I’ve been on the lookout for more reaction to last week’s WTO appellate decision on the raw materials case, which China lost (for the most part). I mentioned a few days ago with respect to rare earths that while some foreign enterprises may benefit from this WTO precedent, in the long term it may not matter since China is ultimately in control of production.

I expected to find the usual parsing of the ruling by academics sympathetic to China’s arguments. There were also the usual formal statements issued by the affected government agencies. And although I was not surprised to see an editorial in the Global Times (often dismissed by some Western commentators as a bit too close to the government) expressing outrage at the ruling, the broad-based attack on the WTO in that Op/Ed went much further than I expected. If the position laid out in the editorial reflects even a significant minority opinion within the government, it worries me.

Countries always complain about multilateral organizations, particularly when they are on the losing end of a dispute. Ordinarily, therefore, I’d disregard this kind of thing. But let’s have a look at some of the arguments here so I can explain why I think this is quite different:

A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China’s resource preservation and environmental protection efforts.

As an aside, I find the use of “Chinese” instead of “China” odd, although this might be, for all I know, standard usage at GT or is a product of writing by a non-native speaker of English. Of course, the government here would like nothing more than to represent the interests of ethnic Chinese everywhere, but that’s a bit of a stretch, and the specific WTO ruling at issue only applied to a policy of the PRC. Anyway, minor point.

As I wrote about last week, the environmental and preservation issues, which China used as a main argument in its defense, are certainly legitimate issues. However, since China can control production, it can also therefore contain both environmental effects and conservation. In other words, the WTO ruling does not stop China from doing those things, it just says that in doing so, the country may not discriminate in violation of WTO rules.

I’m not surprised that the author of this opinion piece doesn’t mention this reality (it basically neutralizes the entire Op/Ed), but I thought I should say so at the outset.

But let’s move on from this case to the main issue: the WTO itself and China’s relationship with that body. This area of criticism is the main subject of the article.

China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.

Some may beg to differ, but I agree with that first sentence. China has indeed, with some notable exceptions, been following most of the rules. However, things take a turn for the weird, and the nationalistic, after that sentence.

It sounds quite reasonable to assert that nations must balance the application of WTO rules and national interests. But wait. Isn’t that just another way of saying that a nation should only follow the rules it promised to abide by when it joined the organization when it suits them? That’s a serious problem. If everyone did that, the organization would be a joke. (Although I disagree, some critics believe the WTO is indeed a joke because of its enforcement system.)

The balance between giving up a bit of national sovereignty and obtaining trade benefits was a calculation that China made when it joined WTO. Such a discussion has no place with subsequent policy making, except perhaps in extremely rare instances (and WTO law usually provides sufficient exceptions for those eventualities).

Even more troubling is the final sentence of that paragraph, suggesting that WTO compliance is tantamount to seeking approval from the West. Yikes. This is a scary frame of mind.

On one level, complaints about WTO and accession promises are common with both China and other WTO member states. Protectionists in the U.S., for example, constantly rail against the WTO (and other multilateral agreements, like NAFTA) and globalization as a bad deal for the nation, for workers, etc. So some of this is par for the course, simple sour grapes in the wake of an unfavorable decision:

Admittedly, joining the WTO has boosted China’s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling.

Many would say that China has benefited more from WTO/GATT in recent years than anyone. But nothing’s perfect, and the basic complaints are understandable, just not reasonable. Of course China had to negotiate and accept certain unfavorable terms to get into WTO. That’s what a negotiation is all about. And if China’s economy had been limping along for the past decade along with a trade deficit, then this entire argument might make some sense. But really, it doesn’t help, after a decade of annual double-digit growth, to whine about the process.

But back to the scary part. Is the WTO a binding contract or isn’t it? Here’s more language suggesting the latter:

Due to unfamiliarity with the WTO system, and worries of Western media censure, China has often opted to follow WTO rules.

Wow. Are you seeing what I’m reading? The suggestion here is that China wasn’t following the rules because it had promised to do so, but because of unfamiliarity with the system and fear of a backlash!

Unfortunately, you can see where this argument leads. If those two things were the only things holding China back from WTO violations, then an increasing familiarity with the system, which China no doubt now has after a decade, should lead to more and more trade violations, which the author(s) apparently believes is perfectly acceptable.

