Confronting China on trade

Confronting China on trade
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China is on a roll but not in a good way. It has largely recovered from COVID-19, and its growth rate has been substantial. But in Hong Kong, China’s stated commitment to the “one country, two systems” principle has morphed into one country, one system, with democracy erased and the independent press shut down. In Xinjiang, whether the Chinese operating camps for Uyghurs conforms to the legal definition of genocide or not, large-scale human rights abuses are clearly taking place. China continues to expand in the South China Sea and threatens to invade Taiwan.

The Trump administration turned our attention to China’s trade policies. But its attempts to address these issues were unproductive. Its main target, the total U.S. trade deficit, expanded, and U.S. exports of services, which had been on an upward trajectory, declined. Unilateral actions and bilateral deals did not work. The Biden administration must be more effective in confronting China on trade.

Importantly, there is still significant scope to address some of the China trade issues within the current structure of the World Trade Organization (WTO). For example, the United States has been able to bring dispute cases against China and win. Further, it is widely noted among trade policy professionals that, in each instance in which China has suffered a loss in the dispute settlement process, it has mended its ways.

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For this reason, the U.S. under the Biden administration needs to recommit itself to the WTO dispute settlement system. The Trump administration’s goal was to sabotage it, but this worked to America’s disadvantage. Reengaging the dispute settlement system is the first step to confronting China on trade.

When China joined the WTO in 2001, it did so via the Protocols of Accession. The WTO’s dispute settlement process has since established that the protocols are “justiciable.” In other words, China can be held to account for the commitments it made above and beyond standard WTO agreements. The United States needs to revisit these Protocols of Accession and leverage them wherever it can.

For example, Article 7.3 of the China Protocols of Accession prohibits China from using forced technology transfer as a trade-related investment measure, a major sticking-point in the U.S.-China trade relationship.

A recurring issue is the role of state-owned enterprises (SOEs) in China’s economy. Unfortunately, the WTO’s language on SOEs is not fully adequate to address this problem. Trade policy researchers Petros Mavroidis and André Sapir have carefully analyzed this issue, concluding that a legislative amendment to the WTO is required on the role of SOEs. The process of introducing such an amendment is complicated, but beginning it sooner rather than later, and building consensus along the way, will be critical for success on SOEs.

Speaking of consensus, rather than incensing our allies on trade as the Trump administration often did, the U.S. should revive the Trilateral Commission with the EU and Japan in developing an effective response to China. This would allow a more coordinated and forceful way to address China trade issues.

For example, the U.S. could find common cause with the 2019 EU Commission Report “EU-China: A Strategic Outlook” in its trade-related areas. In particular, Section IV, on “achieving a more balanced and reciprocal trade and investment relationship,” contains many areas of overlap with U.S. concerns. This includes potential WTO reforms on subsidies and forced technology transfer. A trilateral stronger-together approach would be more effective than going-it-alone.

Regarding forced labor in China, while this is a difficult issue for the WTO, at the 1996 Singapore Ministerial meetings, WTO members reiterated their commitment to the International Labor Organization’s core labor standards. Further, Article XX of the General Agreement on Tariffs and Trade (GATT) explicitly allows for trade remedies to be applied to products based on prison labor. To the extent that it can be shown that China’s Uyghur camps produce products such as solar panels, trade remedies can be rightfully invoked.

There are ways to confront China on trade more productively than the Trump administration. The Biden administration needs to seize them quickly, reengaging with the WTO and working with allies. China is on a roll, and we should be too.

Kenneth A. Reinert is a professor of public policy at the Schar School of Policy and Government of George Mason University.