On the twentieth anniversary of China’s WTO accession, there has been considerable discussion of the failure of the WTO to transform China in the ways many scholars and policymakers expected. At the time of China’s accession, it was widely assumed that China’s membership in the trade body – by fueling exports, growth, and economic development – would help to foster greater political and economic liberalization within the country. Instead, however, just the opposite has occurred. Despite an extraordinary boom in China’s exports, which has in turn fueled remarkably rapid economic growth and development, after an initial period of relative opening, China has more recently gone in the opposite direction of rising authoritarianism and greater state intervention in the economy (Pearson et al., Reference Pearson, Rithmire and Tsai2021; Weiss, Reference Weiss2019).

If the conventional wisdom was wrong about the impact of the WTO on China, it has been equally wrong about the impact of China on the WTO. In contrast to prevailing expectations that China would be smoothly incorporated into global trade governance, the rise of China – and the corresponding decline in the relative power of the US – have created serious problems for the functioning of the multilateral trading system. The WTO’s core negotiation function has collapsed, as evident in the breakdown of the Doha Round and the repeated failure of subsequent negotiating efforts. Its dispute settlement and enforcement mechanism is in jeopardy amid the US blockage of Appellate Body appointments. The US has abandoned its traditional leadership role in the multilateral trading system, turning away from trade multilateralism in favor of aggressive unilateralism, arbitrarily imposing tariffs on its trading partners, and launching a trade war with China. The rules-based multilateral trading system is now in danger of collapse.

China’s rise has precipitated a crisis within the multilateral trading system. Many commentators have blamed the current crisis on the inability of the WTO to adequality address China’s model of state-sponsored capitalism (Petersmann, Reference Petersmann2019; Wu, Reference Wu2016). But that framing of the problem is, I argue, potentially misleading. The primary complaints that the US and others have about China’s trade policy – such as its use of industrial subsidies, forced technology transfer, intellectual property violations, and so forth – are not unique to China’s more heavily state-controlled economy. Instead, these are typical features of the developmental state, commonly deployed by states seeking to catch up with more advanced economies and used by most successful late developers. The more fundamental conflict thus centers on how the multilateral trading system deals with a developing country that is also an economic powerhouse.

The question of how China should be classified and treated under global trade rules has become an acute source of conflict in the trade regime. The China paradox – the fact that China is simultaneously both a major economic heavyweight as well as a developing country – has created significant challenges for global trade governance. Developing countries are afforded special status in the multilateral trading system, and allowed greater policy space for state intervention to foster economic growth and development, including “special and differential treatment” in WTO agreements. But extending such status to China has become increasingly controversial as its economic weight has grown. The US and other advanced-industrialized states fiercely object to providing special treatment to a country they view as a major economic powerhouse and competitor. This fundamental conflict over what scope China should be allowed for a developmental state has paralyzed global trade governance and led to a breakdown in rule-making. It was a central factor in the collapse of the Doha Round, and it has remained an acute and persistent source of conflict in subsequent negotiating efforts at the WTO since then (Efstathopoulos, Reference Efstathopoulos2016; Hopewell, Reference Hopewell2016; Narlikar, Reference Narlikar2020; Sinha, Reference Sinha2021; Weinhardt, Reference Weinhardt2020).

At the same time, the rise of China and other emerging powers has sharply curtailed the US’s “institutional power” (Barnett and Duvall, Reference Barnett and Duvall2005) – the ability to shape global institutions and rules to guide, steer and constrain the actions of others. The US constructed the GATT/WTO, which served as a channel for the projection of American power, and its rules have reflected US primacy. Now, however, the rise of China has significantly constrained the US’s power over the core institution and rules governing trade. The US’s ability to dominate global trade governance and write the rules of global trade has greatly diminished, leading to an erosion of American support for the multilateral trading system it once created and led.

I Power Shifts and the Global Trade Regime

Upon China’s accession to the WTO, the prevailing expectation was that China would be smoothly integrated into the US-led liberal international economic order because China has benefited from the existence of that order and has an interest in maintaining it. It was assumed not only that the multilateral trading system would continue to function effectively but also that the system would in fact be strengthened by the inclusion of China, given its growing importance in international trade and the global economy more broadly. The conventional wisdom – both at the time of China’s accession and in the ensuing years of its emergence as a major economic power – has been that China is a supporter of, and would therefore seek to maintain, the international economic order that has facilitated and enabled its rise (Cox, Reference Cox2012; Nye, Reference Nye2015; Snyder, Reference Snyder2011; Xiao, Reference Xiao, Friedman, Oskanian and Pardo2013). Many have argued that China’s objectives are fundamentally status-quo-oriented and system-supporting, and that its rise is accordingly “not threatening to the order’s basic arrangements or principles” (Brooks and Wohlforth, Reference Brooks and Wohlforth2016: 100; see also Kahler, Reference Kahler2010). In an era of global economic interdependence, the assumption that all states have an interest in maintaining the system has led many to conclude that the US and China will find ways to cooperate and jointly participate in the management of the international economic architecture, and collective action will prevail to preserve an open, liberal trading order (Cox, Reference Cox2012; Ikenberry, Reference Ikenberry2011; Nye, Reference Nye2015; Snyder, Reference Snyder2011; Xiao, Reference Xiao, Friedman, Oskanian and Pardo2013).

For many, a key factor in determining whether power shifts will result in conflict or cooperation is whether the US and other established powers adapt to the rise of China and other new powers by integrating them into existing institutions and their decision-making structures – meaning giving China and other emerging powers a seat at the table that reflects their economic weight and allowing them to assume a leadership role in global economic institutions like the WTO (Kahler, Reference Kahler2016; Paul, Reference Paul and Paul2016b; Zangl et al., Reference Zangl, Heußner, Kruck and Lanzendörfer2016). Many have argued that the future of global economic governance hinges on the willingness of the US to redistribute authority, make room for rising powers like China, and develop a system of shared leadership that accommodates their demands for greater voice and authority (Drezner, Reference Drezner2007; Ikenberry, Reference Ikenberry2015; Zakaria, Reference Zakaria2008). The liberal international economic order can be maintained, it has been argued, if rising states are welcomed and incorporated into the power structures of its constitutive institutions. Much is therefore believed to rest on the established powers’ willingness to make adjustments to accommodate rising powers: China will “actively seek to integrate into an expanded and reorganized liberal international order,” provided that the US and other Western states act to reform global institutions to make room for China (Ikenberry, Reference Ikenberry2011: 344). Incorporating China and other rising powers into multilateral institutions like the WTO has been seen as a means to lock in their support for the global economic order (Drezner, Reference Drezner2007; Zakaria, Reference Zakaria2008), while renewing and strengthening multilateralism by making those institutions more inclusive, representative, and legitimate (Vestergaard and Wade, Reference Vestergaard and Wade2015; Warwick Commission, 2008; Zoellick, Reference Zoellick2010).

Existing international relations scholarship has thus assumed that if rising powers are supporters of established governance institutions and successfully incorporated into their decision-making structures, then those institutions will continue to function smoothly and effectively (Ikenberry, Reference Ikenberry2011; Paul, Reference Paul2016a). However, in the case of the WTO, China was incorporated into the institution and subsequently became part of its core power structure. Moreover, as one of the prime beneficiaries of the liberal global trading order, which has enabled the boom in its exports that has propelled its extraordinarily rapid economic growth and development, China has an interest in maintaining the established trading order (Breslin, Reference Breslin2013; Gao, Reference Gao, Picker, Greenacre and Toohey2015; Quark, Reference Quark2013; Scott and Wilkinson, Reference Scott and Wilkinson2013). Yet, China’s rise has nonetheless proven profoundly disruptive to the WTO, leading to the breakdown of the institution’s core negotiation function. The central cause of this breakdown is an intractable conflict over how China should be treated in the multilateral trading system and what scope it should be allowed for a developmental state.

II The China Paradox

China’s rise represents a new bifurcation of economic power and development status in the trading system. Paradoxically, although China is now one of the world’s dominant economic powers, it nonetheless remains a developing country. This seeming contradiction between China’s economic might and its level of development has created significant challenges for the WTO.

As the world’s second-largest economy and its biggest trader, China has emerged as a core center of global economic activity. It is widely projected that China may soon overtake the US as the world’s largest economy. Indeed, measured at purchasing power parity (PPP) rates, China’s GDP ($27 trillion) has already surpassed the US ($23 trillion).Footnote ¹ China has replaced America as the top manufacturer and exporter, with export volumes that now vastly exceed those of the US ($2.5 trillion versus $1.7 trillion). Nearly two-thirds of countries trade more with China than the US (Leng and Rajah, Reference Leng and Rajah2019). China has become the largest market for many commodities and consumer goods, home to many of the world’s biggest corporations, and a massive source of outward investment, aid, and lending. It is also establishing itself as the dominant player and technological leader across an increasing range of industrial sectors.

Despite its emergence as an economic powerhouse, however, China continues to face significant development challenges. China’s per capita income, for example, is only 16% of that of the US (with a per capita GNI of just $10,550 compared to $64,550 in the US).Footnote ² Compared to the world’s other advanced economies, China is thus at a significantly lower level of economic development, measured in terms of average incomes. Even if China crosses the World Bank’s threshold for a “high-income country” (currently defined as a per capita GNI of $12,695) in coming years, it will still continue to lag far behind the US and other advanced economies. One of China’s key overarching goals is to ensure its continued economic development (Gao, Reference Gao, Gao, Raess and Zeng2023), in order to raise its per capita income levels and bring them closer to those in developed countries. It faces immense challenges, however, in trying to do so. These include the challenges of trying to escape the middle-income trap; fostering industrial upgrading to move up the value chain into higher-value-added activities; a rapidly aging population and demographics that are increasingly unfavorable to economic growth; extraordinarily high rates of inequality, especially between rural and urban areas; inadequate social safety nets; relatively low levels of education and human capital, resulting in a massive population of low-skilled, underemployed workers; and rising wages combined with increasing competition from lower-wage countries for low-skilled manufacturing (Rozelle and Hell, Reference Rozelle and Hell2020). The right to development is recognized by the United Nations as a universal human right,Footnote ³ and denying the Chinese population – which includes 600 million people living in poverty on less than $1900 per year (Kuo, Reference Kuo2021) – the right to continued economic development would be a profound injustice.

But given its paradoxical status as both a major economic power and a developing country, the question of how China should be treated under global trade rules has become a major source of controversy (see also Gao, Reference Gao, Gao, Raess and Zeng2023). A core principle of the WTO is that developing countries should be allowed greater scope for state intervention – including tariffs, subsidies, and other trade policy tools – to promote their economic development. This often takes the form of “special and differential treatment” (SDT) providing various flexibilities and exemptions from WTO rules (Weinhardt, Reference Weinhardt2020). There are no established criteria for determining what constitutes a “developing country” at the WTO. Instead, states are allowed to self-designate as developing countries in order to access SDT (Eagleton-Pierce, Reference Eagleton-Pierce2012). China insists that, as a developing country, it is entitled to SDT. However, for the established economic powers, making largely one-sided concessions in opening their markets without equivalent concessions from China is a non-starter. Instead, the US, EU, and others insist that China must take on greater responsibility commensurate with its role as the world’s second-largest economy – meaning undertaking greater commitments to liberalize its market and accept disciplines on its use of subsidies and other trade-distorting policies.

China’s rise has thus heightened the tension between two core principles of the multilateral trading system. The first is the principle of reciprocity – that trade negotiations should take place based on a reciprocal exchange of concessions, with participants gaining roughly equivalent benefits or, conversely, incurring roughly equal costs (Brown and Stern, Reference Brown, Stern, Narlikar, Daunton and Stern2012). Closely related to this is the notion of creating universal rules – at least for the world’s major trading states – with rights and obligations applying equally to all participants. The principle of reciprocity and universality, however, coexists somewhat uneasily with a second key principle of the trading system – preferential treatment for developing countries. The latter stems from the recognition that equal treatment is not equal for countries at different levels of development. Dating back to Alexander Hamilton’s (1790) call for the US to adopt infant industry protections to enable the expansion of its manufacturing sector in the context of British industrial supremacy, there has been skepticism about free trade as a path to development and the capacity of developing countries to catch-up with more advanced economies without interventionist trade policy measures such as tariffs and subsidies.

SDT is based on the principle that developing countries should not be expected to engage in a reciprocal exchange of concessions with more advanced economies, or assume the same obligations (Hannah and Scott, Reference Hannah, Ryan and Scott2017). Instead, rather than universal rules applying equally to all countries, countries at lower levels of development should be granted greater flexibility (or “policy space”) to protect their domestic markets and promote the development of their exports, firms, and industries, as well as given preferential and non-reciprocal access for their exports to developed country markets (Narlikar, Reference Narlikar2020; Singh, Reference Singh2017). SDT is seen as an important means for the WTO to address the needs of developing countries and aid in fostering global development. While the notion of providing additional policy space to developing countries has never been uncontroversial (Hannah et al., Reference Hannah, Ryan and Scott2017), with the rise of China as a major economic power that is also a developing country, it has now emerged as a central source of conflict within the trading system.

The conflict rests on whether the rules should be universal and concessions reciprocal, or China should have access to SDT in recognition of its status as a developing country, along with continued scope for state intervention to promote its economic development. At the heart of this conflict are competing interests, as well as ideas of fairness. From the perspective of the US and other advanced-industrialized states, fairness means a level playing field undistorted by state intervention, with universal rules applying equally to all and the reciprocal exchange of concessions in multilateral trade negotiations. But from China’s perspective, what those states define as a level playing field is, in fact, one that serves to perpetuate their industrial and economic supremacy.

For China, it is considered vital to maintain the policy space needed to engage effectively in industrial policy and foster industrial upgrading, in order to continue its process of economic development and avoid becoming stuck in the middle-income trap. China’s development model rests on an active state engaged in supporting the competitiveness of national firms and industries and helping them to move up the value chain into higher value-added activities thereby boosting growth, incomes, and the quality of employment (Lin and Chang, Reference Lin and Chang2009; Stiglitz et al., Reference Stiglitz, Esteban and Lin2013). An interventionist state remains central to its strategy for continued development, as evident in its Made in China 2025 industrial policy program (Ban and Blyth, Reference Ban and Blyth2013; Hopewell, Reference Hopewell2018). China’s emphasis on state intervention is backed by the experience of other successful late developers (Chang, Reference Chang2002).

Indeed, even the US and other advanced-industrialized states relied on state intervention and employed a range of protectionist policies during their own process of economic development (Kupchan, Reference Kupchan2014). This included using tariffs and subsidies to foster the growth of infant industries and sequence their integration into the global economy; aggressively adopting technology from more advanced countries; and controlling the inflow of foreign investment to direct it toward the goals of national development (Chang, Reference Chang2002; Gallagher, Reference Gallagher2008; Wade, Reference Wade2003). Moreover, even from a position of global economic dominance, the US has continued to deviate from the principles of free trade and make use of protectionism when it serves its interests (Block and Keller, Reference Block and Keller2011; Schrank and Whitford, Reference Schrank and Whitford2009; Weiss, Reference Weiss2014). From China’s perspective, in seeking to preserve the scope for state intervention to promote its industrial development, it is simply seeking to follow in the footsteps of the US and other advanced-industrialized states, while those countries are seeking to “kick away the ladder” by preventing China from using many of the same policy tools that were vital to their own growth and development (Chang, Reference Chang2002; Stiglitz and Greenwald, Reference Stiglitz and Greenwald2014).

