How WTO surrendered to China leading to its downfall

The statement said, “The 13th Ministerial Conference of the World Trade Organization was scheduled …from 26 to 29 February 2024. Since consensus could not be reached among the members of different countries on different issues, this conference was extended for two more days till 2 March 2024. Despite extension, a consensus could not be reached and conference ended without conclusion regarding various important issues except one where agreement could be reached, despite intense opposition from majority member countries, was tariff moratorium on e-products.”

It further added, “There were several other issues in this conference on which there was lack of convergence, since the beginning of the conference. These issues were fisheries subsidies, permanent solutions for public stock holdings for food security investment facilitation for development agreement (IFDA), spearheaded by China. Apart from this, another important issue, which the developed countries had been pushing forward was the issue of so-called reforms in the World Trade Organization.”

China’s misuse of WTO

Mathias Döpfner explains the ‘downfall of WTO and the way China has misused it in his new book ‘Dealings with Dictators.’

“WTO members pledge to observe three basic principles when forging international trade relations: trade without discrimination, reciprocity as a basis for negotiation, and the elimination of tariffs and trade barriers. Member states must extend the same advantages to one another. Non-discrimination further stipulates that the benefits and support granted to one country must automatically be granted to all member states.”

Döpfner further explains, “However, the WTO grants special provisions to countries that define themselves as ‘developing’ — a classification for which the organisation does not provide a formal definition. Members self-declared as ‘developing,’ such as China when it joined the trade alliance, benefit from advantages including longer deadlines for implementing commitments or easier market access. The most important concession is the obligation of other WTO members to safeguard the interests of developing countries when imposing certain national or international measures — all benefits that China has clung to since its accession.”

According to Döpfner, China has repeatedly violated WTO rules for years. The list is long: forced technology transfer, massive, often undisclosed subsidies, and distortion of competition by state-owned enterprises.

In order to gain access to the Chinese market, many foreign companies have had to disclose valuable technological information. The resulting cost to international businesses runs into the billions. Meanwhile, Chinese competitors in some sectors have quickly caught up with industry innovators and become market leaders themselves, says Döpfner.

Döpfner shares China’s rapid growth in the solar energy sector as a prime example of how the WTO has kept silent, and in fact, aided China in implementing its economic strategy that is detrimental to global trade.

China, which controls more than 80 percent of the Solar panel market, was nowhere in this domain till 2005. Then it copied the German photovoltaic technology, pumped massive state subsidies into the sector, and became the leader in global solar panel production.

It is well-known by now that China strategically acquires European technology, often focusing on smaller, less visible companies. Its antitrust laws are used to curb foreign innovators by penalising them. A classic example is that of Qualcomm, which was fined around US$1 billion for seeking  so-called ‘excessive’ royalties.

China's claim to be an open market is a sham. Its regulations are unclear, making it difficult for foreign players to operate. One of the key examples is the telecommunications sector. There are no joint ventures between any Chinese and foreign companies in this sector. This is virtually closed to foreign joint ventures. Major western and non-Chinese social media platforms are banned in China.

This stands in stark contrast to the open access that Chinese companies enjoy in global markets. It is clear that Chinese indulge in unfair trade practices and the WTO has looked the other way. It failed to perform its basic task of ensuring ‘fair’ trade practices.

It remains unexplained how China, the second largest economy in the world, is enjoying the status of a ‘developing country’ in WTO. So, if Trump ignores WTO and goes for a crackdown on Chinese imports, it isn’t completely unreasonable.

However, it is clear that the future of the WTO doesn’t seem so bright. Indian policy makers have also not been too happy with its functioning in the past. The emergence of several smaller trade blocs which seem to be working more effectively than the dysfunctional multilateral institutions like WTO which are misused by China clearly indicate a growing preference for plurilateralism over multilateralism. And going ahead Indian wouldn’t be an exception to it.

Earlier Sanghnomics columns can be read here.