By Junyang Hu and Dingding Chen Source: The Diplomat Published: 2019-3-3
It has been roughly two decades since China was permitted to join the World Trade Organization (WTO) in 2001. Prior to its accession, there was one economic metric on which it already ranked first. China, by multiple estimates, had the largest economy outside the WTO, ranging from foreign trade to the stock of foreign direct investment. Given the skyrocketing growth of the Chinese economy during that time, it takes very little imagination to foresee that China’s leadership came to appreciate membership in the WTO as a watershed for the country to embark on a more promising economic future.
The accession marked a new beginning for various fields in China, not only economic, but also legal, institutional, and conceptual reforms, as well as tighter integration with the rest of the world. At the cost of relaxing over 7,000 tariffs, quotas and other trade barriers, China has been witness to steady and remarkable achievements in various terms with, specifically, its domestic companies managing to survive in amid ferocious foreign competition. According to the latest values from World Integrated Trade Solution (WITS), the trade growth of China is 2.43 percent per year, getting an edge over the world growth of 1.50 percent, and the country’s GDP shows dramatic growth since accession to the WTO, jumping almost eightfold from $1.339 trillion to $12.24 trillion.
Despite the fact that globalization has accelerated overall growth toward prosperity over the years, drawbacks come into view simultaneously. Further reform of the WTO, could be seen as detrimental to all members inside. China’s conception is that the vulnerability of the multilateral system might be exposed to a scissor-style pressure: From above, through heavy external challenges, such as the presence of numerous regional trade agreements which attempt to take over the role of WTO in multilateral trade rules, along with the shifting tide of unilateralism and protectionism; and from below, deeply embedded in its inadequate internal functioning.
It is not new that world trade’s top court is close to a breakdown, solely due to the blocked appointment of new judges to the WTO. The Doha Round has also been bogged down. For more than a decade, billions of dollars of agricultural subsidies for developed members have not been cut by the slightest. Emerging formats like e-commerce have flourished in the global market, whereas the WTO fails to provide an international norm.
It is not only the deficiency of regulation that is to blame, but the trade policy review mechanism is also cluttered with weaknesses as well. In spite of its political significance, the mechanism actually has no legitimate effect, meaning that it cannot impose new trade policy commitments on members of WTO, let alone enforce specific obligations for any modifications under the WTO. Hence, all these criticisms mentioned above wind up turning into a concerted driving force behind WTO reform.
More than once, China’s authorities have made official announcements in support of the WTO reform. “China’s Position Paper on WTO Reform,” released by the Minister of Commerce, is the paramount document that should be highlighted. The paper states that “China supports necessary reform of the WTO, in order to enhance its authority and efficacy, to build an open world economy, and to pursue a community with a shared future for mankind,” accompanied by three basic principles and five suggestions. It implies that China is on schedule to cope with the deteriorative status quo, but not unconditionally.
There might be various traps during the process of the reform in that view. Other countries are not supposed to either deprive the special and differential treatment of developing members that China deserves, or discriminate against diverse development models. According to the speech by Zhang Xiangchen, China’s ambassador to the WTO, in Paris, it is unwise for WTO members who are wildly hungry to put China in a straitjacket, while China is taking pains to propose reform of the WTO.
Furthermore, rather than fixing the bugs in the system once for all, China conceives that there should be prioritization. To consolidate the functions of a strengthening WTO and safeguard the role of the multilateral trade organization, the Appellate Body is now the centerpiece of China’s pivot to the reforms of the WTO. And it will remain deeply so in the prospective proposal that China will independently draft, with practical details and active openness.
In addition to the tendencies mentioned above, China has already co-sponsored the European Union’s proposal on reforming the WTO, which indeed means a lot. It is widely known that various obstacles lie ahead of reaching an agreement between the interests and demands of developing countries and developed countries. But the China-EU cooperation, representing the interests of the two separate sides, can give full play to their respective advantages, coordinate positions, and thereby forge a model for the cooperation of all members. Consequently, all of them are likely to seek a positive-sum outcome for both sides of the dispute.
Parallel with these reforms on the systemic level, domestic ones as a bonus are likewise underway. Some foreign companies used to fume over competition Chinese state-owned enterprises, industrial policies, and technology transfer requirements, which are usually recognized as a violation of the spirit of the WTO. Given these issues targeting China itself, it becomes notable that China has gotten down to business on domestic institutional reform, by drafting a law protecting foreign intellectual property and prohibiting forced technology transfer, and reducing the total level of tariffs in a wide range of products. If implemented properly, it will undoubtedly encourage all foreign enterprises to keep their profits in China and continue to expand their investment scale. Meanwhile, the sincerity and determination for a better global trade environment could be appreciated by the rest of the world.
This all might be far from over, but, at least, what has happened so far is a good kick-off.
The WTO needs China to survive and, vice versa, China needs the WTO to thrive. But without the aid from anyone else, the divided system will appear no closer to a resolution than when this fatal and disgraceful impasse began. Not since the trade war ignited by U.S. President Donald Trump toward the global trading system has it been so crucial for each and every participant to press ahead with the reform of the institution, resolutely and collaboratively.
Chen Dingding is a visiting fellow of Chongyang Institute for Financial Studies at Renmin University of China.