Discord Over Implementation Record As China Marks Five-Year Anniversary In WTO

20 December 2006

China this month marks the fifth anniversary of its accession to the WTO. On 11 December, five years to the day since it joined the global trade body, Beijing announced a regulation removing several restrictions on foreign ownership in its banking sector. This is one of the last pieces of the unprecedented market access commitments that China agreed to make in order to convince countries to accept its bid to join the organisation.

At the WTO in recent months, Members have been grilling China about its implementation and enforcement of the entire range of its obligations, under a multilateral review mechanism specially created for the country during its long accession negotiations.

Since joining the WTO, the country has continued its meteoric economic rise, deepening its integration into the global marketplace. Already a major exporter, China has emerged as one of the world's leading importers of goods, registering a 30.8 percent annual import growth over the past five years. However, the news is not all rosy: a new study by World Bank economists found that the poorest 10 percent of China's population have actually seen their real incomes decline, with a 2.4 percent drop in the two years to 2003. Average incomes for China's richest decile rose by more than 16 percent over the same period.

China sees big achievements

In a written interview with China Daily earlier this month, WTO Director-General Pascal Lamy praised China's efforts over the past five years to honour its accession commitments.

Beijing has overhauled over 2000 laws and regulations and scrutinised new ones to ensure their conformity with WTO disciplines. It has also enhanced the transparency of its overall trade and economic regime, abolishing quantitative restrictions on trade in goods and improving tariff-rate quota administration and import licensing systems. China's restrictions on which companies can engage in foreign trade have been lifted. The Chinese government has also rebuilt its legal regime for the protection and enforcement of intellectual property rights.

China now has one of the world's most liberalized import regimes; its average applied tariff has been reduced to 9.9 percent. Binding caps on industrial tariffs average 9 percent; those on agricultural products, 15.3 percent. Meanwhile, China has also opened several services sectors to foreign providers.

A Chinese official told Bridges, that though China, like many other countries, has benefited from the multilateral trading system in the past five years, this does not mean WTO has been the main factor in its economic growth. This growth, the official said, reflects the continued openness-oriented reforms China has followed since 1978, when it started to relax controls on the economy. Although still a developing country with a comparatively low per capita GDP, China is now one of the biggest markets and importers of the world, particularly for goods and services from other developing countries.

The Chinese government is also proud of the steps it has taken to promote economic and commercial cooperation with other developing countries, such as the China-Africa Cooperation Forum summit in Beijing in November (see BRIDGES Weekly, 8 November 2006).

Major trade partners are not satisfied

At a 14 December meeting of the WTO General Council, the 'Transitional Review Mechanism,' which annually monitors China's implementation of WTO commitments, concluded its fifth year of activities.

In this year's scrutiny, delegations subjected China to intense questioning about its industrial subsidies and intellectual property rights enforcement. The US and the EU alleged that China's notification of subsidies was incomplete, failing to include all support programmes or to contain information on support provided by local and regional authorities to numerous sectors. The EU, Japan, and the US also expressed great concern over intellectual property rights infringements and weak enforcement of legislation.

At the General Council meeting, the US repeated some of these concerns, describing Beijing's implementing record as mixed. Sources suggest that the EU and Japan complained that China had not been very cooperative about answering their questions.

Outside the WTO, US Trade Representative Susan Schwab submitted a 100-page report on China's international economic standing to Congress on 11 December. The report harshly criticised China for failing to meet WTO commitments to open up its economy and to prevent the piracy of foreign goods. Among its main grievances were limits on the services that foreign-owned banks are allowed to offer, restrictions on the sale of some farm goods, and a lax government attitude toward the counterfeiting of software, videos, pharmaceuticals and other goods were. Schwab also said the US "will not hesitate to exercise its WTO rights" in dispute settlement as a last resort, "as it would with any other mature trading partner." Top US officials have long argued that China's carefully-managed currency exchange rate artificially makes its exports more competitive, and have urged Beijing to let the currency appreciate.

EU Trade Commissioner Peter Mandelson recently issued a warning echoing Schwab's. "China has reached a stage in its development when the rest of the world is entitled to ask for more from China," he said.

China responds to criticism

In a statement published on its website the Chinese Ministry of Commerce expressed regret over the US report. "Many allegations by the US side are not objective, complete or in line with the facts," it said. "We urge the US side to look at and deal with problems in the bilateral trade relationship in a manner that is objective and true to the facts."

In response to criticism raised in Transitional Review Mechanism under the WTO, Li Enheng, China's deputy permanent representative to the WTO, said that most of questions "were already effectively addressed in the subsidiary bodies of the General Council... Other issues raised by a couple of Members are outside of the mandate of the WTO and China's commitments."

"Certainly there is nothing perfect in the world," he told the General Council meeting "Even some veteran developed Members have serious problems in performing their obligations in the WTO in areas such as the implementation of the special and differential treatment they committed to the developing countries, and compliance with DSB rulings".

He noted that the mechanism also called for reviewing the implementation of some specific commitments by other Members with respect to China, such as the lifting of certain quantitative restrictions on Chinese products.

ICTSD reporting; "Poor getting poorer: World Bank," CHINA ECONOMIC REVIEW, 22 November 2006; "China sticks to 'softly, softly' approach after five years in WTO," AGENCE FRANCE PRESSE, 6 December, 2006; "Five Years On, Nation Rises to WTO Challenge," CHINA DAILY, 11 December 2006; "China bites back on U.S. view of its WTO scorecard," REUTERS, 15 December.  

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