The WTO Review of China’s Trade Policy - Scott Waldron and Zhang Jing (Australian Institute of International Affairs)

 The WTO Review of China’s Trade Policy

 By Dr Scott Waldron and Dr Zhang Jing

Australian Institute of International Affairs

https://www.internationalaffairs.org.au/australianoutlook/the-wto-review-of-chinas-trade-policy-and-what-it-means-for-australia-2/

Mid-July 2024 saw two major events on China’s economic and trade sectors, the first with the Third Party Plenum (TPP) in Beijing, and the second with the World Trade Organisation’s (WTO) ninth biannual review of China’s trade policy. Countries around the world, including Australia, are deeply interested in how China’s economic trajectory will forge international trade relations into the future.

The 2024 WTO trade policy review of China

The WTO conducts periodic reviews of member countries to monitor their trade policies. Since joining in 2001, the WTO has conducted nine reviews of China, the most recent in July 17-19, 2024. The review consists of a 170-page report by the WTO, a report by China, and remarks from the Chairperson based on 72 interventions and 1,500 questions from member states. Statements from the US, the EU, and the UK are publicly available.

All reports highlight the burgeoning role of China in the global economy since the last review in 2021 and China’s active participation in the multilateral trading system and trade agreements. On many other issues, however, stark differences arise between the positions of China and other parties.

Problems of China’s domestic economic imbalance—the topic of Part 1 of this series—permeate the Secretariat’s report. It notes China’s high savings rate, that consumption could be boosted by increased social services, and the halt in the economic transition from industry to the services sector. China’s report only briefly mentions increased consumption in 2023 (post-COVID) and central-local government tax reform.

The Secretariat notes areas where China has liberalised the economy, which is the dominant theme of China’s report, while the Chair encourages China to address economic challenges through further liberalisation. The Secretariat notes the increased numbers of State-Owned Enterprises (SOEs) in key industries that can act as instruments of government policy, while China outlines measures to reform SOEs and support the private sector.

China’s industry policy is another prominent theme of the review. The WTO Secretariat notes a lack of transparency in China’s declaration of government support for industry, while the Chair noted concerns about industrial over-capacity. China argues its industry support is market-conforming.

A review of imports and exports

The review is underpinned by the trends and structures in China’s trade flows, both exports and imports. These are disaggregated in Figure 1 by a two-way classification of goods. It shows a massive long-term increase in the net balance (exports minus imports) of manufactured products, which account for 95 percent of China’s total exports. The WTO Secretariat notes China’s growing surplus in merchandise trade, and higher growth in intermediate goods, reflecting deeper value chain integration.

  China’s trade balance for manufactures and primary products, 1992-23.

Source: UNComtrade, categorised by two-digit HS codes.

China’s imports are dominated by primary products (minerals, fuels, agricultural products). While total import values for all products have plateaued over the review period, China’s report notes that it has been the world’s second largest importer for 15 years in a row.

The balance of all products is shown in the green line, in the form of escalating net trade surpluses from the beginning of the 2000s. There is consensus that the magnitude of China’s trade and current account surpluses are unsustainable and undesirable. Explanations for the persistent surpluses in the literature vary from the role of the State in the economy to domestic imbalances, although explanations based on the savings-investment gap have long been questioned in China.

The discontent of importers from China

In submissions to the WTO review, most were concerned that China’s excessive exports of manufactured goods cause de-industrialisation. For example, the US writes that “The PRC has doubled down on its state-led, non-market approach to the economy, to the detriment of workers and businesses in the United States and other countries.”

The US has challenged China’s imports through complaints to the WTO, Section 301 tariffs on China’s imports in the Trump-Pence administration that escalated into a “trade war,” and a series of industry policies and export controls under the Biden-Harris administration. US barriers to the import of Chinese products such as steel and electric vehicles are shadowed by barriers from other developed countries, most recently the EU and Canada.

While statements to the WTO review have not been made public, there has also been an escalation in anti-dumping and anti-subsidy cases against China from developing countries. Cases come from India, South Africa, and a range of Latin American and Southeast Asian countries for products that include steel, metal sheets, chemicals, tyres, towers for wind turbines, and textiles. Adverse effects on industrialisation in developing countries threaten gains made in global development and China’s relations with the global South.

The discontents of exporters to China

A different set of issues arise in relation to China’s imports. Both the WTO Secretariat and China’s report note minor changes or improvements in import policies (tariffs, customs clearance rates and VAT). The Chair, however, raises concerns from members about import controls through Sanitary and Phyto-Sanitary measures, technical regulations that don’t align with international standards, and the role of State-Trading Enterprises in the import of key agricultural and mineral imports. The EU points out that these and other measures are used to pursue the objectives of import substitution, self-sufficiency, and economic coercion.

On a broader level, China’s representatives refute claims of over-capacity and economic coercion, and claim that China fulfils its WTO commitments. The Third Plenum Resolution claims that “external efforts to suppress and contain China are continuously escalating,” which, in a self-reinforcing loop, requires “systems for enhancing the resilience and security of industrial and supply chains.”