However, while China remains a developing country and continues to face significant development challenges, it is now an extremely large and immensely powerful force in the global economy and is seen by the US and many other advanced economies as a major competitive threat. The justification for allowing developing countries greater policy space is to enable them to catch up with more advanced economies. But opponents argue that China has gone beyond “catching up” to crushing its established competitors in many industries. Rail equipment – which has been prioritized as a key strategic sector under China’s Made in China 2025 program – provides an illustration. After years of receiving subsidized financing to undercut its competitors and facilitate its global expansion, China’s state-owned CRRC now dominates the global rail industry, with annual revenues of $34 billion, dwarfing its rivals, Germany’s Siemens (with $10 billion in annual revenue), France’s Alstom ($9 billion), Canada’s Bombardier ($8 billion), and the US’s GE ($4 billion) (Hopewell, Reference Hopewell2021a). Seeking to better compete with CRRC, Siemens, and Alstom attempted to merge in 2018–19, but the merger was blocked by EU competition authorities, while both Bombardier and GE have been forced to sell off their rail businesses. Access to cheap, subsidized loans similarly facilitated the global expansion of Huawei, which is now the world’s largest telecoms equipment company and the global leader in 5G technology (Hopewell, Reference Hopewell2021a).

This clash between US demands for reciprocity and universal rules, on the one hand, and China’s demands for special and differential treatment as a developing country, on the other, was at the center of the Doha Round breakdown, and it has remained an enduring issue of conflict severely impeding the WTO’s negotiation function. But this dispute goes beyond SDT, narrowly defined. It is also more broadly about what commitments China should be expected to assume, how much space China should be allowed for state intervention to promote continued economic growth and development, and whether China should be forced to accept new disciplines or restrictions on its use of industrial policy more broadly.

III Breakdown of the WTO’s Negotiation Function

The dispute over how China should be treated under global trade rules has played a central role in the breakdown of the WTO’s negotiating function, starting with the collapse of the Doha Round. Extensive SDT for developing countries was a key promise of the Doha “Development” Round. The Ministerial Declaration launching the Round contained references to SDT across virtually all areas of the negotiations. These stated commitments to SDT could have proven little more than empty promises. However, over the course of the round, developing country coalitions, such as the G20 and G33, led by Brazil and India – and backed by the weight of China – transformed developing countries into a far more effective negotiating force than ever before (Hopewell, Reference Hopewell2016; Narlikar, Reference Narlikar2010). Consequently, developing countries were able to secure substantial SDT in the draft texts of the proposed agreement, including weaker tariff-reduction formulas in agriculture and manufactured goods, as well as substantial flexibilities.

By the latter stages of the round, the prospect of extending such extensive SDT to China in particular had become untenable for the US, provoking protests from Congress as well as business and farm lobby groups. From the US’s perspective, it would be making substantial, meaningful concessions in opening its market – including significantly cutting its tariffs and its agricultural subsidies – but see little from China in return (US, 2008). As one US negotiator put it, “we’d be giving everything and getting nothing.”Footnote ⁴ The US had become unwilling to extend that kind of less-than-full-reciprocity to a country that it now sees as a major economic competitor and an emerging hegemonic rival.

The US sought to improve the deal by securing additional liberalization commitments from China in manufacturing and agriculture. It pressed China to participate in “sectorals” (aggressive tariff reduction in specific industrial sectors) in two key areas of US competitiveness – chemicals and industrial machinery. The US also pressed China to agree not to use its special product exemptions in agriculture against specific products of export interest to the US – namely, cotton, wheat, and corn – in order to guarantee the US market access gains in those areas. The US also sought a restrictive operationalization of the special safeguard mechanism (SSM) in agriculture in order to ensure that its market access gains were not eroded.

China proved far less malleable, however, than the US anticipated. From Beijing’s perspective, the US’s demands were a violation of the implicit bargain struck during China’s accession, where in exchange for the deep concessions China was forced to make in opening its market, it was promised that relatively little new liberalization would be required of it during the Doha Round. From China’s point of view, the US was now trying to renege on its earlier promises. China also saw the US’s demands as a violation of the development mandate of the Round, and the promise that the final agreement would be reached on the basis of “less than full reciprocity” in favor of developing countries. China argued that the US was now unfairly seeking to change the terms of the deal and singling it out for further tariff cuts when its tariffs were already far lower than most other developing counties. As a result, China refused to agree to the sectorals sought by the US in chemicals and industrial machinery, which are key sectors China is trying to foster as part of its industrial upgrading strategy. If it opened those sectors, relinquishing its infant industry protections, Chinese policymakers feared they would be undercut by foreign competition, impeding its continued economic development. Similarly, on agriculture, China is eager to ensure that it retains its ability to use trade policy tools to protect vulnerable (and potentially politically volatile) parts of its population – such as poor, peasant farmers – leading China to refuse to concede to US demands on agriculture, instead insisting on a maximal definition of the SSM and that it retain full use of its special product exemptions.

The Doha negotiations broke down in 2008, ostensibly due to conflict over the design of the SSM. Yet the deeper cause of the Doha breakdown was this fundamental conflict over the US’s desire to “rebalance” the deal by securing greater access for its exports to the Chinese market. China stood firm, refusing to give in to the US and rebuffing its demands for additional market opening. In doing so, China showed that had sufficient power to refuse to concede to US demands that it viewed as fundamentally against its own interests. The result has been a stalemate. The Doha Round was officially declared at an impasse in 2011, and the 2015 Nairobi Ministerial Declaration acknowledged that most members now consider the round dead (Scott and Wilkinson, Reference Scott and Wilkinson2020).

The US argues that it is no longer appropriate to treat China and other large emerging economies like other developing countries. To quote a former US Trade Representative, “the size and growth trajectories of the emerging economies combined with the fact that some are now leading producers and exporters in key sectors … set them apart” (Schwab, Reference Schwab2011). According to the President’s 2011 Trade Agenda:

The US insists that the WTO differentiate among developing countries in determining access to SDT, arguing that many emerging economies have “graduated” from developing country status and need to engage in a more reciprocal exchange of concessions. US officials and industry representatives make it clear that their primary concern is China, whose economic might and perceived geopolitical threat vastly overshadow that of other large emerging economies. The US has refused to accept new obligations unless greater liberalization is required of China and the other large emerging economies (US, 2011). Yet China staunchly maintains that, as a developing country, it is entitled to SDT and has refused to make concessions to appease the US. With the US and China at loggerheads, WTO negotiations have been beset by repeated deadlock.

Since the Doha collapse, the focus of the WTO has shifted from seeking to conclude a broad-based, comprehensive trade round to trying to craft narrower, targeted agreements on specific trade issues, such as agricultural subsidies and fisheries subsidies. Yet the same conflict over how China and other emerging economies should be classified and treated under multilateral trade rules has persisted and continues to impede efforts to construct new and expanded WTO rules (Hopewell, Reference Hopewell2019).

This conflict has only grown deeper and more entrenched, with the US stepping up its criticism of allowing China and other large emerging economies to access SDT. Under the Trump administration, the issue became one of the US’s chief complaints about the WTO. As a White House memorandum put it, “the WTO continues to rest on an outdated dichotomy between developed and developing countries that has allowed some WTO members to gain unfair advantages in the international trade arena.”Footnote ⁶ Indeed, this alleged fundamental “unfairness” of the WTO became a key justification for the US to turn away from trade multilateralism and embrace aggressive unilateralism (in blatant violation of WTO rules) under President Trump.

The Trump administration used various carrots and sticks to pressure several countries – including Brazil, South Korea, Taiwan, and Singapore – to agree to forgo SDT in future WTO agreements. Brazil, for example, agreed to relinquish its claim to SDT in exchange for the US supporting its bid to join the OECD, which Brasilia views as essential for attracting foreign investment (Inside U.S. Trade, 2019). The US also unilaterally revoked access to SDT for many emerging economies under its own national trade laws. In 2020, for instance, the US removed 19 emerging economies, including India, Brazil, and South Africa, from its list of developing countries eligible for SDT under US countervailing duty (CVD) law, which allows certain developing countries to be exempt from countervailing duties if the subsidy level or import volume is below a certain threshold (Fortnam, Reference Fortnam2020).

Insisting that WTO agreements should be “reciprocal and mutually advantageous,” the US submitted a proposal in 2019 calling for an end to the practice of allowing states to “self-designate” as developing countries to claim SDT, arguing that this is outdated and “has severely damaged the negotiating arm of the WTO by making every negotiation a negotiation about setting high standards for a few, and allowing vast flexibilities for the many.”Footnote ⁷ The US proposed that the WTO adopt criteria for SDT, whereby a country would be ineligible for SDT if it is: (1) a member of the OECD, a club of primarily advanced-industrialized states, or in the process of accession; (2) a member of the G20; (3) considered a “high income” country by the World Bank; or (4) accounts for more than 0.5% of world merchandise trade.Footnote ⁸ These criteria would exclude China from accessing SDT in future WTO negotiations. The US proposal also left open the possibility that additional criteria could be established to exclude countries from SDT in sector-specific negotiations.

The US has enlisted the support of other established powers, such as the EU and Japan. Collectively, as part of the Trilateral Initiative, they have made SDT one of their primary objectives for WTO reform, arguing that: “Overly broad classifications of development, combined with self-designation of development status, inhibits the WTO’s ability to negotiate new, trade-expanding agreements and undermines their effectiveness.”Footnote ⁹ Together, these states have called on “advanced WTO Members claiming developing country status to undertake full commitments in ongoing and future WTO negotiations.”Footnote ¹⁰ The EU has also echoed the US in calling for criteria for SDT and explicitly singled out China as a country that should be excluded from access to SDT.Footnote ¹¹

For its part, however, China has refused to relinquish its claim to SDT, characterizing SDT as a “fundamental” and “unconditional right” of developing countries that is essential for ensuring “equity and fairness” in the WTO system.Footnote ¹² In the words of China’s Ambassador to the WTO, “we will never give up the institutional right of special and differential treatment granted to developing countries.”Footnote ¹³ It has described any attempt to “water down” SDT or differentiate between developing countries as “a certain recipe for intractable deadlock in negotiations.”Footnote ¹⁴

This conflict over how much policy space China should be allowed under WTO rules has moved beyond SDT to calls from the US and other advanced-industrialized states for reforms of the WTO to reign in China’s interventionist state and constrain its scope for developmentalist industrial policy. Under the Trilateral Initiative, the US, EU, and Japan have pushed to create stronger WTO disciplines on industrial subsidies, state-owned enterprises, and forced technology transfer – all of which are targeted at China. The established powers have proposed changes to WTO rules to expand the list of prohibited industrial subsidies and establish rules to address subsidies that cause overcapacity. The Trilateral Group has also proposed shifting the burden of proof by requiring states to demonstrate that their subsidy programs are not distorting trade or contributing to overcapacity, as well as advocating more stringent notification standards for industrial subsidies. They have also called for an expanded definition of “public body,” maintaining that the Appellate Body’s excessively narrow interpretation of the term has undermined the effectiveness of WTO subsidy rules vis-à-vis China. Not surprisingly, China has rejected the Trilateral Group’s proposals, which are specifically intended to restrict the very policies Beijing sees as essential to continuing its process of economic development and industrial upgrading. For China, the reforms proposed by the Trilateral Group are evidence that the established powers are trying to block its rise by denying it the tools necessary to catch up with the world’s most advanced economies. Once again, this fundamental dispute over how China should be treated in the trade regime and what scope it should be allowed for a developmental state has resulted in an impasse.

IV The Decline of the American Hegemon’s Institutional Power

In international relations theory, it is rising powers that are expected to be the revisionist states – those seeking to change the rules of the system to better reflect their own interests – while the hegemon seeks to defend the existing order and maintain the status quo (Gilpin, Reference Gilpin1981; Kirshner, Reference Kirshner and Blyth2009). Yet within the trading system, China is not a revisionist actor, in the sense of an actor seeking to alter the established rules of the game. On the contrary, China is broadly satisfied with the existing system of global trade rules, which has enabled its remarkable economic rise by providing access to global markets, while still allowing considerable scope for its interventionist state policies to facilitate economic development, industrial upgrading, and catch-up (Hopewell, Reference Hopewell2016). China thus has no desire to change the rules – in fact, just the opposite, it is eager to maintain the status quo. Instead, if anything, it is the US that has become the “revisionist” state in the global trade regime, dissatisfied with the inability of the WTO system and its existing rules to adequately address China’s trading practices. The US has therefore sought to alter the rules to eliminate China’s ability to claim special status as a developing country as well as to better discipline its heavy industrial subsidies and other interventionist trade policies, which the US fears are being used to erode its economic dominance. But the US has been unable to force China to capitulate to its demands or accept its desired new rules.

Until now, a distinct and defining aspect of American hegemony has been its dominance of international institutions. Emerging from the Second World War with an overwhelming preponderance of power, the US used its primacy to construct a new and unprecedented institutional order that reflected and reinforced its primacy. The WTO – as “a constitution for the global economy” (Director-General Ruggiero, cited in McMichael, Reference McMichael2004: 166) – was a core pillar of this American hegemonic order, which some have called the “American imperium” (Katzenstein, Reference Katzenstein2005) or the US’s “informal empire” (Panitch and Gindin, Reference Panitch and Gindin2012; Wood, Reference Wood2005).

Rule-making power is a crucial aspect of hegemony: a hegemon is powerful enough to maintain the rules of the system and “play the dominant role in constructing new rules” (Keohane and Nye, Reference Keohane and Nye2011: 37). For over half a century, the American hegemon dominated the GATT/WTO; it had sufficient power to play the dominant role in writing and enforcing the rules of the global trading system, including driving forward the ongoing process of constructing new rules to govern international commerce. But its rule-making power has now been impeded by China, an emerging challenger that has been unwilling to defer to American hegemony in global trade governance. The US and China are engaged in a struggle over the rules of the game – and specifically whether, and how, the rules will apply to China. China has been able to persistently block the US from achieving its objectives in global trade governance. Despite intense pressure, the US has been unable to force China to undertake greater commitments to liberalize its market in the Doha Round, subsequent post-Doha negotiations, or ongoing WTO reform efforts.

To quote Christopher Layne (Reference Layne2018: 110), “in international politics, who rules makes the rules.” In short, China’s rise has profoundly disrupted the US’s ability to make the rules. Even if the US maintains a preponderance of power in the international system, its capacity to direct and steer global trade governance – which until now has been a defining feature of its hegemony – has been severely diminished. In other words, if the US once “ran the system” as John Ikenberry (Reference Ikenberry2015) puts it, that has now been profoundly disrupted: China has proven a significant counterbalance to US power that has substantially weakened American dominance within the WTO.

