China must step up to the plate on trade

China has been less than proactive in strengthening global trade governance, but it has the capacity and motive to make a real difference at the WTO.

There are reasons to quibble about how the invitation to China to become a responsible stakeholder in the international system might be interpreted, but Bob Zoellick’s intention when he framed it that way was clear and constructive. China was welcome to participate in managing the development of the rules as well as playing by rules set by others.

China has benefited enormously from the established global economic regime and, with all its frailties, it is a regime that still serves as the linchpin of a system that brings prosperity and stability to the world economy.

Yet, as the birth of the G20 summit at the time of the global financial crisis attests, the current global order is also a regime that’s incompletely equipped to respond to all the shocks and the impact of structural change that will occur inexorably over time. It has to evolve and change and to be open to building new institutions and rules in areas where global governance is weak or totally absent. This is an important function of forums like the G20. Indeed, the inclusion of China and other emerging powers in the G20 is evidence of the opportunity for them to participate in the evolution of the international economic order.

Among all the global economic institutions, the WTO is one of the most widely recognised and respected in China. After China’s accession, there was a massive effort there to build the institutions and laws that extended the rule of the market right across the country. The power and importance of what this did to the way in which the Chinese economy operated post-accession is still widely under-appreciated outside China, even in policy circles that need to have a better understanding. Though a Chinese official or an ideologically backward-looking political leader might wish to put the market genie back into the bottle, they are constrained by its disciplines in a million ways.

WTO accession and integration into the global economy have been pivotal to China’s economic progress. China’s commitment to its international norms and rules remains firm, although it has been tested in a number of ways. But many would argue that since accession, China has been less than proactive in prosecuting trade liberalisation through its approach to negotiations in the Doha Round of trade negotiations. However, it was hardly the spoiler that has seen those negotiations run into the sand. It was also less active than it might have been in thinking about how to strengthen the institution and its role.

The good news is that China shows every sign of stepping up to the plate. Signs of a significant change in Chinese trade diplomacy coincided with President Xi Jinping’s participation in the Bali APEC Summit. There were positive announcements that week on China’s willingness to participate in the negotiation of a Trade in Services Agreement — currently proceeding outside the WTO framework — and on a change of position that will allow the stalled negotiation of a revised Information Technology Agreement to reconvene.

Business had lobbied for independent, stand-alone services negotiations on a plurilateral basis. The TISA negotiations were launched in 2012 with 23 countries taking part, including the European Union, to meet that ambition. In a decision to remain connected with the multilateral system, and to grow the critical mass required to eventually multilateralise their outcomes, the plurilateral negotiations are being held in Geneva –but not within the WTO. For a subgroup to meet inside the WTO, all WTO members must agree to let the meetings take place — but the BRICS were hostile to the plurilateral approach, seeing it as corroding the multilateral system.

There hadn’t been much action over the past nine months. Then, on  September 29, the Chinese mission to the WTO wrote to each TISA participating country, announcing that it wished to participate in the negotiations and declaring that it had a “high level of ambition” for the negotiations and (would) participate “positively, constructively and equally”. This is a potential game-changer for the services negotiations and opens up the possibility of their being multilateralised within the WTO.

In a post this week Jane Drake-Brockman points out that “in a world of global value chains, with services accounting for 50 per cent of world trade in value-added and the bulk of global FDI, the WTO is irrelevant if it focuses only on goods…[and] China needs the WTO to be strong, in order to support its domestic reform agenda and its own transformation to a more services-oriented economy”. With these interests, China has both the motive and the capacity to make a difference to multilateral outcomes in the WTO on this and other issues.

Stepping up to the plate in TISA, however, isn’t exactly straightforward. As Drake-Brockman explains, the initial response from TISA participants was positive but cautious, pending signs from China that it was serious about meeting the required level of ambition. How precisely non-participants are allowed to join these negotiations is not a matter yet resolved. As currently structured, these negotiations are preferential among those who have signed up. US business interests were initially very hostile to China’s participation though their position seems to have mollified. The US government is expected to notify Congress of China’s request to join soon. But whatever happens, that’s unlikely to happen until February.

Hopefully China’s initiatives over recent months on services, the Information Technology Agreement and its Shanghai Free Trade Zone are a harbinger of a more proactive and constructive engagement in improving global trade governance. That could bolster the chances of a successful WTO ministerial meeting in Bali next month.

Peter Drysdale is Editor of the East Asia Forum.

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