China’s Status and Influence in the Multilateral Trade System

In December 2001, China joined the WTO and became the 143rd full member. In the last decade, China’s international trade developed rapidly and it has consequently become the largest commodity exporter and the second largest importer in the world. Undoubtedly, China’s international status has improved significantly. During this period, the pattern of international economy and trade are also undergoing profound changes. The changes of the balance of power between developing and developed countries, new forms of international trade barriers, a large number of bilateral free trade zones as well as some developed countries' rethinking of globalization are all consequences of the rapid rise of China and its interactions with the outside world. Simultaneously, all this contributes to the uncertainty of the future of China's foreign trade. China’s position and influence in the WTO depend not only on China's own development, but also its interrelationship with other countries. So far, China has taken safeguarding the interests of the core areas as a priority in the Doha Round of negotiations, and this negotiation strategy proved to be practical and effective. Since 2008, China has gradually taken a key role in decision-making in Doha Round negotiations, but its composition of influence is unbalanced. Huge market and the scale of imports is still the crucial source of China's influence, and the gap between China and other leading powers is mainly reflected in the soft power, such as agenda-setting capacity in multilateral negotiations, the dispute-solving skills and the power of guiding the public voice and so on. Whether China can exert the power of considerable leadership compatible with its position as a leading trader depends not only on China's political will, but also on its design of path to the multilateral trading system, professional training and the speed with which it enhances its soft power. In December 2001, after 15 years of hard negotiations, China became a full member of the WTO, its 143rd. Over the past decade, China seized opportunities for development and basically realized initial strategic goals, which built the foundation of long-term development. China obtained permanent MFN treatment by the U.S., relative fair and stable international trading environment and the right to participate in the WTO dispute settlement and rules-making. Above all, the accession to WTO helped dramatically promote domestic reform and open and stimulate the economy. Then how to see the function and influence of China in this multilateral trade system? Firstly, we should analyze the current situation of China's trade and its international background, which will help to understand China's choice of standpoint in the WTO negotiations and policy development’s path. Changes in China's international trade position In 2010 China's total exports reached $ 1.57 trillion, six times of its accession to WTO in 2001, thus China became the world's largest commodity exporter and the second largest importer. Proportion in world trade rose from 4.3% in 2000 to the present 12%. China is the largest trading partner of Japan, Korea, Australia, and Brazil; moreover, the largest importer of least developed countries. In terms of trade growth rate, in the past 10 years, China commodity trade exports and imports have been increasing at around 20% per year, which is two times that of the world average. With the expansion of economic output and trade’s scale, China's status in the WTO significantly improves. Since July 2008, China has become one of the most important members in WTO Doha Round negotiations. We see China’s participation in all decision making process, with the international community expecting more from China. But China's trade development faces many challenges. For example, China is facing a lot of commodity trade protectionist measures. China has faced the most anti-dumping cases for many years. According to WTO data, in 2009, anti-dumping measures against China reached 77. The number of anti-subsidy cases against China was 13, far beyond other nations. In addition, the WTO dispute cases involving China are also growing rapidly. Over the past six years, there were as many as 19 lawsuits. With the growing competitiveness of products, more and more negative reports of China’s products, industrial policy, trade policy and exchange rate policy emerged. Thus many developed and developing countries regard China as a hostile competitor to keep an eye on. On Oct. 4 this year, the U.S. Senate passed an act, the "2011 Currency Exchange Rate Surveillance Reform Bill", intending to impose punitive tariffs on imported products which cause the imbalanced exchange rate of the U.S. Obviously it is aimed at China. It is clear that although China has made great development, the sustainability of this kind of growth rate and scale is still uncertain. Over the past decade, China's economic and trade power have been developing rapidly. At the same time, world trade’s environment and pattern is also changing. The most obvious change is reflected in the balance of power between the WTO developed members and developing members. First, the proportion of trade has changed. From 1990 to 2010, developed countries’ proportion of total world trade fell from 75% to 59%, while that of the developing countries increased from 23% to 38%. In 2011, WTO predicted global trade was expected to grow at 5.8%, with 8.5% growth rate in developing countries. China, India, Brazil who represented the developing members continue enhancing the impact in the WTO, and the United States, Europe, Japan and other developed members of the traditional leadership will be challenged. The new balance of power to some extent results in difficulties in global trade governance and decision-making, especially in the Doha Round negotiations. Requirements by major developed countries like taking on more obligations, more open markets aren’t uncommon issues while developing countries insist common but differentiated obligations. Second, the form of trade barriers in international trade has changed. Non-tariff measures like technical standards, the quarantine of animals and plants, rules of origin, anti-dumping and anti-subsidies measures have replaced tariffs and quantitative restrictions to become the most important international trade barriers. Third, the accelerating development of the bilateral free trade agreements and regional trade integration has become a big challenge of the multilateral trading system. In 1990 the number of effective global free trade arrangements was only 70, while there were 300 in 2010. WTO members have an average of 13 FTA arrangements. 