V Conclusion

It has frequently been assumed that if rising powers are supporters of established governance institutions like the WTO and successfully incorporated into their decision-making structures, then those institutions will continue to function smoothly and effectively. Yet analysis of China’s impact on global trade governance refutes this view. As the world’s largest exporter, China is a beneficiary and supporter of the established trading order. In addition, China has been integrated into the WTO and incorporated into its core power structure, given a seat at the table that reflects its economic weight. The result, however, has been a direct confrontation between the US and China over the rules of global trade that has paralyzed the institution. The clash between the trading system’s two dominant powers has produced a repeated stalemate, which has effectively brought the core negotiating function of the WTO to a halt. This was evident in the breakdown of the Doha Round, and the same fundamental conflict between the US and China has persisted since the Doha collapse and continues to impede the construction of global trade rules, as well as efforts to reform the institution.

This conflict centers on how China should be treated in the trade regime. Under the rules of the WTO, developing countries are generally allowed greater scope for state intervention to foster economic growth and development. Yet while China remains a developing country, it is also now a major economic power. This paradoxical nature of China’s position in the global trading system has created serious challenges for global trade governance. China’s rise represents a new and unprecedented bifurcation of economic power and development status. Despite its considerable aggregate economic might, in terms of the average standard of living of its population, a vast gulf still separates China from the US and other advanced-industrialized states. From China’s perspective, protecting its policy space – including its ability to use interventionist trade measures such as subsidies – is essential to continuing its process of economic development. China’s interest in maintaining its scope for continued development has, however, thrown it into direct conflict with the US and other established economic powers. China maintains that, as a developing country, it should be entitled to special and differential treatment, but many states are unwilling to extend such treatment to a major economic competitor and have instead demanded universal rules and reciprocal concessions from China. Moreover, the US and other established powers have also sought to explicitly constrain China’s scope to use interventionist trade policies through the creation of stricter WTO rules on industrial subsidies and other trade-distorting measures.

For most of its history, the American hegemon played the dominant role in constructing and enforcing the rules of the trading system. But the US’s institutional power – its power over the governing institutions of the trading system and ability to set the rules of global trade – has been severely weakened by contemporary power shifts. US efforts to construct new trade rules in the Doha Round failed due to the rise of China and other emerging powers, who refused to defer to US power or capitulate to its demands. China has similarly blocked US attempts to constrain its policy space through the Trilateral Initiative’s proposed reforms. American efforts to use the multilateral trading system to discipline China’s trading practices have thus been unsuccessful, while the Appellate Body has increasingly interpreted WTO rules in ways that the US perceives as running counter to its interests. Having lost its previous dominance over the core institution and rules governing global trade, the US has grown increasingly dissatisfied with the workings of the multilateral trading system.

This is an important part of the explanation for the US to turn away from the multilateral trading system, its growing dissatisfaction with the system, and its flagrant rule-breaking. This momentous shift cannot simply be explained by the idiosyncrasies of the Trump administration or the rise of populist anti-trade sentiment that both fueled, and was fueled by, his presidency (cf. Kahler, Reference Kahler and Singh2020; Scott and Wilkinson, Reference Scott and Wilkinson2020). These trends both began before and have continued after the Trump administration (Hopewell, Reference Hopewell2021b). Explanations centered on domestic politics alone are inadequate to explain the US’s changing orientation towards the multilateral trading system. It is also a response to changes in the distribution of power in the international system. The US is responding not only to a decline in its structural power – that is, its relative economic might vis-à-vis a rising China – but also to a significant decline in its institutional power – its ability to dominate global trade governance and write the rules of global trade.

I Introduction

When China joined the WTO in 2001, it declared that the recently launched Doha Development Round negotiations need to put the interests of developing countries centre stage. The Chinese representative speaking at the country’s first full participation of the General Council Meeting of WTO on 19 December 2001, Mr. Long Yongtu, called for WTO negotiations to facilitate ‘the establishment of a new international economic order which is fair, just and reasonable’, which would entail ‘a balance of interests between developed countries and developing countries, especially conducive to the development of developing countries’ (Mfa.gov.cn, 2001). In its 2019 communication on the Chinese reform proposal for the WTO, China reiterated that the ‘[d]evelopment issue is at the centre of WTO work’ (WTO, 2019a, para. 2.4.1). More than twenty years after its accession to the WTO, it is time to (re)assess the role that China has played on development. Has China indeed positioned itself as a development partner in WTO negotiations that sides with the Global South vis-à-vis the Global North, or has its own economic transformation diminished the scope for a shared agenda on development?

Academics that touch upon China’s role in the WTO vis-à-vis the Global South are so far divided in their assessment: those that emphasise ideological South-South ties tend to portray China’s role as a development partner (Bishop and Zhang, Reference Bishop and Zhang2020; Muzaka and Bishop, Reference Muzaka and Bishop2015; Vieira, Reference Muzaka and Bishop2012), while scholars that highlight political economy dynamics either see mixed or even competing interests vis-à-vis other developing countries (Hopewell, Reference Hopewell2021; Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, pp. 268–69). This chapter starts with a brief discussion of these conflicting perspectives on China’s role vis-à-vis the Global South, followed by an examination of China’s negotiating behaviour in the WTO. These patterns in China’s negotiation positions are then compared and contrasted with perceptions of China’s role by other WTO members.

The chapter reveals that while China seeks to align itself politically with the development agenda of the Global South in its bargaining behaviour in Trade Negotiating Committees, perceptions of its role in the WTO are mixed. As the chapter argues, China’s political intention to support a broader development agenda is increasingly undermined by the way in which its larger economic size leads to competition with other developing countries. In particular, China’s distinct economic size increasingly puts it in an ambiguous position when joining other developing country members in their demands to strengthen Special and Differential Treatment (S&D).Footnote ¹ The specific conflict lines that arise reflect in part the increasing heterogeneity of the Global South. Three main patterns emerge: First, developing countries that are non-emerging economically are more likely to see China as a competitor for S&D, as compared to other emerging economies or Least Developed Countries (LDCs). Second, developing countries that share the defensive trade policy orientation of the S&D agenda are more likely to perceive China as a development partner as compared to those with a more liberal orientation. Here, conflict lines vary across negotiation issues. Third, the role China plays vis-à-vis the Global South is shaped by the larger context of their specific trade and investment relationship. China thus plays an increasingly contradictory role in the WTO, acting as a development partner for some and as a competitor for other developing countries – dependent on the negotiating issues at stake.

This chapter makes use of the following types of primary sources. First, it relies on official documentation of the WTO’s Trade Negotiations Committee (2001–2019) to assess the negotiation behaviour of China. Second, to reconstruct perceptions of China’s role, the chapter draws on a sample of 33 interviewsFootnote ² and a survey with 22 officials conducted in Geneva with country representatives at WTO missions, WTO officials, and other trade experts.

II China and the Global South in the WTO: An Overview of the Debate

The existing literature on China’s role in the WTO is primarily interested in its participation in global trade governance, as well as the extent to which it challenges or supports the WTO’s liberal trade order. Questions about China’s relations with the Global South do not take centre stage. The most direct engagement with China’s role vis-à-vis the Global South is part of the literature that analyses bargaining coalitions at the WTO (Hopewell, Reference Hopewell2017; Narlikar, Reference Narlikar2010).

Some scholars emphasise that China has tended to side with developing country coalitions because of its growing self-identification with the so-called Global South. In particular, its shared identity as part of the Global South (Nel, Reference Nel2010) or the ‘power South’ (Acharya, Reference Acharya2014, p. 654) leads to ‘pro-Southern’ negotiating behaviour (Muzaka and Bishop, Reference Muzaka and Bishop2015; Vieira, Reference Muzaka and Bishop2012). The decision in the July 2008 mini-ministerial to side with India rather than the US is, for instance, seen as an expression of South-South solidarity ‘when this has required sacrificing a measure of China’s national interests, to support the cause of this developing country coalition’ (Chin, Reference Chin, Narlikar and Vickers2009, p. 143). Johnson and Urpeleinan (Reference Johnson and Urpelainen2020) find that developing countries – including China – exhibit surprising unity at the WTO, an assessment they base on the statistical analysis of 3.600 paragraphs of negotiation-related text on trade and environmental policy.

Southern unity in bargaining coalitions does not necessarily indicate altruistic motives. Political initiatives in favour of developing countries, and Least Developed Countries in particular, are seen to reflect the country’s intention to build soft power by projecting itself as a responsible and benign developing country (Jain, Reference Jain2014, p. 190). A number of authors mention China’s support for LDCs in the WTO (Bhattacharya and Misha, Reference Bhattacharya, Misha and Luolin2015; Jain, Reference Jain2014), as well as statements of support for the LDCs, the group of African, Caribbean and Pacific countries and the African Group (Jain, Reference Jain2014, p. 189). China has also put forward four proposals designed to protect and promote the interest of developing countries in WTO dispute settlement (Liu, Reference Liu2014, p. 127). At the same time, political considerations at times make it difficult for China to demand better market access in developing rather than developed countries, even if economic benefits are involved (Gao, Reference Gao and Deere-Birkbeck2011, p. 166).

Yet, other scholars offer a more cautious assessment of China’s role as a partner of developing countries in WTO negotiations – regardless of the motives. While they acknowledge ideological South-South ties, they claim that China’s economic interests as a major exporter and importer increasingly tend to converge with those of developed countries (Bishop and Zhang, Reference Bishop and Zhang2020, p. 7; Lim and Wang, Reference Lim and Wang2010, p. 1314). This explains why China has not proactively promoted the interests of developing countries in the bargaining coalitions it joined (Lawrence, Reference Lawrence, Eichengreen, Wyplosz and Park2008, pp. 152–153) and remains a reluctant leader in the WTO (Bishop and Zhang, Reference Bishop and Zhang2020). As noted by Vickers, ‘China’s supportive, yet backseat, role in Southern coalitions partly reflects the fact that Beijing actually shared an interest with the US and the EU in seeking greater access to large developing country markets – including Brazil and India – for its manufactured exports’ (Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, pp. 268–269). With regard to the G-20 coalition of developing countries, China, for instance, took a backseat to Brazil and India which exerted much stronger leadership (Lim and Wang, Reference Lim and Wang2010, p. 1316). In other cases, China did not even join developing country coalitions. While China endorsed many of the positions of the NAMA-11 coalition, which includes India and Brazil, it did not join the group to champion its concerns (Vickers, Reference Vickers, Narlikar, Daunton and Stern2014, p. 267). Tu (Reference Tu, Zeng and Liang2013, p. 175) similarly concludes that even if China repeatedly claims that development should be at the heart of the Doha round, it is seen as ‘not … very active in advocating special and differential treatment’ (Tu, Reference Tu, Zeng and Liang2013, p. 175).

More recently, some scholars argue that China even acts as a competitor to the Global South, given its economic interest has become too far apart from those of the majority of (small) developing countries. Hopewell (Reference Hopewell2022) prominently claims that in the case of agricultural negotiations, China’s insistence on maintaining high levels of domestic support is harmful to other developing countries that seek access to agricultural markets. What matters here is China’s tremendous economic growth, which allowed it to become the world’s leading provider of agricultural subsidies – estimated at $212 billion in 2016 (Footnote Ibid., p. 11). Weinhardt (Reference Weinhardt2020) also finds that, inadvertently, China’s contested claims to maintain its developing country status has undermined the principle of special and differential treatment that grants exemptions and flexibilities to developing countries.

There is, however, also a growing recognition of the ambiguous position that China finds itself in between developed and developing countries. China stands out among developing country members of the WTO because of its enormous market size, continuously high growth rates and its role in driving global growth. Despite its tremendous growth trajectory, however, developmental challenges continue to exist, especially in rural China. As a result, Bishop and Zhang’s (Reference Bishop and Zhang2020, p. 7) claim that China is caught between its roles as a developing country and a country in the transformation to a ‘developed’ one. This explains why Chinese policymakers still adhere to ‘a discourse of developmental unity’ (Bishop and Zhang, Reference Bishop and Zhang2020, p. 7) – even if it pursues ‘selfish’ interests that increasingly cut across North-South lines (Gao, Reference Gao, Toohey, Picker and Greenacre2015, p. 92). More generally, China’s emphasis on its developing country identity is not only an expression of historically grown South-South solidarity, but also considered as important to help forge and maintain relations with the Global South that forms ‘the political basis of China’s international support’ (Pu, Reference Pu2019, p. 46). These more recent assessments suggest that China’s role vis-à-vis the Global South is unlikely to easily fit the binary categories of development partner or competitor. What is missing, however, is a systematic assessment that goes beyond specific negotiating issues and contrasts China’s negotiation behaviour with perceptions of others.

III China in WTO Negotiations: Eager to Position Itself as a Development Partner

China itself has been eager to position itself as a development partner in WTO negotiations. This becomes apparent both in its political support for the development orientation of the WTO’s ongoing negotiating round as well as in the pattern of its submissions to the WTO’s Trade Negotiation Committees.

(ii) Chinese Submissions to the WTO’s Trade Negotiating Committee: Siding with Developing Countries

China’s preference to portray itself as a champion of developing country concerns in the WTO also becomes apparent when analysing the pattern in its submissions to the WTO’s Trade Negotiating Committees (TNCs).Footnote ⁹ China prefers submissions with other developing countries, rather than with developed countries. In case of conflicting economic interests, China tends to opt for unilateral submission.

The analysis of China’s negotiating behaviour in the WTO’s TNCs reveals that if China makes joint submissions, it has a clear preference for submissions together with other developing countries (see Figure 9.1). Out of 36 submissions that China made together with other WTO members, none was made with a group comprised primarily of developed countries or comprised of developed countries only. On the contrary, 30 were submitted with other developing countries only or with groups comprising developing countries as the majority. China only rarely made submissions as part of ‘mixed’ country groups (6 submissions).

Figure 9.1 Patterns of coalition partners in Chinese submissions in the WTO Trade Negotiating Committee and its sub-groups (2001–2019)

This pattern holds across all ten TNCs (see Table 9.1), and includes committees in which China’s economic interests are arguably closer to those of the developed rather than the developing world. This can be for instance seen in the market access negotiations, an area in which its offensive interests in improved market access for non-agricultural goods tend to converge with those of developed country members. However, China only made one related submission to the market access committee as part of the Asia-Pacific Economic Cooperation coalition that includes the United States, Canada, and Japan, which reflected a shared interest in better market access for IT products. This contrasts with the behavior of other emerging economies that more frequently joined developed country members for joint submissions regarding market access for non-agricultural goods.Footnote ¹⁰

Table 9.1 Overview of China’s joint submissions in the Trade Negotiation Committee’s sub-groups (2001–2019)

	Composition of WTO members in joint submissions including China
	Solely developing countries	Majority developing countries	Mixed (45–55%)	Majority developed countries	Solely developed countries
WTO rules	4	2	0	0	0
Services	3	0	1	0	0
Development	0	0	0	0	0
TRIPS	0	0	0	0	0
General	4	3	0	0	0
Dispute settlement	0	0	0	0	0
Trade facilitation	4	0	2	0	0
Market access	1	1	1	0	0
Agriculture	7	0	2	0	0
Trade and environment	1	0	0	0	0

What is notable, however, is that a considerable number of Chinese submissions to the WTO’S TNC did not include other WTO members: 34% of its submissions were unilateral, while 64% were submitted together with other countries. This suggests that China prefers to side with developing countries whenever it is able to find partners on given negotiating issues but does not shy away from defending its own interests unilaterally if necessary.

