China’s WTO commitments: Compliance with Chinese characteristics

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By Andy Scott

In 2001 China joined the WTO, and since then, we haven’t stopped hearing about how hard the country is working to adhere to its market reform commitments. Now that China has reached the end of the WTO-scheduled opening up, the Ministry of Commerce states that China is in full compliance with all of its WTO agreements. In many cases, this is not entirely true – call it compliance with Chinese characteristics.

While Beijing has implemented most of its WTO obligations, the problems that are arising between China and its trading partners concern the country’s laws, policies and practices that deviate from the WTO’s national treatment principle. In a recent brief to the office of the U.S. trade representative, the U.S.-China Business Council said that the biggest hurdle that companies must overcome is “China’s falling short of full adherence to the general principles of the WTO” rather than an “unwillingness to implement the specific commitments of its entry agreements.”

It is the falling short to the general principles that has been of the most concern to foreign investors, and so their governments who must raise the concerns with Beijing. A foreign trade representative sends off a letter to the Ministry of Commerce, raising some sector-specific concern over China’s intransigence towards opening its markets to foreign investment.

“China committed to remove all limitations on the number of representative offices by a certain date. However, before that day arrived, the authorities issued regulations that have created a number of hurdles for foreign firms seeking to establish a representative office. We feel that the current regulations to not permit foreign access to the sector and do not promote healthy competition.”

To which the MOC responds that since joining the WTO, China has been implementing its commitments in the sector concerned by revising and formulating a series of laws and regulations that are conductive to further opening of the sector.

In one specific case regarding legal services, the MOC, in responding to questions as to why foreign firms must demonstrate an “actual need to establish a representative office in China to conduct legal service business,” stated that “China is a developing country with uneven development of economy and legal service in different regions. In light of the immaturity, irrationality and inadequacies in China’s current legal services sector, it is a responsible attitude towards foreign applicant firms for China to base the approval on the level of local social-economic development and on the actual needs.” The MOC goes on to state that no application has been rejected because of that reason, which begs the question, what is the point of it all then?

The UCBC concluded in their brief that China’s WTO membership has resulted “in a far more open, predictable and profitable business environment” for companies exporting to and operating in China. They caution however that “significant market access barriers remain in many industries and some signs point to the emergence of new hurdle.”

It remains to be seen whether the MOC and China truly implement their WTO commitments in full or continue with their form of compliance with Chinese characteristics. It is a question of whether they will, as foreign investors are hoping, adhere to spirit as well as the letter of the law.