And make no mistake, this is exactly what the Op/Ed is calling for:

China can consider putting up market barriers in response to the ruling. The intention is certainly not to disrupt the WTO system, but at the same time, there is no need for China to be a model member. Conflict and compromise are part and parcel of the global trade mechanism. Every country seeks to maximize its benefits, and self-imposed sacrifices will not bring any gratitude.

It’s simply bizarre that anyone would call for even more illegal behavior (i.e. putting up market barriers) in the face of a negative WTO ruling. But the rest of the paragraph is much more troubling. China doesn’t need to be a “model member”? As every nation is the world breaks trade laws now and again, I’m not sure who qualifies as a model member. Flouting the rules should be a rare exception, though, and not something to be proud of.

(By the way, since when is the international trading system all about disputes? That bit about “conflict and compromise” sounds vaguely Marxist. Was the author’s educational training unconsciously bleeding through there?)

Look, there certainly are self-imposed sacrifices in the world trading system. China agreed to certain things when it joined WTO, deciding at the time that the advantages outweighed those drawbacks. That decision was a huge success no matter how one looks at the math.

If China no longer thinks that WTO membership is worth the sacrifices, it can quit. The same goes for the anti-globalization crowd in the U.S. and elsewhere. But if it decides that it enjoys the benefits, then it cannot merely pick and choose what rules it feels like following.

Why does this Op/Ed bother me more than the usual protectionist blather? Because it’s different. Usually when China, or the U.S. (or any WTO member) breaks the rules, it says: 1) we didn’t think we were breaking the rules; and 2) now that WTO has said we were wrong, we will remedy the situation.

This Op/Ed not only says that China should not feel obligated to follow WTO rules, but that such activity should increase over time. Not a happy vision of the future of international trade, folks.

I really hope that this line of thinking is not shared by many in Beijing.

© Stan for China Hearsay, 2012. | Permalink | No comment | Add to del.icio.us
Post tags: rare earths, raw materials, world trade organization, WTO

I’ve been on the lookout for more reaction to last week’s WTO appellate decision on the raw materials case, which China lost (for the most part). I mentioned a few days ago with respect to rare earths that while some foreign enterprises may benefit from this WTO precedent, in the long term it may not matter since China is ultimately in control of production.

I expected to find the usual parsing of the ruling by academics sympathetic to China’s arguments. There were also the usual formal statements issued by the affected government agencies. And although I was not surprised to see an editorial in the Global Times (often dismissed by some Western commentators as a bit too close to the government) expressing outrage at the ruling, the broad-based attack on the WTO in that Op/Ed went much further than I expected. If the position laid out in the editorial reflects even a significant minority opinion within the government, it worries me.

Countries always complain about multilateral organizations, particularly when they are on the losing end of a dispute. Ordinarily, therefore, I’d disregard this kind of thing. But let’s have a look at some of the arguments here so I can explain why I think this is quite different:

A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China’s resource preservation and environmental protection efforts.

As an aside, I find the use of “Chinese” instead of “China” odd, although this might be, for all I know, standard usage at GT or is a product of writing by a non-native speaker of English. Of course, the government here would like nothing more than to represent the interests of ethnic Chinese everywhere, but that’s a bit of a stretch, and the specific WTO ruling at issue only applied to a policy of the PRC. Anyway, minor point.

As I wrote about last week, the environmental and preservation issues, which China used as a main argument in its defense, are certainly legitimate issues. However, since China can control production, it can also therefore contain both environmental effects and conservation. In other words, the WTO ruling does not stop China from doing those things, it just says that in doing so, the country may not discriminate in violation of WTO rules.

I’m not surprised that the author of this opinion piece doesn’t mention this reality (it basically neutralizes the entire Op/Ed), but I thought I should say so at the outset.

But let’s move on from this case to the main issue: the WTO itself and China’s relationship with that body. This area of criticism is the main subject of the article.

China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.

Some may beg to differ, but I agree with that first sentence. China has indeed, with some notable exceptions, been following most of the rules. However, things take a turn for the weird, and the nationalistic, after that sentence.

