China’s entry into the World Trade Organization - ratified 10 years ago this week - was supposed to make the world’s emerging economic superpower a better international corporate citizen, but Beijing has proven to be less than an ideal team player during the past decade, U.S. officials and trade experts say.
“China has engaged in a consistent pattern of avoiding, delaying and directly violating its WTO commitments,” said Alan H. Price, partner and chairman of the international trade practice at Wiley Rein LLP, said at a congressional hearing this week looking at China’s post-WTO record.
“China’s systematic failure to comply with its WTO obligations has adversely impacted the U.S. and global economies and undermines the legitimacy of the international rules-based trading system,” he said.
Critics say China has taken advantage of its WTO membership to expand exports while keeping its own markets less than fully open. In the past decade, China has become the worlds largest exporter and the second-largest importer after the United States. Two-way trade for goods surged to nearly $3 trillion last year.
Chinese officials have hailed the 10-year anniversary as a major success story. The government-owned China Daily noted that, over the past decade, China has become the world’s top investment destination and 54 Chinese companies are in the global Fortune 500, up from 12 in 2001.
“I have to say that exceeds far more what we expected at that time, especially the size of China’s economy, the size of China’s exports and imports, and the market expansion of some of the industries, like cars, from 2 million to 18 million within 10 years,” Long Yongtu, chief negotiator of Chinas accession to the WTO, told the newspaper.
“Ten years is a long minute in China’s millennia-long history,” noted Pascal Lamy, the Frenchman who serves as WTO director-general. “And yet these 10 years have witnessed an unprecedented transformation of China’s economy and society.”
Despite many predictions made at the time, angry trade battles - over Beijing’s currency policies, its subsidies for favored export sectors and its enforcement of intellectual property rights - have not gone away. China remains the biggest target for complaints within the WTO regarding dumping and other trade-distorting practices.
Sen. Sherrod Brown, Ohio Democrat, said Chinese officials have effectively “gamed the system.” He accused the country of intellectual property theft, subsidies for Chinese exports, and hoarding U.S. debt.
“These violations not only show Chinas lack of respect for the rule of law,” he said. “They cost dearly in lost American jobs and a stalled economic recovery.
In the 2001 debate over China’s WTO application, backers said membership would force China’s economy, large swaths of which remain under the direct control of the government, to adopt international norms and practices. They said the move would also help level the playing field, as U.S. markets were far more open to Chinese imports.
China at the time agreed to “binding obligations” to reduce trade barriers, including provisions on government subsidies, treatment of state-owned enterprises, various import and export restrictions, and nondiscrimination against foreign entities.
But Mr. Price said performance has fallen short of the promises.
“While China has made some progress toward achieving some of its WTO commitments, many of its obligations remain unfulfilled and, in a number of respects, the Chinese government is moving further away from compliance,” Mr. Price said. “In fact, China is increasingly manipulating the WTO system, exploiting loopholes and working around existing rules - in violation of the spirit, if not the letter, of the WTO agreements.”
China fooled everyone, he said, including former President Bill Clinton, who at the time claimed the deal “creates a win-win for both countries.”
“Many expected that China’s WTO entry would lead to the opening of Chinese markets to foreign products and investment,” Mr. Price said. “Unfortunately, because China has substantially failed to comply with many of the commitments it made upon acceding to the WTO, most of these anticipated benefits for the United States have not been realized.”
The steel industry, which is eight times larger in China than in the U.S., is a prime example. As of 2009, 95 percent of steel producers in China were subject to some government ownership, he said.
Mr. Price pointed to $52 billion in subsidies that were granted to steel producers, including $17.3 billion in preferential loans and directed credit; $18.6 billion in equity infusions and debt-to-equity swaps; $5.1 billion in land-use discounts; $1.3 billion in government-mandated mergers; and $258.6 million in direct cash grants.
“These massive government subsidies have helped to create the worlds largest steel industry, and explain why Chinas steel exports [particularly exports to the United States] have increased significantly during the past decade,” Mr. Price said.
Over the past decade, Chinese steel production has increased 350 percent, while it has decreased 10 percent in the rest of the world, Mr. Price added.
“The growth of the Chinese steel industry cannot be explained by market forces,” he said. “Rather, its tremendous growth has been a result of massive government support for and intervention in its steel-producing [state enterprises], contrary to its WTO obligations.”
• Tim Devaney can be reached at tdevaney@washingtontimes.com.
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