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Part III - China and Global Trade Governance

Published online by Cambridge University Press:  14 September 2023

Henry Gao
Affiliation:
Singapore Management University
Damian Raess
Affiliation:
University of Bern
Ka Zeng
Affiliation:
University of Arkansas
Type
Chapter
Information
China and the WTO
A Twenty-Year Assessment
, pp. 181 - 298
Publisher: Cambridge University Press
Print publication year: 2023
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NC
This content is Open Access and distributed under the terms of the Creative Commons Attribution licence CC-BY-NC 4.0 https://creativecommons.org/cclicenses/

8 Tumult in the Trading System The China Paradox, Declining US Institutional Power, and the Crisis at the WTO

Kristen Hopewell

On the twentieth anniversary of China’s WTO accession, there has been considerable discussion of the failure of the WTO to transform China in the ways many scholars and policymakers expected. At the time of China’s accession, it was widely assumed that China’s membership in the trade body – by fueling exports, growth, and economic development – would help to foster greater political and economic liberalization within the country. Instead, however, just the opposite has occurred. Despite an extraordinary boom in China’s exports, which has in turn fueled remarkably rapid economic growth and development, after an initial period of relative opening, China has more recently gone in the opposite direction of rising authoritarianism and greater state intervention in the economy (Pearson et al., Reference Pearson, Rithmire and Tsai2021; Weiss, Reference Weiss2019).

If the conventional wisdom was wrong about the impact of the WTO on China, it has been equally wrong about the impact of China on the WTO. In contrast to prevailing expectations that China would be smoothly incorporated into global trade governance, the rise of China – and the corresponding decline in the relative power of the US – have created serious problems for the functioning of the multilateral trading system. The WTO’s core negotiation function has collapsed, as evident in the breakdown of the Doha Round and the repeated failure of subsequent negotiating efforts. Its dispute settlement and enforcement mechanism is in jeopardy amid the US blockage of Appellate Body appointments. The US has abandoned its traditional leadership role in the multilateral trading system, turning away from trade multilateralism in favor of aggressive unilateralism, arbitrarily imposing tariffs on its trading partners, and launching a trade war with China. The rules-based multilateral trading system is now in danger of collapse.

China’s rise has precipitated a crisis within the multilateral trading system. Many commentators have blamed the current crisis on the inability of the WTO to adequality address China’s model of state-sponsored capitalism (Petersmann, Reference Petersmann2019; Wu, Reference Wu2016). But that framing of the problem is, I argue, potentially misleading. The primary complaints that the US and others have about China’s trade policy – such as its use of industrial subsidies, forced technology transfer, intellectual property violations, and so forth – are not unique to China’s more heavily state-controlled economy. Instead, these are typical features of the developmental state, commonly deployed by states seeking to catch up with more advanced economies and used by most successful late developers. The more fundamental conflict thus centers on how the multilateral trading system deals with a developing country that is also an economic powerhouse.

The question of how China should be classified and treated under global trade rules has become an acute source of conflict in the trade regime. The China paradox – the fact that China is simultaneously both a major economic heavyweight as well as a developing country – has created significant challenges for global trade governance. Developing countries are afforded special status in the multilateral trading system, and allowed greater policy space for state intervention to foster economic growth and development, including “special and differential treatment” in WTO agreements. But extending such status to China has become increasingly controversial as its economic weight has grown. The US and other advanced-industrialized states fiercely object to providing special treatment to a country they view as a major economic powerhouse and competitor. This fundamental conflict over what scope China should be allowed for a developmental state has paralyzed global trade governance and led to a breakdown in rule-making. It was a central factor in the collapse of the Doha Round, and it has remained an acute and persistent source of conflict in subsequent negotiating efforts at the WTO since then (Efstathopoulos, Reference Efstathopoulos2016; Hopewell, Reference Hopewell2016; Narlikar, Reference Narlikar2020; Sinha, Reference Sinha2021; Weinhardt, Reference Weinhardt2020).

At the same time, the rise of China and other emerging powers has sharply curtailed the US’s “institutional power” (Barnett and Duvall, Reference Barnett and Duvall2005) – the ability to shape global institutions and rules to guide, steer and constrain the actions of others. The US constructed the GATT/WTO, which served as a channel for the projection of American power, and its rules have reflected US primacy. Now, however, the rise of China has significantly constrained the US’s power over the core institution and rules governing trade. The US’s ability to dominate global trade governance and write the rules of global trade has greatly diminished, leading to an erosion of American support for the multilateral trading system it once created and led.

I Power Shifts and the Global Trade Regime

Upon China’s accession to the WTO, the prevailing expectation was that China would be smoothly integrated into the US-led liberal international economic order because China has benefited from the existence of that order and has an interest in maintaining it. It was assumed not only that the multilateral trading system would continue to function effectively but also that the system would in fact be strengthened by the inclusion of China, given its growing importance in international trade and the global economy more broadly. The conventional wisdom – both at the time of China’s accession and in the ensuing years of its emergence as a major economic power – has been that China is a supporter of, and would therefore seek to maintain, the international economic order that has facilitated and enabled its rise (Cox, Reference Cox2012; Nye, Reference Nye2015; Snyder, Reference Snyder2011; Xiao, Reference Xiao, Friedman, Oskanian and Pardo2013). Many have argued that China’s objectives are fundamentally status-quo-oriented and system-supporting, and that its rise is accordingly “not threatening to the order’s basic arrangements or principles” (Brooks and Wohlforth, Reference Brooks and Wohlforth2016: 100; see also Kahler, Reference Kahler2010). In an era of global economic interdependence, the assumption that all states have an interest in maintaining the system has led many to conclude that the US and China will find ways to cooperate and jointly participate in the management of the international economic architecture, and collective action will prevail to preserve an open, liberal trading order (Cox, Reference Cox2012; Ikenberry, Reference Ikenberry2011; Nye, Reference Nye2015; Snyder, Reference Snyder2011; Xiao, Reference Xiao, Friedman, Oskanian and Pardo2013).

For many, a key factor in determining whether power shifts will result in conflict or cooperation is whether the US and other established powers adapt to the rise of China and other new powers by integrating them into existing institutions and their decision-making structures – meaning giving China and other emerging powers a seat at the table that reflects their economic weight and allowing them to assume a leadership role in global economic institutions like the WTO (Kahler, Reference Kahler2016; Paul, Reference Paul and Paul2016b; Zangl et al., Reference Zangl, Heußner, Kruck and Lanzendörfer2016). Many have argued that the future of global economic governance hinges on the willingness of the US to redistribute authority, make room for rising powers like China, and develop a system of shared leadership that accommodates their demands for greater voice and authority (Drezner, Reference Drezner2007; Ikenberry, Reference Ikenberry2015; Zakaria, Reference Zakaria2008). The liberal international economic order can be maintained, it has been argued, if rising states are welcomed and incorporated into the power structures of its constitutive institutions. Much is therefore believed to rest on the established powers’ willingness to make adjustments to accommodate rising powers: China will “actively seek to integrate into an expanded and reorganized liberal international order,” provided that the US and other Western states act to reform global institutions to make room for China (Ikenberry, Reference Ikenberry2011: 344). Incorporating China and other rising powers into multilateral institutions like the WTO has been seen as a means to lock in their support for the global economic order (Drezner, Reference Drezner2007; Zakaria, Reference Zakaria2008), while renewing and strengthening multilateralism by making those institutions more inclusive, representative, and legitimate (Vestergaard and Wade, Reference Vestergaard and Wade2015; Warwick Commission, 2008; Zoellick, Reference Zoellick2010).

Existing international relations scholarship has thus assumed that if rising powers are supporters of established governance institutions and successfully incorporated into their decision-making structures, then those institutions will continue to function smoothly and effectively (Ikenberry, Reference Ikenberry2011; Paul, Reference Paul2016a). However, in the case of the WTO, China was incorporated into the institution and subsequently became part of its core power structure. Moreover, as one of the prime beneficiaries of the liberal global trading order, which has enabled the boom in its exports that has propelled its extraordinarily rapid economic growth and development, China has an interest in maintaining the established trading order (Breslin, Reference Breslin2013; Gao, Reference Gao, Picker, Greenacre and Toohey2015; Quark, Reference Quark2013; Scott and Wilkinson, Reference Scott and Wilkinson2013). Yet, China’s rise has nonetheless proven profoundly disruptive to the WTO, leading to the breakdown of the institution’s core negotiation function. The central cause of this breakdown is an intractable conflict over how China should be treated in the multilateral trading system and what scope it should be allowed for a developmental state.

II The China Paradox

China’s rise represents a new bifurcation of economic power and development status in the trading system. Paradoxically, although China is now one of the world’s dominant economic powers, it nonetheless remains a developing country. This seeming contradiction between China’s economic might and its level of development has created significant challenges for the WTO.

As the world’s second-largest economy and its biggest trader, China has emerged as a core center of global economic activity. It is widely projected that China may soon overtake the US as the world’s largest economy. Indeed, measured at purchasing power parity (PPP) rates, China’s GDP ($27 trillion) has already surpassed the US ($23 trillion).Footnote 1 China has replaced America as the top manufacturer and exporter, with export volumes that now vastly exceed those of the US ($2.5 trillion versus $1.7 trillion). Nearly two-thirds of countries trade more with China than the US (Leng and Rajah, Reference Leng and Rajah2019). China has become the largest market for many commodities and consumer goods, home to many of the world’s biggest corporations, and a massive source of outward investment, aid, and lending. It is also establishing itself as the dominant player and technological leader across an increasing range of industrial sectors.

Despite its emergence as an economic powerhouse, however, China continues to face significant development challenges. China’s per capita income, for example, is only 16% of that of the US (with a per capita GNI of just $10,550 compared to $64,550 in the US).Footnote 2 Compared to the world’s other advanced economies, China is thus at a significantly lower level of economic development, measured in terms of average incomes. Even if China crosses the World Bank’s threshold for a “high-income country” (currently defined as a per capita GNI of $12,695) in coming years, it will still continue to lag far behind the US and other advanced economies. One of China’s key overarching goals is to ensure its continued economic development (Gao, Reference Gao, Gao, Raess and Zeng2023), in order to raise its per capita income levels and bring them closer to those in developed countries. It faces immense challenges, however, in trying to do so. These include the challenges of trying to escape the middle-income trap; fostering industrial upgrading to move up the value chain into higher-value-added activities; a rapidly aging population and demographics that are increasingly unfavorable to economic growth; extraordinarily high rates of inequality, especially between rural and urban areas; inadequate social safety nets; relatively low levels of education and human capital, resulting in a massive population of low-skilled, underemployed workers; and rising wages combined with increasing competition from lower-wage countries for low-skilled manufacturing (Rozelle and Hell, Reference Rozelle and Hell2020). The right to development is recognized by the United Nations as a universal human right,Footnote 3 and denying the Chinese population – which includes 600 million people living in poverty on less than $1900 per year (Kuo, Reference Kuo2021) – the right to continued economic development would be a profound injustice.

But given its paradoxical status as both a major economic power and a developing country, the question of how China should be treated under global trade rules has become a major source of controversy (see also Gao, Reference Gao, Gao, Raess and Zeng2023). A core principle of the WTO is that developing countries should be allowed greater scope for state intervention – including tariffs, subsidies, and other trade policy tools – to promote their economic development. This often takes the form of “special and differential treatment” (SDT) providing various flexibilities and exemptions from WTO rules (Weinhardt, Reference Weinhardt2020). There are no established criteria for determining what constitutes a “developing country” at the WTO. Instead, states are allowed to self-designate as developing countries in order to access SDT (Eagleton-Pierce, Reference Eagleton-Pierce2012). China insists that, as a developing country, it is entitled to SDT. However, for the established economic powers, making largely one-sided concessions in opening their markets without equivalent concessions from China is a non-starter. Instead, the US, EU, and others insist that China must take on greater responsibility commensurate with its role as the world’s second-largest economy – meaning undertaking greater commitments to liberalize its market and accept disciplines on its use of subsidies and other trade-distorting policies.

China’s rise has thus heightened the tension between two core principles of the multilateral trading system. The first is the principle of reciprocity – that trade negotiations should take place based on a reciprocal exchange of concessions, with participants gaining roughly equivalent benefits or, conversely, incurring roughly equal costs (Brown and Stern, Reference Brown, Stern, Narlikar, Daunton and Stern2012). Closely related to this is the notion of creating universal rules – at least for the world’s major trading states – with rights and obligations applying equally to all participants. The principle of reciprocity and universality, however, coexists somewhat uneasily with a second key principle of the trading system – preferential treatment for developing countries. The latter stems from the recognition that equal treatment is not equal for countries at different levels of development. Dating back to Alexander Hamilton’s (1790) call for the US to adopt infant industry protections to enable the expansion of its manufacturing sector in the context of British industrial supremacy, there has been skepticism about free trade as a path to development and the capacity of developing countries to catch-up with more advanced economies without interventionist trade policy measures such as tariffs and subsidies.

SDT is based on the principle that developing countries should not be expected to engage in a reciprocal exchange of concessions with more advanced economies, or assume the same obligations (Hannah and Scott, Reference Hannah, Ryan and Scott2017). Instead, rather than universal rules applying equally to all countries, countries at lower levels of development should be granted greater flexibility (or “policy space”) to protect their domestic markets and promote the development of their exports, firms, and industries, as well as given preferential and non-reciprocal access for their exports to developed country markets (Narlikar, Reference Narlikar2020; Singh, Reference Singh2017). SDT is seen as an important means for the WTO to address the needs of developing countries and aid in fostering global development. While the notion of providing additional policy space to developing countries has never been uncontroversial (Hannah et al., Reference Hannah, Ryan and Scott2017), with the rise of China as a major economic power that is also a developing country, it has now emerged as a central source of conflict within the trading system.

The conflict rests on whether the rules should be universal and concessions reciprocal, or China should have access to SDT in recognition of its status as a developing country, along with continued scope for state intervention to promote its economic development. At the heart of this conflict are competing interests, as well as ideas of fairness. From the perspective of the US and other advanced-industrialized states, fairness means a level playing field undistorted by state intervention, with universal rules applying equally to all and the reciprocal exchange of concessions in multilateral trade negotiations. But from China’s perspective, what those states define as a level playing field is, in fact, one that serves to perpetuate their industrial and economic supremacy.

For China, it is considered vital to maintain the policy space needed to engage effectively in industrial policy and foster industrial upgrading, in order to continue its process of economic development and avoid becoming stuck in the middle-income trap. China’s development model rests on an active state engaged in supporting the competitiveness of national firms and industries and helping them to move up the value chain into higher value-added activities thereby boosting growth, incomes, and the quality of employment (Lin and Chang, Reference Lin and Chang2009; Stiglitz et al., Reference Stiglitz, Esteban and Lin2013). An interventionist state remains central to its strategy for continued development, as evident in its Made in China 2025 industrial policy program (Ban and Blyth, Reference Ban and Blyth2013; Hopewell, Reference Hopewell2018). China’s emphasis on state intervention is backed by the experience of other successful late developers (Chang, Reference Chang2002).

Indeed, even the US and other advanced-industrialized states relied on state intervention and employed a range of protectionist policies during their own process of economic development (Kupchan, Reference Kupchan2014). This included using tariffs and subsidies to foster the growth of infant industries and sequence their integration into the global economy; aggressively adopting technology from more advanced countries; and controlling the inflow of foreign investment to direct it toward the goals of national development (Chang, Reference Chang2002; Gallagher, Reference Gallagher2008; Wade, Reference Wade2003). Moreover, even from a position of global economic dominance, the US has continued to deviate from the principles of free trade and make use of protectionism when it serves its interests (Block and Keller, Reference Block and Keller2011; Schrank and Whitford, Reference Schrank and Whitford2009; Weiss, Reference Weiss2014). From China’s perspective, in seeking to preserve the scope for state intervention to promote its industrial development, it is simply seeking to follow in the footsteps of the US and other advanced-industrialized states, while those countries are seeking to “kick away the ladder” by preventing China from using many of the same policy tools that were vital to their own growth and development (Chang, Reference Chang2002; Stiglitz and Greenwald, Reference Stiglitz and Greenwald2014).

However, while China remains a developing country and continues to face significant development challenges, it is now an extremely large and immensely powerful force in the global economy and is seen by the US and many other advanced economies as a major competitive threat. The justification for allowing developing countries greater policy space is to enable them to catch up with more advanced economies. But opponents argue that China has gone beyond “catching up” to crushing its established competitors in many industries. Rail equipment – which has been prioritized as a key strategic sector under China’s Made in China 2025 program – provides an illustration. After years of receiving subsidized financing to undercut its competitors and facilitate its global expansion, China’s state-owned CRRC now dominates the global rail industry, with annual revenues of $34 billion, dwarfing its rivals, Germany’s Siemens (with $10 billion in annual revenue), France’s Alstom ($9 billion), Canada’s Bombardier ($8 billion), and the US’s GE ($4 billion) (Hopewell, Reference Hopewell2021a). Seeking to better compete with CRRC, Siemens, and Alstom attempted to merge in 2018–19, but the merger was blocked by EU competition authorities, while both Bombardier and GE have been forced to sell off their rail businesses. Access to cheap, subsidized loans similarly facilitated the global expansion of Huawei, which is now the world’s largest telecoms equipment company and the global leader in 5G technology (Hopewell, Reference Hopewell2021a).

This clash between US demands for reciprocity and universal rules, on the one hand, and China’s demands for special and differential treatment as a developing country, on the other, was at the center of the Doha Round breakdown, and it has remained an enduring issue of conflict severely impeding the WTO’s negotiation function. But this dispute goes beyond SDT, narrowly defined. It is also more broadly about what commitments China should be expected to assume, how much space China should be allowed for state intervention to promote continued economic growth and development, and whether China should be forced to accept new disciplines or restrictions on its use of industrial policy more broadly.

III Breakdown of the WTO’s Negotiation Function

The dispute over how China should be treated under global trade rules has played a central role in the breakdown of the WTO’s negotiating function, starting with the collapse of the Doha Round. Extensive SDT for developing countries was a key promise of the Doha “Development” Round. The Ministerial Declaration launching the Round contained references to SDT across virtually all areas of the negotiations. These stated commitments to SDT could have proven little more than empty promises. However, over the course of the round, developing country coalitions, such as the G20 and G33, led by Brazil and India – and backed by the weight of China – transformed developing countries into a far more effective negotiating force than ever before (Hopewell, Reference Hopewell2016; Narlikar, Reference Narlikar2010). Consequently, developing countries were able to secure substantial SDT in the draft texts of the proposed agreement, including weaker tariff-reduction formulas in agriculture and manufactured goods, as well as substantial flexibilities.

By the latter stages of the round, the prospect of extending such extensive SDT to China in particular had become untenable for the US, provoking protests from Congress as well as business and farm lobby groups. From the US’s perspective, it would be making substantial, meaningful concessions in opening its market – including significantly cutting its tariffs and its agricultural subsidies – but see little from China in return (US, 2008). As one US negotiator put it, “we’d be giving everything and getting nothing.”Footnote 4 The US had become unwilling to extend that kind of less-than-full-reciprocity to a country that it now sees as a major economic competitor and an emerging hegemonic rival.

The US sought to improve the deal by securing additional liberalization commitments from China in manufacturing and agriculture. It pressed China to participate in “sectorals” (aggressive tariff reduction in specific industrial sectors) in two key areas of US competitiveness – chemicals and industrial machinery. The US also pressed China to agree not to use its special product exemptions in agriculture against specific products of export interest to the US – namely, cotton, wheat, and corn – in order to guarantee the US market access gains in those areas. The US also sought a restrictive operationalization of the special safeguard mechanism (SSM) in agriculture in order to ensure that its market access gains were not eroded.

China proved far less malleable, however, than the US anticipated. From Beijing’s perspective, the US’s demands were a violation of the implicit bargain struck during China’s accession, where in exchange for the deep concessions China was forced to make in opening its market, it was promised that relatively little new liberalization would be required of it during the Doha Round. From China’s point of view, the US was now trying to renege on its earlier promises. China also saw the US’s demands as a violation of the development mandate of the Round, and the promise that the final agreement would be reached on the basis of “less than full reciprocity” in favor of developing countries. China argued that the US was now unfairly seeking to change the terms of the deal and singling it out for further tariff cuts when its tariffs were already far lower than most other developing counties. As a result, China refused to agree to the sectorals sought by the US in chemicals and industrial machinery, which are key sectors China is trying to foster as part of its industrial upgrading strategy. If it opened those sectors, relinquishing its infant industry protections, Chinese policymakers feared they would be undercut by foreign competition, impeding its continued economic development. Similarly, on agriculture, China is eager to ensure that it retains its ability to use trade policy tools to protect vulnerable (and potentially politically volatile) parts of its population – such as poor, peasant farmers – leading China to refuse to concede to US demands on agriculture, instead insisting on a maximal definition of the SSM and that it retain full use of its special product exemptions.

The Doha negotiations broke down in 2008, ostensibly due to conflict over the design of the SSM. Yet the deeper cause of the Doha breakdown was this fundamental conflict over the US’s desire to “rebalance” the deal by securing greater access for its exports to the Chinese market. China stood firm, refusing to give in to the US and rebuffing its demands for additional market opening. In doing so, China showed that had sufficient power to refuse to concede to US demands that it viewed as fundamentally against its own interests. The result has been a stalemate. The Doha Round was officially declared at an impasse in 2011, and the 2015 Nairobi Ministerial Declaration acknowledged that most members now consider the round dead (Scott and Wilkinson, Reference Scott and Wilkinson2020).

The US argues that it is no longer appropriate to treat China and other large emerging economies like other developing countries. To quote a former US Trade Representative, “the size and growth trajectories of the emerging economies combined with the fact that some are now leading producers and exporters in key sectors … set them apart” (Schwab, Reference Schwab2011). According to the President’s 2011 Trade Agenda:

The remarkable growth of emerging economies like China, India, and Brazil has fundamentally changed the landscape … [W]e are asking these emerging economies to accept responsibility commensurate with their expanded roles in the global economy. … Countries with rapidly expanding degrees of global competitiveness and exporting success should be prepared to contribute meaningfully towards trade liberalization.Footnote 5

The US insists that the WTO differentiate among developing countries in determining access to SDT, arguing that many emerging economies have “graduated” from developing country status and need to engage in a more reciprocal exchange of concessions. US officials and industry representatives make it clear that their primary concern is China, whose economic might and perceived geopolitical threat vastly overshadow that of other large emerging economies. The US has refused to accept new obligations unless greater liberalization is required of China and the other large emerging economies (US, 2011). Yet China staunchly maintains that, as a developing country, it is entitled to SDT and has refused to make concessions to appease the US. With the US and China at loggerheads, WTO negotiations have been beset by repeated deadlock.

Since the Doha collapse, the focus of the WTO has shifted from seeking to conclude a broad-based, comprehensive trade round to trying to craft narrower, targeted agreements on specific trade issues, such as agricultural subsidies and fisheries subsidies. Yet the same conflict over how China and other emerging economies should be classified and treated under multilateral trade rules has persisted and continues to impede efforts to construct new and expanded WTO rules (Hopewell, Reference Hopewell2019).

This conflict has only grown deeper and more entrenched, with the US stepping up its criticism of allowing China and other large emerging economies to access SDT. Under the Trump administration, the issue became one of the US’s chief complaints about the WTO. As a White House memorandum put it, “the WTO continues to rest on an outdated dichotomy between developed and developing countries that has allowed some WTO members to gain unfair advantages in the international trade arena.”Footnote 6 Indeed, this alleged fundamental “unfairness” of the WTO became a key justification for the US to turn away from trade multilateralism and embrace aggressive unilateralism (in blatant violation of WTO rules) under President Trump.

The Trump administration used various carrots and sticks to pressure several countries – including Brazil, South Korea, Taiwan, and Singapore – to agree to forgo SDT in future WTO agreements. Brazil, for example, agreed to relinquish its claim to SDT in exchange for the US supporting its bid to join the OECD, which Brasilia views as essential for attracting foreign investment (Inside U.S. Trade, 2019). The US also unilaterally revoked access to SDT for many emerging economies under its own national trade laws. In 2020, for instance, the US removed 19 emerging economies, including India, Brazil, and South Africa, from its list of developing countries eligible for SDT under US countervailing duty (CVD) law, which allows certain developing countries to be exempt from countervailing duties if the subsidy level or import volume is below a certain threshold (Fortnam, Reference Fortnam2020).

