China in the World Trade Organization Julieta Zelicovich National University of Rosario Edited by Chris Shei and Mariano Treacy Abstract China became a member of the World Trade Organization (WTO) in 2001, after a 15-year-long negotiation. Due to its accession commitments, it opened-up its economy, lowering its tariff rates and reforming the legal framework of its economy, with notorious effects over its trade performance. While during the first years it kept a low-profile in the organisation, after 2008 it started to gain attention and to become more involved in the multilateral negotiations, the Dispute Settlement Mechanism, and the institutional dynamics. Although it developed an active diplomacy in support of the multilateral trade system, many characteristics of China’s involvement in the WTO have been deemed as a challenge for this organisation. On the one hand, China’s particular economic model raised distress among those expecting a convergence to a liberal-economy after its accession to the WTO. On the other hand, the size of its market share combined with the defence that this country has made of its self-proclaimed ‘developing country’ status, has provoked doubts about the effectiveness and fairness of the WTO. China’s participation in the WTO has changed the status quo, and aroused multiple concerns. This has in turn fostered the debate on WTO reform. While those who focus on the adaptation of China to the WTO resort to the preponderance of convergence narratives and claim better tools to achieve it, those who suggest adapting the WTO to China put the accent on the idea of coexistence among diversity and on the caveats and warranties that this requires. Keywords: China; Economic model; Global governance; Multilateral trade system; Special and differential treatment; Trade rules; World Trade Organization; WTO accession DOI: 10.4324/9780367565152-RECHS55-1 2 China in the World Trade Organization 1 Introduction In December 2001, China became the 143th member of the World Trade Organization (WTO). In less than two decades, it has become the largest member of the organisation and, for many, the biggest challenge for global trade governance. By 2021, China accounted for 14.7 per cent of world total merchandise exports and 11.54 per cent of world total merchandise imports, surpassing the United States and the European Union, and ranking in 4th place in commercial services. China is defined as an ‘active Member of the WTO’ (Trade Policy Review Body 2021b: 11); it is an observer to the Committee on Government Procurement, and has been negotiating its accession to the Plurilateral Agreement on Government Procurement since 2007. China is also an observer to the Plurilateral Agreement on Trade in Civil Aircraft, and a participant in the Information Technology Agreement. It also participates in Joint Statement Initiatives on e-Commerce; investment facilitation for development; micro, small, and medium-sized enterprises; and domestic regulation in services. However, due to its model of state capitalism or socialist market economy, and the size of its market, it has been deemed as a challenge to the World Trade Organization. 2 China’s accession to the WTO China was one of the founding signers of the General Agreement on Tariffs and Trade (GATT) in 1947 but it resigned after the Revolution of 1949. In 1978 China began a process of reform and opening up, and 8 years after that decision, in July 1986, China submitted its application to resume its status as a GATT contracting party. Both economic and political issues conditioned the accession negotiations. On the one hand, China was a planned economy with heavy intervention of the state and no tradition in the ‘rule of law’ – referring to general characteristics of the sources and form of the legal order (Du and Kong 2020). On the other hand, political events, such as the Tiananmen Square demonstration and NATO’s bombing of the Chinese embassy in Belgrade, altered the dynamics of the negotiations (Feng 2006). As a result, after a 15-year-long negotiation, China made large commitments in its accession to the WTO, which led to the creation and adjustment of more than 3,000 laws and regulations (Du and Kong 2020). The negotiations were carried out on the basis of the ‘special and unusual characteristics of the Chinese economy and its market size’ (Hu 2019: 8). China agreed to reduce import tariffs and to eliminate restrictions on imports by 2005. It further agreed to eliminate state monopolies on imports and exports, to open its economy to competition, and to overhaul its laws, regulations, procedures, and administrative and judicial institutions across all levels of government. It made commitments to reinforce the protection of intellectual property rights and to enhance the rule of law (Shaffer and Gao 2021; GarcíaHerrero 2021). As part of the agreement with the United States, China’s Protocol of Accession labeled the country as a ‘non-market economy’. By this measure, a