China's WTO Implementation in Comparative Perspective: Lessons from the Literatures on Trade Policy and Regulation

Abstract

The debate surrounding China's compliance with the terms of its World Trade Organization (WTO) accession package usually focuses on either the Chinese government's level of commitment and/or the government's capacity for implementation. But this discussion needs to take place in the context of deeper – but generally ignored – issues raised by the academic literatures on comparative and international political economy. This article examines the implications for China's WTO implementation raised by two parts of the political economy literature. The trade policy literature forces us to examine the ambiguities inherent in the institutional and normative foundation of the WTO. The regulatory politics literature turns our attention to the enormous task of establishing a regulatory state that can effectively manage a WTO-compliant Chinese economy.

Notes

Margaret Meriwether Pearson is Professor of Government and Politics at the University of Maryland, College Park, USA.

As a general observation, interviews conducted in the summer and fall of 2002 with both trade lawyers (including former trade negotiators) and foreign business people indicate that the former group understood well the implications for China of the ideas presented here, whereas many more narrowly focused business practitioners were not persuaded by them.

Jagdish Bhagwati, ‘Multilateralism at Risk, The GATT is Dead, Long Live the GATT’, The World Economy, Vol. 13, No. 2 (June 1990), p. 155. Writing prior to the completion of the Uruguay Round, Bhagwati was concerned that this effort to reach inside borders would ultimately fail, and would leave advocates of ‘managed trade’ victorious.

See Miles Kahler, ‘Trade and Domestic Differences’, in Suzanne Berger and Ronald Dore, National Diversity and Global Capitalism (Ithaca, NY: Cornell University Press, 1996), pp. 298–332.

These debates are described in I.M. Destler, American Trade Politics, Third Edition (Washington DC: Institute for International Economics, 1995); and Anne O. Krueger, American Trade Policy: A Tragedy in the Making (Washington, DC: AEI Press, 1991).

Judith Goldstein, ‘International Institutions and Domestic Politics: GATT, WTO, and the Liberalization of International Trade’, in Anne O. Krueger, The WTO as an International Organization (Chicago, IL: University of Chicago Press, 1998), p. 151.

Anne O. Krueger, ‘Introduction’, in Krueger, The WTO as an International Organization, pp. 1–27 (specifically pp. 7–9).

Nicholas R. Lardy, Integrating China into the Global Economy (Washington DC: The Brookings Institution Press, 2002). As I discuss subsequently, the PRC also has recognized the utility of these tools, and has beefed up its own ability to use them.

Some of the most responsible examples of work which might fall into this category are found in the essays in Berger and Dore, National Diversity.

This general rule about ‘vocal losers, quiet winners’ has held true for China both during negotiations for the WTO in the late 1990s and immediately post-accession. An oddity, in terms of comparative politics, is the 1999 US debate on permanent normal trade relations status (PNTR) for China. There, the coalition in favor of granting China PNTR won against those who perceived they would be hurt by such a move.

Several studies have pointed to the crucial intervention of the top leaders in pushing through China's WTO deal. See, especially, Margaret M. Pearson, ‘The Case of China's Accession to GATT/WTO’, in David M. Lampton, The Making of Chinese Foreign and Security Policy in the Era of Reform (Stanford, CA: Stanford University Press, 2001), pp. 337–70; and Wang Yong, ‘China's Stakes in WTO Accession – The Internal Decision-Making Process’, paper presented at conference on ‘China's WTO Accession: National and International Perspectives’, Fourth ECAN Annual Conference, Berlin, Feb. 1–2, 2001.

See John Braithwaite and Peter Drahos, Global Business Regulation (Cambridge: Cambridge University Press, 2000), p. 207. The April 2002 announcement of steel tariffs by US President Bush is a prime example.

Goldstein, ‘International Institutions and Domestic Politics’. A country's position in the world economy and its comparative advantage, in addition to creating concrete trade opportunities and difficulties, will also influence the perceptions of policy-makers.

The area of services is especially subject to ambiguity. For example, in the provision of legal services by foreigners, WTO member countries are allowed to set standards for how many years of practice of lawyer has before he or she is eligible to practice in another country – just as US states are each allowed to have their own standards. Whether this constitutes a barrier to market access or simply a prudent setting of standards to ensure a credible profession is subject to debate and interpretation. But the fact is that individual countries have the right to set such standards unless a WTO dispute resolution panel were to deem them as obstructing national treatment.

On the need for such flexibility, see Braithwaite and Drahos, Global Business Regulation, p. 211; and Kahler, ‘Trade and Domestic Differences’. An important exception is tariff rates, where the precise outcome (result) is dictated by the agreement. But questions of national treatment and not tariff rates are the heart of domestic conflict over the WTO in most countries, including the PRC. Moreover, the bounds of what is permitted are often ambiguous and therefore subject to the kind of political bargaining within the WTO that is, according to Braithwaite and Drahos in Global Business Regulation, at the heart of the WTO reality.

A highly influential book that looks favorably on these political implications of globalization is Kenichi Ohmae, The Borderless World: Power and Strategy in the Interlinked Economy (New York: Harper Business, 1990). A critical treatment of this process is Dani Rodrik, Has Globalization Gone Too Far? (Washington DC: Institute for International Economics, 1997).

