TWN Info Service on WTO and Trade Issues (Dec18/01)
3 December 2018
Third World Network

China for WTO reform to preserve MTS, respect development models
Published in SUNS #8807 dated 30 November 2018

Geneva, 29 Nov (D. Ravi Kanth) - China has unveiled a set of proposals for reforming the World Trade Organization that calls for respecting "members' development models" while preserving the core values of the multilateral trading system (MTS), including the fundamental principle of consensus decision-making.

Meanwhile, the European Union and its 12 allies are intensifying their efforts to transform the multilateral trade body into a plurilateral organization for pursuing their new issues, trade envoys told SUNS.

In a position paper circulated by the Chinese mission in Geneva, Beijing largely stuck to the developmental interests of developing countries for fighting "protectionism and unilateralism".

It also showed signs of pursuing issues such as investment facilitation and disciplines for micro, small, and medium enterprises (MSMEs).

Significantly, the Chinese position paper remained silent on what needs to be done with the unfinished Doha trade negotiations as well as the deliverables in electronic commerce.

Last month, China's trade envoy Ambassador Zhang Xiangchen rejected binding provisions for free cross-border data flows, preventing data localization and protection of source code among others.

China, however, said that it would prefer rules on "E-signatures, E-authentication, E-contract, paperless trading, consumer protection, anti-spam, international regulatory cooperation, and facilitation of trade in goods enabled by the internet among others."

But the latest position paper issued by China remained silent on e-commerce, which is a major area of interest for the industrialized countries at the WTO's 12th ministerial conference in Astana, Kazakhstan in June 2020.

The highlight of the position paper that was first issued in Beijing last week is its emphasis on "respect[ing] members' development models," implying that countries cannot be unilaterally targeted for pursuing their specific developmental models.

China says that "the [WTO] reform should prohibit discrimination against enterprises of certain members in investment security review and anti-trust investigations," cautioning the United States and the European Union which are resorting to escalating security-related restrictions on the transfer of technologies and acquiring companies.

The WTO reform, according to China, "should address the abuse by developed members of export control measures in obstructing technology cooperation."

China said it "opposes special and discriminatory disciplines against state-owned enterprises in the name of WTO reform and the inclusion of issues based on groundless accusations in the WTO reform agenda."

Barring this major issue of allowing countries to pursue their "development models" without being penalized, China's concept paper is largely aimed at preserving the current WTO architecture in the face of a relentless assault by the US administration, which is aided and abetted by other industrialized countries in select areas of the WTO reforms.

As opposed to the package of reforms being pursued by the European Union along with Japan, Canada, Mexico, Chile, Brazil, Singapore, Korea, Australia, and New Zealand among others, who want to do away with the consensus principle of decision-making and special and differential flexibilities for several developing countries, China's package of proposals for reforming the WTO revolve around "three basic principles and five suggestions."

The three principles suggested by China deal with preserving fundamental rules of the multilateral trading system, safeguarding the development interests of developing countries and following the practice of decision-making by consensus.

China has elaborated the three principles as follows:

* The WTO reform shall preserve the core values of the multilateral trading system. China said, "the reform shall reinforce these fundamental rules of the multilateral trading system including non-discrimination and openness, in order to create stable and predictable environment for international trade."

* The "WTO reform shall safeguard the development interests of developing members." China said, "the reform should address the difficulties developing members encounter in their integration into economic globalization, by providing developing members with flexibility and policy space needed for their economic development, contributing to the United Nations 2030 Agenda for Sustainable Development and narrowing the North-South gap."

* The "WTO reform shall follow the practice of decision-making by consensus." According to China, "the choice of reform agenda, the formulation of any work plan as well as the final outcomes shall be decided through extensive consultations, based on mutual respect and dialogues on equal footing."

China cautioned that "the process shall be inclusive and open to all Members, especially the developing ones" and "the reform cannot be dictated by a few, nor decided by an exclusive small group of Members."

In addition to these three principles, China offered five concrete suggestions as to how the proposed WTO reforms must "uphold the primacy of the multilateral trading system" and the importance of addressing "the existential crisis/problems faced by the WTO," particularly the crisis at the Appellate Body.

The five suggestions proposed by China for reforming the WTO are as follows:

i. The WTO reform should uphold the primacy of the multilateral trading system. China said, "some members are trying to introduce "new concepts" or "new terminologies" into the reform agenda, which could undermine the authority of the multilateral trading system in a disguised way."