Insisting that WTO agreements should be “reciprocal and mutually advantageous,” the US submitted a proposal in 2019 calling for an end to the practice of allowing states to “self-designate” as developing countries to claim SDT, arguing that this is outdated and “has severely damaged the negotiating arm of the WTO by making every negotiation a negotiation about setting high standards for a few, and allowing vast flexibilities for the many.”Footnote 7 The US proposed that the WTO adopt criteria for SDT, whereby a country would be ineligible for SDT if it is: (1) a member of the OECD, a club of primarily advanced-industrialized states, or in the process of accession; (2) a member of the G20; (3) considered a “high income” country by the World Bank; or (4) accounts for more than 0.5% of world merchandise trade.Footnote 8 These criteria would exclude China from accessing SDT in future WTO negotiations. The US proposal also left open the possibility that additional criteria could be established to exclude countries from SDT in sector-specific negotiations.

The US has enlisted the support of other established powers, such as the EU and Japan. Collectively, as part of the Trilateral Initiative, they have made SDT one of their primary objectives for WTO reform, arguing that: “Overly broad classifications of development, combined with self-designation of development status, inhibits the WTO’s ability to negotiate new, trade-expanding agreements and undermines their effectiveness.”Footnote 9 Together, these states have called on “advanced WTO Members claiming developing country status to undertake full commitments in ongoing and future WTO negotiations.”Footnote 10 The EU has also echoed the US in calling for criteria for SDT and explicitly singled out China as a country that should be excluded from access to SDT.Footnote 11

For its part, however, China has refused to relinquish its claim to SDT, characterizing SDT as a “fundamental” and “unconditional right” of developing countries that is essential for ensuring “equity and fairness” in the WTO system.Footnote 12 In the words of China’s Ambassador to the WTO, “we will never give up the institutional right of special and differential treatment granted to developing countries.”Footnote 13 It has described any attempt to “water down” SDT or differentiate between developing countries as “a certain recipe for intractable deadlock in negotiations.”Footnote 14

This conflict over how much policy space China should be allowed under WTO rules has moved beyond SDT to calls from the US and other advanced-industrialized states for reforms of the WTO to reign in China’s interventionist state and constrain its scope for developmentalist industrial policy. Under the Trilateral Initiative, the US, EU, and Japan have pushed to create stronger WTO disciplines on industrial subsidies, state-owned enterprises, and forced technology transfer – all of which are targeted at China. The established powers have proposed changes to WTO rules to expand the list of prohibited industrial subsidies and establish rules to address subsidies that cause overcapacity. The Trilateral Group has also proposed shifting the burden of proof by requiring states to demonstrate that their subsidy programs are not distorting trade or contributing to overcapacity, as well as advocating more stringent notification standards for industrial subsidies. They have also called for an expanded definition of “public body,” maintaining that the Appellate Body’s excessively narrow interpretation of the term has undermined the effectiveness of WTO subsidy rules vis-à-vis China. Not surprisingly, China has rejected the Trilateral Group’s proposals, which are specifically intended to restrict the very policies Beijing sees as essential to continuing its process of economic development and industrial upgrading. For China, the reforms proposed by the Trilateral Group are evidence that the established powers are trying to block its rise by denying it the tools necessary to catch up with the world’s most advanced economies. Once again, this fundamental dispute over how China should be treated in the trade regime and what scope it should be allowed for a developmental state has resulted in an impasse.

IV The Decline of the American Hegemon’s Institutional Power

In international relations theory, it is rising powers that are expected to be the revisionist states – those seeking to change the rules of the system to better reflect their own interests – while the hegemon seeks to defend the existing order and maintain the status quo (Gilpin, Reference Gilpin1981; Kirshner, Reference Kirshner and Blyth2009). Yet within the trading system, China is not a revisionist actor, in the sense of an actor seeking to alter the established rules of the game. On the contrary, China is broadly satisfied with the existing system of global trade rules, which has enabled its remarkable economic rise by providing access to global markets, while still allowing considerable scope for its interventionist state policies to facilitate economic development, industrial upgrading, and catch-up (Hopewell, Reference Hopewell2016). China thus has no desire to change the rules – in fact, just the opposite, it is eager to maintain the status quo. Instead, if anything, it is the US that has become the “revisionist” state in the global trade regime, dissatisfied with the inability of the WTO system and its existing rules to adequately address China’s trading practices. The US has therefore sought to alter the rules to eliminate China’s ability to claim special status as a developing country as well as to better discipline its heavy industrial subsidies and other interventionist trade policies, which the US fears are being used to erode its economic dominance. But the US has been unable to force China to capitulate to its demands or accept its desired new rules.

Until now, a distinct and defining aspect of American hegemony has been its dominance of international institutions. Emerging from the Second World War with an overwhelming preponderance of power, the US used its primacy to construct a new and unprecedented institutional order that reflected and reinforced its primacy. The WTO – as “a constitution for the global economy” (Director-General Ruggiero, cited in McMichael, Reference McMichael2004: 166) – was a core pillar of this American hegemonic order, which some have called the “American imperium” (Katzenstein, Reference Katzenstein2005) or the US’s “informal empire” (Panitch and Gindin, Reference Panitch and Gindin2012; Wood, Reference Wood2005).

Rule-making power is a crucial aspect of hegemony: a hegemon is powerful enough to maintain the rules of the system and “play the dominant role in constructing new rules” (Keohane and Nye, Reference Keohane and Nye2011: 37). For over half a century, the American hegemon dominated the GATT/WTO; it had sufficient power to play the dominant role in writing and enforcing the rules of the global trading system, including driving forward the ongoing process of constructing new rules to govern international commerce. But its rule-making power has now been impeded by China, an emerging challenger that has been unwilling to defer to American hegemony in global trade governance. The US and China are engaged in a struggle over the rules of the game – and specifically whether, and how, the rules will apply to China. China has been able to persistently block the US from achieving its objectives in global trade governance. Despite intense pressure, the US has been unable to force China to undertake greater commitments to liberalize its market in the Doha Round, subsequent post-Doha negotiations, or ongoing WTO reform efforts.

To quote Christopher Layne (Reference Layne2018: 110), “in international politics, who rules makes the rules.” In short, China’s rise has profoundly disrupted the US’s ability to make the rules. Even if the US maintains a preponderance of power in the international system, its capacity to direct and steer global trade governance – which until now has been a defining feature of its hegemony – has been severely diminished. In other words, if the US once “ran the system” as John Ikenberry (Reference Ikenberry2015) puts it, that has now been profoundly disrupted: China has proven a significant counterbalance to US power that has substantially weakened American dominance within the WTO.

V Conclusion

It has frequently been assumed that if rising powers are supporters of established governance institutions like the WTO and successfully incorporated into their decision-making structures, then those institutions will continue to function smoothly and effectively. Yet analysis of China’s impact on global trade governance refutes this view. As the world’s largest exporter, China is a beneficiary and supporter of the established trading order. In addition, China has been integrated into the WTO and incorporated into its core power structure, given a seat at the table that reflects its economic weight. The result, however, has been a direct confrontation between the US and China over the rules of global trade that has paralyzed the institution. The clash between the trading system’s two dominant powers has produced a repeated stalemate, which has effectively brought the core negotiating function of the WTO to a halt. This was evident in the breakdown of the Doha Round, and the same fundamental conflict between the US and China has persisted since the Doha collapse and continues to impede the construction of global trade rules, as well as efforts to reform the institution.

This conflict centers on how China should be treated in the trade regime. Under the rules of the WTO, developing countries are generally allowed greater scope for state intervention to foster economic growth and development. Yet while China remains a developing country, it is also now a major economic power. This paradoxical nature of China’s position in the global trading system has created serious challenges for global trade governance. China’s rise represents a new and unprecedented bifurcation of economic power and development status. Despite its considerable aggregate economic might, in terms of the average standard of living of its population, a vast gulf still separates China from the US and other advanced-industrialized states. From China’s perspective, protecting its policy space – including its ability to use interventionist trade measures such as subsidies – is essential to continuing its process of economic development. China’s interest in maintaining its scope for continued development has, however, thrown it into direct conflict with the US and other established economic powers. China maintains that, as a developing country, it should be entitled to special and differential treatment, but many states are unwilling to extend such treatment to a major economic competitor and have instead demanded universal rules and reciprocal concessions from China. Moreover, the US and other established powers have also sought to explicitly constrain China’s scope to use interventionist trade policies through the creation of stricter WTO rules on industrial subsidies and other trade-distorting measures.

For most of its history, the American hegemon played the dominant role in constructing and enforcing the rules of the trading system. But the US’s institutional power – its power over the governing institutions of the trading system and ability to set the rules of global trade – has been severely weakened by contemporary power shifts. US efforts to construct new trade rules in the Doha Round failed due to the rise of China and other emerging powers, who refused to defer to US power or capitulate to its demands. China has similarly blocked US attempts to constrain its policy space through the Trilateral Initiative’s proposed reforms. American efforts to use the multilateral trading system to discipline China’s trading practices have thus been unsuccessful, while the Appellate Body has increasingly interpreted WTO rules in ways that the US perceives as running counter to its interests. Having lost its previous dominance over the core institution and rules governing global trade, the US has grown increasingly dissatisfied with the workings of the multilateral trading system.

This is an important part of the explanation for the US to turn away from the multilateral trading system, its growing dissatisfaction with the system, and its flagrant rule-breaking. This momentous shift cannot simply be explained by the idiosyncrasies of the Trump administration or the rise of populist anti-trade sentiment that both fueled, and was fueled by, his presidency (cf. Kahler, Reference Kahler and Singh2020; Scott and Wilkinson, Reference Scott and Wilkinson2020). These trends both began before and have continued after the Trump administration (Hopewell, Reference Hopewell2021b). Explanations centered on domestic politics alone are inadequate to explain the US’s changing orientation towards the multilateral trading system. It is also a response to changes in the distribution of power in the international system. The US is responding not only to a decline in its structural power – that is, its relative economic might vis-à-vis a rising China – but also to a significant decline in its institutional power – its ability to dominate global trade governance and write the rules of global trade.

9 China’s Relations with the Global South in the World Trade Organization

Clara Weinhardt
I Introduction

When China joined the WTO in 2001, it declared that the recently launched Doha Development Round negotiations need to put the interests of developing countries centre stage. The Chinese representative speaking at the country’s first full participation of the General Council Meeting of WTO on 19 December 2001, Mr. Long Yongtu, called for WTO negotiations to facilitate ‘the establishment of a new international economic order which is fair, just and reasonable’, which would entail ‘a balance of interests between developed countries and developing countries, especially conducive to the development of developing countries’ (Mfa.gov.cn, 2001). In its 2019 communication on the Chinese reform proposal for the WTO, China reiterated that the ‘[d]evelopment issue is at the centre of WTO work’ (WTO, 2019a, para. 2.4.1). More than twenty years after its accession to the WTO, it is time to (re)assess the role that China has played on development. Has China indeed positioned itself as a development partner in WTO negotiations that sides with the Global South vis-à-vis the Global North, or has its own economic transformation diminished the scope for a shared agenda on development?

Academics that touch upon China’s role in the WTO vis-à-vis the Global South are so far divided in their assessment: those that emphasise ideological South-South ties tend to portray China’s role as a development partner (Bishop and Zhang, Reference Bishop and Zhang2020; Muzaka and Bishop, Reference Muzaka and Bishop2015; Vieira, Reference Muzaka and Bishop2012), while scholars that highlight political economy dynamics either see mixed or even competing interests vis-à-vis other developing countries (Hopewell, Reference Hopewell2021; Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, pp. 268–69). This chapter starts with a brief discussion of these conflicting perspectives on China’s role vis-à-vis the Global South, followed by an examination of China’s negotiating behaviour in the WTO. These patterns in China’s negotiation positions are then compared and contrasted with perceptions of China’s role by other WTO members.

The chapter reveals that while China seeks to align itself politically with the development agenda of the Global South in its bargaining behaviour in Trade Negotiating Committees, perceptions of its role in the WTO are mixed. As the chapter argues, China’s political intention to support a broader development agenda is increasingly undermined by the way in which its larger economic size leads to competition with other developing countries. In particular, China’s distinct economic size increasingly puts it in an ambiguous position when joining other developing country members in their demands to strengthen Special and Differential Treatment (S&D).Footnote 1 The specific conflict lines that arise reflect in part the increasing heterogeneity of the Global South. Three main patterns emerge: First, developing countries that are non-emerging economically are more likely to see China as a competitor for S&D, as compared to other emerging economies or Least Developed Countries (LDCs). Second, developing countries that share the defensive trade policy orientation of the S&D agenda are more likely to perceive China as a development partner as compared to those with a more liberal orientation. Here, conflict lines vary across negotiation issues. Third, the role China plays vis-à-vis the Global South is shaped by the larger context of their specific trade and investment relationship. China thus plays an increasingly contradictory role in the WTO, acting as a development partner for some and as a competitor for other developing countries – dependent on the negotiating issues at stake.

This chapter makes use of the following types of primary sources. First, it relies on official documentation of the WTO’s Trade Negotiations Committee (2001–2019) to assess the negotiation behaviour of China. Second, to reconstruct perceptions of China’s role, the chapter draws on a sample of 33 interviewsFootnote 2 and a survey with 22 officials conducted in Geneva with country representatives at WTO missions, WTO officials, and other trade experts.

II China and the Global South in the WTO: An Overview of the Debate

The existing literature on China’s role in the WTO is primarily interested in its participation in global trade governance, as well as the extent to which it challenges or supports the WTO’s liberal trade order. Questions about China’s relations with the Global South do not take centre stage. The most direct engagement with China’s role vis-à-vis the Global South is part of the literature that analyses bargaining coalitions at the WTO (Hopewell, Reference Hopewell2017; Narlikar, Reference Narlikar2010).

Some scholars emphasise that China has tended to side with developing country coalitions because of its growing self-identification with the so-called Global South. In particular, its shared identity as part of the Global South (Nel, Reference Nel2010) or the ‘power South’ (Acharya, Reference Acharya2014, p. 654) leads to ‘pro-Southern’ negotiating behaviour (Muzaka and Bishop, Reference Muzaka and Bishop2015; Vieira, Reference Muzaka and Bishop2012). The decision in the July 2008 mini-ministerial to side with India rather than the US is, for instance, seen as an expression of South-South solidarity ‘when this has required sacrificing a measure of China’s national interests, to support the cause of this developing country coalition’ (Chin, Reference Chin, Narlikar and Vickers2009, p. 143). Johnson and Urpeleinan (Reference Johnson and Urpelainen2020) find that developing countries – including China – exhibit surprising unity at the WTO, an assessment they base on the statistical analysis of 3.600 paragraphs of negotiation-related text on trade and environmental policy.

Southern unity in bargaining coalitions does not necessarily indicate altruistic motives. Political initiatives in favour of developing countries, and Least Developed Countries in particular, are seen to reflect the country’s intention to build soft power by projecting itself as a responsible and benign developing country (Jain, Reference Jain2014, p. 190). A number of authors mention China’s support for LDCs in the WTO (Bhattacharya and Misha, Reference Bhattacharya, Misha and Luolin2015; Jain, Reference Jain2014), as well as statements of support for the LDCs, the group of African, Caribbean and Pacific countries and the African Group (Jain, Reference Jain2014, p. 189). China has also put forward four proposals designed to protect and promote the interest of developing countries in WTO dispute settlement (Liu, Reference Liu2014, p. 127). At the same time, political considerations at times make it difficult for China to demand better market access in developing rather than developed countries, even if economic benefits are involved (Gao, Reference Gao and Deere-Birkbeck2011, p. 166).

Yet, other scholars offer a more cautious assessment of China’s role as a partner of developing countries in WTO negotiations – regardless of the motives. While they acknowledge ideological South-South ties, they claim that China’s economic interests as a major exporter and importer increasingly tend to converge with those of developed countries (Bishop and Zhang, Reference Bishop and Zhang2020, p. 7; Lim and Wang, Reference Lim and Wang2010, p. 1314). This explains why China has not proactively promoted the interests of developing countries in the bargaining coalitions it joined (Lawrence, Reference Lawrence, Eichengreen, Wyplosz and Park2008, pp. 152–153) and remains a reluctant leader in the WTO (Bishop and Zhang, Reference Bishop and Zhang2020). As noted by Vickers, ‘China’s supportive, yet backseat, role in Southern coalitions partly reflects the fact that Beijing actually shared an interest with the US and the EU in seeking greater access to large developing country markets – including Brazil and India – for its manufactured exports’ (Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, pp. 268–269). With regard to the G-20 coalition of developing countries, China, for instance, took a backseat to Brazil and India which exerted much stronger leadership (Lim and Wang, Reference Lim and Wang2010, p. 1316). In other cases, China did not even join developing country coalitions. While China endorsed many of the positions of the NAMA-11 coalition, which includes India and Brazil, it did not join the group to champion its concerns (Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, p. 267). Tu (Reference Tu, Zeng and Liang2013, p. 175) similarly concludes that even if China repeatedly claims that development should be at the heart of the Doha round, it is seen as ‘not … very active in advocating special and differential treatment’ (Tu, Reference Tu, Zeng and Liang2013, p. 175).

More recently, some scholars argue that China even acts as a competitor to the Global South, given its economic interest has become too far apart from those of the majority of (small) developing countries. Hopewell (Reference Hopewell2022) prominently claims that in the case of agricultural negotiations, China’s insistence on maintaining high levels of domestic support is harmful to other developing countries that seek access to agricultural markets. What matters here is China’s tremendous economic growth, which allowed it to become the world’s leading provider of agricultural subsidies – estimated at $212 billion in 2016 (Footnote Ibid., p. 11). Weinhardt (Reference Weinhardt2020) also finds that, inadvertently, China’s contested claims to maintain its developing country status has undermined the principle of special and differential treatment that grants exemptions and flexibilities to developing countries.

There is, however, also a growing recognition of the ambiguous position that China finds itself in between developed and developing countries. China stands out among developing country members of the WTO because of its enormous market size, continuously high growth rates and its role in driving global growth. Despite its tremendous growth trajectory, however, developmental challenges continue to exist, especially in rural China. As a result, Bishop and Zhang’s (Reference Bishop and Zhang2020, p. 7) claim that China is caught between its roles as a developing country and a country in the transformation to a ‘developed’ one. This explains why Chinese policymakers still adhere to ‘a discourse of developmental unity’ (Bishop and Zhang, Reference Bishop and Zhang2020, p. 7) – even if it pursues ‘selfish’ interests that increasingly cut across North-South lines (Gao, Reference Gao, Toohey, Picker and Greenacre2015, p. 92). More generally, China’s emphasis on its developing country identity is not only an expression of historically grown South-South solidarity, but also considered as important to help forge and maintain relations with the Global South that forms ‘the political basis of China’s international support’ (Pu, Reference Pu2019, p. 46). These more recent assessments suggest that China’s role vis-à-vis the Global South is unlikely to easily fit the binary categories of development partner or competitor. What is missing, however, is a systematic assessment that goes beyond specific negotiating issues and contrasts China’s negotiation behaviour with perceptions of others.

III China in WTO Negotiations: Eager to Position Itself as a Development Partner

China itself has been eager to position itself as a development partner in WTO negotiations. This becomes apparent both in its political support for the development orientation of the WTO’s ongoing negotiating round as well as in the pattern of its submissions to the WTO’s Trade Negotiation Committees.

(i) China’s Political Support for the Doha Development Agenda

When Doha Development round negotiations were launched in 2001, there was a clear sentiment that development needs to be central for the WTO to succeed. The Doha Ministerial Declaration (WTO, 2001) explicitly stated that ‘[t]he majority of WTO members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration’. It soon became clear, however, that the political will to deliver on this promise was rather limited. Agriculture became the major issue of the Doha Development round. Initially, China took a back seat in developing country coalitions pushing for the conclusion of a development-oriented round. For instance, at the 2003 Ministerial conference in Cancún, India and Brazil were central to the creation of the G-20 coalition that focused on agricultural negotiations. As China became more active in WTO negotiations and joined its core decision-making group in 2008 (Gao, Reference Gao, Toohey, Picker and Greenacre2015, Reference Gao and Shaffer2021), it also became more vocal in lending political support to the demands of developing countries in WTO negotiations.

China’s support for a ‘developmental orientation’ of the organisation could be witnessed prominently at the WTO’s 10th Ministerial Conference (MC10), held in December 2015 in Nairobi in Kenya. The MC10 stood out as it thought to resolve the deadlock over the continued viability of the Doha Development Agenda as a mandate for the ongoing negotiation round (Wilkinson et al., Reference Wilkinson, Hannah and Scott2016, p. 247). Major developed country members, and in particular the United States, intended to use the occasion of the MC10 to officially move beyond the Doha Development Round’s original mandate, including the Single Undertaking rule.Footnote 3 Faced with a deadlock situation since 2008, they emphasised that it was time to move on to negotiate new issues – such as e-commerce (compare Liang and Zeng, 2022, this volume) – relying on new negotiating approaches that were more flexible in excluding highly contested issues from the agenda. However, developing country members fiercely opposed this demand, as they feared that adopting a more flexible negotiating approach would effectively imply dropping those negotiating issues of particular concern to them, especially agriculture. China positioned itself as part of a developing country camp in this conflict. In a joint proposal for the conference’s final Ministerial Declaration together with Ecuador, India, Indonesia, South Africa and Venezuela, China clearly reaffirmed the original Doha mandate.Footnote 4 As acknowledged by a developed country trade official: ‘[China] has been pretty clear in all their statements that they want to complete the Doha agenda … they have been pushing hard for commitment to complete the Doha agenda. Many of us are weary of such statements’.Footnote 5 The rift between both camps was so substantial that, in a historically unprecedented way, WTO members in the end agreed to disagree.

China’s support for the Doha Development Agenda tends to reflect the importance of political ties with the Global South in Chinese foreign policy, rather than shared economic interests. China has always been keen to emphasise that it stands with the developing world, in part because close economic relations with the Global South have helped China to increase its political influence (Pu, Reference Pu2019, p. 46). Positioning China as a developing country member in WTO negotiations has thus not only been used to claim continued access to flexibilities under Special and Differential Treatment (Hopewell, Reference Hopewell2021; Weinhardt, Reference Weinhardt2020), but also to consolidate support from other developing countries (compare Pu, Reference Pu2019, p. 47). Conversely, China’s decision to side with developing countries that defend the original Doha Development Round’s mandate does not necessarily reflect its own economic interests. For instance, China has in the meantime joined the WTO negotiations for an e-commerce agreement. Launching these negotiations in January 2019 while the Doha Round had not been concluded yet has been interpreted to go against the original Doha mandate (Abendin and Duan, Reference Abendin and Duan2021). Many developing countries that are less competitive than China in the e-commerce sector, for instance in Africa, had criticised the plan to launch these negotiations (Liang and Zeng, Reference Liang, Zeng, Gao, Raess and Zeng2023, this volume; SAIIA, 2021).

China’s attempts to position itself as a development partner extends beyond lending support to the development orientation of WTO talks, and includes political initiatives geared towards capacity-building in the Global South. In 2011, China, for instance, launched the Least-Developed Countries (LDCs) and Accessions Programme. It comprises several round tables, workshops, and South-South dialogue forums, as well as an internship programme for countries that seek to accede to the WTO.Footnote 6 China has, moreover, sought to support LDCs that seek to accede to the WTO informally. For instance, when the accession negotiations with Laos ran into difficulties, the Chinese chairperson of the Accession Working Group at the time, Zhang Xiangchen, was reported to have been instrumental in facilitating a mediation process.Footnote 7 Moreover, the Chinese Deputy Director-General at the time supported Laos’ accession.Footnote 8 Drawing on its own experiences of the recent accession negotiations, China has thus been eager to position itself as a development partner of LDCs. Beyond its support for LDCs, China has also put forward four proposals designed to protect and promote the interest of developing countries more generally in WTO dispute settlement (Liu, Reference Liu2014, p. 127).

