China’s Accession into the WTO: Complicated Histories

What happens when a country like Chinaunique in its size and current institutional and socio-economic developmentjoins the WTO? The manifestations of such changes or lack thereof must be understood alongside the country’s history to fully highlight challenges and opportunities.

China’s accession into the World Trade Organization (WTO) was a breakthrough after more than a decade of negotiations and raucous in-fighting within China’s Communist Party government—and its counterparts in Washington, D.C. and Brussels. Since then, the buzz has fizzled out but the implications of this event continue to reverberate. Often absent from prevailing news is legal analysis of this event though; it is often too technical or dense to sell in broadsheet. When looking at how China’s entry into the global trade group changed perspectives and behaviour in China regarding legal norms and institutions, it has been a slow process but highly encouraging. The internal and external challenges China faces should be viewed in light of historical happenstance, and compel understanding of rather than hasty bashing of China.

President Clinton argued that Rule of Law and private enterprise rights would inadvertently grow alongside Chinese economic integration, when persuading Congress to support Chinese entry. Many critics—scholars and newspapers alike—have since bemoaned how it has failed to produce real change, instead strengthening the totalitarian Communist behemoth: as The Economist articulated, “[China] signed up for multilateral rules, but neglected the rule of law at home.

This shows a lack of understanding of Chinese history—rule of men has long prevailed over the rule of law. In traditional Chinese history, the law was generally the tool by which government shaped its institutions and people to ensure social order and progress. This is not to say that politicking necessarily ran roughshod over justice—in fact, the ideal was that virtuous administrators could and would exercise wiser moral judgment than rigid black-and-white laws or adversarial courtroom trials. Domestically, then, dispute settlement was typically mediated by social traditions, such as joint conciliation and direct negotiation between parties or administrative petitioning. In the modern era, the Communist party-state overlap also created a court structure seemingly inimical to today’s understanding of the ‘Rule of Law’ as judges are seen as another layer of government; they are often Communist Party members themselves, even in politically-related cases. Even non-party member judges are quite closely tied to local government officials who may supervise them.

Beyond its borders, ancient China’s first few encounters with ‘international law’ were not exactly pleasant. The infamous 1842 Treaty of Nanking and the subsequent unequal treaties are widely perceived by the Chinese as having contributed heavily to China’s ‘century of humiliation’—an aberrance in the Chinese civilisation. And for the 10 years (1991-2001) following the USSR’s dissolution, the international order was virtually American-led. This sense of foisted disempowerment may partially explain why among the Chinese—officials and public alike—the dominant view was that the WTO was actually an elite rich countries club imposing rules on the hapless. This sense of unequal exploitation is elucidated by scholars like Dani Rodrik, a Harvard Professor of International Political Economy, who have argued that international organisations like the IMF and the World Bank offer misguided advice—often at the behest of powerful lobbies. An example of such advice: Asian economies were encouraged to liberalise capital markets when they were still institutionally underdeveloped, partially contributing to the Asian Financial Crisis that occurred during this period.

Therefore, domestically and internationally, China had a lot of historical baggage to reconcile with what joining the WTO would mean. China would have to bring its regulations in line with the WTO’s, including all of its key tenets and its additional agreements. As a rough outline, there are 6 pillars in the WTO’s structure: an umbrella agreement which establishes the WTO and its general principles; 3 agreements for each of the covered areas of trade—goods, services, and intellectual property; the Dispute Settlement Body which resolves countries’ disputes; and the Trade Policy Review Body which monitors governments’ trade policies and enhances transparency. Each of these pillars presents its own rules and practises to comply with, which evoke both changes and challenges in China.

In relation to this task’s enormity, many suspect Chinese reforms are superficial and that its joining of the WTO never changed the underlying reality—the Chinese Communist Party (CCP) hegemon jealously guards its control and will actively resist the WTO; ultimately, they think Chinese ‘compliance’ with the WTO is a ruse as seen by how China repeatedly violates their commitments.

However, pursuing compliance with WTO enables them to obtain economic benefits and eschew opportunity cost or retaliation—thus it is also in the CCP’s interest as economic progress is a significant reason for the public’s support. An incumbent does not have to seek the erosion of its own power for real change to be had. Chinese growth is very much dependent on trade and integration with world markets which benefits from WTO compliance. And because it is in the CCP’s interest to bolster economic growth, the political elites in China—to shore up their own power—have an incentive to pursue change and further compliance with the WTO and other shared arenas of economic gain. Some scholars are particularly optimistic about the manifold changes brought about by the Chinese joining the WTO. The Ministry of Commerce (commonly abbreviated as “MOFCOM”) was set up and WTO-specific staff established. As Kobayashi has observed, to comply with WTO, China has passed 2,000 new laws, abolished 800 redundant laws, and announced 300 laws. One aspect of compliance would be making regulations more easily obtainable, for example. Chinese accession has thus added impetus towards legal codification and clarification.  

