DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF
It is a pleasure to welcome you to the WTO. You will visit many international institutions, but none more important to China than this one.
China's Technological Rise
China has experienced astounding economic growth over the course of the last forty years. Hundreds of millions of its people have been lifted out of poverty (although, to be sure, there is more progress to be made especially in rural areas).
While the transformation began before you were born, dating back to 1978, you will also have witnessed substantial change each year during the time that you have been in school. Visible technological progress is still very much occurring.
When I first visited China in 1988 - to give a lecture on international trade at Fudan University, there were no traffic jams. There was a sea of bicycles flowing down Chang An Avenue in Beijing, but not many cars.
In the years since my first visit to China I have returned many times. I have been back to lecture again at Fudan and I visited Tsinghua University as chair of the U.S. National Academies’ Committee on Comparative Innovation Policies, an activity of the Academies’ Science, Technology and Economic Policy Board. I chaired meetings in Washington with delegations led by the Chinese Academy of Sciences.(1) In my introductory remarks in those meetings which took place a decade ago, I would list some of the extraordinary Chinese inventions of centuries past. The list went far beyond those which all schoolchildren in the West would know about, beyond the fact that China was the source of porcelain, paper, tea, gunpowder, fireworks, rockets, silk, and even noodles, inventions that stretched over the millennia dating back to and beyond the invention of silk cloth in 3600 B.C. The long list(2) (3) includes the invention of:
- Lacquerware in 5000 BC;
- The pinhole camera in 450 BC;
- Natural gas for heat and light in 4th century BC;
- Around 200 BC;
- The magnetic compass
- The diagnosis of diabetes, and
- The rotary cooling fan
- The seismometer in 132 AD;
- Paper money in 700 AD;
- Moveable type in 1050 AD, and
- The isolation of hormones for medical treatment in 1110 AD.
I was surprised by the reaction from the Chinese side to my recitation of this astounding record of Chinese innovation. Chinese delegations would invariably answer that “that was then but now Chinese innovation has stalled”. That could not possibly be what delegations of Chinese scientists would say today.
China in the world economy today
China is now at the cutting edge or ahead in many advanced technologies. A recent article in Foreign Affairs Magazine notes that President Xi Jinping has described a formidable objective for Chinese tech: “catch up and surpass.”(4) Abbreviated as ganchao in Chinese.(5)
A number of observers consider that China is on the way to becoming a global technology leader:
China’s ability to leverage its competitive advantage in terms of market size, government industrial policy, and globalization spillovers and acquisitions has positioned it to achieve its goal of global technology leadership.(6)
China has quickly moved up the value chain, creating world-class industries in everything from 5G and artificial intelligence to biotechnology and quantum computing.(7)
China's Chang'e-4 mission reached the lunar surface in December 2018, becoming the first mission to make a soft landing on the far side of the moon.(8) A year later, China’s far side lunar rover Yutu 2, broke the longevity record for working on the surface of the moon.(9)
In an article published in the Wall Street Journal two months ago entitled China Emerges as Global Tech, Innovation Leader(10), the following data points are listed.
- China has the highest mobile payment penetration in the world;
- There are three times more internet users than in the United States—a total of over 800 million;
- China will account for the largest number of 5G connections in 2025, with 416 million - greater than North America and Europe combined;
- In 2017, China's state council published a plan aiming to become the world leader in AI by 2030, and
- China is investing heavily in semiconductor production
Add to this the following:
- China has the world’s second-largest economy;
- China is the world’s largest exporter of goods by a wide margin, at some 37.5% over the next largest exporting country (the United States)(13), and
- China is the world’s largest manufacturing country.(14)
Thinking back to the discussions that we had at the U.S. National Academies with delegations from the Chinese Academy of Sciences a decade ago, in light of China’s impressive progress in technological capacity and accomplishments, feelings of pride should certainly have replaced any defensiveness on the Chinese side. Even more to the point with respect to the world trading system, the China of today is vastly different from the China that joined the WTO in 2001.
Countries join the WTO for many reasons, but they can be summed up as consisting of a desire to promote their economic development. That is where this institution, the World Trade Organization, played a vitally important role in the development of China’s economy.
The WTO and China’s Current Economic Position
Accession to the WTO is not a quick or easy process. It involves in many cases economic reforms that are both broad and deep.
- From China’s request to resume its status as a contracting party to the GATT to its final accession to the WTO, it took China 15 years to go through the negotiations process (1986-2001).
