The Legal Implications of China's Accession to the WTO* Pitman B

The Legal Implications of China’s Accession to the WTO* Pitman B. Potter China’s application for accession to the World Trade Organization (WTO) raises particular questions about the implications for China’s legal system. This article examines these issues by reference to Chinese contexts and perspectives, and by examining the processes of accession and what these mean for further legal reform. It concludes with a discussion of possible approaches that might prove useful in managing China’s relationship with the world trading system. Contexts for China’s Accession to the WTO China’s effort to gain accession to the WTO stands against a back- ground of socio-economic and political conditions locally, and percep- tions about dependency and nationalism internationally. Associated with efforts to entrench policies of economic reform, WTO membership symbolizes contrasting policy preferences on China’s interaction with the world political economy, even while it raises for Chinese policy makers difficult questions about specific local costs and benefits. Chinese domestic conditions. China’s accession to the WTO should be viewed in light of domestic conditions.1 On the economic front, the ongoing and apparently intractable issue of state-owned enterprise reform and resulting conditions of unemployment and underemployment have created significant problems. The cost of investing to upgrade these enterprises is high and the level of foreign investment interest is marginal. The challenge of maintaining high growth rates while avoiding inflation continues to occupy China’s best economic planners. Public sector spend- ing on education and health care is lagging behind GDP growth, whereas the demographics of Chinese society suggest that these issues will require more investment, as increased economic competition places a greater premium on education and an ageing population puts greater burdens on the health care system. On the social front, unemployment issues com- bined with the problem of a migrant population in excess of 100 million have created a significant challenge to social order. Increasing numbers of labourers and migrants in China have become increasingly disaffected with the reform policies that have thrust them into an uncertain and insecure economic situation. Environmental degradation continues to *This article draws upon the author’s book, The Chinese Legal System: Globalization and Local Legal Culture, forthcoming from Routledge. 1. See Merle Goldman and Roderick MacFarquhar (eds.), The Paradox of China’s Post-Mao Reforms (Cambridge MA: Harvard University Press, 1999); Elizabeth J. Perry and Mark Selden (eds.), Chinese Society: Change Conflict and Resistance (London: Routledge 2000). The China Quarterly, 2001 The WTO: Legal Implications 593 worsen, with consequences for economic productivity and health. These various policy challenges are compounded by a crisis of governance. Corruption remains a serious problem and is increasingly coupled with popular cynicism about the capacities and interests of government officials and institutions. China’s domestic challenges are likely to be exacerbated by WTO accession, at least in the short term. Accession to the WTO will be likely to accelerate the processes already under way of liquidation and downsiz- ing of state-owned enterprises, with the prospect of increased unemployment, or at least job dislocation and attendant social costs. Increased imports of equipment, agricultural products, chemicals, pharmaceuticals and other goods as a result of reduced tariffs will undoubtedly threaten local jobs in these sectors, while also straining China’s foreign exchange balance. As the potential for offsets from foreign investment and increased exports remains to be seen, there is significant uncertainty and apprehension in China about political and social consequences. The political consequences of increased foreign investment may also be problematic, either as a result of increased influence over government policy decisions and decision makers to the detriment of local interests, or because of a backlash of resentment against what might be perceived as foreign domination. Perspectives on dependency and nationalism. China’s WTO application reflects a culmination of China’s long-standing efforts to expand foreign trade and investment in pursuit of economic growth. Driven by efforts to overcome the dilemma of dependency in the international political economy,2 China’s foreign economic policies have quite deliberately subordinated the interests of foreign businesses to those of local development. These perspectives also invite Chinese officials to portray trade regulation efforts by foreign countries in terms of discrimi- nation against China.3 Under this view, trade sanctions