China’s Ascent in Global Trade Governance

In the first few years after the launch of the Doha Development Agenda (DDA), China took a rather cautious approach. While it submitted its first negotiating proposal as early as six months after its accession, most of its earlier years in the WTO were spent observing the negotiations rather than making active interventions.

There are several reasons for such an approach: First, China lacked experience in WTO negotiations and needed time to learn the negotiating skills. Second, as a recently acceded member, China argued that it had already made extensive concessions, which greatly exceeded those of other WTO Members and thus should not be required to undertake 1 Mr. Gao is Associate Professor, School of Law, Singapore Management University; Dongfang Scholar Chair Professor, Shanghai Institute of Foreign Trade. I am most grateful for the kind comments by Miguel Rodriguez Mendoza. All errors remain my own.

2 Para. 12, World Trade Organization, Ministerial Declaration [Doha Declaration], WT/MIN(01)/DEC/1;

41 I.L.M. 746(2002)

additional commitments in the DDA.

As the transition period for China’s accession commitments came to an end in 2006, however, the US and the EU started to push China to shoulder more responsibilities in the Doha Round.

At about the same time, China also began to realize that its interests were not always aligned with those of other developing countries and it should not continue to hide behind developing country leaders, such as Brazil and India. After reassessing its priorities, China started to adopt a practical approach to the negotiations. On the one hand, as the largest exporter, China shares many interests with developed countries. One example is trade facilitation: while many developing countries are against the inclusion of the issue, given its position as one of the top exporters in the world, it is actually in China’s interest to push for the inclusion of trade facilitation in the WTO framework to make the customs process more efficient and cheaper. On the other hand, as a country with a large low-income population, China also sympathizes with the concerns of many developing country members. This is why China supports the demand by India that developing countries should be entitled to a list of special products that will be exempted from tariff cuts, as well as a special safeguard mechanism that can deal with surge on particular agricultural imports.

As a country that straddles the North-South spectrum, China is well positioned to be an

“honest broker” among developed and developing countries. In the words of Zhang Xiangchen, China’s Deputy Permanent Representative to WTO, China should play “a balancing, bridging, and constructive role” between developed and developing countries. One example of China’s bridging role is its proposal at the 2005 Hong Kong Ministerial that the Members try to achieve some early harvest of the negotiating results before the conclusion of a comprehensive agreement. This proposal helped to maintain the momentum of negotiations and pushed the negotiation forward. Sometimes, China is willing to sacrifice some of its own interests to generate momentum for the round. For example, in 2005, China voluntarily offered to provide duty-free market access to imports from LDC³ even though developing countries are not required to do so.

In recognition of China’s important role, it was finally offered the coveted membership in the core decision-making group of the WTO at the July 2008 Mini-Ministerial in Geneva, when the G6 was expanded to the G7. Of course, with power comes responsibility: part of the reason for the inclusion of China was that the DDA had finally moved from agriculture to NAMA issues, and any negotiations on industrial tariffs cannot move without the participation of the largest exporter of manufactured products.

While it recognizes that it has special responsibilities as a large developing country, China is resentful of any attempt to single it out in the negotiations. Therefore, China has been consistently opposing efforts by developed countries and some developing countries to differentiate among developing country members. Similarly, when the July 2008 meeting ran into an impasse due to the refusal of India to give in on special products and the special safeguard mechanism, China turned down the US request for China to provide additional concessions on special products in agriculture and sectoral negotiations on industrial goods.

Part of the reason was domestic political difficulties, but an equally-important reason is that China does not wish to be treated differently than India, which has held steadfast against US demands on these issues.

From the submission of its first negotiating proposal in June 2002 to the fateful July 2008 meeting, China has made more than 100 submissions in the DDA. Judging from the number of proposals submitted, China is one of the most active members of the round. However, numbers alone tell only part of the story. Compared with the submissions by other major 3 As of August 2010, China provides duty free access to 4762 products imported from 33 LDCs, which accounts for 98 percent of all LDC exports to China and 60 percent of all tariff lines.

members, which often propose game-changing rules, most of the proposals by China focus on either the procedural issues or the special and differential treatment for developing countries and rarely leave a major impact on the negotiations.

