Ten Years Later: China and the WTO

Next month marks ten years since China joined the World Trade Organization and observers are taking the opportunity to give China a report card on its record so far and reminisce on key events in China’s road to global economic powerhouse. Reuters reports that the next ten years in the WTO may prove to be more challenging for China:

On the eve of China accession to the WTO 10 years ago this December, naysayers warned that the country could falter under the demands of opening up its economy. Now there is little debate that it has been a boon in making China the world’s largest exporter and the second largest trading nation.

But China’s next decade in the trade group could be tougher. That’s partly because while the country has opened many of its markets as required under the WTO rules, it still heavily subsidizes key industries.

State spending on clean technologies, which has already drawn ire from China’s trading partners, could continue rising after last week’s confirmation by Beijing of a massive investment plan for “strategic industries.”

That can only lead to increased friction as the global economy slows and countries scramble to boost exports.

Reuters also provides a Fact Box on what China promised and where it stands now under its WTO obligations, including, for example:

BANKING

WHAT CHINA PROMISED: Foreign banks will be allowed to conduct domestic yuan currency business with Chinese firms two years after WTO accession and with Chinese individuals after five years. Geographic restrictions will disappear after five years.

WHERE IT STANDS NOW: China on December 11, 2006 introduced rules allowing foreign banks that set up locally incorporated units to do yuan retail business — exactly five years after its WTO accession. The first batch of foreign banks actually started setting up such units in 2007.

There are now about 40 China-incorporated units of foreign banks though only a handful, including HSBC Holdings Plc, Citigroup Inc and Standard Chartered Plc, have retail banking operations.

Caixin (via MarketWatch) reports that trade tensions between China and the U.S. have only escalated in recent years as both sides take ample advantage of the WTO’s dispute mechanisms to resolve economic spats:

China has taken advantage of the WTO dispute settlement mechanism to file eight cases against other countries over the past decade, including six against the United States. Meanwhile, the United States was responsible for 12 of the 23 cases filed against China by WTO members.

Yet these cases represent only a fraction of the actual trade conflicts flaring in recent years between China and United States. A “currency manipulation” bill approved in October by U.S. lawmakers was among the latest attacks.

Other serious battles waged outside the WTO mechanism, according to China’s Ministry of Commerce, include 112 trade remedy measures imposed since May by the United States to counteract allegedly unfair trade practices by Chinese enterprises. Additional measures are being considered by the U.S. Department of Commerce and the International Trade Commission, the ministry said.

Most of these disputes were filed over the past three years, as the United States struggled with high unemployment and the global financial crisis. Meanwhile, the types of sanctions imposed by the U.S. government against China widened to include an increasing number of punitive trade barriers.

A U.S. Congressional commission recently argued that China has not lived up to its WTO obligations, VOA reports:

“China has yet to create a system that effectively protects intellectual property; something that is required of all WTO members. U.S. business software companies still report that China is the world’s largest source of pirated software. Approximately eight of 10 computers in China still run counterfeit operating system software. Even more disturbing, China has stepped backward from its original promise to lower trade barriers and to treat foreign products and services fairly,” said William Reinsch, chairman of the U.S. China Economic and Security Review Commission.

In recent years, China has also been relying more on state owned enterprises and control of major sectors of the economy, limiting foreign access to its markets. “The government directs a vast array of subsidies to favored industries and seeks to nurture particular technologies behind protective barriers. This is contrary to the spirit, and in many cases the letter, of China’s WTO commitments,” Reinsch said.

For its part, Xinhua quotes Ambassador Charlene Barshevsky, the former U.S. Trade Representative who helped negotiate China’s entry into the WTO, heralding the benefits China’s accession has brought to the country and the world:

The accession and what happened after that helped China speak the “same language” economically as other countries and observe the same rules, and the enhanced transparency has enabled countries to better understand each other and forge closer ties, Barshefsky said.

A common economic language, aspiration and view were “extremely powerful” for the prosperity of various nations, she commented.

As for the mounting competition brought to the Chinese market by the WTO accession, Barshefsky held that global competition was helpful to China, as it made the country clear about its strengths and weaknesses.

“I believe in competition. Competition makes companies better, and makes people smarter,” she said, adding that healthy competition facilitated innovation, success and growth.

Read more about China’s role in the WTO via its official member page and through eight years of coverage on CDT.

November 30, 2011 12:57 PM
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