How well has China lived up to its promises to the World Trade Organization? The question divides not only China and the United States but also distinguishes the incumbent U.S. Trade Representative Robert Lighthizer from many in his profession.
I remember watching a few years ago as Pascal Lamy, former director-general of the WTO and the European Union trade commissioner who clinched an EU agreement with China on the country’s accession to the world body, telling a TV audience that China had fulfilled the obligations it made when it joined the WTO. In the same interview he said, “Those who say that China cheats with WTO rules are wrong.” In another interview in 2011, he said he rated China’s WTO compliance as “A-plus,” although not 100 percent.
Lamy’s assessment was shared by Charlene Barshefsky, the former U.S. trade representative who led the U.S. team in China’s accession negotiations. She also commented that China’s overall compliance with its WTO commitments was outstanding. I participated in both the China-EU and China-U.S. negotiations, and I saw how hard Lamy and Barkshefky fought for the EU and the U.S. They would not have endorsed China’s compliance unless they were convinced that it had really done its job well.
In sharp contrast with those hugely positive assessments by the two former chief trade negotiators — who struck the “deal of the century” with China in 1999 — the Office of the United States Trade Representative, in its 2018 report to Congress on China’s WTO compliance, asserts that China’s record of compliance with the WTO is “poor.” The report accuses China of a litany of wrongdoing, such as retaining a nonmarket economic structure and forcing technology transfers.
The markedly different assessments of China’s performance by the two former chief trade negotiators and Lighthizer can be attributed largely to the different criteria they relied upon in their evaluations.
Lamy and Barkefsky drew their conclusions by assessing China’s performance against its commitments set forth in its accession protocol. At the WTO, the compliance of a new member with its WTO obligations is evaluated on the basis of those commitments. It is only right that the same principle should apply to China. As such, the yardstick for measuring China’s WTO compliance is simply the country’s commitments as stipulated in its accession protocol and annex. The protocol reflects more than a decade of grueling negotiations between China and members of the WTO, including the U.S., and it contains all of China’s commitments to the organization. Therefore, any asks beyond the terms of the protocol should not be regarded in any way as part of China’s WTO obligation.
However, a close look at the USTR report reveals that the USTR’s assessment of China’s compliance is based on its expectations of the country as an acceding member of the WTO — that is, what the U.S. believed China should do. It sets aside what China’s accession protocol says are the country’s commitments. Instead it evaluated China’s compliance against issues close to its heart, rather than the actual commitments made under the protocol. In so doing, contrary to what the former EU and the U.S. trade chiefs did, the Trump administration has trashed the yardstick the WTO uses to measure all new members’ performance and replaced it with an expectation test created by U.S. alone.
It is highly questionable, however, that U.S. expectations have any legal basis so far as WTO compliance is concerned. Moreover, they would present insurmountable difficulties in definition. Imagine the expectations of around 160 members, and the changes in expectations by some of them as time passes.
Most of the complaints in the 2018 USTR report by U.S. entities have nothing to do with China’s WTO commitments. There is resentment about China’s policy on data flow, but negotiations on e-commerce have yet to start at the WTO. China’s practice in government procurement is another target of criticism. However, China is not a party to the multilateral agreement on this issue.
The question then is: How well has China complied with its commitments to the WTO, as defined by its accession protocol? Facts speak volumes. On import tariffs, China had fulfilled its commitment as of the end of 2010, slashing tariffs on goods from 15.3 percent at the time of accession to 9.5 percent. Further reductions have since been made. China’s trade-weighted tariffs shriveled to a mere 4.4 percent as of 2015 — compared with Australia’s 4 percent, for example.
On services, China has further opened up 150 sectors, far exceeding the 120 sectors it promised, and it plans to totally liberalize its financial services sector at the beginning of 2020.
The country’s record in opening up sectors not covered by its commitments is also remarkable. In investment, China introduced, on its own, the “negative list” for market access. It is fair to say, therefore, that China has fulfilled all of its commitments to the WTO.
Admittedly, China’s compliance is not perfect, and there are areas where improvements are desirable — reform of state-owned enterprises, for example. Although these are not part of China’s commitments to the WTO, the government is determined to get them done correctly and expeditiously, believing it’s in China’s best interest to do so.
In the 10 years following its accession to the WTO, China’s compliance with its commitments was subject to a unique and stringent annual review. It would have been inconceivable for the U.S. to let China go unpunished if it had found the latter in a major breach of its commitments. As the country that brought the largest number of cases against other members in the organization, the U.S. is not known for being meek when it believes other members have committed wrongdoing. The fact that it has not sued China at the WTO for allegedly breaking its WTO promises is another testament that China has played properly.
As part of its WTO reform agenda, the U.S. is currently working with the EU and Japan to formulate new trade rules aimed at China — even though, according to Lamy, the WTO has a system capable of addressing breaches of its rules by any of its members. The U.S. move admits, albeit indirectly, that it is unable to prove that China has breached its commitments, and so it is compelled to resort to changing the rules of the game at the WTO to challenge China successfully. Apparently, the adoption by the U.S. of the expectation-based test has some important purposes to serve: justifying its violations of WTO rules in launching and sustaining a trade war against China and, more important, remaking China in its own image, based on its own expectations.
It is unfortunate that the U.S. branding of China’s WTO performance as a failure is misleading and has caused considerable confusion around the world. If the U.S. is genuinely interested in providing a true picture of China’s WTO compliance, it would be well-advised to take a look at China’s accession protocol, and make a real effort to figure out its performance against its actual commitments. After all, in the WTO context, expectations and commitments are different kettles of fish.
What the U.S. expects of China is not the same thing as what China was obliged to do under the terms of its accession agreement. It’s not even close.