At a WITA webinar today commemorating the 20 year anniversary of China's accession to the WTO, several key figures from the accession negotiations on both the U.S. and Chinese sides offered remarks and responded to questions. The speakers were Ambassador Charlene Barshefsky, the U.S. Trade Representative at the time the negotiation was completed; Minister Long Yongtu, Former Vice Minister & Chief Negotiator for China’s accession; and Ambassador Zhang Xiangchen, Deputy Director-General, World Trade Organization (part of the original WTO accession negotiating team, and former Chinese Ambassador to the WTO). Wendy Cutler of the Asia Society Policy Institute moderated the event. One subject Cutler asked all three about was China's implementation of its WTO obligations. Her specific questions and their responses were as follows:
So China joins the WTO. It seems during the first few years it works hard at implementing its commitments. But at some point in the 2000s, and maybe you can shed some light on this, things seem not to be going as well and there are more and more implementation problems and different ministries seem to be creating all sorts of different problems. How do you assess Chinese implementation? You know, when do you think the Chinese leadership seemed to lose some interest in fully implementing its obligations?
So if Deng Xiaoping's mantra was reform and opening, the mantra of Hu Jintao, and most acutely Xi Jinping, is rather different. So, in the early years of accession, China was beginning to do what most countries/economies do when they accede: They begin to move on a more convergent course, with market based economics and the precepts of the WTO. That doesn't mean the same, but it does mean greater compatibility among somewhat different economic systems and somewhat different economic orientation.
About 2006-2007 under Hu Jintao, China embarked on its indigenous innovation program. China rightly understood that particularly technology was vitally important to the future of China's development, innovation was important, and that more and more of this should be captured inside China. So its indigenous innovation program began.
But that program became amped up over time. So indigenous innovation turned into the designation of specific strategic emerging industries and technology, which were targeted for massive subsidization, turned into Made in China 2025, which indicates not only sectors that China believes it has to master and control, but also further solidify the use of massive state subsidies to reach what Xi Jinping called the commanding heights of technological and innovative development.
And so beginning with indigenous innovation, more mildly so, but then revving up over time, and a doubling down under the current Chinese administration, what had been a move toward convergence and greater compatibility became a movement toward divergence and greater incompatibility with WTO-related precepts and market based economics. And that divergence now is quite acute Wendy. Xi Jinping has been very clear. He says China has a different political system, a different ideology, and a different economic system. And he says these things will not change. China believes it has found the economic model that works best for it, which is growth based on innovation and technological development, coupled with sociopolitical control. The Western view that you can't have an innovative society and political control is somewhat disproved by China's economic model. It's not to say that China's innovative capacity is enhanced by its economic model. But it is to say that what the West thought were incompatible systems may not be necessarily incompatible systems.
So you have now a China that's on this very divergent course and has been for some time. What does that mean? A strengthening of a state-centric economic model, fueled by massive subsidization to designated industries, fueled also by discrimination and a tightening around foreign competition and foreign competitors. Coupled with an ideological overlay called the China dream, the reemergence of China as a great power, and the leader of what it calls the Fourth Industrial Revolution. This is a lot to handle. The WTO can't handle it.
How do you assess Chinese implementation of its WTO obligations? Some would say that early on, right after you joined the WTO, that there were good faith efforts to implement all of the obligations. But over time, China increasingly violated both the letter and the spirit of the WTO. Do you agree?
I do not agree. I think China has been very serious in implementation of its obligations it has committed in WTO accession. Some of the commitment, it's simple to evaluate. For instance we passed half our import tariff from 15.2% to 7%. And we have made very clear timetable to let the foreign insurance company in banking, and logistics shipping company come into China. And that's easy to measure. I think the most important complication is in some areas like the protection of IPR, and whether China has implemented its commitment. I think that in terms of IPR for instance, you cannot say whether China still has some cases violating IPR rules. Most important thing you have to observe is how Chinese government react to those violations. I think that China has been very serious to punish those violators of the IPR, and also we have built up several courts specifically to deal with the cases of protection for IPR.
In preparing for this event, I went back and read these parts of the USTR annual reports that they put out now for 20 years on China's WTO implementation, and I would agree with you, I think there was a honeymoon period and China was faithfully reducing its tariffs and making the other necessary regulatory changes. But that seemed to change and as I read the reports year by year, the praise was less and there were more spotlights on problems. Charlene highlighted ... the years 2006-2007, with new leadership in China as well as the indigenous innovation campaign and increasing role of the state in the Chinese economy, particularly when it came to promoting the development of high tech industries. What are your views on that? That around maybe five years into the implementation, that's when serious problems emerge? Do you think the United States was mistaken in its interpretation? Or do you think this maybe has more to do with what you were saying, the inadequacy or the insufficiency of the WTO rules to address some of these problems?
You are right that around five years after China's accession, there's more quarrels between China and the United States and European Union on China's implementation of its obligations. I heard with great interest of Charlene Barshefsky's comment on the China's policy of indigenous innovation. And I actually, Wendy, I think during Obama administration, we had the JCCT, the economic strategy committee, we discussed this issue. And "indigenous" is a very awkward term for me. I don't think we can easily write corresponding term for the Chinese policy. And behind this is an anxiety of the Chinese industry about ... the gap between China and the United States. After ... we move up from the low end to the middle of the global supply chain, the global value chain, it's necessary and legitimate for those industry who like to pursue ... the high end of the technology and at the same time, you know that many sectors are subject to this export control. So, actually, this is the mixture of the issues of innovation, security, and the industry. So it's not a pure WTO implementation issue, but it's mixed. I think the formal mechanism, like the JCCT, like the Strategic Economic Dialogue, is good platform for United States and China to discuss this kind of issue. It's beyond the WTO's competence, but it's related to the WTO rules.