It sounds quite reasonable to assert that nations must balance the application of WTO rules and national interests. But wait. Isn’t that just another way of saying that a nation should only follow the rules it promised to abide by when it joined the organization when it suits them? That’s a serious problem. If everyone did that, the organization would be a joke. (Although I disagree, some critics believe the WTO is indeed a joke because of its enforcement system.)

The balance between giving up a bit of national sovereignty and obtaining trade benefits was a calculation that China made when it joined WTO. Such a discussion has no place with subsequent policy making, except perhaps in extremely rare instances (and WTO law usually provides sufficient exceptions for those eventualities).

Even more troubling is the final sentence of that paragraph, suggesting that WTO compliance is tantamount to seeking approval from the West. Yikes. This is a scary frame of mind.

On one level, complaints about WTO and accession promises are common with both China and other WTO member states. Protectionists in the U.S., for example, constantly rail against the WTO (and other multilateral agreements, like NAFTA) and globalization as a bad deal for the nation, for workers, etc. So some of this is par for the course, simple sour grapes in the wake of an unfavorable decision:

Admittedly, joining the WTO has boosted China’s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling.

Many would say that China has benefited more from WTO/GATT in recent years than anyone. But nothing’s perfect, and the basic complaints are understandable, just not reasonable. Of course China had to negotiate and accept certain unfavorable terms to get into WTO. That’s what a negotiation is all about. And if China’s economy had been limping along for the past decade along with a trade deficit, then this entire argument might make some sense. But really, it doesn’t help, after a decade of annual double-digit growth, to whine about the process.

But back to the scary part. Is the WTO a binding contract or isn’t it? Here’s more language suggesting the latter:

Due to unfamiliarity with the WTO system, and worries of Western media censure, China has often opted to follow WTO rules.

Wow. Are you seeing what I’m reading? The suggestion here is that China wasn’t following the rules because it had promised to do so, but because of unfamiliarity with the system and fear of a backlash!

Unfortunately, you can see where this argument leads. If those two things were the only things holding China back from WTO violations, then an increasing familiarity with the system, which China no doubt now has after a decade, should lead to more and more trade violations, which the author(s) apparently believes is perfectly acceptable.

And make no mistake, this is exactly what the Op/Ed is calling for:

China can consider putting up market barriers in response to the ruling. The intention is certainly not to disrupt the WTO system, but at the same time, there is no need for China to be a model member. Conflict and compromise are part and parcel of the global trade mechanism. Every country seeks to maximize its benefits, and self-imposed sacrifices will not bring any gratitude.

It’s simply bizarre that anyone would call for even more illegal behavior (i.e. putting up market barriers) in the face of a negative WTO ruling. But the rest of the paragraph is much more troubling. China doesn’t need to be a “model member”? As every nation is the world breaks trade laws now and again, I’m not sure who qualifies as a model member. Flouting the rules should be a rare exception, though, and not something to be proud of.

(By the way, since when is the international trading system all about disputes? That bit about “conflict and compromise” sounds vaguely Marxist. Was the author’s educational training unconsciously bleeding through there?)

Look, there certainly are self-imposed sacrifices in the world trading system. China agreed to certain things when it joined WTO, deciding at the time that the advantages outweighed those drawbacks. That decision was a huge success no matter how one looks at the math.

If China no longer thinks that WTO membership is worth the sacrifices, it can quit. The same goes for the anti-globalization crowd in the U.S. and elsewhere. But if it decides that it enjoys the benefits, then it cannot merely pick and choose what rules it feels like following.

Why does this Op/Ed bother me more than the usual protectionist blather? Because it’s different. Usually when China, or the U.S. (or any WTO member) breaks the rules, it says: 1) we didn’t think we were breaking the rules; and 2) now that WTO has said we were wrong, we will remedy the situation.

This Op/Ed not only says that China should not feel obligated to follow WTO rules, but that such activity should increase over time. Not a happy vision of the future of international trade, folks.

I really hope that this line of thinking is not shared by many in Beijing.

© Stan for China Hearsay, 2012. | Permalink | No comment | Add to del.icio.us
Post tags: rare earths, raw materials, world trade organization, WTO