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A Committed Advocate of Free Trade
China deserves treatment corresponding to its role as an active WTO member
By Zhou Xiaoyan | NO. 49 DECEMBER 8, 2016

A worker examines solar panels in the workshop of a photovoltaic producer in Xingtai, north China's Hebei Province, on October 30 (XINHUA)

December 11 marks the 15th anniversary of China's accession to the World Trade Organization (WTO). As a nation that's been fundamentally changed by WTO membership, China is hoping it can be treated more fairly in international trade.

China's accession in 2001 was a watershed event for the WTO, its members and China. The country has become better integrated with the global economy and gained a strong foothold in global trade. In addition to being the world's second largest economy, China is now the world's largest trader in goods, the second largest destination for foreign investment and the third largest outbound investor. China's forex reserves far outstrip any other country's.

China's reforms have always headed toward more market orientation, and WTO membership has become the most significant driver of this process.

Over the past 15 years, China has strictly adhered to WTO rules by gradually reducing tariff levels. By January 1, 2010, China had fulfilled ahead of schedule all the tariff reduction promises it made in joining the WTO.

The nation has long been an advocate of free trade, as evidenced by the fact that it has to date signed 14 free trade agreements with 22 countries and regions.

Over the years, to comply with WTO rules, China has amended over 2,300 laws and regulations, and rewritten over 90,000 local statutes. Moreover, it actively participates in making the rules for global trade and in settling trade disputes on the basis of the rules.

According to Shuaihua Wallace Cheng, Managing Director of ICTSD China, China has made great contributions to the WTO's multilateral trading system as well as to global economic growth. ICTSD—the International Center for Trade and Sustainable Development—is an independent, non-profit organization based in Geneva, Switzerland.

China tries to act as a bridge between developed and developing nations. It positions itself as a coordinator and supporter of developing countries' interests, Cheng told Beijing Review.

Shi Guangsheng, then Minister of Foreign Trade and Economic Cooperation, signs the Accession Protocol of China to the WTO in Doha, Qatar, on November 11, 2001
(XINHUA)

Great changes

According to WTO Deputy Director General David Shark, since its WTO accession, China has significantly increased national income, made great progress in poverty relief, influenced economic growth in many regions, and made vital contributions to raising incomes and living standards globally.

China not only plays a key role in global value chains, but also is a core WTO member, Shark told reporters at a seminar held at the Shanghai WTO Affairs Consultation Center on November 9.

Shan Wenhua, Dean of Xi'an Jiaotong University's School of Law, said China's WTO accession has not only fundamentally changed the nation itself, but has also reshaped the world.

"China is better integrated with the world economy and is more market-based and law-based," Shan told Legal Daily, a Beijing-based newspaper. "China is participating in global economic governance in a more proactive manner. It is breaking developed countries' monopoly in rule-making, making those rules more fair, reasonable and balanced."

Shan said, as a WTO member, China has reshaped the global economic system in at least two ways—by being a major growth driver and increasing emerging economies' proportion of global GDP.

China has fulfilled its WTO accession commitments, said Tang Xiaoyi, a Brussels-based senior trade advisor with the European arm of global law firm Dentons.

All of the commitments were clearly described in the accession protocol of China to the WTO, the document governing the nation's WTO entry. Had China failed to implement its promises, the United States and the EU would have sued it on many occasions, which has not actually happened, Tang told Beijing Review.

Tang said China is one of the largest beneficiaries and contributors of the WTO, as its membership of the organization has significantly driven product upgrades in China.

In the past 10 years, Tang has often dealt with anti-dumping cases related to commodity grade products made in China. Now, most of such cases involve value-added exports by China, such as high-end iron and steel products, tubes and pipes, photovoltaic panels and wind towers.

Due to China's comparatively high productivity, the nation's good quality and reasonably priced products enjoy a sharp competitive edge, which enables them to expand their share in overseas markets, Tang said.

Imported vehicles on display at a bonded zone of the China (Fujian) Free Trade Zone on July 15 (XINHUA)

Disputes continue

According to China's WTO accession protocol, the use of the "surrogate country" method in anti-dumping investigations against China will end on December 11.

Under the method used to date, authorities determine whether or not to impose tariffs on the basis of reference prices in a third country rather than product prices in the exporting country. As a result, more Chinese products end up being investigated, and in most cases, they have to pay higher anti-dumping duties compared with countries not subject to the surrogate country method.

But the European Commission on November 8 submitted to the European Council and the European Parliament an amendment proposal on protection against dumped imports.

