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WTO Rule Change Unfair and Misleading

Oct 24, 2023
  • Zhou Xiaoming

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

Washington’s passion for setting rules for the world is unrivaled and legendary. And so it should be no surprise that it cooked up criteria to assess whether China is living up to its commitment to the World Trade Organization. But the move is both unfair and misleading.

China’s 15 years of negotiations with WTO members resulted in both substantial obligations and extensive market access commitments. These outcomes, contained in China’s Protocol of Accession and the Report of the Working Party, constitute China’s commitments to the organization and form the basis on which China’s compliance with its WTO obligations is evaluated.

According to the Chinese Commerce Ministry, the country has fulfilled all of its accession commitments. As evidence, the ministry pointed out that China revamped its laws and regulations with more than 2,300 measures abolished or amended at the national level alone, cut its import duty to 7.4 percent (which approaches those of developed members, compared with its promised 9.8 percent) and opened 120 sub-sectors of its economy to foreign investors, against the 100 sub-sectors to which it committed at the time of WTO accession.

China’s self-assessment is shared by most WTO members. The EU noted that “China has to a large degree assimilated the standard rules of the multilateral trading system.” I remember watching years ago former WTO director-general Pascal Lamy telling a TV audience that China had fulfilled its accession obligations. In another interview in 2011 he said he rated China’s WTO compliance as “A-plus.” Charlene Barshefsky, the former U.S. trade representative who led the U.S. team in China’s accession negotiations, echoed his sentiment, saying that China’s overall compliance with its WTO commitments was outstanding.

However, in a bid to obliterate China’s achievements, Washington has trashed the yardstick that the WTO uses to measure all new members’ performance and replaced it with its own: expectation — what it believes China as a WTO member should do.

The beauty of this notion for the United States is its arbitrary nature. Highly subjective “expectations” give Washington wide latitude to judge China’s performance, as well as the ability to attack it at will. Indeed, using the expectations test, Washington asserts that China’s record of compliance has been poor. In its 2022 Report to Congress on China’s WTO Compliance, the U.S. Trade Representative listed a slew of issues that it claims stand at odds with basic WTO rules and norms.

Washington fiercely attacks the Made in China 2025 strategy, the country’s initiative to transform its manufacturing sector to increase its international competitiveness. However, WTO membership was never meant to deprive China, or any other WTO member, of the right to pursue technological advancement. While benefiting the rest of the world — as with 5G and high-speed rail — China’s technological progress is seen by Washington as a threat to its technological supremacy.

Washington regards its dominance of the world scientifically and technologically as its prerogative, and it will do everything possible to keep it. Its ferocious attack on China’s program is part of an effort to ensure that the U.S. maintains (in the words of National Security Adviser Jake Sullivan) “as large a lead as possible.” 

Washington blasts China’s absence from the WTO Agreement on Government Procurement. The fact is, however, that Beijing has made genuine efforts in applying to access the agreement. Over the years, it has actively engaged other parties in negotiations, and as recently as September it sought the EU’s support for its bid. And yet, the United States and the European Union are not ready to give it the green light to join, and are demanding a higher offer. As no WTO member is duty-bound to enter into agreements tilted against their interest, China will likely strike a deal only when it is mutually beneficial.

Washington also complains that China’s import ban on scrap materials has “raised the costs of recycling in the United States, leading some communities to end recycling programs.” Many Chinese wonder why Washington “expects” China to serve as America’s dumping ground when the U.S. closes its own border to such trash imports. Confucius admonished, “Don’t do to others what you would not want done to you.” Would Washington be well-advised to find a domestic solution to its environmentally harmful waste rather than pointing a finger at others for not providing a solution.

Washington accuses China of the “application of prohibitions, foreign equity caps and joint venture requirements.” For this criticism to be valid, however, WTO membership has to mean that China is obliged to remove all restrictions on foreign investment. This is apparently not the case. Charlene Barshefsky fought for years for a majority stake for foreign investors in joint venture financial institutions and eventually had to settle for a cap of 49-to-51.

Washington’s demand on China goes way beyond the obligations of the country, or of any other WTO member. In reality, practically all WTO members keep certain sectors off limits for foreign investors. The United Kingdom restricts foreign investment in sensitive sectors such as media and defense. The EU screens foreign direct investment in defense, aerospace, energy, health, semiconductor equipment and information and communications technologies. Meanwhile, the United States also bans Chinese investment in the high-tech sector, and the U.S. Senate recently passed a bill that forbids Chinese nationals from purchasing farmland.

Clearly, these claims and many others in the long list of America’s concerns in the report, including labor and environment — all based on Washington’s expectations test — have nothing to do with China’s WTO obligations. They have no legal basis in the organization at all. As the USTR admits, even many of China’s “most harmful policies and practices” are not “directly disciplined by WTO rules.”

Time and again, Washington took China to the WTO court for alleged non-market policies and practices, only to find that it had no support from the organization. Partly out of frustration with WTO rulings, Washington singlehandedly paralyzed the organization’s dispute settlement system by blocking the appointment of judges to the appellate body.

In effect, Washington’s claims are a wish list in disguise. Moreover, they reflect its burning desire to reshape the Chinese economic model in its own image, or as the report put it, to bring “fundamental changes to its economic system and trade regime.” Apparently, Washington’s tailor-made rule is a political tool, one that not only abrogates the rights of China as a WTO member but imposes its own will on the organization.

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