China said it will firmly oppose the attempts to introduce new concepts. It underscored the need that the "WTO reform should reinforce the centrality of the multilateral trading system in international trade liberalization and facilitation."

ii. The WTO reform must address the existential crisis/problems faced by the WTO, particularly the issue of filling vacancies at the Appellate Body as soon as possible to "rein in actions of unilateralism and protectionism with the strings of the WTO rules, and ensure the smooth functioning of all aspects of the WTO. "

iii. The WTO reform should address the imbalance of trade rules and respond to the latest developments of our time. China wants that the WTO "reform should address the long-term distortion of international agricultural trade by over-subsidization from developed members" and "prevent abuse of trade remedy measures, especially the "surrogate country" methodology in anti-dumping investigations."

Meanwhile, the reform should also keep the WTO rules relevant by including 21st century issues such as Investment Facilitation, and Micro, Small and Medium-sized Enterprises, China said.

iv. The WTO reform should safeguard "the special and differential treatment for developing members." China said it will oppose attempts to question or take away "the special and differential treatment for some developing members in the name of WTO reform."

China said that it is the largest developing country in the world, emphasizing that it will take up commitments commensurate with its level of development and economic capability.

However, China said it will never agree to be deprived of its entitlement to special and differential treatment as a developing member.

v. China said the WTO reform "should respect members' development models". China argued that "the reform should prohibit discrimination against enterprises of certain members in investment security review and anti-trust investigation."

The reforms must bring an end to "the abuse by developed members of export control measures in obstructing technology cooperation."

Beijing said it will oppose special and discriminatory disciplines against state-owned enterprises in the name of WTO reform, and the inclusion of issues based on groundless accusations in the WTO reform agenda.

Speaking at a meeting in Paris ten days ago, China's envoy to the WTO Ambassador Zhang Xiangchen expressed sharp concern that despite the Doha round dragging on for years, "over the past decade, the hundreds of millions of dollars in agricultural subsidies in the developed members have remained largely unchanged."

"But at the same time, new forms of business, such as e-commerce, have flourished across the world. WTO is not providing international norms to address any of these issues," the Chinese envoy said at the Paris meeting, expressing concern that the WTO "seems to be losing effectiveness to rein in the rampage of unilateralism and protectionism."

He said that "the [WTO] reform needs to be firmly set in the course of fighting against unilateralism and protectionism."

Ambassador Zhang said "it [the WTO] has to push for worldwide trade liberalization and investment facilitation. It has to stick to the principle of non-discrimination and adopt a democratic approach. Reform is not to reinvent the wheel. The existing rules must be fully respected and faithfully implemented. Reform is not an excuse for not implementing the rules, and any such attempt should be met with resistance from the members."

"With respect to making new rules for new forms of business activities," the Chinese envoy said, "we should allow members, maybe starting with groups of like-minded ones, to explore these issues, but we also need to duly consider the views and needs of the developing members and fully consult with them."

"Only through an inclusive process, can we maybe eventually reach multilateral outcomes," he emphasized.

Ambassador Zhang called "for a step-by-step approach, and stay away from moon-shot targets."

He suggested possible deliverables for 2019 such as expeditiously restoring the proper functioning of the dispute settlement mechanism, an agreement on fishery subsidies and making "progress on the new topics such as e-commerce, investment facilitation and MSMEs, [and] make improvements in terms of transparency."

"If we can achieve these targets at the MC12 [12th ministerial conference in Astana, Kazakhstan] in 2020, I think we can already call it a success," said Ambassador Zhang, emphasizing that China "is willing to play a proactive and constructive role, and to make contributions within its capacities."

He warned that the WTO, which is a public good, cannot be turned into satisfying "particular needs of someone or some group of members" in an attempt to "put China in a tailor-made straightjacket of trade rules to constrain China's development."

Ambassador Zhang said "globalization means competition" which hinges on adhering to an "agreed set of rules."

Without naming the United States, the European Union, and Japan among others, Ambassador Zhang said "for the issues where members have divergent views such as subsidy, transfer of technology, we can have different forms of dialogues while respecting each other's positions."

"People sometimes say that the WTO is a patient in a critical state with multiple failing organs," the Chinese envoy said.

"If that is the case, urgently restoring the functioning of the organs and making the right diagnostics of the illness is more important than rushing to give prescriptions," he argued.

Without naming the US, Ambassador Zhang said "we all know where the crisis of WTO comes from, but whatever a particular country [the US] or a particular individual [President Donald Trump] thinks about the WTO, it can only serve as the context rather than the reason for the reform of the WTO."

In short, China has laid out the roadmap for the proposed reforms at the WTO. But major industrialized countries, particularly the EU, which are currently holding consultations with Beijing, are unlikely to accept China's package of proposals for reforming the WTO, said trade envoys, who asked not to be quoted.