My Response To Simon on China in the World Trading System

Simon raises an excellent set of questions.

Here are two quick reactions to the super important question of what explains why countries did not use WTO dispute settlement to push China to change: 

1. In terms of facts about use of WTO dispute settlement against China, the empirical reality from the data is that it turns out the US did most of the heavy lifting. 

Look at the caseload. The US was the complainant or co-complainant in almost 100% of WTO disputes challenging China between 2001 and 2017 on issues that affected the broader WTO membership (eg, subsidies) as opposed to just one trading partner (eg, one Chinese antidumping order).  Aside from the US, no one else was willing to challenge China on issues that affected anyone beyond a country's own (bilateral) narrow economic irritant. 

That is a weird fact pattern. Lots of smaller or poorer countries brought many WTO disputes against the US or EU during this period. Why was everyone so afraid of China? (The answer cannot be that China never did anything WTO inconsistent. Everyone in the WTO lives in a glass house, even China.) 

The bigger question is thus not for the Americans but for the rest of the world: What prevented the EU, Japan and other countries from bringing disputes against China? 

2. Here are some of the most important contributing factors from the data and from our conversations with policymakers behind WHY there was insufficient willingness to challenge China (and even why it was difficult for the US to bring more cases against China): 

- Concerns over China's extra-WTO coercion/retaliation vis-a-vis (a) countries doing things China did not like (eg, Japan rare earths 2010; US tires safeguard in 2009, etc), including using the DSU against them, AND (b) foreign/multinational firms seen as complicit in providing evidence needed to prosecute actual WTO disputes in the real world. (If you can't get the evidence from firms, governments won't bring the case.) 

- Worry that a government wouldn't win a case against China even if companies turned over information. China's system is non-market. How does one even define a subsidy in China? (The public body ruling seemed to suggest Chinese SOEs were not providing subsidies? Hmmm...) Showing evidence might mean an even heavier lift than in a case against a market economy if you have to use third country benchmarks to make your case due to Chinese data (on prices and quantities) being so whacky, again because of its system. 

Soumaya and I go into more details about this in Chapter 7 of HOW TO WIN A TRADE WAR. 

Given that the dispute settlement system did not work with China before 2017, and we are now 10 years beyond when even the US stopped trying (and no other WTO member has picked up the mantle, even with the MPIA, there are still virtually no disputes successfully challenging China's non-market practices!) the big question is, what comes next?

The answers to that are found in chapters 8-end of the book.

 Can't wait to see the next post!