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TWN
Info Service on WTO and Trade Issues (Sep25/10) Trade:
China proposes "middle-ground" approach to WTO reform Geneva, 15 Sep (D. Ravi Kanth) -- Ahead of the next round of meetings on the reform of the World Trade Organization, China has put forward a comprehensive proposal outlining what it calls "a constructive approach" to exploring "ways to update the rules while upholding the WTO's fundamental principles," while pressing for a subtle change in the decision-making process so as to open the door for controversial plurilateral initiatives, said people familiar with the proposal. The five-page proposal (WT/GC/Reform/W/12), titled "Further reflections and suggestions on WTO reform", reasserts what Beijing regards as the WTO's core principles: "multilateralism, non-discrimination, predictability and transparency," alongside the preservation of its basic institutional arrangements, including consensus-based decision-making, binding dispute settlement and special and differential treatment (S&DT). Without naming the United States, China warns against efforts by "some members" to make most-favoured- nation (MFN) treatment conditional. Such moves, it says, should be treated with "caution" because they risk reviving "power-based trade relations in the name of reciprocity." China also warns that "expanding exceptions to MFN treatment beyond those already provided for in the WTO agreements risks creating a fig leaf of protectionism." The same warning applies, Beijing says, to calls for "re-balancing rights and obligations" or "promoting reciprocity" when these are based on vague labels or predetermined outcomes rather than agreed rules. The message is clear: WTO reform must update the rules without allowing powerful members to rewrite them unilaterally, said a trade official, who asked not to be quoted. Fundamental principles On the "foundational issues" track of WTO reform, led by Ambassador Sumathi Balakrishnan of Malaysia, China insists that "fundamental principles should not be compromised for the sake of expediency." "In reforming the WTO, we should uphold a rules-based approach rather than a power-based one, advance shared interests rather than pursue zero-sum games, and ensure that reform outcome benefits all Members, particularly developing members," it said. Beijing called for concrete solutions to update the WTO rules through the relevant reform tracks covering development, the level playing field and decision-making. For China, the development track "must remain at the front and centre of WTO reform." Although China has given up its right to claim S&DT in current and future negotiations while retaining previous S&DT benefits from its accession agreements, it insists that S&DT remains vital for developing countries. "For developing Members, being left behind in the development process would represent a fundamental failure to achieve global fairness," China argued. Trade, Beijing said, is "an important means for developing Members to advance structural economic transformation, integrate into global value chains and leverage their comparative advantages." These considerations, it adds, "should inform the discussions of all tracks of WTO reform." China wants the reform discussions to begin with reviewing the development opportunities and challenges identified by developing members as they integrate into the multilateral trading system. It divides the S&DT issues into "long-standing issues and emerging ones." The former include the operation of S&DT provisions in individual agreements, technical assistance and capacity-building programmes. The latter encompass "the new dynamics that drive economic globalization of our time, such as artificial intelligence, digital trade and green transition." Yet, China also acknowledges that economic globalization has not delivered its intended benefits to all members. The proposal therefore calls for WTO reform to address long-standing issues "from new perspectives" while approaching emerging issues through "a forward-looking and development-oriented lens." IFDA and ECA China has brought its long-championed Investment Facilitation for Development Agreement (IFDA) into the development track. It points to "needs assessments" as an emerging tool in WTO negotiations involving the IFDA and the E-Commerce Agreement (ECA). India has opposed incorporating the IFDA into Annex 4 of the WTO Agreement, while several countries have opposed and not joined the ECA. Against this backdrop, China suggests that "consideration could be given to mainstream such new development tools into WTO's technical assistance framework" to strengthen developing members' negotiating capacity and domestic policymaking. On S&DT, China calls for discussions aimed at making it "more precise, effective and operational." It rejected the "so-called criteria-based graduation approach to special and differential treatment" promoted by the US and the EU, arguing that such an approach "oversimplifies the complexity and diversity of development needs across the WTO membership" and could divert attention from the real issues of development. The "level playing field" The most politically charged section of China's proposal concerns the "level playing field" (LPF). As the US, the EU, Japan and the UK push for LPF issues in an effort to address China's allegedly opaque subsidy regime, Beijing counters that a level playing field is essential for equitable participation in international trade and inclusive development. But China stresses that members have sharply different views on the "meaning, scope and purpose" of a level playing field. Those differences, it says, reflect both different challenges and different stages of development. Hence, it said "WTO reform should promote equitable participation in trade and foster inclusive growth." China said it is ready for dialogue with other members and is open to exploring updates to the Agreement on Subsidies and Countervailing Measures (ASCM), greater transparency and improved coordination on industrial policies. Its approach rests on several principles. First, the process should be member-driven and fact-based: Vague labels such as "subsidies for state-owned enterprises" should be