Friday, June 29, 2012

Transparency, China and the WTO - What next?

A lot is written about the rise of China in the multilateral trading system. It is heralded as an example of how a developing country utilised the international trade rules to further its national agenda. Critics argue that China has not done much in terms of reforming its own systems as per WTO rules. So while it benefits from the advantages the multilateral system offers, it does not abide, to the extent necessary, by it WTO and WTO plus (due to the Accession protocol) obligations. I have blogged extensively about China's role in the WTO here, here, here, here and here.

How much of the above criticism about China's reluctance to abide by WTO obligations is true? The recent Trade Policy review of China brought to the fore these issues with both the US and EU reacting strongly. I have blogged about the US response here. The EU reacted similarly here:
"In his statement at the WTO, the Ambassador pointed out the following areas of concern:

- The EU's main concern is related to a lack of transparency, which makes China's trade and investment policies – in the words of the WTO's report - "opaque and complex". More needs to be done to make key WTO principles like transparency and non-discrimination the norm in China's legislative system. The EU also calls on China to honour its WTO notification commitments in particular in the area of subsidies.

- State interference in the economy leading to distortion of competition: The EU shares the remark in the Secretariat's report that "despite all the reforms, state-owned enterprises still tend to benefit from lower cost of and better access to capital than non-public-sector enterprises". We therefore urge China to increase its efforts to ensure a level playing field amongst market operators, regardless of their ownership structure or origin.

- Excessive regulatory and technical obstacles to trade in goods, services, investment and public procurement and other non-tariff barriers: according to the WTO, only 46% of the more than 20 000 national standards in force in China are adopted from international or advanced foreign standards. In some areas, the participation of foreign and foreign-invested companies to standard-setting work is still restricted.

- Intellectual Property Rights (IPRs) protection and enforcement: despite China's efforts, serious problems remain and need to be tackled, notably in terms of violations of copyrights, trademarks, patents, and trade secrets.

- Raw materials: since all countries are interdependent and rely on the free supply of raw materials, the EU calls on China to remove all its export restrictions."
Are these reactions mere accusations in the context of a rising trading power or do they have some substance? China's State capitalism too doesn't help matters and obsfuscates the line between permissible State support and actionable subsidies in the context of the WTO.

Leila Choukroune has summarised the issues about China's adherence to the WTO in this special article titled "The Compromised Rule of Law by Internationalisation" in China Perspectives. Has WTO membership help "internationalise" the rule of law in China? Has it helped reform the Chinese legal system? Are the WTO plus obligations in the Chinese Accession Protocol being complied with? The author has noted that significant progress has been made by China in amending its domestic legal regime in consonance with international obligations. Primary among them is in the arena of transparency. Nevertheless, the author concludes that substantial effort still needs to be made in terms of fully complying with the WTO mandate:
"The syncretic nature of China’s legal system no longer evokes surprise. Although drawn from foreign rules and practices, China has sinicised these norms to better integrate them. China’s accession to and participation in the WTO is a fascinating illustration of this ability to adapt and perpetuate a given system without fundamentally challenging its basis. While Chinese legal reform has clearly benefited from the WTO engine, the changes in leadership witnessed since the mid-2000s have not led to the “rule of law via internationalisation” some Chinese rulers were themselves calling for. As discussed above, this incomplete transformation originates in the limits of Chinese law itself, from law-making to law implementation, and creates tensions between WTO Members as evidenced by an increasing number of disputes directly pinpointing the lack of transparency of the Chinese legal regime.

A diligent student of international trade law, which plays with international norms and seemingly abides by them, China has not been able to overcome the serious contradictions that have not only hindered a genuine political evolution, but have also taken legal reform backward, by favouring stability over change. It is to be hoped a different political elite may soon be able to approach legal and political reform in a less fragmented and hence more coherent way that could bring about the long-awaited transformations."
This is an interesting debate about how WTO rules influence domestic law making mandating changes in the national legal regimes. While this does not limit policy space in terms of adopting a "particular" developmental paradigm within the WTO rules, the primacy of transparency, need for a strong judicial review system of administrative acts as well as inviolability of the national treatment and non-discrimination principles severly influences domestic policy making. While no one can argue with the need for increased transparency in rule making and notifications to the WTO, the problem arises in interpretation and action. China, in its responses, has constantly argued that it is on the path of reform and is complying with all WTO obligations. It also argues that State led capitalism is not per se against WTO principles and is a justifiable exercise of national sovereignty within WTO rules. The Chinese examples portrays how a country has made its engagement in the multilateral system a centre piece of its developmental strategy. To what extent the former has influenced the latter is a matter of continuing debate!

No comments: