How has China’s role in the WTO evolved?

Door Ivo Verhoef

           ‘The WTO agreement will move China in the right direction. It will advance the   goals America has worked for in China for the past three decades.’ (Clinton 2000).

                                                                                                          – Bill Clinton 2000

           ‘If they [WTO] don’t shape up, I would withdraw from the WTO’ (Micklethwait, Talev and Jacobs 2018).

                                                                                                           – Donald J. Trump 2018

In the above-mentioned quotes, we see the perspectives of two US presidents on the World Trade Organization (WTO), and the role of China within that organization. Where president Clinton was positive on the way in which the WTO could make China’s economy more liberal, president Trump now accuses China of ‘gaming the system’, that is,using WTO rules in its favor and thereby undermining fair trade with the US.

            These two perspectives on the role of China within the WTO suggest that either the role of China within the WTO has evolved, or that only the US perspective on the role of China within the WTO has changed. The quotes also show the importance of US-China relations to China’s position within the WTO. In this essay I will answer the following question: how has China’s role in the WTO evolved? 

            This question will be answered in three parts. First, I will give a short introduction of the WTO, then I will give a general overview of the evolution of China’s role within this organization from the accession process until now, and lastly, I will explain how the issue of ‘dumping’ regarding US-China trade relations can be seen as an example of China’s evolving role within the WTO. Based on these three parts I will conclude this essay by arguing that China liberalized its markets in accordance to its accession agreement, while gradually increasing its influence within the WTO from 2008 until the present.

The WTO is the successor of the General Agreement on Tariffs and Trade (GATT), a legal agreement between states that promoted international trade by reducing tariffs and quotas. That agreementwas first signed in 1948 and evolved until the Uruguay negotiations of 1995. As a result of those negotiations the WTO was founded in 1995.

           WTO brought two big changes to the existing framework of GATT. The first and most important change was the addition of a legal framework which member states could use to enforce WTO-rules. The second addition was a large number of extra products, services, and Foreign Direct Investment which came under the protections of the new WTO free trade agreements. Due to these changes, the WTO has more influence on international trade and can better enforce the treaties signed by member states like China. The legal system of the organization is however slow en highly politicized and can therefor often bypassed by its members (Winham 2017).

           China’s interest in joining GATT/WTO started at the beginning of the 1980’s, shortly after former statesman Deng Xiaoping started to liberalize parts of the Chinese economy. The main reason for China to join the WTO was to stabilize market access and more importantly, to normalize trade relations with the US (Scott and Wilkinson 2017). In 1986 China became a candidate for joining GATT, but due to negotiation setbacks in 1989, 1991, and 1995 China only joined the – then formed – WTO in 2001 (Wang 2018).  As scholars Scott and Wilkinson state in their paper ‘China and the WTO,’ China’s role within the WTO can be divided in three phases: the accession phase, the early period from 2001-2008, and from 2008 until now
(Scott and Wilkinson 2017, and Wang 2017).

           The first phase was the accession process from 1986-2001. In contrast to other developing nations like Brazil, China had to agree to terms that previously only applied to developed nations. In some cases, China’s obligations to the WTO even went beyond those of developed nations, an example being the requirement to eliminate all agricultural export subsidies (Scott and Wilkinson 2017, and Wang 2017). These hard terms for entering the WTO can be explained by the rule that accession of new members needs to be unanimously approved by existing members of the WTO. The need to obtain this approval meant that China had to accept the extensive obligations (Lawrence 2008) Indeed, even president Clinton stated that only China had to make concessions to open its markets, while the US did not need to make any new market access commitments (Scott and Wilkinson 2017).

           China’s passive role within the WTO continued in the second phase when the country became a member state. As economist Lawrence concludes in ‘China and the Multilateral Trading System,’ China accepted and implemented the obligations of its accession. China used the WTO to develop its own institutions rather than to change the WTO itself (Lawrence 2008). In ‘Being in the WTO,’ Wang underlines this conclusion. He states that China revised 300 laws on national and 190,000 on local level in order to comply to the accession treaty. Furthermore, the country promoted the knowledge of the WTO rules among government officials and the general public. China’s Ministry of Foreign Trade and Economic Cooperation published readers on WTO rules and organized training and education to officials (Wang 2017).

