Speaker: Sun Zhenyu, the Chairman of China Society for World Trade Organization Studies, former Ambassador and Permanent Representative of China to the WTO from 2002 to 2010.
Date: December 20, 2011
Interviewer: Good morning Ambassador Sun, it’s my great pleasure meeting you this morning. I would like to start with the word “skepticism”. As China has become the world’s second largest economy, many recognize its transformation in economic policies and foreign trade since it joined the World Trade Organization 10 years ago. But at the same time, some are also skeptical of, or even disappointed, by China’s ability to stipulate international rules and set international agendas. First of all, I was wondering what’s your take on such skepticism?
Sun: Well, I don’t think there is any ground for skepticism on China. Actually China paid a very high price to become a member of WTO. And since China joined the WTO, we have spent a lot of effort trying to implement our obligations under WTO accession. We negotiated for 15 years to become a member of WTO and we made a very broad commitment as a new member. The Chinese government and its people place very high priority in implementing out obligations and commitments. Actually, WTO has become a household name in China and many people work very hard to learn the rules and regulations of WTO. And since our accession we have amended thousands of our own rules and regulations in order to make them WTO consistent. And also we have tried our best to lower, to reduce the tariffs of our goods. Up to now there is not a single member to raise any challenge about China’s implementation of reducing our tariffs. There is not a single tariff that China did not reduce according to our schedules, according to our commitments. So during the transitional review meetings, which lasted for 10 years, I think all members have recognized the great efforts China has made in implementing its obligations. And also China has opened its service sector as it has committed. Up to now it has opened more than 100 subsectors, subcategories of our service trade. China has also played a very important and positive and constructive role in the negotiations in the DOHA round negotiations which aims at addressing the concerns of developing countries, because it’s a ‘developing round’. China worked very closely with other developing countries and tried to make this organization a more balanced, more development-friendly organization. These have been reflected in the results of the DOHA round negotiations.
Interviewer: I see. You just talked about a “high price” that China has paid to become a WTO member. Can you be a little bit specific on that?
Sun: Actually China during this accession, China accepted some WTO-Plus clauses and also some clauses with some discriminative nature such as the special safeguard clause on Chinese products. So these are some things that China has tried very hard to overcome. I think on the whole, China has made great efforts to implement its commitments and tried its best to strengthen multilateralism. We’ve fought very hard against trade protectionism and also carry forward our reform and opening as we’ve promised. Actually if you look at what has happened in China over the last 10 years, China has covered a long way on the road of reform and opening: implementing the principles of Most Favored Nation treatment, national treatment, transparency and all its important principles. So I think on the whole, the performance of China has been recognized by most members of WTO. Actually, Pascal Lamy the director-general of WTO has mentioned ‘A+’ for China’s implementation. When China first became a member at the time the chairman of the general counsel, the Canadian ambassador, also gave us A+ as a compliment for China’s implementation of its obligations.
Interviewer: Let’s bring the timeline back to 2008 when the global economic crisis broke out. Many say because of this crisis, or the crisis has fostered trade protectionism in the developed world like the United States and Europe, and because of this, China’s exports are facing unprecedented challenges. So what do you think of this?
Sun: We give credit to the WTO as a multilateral trading system because the challenge from the 2008 financial crisis was great. It was serious. I think the WTO as a multilateral trading system has a very effective monitoring system. Pascal Lamy and the Secretariat has a very regular report about the performance about each of the WTO members which monitor what sort of protective measures each member has taken. I think it’s a very effective way to try to discourage members from taking trade protectionist measures. So as a result, these beggar-thy-neighbor policies was not pushed by members and all these protective measures were brought under control. Actually, China made great contribution to the recovery of the world economy after that crisis because of our stimulus package of about 4 trillion Chinese yuan, which was in line with many major members for fighting this crisis. China became one of the first members that came out of this crisis and it also contributed greatly the recovery of the world economy. China as a major member of the WTO has worked hard to overcome this possible threat from rampant trade protectionism as a result of the crisis.
Interviewer: Under these new circumstances, how should China rearrange its priorities in continuing its opening up policy since the export economy has always played a pivotal role in China’s process of reforming and opening up?
