Is China Having Regrets About WTO Accession?

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I’ve been on the lookout for more reaction to last week’s WTO appellate decision on the raw materials case, which China lost (for the most part). I mentioned a few days ago with respect to rare earths that while some foreign enterprises may benefit from this WTO precedent, in the long term it may not matter since China is ultimately in control of production.

I expected to find the usual parsing of the ruling by academics sympathetic to China’s arguments. There were also the usual formal statements issued by the affected government agencies. And although I was not surprised to see an editorial in the Global Times (often dismissed by some Western commentators as a bit too close to the government) expressing outrage at the ruling, the broad-based attack on the WTO in that Op/Ed went much further than I expected. If the position laid out in the editorial reflects even a significant minority opinion within the government, it worries me.

Countries always complain about multilateral organizations, particularly when they are on the losing end of a dispute. Ordinarily, therefore, I’d disregard this kind of thing. But let’s have a look at some of the arguments here so I can explain why I think this is quite different:

A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China’s resource preservation and environmental protection efforts.

As an aside, I find the use of “Chinese” instead of “China” odd, although this might be, for all I know, standard usage at GT or is a product of writing by a non-native speaker of English. Of course, the government here would like nothing more than to represent the interests of ethnic Chinese everywhere, but that’s a bit of a stretch, and the specific WTO ruling at issue only applied to a policy of the PRC. Anyway, minor point.

As I wrote about last week, the environmental and preservation issues, which China used as a main argument in its defense, are certainly legitimate issues. However, since China can control production, it can also therefore contain both environmental effects and conservation. In other words, the WTO ruling does not stop China from doing those things, it just says that in doing so, the country may not discriminate in violation of WTO rules.

I’m not surprised that the author of this opinion piece doesn’t mention this reality (it basically neutralizes the entire Op/Ed), but I thought I should say so at the outset.

But let’s move on from this case to the main issue: the WTO itself and China’s relationship with that body. This area of criticism is the main subject of the article.

China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.

Some may beg to differ, but I agree with that first sentence. China has indeed, with some notable exceptions, been following most of the rules. However, things take a turn for the weird, and the nationalistic, after that sentence.

It sounds quite reasonable to assert that nations must balance the application of WTO rules and national interests. But wait. Isn’t that just another way of saying that a nation should only follow the rules it promised to abide by when it joined the organization when it suits them? That’s a serious problem. If everyone did that, the organization would be a joke. (Although I disagree, some critics believe the WTO is indeed a joke because of its enforcement system.)

The balance between giving up a bit of national sovereignty and obtaining trade benefits was a calculation that China made when it joined WTO. Such a discussion has no place with subsequent policy making, except perhaps in extremely rare instances (and WTO law usually provides sufficient exceptions for those eventualities).

Even more troubling is the final sentence of that paragraph, suggesting that WTO compliance is tantamount to seeking approval from the West. Yikes. This is a scary frame of mind.

On one level, complaints about WTO and accession promises are common with both China and other WTO member states. Protectionists in the U.S., for example, constantly rail against the WTO (and other multilateral agreements, like NAFTA) and globalization as a bad deal for the nation, for workers, etc. So some of this is par for the course, simple sour grapes in the wake of an unfavorable decision:

Admittedly, joining the WTO has boosted China’s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling.

Many would say that China has benefited more from WTO/GATT in recent years than anyone. But nothing’s perfect, and the basic complaints are understandable, just not reasonable. Of course China had to negotiate and accept certain unfavorable terms to get into WTO. That’s what a negotiation is all about. And if China’s economy had been limping along for the past decade along with a trade deficit, then this entire argument might make some sense. But really, it doesn’t help, after a decade of annual double-digit growth, to whine about the process.

But back to the scary part. Is the WTO a binding contract or isn’t it? Here’s more language suggesting the latter:

Due to unfamiliarity with the WTO system, and worries of Western media censure, China has often opted to follow WTO rules.

Wow. Are you seeing what I’m reading? The suggestion here is that China wasn’t following the rules because it had promised to do so, but because of unfamiliarity with the system and fear of a backlash!

