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China Trends #1 - China and WTO Reform: Minimal Changes Only, Please

BLOG - 15 March 2019

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The WTO is failing to keep pace with changes in international trade, leading to increasing doubts regarding its effectiveness and authority. With Donald Trump threatening to leave the organization, the issue of WTO reform has returned to the spotlight. This paper explores the Chinese narrative of envisioned WTO reform and issues surrounding it. Chinese experts agree that an orderly world has contributed to the economic growth and prospering of countries around the world, including China and the United States. The role of the multilateral trading system represented by the WTO in the creation of this order is irreplaceable. In an attempt to keep the US on board and avoid the collapse of the multilateral trading system, WTO reform has come back to the agenda of other members, aiming to both reassess WTO’s concept and responses to new world development. On November 23rd, 2018, China’s ministry of commerce published its own position paper on WTO reform, putting forward three basic principles and five suggestions. The three basic principles are: preserve the core values of the multilateral trading system; safeguard the development interests of developing members; and follow the practice of decision-making by consensus. Elaborating on this position, Chinese analysts agree that reform is necessary but do not express a sense of urgency from their standpoint.

Facing the choice between ending and reforming WTO, China agrees to reform.

Chinese experts do admit that WTO reform is inevitable and imperative for the institution to survive. Facing the choice between ending and reforming WTO, China agrees to reform. China has paid a huge price to join the WTO, and has benefited from it since then. China has invested in training diplomatic and legal personnel capable of defending China according to the WTO rules. With the collapse of WTO, new rules of the game would be established through a new mechanism, which might no longer benefit China.

Hence, maintaining WTO is in the interest of China, but it differs from other WTO members on the scale of the reform. The group led by the EU, Japan, Canada, Australia, Brazil and Mexico advocates a large scale reform, while China advocates reform "on the basis of necessity (必要性)".(1)

China is open to discussion, but this does not mean that it is willing to accept rules imposed by others. China is willing to accept suggestions and additional obligations, provided they are in accordance with its own roadmap for reform and opening up.(2) As Zhang Xiangchen (张向晨) , China’s ambassador to the WTO, points out: "if someone wishes, in the name of WTO reform, to put China in a tailor-made set of rules, they will be disappointed at the end."(3) Being targeted by other WTO members, one concern among Chinese experts is China’s unwillingness to consider proposals and suggestions from others due to the feeling of victimization. China shall not be a passive player in the WTO reform, rather it should rationally analyze different reform proposals and defend itself, as well as other developing countries, against discrimination.(4) The WTO is not a tool for meeting particular needs of individuals or groups. The WTO reform shall be inclusive and shall not be dictated by one party (不搞小圈子,也不搞一言堂); and since WTO members cannot find the perfect solution to satisfy all members, they should seek common ground while reserving differences (求同存异).(5) The WTO is the product of a compromise between countries with different interests and status, and WTO reform must inherit this model.

The current WTO system allows its members to self-designate as "developing countries", and this status comes along with certain rights, such as the entitlement of the "special and differential treatment (SDT)". The United States is frustrated by the lack of criteria for "developing country", and has requested concrete criteria to define developing countries. In China’s view, when the US advocates a fair and reciprocal trade provision to replace the SDT, it is it is in fact advocating a "fair" environment in service to the American interest. The WTO reform should not prioritize the economic interest of one single economy and monopolize the right to write rules.(6) Current actors should play by the rules that were initially set, and they should through their collective strength, instead of attempting to change these rules.(7)

In line with Xi Jinping’s work report to the 19th Party Congress, Chinese experts repeat that "China’s status as a developing country is incontrovertible." China’s economic scale and power have significantly increased, but due to the unequal level of development between different regions and the room for improvement in different sectors, the gap between China and other developed countries remains significant.(8) China, as the largest developing country in the world, is willing to take up responsibilities and commitments compatible with its level of development. But China stands firmly against any WTO reform proposal seeking to deprive China’s entitlement to SDT.

The US is unlikely to leave WTO. Trump’s threats precisely demonstrate that he takes WTO seriously, a strategic move of treating retreat as advance.

Wei Jianguo (魏建国), former Vice Minister of Commerce and Vice Secretary General at the Chinese Center for International Economic Exchanges, stressed the significance of the SDT by calling it the "touchstone" of WTO reform, emphasizing that China will not consider any reform proposal targeting the SDT. Such provisions provided the basis for peace and development in the past few decades and were supported by developing countries which constitute the majority of the world population (人心所向). Backing the interest of China with the interest of a majority of WTO members is one of the method Chinese experts and officials use to support China’s stand.

The Trump administration will not rely on WTO to solve its trade dispute with China, and it has used threats of leaving WTO in order to obtain Chinese concessions. Behind the US behavior is its fear of China’s rapid development and the inability use to its own advantage the multilateral system. Huo Jianguo, Vice-Chairman of the China Society for World Trade Organization Studies, estimates that the US is unlikely to leave WTO. Trump’s threats precisely demonstrate that he takes WTO seriously, a strategic move of treating retreat as advance (以退为进). Huo’s assessment coincides with Li Jun (李俊), Director of the International Service Trade Research Institute. He further explains that if the US withdrew, it would have to cover its losses by signing bilateral free trade agreements with major trading partners: this is unlikely to be achieved in the short term.(9) Protectionism is isolationism, and it will not "make America Great again".(10) Hence, China should not surrender to US pressure and will come up with all appropriate defenses (兵来将挡,水来土掩).

