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Economy

China’s Wish List for WTO Reform

Feb 19 , 2020
  • Zhou Xiaoming

    Former Deputy Permanent Representative of China’s Mission to the UN Office in Geneva

In some Western media, China is often portrayed as a villain in the World Trade Organization, intent on breaking the organization’s rules. Some in the United States call China a “revisionist state,” and have accused it of unfair trade practices — forced technology transfers, encroachment on intellectual property rights and government subsidies that tilt the playing field in favor of Chinese industries.

Logically, of course, the world’s largest trading nation might be expected to favor a revamp of the world trade body to suit its own interests. However, to the surprise of many, the opposite is true.

China believes the WTO is facing an existential threat and that changes are needed to enable it to be more effective, authoritative and relevant in global economic governance. Rather than a fundamental overhaul, however, China is calling simply for “necessary reforms,” meaning limited ones. China believes the world body has served its interests and those of the world reasonably well, providing — until recently — a stable, predictable and enforceable trading environment with enormous benefits to global trade.

For this reason, China hopes to keep the organization largely intact. It wants to safeguard the core values and fundamental principles of the WTO, such as nondiscrimination and openness. At the same time, it sees an urgent need to defend the organization from attacks by trade protectionists and from unilateral measures by members — the root causes of the current WTO crisis.

The U.S. slapping of punitive tariffs on steel and aluminum on national security grounds, for example, has disrupted international trade in violation of WTO rules. Likewise, unilateral measures by the U.S., such as hiking import duties and imposing economic sanctions on other members, also raise grave concerns. These actions undermine the authority and relevance of the multilateral trading system. China fears the WTO could collapse if the aggressive U.S. use of the national security exception and other unilateral measures go unchecked.  

China also wants WTO institutions to continue operating. It insists that the dispute settlement system be allowed to continue to do its job, even though it may disagree with some of the rulings. The U.S. has filed 15 cases against China at the WTO since China’s accession in 2003. The WTO ruled in favor of the U.S. in 10 of those cases, according to one U.S. assessment.  

China shares the view of many in the organization that the dispute settlement system, despite its shortcomings, is a main pillar essential to success. The rules-based system serves as a reliable bulwark against the law of the jungle and protects weaker and smaller members. Therefore, for more than two years China, together with the EU, has spearheaded efforts to defuse crises in the system triggered by U.S. attempts to block the appointment of judges to the appellate body.

China has worked with some 120 countries to make concrete proposals to quell U.S. concerns. On the day the appellate body became paralyzed by a lack of resources and personnel, Chinese ambassador to the WTO Zhang Xiangcheng wore a black tie to a meeting to express China’s sentiment about the unfortunate event.

In addition, China believes the WTO should focus on economic development. It sees itself as a developing country and aligns with the developing world, and it considers development to be at the core of everything the WTO does. China therefore aspires to put development at the center of reforms so that a new and improved WTO will be better equipped to contribute to inclusive progress.

For this reason, China feels strongly about the principle of “special and differential treatment,” which helps developing countries narrow the gap with developed ones. It objects to the notion spread by the European Union and United States that some developing countries — namely China — need to take on the same obligations as developed members. But China believes the right of each member to designate its own stage of development should be respected. To address the development deficit, it wants adequate and effective preferential treatment to be provided to developing members under any new trade and investment rules.

In addition, China wants to retain the decision-making mechanism of the WTO. This mechanism, in which decisions are based on consensus, is seen as cumbersome and inefficient by some developed members, who propose revising it. In contrast, China calls for sticking to the current system, in the belief that the mechanism is indispensable in protecting the rights and interests of all members, particularly the smaller and weaker developing countries. Having a say in issues that are important to them is democracy in action in the international arena.

 China is also proposing some other changes as part of its WTO reform agenda. It is pushing for measures to remedy the inequality embedded in certain rules and create a level-playing field. The current rules on agriculture — particularly those in the Aggregate Measurement of Support, or AMS, an annual level of support for agricultural products in favor of producers — allow developed members to enjoy a high level of subsidies that are inaccessible to the vast majority of developing members. These rules lead to serious distortions in agricultural production and trade. In the fisheries sector, subsidies result in overproduction, meaning overfishing. China is calling for a revamp of agricultural rules, with an emphasis on the elimination of the AMS and other rules that distort markets and trade.

China is also pushing for stringent global rules to prevent abuse of the national security exception rule, and to curb unilateral sanctions and long-arm jurisdiction, which has no basis in international law. In addition, China is proposing negotiations in new areas, including e-commerce, investment and rules to help small and medium-sized enterprises.

As China rolls out its WTO reform agenda, it is finding it has to defend itself from the onslaughts of the so called tripartite partnership — the U.S., EU and Japan — as they attempt to turn the WTO reform largely into a reform against China. It is fair to say that the accusations against China by these countries do not reflect the non-compliance with WTO rules but rather, as the EU admits, “gaps in the rulebook,” — the inability of WTO rules to account for China’s behavior. For this reason, the tripartite partnership has been developing new global rules on government subsidies and other issues, including state-owned enterprises, and devising new tools for enforcing a proposed code of conduct.

China will be receptive to proposals that are in line with its economic reform and opening-up program. However, it can be expected to resist rule changes that take aim at core parts of its economic model.

Which raises a question: Is it possible to achieve uniformity through different economic models, based on any country or group’s preferences? All bread is not not baked in one oven, after all.

Furthermore, China argues, it would be unconscionable to demand that it change the path that has proved not only successful for itself but also beneficial for the rest of the world. Why should China cut its feet to suit the shoes? The proposed rule changes by the tripartite partnership are seen in China as self-serving attempts to erode the country’s competitive advantages by tying its hands, as China is fast catching up economically and technologically. 

Admittedly, China faces new challenges in WTO reform. However, as a latecomer to the multilateral trading system, the country for the first time has an opportunity to contribute to shaping the future legal framework of global trade. Given expectations that it will play an increasingly more meaningful role in WTO reform, there is every reason to believe that China will contribute significantly to building up a more fair and just global trade system — one that will not only benefit China but all members of the organization.

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