China and the WTO

Siding with the Little Guys

Factory in Beijing
Outside a factory in northeast Beijing (Photo: Mark Ralston/South China Morning Post-AFP).

At a banquet in Beijing following China’s admission into the World Trade Organization (WTO) two years ago, several government officials asked me, incredulously, whether it would really change China. I shook my head: “No, China will change the WTO.”

I thought about this when negotiations collapsed at the WTO conference in Cancún, Mexico. Alberto Villareal, of Friends of the Earth International, declared it a “triumph of the poor countries and civil society.” Nongovernmental organization leaders echoed his views, condemning the WTO as a failure.

This breakdown has forced developed nations to ask themselves what the WTO is supposed to achieve. Eliminating trade barriers in both developed and underdeveloped countries was certainly the goal of the Doha Development Agenda, held in Qatar two years ago. This set in motion long-overdue moves toward a more equitable international trade system to help developing nations out of poverty, a response to earlier voices of protest. The WTO projected annual trade gains of US$250 billion to $620 billion, a third of which should accrue to developing nations.

Developing countries, generally speaking, maintain higher tariffs across a wide range of sectors. On the other hand, they tend to have lower and less distorting agricultural protection than industrialized countries. Under WTO conditions, China has already reduced import taxes on foreign agricultural goods. But U.S. reciprocal restrictions have not been lifted.

These agricultural subsidies became the focus of contention at Cancún, where the dominance of the G-8 group of industrialized nations in setting the rules and agendas of trade was effectively challenged for the first time by two emerging groups. The first group, identified as the G-20 (which grew to include 30 developing countries), includes India, China, Brazil, Argentina, and South Africa, and represents 51 percent of the world’s population and 63 percent of its farmers. This group accounts for more than 20 percent of world agricultural production, 26 percent of total agricultural exports, and 17 percent of all imports of agricultural products. The second group is an alliance of three poorer coalitions: the African, Caribbean, and Pacific groups of states, the African Union, and the Least Developed Countries.

Prior to the Cancún talks, India had been concerned about China’s stance. Other developing countries had been testing China’s position for months. What happened in Cancún was clear. Europe, North America, and Japan banded together as expected, while China effectively joined the developing nations. China’s Commerce Minister Lu Fuyuan led an unprecedented 60-member team, pushing proposals on agricultural subsidies. His speech received wide applause from the developing countries, which saw for the first time China standing beside them, providing enough collective political clout to effectively block the G-8 nations.

WTO Director-General Supachai Panitchpakdi, whose appointment was in itself controversial, spoke positively of China’s position. In Cancún, he encouraged, at the very least, China’s stand, which gave developing nations unprecedented critical mass for the first time. Clearly, China’s main reason for taking this stance is self-interest, not a euphoric leading of the Third World, as was the case when Zhou Enlai inspired delegates in Bandung, nearly half a century ago. Nevertheless, by coming down squarely on the side of developing nations, China has for the first time in a decade put its cards on the table. While its motives may be economic rather than political, it does throw a curveball into the calculations in Europe and North America, which have long been second-guessing where China might stand after entering the WTO.

Even when playing a politically passive role, China’s sheer economic weight and market scale give critical mass to the voice of developing countries, previously outgunned by the G-8 nations. Developing countries, dumbfounded by a decade of China’s noncommittal foreign policy, are now pleased to see it once again standing up for something.