Fri 21 April 2017
By Dr. Weihuan Zhou
While it is a matter of ongoing debate whether it is China that will shake the world or the world that will shake China, there is little doubt that China has been skilfully riding the wave of, and taking benefits from, globalisation. (Armstrong 2015; Summers 2015) It is equally true that China’s accession to the World Trade Organisation (WTO) 15 years ago provided a golden opportunity for it to accelerate integration into the world economy. China is now set to celebrate its 15-year membership in the WTO on 11 December 2016.
Despite the stalemate of the WTO Doha round negotiations, the WTO dispute settlement mechanism (DSM), one of the cornerstones of the multilateral trading system, has functioned exceptionally well and remains the centre for the resolution of trade disputes. Since its inception in 1995, the DSM has managed more than 500 disputes and enjoyed “tremendous confidence among the membership”. (WTO, 2015) In participating in the DSM, China has taken an incremental approach from a “rule-taker” to a “rule-shaker” and likely now a “rule-maker”. (Gao, 2011) To date, China has been a complainant in 13 disputes, a respondent in 34 disputes, and a third party in 130 cases. These figures suggest that China has been active in the system and has accrued considerable experience which should help it to better use the system in a way that serves its own national interest.
The credibility of the DSM is solidified as the rulings of WTO tribunals have been predominantly complied with. (WTO, 2012) However, stakeholders remain concerned about China’s implementation of WTO rulings that have gone against it. For example, the U.S. has closely monitored China’s compliance since China’s WTO membership and remains unsatisfied with China’s performance in various areas. (USTR, 2015) Even where it appears as though China has implemented WTO rulings, some have suggested that China has complied only “on paper” and not in practice. (Webster, 2014) While these concerns are both understandable and not unreasonable, they have likely overstated the issues associated with China’s WTO compliance.
Most of the disputes in which China was required to implement WTO rulings unfavourable to it have fallen within the realm of ‘trade in goods’ and ‘trade remedies’ (especially China’s antidumping and countervailing actions). With respect to the ‘trade in goods’ disputes, both the quality and timeliness of China’s compliance have been satisfactory. (Zhou, 2016) Given the strategic importance and sensitivity of the Chinese industries involved in the disputes (e.g. autos, cultural products, rare earths), China’s performance is nothing less than remarkable. For example, in implementing the WTO rulings on China – Publications and Audiovisual Products (DS363), China removed the decades-long restrictions on the right to import the cultural goods concerned (except for films). This represented a significant step toward the dismantling of the monopolization of trading rights by state-owned enterprises (SOEs) in the long run. China maintained the censorship of cultural imports as the WTO tribunals accepted China’s argument that the censorship was supported by its policy objective to protect public morals. Nonetheless, China was asked to modify and objectively apply the assessment criteria under the censorship system. There are suspicions about whether China’s censorship will in effect continue to restrict trading rights and limit cultural imports. (Conconi and Pauwelyn, 2011) While the suspicions may be valid, China’s tangible efforts to change a range of relevant laws clearly show its willingness to comply with WTO rules. After all, the WTO compliance serves China’s own economic interest given the need for reforms and development of the cultural sector. Another example of China’s observance of WTO rulings is China – Rare Earths (DS431/432/433). In implementing the rulings, China lifted the export duties and quotas on rare earths which had been imposed for decades. While the export restraints arguably served certain legitimate policy goals (e.g. the protection of the environment and the conservation of exhaustible natural resources), they were found to be ‘unnecessary’ as China has not had a comprehensive mechanism which enabled it to achieve the alleged regulatory purposes. Therefore, the WTO rulings have effectively pushed China to accelerate domestic regulatory reform and strengthen law enforcement with the aim of establishing a more comprehensive and effective mechanism for environmental protection and conservation of rare earths. Further, Chinese rare earths producers would have benefited from growing exports as they are experiencing overcapacity and other difficulties in the domestic market. (Jamasmie, 2015) The above is not to suggest that China’s WTO compliance has no potential problems. It remains a formidable task for WTO members to continue to monitor China’s implementation of the revised laws and in furtherance of that monitoring, to push China to make public the relevant decision-making information.
