WTO de­ba­cle her­alds end of post­war trade regime

China Daily (Hong Kong) - - VIEWS -

When China joined the WTO on Dec 11, 2001, it was writ­ten into the agree­ment that mem­bers could treat China as a “non-mar­ket econ­omy”, due to the size of the Chi­nese econ­omy, gov­ern­ment in­ter­ven­tion and its State-owned en­ter­prises. As a re­sult, ad­vanced economies could ig­nore Chi­nese do­mes­tic price com­par­isons and rely on “con­structed val­ues” to re­flect the “true” Chi­nese econ­omy.

In turn, those “sur­ro­gate fig­ures” al­lowed them to im­pose heavy anti-dump­ing du­ties on the ba­sis that China’s low prices did not re­flect mar­ket re­al­i­ties.

As Dec 11, 2016 dead­line for this prac­tice ap­proached, their lob­by­ists, which rep­re­sent some of the most un­com­pet­i­tive com­pa­nies in a few sec­tors (es­pe­cially steel), be­gan to urge WTO mem­bers to “rein­ter­pret” the ac­ces­sion lan­guage. Now it was ar­gued that in the orig­i­nal agree­ment there was an “es­cape clause,” which would con­ve­niently jus­tify the con­tin- ued treat­ment of China as a non­mar­ket econ­omy.

In the past 15 years, the sur­ro­gate fig­ures have per­mit­ted wide dis­cre­tion and ma­nip­u­la­tion of price data, which has been used as ba­sis for anti-dump­ing charges; that is, tar­iffs up to 40 per­cent higher than nor­mal an­tidump­ing du­ties.

A few days ago, Ja­pan said that it will not rec­og­nize China as a WTO mar­ket econ­omy, which will leave tar­iffs as a ready op­tion against Chi­nese ex­ports. That is con­ve­nient at a time when the re­form agenda of Prime Min­is­ter Shinzo Abe has failed to re­flate the Ja­panese econ­omy. In turn, the US ad­min­is­tra­tion of Barack Obama has stated that the time was “not ripe” for China’s mar­ket econ­omy sta­tus and the Euro­pean Union has fol­lowed its lead.

Such a “rein­ter­pre­ta­tion” of the WTO rules is very ex­pe­di­ent from the stand­point of Washington, Brus­sels and Tokyo. In the past, it has al­lowed them to de­ploy mar- ket-re­strict­ing fig­ures and meth­ods to shun com­pe­ti­tion by Chi­nese com­pa­nies. As ad­vanced economies are strug­gling with sec­u­lar stag­na­tion, it seeks to ex­tend the an­ti­com­pet­i­tive past prac­tices far into the fu­ture.

Yet, this re­vi­sion of his­tory is rel­a­tively new. Through much of the past 15 years, US pres­i­dents (Bill Clin­ton, Ge­orge W. Bush), US Trade Rep­re­sen­ta­tives (Char­lene Barshef­sky), Sec­re­taries of Com­merce (Gary Locke) and key ad­min­is­tra­tion fig­ures re­peat­edly af­firmed that the non-MES method­ol­ogy would ex­pire in due time.

The change came with the Obama ad­min­is­tra­tion in 2012 when the US Trade Rep­re­sen­ta­tive Ron­ald Kirk re­versed its po­si­tion and af­firmed a new “rein­ter­pre­ta­tion”, which re­flects pro­tec­tion­ist doc­trines – even though such a rein­ter­pre­ta­tion by the EU was con­tra­dicted only months be­fore the 2011 WTO Ap­pel­late Body de­ci­sion.

Why the sud­den change? The new ap­proach did not emerge in a his­tor­i­cal vac­uum, but amid the US pivot to Asia, which was de­vel­oped by then-Sec­re­tary of State Hil­lary Clin­ton and ini­ti­ated by Pres­i­dent Obama.

In le­gal terms, the rein­ter­pre­ta­tion rep­re­sents the vi­o­la­tion of the 2001 agree­ment, which will be China’s chief ar­gu­ment in the to-be-ex­pected le­gal bat­tle at the WTO.

In prac­tice, the Obama ad­min­is­tra­tion’s rein­ter­pre­ta­tion of the WTO agree­ment re­flects the kind of geopo­lit­i­cal trad­ing en­v­i­ron- ment that was to emerge with the US pivot to Asia, par­tic­u­larly the Trans-Pa­cific Part­ner­ship Agree­ment – both of which in­com­ing pres­i­dent Don­ald Trump plans to rede­fine or bury to make room for as­sertive “Amer­ica first” trad­ing regime.

Through the past 15 years, the US, the EU and Ja­pan have of­ten lec­tured China and other emerg­ing economies on be­ing “re­spon­si­ble in­ter­na­tional stake­hold­ers” and the im­por­tance of the “rule of law” in in­ter­na­tional re­la­tions. On Sun­day, they vi­o­lated these tenets, which her­alds the end of the post­war trad­ing regime and the re­turn of ir­re­spon­si­bil­ity and the rule of might.

The au­thor is the founder of the Dif­fer­ence Group and has served as the re­search di­rec­tor at the In­dia, China, and Amer­ica In­sti­tute (USA) and a vis­it­ing fel­low at the Shang­hai In­sti­tutes for In­ter­na­tional Stud­ies (China) and the EU Cen­ter (Sin­ga­pore).

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