China: Rule-taker, Rule-shaker or Rule-maker?

Despite its ascent on the world stage, research conducted by Researcher from Singapore Management University shows that China may prefer to keep a low profile in global organisations.

Associate Professor Henry Gao

SMU Office of Research – To see the world’s future, one has to look to China. The country already has the world’s second largest economy, and it is projected to overtake the United States for pole position by the year 2020.

While its size means that its actions can have outsized effects on the rest of the world’s trade, its record in global trade organisations suggests that it may not want to rock the boat too much, says Henry Gao, Associate Professor at the Singapore Management University (SMU) School of Law.

Professor Gao specialises in the World Trade Organisation’s (WTO) laws and, in particular, China’s role in the organisation. His work has been widely cited, including by the US and Chinese governments, the United Nations (UN) and the WTO. He has also served as an advisor to the Ministry of Commerce of China and WTO.

Taking a backseat

“Judging from China’s past record in the WTO, it is unlikely that China will propose any sweeping changes to the governing structure of the institution,” he says. “Instead, China will most likely focus on refining the technical rules that fine-tune the system.”

While many analysts had predicted that China would seek a leadership role in the WTO in its first decade as a member, Professor Gao notes that it has instead kept a low profile for several reasons, including to digest and implement the unusually heavy requirements attached to its membership, and to familiarise itself with the WTO’s procedural rules.

It might also have wanted to avoid drawing attention to its awkward position on some issues. While China has called itself a developing country for political reasons, some of its interests actually lie closer to those of developed countries. Developing countries want to eliminate export subsidies and reduce domestic support for agricultural products, for instance, to raise the commodities’ prices and their income, but such measures would hurt China, which is one of the world’s largest importers of wheat, cotton and soya beans.

“Due to the difference between China’s political position and economic interests, it would be politically awkward for China to openly deviate from the ‘party line’ of developing countries. Thus, the best strategy seems to be to keep a low profile,” Professor Gao says.

On the other hand, in contrast to its reticence in WTO negotiations, it has transformed from a reluctant player to a forceful litigant in WTO dispute settlement cases, and sought to change rules that it finds discriminatory toward itself. It has also aggressively pursued regional trade agreements with other countries.

Professor Gao has written up his findings in a paper, “China’s Ascent in Global Trade Governance: From Rule Taker to Rule Shaker, and Maybe Rule Maker?”, published in a Cambridge University Press book, Making Global Trade Governance Work For Development.

Not invited to the party

In another paper, “Selected Issues in TPP Negotiations and Implications for China”, published as part of the book, Regional Cooperation and Free Trade Agreements in Asia, Professor Gao argued that China might have to institute new rules in its existing and new trade agreements to counteract the Trans-Pacific Partnership (TPP) which excludes it.

In 2013, US President Barack Obama said that China was excluded from the TPP as the United States would have a stronger hand in trade negotiations with China if it could ink a trade deal with all the other countries in Asia.

While China could ignore the TPP or seek to join it, both avenues are fraught with perils, Professor Gao explains. If China buries its head in the sand, the US will use the TPP to enhance its economic ties to Asia Pacific countries, and make rules on key issues such as e-commerce and government procurement without China’s involvement. The US could then push for global acceptance of the rules through the WTO, where it would be hard for China to resist.

If China wanted to join the TPP, existing TPP members must reach a consensus to admit a new member, and the US wields considerable clout in the partnership. This means China might have to pay heavy dues for a place at the table, as was the case for its admittance into the WTO. “Or it could also take the middle ground,” says Professor Gao, “and the third option is for China to make its own set of rules in its existing and new free trade agreements. This is, in my view, the best option for China as it could enable it to prevent the dominance of the US approach. The difficulty, however, is that China’s capacity in rule-making seems to be lacking.”

Toeing the line

Regardless of how China’s trade approach evolves, it is in the best interest of other countries, especially small ones such as Singapore, and international organisations to ensure that China plays by existing rules, Professor Gao points out.

While the proliferation of Regional Trade Agreements (RTAs) have threatened the WTO’s relevance, it could regain some power by offering its dispute settlement system as a forum to resolve conflicts over the agreements. Professor Gao elaborates on this topic in a paper he co-authored with Professor Chin Leng Lim from the University of Hong Kong that was published in the Journal of International Economic Law.

“How China acts affects smaller countries like Singapore, which relies on international trade organisations,” he says. “If China takes a disruptive approach in the WTO, for instance by simply opposing everything the US says, or if it abandons the WTO and creates its own system, it would be disastrous especially for smaller countries like Singapore.”

By Feng Zengkun