(ii) Chinese Submissions to the WTO’s Trade Negotiating Committee: Siding with Developing Countries

China’s preference to portray itself as a champion of developing country concerns in the WTO also becomes apparent when analysing the pattern in its submissions to the WTO’s Trade Negotiating Committees (TNCs).Footnote 9 China prefers submissions with other developing countries, rather than with developed countries. In case of conflicting economic interests, China tends to opt for unilateral submission.

The analysis of China’s negotiating behaviour in the WTO’s TNCs reveals that if China makes joint submissions, it has a clear preference for submissions together with other developing countries (see Figure 9.1). Out of 36 submissions that China made together with other WTO members, none was made with a group comprised primarily of developed countries or comprised of developed countries only. On the contrary, 30 were submitted with other developing countries only or with groups comprising developing countries as the majority. China only rarely made submissions as part of ‘mixed’ country groups (6 submissions).

Figure 9.1 Patterns of coalition partners in Chinese submissions in the WTO Trade Negotiating Committee and its sub-groups (2001–2019)

This pattern holds across all ten TNCs (see Table 9.1), and includes committees in which China’s economic interests are arguably closer to those of the developed rather than the developing world. This can be for instance seen in the market access negotiations, an area in which its offensive interests in improved market access for non-agricultural goods tend to converge with those of developed country members. However, China only made one related submission to the market access committee as part of the Asia-Pacific Economic Cooperation coalition that includes the United States, Canada, and Japan, which reflected a shared interest in better market access for IT products. This contrasts with the behavior of other emerging economies that more frequently joined developed country members for joint submissions regarding market access for non-agricultural goods.Footnote 10

Table 9.1 Overview of China’s joint submissions in the Trade Negotiation Committee’s sub-groups (2001–2019)

Composition of WTO members in joint submissions including China
Solely developing countriesMajority developing countriesMixed (45–55%)Majority developed countriesSolely developed countries
WTO rules42000
Services30100
Development00000
TRIPS00000
General43000
Dispute settlement00000
Trade facilitation40200
Market access11100
Agriculture70200
Trade and environment10000

What is notable, however, is that a considerable number of Chinese submissions to the WTO’S TNC did not include other WTO members: 34% of its submissions were unilateral, while 64% were submitted together with other countries. This suggests that China prefers to side with developing countries whenever it is able to find partners on given negotiating issues but does not shy away from defending its own interests unilaterally if necessary.

IV Perceptions of China’s Role vis-à-vis the Global South: Mixed Assessments

Despite China’s attempts to position itself as a development partner, its role vis-à-vis the Global South has become increasingly ambiguous in the past decade of WTO negotiations. Both its market size and its state-led economy set it apart from other developing country members of the WTO. In terms of its Gross Domestic Product, China has overtaken the United States as the largest economy worldwide in 2017, measured in terms of purchasing power parity. While China’s National Bureau of Statistics has been quick to point out that this does not change that China remains ‘the world’s largest developing country’ (SCMP, 2020), its rapidly increasing share in world trade puts the country in a central position in the world economy. In particular, with regard to trade in goods, China has become a leading exporter (16.1% of world exports) and the third largest importer (13.1% of world imports).Footnote 11 In contrast to many other developing countries that primarily trade raw materials, 43% of China’s global goods trade is in the more valuable category of high-value-added machines and electrical goods.Footnote 12 While this does not imply that China does not face development challenges anymore, the tremendous economic transformation of the country in a relatively short period of time sets it apart from other developing country members in the WTO.

While China clearly seeks to position itself as a development partner, its increasingly divergent economic position from other developing country members leads to mixed perceptions of its role. Trade representatives acknowledge both China’s desire to position itself as a partner of the developing world, as well as the way in which it may pursue self-interested economic motives. One representative claimed, for instance, that China is ‘devoting its attention to the development aspect of the WTO and ensuring that there is special differential treatment for developing countries in the negotiating functions of the WTO’ and that ‘they are very serious about being seen as a leader among developing countries in WTO’.Footnote 13 There was, however, also the perception that China defends its own economic interests against the Global South. For instance, regarding the Government Procurement Agreement (GPA), China was allegedly reluctant to grant preferences negotiated as part of GPA to India as a non-participating country.Footnote 14 Another trade official complained in an interview that ‘China has put its hand where its mouth is’.Footnote 15 In particular, regarding negotiations on agriculture, where China has become a major subsidiser itself, developing country officials increasingly perceive conflicts of interest.Footnote 16

The ambiguity that exists about China’s role vis-à-vis the Global South also comes across in the result of the survey conducted among trade officials from developed and developing countries based in Geneva. When asked whether trade officials feel that China’s negotiating positions in the WTO overlap with the interests of developing countries, the average answer is 4.5 on a scale from 1 to 7, suggesting a slightly positive answer (see Figure 9.2). Yet, variation is rather strong, with answers ranging from 2 to 7. A similar pattern emerges when interviewees were asked whether they feel that Chinese negotiating positions during the Doha round were informed by historical roles that reaffirm the importance of South-South cooperation (see Figure 9.3), with answers varying from 1 to 7, and the average answer being 4.8. In these surveys, developed country representatives tended to have a slightly more favourable view of China’s role as a development partner than developing country representatives.

Figure 9.2 To what extent do you feel that China’s negotiating positions in the WTO overlap with the interests of developing countries?

Figure 9.3 To what extent do you feel that Chinese negotiating positions during the Doha round were informed by historical roles that reaffirm the importance of South-South cooperation?

While the sample size (n = 22) is too small to be representative, these findings suggest that there is no uniform perception of China’s role vis-à-vis the Global South in the WTO. Some perceive China to act in pro-Southern ways, while others remain sceptical regarding the extent to which Chinese interests overlap with those of other countries in the Global South.

Notably, developed country representatives tended to share these mixed assessments of China’s role vis-à-vis the Global South. The semi-structured interviews and the survey revealed that, on the one hand, they tended to perceive China as more clearly in line with the agenda of developing countries. On the other hand, however, some of these officials acknowledged that regarding particular negotiation outcomes, China also defends its own economic interests against the Global South. Examples included China’s tough negotiations with South Korea that were crucial for reaching an agreement on the Expansion of the Information Technology Agreement,Footnote 17 or China’s alleged reluctance to grant preferences negotiated as part of the Government Procurement Agreement to India as a non-participating country.Footnote 18 The following section further unpacks the patterns that emerge amongst those countries that China seeks to partner with on development issues – the Global South.

V Unpacking Mixed Perceptions across the Global South: The Emergence of New Conflict Lines Linked to Special and Differential Treatment

Why do some developing countries perceive China to act as a development partner, while others do not? The explanatory patterns that emerge are linked to the political agenda of S&D for developing countries in the WTO. Three main patterns emerge: First, whether or not China is seen as a partner or competitor in S&D is shaped in part by the political status that developing countries have. In particular, non-emerging developing countries tend to see China as a competitor for these special rights. Conversely, LDCs and other emerging developing country members are more likely to continue to see China as a development partner. Second, however, issue-specific conflict lines are influenced by the extent to which other developing country members share the defensive trade policy orientation of the S&D agenda. Third, political South-South ties – and variation therein – further shape perceptions of China’s role vis-à-vis developing countries within the WTO.

(i) China as a Competitor for Special and Differential Treatment: Emergent vs. Non-Emerging Developing Countries

S&D was introduced into the world trading system to counterbalance the demands for trade liberalisation with those for ‘equitable socio-economic development’ (Lichtenbaum, Reference Lichtenbaum2001, 1008). The principle grants special rights such as exemptions from liberalisation commitments or longer transition periods to developing countries, given that they are perceived to be in a disadvantaged position versus developed countries. Whether or not, and how, such a defensive S&D agenda serves the interests of developing countries in the WTO has been and remains hotly contested. Divergent viewpoints reflect different assessments of the causal link between the depths of trade liberalisation commitments and economic development (compare Low, Reference Low, Hoekman, Tu and Wand2021).

Another highly controversial aspect of S&D in the WTO is that regime members can self-declare the status they have. This creates incentives for emerging economies such as China to maintain their political status as developing countries, given the special rights that this status is associated with. For the same reason, the US and other developed countries contest China’s political status as a developing country in the WTO, given that they perceive China increasingly as an economic competitor. As a result, the status of emerging economies such as China has become a central issue of conflict and contestation in the WTO (Hopewell, Reference Hopewell2020; Weinhardt, Reference Weinhardt2020; Weinhardt and Schöfer, Reference Weinhardt and Schöfer2022).

What has received less attention, however, is that other developing country members may also increasingly perceive China as a competitor. Perception is different, however, depending on whether developing countries are themselves considered to be emerging. While China’s self-declared status has been at the centre of US calls for reforming S&D, the proposed changes affect other larger developing countries as well. In 2019, the US proposed a set of criteriaFootnote 19 in the WTO General Council to define and delimit who should have access to S&D (WTO, 2019c). According to this definition, 34 self-declared developing country members of the WTO were to graduate from developing country rights. Larger developing countries that are also considered to be emerging are thus more likely to side with China, as they fear that greater differentiation would also reduce their own access to S&D. Indeed, in response to the US proposal, China, India, South Africa and Venezuela submitted a joint communication at the General Council to defend the existing system of S&D that allows all WTO members to self-declare their status as developing countries (WTO, 2019d).Footnote 20 For these countries, China acted as a development partner.

Conversely, developing country members that are not commonly considered to be emerging economically are more likely to see China (and other emerging economies) as unfair competitors for these special rights. The benefits derived from S&D may become smaller for them if they have to be shared with emerging economies such as China. One representative from the Global South for instance complained that: ‘Amongst developing countries, there is China, there is India, Brazil, but if they are allowed the sorts of flexibilities that are usually carved out for developing countries, it will put them in stronger economic position than us the developing countries who are their direct competitors in the market’ (quoted in Weinhardt, Reference Weinhardt2020, p. 405). This concern was shared by other representatives from non-emerging countries in the Global South,Footnote 21 with one official claiming that among the negotiation group comprised entirely of developing countries that he was working for, there is ‘the sentiment that they do the competition with them [emerging economies such as China] for S&D but are not at the same level of development’.Footnote 22

Lastly, China’s support for S&D in its negotiation positions is least controversial when it seeks to strengthen these special rights for the narrow group of LDCs – rather than for itself.Footnote 23 An example is China’s support for the LDC countries’ repeated requests for a prolongation of the TRIPS waiver, which developed countries tended to question. Here, flexibilities are reserved for a clearly defined and narrow group of WTO members – which excludes most developing countries, and most certainly those that are emerging economies.Footnote 24 Evidence from the semi-structured interviews suggests that LDC representatives also assess China’s political support within the WTO positively. One representative, for instance, mentioned that China urges other developed countries to be more flexible when LDCs negotiate accession to the WTO compared to other countries.Footnote 25 The trade official also positively referred to the South-South Dialogue on LDCs and development than China initiated, and that China is granting duty-free and quota-free market access to all LDCs.Footnote 26 This indicates that China most unambiguously acts and is perceived as a development partner in negotiating issues where its distinct economic size is less pertinent, such as support for LDCs.

(ii) Issue-Specific Conflict Lines: Defensive or Offensive Trade Policy Orientation?

Perceptions of China’s role are, however, not only shaped by the political status of countries from the Global South. Issue-specific conflict lines are central in shaping whether or not China is perceived as a development partner. Given the inherently defensive nature of the S&D agenda on development, developing countries that pursue a liberal, and more offensive, trade policy orientation are more likely to see China as a competitor rather than a development partner. Notably, these conflict lines can vary across negotiating issues, and partly cut across the political conflict lines (see Section V(i)).

An insightful example of how these issue-specific conflict lines play out is WTO negotiations on agriculture, a key aspect of the Doha Development Agenda. The issue of agricultural subsidies has traditionally split WTO members along North-South lines, pitting developing country members that do not have the capacity to subsidies their own agricultural sectors against developed country members as heavy users of domestic support. However, these conflict lines have recently shifted since China itself – facilitated by its economic rise – has become one of the major providers of agricultural subsidies (Hopewell, Reference Hopewell2021). With the Nairobi Ministerial Conference in 2015, attention in agricultural negotiations shifted away from questions of market access to a primary focus on domestic support. This brought to the forefront China’s support measures for domestic farmers, which China justifies with reference to its status as a developing country and as support to the subsistence of farmers – in contrast to subsidies in the US, the EU, and other developed countries paid to agribusinesses.Footnote 27 WTO rules indeed grant China more flexibility regarding specific domestic support levels as compared to developed countries. It holds a so-called de minimis threshold that allows for subsidies of up to 8.5% of the value of production, while this level of subsidies for developed country members is 5%.

Whether or not other developing country members of the WTO perceive China’s defensive position on domestic support is shaped by the specific constellations of interests at stake. China has consistently been a net importer of foodstuffs over the past two decades. Strong state-permeation continues to characterise the agricultural sector which is deemed largely uncompetitive despite substantial reforms since the 1980s (Weinhardt and ten Brink, Reference Weinhardt and ten Brink2020, pp. 268–269). Moreover, since the 2008 world food price crisis, the provision of subsidies in agriculture is seen as necessary not only for stability, employment, poverty alleviation, and development (Liang, Reference Liang, Zeng and Liang2013, p. 213) but also for food security. Together, these features in China’s trade profile lead to a defensive stance that China has adopted on international agricultural policy since WTO accession in 2001.

Whether or not other (emerging) developing countries see China as a development partner in these negotiations depends in part on their specific trade policy orientation. China’s defensive stance on domestic support is, for instance, shared by India. The continued prevalence of large-scale subsistence farming in its economy, that is, of small, peasant-based production for domestic, and the need to safeguard rural employment and the livelihoods of peasant farmers lead to a defensive position in agricultural trade. This convergence of defensive interests, as well as their reluctance to graduate from the developing country status, made them development partners in agriculture. In 2017, India and China, for instance, submitted a joint reform proposal on agriculture at the WTO Ministerial Conference in Buenos Aires. Conversely, Brazil – even though also an emerging developing country member – sided with the European Union and tabled a reform proposal that also entailed subsidy cuts by developing country members. This difference in position reflected Brazil’s highly liberal trade policy orientation in agriculture, which conflicted with China’s defensive stance adopted on domestic support.

Non-emerging developing countries were likely to perceive China’s position on domestic support as unfair competition if they were net-agricultural exporters, and hence offensive in policy orientation. More precisely, the trade-distorting effects of Chinese subsidies are of particular concern to developing countries that export agricultural products that receive domestic support. These products include cotton in the case of African countries, soybean in the case of Brazil and other Latin American countries, and rice in the case of Laos, Bangladesh and Vietnam.Footnote 28 An official from a non-emerging developing country, for instance, complained that Chinese subsidies negatively affect other developing countries because of the size of its domestic market: ‘China says it is using its domestic support only for farmers that produce for the domestic market, but even this affects others. There will be fewer imports.’Footnote 29 China’s domestic economic policies on agriculture indeed have a crucial effect on the growing South-South flows of agricultural trade (Belesky and Lawrence, Reference Belesky and Lawrence2019, p. 1123). That China has become the world’s largest agricultural import market in 2020 (United States Department of Agriculture, 2020) magnifies the trade-distorting effects of its subsidies.

The example of WTO negotiations thus illustrates that China has become a competitor for some developing countries, and remains a development partner for others. Developing countries that do not share the defensive trade policy orientation of the S&D agenda are likely to hold conflicting interests with China, as it seeks to promote special rights for developing countries – including itself. These conflict lines may partly cut across the political differentiation between emerging and non-emerging developing countries.

(iii) Perceptions of China’s Role Are Shaped by Larger Context of South-South Ties

Mixed perceptions of China’s role via-a-vis the Global South in part also reflect the ambiguous role that South-South ties play in the WTO context. China’s paradoxical situation (see Hopewell, Reference Hopewell2022, this volume) – a major economic power, but politically part of the developing country group – may lead to ambiguous assessments. The difficulty of assessing its role stems from weighing the economic implications of individual Chinese negotiating positions that may be detrimental for some developing country members against the broader political support for a ‘Southern’ agenda that they may stand for, a theme that emerged in several interviews.Footnote 30 Developing country officials are, moreover, cautious not to side with the Western trading nations in the conflict over agriculture. While they may share in interest in China reducing its domestic support, conflict lines are more complex: Developed countries are also perceived to be part of the problem. Regarding agricultural subsidies, a developing country official for instance remarked: ‘Because if we say, let’s support the US in terms of pressing China to reduce its subsidies, the danger is that the US takes advantage of China not doing it and turn around and say, “because they are not willing, we are not willing”’.Footnote 31

Moreover, few developing countries openly portray China as a competitor for S&D. This lack of open criticism of China should not be mistaken for reaffirmation of China’s position. The interviews revealed that developing country members often do not dare to speak up against China given its importance as a development partner outside of the WTO context (compare Shaffer and Gao, Reference Shaffer and Gao2020). One developing country trade representative stated that there is a sentiment that China is not a developing country and therefore should not receive the same treatment as other developing countries under S&D – a call for greater differentiation within the developing country group. Yet, the negotiating group the interviewee worked for would never openly make such as claim, mainly because ‘it is political.’Footnote 32 A former trade official from Africa similarly argued that: ‘The economic relations with China are so that any African country cannot dare to stand up against China. China is the largest export destination of African commodities, China is the biggest donor…. this means that you cannot open your mouth to speak up on differentiation.’Footnote 33 The role that China plays vis-à-vis the Global South is thus in part shaped by the larger trade and investment relations it has with other developing countries – and how the rise of China has affected them.

VI Conclusion

Since joining the WTO in 2001, China has become a major economic player in global politics. This chapter has revisited its role vis-à-vis the Global South in multilateral trade policymaking. The scholarly literature tends to portray China either as a development partner, given ideological South-South ties, or as a competitor whose economic interests as a major trading nation increasingly overlap with those of developed country members. This chapter shows that as China transforms economically but continues to seek political alliances with the Global South, its role cuts across that of either a development partner or a competitor.

The chapter has shown that China plays an ambiguous role in the WTO. On the one hand, China continues to lend its support to the broad development agenda of the WTO’s ongoing Doha Development Round. Similarly, China’s submissions to the WTO’s Trade Negotiation Committee are primarily together with other developing country members. On the other hand, the analysis of perceptions of other WTO members reveals that China’s attempts to portray itself as a development partner do not always succeed. First, there is no uniform assessment of China’s position towards the Global South. Trade representatives disagreed substantively on the importance of South-South ties and the overlap between China’s economic interests and those of other developing country members. Second, China’s political claims to the developing country status are increasingly seen as a source of competition, especially by other non-emerging developing country members. In this regard, China’s role vis-à-vis the Global South is similar to those of other emerging economies such as India that are reluctant to graduate from the developing country status. Third, developing countries that share the defensive orientation of the S&D agenda on a given negotiating issue are more likely to see China as a development partner than those with a more offensive, or liberal, policy orientation. This point illustrates that what counts as ‘development-oriented’ is in part shaped by ideological beliefs about what depths of liberalisation commitments are conducive for economic development. Lastly, China’s role is interpreted against the context of China’s role as a development partner outside of the WTO, which also differs across countries and regions.

Taken together these findings illustrate how the paradoxical situation of China (Hopewell, Reference Hopewell2022, this volume) – as a major economic player that self-identifies as a developing country – leads to ambiguity in its role vis-à-vis the Global South. This finding contrast with one-sided assessments as either ‘pro-Southern’ or detrimental for other developing countries, and contradict, for instance, Johnson and Urpelainen’s (Reference Johnson and Urpelainen2020, p. 468) conclusion that ‘major developing countries do not seem to be abandoning their less prosperous Southern brethren’, and in turn ‘receiv[e] Southern backing’. Considering the broader context of WTO negotiations, moreover, helps us to contextualise findings about China’s role as a competitor for developing countries in specific issues such as agricultural negotiations (Hopewell, Reference Hopewell2021): While China’s rise does not translate into a strengthened development agenda across the board, old North-South dividing lines do not necessarily disappear. Instead, coalitions within the Global South become more fragmented and complex. The relation between China and the Global South thus develops in parallel to the broader conflict over the future of the WTO (Hoekman et al. Reference Hoekman, Tu, Wolfe, Gao, Raess and Zeng2023 this volume; Hopewell Reference Hopewell2020; Muzaka and Bishop, Reference Muzaka and Bishop2015).

10 China and the BRICS in WTO E-Commerce and Fisheries Negotiations Competition and Convergence

Wei Liang and Ka Zeng
I Introduction

As the guardian of multilateral trade liberalization, the World Trade Organization (WTO) is currently confronted with the deepest crisis since its initial inception. Among other challenges, the rising economic clout of China and the incompatibilities between its model of state capitalism and the rules-based neoliberal economic order have raised important questions about the degree to which China’s participation in the WTO may have compromised the effectiveness and credibility of the multilateral trade institution.

Coincidentally, we have also witnessed the growing influence of emerging economies, including India, Brazil, Russia, and South Africa in WTO negotiations in the past two decades. Different from the interactions and policy coordination among the Quad countries consisting of the United States (US), the European Union (EU), Canada, and Japan in past negotiations taking place within the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT), the BRICS have presented a unique model of “coopetition” featuring both the pursuit of a common development agenda and competing national interests.

What role have China and other BRICS countries played in more recent WTO negotiations? This paper addresses this question through an analysis of the behavior of the BRICS in WTO negotiations on e-commerce and fisheries subsidies. By examining the evolving positions and tactics of this group of countries during various stages of the negotiation process, we illuminate areas where the BRICS have been able to proactively cooperate with one another through coalition building and areas in which they have failed to effectively negotiate as a group due to disparate domestic interests and the absence of a common vision on how (and where) to move forward. The chapter further assesses the extent to which such differences have influenced negotiation outcomes across the key issue areas under consideration.

We choose to focus on the e-commerce and fisheries subsidies negotiations for a couple of reasons. First, e-commerce and fisheries subsidies are two important ongoing WTO negotiations that have important implications for the future legitimacy and credibility of the WTO. Second, these two negotiations represent two different sets of challenges presented to the WTO in the future – making new trade rules to regulate today’s global trade practices in the case of e-commerce and developing viable solutions to the challenges of addressing environmental and developmental concerns within the WTO framework in the case of fisheries subsidies. Third, with the rise of China in the past two decades, its trade interests have diverged from that of the majority of the developing countries and in particular those of India and Brazil in important ways.

In the e-commerce negotiations, seeing itself as a potential leader in this new trade issue area, China seeks a driving seat to write new rules to reflect its dominant position in global e-commerce and to safeguard its commercial interests and ability to effectively compete with the US and other developed countries. In contrast, India and Brazil have been less keen to play a proactive role in the e-commerce negotiations as e-commerce is not a top priority in the making of their trade policy. In the fisheries subsidies negotiations, China chose to take a low-profile and ambiguous position. Today China has emerged as the world’s largest fisheries subsidizer. Therefore, pressuring China to make deep cuts in its fisheries subsidies, especially those supporting capacity-enhancing activities, in the negotiation is the only way to ensure a meaningful and impactful WTO fisheries subsidies agreement. Although China, India, and Brazil all support the flexibility of special and differential treatment (SDT), the reality is that India and Brazil stand a better chance of receiving the SDT flexibilities they need to keep some policy space in this issue area when China is no longer viewed as a helpful addition to their coalition. Hence a comparison of these two cases will shed light on the effect of the semi-coordination among the BRICS countries on multilateral trade negotiations, WTO reform, and the BRICS’ future cooperation in global governance.

Our findings suggest that while North-South conflicts still present a major impediment to WTO negotiations, the nuanced and differentiated interests among the BRICS have further complicated the picture, contributing to the impasses in the WTO negotiations and to the current crisis faced by the WTO in general.Footnote 1 Despite its shared identity and common interests with the latter in promoting the development needs of the South, China’s specific negotiation interests frequently departed from those of the emerging economies and the majority of the smaller developing countries. More importantly, since the Uruguay round negotiations, the developing countries coalitions led by India and Brazil have increasingly treated China as a liability which impeded them from receiving SDT flexibilities, and this is especially the case as China has continued to insist that it is still a developing country.

