China on the Mat Over State Control, Subsidies, Export Restrictions and IPRs in WTO TPR

Beijing’s trade policies came under detailed scrutiny at the WTO last week, as the global trade body conducted its biennial review of one of its largest traders. While the 240-page report by the WTO secretariat praised the Asian country for its economic achievements during its transition to a market-based economy, it also repeated earlier calls for better transparency and questioned measures aimed at restricting exports - concerns reiterated by some WTO members, such as the EU and US.

The secretariat found that, in the two years under review, China had adopted few measures to liberalise trade and investment. In addition, though Beijing - like many other WTO members - had “resisted a trade-restrictive response overall to the effects of the global economic crisis,” it had also adopted in various instances measures that “restrict or may restrict trade,” notably in the area of exports.

While there had been improvements in the area of transparency, various aspects of China’s trade and investment policy regime “remain complex and opaque, leaving scope for administrative discretion and corruption,” the WTO report noted.

EU, US express fears of China “moving backward”

During the two-day Trade Policy Review (TPR), both the EU and US were among the members to raise questions about China’s policies during the 2010-2011 period, and called for Beijing to “lead by example” in light of China’s growing role in international trade and open its markets further.

“We are worried… not only of China standing still, but also moving backward,” US Ambassador to the WTO Michael Punke said in his remarks.

“Since China’s 2010 TPR, it appears the trend toward state intervention in the Chinese economy has intensified,” Punke added. “China’s tighter embrace of state capitalism now runs directly counter to the economic reform goals that originally drove its pursuit of WTO membership, goals that had offered real leadership and real promise for China’s future economic growth.”

The state capitalism allegations drew a harsh response from Chinese Assistant Minister for Commerce Yu Jianhua, who stressed in his remarks that the TPR process “should be based on WTO rules and should not be politicised.”

EU Ambassador to the WTO Angelos Pangratis also cited fears that China’s reform process was slowing down, noting that, “despite some incremental progress in certain sectors, most of [the EU's] concerns highlighted during the last review in 2010 are still pertinent today - and some have become even more acute.”

Beijing, for its part, underscored that moving backwards was not an option. “We wish, through the review, member countries will gain a better understanding of this reality in China and recognise China’s continuous efforts to reform, open up, and improve its economic and trade regime and policies,” Yu said.

Subsidies, export restrictions under scrutiny

Subsidies and other government assistance are “important features of China’s trade policy and industrial policy making,” the WTO report said, noting that China did submit a new subsidies notification to the WTO in 2011 that listed those programmes providing assistance at the central government level between 2005 and 2008.

“However, in many cases there are no figures on the magnitude of support provided, and no information is available on subsidies and other government assistance provided at the provincial level, which are believed to be considerable,” the WTO added.

The US similarly complained about the level of subsidy notifications, calling such concerns “far from trivial.” Last September, Washington had submitted a list of approximately 200 subsidies that it alleged China had failed to notify the global trade body.

China has said that it aims to improve its efforts to notify the WTO of local subsidies in the future. “What we will do next is to extend our efforts to the sub-central level by training local officials and incorporating sub-central subsidies in the notifications,” Yu noted in his remarks, adding that a delay in subsidy notification is a common problem among WTO members.

Export restrictions

The long-running controversy over China’s use of export restrictions also resurfaced during the review, with the EU Ambassador noting that the Asian country’s use of such policies - such as with raw materials, which was the subject of a high-profile WTO dispute involving the US, EU, and Mexico as co-complainants - are “an exception” to Beijing’s “commitment to resist protectionism during the economic crisis.”

China’s export restrictions on nine raw materials were deemed WTO-incompatible by the WTO Appellate Body earlier this year (DS394, 395, 398). Another dispute involving the US, EU, and Japan over rare earths is currently in the consultations phase.

China, meanwhile, noted that while it does use export controls, these are all consistent with WTO rules. “Export control on highly polluting, energy consuming products and exhaustible natural resources is a part of our effort to protect the environment and achieve sustainable development under the mounting resource and environmental pressure, [and] therefore is necessary at present,” Yu said.

Intellectual property rights

Both US and EU officials also criticised Beijing for allegedly insufficient efforts toward enforcing intellectual property rights (IPRs).

China’s efforts to improve its “inadequate and uneven enforcement of intellectual property rights… have still not significantly reduced the unacceptably high infringement levels in China,” Punke said.

Pangratis, for his part, echoed these concerns, specifically in the areas of forced technology transfer and the alleged difficulties in prosecuting criminal and civil IPR cases. “The EU continues to encourage China to create a truly innovation-conducive environment in which its IPR enforcement regime is duly enhanced, at all levels of government.”

For its part, China, in its government report to the WTO, noted that strengthening IPRs protection “has always been an important part of the work of the Chinese Government to accelerate the construction of an innovative country.”