Asking China To Liberalize More at the WTO

Back in 2018, I wrote a piece with my colleague Huan Zhu arguing that China had become much wealthier since it joined the WTO, and therefore should take on greater liberalization commitments:

With greater wealth comes greater responsibility. Even if it continues to maintain its “developing” status, as China’s economy grows it should take on additional international obligations and play a more equal role in international economic organizations such as the WTO. By doing so, China will improve its own economy, reduce international economic conflict, and help strengthen the world trading system.

Earlier this week, the EU put forward some views that are perhaps along these same lines, although I'm not totally sure what they have in mind and would love to hear more from them about these issues.

I'll start with an FT piece by EU Trade Commissioner Maroš Šefčovič. Without mentioning China by name, Šefčovič calls for changes to WTO liberalization commitments that, if I understand him correctly, would push China to do more liberalizing:

Over the past three decades, several WTO members have dramatically expanded their share of global trade while keeping their markets largely closed. At the same time, state support for industries and other non-market policies have multiplied, distorting competition on a global scale. The result has been structural trade imbalances and chronic overcapacities, with damaging effects on both developed and developing economies.

This is not what the WTO’s founders intended nor what we need now. The organisation was meant to evolve, updating tariff commitments and trade rules as economic realities change. Instead, it froze the 1995 balance, locking in asymmetries that no longer reflect today’s global economy.

...

To ensure fairness, we need to address asymmetries among members in market openness and a commitment to fair competition. ... We must also rethink how the “most favoured nation” principle functions and whether the current balance of rights and obligations remains fit for purpose.

The certainty provided by MFN remains indispensable. But has MFN, as currently applied, genuinely fostered openness and a level playing field among WTO members, or has it become a straitjacket that cements the status quo and enables free riding?

We need a frank discussion on the link between MFN status and reciprocity, taking into account members’ actual levels of market openness, their commitment to fair competition and transparency, and their evolving weight in global trade. This must include exploring options to allow for more agile and targeted adjustments of tariff treatment in response to changing realities and threats to our economies. Access to lower tariffs cannot be unconditional: it must be earned through stronger, credible commitments to the core principles of free and fair trade. 

The EU also made a submission to the WTO on "WTO Reform" in which it states:

2. Fairness

The need for an overall rebalancing

The Facilitator's report brings out clearly that many Members question the appropriateness of the existing balance of rights and commitments negotiated 30 years ago given the changed realities of global trade. The perception that there is a discrepancy between some Members' share in global trade and their levels of openness leads to reduced buy-in by other Members adversely impacted by the imbalances and resulting spillovers. WTO rules come under increasing strain if the overall balance of rights and commitments is no longer seen as fair by many Members.

Even though the economies of some Members have developed significantly, resulting in a dramatically increased share in global trade, there has been no corresponding reciprocal liberalisation of tariffs and services or opening of markets on their part. Without the envisaged successive rounds of negotiations, this has resulted in imbalances, distortions and spill-over effects that adversely impact other Members' economies and capacity to develop. In some value chains these imbalances lead to dependencies and vulnerabilities.

...

The Facilitator report highlights the interest among Members to have a broader debate on the future of the WTO. In the EU's views, a broader debate on WTO reform focusing on the fundamentals underpinning the current balance of rights and commitments is needed. This discussion should include reflections on the role of the MFN principle in today's context, its link to reciprocity and to Members' respective levels of openness, as well as possible new links between commitments taken and the level of tariffs. Moreover, reform discussions should reflect on how the rules can better accommodate more agile adjustments of tariff levels in light of changing realities and threats to certain sectors or value chains.

These EU statements emphasize a country's "share of global trade" as a key criterion (they also mention economies that "have developed significantly"), whereas Huan and I were focused on income levels, but these are probably correlated to a great degree so I'm not sure it matters that much which one you focus on.

It seems to me that it would be very reasonable for other governments to go to China with requests along these lines. Of course, it's a delicate issue and it's hard to say exactly how China would react. It may depend in part on how the issue is raised. But if it is done right, and the EU can get others on board with the effort, I can imagine something useful could come out of all this.

One suggestion I have here is that broadening the idea into a general principle that could apply whenever WTO Members get significantly wealthier, and therefore the proposal seems less like "China-bashing," might be a way to help make it play better better politically.

(Lots of people are talking about the MFN-aspects of the EU statements. From what I can tell, their questioning of MFN is somewhat limited and targeted, but certainly this is something to keep an eye on as they say more going forward.)