China’s Evolving Strategy for WTO Reforms

By Antara Ghosal Singh

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In June 2019, China made headlines by withdrawing a high-profile case at the World Trade Organization (WTO) over its market economy status and thereby agreeing to accept continued U.S. and EU anti-dumping duties on its cheap goods. Calling China’s retreat a “seismic shift” in its WTO stance, the international community vigorously debated if it was a tactical move or a sign that the Asian giant has finally woken up to the vastly changing global trade landscape and is re-evaluating its priorities. The ongoing debates and discussions within Chinese strategic circles provide interesting insight into how China plans to recalibrate its WTO game plan in the new era.

Lately discussions on WTO reforms have gained currency in China, amid growing apprehensions over ongoing global trade practices. In particular, major economies like the United States, the EU, and Japan, while circumventing the WTO multilateral trade framework, are opting for a series of special bilateral free trade agreements among themselves. The Chinese side is particularly concerned about U.S. President Trump’s “poison pill” trade deals, restricting countries doing business with the United States from signing free trade agreements with China. This, they argue, is aimed at isolating China in global trade and adversely affecting its economy. Given the circumstances, there’s a broad consensus within the Chinese strategic community that China needs to prioritize the cause of WTO reforms, multilateral trade, and other related aspects of trade liberalization. Doing so not only ensures China’s participation in the global economy, but also provides a rare opportunity for China to have its say in the development of next generation global trade rules, thereby creating an external environment conducive to its rise.

The issue of agenda-setting often figures prominently in the Chinese discourse on WTO reforms. It is arguedthat China should assume a leading role in determining the direction of reforms at the WTO and not let a few global heavyweights hijack the reform agenda. The idea is to closely link the WTO reforms with China’s domestic policy of “reform and opening up in the new era” and determine reform priorities at the international organization in such a way that they are in line with the long-term interests of the country, thereby transforming external pressure into internal motivation. To this end, China is exploring a series of new strategies to approach the WTO reforms.

First, the strategy is to focus on “early harvests” while shelving issues of principles that are difficult to generate consensus on in the short term. China does not agree that the issues of greatest concern to the United States and other developed members — like government subsidies, state-owned enterprise discipline, competition neutrality, compulsory technology transfer, and strengthening intellectual property protection — should be given priority. Rather, the Chinese narrative is that the members should first seek common ground while reserving differences. In other words, solve the pressing problems first and put the principled issues on the back burner, so as not to repeat the failure of the Doha round.

Consequently, China’s primary focus is on reforms related to transparency and routine work, which are relatively less controversial, and can bear results in the short term. Appellate Body reform, fisheries subsidies, e-commerce, and investment facilitation, among others, have been identified by the Chinese side as primary areas that can produce some favorable outcomes in the short term. Accordingly, China’s position paper on WTO reforms, released on November 23, 2018, and its WTO Reform Proposal, released on May 13, 2019, have given primacy to issues like the Appellate Body reforms.

Second, while determining its bottom lines, the Chinese side is figuring out areas where it can be flexible. For instance, on the controversial and sensitive issue of “Special and Differential Treatment (S&DT),” China’s new stance is that it will maintain a principled posture but will also exhibit flexibility as and when required. That is, it will maintain its “developing country” status and continue to avail the rights and privileges that comes with it, but will also have an open attitude toward the principle of equivalence and reciprocity on specific issues and make trade-offs based on its own level of development. In other words, China is willing to discuss S&DT under the WTO reforms agenda, but purely on a case-to-case basis.

Similarly, on the topic of trade distortions and subsidies, China seems to be embracing a rather conciliatory stance, highlighting that being an economy in transition, trade distortions are more incidental than intentional for China and that the Chinese government is very willing to speed up the process of reform to eventually eliminate such distortions. Some Chinese officials are even of the opinion that some of the external criticism on trade distortions and subsidies is good for the healthy development of the Chinese economy and should be taken up by the Chinese government in its own interest.

Third, priority is being given to forming alliances within the WTO. China is keeping a close eye on the evolving trends at the WTO, where major members are forming various small interest groups and mechanisms, like the Japan-U.S.- EU tripartite mechanism, the Canada-led Ottawa Grouping, or Brazil working out a deal with Washington to give up its privileges as a developing country at the WTO in return for Washington’s support for its candidature at the OECD, among others.

China itself has established a bilateral working group on WTO reforms with the EU at the vice-ministerial level. It is also working with India, Malaysia, and other developing countries to carry out joint research and form joint positioning at the WTO.

The WTO, China observes, is no longer about the broad division into large camps such as developed countries and developing countries; it is more an alliance of issues and the allies are ever changing. And therefore it is argued that China should learn to make more alliances within the WTO and should devise plans to treat each group or mechanism differently. For example, China should be “vigilant” of the U.S.-European-Japan tripartite mechanism and strive to prevent it from turning the WTO reform agenda into a simplistic “China reform” agenda. However, at the same time, China is not ruling out making necessary concessions to this group in some areas, like governance and operation of state-owned enterprises, industrial subsidies, etc.

China is particularly optimistic about the prospect of China- EU bilateral mechanism and hopes to use it as a bridge between China and the United States. Ultimately, in the Chinese scheme of things, China, the United States, and Europe are poised to play the leading role in the reform process and therefore, should seek common ground with each other.

On the other hand, China believes that the Canada-led 13-party consultation forum is a more inclusive platform and has a comparatively moderate approach toward the reform process, which makes it important for China to develop a fixed communication mechanism with the Ottawa Group. Meanwhile, China plans to maintain a flexible but pragmatic dialogue with the large developing nations, but at the same time, not support any extreme position or measure.

China’s plan in this regard is to position itself as a bridge between the developing and the developed world, while taking up a combination of both development issues that were shelved in the Doha Round as well as next generation issues like e-commerce, investment facilitation, and small and medium enterprises, among others. Its strategy is to unite the developing world on the development agenda, while effectively using the differences within the developed members, to expand the scope of negotiation for China at different levels.

Finally, serious efforts are being made to develop a Plan B, in case the negotiations over WTO reforms fail to derive any conclusion. As a result, there is much emphasis on the need to expand China’s “circle of friends” beyond the WTO framework and diversify its trade and investment. Accordingly, China strives to a) strengthen cooperation with the BRICS countries, SCO member states, as well as Asian, African, and Latin American countries; b) prioritize the implementation of the “Belt and Road Initiative”; c) speed up the RCEP negotiations; d) fast-track the China-Japan-Korea FTA negotiations; e) promote the China-EU BIT negotiations; f) explore the feasibility of negotiating FTAs with Canada and the U.K.; and g) even seek participation in Japan-led CPTPP.

Now, with China’s multipronged reform strategy in place, the multilateral game over the WTO reforms is set to get more intense in the coming days.

Antara Ghosal Singh is presently working as a Research Associate at the Delhi Policy Group (DPG). She is an alumna of Tsinghua University and Beijing Language and Culture University, China and National Central University, Taiwan. She also curates a monthly publication, DPG China Monitor, which features the dominant Chinese narrative on important developments both within and outside China, exclusively from Chinese language sources.