special condition was established in the Anti-Dumping Agreement, by which the importing WTO Member may use an ad-hoc methodology for comparing prices and determining dumping for period of 15 years (see article 15, paragraph a. ii of the Protocol). In this process, China enlarged its governmental agencies to deal with the new framework, and at the same time fostered a network of domestic trade law capacities (Shaffer and Gao 2021), with MOFCOM (Ministry of Commerce) being the key agency dealing with WTO regulations in China. On the whole, China’s WTO membership has been deemed to have DOI: 10.4324/9780367565152-RECHS55-1 China in the World Trade Organization 3 played a positive role in advancing the rule of law in China (Du and Kong 2020). The accession to WTO was a central part of a larger process of domestic reforms, ‘a larger strategy of massive and fundamental economic and socio-legal reform in China’ (Du and Kong 2020: 8). In addition, it had a lock-in effect, by ‘allowing reformers to cite international agreements as a way of countering domestic anti-reform political pressures, and made China’s opening up policy and export-orientation strategy more irreversible’ (Hopewell 2016: 132). By its twentieth anniversary of accession, China claims to have ‘fully implemented all of its World Trade Organization commitments’ (Zhihua 2021: 1). According to the WTO database, China’s simple average most-favoured nation (MFN) applied tariff rate was 7.1 per cent in 2021, lower than most developing countries (whose average MFN applied tariff rate was 9.31 per cent). It had opened up its economy and embraced the WTO agreements. Nevertheless, it did not become a market-economy, as was the expectation of many American functionaries (United States Trade Representative 2021). On the contrary, China remained ‘a mixture of a planned and market economy’ (García-Herrero 2021). The WTO was not a suitable tool for promoting the convergence to a liberal economic model, but as Rodrik (2018) suggested ‘there is no good reason for national economic models to converge in the first place’. This remains one of the main tensions in the debates over China and its WTO membership. Yet, it has to be said that WTO members have not defined what a marketeconomy means and whether it is a condition or even a goal of WTO membership. However, the rise of China has made the status quo on this issue uncomfortable for some members. 3 A process of gaining attention China in now an essential part of trade multilateralism, actively engaged in supporting ‘a rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system’ (Trade Policy Review Body 2021a: 14). However, it wasn’t always the protagonist of this Geneva-based organisation. China has gained attention through the years. This process relates to the creation of domestic capacities to deal with the WTO, the launching of a more proactive foreign policy, and the fast rate of growth in global markets, something which has caught others attention. 3.1 Negotiations As regards the multilateral negotiations, in two decades China has moved from a low-profile negotiator to one actively engaged diplomacy. Immediately after China’s accession, the negotiations at the WTO centred on the Doha Round Agenda. In this initial period, China remained at the margins, arguing that it had already taken large market access commitments in its Accession Protocol. In 2003 China joined the G-20 group, but left the leadership role to Brazil and India (Shaffer and Gao 2021). Only on very specific issues, such as anti-dumping, did it take a more offensive role; and even in those cases, China opted for a coalition strategy with other developing countries (Hopewell 2016). As China’s economy grew, it started to gain attention and was invited to join the miniministerial groups and the G5, G6, and G7 meetings, where the larger countries bargained over the tougher issues. This reflected the changes in world power distribution due to the increasing leverage of emerging powers. China claims to have submitted or co-sponsored more than 100 negotiation proposals in the Doha Round (The State Council Information Office of the People’s Republic of China 2018). The result however was a stalemate in the DOI: 10.4324/9780367565152-RECHS55-1 4 China in the World Trade Organization negotiations and, finally, the Doha Round Agenda blockade, with the only outcome being the Trade Facilitation Agreement in 2013. In the second decade the scenario began to change. According to Scott and Wilkinson (2022), this was due both to the issues that dominated the WTO ‘post-Doha’ dynamics and also because of the greater involvement of China in global governance. China gained prominence in areas such as e-Commerce; investment facilitation for development; micro, small, and medium-sized enterprises; and domestic regulation in services. It has also been an engaged negotiator in fisheries subsidies regulations, and in more systemic issues such as WTO reform. Some other new