60% of EU trade and 50% of American trade is with regional or free trade partners. FTA arrangements deal with not only tariffs, but also investments, standards, competition policy, intellectual property, to some extent causing troubles to the Doha Round negotiations on market access and rules. Fourth, with the extension of the global industrial chain and the refining international division of labor, the identification of products’ national origins becomes increasingly blurred. Products are often produced in different countries, how to define the profit in chain of distribution and its effect on national welfare and employment rate has become increasingly difficult and sensitive. In some major developed countries, governments’ and public’s support for globalization and trade liberalization was dropping and even made the open policy an excuse of the domestic economic downturn, high unemployment rate and lower industrial competitiveness. At the same time, some developing countries did not benefit from globalization, therefore, they questioned the WTO principles of free trade. According to the above four main reasons, it can be implied that in the last decade sustainable external environment to support the rapid development of China's trade is full of uncertain factors. China's position in the WTO The level of China's market opening is higher than most developing countries in the WTO, but China has slowed down the process. After accession to the WTO, China's market access conditions continue to improve. And this is reflected in industrial and agricultural tariffs and the level of service sector. China has the highest degree of market opening among developing members. In some areas, China's tariff level is even lower than some developed members. In the market access of industrial products, bound tariffs are at a relatively low level. China's current average restrictive level of industrial products is 9%, much lower than other major developing countries and some developed countries such as India, Brazil, Australia and South Korea (see Table I). Second, China’s tariffs are more effective which means bound tariffs and applied tariffs are the same. Market access conditions are with high transparency and predictability, which is consistent with the developed countries. In agricultural tariffs, China has made greater concessions in agricultural trade policy, allowing China's agricultural tariffs lower than the majority. China's average agricultural tariffs decreased from 23.1% in 2001 down to 15.6% in 2009, lower than countries such as Japan and India (Table 2). In addition, China has completely eliminated agricultural export subsidies. In terms of trade in services, China's GATS schedule covers 93 sub-sectors, open services sectors is higher than average (about 41) in developing countries, closing to the average level of developed members (108). Although China in the WTO market-opening commitments level (bound tariff level) is much higher than other major developing countries, but some countries lowered tariffs autonomously, the gap of actual degree of market opening with China is smaller. For example, the average bound tariff ceiling of Indian industrial products was 34.4%, while the actual implementation of the tariff level in 2009 was only 10.1%, meanwhile, Brazil was 14.1%, Australia was 3.8%, Korea was 6.6%, while China's industrial average applied tariff was 8.7%. In addition, although China in recent years has expanded the targeted imports from least developed countries, or has imported irregularly from the United States and Europe. However, China's market access conditions didn’t make major changes and release no further laws and regulations of opening up new services. Relative to the stage of fulfilling accession commitments, further opening China's market has slowed down. In different historical periods, core countries in the GATT and the WTO are different. The United States, European Union, Japan and Canada, then known as the QUAD played a leading role in Uruguay Round (1986-1994). But India and Brazil were spokesmen for developing countries, replacing Canada and Japan, to attend the Seattle conference in 1999 and the mini-ministerial meeting in Postan in 2007. U.S., EU, India and Brazil became the new core in WTO Doha negotiations, the so-called Group of Four (G4). In July 2008, China participated fully in Geneva "Green House" mini-ministerial meeting which involved only seven WTO members (the United States, China, European Union, India, Brazil, Japan and Australia), which indicated that for the first time China was formally admitted into the core group of WTO negotiations. The WTO has thus formed a "Group of Seven" (G7) or the Group of Five (G5, excluding Japan and Australia). We can say that after 10 years of efforts, China's important position in the WTO is widely recognized and China has won the substantive right to speak in making international trade rules. China's influence in the WTO Although China has entered WTO core decision-making circles, the influence of composition is imbalanced. The following are the three main factors determining the influence in WTO. First, market size and trade volume; the second is soft power like the experience in the multilateral affairs and negotiation power. Third is the width and depth of participation and determination to exercise. Firstly, China's growing influence is mainly reflected in the large scale of trade and domestic markets. In WTO negotiations, the larger the import scale of an economy, the greater power of the right to speak. Imports mean importers’ demand and dependence on exporters, therefore, market owners have undoubtedly more chips. China’s import proportion increased from 3% in 2000 to 9% in 2010, over $ 1 trillion. China has become the world's second largest single importer following the US. China’s current import size is twice that of Japan, 10 times India and Brazil. This is the material foundation to support China’s current status in WTO. Second, the imbalance of China's influence is mainly reflected in the "soft power." The WTO "soft power" includes: leadership in the multilateral negotiations, the ability of appealing and persuasion, agenda-setting and proposal-drafting skills, the ability to resolve the dispute and guide public opinion. For