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China and WTO Compliance: The Glass Will Remain Half Full By Dr. Jean-Marc Blanchard, Sr. Consultant After 15 years of tortuous negotiations, China finally became a member of the World Trade Organization (WTO) last December. American policymakers were ecstatic about this development, arguing it will eliminate subsidies, enhance intellectual property rights, and encourage the development of a Chinese legal system. They point to a mix of lucrative opportunities occasioned by China's involvement in the WTO system, including newfound market access for American banks, telecommunication companies, and other service providers and the ability to export an additional $2 billion of agriculture goods. The central issue, though, is whether American businesses can truly count on China to fulfill its agreements. The argument here contends that China will comply in large measure, though not fully, with its commitments. China's deep involvement in the global economic system gives Chinese leaders incentives to meet their WTO obligations. As well, Chinese leaders see participation in the WTO as a way to spur competition and limit corruption. Other Chinese elites view the WTO as a bludgeon they can exploit to restructure money losing state-owned enterprises (SOEs). American policymakers are not relying solely on these interests to ensure Chinese compliance. According to government documents, in public speeches and bilateral forums, officials habitually encourage Chinese compliance. In addition, they have threatened to use the WTO dispute settlement process if the Chinese renege on their agreements. On a more concrete level, the U.S. government has reoriented its agendas, made organizational changes, and established various mechanisms to promote Chinese compliance. In Washington, the government has created an interagency Trade Policy Staff Committee Subcommittee on China WTO compliance, consisting of members from the Departments of State, Commerce, Agriculture, and Treasury. Within the Department of Commerce, officials have established a rapid response China Team. Paralleling these efforts, the American embassy in Beijing has established a WTO Implementation Coordination Committee and an Intellectual Property Rights working group. These initiatives aim to coordinate information-gathering, track and analyze changes in Chinese laws and regulations, monitor China's implementation plans and enforcement activities, and communicate issues to Chinese officials. The U.S. government also is engaged in a serious effort to enhance China's capacity to fulfill its WTO obligations. It is training Chinese officials, academics, and SOE managers in WTO requirements, hosting workshops, and developing video and Internet courses. Complementing this, it is furnishing law books, translating documents, and giving seed-grants to capacity building programs such as a WTO e-learning program.
Chinese interests and American efforts will ensure a good degree of Chinese conformity with the WTO. China's desire to achieve great power status gives it added incentives to perform its obligations because fulfillment will help it develop a trustworthy reputation and discredit claims it is bent on overhauling the world capitalist system. Nevertheless, it remains doubtful that China will fully observe its obligations partly because of the sheer volume of requirements. More fundamentally, China will not comply completely because of its domestic political situation, lack of implementation capacity, and its economic might. China is not a democracy. Its leaders, though, still must preserve their standing among the public and key constituencies - e.g., the People's Liberation Army and Communist party officials - if they wish to stay in power. This means they have powerful incentives to ensure that the WTO produces less rather than more unemployment and smaller rather than larger income inequalities. Related to this, they have incentives to minimize the influx of subversive foreign ideas. Given these pressures, it is probable that Chinese leaders will fail to or will slowly implement parts of their WTO agreements. They will be prone to enforce WTO rules in a non-aggressive fashion. They are liable to provide illegal subsidies and exemptions to Chinese SOEs to buffer the impact of China's WTO membership and they are likely to take steps to control the influx of foreign ideas. Importantly, if the leadership's political power diminishes, then its willingness to violate its accession accords could increase dramatically. Another factor that will limit China's performance of its obligations is its inadequate implementation infrastructure. Beijing can command, but subnational entities and citizens are unlikely to obey unless the government can expand its training activities. Beyond this, the Chinese government has to socialize multiple governmental levels to embrace "alien" WTO norms, which emphasize transparency, market mechanisms, and the rule of law. In conjunction, it needs to enhance its ability to monitor compliance while establishing genuine mechanisms for penalizing WTO violators. A final factor that will reduce China's compliance levels is its economic might. As suggested by American and European defiance of WTO rulings, China's economic power should allow it to absorb the relatively small cost of WTO sanctions. Of course, an economically-powerful China can leverage its strength against companies that will be inclined to complain about Chinese noncompliance or that might threaten to exit China. As an economically powerful country, China too does not have to rely as much as other states on reputation since it can bestow economic rewards that others covet. Over the long run, there are several trends that will encourage Chinese compliance. For instance, China's participation in the WTO system will lead to the creation of new agencies, the incorporation of WTO-norms into bureaucratic procedures, and the production of research. These developments, in turn, will create knowledge, beliefs, and behaviors that encourage compliance. Second, the continued growth of Chinese exporters and multinationals will create a constituency for WTO observance. Third, the expansion of free trade and investment regimes in East Asian will encourage the adoption of WTO-friendly practices. To conclude, over the short- and long-term, many factors will push China to meet its commitments. These factors will take China only so far, however, because they are counteracted by the forces enumerated above. It is encouraging, therefore, that the U.S. is cajoling China and facilitating its capacity building since these initiatives push China further than it might go on its own. Unfortunately, recent U.S. government responses to WTO decisions, which suggest it is playing by its own, rather than WTO, rules risk undermining these efforts by setting a bad example.
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Editor: Dr. Scott B. MacDonald, Sr. Consultant Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant Associate Editors: Robert Windorf, Darin Feldman Publisher: Keith W. Rabin, President Web Design: Michael Feldman, Sr. Consultant Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell
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