- Twenty Working Party meetings involving 63 WTO Members were convened in the GATT period and 18 Working Party meetings were convened in the WTO period.
- China signed bilateral agreements on market access with 44 Members.
- There are 754 pages in China’s Accession Protocol (consisting of the Report and Protocol 124 pages; Goods Schedule 575 pages; and Services Schedule 55 pages).
- 168 accession commitment paragraphs were included in the Working Party report (144) and the Accession Protocol (24).
- After its accession, China reviewed and revised 2,300 laws, regulations and departmental rules at central government level, and 190,000 policies and regulations at sub-central government levels, covering trade, investment, IPR protection, etc.
- Of the 160 services sub-sectors under the 12-sector WTO classification, China committed to opening up 100 sub-sectors under 9 sectors.
- By 2010, China had fulfilled tariff reduction commitments, reducing the average tariff level from 15.3 % in 2001 to 9.8 %. It lowered the average tariff rate of manufactured goods from 14.8 to 8.9 % and cut the average tariff rate of agricultural products from 23.2 to 15.2 %.(15)
In addition, China made a number of commitments that go beyond what the other WTO Members at the time were bound by. Notably among these are:
- China committed not to influence state-owned and state-invested enterprises;
- China was obligated to ‘eliminate all taxes and charges applied to exports’ except for 84 specific types of products. For these products, the Protocol sets maximum export duty rates, which may not be raised by China except under exceptional circumstances and after consultations with affected members, and
- China accepted a de minimis threshold of 8.5% of the value of production of each basic agricultural product instead of the 10% level for developing countries, provided for under Article 6.4 of the Agreement on Agriculture.
On December 11, 2001, China officially became WTO’s 143rd Member. Doing so required sweeping domestic reforms, substantial domestic and foreign investment and integration into the world economy. Joining the WTO accelerated the process of internal economic reform in China. That is beyond dispute.
Trade is central to China’s economy, to its people’s well-being and to its future. The One Belt One Road (BRI) Initiative provides the physical infrastructure for China’s trade. That is only part of what is needed. The multilateral trading system provides the essential international legal structure. It is the necessary other half of what is needed to assure China’s economic future through trade. The Belt and Road Initiative cannot succeed without the multilateral trading system’s rules.
The Current State of the WTO
Given that the WTO is essential to the future well-being of the Chinese economy, it is relevant to inquire into the health of this institution that embodies the multilateral trading system.
The WTO is under stress:
- Measures and countermeasures in the form of substantial increased tariffs have been imposed. Some have been given a WTO justification by the Member imposing the increased tariffs, a justification that is not accepted by the Member country whose trade is subjected to the increase. Other measures have not been assigned any justification.
- One tier of the dispute settlement system – the Appellate Body - ceased to function(16) just over one month ago, as no new appointments could be made to fill vacancies.
- The negotiation on fisheries subsidies did not meet its agreed deadline, which has been extended to the next Ministerial Meeting in Nur Sultan, Kazakhstan in June. Since the WTO was founded, only three agreements have been reached. There has not been a successful conclusion of a broad package of agreements as in the preceding 8 rounds of multilateral trade negotiations.
However, it is not as bad as it looks. Far from it.
- Most of world trade by far still flows consistently with agreed WTO rules;
- Cases are still being litigated, interim solutions are being sought and put into effect for instances where an appeal is deemed necessary, and efforts are underway to restore an appellate function to the WTO’s dispute settlement;
- The regular work of the WTO committees continues unabated;
- An e-commerce joint initiative of a coalition of interested Members is making progress to extend the WTO rules to the 21st century’s digitally enabled trade;
- Negotiations are progressing in parallel joint initiatives to improve the trading system with respect to facilitating cross-border investment, as well as the participation of small and medium enterprises;
- The empowerment of women is also receiving serious attention, and
- A number of Members are considering the relationship of trade and the environment to see what improvements can be made in the rules of the trading system.
There is ample reason to conclude that the situation of the WTO is not dire. It is not as bad as current public commentary makes it out to be, but attention must be paid, as the current situation could easily get worse.
The Future of the WTO
The WTO is a one-of-a-kind international accord. Its rules are intended to be binding. Making new rules requires consensus, meaning that for a new rule to be adopted no Member objects to doing so. The WTO is the foundation for all bilateral and regional trade agreements. It is impossible to achieve on a bilateral or regional basis what must be subject of multilateral agreements. It is true of our species, and of countries, that co-operation is needed to achieve outcomes that cannot be accomplished individually or in small groups.(17) It has been said even by its most severe critics that if the WTO did not exist, it would have to be created.
