Rather than fulfilling its mission of steering the Communist behemoth toward longstanding Western trading norms, the WTO instead stands accused of enabling Beijing’s state-directed mercantilism, in turn allowing China to flood the world with cheap exports while limiting foreign access to its own market.
.. Now it is coming to a head under the first American presidency of an open free-trade skeptic, in a case just starting to wend its way through the Geneva process. The issue: whether China has graduated to a “market economy,” a change of status that would make it considerably harder for other nations to block imports they believe are improperly aided by Chinese government distortions.
.. both the U.S. and European Union demanding the change, calling it “nonnegotiable,” and Chinese officials are likely to reiterate that demand when they talk trade next week with President Trump during his Beijing visit
.. “This is without question the most serious litigation matter we have at the WTO right now,” Robert Lighthizer, the Trump administration’s trade representative, told Congress in June. A China victory, he added, “would be cataclysmic for the WTO.”
.. Under Geneva’s guidance, tariffs world-wide have plunged nearly 80% and trade’s share of the global economy has more than doubled. More than 160 countries representing 98% of world commerce are now WTO members, and most of the few remaining nonmembers—like Belarus and Timor-Leste—are negotiating to join.
.. the director-general of the WTO, credits his organization with preventing a recurrence after the 2008 financial crisis of the trade wars that exacerbated the Great Depression.
.. Since 2007, China has been party to more than a quarter of all WTO cases, as trading partners scrambled to erect barriers protecting their industries while demanding better access to China’s markets.
.. China sought out disputes in which it had no direct stake and joined more than 100 as a “third party,” giving officials access to proceedings as observers. The Chinese offered large stipends to prominent American and European trade-law scholars to teach seminars in China for young bureaucrats. They retained top U.S. law firms.
.. Steptoe & Johnson LLP became the go-to firm for combating a new American policy imposing extra-steep duties on Chinese imports aided by allegedly illegal subsidies
.. WTO defenders note the U.S. has still won the vast majority of cases it has filed in Geneva, and say it should be pleased that China has chosen to pursue its trade grievances through global arbiters.
.. Commerce Secretary Wilbur Ross in April launched an official study of “the structural problem” of the WTO and its courts, arguing the body has “an institutional bias…toward the exporters rather than toward the people that are being beleaguered by inappropriate imports.”
.. A looming challenge to the WTO is the pending case determining China’s official status in the world trading system—whether members are now required to treat it as a “market” economy.
.. Beijing reads the pact as having automatically guaranteed it market status 15 years after its December 2001 accession. The U.S., Europe, Japan and others say the change was intended to be a privilege contingent on liberalization promises Beijing has yet to keep.
.. The “nonmarket” designation makes it easier for trading partners to impose inflated tariffs on goods they conclude have been “dumped”—or sold below “fair” value. That’s because prices and costs are seen as so distorted in a “nonmarket economy” that other countries are given wide latitude to determine on their own what they consider “fair.”
.. A flip from “nonmarket” to “market” would boost EU imports from China by as much as 21%, or $84 billion
.. The study concluded that Washington applied an average duty of 162% against Chinese goods, compared with a 33% rate for market economies.
.. . The study concluded that Washington applied an average duty of 162% against Chinese goods, compared with a 33% rate for market economies.
“That gray zone is the key point of tension,” says Chad Bown, a WTO expert at the pro-free-trade Peterson Institute for International Economics. “How you deal with that is ultimately going to determine whether the WTO system in its current form can hang together or not.”