Beijing is riding rough-shod over its WTO pledges

PUBLISHED : Monday, 14 November, 2011, 12:00am
UPDATED : Monday, 14 November, 2011, 12:00am

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At the weekend's summit of Asia-Pacific leaders in Hawaii, the United States unveiled its plans for a new 'Trans-Pacific Partnership' multilateral free-trade zone.

Nine countries, including Australia, Vietnam and Chile have signed up so far, with Japan keen to enlist in the new group as soon as possible.

China has not been invited to join. On the contrary, the US administration used the Hawaii meeting to dish out some stern criticisms of what it sees as China's grossly one-sided trade policies.

On Thursday, Secretary of State Hilary Clinton demanded a level playing field, calling on China to 'end unfair discrimination against US and other foreign companies'.

'We want you to play by the rules,' added President Barack Obama on Saturday. 'The bottom line is that the United States can't be expected to stand by if there is not the kind of reciprocity in our trade relations and our economic relationship that we need.'

These comments reflect the growing frustration felt by China's trade partners, who believe the country's government has signally failed to live up to the pledges it made on joining the World Trade Organisation in 2001, and that 10 years on Beijing continues to ride rough-shod over both the letter and the spirit of its WTO accession agreement.

Back in 2001, the excitement among foreign business executives over China's WTO membership was almost as great as in China itself. WTO membership, they believed, would be the lever that finally pried open China's domestic markets to international corporations by promoting transparency and free and equal competition.

'The WTO provides China with a path to market economics, which will help break local and departmental monopolies that have proven so hard to crack from inside,' wrote the head of the American Chamber of Commerce in China at the time.

'Reforms will be pushed to a new level,' added incoming WTO director general Supachai Panitchpakdi.

Today those hopes have been dashed. Far from accelerating reform and market-opening, WTO membership handed Beijing an export windfall that allowed policy-makers to slow domestic liberalisation to a snail's pace. Now the state wields even more economic power than a decade ago. Well-connected domestic corporations continue to benefit from a wide range of government subsidies, and foreign companies are openly discriminated against.

A September report from the European Union Chamber of Commerce in China identified 10 main areas from the vehicle sector to financial services to renewable energy in which foreign companies still face formidable barriers to entry, despite Beijing's pledges of equal treatment.

For example, to apply for a licence to provide design services to the construction sector, foreign companies are required to present a portfolio of their Chinese projects. But without a licence, they are forbidden from working on local projects in the first place.

Meanwhile, foreign competitors are shut out of government contracts, the abuse of foreign companies' intellectual property is rampant, and domestic corporations continue to enjoy subsidised energy and capital as well as the advantages of an undervalued currency.

Just last week, the US Department of Commerce launched an investigation to determine whether Chinese solar panel-makers are benefiting from illegal government subsidies.

Recently Beijing has also taken to restricting the export of key raw materials including rare earth minerals. Foreign observers say the move is clearly aimed at cornering lucrative processing and manufacturing industries.

Under its WTO accession agreement, China is allowed to impose export restrictions on 84 different products, notes Jim Bacchus, former head of the WTO's appeals court. 'And rare earths are not on the list.'

As a result, after 10 years of disappointment, China's trading partners are feeling bitterly disillusioned at Beijing's failure to fulfil the obligations it signed up to on joining the WTO.

So it's little surprise that in drawing up the rules for the Trans-Pacific Partnership, the US is insisting that currency manipulation, forced technology transfers and mandatory joint ventures with state companies should be prohibited. And it's no surprise at all that China isn't being invited to join.