The US has more to gain from WTO reform than just punishing China
Tomorrow, the Senate Finance Committee will hold hearings on how to reform the World Trade Organization (WTO). If the past is any guide, the hearings will quickly devolve into a debate about China. This will make for good political theatre. But does Congress really understand the WTO’s “China problem”? And will fixating on it undermine the prospects for WTO reform? China is undeniably relevant, but it isn’t the whole picture.
In 2019, Sen. Ron Wyden (D-Ore.) opened the hearings on the WTO’s 25th anniversary by saying that “[i]t is long past time to fix what’s wrong with the World Trade Organization. In my view, that process begins with China.” In the Q&A that followed, China was mentioned 200 times; the word “trade” was said only 291 times.
The China problem is largely framed in terms of the country’s state-owned enterprises (SOEs). These SOEs raise concerns of subsidy, because the government is inextricably tied up with these corporate entities. But can the WTO effectively contend with these subsidies?
For starters, the U.S. has hit Chinese subsidies in cases from wind power to civil aircraft. In China — Grants, Loans and Other Incentives, the U.S. in 2009 identified 10 full pages of subsidies by name. Other countries have also challenged Chinese support for a wide range of industries. There is no doubt that China has been able to exploit loopholes, but so too have others. WTO reform needs to address systemic failures that allowed this kind of cheating in the first place.
Then there’s the question of China’s compliance (or lack thereof) with WTO rulings. Here, the data challenge the conventional wisdom. The U.S. has filed 23 WTO cases against China, or two more than all other countries combined. If WTO rules had little grasp of China, this would be puzzling. Moreover, the data suggest that China does, in fact, comply. Ten of the US’s 14 concluded cases have resulted in adopted rulings. Three cases were settled or terminated. That leaves one case of noncompliance.
Another charge is that China doesn’t “notify” the WTO of its measures. Notification is an important issue because exporters need time to adjust to regulations. Countries often question the basis for a regulation or inquire about how it works. This exchange, often in the form of specific trade concerns (STCs), can diffuse tensions without the need for WTO litigation. That’s why U.S. Trade Representative Robert Lighthizer recently praised these committees. China doesn’t escape their scrutiny.
Start with technical barriers to trade, which bear on over 90 percent of U.S. exports. To date, 638 specific trade concerns (STCs) have been raised before this committee. China was targeted by 73 of them, including 48 filed by the U.S. Putting this in perspective, Europe has been named in 135 STCs.
Then there are the health and safety standards that frustrate agricultural trade. Of the 469 STCs covering these measures, 40 were filed against China. Interestingly, the U.S. was only in on 14 of these, meaning that other countries are also quizzing China’s measures. To benchmark this, Europe has been named in 99 STCs.
Finally, there’s intellectual property (IP). These are the monopoly rights on the use of an idea for a set period. Think patents, which the WTO requires countries to protect for 20 years. Is the WTO failing to stop Chinese theft of American ideas? There are two ways to look at this.
First, when asked to defend U.S. Section 301 tariffs against China back in 2019, Lighthizer insisted that three of the four alleged IP infractions weren’t covered by the WTO. Indeed, forced-technology transfer is more an investment than a trade issue. We shouldn’t be faulting the WTO for coming up short on something it doesn’t actually do.
Second, there is an IP problem in trade, but it goes far beyond China. The U.S. Special 301 Report makes this clear on an annual basis. This year, China is on the “priority watch list” as one of Washington’s biggest worries. But it’s joined by nine other countries, with another 23 making the secondary “watch list.” It’s not that the WTO lacks rules or can’t enforce them. It’s just that ideas are relatively easy to steal, never more so than in the digital age. But to frame this problem as being unique to China is to understate the challenge confronting America’s creative economy.
It goes without saying that China must be held to account. And yes, the WTO can and should be reformed. But let’s not base WTO reform on a narrative that mistakenly singles out China, isn’t always accurate and at times is just plain wrong.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.