IV Perceptions of China’s Role vis-à-vis the Global South: Mixed Assessments

Despite China’s attempts to position itself as a development partner, its role vis-à-vis the Global South has become increasingly ambiguous in the past decade of WTO negotiations. Both its market size and its state-led economy set it apart from other developing country members of the WTO. In terms of its Gross Domestic Product, China has overtaken the United States as the largest economy worldwide in 2017, measured in terms of purchasing power parity. While China’s National Bureau of Statistics has been quick to point out that this does not change that China remains ‘the world’s largest developing country’ (SCMP, 2020), its rapidly increasing share in world trade puts the country in a central position in the world economy. In particular, with regard to trade in goods, China has become a leading exporter (16.1% of world exports) and the third largest importer (13.1% of world imports).Footnote ¹¹ In contrast to many other developing countries that primarily trade raw materials, 43% of China’s global goods trade is in the more valuable category of high-value-added machines and electrical goods.Footnote ¹² While this does not imply that China does not face development challenges anymore, the tremendous economic transformation of the country in a relatively short period of time sets it apart from other developing country members in the WTO.

While China clearly seeks to position itself as a development partner, its increasingly divergent economic position from other developing country members leads to mixed perceptions of its role. Trade representatives acknowledge both China’s desire to position itself as a partner of the developing world, as well as the way in which it may pursue self-interested economic motives. One representative claimed, for instance, that China is ‘devoting its attention to the development aspect of the WTO and ensuring that there is special differential treatment for developing countries in the negotiating functions of the WTO’ and that ‘they are very serious about being seen as a leader among developing countries in WTO’.Footnote ¹³ There was, however, also the perception that China defends its own economic interests against the Global South. For instance, regarding the Government Procurement Agreement (GPA), China was allegedly reluctant to grant preferences negotiated as part of GPA to India as a non-participating country.Footnote ¹⁴ Another trade official complained in an interview that ‘China has put its hand where its mouth is’.Footnote ¹⁵ In particular, regarding negotiations on agriculture, where China has become a major subsidiser itself, developing country officials increasingly perceive conflicts of interest.Footnote ¹⁶

The ambiguity that exists about China’s role vis-à-vis the Global South also comes across in the result of the survey conducted among trade officials from developed and developing countries based in Geneva. When asked whether trade officials feel that China’s negotiating positions in the WTO overlap with the interests of developing countries, the average answer is 4.5 on a scale from 1 to 7, suggesting a slightly positive answer (see Figure 9.2). Yet, variation is rather strong, with answers ranging from 2 to 7. A similar pattern emerges when interviewees were asked whether they feel that Chinese negotiating positions during the Doha round were informed by historical roles that reaffirm the importance of South-South cooperation (see Figure 9.3), with answers varying from 1 to 7, and the average answer being 4.8. In these surveys, developed country representatives tended to have a slightly more favourable view of China’s role as a development partner than developing country representatives.

Figure 9.2 To what extent do you feel that China’s negotiating positions in the WTO overlap with the interests of developing countries?

Figure 9.3 To what extent do you feel that Chinese negotiating positions during the Doha round were informed by historical roles that reaffirm the importance of South-South cooperation?

While the sample size (n = 22) is too small to be representative, these findings suggest that there is no uniform perception of China’s role vis-à-vis the Global South in the WTO. Some perceive China to act in pro-Southern ways, while others remain sceptical regarding the extent to which Chinese interests overlap with those of other countries in the Global South.

Notably, developed country representatives tended to share these mixed assessments of China’s role vis-à-vis the Global South. The semi-structured interviews and the survey revealed that, on the one hand, they tended to perceive China as more clearly in line with the agenda of developing countries. On the other hand, however, some of these officials acknowledged that regarding particular negotiation outcomes, China also defends its own economic interests against the Global South. Examples included China’s tough negotiations with South Korea that were crucial for reaching an agreement on the Expansion of the Information Technology Agreement,Footnote ¹⁷ or China’s alleged reluctance to grant preferences negotiated as part of the Government Procurement Agreement to India as a non-participating country.Footnote ¹⁸ The following section further unpacks the patterns that emerge amongst those countries that China seeks to partner with on development issues – the Global South.

V Unpacking Mixed Perceptions across the Global South: The Emergence of New Conflict Lines Linked to Special and Differential Treatment

Why do some developing countries perceive China to act as a development partner, while others do not? The explanatory patterns that emerge are linked to the political agenda of S&D for developing countries in the WTO. Three main patterns emerge: First, whether or not China is seen as a partner or competitor in S&D is shaped in part by the political status that developing countries have. In particular, non-emerging developing countries tend to see China as a competitor for these special rights. Conversely, LDCs and other emerging developing country members are more likely to continue to see China as a development partner. Second, however, issue-specific conflict lines are influenced by the extent to which other developing country members share the defensive trade policy orientation of the S&D agenda. Third, political South-South ties – and variation therein – further shape perceptions of China’s role vis-à-vis developing countries within the WTO.

VI Conclusion

Since joining the WTO in 2001, China has become a major economic player in global politics. This chapter has revisited its role vis-à-vis the Global South in multilateral trade policymaking. The scholarly literature tends to portray China either as a development partner, given ideological South-South ties, or as a competitor whose economic interests as a major trading nation increasingly overlap with those of developed country members. This chapter shows that as China transforms economically but continues to seek political alliances with the Global South, its role cuts across that of either a development partner or a competitor.

The chapter has shown that China plays an ambiguous role in the WTO. On the one hand, China continues to lend its support to the broad development agenda of the WTO’s ongoing Doha Development Round. Similarly, China’s submissions to the WTO’s Trade Negotiation Committee are primarily together with other developing country members. On the other hand, the analysis of perceptions of other WTO members reveals that China’s attempts to portray itself as a development partner do not always succeed. First, there is no uniform assessment of China’s position towards the Global South. Trade representatives disagreed substantively on the importance of South-South ties and the overlap between China’s economic interests and those of other developing country members. Second, China’s political claims to the developing country status are increasingly seen as a source of competition, especially by other non-emerging developing country members. In this regard, China’s role vis-à-vis the Global South is similar to those of other emerging economies such as India that are reluctant to graduate from the developing country status. Third, developing countries that share the defensive orientation of the S&D agenda on a given negotiating issue are more likely to see China as a development partner than those with a more offensive, or liberal, policy orientation. This point illustrates that what counts as ‘development-oriented’ is in part shaped by ideological beliefs about what depths of liberalisation commitments are conducive for economic development. Lastly, China’s role is interpreted against the context of China’s role as a development partner outside of the WTO, which also differs across countries and regions.

Taken together these findings illustrate how the paradoxical situation of China (Hopewell, Reference Hopewell2022, this volume) – as a major economic player that self-identifies as a developing country – leads to ambiguity in its role vis-à-vis the Global South. This finding contrast with one-sided assessments as either ‘pro-Southern’ or detrimental for other developing countries, and contradict, for instance, Johnson and Urpelainen’s (Reference Johnson and Urpelainen2020, p. 468) conclusion that ‘major developing countries do not seem to be abandoning their less prosperous Southern brethren’, and in turn ‘receiv[e] Southern backing’. Considering the broader context of WTO negotiations, moreover, helps us to contextualise findings about China’s role as a competitor for developing countries in specific issues such as agricultural negotiations (Hopewell, Reference Hopewell2021): While China’s rise does not translate into a strengthened development agenda across the board, old North-South dividing lines do not necessarily disappear. Instead, coalitions within the Global South become more fragmented and complex. The relation between China and the Global South thus develops in parallel to the broader conflict over the future of the WTO (Hoekman et al. Reference Hoekman, Tu, Wolfe, Gao, Raess and Zeng2023 this volume; Hopewell Reference Hopewell2020; Muzaka and Bishop, Reference Muzaka and Bishop2015).

I Introduction

As the guardian of multilateral trade liberalization, the World Trade Organization (WTO) is currently confronted with the deepest crisis since its initial inception. Among other challenges, the rising economic clout of China and the incompatibilities between its model of state capitalism and the rules-based neoliberal economic order have raised important questions about the degree to which China’s participation in the WTO may have compromised the effectiveness and credibility of the multilateral trade institution.

Coincidentally, we have also witnessed the growing influence of emerging economies, including India, Brazil, Russia, and South Africa in WTO negotiations in the past two decades. Different from the interactions and policy coordination among the Quad countries consisting of the United States (US), the European Union (EU), Canada, and Japan in past negotiations taking place within the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT), the BRICS have presented a unique model of “coopetition” featuring both the pursuit of a common development agenda and competing national interests.

What role have China and other BRICS countries played in more recent WTO negotiations? This paper addresses this question through an analysis of the behavior of the BRICS in WTO negotiations on e-commerce and fisheries subsidies. By examining the evolving positions and tactics of this group of countries during various stages of the negotiation process, we illuminate areas where the BRICS have been able to proactively cooperate with one another through coalition building and areas in which they have failed to effectively negotiate as a group due to disparate domestic interests and the absence of a common vision on how (and where) to move forward. The chapter further assesses the extent to which such differences have influenced negotiation outcomes across the key issue areas under consideration.

We choose to focus on the e-commerce and fisheries subsidies negotiations for a couple of reasons. First, e-commerce and fisheries subsidies are two important ongoing WTO negotiations that have important implications for the future legitimacy and credibility of the WTO. Second, these two negotiations represent two different sets of challenges presented to the WTO in the future – making new trade rules to regulate today’s global trade practices in the case of e-commerce and developing viable solutions to the challenges of addressing environmental and developmental concerns within the WTO framework in the case of fisheries subsidies. Third, with the rise of China in the past two decades, its trade interests have diverged from that of the majority of the developing countries and in particular those of India and Brazil in important ways.

In the e-commerce negotiations, seeing itself as a potential leader in this new trade issue area, China seeks a driving seat to write new rules to reflect its dominant position in global e-commerce and to safeguard its commercial interests and ability to effectively compete with the US and other developed countries. In contrast, India and Brazil have been less keen to play a proactive role in the e-commerce negotiations as e-commerce is not a top priority in the making of their trade policy. In the fisheries subsidies negotiations, China chose to take a low-profile and ambiguous position. Today China has emerged as the world’s largest fisheries subsidizer. Therefore, pressuring China to make deep cuts in its fisheries subsidies, especially those supporting capacity-enhancing activities, in the negotiation is the only way to ensure a meaningful and impactful WTO fisheries subsidies agreement. Although China, India, and Brazil all support the flexibility of special and differential treatment (SDT), the reality is that India and Brazil stand a better chance of receiving the SDT flexibilities they need to keep some policy space in this issue area when China is no longer viewed as a helpful addition to their coalition. Hence a comparison of these two cases will shed light on the effect of the semi-coordination among the BRICS countries on multilateral trade negotiations, WTO reform, and the BRICS’ future cooperation in global governance.

Our findings suggest that while North-South conflicts still present a major impediment to WTO negotiations, the nuanced and differentiated interests among the BRICS have further complicated the picture, contributing to the impasses in the WTO negotiations and to the current crisis faced by the WTO in general.Footnote ¹ Despite its shared identity and common interests with the latter in promoting the development needs of the South, China’s specific negotiation interests frequently departed from those of the emerging economies and the majority of the smaller developing countries. More importantly, since the Uruguay round negotiations, the developing countries coalitions led by India and Brazil have increasingly treated China as a liability which impeded them from receiving SDT flexibilities, and this is especially the case as China has continued to insist that it is still a developing country.

Especially, in e-commerce negotiations, China’s much more developed domestic e-commerce market means that it is much less concerned than BRICS countries such as India and South Africa about the potential of e-commerce negotiations to undermine the goals of the Doha Development Agenda (DDA). However, while Beijing is more willing to support negotiations designed to facilitate data flows compared to some other BRICs and the least-developing countries (LDCs), its stronger concerns about the need to maintain sovereignty and domestic regulatory control also means that its preferences are far apart from those of the major players such as the US and the EU over issues such as data localization, privacy and personal data, and transfer of source code. China’s different negotiation stance vis-à-vis both developed countries and emerging powers, along with the heterogeneity of the preferences among the BRICS countries, thus undercut the possibility that the BRICs could form an effective coalition to assert and advance their interests in the negotiation process.

In the fisheries subsidies negotiations, China continues to seek greater flexibilities granted to developing countries even though it is the largest fishing nation, the largest exporter of fish, and the largest subsidizer. Both India and Brazil’s latest proposals have explicitly provided metrics to exclude China from receiving the preferences associated with SDT. The split of interests among both developed countries and developing countries, in addition to the North-South divide, thus complicated and significantly delayed the negotiation process. The new reality seems to be that being the largest subsidizer, China’s effort to defend the SDT has de facto weakened the likelihood for other developing countries to receive it. Excluding China from the developing countries’ coalition has become a necessity for developing countries to achieve their desired negotiation outcome.

The rest of the chapter is organized as follows. Section II presents an overview of how the differences in the negotiation preferences and positions between China and the rest of the BRICs have shaped the processes of the WTO e-commerce negotiations. Section III turns to a detailed discussion of the fisheries subsidies negotiations. The chapter concludes by comparing the dynamics of the two sets of negotiations and discussing the implications of our findings for the future of global trade governance.

II WTO E-Commerce Negotiations

The drawn-out negotiations over e-commerce highlight sharp conflicts between China and other major powers such as the US and the EU. The substantially different negotiation preferences and approaches among the BRICS further compounded these differences and undermined the group’s ability to pursue a common negotiation agenda.

III WTO Fisheries Subsidies Negotiations

This section turns to an analysis of the fisheries subsidies negotiations, showing how this set of negotiations demonstrates a somewhat similar, though not entirely identical, pattern to that observed for e-commerce negotiations.

Sustainable and equitable fisheries are essential for alleviating poverty, providing nutrition, and protecting marine biodiversity. The WTO is in the final stages of negotiating an agreement to prohibit harmful fisheries subsidies, which is the United Nations Sustainable Development Goal (SDG) 14.6 (UN, 2015). The prolonged fisheries subsidies negotiation represents a top priority on the WTO agenda today and is crucial for keeping the WTO relevant as the global trade governance organization. As stated by the WTO Director General (DG) Okonjo-Iweala (Reference Okonjo-Iweala2021), “I think everyone agrees with me that if there is anything that would demonstrate that the WTO is back and capable of having positive results, it is a good outcome early enough this year to these fisheries subsidies negotiations.” However, despite their presumed importance, the negotiations have missed a few scheduled deadlines, from June 2020 to July 2021, due to the logjam of several contentious issues that have set key negotiation parties apart.

