Amb. Charlene Barshevsky (former USTR)

20 Years of China’s Membership in the WTO — a brief critique

On December 11, 2001, China became the 143rd Member of the WTO. There is little doubt that China has benefitted from Membership, and that global trade has been heavily influenced by China’s rapid growth. There have been numerous programs marking the milestone of 20 years including yesterday’s (December 10) high level forum at the WTO and a joint program by the Washington International Trade Association and the Asia Society Policy Institute on December 9.

A WTO press release reviews the High-Level Forum event and summarizes views of the major participants. See WTO Press Release, High-Level Forum marks 20 years of China’s WTO membership, 10 December 2021, https://www.wto.org/english/news_e/news21_e/acc_10dec21_e.htm. The full statement of Director-General Ngozi Okonjo-Iweala was made available as well. See Remarks by DG Okonjo-Iweala, 20 Years of China’s WTO Membership: Integration & Development — High-level Opening session (virtual), 10 December 2021, https://www.wto.org/english/news_e/spno_e/spno19_e.htm. The DG’s statement lays out many of the positive developments for China from membership and notes the belief of some other WTO Members that China can and needs to do more, a position commented on by former DG Pascal Lamy and by former USTR negotiator Wendy Cutler. A portion of DG Okonjo-Iweala’s statement is copied below.

“For the WTO, welcoming China marked a significant step towards becoming a truly ‘world’ organization. Over a fifth of the world population — 1.3 billion producers and consumers — gained full entry into the multilateral trading system.

“For other WTO members, China’s accession meant the promise of more predictable and mutually beneficial trading relations with a large and fast-growing economy.

“Accession to the WTO is never easy, and China’s accession process was particularly demanding. China requested to resume its status as a contracting party to the GATT in 1986 — 15 years before its eventual accession to the WTO. Over that time, China and its partners together:

“Convened 38 Working Party meetings;

“Reached 44 bilateral market access agreements, the terms of which went on to be multilateralized; and

“Produced over 750 pages of legal text that spell out China’s WTO commitments.  

“The reforms China was asked to make could not have been easy at the time, requiring difficult changes by Chinese policymakers and within the Chinese economy. But looking back, China’s determination to pursue WTO membership as the cornerstone of its economic liberalization strategy has been fully vindicated.

“China has become the textbook case for how global trade integration can drive growth and development. The country’s economic rise has lifted millions out of poverty, not only within China but also in China’s trading partners across the developing world.

“In 2001, China’s GDP was $1.3 trillion. By 2020, it had reached $14.7 trillion. This is really an astonishing improvement. China’s economy has performed well through the pandemic, and the IMF expects Chinese output to grow by 8% in 2021 and by 5.6% in 2022. China is now by some margin the world’s largest manufacturing producer and exporter.

“People in China have seen dramatic increases in living standards. Per capita incomes, in purchasing power terms, have risen from around US$3,400 in 2000 to US$16,200 today in 2020. Extreme poverty has all but been eliminated.

“China is a major destination for foreign direct investment, and has become a significant source of outward investment itself . The stock of FDI in China has risen 10-fold – from about 200 billion US dollars in the year 2000 to close to 2 trillion US dollars in 2020. Meanwhile, China’s stock of outward FDI has soared to 2.3 trillion US dollars, 84 times higher than at the time of its accession.”

The December 9th virtual event hosted by WITA and ASPI had interviews with former USTR Charlene Barshevsky and Minister Long Yongtu (former Vice Minister and Chief Negotiator for China’s Accession). There were also remarks by Amb. Xiangchen Zhang one of the current Deputy Director-Generals and a past Permanent Representative of China to the WTO. There was also a panel of experts from various organizations, many of whom served at USTR at one time or another. The link for the video of the event can be found in WITA’s Friday Focus on Trade, Volume 250, December 10, 2021. See https://www.wita.org/event-videos/china-wto-20-years/. Based on the deep concerns within the United States on dealing with a host of ongoing systemic problems with China, one of the questions addressed by the panelists and by Amb. Barshevsky was whether it was a misstake for the United States to support China’s accession to the WTO in 2001. Most U.S. speakers supported China’s accession although various concerns were expressed.

A brief critique

Neither event explored to any extent challenges posed by China’s accession or ongoing economic system and behavior. This is perhaps not surprising at the WTO where the event was more celebratory in nature even if cautions were raised by non-Chinese speakers.

