Friday, February 10, 2012

China, WTO and challenging international law

An interesting piece in a Chinese Daily highlighted the angst of "unfair" trade rules and how a country needs to "protect" its national interest even in the context of globalisation. This is in the aftermath of the WTO decision on export bans by China which went against China. The comments may seem surprising to many, especially when China is pictured as this emerging economy taking advantage of the WTO rules in 10 years of its enrty into the WTO but subverting many of them to further its interests.
"China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern. 
Admittedly, joining the WTO has boosted China's rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling. They may become a hidden problem for China's economy.
The WTO body seems to have forgotten the basic principle that mutual benefit is the basis of trade, which cannot take place if it is not present. China can consider putting up market barriers in response to the ruling. 
The intention is certainly not to disrupt the WTO system, but at the same time, there is no need for China to be a model member. Conflict and compromise are part and parcel of the global trade mechanism. Every country seeks to maximize its benefits, and self-imposed sacrifices will not bring any gratitude. 
China has benefited from globalization, but China's rise is first of all the result of Chinese hard work, not taking advantage of the trade system. Squeezing China through WTO loopholes will be futile."
In this blog piece in China Hearsay Stan Abrams summarises the situation well,
"Look, there certainly are self-imposed sacrifices in the world trading system. China agreed to certain things when it joined WTO, deciding at the time that the advantages outweighed those drawbacks. That decision was a huge success no matter how one looks at the math.
If China no longer thinks that WTO membership is worth the sacrifices, it can quit. The same goes for the anti-globalization crowd in the U.S. and elsewhere. But if it decides that it enjoys the benefits, then it cannot merely pick and choose what rules it feels like following.
Why does this Op/Ed bother me more than the usual protectionist blather? Because it’s different. Usually when China, or the U.S. (or any WTO member) breaks the rules, it says: 1) we didn’t think we were breaking the rules; and 2) now that WTO has said we were wrong, we will remedy the situation.
This Op/Ed not only says that China should not feel obligated to follow WTO rules, but that such activity should increase over time. Not a happy vision of the future of international trade, folks.
I really hope that this line of thinking is not shared by many in Beijing."
Is it that easy for a country to not follow trade rules? Can it opt in and out of treaty obligations? Should a loss in a dispute at the Dispute Settlement mechanism be seen as an opportunity to question the "unfair system"? China could be on the winning side of another dispute someday. Will the trade system be fair then? In a national context, we do not see parties questioning judicial decisions on grounds of the system being unfair and unjust. That could lead to chaos. While there may be no doubt that there is a need to have a re-look at certain trade rules to address new realities and equations of powers, the only way probably to do this is to negotiate and renegotiate. Threatening non-compliance is a double-edged weapon. Tomorrow the other side can do this which would result in the "rule-based" system to collapse. It would be back to the "survival of the fittest".  


Legal Advice said...

It is going to become increasingly tough for sovereign nations to "tread the middle line" in an era of slowing global growth. Today's action by the Obama administration, is just another arrow flung at China. The filing by the Obama administration at the W.T.O. for China's policy towards "rare earth minerals" may not be the final nail in this era of globalization, but we are getting close indeed. Eventually, global growth will completely stall and then full era protectionist measures will become a contagion among ALL the nation states.

Srikar said...

Yes indeed. Rising protectionism in the context of the challenges of globalisation makes treading the middle path extremely precarious. However, whether it is an increasing trend or a provocative gesture to assuage domestic pressures, only time will tell!