Despite China’s resort to politically inspired trade sanctions in recent years, its record of compliance with international trade rules might not be as bad as often depicted and point to a way forward for Australia’s biggest trade relationship – deeper rules-based engagement, write James Laurenceson and Weihuan Zhou.
After more than two years of being hit with trade sanctions, it is understandable that many Australians would be receptive to claims, propagated with vigour by the United States, that China is hopelessly non-compliant with international trade rules.
If this were the case, there would be no point imagining that institutions like the World Trade Organization (WTO) are capable of restraining Beijing’s behaviour.
And to now allow China to accede to international agreements such as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) would be like letting a fox into the hen house. As Japanese ambassador, Yamagami Shingo recently argued, to allow China to join agreements such as the CPTPP could “compromise its integrity” and risk “sabotage from within”. He insisted the US, on the other hand, should be welcomed with open arms.
The problem is that this narrative bears only a limited connection to facts, misses relevant context, and sends Australia down a policy path that is counter-productive to its interests.
Australian policymakers would do well to begin by observing that many of China’s neighbours, including smaller, trade-exposed ones that are particularly vulnerable to rule-breaking, do not appear convinced.
In May, Singapore’s Prime Minister, Lee Hsien Loong said that China’s application to join the CPTPP should be welcomed. His reasoning was straightforward: “It is far better that China’s economy be integrated into the region, than for it to operate on its own by a different set of rules.”
Providing that China commits to meeting the agreement’s high standards, Malaysia and New Zealand have also welcomed China’s application. Meanwhile, Vietnam, another Communist Party state operating a state-led economic model, has offered to share information with Beijing about its own CPTPP accession experience.
A specific Washington talking point is that despite being magnanimous in smoothing the way for China’s WTO accession in 2001, Beijing failed to follow through on its commitments to “successfully complete a transformation to a market-oriented economy and trade regime”.
Yet, in 2000, the then US trade representative (USTR), Charlene Barshefsky made clear the nature of the deal she had struck with her Chinese counterpart: "We have not given up anything in this agreement…[We have] secured comprehensive, one-way concessions, opening China’s markets to America’s industrial goods, agriculture and services.”
Further, China’s accession would mean that, “you have a set of rules and commitments which are enforceable and subject to multilateral scrutiny”.
The price China paid for WTO entry was high. Representative Bill Archer, the Chairman of the Ways and Means committee conducting hearings into the deal that Barshefsky had struck, praised her negotiating success: “The concessions that you were able to obtain far exceeded what anyone would have expected when you began the negotiations.”
The eminent American scholar of China’s economy, Nicholas Lardy observed that Beijing, “has made a number of unique commitments that far surpass those made by other countries entering the organisation”, describing these as “WTO-plus” obligations. Even today, these obligations remain the most extensive and onerous among all WTO members.
To implement its WTO commitments, China amended thousands of laws and regulations and reduced or removed trade barriers, leading to significantly enhanced access for foreign goods, services and investors to the Chinese market. In 2007, the USTR acknowledged that, “China has taken many impressive steps to reform its economy, making progress in implementing a set of sweeping commitments”.
There is certainly room for China’s compliance to improve. But the relevant metric is whether China’s compliance is better or worse than other major powers, not perfection.
It is a fact that the US is now a respondent on more than three times as many WTO disputes (156) as China (49). There is also compelling evidence to show that the US record of compliance with past WTO rulings is the worst of any WTO member.
Some members have also availed themselves of the opportunity to challenge Beijing’s compliance on specific issues using the WTO’s dispute settlement mechanism (DSM) – and won. The evidence is that when faced with an unfavourable ruling, China has subsequently brought itself into compliance.
True, WTO accession has not caused China to entirely change its model of development. But as a global institution, the WTO does not mandate one model or another, nor that a member must adopt a particular type of economic or political structure. It is nonetheless the case that to achieve entry, China committed to, and then delivered, large-scale, market-oriented reforms.
It is also the case that international trade rules are incomplete.
But first, with respect to many of the common grievances, like Beijing’s use of industrial subsidies, trade law scholars have argued that existing rules already provide scope to challenge China’s practices.
Yet rather than pursue this channel, not only has the US sought to coerce China by imposing tariffs that the WTO subsequently judged to be illegal, it has also driven the DSM’s appeals body into dysfunction, preventing Beijing from having access to legal recourse.
In June, the US rejected for the 57th time a proposal by Australia and 124 other WTO members to restore the body. At the same time, the US is ratcheting up its own industrial policies, supported by subsidies, with the latest example being legislation committing US$52 billion to support the US semiconductor sector.
Second, it is disingenuous to allege that China is failing to comply with rules that have not been used or do not exist.
The only solution is to make use of the China-specific rules under the WTO, and when new rules are needed, get down to the job of negotiating such rules among WTO members – and this includes China. Or alternatively, seek to sign China up to agreements that already have rules embedded in them that build on existing WTO minimums, like the CPTPP. While Beijing has applied to join the CPTPP, both Democrats and Republicans in the US reject their country’s participation.
Finally, even with the limitations of the WTO and China’s compliance, what is the alternative?
And meanwhile, Beijing has challenged Australian tariffs on a variety of Chinese goods.
In a mutual display of good faith with respect to the rules-based global trading system, Canberra and Beijing agreed to an interim appellate review procedure known as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) and to adhere to this procedure in their disputes. This contrasts with China’s litigation strategy in a recent dispute with the US, where China appealed to the WTO’s dysfunctional appellate court effectively blocking WTO decisions unfavourable to it.
For Australia, a confrontational approach that singles out China is a dead-end. Leaning into international trade rules is the best and only sensible strategy. When it comes to China’s request for entry into the CPTPP, there is no compelling reason why Australia should stand in the way of commencing negotiations. Such negotiations usually take years and do not guarantee accession. But it would provide a unique opportunity to engage with Beijing on trade matters and a strong incentive for China to enact further economic reforms, just as its WTO accession did 20 years ago.
James Laurenceson is professor and director of the Australia-China Relations Institute (ACRI) at the University of Technology Sydney. He has previously held academic appointments at the University of Queensland, Shandong University in China and Shimonoseki City University in Japan. His research has been published in leading scholarly journals, including China Economic Review and China Economic Journal.
Weihuan Zhou is an associate professor, director of research, member of HSF CIBEL Centre of the Faculty of Law and Justice at the University of New South Wales. He is an expert in international economic law, particularly the nexus between international trade law and China.
Banner image: China Australia map flags with trade text illustration. Credit: Stephen Finn, Shutterstock.