With respect to trade remedies, China’s performance is less satisfactory. Among the WTO disputes where China’s antidumping and/or countervailing determinations were found to be WTO-unlawful, China did not simply terminate the antidumping and/or countervailing duties but made efforts to maintain the duties by initiating a reinvestigation or review of the same matters in most of the cases. This is because China’s trade remedy actions served one or more strategic goals including to: foster industry development; protect domestic import-competing industries; retaliate against similar actions overseas; and/or safeguard interests of exporters. A typical example of retaliation and protection of export interests is China – Certain Iron and Steel Fasteners (DS407) where China resorted to both antidumping actions and WTO litigation to lift the EU’s seven-year long and heavy antidumping duties against Chinese fastener exports. In China – X-Ray Equipment (DS425), China’s use of antidumping action against x-ray security inspection equipment imported from the EU was motivated by its strategic industrial plan and national security policy which includes the promotion of the x-ray scanner industry. Accordingly, it appears that WTO rulings have had less impacts on China in trade remedy disputes for two reasons: (1) the influence of domestic industries and the desire to promote industrial development, and more importantly, (2) there are ways to circumvent WTO rulings by initiating a review, a reinvestigation, or a de novo investigation into the same matters.
The above-mentioned issues relating to China’s WTO compliance are by no means unique to China. Rather, China has followed the approaches to implementing WTO rulings undertaken by other major players. (Mitchell and Prusa, 2015) That is, China has learned from or copied others in using the DSM as an external force to counteract domestic anti-trade influence, to promote export, and to drive economic reforms according to its own development needs. China is likely to continue this approach using the multilateral trading regime as one of its policy tools to facilitate domestic reforms during the period of the 13th Five Year Plan (2016-2020). Those who tend to criticize China’s approaches to WTO compliance should first consider the old adage that “those who live in glass houses should not throw stones”.
References
Armstrong, D. (2015), ‘Will China Share the World or the World Shake China’, Vol. 1, Issue 1, China’s World 4-8.
Conconi, P., & Pauwelyn, J. (2011), ‘Trading Cultures: Appellate Body Report on China-Audiovisuals’ Vol. 10, Issue 1, World Trade Review 95-118.
Gao, H. (2011), ‘China’s Ascent in Global Trade Governance: From Rule Taker to Rule Shaker, and Maybe Rule Maker?’ in Carolyn Deere-Birkbeck (ed.), Making Global Trade Governance Work for Development, Cambridge University Press, 153-180.
Jamasmie, C. (2015), ‘Most Chinese rare earth miners running at a loss’, MINING.com (12 August), available at: http://www.mining.com/most-chinese-rare-earth-miners-running-at-a-loss-r...
Mitchell, A. & Prusa, T., (2015), “China-Autos: Haven’t We Danced This Dance Before”, European University Institute Working Papers RSCAS 2015/64.
Summers, T. (2015), ‘China’s Approaches to Globalisation’ Vol. 1, Issue 1, China’s World 33-41.
USTR, ‘2015 Report to Congress on China’s WTO Compliance’, available at:
https://ustr.gov/sites/default/files/2015-Report-to-Congress-China-WTO-C...
Webster, T. (2014), “Paper Compliance: How China Implements WTO Decisions” Vol. 35, Issue 3, Michigan Journal of International Law 525-578.
WTO (2012), ‘WTO Dispute Settlement Body developments in 2012’, available at:
https://www.wto.org/english/tratop_e/dispu_e/bashir_13_e.htm
WTO (2015), ‘WTO Disputes Reach 500 Mark’, available at:
https://www.wto.org/english/news_e/news15_e/ds500rfc_10nov15_e.htm
Zhou, W.H. (2016), ‘Fifteen Years on: Has China Implemented WTO Rulings? - A Perspective on 'Trade in Goods' Dispute’, Vol. 11, Issue 1, Asian Journal of WTO & International Health Law and Policy 155-212.
This blog is also published in China’s World, see
Weihuan Zhou, "Implementing WTO Rulings: Fifteen Years of China in the WTO" (2017)2(1) China's World 76-81