Unfortunately, you can see where this argument leads. If those two things were the only things holding China back from WTO violations, then an increasing familiarity with the system, which China no doubt now has after a decade, should lead to more and more trade violations, which the author(s) apparently believes is perfectly acceptable.

And make no mistake, this is exactly what the Op/Ed is calling for:

China can consider putting up market barriers in response to the ruling. The intention is certainly not to disrupt the WTO system, but at the same time, there is no need for China to be a model member. Conflict and compromise are part and parcel of the global trade mechanism. Every country seeks to maximize its benefits, and self-imposed sacrifices will not bring any gratitude.

It’s simply bizarre that anyone would call for even more illegal behavior (i.e. putting up market barriers) in the face of a negative WTO ruling. But the rest of the paragraph is much more troubling. China doesn’t need to be a “model member”? As every nation is the world breaks trade laws now and again, I’m not sure who qualifies as a model member. Flouting the rules should be a rare exception, though, and not something to be proud of.

(By the way, since when is the international trading system all about disputes? That bit about “conflict and compromise” sounds vaguely Marxist. Was the author’s educational training unconsciously bleeding through there?)

Look, there certainly are self-imposed sacrifices in the world trading system. China agreed to certain things when it joined WTO, deciding at the time that the advantages outweighed those drawbacks. That decision was a huge success no matter how one looks at the math.

If China no longer thinks that WTO membership is worth the sacrifices, it can quit. The same goes for the anti-globalization crowd in the U.S. and elsewhere. But if it decides that it enjoys the benefits, then it cannot merely pick and choose what rules it feels like following.

Why does this Op/Ed bother me more than the usual protectionist blather? Because it’s different. Usually when China, or the U.S. (or any WTO member) breaks the rules, it says: 1) we didn’t think we were breaking the rules; and 2) now that WTO has said we were wrong, we will remedy the situation.

This Op/Ed not only says that China should not feel obligated to follow WTO rules, but that such activity should increase over time. Not a happy vision of the future of international trade, folks.

I really hope that this line of thinking is not shared by many in Beijing.

11 responses on “Is China Having Regrets About WTO Accession?

  1. Quigley

    Did you see some of the very disturbing comments posted on the disturbing Global Times editorial?

    For example, Imperial Dragon wrote “… [The WTO’s] ultimate goal is to enslave Chinese to make white people stronger and stronger in the world.”

    Or, bingding69, who said “WTO is a whiteman club first and foremost.”

    Or, Zhui Di, “Beijing, please do what the citizens of the world expect of you : Ignore the ruling. Do not become timid again like the way you conduct your foolish foreign policies. …”

    Do you have any sense as to what extent this line of thinking is shared by the Chinese government (Op/Ed) and Chinese public (comments)? I am still not clear to what extent these Op/Eds are crafted/directed/edited/blessed by the government, and to what extent the newspaper is given latitude to express views that may be considerably more more hard-line than official government positions. Do you think the people leaving the comments are paid government lackeys or real ie independent Chinese citizens?

  2. S.K. Cheung

    The degree of unease with which one reacts to this GT piece will depend on where on the spectrum one places it insofar as CCP mouthpieces go. Is it a parrot for CCP policy? Does it represent the prevailing viewpoint of an extreme faction of the Party? Is it there to float trial balloons? Or are they just there to stoke some nationalistic fires by waving a few pompoms around?

    But I agree. China can’t have it both ways. If she thinks the WTO is cramping her style, she can up and leave. And if she’s going to stay, then she needs to put up and shut up, and take her medicine like everyone else. I think the GT trends towards the last of those 4 options above, so this to me is just more hot air from an editorial panel where this commodity is in over-supply.

  3. D

    This is akin to a man marrying a woman, and then cheating on the new wife because he relinquished promiscuity to get married.

