Is China Killing the WTO? Chinese Officials Are Ignoring Both International and Local Law for Companies That Produce for Export

By Aaronson, Susan Ariel | The International Economy, Winter 2010 | Go to article overview

Is China Killing the WTO? Chinese Officials Are Ignoring Both International and Local Law for Companies That Produce for Export


Aaronson, Susan Ariel, The International Economy


For fifteen long years, the members of the GATT/WTO debated whether they would be better off with China as a member. Trade policymakers understood that the international organization could not pretend to govern world trade with such an important trading nation outside of the World Trade Organization. They wagered that China's trade policy would become more predictable, accessible, and transparent. Moreover, they concluded that member states could collaborate, using the WTO's rules, to prod China to act responsibly as a global trader. China acceded to the WTO in 2001.

To some degree that bet has "paid off," producing benefits for the citizens of China and other countries. Trade has helped China lift some four hundred million people out of poverty and has provided more of the Chinese people with greater access to opportunities. Foreign investors and producers now serve China's growing market, while consumers worldwide can purchase a broad range of well-made affordable goods made in China. Meanwhile, Chinese demand for goods and raw materials has created jobs and stimulated economic growth in many developing countries. The World Bank notes that the efficiency and scale of China's manufacturing has pushed down the prices of many manufactured products relative to other goods and services.

China today is now the world's third-largest trading nation, the world's largest recipient of investment, the world's fastest growing consumer market, and the world's leading provider of manufactured goods. China's regulatory and trade practices can move global markets.

But China's competitive advantage is to some degree based on its inadequate governance--it fails to enforce its own laws in a transparent, evenhanded manner. China's system is broken. And because it is broken, its inadequate governance affects its trade partners--and ultimately, could break the WTO.

On the one hand, China's leaders have tried very hard to comply with the country's WTO obligations. China has changed many of its laws and met most of its market access commitments. On the other hand, it has yet to meet many of the obligations delineated in its protocol of accession. European and American business groups investing in China perceive China as becoming more interventionist and protectionist.

As the world's most populous country, China is in many ways an outlier. It is both an ancient empire and developing country with two key attributes: authoritarian governance and inadequate governance. At the national level, the Communist Party is at times willing to ignore its international commitments in order to maintain power. Moreover, the Communist Party owns and operates, or is tied to, private enterprises in key sectors such as transportation, energy, and banking. Some have described the government as both a market competitor and a referee.

China's inadequate governance at the provincial level also reflects many factors including corruption, a lack of uniformity among rules, and arbitrary abuse of power. Local officials often have financial stakes in the same companies they are supposed to regulate. The Communist Party and business are deeply intertwined, and thus governmental mandates from Beijing may be ignored or circumvented. Finally, China has a culture of noncompliance, where bad actors set the norm, where laws and regulations are often ignored or unevenly enforced, and where many citizens and market actors don't know or can't obtain their rights under the law.

WTO members deliberated a long time before they let China join the WTO. And they used the accession to hold China on a tight leash. The 2001 Protocol on the Accession of the People's Republic of China explicitly calls on China to "apply and administer in a uniform, impartial, and reasonable manner all its laws, regulations and other measures of the central government as well as local regulations, rules and other measures ... pertaining to or affecting trade.

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Is China Killing the WTO? Chinese Officials Are Ignoring Both International and Local Law for Companies That Produce for Export
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