Info Service on WTO and Trade Issues (Aug18/01)
1 August 2018
Third World Network
China asks US to set its fiscal house in order, instead of blaming
Published in SUNS #8732 dated 30 July 2018
Geneva, 27 Jul (D. Ravi Kanth) - China stood its ground against the
United States at the WTO on Thursday (26 July) by telling Washington
to set its own fiscal house in order by generating domestic savings
to contain trade deficits, instead of blaming other countries.
China's trade envoy Ambassador Zhang Xiangchen, in responding to US
criticism of Chinese policies, told the US: "If the US does not
increase its savings rate, it's unlikely that it can solve its problems
of trade deficit."
"We all know at the end of the day, all structural issues are
domestic issues," Amb. Xiangchen told the US trade envoy Ambassador
The Chinese envoy was responding robustly to the tirade launched by
the US trade envoy at the General Council meeting on "China's
Trade-Disruptive Economic Model."
The Chinese trade envoy said the US and other developed countries
had invented and implemented "industrial policies and subsidies"
"Before criticizing others, we should think twice if we have
done similar things in the past... Like developed countries had done
in the past, today's developing countries also need time to enhance
their protection of intellectual property rights, or develop their
own industries through strategic planning and policies," Ambassador
In an eight-page list of alleged violations committed by China since
joining the WTO in 2002, the US trade envoy charged China for violating
the Marrakesh Declaration of 1994 by refusing to implement "open,
Ambassador Shea had listed "the fundamental aspects of China's
disruptive economic model," the costs that China "extracts",
and "the benefits that China receives."
The US envoy elaborated on the "non-market oriented conditions
set by the [Chinese] government and the [Communist] party," "non-market
allocation of resources" by China's administration, including
setting industrial policies , and "costs to WTO members [due
to] China's economic model" such as non-reciprocal and protected
market, excess capacity, and forced technology transfer among others.
Ambassador Shea said that the Chinese Communist Party "have for
decades exercised controls over SOEs [State-owned Enterprises] through,
inter alia, (1) the control and appointment of key executives through
the CCP [Chinese Communist Party] Organization Department, and (2)
receipt of preferential access to important funds (e.g., land and
capital) and other competitive advantages unavailable to non-state
The US envoy accused China of adopting industrial policies for achieving
"sector-specific economic objectives, particularly for those
sectors deemed strategic and fundamental."
The costs borne by other WTO members because of China's economic model
include "non-reciprocal and protected market," "excess
capacity", and "forced technology transfer," the US
The benefits seized by China, particularly between 2005 and 2016,
the US envoy argued, include real GDP growth rates of 9.5 percent
coupled with sudden transformation "from the fifth-largest to
second largest economy" in the world.
"For China," said Ambassador Shea, "economic reform
means perfecting the government's and the Party's management of the
economy, and strengthening the state sector, particularly state-owned
"As long as China remains on this path, the implications for
the organization are decidedly negative," the US envoy said.
In measured but sharp interventions with historical details and anecdotes,
the Chinese trade envoy said, "criticism should be based on facts,
should refrain from putting labels on others, should use correct facts
and correctly use facts, (and) there should be clear logic in reaching
conclusions through analyzing evidence."
Ambassador Xiangchen forcefully reminded his American counterpart
that the view that "China would change and move into a different
path upon its WTO accession" is "wishful thinking"
as "there is more than one model of the market economy in this
China, according to Ambassador Xiangchen, "has been vigorously
exploring a road of market-economy" for China's own national
situation and circumstances.
"We have made remarkable progress in this endeavour," the
Chinese envoy asserted.
Ambassador Xiangchen reminded his American counterpart that there
is no definition of "market economy" throughout the WTO
Besides, there is also no one-size-fits-all "market economy"
standard in the world, the Chinese envoy told his American counterpart.