Especially, in e-commerce negotiations, China’s much more developed domestic e-commerce market means that it is much less concerned than BRICS countries such as India and South Africa about the potential of e-commerce negotiations to undermine the goals of the Doha Development Agenda (DDA). However, while Beijing is more willing to support negotiations designed to facilitate data flows compared to some other BRICs and the least-developing countries (LDCs), its stronger concerns about the need to maintain sovereignty and domestic regulatory control also means that its preferences are far apart from those of the major players such as the US and the EU over issues such as data localization, privacy and personal data, and transfer of source code. China’s different negotiation stance vis-à-vis both developed countries and emerging powers, along with the heterogeneity of the preferences among the BRICS countries, thus undercut the possibility that the BRICs could form an effective coalition to assert and advance their interests in the negotiation process.

In the fisheries subsidies negotiations, China continues to seek greater flexibilities granted to developing countries even though it is the largest fishing nation, the largest exporter of fish, and the largest subsidizer. Both India and Brazil’s latest proposals have explicitly provided metrics to exclude China from receiving the preferences associated with SDT. The split of interests among both developed countries and developing countries, in addition to the North-South divide, thus complicated and significantly delayed the negotiation process. The new reality seems to be that being the largest subsidizer, China’s effort to defend the SDT has de facto weakened the likelihood for other developing countries to receive it. Excluding China from the developing countries’ coalition has become a necessity for developing countries to achieve their desired negotiation outcome.

The rest of the chapter is organized as follows. Section II presents an overview of how the differences in the negotiation preferences and positions between China and the rest of the BRICs have shaped the processes of the WTO e-commerce negotiations. Section III turns to a detailed discussion of the fisheries subsidies negotiations. The chapter concludes by comparing the dynamics of the two sets of negotiations and discussing the implications of our findings for the future of global trade governance.

II WTO E-Commerce Negotiations

The drawn-out negotiations over e-commerce highlight sharp conflicts between China and other major powers such as the US and the EU. The substantially different negotiation preferences and approaches among the BRICS further compounded these differences and undermined the group’s ability to pursue a common negotiation agenda.

(i) Divergences among the Major Players

Progress toward WTO negotiations over e-commerce has been impeded by significant differences in the negotiation approaches among the US, the EU, and China over highly contentious issues such as data flows, data location, and “privacy invasion by data collectors.” Notably, the US position focused on eliminating cross-border restrictions on data, promoting the competitiveness of US digital networks, minimizing regulatory divergences across countries, and reducing the burden of regulatory compliance (US Mission in Geneva, 2019). In line with this goal, the US approach sought to limit the extent to which considerations about consumer protection or privacy regulations may influence the design of global e-commerce rules (Kilic, Reference Kilic2021).

In contrast to the United States and some other developed country governments which place greater emphasis on reining in Big Tech, the EU, with its stronger oversight of the industry and a less developed digital economy (UNCTAD, 2019), puts a stronger emphasis on the protection of data privacy and favors strong disciplines on algorithms and/or source code. In addition, the EU has strong concerns about the lack of coherent rules regarding internet taxation that could effectively tackle tax avoidance by multinational corporations, proposing both a digital services tax and a digital profits tax targeting large technology firms’ revenue and profits associated with activities in EU member states in 2018. The US strongly opposes such unilateral proposals on the grounds that they potentially violate tax treaties and other agreements.

China’s approach toward e-commerce negotiations diverges from those of the US and EU in a few important respects. While many of China’s proposals favor measures that would facilitate digital trade and protect consumer interests, its proposals have also emphasized security exception and content review, raising concerns about whether it would be willing to accept the main demands of the US and other Western countries regarding the free flow of information across borders, prohibition on localization requirements, the protection of privacy and personal data, and the forced transfer of source code (Gao, Reference Gao, Peng, Lin and Streinz2020; Hufbauer and Lu, Reference Hufbauer and Lu2019).

Overall, while the US and other industrialized countries aim to reach an ambitious high-standard WTO agreement, China has placed considerable emphasis on the development dimension of e-commerce, insisting that developing countries should receive SDT in WTO negotiations, including e-commerce negotiations. Not surprisingly, the US strongly opposed China’s self-identified developing county status on the ground that it can be invoked by Beijing to exempt itself from certain obligations, potentially leading to the abuse of SDT for developing countries in the WTO system.

(ii) Dissension among the BRICS Countries

The divide between developed and developing countries was further compounded by the divergent negotiation preferences and approaches among the latter, notably among the BRICS countries. India, for example, was highly critical of moves to craft rules on e-commerce before the conclusion of the DDA trade negotiations. Along with many least developed and developing countries, India emphasized that in view of its nascent e-commerce policy and ongoing “digital transformation,” the promulgation of data regulation laws and digital industrialization plans should take precedence over the negotiation of rules governing digital trade. India additionally “highlighted the importance of policy space in terms of ownership, use, and flows of data in rapidly growing sectors such as cloud computing and data storage” (UNCTAD, 2020: 15). Due to such concerns, India and South Africa have chosen to stay outside of WTO e-commerce negotiations.

In contrast to India and South Africa which have taken an uncompromising stance on the issue, Brazil and Russia have adopted a more proactive approach toward the joint statement initiative (JSI) negotiations. As both countries have relatively large e-commerce markets and relatively well-developed regulatory frameworks for e-commerce (Thorstensen et al., Reference Thorstensen, Mascarenhas and de Paola2019), they are less concerned about the potential adverse developmental impact of e-commerce negotiations and have been actively involved in efforts to submit proposals and to create small working groups to encourage regulatory cooperation and facilitate the free flow of data. The BRICS countries’ divergent interests in e-commerce therefore have accentuated the heterogeneity of WTO members’ negotiation positions and exacerbated the difficulties of reaching an agreement among the participating members.

(iii) The Run-Up to the 2017 11th Ministerial Conference (MC 11)

While earlier e-commerce negotiations have generated some positive results (Ismail, Reference Ismail2020), it was not until 2016 that negotiations once again gained momentum. According to Gao (Reference Gao, Peng, Lin and Streinz2020: 6), China was initially reluctant to support the launch of the negotiations, insisting that it was not ready for the negotiation of new rules on e-commerce and that the negotiations should, at least initially, focus on trade facilitation and transparency measures and exclude new market access commitments (WTO, 2017a). Unlike either developed countries which sought to make digital commerce a high priority in the WTO agenda or LDCs and most developing countries calling for the negotiation of the unresolved DDA issues, China took a middle approach that supports more focused negotiations on e-commerce, while at the same time prioritizing developing country issues. While generally favoring the development of new rules to facilitate e-commerce, China simultaneously opposed those prohibiting data controls (Macleod, Reference Macleod2017). Together with countries such as Argentina, Chile, Colombia, Costa Rica, Kenya, Mexico, Nigeria, Pakistan, Sri Lanka, and Uruguay, China formed the group of the Friends of E-commerce for Development to emphasize the development dimension of e-commerce issues (Darsinouei, Reference Darsinouei2017).

In the run-up to MC 11, a group of countries sought to pursue multilateral negotiations by converting the work program into negotiation mode with a new ministerial declaration. BRICS countries such as Russia, along with other proponents of the proposal, called for the establishment of a “Working Party” at the Buenos Aires meeting to engage in preparatory work for future international rule-making on e-commerce issues (WTO, 2017d). They further supported “the continuation of the current practice of not imposing customs duties on electronic transmissions” until the next sessions which would be held in 2019 (UNCTAD, 2020). This group of countries issued statements and proposals on potential issues for discussion, including data flows, data protection, market access, infrastructure development, and trade facilitation.

Brazil has also been actively making submissions, putting forward a proposal with Argentina and Paraguay on electronic signatures in December 2016 (JOB/GC/115) and another one with Argentina on e-commerce and copyright in March 2017 (JOB/GC/113/Rev.1) (WTO, 2016, 2017e). The 2016 submission on e-signature details the definition, legal effects, and liability associated with electronic documents and electronic signatures (WTO, 2016). The 2017 submission in turn underscores the importance of the principle of transparency as it relates to digital trade. It further highlights the need to uphold the principle that “exceptions and limitations available in physical formats should also be made available in the digital environment” (WTO, 2017e).

However, the proposal to create a new working group encountered strong resistance from many developing and least-developed countries. For example, along with the African Group, Uganda, which represented the interests of LDCs, and several other members, India raised serious concerns about the underlying motives of the negotiations, arguing that the proposals may potentially undermine the 1998 work program and jeopardize the “development space” for industrialization provided by the DDA (Lemma, Reference Lemma2017). India argued that it would like to see the continuation of the 1998 e-commerce work program that provided an exploratory and non-negotiating mandate, criticizing proposals to establish a Working Group at Buenos Aires as efforts aimed at imposing a “top-down” instead of a “bottom-up” approach (Kanth, Reference Kanth2017). India further linked the extension of the two-year moratorium for not imposing customs duties on e-commerce transactions with the moratorium on TRIPS non-violation and situation complaints.

South Africa joined India in this effort, promising to fight ferociously against the proposals. Along with the African group, it strongly resisted efforts to change the current structure of institutional arrangements of the Work Program, raising questions about whether the commitments negotiated under the Uruguay Round should be applied post hoc to emerging technologies, services, and business models (Kanth, Reference Kanth2017). Viewing e-commerce negotiations as reflecting divergent views among members regarding the technological neutrality of the General Agreement on Trade in Services and whether products delivered electronically should be considered as goods or services or both, the African Group pointed out that the negotiation of new multilateral e-commerce rules would be unlikely to deliver concrete results before these issues could be resolved. Rwanda echoed this view, suggesting that the establishment of a Working Group would not undo these divergences and that more time should be given to put the Work Programme to work before changes are made to its underlying structure (Kanth, Reference Kanth2017).

In short, India and South Africa, along with other developing countries and LDCs, were strongly concerned about the digital divide that prevents them from fully participating in e-commerce activities, focusing instead on “enabling issues” that will allow them to overcome the barriers they face in relation to their better participation in e-commerce. They therefore opposed e-commerce negotiations and called for focusing the negotiations on the unresolved DDA issues and continuing the discussions about e-commerce within the current mandate of the Electronic Commerce Work Programme.

As a result of divergent negotiation approaches, Member countries dropped the idea of beginning multilateral negotiations on e-commerce early into MC11 (WTO, 2017c). Instead, 43 WTO member countries issued the JSI 2017 indicating an intention to undertake “exploratory work” in preparation for future plurilateral negotiations on the issue (WTO, 2017b). The JSI 2017 received a mixed reception among WTO members. In particular, there remained concerns that it might run counter to some core WTO principles, that the new issues lacked specific negotiating mandates, and that they were not prepared to take on commitments in these new areas (Kanth, Reference Kanth2017).

(iv) The Second E-Commerce Joint Statement Initiative and the Road to MC12

While key players in the first JSI have continued negotiations following MC11 and issued three trilateral statements after 2018, the divergent negotiation approaches among member states were again reflected in the negotiations leading up to the conclusion of the second Joint Statement of January 25, 2019, in Davos and afterward. While the number of co-sponsors had increased to 76 members by the time of the second JSI talks and more members have been invited to join the process, there existed widespread recognition among negotiation parties of the different challenges faced by developing countries and LDCs (WTO, 2019a, 2019b).

As one of the first parties to submit an initial discussion paper, the US position represented an extension and, in some respects, enhancement of the commitments it made in the Trans-Pacific Partnership, which subsequently have been refined in the Digital Trade chapter in the US-Mexico-Canada Agreement. As such, it included strong commitments to the protection of cross-border data flows and prohibitions on data localization mandates and signaled a strong commitment to the protection of proprietary information (Fefer, Reference Fefer2020: 19–20).

At this time, China had come around and made a “last-minute” decision to join the second JSI in order to revitalize the rules-based multilateral trading system, promote developing country interests in global value chain integration, and influence the process of rule-making for e-commerce and cyberspace (Gao, Reference Gao, Peng, Lin and Streinz2020; WTO, 2019b). However, despite its participation, China insisted that the negotiations should “set a reasonable level of ambition” and “uphold the development dimension” considering “the difficulties and challenges faced by developing Members” (WTO, 2019b: 1–2). It has also sought to maintain a delicate “balance between international rule-making and the sovereign right to regulate” and continued to insist on “cyber sovereignty,” as reflected in its adoption of a series of cybersecurity laws, internet censorship, and data localization requirements.

The EU took a somewhat different approach from both the US and China in its proposal. While the EU position was similar to that of the US on issues such as the protection of cross-border data flows and the prohibition of localization requirements, it also put a stronger emphasis on the protection of data privacy in a way that reflects the EU’s domestic policy priorities, potentially undercutting its commitment to cross-border data flows (Fefer, Reference Fefer2020).

The proposals submitted by other countries sought to bridge the differences between the US and Chinese proposals. However, progress toward the conclusion of an agreement continued to be stymied by the heterogenous negotiation positions of the participating parties on issues such as the implications of e-commerce negotiations for domestic regulatory sovereignty, the continuation of the moratorium on duties on electronic transmissions, and consumer protection and security.

In its submission, Russia emphasized that “future discussions should cover all aspects of e-commerce without splitting topics on e-commerce for separate discussions” and proposed a work structure to examine gaps in existing WTO agreements as they pertain to e-commerce “as a first step to understanding the potential gains of a future agreement” (ICTSD, 2018). The Brazilian communication in turn emphasized the importance of development as a core dimension in e-commerce negotiations and called on participating countries to adopt a flexible approach and engage in a closer examination of the opportunities and challenges faced by developing countries as well as their specific needs regarding e-commerce development (WTO, 2018). Other issues that have gained some prominence in the Brazilian submission included improved market access commitments for e-commerce trade in goods and services and electronic authentication methods and access to online payment solutions (WTO, 2018).

Notably, India and South Africa have continued to remain outside of the negotiations of an e-commerce agreement. Both countries have reiterated their position that plurilateral negotiations on e-commerce trade may limit their ability to protect or promote domestic industrial development or to raise tariffs on digital products, preferring instead to preserve their policy autonomy and flexibility. In contrast to the position of most of the negotiation parties, both have also been pushing for the discontinuation of the e-commerce moratorium which they fear may constrain their ability to generate the much-needed revenue and produce globally competitive internet companies.

On June 4, 2019, the two countries issued a communique requesting that the WTO revisit the moratorium renewal (“India, SA ask WTO to Review Moratorium on E-Commerce Custom Duties,” 2019). In March 2020, India and South Africa tabled a joint submission regarding the moratorium, once again highlighting developing countries’ concerns about the importance of retaining the necessary space for digital development (“India Not Participating in Plurilateral Discussions on E-Commerce at WTO,” 2021). In December 2020, they circulated a communication (WT/GC/W/812) cautioning against the narrow focus on the “development of legally binding rules” which could risk the “further marginalization of developing countries in global trade” (WTO, 2020b). The communication additionally encouraged the members to structure the discussions on the moratorium around the themes outlined in a proposal (WT/GC/W/747) that the two countries submitted in 2018.Footnote 2

A group of members composed of both developed and developing countries, including Australia, China, Colombia, and Switzerland, subsequently carried out the structured discussions and circulated a communication calling for a “more holistic approach” towards the negotiations that would take into consideration their impact on consumers and the competitiveness of different sectors of the economy (WTO, 2020c). At a General Council meeting in March 2021, India and South Africa further submitted a communication for discussion challenging the “legal status of Joint Statement Initiatives and their negotiated outcomes” (WTO, 2021a, 2021b, 2021c). The paper raised questions not only about current WTO practices for modifying existing agreements and for including plurilateral agreements but also about whether discussions of digital trade rules should take place within or outside of the WTO institutional structure (Stewart, Reference Stewart2021).

Overall, while the number of participants in the JSI has grown to include 86 WTO members (WTO, 2020a), progress remained slow due to opposition and the lack of participation from India, South Africa, LDCs, and members from Africa, the Caribbean, and the Pacific regions. While a draft consolidated text was circulated among participants in December 2020 and negotiations have subsequently proceeded under the leadership of Australia, Japan, and Singapore, no agreement has yet been reached on key issues of concern to the participants. With MC12 being postponed to November 2021 due to the ongoing pandemic, it remains unclear whether any negotiation breakthroughs could be achieved at the conference.

III WTO Fisheries Subsidies Negotiations

This section turns to an analysis of the fisheries subsidies negotiations, showing how this set of negotiations demonstrates a somewhat similar, though not entirely identical, pattern to that observed for e-commerce negotiations.

Sustainable and equitable fisheries are essential for alleviating poverty, providing nutrition, and protecting marine biodiversity. The WTO is in the final stages of negotiating an agreement to prohibit harmful fisheries subsidies, which is the United Nations Sustainable Development Goal (SDG) 14.6 (UN, 2015). The prolonged fisheries subsidies negotiation represents a top priority on the WTO agenda today and is crucial for keeping the WTO relevant as the global trade governance organization. As stated by the WTO Director General (DG) Okonjo-Iweala (Reference Okonjo-Iweala2021), “I think everyone agrees with me that if there is anything that would demonstrate that the WTO is back and capable of having positive results, it is a good outcome early enough this year to these fisheries subsidies negotiations.” However, despite their presumed importance, the negotiations have missed a few scheduled deadlines, from June 2020 to July 2021, due to the logjam of several contentious issues that have set key negotiation parties apart.

Subsidies refer to financial transfers from public entities to benefit private actors (WTO SCM agreement). The WTO provides general disciplines on categorizing and addressing trade-distorting subsidies through the Agreement on Subsidies and Countervailing Measures (SCM agreement). Fisheries subsidies are broadly classified as beneficial (e.g., management), ambiguous (e.g., infrastructure), and “harmful” (e.g., fuel and vessels subsidies). Fisheries subsidies have expanded significantly in recent decades among many WTO member states. Public entities around the world have provided $35.4 billion in fisheries subsidies in 2018. Among them, capacity-enhancing subsidies constituted 52.7 percent of total subsidies, at over $22.2 billion (Sumaila et al., Reference Umaila2019), followed by beneficial and ambiguous subsidies, each accounting for about 29.9 percent and 7.1 percent of total subsidies, respectively (Wong, Reference Wong2021). The effects of harmful fisheries subsidies are well-publicized and widely agreed upon. When subsidies are tied either directly or indirectly to capacity enhancement, they will cause overcapacity (i.e., the existence of more fishing power than needed to take the maximum sustainable yield), which will further lead to overfishing with growing economic waste and declining fish stocks.

Harmful fisheries subsidies have put developing countries in a more disadvantaged position in global trade. The top-five subsidizing nations, China, the EU, the US, South Korea, and Japan, provide four times as much subsidies as all the low-income countries combined (Sumaila et al., Reference Umaila2019). Countries high on the UN Human Development Index (HDI) provide roughly 87 percent of total subsidies and China, the EU, and the US are the top three on the list. Among the low HDI countries, Indonesia, Vietnam, Morocco, Senegal, and India are the main subsidizers. Fisheries subsidies have further caused inequity between large- and small-scale fisheries (SSF) within nations. SSF constitutes 90 percent of global fisheries employment yet only received 16 percent of total fisheries subsidies (Schuhbauer et al., Reference Schrank, Schuhbauer, Ratana Chuenpagdee, Cheung and Rashid Sumaila2020). Concluding the fisheries subsidies negotiations will therefore offer a unique opportunity for the WTO to effectively address development and environmental challenges through trade liberalization.

(i) Overview of Negotiation Preferences and Approaches

This section provides an overview of the divergent positions of the main parties participating in the fisheries subsidy negotiations, highlighting the distinct interests of China vis-à-vis both developed and developing countries.

1 Can Fish Save the WTO?

International organizations and global environmental non-governmental organizations started to raise concerns about the economic and environmental impact of fisheries subsidies in the 1990s. The UN Food and Agriculture Organization has sought to raise concerns and issued reports documenting the detrimental effects of overfishing motivated by fisheries subsidies provided by countries around the world (Schrank, Reference Schrank, Schuhbauer, Ratana Chuenpagdee, Cheung and Rashid Sumaila2003). During the agenda-setting discussions leading up to the DDA, a small group of countries, including the US, Australia, Chile, Ecuador, Iceland, New Zealand, Peru, and the Philippines, known as the “Friends of Fish,” pressed for the inclusion of fisheries subsidies reduction into the DDA agenda as the existing SCM did not adequately cover the additional negative impact of fisheries subsidies on environmental concerns (Jones, Reference Jones2010). This group of WTO Members initially pursued the issue of fisheries subsidies in the WTO Committee on Trade and Environment which has the power only to make recommendations. At the Doha Ministerial Conference, they were able to put forth a mandate highlighted in the Doha Ministerial Declaration to clarify and strengthen WTO disciplines on fisheries subsidies. Since then, negotiations on fisheries subsidies have been taking place in the WTO Negotiating Group on Rules, which is under the authority of the WTO Trade Negotiations Committee. The goal of the negotiation was clarified in the 2005 Hong Kong Declaration, which called for both the prohibition of harmful subsidies and the granting of appropriate and effective SDT to developing members as an integral part of the negotiations taking into account the importance of the fisheries sector for development, poverty reduction, and concerns over livelihoods and food security. A first set of rules was subsequently drafted in November 2007, but member states could not agree upon the specific terms of SDT and the scope of prohibited subsidies (Wong, Reference Wong2021). The 2008 draft text of a WTO agreement on fisheries agreement, prepared by the chair of the Negotiating Group on Rules, proposed prohibiting a wide range of “harmful subsidies” while recognizing the need for flexibility in the application of subsidies disciplines to small-scale, labor-intensive fishing in developing countries (Hoekman et al., Reference Hoekman, Martin and Matto2009). But the fisheries subsidies negotiations have been deadlocked since the failure of the last major push to conclude the Doha round in July 2008. The chairman of the rules negotiations group, in particular, wrote in his report that “there is too little convergence on even the technical issues, and indeed virtually none on the core substantive issues” in fisheries subsidies (WTO, 2011). While the fisheries subsidies negotiations have regained momentum since 2015, this was partly due to the adoption of the UN sustainable development goals, with goal 14.6 specifically aiming to prohibit subsidies contributing to overfishing and illegal, unreported, and unregulated (IUU) fishing, and partly because of the member states’ drive to conduct sectoral negotiations to continue some of the Doha trade liberalization agenda.

With the hope to revive WTO negotiations and to pull the organization out of the crisis, member states instilled a new sense of urgency during the 11th Ministerial Conference in 2017 to set a timetable to conclude the negotiations by the end of 2020. That deadline, and a later deadline of July 2021 and December 2021, have all been missed due to persistent disagreements over several contentious issues. Member states have been negotiating on the basis of a draft consolidated text introduced in June 2020 and later updated in May 2021 and November 2021 by the chair of the negotiations (WTO, 2021a, 2021b, 2021c). Another deadline was set to finish the negotiations before the 12th Ministerial Conference, which was scheduled to be held on November 30, 2021, but had to be rescheduled due to the Covid-19 pandemic. Finally, the WTO Agreement on Fisheries Subsidies was adopted at the 12th Ministerial Conference (MC12) on 17 June 17, 2022. It marks the successful conclusion of this marathon talk. This agreement is the first broad, binding, multilateral agreement on ocean sustainability and the second agreement reached since the inception of the WTO. In the meantime, the WTO members also recognize that they failed to agree on some of the most contentious issues such as developing disciplines on subsidies contributing to overcapacity and overfishing, and the provision of special and differential treatment associated to them. Therefore, they committed to continue the second wave of fisheries subsidies negotiation and set a new target to complete negotiations by the 13th Ministerial Conference (MC13) in February 2024.

