In the spring of 2000, the United States normalized trade relations with China. In December 2001, China ascended to the World Trade Organization (WTO). President Bill Clinton expressed his hope that the United States and China would work together in trade. The generally held belief at the time was that inclusion in international organizations would accelerate China’s transition toward democracy and free market capitalism. President George W. Bush had famously said that no nation had figured out how to import goods from the rest of the world, while keeping out new ideas.
The WTO was relatively new and China was the largest trading nation that was not a member. Consequently, adding China legitimized the WTO. Global consumers benefitted from China’s ascension because they could now obtain cheap Chinese products. Corporations also welcomed China’s ascension because they hoped to obtain greater access to the country’s huge markets. And China was happy because their exports increased sharply. By 2009, China had displaced Germany as the world’s largest exporter.
Not everyone was pleased about China being included in the club of trading nations. U.S. labor unions were very concerned about the number of manufacturing jobs that would be lost as factories relocated to China. Between 1999 and 2011, nearly 6 million U.S. manufacturing jobs, as well as 2.4 million jobs in other sectors, were lost to China.
China’s ascension came with a promise that Beijing would make numerous changes to its trading practices to fall in line with international norms and standards such as the following: reduce tariffs; guarantee intellectual property rights; allow market forces to determine the value of its currency; end state subsidies for favored firms and industries; refrain from dumping; end forced technology transfer; and grant reciprocal market access to foreign companies. Now, more than 20 years later, the world is still waiting for China to make these changes and abide by international rules.
One of the reasons why China gets away with seemingly unfair trade practices is because the enforcement mechanisms of the WTO are quite weak. The WTO evolved out of a post-World War Two culture of like-minded countries, largely bound by a gentlemen’s agreement to treat each other fairly. Of course, trade disputes can and do flare up, but the rules of the WTO were established under the assumption that most countries were not actively looking to circumvent them.
The WTO’s enforcement mechanism works well with capitalist and democratic countries, where companies are driven by profit and are largely free of government controls. They were not designed for the People’s Republic of China, which is a hybrid of socialism, communism, and state-capitalism. State-run media China Daily reported that 70 percent of China’s 2 million private companies contained an internal Communist Party cell, underscoring the Chinese Communist Party’s (CCP) direct control of the private sector.
China is using the WTO to its advantage. Rather than adhering to the rules, Beijing is picking and choosing those rules that work best for China’s interests and then exploiting them. Over the past 20 years, the United States has lodged 23 complaints against China. The most common complaint was that China enjoys free access to foreign and U.S. markets, while continuing to restrict foreign access to Chinese markets.
Forced technology transfer is another of the major points of contention between the United States and China. China requires foreign companies, in certain sectors, to have a local joint venture partner in order to gain access to Chinese markets. They then require that the foreign entity transfer its technology to the JV partner. As so many Chinese companies are either owned by the CCP, or have the CCP as a majority stakeholder, or have a CCP cell and CCP board members, this is effectively like forcing foreign companies to share their technology with Beijing in exchange for market access. While U.S. companies complain about this, it is very difficult to prove that there is an actual infringement of WTO rules. Therefore, the WTO generally does not rule in favor of U.S. companies lodging complaints regarding forced technology transfer.
Currency manipulation is another violation that China has gotten away with in the past. For many years, China undervalued its currency by 30 percent, making its exports cheaper. The WTO, however, has no actual provisions in place to guard against currency manipulation.
One of the agreements China made when entering the WTO was to become a market economy (ME) by 2015, and to then no longer warrant special treatment as a new, non-market economy (NME). China interpreted this agreement to mean that China’s NME status would automatically end in 2015. The world interpreted it as meaning that the removal of the NME status would be dependent on some type of evaluation, and that China was given 15 years to complete its market reforms.
During the intervening two decades, the Chinese regime has failed to reform its economy and trading practices, continuing with prohibited subsidies. Additionally, the U.S. Department of Commerce rightly alleges that Beijing still exercises control, directly and indirectly, over the economy and key economic actors, including the allocation of resources.
Despite China’s promises to reform, it remains one of the most protectionist nations on Earth. It continues to dump steel, which drives legitimate companies out of business. The regime funnels billions of dollars’ worth of soft loans and subsidies through chains of shadowy government-owned or government-controlled entities. And the regime engages in state-level hacking, to steal data from U.S. and other foreign companies.
In order to truly qualify as a market economy and to be a global citizen trading fairly according to WTO and Western norms, China would need to fundamentally alter its approach on trade and on the economy in general. It would need to fulfill its WTO commitments on currency manipulation, dumping and subsidies, stop state-level hacking and forced technology transfer, protect intellectual property rights, and grant reciprocal market access to the United States and other countries. As the CCP has failed to reform over the past 20 years, it seems unlikely it will change in the next two decades.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.