WTO Talks Move in China’s Direction

As it became evident that the World Trade Organization ministerial conference, which occurred in Hong Kong on December 13-18, was on the brink of failure, U.S. officials called on China to take a more active role to further liberalize global commerce. U.S. Trade Representative Rob Portman, speaking in Beijing on November 14, said “Doha is more important than ever….we need more nations—particularly Pacific Rim nations including China—to engage aggressively in the negotiations in order to bring them to a successful conclusion.”

On December 8, Deputy Secretary of State Robert Zoellick, who had been the USTR when the Doha Round was launched in 2001, repeated an earlier call that China “become a responsible stakeholder.” He had first used this term in a speech to the National Committee on U.S.-China Relations in September 2005. He stated then, “All nations conduct diplomacy to promote their national interests. Responsible stakeholders go further: They recognize that the international system sustains their peaceful prosperity, so they work to sustain the system.”

Beijing, however, has tried to avoid the limelight at the WTO, even while working hard to shape the negotiations in ways that fit its interests and its view of global politics. It is often at odds with the American agenda. Chinese leaders reject Zoellick’s claim that balance-of-power politics no longer apply in the 21st century, and continue to use traditional diplomacy very effectively.

The Hong Kong ministerial managed to avoid collapse with a last minute compromise to end all agricultural export subsidies by 2013. Export subsidies are only one type of farm support payment, but they put farmers from poor countries at a disadvantage in world markets against developed countries that can afford higher payments. Details of the subsidy phase out are still to be negotiated, however.

On agricultural tariffs, developing countries are allowed to self-designate “an appropriate number of tariff lines” as special products, which they can shield from market access concessions. Members can select products based on food security, livelihood security and rural development. The new text also specifies that developing countries will have a special safeguard mechanism based on import quantity and price triggers, giving them a very flexible method for invoking domestic protection.

That developing countries are allowed to use protectionist measures to help in their economic progress is a central feature of the Doha process. According to the WTO Ministerial Declaration issued November 14, 2001, negotiations are to focus “on products of export interest to developing countries….The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments.”

The last U.S. proposal on agriculture was explicitly non-reciprocal. In a Wall Street Journal op-ed on December 12, Portman wrote that the aim was, “to give farmers in developing countries more chances to sell their output in developed countries. More advanced developing countries were asked to lower tariffs, albeit by less, while the least developed countries would make no cuts at all.”

China claims the status of a developing country, so it wants advantages not available to developed country rivals in the contest for world markets. As The People’s Daily reported at the end of the Hong Kong conference, “China proposed that special concerns of new members must be effectively addressed and strongly opposed further classification of developing members. These requests are fully justified…..with 200 million people living under the poverty line (one U.S. dollar per day) set by the World Bank, as well as 60 million handicapped persons to be taken care of, it is difficult for China, which is thus of relatively low capability of sustainable development, to give further promises in a new round of talks.”

When it comes to agricultural trade, China’s policy was set out by the 1996 White Paper “The Grain Issue in China” [1]. The paper states, “The basic principle for solving the problem of grain supply and demand in China is to rely on the domestic resources and basically achieve self-sufficiency in grain.” It further argues that “China has more than 400 million laborers in the countryside, and the development of grain production is one of the main ways of stimulating the employment of the rural work force and increasing the income of the farmers. To import too much grain would have an unfavorable impact on grain production at home as well as on the employment of the rural work force.”

During the negotiations over China’s accession to WTO membership, the United States pressed Beijing to open its domestic market to increased American farm exports. This was part of Washington’s general push to expand U.S. agricultural exports that had stalled after the 1997 world financial crisis. It had been hoped that American farmers would benefit from the more liberal trading system established by the 1994 Uruguay Round agreement. Yet, as Cathy Jabara, Division Chief of the Agriculture and Fishery Products Division at the U.S. International Trade Commission, has written, “from the mid-1990s the U.S. agricultural sector underwent a number of substantial changes that increased the competitive pressures on agricultural producers….these changes resulted in the value of U.S. agricultural imports growing substantially while the value of U. S. agricultural exports remained relatively flat” (Global Economy Journal, issue 4, 2005). Working with other agricultural exporting countries in the Cairns Group [2], the U.S. pressed for ending “trade distorting” farm policies to open new markets.

This is not how Doha has evolved. Beijing has played a major role in shifting the focus of the talks from opening developing country markets to the benefit of “rich” farmers to opening developed markets for the benefit of “poor” farmers.

The turning point was the Cancun WTO ministerial in 2003. At that meeting, the U.S. and its Cairns Group allies faced a massive coalition of developing countries opposed to its agenda. Yet, the smaller “poor” countries would have had little leverage without the diplomatic support of major states like China. Food security and rural development were the issues that united the developing world against the developed countries. Prior to the Cancun meeting, Zoellick had gone to Beijing to urge its cooperation, noting “we do have concerns that in some areas, particularly agriculture, Americans are not getting the access the Chinese promised and which the WTO mandates.” His pleas fell on deaf ears.

China’s desire to protect its markets from rivals extends well beyond agriculture. Another victory for Beijing in the WTO negotiations came between Cancun and Hong Kong. The WTO General Council on August 1, 2004, dropped government procurement from the Doha agenda. According to Zoellick, “A number of WTO Members remained concerned that a transparency agreement could lead to market access commitments.” Governments have long used procurement to support domestic industry, particularly public infrastructure, national defense and other strategic sectors. This is particularly true for Beijing, which still has a large state-owned sector and a desire to maintain central direction of the economy.

Article V of the existing WTO Government Procurement Agreement (GPA) takes into account “the development, financial and trade needs of developing countries” so that they can continue to restrict procurement to “promote the establishment or development of domestic industries.” Yet, most developing countries still refuse to sign the GPA, including China. Urging Beijing to join the GPA has been a major U.S. objective, but Beijing’s success in excluding procurement from the Doha Round has weakened U.S. pressure.

Talks aimed at expanding the legal rights of foreign investors in developing countries were also dropped from the Doha agenda in 2004, giving Beijing another win. China is the developing world’s largest recipient of direct foreign investment and does not want its sovereign authority over those flows to be weakened.

If the Doha talks ever get past agriculture, they are also supposed to address Non-Agricultural Market Access, but in “a balanced and proportionate manner” consistent with the principle of “special and differential treatment” for developing countries, which would again be advantageous for China.

The growth rate of the Chinese economy next year is expected to be close to 9 percent, according to a report from Beijing’s State Information Center (SIC) released December 19. China’s exports have been growing by over 20 percent for four consecutive years. Beijing thus finds the current world system well suited to its needs. It has easy access to affluent foreign markets like the United States, with minimal formal commitments to reciprocate. It runs a trade surplus and holds very large hard-currency reserves. Beijing prefers to make bilateral deals in Central Asia, Africa and Latin America, rather than be ensnared in multilateral “global” agreements. There is nothing in the Doha Round that it needs, and it has been successful in fending off any initiatives that would weaken its own development program.

Notes

1. https://www.china.org.cn/e-white/grainissue/index.htm. See chapter 3 in particular.

2. Cairns Group members: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand, and Uruguay.