Subsidies refer to financial transfers from public entities to benefit private actors (WTO SCM agreement). The WTO provides general disciplines on categorizing and addressing trade-distorting subsidies through the Agreement on Subsidies and Countervailing Measures (SCM agreement). Fisheries subsidies are broadly classified as beneficial (e.g., management), ambiguous (e.g., infrastructure), and “harmful” (e.g., fuel and vessels subsidies). Fisheries subsidies have expanded significantly in recent decades among many WTO member states. Public entities around the world have provided $35.4 billion in fisheries subsidies in 2018. Among them, capacity-enhancing subsidies constituted 52.7 percent of total subsidies, at over $22.2 billion (Sumaila et al., Reference Umaila2019), followed by beneficial and ambiguous subsidies, each accounting for about 29.9 percent and 7.1 percent of total subsidies, respectively (Wong, Reference Wong2021). The effects of harmful fisheries subsidies are well-publicized and widely agreed upon. When subsidies are tied either directly or indirectly to capacity enhancement, they will cause overcapacity (i.e., the existence of more fishing power than needed to take the maximum sustainable yield), which will further lead to overfishing with growing economic waste and declining fish stocks.

Harmful fisheries subsidies have put developing countries in a more disadvantaged position in global trade. The top-five subsidizing nations, China, the EU, the US, South Korea, and Japan, provide four times as much subsidies as all the low-income countries combined (Sumaila et al., Reference Umaila2019). Countries high on the UN Human Development Index (HDI) provide roughly 87 percent of total subsidies and China, the EU, and the US are the top three on the list. Among the low HDI countries, Indonesia, Vietnam, Morocco, Senegal, and India are the main subsidizers. Fisheries subsidies have further caused inequity between large- and small-scale fisheries (SSF) within nations. SSF constitutes 90 percent of global fisheries employment yet only received 16 percent of total fisheries subsidies (Schuhbauer et al., Reference Schrank, Schuhbauer, Ratana Chuenpagdee, Cheung and Rashid Sumaila2020). Concluding the fisheries subsidies negotiations will therefore offer a unique opportunity for the WTO to effectively address development and environmental challenges through trade liberalization.

IV Conclusion

This chapter examines the role of China, along with the rest of the BRICS countries, in the WTO e-commerce and fisheries subsidies negotiations. The analysis suggests that despite China’s self-proclaimed developing country status, the fact that it is now one of the most competitive players in global e-commerce and the largest subsidizer in the fisheries sector has made it increasingly difficult for China to continue to align its negotiation position with other BRICS countries. Over time, the dynamics of WTO negotiations have been transformed. The North-South divide under the GATT, which later evolved into a three-tiered structure of developed, emerging powers and the rest of the developing countries during the early years of the Doha negotiations, has given away to a more complex matrix of interest-based and issue-specific coalition building which is no longer bound by the developed/developing division in today’s WTO negotiations. Due to its sheer size and unique domestic political and economic system, China has increasingly been singled out in the negotiations due to the difficulties for it to align with either developed or developing countries.

In the e-commerce negotiations, the refusal by India and South Africa to join the talks has constrained the ability of the BRICS to form an effective coalition. While Brazil and Russia were more favorably disposed toward e-commerce negotiations, their specific concerns and approaches were also sufficiently different from those of China which placed greater emphasis on maintaining domestic regulatory sovereignty and control, further limiting the group’s ability to act as a coherent bloc to advance the member countries’ otherwise shared interests in promoting the development agenda. In the fisheries subsidies negotiation, China’s insistence on being treated as a developing country and enjoying SDT despite it is the largest subsidizer has thwarted the willingness of the developed countries to provide flexibilities and policy spaces to developing countries as a whole. As a response, India and Brazil, together with a group of smaller developing countries, have strategically adopted negotiation positions to quietly distance themselves from China.

November 2021 marks the 20th anniversary of the BRIC acronym coined by Jim O’Neill of Goldman Sachs to capture the economic potential of the four emerging economies and the important implications of their rapid economic growth for global governance (O’Neill, Reference O’Neill2021). Recently, Goldman Sachs released another report making the recommendation of separating China from the broader Emerging Markets indexes due to China’s overweight and what the authors refer to as “idiosyncratic factors” like geopolitics (Lewis, Reference Lewis2021). While this recommendation pertains mostly to portfolio investment, it can inspire us to revisit the role played by China in the Doha negotiations. The two cases presented above clearly suggest that it is outdated and no longer accurately reflects today’s reality if we continue to focus on emerging powers as a separate grouping in the multilateral trade negotiations, as we did a decade ago (Liang, Reference Liang, Zeng and Liang2013; Vickers, Reference Vickers, Narlikar, Daunton and Stern2012). Rather, it might be more illuminating and helpful if we exclude China from the emerging power grouping and make it a separate category.

In recent years, scholars have analyzed the impact of China’s WTO participation on the crisis the WTO is facing today (Wu, Reference Wu2016). Some (e.g., Hopewell, Reference Hopewell2019) have also identified the US-China conflict as the key obstacle to forging agreement in the WTO agricultural subsidies negotiations (Hopewell, Reference Hopewell2019). Our paper sheds light along the same lines by emphasizing China’s isolated position as an emerging trend taking place in the two ongoing negotiations detailed above. Regardless of China’s preferences, it is a shared understanding among the rest of the BRICS countries and the larger group of developing countries that it is no longer in their best interests to keep China in their coalition. China indeed might do more harm than good in helping to defend its fundamental interests of securing the SDT guarantee within the WTO framework. Additionally, it seems that developed and developing countries are reaching a consensus that the size of China’s subsidies and other protectionist trade policies will hurt developing countries’ interests more than ever. Taken together, these dynamics have contributed to reinforcing concerns that the rise of China may have exacerbated the difficulty of multilateral economic cooperation and deepened the crisis faced by the WTO regime, raising questions about the degree to which the multilateral trading system centered on the WTO can effectively accommodate the rise of a large non-market economy such as China.

I Introduction

Since China joined the World Trade Organization (WTO) in 2001, its role in the WTO’s dispute settlement system (DSS) has developed significantly over the past twenty years. As widely observed, this period has witnessed China becoming an increasingly experienced and influential player, that is from a ‘rule taker’ (2001–2005) to a ‘rule shaker’ (2006–2009) and then a ‘rule maker’ since 2010 (Gao, Reference Gao and Deere-Birkbeck2011; Mercurio and Tyagi, Reference Mercurio, Tyagi, Herrmann and Terhechte2012; Toohey, Reference Toohey2011). This observation is supported not only by China’s active engagement in pushing for the appointment of new Appellate Body (AB) members so as to restore a functional DSS and its agreement to and use of the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) to maintain a temporary appellate review mechanism. This observation is also supported by the number of disputes in which China has been involved. By 1 October 2021, China had been a complainant in 22 cases, a respondent in 47 cases and a third party in 190 cases, making it one of the most active players in the DSS: see Figure 11.1. While many factors may be employed to explain China’s behaviour and evolving practices (Ji and Huang, Reference Ji and Huang2010; Wang and Zhou, Reference Wang and Zhou.2022), a major one has to do with its growing capacity and expertise in WTO law and dispute settlement (Shaffer and Gao, Reference Shaffer and Gao2018).

Figure 11.1 Top users of the WTO dispute settlement system

This chapter is not intended to examine all the disputes in which China has participated. Instead, it focuses on select disputes involving China as a respondent, with an aim to critically analyse the impact of the DSS on China’s economic reforms and policymaking. This analysis necessarily involves a consideration of the overall pattern of development in China’s strategies and behaviours in these disputes and more specifically, the factors behind China’s approaches to implementing unfavourable WTO rulings. Section II discusses the effectiveness of the DSS, arguing that the system has been largely effective in leading not only to changes to a range of WTO-illegal policy instruments but also gradual and systematic adjustments of certain complex regulatory regimes in China. Despite China’s impressive record of implementing WTO rulings, its approaches have revealed three challenges for the DSS in relation to temporary breaches, repetitive breaches and post-compliance regulatory developments, which are discussed in Section III. These challenges, however, concern systemic constraints or loopholes in the system which can be utilised by all WTO Members. Section IV extends beyond the DSS to consider the broader issues relating to overwhelming criticisms about China’s failure to adhere to the spirit of WTO law and the WTO’s failure to push China to change its state-led economic model and transition to a full-fledged market economy. Section V sets forth some concluding remarks.

II Effectiveness

The efficacy of WTO rules would be significantly weakened without an effective mechanism that enforces the rules. The DSS, in serving this key function, has long been praised as ‘the jewel in the crown’ of the multilateral trading system. Since commencing its operation in 1995, the DSS has managed over 600 disputes, which demonstrates WTO Members’ continued belief in the utility of the system. Despite the United States (US)’s criticisms of the AB, it sees the value of the DSS in resolving trade disputes (USTR, 2021) and continues to resort to the system for that purpose.

When it comes to the implementation of WTO rulings, there is evidence to show that the DSS is largely effective in inducing compliance in most cases (Davey, Reference Davey2014; WTO, 2017a). Yet, the impact of the system on China remains controversial. The US, under the Trump administration, vehemently criticised the WTO for being ‘incapable of fundamentally changing [China’s] trade regime that broadly conflicts with the fundamental underpinnings of the WTO system’ (USTR, 2020a, p. 14). This perception of the WTO’s ineffectiveness was a key driver of the US’s recourse to unilateral actions that provoked the US-China trade war. The Biden administration has maintained this position. In a recent speech, United States Trade Representative (USTR) Katherine Tai criticised ‘China’s lack of adherence to global trading rules’ and failure to make ‘meaningful reforms to address the concerns’ about ‘its state-centered economic system’, and reiterated the need for the US to use all tools at its disposal including by creating new ones ‘to defend American economic interests from harmful policies and practices’ (CSIS, 2021). These concerns are shared by other major WTO Members particularly the European Union (EU) (European Commission, 2021).

There is little doubt that the current WTO rules and the DSS have their limits, some of which will be considered in Section III. However, these limits have largely resulted from the way in which the rules and the DSS are designed by WTO Members and hence can only be addressed through their collective efforts via negotiations. In other words, many perceived problems in the multilateral trading system that may have caused its lack of effectiveness are not specific to China. Thus, an assessment of the effect of the DSS on China must be undertaken objectively in light of these systemic constraints or loopholes that can be utilised by all Members.

Against this backdrop, I briefly discuss China’s compliance with adverse WTO rulings and the impact of the DSS on China’s economic reform and policymaking. As noted above, China has been a respondent in 47 disputes involving a total of 34 matters. Among the 34 cases, 27 have been completed either through a mutually agreed solution (15 cases) or China’s implementation of WTO rulings (12 cases). As regards the other seven cases, six remain in the litigation process and one has lapsed as the panel’s work was suspended for more than 12 months under Article 12.12 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (WTO, 2018a). One may also divide these disputes into non-trade-remedy cases and trade remedy cases. The latter can be brought by the countries subject to antidumping (AD) and/or countervailing duties (CVD) only. Among the 27 completed cases, the US was the sole or joint complainant in 16 out of the 20 non-trade-remedy cases. Table 11.1 provides a summary of the completed cases, the major measures and goods/industries involved, and the status of compliance. For trade remedy cases (highlighted in grey), it further shows the period between the imposition and the termination of the duties.

This section considers the non-trade-remedy cases while the trade remedy cases will be examined in Section III as they create some unique challenges for enforcement. As discussed in detail elsewhere, in all the completed non-trade-remedy cases China maintained an impressive record of compliance, more favourable than those of the other key players in the system (Zhou, Reference Zhou and Qu2019). This record is strong evidence of the effective influence of the DSS on China, which has caused not only changes to specific policy instruments but also systematic adjustments of China’s complex regulatory regime in an incremental manner. More specifically, these disputes pushed China to repeal or modify laws, regulations and other policy instruments which led to the application of:

1. (1) discriminatory internal taxes including VAT rebates in the integrated circuits (IC) industry (WTO, 2005), VAT exemptions in the aircraft industry (Zhou, Reference Zhou and Qu2019, p. 35) and internal charges in the auto parts sector (WTO, 2009, p. 21);

2. (2) subsidies in a variety of forms at both national and local levels which were primarily aimed at fostering China’s industrial policies in select sectors such as wind towers (USTR, 2012, p. 51), auto and auto parts, textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware and building materials (USTR, 2015, 2016; WTO, 2016a) or more broadly at promoting exports of famous brands of Chinese merchandise in all sectors (USTR, 2009) or attracting foreign investment (WTO, 2008a);

3. (3) export duties and restrictions on a range of raw materials and rare earths (WTO, 2013a 2015, p. 18);

4. (4) restrictions on the right to import reading materials, audio-visual products, sound recordings and films for theatrical release in the cultural industries and restrictions on the supply of distribution services, that is the right of foreign-invested enterprises to engage in the wholesaling and retailing, of these cultural goods (WTO, 2012a);

5. (5) certain restrictions on market access for and discriminatory requirements on foreign services suppliers in the financial information services sector (WTO, 2008b) and the electronic payment services sector (WTO, 2013b); and

6. (6) inadequate protection of intellectual property rights (IPRs) including copyright and related rights for goods containing prohibited content and trademarks in relation to goods confiscated by Chinese customs due to IPR infringements (WTO, 2010).

It is true that China’s compliance in these disputes was confined to strictly addressing the findings of inconsistencies by WTO tribunals. Nevertheless, this issue concerns the limitation of WTO rulings in general that has been used by other Members. China’s approaches to implementation have shown its growing sophistication in the DSS with full comprehension of the limits of WTO rulings and how to implement the rulings in a narrow but adequate fashion.

However, even such ‘narrow’ implementation has required some significant changes to China’s economic policies, showing the broad and systemic impact that the DSS can have on domestic policymaking. The most notable example is the China – Publications and Audiovisual Products case, which was also the most difficult to implement due to the sensitivity of the cultural sector in China and the need for coordinated efforts by multiple departments or ministries of the State Council to revise a range of jointly published measures. China abolished or revised all WTO-inconsistent measures (other than two measures applied to films) to lift restrictions on the right to import the cultural goods involved. This was a significant step toward the dismantling of China’s state monopoly of trading rights in the cultural sector which was long regarded by the Chinese government as being essential for maintaining a rigorous censorship system to safeguard fundamental social values and political interests (Shi and Chen, Reference Shi and Chen2011). While China was not required to reduce the rigour of its censorship, the WTO rulings effectively pushed China to disentangle trading rights from censorship so that all entities are entitled to engage in the importation of the relevant goods. Although China failed to liberalise the right to import films apparently due to the resistance of the state entities involved (Zhang and Li, Reference Zhang and Li2014, p. 159), it entered into a memorandum of understanding with the US granting more market access to US films, a step toward further liberalisation of the market (WTO, 2012b). Notably, this was China’s only major failure of compliance in all the completed disputes.