topics that China wants to prioritise in WTO negotiations were introduced in a communication in 2019: the regulation of the National Security Exception, the provisions regarding the Aggregated Measurement of Support in agriculture, and the improvement of WTO rules on subsidies, countervailing measures, and anti-dumping measures (Government of China 2019). However, with all these issues, China stands in a sort of Gordian knot as, on the one hand, it wants to advance trade regulation while protecting its policy space as a developing country; and, on the other hand, it faces the demands of the United States, European Union, and other countries that claim that China has to accept larger commitments in trade negotiations, according to the power it has in trade markets. 3.2 Litigation On a similar trajectory to multilateral negotiations, in the WTO dispute settlement system, China started passively and then became an active user of the system. During the first years, China avoided WTO litigation, but after the China-Auto parts case of 2006 ‘China no longer favored settling claims over litigating them, but instead strove to raise strong defenses in almost every case though substantive and procedural arguments’ (Shaffer and Gao 2021: 136). During the 20 years since its accession, China has initiated 22 cases within the Dispute Settlement Mechanism (against the United States, the European Union, and, more recently, Australia); it has been the respondent to 48 cases; and has been involved as a third party in 192 cases. In those cases in which the panels led to recommendations that require a policy adjustment or removal, China has a good compliance record (Scott and Wilkinson 2022). However, there are claims that this is not a substantive compliance but a ‘paper compliance’: ‘Where China loses a case, it formally complies, but it does so to a minimal extent in ways that continue to deny market access and pose no threat to its broader policies’ (Shaffer and Gao 2021: 215). Amid paralysis of the WTO Appellate Body, China has tried to boost the multilateral trade system. On the one hand, it has developed a series of diplomatic actions to condemn the blockade and pushed for its restoration. On the other hand, it has supported the European Union initiative of a Multi-Party Interim Appeal Arbitration Arrangement (MPIA). In addition, China claims to have ‘actively participated in the negotiations on improving the Understanding on Rules and Procedures Governing the Settlement of Disputes and supports the independence and impartiality of the WTO Appellate Body’ (The State Council Information Office of the People’s Republic of China 2018). 3.3 Institutional involvement China has also developed an active institutional diplomacy at the WTO, which could suggest its ambition of leadership inside the organisation. In 2011 China and the WTO signed a DOI: 10.4324/9780367565152-RECHS55-1 China in the World Trade Organization 5 Memorandum of Understanding by which they created China’s Least Developed Countries (LDCs) and Accessions Programme (the ‘China Programme’). This Programme aims to strengthen LDCs’ participation in the WTO and to assist acceding governments in joining the WTO. By the end of 2020, China’s contribution amounted to a total of USD 4.2 million. In addition, China has supported many projects such as the Trade and Health initiative, as well as other projects regarding the Aid for Trade initiative. For example, in 2018 China agreed to provide a series of extra-budgetary contributions to strengthen WTO capacities and ‘help developing countries, particularly LDCs, better integrate into the multilateral trading system and enhance their capability to benefit from the development of global value chains, and promote the achievement of the United Nations 2030 Agenda for Sustainable Development’ (Committee on Budget, Finance and Administration 2018). This is a multiyear commitment of funds from China’s USD 500 million South–South Cooperation Assistance Fund (SSCAF) that was made available to the WTO by the Government of China. China has undergone eight trade policy review processes, and claims to have accomplished its notification obligations, having informed 79 subsidy programmes at the central level and 420 at the sub-central level (Trade Policy Review Body 2021a). 4 China’s challenge to the multilateral trade system Although complying with its obligations to the WTO, China has become a challenging actor in the multilateral trade system. With the size of its market and its fast expansion, it has changed the balance of global trade. In addition, it has made strategic use of the policy space left by the existing rules, prompting its own development model away from the expectations of convergence with the western liberal economies. The following sections discuss the salient issues in this challenge. 