Preface
China is certainly not the only country to flout WTO’s mandates or to engage in protectionist economic policies. Notably, there has been a recent political debate regarding the merit of continued WTO membership in the United States. Furthermore, the United States has had a mixed record of compliance with its own WTO’s commitments. Chinese compliance is the focus of this piece, however, because China has uniquely utilized the WTO to fuel impressive economic growth while maintaining a largely state-led economy.
Introduction
Hopes were high when China officially acceded to the WTO in late 2001. China’s entry into the neoliberal trade organization ostensibly marked China’s commitment to economic liberalization and acceptance of neoliberal trade norms—that is, the “principles of trade liberalization, equal market access, nondiscrimination, and transparency” that underlie the WTO’s philosophy . Despite optimism and signs of economic liberalization immediately following accession, China has largely rebuked its WTO obligations in favor of pursuing its statist national agenda. This article will broadly summarize China’s WTO commitments, compliance record, and the impacts of Chinese noncompliance on global trade. It will also examine potential underlying motivations for China’s poor compliance and evaluate the global response to China’s trade actions.
China’s WTO Commitments, Compliance, and Impacts Therefrom on Trade
In recognition of the WTO’s fundamental philosophy of “trade liberalization” through “open, market-oriented policies,” China agreed to replace its state-led economic and trade regime with a market-oriented economy. Pursuant to this broad obligation, China committed to, amongst others things, (1) not discriminate against foreign individuals and entities in trade matters, (2) not use price and export controls to impermissibly protect domestic industries, and (3) allow all economic enterprises to freely import and export goods throughout China within three years of accession.
In the nearly 21 years since accession, China has decidedly not embraced the market-oriented economy it promised. At the time of accession in 2001, China was not the economic power it is today; China only exported roughly $272 billion of goods and services, compared to $2.723 trillion in 2020. As such, China sought to integrate into “global civil society” through existing multilateral institutions, including the WTO, to gain valuable expertise and standing in a global context. To that end, China made strides toward fulfilling its commitments in the years immediately following accession by, for example, lowering import tariffs. As is explored in the following section, however, China has broken out of the modest position of merely integrating into the existing world trade regime and now seeks to actively shape it.
Despite these early signs of compliance, China has made clear its intentions to rebuke its WTO obligations. These rebukes largely take two forms: implementing policies that reduce economic transparency and policies in direct tension with trade liberalization. As an example of the former, China obscures trade regulation from foreign business entities by regularly failing to publish new laws in WTO languages (English, Spanish, and French) before implementing and enforcing them. This obfuscation of domestic trade regulations allows the Chinese government to punish foreign entities for noncompliance before said entities are able to adjust. In conflict with its WTO obligations to liberalize trade, China has repeatedly imposed export controls on various raw materials that are crucial to global supply chains. Given that China produces over 90% of the world’s supply of rare Earth elements—including those that are vital to electronics—China’s imposition of export controls on these manufacturing inputs is particularly impactful.
China’s noncompliance creates substantial benefits for its own economy. In imposing export controls on consolidated industries that are essential to global manufacturing (e.g., rare Earth element production), China artificially inflates the price of such inputs and increases profit margins. Moreover, while strategically disregarding its WTO obligations to the detriment of its trading partners, China has been able to reap the benefits of WTO membership. As part of the WTO, China has stable access to some of the largest markets in the world (e.g., the United States, the European Union) precisely because other WTO members do not broadly violate their fundamental commitments and thus do not generally subject Chinese exports to impermissible discrimination. In this way, China has become a ‘free rider’ on the global trading regime because of the asymmetry of compliance between China and its WTO trading partners. Perhaps unsurprisingly, this free riding has yielded immense dividends—China is now the largest merchandise trader in the WTO.