    My own conspiracy (I have yet to see anyone else make this connection) theory:
    Go back 11+ years to when China was voted into the WTO and you will remember the utter joy in China to getting into the club. However, also go back to that time and read the commentary in both China and the West and you will see 99% of people did not think China would be voted in for maybe a few more years. The US was holding its vote back. And my conspiratorial idea has always been that the US allowed China in as partial payment for bombing the Chinese embassy in Belgrade. I’ll bet post-Belgrade the Chinese ambassador told Clinton that the best way to alleviate the bombing problems was to vote China into the WTO. And if you read the pinglun (commentary) from the People’s Daily between the period of the bombing and the WTO vote you can read between the lines that this was perhaps happening.

  4. Chris Devonshire-Ellis

    Well the rare earths production is being taken up by Mongolia, so China is being cut out of the global supply chain equation anyway. As for regrets, I’d say a few, but far too few to mention. WTO transformed the Chinese – and global economy. I’d go as far to say that the sudden impact of cheap Chinese goods on the American economy and the impact of cheap credit that helped bring in was partly responsible for the GFC, but that’s just me. Has WTO been good for China? Undoubtably. Its been even better for the US. – CDE

    1. Stan Post author

      Which nation has benefited more? That’s a very interesting question, a complicated one too. Even more difficult when you factor in sector variability, workers vs. investors, and so on. Someone should write a book.

  5. Chris

    GT is such a joy to read. It would be a mistake to read the GT as a “mouthpiece” of the Chinese government. It is a nationalist newspaper with a particular set of viewpoints. The Chinese edition is significantly better than the English version and broadly looks at a set of foreign, non-mainstreams views of China and its position in the world. The English version is rather sad, though it does employ a range of expatriate editors who are appropriately kept to minor editing roles as befits them in the GT worldview. GT is not simply a “happy, happy” mouthpiece (as is say China Daily) but also takes critical views of China and the Chinese Govt from a nationalist perspective. It’s nationalism is of the robust but not-yet-fascist variety similar to many rightist US publications. Nothing to worry about yet.

    1. Rogier C.

      Still, the question is, in whose interest is it that these things are published? You are right in saying that we shouldn’t equate the Global Times with the leadership. However, it is a part of the People’s Daily, and so therefore is relatively close to the propaganda centre of the Party. Someone there signed off on it, knowing full well that this would be picked up, and probably not sit well with most foreign observers. Given China’s emphasis on building soft power, this is either a cock-up, a complete misunderstanding of what soft power means, or a deliberate internal challenge to the soft power policy. I wouldn’t dismiss it to be unimportant just yet.

  6. Andeli

    Good points.

    There is a few reasons why China will not leave WTO, but I think that the problem with getting growth in private consumption is the main reason WTO membership is not up for discussion.

    If China really does transform its economy from investment/export driven to private consumption, then I would see the a danger of China leaving the WTO. That has not happened (I think private consumption as part of the GDP is still shrinking even now in 2012), so there is no compelling economic reasons for China leaving WTO. Besides I think most Western politicians would clap their hands in joy if China left the WTO. There would be not arguments against slapping the country silly with homemade trade tarifs. Beijing knows this well and there is a few hundred million Chinese working in some form with foreign companies.

  7. Srikar

    I the this is a natural reaction to an adverse decision in the DSM. It has been established that China has immensely benefitted from the rules based multilateral trading system mor than any other country over the last 10 years. Infact, I has creatively crafted it’s domestic policy to be WTO compliant while taking advantage of world trade. Whether this opinion of non-compliance is a fringe opinion or a dominant one would be an interesting thing to watch.

  8. LOLZ

    I am not sure how this is much different from US’ role with the UN. A lot of US conservatives hate the UN and want to get out. The same group of people then happily use UN resolutions when their interests match.

    I think people tend to overestimate how much “mouthpieces of CCP” actually have influence over or reflect actual Chinese policy, especially when it comes to foreign policy. Again I see a parallel between what the US politicians say they will do about China, and what they actually do when they are elected.

    1. Stan Post author

      Definitely true, that’s why I added the disclaimer that I hoped this was not reflective of government policy. I actually have no idea whether it is or not.