As with national governments, in the long run an international organization of sovereign countries, must depend upon the consent of those who are subject to its rules. Compliance is in the main, voluntary. It must be seen to be in the interests of each Member, or adherence to the rules will decline. Legitimacy and effectiveness are essential to avoid this global system deteriorating. The maintenance of the multilateral trading system depends upon there being a continuing net positive investment in it by all, consistent with each Member’s capacity, of giving something beyond mathematical reciprocity.(18) Maintenance of the system requires that it be continuously updated.
The goal of military rivals is deconfliction. The WTO aims for far more than that. It depends upon convergence not coexistence. It aims to have market forces determine competitive outcomes. If it fails to deliver that outcome, Members will increasingly operate outside of its rules and world trade and therefore world economic growth will suffer.
China, perhaps because it is in some respects a relatively new Member, has a corps of WTO experts with very extensive expertise with respect to the WTO.(19) This resource will, I hope, be deployed to help the WTO deliver on its promise. This was the subject that I discussed recently in Beijing at Premier Li Keqiang’s “One + 6” meeting(20) and in a talk at the Center for China and Globalization (CCG).(21)
I hope that each of you, as a result of your visit to the WTO this week, will have a better understanding of the importance of the world trading system, and that further, that some of you will choose to dedicate yourselves to contributing to its future.
- See National Academies of Sciences STEP Volume: Building the 21st Century: U.S.-China Cooperation on Science, technology and Innovation (2011). https://www.nap.edu/catalog/13196/building-the-21st-century-us-china-cooperation-on-science-technology. back to text
- A longer list is included in the National Academies Report cited in this talk. back to text
- See The Man Who Loved China, Simon Winchester, Harper Collins (2008). back to text
- https://www.foreignaffairs.com/articles/china/2019-08-27/chinas-long-march-technological-supremacy. back to text
- Ibid. back to text
- China as the World’s Technology Leader in the 21st Century: Dream or Reality? https://iems.ust.hk/publications/thought-leadership-briefs/china-as-the-worlds-technology-leader-in-the-21st-century-dream-or-reality. back to text
- Ibid notes 4 and 5. back to text
- https://www.history.com/news/china-plans-historic-landing-on-dark-side-of-the-moon back to text
- https://www.space.com/china-change-4-rover-moon-record.html. back to text
- China Emerges as Global Tech, Innovation Leader, Deloite sourced article, in WSJ, Oct 30, 2019. back to text
- https://www.manilatimes.net/2018/11/21/news/world/china-a-world-leader-in-facial-recognition-algorithms/471280/471280/ back to text
- https://www.nature.com/articles/d41586-019-02360-7 . back to text
- 2017 data. https://en.wikipedia.org/wiki/List_of_countries_by_exports. CIA Factbook. back to text
- https://www.brookings.edu/research/global-manufacturing-scorecard-how-the-us-compares-to-18-other-nations/. back to text
WTO Accessions Intelligence Portal
WTO Commitments Database
China and the WTO(MOFCOM,2018)
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- An exception was notably made for at least one case, plain packaging, a case brought by the Dominican Republic against Australia. A decision will be rendered by former Appellate Body members who heard the case argued while they were still serving on the Body. back to text
- For the species, the comment is from Steven Pinker, Harvard Professor, writing in the Financial Times, December 26. 2019. back to text
- In a broader context going beyond the concept of an order based on sovereignty dating back to the Treaty of Westphalia, Richard Haas, in an article entitled World Order 2.0, The Case for Sovereign Obligation, in Foreign Affairs, January-February 2017, states “Today’s circumstances call for an updated operating system – call it World Order 2.0 – that includes not only the rights of sovereign states but also those states’ obligations to others.” What is needed, I believe, is that all countries contribute more than specific trade concessions, but contribute to the common good. No country is so small or poor that it cannot contribute its ideas and, to the extent possible, its policies and measures to the global trading system for the common good. back to text
- I was informed during my visit to Beijing two months ago that there are at least 500 WTO experts in China. Whether or not that number is completely accurate, there are many. This is not surprising for a country so deeply involved in world trade that sees its future as involving even deeper involvement through the Belt and Road initiative. In addition, the countries most conversant with the rules of the world trading system are often those who concluding their accession process once the WTO was established. back to text
- https://www.wto.org/english/news_e/news19_e/ddgaw_21nov19_e.htm. back to text
- http://en.ccg.org.cn/html/top-issues/3807.html. back to text