China’s finalized its agreement to join the WTO on December 11, 2001, and it would prove to be an event of profound consequences to the international trading system equilibrium. The New York times edition from December 12th, 2001, one day after China agreed to join, the organization reflected the troubles that could arise from this accession by saying that: “China became the 143rd member of the World Trade Organization today, starting what is expected to be an uneasy era of change for one of the world’s largest and fastest-growing economies.”[i]
The article was only a minor note on page A7 and did not reflect on the impact on the system as a whole and even less on the challenges it would pose on the United States.
On the same day, China acknowledged that joining the WTO implied a necessary reform to their own system and the beginning of its economy’s opening. Many countries, had sensed and shakeup would affect them, were reluctant and expressed their reserves.
China made many commitments to enter the WTO, including national status to foreign investors, elimination of tariffs and non-tariff barriers, restriction of subsidies, elimination of tech transfers on foreign investments, respecting Intellectual property, elimination of price controls in agricultural products and others.
In retrospect, the problem is the lack of compliance by China on some of these commitments. Circumventing their pledges via subsidies to their state-owned enterprises via state-owned banks, amongst other policies, puts them in an unfair advantage. Now it has stated its Made in China 2025 plan with the objective to be a world leader in global ten high-tech manufacturing sectors.
Two solutions have been proposed by the past US administrations: one was economic guidance and circumvention via the TPP by the Obama administration. This course of action depended on alliances and wanted to show China that they could benefit without hampering others if they followed the rules-based system.
Now to the incredulity of US analysts, China was able to negotiate with 14 other countries, the world’s largest trade block called Regional Comprehensive Economic Partnership. Including countries with whom China has increasing tensions like Australia and New Zealand.
The second was a more direct confrontation by the Trump administration, which did not consider allies to go forward. Neither option has been particularly successful, and the meagre results of the Trump’s administration China-US agreement could be infringing the Most Favored Nation principle and possibly others.
The way forward is the World Trade Organization
Although the WTO is on the edge of the abyss with the US blocking the appellate body appointments and the consensus on the new chief, it might still be the best chance to come to an agreement that satisfies all parties.
The Trump administration had been willing to abandon many international institutions, and China wanted to pick up the mantle of accountability, championing many international commitments. China benefits from the perception of being a responsible actor on the global stage, but China is actually benefiting from a stable Rules-Based system. The Biden administration is eager to undo most of Trump’s policies, and they will also be extremely interested in reassuming the US leadership on the global stage. It will be difficult since Trump’s confrontation with China is seen as necessary by most US analysts.
This sets up a window of opportunity to come up with a negotiated solution that allows both global giants to save face and agree on a set of rules that will benefit them and also give stability to the international trading system and would be welcome by most other nations.