China Marks 20 Years in the World Trade Organization, We Should Celebrate It By Inu Manak and James Bacchus Cato Institute, December 12, 2020

Trucks manufactured for export are lined up at a cargo port in Yantai in eastern China’s Shandong province,  on July 30, 2021

 

China Marks 20 Years in the World Trade Organization. We Should Celebrate It.

This week marks the 20th anniversary of China’s entry into the World Trade Organization. Negotiations on Chinese membership took 15 years to complete, and produced, in 2001, the most stringent and complex sets of commitments to which any WTO member has agreed. Yet, many now lament China’s inclusion in the WTO and its broader role in the world trading system. There is no more vocal a critic than the United States. In fact, a 2017 report to Congress from the United States Trade Representative stated that “it seems clear that the United States erred in supporting China’s entry into the WTO.” This report was made by the Trump administration; it is unclear whether the Biden administration feels the same way.

But this view is wrong. Overall, China’s integration into the rules‐​based multilateral trading system has generated significantly more stability, predictability, and transparency in the economic relations of the rest of the world with China than existed before China’s accession. The WTO has played an important role in opening China’s market to foreign goods and services. This opening has produced major economic gains for China and for all its trading partners – not least the United States. Even so, critics of Chinese trade practices are unquestionably right in insisting that much more must be done to discipline many of China’s trade practices and ensure full compliance by China with its obligations under the WTO treaty.

China’s Long & Difficult Accession

China’s journey to WTO membership was not an easy one, and it occurred in fits and starts. China was a member of the WTO’s predecessor, the General Agreement on Tariffs and Trade, but it withdrew from the GATT in 1950 because the Communist Party of China would not honor tariff commitments made by the ousted nationalist government. It was not until 1986 that China reapplied for membership in the GATT. Negotiations on Chinese accession continued for fifteen years, until finally, at the Doha Ministerial Conference in November 2001, an accession protocol was adopted by WTO members. As law professor Henry Gao explains, “the price that China had to pay to get into the club seems rather hefty,” including significant commitments on goods and services that matched those made by developed country members. Gao notes that:

For goods, China agreed to reduce its overall tariff level from a basic point of 43% before the accession to 10% by 2005, making it one of the lowest levels in the world. For services, China also made extensive commitments, covering more than 100 out of the total of 160 services sectors enumerated in the Services Sectoral Classification List. Such a level of commitment is on par with that of major developed countries….

When China joined the WTO, it also agreed to rules that make it easier for other WTO members to impose trade remedies on China in the event of “market disruptions” and to designation as a non‐​market economy, which, in practice, means that higher antidumping duties can be levelled against Chinese products.

As Paul Blustein, the author of Schism: China, America, and the Fracturing of the Global Trading System, writes of China’s WTO accession negotiations: “It’s hard to imagine how the US could have driven a harder bargain on [economic] issues and still gotten a deal. Chinese officials are resentful to this day; they feel China was forced to accept 2nd class citizenship on a [number] of issues.”

Despite this, myths surrounding China’s accession to the WTO persist, the most common claim being that China’s membership was simply rubber stamped by the United States and by other naïve WTO members who failed to anticipate China’s rise to global economic prominence in the first decades of the new century. As our colleague Scott Lincicome has noted elsewhere, this could not be farther from the truth.

Disciplining China at the WTO

Admittedly, China’s trade behavior, much like that of other members, is not perfect. Indeed, it is considerably less than perfect on numerous fronts. But when China has been found in violation of WTO rules, it has, for the most part, maintained a consistent record of complying with those rulings, albeit sometimes after a period of foot‐​dragging. This said, however, the problem with disciplining China has generally not been a lack of WTO rules that can be employed to hold China to account, but rather that more cases have not been brought against China to test existing rules that could be used for this purpose. There is, for example, much legitimate complaint about forced technology transfer in China; yet, to date, neither the United States nor any other WTO member has submitted a legal claim in WTO dispute settlement accusing China of breaking its promise in its accession agreement not to require the transfer of technology as a condition for market access.

It’s important to keep in mind that the WTO does not act as a trade police. It is a member‐​driven organization, and its members’ policies are presumed to be consistent with the rules until proven otherwise in disputes and compliance proceedings, which must be initiated by members. Essentially, members must bring complaints to have their concerns addressed.

Cato scholars have detailed four promising areas where legal complaints against China could be successfully pursued at the WTO under the current rules, including forced technology transfer, general intellectual property protection and enforcement, trade secrets protection, and trade‐​distorting subsidies. So long as the United States and other countries impacted by China’s behavior refrain from making these legal claims against China in WTO dispute settlement, it is impossible to say with certainty that the current rules fall short. (This is all complicated of course by the fact that the United States has decapitated the WTO’s appeals function, a critical part of the dispute settlement system that has not been working since late 2019).

