Fifteen years ago, China acceded to membership of the World Trade Organization (WTO) and agreed to submit itself to compulsory adjudication by the organization’s Dispute Settlement Mechanism (DSM). While in other areas, most notoriously the law of the sea, China has been reluctant to accept the decision-making power of international courts and tribunals, its WTO practice has shown that China can accept the jurisdiction of an international judicial body, accept its findings and embrace its procedures. It has become an enthusiastic member of the WTO, frequently using the DSM to resolve international trade disputes speedily and efficiently.
Membership of the WTO, and the strengthening of China’s economy, has encouraged China to look outwards – as evidenced in Xi Jinping’s measured enthusiasm about the liberal global economic order at Davos last month. WTO membership has also been a major factor in China’s domestic reform, not only economically but also in strengthening its legal system. These domestic reforms were placed at the top of the Chinese Communist Party’s agenda in its Fourth Plenum of October 2014, accompanied by a call for China to take a greater role in shaping international law.
But the chances of China continuing along this path and becoming more accepting of multilateral engagement are diminished if major powers such as the US turn away from the WTO. Donald Trump has been unpredictable on this point: he railed against the WTO on the campaign trail and threatened to pull the US out, but also mooted using the organization to counter unfair Chinese trade practices. His trade advisors have indicated they may push for a reform of the WTO’s dispute settlement process or look for ways to bypass it altogether. This mixed messaging risks undermining the WTO framework for settling international trade disputes, which is widely viewed by international lawyers and trade experts as a success in providing a uniform platform for stability, accountability and transparency on trade dealings between the WTO’s 164 member states.
China grows in the WTO
In 15 years in the WTO, China has become adept at using membership to its advantage. China has initiated 15 cases, been the respondent in 39 and been involved as a third party in 135. It has waged what some observers have referred to as an invisible trade war with the United States entirely through international adjudication. China has secured a significant number of legal victories; it also has a good compliance rate in those cases that it has lost.
China’s participation in the DSM helped it gain confidence and expertise in the international legal system, in particular international litigation. By appearing as a third party in many cases in its first five years it rapidly built up its own expertise in the WTO and diminished its reliance on foreign legal expertise. It has managed to promote its interests elsewhere in the organization as well, and is only one of two states, with the US, to have a de facto permanent member on the DSM’s Appellate Body.
It is now hoping to leverage this experience in its dispute with the US and EU over its ‘non-market’ status. This status allows China’s partners to take strong measures to prevent ‘dumping’, a practice in which China could flood their markets with goods sold below market prices, thereby harming domestic manufacturers. China argues that it was agreed in 2001 that this status would automatically expire upon the 15th anniversary of its WTO accession. The US and EU disagree, arguing that the degree of state control over China’s economy means that in practice it is far from reaching market economy status. China has taken steps within the WTO’s dispute settlement system to obtain rulings in its favour on this issue, though the ensuing negotiations and legal battles may take years to conclude.
Charting its own regional path
In addition to Trump’s potentially disruptive behaviour and China’s ongoing fight over non-market status, a growing number of its trade issues are either inadequately addressed by, or fall outside of entirely, the WTO. This includes those concerning the status of state-owned enterprises, antitrust laws and data flows. The Doha round of world trade negotiations has been stalled for a long time and many issues are addressed instead in other agreements, such as multilateral and bilateral trade and investment treaties.
While plans for the Trans-Pacific Partnership (TPP) are now in tatters following Trump’s announcement to withdraw the US, China and others have been negotiating their own mega-regional treaty in the form of the Regional Comprehensive Economic Partnership (RCEP), an agreement between 16 states comprising 30 per cent of the world’s GDP. There have been suggestions that the investment chapter of RCEP will include investor–state dispute resolution through arbitration, the main mechanism for the settlement of disputes between investors and states. But while the TPP provided for an interstate dispute settlement mechanism modelled after the WTO DSM, (opens in new window) it remains to be seen whether the draft RCEP will contain any such provisions.
A delicate time
This is a delicate time in China’s engagement with international law. Its membership of the WTO has boosted its willingness to accept international dispute settlement mechanisms and its understanding of how it can thrive within them. Its successes in the WTO could help China become more accepting of other multilateral dispute settlement mechanisms and see multilateral engagement and institutions as a viable route to channel its ambitions to become a norm-shaper. The chances of this are diminished if other important members of multilateral institutions, such as the United States, move away from them.
Wim Muller has been an associate fellow in the International Law programme since 2013.