Caixin
Dec 17, 2019 08:44 PM
OPINION

Editorial: ‘Chinese Wisdom’ Can Help Resolve the WTO Crisis

The World Trade Organization’s headquarters in Geneva on Aug. 23. Photo: IC Photo
The World Trade Organization’s headquarters in Geneva on Aug. 23. Photo: IC Photo

The World Trade Organization (WTO) is embroiled in its most severe crisis in the 25 years since it was established. On Dec. 10, the terms of two judges on the appellate body — the WTO’s highest dispute-resolution court — came to an end, leaving just one remaining. That contravenes the WTO’s own charter, which stipulates that the appellate body contain seven judges on long-term appointments, with at least three always on hand to hear appeals.

All of the WTO’s 164 member economies must unanimously agree to the appointment of each new judge. But at the moment, the United States insists on vetoing the procedure for appointing new judges and renewing the terms of existing ones. This has left the appellate body in gridlock, adding fuel to claims that the WTO is “dead” as unilateralism and protectionism have gained ground in recent years.

Dispute resolution mechanisms aren’t just a pillar of the WTO, they’re also important systemic safeguards for multilateral trade. When a member files a complaint to the WTO, the General Council — the organization’s highest-level decision-making body — will first urge all sides to negotiate. If that doesn’t work, then the parties concerned can ask the organization’s Dispute Settlement Body to set up an expert group and make a preliminary judgment. If one party still refuses to comply, the issue can be taken to the appellate body for a second and final ruling.

Because the appellate body’s rulings are compulsory, the mechanism is seen as the teeth behind multilateral trade rules. A logjam at the body is not only a heavy blow to multilateral trade, but also a classic sign of how globalization has started to unravel in recent years. For a single country to take a hammer to the most important global trade organization is an extremely serious situation.

It’s hard to say where the WTO’s dispute resolution mechanisms will go from here. Whether you think the crisis at the appellate body will persist and spread largely depends on whether you’re a pessimist or an optimist. The pessimists say the rules-based dispute resolution mechanism is in its death throes. The optimists say that a gridlocked appellate body won’t paralyze the whole WTO, and that its dispute resolution mechanisms are still functioning, and that members can always find workarounds.

The world economy is now deeply interlinked and cannot be easily separated. No economy can go it alone. There is therefore a practical need for multilateral trade systems that cannot be upended at the whim of any country, allowing all members to enjoy economic development and sustainable growth.

Admittedly, the WTO has serious faults. Its principle of unanimity is inefficient, while everywhere lies proof of the failure of the Doha Development Round, an attempt to lower global trade barriers that has foundered since 2008. While the WTO needs reform, it shouldn’t be abandoned. Several members have captured that spirit, with China, Canada and the European Union all submitting reform proposals since the crisis at the appellate body began to loom large.

How to resolve that crisis hinges on consensus and action. All sides agree that the WTO needs reform, but disagree on what form it should take. Large countries in particular should make serious efforts to push for WTO reform. The disastrous consequences of failing to accommodate others’ demands are easy enough to predict: The organization will freeze up or even completely disintegrate, something that would be catastrophic for global trade.

Indeed, the U.S. is threatening to withdraw from the WTO. But in reality, it won’t do so lightly. After all, the WTO, along with the International Monetary Fund and the World Bank, constitute the three main pillars of the U.S.-built postwar system of international trade and finance. Walking away would imply that the country was relinquishing its leadership of multilateral trade systems.

Times of crisis can help bring about concrete, feasible solutions. So here are a few of our own. First, in the last few years, the U.S. has often harbored a grievance over China’s continued official status as a developing country, which guarantees it “special and differential treatment” under WTO rules. In reality, that designation now brings China few extra advantages. We believe that China can retain its status as a developing nation while, as Zhang Xiangchen, the country’s permanent representative to the WTO has said, “not pursuing unnecessary extra flexibility.” A pragmatic, responsible attitude will help China win more support.

In the debate on multilateral trade, China must stick to what we can call the “three benefits.” The principle encourages the country’s WTO delegation to consider all changes in terms of whether they benefit the high-quality development of the Chinese economy, the healthy revival of economic globalization, and the creation of a new international model that can help emerging economies continuously grow and strengthen. Only by acting on this principle can countries avoid falling into the rigid thinking that tells us to resist everything our opponents suggest and support everything our opponents resist.

China should stick to a unified internal and external policy while pushing for the establishment of procedures to draw up higher standards for multilateral trade rules. Flying the flag for multilateralism is consistent with deeper all-round reform. China is in the process of building a higher-level, more open economy, and to this end has issued a number of liberalizing policies in recent years, most notably in its financial sector.

On controversial issues like the designation of Chinese state-owned enterprises (SOEs) as “public institutions” and the government’s perhaps-unfair policy of gifting them vast amounts of subsidies, the country has accepted the prevailing international principle of competitive neutrality, which recognizes that state firms should not gain any advantage or disadvantage over the private sector by virtue of state ownership or control.

China’s investment and financial systems, industrial policy and SOE administrators should abide by and publicly promote that principle, respect commercial logic, and avoid fueling the ammunition of the country’s detractors. Additionally, China should clearly define its core interests. By no means must it protect groups that monopolize their interests. Instead, it should argue that China’s economy is stable and changing, long-term, for the better.

Like any other nation, China’s economic growth model has its own characteristics, but there is no need to constantly view specific disputes as hostile to the overall model. The general trend is to build an ever-better market economy and participate in drawing up the rules for global trade in the 21st century.

Back in 2001, China bravely made a number of conciliations to join the WTO. At the time, its accession sparked no small amount of doubt and pessimism. But the country’s rapid development since then has proven that it was wise to join the rest of the world.

China needs to summon even greater wisdom to resolve the current crisis in multilateral trade. A spokesperson for the country’s commerce department has said that China is researching a temporary solution and will put forward a proposal when the time is right. When trade protectionism rears its head, the strongest rebuttal to unilateralism is multilateralism.

Contact translator Matthew Walsh (matthewwalsh@caixin.com)

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