Sunday, October 17, 2021

China Promises to Rescue WTO

Chinese officials are promising to rescue the global trading system as they celebrate the country's 20th year as a World Trade Organization (WTO) member. While China spent its early years in the WTO watching and learning, confident leaders now seem to be maneuvering toward a more proactive role as a leader of the organization. 

Last week a forum was held by China's agriculture ministry to discuss the country's agricultural development in the 20 years since it joined the WTO. Deputy Agriculture Minister Ma Youxiang emphasized that China's agriculture had "withstood" multiple tests of a global food crisis, world financial crisis, and the covid-19 pandemic. Ma went on to praise China's achievement of "stability," and insisted that China's agriculture has become more globally competitive. Ma added that China has also enhanced its ability to participate in food and agricultural governance, code for China's ambitions to take a more proactive role in international organizations and reshape trade rules, food standards, and food aid. Ma suggested that China should now continue pushing WTO agricultural reform negotiations, promote bilateral, regional and multilateral trade negotiations, and spur exploration of innovative approaches to promoting agricultural trade.

The broad theme of China's leadership in global trade was launched in March by Foreign Minister Wang Yi's remarks on four "lessons" from 20 years as a WTO member. Foreign Minister Wang insisted that China must remain an open economy to build on its achievements in foreign trade, and stick to a win-win approach to trade and globalization. Wang said China must not respond to challenges by withdrawing into protectionism or by decoupling. He praised the WTO as the the "cornerstone" of international trade and a "pillar" of global economic growth. Wang announced  China's willingness to work with all countries to continuously improve the multilateral trading system and to enhance the effectiveness and authority of the WTO.

Yi Xiaojun, who recently stepped down from a term as WTO deputy director general, remarked at a May forum on the 20th anniversary of WTO membership that China's reform and opening was the best choice for resolving many contradictions the country faces in the international arena today. Yi claimed that, "China, the U.S. and Europe are roughly the same in terms of abiding by the rules and fulfilling their promises." Long Yongtu, lead negotiator for China's WTO accession, asserted that China's membership had changed the WTO's pattern and direction, and he claimed the United States was one of the biggest beneficiaries. Long added, "China has not lost its commitment to a socialist market economy, nor has it lost [its vision for] opening up developing countries." 

Lead negotiator for WTO accession, Long Yongtu, and former WTO deputy director general, Yi Xiaojun,
praised China's WTO membership at an August 2021 forum. Source:

In August, Deputy Commerce Minister and trade negotiator Wang Shouwen suggested that China could rescue the WTO from its current "predicament." Again citing the 20th anniversary of China's membership, Wang Shouwen warned that the WTO system's "effectiveness and authority" had been undermined by paralysis of the appellate body and politicization of trade issues by "individual countries" who adopt "unilateral and protectionist practices." Wang cited examples of China's contribution to a trade facilitation initiative at the 2013 Bali ministerial, support of an agreement to end agricultural export subsidies at the 2015 Nairobi, and participation in negotiations on investment, e-commerce, and small and medium enterprises. 

Wang Shouwen promised that China would form a "new development pattern" to promote "high-level opening to the outside world." China has high hopes for strengthening WTO’s effectiveness and authority through progress on fishing subsidies, trade and health, appellate body reform, trade in services, facilitation of foreign investment, and e-commerce, Wang said. He added standard talking points that China is willing to work with all countries to promote economic globalization in an "open, inclusive, inclusive, balanced, and win-win direction."

Last week a Tsinghua University scholar explained that China's "opening" process is moving in historical stages. A "progressive advancement" stage began in 1979 with establishment of "special economic zones," reduction of tariffs, elimination of quotas and import licensing, a "go west" campaign to filter benefits of trade to western provinces, and membership in the WTO in 2001. His muddled explanation culminated in a stage of "systemic reform" adopted in 2018 to reform rules, regulations, management, and standards to promote openness [seems like this was supposed to happen with WTO membership]. Interestingly, the professor revives the "decisive role of the market in resource allocation" slogan adopted when Xi Jinping ascended to leadership in 2012 that later went missing.

The talking points emphasize that China's "national features" of "win-win" trade and a fair trading environment for developing countries influence its unique approach to reshaping the multilateral trading system. However, a concerning "Chinese feature" is its tendency to cynically take WTO-approved measures meant to liberalize trade and repurpose them as release valves that can be opened or shut to adjust the volume of imports as a market stabilizer. Chinese academic and government writings refer to this function with the oblique Chinese term "调空" but never define it. 

For example, when China joined WTO it agreed to adopt tariff rate quotas (TRQs) for grains, cotton, and sugar. TRQs are a complex mechanism invented by trade reformers in the 1990s to pry open agricultural markets sealed off by quotas, licensing and other nontariff barriers. However, Chinese officials view TRQs as a valve they can open or close at their discretion to protect domestic markets or supplement domestic supplies. In 2014, an earlier Chinese vice minister of agriculture told Farmers Daily that China opposed a WTO initiative to demand transparency in TRQ management and penalize countries that never filled their TRQs. The Chinese official explained that TRQs were one of the few tools China could use to limit imports and protect its markets from global fluctuations. Government and academic authors in China continued to describe TRQs in this manner until the United States brought a WTO case challenging China's opaque administration of its grain TRQs. The legal exchanges in the case forced China to reveal that its officials had routinely turned over most of the wheat and corn import quotas to a state-trading enterprise that was not subject to the same tedious requirements imposed on private companies that applied for a piece of the quota. China claims to have corrected this, but has not explained what was done.

China agreed to set biosafety and food safety measures on the basis of scientific evidence and risk analysis. However, behind the scenes Chinese officials also advocated use of these measures as valves to control the flow of imported commodities. For example, instead of setting a percentage tolerance that would pose an insignificant risk, China demands a zero tolerance of unapproved genetically modified material in corn shipments. In late November 2013, Chinese customs inspectors suddenly began rejecting every single shipment of U.S. corn because they claimed to have found traces of an unapproved corn variety that was planted on about 5 percent of U.S. corn acres that year. The rejections continued until China magically approved the corn variety a year later. 

In 2020, China decided to strictly enforce one of its many food safety requirements for Australian beef to punish Australia for demanding an investigation of the covid-19 pandemic's origins. While expressing great concern about the risks posed by Australian beef, inspectors gloss over the higher risks posed by its own beef. Last week China's top livestock official said Chinese beef producers need to be warned against the serious consequences of using "illegal additives" [i.e., growth promoters, hormones, and sub-therapeutic antibiotics], and he implied workers in the Chinese beef industry are at risk of infection from cattle diseases like brucellosis and tuberculosis that need more stringent controls in the country.

Unspoken in these public forums are China's concerns about reducing vulnerability to U.S. food embargoes; possible chokepoints in the Malacca Straits, Suez and Panama Canals; uneven regional development due to dominance of Pacific Ocean trade; and perceived U.S. dominance of the WTO and other international organizations. 

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