example, if you come up with a proposal, then how many countries will be willing to sign in and support in the conference and how much of this proposal can be included in the final text of the agreement; also whether you can lead a larger number of countries and organize an interest group to exert its bargain power and so forth. This kind of influence is not necessarily directly connected with trade size, but often the professional skills of the participants. At present, China's number of proposals in the Doha negotiations isn’t that big; we lack high-level lawyers in dispute settlement although we have made considerable progress. In terms of soft power, there is still a considerable distance between China and other countries like United States and Europe, India, and Brazil. Third, China has entered into the core decision-making circles in the Doha Round negotiations, but not yet a leader role. We intend to focus on preserving core interests. China is a staunch supporter of the multilateral trading system, and participates fully in the Doha Round negotiations. But we focused on areas of agriculture, industrial goods, trade in services, and rules-making. In agriculture, China is a member of the agricultural G20 and G30. We promote the developed countries to slash agricultural subsidies and high tariffs and promote the establishment of the special safeguard mechanism for agriculture in developing countries; in area of rule-making, China supports tightening present anti-dumping rules to prevent abuse; in area of industrial tariff negotiations, China supports the use of the Swiss Formula for tariff reduction, emphasizing a larger gap in equation coefficients between the developed and developing members. Also we adhere to the principle of voluntary participation in tariff concessions, against forcing emerging countries to participate in chemicals, industrial machinery, electronic appliances and other sector negotiations; in the service sector, China in 2003 and 2005, respectively, proposed initial and improved bid and offer, new bid in business services, air ticketing and road passenger transport; in area of trade and environment negotiations, China participated actively in the discussion of environmental goods list, and submitted a joint proposal with India in April this year, emphasizing the impact on environmental products market access for developing countries. Overall, China takes the safeguarding of its core interests as a priority in the negotiations. China expresses less in negotiations not involving its core interests. And we convey our concern via groups holding similar standpoint. This is different from the independent claims and comprehensive participation of members like the United States, European Union, India and Brazil. But we should say it’s an effective and practical way for China in the Doha Round of negotiations though in different form of expression. This interacts with diplomatic concept and cultural traditions, and some other objective factors, including: first, the commitment level was higher for China when it joined the WTO than for other developing countries, which reduced the space to further concessions in Doha Round. Second, China's accession to WTO and the Doha Round took place both in 2001. In the first five year, China had to not only prepare fully being a full member but also focus on how to fulfill WTO commitments and deal with the impact on the domestic economy aspects. These two tasks brought enormous pressure and challenges to the relevant departments of the Chinese government simultaneously. In the case of limited resources, the Chinese government still focused on fulfilling commitments until 2006. Third, China required a process of adaptation to accumulate experience in multilateral trade negotiations. After all, we had only 10 years of practical experience compared with 60 years of the United States, Europe, India and Brazil and other major members. We had to learn history of negotiations and internal operations in GATT / WTO ahead of work. China's major challenges in participation in games of WTO First, China has become the world's major trading country and an important member of the WTO, the international community expects China to act actively in the multilateral trading system. At the beginning, China's main consideration was the rules and how to obey and adapt to them. Now China has to think more about what kind of international rules is consistent with China's own development, and China’s function in the WTO or other strategic problems. Then we need to actively put forward solutions. Other WTO members also want to know our claims on major issues like future development of China, institution building, the reform agenda setting and decision-making and so on. Second, due to historical, cultural and other reasons, China often does more and says less in international communication. How to effectively improve the transparency of policy and let the international community have a clear and accurate understanding of the goals and direction of Chinese policy, and to objectively evaluate and judge China, is a tough problem to solve. China needs to actively use the media to convey our views and claims on international trade issues, and then improve transparency and to seek the initiative. This played an important role in creating a stable and friendly international environment, improving the strategic mutual trust with other countries and establishing a positive image of the country. Third, China should speed up talent training process since WTO professionals in China is relatively lacking currently. To a large extent, the negotiation in the WTO is a talent contest. Dealing with trade disputes, as well as negotiating to form new multilateral rules needs professionals to procure national interests through international rules. Trade volume of a country can be caught up in a short time, yet it is a long process for personnel training and reserve, and multilateral accumulation of experience, which is the real gap between the developing and the developed in the WTO. In the future, the competition with other countries will be mainly reflected in the international rule-making power and voice in competition. If China wants to play a leading role in the multilateral arena, a large number of multilateral compound talents are needed. They have to be familiar with international law and international trade rules, have foreign language proficiency, and have practical experience in international negotiations.