China In WTO @ 20: Lessons For India And The World
Anniversaries are an occasion for reflection. On July 1, 2021, the Chinese Communist Party celebrates its 100th anniversary. On Dec. 11, 2021, the CCP marks 20 years of membership in the World Trade Organization.
Anniversaries are about more than the past. In China, India, and around the world, exporters, importers, direct and portfolio investors, business lawyers, and government officials know the past informs the present and augurs for the future. Reflecting on what’s happened helps astute professionals understand what’s happening, what’s likely to happen, and thus positions them for opportunity and insulates them against risk.
Mindful of these historic dates, what lessons should be learned from the past two decades of WTO membership of a country governed by a century-old Communist Party?
The answer – for both China’s internal political economy and the international trade law regime – is regrettable. So regrettable, in fact, the WTO might do well to pause further accessions.
No Triple Play
To be sure, whether one thinks it was right to admit China to the WTO, or premature, depends on what one thinks the point of accession and membership is.
Are they only about adherence to agreed-upon rules, manifest in the General Agreement on Tariffs and Trade and other WTO treaties, to liberalise trade and discipline protectionism? Or, are they about political economy development, too, i.e., matters not covered by the GATT-WTO rulebook?
Reasonable minds can differ. Some officials, probably including Chinese President Xi Jinping, incline to the first view. Others, possibly former Premier Zhu Rongji, who spearheaded China’s accession negotiations, incline to the second position.
But, reasonable minds cannot differ on two points.
First, American officials always put their faith in the proposition WTO membership would lead to a ‘triple play’, that is, three transformations: toward a market economy and political liberalisation in China, and toward responsible stakeholder behavior of China in the international arena.
That play has been anticipated since the Administration of President Bill Clinton, which negotiated the November 1999 bilateral agreement indispensable for China’s WTO accession. President Clinton intoned in March 2000 (emphasis added):
Supplementing President Clinton’s optimism that WTO membership would “move China in the right direction,” Martin Lee, Chairman of the Democratic Party of Hong Kong, said in November 1999 (emphasis original):
Also that month, Nicholas Lardy of the Brookings Institution forecast (emphasis added):
Second, the “if” clause in Mr. Lardy’s prognostication proved prescient.
The triple play hasn’t happened. China’s economy is at best a mixed one 44 years after Chairman Deng Xiaoping launched Special Economic Zones, its governance remains more illiberal than at any time since Chairman Mao Zedong died in 1976, and its international behavior is slammed as wolf-warrior diplomacy despite President Xi Jinping’s vows that China’s rise is peaceful and non-hegemonic.
The accession commitments China made were breathtaking. The enterprising, resilient Chinese people could “eat bitter,” suffering through the adjustment costs of opening their economy to import competition and foreign direct investment. Or so the narrative went.
The trouble started when China implemented some, but not all, of those WTO commitments, and WTO Plus issues arose.
China’s accession was based on promises – not a priori implementation into Chinese law, much less enforcement in Chinese markets.
U.S. multinational corporations seized on China as a production-export platform, closing factories in the American heartland, not merely because of lower labour costs, but also because China, as a WTO member, received GATT Article I most favored nation treatment from the rest of the membership.
U.S. financial institutions complained China hadn’t followed through on opening its banking markets.
Notwithstanding China’s efforts to establish new intellectual property courts, everyone cited China for disrespecting IP rules laid out in the WTO Agreement on Trade-Related Aspect of Intellectual Property Rights, plus complained about TRIPs Plus problems, such as forced technology transfer and cybertheft.
Many worried about Chinese currency manipulation.
During its WTO protocol accession negotiations, China insisted that any designation of it as a Non-Market Economy for trade remedy purposes must lapse on Dec. 11, 2016. But when in 2017 the U.S. Department of Commerce extended indefinitely the criteria designating China an NME, many governments and businesses around the world either cheered or acquiesced.
The Obama Administration tried legalism: sue China at the WTO, and surely it will reform its domestic trade rules. The Trump Administration realised adjudication is too slow an episodic way to change the Made in China 2025 industrial policy, privatise state-owned enterprises, and correct structural trade imbalances. Thus began a Trade War that now looks endless, yet was unimaginable 20 years ago.
That the above-quoted Martin Lee, Hong Kong’s “Father of Democracy”, was convicted of unlawful assembly for a peaceful August 2019 protest, is a metaphor for disappointed expectations concerning China’s internal governance. Sadly, there are more metaphors. There’s the…
First trial under Hong Kong’s draconian National Security Law, with Tong Ying-kit facing life imprisonment for allegedly secession and terrorism.
Closure of the last vestige of a free press anywhere in China, Apple Daily, and the jailing of its founder, Jimmy Lai.
Genocide (as per the assessments of the U.S., Canada, the Netherlands, and credible human rights NGOs) in Xinjiang.
Simply put, the CCP broke the causal link President Clinton drew between WTO commitments on telecommunications liberalisation and open public discourse.