4.1 The world’s largest developing country. China refers to itself as the ‘world’s largest developing country’, and defends the relevance of Special and Differential Treatment for developing countries (China included) (General Council 2019). At the same time, it maintains that it ‘has lived up to its responsibility as a major country’ (The State Council Information Office of the People’s Republic of China 2018). In contrast, the United States claims that China needs to make more ambitious commitments, and that its self-proclaimed development status has become an obstacle in trade negotiations (Office of the United States Trade Representative 2017; Zelicovich 2021). This counterpoint has had deep implications in the trade negotiations dynamics and is one of the key components of the WTO crisis. China has actively sought to avoid differentiation and secure the same level of special and differential treatment afforded to other developing countries (Hopewell 2016). At the same time, it is true that it has taken greater commitments than the average developing countries: for example, its tariff rates are similar to those of the developed countries, and in agricultural products they are ‘about one fourth of the global average and far lower than those imposed by the WTO’s developing members (56 percent) and developed members (39 percent)’ (The State Council Information Office of the People’s Republic of China 2018). In the Trade Facilitation Agreement, China implemented 94.5 per cent of all the provisions as Category A provisions and has no Category C commitments. DOI: 10.4324/9780367565152-RECHS55-1 6 China in the World Trade Organization As stated by Alan Wolff (2021: 5), ‘this position [on the special and differential treatment] may have more political than substantive importance, as China also states that it will accept obligations commensurate with its capacity’. 4.2 Subsidies and China’s particular economic model In a 2016 paper, Mark Wu suggested that China’s distinctive economic structure and economic model –named ‘China, Inc.’ – was the real challenge to the WTO. In particular, he argues that the combination of state intervention, private enterprises, and economic interventions through the Chinese Communist Party’s active role in the management of state-owned enterprises, creates special situations that fall outside the scope of WTO’s jurisdiction (Wu 2016). For some countries, such as United States, Japan, and the European Union, these situations are deemed to ‘impose substantial costs on WTO members’ (United States Trade Representative 2021). Of concern is not only the amount of subsidies but also its transparency and the quality of this intervention in the economic dynamics, and the effects that produces in global markets. According to the 2021 Trade Policy Review, China provided incentives and financial support to different sectors and industries; and not all of them had been notified to the WTO. It states that so-called ‘government guidance funds’ use public resources to make equity investments in industries that the Government considers important, while numerous policy-related funds finance direct investments to support a particular policy initiative. … According to the authorities, the incentives provided by these funds do not constitute subsidies and are not required to be notified under the Agreement on Subsidies and Countervailing Measures (SCM Agreement). (Trade Policy Review Body 2021b) The expenditure levels of critical sectors such as aluminium, electric vehicles, glass, shipbuilding, semiconductors, or steel remain unknown. In addition, China became the world’s largest subsidiser in agriculture and ‘a major barrier to establishing stricter global trade rules on agricultural subsidies’ (Hopewell 2021). In fisheries subsidies China is a large player too, although it claims to have adjusted its policies in line with WTO negotiations (Trade Policy Review Body 2021a). On the whole, this point leads to the discussion on whether the WTO is aimed at the convergence of the economic models, or if is not a topic where the WTO has jurisdiction. China and the United States have been involved in a debate on this topic at the 2019 and beginning of 2020 General Council meetings (Zelicovich 2021). Both international politics and academia remained divided on this question. 5 China and the WTO reform China has pushed forward the WTO reform and the defence of the multilateral trade system. In this process China has developed not only defensive positions – as many of the proposals being discussed deal with the so-called ‘China challenges’ – but also an agenda of its own demands, priorities, and preferences. DOI: 10.4324/9780367565152-RECHS55-1 China in the World Trade Organization 7 In November 2018, the Chinese Government issued China’s Position Paper on WTO Reform, which outlined three basic principles and five suggestions. The three basic principles were the preservation of the core value of the multilateral trading system (including non-discrimination, openness, and predictability); the safeguard of the development interests of developing members; and