China in the World Trade Organisation: Hope and Disappointment

Justitia © Fotalia/Stefan Welz

Justitia © Fotalia/Stefan Welz

The accession of the People’s Republic of China to the World Trade Organisation (WTO) in 2001 raised hopes around the world that the multilateral trading order would serve as a catalyst for far-reaching structural reforms. These hopes have largely been disappointed. Since joining the WTO, China has formally fulfilled many of its accession obligations, drastically increased its economic power and risen to become the world’s leading exporter of goods. German companies and consumers have strongly benefited from these developments.

Sluggish Enforcement of WTO Rules

According to its WTO accession protocol, China is to be treated as a market economy since the end of 2016. However, the widespread expectation that the country would indeed develop into an open and mainly market-based economy has not been fulfilled. The Chinese government expertly uses the room for manoeuvre offered by WTO rules to serve its advantage and often only does the minimum to fulfil obligations (e.g. when notifying trade policy measures such as new subsidies or to advance negotiations. The country has still not made an acceptable offer to join to the Government Procurement Agreement (GPA) as announced when it joined the WTO some 18 years ago. Moreover, the Chinese government still exerts excessive influence on economic activities for example through price controls, subsidies, judicial intervention and management of market activities of state-owned enterprises and of market shares. 99 of the 100 largest publicly traded companies in China are state-owned.

That China does not always comply to multilateral trade rules is exemplified by the high number of complaints against the country at the WTO. As of October 2019, 44 complaints have been filed against China. On a positive note, the Chinese government largely has complied with the arbitration rulings.

China: A Pillar of Multilateralism?

In the public debate on the modernisation of the WTO, China likes to present itself as a pillar of multilateralism as well as free and fair trade. The government is unilaterally shifting the blame for the current WTO crisis onto the United States. At the same time, Beijing vehemently rules out changing its WTO classification as a developing country, which leads to favourable treatment and exception from many WTO rules. It also rejects demands for more transparency (e.g. sanctioning of violating notification obligations). Moreover, it has spoken out against clear rules for dealing with state enterprises within the WTO. When the subject of subsidies arises, Beijing points to agricultural subsidies, where China has already made far-reaching commitments. However, industrial subsidies are the main problem in China. Even in sectors such as chemicals, where Chinese companies already lead globally, the nation refuses to participate in plurilateral initiatives to lower tariffs.

What Needs to be Done

In its policy paper on China (January 2019), the BDI made it clear to what extent competitive conditions and market access in China are restricted by the strong role of the state in the Chinese economy. The BDI called upon China to considerably reduce the share of state-owned enterprises, as well as reduce industrial subsidies and end to favouritism of state-owned enterprises, e.g. in public procurement. China is one of the most isolated markets for Internet-based platform providers; digital protectionism due to localisation constraints should come to an end. German industry advocates a binding market opening, e.g. through the abolishment of joint-venture requirements, significant reduction of the negative list for foreign investment and accession to the GPA. It is well noted that China submitted a revised, seventh GPA accession offer in October 2019. However, thrust and the details are still not public and need to be analysed carefully. German industry also expects more meaningful offers by China in the negotiations for an EU-China investment agreement, both in terms of investment protection and market access for investors.

As far as the WTO is concerned, the BDI supports the broad and inclusive modernisation approach advocated by the EU. All main functions of the WTO must be reformed, allowing the organisation to continue to serve as central mechanism for the development and enforcement of international trade rules. China must play a constructive and responsible role in the reform process – one that manifests itself in concrete steps. China has become a dominant trade power and the world's second-largest economic power behind the USA. It should thus no longer hide behind the undefined status of a developing country, which addresses nations with a considerably lower development level and per capita income.  Otherwise, important members could further reduce their engagement in the WTO and weaken multilateralism in the long term. This would ultimately serve the interests of neither Europe nor China.