Sun: I think that has been reflected in China’s 12th five-year program. China is firm on continuing on the road of opening and reform. I think there is no other alternative for China and we also put emphasis on expanding domestic consumption because we know that it may not be sustainable if we rely to heavily on exports only. Actually since China joined WTO, the net increase of China’s imports each years has been more than US$100 billion. Last year China’s net increase of imports was US$360 billion. That has been a great contribution to the world economy and also to many of its neighboring countries and many of the developing countries. China will continue on this road and will focus on expanding domestic consumption, which already has an annual increase of about 15 percent each year and will continue along that road. At the same time, we will encourage imports from other countries. We know that this world needs some balance, structural balance on trade. China as the number one export economy, it is our obligation to encourage imports also. And imports also play a very important role in the economy. Both for raw materials, modern technology, and that’s very important for the economy. We also encourage investment from other countries in China. This has been the policy since it’s opening in the late 1970’s because they brought in capital, they brought in management experience, they brought in new technologies which are beneficial to the economy.
China also will encourage “going global”, encouraging our enterprises to go abroad to make investments there. Actually many of those big enterprises which are qualified to go abroad and to make investment have been doing so and many of them are quite successful in promoting the development of the local economies in other countries, in Africa, in Latin-America and Asia. And now some enterprises are making headway even in Europe and in North America. I think China is continuing on that road because our economy has been mixed with other economies very closely. We are interdependent with other economies and there is no way China will backtrack on that road.
Interviewer: Well despite these achievements that you just listed, some say China’s motivation for further reform and opening up has somewhat declined in recent years. So what do you say to that kind of opinion?
Sun: Personally I don’t see any decline in desire for further opening and reform. The only problem, China is facing the same challenges as many other countries like in Europe and many other countries. Whenever you have reform you have resistance. And that is true in all countries. And it is also true in China. For China, all those reforms that have been easier have been done but for those difficult ones, you will meet some resistance. Of course there is still a long way to go for China to carry out its reform. We are still at the preliminary stage of our socialist-market economy. We are facing challenges like the preliminary stages of the capitalist societies. Any reform, you will have to pay a very high price. You will face resistance from interest groups who would not like to have redistribution of the resources or interests. So it’s only natural that we will face some resistance. But we will overcome this because it is an objective that the government has already taken and they will make efforts to try and carry out and continue the reform like the reform on taxation, the reform on monetary system, reform on education, reform on medical care, reform on social safety net. There are many things to tackle and this is true in many other countries in the US, in Europe, in many other countries. The important thing is the determination of the government and people to carry forward these reforms and I think the only choice for China is to continue the reform and not to go back.
Interviewer: Well, let’s look at the larger picture. As we know the WTO strives to promote fair trade but at the same time many people notice the fact that the lengthy drawn out agreements on the Doha development agenda has led to many regional trade agreements. All these seem to present challenges to the WTO as a whole. SO how sustainable do you think the WTO is?
Sun: I think the multilateral trading system will continue. I have full confidence in that because this organization was set up by drawing lessons from the second world war because these Bretton Woods institutions and GATT were a result of the bloody experience from the second world war.
So the WTO as a multilateral trading system has contributed a great deal to the world’s prosperity and economic growth. If you look at the history of the past 60 years, trade growth has been much higher than the GDP growth, probably double the speed of GDP expansion in the world. We give credit to the multilateral trading system and we would like to stick to this operation of this multilateral trading system. I think this is also the desire from all its members particularly from developing countries. Of course we would like to make this multilateral trading system more development-friendly, more balanced because in the past, all the rules and regulations were worked out under the guidance of the US and some European countries. There was no single contribution from China. All we have been doing is trying to conform, to follow, all the rules and regulations of WTO and try to reform and amend our own rules and regulations. We have been doing this since the time we joined the WTO.
Interviewer: So there’s still a power struggle there?