But the WITA/ASPI virtual event also tended to overlook many of the core problems. Amb. Barshevsky provided a misleading choice the U.S. and others had back in 2001. The choices were not limited to accession or no accession as suggested by Amb. Barshevsky. The third option that could have been pursued would have been consistent with accessions for most other countries — continue negotiations until China’s system was basically consistent with WTO requirements.

Specifically, For most countries seeking accession, the process goes on until existing Members are comfortable that the acceding Member’s economic and legal system is largely consistent with WTO norms. This was not true of the decision to let China into the WTO in 2001. A longer accession process could have ensured that the reforms needed were in fact undertaken and implemented.

While China had undertaken many reforms prior to accession, there were so many remaining issues needing to be addressed that a variety of special rules were imposed on China to permit Members to monitor China’s progress in the necessary massive remaining reforms and limit damage to other Members while the reforms took place. While most protocols of accession are a few pages at most, China’s protocol (including Annexes) was 102 pages. See ACCESSION OF THE PEOPLE’S REPUBLIC OF CHINA, Decision of 10 November 2001, WT/L/432. China greatly resented the China-specific provisions that were included in the Protocol (the annual trade policy review for the first eight years and a final one at year ten; the special safeguard provisions and the articles dealing with special rules while China’s economy remained state-controlled). China worked to block implementation of the “discriminatory” provisions and largely refused to permit the annual trade policy reviews to be conducted as they should have been and discouraged trading partners from pursuing special safeguard cases.

The core issue for the U.S. and others with China was whether China would adopt the far reaching reforms that would be needed to have China’s economy operate on market principles. While China had made some changes prior to joining and made others after joining, the core issue troubling many WTO Members in 2021 is the massive distortions that occur in a wide range of industries through state involvement, control and direction. As former Deputy Director-General Alan Wolff has raised on a number of occasions, the multilateral trading system requires convergence of economic systems not coexistence. See October 16, 2021:  What role China could play in WTO reform — possibilities are real but chances of a positive role are not, https://currentthoughtsontrade.com/2021/10/16/what-role-china-could-play-in-wto-reform-possibilities-are-real-but-chances-of-a-positive-role-are-not/; November 10, 2020:  The values of the WTO – do Members and the final Director-General candidates endorse all of them?, https://currentthoughtsontrade.com/2020/11/10/the-values-of-the-wto-do-members-and-the-final-director-general-candidates-endorse-all-of-them/. Ensuring convergence would have been possible during the accession process if continued. It is nearly impossible after accession where a Member refuses to pursue that path as is the case with China.

The same could be said for problems with transparency of subsidy regimes, problems with human rights issues affecting trade, the proliferation of products subject to export taxes, forced technology transfer and many more topics of ongoing concern to U.S., EU and other businesses. See, e.g., March 24, 2021:  When human rights violations create trade distortions — the case of China’s treatment of the Uyghurs in Xinjiang, https://currentthoughtsontrade.com/2021/03/24/when-human-rights-violations-create-trade-distortions-the-case-of-chinas-treatment-of-the-uyghurs-in-xinjiang/. Monitoring progress prior to accession could have significantly reduced the problems that have plagued Members for the last twenty years.

And there are, of course, other troubling issues of China’s participation in the WTO, such as their use of threats, coercion and punitive conduct towards countries who make statements or take positions with which China disagrees. The problems Australia has faced from China on a wide range of products is but one example. See, e.g., December 22, 2020:  China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas-portrayal-of-itself-as-a-strong-supporter-of-the-wto/. Similarly, their use of retaliation without WTO authorization is another serious problem in their actions and undermines the international rule of law.

So bottom line, China has been a Member of the WTO for 20 years and has benefitted enormously from its membership. But its different economic system and failures on a host of transparency and other obligations and its willingness to abuse other Members through threats, coercion and unauthorized retaliation are major reasons the WTO is in trouble. China’s behavior is also causing many historic supporters of liberalized trade to rethink options.

As the world marks the 20th anniversary of China’s joining the WTO, it is important to understand just how far from the objective of accession on terms that would ensure a level playing field reality has proven to be. Without a change in approach by China, the road forward for the multilateral trading system is uncertain at best.