Since joining the World Trade Organization
(WTO) in December 2001, China has been one of its greatest
beneficiaries, enjoying lower tariffs and market access to
virtually every other country in the world. But the honeymoon
might be coming to an end.
Until recently, WTO membership has had few
downsides for the Chinese. Its manufacturing sector has grown
at an astonishing pace, providing the country a hefty trade
surplus with the rest of the world. With that growth has come
increasing political influence and a seat at the table
alongside other leaders in the international arena.
Critics have argued that China enjoys all the
benefits of WTO membership, namely market access, while
remaining protected. Foreign ownership of Chinese companies is
limited, for example, and China has brushed aside complaints
from the United States and others that its artificially weak
currency amounts to a trade-distorting subsidy.
But a big loss at the WTO in a case involving
auto parts could be a sign of things to come.
"China is going to be increasingly targeted,"
said one U.S. trade attorney who has argued cases before the
WTO. He noted that because of its size, the United States was
an early target for WTO action. "Just as China has grown to
control a larger portion of world trade, it is going to be a
target for other WTO nations when it doesn't comply with the
The auto parts case was the first wake-up
call for the Chinese, and even die-hard free traders said
China's position was suspect. China had agreed to open its
market to foreign auto suppliers when it joined the WTO but
then raised tariffs on car parts. The only thing that surprised
most observers was that China didn't settle the case before it
reached the WTO panel, sparing itself an international
embarrassment. The Chinese have even indicated that they may
appeal the decision.
After the ruling, it didn't take long for the
United States and its allies to strike again U.S. Trade
Representative Susan Schwab announced March 3 a new case
targeting China's treatment of U.S. suppliers of financial
China's regulatory regime requires foreign
financial information suppliers to operate through a
government-designated distributor in China and prohibits them
from establishing local operations to provide their services,
the complaint says. The agency designated to regulate this
financial service appears to have a conflict of interest, since
the agency seems to be closely aligned with a Chinese
competitor in the supply of these services.
"The United States believes that China's
treatment of foreign financial information suppliers is
inconsistent with China's WTO obligations," Schwab said.
Meanwhile, China is still consulting with the
United States over a case launched in April 2007 alleging
intellectual property rights violations. The complaint said
that China's legal regime has been lax in its protection and
enforcement of copyrights and trademarks on a wide range of
products, including books, music, videos and movies.
"Piracy and counterfeiting levels in China
remain unacceptably high," Schwab said at the time, and anyone
who has walked the streets of Beijing, Shanghai or any other
major Chinese city can attest to the overwhelming number of
pirated DVDs readily for sale along the sidewalks.
So the Chinese are fighting cases on all
fronts-manufactured imports, services and intellectual
property-and there's no reason to think the pressure is going
to let up.
China's options are limited, but there could
be an opportunity for progress. "I don't think it's viable for
anyone to retreat from the WTO; they benefit too much from it,"
the trade attorney said. "But what they can do is address the
most egregious laws and regulations that they have that are
inconsistent with WTO rules."
One example of that is the case filed against
China on export subsidies. Instead of going through with the
case, China voluntarily ended the programs.
"It's fair to say that other nations have
found that (litigation) is a more effective way of addressing
their concerns than having dialogue with China," he said.
"Dialogue only goes so far. It's nice to have, but if it isn't
going to prompt any change then the United States and the
European Union have to resort to other measures."
However losses at the WTO could prove to be a
blessing in disguise for China, if they encouarge Beijing to
reassess what its role should be, the trade attorney noted.
"Maybe it will lead them to engage more as a leader in the WTO
process," he said. "China really is a trading power and should
be trying not just to comply with the WTO, but to try to direct
its course. That would be another option."