Another example concerns China’s application of export duties and restrictions on raw materials and rare earths. While these measures were initially imposed to drive up world prices of these goods and hence increase China’s earnings from export sales (Lardy, Reference Lardy2002, p. 47), at the time of the dispute they had become part of China’s policy prescriptions to safeguard the security of exhaustible natural resources and sustainable development (Information Office of the State Council, 2012). Thus, this dispute raised some fundamental and sensitive issues relating to states’ economic sovereignty over natural resources and prerogative rights to prevent the depletion of these resources and protect the environment. Moreover, while export duties are generally allowed under the WTO and are widely used by Members for various regulatory goals, China is obliged to eliminate all such taxes and charges (subject to limited exceptions) under Section 11.3 of the Protocol on the Accession of China (Accession Protocol). Moreover, China has no recourse to the general exceptions to WTO rules (such as protection of exhaustible natural resources and the environment) to justify a deviation from this obligation, as the AB held in the two relevant disputes. Despite the strategic importance of China’s regulatory goals and the (unreasonable) rigidity of the WTO rulings, China removed all the WTO-illegal measures.

The final example concerns the disputes in which China took a tremendous effort to eliminate a wide range of subsidies applied across many industries at both national and local levels, as noted above. China’s implementation speaks against the widespread concerns about the potential difficulties of challenging Chinese subsidies due to a lack of transparency. On the contrary, most Chinese industrial subsidies take the typical forms contemplated in the WTO Agreement on Subsidies and Countervailing Measures (ASCM), and it is possible for WTO Members to use the existing rules and the DSS to push China to remove or reduce these subsidies that harm their interests (Zhou and Fang, Reference Zhou2021). In addition, one must consider the numerous AD and CVD actions against Chinese exports, which are frequently used to address the Chinese government’s intervention in the market including through subsidies (Nedumpara and Zhou, Reference Nedumpara and Zhou2018). Here, while there is a longstanding and ongoing debate about the AB’s ‘authority-based’ test for determining whether a granting entity constitutes a ‘public body’, this test did not prevent investigating authorities from finding Chinese state banks, state-owned enterprises (SOEs) and state-invested enterprises (SIEs) as public bodies (Appellate Body Report, 2011, 2019). In addition, China’s WTO-plus obligations under Section 15(b) of the Accession Protocol provide wide latitude for authorities to apply countervailing measures to address the negative effects of Chinese subsidies (Zhou and Fang, Reference Zhou2021).

The above analysis is not to suggest that China’s decisions to settle some of the disputes or implement unfavourable WTO rulings were detrimental to its own interest. In all the disputes, China’s strategy was driven by a mix of factors including consideration of reputational cost and legal capacity and resources vis-à-vis the feasibility and complexity of litigation and compliance (Ji and Huang, Reference Ji and Huang2010; Yang, Reference Yang2015). More importantly, it also involved careful assessments of the economic and political impact of implementation, particularly whether the termination of the contested measures served China’s economic and strategic goals. For instance, the removal of the discriminatory VAT rebates in the IC industry, the subsidies to manufacturers of wind power equipment and the discriminatory internal charges in the auto parts sector was consistent with China’s reform strategies and industrial policies and had insignificant impacts on the domestic industries involved (ICTSD, 2011; Ngangjoh-Hodu and Zhang, Reference Ngangjoh-Hodu and Zhang2016; Zhou, Reference Zhou and Qu2019, pp. 49–50). The liberalisation of trading rights and distribution services in the cultural sector was consistent with China’s progressive liberalisation of the sector and its effort to liberalise trading rights more generally and did not undermine its censorship regime. The elimination of the export taxes and restrictions on raw materials and rare earths was aligned with China’s industry reform strategies (Wang, Reference Wang2018) and did not prevent China from pursuing conservation and environmental goals. Accordingly, one may argue that at the core of China’s approaches to WTO compliance has been the use of the DSS as an external lever to facilitate domestic economic reforms while at the same time, limiting the impacts of the WTO rulings on its pursuit of chosen policy objectives. This approach will remain essential for discussions of China’s engagement in the DSS including responses to adverse rulings in future disputes.

III Challenges

Despite China’s record of implementing WTO rulings, its approaches and subsequent regulatory activities have revealed some systemic issues in the DSS. Below, I consider three major challenges and explain why they are not China-specific: (1) temporary breaches, (2) repetitive breaches and (3) post-compliance developments. The issue of temporary breaches is mainly associated with the lengthy process of WTO litigation, which provides room for a defaulting Member to use the process to buy time for WTO-illegal measures. The lack of retrospective remedies under the DSS further incentivises such practices (Wu, Reference Wu2017). The other two issues are an extension of temporary breaches also based on the abuse of the dispute settlement process. However, they involve some additional features. Repetitive breaches involve the application of the same policy instruments or practices which were found to be WTO-inconsistent in past disputes. Repetitive breaches are possible because WTO rulings in a dispute are generally constrained by the facts, claims and evidence in that particular case and are ‘not binding precedents for other disputes between the same parties on other matters or different parties on the same matter, even though the same questions of WTO law might arise’ (WTO, 2003). The issue of post-compliance developments concerns the introduction of new measures in similar or different forms as those adjudicated in past disputes for existing or new policy objectives. This issue not only shows the limitation of the DSS in general but also raises the question of how WTO Members balance the pursuit of domestic policy objectives with the observance of WTO rules more broadly.

All the litigated non-trade-remedy disputes, displayed in Table 11.1, took three or more years between the commencement of consultations and implementation. The China – Publications and Audiovisual Products case took five years due to the sensitivity and complexity of compliance as discussed above. Given the clear breach of China’s WTO accession commitments, one may argue that China deliberately chose to maintain the restrictions on trading rights in the cultural sector and used the dispute settlement process to buy time for its sectoral reforms.

Another example is the China – Auto Parts case which took around 3.5 years. This period of temporary breach provided extra time for China’s auto parts industry to further restructure and grow under the protection of discriminatory internal charges. When China terminated the measures, its auto industry had already become the world’s second-largest in terms of production volume (Tang, Reference Tang2009). This case can also be used to illustrate the issue of post-compliance developments. In light of its upgraded industrial policies for technological advancement and global competitiveness, China has resorted to other measures to advance the auto industry, with the new energy vehicles (NEVs) sector being the most notable example. To promote innovation and the production capability of NEVs, China has been providing massive subsidies and other supportive measures at both national and local levels (Fang and Zhou, Reference Fang and Zhou2022). While the DSS was effective in pushing China to remove a wide range of subsidies including in the auto industry (see Section II), China’s compliance in a specific dispute does not preclude it from introducing similar measures afterwards. Given China’s approaches to compliance, it is likely to continue to prioritise domestic policy objectives over the observance of WTO rules, and when necessary, pursue the objectives through WTO-incompatible means.

The China – Raw Materials and China – Rare Earths disputes offer an illustration of repetitive breaches. In both disputes, what China was required to change or remove were temporary instruments, that is export tariffs and quotas, which are typically updated and issued on an annual basis. The involvement of such temporary measures not only made it easy for China to implement but also provided room for China to reintroduce these measures. In 2016, merely one year after China’s implementation, the US and the EU challenged the same measures at the WTO as China maintained export restrictions on a range of raw materials that were not covered in the previous disputes. Although China quickly removed these measures (USTR, 2017, p. 31, 2018a, p. 35), it would be possible for a Member to use the proceedings to prolong the life of WTO-unlawful measures in such circumstances. The high similarity of the past and new measures and the products involved not only makes repetitive breaches more problematic than post-compliance developments but also raises the question of how the DSS may be reformed to simplify the adjudication process and facilitate a quicker resolution of disputes of this kind.

The above challenges are not China-specific and apply to all WTO Members. There are many examples. A well-known one is the US’s practice of ‘zeroing’ in AD actions despite a series of WTO rulings against it (Prusa and Rubini, Reference Prusa and Rubini2013). Another is the protracted WTO proceedings concerning the US’s and the EU’s subsidisation of their own national champions in the aviation sector (Crivelli and Rubini, Reference Crivelli and Rubini2020; Reuters, Reference Crivelli and Rubini2020). More generally, the facts that the US and the EU are the top two respondents in the DSS as well as the largest targets in compliance proceedings and retaliation requests (Reich, 2017) suggest that these more sophisticated players have used the systemic constraints and loopholes in the DSS even more frequently. As Krikorian has observed:

Thus, China’s approaches to WTO compliance demonstrate that it has merely become a similarly sophisticated player.

As flagged above, trade remedy cases have presented some distinctive features and challenges. China’s approach to compliance has routinely involved the initiation of a re-investigation, an approach adopted in the Interim Rules on the Implementation of the Rulings of the World Trade Organization on Trade Remedy Disputes published by China’s Ministry of Commerce (MOFCOM) in 2013. Since the MOFCOM’s decisions to modify or terminate an existing measure rely on re-investigations, such an investigation does not cause a suspension of the measure and may result in a decision to maintain it. Where a re-investigation leads to the continuation of an existing measure (at the original or a modified rate), compliance would only be achieved if the re-investigation had sufficiently addressed the substantive and/or procedural deficiencies in the original investigation. Given the technicality and complexity of these issues, it would be considerably more difficult to ascertain the adequacy of compliance in trade remedy cases than in non-trade-remedy cases without resorting to compliance proceedings. Thus, re-investigation may well be (ab)used to trigger compliance proceedings and hence prolong the life of AD/CVD measures. As shown in Table 11.1, most of the trade remedy disputes have seen Chinese AD/CVD duties staying in place for years close to or until the time for sunset reviews, with a few even extended for extra time after such a review. Such practices not only offer a perfect illustration of temporary breaches but also raises the issue of repetitive breaches given the similarities of the substantive and procedural issues in MOFCOM’s investigations that were challenged in these disputes (Zhou, Reference Zhou and Qu2019, pp. 158–78). As a WTO decision is binding on the parties to that specific dispute only, it does not prevent the MOFCOM from repeating the same or similar practices in subsequent investigations. Again, such temporary and repetitive breaches are not specific to China. Since 1995, a majority of WTO disputes have focused on trade remedies (WTO, 2017b). Yet, the effect of the DSS on inducing compliance in trade remedy disputes has been rather limited. The core cause of the limitation is that WTO’s findings of violations often concern the application of domestic trade remedy legislation in individual investigations (i.e., an ‘as applied’ breach) rather than the legislation per se (i.e., an ‘as such’ breach). Piecemeal attacks tend to be ineffective at ensuring meaningful compliance or systemic changes in a Member’s regulatory regime and practices (Mitchell and Prusa, Reference Mitchell and Prusa2016). Given the rampant (ab)use of trade remedies particularly AD worldwide, it is unlikely that China will retreat from its current practices. In recent years, we have seen China’s AD actions continuing to flourish and MOFCOM’s growing sophistication in reproducing the practices of the US, the EU and Australia to retaliate against their treatment of China as a non-market economy (NME) in AD actions (Zhou and Qu, Reference Zhou and Qu2022).

IV Broader Issues

Beyond the specific challenges for the DSS, the broader question is whether China has fulfilled its WTO obligations. As noted in Section II, the overwhelming criticism has focused on China’s failure to adhere to the spirit of the world trade rules and the ineffectiveness of the WTO to compel China to change its state-led economic model and become a full-fledged market economy. In the WTO’s latest Trade Policy Review of China in October 2021, the US, the EU, the United Kingdom and Australia reiterated these fundamental concerns (Lester, Reference Lester2021). In contrast, China stated that it is committed to ‘developing new systems for an open economy’, to ‘creating a market-oriented, law-based, and internationalized business environment’and to ‘comprehensively deepening reform, fully leverag[ing] the decisive role of the market in allocating resources and giv[ing] better play to the role of government to ensure better alignment between an efficient market and a well-functioning government’. Its goal is to carry on the over four decades of economic reform and opening up ‘towards fully building a modern socialist country’ (WTO, 2021). The interesting questions here are ‘do China’s WTO commitments require a fundamental change to its economic model and a transition to a Western-type market economy?’, and ‘if this was indeed the expectation of some WTO Members during China’s WTO accession negotiations, did these Members manage to incorporate relevant commitments in China’s accession instruments that reflect such expectation?’ These questions cannot be fully addressed in this chapter. But some general observations are provided below.

On the one hand, let’s consider Section 15(a) of China’s Accession Protocol which sets out a special AD rule allowing WTO Members to treat China as an NME in AD investigations. This special rule is subject to an expiry date contemplated in Section 15(d), that is, fifteen years after China’s entry into the WTO until 11 December 2016. The US and the EU continued to apply the special rule after the expiry date arguing that Section 15(d) does not terminate their right to use the special rule but merely causes a shift of the burden of proof from China/Chinese producers to investigating authorities. China challenged the practices of the US and the EU in two separate disputes immediately after the expiry date (WTO, 2016b, 2016c). China did not proceed with the case against the US and eventually suspended the case against the EU so that there were no published WTO rulings. Setting aside the highly complex technical issues, the US contended that China was expected to transition to a full market economy or that the special AD rule will continue to apply (USTR, 2017). For China, however, the US’s contention ‘is beyond the imagination of those … who actually participated in the negotiations’ as there was a clear agreement that the special rule shall exist for fifteen years only (MOFCOM, 2017). My assessment, based on detailed research of the limited negotiating record between the US and China (which was key to China’s WTO accession negotiations), is that China regarded the special AD rule as discriminatory and initially rejected it. Due to the US’s insistence, the two sides reached a compromise that the special rule must be subject to an expiration timeframe. This eventually led to the inclusion of the sunset clause envisaged in Section 15(d). In other words, the compromise reached was that while China accepted the special rule, the US agreed that it would remain applicable for fifteen years only (Zhou and Peng, Reference Zhou and Peng2018). Thus, this compromise was not based on or conditional upon whether China transitions into a full-fledged market economy but was merely intended to enable WTO Members to apply a discriminatory method to facilitate AD actions against China for an agreed period of time.

On the other hand, there are some very broad commitments made by China that may be considered as a promise to transition to a full market economy. Two of the most telling examples are paragraph 46 of the Report of the Working Party on the Accession of China and Section 9.1 of the Accession Protocol. While the former provides that all Chinese SOEs and SIEs should ‘make purchases and sales based solely on commercial considerations’, the latter requires China to ‘allow prices for traded goods and services in every sector to be determined by market forces’. One may argue that the expectation of WTO Members that China becomes a full market economy may have been embodied in such broad obligations, although even these obligations do not entail a commitment by China to fundamentally change its economic model. In any event, these obligations provide considerable room for WTO Members to challenge the Chinese government’s intervention (including via SOEs) in the market, thereby addressing the associated market distortions or unfair trade practices (Zhou et al., Reference Zhou, Gao and Bai2019). Since these China-specific rules have never been utilised, what is needed is perhaps not additional disciplines on China but more use of the existing rules. However, if more rules are desirable, then WTO Members will need to ensure these rules incorporate clearer commitments from China that reflect their expectation.