One can interpret this to mean either that China is content with the current rules or that China lacks experience in WTO rules. However, neither of these theories explains why China has been actively pushing for changes to the current rules through the WTO dispute settlement system and FTA negotiations. As I have argued in another paper, China has transformed itself from a “rule taker” that passively accepts existing rules imposed by other countries, to a “rule shaker” that tries to exploit the existing rules to its advantage, to a “rule maker”

that is making new rules that reflects its own interests.⁴ For example, in several recent WTO cases, China has been trying to persuade WTO panels to interpret China-specific provisions in a way that minimizes their negative impacts. Similarly, in each of its dozen FTAs, China has been rewriting a key term in its accession package by demanding the recognition of its full market economy status from its FTA partners.

Therefore, the better explanation is that China has lost interest in the normal negotiation process in the WTO. It seems rather bizarre that the largest exporter in the world is not interested in making new rules in the WTO, but once we put all these into the proper context of China’s accession package, it all becomes crystal clear. When China joined the WTO it reluctantly accepted many clauses tailor-made for itself as the price for its accession. These include, among others, non-market economy status in antidumping investigations, special safeguard mechanisms against Chinese exports, and a special annual transitional review mechanism. While some WTO Members deem these provisions necessary to soften the impact of China’s accession on other members, the Chinese resent them as discriminatory treatments.⁵ As these provisions were specifically designed for China, they have a much more direct impact on Chinese exports than the normal WTO rules, at least before their expiration.⁶ While the exact relationship between these special provisions and the normal WTO rules is still subject to debate, most commentators would agree that these special provisions would take precedence pursuant to the principle of lex specialis derogat legi generali (special rules prevail over general rules). Thus, at least for the first few years after its accession, the revision of these provisions is of more direct interest to China than the revision of the general WTO rules. Unfortunately, revising these provisions through the WTO negotiations is a task that is extremely hard, if not impossible.

To start with, the WTO is ill-equipped for this task. Among the WTO agreements, none contains explicit provisions on the revision of the accession protocol. Furthermore, in practice, there has been no precedent of comprehensive revisions of accession terms. Thus, if China were to insist on revising these provisions, the default consensus rule would probably apply. As we have seen from the history of the WTO, consensus is extremely hard to come by – that is one reason why the DDA has taken so long. More important, most other WTO members are not interested in the idea of revising these provisions: as accession negotiation is pretty much a one-way deal, China doesn’t have much to offer in the multilateral setting to compensate for the revisions.

4 Gao, H. “Ascent in Global Trade Governance: From Rule Taker to Rule Shaker, and Maybe Rule Maker?” in Making Global Trade Governance Work For Development, ed, Carolyn Deere-Birkbeck.

Cambridge: Cambridge University Press, 2011: pp. 153-180.

5 For a detailed discussion of these clauses, see Gao, H. “China’s Participation in the WTO: A Lawyer’s Perspective,” Singapore Year Book of International Law. 11.SYBIL 1–34 (2007): 54-57.

6 These clauses have different expiration dates. The special textile safeguard mechanism expired in 2008. The transitional product-specific safeguard mechanism and non-market economy status will expire in 2013 and 2016, respectively. The alternative benchmark methodology in subsidy-countervailing investigations has no explicit expiration date.

Against this backdrop, the recent calls by the US and the EC for China to shoulder more responsibility and make more concessions in the DDA are a bit ironic: on the one hand, the US and the EC imposed these harsh conditions in the accession negotiation and effectively denied China the normal membership status; on the other hand, the US and the EC now want China to behave like a normal WTO Member, or better still, go beyond what other WTO Members would offer by taking up the leadership responsibility. Before the US and the EC abandon such a double standard and start to treat China on a non-discriminatory basis, why should China be expected to contribute to the round above and beyond what is expected of a normal Member?

Without the effective participation of the largest exporter, the multilateral trading system cannot last long. Therefore, to revive the long-stalled DDA, my first suggestion is that the WTO Membership seriously consider abolishing all the discriminatory provisions against China so as to provide China with proper incentive and the WTO with moral authority to encourage more contributions from China in the DDA. A better treatment of China can also provide assurance to other new Members, especially Russia, that the WTO is a rule-based system where old and new members will be treated no differently.