the adherence to the practice of decision-making by consensus. The five suggestions were that the reform should uphold the primacy of the multilateral trading system; it should address the existential problems faced by the WTO; and also address the imbalance of trade rules and respond to the latest developments of the time. In addition, the reform should safeguard the special and differential treatment for developing members and it should respect members’ development models. Among China’s priorities are the restitution of the Appellate Body, the limitation to unilateralism and protectionism, the regulation of agricultural subsidies and public stockholdings, and the improvement of anti-dumping rules, as well as the inclusion of new issues (Trade Policy Review Body 2021a). Along this process, China has become a rule-maker rather than a rule-taker or a ruleshaker. In addition, it has complemented this multilateral diplomacy with the celebration of several free trade agreements, the Regional Comprehensive Economic Partnership Agreement (RCEP) being the most notable. Although not fully multilateral, these agreements recognise many of the WTO commitments and contribute to the expansion of a rules-based trade system. 6 Conclusion China has become a central actor in the multilateral trade system and a strong supporter of the WTO. While adjusting its policies to the legal commitments acquired in the Protocol of Accession, it has also developed a new set of economic tools to take advantage of the policy space left and the loopholes in WTO regulation, challenging the existing structure. It has been successful in expanding its participation in global trade, but in that process it has changed the distribution of global power and provoked imbalances in international markets. While the preponderance of the convergence narratives suggest adapting China to the WTO (and the tools to achieve it), adapting the WTO to China may imply, on the contrary, an expansion of the idea of coexistence among diversity (with the required caveats and warranties). What seems undeniable is that it is not possible to think of the WTO without China, and vice versa. References and further reading Committee on Budget, Finance and Administration (2018) ‘Agreement on Economic and Technical Cooperation Between the Government of the People’s Republic of China and the World Trade Organization’, WT/BFA/W/ 446/Rev.2. Available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/BFA/W446R2. pdf&Open=True. Du, M., and Kong, Q. (2020) ‘Explaining the Limits of WTO in Shaping the Rule of Law in China’, Journal of International Economic Law 23(4): 885–905. Feng, H. (2006). The Politics of China’s Accession to the World Trade Organization, New York: Routledge. García-Herrero, A. (2021). ‘The Elephant in the Room of WTO Reform: China’, CESifo Forum 22(2): 22–29. General Council. (2019) ‘The Continued Relevance of Special and Differential Treatment in Favour of Developing Members to Promote Development and Ensure Inclusiveness’, WT/GC/W/T65/Rev.2. Available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/GC/W765R2.pdf&Open=True. DOI: 10.4324/9780367565152-RECHS55-1 8 China in the World Trade Organization Government of China (2019) ‘China’s Proposal on WTO Reform. Communication from China’. Available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?CatalogueIdList=254127&CurrentCata logueIdIndex=0. Hopewell, K. (2016) Breaking the WTO. How Emerging Powers Disrupted the Neoliberal Project, Stanford, CA: Stanford University Press. Hopewell, K. (2021) ‘Heroes of the Developing World? Emerging Powers in WTO Agriculture Negotiations and Dispute Settlement’, The Journal of Peasant Studies 49(3): 561–584. doi:10.1080/03066150.2021.1873292. Hu, W. (2019) China as a WTO Developing Member, Is It a Problem?, Brussels: CEPS. Office of the United States Trade Representative (2017) ‘Opening Plenary Statement of USTR Robert Lighthizer at the WTO Ministerial Conference’. Available at: https://ustr.gov/about-us/policy-offices/p ress-office/press-releases/2017/december/opening-plenary-statement-ustr. Rodrik, D. (2018, 5 August) ‘The WTO has Become Dysfunctional’, Financial Times. https://www.ft.com/ content/c2beedfe-964d-11e8-95f8-8640db9060a7. Scott, J., and Wilkinson, R. (2022) ‘China and the WTO, Redux: Maxing Sense of Two Decades of Membership’, Journal of World Trade 56(1): 87–110. Shaffer, G., with Gao, H. (2021) ‘How China Took on the United States and Europe at the WTO’, in Shaffer, G., Emerging Powers and the World Trading System: The Past and Future of International Economic Law, Cambridge: Cambridge University Press, pp. 174–221. The State Council Information Office of the People’s Republic of China (2018) ‘China and The World Trade Organization’. Available at: http://english.www.gov.cn/archive/white_paper/2018/06/28/content_281476201898696. htm. Trade Policy Review Body (2021a) ‘Trade Policy Review of China. 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