Compared with the controversies above, the lack of transparency in the Chinese economic and political system is almost a consensus among governments and other stakeholders and commentators. This issue has persistently made it difficult for WTO Members to understand and monitor China’s trade practices. For example, the WTO Secretariat Report on the latest Trade Policy Review of China noted that the information on China’s industrial subsidies remains strikingly inadequate particularly due to the involvement of SOEs even though China claimed to have made a full notification of subsidies in 2019 (WTO, 2021a, p. 16, 2021b, pp. 76–77). The issue of non-transparency has also made it difficult in assessing China’s compliance with WTO rulings. For instance, while China formally removed the restrictions on trading rights in the cultural sector, it remains unclear how such rights are granted (or denied) in practice and whether applications for becoming an eligible import entity are assessed objectively based on the statutory criteria rather than by discretion.

The issue of ‘forcing technology transfer’ offers another good example. Upon WTO accession, China promised that ‘approval for importation, the right of importation or investment by national and sub national authorities’ will not be conditional upon the transfer of technology under Section 7(3) of the Accession Protocol. Despite this promise, the US and the EU took a series of actions to stop China from practices of ‘forcing technology transfer’. They each challenged the relevant laws and practices at the WTO (see Table 11.1), and the US also conducted a meticulous assessment of Chinese practices in its Section 301 investigations (USTR, 2018b). Subsequently, the US-China Phase One Trade deal included more detailed disciplines on this issue (USTR, 2020b), and China introduced a provision in its new Foreign Investment Law 2020 to prohibit ‘all administrative organs and their employees … [from] forcing technology transfer through administrative means’. Despite these efforts, it will remain difficult to monitor how these commitments and laws are implemented in practice without enhanced transparency in China’s foreign investment review regime (Zhou et al., Reference Zhou, Jiang and Kong2020).

Finally, it is worth pointing out that the combination of state influence in commercial activities and the lack of transparency does pose some systemic and existential challenges for the world trading system. In the recent trade tensions between Australia and China, for instance, China was reported to have restricted the importation of Australian coal through informal instructions of the Chinese government to state-owned importers without a formal measure or decision of the relevant authorities (Tan, Reference Tan2020). Such practices not only make it hard for WTO Members to challenge Chinese measures but also raise the broader issues of whether China’s economic model is compatible with the world trading system and whether the WTO is adequate to cope with China. At the same time, such practices are detrimental to China’s own long-term interest as they would only undercut China’s credibility in the international community and reinforce the longstanding concerns about its regulatory and political regime.

V Concluding Remarks

China’s entry into the WTO is a momentous event in the eight decades of evolution of the multilateral trading system. The impact of the WTO on China is undeniably phenomenal given China’s sweeping WTO commitments and unprecedented economic reforms. In its twenty years of WTO membership, China has also maintained an impressive record of compliance with adverse WTO rulings despite the persistent and increasingly acute criticisms about its economic and political model. This record shows that the DSS can have a positive influence on China. While China’s compliance has also demonstrated some systemic constraints or loopholes in the system, these are not China-specific and can be utilised by all WTO Members. The absence of a functioning AB, however, has greatly affected the efficacy of the DSS and may cause irreparable damage to the credibility and integrity of the entire multilateral trading system. Following US’s and the EU’s abuse of their right of appeal to block unfavourable panel rulings in several disputes, China also ‘appealed into the void’ in one of the latest cases after the panel found in favour of the US’s imposition of safeguards measures on certain Chinese crystalline silicon photovoltaic products (WTO, 2021c). If the DSS remains so dysfunctional and other major players continue to abuse the system, then China will be increasingly disincentivised to comply with WTO rulings or to seek to comply with its WTO obligations in domestic policymaking. Over time, countries that are keen to push China to further economic reforms will lose an important policy option (i.e., multilateral disciplines) while other approaches (i.e., unilateral measures) have proven less effective or even counter-productive in dealing with the rising global superpower.

I Introduction

The holy trinity of the World Trade Organization (WTO) is broken. Negotiations on new rules depend on confidence that existing rules will be implemented, which requires notifications for robust committee review and dispute settlement when clarification is needed, which sometimes should lead to new negotiations rather than authoritative adjudication. When negotiations are blocked, however, some Members are tempted to take unilateral measures to address their problems and/or to pursue bilateral solutions. Most Members want WTO reform, even if they have different aspects in mind. This is reflected in the outcome of the 12th WTO Ministerial conference held in Geneva in June 2022, which instructs the WTO General Council and its subsidiary bodies to develop proposals on how to improve all functions of the organization for consideration.Footnote ¹

In this paper, we focus on how China understands WTO reform, and how the other two leading powers see the China problem in the WTO. China, the EU, and the U.S. are the world’s largest traders, and many of the tensions in the trading system arise in the relations among them. We discuss elements of the WTO reform agenda through the lens of positions that have been taken by the three major trading powers. In an original survey of the expert trade policy community conducted in June 2020, hereafter referred to as Survey, we found that respondents from the EU and the U.S. are broadly aligned on the WTO reform agenda, while respondents from China often diverge in the priorities accorded to these subjects (Hoekman and Wolfe, Reference Hoekman and Wolfe2021; see also Fiorini et al., Reference Fiorini, Bernard Hoekman, Mavroidis and Wolfe2021). Our aim is to shed some light on areas of alignment, or absence of alignment, across these three players on the main subjects associated with reform debates.

Our premise is that rising trade conflicts between major players are a signal of both political and economic tensions; absent reform the organization will be less able to assist major Members to attenuate economic conflicts. In turn, agreement among the three major trade powers is necessary to resolve the problems of the WTO. The rules must be seen to support the generalized gains from open trade and global production, not an attempt to isolate or reform China’s economic (or political) system. At the same time, China should accept that it has a leading role to play in the regime. As is well known, the WTO has been struggling, reflecting differences in priorities across the membership, an erosion in mutual trust, and working practices that have impeded efforts to agree on changes to the rulebook. Consequently, most new rulemaking has been occurring in preferential trade agreements (PTAs), not the WTO, with high-income countries increasingly focused on attempts to negotiate deeper agreements that include rulemaking in areas that go beyond the WTO.

We begin in Section II with a brief discussion of the global challenges that ought to be on the WTO agenda and why China is central in making progress in addressing them through international cooperation. Section III discusses key dimensions of “fixing the machine” – reforming working practices and mechanisms to provide transparency, support deliberation, and resolve disputes, while Section IV does the same on issues related to the reform of negotiation modalities, the recent return to new rulemaking among groups of WTO Members on a plurilateral basis, and the way that differences in economic development levels are reflected in the WTO. We do not discuss all these areas in depth but refer the reader to the recent literature on this subject.Footnote ² Throughout, we consider the positions that China has taken, as well as those of the EU and the US. In Section V we reflect on the potential implications of China’s application to join the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) for the prospects for WTO reform. What matters for the trading system is that the decision to apply signals a willingness by China to engage on many issues that should be – and in part are – on the table in the WTO. Section VI concludes.

II Substantive Policy Challenges for the WTO Membership

Rapid growth in global trade in recent decades was associated with a sustained rise in the production of manufactured products in emerging economies, notably China, often as part of – intermediated by – global value chains (GVCs). The resulting rebalancing of global output and incomes gave rise to adjustment pressures in the United States and other OECD countries. These in turn fostered perceptions that China’s export success reflected the use of policies that unfairly advantaged Chinese firms. This became a factor in the “backlash against globalization” observed in many high-income countries. Such adjustment pressures will continue to rise as the world economy, driven by technological and organizational innovations, shifts towards services activities and trade come to involve more e-commerce and cross-border digital transactions. Changes in technology, and efforts to address climate change, will impact segments of the labor force that have previously benefitted from or been relatively sheltered from, internationalization.

Global trade governance has not kept up with ongoing changes in the structure of the world economy and shifts in the composition of cross-border flows. Competition between governments to stimulate domestic economic activity through “make it here” policies is growing. Such national policies may give rise to negative cross-border spillovers, either by design or inadvertently. Policies may be designed to limit the ability of foreign firms to sell goods and services and constrain the ability of firms to utilize new technologies. Addressing the associated cross-border policy spillovers calls for international cooperation.

Theory, supported by extensive evidence, suggests that addressing cross-border policy spillovers, whether pecuniary or non-pecuniary, is a major motivation for the negotiation of trade agreements, along with a political economy (commitment) incentive for cooperation. Although global trade was relatively robust in the past decade, implying weaker incentives to engage in multilateral trade agreements than is sometimes supposed by observers, the rising prevalence of trade conflicts associated with the adoption of unilateral protectionist trade policies in major economies suggests there should be a strong basis for such cooperation. However, geopolitics and serious internal political constraints confronting trade policymakers (“worker centricity” in the US; conditioning trade on “values” in the EU; resistance to external pressure in China) raise the question of whether trade agreements are feasible even if policy spillovers are significant.

Alleged international competitive spillovers of subsidies play a major role in the trade tensions between the U.S., EU, and China (Mavroidis and Sapir, Reference Mavroidis and Sapir2021). Subsidies can help to address market failures and therefore might have a good economic development rationale despite giving rise to potential negative cross-border competitive spillovers. As discussed at greater length in Hoekman and Nelson (Reference Hoekman and Nelson2020), this is not simply a China issue. Subsidies of one type or another constitute the great majority of trade interventions imposed since 2009 (Evenett and Fritz, Reference Evenett and Fritz2021), and the difficulties of crafting appropriate disciplines go back to the original GATT negotiations of 1947. The WTO prohibits export subsidies and has mechanisms through which Members can countervail subsidized imports and challenge the adverse effects of subsidies through dispute settlement procedures. Subsidies are a central focus of two ongoing negotiations, on domestic support in agriculture and support for fishers. China not only supports disciplines that prohibit fisheries subsidies that contribute to overcapacity and overfishing and eliminate subsidies that contribute to illegal and unregulated fishing but also notes the importance of “recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of the negotiations” (WTO, 2019d).

The tensions among China, the EU, and the US are particularly acute with respect to industrial subsidies. Rather than engage in discussions at the WTO, the US pursued unilateral action (see Hillman, Reference Hillman2023), as well as a trilateral process with the EU and Japan to address “concern with the non-market-oriented policies of third countries and […] actions being taken and possible measures that could be undertaken in the near future.” In a May 2018 statement Trilateral ministers endorsed a joint scoping paper defining the basis for the development of stronger rules on industrial subsidies contributing to excess production capacity in sectors such as semiconductors, steel, aluminum, and others, and on state-owned enterprises (SOEs) (USTR, 2018). A subsequent series of Trilateral meetings has made little progress. In an implicit response, Vice Minister Wang, in a press conference on the WTO Trade Policy Review of China in 2021 said that China was open to starting negotiations on subsidies within the framework of WTO reform, mentioning three specific ideas: first, agricultural subsidies must be discussed at the same time as industrial subsidies to ensure fair competition in both important areas; second, tightening trade relief disciplines such as countervailing and anti-dumping should be discussed to solve the current abuse of trade relief measures; third, it should discuss the issue of restoring non-litigable subsidies, which is needed to leave policy space for members to cope with challenges such as climate change (China, 2021).

To give another example of an area where the three powers diverge, the global regime for data flows is highly fragmented, ranging from essential laissez-faire approaches in some countries (with the US being on this end of the spectrum), to more tightly regulated environments in others, whether motivated by protection of privacy and citizen rights, perceived security imperatives or concerns about market power and abuse of dominant positions by lead firms. The EU and China are both on the more regulated end of the spectrum, with the EU maintaining a conditional flow regime and China imposing tight restrictions in specific areas, for example, on the location of computing facilities (Ferracane and Li, Reference Ferracane, Li, Hoekman, Tu and Wang2021) Trade agreements are beginning to include specific obligations on cross-border data flows, and some jurisdictions are establishing “equivalence regimes” that determine whether foreign providers will be treated in the same way as domestic firms when it comes to access and processing of data. The consequences of the potential for the resultant creation of “data blocs” for global wellbeing – and global trade – are still poorly understood, whether from the point of view of individual consumers interacting with websites or social media or from the point of view of companies looking to leverage digital technologies to boost productivity or expand markets.Footnote ³

The technological developments generating structural transformation and national policies that are both causes and responses to shifts in global trade shares call for revisiting and updating international trade rules. Realizing this potential requires WTO reforms. To a significant extent, achieving such reform depends on China.

III Fixing the Machine

As discussed at greater length in Hoekman et al. (Reference Low, Hoekman, Tu and Wand2021) and Hoekman and Wolfe (Reference Hoekman and Wolfe2021), WTO reform spans two sets of issues: (i) improving working practices and the operation of the institution (“fixing the machine”); and (ii) overcoming obstacles that impede the negotiation of new trade policy disciplines. This section discusses the first set of issues; the next section turns to the second challenge.

IV Negotiation Obstacles: Consensus and Special and Differential Treatment

The accession of China at the 2001 Doha ministerial occurred in tandem with the launch of the ill-fated Doha Round at the same ministerial. The backward-looking Doha Round agenda prioritizing tariffs on manufacturing and agricultural support policies became increasingly disconnected from twenty-first-century priorities as the negotiations dragged on eventually becoming deadlocked. One result was that policies affecting the digital economy, cross-border data flows, and foreign investment, among others, were neglected because a consensus could not be achieved to address issues that were not part of the Doha agenda.

With the Doha Round dead, in 2017 many countries decided to shift gears and move away from negotiations including all WTO Members and the working practice of consensus decision-making by launching so-called “joint statement initiatives” (JSIs), meaning simply talks inside the WTO among a subset of Members whose eventual outcome would make use of WTO transparency and dispute settlement procedures. The 2017 JSIs addressed e-commerce, domestic regulation of services (successfully concluded in December 2021, with 67 WTO members, including China, joining), investment facilitation, and measures to enhance the ability of micro and small, and medium enterprises (MSMEs) to capture trade opportunities. Subsequently, additional issues became the subject of discussion among groups among subsets of WTO members. Ministerial statements in December 2021 addressed three new areas where groups of Members have decided to pursue discussions.Footnote ⁵

These joint initiatives include a broad cross-section of members. But that does not mean that negotiations to establish new plurilateral agreements have been endorsed by all Members. Tu and Wolfe (Reference Tu, Wolfe, Hoekman, Tu and Wang2021) discuss the opposition to the JSIs led by India and South Africa. Unlike some other developing countries, Chinese officials are not opposed to the principle of pursuing plurilateral agreements in the WTO (Li and Tu, Reference Li and Tu2020).Footnote ⁶ In its country report for its 2021 trade policy review, China stressed its active participation in the JSIs (WTO, 2021c). China has taken a leadership role in the JSI on investment facilitation, acting as a co-sponsor and actively encouraging participation by developing countries.

