Thursday, January 19, 2012

China in WTO Disputes - Reluctant participant to active litigant?

An interesting data-rich study by Wei Zhuang titled " An Empirical Study of China's Participation in the WTO Dispute Settlement Mechanism: 2001-2010" on how China has fared in the WTO Dispute Settlement mechanism makes interesting reading. Commentators have commented upon the growth of China as an economy after it entered the multilateral trading system in 2001. This study, however, analyses China;s active participation in the rule based dispute resolution system of the WTO.

The paper makes an interesting point on why China is less of a complainant compared to its volume of trade
" There are several reasons for China’s relative inactivity in the WTO DSM. First, deeply influenced by non-litigious  legal traditions, China prefers to settle disputes behind closed doors, without a public ‘loss of face’ for either party. Second, China’s legal capacity is relatively low in comparison to that of developed countries, such as the U.S.  and the EU, and even some emerging economies like Brazil. In these countries,  there is a long tradition of formal litigation in courts, and an abundance of lawyers who are proficient in the WTO official languages (English, French and Spanish). Third, many countries have developed formal and informal private and public partnerships to identify foreign trade barriers, prioritize them according to their impact, and mobilize resources for WTO complaints. China does not yet have such strong and effective mechanisms. Finally, China’s accession package greatly limits the country’s right to complain, imposing discriminatory limits to market access for Chinese goods in foreign markets:  
• China agreed to a transitional product-specific safeguard mechanism (TPSSM), allowing other WTO Members  to impose restrictions on Chinese imports when it causes or threatens to cause market disruption rather than serious injury to the domestic industry for 12 years after accession.   
• China also accepted a discriminatory provision in anti-dumping cases brought against its goods  in other markets—allowing the importing WTO Member to use a methodology not based on a strict comparison to domestic prices or costs in China—until 10 December 2016.  
• WTO Member reservations incorporated in the accession protocol also inhibit China from initiating WTO complaints. For example, Mexico listed some measures—subject to neither WTO Agreement provisions nor the anti-dumping provisions of the accession protocol—that would remain in effect for six years following China’s accession."
China has been subject of increasing criticism of "protectionist' policies in recent times. It has modelled its domestic trade and industrial policy to boost domestic industry often to the chagrin of globalised, free trade suppporters. It is not surprising to find a large percentage of dispute settlement  cases China is involved in pertaining to Subsidies. As the study notes,

" China has frequently designed measures that potentially constitute subsidies or trade-related investment measures to develop domestic manufacturing capability or  promote certain industries to produce domestic goods with greater added value. One example is the 2004 policy on Development of Automotive Industry, which was challenged in China-Auto Parts. Another example is the 2005 China-Grants, Loans and other Incentives dispute, in which measures to support the development of famous export brands were challenged.  

Furthermore, the industries that China supports are often those in which developed countries are or want to become competitive on the world market, such as the automotive industry and renewable energy sector. For instance, in December 2010, the U.S. brought a complaint against China’s financial support to wind power equipment manufacturers." 
The paper concludes by noting,
"The study has shown how a major developing country has used the WTO dispute settlement system. Through December 2010, China was a party in 28 of the 419 WTO cases. Since 2007, the annual share of cases involving China as a party has been about one third. Half of the 2009  disputes included  China as a party.

Therefore, whether active or passive, China has become a frequent user of the WTO DSM. This demonstrates China’s trust towards the rules-based world trading system, and its willingness to peacefully settle international trade disputes through an independent third party under internationally agreed-upon rules."
Is this a case of a reluctant participant to an active litigant?

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