(ii) Divergences among the Major Players in the Fisheries Subsidies Negotiations

The agenda-setting of the fisheries subsidies negotiations has evolved over time. It began with a vague and broad goal to create disciplines to negotiate the subsidies issue in the area of fisheries and later developed more concrete agenda issues agreed upon by WTO members. By 2021, the main agenda items included the following (WTO, 2021a, 2021b, 2021c):

  • prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing (e.g., subsidies for building or upgrading vessels, fuel subsidies, price support for fish caught);

  • eliminate subsidies that contribute to IUU fishing;

  • curb subsidies to fishing where stocks are overfished; and

  • recognize the need for appropriate and effective special and differential treatment for developing and least-developed countries (delayed implementation of provisions and aid for technical assistance/capacity building)

While much progress has been made in the negotiations leading to the latest version of the November 8, 2021, revised text, there still exist key areas of disagreement. First, although WTO members have a consensus that SDT as an important WTO principle should apply to the fisheries subsidies negotiations, developed and developing countries have disagreed on what flexibility should be granted. Developing countries, especially China, prefer to have broader SDT provisions and keep some permanent exceptions. In contrast, developed countries argue that flexibilities should not only be more limited and targeted to the specific needs of the developing countries but should also be phased out over time (Wong, Reference Wong2021). Second, developing countries are concerned that the draft text, which includes provisions exempting the cut of fisheries subsidies that aim to maintain or promote sustainability, will disproportionately benefit large and developed subsidizers such as the EU and the US.

In addition to differences in commercial interests, the norm of environmental protection and sustainability has become another major concern that has set many member states apart. In the early years of the negotiations, the “Friends of Fish” group led by the US emphasized the importance of prohibiting harmful fisheries subsidies (WTO, 2002a), while the “Friends of Fishers” group that relied heavily on fishing, such as Korea, Taiwan, and Japan, argued against discussing fishing subsidies separately from the general SCM agreement. In the early years of the negotiations, they argued that fisheries subsidies were not significant and did not have any negative impact on stock depletion (WTO, 2002b). In addition, developing countries tended to hold a very defensive position in the early stages of the negotiations, calling for SDT and broad exemptions given to the small-scale “artisanal” nature of their fisheries sector (WTO, 2004).

After receiving multiple proposals from the member states between 2002 and 2007, the chair of the WTO rules negotiation put together the first-ever chair’s draft text on introducing disciplines in fisheries subsidies (TN/RL/W/213). The November 2007 draft text on fisheries subsidies largely reflected the growing consensus that fisheries subsidies should not be continued. To ensure that SDT was included in the text, Article III contained provisions that proposed exempting developing country members from most of the prohibited subsidies in Article I, provided that all fisheries activities receiving these subsidies are conducted within the territorial waters of the member and with non-mechanized net retrieval.

In contrast to most other GATT/WTO negotiations, the divergent interests of the member states cannot simply be categorized as a North-South divide. With different views on the commercial, environmental, and developmental dimensions of global fishing, developed member states were highly divided on the approaches, structure, and scope of the fisheries subsidies rules-making. As illustrated above, the “Friends of Fish” Group members led by the US have urged for an extensive prohibition of fisheries subsidies. The “Friends of Fisher” group members, including Japan, South Korea, Taiwan, the EU, and Norway, in contrast, have a strong interest in keeping some types of fisheries subsidies. Insisting that not all fisheries subsidies cause overfishing and overcapacity, they have argued that prohibition should be limited to those “harmful subsidies.”

The lack of leadership from the EU and the US and coordination among the traditional Quad countries were obvious in the last few years’ WTO negotiations. Although the WTO DG has placed great confidence in the revised text of the agreement as the basis to conclude the negotiations, the recent remark made by USTR Tai suggests that the US does not consider it “enough meaningful” as it does not yet contain the elements required for reaching conclusion (Wong, Reference Wong2021). Specifically, the US advocates for adding or revising additional issues. First, in May 2021, driven by the explicit emphasis of the Biden administration on pursuing a “worker-centric” trade policy, the United States submitted a proposal urging WTO Members to address the global problem of the use of forced labor on fishing vessels. The proposal came in too late to be included in the June 30 draft text of the agreement. Second, the US has highlighted the importance of addressing some members’ self-identified developing country status and, in particular, China’s entitlement to continue to enjoy the SDT granted to developing countries (Wong, Reference Wong2021). Furthermore, the internal divisions among the developed countries camp have not only made the convergence of existing proposals difficult but have also made it more difficult for them to collectively pressure China and other large developing countries to commit to more “meaningful and impactful” subsidies reduction concessions.

(iii) BRICS in WTO Fisheries Subsidies Negotiations

On July 21, 2021, the Chair of the Negotiation Group on Rules, Ambassador Santiago Wills of Colombia, introduced a revised draft text which recognized that Article 5.5 (SDT) in the overcapacity and overfishing pillar is the “most commonly identified area of concern for many delegations” and reflects fundamental differences in views on the purpose and the applications of SDT (IISD, 2021a). On this most thorny issue in the fisheries subsidies negotiation (Hopewell, Reference Hopewell2021), the BRICS countries’ positions have subtly evolved. It should be noted that the Chinese central government did not subsidize the fisheries sector until 2006 because China’s distance water fisheries were very limited due to the lack of capital and technology to build, manage and operate the large-size fishing fleet. Consequently, during the early stage of the negotiations, China shared similar interests with other large developing countries, especially India, Brazil, Indonesia, and South Africa in defending the preferences enjoyed by developing countries through SDT and in creating a mandate for developed countries to cut subsidies due to their historical responsibilities. In emphasizing the right to development, the need to support subsistence fishing, and the historical impact of developed countries’ enduring subsidies on overfishing, they strongly promoted SDT in a way that would leave developing countries with virtually no obligations to cut subsidies other than not subsidizing illegal fishing (Hopewell, Reference Hopewell2021). As a marginal player, China chose to present its proposal with other large emerging economies, such as India, Brazil, Mexico, and Indonesia. For instance, in a joint 2008 submission, India, Indonesia, and China advocated for SDT provision expansion to allow developing countries to continue their fisheries subsidies beyond subsistence fishing to address livelihood and employment issues (Submission by India, Indonesia and China, 2008). In another joint submission with Brazil, Mexico, Ecuador, and Venezuela, China insisted on developing countries’ right to continue to subsidize fishing activities in the high sea (Communication from Brazil, China, Ecuador, Mexico and Venezuela, 2009).

Since the 2010s, China’s fisheries sector has achieved extraordinary expansion in terms of output, size, and level of sophistication. The country has emerged as a fisheries superpower, with the largest capture amount, as well as the largest aquaculture producer and largest exporter (Hu, Reference Hu2019). However, while some slow changes have been taking place domestically, both in terms of the norms on sustainability, and the policy rationale to better support fishers through less trade-distorting and environmentally detrimental subsidies, China was still not ready to sharply reduce its fisheries subsidies, especially on fuel subsidies of the distant-water fisheries. There are two domestic reasons that have prevented China from adopting needed policy changes. First, China has a growing demand for fish that simply cannot be met by fisheries in its Exclusive Economic Zones (EEZs). Second, high-sea fishing is an integral part of China’s maritime Silk Road initiative to expand its commercial footprint beyond the Pacific Ocean.

China’s growing prominence as a fisheries producer and subsidizer and its continued reluctance to scale back its subsidies has increasingly set its negotiation preferences apart from those of other large developing countries. Noticeably, many developing countries, including emerging powers like India and Brazil, have begun to realize that keeping China within the coalition no longer provided them with greater leverage and might instead potentially weaken their negotiation position, especially on the issue of SDT. Consequently, the focus of the rest of the BRIC countries has shifted from working together to defend the rights of developing countries to singling out China in order to ensure the SDT enjoyed by themselves. For example, India and Brazil have tacitly distanced themselves from China even though they have tried to maintain solidarity on the surface. They collectively issued a statement after the BRICS summit held in India early in 2021 to vaguely support the conclusion of the fisheries subsidies negotiations before MC12 but did not present any concrete steps to do so (BRICS, 2021).

Furthermore, while the BRICS all seemed to support granting SDT treatment to developing and least-developed countries, they held conflicting views about how to ensure that SDT would be honored. As repeatedly argued by India’s Commerce and Industry Minister Piyush Goyal, India’s concerns were that irrational subsidies and overfishing by many countries were hurting Indian fishermen and their livelihoods (Financial Express, 2021). To bring the right balance to the draft text, it is therefore essential that big subsidies providers who offer massive state funding for distant-water fishing that lower the cost of fuel and vessel construction – such as Japan, Spain, China, South Korea the US, among others – assume greater responsibility for reducing their subsidies and fishing capacities in accordance with the principles of “polluter pays.” India’s emphasis on seeking SDT flexibility is driven by the fact that its subsidies to fishers are mostly in the form of support for the motorization of fishing boats, fuel rebates, and infrastructure support, all falling under the targeted subsidies included in the Chair’s draft text (Sen, Reference Sen2018). To circumvent the broad prohibition, India proposed that developing countries with gross annual national incomes below $5,000 should be exempted from the need to take on commitments for fisheries subsidies cuts. India’s matrix to define the eligibility criteria has de facto excluded China from the rank of developing countries.

India further suggested that nations engaged in fishing in areas beyond their EEZs should end subsidies for 25 years to control overfishing. These subsidies to distant-water fishing fleets have contributed to overfishing according to an open letter to the WTO written by scientists in Marine Science (Bruder, Reference Bruder2021). India also proposed to ensure the transparency of subsidies reporting, which again targeted China due to its history of the lack of transparency and repeated refusals to report fully and accurately its domestic subsidies to the WTO in a timely manner. For example, on domestic support for fisheries during 2015–2017, the type of support that China submitted to the WTO only concerned transfer payments, while there were indications that the fuel subsidies provided for the world’s largest fishing fleet constituted the biggest fisheries subsidies program (Mallory, Reference Mallory2016). On this particular issue of subsidy notification, China lost a dispute brought by the US against China’s agricultural subsidies in 2019.

Brazil introduced its revised proposal on October 20, 2020, to reduce and limit WTO members’ fisheries subsidies based on the size of its fisheries subsidies. The proposal would increase the amount of a subsidy program shielded from cuts from $15 million to $25 million. Members falling under the smallest subsidies bracket, who can also demonstrate small catch volumes and short fishing distances, would have the possibility to add an additional $5 million, increasing their total cap to $30 million. Similarly, this proposal excluded China from enjoying the SDT given the size of its subsidies and its focus on high-sea fishing. Brazil’s proposal stated that big subsidizers who delay their notification would receive a penalty (IISD, 2020). Leivas Leite of the Brazilian mission to the WTO specifically indicated that Brazil is not in favor of “blanket” exemptions for all developing country members, especially because some of the world’s largest fishing fleets are from developing countries. “We cannot have overly broad exemptions. We want something that is time-bound, geographically-bound, and needs-based” (WTO Public Forum, 2021).

In contrast to its high-profile role in the e-commerce negotiations, China has been largely quiet in the fisheries subsidies negotiations. During the negotiations spanning 20 years, it has largely held an ambiguous stance. China submitted its first WTO proposal on fisheries subsidies on June 20, 2002 (TN/RL/W/9) and its latest proposal on June 4, 2019 (TN/RL/GEN/199). China supports disciplines that would prohibit fisheries subsidies that contribute to overcapacity and overfishing and eliminate subsidies that contribute to IUU fishing, while “recognizing that appropriate and effective SDT for developing country Members and least developed country Members should be an integral part of the negotiations” (WTO, 2019). Throughout the negotiations, China has persistently called for SDT flexibilities for developing and least-developed countries. In the 2019 proposal, China urged member states to call for a cap-based approach to reduce rather than prohibit subsidies that contribute to overfishing and overcapacity. China sought a limited phase-out of subsidies to IUU fishing, instead of a total phase-out of subsidies.

Overall, it seems that both India and Brazil have developed a strategy to “decouple” away from China to emphasize the need to continue to support low-income fishers’ livelihood. Both countries have also made it clear that the best strategy to achieve this goal is to keep a distance from China. With China being the largest subsidizer and the main target of the fisheries subsidies negotiations, it has become unwise for them to continue to build coalitions with China on seeking SDT flexibilities.

Consequently, while many believe that fisheries subsidies negotiations represent a low-hanging fruit for WTO members – as there exists a consensus on the need to take actions to curb fisheries subsidies to liberalize trade, promote development, and protect the ocean – the agreement reached at the MC12 is a ‘shallow’ agreement that covers only a small subset of the issues negotiated over the past decade. The agreement was reached mainly because the WTO needs an agreement to prove its relevancy. WTO members have agreed to prohibit subsidies for fishing vessels or operators that engage in IUU fishing, as well as prohibit subsidies that support fishing of overfished. Members also agreed to ban subsidies for fishing and fishing-related activities on the high seas (international waters). Though it is an important first step, the agreement lacks the substance needed in order to effectively address the negative social, economic and environmental impacts brought by fisheries subsidies adopted by major fishing countries. Among them, the most important type of subsidies that have been omitted from this agreement include subsidies that support overcapacity and overfishing. Negotiations to expand the agreement to include more comprehensive rules will continue in the coming years.

IV Conclusion

This chapter examines the role of China, along with the rest of the BRICS countries, in the WTO e-commerce and fisheries subsidies negotiations. The analysis suggests that despite China’s self-proclaimed developing country status, the fact that it is now one of the most competitive players in global e-commerce and the largest subsidizer in the fisheries sector has made it increasingly difficult for China to continue to align its negotiation position with other BRICS countries. Over time, the dynamics of WTO negotiations have been transformed. The North-South divide under the GATT, which later evolved into a three-tiered structure of developed, emerging powers and the rest of the developing countries during the early years of the Doha negotiations, has given away to a more complex matrix of interest-based and issue-specific coalition building which is no longer bound by the developed/developing division in today’s WTO negotiations. Due to its sheer size and unique domestic political and economic system, China has increasingly been singled out in the negotiations due to the difficulties for it to align with either developed or developing countries.

In the e-commerce negotiations, the refusal by India and South Africa to join the talks has constrained the ability of the BRICS to form an effective coalition. While Brazil and Russia were more favorably disposed toward e-commerce negotiations, their specific concerns and approaches were also sufficiently different from those of China which placed greater emphasis on maintaining domestic regulatory sovereignty and control, further limiting the group’s ability to act as a coherent bloc to advance the member countries’ otherwise shared interests in promoting the development agenda. In the fisheries subsidies negotiation, China’s insistence on being treated as a developing country and enjoying SDT despite it is the largest subsidizer has thwarted the willingness of the developed countries to provide flexibilities and policy spaces to developing countries as a whole. As a response, India and Brazil, together with a group of smaller developing countries, have strategically adopted negotiation positions to quietly distance themselves from China.

November 2021 marks the 20th anniversary of the BRIC acronym coined by Jim O’Neill of Goldman Sachs to capture the economic potential of the four emerging economies and the important implications of their rapid economic growth for global governance (O’Neill, Reference O’Neill2021). Recently, Goldman Sachs released another report making the recommendation of separating China from the broader Emerging Markets indexes due to China’s overweight and what the authors refer to as “idiosyncratic factors” like geopolitics (Lewis, Reference Lewis2021). While this recommendation pertains mostly to portfolio investment, it can inspire us to revisit the role played by China in the Doha negotiations. The two cases presented above clearly suggest that it is outdated and no longer accurately reflects today’s reality if we continue to focus on emerging powers as a separate grouping in the multilateral trade negotiations, as we did a decade ago (Liang, Reference Liang, Zeng and Liang2013; Vickers, Reference Vickers, Narlikar, Daunton and Stern2012). Rather, it might be more illuminating and helpful if we exclude China from the emerging power grouping and make it a separate category.

In recent years, scholars have analyzed the impact of China’s WTO participation on the crisis the WTO is facing today (Wu, Reference Wu2016). Some (e.g., Hopewell, Reference Hopewell2019) have also identified the US-China conflict as the key obstacle to forging agreement in the WTO agricultural subsidies negotiations (Hopewell, Reference Hopewell2019). Our paper sheds light along the same lines by emphasizing China’s isolated position as an emerging trend taking place in the two ongoing negotiations detailed above. Regardless of China’s preferences, it is a shared understanding among the rest of the BRICS countries and the larger group of developing countries that it is no longer in their best interests to keep China in their coalition. China indeed might do more harm than good in helping to defend its fundamental interests of securing the SDT guarantee within the WTO framework. Additionally, it seems that developed and developing countries are reaching a consensus that the size of China’s subsidies and other protectionist trade policies will hurt developing countries’ interests more than ever. Taken together, these dynamics have contributed to reinforcing concerns that the rise of China may have exacerbated the difficulty of multilateral economic cooperation and deepened the crisis faced by the WTO regime, raising questions about the degree to which the multilateral trading system centered on the WTO can effectively accommodate the rise of a large non-market economy such as China.

11 The Impact of the WTO Dispute Settlement System on China Effectiveness, Challenges and Broader Issues

Weihuan Zhou
I Introduction

Since China joined the World Trade Organization (WTO) in 2001, its role in the WTO’s dispute settlement system (DSS) has developed significantly over the past twenty years. As widely observed, this period has witnessed China becoming an increasingly experienced and influential player, that is from a ‘rule taker’ (2001–2005) to a ‘rule shaker’ (2006–2009) and then a ‘rule maker’ since 2010 (Gao, Reference Gao and Deere-Birkbeck2011; Mercurio and Tyagi, Reference Mercurio, Tyagi, Herrmann and Terhechte2012; Toohey, Reference Toohey2011). This observation is supported not only by China’s active engagement in pushing for the appointment of new Appellate Body (AB) members so as to restore a functional DSS and its agreement to and use of the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) to maintain a temporary appellate review mechanism. This observation is also supported by the number of disputes in which China has been involved. By 1 October 2021, China had been a complainant in 22 cases, a respondent in 47 cases and a third party in 190 cases, making it one of the most active players in the DSS: see Figure 11.1. While many factors may be employed to explain China’s behaviour and evolving practices (Ji and Huang, Reference Ji and Huang2010; Wang and Zhou, Reference Wang and Zhou.2022), a major one has to do with its growing capacity and expertise in WTO law and dispute settlement (Shaffer and Gao, Reference Shaffer and Gao2018).

Figure 11.1 Top users of the WTO dispute settlement system

This chapter is not intended to examine all the disputes in which China has participated. Instead, it focuses on select disputes involving China as a respondent, with an aim to critically analyse the impact of the DSS on China’s economic reforms and policymaking. This analysis necessarily involves a consideration of the overall pattern of development in China’s strategies and behaviours in these disputes and more specifically, the factors behind China’s approaches to implementing unfavourable WTO rulings. Section II discusses the effectiveness of the DSS, arguing that the system has been largely effective in leading not only to changes to a range of WTO-illegal policy instruments but also gradual and systematic adjustments of certain complex regulatory regimes in China. Despite China’s impressive record of implementing WTO rulings, its approaches have revealed three challenges for the DSS in relation to temporary breaches, repetitive breaches and post-compliance regulatory developments, which are discussed in Section III. These challenges, however, concern systemic constraints or loopholes in the system which can be utilised by all WTO Members. Section IV extends beyond the DSS to consider the broader issues relating to overwhelming criticisms about China’s failure to adhere to the spirit of WTO law and the WTO’s failure to push China to change its state-led economic model and transition to a full-fledged market economy. Section V sets forth some concluding remarks.

II Effectiveness

The efficacy of WTO rules would be significantly weakened without an effective mechanism that enforces the rules. The DSS, in serving this key function, has long been praised as ‘the jewel in the crown’ of the multilateral trading system. Since commencing its operation in 1995, the DSS has managed over 600 disputes, which demonstrates WTO Members’ continued belief in the utility of the system. Despite the United States (US)’s criticisms of the AB, it sees the value of the DSS in resolving trade disputes (USTR, 2021) and continues to resort to the system for that purpose.

When it comes to the implementation of WTO rulings, there is evidence to show that the DSS is largely effective in inducing compliance in most cases (Davey, Reference Davey2014; WTO, 2017a). Yet, the impact of the system on China remains controversial. The US, under the Trump administration, vehemently criticised the WTO for being ‘incapable of fundamentally changing [China’s] trade regime that broadly conflicts with the fundamental underpinnings of the WTO system’ (USTR, 2020a, p. 14). This perception of the WTO’s ineffectiveness was a key driver of the US’s recourse to unilateral actions that provoked the US-China trade war. The Biden administration has maintained this position. In a recent speech, United States Trade Representative (USTR) Katherine Tai criticised ‘China’s lack of adherence to global trading rules’ and failure to make ‘meaningful reforms to address the concerns’ about ‘its state-centered economic system’, and reiterated the need for the US to use all tools at its disposal including by creating new ones ‘to defend American economic interests from harmful policies and practices’ (CSIS, 2021). These concerns are shared by other major WTO Members particularly the European Union (EU) (European Commission, 2021).

There is little doubt that the current WTO rules and the DSS have their limits, some of which will be considered in Section III. However, these limits have largely resulted from the way in which the rules and the DSS are designed by WTO Members and hence can only be addressed through their collective efforts via negotiations. In other words, many perceived problems in the multilateral trading system that may have caused its lack of effectiveness are not specific to China. Thus, an assessment of the effect of the DSS on China must be undertaken objectively in light of these systemic constraints or loopholes that can be utilised by all Members.

Against this backdrop, I briefly discuss China’s compliance with adverse WTO rulings and the impact of the DSS on China’s economic reform and policymaking. As noted above, China has been a respondent in 47 disputes involving a total of 34 matters. Among the 34 cases, 27 have been completed either through a mutually agreed solution (15 cases) or China’s implementation of WTO rulings (12 cases). As regards the other seven cases, six remain in the litigation process and one has lapsed as the panel’s work was suspended for more than 12 months under Article 12.12 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (WTO, 2018a). One may also divide these disputes into non-trade-remedy cases and trade remedy cases. The latter can be brought by the countries subject to antidumping (AD) and/or countervailing duties (CVD) only. Among the 27 completed cases, the US was the sole or joint complainant in 16 out of the 20 non-trade-remedy cases. Table 11.1 provides a summary of the completed cases, the major measures and goods/industries involved, and the status of compliance. For trade remedy cases (highlighted in grey), it further shows the period between the imposition and the termination of the duties.