The move to plurilateral is only a partial solution to the difficulty of concluding negotiations by consensus. Each negotiation can only be concluded if a critical mass of Members participates, whatever the legal form of an outcome. Plurilateral approaches therefore are not a panacea, but they offer a mechanism for large trade powers to cooperate without engaging in negotiations with all WTO members (Hoekman and Sabel, Reference Hoekman and Sabel2021). An EU paper on WTO reform (EU, 2021) contains an implicit warning: if no effective formula is found to integrate plurilateral agreements in the WTO, there would be no other option than developing such rules outside the WTO framework, which could fragment the system. The warning applies to India, South Africa, and to anybody tempted by their analysis, but it also applies to the three major powers. Plurilateral negotiations can break the dead hand of the single undertaking, but the risk of free riding by any of the three major powers means that each of China, the EU, and the U.S. will be needed to reach a critical mass deal.

V Special and Differential Treatment: A Central Negotiation Obstacle

The prospects for agreement to be possible between the EU, U.S., and China will depend importantly on whether emerging economies insist on being accorded special and differential treatment and more generally on whether and how such agreements address development differences.

In May and November 2019, the U.S. submitted a proposal for a decision on “Procedures to Strengthen the Negotiating Function of the WTO” with criteria for assessing which countries will not avail themselves of SDT in WTO negotiations (WTO, 2019c). The U.S. asked for this item to be placed on the agenda of one General Council meeting after another in 2019 and 2020, with some support from other Members but unrelenting opposition from China and most developing countries. At the July 2020 meeting of the General Council the representative of China, echoing the introduction and much of the argumentation of an earlier submission on SDT by China and others (WTO, 2019a) said that in an international organization with developed and developing Members, non-reciprocity was a means and a principle to realize equity. He argued that the reclassification of WTO members was not a way out. Rather than revisiting the current practice of self-designation of developing country status, he suggested those in a position to do so be encouraged to make a greater contribution to the best of their capabilities, which China was willing to do (WTO, 2020c).

During the October 2021 Trade Policy Review Body (TPRB) meeting on the report on China, Australia, echoing comments made by many others, including the EU and the U.S., encouraged China to play a more constructive leadership role in the WTO, including by relinquishing its access to special and differential treatment. Minister of Commerce Wang Wentao, who led the Chinese delegation, said that “In keeping with the principle of balanced rights and obligations, China is willing to approach special and differential treatment with pragmatism and make more contribution within the WTO that is commensurate with its capacity.” In a subsequent press conference in Beijing on the results of the review (China, 2021) Vice Minister of Commerce Wang Shouwen’s lengthy response to a question on SDT noted that “The report of the nineteenth National Congress of the Communist Party of China pointed out that China’s international status as the largest developing country in the world has not changed. China’s international status as a developing country has not changed.” This line comes right from the top. President Xi Jinping told Davos in January 2021 that WTO reform must protect the development rights and policy space of developing members (WTO, 2021c). Chinese officials will not give up the principle soon, regardless of what happens in practice.

The debate about the links between levels of development and the depth of policy commitments can be sterile. Low (Reference Low, Hoekman, Tu and Wang2021) discusses ways to break the link between what a country calls itself and what access to SDT should be available. He stresses that most aspects of SDT require cooperative action of one kind or another from others besides the SDT recipients – the scope to invoke unilateral “flexibilities” in implementing WTO rules is limited. Nobody thinks China should expect SDT for any new market access commitments or any other provision where special treatment would be offered by another member.

In the Survey, resolving differences in SDT was not a huge priority for any of the three. A possible reason is a recognition that these three major traders will need to negotiate rules that apply equally to each of them, with specific commitments and exceptions, agreed on an issue-specific basis. Doing so need not require China to abandon the principle of identifying itself as a developing country, nor does it need to abandon support for other members who may need SDT more.

VI Prospects for WTO Reform: China’s CPTPP Application

One of the questions about whether China can contribute to real WTO reform is how willing the country is to undertake new liberalization and regulatory policy commitments. Its leadership role in the Regional Comprehensive Economic Partnership (RCEP) might be an indicator, although RCEP is a relatively shallow agreement. More significantly, China has been paying close attention to TPP/CPTPP ever since the U.S. decided to join and reframe this initiative in 2009. At the time, China was greatly concerned about the intentions of the U.S. and the possible impact of the TPP on China’s position in the Asia-Pacific. One of China’s responses was to support and participate in RCEP.

The subsequent developments are well known. The TPP talks concluded successfully in 2016 with a draft text that was agreed upon by the United States. Despite this, President Obama never submitted the TPP to Congress for ratification, and President Trump withdrew the U.S. from the TPP on the first day of his presidency in January 2017. Japan then succeeded in transforming the TPP minus the U.S. into the CPTPP with 11 members later in 2017. In parallel, China and 14 other countries continued the RCEP negotiations, successfully concluding them at the end of 2020. To the surprise of many foreign observers, a few days after the conclusion of RCEP, President Xi Jinping announced that China was positively considering applying to join the CPTPP. There was no open opposition to joining CPTPP in academic debates, although there was some suspicion and concern about the feasibility of doing so. Premier Li Keqiang repeatedly claimed that China was open to it. In September 2021, the Chinese government formally submitted the application.

The application was not a big surprise for Chinese observers. There have been numerous discussions and much research on TPP/CPTPP in China since 2015. Many scholars are very excited about the text of TPP/CPTPP and believe that the text represents the most advanced and ambitious efforts of further international economic integration. Given that implementation of the third plenum reform agendaFootnote ⁷ fell far below expectations, many argue that China needs foreign pressure to break through the obstacles in sensitive areas such as SOE reform and data regulation.

Many foreign observers doubt China’s intentions in applying to the CPTPP. The assumption is that China could not accept the high requirements of CPTPP given its poor performance in reform and opening-up in recent years; they think that the application is just a gesture to the world but that China is not prepared to comply with the rules of CPTPP. A counterargument can be based on what China agreed to in the 2020 Comprehensive Agreement on Investment with the EU. Although ratification of this agreement has been stalled due to political factors and the CAI may never be implemented, what matters is that China accepted a range of provisions on matters that also will be on the table in the CPTPP, including trade and sustainable development, that is, non-trade issues, and disciplines on SOEs (see, e.g., Kurtz and Gong, Reference Kurtz, Gong, Hoekman, Tu and Wang2021). It is not reasonable to argue that China is not serious about CPTPP because reforms have been slow. Foreign observers often overestimate the ability of the Chinese government to enforce its policies throughout a huge country. There are countless bureaucratic obstacles to reform in the Chinese system. The central government needs international institutions to enhance the legitimacy and enforceability of its intentions–we know that WTO accession 20 years ago was used by reformers in China for just this purpose.

The application to CPTPP sends a strong signal to the world that China is willing to accept high-standard international rules, as long as the rules are widely considered legitimate and beneficial by other trading partners and Chinese society. Ironically, the rules included in the CPTPP were designed in part by the U.S. with the aim to establish a set of disciplines in which China would not have a voice. Adding to the irony is that the American government decided it was not willing to adopt the disciplines itself, a position that continues to be taken by the Biden Administration at the time of writing. The U.S. accuses China of disrupting the current rules-based international system but China’s application to the CPTPP is regarded inside China as a strong riposte.

China is very aware of the political challenges associated with joining CPTPP. China’s relations with CPTPP members Japan, Canada, and Australia are complicated and have deteriorated in recent years. But the negotiations will not be easy. China considers Japan to be a caretaker of U.S. interests, highly influenced by the latter. Economic considerations may dominate other concerns, as RCEP shows. Although Australia and Japan have problems with China, they ratified the RCEP agreement quickly.

CPTPP rules on technical issues such as SOEs, data flows, or labor standards are not always clear-cut and subject to the interpretation of members. If some members do not have the political will to let China in or feel pressured by the U.S. to resist a country termed its only peer competitor, they could adopt interpretations of CPTPP provisions that make it more difficult for China. China is more comfortable with possibly making some difficult concessions in CPTPP because a smaller membership means less pressure on China. While the CPTPP chapters on SOEs, data flows, and labor standards are difficult for China, neither the US nor the EU is CPTPP member. China is not naïve about the negotiation process, but China believes that participation will offer a great opportunity to both incumbent and future members. Accession to CPTPP would establish a basis for engagement with the other two major traders.

China’s participation in CPTPP will surely affect China’s position on WTO reforms, depending on the progress of China’s negotiation to join CPTPP. The CPTPP goes further than the WTO on many issues, including in areas such as environmental regulation, labor standards, competition policy, investment liberalization, cross-border data flows, and SOEs. The CPTPP offers China a way to engage in these issues in a smaller group without offending other WTO Members. If the CPTPP process is successful, it would provide a basis on which China would be more comfortable engaging in WTO negotiations on new issues, including on a plurilateral basis through JSIs. An implication may be that patience will be required before it becomes clear what China is willing to commit to in terms of new rules on substantive policy areas.

VII Implications for Future Cooperation on WTO Reform

WTO members face many problems that call for cooperation. Prominent items include ensuring a consistent response to global public health crises, resolution of conflicts regarding the use of industrial-cum-tax-subsidy policies, regulation of data privacy and cross-border data flows, and the appropriate role of trade policy in reducing the carbon intensity of economic activity. Revisiting the terms of engagement with China is a necessary condition for revitalizing the WTO as a forum to address these matters and to sustain an open world economy.

The challenge for China is to defend the existing international rules and its rights under them, while meanwhile exploring the possibilities of creating or supporting forms of cooperation that sustain its economic development. China’s support for WTO reform and its application to the CPTPP are intended for that purpose. Reflecting on the priorities of respondents to the Survey (Hoekman and Wolfe, Reference Hoekman and Wolfe2021) suggests that compromise will be needed all around on the design of a negotiating agenda or set of issues to be considered. Respondents from all three powers place great weight on resolving the dispute settlement crisis, with China-based respondents indicating that this is a particularly urgent priority. The Survey reveals a striking degree of correlation among respondents from all three major trade powers on assigning a high priority to the cluster of transparency-related issues. They are far apart in negotiating stronger rules on industrial subsidies, clarifying the role of trade policy in tackling climate change, and promoting sustainable development goals (SDGs).

In 2021, Chinese authorities, the media, and academic institutions held a series of events to commemorate the 20th anniversary of China’s WTO accession. The general tone was very positive. However, the emphasis was on China’s contribution to the WTO and the world rather than on the benefits accruing to China from its WTO membership. China has given up hope that the United States will relax its efforts to suppress China’s development. It is widely believed by the Chinese that the US has determined to decouple with China as much as possible. Although the US repeatedly argues that China has been disrupting the rules-based international system, China believes it is the US that has intentionally violated the rules established in the WTO because the outcome of trade liberalization in China and WTO membership has been beneficial to China by making the economy more and more competitive. The view in China is that the US has neither the appetite nor the capability to support further liberalization – as reflected in the Biden Administration’s disinterest in new trade agreements. The worry is that the US – the incumbent hegemon – now regrets having provided an international public good and is seeking to deprive China of its rights through calls for WTO reform that are code for relaxing existing rules to facilitate the imposition of import restrictions and measures to restrain China’s exports and outward investment.

Chinese officials in Geneva profess support for WTO reform but demand respect and non-discrimination. China does not accept being asked to do things that OECD countries do not ask of themselves. As discussed above, China also insists on the formal status of a “developing country” (Gao, Reference Gao2021). But China is a very large economy, a very large trader, and is more prosperous than many other developing countries. China cannot expect to be granted the type of special and differential treatment that WTO members are ready to accord to low-income developing countries in any new agreements. What is needed is a political accommodation that ensures continued acceptance of the principle accompanied by a pragmatic acknowledgment that reciprocity will apply among the three major trade powers in new negotiations.Footnote ⁸

Nothing will happen in the WTO unless China, the EU, and the U.S. want it to, but they will need to find ways to work together consistently, much as the old Quad did in bridging gaps between the EU and the U.S. during the Uruguay Round. The effort would be worthwhile since the best place to work out the major differences between China and the other two is the WTO, especially since neither is likely to engage with CPTPP any time soon. Clearly, all three have no difficulty with participating in plurilateral negotiations, but we argue that they should be working together on governance principles that would make a wider group of Members feel comfortable with such negotiations (Hoekman and Sabel, Reference Hoekman and Sabel2021; Tu and Wolfe, Reference Tu, Wolfe, Hoekman, Tu and Wang2021). They should also be considering how best to manage open plurilateral negotiations outside the WTO including the development of open standards for new technologies in ways consistent with the TBT agreement (Lee-Makiyama, Reference Lee-Makiyama2021). Compromise among the three ought to be possible.Footnote ⁹

While the single undertaking is dead, package deals are a negotiation reality. WTO ministerials need an agenda proposing a set of agreements that can attract a broad consensus. Without a forcing device, and if the results of each negotiation underway cannot stand on their own, how can they be knit together? The major powers have asymmetric interests with respect to any given trading partner. They also tend to have asymmetric interests in any one issue. IF the three must be part of a deal to get critical mass, and IF they have asymmetric interests, THEN they need a package of critical mass deals to reach an agreement on any one of them.

When we look at the pattern of current initiatives, it is striking that at least one of the three is a supporter of one. Can trade-offs be found whereby all three could assemble a package that they and others could support? While China co-sponsored the Informal Dialogue on Plastics Pollution, unlike the U.S. and EU, the EU is the only one of the three to sponsor the proposed statement on fossil fuel subsidies. China has joined the Trade and Environmental Sustainability Structured Discussions, as have the U.S. and the EU. China was a cosponsor (the U.S. was not) of an Ottawa Group proposal (WT0, 2021e) for a non-binding General Council declaration on the trade policy response to the COVID-19 pandemic that sought to ensure access to essential goods, including therapeutics and vaccines, by avoiding unnecessary restrictions and enhancing transparency. The EU cosponsored a U.S. proposal aimed to improve notifications, but China did not. China cosponsored an EU proposal on improving the work of committees, but the U.S. did not. Compromise on dispute settlement, the other big element of fixing the machine will be harder, but updating the WTO rule book, the other part of what is meant by “WTO reform,” will not be enough for the major powers if all WTO can do is make progress on old issues. The WTO already has many new issues on its agenda, but its rulebook must expand to cover other emerging issues.

Is China ready? Its application to join CPTPP suggests a willingness to engage based on extensive preparatory work, but China’s contribution to WTO reform depends on engagement with the other two major powers. The initiation of discussions in the CPTPP context suggests negotiations on substantive policy matters between China, the EU, and the US may need to wait until the CPTPP-related talks have progressed. Meanwhile a greater focus on deliberative processes in the WTO and prioritizing those elements of WTO reform that center on fixing the machine appear to offer greater scope for the big three to work together in preparing the ground for negotiating new agreements that span all three. Whether such agreements will be feasible remains an open question, as success is premised not only on China but on the willingness of the United States to consider and accept new disciplines. The CPTPP experience suggests this is by no means a given.