flows can run as smoothly as possible. China officially applied to join in 1986, and waited 15 years to actually do so. In connection with its entry, the Chinese government lowered import duties on rough diamonds from 30 to 17%.
Using a partial equilibrium model and empirical research, the author investigates two questions in this connection. Firstly, from the viewpoint of the People’s Republic of China, he considers the consequences of this tariff reduction for the country’s prosperity. This question is relevant to China’s position as an economic trading partner. The second topic researched is whether its entry into the World Trade Organisation makes China more attractive as a location for diamond-processing businesses. More specifically, the author considers in this connection whether more rough diamonds originating from the Antwerp diamond centre will be diverted to the Chinese polishing centres at the expense of other establishments.
With regard to the first question, the author concludes that the lowering of the tariff has resulted in increased prosperity. However, the overall increase is relatively limited, as the diamond sector only represents a small percentage of the Chinese economy, and the analysis only considers imports from Belgium. With regard to the second question, the author comes to the conclusion that the other Asian polishing centres will experience stiff competition from China, and will probably need to devote themselves more in future to the more expensive categories of rough diamond, where the wage cost element is relatively low.

report by Prof. F. Roodhooft, Department of Applied Economic Sciences, Katholieke Universiteit, Leuven, Belgium