Table 11.1 Completed WTO disputes involving China as a respondent 2001–2021Footnote 1

Short title (DS No.)Complainant(s)Measures (industries/goods/entities)Status of compliance
Settled disputes (15 cases)
1.China – VAT on Integrated Circuits (DS309)USDiscriminatory value-added tax (VAT) rebates (integrated circuits producers and design services providers)Implemented by abolishing the VAT rebates
2.China – Taxes (DS358, 359)US, MexicoTax preferences (foreign-invested enterprises)Implemented by abolishing the tax preferences
3.China – Financial Information Services (DS372, 373, 378)US, EC, CanadaMarket access restriction and discrimination (financial information services providers)Implemented by removing the restriction and discrimination
4.China – Grants, Loans and Other Incentives (DS387, 388, 390)US, Mexico, GuatemalaExport subsidies (all kinds of Chinese merchandise recognised as ‘famous brands’)Implemented by abolishing the subsidies and export performance requirements
5.China – Fasteners (DS407)EUAD (fasteners)Implemented by re-investigation.
Dec 2009 – ongoing (2nd sunset review commenced in Jun 2021)
6.China – Wind Power Equipment (DS419)USSubsidies based on local content requirements (wind power equipment)Implemented by removing the subsidies
7.China – Autos and Auto Parts (DS450)USExport subsidies (auto and auto parts)Settled as part of DS489
8.China – Apparel and Textile Products (DS451)MexicoSubsidies (apparel and textile, cotton and chemical fibres)Diplomatic solution, without detailed information on the revision of relevant policies
9.China – Demonstration Bases (DS489)USExport subsidies (7 industries and many sub-sectors)Implemented by abolishing the subsidies and export performance requirements
10.China – Aircraft (DS501)USDiscriminatory VAT exemptions (aircraft)Implemented by terminating the VAT exemptions
11.China – Raw Materials II (US) (DS508)USExport duties (raw materials)Implemented by removing the duties
12.China – Raw Materials II (EU) (DS509)EUExport duties and restraints (raw materials)Implemented by removing the duties and restraints
13.China – Intellectual Property Rights II (DS542)USIPR protection and technology transferImplemented by revising the relevant law and regulations as well as agreeing to detailed obligations under the US–China Phase One Deal
14.China – Transfer of Technology (DS549)EUIPR protection and technology transferImplemented by revising the relevant law and regulations as well as agreeing to detailed obligations under the EU–China Comprehensive Agreement on Investment
15.China – Imports of Sugar (DS568)BrazilSafeguard measure on sugarDiplomatic solution, without detailed information about the revision of relevant measures
Litigated disputes (12 cases)
16.China – Auto Parts (DS339, 340, 342)EC, US, CanadaDiscriminatory internal charges (auto parts)Implemented by revising the relevant policies and regulations
17.China – Intellectual Property Rights (DS362)USInadequate IPR protection (copyright of content goods and trademark regarding confiscated imported goods)Implemented by revising the relevant law and regulations
18.China – Publications and Audiovisual Products (DS363)USTrading rights and distribution services (cultural sector)Partially implemented by revising the relevant regulations except for those relating to films. (Mutually agreed compensation on film)
19.China – Raw Materials (DS394, 395, 398)EC, US, MexicoExport duties and restrictions (raw materials)Implemented by removing WTO-illegal duties and restraints
20.China – Electronic Payment Services (DS413)USMarket access restriction and discrimination (electronic payment services)Implemented by revising the relevant regulations
21.China – GOES (DS414)USAD and CVD (grain oriented flat-rolled electrical steel)Implemented by re-investigation.
Apr 2010–Apr 2015
22.China – X-Ray Equipment (DS425)EUAD (X-Ray Equipment)Implemented by re-investigation.
Jan 2011–Feb 2014
23.China – Broiler Products (DS427)USAD and CVD (broiler)Implemented by re-investigation.
Aug/Sep 2010 (CVD/AD) – Feb 2018
24.China – Rare Earths (DS431, 432, 433)US, EU, JapanExport duties and restrictions (rare earths)Implemented by removing WTO-illegal duties and restraints
25.China – Autos (US) (DS440)USAD and CVD (autos)Implemented by terminating the duties.
Dec 2011–Dec 2013
26.China – HP-SSST (DS454, 460)Japan, EUAD (high-performance stainless steel seamless tubes)Implemented by re-investigation
27.China – Cellulose Pulp (DS483)CanadaAD (cellulose pulp)Implemented by re-investigation

This section considers the non-trade-remedy cases while the trade remedy cases will be examined in Section III as they create some unique challenges for enforcement. As discussed in detail elsewhere, in all the completed non-trade-remedy cases China maintained an impressive record of compliance, more favourable than those of the other key players in the system (Zhou, Reference Zhou and Qu2019). This record is strong evidence of the effective influence of the DSS on China, which has caused not only changes to specific policy instruments but also systematic adjustments of China’s complex regulatory regime in an incremental manner. More specifically, these disputes pushed China to repeal or modify laws, regulations and other policy instruments which led to the application of:

  1. (1) discriminatory internal taxes including VAT rebates in the integrated circuits (IC) industry (WTO, 2005), VAT exemptions in the aircraft industry (Zhou, Reference Zhou and Qu2019, p. 35) and internal charges in the auto parts sector (WTO, 2009, p. 21);

  2. (2) subsidies in a variety of forms at both national and local levels which were primarily aimed at fostering China’s industrial policies in select sectors such as wind towers (USTR, 2012, p. 51), auto and auto parts, textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware and building materials (USTR, 2015, 2016; WTO, 2016a) or more broadly at promoting exports of famous brands of Chinese merchandise in all sectors (USTR, 2009) or attracting foreign investment (WTO, 2008a);

  3. (3) export duties and restrictions on a range of raw materials and rare earths (WTO, 2013a 2015, p. 18);

  4. (4) restrictions on the right to import reading materials, audio-visual products, sound recordings and films for theatrical release in the cultural industries and restrictions on the supply of distribution services, that is the right of foreign-invested enterprises to engage in the wholesaling and retailing, of these cultural goods (WTO, 2012a);

  5. (5) certain restrictions on market access for and discriminatory requirements on foreign services suppliers in the financial information services sector (WTO, 2008b) and the electronic payment services sector (WTO, 2013b); and

  6. (6) inadequate protection of intellectual property rights (IPRs) including copyright and related rights for goods containing prohibited content and trademarks in relation to goods confiscated by Chinese customs due to IPR infringements (WTO, 2010).

It is true that China’s compliance in these disputes was confined to strictly addressing the findings of inconsistencies by WTO tribunals. Nevertheless, this issue concerns the limitation of WTO rulings in general that has been used by other Members. China’s approaches to implementation have shown its growing sophistication in the DSS with full comprehension of the limits of WTO rulings and how to implement the rulings in a narrow but adequate fashion.

However, even such ‘narrow’ implementation has required some significant changes to China’s economic policies, showing the broad and systemic impact that the DSS can have on domestic policymaking. The most notable example is the China – Publications and Audiovisual Products case, which was also the most difficult to implement due to the sensitivity of the cultural sector in China and the need for coordinated efforts by multiple departments or ministries of the State Council to revise a range of jointly published measures. China abolished or revised all WTO-inconsistent measures (other than two measures applied to films) to lift restrictions on the right to import the cultural goods involved. This was a significant step toward the dismantling of China’s state monopoly of trading rights in the cultural sector which was long regarded by the Chinese government as being essential for maintaining a rigorous censorship system to safeguard fundamental social values and political interests (Shi and Chen, Reference Shi and Chen2011). While China was not required to reduce the rigour of its censorship, the WTO rulings effectively pushed China to disentangle trading rights from censorship so that all entities are entitled to engage in the importation of the relevant goods. Although China failed to liberalise the right to import films apparently due to the resistance of the state entities involved (Zhang and Li, Reference Zhang and Li2014, p. 159), it entered into a memorandum of understanding with the US granting more market access to US films, a step toward further liberalisation of the market (WTO, 2012b). Notably, this was China’s only major failure of compliance in all the completed disputes.

Another example concerns China’s application of export duties and restrictions on raw materials and rare earths. While these measures were initially imposed to drive up world prices of these goods and hence increase China’s earnings from export sales (Lardy, Reference Lardy2002, p. 47), at the time of the dispute they had become part of China’s policy prescriptions to safeguard the security of exhaustible natural resources and sustainable development (Information Office of the State Council, 2012). Thus, this dispute raised some fundamental and sensitive issues relating to states’ economic sovereignty over natural resources and prerogative rights to prevent the depletion of these resources and protect the environment. Moreover, while export duties are generally allowed under the WTO and are widely used by Members for various regulatory goals, China is obliged to eliminate all such taxes and charges (subject to limited exceptions) under Section 11.3 of the Protocol on the Accession of China (Accession Protocol). Moreover, China has no recourse to the general exceptions to WTO rules (such as protection of exhaustible natural resources and the environment) to justify a deviation from this obligation, as the AB held in the two relevant disputes. Despite the strategic importance of China’s regulatory goals and the (unreasonable) rigidity of the WTO rulings, China removed all the WTO-illegal measures.

The final example concerns the disputes in which China took a tremendous effort to eliminate a wide range of subsidies applied across many industries at both national and local levels, as noted above. China’s implementation speaks against the widespread concerns about the potential difficulties of challenging Chinese subsidies due to a lack of transparency. On the contrary, most Chinese industrial subsidies take the typical forms contemplated in the WTO Agreement on Subsidies and Countervailing Measures (ASCM), and it is possible for WTO Members to use the existing rules and the DSS to push China to remove or reduce these subsidies that harm their interests (Zhou and Fang, Reference Zhou2021). In addition, one must consider the numerous AD and CVD actions against Chinese exports, which are frequently used to address the Chinese government’s intervention in the market including through subsidies (Nedumpara and Zhou, Reference Nedumpara and Zhou2018). Here, while there is a longstanding and ongoing debate about the AB’s ‘authority-based’ test for determining whether a granting entity constitutes a ‘public body’, this test did not prevent investigating authorities from finding Chinese state banks, state-owned enterprises (SOEs) and state-invested enterprises (SIEs) as public bodies (Appellate Body Report, 2011, 2019). In addition, China’s WTO-plus obligations under Section 15(b) of the Accession Protocol provide wide latitude for authorities to apply countervailing measures to address the negative effects of Chinese subsidies (Zhou and Fang, Reference Zhou2021).

The above analysis is not to suggest that China’s decisions to settle some of the disputes or implement unfavourable WTO rulings were detrimental to its own interest. In all the disputes, China’s strategy was driven by a mix of factors including consideration of reputational cost and legal capacity and resources vis-à-vis the feasibility and complexity of litigation and compliance (Ji and Huang, Reference Ji and Huang2010; Yang, Reference Yang2015). More importantly, it also involved careful assessments of the economic and political impact of implementation, particularly whether the termination of the contested measures served China’s economic and strategic goals. For instance, the removal of the discriminatory VAT rebates in the IC industry, the subsidies to manufacturers of wind power equipment and the discriminatory internal charges in the auto parts sector was consistent with China’s reform strategies and industrial policies and had insignificant impacts on the domestic industries involved (ICTSD, 2011; Ngangjoh-Hodu and Zhang, Reference Ngangjoh-Hodu and Zhang2016; Zhou, Reference Zhou and Qu2019, pp. 49–50). The liberalisation of trading rights and distribution services in the cultural sector was consistent with China’s progressive liberalisation of the sector and its effort to liberalise trading rights more generally and did not undermine its censorship regime. The elimination of the export taxes and restrictions on raw materials and rare earths was aligned with China’s industry reform strategies (Wang, Reference Wang2018) and did not prevent China from pursuing conservation and environmental goals. Accordingly, one may argue that at the core of China’s approaches to WTO compliance has been the use of the DSS as an external lever to facilitate domestic economic reforms while at the same time, limiting the impacts of the WTO rulings on its pursuit of chosen policy objectives. This approach will remain essential for discussions of China’s engagement in the DSS including responses to adverse rulings in future disputes.

III Challenges

Despite China’s record of implementing WTO rulings, its approaches and subsequent regulatory activities have revealed some systemic issues in the DSS. Below, I consider three major challenges and explain why they are not China-specific: (1) temporary breaches, (2) repetitive breaches and (3) post-compliance developments. The issue of temporary breaches is mainly associated with the lengthy process of WTO litigation, which provides room for a defaulting Member to use the process to buy time for WTO-illegal measures. The lack of retrospective remedies under the DSS further incentivises such practices (Wu, Reference Wu2017). The other two issues are an extension of temporary breaches also based on the abuse of the dispute settlement process. However, they involve some additional features. Repetitive breaches involve the application of the same policy instruments or practices which were found to be WTO-inconsistent in past disputes. Repetitive breaches are possible because WTO rulings in a dispute are generally constrained by the facts, claims and evidence in that particular case and are ‘not binding precedents for other disputes between the same parties on other matters or different parties on the same matter, even though the same questions of WTO law might arise’ (WTO, 2003). The issue of post-compliance developments concerns the introduction of new measures in similar or different forms as those adjudicated in past disputes for existing or new policy objectives. This issue not only shows the limitation of the DSS in general but also raises the question of how WTO Members balance the pursuit of domestic policy objectives with the observance of WTO rules more broadly.

All the litigated non-trade-remedy disputes, displayed in Table 11.1, took three or more years between the commencement of consultations and implementation. The China – Publications and Audiovisual Products case took five years due to the sensitivity and complexity of compliance as discussed above. Given the clear breach of China’s WTO accession commitments, one may argue that China deliberately chose to maintain the restrictions on trading rights in the cultural sector and used the dispute settlement process to buy time for its sectoral reforms.

Another example is the China – Auto Parts case which took around 3.5 years. This period of temporary breach provided extra time for China’s auto parts industry to further restructure and grow under the protection of discriminatory internal charges. When China terminated the measures, its auto industry had already become the world’s second-largest in terms of production volume (Tang, Reference Tang2009). This case can also be used to illustrate the issue of post-compliance developments. In light of its upgraded industrial policies for technological advancement and global competitiveness, China has resorted to other measures to advance the auto industry, with the new energy vehicles (NEVs) sector being the most notable example. To promote innovation and the production capability of NEVs, China has been providing massive subsidies and other supportive measures at both national and local levels (Fang and Zhou, Reference Fang and Zhou2022). While the DSS was effective in pushing China to remove a wide range of subsidies including in the auto industry (see Section II), China’s compliance in a specific dispute does not preclude it from introducing similar measures afterwards. Given China’s approaches to compliance, it is likely to continue to prioritise domestic policy objectives over the observance of WTO rules, and when necessary, pursue the objectives through WTO-incompatible means.

The China – Raw Materials and China – Rare Earths disputes offer an illustration of repetitive breaches. In both disputes, what China was required to change or remove were temporary instruments, that is export tariffs and quotas, which are typically updated and issued on an annual basis. The involvement of such temporary measures not only made it easy for China to implement but also provided room for China to reintroduce these measures. In 2016, merely one year after China’s implementation, the US and the EU challenged the same measures at the WTO as China maintained export restrictions on a range of raw materials that were not covered in the previous disputes. Although China quickly removed these measures (USTR, 2017, p. 31, 2018a, p. 35), it would be possible for a Member to use the proceedings to prolong the life of WTO-unlawful measures in such circumstances. The high similarity of the past and new measures and the products involved not only makes repetitive breaches more problematic than post-compliance developments but also raises the question of how the DSS may be reformed to simplify the adjudication process and facilitate a quicker resolution of disputes of this kind.

The above challenges are not China-specific and apply to all WTO Members. There are many examples. A well-known one is the US’s practice of ‘zeroing’ in AD actions despite a series of WTO rulings against it (Prusa and Rubini, Reference Prusa and Rubini2013). Another is the protracted WTO proceedings concerning the US’s and the EU’s subsidisation of their own national champions in the aviation sector (Crivelli and Rubini, Reference Crivelli and Rubini2020; Reuters, Reference Crivelli and Rubini2020). More generally, the facts that the US and the EU are the top two respondents in the DSS as well as the largest targets in compliance proceedings and retaliation requests (Reich, 2017) suggest that these more sophisticated players have used the systemic constraints and loopholes in the DSS even more frequently. As Krikorian has observed:

the US government has acted in its own self-interest and thwarted the potential impact of the dispute settlement mechanism either by effectively ignoring its decisions or by implementing them in such a way as to minimise their overall effect.

(Krikorian, Reference Krikorian2012, p. 81)

Thus, China’s approaches to WTO compliance demonstrate that it has merely become a similarly sophisticated player.

As flagged above, trade remedy cases have presented some distinctive features and challenges. China’s approach to compliance has routinely involved the initiation of a re-investigation, an approach adopted in the Interim Rules on the Implementation of the Rulings of the World Trade Organization on Trade Remedy Disputes published by China’s Ministry of Commerce (MOFCOM) in 2013. Since the MOFCOM’s decisions to modify or terminate an existing measure rely on re-investigations, such an investigation does not cause a suspension of the measure and may result in a decision to maintain it. Where a re-investigation leads to the continuation of an existing measure (at the original or a modified rate), compliance would only be achieved if the re-investigation had sufficiently addressed the substantive and/or procedural deficiencies in the original investigation. Given the technicality and complexity of these issues, it would be considerably more difficult to ascertain the adequacy of compliance in trade remedy cases than in non-trade-remedy cases without resorting to compliance proceedings. Thus, re-investigation may well be (ab)used to trigger compliance proceedings and hence prolong the life of AD/CVD measures. As shown in Table 11.1, most of the trade remedy disputes have seen Chinese AD/CVD duties staying in place for years close to or until the time for sunset reviews, with a few even extended for extra time after such a review. Such practices not only offer a perfect illustration of temporary breaches but also raises the issue of repetitive breaches given the similarities of the substantive and procedural issues in MOFCOM’s investigations that were challenged in these disputes (Zhou, Reference Zhou and Qu2019, pp. 158–78). As a WTO decision is binding on the parties to that specific dispute only, it does not prevent the MOFCOM from repeating the same or similar practices in subsequent investigations. Again, such temporary and repetitive breaches are not specific to China. Since 1995, a majority of WTO disputes have focused on trade remedies (WTO, 2017b). Yet, the effect of the DSS on inducing compliance in trade remedy disputes has been rather limited. The core cause of the limitation is that WTO’s findings of violations often concern the application of domestic trade remedy legislation in individual investigations (i.e., an ‘as applied’ breach) rather than the legislation per se (i.e., an ‘as such’ breach). Piecemeal attacks tend to be ineffective at ensuring meaningful compliance or systemic changes in a Member’s regulatory regime and practices (Mitchell and Prusa, Reference Mitchell and Prusa2016). Given the rampant (ab)use of trade remedies particularly AD worldwide, it is unlikely that China will retreat from its current practices. In recent years, we have seen China’s AD actions continuing to flourish and MOFCOM’s growing sophistication in reproducing the practices of the US, the EU and Australia to retaliate against their treatment of China as a non-market economy (NME) in AD actions (Zhou and Qu, Reference Zhou and Qu2022).

IV Broader Issues

Beyond the specific challenges for the DSS, the broader question is whether China has fulfilled its WTO obligations. As noted in Section II, the overwhelming criticism has focused on China’s failure to adhere to the spirit of the world trade rules and the ineffectiveness of the WTO to compel China to change its state-led economic model and become a full-fledged market economy. In the WTO’s latest Trade Policy Review of China in October 2021, the US, the EU, the United Kingdom and Australia reiterated these fundamental concerns (Lester, Reference Lester2021). In contrast, China stated that it is committed to ‘developing new systems for an open economy’, to ‘creating a market-oriented, law-based, and internationalized business environment’and to ‘comprehensively deepening reform, fully leverag[ing] the decisive role of the market in allocating resources and giv[ing] better play to the role of government to ensure better alignment between an efficient market and a well-functioning government’. Its goal is to carry on the over four decades of economic reform and opening up ‘towards fully building a modern socialist country’ (WTO, 2021). The interesting questions here are ‘do China’s WTO commitments require a fundamental change to its economic model and a transition to a Western-type market economy?’, and ‘if this was indeed the expectation of some WTO Members during China’s WTO accession negotiations, did these Members manage to incorporate relevant commitments in China’s accession instruments that reflect such expectation?’ These questions cannot be fully addressed in this chapter. But some general observations are provided below.

On the one hand, let’s consider Section 15(a) of China’s Accession Protocol which sets out a special AD rule allowing WTO Members to treat China as an NME in AD investigations. This special rule is subject to an expiry date contemplated in Section 15(d), that is, fifteen years after China’s entry into the WTO until 11 December 2016. The US and the EU continued to apply the special rule after the expiry date arguing that Section 15(d) does not terminate their right to use the special rule but merely causes a shift of the burden of proof from China/Chinese producers to investigating authorities. China challenged the practices of the US and the EU in two separate disputes immediately after the expiry date (WTO, 2016b, 2016c). China did not proceed with the case against the US and eventually suspended the case against the EU so that there were no published WTO rulings. Setting aside the highly complex technical issues, the US contended that China was expected to transition to a full market economy or that the special AD rule will continue to apply (USTR, 2017). For China, however, the US’s contention ‘is beyond the imagination of those … who actually participated in the negotiations’ as there was a clear agreement that the special rule shall exist for fifteen years only (MOFCOM, 2017). My assessment, based on detailed research of the limited negotiating record between the US and China (which was key to China’s WTO accession negotiations), is that China regarded the special AD rule as discriminatory and initially rejected it. Due to the US’s insistence, the two sides reached a compromise that the special rule must be subject to an expiration timeframe. This eventually led to the inclusion of the sunset clause envisaged in Section 15(d). In other words, the compromise reached was that while China accepted the special rule, the US agreed that it would remain applicable for fifteen years only (Zhou and Peng, Reference Zhou and Peng2018). Thus, this compromise was not based on or conditional upon whether China transitions into a full-fledged market economy but was merely intended to enable WTO Members to apply a discriminatory method to facilitate AD actions against China for an agreed period of time.

On the other hand, there are some very broad commitments made by China that may be considered as a promise to transition to a full market economy. Two of the most telling examples are paragraph 46 of the Report of the Working Party on the Accession of China and Section 9.1 of the Accession Protocol. While the former provides that all Chinese SOEs and SIEs should ‘make purchases and sales based solely on commercial considerations’, the latter requires China to ‘allow prices for traded goods and services in every sector to be determined by market forces’. One may argue that the expectation of WTO Members that China becomes a full market economy may have been embodied in such broad obligations, although even these obligations do not entail a commitment by China to fundamentally change its economic model. In any event, these obligations provide considerable room for WTO Members to challenge the Chinese government’s intervention (including via SOEs) in the market, thereby addressing the associated market distortions or unfair trade practices (Zhou et al., Reference Zhou, Gao and Bai2019). Since these China-specific rules have never been utilised, what is needed is perhaps not additional disciplines on China but more use of the existing rules. However, if more rules are desirable, then WTO Members will need to ensure these rules incorporate clearer commitments from China that reflect their expectation.

Compared with the controversies above, the lack of transparency in the Chinese economic and political system is almost a consensus among governments and other stakeholders and commentators. This issue has persistently made it difficult for WTO Members to understand and monitor China’s trade practices. For example, the WTO Secretariat Report on the latest Trade Policy Review of China noted that the information on China’s industrial subsidies remains strikingly inadequate particularly due to the involvement of SOEs even though China claimed to have made a full notification of subsidies in 2019 (WTO, 2021a, p. 16, 2021b, pp. 76–77). The issue of non-transparency has also made it difficult in assessing China’s compliance with WTO rulings. For instance, while China formally removed the restrictions on trading rights in the cultural sector, it remains unclear how such rights are granted (or denied) in practice and whether applications for becoming an eligible import entity are assessed objectively based on the statutory criteria rather than by discretion.

The issue of ‘forcing technology transfer’ offers another good example. Upon WTO accession, China promised that ‘approval for importation, the right of importation or investment by national and sub national authorities’ will not be conditional upon the transfer of technology under Section 7(3) of the Accession Protocol. Despite this promise, the US and the EU took a series of actions to stop China from practices of ‘forcing technology transfer’. They each challenged the relevant laws and practices at the WTO (see Table 11.1), and the US also conducted a meticulous assessment of Chinese practices in its Section 301 investigations (USTR, 2018b). Subsequently, the US-China Phase One Trade deal included more detailed disciplines on this issue (USTR, 2020b), and China introduced a provision in its new Foreign Investment Law 2020 to prohibit ‘all administrative organs and their employees … [from] forcing technology transfer through administrative means’. Despite these efforts, it will remain difficult to monitor how these commitments and laws are implemented in practice without enhanced transparency in China’s foreign investment review regime (Zhou et al., Reference Zhou, Jiang and Kong2020).

Finally, it is worth pointing out that the combination of state influence in commercial activities and the lack of transparency does pose some systemic and existential challenges for the world trading system. In the recent trade tensions between Australia and China, for instance, China was reported to have restricted the importation of Australian coal through informal instructions of the Chinese government to state-owned importers without a formal measure or decision of the relevant authorities (Tan, Reference Tan2020). Such practices not only make it hard for WTO Members to challenge Chinese measures but also raise the broader issues of whether China’s economic model is compatible with the world trading system and whether the WTO is adequate to cope with China. At the same time, such practices are detrimental to China’s own long-term interest as they would only undercut China’s credibility in the international community and reinforce the longstanding concerns about its regulatory and political regime.

V Concluding Remarks

China’s entry into the WTO is a momentous event in the eight decades of evolution of the multilateral trading system. The impact of the WTO on China is undeniably phenomenal given China’s sweeping WTO commitments and unprecedented economic reforms. In its twenty years of WTO membership, China has also maintained an impressive record of compliance with adverse WTO rulings despite the persistent and increasingly acute criticisms about its economic and political model. This record shows that the DSS can have a positive influence on China. While China’s compliance has also demonstrated some systemic constraints or loopholes in the system, these are not China-specific and can be utilised by all WTO Members. The absence of a functioning AB, however, has greatly affected the efficacy of the DSS and may cause irreparable damage to the credibility and integrity of the entire multilateral trading system. Following US’s and the EU’s abuse of their right of appeal to block unfavourable panel rulings in several disputes, China also ‘appealed into the void’ in one of the latest cases after the panel found in favour of the US’s imposition of safeguards measures on certain Chinese crystalline silicon photovoltaic products (WTO, 2021c). If the DSS remains so dysfunctional and other major players continue to abuse the system, then China will be increasingly disincentivised to comply with WTO rulings or to seek to comply with its WTO obligations in domestic policymaking. Over time, countries that are keen to push China to further economic reforms will lose an important policy option (i.e., multilateral disciplines) while other approaches (i.e., unilateral measures) have proven less effective or even counter-productive in dealing with the rising global superpower.