It’s not that Messrs. Clinton, Lee, or Lardy, got the theory wrong. They stood on solid ground: Milton Freedman’s Capitalism and Freedom (1962) held economic freedom to be a precondition for political freedom, and F.A. Hayek’s The Road to Serfdom (1944) linked government central planning to tyranny. Rather, it’s that stacked against the Party, market reforms are necessary but not sufficient, to empower the individual against the state.
And, it’s not that they naïvely anticipated the exportation of American-style democracy to China through the WTO. The WTO is a politically pluralistic community. Its unity around core international trade law principles neither does nor should mean uniformity in the members’ internal constitutional governance. Rather, it’s that they should be forgiven for not foreseeing that the politics of the new member they championed would become radically distinct from other members, authoritarianism would veer toward totalitarianism in that new member, and the new member would dismiss all concerns about human dignity as sovereign internal matters.
Indubitably, China has contributed to the development of the common law of international trade through its participation in 256 WTO disputes (21 times as complainant, 46 as respondent, and 189 as a third party). Appellate Body Reports from cases in which China was a principal party contain holdings that set useful de facto precedents for the rest of the WTO membership. (See Table.) Indeed, China’s active participation – there have been 598 cases brought to the WTO since its birth on Jan. 1, 1995 – has been a positive example for developing and least developed countries to build trade law capacity and ‘lawyer up’.
Yet, many of those precedents came thanks to the Appellate Body rejecting Chinese arguments. Worse, China’s childish tit-for-tat litigation strategy undermined its integrity. American, European, and Japanese multinational corporations feared retaliation against their operations in China if they complained to their home country governments about GATT-WTO-inconsistent behaviour by Chinese authorities.
Emerged as one of the largest agricultural subsidising members, thus impeding a deal on Amber and Green Box farm subsidy disciplines (as both the U.S. and EU sought),
Refused to cut its tariffs on cotton imports, eliminate quotas, cease government intervention purchases, thus scuppering any chance of eliminating cotton subsidies (as the Cotton Four countries – Benin, Burkina Faso, Chad, and Mali – sought), and,
Insisted, along with India, on a developing-country only special safeguard mechanism (which developed countries could not accept).
One of the strongest arguments resonating in the European Union and United States against a TRIPS waiver for Covid-19 vaccines is that intellectual property, as well as knowhow, will fall into Chinese and Russian hands. That would facilitate, in those countries, the manufacture of not only these vaccines but also other pharmaceuticals, thus putting American and European companies at a competitive disadvantage. For these very reasons, plus reputational enhancement, China has an incentive to broker a TRIPS waiver. However, China’s questionable transparency on the origins of the coronavirus renders it an unlikely candidate to play that role of broker.
Additionally, China’s adjudicatory culture, in which courts are beholden to the CCP, makes it unlikely to shepherd a solution to the impasse over replacement candidates for the defunct Appellate Body, which previously enjoyed judicial independence from the other WTO organs and individual members.
Ominously, far beyond the polished corridors of the WTO’s headquarters in Geneva, China’s military-backed foreign economic policies have pushed the Biden Administration to take even stronger stances than the Trump Administration:
President Joe Biden’s June 3, 2021, Executive Order identifies not ‘Communist Chinese Military Companies’, but the entire ‘Chinese Military Industrial Complex’, potentially subjecting any entities linked to that Complex to de-listing from U.S. stock exchanges.
His June 9 Executive Order widens the strategy from ‘whack a mole’ with TikTok and WeChat to creating criteria to ban any Chinese (or other foreign) app that undermines data privacy and thereby threatens national security.
And, far beyond the White House, in every one of the (at least) 71 countries that signed up for China’s Belt and Road Initiative, questions are (or should be) asked about whether Chinese merchandise used for local infrastructure projects is illegally dumped or subsidised, whether Chinese financing is tantamount to debt bondage, and indeed whether the whole BRI scheme is theatre to placate the Chinese populace rather than generosity to serve the poor.
China’s record suggests WTO membership is a guarantee neither of internal political or economic transformation, nor of a new member playing a constructive role in global economic affairs. The same inference can be drawn for the accessions of Yemen and Afghanistan. Since they joined the club, in 2014 and 2016, respectively, both have devolved into humanitarian hells amidst seemingly unending conflict, contributing nothing to the WTO community.
Maybe it’s too much of an expectation that WTO membership would catalyse the triple play of internal economic and political reforms, and external statesmanship. Or, as baseball fans would know how special triple plays are, that’s exactly what should be hoped for from ‘big-league’ players. They stay minor leaguers until they’re sufficiently mature to hit, throw, and catch with the best.
The WTO rulebook is thick. Shall we expect it to be transformational, as in transforming members in their internal dispositions and external interactions? Still up for WTO accession are Algeria, Belarus, Ethiopia, Iran, Iraq, Lebanon, Libya, Somalia, and Syria. Who wants to buy a ticket to watch these minor leaguers promoted, and at what price to the quality of big-league play?
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.