In the proposal, the EU has introduced the concept of "market distortion," which will take multiple criteria into consideration—state policies and influence, the extent to which government-owned enterprises operate in the sector, discrimination in favor of domestic companies and the degree to which the financial sector is independent. According to the new EU proposal, the "surrogate country" method will still be used in cases involving countries found to have so-called market distortions.

China has expressed its discontent about the proposal. "We have taken note of this, and [we] have concerns," said Lu Kang, a spokesperson for the Ministry of Foreign Affairs.

Lu said China acknowledges the European Commission's proposal to remove it from the list of non-market economy countries, which reflects the EU's willingness to fulfill Article 15 of the Accession Protocol of China to the WTO.

"Much to our regret, however, the new methodology proposed by the EU, which replaces the non-market economy concept with [that of] market distortion, fails to uproot the practice of surrogate country. It only gives it a new cover. That's neither a thorough implementation of Article 15 nor compliance with WTO rules," Lu said.

Shen Danyang, a spokesperson for the Ministry of Commerce, expressed similar concern, calling for the EU to completely abide by WTO rules.

Yao Ling, an associate researcher with the Chinese Academy of International Trade and Economic Cooperation, said, "China has fulfilled its due obligations stipulated by the WTO. It's time for other WTO members to do the same. The protocol explicitly states the expiration date of the surrogate country method."

The latest EU proposal mainly targets China, although the new rules may also be used against other countries, according to Tang.

Tang told Beijing Review the EU was concerned about the expiration of Article 15. If the EU stops using the surrogate country method in anti-dumping investigations against imported goods from China, a number of industries, including iron and steel, ceramics and photovoltaics, will bear the brunt, and according to a report by European Industries, close to 200,000 Europeans will lose their jobs, a prospect which sparked massive protests in Brussels in February.

The European Commission is under lots of pressure and caught in a dilemma. Consequently, it has created the market distortion concept to protect European industries most vulnerable to Chinese exports, Tang said.

But Cheng said, in strict legal terms, Article 15 does not explicitly state that other WTO members should grant China market economy status, nor does it set a deadline by which this must happen.

Furthermore, the WTO itself does not actually define the nature of a market economy, Cheng told Beijing Review. "Domestic trade laws have created the concept of market economy status and the criteria for granting it."

The protocol, however, does say that "in any event," WTO members may not use the surrogate country method against Chinese exports beyond the 15-year transition period following China's WTO accession.

According to German Ambassador to China Michael Clauss, positive progress will be made with regard to China's market economy status.

"I think things are developing toward the good direction. The EU will make a decision before the end of 2016," Clauss told Beijing Review. "In the meantime, the EU will strengthen trade remedy measures. Overcapacity exists globally, including in China, therefore the EU needs to take some effective measures to fight against dumping in some industries."

But Yao disagrees with Clauss, saying that overcapacity should not be an excuse for not abiding by the rules.

"Overcapacity is a globally prevalent issue resulting from stimulus policies in the wake of the 2008 financial crisis. It should be solved by negotiation. There's no need to relate this issue to China's market economy status or whether or not to abide by some of the provisions in its WTO accession protocol," Yao said.

By 2015, the EU had been China's largest trading partner for 11 consecutive years, while China had been the EU's second largest trading partner for 12 consecutive years.

If the EU can fulfill its obligations stipulated in Article 15 and maintain its status as an advocate for and leader of free trade within the WTO, it will be a win-win choice for both China and the EU, Yao said.

Tang echoed Yao's view, arguing that the shared interests of China and the EU—such as the hefty amount of bilateral investment—far outweigh the significance of anti-dumping cases.

"The benefits of a multilateral trading system far outweigh the harm brought about by trade frictions in the system. It's good for everyone if there's a set of rules everyone recognizes," Tang said. "Despite all the disputes and fights, being together is better than splitting up for good," he added.

Cheng said free trade has become the scapegoat for governments' failure to implement supportive policies.

"In the past, the benefits of free trade were oversold, while neither enough attention was given nor adequate policies existed to address the negative impacts of free trade. The people who didn't benefit were ignored. There should have been a whole set of policies in education, infrastructure and social welfare to support trade liberalization," Cheng said.

"It's always easy for politicians to blame other countries for their domestic problems, for example accusing other countries of stealing jobs. But at the end of the day, the problem lies in their flawed domestic policies, which fail to take care of the groups whose interests are hurt by globalization."

Copyedited by Chris Surtees

Comments to zhouxiaoyan@bjreview.com

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