Of course, in subsidies, investment, and other areas, new WTO rules are needed, not least because the world economy has changed dramatically since the WTO was founded in 1995 and since China became a WTO member six years later. Here, WTO members should begin by making progress in ongoing negotiations, and do what they can to ensure a successful ministerial conference as soon as the COVID-19 pandemic permits. High on their checklist should be concluding, at last, the long years of negotiations aimed at prohibiting subsidies for fishing. China is one of the top five global subsidizers of fishing activities, and yet it appears willing to assume strong obligations in this area—the resulting opportunity to wrap up these talks successfully should therefore not be missed. Plurilateral talks are also another way to update WTO rules to address modern trade issues.

In addition, the United States could work with its allies to build a consensus on how to tackle their shared trade problems with China. Recently, the United States resumed talks with the European Union and Japan to strengthen existing rules on industrial subsides at the WTO. This is an important development, not least because it could generate agreement among these three major economies on how to reform subsidy rules that could later feed in to formal discussions at the WTO. Working with our allies also makes practical sense, because it is easier to approach China on needed reform as a group of important trading partners than to attempt to negotiate with China bilaterally.

The Trump administration chose to take a “more aggressive approach” to China, but little has been achieved by its unilateral measures, which were often inconsistent with WTO rules. The Phase One deal with China had no impact on changing China’s behavior on industrial subsidies or on the other commercial matters that are most important to the United States. Yet, the Biden administration seems to have largely embraced the Trumpian approach to China, and it has still done very little to lay out its own strategy. What the last few years have reinforced, however, is that tariffs and unilateralism have simply not worked. With the WTO ministerial conference postponed until next year, the United States has a chance to reflect on these failed approaches and find new ways to engage with our allies to address our common concerns about China’s trade practices.

The United States is not a Model Citizen

The United States must also approach China’s trade practices with a degree of humility, because we, too, have been less than perfect in fulfilling all our WTO obligations. Our record as a member of the WTO is replete with examples of avoiding compliance with the rules. For instance:

At every meeting of the WTO’s dispute settlement body, two cases are repeatedly brought up where the complainants claim the United States has not yet come into compliance with the rulings. Rulings in these two disputes— US — Hot‐​Rolled Steel and US — Section 110(5) Copyright Act were in 2002 and 2001, respectively. The ruling in a case brought by Brazil on U.S. subsidies for cotton production was never implemented. Instead, the United States gave a one‐​time payment of $300 million to benefit Brazilian cotton producers as an enticement to Brazil to drop the case. Thus, American taxpayers paid twice – once the appropriation for the illegal cotton subsidies and a second time to be able to keep those subsidies in place. Other disputes have faced slow implementation. The US — FSC dispute began in 1997, went through appeals, and two separate compliance proceedings. The case was only resolved in 2006 when Congress passed legislation to repeal the provisions at issue. And on the contentious case of US — Zeroing, complaining parties had to repeatedly bring cases against the United States on a wide range of varied antidumping measures in order to encourage American implementation. It still took nine years for the United States to comply.

When the United States levies complaints at China for not complying with WTO rules, it would be worth reflecting on our own behavior. Even when the United States does comply with rulings (especially on trade remedies), it does so in a slow, often piecemeal way. Such delays force each complaining member to go back to the WTO, sometimes repeatedly, in order to get relief.

And as the United States continues to skirt any real discussions on WTO dispute settlement reform, it is equally hard to take seriously U.S. requests for other countries to “bring your grievances” to the WTO so that institutional reform can begin. At the same time, neither the Trump administration nor, now, the Biden administration has told the other members of the WTO precisely what changes it seeks in the dispute settlement system.

Lastly, there is a certain irony in the United States criticizing China’s mercantilist and discriminatory industrial policies, when, here at home, first the Trump administration, and, now, the Biden administration, has been striving administratively and legislatively to emulate many of the wrongheaded Chinese policies. The scale of growing American protectionism does not yet begin to approach that of China; the American economy remains far more open than the Chinese economy to free and fair competition. But managed trade is managed trade, wherever it may be pursued. It has the same harmful economic consequences, and it poses the same potential for transgressions of international law.

China’s Anniversary Deserves Celebration

Twenty years ago, the United States and the other members of the WTO decided there could not be a truly World Trade Organization without China. Today, many of those same countries are wondering whether there can be a WTO with China. The answer is certainly “Yes.” But, to get to that answer, the concerns of its trading partners about some Chinese trade practices must be addressed. Likewise, and at the same time, the concerns of China about some of the trade practices of its trading partners must also be addressed. All these concerns should be the focus of new negotiations. These negotiations should be multilateral, and they should be held within the legal framework of the WTO. In the meantime, we should take a moment to observe China’s 20th anniversary as a member of the WTO, and celebrate the fact that China remains an active participant in the rules‐​based trading system.

China Marks 20 Years in the World Trade Organization. We Should Celebrate It. | Cato at Liberty Blog

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