China in the WTO

Justitia © Fotalia/Stefan Welz

Justitia © Fotalia/Stefan Welz

The accession of the People’s Republic of China to the World Trade Organization in 2001 raised hopes around the world. The expectation was that the inclusion of the emerging country in the multilateral trading order would serve as a catalyst for China to implement far-reaching structural reforms and promote free entrepreneurship.

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. However, the economic superpower does not always play by the rules and has yet to assume the appropriate responsibility for the multilateral order.

Sluggish Enforcement of WTO Regulations

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 develop into an open and mainly market-based economy has not been met. The Chinese government expertly uses the room for maneuvre offered by WTO regulations for its own ends, and often it does only the minimum required to fulfil its obligations (for example, in the notification of trade measures such as new subsidies) or to advance negotiations. Thus, the country has still not made an acceptable offer to join to the Government Procurement Agreement (GPA), although it undertook to do so when it was admitted to the WTO some 18 years ago.

To date, more than 40 complaints have been filed against China with the WTO’s Dispute Settlement Body. Only the EU and the United States, both founding members of the WTO, are the subject of more complaints. On a positive note, the Chinese government is largely complying with the arbitration rulings.

China – a Pillar of Multilateralism?

In the public debate about modernizing the WTO, China likes to present itself as the pillar of multilateralism and a proponent of an open-door policy. In doing so, it unilaterally shifts the blame for the current WTO crisis onto the United States. At the same time, Beijing rules out changing its classification as a developing country, which affords it favourable treatment, and rejects demands for more transparency (for example, sanctioning for 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, China points to the agricultural industry, where China already made far-reaching committments. However, subsidies to industry are the main problem in China. Even in sectors such as chemicals, where Chinese companies already lead globally, Beijing refuses to participate in plurilateral initiatives to lower tariffs.

China Should Play a more Constructive Role

The EU’s reform proposal is the right way ahead, addressing all main functions of the WTO: liberalization, rules-development, and enforcement (monitoring and dispute settlement). But for reforms to really take-off, Beijing needs to play a more constructive and responsible role in the process – one that manifests itself in concrete steps. China has become a dominant trade power and a huge market. The country must no longer hide behind the undefined status of developing country, expecting the same special treatment as small trading nations. Within the framework of the WTO, China should rapidly sign up to greater transparency (for example, about subsidies to industry and in its dealings with state enterprises), modern trade regulations (for example, against digital protectionism through localization requirements), and a binding approach to opening markets (for example, through acceding to the GPA). Otherwise, important members could further scale back their involvement in the WTO and multilateralism could be permanently weakened. This would ultimately serve the interests of neither Europe nor China.