           There were only two areas in which China stood out within the WTO: Taiwan and the Transitional Review Mechanism (TRM). Starting with the first, China wanted to downgrade Taiwan’s member status form ‘permanent mission’ to ‘office of permanent representative’. This stance can be explained by the issue of Taiwanese sovereignty ever since China’s civil war in the late 40’s. As for the second issue, China’s was opposed to the TRM – that was put in place to monitor the implementation of its accession agreement. The TRM brought foreign agents to China and reminded the state of the high price China had to pay for its membership (Scott and Wilkinson 2017).

           The financial crisis of 2008 marks the third phase of China’s role within the WTO. During this, crisis much of the developed world’s economy was in recession, while China’s economy continued to grow between 7%-10% each year until now.  This rise of the Chinese economy created suspicions of China’s intentions within the WTO, especially by the US. Was China going to use the institution to further its economic trading power at the expense of the US? To combat these fears, the US insisted on further Chinese concessions on liberalizing the economy. To defend its own economic interest, China became more assertive within the WTO, which only created more suspicion with other countries (Scott and Wilkinson 2017). Contrary to these worries, China actually relies on the multilateral trading system in order to protect its newly gained economic interest. Due to its reliance, China uses the WTO rulings to combat the rise of protectionism in the developed world (Wang 2017). The quote from president Trump at the beginning of this essay suggests that the US, not China, is the country that is undermining the WTO.

           The case of the dumping dispute between China and the US underlines this point. When China joined the WTO in 2001, the US was worried it would be possible for Chinese firms to circumvent US anti-dumping authorities. To combat these fears China had to agree to the non-market economy (NME) designation in anti-dumping investigations from 2001-2016. China’s NME status makes it possible the US anti-dumping authorities can enforce harsher criteria then would normally be allowed within WTO rules. Furthermore, WTO accession caused parts of the Chinese economy to liberalize, therefor making state-subsidized dumping less likely (Zeng and Liang 2010). An important nuance to this argument is that China’s NME status ended in 2016, making it possible that the US market is now less protected against dumping practices by Chinese firms.

The question asked in this essay was how China’s role in the WTO has evolved. I have answered this question in three parts. First, I introduced the WTO. The institute evolved from a treaty on trade to an organization with a legal framework that could enforce its rulings. Secondly, I explained China’s general evolving role within the WTO. Before its accession, China was forced to accept harsh terms for entering the WTO. From 2001 until 2008. the country mostly kept a low profile and tried to buildup knowledge and institutions in order to enhance economic growth. After the crisis of 2008, China became more assertive within the WTO in order to combat protectionist policies of developed countries. China is seemingly more interested in protecting the liberal trading system than the US. The dumping case study underlines this conclusion: entering the WTO forced China to liberalize its markets and to comply to comprehensive anti-dumping measures. Therefor I can conclude that Clinton was right in his assessment that China’s economy would liberalize due to its WTO membership. Ironically, it is the US who now undermines WTO rules. 

Bibliography

Primary sources:

Clinton, Bill. (2000) Clinton’s Speech on China Trade Bill (Baltimore; Federal News Service).

Micklethwait J., Talev, M., and Jacobs J. (2018) Trump Threatens to Pull U.S. Out of WTO If It Doesn’t ‘Shape Up’ (Bloomberg).

Secondary sources:

Lawrence, R. (2008) ‘China and the Multilateral Trading System’, in Eichengreen, B., Wyplosz, C. and Park, Y. (eds.) China, Asia, and the New World Economy (Oxford University Press).

Scott, J. and Wilkinson, R. (2017) ‘China and the WTO’ in Kennedy, S. (ed.) Global Governance and China: the Dragon’s Learning Curve (London: Routledge).

Wang, J. (2018) Slides_Seminar 4 China in the international trade system and its WTO membership (Leiden).

Wang, Y. (2017) ‘Being in the WTO: China’s Learning and Growing Confidence’ in Kennedy, S. (ed.) Global Governance and China: the Dragon’s Learning Curve (London: Routledge).

Winham, G. R. (2017) The Evolution of the Global Trade Regime in Ravenhill, J (ed.) Global Political Economy (Oxford University Press).

Zeng, Ka and Liang, Wei (2010) ‘US antidumping actions against China: the impact of China’s entry into the World Trade Organization’, Review of International Political Economy, 17:3, 562-588.


[1]     Clinton (2000).

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