permitted under the WTO are seen as thwarting China’s competitive advantages in wages and other production costs, in an effort to prevent its development. Official commentators reject as protectionist and discriminatory sugges- tions from the United States in particular that China is a non-market economy, citing World Bank reports indicating that most prices in China 2. See Paul A. Baran, The Political Economy of Growth (New York: Monthly Review Press, 1968); Andre Gunder Frank, Capitalism and Underdevelopment in Latin America (New York: Monthly Review Press, 1967); Immanuel Wallerstein, “The rise and future demise of the world capitalist system: concepts for comparative analysis,” Comparative Studies in Society and History, Vol. 14, No. 4 (1974), pp. 1–26; and Charles K. Wilber (ed.), The Political Economy of Development and Underdevelopment (2nd ed.) (New York: Random House, 1979). But see Robert A. Packenham, The Dependency Movement: Scholarship and Politics in Development Studies (Cambridge, MA & London: Harvard University Press, 1992). 3. See e.g. Lei Wang, “China’s difficulties and concerns as a respondent to antidumping proceedings,” World Competition Law and Economic Review, Vol. 19, No. 2 (1996), pp. 55–58. 594 The China Quarterly are set by the market.4 While questions about direct and indirect subsidies to Chinese producers and the role of mercantilist trade targeting remain unresolved (and often unrecognized in China’s submissions to international tribunals), there is a fundamental ambivalence and suspicion in Chinese official responses to the international trade regime. The policies of the PRC on WTO accession reflect as well a resurgent nationalism in Chinese attitudes about the world trading system.5 China’s official position on its application to rejoin the General Agree- ment on Tariffs and Trade (GATT) was that it should resume the original membership occupied by the Republic of China regime that signed the original GATT treaties. Thus, issues of Cold War politics and Western imperialism linked to U.S. support for the Republic of China during the Chinese civil war and subsequently on Taiwan, inform official and popular attitudes towards China’s WTO accession. China’s response to issues concerning the WTO are viewed as part of a larger picture of relations with the international system dominated by the United States and other industrialized democracies, in which China is denied its deserved status. Nationalism permits China’s accession to the WTO to be portrayed locally by reference to themes of foreign exploitation and exclusion. Perspectives questioning the benefits of WTO accession. China’s WTO accession effort also reflects debates over further entrenchment of economic reform policies.6 Proponents of China’s accession to the WTO highlight the beneficial effects that greater access to world markets will have for economic growth.7 However, local organizational interests and ideological perspectives have often resisted the concessions mandated by WTO members considering China’s application. These perspectives and 4. See e.g. Yang Guohua, “Respond to anti-dumping complaints vigorously,” Guoji maoyi (International Trade), 20 January 1998, in FBIS Daily Report: China (FBIS-CHI-98– 077), 20 March 1998. 5. For discussion of the nationalist consensus in China, see Paul Heer, “A house divided,” Foreign Affairs, Vol. 79, No. 4 (July/August 2000), pp. 18–24. 6. See Yi Xiaozhun, “Sharpening the sword for ten years: how to look at the problem of China’s entry into the WTO,” Guoji maoyi (International Trade), 29 January 1988, in FBIS-CHI-98–061, 2 March 1998. This article by the Deputy Director of MOFTEC’s Treaty and Law Department, later a MOFTEC Director General, appeared in anticipation of the resumption of negotiations between China and the GATT Working Party in April 1998. 7. Influential reformist economic scholar Cao Siyuan, for example, suggested that China’s accession would have beneficial effects in the areas of trade and investment liberalization, market competition, promotion of all-round reform, and improvement of living standards. See “Scholar on changes in China’s economy after joining WTO,” Beijing Zhongguo Xinwen She (Beijing China News Agency), 18 February 2000, in FBIS-CHI-2000– 0218, 22 February 2000. For further discussion, see e.g. “The great policy decision on opening up to the world,” Qiushi (Truth), 16 February 2000, in FBIS-CHI-2000–0216, 18 February 2000; “An inevitable choice in the development of a socialist market economy,” Guangming ribao,28January 2000, in FBIS-CHI-2000–0130, 31 January 2000; “Meaning of membership in WTO discussed,” Jingji ribao (Economy Daily), 6 May 1999, in FBIS-CHI-1999–0523, 28 May 1999; “Impact on Chinese economy of accession to WTO,” Cankao bao (Reference News), 5

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