12 China and WTO Reform

Bernard Hoekman
,
Xinquan Tu
and
Robert Wolfe
I Introduction

The holy trinity of the World Trade Organization (WTO) is broken. Negotiations on new rules depend on confidence that existing rules will be implemented, which requires notifications for robust committee review and dispute settlement when clarification is needed, which sometimes should lead to new negotiations rather than authoritative adjudication. When negotiations are blocked, however, some Members are tempted to take unilateral measures to address their problems and/or to pursue bilateral solutions. Most Members want WTO reform, even if they have different aspects in mind. This is reflected in the outcome of the 12th WTO Ministerial conference held in Geneva in June 2022, which instructs the WTO General Council and its subsidiary bodies to develop proposals on how to improve all functions of the organization for consideration.Footnote 1

In this paper, we focus on how China understands WTO reform, and how the other two leading powers see the China problem in the WTO. China, the EU, and the U.S. are the world’s largest traders, and many of the tensions in the trading system arise in the relations among them. We discuss elements of the WTO reform agenda through the lens of positions that have been taken by the three major trading powers. In an original survey of the expert trade policy community conducted in June 2020, hereafter referred to as Survey, we found that respondents from the EU and the U.S. are broadly aligned on the WTO reform agenda, while respondents from China often diverge in the priorities accorded to these subjects (Hoekman and Wolfe, Reference Hoekman and Wolfe2021; see also Fiorini et al., Reference Fiorini, Bernard Hoekman, Mavroidis and Wolfe2021). Our aim is to shed some light on areas of alignment, or absence of alignment, across these three players on the main subjects associated with reform debates.

Our premise is that rising trade conflicts between major players are a signal of both political and economic tensions; absent reform the organization will be less able to assist major Members to attenuate economic conflicts. In turn, agreement among the three major trade powers is necessary to resolve the problems of the WTO. The rules must be seen to support the generalized gains from open trade and global production, not an attempt to isolate or reform China’s economic (or political) system. At the same time, China should accept that it has a leading role to play in the regime. As is well known, the WTO has been struggling, reflecting differences in priorities across the membership, an erosion in mutual trust, and working practices that have impeded efforts to agree on changes to the rulebook. Consequently, most new rulemaking has been occurring in preferential trade agreements (PTAs), not the WTO, with high-income countries increasingly focused on attempts to negotiate deeper agreements that include rulemaking in areas that go beyond the WTO.

We begin in Section II with a brief discussion of the global challenges that ought to be on the WTO agenda and why China is central in making progress in addressing them through international cooperation. Section III discusses key dimensions of “fixing the machine” – reforming working practices and mechanisms to provide transparency, support deliberation, and resolve disputes, while Section IV does the same on issues related to the reform of negotiation modalities, the recent return to new rulemaking among groups of WTO Members on a plurilateral basis, and the way that differences in economic development levels are reflected in the WTO. We do not discuss all these areas in depth but refer the reader to the recent literature on this subject.Footnote 2 Throughout, we consider the positions that China has taken, as well as those of the EU and the US. In Section V we reflect on the potential implications of China’s application to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) for the prospects for WTO reform. What matters for the trading system is that the decision to apply signals a willingness by China to engage on many issues that should be – and in part are – on the table in the WTO. Section VI concludes.

II Substantive Policy Challenges for the WTO Membership

Rapid growth in global trade in recent decades was associated with a sustained rise in the production of manufactured products in emerging economies, notably China, often as part of – intermediated by – global value chains (GVCs). The resulting rebalancing of global output and incomes gave rise to adjustment pressures in the United States and other OECD countries. These in turn fostered perceptions that China’s export success reflected the use of policies that unfairly advantaged Chinese firms. This became a factor in the “backlash against globalization” observed in many high-income countries. Such adjustment pressures will continue to rise as the world economy, driven by technological and organizational innovations, shifts towards services activities and trade come to involve more e-commerce and cross-border digital transactions. Changes in technology, and efforts to address climate change, will impact segments of the labor force that have previously benefitted from or been relatively sheltered from, internationalization.

Global trade governance has not kept up with ongoing changes in the structure of the world economy and shifts in the composition of cross-border flows. Competition between governments to stimulate domestic economic activity through “make it here” policies is growing. Such national policies may give rise to negative cross-border spillovers, either by design or inadvertently. Policies may be designed to limit the ability of foreign firms to sell goods and services and constrain the ability of firms to utilize new technologies. Addressing the associated cross-border policy spillovers calls for international cooperation.

Theory, supported by extensive evidence, suggests that addressing cross-border policy spillovers, whether pecuniary or non-pecuniary, is a major motivation for the negotiation of trade agreements, along with a political economy (commitment) incentive for cooperation. Although global trade was relatively robust in the past decade, implying weaker incentives to engage in multilateral trade agreements than is sometimes supposed by observers, the rising prevalence of trade conflicts associated with the adoption of unilateral protectionist trade policies in major economies suggests there should be a strong basis for such cooperation. However, geopolitics and serious internal political constraints confronting trade policymakers (“worker centricity” in the US; conditioning trade on “values” in the EU; resistance to external pressure in China) raise the question of whether trade agreements are feasible even if policy spillovers are significant.

Alleged international competitive spillovers of subsidies play a major role in the trade tensions between the U.S., EU, and China (Mavroidis and Sapir, Reference Mavroidis and Sapir2021). Subsidies can help to address market failures and therefore might have a good economic development rationale despite giving rise to potential negative cross-border competitive spillovers. As discussed at greater length in Hoekman and Nelson (Reference Hoekman and Nelson2020), this is not simply a China issue. Subsidies of one type or another constitute the great majority of trade interventions imposed since 2009 (Evenett and Fritz, Reference Evenett and Fritz2021), and the difficulties of crafting appropriate disciplines go back to the original GATT negotiations of 1947. The WTO prohibits export subsidies and has mechanisms through which Members can countervail subsidized imports and challenge the adverse effects of subsidies through dispute settlement procedures. Subsidies are a central focus of two ongoing negotiations, on domestic support in agriculture and support for fishers. China not only supports disciplines that prohibit fisheries subsidies that contribute to overcapacity and overfishing and eliminate subsidies that contribute to illegal and unregulated fishing but also notes the importance of “recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of the negotiations” (WTO, 2019d).

The tensions among China, the EU, and the US are particularly acute with respect to industrial subsidies. Rather than engage in discussions at the WTO, the US pursued unilateral action (see Hillman, Reference Hillman2023), as well as a trilateral process with the EU and Japan to address “concern with the non-market-oriented policies of third countries and […] actions being taken and possible measures that could be undertaken in the near future.” In a May 2018 statement Trilateral ministers endorsed a joint scoping paper defining the basis for the development of stronger rules on industrial subsidies contributing to excess production capacity in sectors such as semiconductors, steel, aluminum, and others, and on state-owned enterprises (SOEs) (USTR, 2018). A subsequent series of Trilateral meetings has made little progress. In an implicit response, Vice Minister Wang, in a press conference on the WTO Trade Policy Review of China in 2021 said that China was open to starting negotiations on subsidies within the framework of WTO reform, mentioning three specific ideas: first, agricultural subsidies must be discussed at the same time as industrial subsidies to ensure fair competition in both important areas; second, tightening trade relief disciplines such as countervailing and anti-dumping should be discussed to solve the current abuse of trade relief measures; third, it should discuss the issue of restoring non-litigable subsidies, which is needed to leave policy space for members to cope with challenges such as climate change (China, 2021).

To give another example of an area where the three powers diverge, the global regime for data flows is highly fragmented, ranging from essential laissez-faire approaches in some countries (with the US being on this end of the spectrum), to more tightly regulated environments in others, whether motivated by protection of privacy and citizen rights, perceived security imperatives or concerns about market power and abuse of dominant positions by lead firms. The EU and China are both on the more regulated end of the spectrum, with the EU maintaining a conditional flow regime and China imposing tight restrictions in specific areas, for example, on the location of computing facilities (Ferracane and Li, Reference Ferracane, Li, Hoekman, Tu and Wang2021) Trade agreements are beginning to include specific obligations on cross-border data flows, and some jurisdictions are establishing “equivalence regimes” that determine whether foreign providers will be treated in the same way as domestic firms when it comes to access and processing of data. The consequences of the potential for the resultant creation of “data blocs” for global wellbeing – and global trade – are still poorly understood, whether from the point of view of individual consumers interacting with websites or social media or from the point of view of companies looking to leverage digital technologies to boost productivity or expand markets.Footnote 3

The technological developments generating structural transformation and national policies that are both causes and responses to shifts in global trade shares call for revisiting and updating international trade rules. Realizing this potential requires WTO reforms. To a significant extent, achieving such reform depends on China.

(i) Why China Is Central to “WTO Reform”

Although WTO reform pressures in part reflect increasing dissatisfaction with the operation of the organization by many WTO members, especially its negotiation function leading to an inability to adapt to a changing global economy, a major trigger for the rising prominence of calls and proposals for WTO reform is the impact of China on the trading system. Progress in the WTO will require recognition by all three major players that China must now play a leadership role commensurate with its weight in the world economy. China has indicated it will accept reforms that make the WTO better for all Members, but not ones that challenge its identity as a developing country, that deny it scope for how it organizes its economy, and that fail to recognize its status as a major power (Gao, Reference Gao2021; Liu, Reference Liu2019; Tan, Reference Tan2021). In a submission to the General Council (WTO, 2019b) China indicated that it supports WTO reform if core values of the multilateral trading system such as non-discrimination and openness, safeguards for the development interests of developing Members, and decision-making by consensus are preserved.

The U.S. has repeatedly expressed its serious concerns with China’s non-market-oriented economy and associated policies and practices “that have resulted in damage to the world trading system and lead to severe overcapacity, create unfair competitive conditions for workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade” (WTO, 2020a).Footnote 4 This theme was echoed in the inaugural joint statement of the U.S.-EU Trade and Technology Council on September 29, 2021. Chinese scholars recognize this U.S. view, which they contrast first with “the vast number of developing members represented by China who adhere to the basic purposes and principles of the WTO,” and second with the compromise position of such major economies as Europe, Canada, and Japan (Liu, Reference Liu2019).

China made clear in its submission on WTO reform (WTO, 2019b) that it sees the U.S. as the problem, with proposals on breaking the impasse of the appointment process of Appellate Body members, tightening disciplines to curb the abuse of national security exceptions; and tightening disciplines on unilateral measures that are inconsistent with WTO rules. China’s suggestions on improving trade remedies disciplines target areas where developed countries could be said to have abused the existing rules, for example on price comparison in anti-dumping proceedings, subsidy identification, and calculation of benefits conferred. Chinese officials consistently make the obvious and valid point that the market is not given free rein in OECD countries. These Chinese views are fair but are also a deflection from the core issue: coming to a shared understanding of the role China must play in the system.

III Fixing the Machine

As discussed at greater length in Hoekman et al. (Reference Low, Hoekman, Tu and Wand2021) and Hoekman and Wolfe (Reference Hoekman and Wolfe2021), WTO reform spans two sets of issues: (i) improving working practices and the operation of the institution (“fixing the machine”); and (ii) overcoming obstacles that impede the negotiation of new trade policy disciplines. This section discusses the first set of issues; the next section turns to the second challenge.

(i) Improving Transparency

Transparency of actor behavior and expectations is a core requirement of international regimes. This objective requires high-quality information (Wolfe, Reference Wolfe2018). The WTO agreements have dozens of formal notification obligations; compliance varies by the committee and by Member.

Inadequate notification of trade policies is an old issue, but its inclusion on the “WTO reform” agenda only began at the 2017 Ministerial Conference when Robert Lighthizer, then the United States Trade Representative, said that “it is impossible to negotiate new rules when many of the current ones are not being followed” (USTR, 2017). The U.S. tabled a detailed proposal that reviewed how compliance with notification obligations under the Trade in Goods agreements is unsatisfactory. The U.S. proposal included punishment for Members who are behind in their notifications (WTO, 2017). Although not explicit, the target was clearly China.

Whether and to what extent China is not fulfilling its WTO notification obligations is an open question. In a 2021 self-report for the TPR, it said (WTO, 2021c, 4.24) that it “has fully fulfilled its obligations of notification under all WTO agreements.” In its report for the TPR, the Secretariat observed (WTO, 2021d, 2.22) that “some notifications, including those on state trading enterprises and domestic support, remain outstanding.” During the TPRB meeting to review the reports, most questions posed by members had to do with notifications and transparency. Whatever the facts of the matter, threats to identify the Chinese ambassador as a “Member with notification delay” when offered the floor in the General Council as in a U.S.-led proposal (WTO, 2021a) will not enhance WTO transparency. China, along with most developing countries, will never join a consensus on the wording suggested in this proposal. But Chinese respondents in the Survey expressed stronger preferences than the other two for improving transparency. China does recognize the notification problem (WTO, 2019b) and is willing to engage in discussion of improvements, starting naturally with developed countries leading by example (Li and Tu, Reference Li and Tu2020, p. 859).

The periodic monitoring reports prepared by the Secretariat ought to be able to provide information that supplements notifications. The reports aim to enhance the transparency of trade policy developments, consistent with the mandate of the Trade Policy Review Mechanism to aid in understanding Members’ trade policy but not to assess compliance with formal obligations. The reports therefore do not cover “subsidies,” which are defined for legal purposes in Article 1.1 of the ASCM, but they should in principle cover the full extent of the “general economic support” provided by governments. They do not. Central to coverage of general economic support, which goes beyond formal notifications, are responses to periodic questionnaires issued by the WTO Director-General (DG). The overall response is weak, and the response on general economic support is dismal. In the 2020 report, 67 WTO Members and one Observer volunteered information on 638 COVID-19-related general economic support measures. The EU did so; the U.S. and China did not. The U.S. is less cooperative than China or the EU with the trade monitoring exercise, neither responding to the DG’s questionnaire nor verifying information the Secretariat found in other places (WTO, 2020b, Appendix 1). The Global Trade Alert makes a valuable contribution to closing the transparency gap on subsidies provided by the big three (Evenett and Fritz, Reference Evenett and Fritz2021), but they should do more themselves.

(ii) Improving the Operation of WTO Deliberative Bodies

In the short term, agreement on binding rules on contested policies is unlikely to be possible simply because the major players are far apart in their understanding of the sources and magnitude of the problems that call for cooperation. What is needed first and foremost is engagement in processes to collect and share information, policy dialogue, and peer review. This applies to a range of policy areas, including subsidies and SOEs. WTO members do not necessarily know enough about SOEs, not just in China but more broadly, to be sure whether and where SOEs create a systemic problem, and hence what ought to be done. A necessary condition for cooperation is a common understanding of the extent and spillover effects of contested practices (Evenett and Fritz, Reference Evenett and Fritz2021). As noted by Hoekman and Nelson (Reference Hoekman and Nelson2020), calling for work programs to do so may be criticized as kicking the can down the road. It is not. WTO members simply do not have enough information to develop a common understanding of where new rules are needed and the form they should take.

WTO committees and councils are the first deliberative bodies for discussing emerging issues and addressing trade concerns without recourse to the dispute settlement system. Or at least they should be (Wolfe, Reference Wolfe2020). The most effective WTO bodies in addressing trade concerns are the Technical Barriers to Trade Committee and the Sanitary and Phytosanitary Measures Committee. Members raise “specific trade concerns” (STCs) to seek clarification, including of already adopted measures, and discussion can lead to modification or even withdrawal of a measure that has adverse consequences for trading partners. Discussion of trade concerns is increasing in other bodies. Since 1995, close to 6000 questions (much like an STC) have been raised in connection with individual notifications under the Committee on Agriculture (CoA) review process. Between mid-October 2014 and mid-October 2019, 1,158 issues and concerns were raised in 129 formal meetings of 17 WTO committees and councils, other than SPS, TBT, and CoA (WTO, 2020b). These numbers dwarf the number of formal disputes.

A handful of large traders make the most frequent use of procedures to raise trade concerns, notably the U.S. and the EU. China is now number 5 on the list of users and is the target of more trade concerns that any country after India (WTO, 2020b). Still, the procedures could be more extensively used, and participation could be enhanced. One of the reasons for improving the discussion of STCs is to avoid escalation to the dispute settlement system, but Chinese respondents to the Survey get considerably less utility than respondents in the U.S. and the EU from using WTO bodies to defuse potential disputes by raising STCs. One suggestion for improvement is to establish guidelines for all WTO bodies. Tabled by the EU and supported by 19 other Members, including China, this proposal aims to make better use of the possibility offered by WTO Council and committee meetings to discuss and resolve concerns with trade-related measures by equipping them with horizontal procedural guidelines (WTO, 2021b).

The proposal encourages the submission of written questions and answers, which would enhance transparency for other Members, or firms, having the same concern. Although the U.S. was cool to the proposal for obscure reasons, it made a similar proposal in the SCM Committee for ensuring timely written responses to questions posed by Members on the subsidy programs of other Members (WTO, 2020d). China has resisted every time the item comes up, including in an October 2021 meeting, arguing that the ASCM does not require members to submit responses to such questions in writing, nor to provide them within a specific time period. In its view, setting deadlines as proposed by the U.S. would impose substantial new notification obligations on WTO members and cause difficulties for developing countries.

Policy dialogue in WTO bodies is important to consider what works well under agreements, what is not working, and what should be next on the agenda. Committees also need to hear from stakeholders who use their agreements, including regulators, other international organizations, and the private sector. Chinese and U.S. respondents to the Survey get more utility than EU respondents from greater engagement with stakeholders in WTO bodies. One instrument for such engagement is meetings that are sponsored by or associated with a WTO body in some way, but that are not part of its formal meetings and thus permit (in principle) participation by stakeholders. The WTO held over 100 such “thematic sessions” from 2017 through 2019 (Wolfe, Reference Wolfe2021). China was relatively well represented, with 9 Geneva-based Chinese government officials and 15 capital-based officials speaking in thematic sessions during the 2017–19 period, along with 7 business and 2 academic participants.

(iii) Dispute Settlement and the Appellate Body Crisis

A vital dimension of the “value proposition” offered by the WTO is independent, third-party adjudication of trade disputes reflected in the principle of de-politicized conflict resolution. An effective dispute settlement mechanism is critical for existing WTO agreements to remain meaningful, and for the negotiation of new agreements. The different pillars of the WTO are interdependent. Resolving the Appellate Body crisis and bolstering the dispute settlement function is critical for the continued relevance of the WTO.

The U.S. seems to believe that WTO adjudication is not the best way to resolve its concerns with Chinese practices. Although China lost many of the dispute settlement cases brought against it, Appellate Body rulings on key matters such as what constitutes a public body under the ASCM fuelled U.S. frustration (Ahn, Reference Ahn2021). The Appellate Body ceased operations in December 2019 because of the U.S. refusal to agree to appoint new Appellate Body members and/or re-appoint incumbents. Resolution of the crisis requires reform of how the system works. U.S. concerns are long-standing, and the U.S. is not alone in at least some of its concerns (Fiorini et al., Reference Fiorini, Bernard Hoekman, Saluste and Wolfe2020). By the end of 2020, sixteen appeals were pending before the dysfunctional Appellate Body and only five new cases had been filed, the lowest for any of the WTO’s 25 years. If appeal “into the void” remains possible, issued panel reports will have no legal value, unless the disputing parties forego their right to appeal, and accept the panel report as the final word in their dispute. The interim Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which includes the EU and China, provides a short-term alternative but is not a solution (Hoekman and Mavroidis, Reference Hoekman and Mavroidis2020).

We speculate that China values a functioning system that provides some protection from the U.S., or at least some recourse if the U.S. does act unilaterally. Chinese scholars see the dispute settlement system as the first option to reconcile the relationship between China and its trading partners, hence wishing to be seen as a responsible player China is motivated to comply with dispute settlement rulings (Li and Tu, Reference Li and Tu2018, 121). China is much closer to the EU position than to the U.S. Having invested considerable effort in developing trade law expertise in government and academia, China became a sophisticated user of dispute settlement to push back on U.S. and EU use of trade remedy law (Shaffer and Gao, Reference Shaffer and Gao2018). In addition to joining the MPIA it is a cosponsor of the proposal led by Mexico to re-start the Appellate Body appointments process–blocked by the U.S. at over 50 meetings of the DSB–and it has joined a proposal an Appellate Body reform with over 40 other Members.

Survey respondents from all three trade powers are of the view that re-establishing an operational dispute resolution system is a top priority, although Chinese respondents to the Survey get more utility than the EU and U.S. respondents from making the Appellate Body operational again and from considering reforms to dispute settlement processes more broadly. The U.S. would see no point in any kind of WTO reform that did not address this problem. Equally, the U.S. would see no point in any new agreements aimed at Chinese practices if dispute settlement remains slow and ineffective.

IV Negotiation Obstacles: Consensus and Special and Differential Treatment

The accession of China at the 2001 Doha ministerial occurred in tandem with the launch of the ill-fated Doha Round at the same ministerial. The backward-looking Doha Round agenda prioritizing tariffs on manufacturing and agricultural support policies became increasingly disconnected from twenty-first-century priorities as the negotiations dragged on eventually becoming deadlocked. One result was that policies affecting the digital economy, cross-border data flows, and foreign investment, among others, were neglected because a consensus could not be achieved to address issues that were not part of the Doha agenda.

With the Doha Round dead, in 2017 many countries decided to shift gears and move away from negotiations including all WTO Members and the working practice of consensus decision-making by launching so-called “joint statement initiatives” (JSIs), meaning simply talks inside the WTO among a subset of Members whose eventual outcome would make use of WTO transparency and dispute settlement procedures. The 2017 JSIs addressed e-commerce, domestic regulation of services (successfully concluded in December 2021, with 67 WTO members, including China, joining), investment facilitation, and measures to enhance the ability of micro and small, and medium enterprises (MSMEs) to capture trade opportunities. Subsequently, additional issues became the subject of discussion among groups among subsets of WTO members. Ministerial statements in December 2021 addressed three new areas where groups of Members have decided to pursue discussions.Footnote 5

These joint initiatives include a broad cross-section of members. But that does not mean that negotiations to establish new plurilateral agreements have been endorsed by all Members. Tu and Wolfe (Reference Tu, Wolfe, Hoekman, Tu and Wang2021) discuss the opposition to the JSIs led by India and South Africa. Unlike some other developing countries, Chinese officials are not opposed to the principle of pursuing plurilateral agreements in the WTO (Li and Tu, Reference Li and Tu2020).Footnote 6 In its country report for its 2021 trade policy review, China stressed its active participation in the JSIs (WTO, 2021c). China has taken a leadership role in the JSI on investment facilitation, acting as a co-sponsor and actively encouraging participation by developing countries.

The move to plurilateral is only a partial solution to the difficulty of concluding negotiations by consensus. Each negotiation can only be concluded if a critical mass of Members participates, whatever the legal form of an outcome. Plurilateral approaches therefore are not a panacea, but they offer a mechanism for large trade powers to cooperate without engaging in negotiations with all WTO members (Hoekman and Sabel, Reference Hoekman and Sabel2021). An EU paper on WTO reform (EU, 2021) contains an implicit warning: if no effective formula is found to integrate plurilateral agreements in the WTO, there would be no other option than developing such rules outside the WTO framework, which could fragment the system. The warning applies to India, South Africa, and to anybody tempted by their analysis, but it also applies to the three major powers. Plurilateral negotiations can break the dead hand of the single undertaking, but the risk of free riding by any of the three major powers means that each of China, the EU, and the U.S. will be needed to reach a critical mass deal.

V Special and Differential Treatment: A Central Negotiation Obstacle

The prospects for agreement to be possible between the EU, U.S., and China will depend importantly on whether emerging economies insist on being accorded special and differential treatment and more generally on whether and how such agreements address development differences.

