Business Forum: Are China and Russia ‘irresponsible’ traders?

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Were Western nations naive to think that China and Russia would become responsible trade partners in the global trading system? Whatever our hopes may have been, these two giants have been irresponsible since joining the World Trade Organization. What’s worse, so far they are getting away with it.

At a recent conference of government officials, business leaders and trade experts on the future of the WTO, one delegate noted membership made it possible for China to become a major economic power. She asked the Chinese delegate, “What is China’s responsibility, as a principal beneficiary of WTO to support and respect the ‘public goods’ created by the WTO system?”

She noted China continues to provide massive and widespread subsidies to industry and agriculture despite its commitment to adopt market economy principles. It ignores WTO rules to notify all members about subsidies so that the subsidies can be challenged on an informed basis. When a global trade deal in the Doha Round came close to agreement, did China consider the global benefits of that deal before siding with India on agriculture, thus blocking the deal?

The China delegate, an adviser to China’s trade agencies, replied, “What kinds of goods are these ‘public goods’? Who makes them, and what is their price?” Is this just a linguistic misunderstanding? Or does it suggest readiness to free-ride on a system that helped create tens of millions of Chinese jobs and increase China’s reserves to $3 trillion?

Similarly, Russia, the last major economy to join in 2012, committed to open its economy as required by WTO rules. Russia had sought membership for 18 years, both for increased trade and investment and for enhanced international standing.

But since 2012, Russia has raised tariffs it pledged to reduce; set up illegal barriers to foreign cars and farm products; and failed to make required disclosures about a customs union with Kazakhstan and Belarus. As part of the WTO’s review of Russian trade policies, in May, the U.S. ambassador said publicly to all WTO members:

“More broadly, we note that Russia is moving increasingly to build walls around its economy, whether through implementing trade restricting measures … or by adopting import substitution and local content rules that have the same trade restrictive result.”

In the WTO review of China in July, the U.S. said “innumerable” policies seek to limit market access for imports as well as foreign manufacturers and service providers. The WTO Secretariat noted repeated failures by China to report subsidy programs.

During China’s first 12 years as a member, it notified only two of its hundreds of industrial, agricultural and fishing subsidies. In October 2011, the U.S. filed a unique counternotification detailing 191 subsidies China should have reported. But the U.S. has taken no follow-up action.

Speaking more broadly about the Doha Round negotiation process, on July 16 the U.S. ambassador to the WTO told Congress that for the Doha Round to succeed, “the emerging developing countries — those with large and growing economies that have benefited so much from increased global trade — must contribute appropriately to any outcome.” The ambassador said the lack of such contributions has been the central stumbling block to the process and must be resolved if the WTO is to live up to its full potential.

What should be done about this?

The G-7 (Britain, Canada, France, Germany, Italy, Japan and the U.S.) should issue a statement strongly reaffirming the responsibilities that accompany the benefits of participation in the global trade system. The G-20 should give its members China and Russia the opportunity to address how they are fulfilling these responsibilities. This dialogue should be sustained as an informal monitoring system.

Organisation for Economic Co‑operation and Development countries should quantify the trade and investment benefit China and Russia have enjoyed from World Trade Organization membership to underscore the responsibility side of the equation.

The U.S., EU and Japan have initiated several WTO dispute settlement cases against China with some success, but only in the product-specific issues in question, e.g. Chinese solar panels or Russian foreign auto recycling fees. But if a coalition of concerned members combined to file jointly and simultaneously a number of cases that also demonstrated repeated patterns of action that violate fundamental WTO principles, the world — including Beijing and Moscow — would take careful notice.

Naming-and-shaming in the court of public opinion and follow-up monitoring take time, and the intended results cannot be guaranteed. But can the global trade community, dedicated to a system of rules for trade and to negotiations for the benefit of the largest number in a spirit of shared enterprise, do any less?

Sherman Katz is senior adviser, Center for the Study of the Presidency, in Washington, D.C.

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