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Originally appeared on on 9/23/2011

Featuring: Terence P. Stewart, Esq.

The Law Offices of Stewart & Stewart

Washington, DC

A World Trade Organization (WTO) panel ruled earlier this year that China was violating its obligations in restricting exports of several raw materials. In an email interview, Terence Stewart, an expert in international trade law at the law firm Stewart and Stewart, discussed China's compliance with its WTO obligations.

WPR: What has been China's track record on compliance with its WTO obligations since its accession in 2001?

Terence Stewart: China's accession to the WTO has been a great experiment for the global trading system. Many of China's obligations were phased in, so not all obligations were in place by late-2001. In many areas, such as tariff reductions and changes to various laws and regulations, China has made substantial progress and been viewed as largely in compliance with its obligations. However, in many other areas, including intellectual property enforcement, transparency, adherence to various protocol provisions -- including eliminating most export duties and other export restraints -- there have been major concerns about compliance, a series of WTO challenges on violations and a perception of backsliding by the Chinese government.

In December 2010, the U.S. Trade Representative provided its ninth report to Congress on China's compliance with WTO obligations, which provides a good overview of the pluses and minuses of compliance and the apparent slippage seen by trading partners since 2006. Typically in the early years of membership, a WTO member will face few formal disputes. That was initially true for China, but as trading partners have run into resistance from China in addressing bilateral concerns, more cases have been filed against it.

WPR: What is the significance of the WTO ruling on raw materials?

Stewart: The cases filed by the U.S., the European Union and Mexico on various export restraints imposed by China on raw materials are currently on appeal, and thus the final outcome will not be known until near the end of this year. However, the cases address a broad-based problem trading partners are having with China -- perceived mercantilist efforts by China to use raw materials or intermediate products where it has a large global share to provide artificial advantages for Chinese companies and to force investment in China with the transfer of technology of downstream products in ways that are clear violations of China's obligations. The WTO ruling, if affirmed in toto or significant part, will signal to China that it must eliminate its export restraints where protocol obligations were undertaken, or, if the Appellate Body rules that the protocol limitations are nonetheless subject to exceptions under GATT Art. XX, that China must take actions that do not discriminate against trading partners as current practices clearly do.

The challenges faced by trading partners are not limited to the products covered in the raw material case but include a vast number of other products
-- including so-called rare earth elements and processed products critical to green technologies. While China has made modifications since the panel decision to provide an arguably stronger defense of its actions, it remains highly likely that the U.S., the EU, Japan and possibly others will pursue a second case if the Appellate Body affirms the panel's decision in large part and China does not comply on rare earth elements and other products.

WPR: Going forward, to what extent will China be able to shape WTO norms around its own interests?

Stewart: China's importance to the global trading system is beyond question.
The shift in power within the WTO from the developed countries to a split between developed and advanced developing countries like China, India and Brazil is well-recognized within the WTO, as reflected in the composition of small group sessions and the ability of any of these countries to prevent forward movement of negotiations in a consensus based system. Thus, there is little doubt that China will play an important role in any modification of the global trading system going forward.

The major stumbling block to concluding the Doha Round has been disagreement over the kinds of obligations -- in terms of a global leadership role in trade liberalization -- that go hand in hand with the shift in power taking place within the organization. Developed countries expect a greater effort by the leading advanced developing countries than those countries have been willing to provide. Outside of new negotiations, China is still exhibiting a surprising willingness to ignore WTO obligations that are clear on their face. It engages in what appears to be fairly blatant retaliation when trading partners pursue WTO rights and otherwise does not exhibit a willingness to lead in the arena of compliance with existing obligations.
These are worrying aspects of China's current approach to WTO membership.

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