China’s Perspectives on WTO Reform

China has tabled two formal documents on World Trade Organization (WTO) reform, these being the Position Paper on WTO Reform of November 2018 and the Proposal of China on WTO Reform of May 2019.
Four aspects are highlighted here.

1. China wants a WTO “improvement”, not a WTO “revolution”.
For the Chinese government the WTO remains the “cornerstone” of economic globalization and trade liberalization, and the “pillar of global economic governance”. The Communist Party recognizes that the WTO “is not perfect” and needs to be “improved” in key areas. However, China does not want this “reform” to be revolutionary to the extent that changes would undermine the long-standing principles of the organization, such as non-discrimination, consensus decision-making, or special and differential development.

China shares in the wider view that WTO is facing an “existential crisis”, which, in its view is caused by unilateralism and protectionism, manifested by the Appellate Body (AB) crisis and the abuse of national security arguments. We all know whom we are talking about here.

2. China wants a “WTO reform”, not a “China reform”.
If you carefully consider the European Union (EU) and Canadian proposals on WTO reform, as well as the thoughts of the United States (US) on WTO reform scattered around a series of their official documents, there is a definite “China focus” with regard to issues such as industrial subsidies, state-owned enterprises (SOEs), intellectual property rights and forced technology transfer. These might be viewed as a “Trump shopping list” on WTO reform. Similarly, the US/EU/Japan trilateral mechanism implicitly focuses on China’s “non-market practices”.

China recognizes the need for deep reform on some of these issues and the government has made efforts in this direction, including introducing a prohibition on forced technology transfer in a new investment law. However, the politics of WTO reform requires balancing the various competing interests in a manner that makes any agreement sellable within China’s domestic political arena. It is hard, if not impossible, to imagine that you can turn WTO reform into a “China reform” and expect China to swallow it. That is why in its proposals on WTO reform China asks for negotiations on agriculture subsidies and trade remedies to counter-balance proposed reforms which it views as specifically China-focused. In this light, anything coming out of the trilateral mechanism, particularly the expected paper on industrial subsidies, is likely to meet with China’s resistance if brought into the WTO.

3. China wants its developing country status, but is ready to make more contributions.
For many, “developing country” status within the WTO context is a deeply politicized issue so it is hard to foresee any technical solution, such as criteria of graduation. For China, its developing country status is cast in stone with top Party and government documents and speeches by President Xi himself saying that China will continue to remain as a developing country in the medium-term. In China’s eyes, the reason is simple. Its per capita GDP is only 1/7 of that of the US and lower than St. Lucia, Grenada and the Maldives, thus the Party’s position is that it would be unreasonable to class China as a developed country.

Admittedly, by other measures China is significantly more developed than Grenada or the Maldives. In absolute terms it is the second biggest economy globally, it is a leader in many technologies such as 5G, and is heavily industrialized. As a result, China’s leadership recognizes that it should shoulder more responsibilities than other developing countries, as indicated by its WTO reform documents, where it is stated that “developing countries are encouraged to actively undertake obligations commensurate with their development level and economic capacity” (“鼓励发展中成员积极承担与其发展水平和经济能力相符的义务). This commitment is supported by recent actions by China with regard to the WTO Trade Facilitation Agreement, in which China accepted similar obligations to developed countries.

For many in Geneva the key issue is how to rebalance rights and obligations among major players, including for more advanced developing countries like China, instead of an ideological or political debate on who is, and who is not, a developing country. Proposals by Norway were recently tabled to drive the debate in that direction, and these have gained traction among some WTO members. However, the recent memorandum on this issue by the US White House complicates the situation by insisting on criteria to define developing country status. This will likely result in a “north-south” divide emerging, with China aligning with India and other developing countries on one side, and the US and its allies on the other. Such a development would create a further impediment to already stalled WTO negotiations on multilateral reform.

4. China wants to maintain its “development model” and avoid a political debate on WTO reform.
China’s political and economic system is different from most other WTO members. There seems to be a tendency towards debates about whether or how this difference can be handled through the reconstruction of WTO rules, such as on potential new disciplines on SOEs. On this issue China’s position is that the WTO should be “inclusive” and respect “different development models”, and consequently, there should not be a political debate concerning reforms targeted specifically at the Chinese model of capitalism.

While China makes it a top principle to “foster stronger confidence” in its “path, theory, system, and culture” (“四个自信”), the question for the western world is whether you want to enter into an unchartered zone in the WTO by starting a political debate that will blur the sometimes fine line between trade and political issues through a WTO negotiation. A further question, as the Punta del Este Group (PEG) has asked in its concept paper on WTO reform, is “whether the system of rules to be reconstructed is not one that, while striving for convergence, accepts and preserves coexistence.”

This does not mean that we should not discuss issues that are important for the organization, such as disciplines for SOEs or free information flow for e-commerce. However, it can only succeed when negotiators are innovative to find ways to divide technical issues from political concerns. Or, to put it another way, render unto Caesar what is Caesar's and unto God what is God's.

Professor Xiankun LU
China Institute for WTO Studies - University of International Business and Economics

Tagged in Featured, Opinions, World Trade Organisation, World Trade System

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