TWN Info Service on WTO and Trade Issues (Jan18/04)
24 January 2018
Third World Network

US likely to project China as biggest threat to WTO at Davos meet
Published in SUNS #8605 dated 23 January 2018

Geneva, 22 Jan (D. Ravi Kanth) - The United States is likely to project China as the biggest threat to the World Trade Organization and the global trading regime at the World Economic Forum's annual Davos meeting beginning on Tuesday (23 January), said trade envoys familiar with the development.

The US President Donald Trump who is scheduled to address the world business, financial, and political elite at Davos on Friday (26 January) could try to drive home the message that there will be global trade chaos if China is allowed to continue with its "state-led" industrial policies based on a "mercantilist" framework.

The US could also try to promote a united front of all G7 and other countries to counter the Chinese threat on e-commerce and other issues but not investment facilitation or disciplines for micro, small, and medium enterprises (MSMEs), said a trade envoy from an industrialized country, who asked not to be quoted.

Ahead of the Davos meeting, the US Trade Representative, Robert Lighthizer, launched a broadside against China on trade issues, painting Beijing as a serial violator of commitments it undertook to join the World Trade Organization, including the dangers it posed because of "state-led policies."

In a 145-page report to the US Congress "on China's WTO Compliance" issued on Friday (19 January), the United States Trade Representative (USTR) charged that "China has used the imprimatur of WTO membership to become a dominant player in international trade."

The US, according to the USTR, "erred in supporting China's entry into the WTO on terms that have proven to be ineffective in securing China's embrace of an open, market-oriented trade regime."

"The principal beneficiaries of China's policies and practices are Chinese state-owned enterprises and other significant domestic companies attempting to move up the economic value chain," the USTR maintained.

Consequently, "markets all over the world are less efficient than they should be," it alleged.

Despite repeated assurances "for fundamental shifts in the direction of Chinese policies and practices," China ensured that its "regulatory authorities do not allow US companies to make their own decisions about technology transfer and the assignment or licensing of intellectual property rights."

China resorts to pressuring "foreign companies to transfer technology as a condition for securing investment or other approvals," the USTR argued.

Among other factors, China's continued surge in trade surplus with the US which touched US$350 billion in 2016 and is projected to go up to US$365 billion in 2017 was made possible because of China's WTO accession, according to the USTR.

Therefore, the USTR said, Washington will take "all other steps necessary to reign in harmful state-led, mercantilist policies and practices pursued by China, even when they do not fall squarely within WTO disciplines, as evidenced by USTR's ongoing investigation of Chinese technology transfer policies, and practices pursuant to Section 301 of the Trade Act of 1974."

"The notion that our problems with China can be solved by bringing more cases at the WTO alone is naive at best, and worst it distracts policymakers from facing the gravity of the challenge presented by China's non- market policies," the USTR said.

The Uruguay Round Agreements and Decisions, according to the USTR, enjoined on WTO members to follow "open and market-oriented policies" but not adopt "state-led economic policies," nor "pursue mercantilist trade policies."

The WTO's dispute settlement mechanism, according to the USTR, is "not designed to address a situation in which a WTO member has opted for state-led trade regime that prevails over market policies and pursues policies guided by mercantilism rather than global economic cooperation."

The dispute settlement system is not "effective in a trade regime that broadly conflicts with the fundamental underpinnings of the WTO system," the USTR maintained.

Significantly, the Davos meeting could bring about convergence among G7 countries - the US, Japan, Germany, France, United Kingdom, Italy, and Canada - on how to counter China on the global economic stage.

Even President Trump might tone down his America First trade policies and launch a frontal attack on China at Davos to shift the global attention.

The USTR's report offers a bleak scenario on China's aggressive "mercantile" trade policies, particularly stemming from "Made in China 2025" policy targeting 10 strategic industries.

China, according to the report, is targeting "industries including advanced information technology, automated machine tools and robotics, aviation and spacecraft equipment, maritime engineering equipment and high-tech vessels, advance rail transport equipment, new energy vehicles (NEVs), power equipment, farm machinery, new materials, bio-pharmaceuticals and advanced medical device products."

Based on promoting "indigenous innovation," the Chinese strategy aims "to replace foreign technology with Chinese technology in the Chinese market through any means possible so as to ready Chinese companies for dominating international markets," the USTR report has argued.

Further, "Made in China 2025 seeks to build up Chinese companies in the 10 targeted, strategic industries at the expense of, and to the detriment of, foreign industries and their technologies through a multi-step process over 10 years."

Clearly, concern about China's business and industrial policy framework might bring convergence among the G7 leaders.

"If he [Donald Trump] can persuade the Davos audience that all he is doing is demanding a level playing field, he might get a positive reception," says Gideon Rachman of Financial Times on Sunday (21 January).

The US will get support from the EU, Japan, and other countries if it decides to "pursue China through the WTO", Rachman argued.

The USTR is also going to issue reports on other countries including India with which it has a trade deficit.

"If he seems inclined to take on all-comers, he [Trump] risks creating an anti-US coalition on trade," according to Rachman.

The WEF has co-opted for this year's annual meet at Davos, world political leaders such as Prime Minister Narendra Modi of India, President Emmanuel Macron of France, and Germany's enfeebled chancellor Angela Merkel.

Finally, the WEF has co-opted President Donald Trump just at a time when the American president is engulfed by domestic political crisis following the publication Fire and Fury by Michael Wolff.

"Co-opting "difficult" political figures is the name of the Davos game," writes Gideon Rachman of Financial Times on Sunday.

The WEF which has in the past rolled out the red carpet for figures as diverse as the presidents of Russia and Iran is eager to embrace Mr Trump. Klaus Schwab, long-time WEF president, is an expert in extravagant flattery and Mr Trump is known to respond well to that, Rachman says in his article, "Trump calls the tune at Davos party - US president's speech may prove a turning point for the global elite."

A Reuters news agency story "Europe readies riposte to Trump's "America First" push in Davos" on Sunday argued that "European leaders will be out in force at the World Economic Forum in Davos this week to defend multilateralism before US President Donald Trump arrives to deliver his "America First" message."

In short, the Davos meeting this year, which will also witness an informal trade ministerial meeting on Friday (26 January), would indicate how the Quad - the US, the European Union, Japan, and Canada - are going to try to shape the trade agenda at the WTO.

It remains to be seen whether the US will support the EU, Japan, and Canada on plurilaterals for investment facilitation, disciplines for MSMEs, and commencing dialogue on trade and gender issues.

Ironically, the US which pursued state-led industrial and economic policies crafted by Alexander Hamilton and later resorted to aggressive "mercantilist" policies after the Spanish war in 1898 in the past century is today pointing fingers at China, said another trade envoy who asked not to be quoted.