avoided. Discussions should focus on concrete measures and objective evidence, with members' submissions and interventions at the centre. Second, no predetermined outcomes: Market shares and trade balances should not become benchmarks - or objectives - of a level playing field. Nor should the domestic or treaty practices of a handful of members become universal reference points. Third, respect different development paths: The playing field should be level for market participants regardless of ownership. Privatization should not be addressed within the WTO because that would intrude on members' sovereign choices. Developing members' economic and social needs must also be taken fully into account. China, however, appears to remain silent on demands to include agricultural subsidies in the LPF discussions. Multilateralism vs unilateral remedies China's broader prescription is to strengthen global governance of LPF issues. With industrial and supply chains increasingly crossing borders, measures taken by individual members can generate significant global effects. Unilateral and fragmented responses, China argues, may simply produce new distortions, unfairness and tensions. "Only multilateral solutions grounded in inclusive deliberation, collective governance and shared interests can provide the legitimacy, stability and effectiveness needed to address the relevant concerns." The WTO, Beijing says, must remain central, using its existing rule-making and dispute-settlement functions while adding policy dialogue and coordination. China also calls for a more calibrated approach to government intervention. Industrial subsidies, it argues, can correct market failures, safeguard fair competition and respond to global challenges. Poorly designed interventions, however, can waste public resources, distort markets and upset the balance between state intervention and market forces. The answer, it says, is not blanket prohibition but multilateral governance that preserves legitimate policy objectives while mitigating adverse effects on competition and trade. China further advocates policy coordination among members to prevent poorly designed interventions and encourage timely adjustments. It insists that reform must preserve developing members' policy space, given their financing gaps, technological divides and trade barriers. Reform should "neither impair their legitimate use of industrial policy tools nor unduly restrict the policy space necessary for development." Consensus - with an escape hatch? China's position on decision-making is perhaps the most revealing part of its proposal. "Meaningful WTO reform requires an effective decision-making mechanism to deliver results," it says, while acknowledging that "Consensus remains the fundamental rule governing WTO decision-making, but securing it has become increasingly difficult." China notes that issues backed by an overwhelming majority of members have sometimes become trapped in prolonged deadlock, weakening the WTO's negotiating function and eroding trust. Yet, China's apparent willingness to contemplate decisions that could move beyond strict consensus sits uneasily with its insistence elsewhere on preserving the Marrakesh Agreement's institutional arrangements, said an analyst who asked not to be quoted. Beijing appears to be signalling support for greater flexibility when it argues that "WTO reform should therefore seek to explore means to unlock decision-making impasses while preserving the institutional arrangement of decision-making by consensus." China points to existing proposals for improving decision-making and says that they reflect "a shared desire among Members to advance reform in this area and enable the WTO to deliver meaningful outcomes." The analyst said China, like the US and other industrialized countries, appears to be interested in legitimizing plurilateral negotiations by changing the decision-making principle. Beijing proposes greater flexibility in treaty-making, including differentiation in participation, commitments and implementation, as a way of addressing members' concerns and enabling "Pareto improvement" in rule-making. It also calls for stronger political guidance, including improvements to decision-making by the Ministerial Conference and General Council and more regular political engagement. Dispute settlement On dispute settlement, China says that dispute settlement reform "should remain an important component of WTO reform." "A fully and well-functioning dispute settlement system accessible to all Members," it argues, "is essential to the stability and predictability [of] the multilateral trading system." Without explicitly mentioning the dysfunctional Appellate Body, China warns of the systemic impact of "appeals into the void," particularly on the rights and interests of developing members. Beijing supports consultations under the DSB chair aimed at restoring a functioning dispute settlement system. "Middle-ground" strategy China's proposal is ultimately an attempt to occupy the middle ground in a WTO increasingly divided between competing visions of WTO reform. As the US and other industrialized countries retreat from aspects of economic globalization amid concerns about China's rise, Beijing is positioning itself as a defender of multilateralism, consensus, development and WTO dispute settlement. But the proposal also seeks greater flexibility in decision-making, opens space for differentiated participation and gives plurilateral initiatives a potential route into the WTO system. That creates an underlying tension, said an analyst, who asked not to be quoted. China wants to preserve the WTO's fundamental architecture while changing how that architecture operates. At a time when the US and other industrialized countries appear to be eschewing economic globalization amid fears that it benefits China, Beijing faces a Herculean task in convincing members that "WTO reform is an important process to improve global economic and trade governance." For now, China said it remains "committed to working with all Members to advance WTO reform and deliver tangible results, with the goal of promoting universally beneficial and inclusive economic globalization." +
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