There is also a mushrooming of WTO-related programmes to help them understand the technicalities of WTO rules, and even how to draft clear laws and how to implement them. Hsieh observes that ‘WTO centres’ are blossoming around the country—in a good spread of locales, not just Beijing. These think tanks develop local WTO expertise and bring government, academic, and private firms (usually small and medium enterprises) together by helping managers or employees—often with insufficient education background—to understand the relatively complex WTO rules so that they do not run afoul of it and know when their own rights are being violated in export markets. Joining the WTO has thus facilitated the dissemination of related information to the wider public.

Furthermore, there has been evidential shifts in how China engages with other countries in this specific realm of international economic law vis-à-vis the WTO. Some scholars have observed an increasing confidence and assertiveness in wielding existing dispute settlement mechanisms. Domestic driving forces include nationalism—cases touching on political values and economic sovereignty motivate the government to be more assertive; and commercialism—Chinese firms increasingly aware of WTO obligations push the government to defend their interests (which their counterparts in developed Western countries have been doing for decades).

Yet these changes since 2001 are complicated by history, domestic and international difficulties. To begin with, the decision to join the WTO was made by the central governmentit is not clear if all subnational governments would have benefitted equally and hence been equally enthusiastic about China’s accession. Some provincial governments may, due to political and economic self-interest, favour resisting pressure to comply with certain obligations if it would diminish their initial relative advantage vis-à-vis foreign competitors. Although theoretically the central government has the capacity to require subnational governments to conform and hence it has a legal obligation to do so, the reality is that there is a power struggle between central Beijing and subnational governments. Here is a sampling of the problem: local court officials (provincial and municipal) are appointed and salaried by their immediate—not central—government. Due to its Communist legacy, the Chinese state follows a dual party-state overlap: party officials rank higher and civil servants are mostly party members too. These organisational challenges impair the development of Chinese law in a manner satisfactory to Western critics whose states adhere to a strict divorce between state and political parties.

It is also useful to remember that China is still in a very early phase of development—it should not be compared using the same criteria to other developed countries like America. In their multilayered court system, many judges lack relevant qualifications, especially in the lowest ‘basic’ level courts—this inflates the difficulty of ensuring faultless compliance with the WTO’s many rules. At the time of Chinese accession in 2001, the percentage of judges with law degrees was in the single digit range—arguably a low starting base for any subsequent changes since then. This may contribute to miscommunication and misunderstanding. For instance, right after Chinese accession, Zhejiang Provincial People’s Congress Standing Committee promised special benefits for Taiwanese investors, violating the WTO’s most-favoured-nation principle.

This is compounded by the ambiguity of a ‘legal system’ still in flux. Many nodes along the chain of decision-making are still ad hoc, and the party-state system contributes to the divorce between theory and reality. As stipulated in the Constitution, the National People’s Congress legislation should take precedence over State Council regulations but in reality the courts treat it the opposite way. Similarly, the Constitution is supposed to be higher in power than the NPC but in reality it is vice versa. Although statutes should trump ministerial declarations, both government officials and judges consider ministry regulation as applicable rules when determining cases.

Hence while it is absolutely true that the Chinese may want to resist some unfavorable aspects of the WTO regime or retain certain regulations that do not comply, it is definitely not the exception. US rules on Foreign Sales Corporations and EU rules on bananas are analogous—but media coverage of this is scant and skewed. Chinese accession into the WTO has been a rocky road, but it is far from a uniquely ‘problematic’ country.

In fact, aside from its own domestic challenges, there are many external difficulties China faces when trying to be more assertive in its dispute resolution strategy. Linguistically, there is a French or Spanish language requirement to join the WTO Secretariat, which scholars have opined that it is unfair especially given that almost all cases are facilitated in English. This barrier is accentuated by the fact that one’s proficiency must be especially high due to the technical jargon inherent in international economic law. Additionally, there is a general deficit of Chinese lawyers skilled in this area. The number of trade lawyers in the Chinese government have been approximated by some to be one-third of other governments’, such as the United States Trade Representative or Canada’s Ministry of International Trade. Naturally as a newer member, the lawyers that the China does have are relatively less experienced in WTO litigation and are disadvantaged by the lack of institutional knowledge—oral arguments style or written briefs format, for instance.

These immense challenges help to explain why the type and pace of changes within China and how it behaves with others may seem so slow or even non-existent, despite it being nearly 15 years since its much-lauded and also much-scorned accession. However, upon realising the uphill tasks China has to undertake internally and externally, the resulting changes in its legal norms and institutions have been encouraging and indicate that there is serious political will to reform. These same themes resurface when we look at China’s domestic happenings now, and how they behave on the global stage.