Chinese Motivations and Steps in Pursuance of National Policy
Aside from promoting the domestic economy, China’s actions, which conflict with its WTO commitments, may be intended to establish a “Beijing Consensus” in opposition to the so-called Washington Consensus. Whereas the Washington Consensus broadly espouses neoliberal economic and trade policies, the Beijing Consensus would establish a new set of global norms that support Chinese and like-minded nations’ interests. In repeatedly flouting its WTO commitments and achieving unprecedented economic success in the process, China appears as a paragon of the virtues of state-led development to developing nations. This model becomes especially attractive to developing nations in light of some of the failures of Western-prescribed neoliberal “shock therapy.” Setting aside bilateral exercises of soft power, which create camaraderie between China and developing nations in opposition to Western values, such mercantilist trade practices have proliferated in the WTO. Indeed, some WTO member states have begun to emulate China’s approach towards global trade policy (e.g., Tajikistan, like China, has a record of poor trade regulation transparency and imposes various protectionist measures), thus eschewing the neoliberal values that the WTO was founded upon.
Attempts to Bring About Chinese Compliance: Past and Present
In light of China’s flagrant disregard for its WTO obligations and the deleterious effects its actions have on other WTO members, many of China’s trading partners have tried to bring China into compliance. One major avenue for this effort is through the WTO’s dispute settlement mechanism (DSM), which involves a series of member state consultations, adjudications, and appeals. Despite the United States having won every adjudicated dispute with China in the WTO, mixed compliance with adjudicatory rulings and a lack of transparency about reforms have left WTO complainants’ efforts largely frustrated. Indeed, the DSM is not “designed to address a trade regime [like China’s] that broadly conflicts with the fundamental underpinnings of the WTO.” Moreover, continuing to rely solely on the DSM will only further undermine the WTO’s credibility, in light of the DSM’s inability to bring China into compliance. It should be noted that the United States also often fails to abide by DSM rulings, which perhaps indicates institutional issues with the DSM.
The question remains: is it too late to integrate China into the existing global trade regime as a neoliberal trading partner? With its vast economic and increasing soft power, China is certainly not resigned to passively coexisting in a global trade system at odds with its values. WTO member states face strong retaliation for questioning any Chinese economic or political decision, often in the form of economic coercion. Australia, for example, is currently subject to harmful Chinese restrictions on Australian imports as retaliation for requesting an independent investigation into COVID-19’s origins and for imposing restrictions of foreign political contributions. In other cases, China turns to the DSM to retaliate against WTO member states that have filed their own complaints against China.
Despite the prospect of economic coercion, WTO member states persistently attempt to bring China into compliance. Recognizing the DSM’s ineffectual outcomes, member states have turned to alternative strategies. The United States, for example, negotiated the bilateral Phase One Agreement in early 2020 to address China’s trade practices. Included in that agreement were Chinese commitments to increase purchases of “American products and services by at least $200 billion” and to respect American intellectual property rights by refraining from forcing technology transfers from American companies. Notably, however, China had bought none of the additional goods and services it had committed to purchasing, as of December 2021, and has not fully implemented legislative changes that reduce pressure to transfer intellectual property. Member states, notably the United States, have also used domestic trade remedies to “level [the] playing field” with Chinese imports and pressure China to comply with its WTO obligations. Furthermore, WTO member states have formed new multilateral partnerships, such as the U.S.-E.U. Trade and Technology Council, with each other in an attempt to formulate new methods of counteracting the negative effects of Chinese nonmarket trade activities.
Conclusion
What was once hailed as the dawn of a new era for the integration of global trade has turned out to be a threat to its existence under market-oriented auspices. China has repeatedly flouted its WTO commitments since acceding over two decades ago, much to the detriment of its market-oriented trading partners. Only time will tell whether renewed efforts to reign in Chinese noncompliance are too late.
Author Biography: Drew Weisberg is a Moderator of the International Law Society’s International Law and Policy Brief (ILPB) and a J.D. candidate at The George Washington University Law School. He has a B.A. in Political Science, with a second International Studies major focused on political economy and development in Africa, from Northwestern University.Tweet