Sun: Yes, so I think the Doha round negotiations is crucial for this organization and also after 10 years of tremendous efforts and energy put into this Doha round we should try to complete the round and make this organization play a greater role in the world. I think up to now, up to 80 percent of the Doha round negotiations have been completed which were reflected in the chair’s text. Up to now, all the members in the WTO have said well we are not satisfied with the result but if other members can accept we can swallow the result. The only exception is the United States. It is not accepting the result because they are saying that they have not got enough, not enough market access for the US from the result. But we tend to forget that this round is not a pure-market access round for developed countries. It is a round for development. It is a development round. Its main task is to address the concerns of developing countries. The US have not got enough market-access from the round because it has not contributed enough to the round. I think there are many, many examples in the current resolve in the Doha round. The US made some commitments on their agricultural subsidies. They accepted the upper-level, the ceiling for agricultural subsidies up to US$14.5 billion. Up to now their actually spending for agricultural subsidies were about $8-10 billion each year. So they are not cutting anything. Also in NAMA negotiations, developing countries are cutting their tariffs much higher than the developed countries.
As a result of these negotiations, the developing countries will cut their tariffs on average by 60 percent of their non-agricultural products while the developed countries only cut about 40 percent. So actually there are a lot of things for the US companies and enterprises. And in terms of service, I don’t think the US are contributing a lot to services opening while the emerging economies made very, very substantial commitments on the service sector. For instance, India, Brazil, South Africa they will further open their service market about 30 to 40 subcategories during the Doha round. And after this round China and these emerging economies will open roughly 110 subcategories out of 160, which will roughly be the same as many developed countries. While for the US and other developed countries, their contribution on this round of services, are not much. The US is not doing anything on this Mode 4 for instance which is of great interest for many developing countries. And they have this MFN exemptions and many other things, they are not making great efforts. I think the US should consider very carefully what they could get from the round and what they have contributed to this round. They should not put blame on emerging economies saying the emerging economies are not doing enough while the US has made a lot of concessions. That’s not true. That’s not true.
Also, if we could conclude the round as soon as possible I think it could only bring benefit to all developing countries as well as developed countries, as well as the US because the US has a strategy to double exports and also to increase about 5 million new employment. I think the completion of the Doha round would help the US to achieve that goal. And because with this chair’s text plus trade facilitation plus many other rules-making processes, I think the US will get great benefit from the round and other members will also benefit from it. So probably will have to rely on the new administration to try and promote the Doha round. Of course some members in the US are saying we should forget about the Doha round and start thinking of new issues facing the 21st century. I don’t think that’s a right approach. These new issues are important for the 21st century but you cannot start negotiating on the new issues without completing the Doha round, the first development round in WTO history, in GATT history. And the great numbers of developing countries will not accept that and they have to deal first with Doha round and try to complete the round by some form and then start negotiations on the new issues facing the 21st century.
Interviewer: Like you said since the developed countries pose many challenges to developing countries, wouldn’t it be a more practical way for the developing countries to get together and form their own regional arrangements rather than having to go through all these lengthy discussion and negotiations? And how should the WTO respond to these regional trade arrangements? Sun: I think it is important to give priority to a multilateral trading system. I think all members will benefit from a very effective operational multilateral trading system. In WTO, there are different views concerning multilateralism and regionalism. Some people are saying that we should focus on multilateralism. Regionalism, actually, is an erosion of the MFN principle because groups of members having different rates of tariffs and different references which actually runs against the multilateral most favored nation treatment. Professor Bhagwati of Columbia University pointed out that those many bilateral, regional arrangements only serves as a ‘spaghetti bowl’ that will make trade more difficult because the customs would have to have different tariffs for different countries and the operations will make trade facilitation even worse. And also, those more than 200 regional arrangements actually make most favored nation treatment the worse treatment compared with many preferential arrangements. So that is not a good way. The problem is that since many other countries are doing this, you have NAFTA, you have the European FTA’s and as well as many other FTA’s. So many other members have to follow them otherwise they will be marginalized and that’s why you see in the world there’s a trend to try to negotiate many of the bilateral and regional arrangements. I think eventually we have to come back to the multilateral arrangements. Like professor Richard Baldwin pointed out maybe the further way out should be the multilateralization of regionalism. We should bring all these regional arrangements back into the multilateral process. Of course it will be a long way to ago, it’s very difficult. First of all they have to have the agreement on rules of origin. First non-preferential rules of origin and then preferential rules on origin before you can bring all the regionalism back to multilateral arrangements. These non-preferential rules of origin there have been negotiations for more than 10 years. Unfortunately members still could not reach agreement. But probably we should explore and follow that road. But that would depend on the political will of all the members, whether they should follow that road. Maybe a kind of crisis could bring us back together.