Ambassador Xiangchen said if there is any relevance of the term "non-market
economy", then it applies to the US because it disregards the
WTO rules by using "notorious surrogate country" methodology
in anti-dumping investigations despite the commitments made 17 years
He urged the US and other industrialized countries to honour their
commitments - "pacta sunt servanda"- by treating China on
the same standards as other WTO members in regard to anti-dumping
The Chinese envoy said the US had selectively quoted from the Marrakesh
Declaration of 1994, suggesting that it enjoined on members to adopt
"open, market-oriented policies" based upon "the commitments
set out in the Uruguay Round Agreements and Decisions."
Ambassador Xiangchen said "each member has its own domestic policy
objectives, and the results of the multilateral negotiations are a
balance between Member's domestic policies and the process of global
"Such balance," according to the Chinese envoy, "is
reflected in the trade rules, the tariff schedules and services schedules
of Members, which contain descriptions of Members' legitimate regulatory
policies and measures."
"To put it simply, the WTO Agreement is a set of contracts achieved
through negotiations," the Chinese envoy said.
The US is adopting flawed arguments and logic on what constitutes
"public bodies" in the context of WTO so as to force subsidy
and countervailing disciplines on members.
"In the US-China Anti-Dumping and Countervailing Duties case,
the Appellate Body had stated that the mere ownership or control over
an entity by a government ... is not sufficient to establish that
the entity is a public body," the Chinese envoy pointed out,
arguing that "our American colleagues have been quite unhappy
with losing this case, but the ruling of the Appellate Body cannot
The Chinese envoy drew attention to the industrial and subsidy policies
followed by the US after US president Alexander Hamilton drew up the
framework that the US must follow since 1790.
[Prior to the Open Door policy, the US had built its industry starting
with the Hamilton plan - "Report on the Subject of Manufactures"-
in 1791. "The core of his [Hamilton's] idea [is] that a backward
country like the US should protect its "industries in their infancy"
from foreign competition and nurture them to the point where they
could stand on their own feet," said the Cambridge economist
Ha-Joon Chang in his book "Bad Samaritans - The Guilty Secrets
of Rich Nations and the Threat to Global Prosperity."
[Even Adam Smith, the Scottish father of free trade, "had solemnly
advised the Americans not to develop manufacturing," says Chang.
"He [Adam Smith] argue d that any attempt to "stop the importation
of European manufactures would obstruct instead of promoting the process
of their country [Britain] towards real wealth and greatness,"
[Indeed, Britain and the US, the two most successful economies, had
been protectionist for long periods of time with high tariff walls,
according to Chang. "While Britain and the US were protectionist,
they were economically more successful than other countries because
they were less protectionist than others," Chang has argued.]
Ambassador Xiangchen suggested that the existential challenges being
faced by the WTO are arising from disruptive trade measures such as
US Section 232 decisions "to restrict the import of steel and
aluminum using national security as a pretext," and Section 301
measures that unilaterally impose tariffs on imports.
Worse still, the US is still blocking the reappointment of the Appellate
Body members, thereby paralysing the dispute settlement mechanism,
the Chinese envoy argued.
"At the present moment, the paramount task for the WTO is to
curb the spread of unilateralism and protections, to bring the dispute
settlement (mechanism) to its full function and to stop the trade
war," the Chinese envoy concluded.
Japan, the European Union, and Australia among others shared several
concerns raised by the US against China's industrial and trade policies.
But developing countries said China is justified to implement trade
policies in a manner that brought economic development.
On Thursday, the US Trade Representative Ambassador Robert Lighthizer
told the Senate Appropriations sub-committee on commerce, justice,
science and related issues that it "could take years to resolve
trade problems with China, suggesting the escalating tariffs battle
could continue indefinitely," according to the Washington Trade
Daily of 27 July.
Questioned by the American lawmakers on the US decision to impose
global tariffs on steel and aluminum rather than focusing on China,
Ambassador Lighthizer argued "that global tariffs are the only
way to ensure that Chinese steel does not come into the US market
through other countries," according to the WTD.
In short, the US seems poised to intensify the trade war with China
by joining forces with the EU and Japan.
It is a defining moment for China whether it can build a solid alliance
with all other developing countries or face the wrath of the US, the
EU, and Japan which want to fundamentally change the special and differential
treatment architecture for developing countries and impose plurilateral
trade initiatives at the WTO.