Our sources directly challenge the American position and refute some "groundless" accusations. For instance, given the uniqueness of "Made in China 2025", the Office of the United States Trade Representative has accused China of violating WTO rules. While accusing China, the US did not point out which rules China has violated: the uniqueness of Chinese plan does not mean it violates the rules.(11) There is a need to distinguish between different issues: some fall under WTO provisions and should be solved within the WTO framework, while other issues cannot be forcibly described as issues for WTO. Some developing countries’ provision of subsidies and support of SOEs have harmed the trade interests of other countries. While recognizing the need to address subsidies and SOES under a future WTO framework, accusations towards China regarding these issues, until the completion of the reform, remain outside the scope of WTO and are to be solved bilaterally. Experiencing harm to one’s own interests is not in itself a legitimate reason to accuse others of violating WTO rules.(12) Moreover, Western countries are undergoing domestic changes. With the role of the government being highly regarded again, the boundary between free market and state intervention is becoming ambiguous.

As these are the two main players in the globalized world economy, a bilateral resolution between the US and China would create multilateral issues in principle.

However, a dispute between the US and China does not only harm the two key players, but also the global economy as a whole. Players in the global economy such as the EU cannot neither escape losses caused by the dispute, nor the risks to be caught in the crossfire. The WTO is meant to deal with trade disputes and prevent their escalation. The US tariffs imposed on China are a unilateral and protectionist act that flies in the face of WTO principles.(13) WTO’s inability to contain the current trade war is ironic.(14) To safeguard the WTO mechanism and to provide a common and clear referece point, the current US-China trade war must be solved through WTO and not outside it.

Any bilateral agreement between the US and China not in line with the WTO principles will create new issues.(15) As these are the two main players in the globalized world economy, a bilateral resolution between the US and China would create multilateral issues in principle.

In sum, nothing can be accomplished without norms or standards (没有规矩 不成方圆). Reinforcement of the WTO mechanism is in the core interest of all members of the global economy and requires coordination by great powers. China agrees to reform, but stresses the significance of national conditions (国情). China will adhere to its own principles of reform and opening up, and it will not be distracted by US threats of withdrawal, given China regards these threats as empty.

 

References
(1) He Xiaoyong and Chen Yao, "‘Seeking Common Ground while Reserving Differences’: Evaluation of WTO Reform Proposals and China’s Counterproposal" (“求同存异”: WTO改革方案评析与中国对策建议) , Shanghai Duiwai Jingji Daxue Xuebao (Journal of SUIBE), Vol. 26 No. 2, March 2019, pp.24-38

(2) Zhang Xiangchen, "China Will Propose WTO Reform, But It Won’t Fall Into Someone Else’s Trap"(中国将提议WTO改革,但不会落入别人的陷阱 ), WTO Jingji Daokan (China WTO Tribune), Vol. 181, November 2018, pp.57-58

(3) Ibid

(4) He Xiaoyong and Chen Yao, "‘Seeking Common Ground while Reserving Differences’: Evaluation of WTO Reform Proposals and China’s Counterproposal" (“求同存异”: WTO改革方案评析与中国对策建议) , Shanghai Duiwai Jingji Daxue Xuebao (Journal of SUIBE),, Vol. 26 No. 2, March 2019, pp.24-38

(5) Ibid

(6) Li Zhongzhou, "Beware of WTO Reform going Astray"(WTO改革,谨防误入歧途 ), WTO Jingji Daokan (China WTO Tribune), Vol. 181, November 2018, pp.62-63

(7) Zhang Xiangchen, "China Will Propose WTO Reform, But It Won’t Fall Into Someone Else’s Trap"(中国将提议WTO改革,但不会落入别人的陷阱 ), WTO Jingji Daokan (China WTO Tribune), Vol. 181, November 2018, pp.57-58

(8) Ibid

(9) "Will the WTO Be Paralyzed ? This Point is Very Critical" (WTO是否会陷入瘫痪?这一点很关键 ), Zhongguo Xinwen (China News), 26 January 2019.

(10) Li Zhongzhou, "Beware of WTO Reform going Astray" (WTO改革,谨防误入歧途 ), WTO Jingji Daokan (China WTO Tribune), Vol. 181, November 2018, pp.62-63

(11) Su Qinyi, "The Divergence of China and The US in China’s fulfillment of WTO Commitments and its cause" (中美在中国履行入世承诺上的分歧及其根源), Shijie Zhishi (World Affairs), Vol. 14 No.1829, September 2018, pp. 63-65

(12) Su Qinyi, "The Divergence of China and The US in China’s fulfillment of WTO Commitments and its cause" (中美在中国履行入世承诺上的分歧及其根源), Shijie Zhishi (World Affairs), Vol. 14 No.1829, July 2018, pp. 63-65

(13) He Xiaoyong and Chen Yao, "‘Seeking Common Ground while Reserving Differences’: Evaluation of WTO Reform Proposals and China’s Counterproposal" (“求同存异”: WTO改革方案评析与中国对策建议) , Shanghai Duiwai Jingji Daxue Xuebao (Journal of SUIBE), Vol. 26 No. 2, March 2019, pp.24-38

(14) Pang Zhongying, "China and the WTO: Active Participation in the Establishment of New Global Economic Rules" ( 中国与世贸组织改革:积极参与制定全球经济新规则 ), Dangdai Shijie (Contemporary World), September 2018, pp. 65-66

(15) Pang Zhongying, "China and the WTO: Active Participation in the Establishment of New Global Economic Rules" ( 中国与世贸组织改革:积极参与制定全球经济新规则 ), Dangdai Shijie (Contemporary World, September 2018, pp. 65-66

 

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