Cause for celebration, and reflection

By PASCAL LAMY | China Daily Global | Updated: 2021-12-14 

Twenty years after China’s accession to the World Trade Organization, and as the European Union’s chief negotiator of China’s terms of accession at the time, I am asked this question in various places around the world: is China’s accession something to be celebrated? Has it been a success?

Looking at the past two decades, my answer, in short, is a definite yes. But looking at the future, it is with qualifications.

Overall, the bold decisions by former president Jiang Zemin and premier Zhu Rongji, inspired by Deng Xiaoping’s reform and opening-up strategy, to conclude 15 years of negotiations, and by the WTO members to agree on the accession protocol, have been proven right. It has been a clear win-win deal, as expected, in my view.

It allowed China to accelerate its modernization and the unparalleled growth of its economy by importing more easily capital goods, technology, services and food to the benefit of its producers and consumers. It provided the rest of the world with a huge rapidly growing market, and cheaper goods in labor intensive industries. All of this resulted in a big boost for the world economy. Moreover, contrary to a widespread perception, Chinese imports grew more rapidly than its exports as evidenced by the numbers: for the last 15 years, its external trade surplus has shrunk from 10 percent to 1 percent of its gross national product.

But this bright picture is not without shadows:

The global net positive balance of China’s entry into the WTO with more winners than losers, more gains than pain from more open markets has not always been true locally: some countries and some sectors took a hard hit, especially where social safety nets, labor mobility, industrial policies or professional training or reskilling have been weak. But these are domestic policies that cannot be attributed to China or to the WTO. Trade opening and foreigners are usually a political scapegoat for social hardship, and this is what has happened.

The WTO rulebook has not evolved significantly since China’s accession while the world has changed a lot in many respects, including trade wise. China shares, with other major trading powers such as the United States and the European Union, the responsibility for a growing mismatch between yesterday’s and today’s obstacles to trade and the ability of the WTO to keep reducing them in a fair way. China has argued for a long time that its trade regime, as per its terms of accession, was more challenging than for comparable developing countries at the time, which was true, and that it needed time to adjust before accepting more commitments in market access or disciplines. So be it, but that is no longer the case. China is no longer a “recently acceded member” and it has become the world’s largest trading nation.

China’s track record in abiding by its commitments deserves an A grade, as I have often said. Not that it has always respected them without fail, just like other WTO members. It has, like others, been taken to the dispute settlement system from time to time. Like others, it has won some cases and lost others, abiding by the litigation result. Yet, as evidenced by the recent trade policy review of China at the WTO, there remain several areas of serious concerns with its trade regime. This has less to do with tariffs-which decreased from an average of 10 percent to 7 percent since its accession-than with the growing importance of its State-owned sector and State aid which distort competition both within and outside China.

For China’s membership of the WTO to remain a win-win success in the future, these challenges will need to be addressed by China and its WTO partners. This will be a difficult enterprise given the deterioration of the US-China relationship, which is unlikely to improve. Yet, this should not prevent countries from trying to reform the WTO.

The WTO needs reforms to preserve a rules-based system, which is the best protection for its weakest members against the growing use of force in international relations and the weaponization of trade measures. Reform of the WTO should be not only about unsolved old issues such as agricultural and industrial subsidies, but also about coping with major transformations of our economies such as decarbonization or digitization which may result in new obstacles to trade. It should also be about reforming the way the organization works to make it more efficient, including in rebalancing the role of members and that of the director-general and the secretariat. This requires consensus starting with the three major economies-China, the EU and the US. It is undoubtedly a tough call at a time when the US seems to have lost faith in the WTO and is still impairing the dispute settlement system. China should help bring the US back to a more active role, but this requires China to play a more active role in the WTO, too.

China should engage with its trading partners to reform WTO rules on state aid and state ownership. Without prejudice to the right of members to choose their economic system, all WTO members should clearly recognize the principle of competitive neutrality and accept stronger WTO rules to this effect. Without such reform, it will be difficult for China to avoid unilateral rebalancing measures from its trading partners who resent a lack of reciprocity. These measures would reduce opportunities for growth and innovation for China and the world economy. Also, recent worries that the country’s “dual circulation” paradigm might result in a more inward-looking China should be addressed.

Anniversaries are always a good occasion to not only look back at the past but also to look toward the future. China’s accession to the WTO tells us that trade integration worked well, but that maintaining this positive course will require efforts by both China and other major WTO members. In other words, a more globalized China is better for China and for the rest of the world, and I hope that the Chinese people will share this view.

The author is a distinguished professor at China Europe International Business School and former director-general of the World Trade Organization. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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