To the extent Beijing breached or did not follow the spirit and/or letter of World Trade Organization rules, such instances were often counterproductive. If Washington really wants to contain China’s rise, it should encourage the Chinese to commit more of those alleged breaches
I recently discovered I have an evil twin sister, Alexandra Lo, who writes for American publications such as Fortune and The Wall Street Journal.
Here’s a sample of what she wrote about how China took advantage of its WTO membership to become the world’s second largest economy by cheating other member states and unfairly gaining access to their economies.
“Since its accession to the World Trade Organization exactly 20 years ago, China has consistently fleeced the world with its mercantilist trade that now threatens to undermine the international rules-based system.
“China’s compliance with WTO rules is not just subpar but atrocious. It has actively evaded its WTO obligations much more frequently than other member countries and freely ignored the organisation’s rules and exploited its loopholes. Since its WTO accession in 2001, there have been 47 complaints lodged against China, accounting for a whopping 12.2 per cent of all WTO dispute cases.
“Senior US officials, both past and present, increasingly regret Washington’s decision to allow China to join the WTO. Their good intentions – to integrate China into the global trade system, encourage the switch to market capitalism and in time political liberalisation – have created a monster that now threatens not only the global trading system but liberal democracy itself.”
Sorry, just kidding; I don’t have a twin sister, evil or not. But I did throw all those sentences above together from outlets such as The WSJ, Fortune, Foreign Policy and – I just couldn’t help myself – a web magazine reportedly owned and operated by the cultish Falun Gong.
When it comes to covering China, stories and commentaries from those respected US publications often read a lot like a well-crafted piece from the outlawed Chinese religious group. That perhaps reflects well on the journalistic standards of the Falun Gong.
However, I assume the complaint figures against China are correct. Context, though, is what really matters. In the past two decades, there were more than twice as many complaints against the United States, equivalent to 28.4 per cent of the total. Of those complaints against China and the US, there were, respectively, two and 15 second fillings against them.
Second filings are a more telling indicator of whether or not a member state being complained against has either dropped or modified the illicit trade practice in compliance with a previous WTO ruling.
It may come as a surprise – or not – that the country which complains the most about China being a malignant and delinquent WTO member is the one that has done more to undermine if not destroy the global trade organisation.
Washington continues to paralyse the WTO’s Appellate Body, the basis of its whole dispute settlement process. Given how many adverse rulings the body has handed out to the US over the years, it’s perhaps to be expected.
Donald Trump first did so by blocking all new appointments to the seven-member panel. The Joe Biden administration has continued to block nominations to the panel, despite assurances it is working on restoring it. That forced the European Union and 15 other WTO members last year to establish a contingency appeal arrangement to adjudicate on trade disputes.
When China feels it is being targeted, and it’s only about China, you get a lot of resistance
The US trade war, launched by Trump and continued by Biden against China, has already been ruled illegal by the WTO.
In April, there was a Hamlet moment when Ngozi Okonjo-Iweala, the director general of the WTO, practically delivered the line, “The lady doth protest too much, methinks”, to the US and some of its allies.
Speaking at a European Commission conference, she suggested targeting China exclusively was counterproductive and that nations should “put the facts on the table” without “negative spillovers”.
“When China feels it is being targeted, and it’s only about China, you get a lot of resistance,” she said.
She added that complaints by the US and its allies on state subsidies would be more convincing to the Chinese if more member states agreed on rolling back their own subsidies, especially in agriculture.
In any case, in China, not all strategic sectors and state-owned enterprises that Western countries have complained the most about are the same. Some are more statist, others more commercially dynamic and market-sensitive.
In a recent prize-winning essay published in Foreign Affairs, Tan Yeling of the University of Oregon has observed how Chinese state industrial policy, especially for the automobile and shipping sectors, has caused significant waste, overproduction and distortions.
Titled “How the WTO changed China: the mixed legacy of economic engagement”, Tan wrote: “China’s policy on so-called new-energy vehicles (electric and hybrid cars) illustrates this divide. In 2012, the central government’s State Council issued an industrial policy on such vehicles that stressed the importance of promoting innovation and explicitly warned local governments against ‘blindly making low-quality investments and duplicating construction’.
“But that same year, Hubei province issued its own policy, which ignored the central government’s focus on technological innovation and high-quality production and instead stressed the need for ‘investment promotion’ and ‘large-scale production’ to scale up the manufacturing of the vehicles … By 2017, the central government had to issue a new directive to curb the overinvestment of local governments in the production of new-energy vehicles.”
In her conclusion, Tan warns against treating the Chinese government as “a monolith”.
“The sweeping liberalisation that China’s central government embarked on at the beginning of this century showed the positive effects of the country’s joining the WTO,” she wrote.
“But it was naive then to expect China to fully open up its economy and integrate it into the international trading system, just as it is simplistic now to think that China has abandoned liberal reform for the more familiar comforts of state capitalism. The Chinese economy is neither entirely marketised nor completely state-controlled, and any sensible China policy cannot treat the system as a monolith.”
In 2019, the US National Bureau of Economic Research published an intriguing empirical study of the shipping industry in China. The researchers found that “the scale of the [industrial] policy was massive and boosted China’s domestic investment, entry, and world market share dramatically”. But it was not worth the price for the overall economy.
The state subsidies helped Chinese shipyards and shipowners earn about 118 billion yuan (US$18.5 billion) in total profit, but they cost the state more than double that amount! In other words, in the aggregate, the industrial policy destroyed value and dragged down the country’s overall economic growth.
If that is anything to go by, American leaders who think ill of China and want to stall its rise should stop complaining, but instead encourage Beijing to undermine WTO authority and rules to the max, as they themselves have done.
