International Economic Law and Policy Blog

What Are the Critics of China's WTO Entry Objecting To?

In recent years, there have been some prominent voices out there criticizing the decision to allow China to join the WTO. One thing I have trouble understanding is what the critics see as the counterfactual: How exactly do they think the United States (or the world) would be better off if China had not joined the WTO?

In thinking about this question, an important consideration is the role WTO accession played in China's liberalization and opening up, and its subsequent development as an industrial power. Was joining the WTO the driver of China's industrialization? Or would this industrialization have happened anyway? A 2011 paper by Razeen Sally offers some good insights here:

China’s “Reform” and “Opening” started in 1978. But its decisive external opening, and with it sweeping industrial and agricultural restructuring, belong more to the post-Tiananmen phase, especially since 1994. China undertook enormous trade and FDI liberalisation during the 1990s -- before WTO accession in 2001 -- followed by another big dose of liberalisation in line with its WTO commitments. Its WTO commitments are very strong; they exceed those of most other developing countries by a wide margin. This holds for disciplines on border and non-border restrictions in goods and services. In addition, there are detailed commitments on transparency procedures to make sure trade-related laws and regulations are implemented, backed up by administrative and judicial-review procedures to which individuals and firms are supposed to have recourse.

It is important to note that the primary liberalisation thrust, especially in the 1990s, was domestic and unilateral, coming from the Beijing leadership. The latter used WTO-accession negotiations as a strategic lever to consolidate and accelerate national reforms. China’s WTO commitments, and its participation in the WTO after accession, can be read as more the consequence than the cause of its sweeping unilateral reforms. ...

It is clear from this account of the history that the rise of China in terms of its modern industrial economy started well before it joined the WTO, and was progressing quickly even prior to that entry. As Sally notes, WTO entry was "more the consequence than the cause of its sweeping unilateral reforms."

This leads me to the following questions: Are the critics objecting to China's WTO entry? Or is their more fundamental objection about China's internal decision to liberalize and embrace economic development? Is what they really wish for that China had remained a closed, state-run economy that was not able to produce efficiently enough to be a global competitor?

When thinking about these questions, note that if China hadn't joined the WTO, its economic situation might not be significantly different than it is today. China joined the WTO in December 2001, but if it had not done so due to U.S. objections, it likely would have gotten on the FTA bandwagon that started soon after, and signed more of these agreements than it eventually did. That means its growth path could have been similar, just with less investment from U.S. companies and more investment from non-U.S. companies. While it might have ended up with less foreign investment overall, it is not clear how significant these amounts would have been, or how much that would have affected the economic development path it was already on.

With all that in mind, in the view of the critics, would the U.S. be better off under a scenario where China's development had less U.S. influence and involvement? In those circumstances, a few U.S. companies that shifted production to China might not have moved, so perhaps the critics would see this as preferable. But these U.S. companies still could have faced competition from Chinese imports, at which point some of the companies might have shifted production to somewhere else.

In an earlier era of trade relations, there were objections to competing with Japanese and European producers, and then later with Korean and Taiwanese producers. Now competition with China is the big concern. To some extent, it feels like the complaint here is more about having to compete with foreign producers rather than a specific concern with China joining the WTO, which may be less responsible for the increased competition than the critics think. But I'd love to hear any of them clarify their views on this.

Unfinished Business: Bringing China Into the Club of Market-Oriented Countries

Given where U.S. trade policy is at the moment, this doesn't seem like the best time for my latest piece, which is called "Unfinished Business: Bringing China Into the Club of Market-Oriented Countries." But sometimes all you can do is lay the groundwork for the future, which is what I was trying to do here. This is from the conclusion:

The goal of integrating China into the club of market-oriented countries is still worth pursuing. Both China and the rest of the world would be better off if China moved in this direction. While the way things played out after China's accession to the WTO was a missed opportunity, if we make China's economic structure a priority now, as it was in the 1990s, we might see some progress. 

The current political environment may not support this approach, as keeping China out of the U.S. market has become the primary trade objective. And the best opportunity for pushing market-orientation may have been in the years immediately following China’s WTO accession in 2001. Nonetheless, completing the unfinished business of integrating China into the world trading system would still be of value today. It looks as though U.S. trade policymakers are in the midst of trying all other options at the moment, but if and when those do not succeed, the foundation exists for a more productive approach.

In terms of the reaction from China, some of the actions and rhetoric coming out of Washington these days could be characterized as “anti-China.” But establishing and applying a set of rules about market orientation should not be seen as punitive. Rather, it simply reflects what China and other WTO Members agreed to as part of China’s WTO accession. Everyone has an interest in, and benefits from, this system of rules. If approached diplomatically, a renewed effort to push for China to be more market-oriented could actually be part of an improvement in relations between China and the West.

It doesn't come out clearly just from the conclusion, but the core of my argument is that WTO complaints provide the best overall chance of encouraging China to become more market-oriented.

One thing I'm unsure of is how the various China trade hawks think about the structure of China's economy. Many of them focus very heavily on keeping Chinese products out of the U.S. market. For this group, what I've wondered is, would they event want to see China become more market-oriented? Or do they worry that this shift would make Chinese companies harder to compete with? I tried asking this of someone once on social media but didn't get a response.