Year of the Dragon Present Choices for China on Trade

February 15th, 2012



This piece originally appeared in The Wall Street Journal.

According to Chinese tradition, the coming “Year of the Dragon” will bring success and happiness. But, for modern China, 2012 will also be a year of decision. The choices China makes will have important implications for its future and America’s, and for the health of global trade.

Last year marked China’s 10th anniversary as a member of the World Trade Organization (WTO). When it joined the WTO, China made a deal. In exchange for expanded market access to the WTO’s now 150+ members, China agreed to adopt free market reforms and significantly open its economy to foreign trade. And because China had much market-opening work to do, the WTO gave China a significant part of the past decade to phase in reforms.

This deal has been good for China. Over the last decade, trade has driven much of China’s 10% annual growth, with exports increasing some 600% from 2000 and 2008. But for the United States and other WTO members, China’s WTO membership has been a mixed bag.

To be sure, China has made significant progress in reducing high tariffs on American exports, eliminating non-tariff barriers, and opening its economy to increased U.S. investment. Indeed, China is now America’s fastest growing and third largest export market, accounting for over $100 billion in annual U.S. exports in goods and services and 15% annual growth in China for U.S. firms.

But, in recent years, the momentum for reform has stalled and China has drifted back toward closed markets, “state capitalism,” and higher trade barriers. China still allows rampant theft of U.S. movies, software and other intellectual property and uses unfair standards to block American industrial and food exports. It unreasonably regulates U.S. service providers and investors, and forces the transfer of proprietary U.S. technology under the guise of “indigenous innovation.” China’s trading partners also have serious concerns about its commitment to core WTO principles, including transparency in decision making and rules.

China is essentially trying to have it both ways — reaping the benefits of expanded export access while it shelters favored sectors and fails to follow through on WTO obligations. Increasingly, in both word and action, America and other WTO members are making it clear that this state of affairs can’t continue.

The United States, the European Union and other countries are more aggressively asserting their WTO rights against China’s unfair practices and incomplete reforms. After waiting until 2004 to file its first WTO case against China, the United States has since filed 11, including five by the Obama Administration. U.S. officials have also recently used international rules to pointedly call out China for failing to notify the WTO of some 200 problematic subsidies and for blocking trade over the Internet.

American and European officials have long complained privately about China’s use of WTO rules to avoid its obligations and to retaliate against legitimate trade complaints. Increasingly, they are saying so publically and vowing not to back down in the face of these tactics.

The United States and like-minded countries are diligently negotiating the TransPacific Partnership (TPP), a new a high-standard trade deal that will more closely tie together countries in the region. Notably, the TPP would restrict the kinds of abusive subsidies and state-controlled commerce that China increasingly favors. Canada, Japan, and Mexico have signaled their interest in joining the TPP, while the United States and the European Union are embarking on talks to eliminate key barriers to transatlantic trade.

These and other developments make it clear — the time has come for China to choose. It can renew its commitment to WTO rules, keep WTO promises, and be a force for fairer and more open trade. Or it can face a growing circle of frustrated trading partners who will more aggressively assert their WTO rights, develop important new trade arrangements that leave China behind and, in some cases, increasingly seek to block China’s exports by erecting trade barriers of their own.

America and our WTO partners must do all we can to convince China to choose rules-based, open trade.

We must stress that, after a decade, China’s WTO training wheels are now off. As a major beneficiary of the WTO system, China must fully honor its commitments and more actively contribute to the WTO’s work. We must also continue to forcefully assert our rights against China’s unfair practices, while continuing create positive leverage by building new models for expanding global trade.

Finally, we must redouble our efforts to convince China’s government, business and thought leaders that reform is ultimately in their own best interest. A China more open to imports and investment can better achieve many of its critical long-term goals, including more sustainable and widely shared economic growth.

In the coming year, China’s leaders will face many economic challenges. However, if they choose wisely and work to place China squarely on the path of rules-based trade, the Year of the Dragon should live up to the success it portends for China — and for the global economy.