Interviewer: Well talking about regionalism versus a multilateral trading system, lets talk about one of our neighbors, Russia. It’s recently cleared out its obstacles to become a WTO member. So what impact do you think Russia will have on the global trade system?
Sun: I’m sure that Russia we’ll become a very active member in WTO. That would be a good sign. Actually I’m a little bit disappointed that China’s record of 15 years accession was broken by Russia because it took Russia 18 years to join WTO. I’m sure that Russia will play a very active role in WTO and all members would benefit from its membership because without Russia, WTO would not be complete as an international trade organization. And we have many common interests with Russia and also on many of the major trade issues we share a lot of common positions. So we will work very closely with Russia and promote cooperation with Russia. We have special meetings like the BRIC Summit so I think within WTO, this BRIC group will have coordination, will have a lot of talks ourselves and try to share our experience and play a bigger role in WTO. Also, our bilateral trade and economic cooperation will be greatly benefited because in the future the Sino-Russian trade and economic cooperation will be carried out under the framework of the WTO. That would further promote our cooperation because the economies of the two countries are very complimentary. So I see a very bright future.
Interviewer: What kind of benefits can we expect?
Sun: I think on these common issues, because Russia will become a new member of WTO, I’m sure Russia would work very closely with China, Brazil, India, South Africa and try to promote the interests of developing countries and make WTO really more development-friendly and also take these concerns of developing countries really at the hearts of many of the members. And also, give strong support to the positions of least developed countries. I think in this round the least developed countries have made their voice heard by other countries. We already achieved something for the least developed countries like during the Hong Kong Ministerial Meeting there were positions adopted by ministers that they would get duty-free, quota-free from developed countries for their exports up to 97 percent. And also they would also solve their cotton issue, the great concern of West African countries’ concern. I think Russia, China and other BRICS countries will continue to give our strong support to the cause of the least developed countries and make this organization more development-friendly. Interviewer: I’ve recently heard some voices in the US, which criticized China for not fulfilling its obligations to WTO rules as it once promised. For example on issues like intellectual property, market access and also China’s indigenous innovation. So what’s your take on these voices? Sun: Well its only normal that you hear some different voices from time to time from the US. But the actual fact is that China has implemented its obligations to the latter. And of course they can point out that they still have some problems on IPR, for instance, enforcement. This is not only a problem for China. This is a problem for many other countries also. Even in the US, you still have a lot of violations of the intellectual property rights. I think the government has been very serious in fighting the IPR violation. I don’t find any other country that spends such great public resources on protecting these intangible private properties because many other countries are protecting intellectual property rights through legal processes. You have to pay for addressing these violations of IPR. But in China we combine this legal process with administrative measures, which many other countries haven’t done. We spend public resources on protecting for instance, trademarks. We will have fines on violators. This is a very quick way. And also, IPR holders have nothing to pay for. We have half a million people working on that, protecting trademarks of these trademark holders. So in our system there are many strong points on protecting IPR. And this is something that other people don’t appreciate yet because they don’t know. We are serious in protecting intellectual property rights because we need our own people, we need to have this encouragement for our own people to make innovations. They have to be very well protected by this IPR protection. So I think the Chinese government is very serious on this. Of course there are problems on the way. I think the challenge is how to find out ways to really fight effectively on this. This is the challenge not only for China but also for all other countries.
Interviewer: So how would you evaluate China’s performance in fulfilling its obligations?
Sun: I think China’s efforts have been appreciated by most members of WTO. Of course there are some members like US and the EU, they still complain China has still not implemented its obligations. I think you have to clarify what are the points. I think China has implemented its obligations on the accession agreements and what we have committed in accession we have implemented. But they may ask for something, which is beyond this commitment. There are some things that have to be solved through the Doha round for the future negotiations. I think that’s the problem. And of course, there are also some clauses, because of some ambiguity; different members can have different understandings on these. Some of those things have to be solved through the current negotiations. It’s not an issue of implementation of our obligations.
Interviewer: Thank you very much Ambassador Sun, that’s all the questions I’ve got.