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WEDNESDAY, JULY 25, 2018
Click HERE for yesterday's quote from David Davis
former UK Secretary of State for Exiting the European Union.
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CHINA AND THE WTO - A U.S. ASSESSMENT
"For China, economic reform means perfecting the government's and the Party's management of the economy and strengthening the state sector, particularly state-owned enterprises."
The U.S. Delegation to the WTO
July 11, 2018
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A two-day meeting of the WTO's General Council - in other words, the full membership - begins tomorrow in Geneva. Item No. 6 on the agenda that was circulated yesterday is this:
Views on China's Trade-Disruptive Economic Model and Implications for the WTO - Submission from the United States. On July 16, at the request of the United States, the WTO secretariat circulated a relatively short document at the to the full membership - China's Trade-Disruptive Economic Model. Today's featured quote is taken from that paper's conclusion. Here, in full, are the paper's two concluding paragraphs:
Since joining the WTO, China has repeatedly signaled that it is pursuing economic reform. For example, in November 2013, at the Third Plenary Session of the 18th Central Committee of the CCP [Chinese Communist Party], the CCP endorsed a number of far-reaching economic reform pronouncements, which called for making the market "decisive" in allocating resources and reducing Chinese government intervention in the economy. And, as China reminded us at the last General Council meeting in May, this year marks the 40th anniversary of China's self-described "reform and opening up policy."
Unfortunately, China's use of the term reform differs from the type of reform that a country would be pursuing if it were embracing market-oriented principles. For China, economic reform means perfecting the government's and the Party's management of the economy and strengthening the state sector, particularly state-owned enterprises. As long as China remains on this path, the implications for this organization [the WTO] are decidedly negative.
We described this paper prepared for the WTO as short. It is 14 pages including the cover page and notes. We should note that the United States has also shared with the WTO membership the 2017 Report to Congress on China's WTO Compliance. That much longer document was submitted to Congress in January of this year.
The more recent document describes legal and philosophical differences between the expectations for WTO members on the one hand and core drivers of Chinese policy on the other. It also, of course, includes practical illustrations, as does the Report to Congress. The first sentence of the U.S. paper of July 11 makes reference to the WTO's 1994 Marakesh Declaration, which anticipates that WTO members will participate in "a world trading system, based upon open market-oriented policies" and the commitments made in the Uruguay Round and related WTO agreements.
It contrasts that with provisions of China's constitution, such as the language in Article 7 to the effect that "[t]he state owned economy, that is, the socialist economy with ownership by the whole people, is the leading force in the national economy." And it has a lot to say about China's state-owned enterprises, which are the tip of that spear.
The paper reviews the now familiar case against China's questionable methods of forcing U.S. and other foreign firms in China to share technology that they would normally have kept to themselves. And it goes beyond that to suggest that China works to exert political control over, not just its own firms, but over foreign-owned firms in China as well. For example, the paper asserts that:
In the last year, a number of reports indicate that the CCP is, via ... Party committees, now looking to influence the managerial and investment decisions of foreign-invested enterprises in China... "
And it notes that German and EU industry groups have protested against these kinds of Chinese initiatives.
In different fora and writings, the Trump Administration has insisted that it will continue to press China in the WTO where it can, but one doesn't have to read between the lines to see that the Administration does not believe that the challenge China poses can be adequately addressed through the WTO's dispute settlement system. This passage from the Report to Congress is clear:
It was never envisioned that enforcement would play such a large role for any WTO member, and it is especially unfortunate in the case of China, given that China is the largest trader among WTO members. Indeed, it is simply unrealistic to believe that WTO enforcement actions alone can ever have a significant impact on an economy as large as China's economy, unless the Chinese government is truly committed to market-based competition.
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We doubt there is much in the U.S. paper with which China will agree, but the real question is, how will the other WTO members line up? As we have watched the astounding unfolding of events over the last several months - leaving NAFTA aside for a moment - it seems to us that it has all been about China. The national security tariffs, the 301 tariffs, all of them can be traced back to China and Chinese policies - from dramatic overcapacity in key industries to treatment of investors that is at odds with how free-markets should work. We are constantly told that much of the world shares America's concerns in these areas. Up until now, however, there has been little if any effort to work with the United States.
We are not sure how today's meetings between U.S. and EU officials have really turned out, but if the initial reports of a cooperative arrangement are correct, perhaps the character of America's discussions with its other trading partners is beginning to turn from confrontation to cooperation. The next two days in Geneva will be another test along those lines. We suspect that a fair number of WTO members share America's concerns about China. But how many will say so publicly in the important forum of the WTO?
Certainly the risk of annoying China is a real one and is likely to be a deciding factor for many. On the other side of the ledger, if, as a country, you are concerned about America's seemingly excessive unilateral measures, the best course might to demonstrate that, in its fundamental concerns, America is not alone.
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The General Council meeting. This is a link to the WTO website. On the right-hand side of the welcome page, you will find a link to all of the documents for the General Council meeting on July 26 and 27. The following are alternative links to the documents referenced above
China's Model is a link to the U.S. paper "China's Trade-Disruptive Economic Model," which we have posted on Google Docs.
2017 USTR Report to Congress on China's WTO Compliance is a link to this document at it appears on the USTR website.
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R. K. Morris, Editor
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