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Top 9 False Promises That China Made in Joining the World Trade Organization

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After almost 15 years in the World Trade Organization (WTO), China has still failed to follow through on many of the trade-liberalizing commitments it made in order to convince free trade-oriented nations to approve its membership in 2001. These broken promises have harmed the global trading system as   well as both economic growth and the health of innovative industries across the United States and Europe. Here are nine commitments China made, but never lived up to:

  1. Refraining from requiring technology transfer as a condition of market access

Although its WTO accession agreement included rules forbidding China from tying foreign direct investment or market access to technology-transfer requirements, it remains commonplace for China to compel firms to hand over their technology in exchange for the privilege of investing, operating, or selling in China.

  1. Significantly reducing intellectual property (IP) theft and violations

Joining the WTO required China to recognize the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides protections for patents, copyrights, trademarks, service marks, industrial designs, digital content, and other intangible property. Unfortunately, Chinese IP theft grows unabated. The IP Commission Report on the Theft of U.S. Intellectual Property found that China accounted for nearly 80 percent of all IP thefts from U.S.-headquartered organizations in 2013, amounting to an estimated $300 billion in lost business annually.

  1. Substantially reducing production and/or export subsidies

Despite the fact that the Chinese government committed to eliminating or substantially reducing production and  export subsidies (and particularly those for loss-making state enterprises) as a condition of its WTO accession deal, since 2000 it has issued over $118 billion in subsidies to just four industries ―steel, glass and glass products, paper, and auto parts. And, if that’s for just four industries, then it’s just scratching the surface of the real extent of continuing industrial subsidization.

  1. Liberalizing foreign film distribution

When China joined the WTO, it committed to allowing “20 films to be imported on a revenue-sharing basis in each of the three years after accession” and to permitting U.S. firms to “form joint ventures to distribute videos, software entertainment, and sound recordings and to own and operate cinemas.” However, as the U.S. Trade Representative (USTR) reports, “China has not yet fully implemented its … commitment to open up film distribution opportunities for imported films that are distributed in China on a flat-fee basis rather than a revenue-sharing basis.”

  1. Joining the Government Procurement Agreement

In joining the WTO, China agreed to move quickly join the Government Procurement Agreement, which prohibits restrictions on government purchases between member countries. China has yet to make a credible offer for coverage under this agreement.

  1. Requiring state-owned enterprises to make purchases based on commercial considerations

China agreed that it would “ensure that state-owned and state-invested enterprises will make purchases and sales based solely on commercial considerations.” In other words, they are supposed to buy the best tools the world has to offer for their needs; they aren’t supposed to have preferences for or against any particular vendor or nationality. Yet these commitments fly in the face of explicit Chinese efforts to keep Chinese government agencies and state-owned enterprises from buying U.S. enterprise-developed or -manufactured information and communications technology products.

  1. Giving foreign banks national treatment

While China committed to giving foreign banks the benefits of “national treatment” within five years of WTO accession (i.e., treating foreign competitors no less favorably than domestic enterprises), USTR reports, “China still does not seem to have fully implemented particular commitments, such as with regard to Chinese-foreign joint banks and bank branches.”

  1. Opening the telecommunications market to foreign producers

China made a number of commitments in the telecommunications sector, including liberalizing foreign investment, agreeing to implement “pro-competitive regulatory principles,” and agreeing “to allow foreign suppliers to use any technology they choose to provide telecommunications services.” As USTR notes, however, “China’s restrictions on basic telecommunications services, such as informal bans on new entry, a requirement that foreign suppliers can only enter into joint ventures with state-owned enterprises, and exceedingly high capital requirements, have blocked foreign suppliers from accessing China’s basic [telecommunications] services market.”

  1. Abiding by the Technical Barriers to Trade Agreement and not manipulating technology standards

In joining the WTO, China agreed to abide by the Agreement on Technical Barriers to Trade, which prevents WTO members from using certifications and standards as a barrier to trade. But China has made the development of indigenous technology standards, particularly for information and communications technology products, a core component of its industrial development and economic growth strategy, as ITIF reports in “The Middle Kingdom Galapagos Island Syndrome: The Cul-De-Sac of Chinese Technology Standards.”

So what do we do about all of these broken promises?

Unfortunately, the WTO enforcement system has been ineffective in stopping clear infractions. And with such a weak dispute settlement system in place at the WTO, China is largely shielded from being punished for its misdeeds by individual countries.

The only real path forward, as ITIF outlines in “False Promises: The Yawning Gap Between China’s WTO Commitments and Practices,” is to adopt a new policy of “constructive confrontation.” U.S. and EU policymakers must focus on tangible results, not legal processes; come up with new thinking about how to confront state capitalism; and better empower U.S. agencies and institutions to contest Chinese technology mercantilism.

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About the author

Stephen Ezell is vice president, global innovation policy, at ITIF. He focuses on innovation policy as well as international competitiveness and trade policy issues. He is coauthor of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave MacMillan, 2015) and Innovation Economics: The Race for Global Advantage (Yale, 2012). Ezell holds a B.S. from the School of Foreign Service at Georgetown University.
  • Buggs

    It all writes off any “debts” china claims other countries owe. The list of invoices for stolen technology alone would be enough to wallpaper the great wall.