In May and November 2019, the U.S. submitted a proposal for a decision on “Procedures to Strengthen the Negotiating Function of the WTO” with criteria for assessing which countries will not avail themselves of SDT in WTO negotiations (WTO, 2019c). The U.S. asked for this item to be placed on the agenda of one General Council meeting after another in 2019 and 2020, with some support from other Members but unrelenting opposition from China and most developing countries. At the July 2020 meeting of the General Council the representative of China, echoing the introduction and much of the argumentation of an earlier submission on SDT by China and others (WTO, 2019a) said that in an international organization with developed and developing Members, non-reciprocity was a means and a principle to realize equity. He argued that the reclassification of WTO members was not a way out. Rather than revisiting the current practice of self-designation of developing country status, he suggested those in a position to do so be encouraged to make a greater contribution to the best of their capabilities, which China was willing to do (WTO, 2020c).

During the October 2021 Trade Policy Review Body (TPRB) meeting on the report on China, Australia, echoing comments made by many others, including the EU and the U.S., encouraged China to play a more constructive leadership role in the WTO, including by relinquishing its access to special and differential treatment. Minister of Commerce Wang Wentao, who led the Chinese delegation, said that “In keeping with the principle of balanced rights and obligations, China is willing to approach special and differential treatment with pragmatism and make more contribution within the WTO that is commensurate with its capacity.” In a subsequent press conference in Beijing on the results of the review (China, 2021) Vice Minister of Commerce Wang Shouwen’s lengthy response to a question on SDT noted that “The report of the nineteenth National Congress of the Communist Party of China pointed out that China’s international status as the largest developing country in the world has not changed. China’s international status as a developing country has not changed.” This line comes right from the top. President Xi Jinping told Davos in January 2021 that WTO reform must protect the development rights and policy space of developing members (WTO, 2021c). Chinese officials will not give up the principle soon, regardless of what happens in practice.

The debate about the links between levels of development and the depth of policy commitments can be sterile. Low (Reference Low, Hoekman, Tu and Wang2021) discusses ways to break the link between what a country calls itself and what access to SDT should be available. He stresses that most aspects of SDT require cooperative action of one kind or another from others besides the SDT recipients – the scope to invoke unilateral “flexibilities” in implementing WTO rules is limited. Nobody thinks China should expect SDT for any new market access commitments or any other provision where special treatment would be offered by another member.

In the Survey, resolving differences in SDT was not a huge priority for any of the three. A possible reason is a recognition that these three major traders will need to negotiate rules that apply equally to each of them, with specific commitments and exceptions, agreed on an issue-specific basis. Doing so need not require China to abandon the principle of identifying itself as a developing country, nor does it need to abandon support for other members who may need SDT more.

VI Prospects for WTO Reform: China’s CPTPP Application

One of the questions about whether China can contribute to real WTO reform is how willing the country is to undertake new liberalization and regulatory policy commitments. Its leadership role in the Regional Comprehensive Economic Partnership (RCEP) might be an indicator, although RCEP is a relatively shallow agreement. More significantly, China has been paying close attention to TPP/CPTPP ever since the U.S. decided to join and reframe this initiative in 2009. At the time, China was greatly concerned about the intentions of the U.S. and the possible impact of the TPP on China’s position in the Asia-Pacific. One of China’s responses was to support and participate in RCEP.

The subsequent developments are well known. The TPP talks concluded successfully in 2016 with a draft text that was agreed upon by the United States. Despite this, President Obama never submitted the TPP to Congress for ratification, and President Trump withdrew the U.S. from the TPP on the first day of his presidency in January 2017. Japan then succeeded in transforming the TPP minus the U.S. into the CPTPP with 11 members later in 2017. In parallel, China and 14 other countries continued the RCEP negotiations, successfully concluding them at the end of 2020. To the surprise of many foreign observers, a few days after the conclusion of RCEP, President Xi Jinping announced that China was positively considering applying to join the CPTPP. There was no open opposition to joining CPTPP in academic debates, although there was some suspicion and concern about the feasibility of doing so. Premier Li Keqiang repeatedly claimed that China was open to it. In September 2021, the Chinese government formally submitted the application.

The application was not a big surprise for Chinese observers. There have been numerous discussions and much research on TPP/CPTPP in China since 2015. Many scholars are very excited about the text of TPP/CPTPP and believe that the text represents the most advanced and ambitious efforts of further international economic integration. Given that implementation of the third plenum reform agendaFootnote 7 fell far below expectations, many argue that China needs foreign pressure to break through the obstacles in sensitive areas such as SOE reform and data regulation.

Many foreign observers doubt China’s intentions in applying to the CPTPP. The assumption is that China could not accept the high requirements of CPTPP given its poor performance in reform and opening-up in recent years; they think that the application is just a gesture to the world but that China is not prepared to comply with the rules of CPTPP. A counterargument can be based on what China agreed to in the 2020 Comprehensive Agreement on Investment with the EU. Although ratification of this agreement has been stalled due to political factors and the CAI may never be implemented, what matters is that China accepted a range of provisions on matters that also will be on the table in the CPTPP, including trade and sustainable development, that is, non-trade issues, and disciplines on SOEs (see, e.g., Kurtz and Gong, Reference Kurtz, Gong, Hoekman, Tu and Wang2021). It is not reasonable to argue that China is not serious about CPTPP because reforms have been slow. Foreign observers often overestimate the ability of the Chinese government to enforce its policies throughout a huge country. There are countless bureaucratic obstacles to reform in the Chinese system. The central government needs international institutions to enhance the legitimacy and enforceability of its intentions–we know that WTO accession 20 years ago was used by reformers in China for just this purpose.

The application to CPTPP sends a strong signal to the world that China is willing to accept high-standard international rules, as long as the rules are widely considered legitimate and beneficial by other trading partners and Chinese society. Ironically, the rules included in the CPTPP were designed in part by the U.S. with the aim to establish a set of disciplines in which China would not have a voice. Adding to the irony is that the American government decided it was not willing to adopt the disciplines itself, a position that continues to be taken by the Biden Administration at the time of writing. The U.S. accuses China of disrupting the current rules-based international system but China’s application to the CPTPP is regarded inside China as a strong riposte.

China is very aware of the political challenges associated with joining CPTPP. China’s relations with CPTPP members Japan, Canada, and Australia are complicated and have deteriorated in recent years. But the negotiations will not be easy. China considers Japan to be a caretaker of U.S. interests, highly influenced by the latter. Economic considerations may dominate other concerns, as RCEP shows. Although Australia and Japan have problems with China, they ratified the RCEP agreement quickly.

CPTPP rules on technical issues such as SOEs, data flows, or labor standards are not always clear-cut and subject to the interpretation of members. If some members do not have the political will to let China in or feel pressured by the U.S. to resist a country termed its only peer competitor, they could adopt interpretations of CPTPP provisions that make it more difficult for China. China is more comfortable with possibly making some difficult concessions in CPTPP because a smaller membership means less pressure on China. While the CPTPP chapters on SOEs, data flows, and labor standards are difficult for China, neither the US nor the EU is CPTPP member. China is not naïve about the negotiation process, but China believes that participation will offer a great opportunity to both incumbent and future members. Accession to CPTPP would establish a basis for engagement with the other two major traders.

China’s participation in CPTPP will surely affect China’s position on WTO reforms, depending on the progress of China’s negotiation to join CPTPP. The CPTPP goes further than the WTO on many issues, including in areas such as environmental regulation, labor standards, competition policy, investment liberalization, cross-border data flows, and SOEs. The CPTPP offers China a way to engage in these issues in a smaller group without offending other WTO Members. If the CPTPP process is successful, it would provide a basis on which China would be more comfortable engaging in WTO negotiations on new issues, including on a plurilateral basis through JSIs. An implication may be that patience will be required before it becomes clear what China is willing to commit to in terms of new rules on substantive policy areas.

VII Implications for Future Cooperation on WTO Reform

WTO members face many problems that call for cooperation. Prominent items include ensuring a consistent response to global public health crises, resolution of conflicts regarding the use of industrial-cum-tax-subsidy policies, regulation of data privacy and cross-border data flows, and the appropriate role of trade policy in reducing the carbon intensity of economic activity. Revisiting the terms of engagement with China is a necessary condition for revitalizing the WTO as a forum to address these matters and to sustain an open world economy.

The challenge for China is to defend the existing international rules and its rights under them, while meanwhile exploring the possibilities of creating or supporting forms of cooperation that sustain its economic development. China’s support for WTO reform and its application to the CPTPP are intended for that purpose. Reflecting on the priorities of respondents to the Survey (Hoekman and Wolfe, Reference Hoekman and Wolfe2021) suggests that compromise will be needed all around on the design of a negotiating agenda or set of issues to be considered. Respondents from all three powers place great weight on resolving the dispute settlement crisis, with China-based respondents indicating that this is a particularly urgent priority. The Survey reveals a striking degree of correlation among respondents from all three major trade powers on assigning a high priority to the cluster of transparency-related issues. They are far apart in negotiating stronger rules on industrial subsidies, clarifying the role of trade policy in tackling climate change, and promoting sustainable development goals (SDGs).

In 2021, Chinese authorities, the media, and academic institutions held a series of events to commemorate the 20th anniversary of China’s WTO accession. The general tone was very positive. However, the emphasis was on China’s contribution to the WTO and the world rather than on the benefits accruing to China from its WTO membership. China has given up hope that the United States will relax its efforts to suppress China’s development. It is widely believed by the Chinese that the US has determined to decouple with China as much as possible. Although the US repeatedly argues that China has been disrupting the rules-based international system, China believes it is the US that has intentionally violated the rules established in the WTO because the outcome of trade liberalization in China and WTO membership has been beneficial to China by making the economy more and more competitive. The view in China is that the US has neither the appetite nor the capability to support further liberalization – as reflected in the Biden Administration’s disinterest in new trade agreements. The worry is that the US – the incumbent hegemon – now regrets having provided an international public good and is seeking to deprive China of its rights through calls for WTO reform that are code for relaxing existing rules to facilitate the imposition of import restrictions and measures to restrain China’s exports and outward investment.

Chinese officials in Geneva profess support for WTO reform but demand respect and non-discrimination. China does not accept being asked to do things that OECD countries do not ask of themselves. As discussed above, China also insists on the formal status of a “developing country” (Gao, Reference Gao2021). But China is a very large economy, a very large trader, and is more prosperous than many other developing countries. China cannot expect to be granted the type of special and differential treatment that WTO members are ready to accord to low-income developing countries in any new agreements. What is needed is a political accommodation that ensures continued acceptance of the principle accompanied by a pragmatic acknowledgment that reciprocity will apply among the three major trade powers in new negotiations.Footnote 8

Nothing will happen in the WTO unless China, the EU, and the U.S. want it to, but they will need to find ways to work together consistently, much as the old Quad did in bridging gaps between the EU and the U.S. during the Uruguay Round. The effort would be worthwhile since the best place to work out the major differences between China and the other two is the WTO, especially since neither is likely to engage with CPTPP any time soon. Clearly, all three have no difficulty with participating in plurilateral negotiations, but we argue that they should be working together on governance principles that would make a wider group of Members feel comfortable with such negotiations (Hoekman and Sabel, Reference Hoekman and Sabel2021; Tu and Wolfe, Reference Tu, Wolfe, Hoekman, Tu and Wang2021). They should also be considering how best to manage open plurilateral negotiations outside the WTO including the development of open standards for new technologies in ways consistent with the TBT agreement (Lee-Makiyama, Reference Lee-Makiyama2021). Compromise among the three ought to be possible.Footnote 9

While the single undertaking is dead, package deals are a negotiation reality. WTO ministerials need an agenda proposing a set of agreements that can attract a broad consensus. Without a forcing device, and if the results of each negotiation underway cannot stand on their own, how can they be knit together? The major powers have asymmetric interests with respect to any given trading partner. They also tend to have asymmetric interests in any one issue. IF the three must be part of a deal to get critical mass, and IF they have asymmetric interests, THEN they need a package of critical mass deals to reach an agreement on any one of them.

When we look at the pattern of current initiatives, it is striking that at least one of the three is a supporter of one. Can trade-offs be found whereby all three could assemble a package that they and others could support? While China co-sponsored the Informal Dialogue on Plastics Pollution, unlike the U.S. and EU, the EU is the only one of the three to sponsor the proposed statement on fossil fuel subsidies. China has joined the Trade and Environmental Sustainability Structured Discussions, as have the U.S. and the EU. China was a cosponsor (the U.S. was not) of an Ottawa Group proposal (WT0, 2021e) for a non-binding General Council declaration on the trade policy response to the COVID-19 pandemic that sought to ensure access to essential goods, including therapeutics and vaccines, by avoiding unnecessary restrictions and enhancing transparency. The EU cosponsored a U.S. proposal aimed to improve notifications, but China did not. China cosponsored an EU proposal on improving the work of committees, but the U.S. did not. Compromise on dispute settlement, the other big element of fixing the machine will be harder, but updating the WTO rule book, the other part of what is meant by “WTO reform,” will not be enough for the major powers if all WTO can do is make progress on old issues. The WTO already has many new issues on its agenda, but its rulebook must expand to cover other emerging issues.

Is China ready? Its application to join CPTPP suggests a willingness to engage based on extensive preparatory work, but China’s contribution to WTO reform depends on engagement with the other two major powers. The initiation of discussions in the CPTPP context suggests negotiations on substantive policy matters between China, the EU, and the US may need to wait until the CPTPP-related talks have progressed. Meanwhile a greater focus on deliberative processes in the WTO and prioritizing those elements of WTO reform that center on fixing the machine appear to offer greater scope for the big three to work together in preparing the ground for negotiating new agreements that span all three. Whether such agreements will be feasible remains an open question, as success is premised not only on China but on the willingness of the United States to consider and accept new disciplines. The CPTPP experience suggests this is by no means a given.

Footnotes

8 Tumult in the Trading System The China Paradox, Declining US Institutional Power, and the Crisis at the WTO

1 IMF Data, 2021.

2 IMF Data, 2021.

3 The US was the sole country to vote against the 1986 Declaration on the Right to Development in the UN General Assembly.

4 Interview, Geneva, April 2009.

5 “2011 trade policy agenda and 2010 annual report of the President of the United States on the Trade Agreements Program,” Office of the US Trade Representative, Washington DC, March 2011.

6 “Memorandum on Reforming Developing-Country Status in the World Trade Organization: Presidential Memorandum for the United States Trade Representative,” White House, Washington, DC, July 26, 2019.

7 “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Irrelevance.” Communication from the US. WTO General Council, February 14, 2019. WT/GC/W/757/Rev.1.

8 “Draft General Council Decision: Procedures to Strengthen the Negotiating Function of the WTO.” Submission by the US. February 15, 2019. WT/GC/W/764.

9 “Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union,” New York, September 25, 2018.

11 Trade Policy Review, European Commission, Brussels, February 18, 2021, p. 6.

12 “The Continued Relevance of Special and Differential Treatment in Favour of Developing Members to Promote Development and Ensure Inclusiveness.” Communication from China, India, South Africa, Venezuela, Laos, Bolivia, Kenya and Cuba. General Council, February 28, 2019. WT/GC/W/765/Rev.1, p. 11. “Statement on Special and Differential Treatment to Promote Development.” Co-sponsored by the African Group, Bolivia, Cambodia, China, Cuba, India, Laos, Oman, Pakistan and Venezuela. WT/GC/202/Rev. 1, October 14, 2019.

13 “WTO Reform from the Perspective of Developing Countries,” Speech by Ambassador Zhang Xiangchen, WTO Reform Seminar, Pune, India, February 29, 2020.

14 WT/GC/202/Rev. 1.

9 China’s Relations with the Global South in the World Trade Organization

The author thanks Henry Gao, Damian Raess, Ka Zeng and the participants in the World Trade Forum 2021 for helpful comments and suggestions. She thanks Kate Tepper for input on bargaining patterns. The interviews conducted for this contribution were funded by the Bremen International Graduate School of Social Sciences. The author acknowledges funding by the German Research Foundation [grant number WE 6012/2-1].

1 S&D grants developing country members special rights such as flexibilities and exemptions regarding trade liberalization negotiated at the WTO.

2 The interviews were conducted in Geneva in September 2016 with representatives from the Global South and the Global North at WTO missions, WTO headquarters, and other trade experts. The interviews were semi-structured to allow for an inductive exploration of the themes that underpin perceptions of China’s role as a development partner or competitor.

3 This negotiation rule stipulates that the negotiation round can only be concluded as a package, which means that an agreement needs to be reached on all issues that are part of the negotiation mandate.

4 The submission explicitly ‘seeks to reaffirm Members’ commitments to respect the mandates under the Doha Development Agenda (DDA) and continue to negotiate the remaining DDA issues after MC10 consistent with the DDA mandates and framework’ (Par. 2).

5 Interview with developed country representative, Geneva, 19 September 2016.

6 The China Programme consists of five pillars: (1) Annual Accession Round Table Meeting; (2) WTO Accession Internship; (3) LDCs’ Participation in WTO or WTO-Related Meetings; (4) South-South Dialogue on LDCs And Development and (5) LDCs’ Trade Policy Review Follow-up Workshops.

7 Interview with WTO official, 30 September 2016.

8 Interview with WTO official, 30 September 2016.

9 All Chinese submissions were coded as either ‘unilateral,’ ‘majority developing countries,’ ‘majority developed countries,’ or ‘mixed.’ The category ‘mixed’ applies to groups of countries that are composed 50%/50% of developed and developing country, allowing for changes of ±5% (i.e. up to 45%/55% or 55%/45%). All groups with a higher percentage of developing or developed countries are either ‘majority developing countries’ or ‘majority developed countries.’ For the classification of countries into developed and developing countries, the chapter relies on membership in the OECD (proxy for developed countries) and membership in the G-77 (proxy for developing countries) or other developing country negotiating groups at the WTO.

10 India made, for instance, six and Brazil four submissions with a group of countries that included the European Union in the WTO Rules committee (same time period).

11 Data source: Eurostat, https://ec.europa.eu/eurostat.

12 WITS database, https://wits.worldbank.org/.

13 Interview with developed country representative, Geneva, 15 September 2016.

14 Interview with developed country official, 30 September 2016.

15 Interview with former developing country representative, Geneva, 30 September 2016.

16 Interview with two developing country trade officials, 16 September 2016.

17 Interview with developed country representative, Geneva, 15 September 2016.

18 Interview with developed country representative, Geneva, 30 September 2016.

19 These criteria are either OECD membership (or accession), membership of the Group of 20, classification as “high income” country by the World Bank or accounting for no less than 0.5 per cent of global merchandise trade (imports and exports).

20 Note that Venezuela is – in contrast to the other three countries – not covered by the criteria proposed by the US for the graduation from the developing country status. Subsequently, a group of 52 developing countries – including India and China – submitted a joint statement at the General Council of the WTO in which they also defended the current system of S&D (WTO, 2019b).

21 Interview with developing country representative, Geneva, 23 September 2016.

22 Interview with developing country representative, Geneva, 14 September 2016.

23 Note that in the past decade, there has been a general shift towards S&D limited to LDCs – rather than the more contested S&D provisions accessible for all developing countries (Weinhardt and Schöfer Reference Weinhardt and Schöfer2022).

24 Who counts as a LDC is determined by the UN and reviewed regularly, based on a combination of economic and human development criteria. There are currently only 46 countries that qualify as LDCs. The graduation criteria built into the LDC status ensure only marginalised countries that represent around 1% of aggregate exports of WTO members qualify for the status.

25 Interview with developing country official, Geneva, 22 September 2016.

27 Interview with two developing country trade officials, 16 September 2016.

28 Interview with trade expert, Geneva, 28 September 2016.

29 Interview with two developing country trade officials, 20 September 2016.

30 Interview with developing country official, skype call, 27 September 2016; interview with two developing country representatives, Geneva, 19 September 2016.

31 Interview with two developing country trade officials, 16 September 2016.

32 Interview with developing country representative, Geneva, 14 September 2016.

33 Interview with former developing country representative, Geneva, 30 September 2016.

10 China and the BRICS in WTO E-Commerce and Fisheries Negotiations Competition and Convergence

1 This pattern is consistent with China’s behavior earlier in the history of its engagement with the WTO. See, for example, discussions of China’s negotiation behavior in the WTO agricultural and non-agricultural market access (NAMA) negotiations (e.g., Liang, Reference Liang, Zeng and Liang2013; Wang and Zeng, Reference Wang, Zeng, Zeng and Liang2013).

2 The proposal was circulated at the request of India and South Africa on July 13, 2018, and was titled “Moratorium on Customs Duties on Electronic Transmissions: Need for a Re-think.”

11 The Impact of the WTO Dispute Settlement System on China Effectiveness, Challenges and Broader Issues

1 This table is based on Wang, Chenxi and Weihuan Zhou, (Reference Fang and Zhou2022) ‘A Political Anatomy of China’s Compliance in WTO Disputes’, Journal of Contemporary China 1, 3–4 (online).

12 China and WTO Reform

We are grateful to a reviewer, Henry Gao, Damian Raess, Ka Zeng and participants in the World Trade Forum 2021 for helpful comments and suggestions.

2 Recent research on WTO reform includes Evenett and Baldwin (Reference Evenett and Baldwin2020), Liu (Reference Liu2019), Hoekman et al. (Reference Hoekman, Tu and Wang2021).

3 Data flows and digital regulation more broadly are particularly important for firms that rely on data as a core part of their business, e.g., platform companies and providers of ‘software as a service’. See, e.g., Ferracane and van der Marel (Reference Ferracane and van der Marel2019).

4 See also Hopewell (Reference Hopewell2023), Chapter 8 in this volume.

5 These Ministerial statements addressed (i) Trade and Environmental Sustainability (WT/MIN(21)/6/Rev.2); (ii) Plastics Pollution and Environmentally Sustainable Plastics Trade (WT/MIN(21)/8/Rev.2); and (iii) Fossil Fuel Subsidies (WT/MIN(21)/9/Rev.1).

6 China joined the Information Technology Agreement and is in the process of acceding to the Government Procurement Agreement. China also participated in the Environmental Goods Agreement, though with a narrower list of goods than some other participants had wished, and had wanted to participate in the now moribund Trade in Services Agreement (TiSA) negotiations but had been rebuffed (Hoekman and Shi, Reference Hoekman, Shi, Hoekman, Tu and Wang2021).

7 See, e.g., Rosen (Reference Rosen2014).

8 A step in this direction was taken at the 12th Ministerial conference of the WTO in June 2022. One outcome was a Ministerial decision on the TRIPS Agreement to the effect that developing countries may authorise the use of patented technologies to produce COVID-19 vaccines and supply these to other developing nations without the consent of rights holders (WT/MIN(22)/30). This decision includes a footnote encouraging developing countries with vaccine manufacturing capacity to commit not to avail themselves of this option. China did so, illustrating that developing country status in the WTO need not preclude differentiation in the application of rules.

9 We refrain from offering specific policy proposals that could form the basis of negotiations as our aim in this chapter was not to provide policy prescriptions, but to consider how the three major powers see WTO reform. Specific reform proposals can be found in the contributions to Evenett and Baldwin (Reference Evenett and Baldwin2020), Hoekman et al. (Reference Hoekman, Tu and Wang2021) and Hoekman and Mavroidis (Reference Hoekman and Mavroidis2021b). Hoekman and Mavroidis (Reference Fiorini, Bernard Hoekman, Saluste and Wolfe2020, Reference Hoekman and Mavroidis2021a) argue that reform of dispute settlement must go beyond the role of the Appellate Body and span the first stage panel process. Wolfe (Reference Wolfe2020) suggests greater use of WTO committees to defuse and address potential disputes, building on the experience in WTO bodies dealing with product standards in which WTO members can table “specific trade concerns” raised by applied or proposed standards in a WTO member.

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Figure 0

Figure 9.1 Patterns of coalition partners in Chinese submissions in the WTO Trade Negotiating Committee and its sub-groups (2001–2019)

Figure 1

Table 9.1 Overview of China’s joint submissions in the Trade Negotiation Committee’s sub-groups (2001–2019)

Figure 2

Figure 9.2 To what extent do you feel that China’s negotiating positions in the WTO overlap with the interests of developing countries?

Figure 3

Figure 9.3 To what extent do you feel that Chinese negotiating positions during the Doha round were informed by historical roles that reaffirm the importance of South-South cooperation?

Figure 4

Figure 11.1 Top users of the WTO dispute settlement system

Figure 5

Table 11.1 Completed WTO disputes involving China as a respondent 2001–20211