Lonny Carlile and Mark C. Tilton, ‘Regulatory Reform and Developmental States’, in Lonny Carlile and Mark C. Tilton, Is Japan Really Changing Its Ways?: Regulatory Reform and the Japanese Economy (Washington DC: Brookings Institution Press, 1998a), p. 4.

On the rise of the regulatory state in the US, see, March Allen Eisner, Regulatory Politics in Transition (Baltimore, MD: Johns Hopkins University Press, 1993); and the essays in Kenneth Button and Dennis Swann (eds), The Age of Regulatory Reform (Oxford: Clarendon Press, 1989).

Steven K. Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Industrial Countries (Ithaca, NY: Cornell University Press, 1996), p. 47.

See Luigi Manzetti, ‘Introduction: Latin American Regulatory Policies in the Post-Privatization Era’, in Luigi Manzetti, Regulatory Policy in Latin America: Post-Privatization Realities (Miami, FL: North-South Center Press at the University of Miami, 2000), pp. 1–11.

On how US law promotes competition (using the tools of antitrust law, private litigation, disclosure laws, etc.) through defining private entitlements and setting preconditions for government intervention, see Peter H. Schuck, ‘Law and Post-Privatization Regulatory Reform: Perspectives from the U.S. Experience’, in Manzetti, Regulatory Policy in Latin America, pp. 24–48.

These elements are a crucial focus of transaction cost theory.

Dani Rodrik, ‘Why Do More Open Economies Have Bigger Governments?’ The Journal of Political Economy, Vol. 106, No. 5 (Oct. 1998). See also Peter Katzenstein, Small States in World Markets (Ithaca, NY: Cornell University Press, 1985).

See the recent assessment of the developmental state concept in T.J. Pempel, ‘The Developmental Regime in a Changing World Economy’, in Meredith Woo-Cumings, The Developmental State (Ithaca, NY: Cornell University Press, 1999), pp. 137–87.

Carlile and Tilton, Is Japan Really Changing Its Ways?, p. 5. See also Pempel, ‘The Developmental Regime in a Changing World Economy’, p. 179.

Carlile and Tilton, Is Japan Really Changing Its Ways?, pp. 7–9. For example, Japan has an Antimonopoly Law and Fair Trade Commission. The legal limits they set on bureaucratic intervention have encouraged informal intervention to circumvent them. See Lonnie E. Carlile and Mark C. Tilton, ‘Is Japan Really Changing?’ in Carlile and Tilton, Is Japan Really Changing Its Ways?, p. 199.

In contrast to the Chinese situation, in Japan the firms that were often being preserved were small-scale. Carlile and Tilton, ‘Regulatory Reform and Developmental States’, p. 198.

Vogel, Freer Markets, pp. 58–61 focuses on two variables determining the nature of deregulation – regime (and sectoral) orientation and organization, especially the degree of fragmentation on relative autonomy of the bureaucracy. On the rise of the regulatory state in the US, see Eisner, Regulatory Politics in Transition.

I distinguish international economic regime pressure – primarily the WTO – from the security and export pressures discussed in the developmental state models. An important exception is T.J. Pempel's analysis of ‘embedded mercantilism’, which depicts Japan as formally adhering to the letter of GATT/WTO agreements, but frequently undercutting these organizations through informal means. See T.J. Pempel, ‘Regime Shift: Japanese Politics in a Changing World Economy’, Journal of Japanese Studies, Vol. 23, No. 2 (1997), pp. 333–61.

This important topic has gone virtually unstudied or even commented on outside China. Within China there is a vigorous discussion. See, for example, the volume Zhongguo Jichu Sheshi Chanye Zhengfu Jianguan Tizhi Gaige Ketizu (China Infrastructure Industries Government Regulatory System Reform Task Force), Yanjiu Baogao (Research Report), (Beijing: Zhongguo Caizheng Jingji Chubanshe (China Finance and Economics Publishers), June 2002). This report contains essays written by well-known scholars Yu Hui (Chinese Academy of Social Sciences (CASS)) and Zhou Qiren (Beijing University). Two influential scholars originally from the PRC, now in US universities, have begun to bring attention to this issue. See Lu Xiaobo, ‘From Players to Referees: The Changing Role of the State and Bureaucracy in China’, paper prepared for the annual conference of the Association of Asian Studies, Washington, DC, April 7, 2002; and Dali L. Yang, ‘Can the Chinese State Meet Its WTO Obligations? Government Reforms, Regulatory Capacity, and WTO Membership’, American Asian Review (2002). David Zweig has raised the issue of regulatory reform in mediating the internationalization of China's economy. See David Zweig, Internationalizing China: Domestic Interests and Global Linkages (Ithaca, NY: Cornell University Press, 2002), pp. 264–8.

A key goal of the US in negotiations was to ‘avoid another Japan’.

Lardy, Integrating China into the Global Economy.

With the exception of bureaucratic capacity, which I have added, these remaining parameters are a subset of the dimensions analyzed by Vogel, Freer Markets, p. 45. The business-government relationship, while ultimately crucial to any empirical understanding of the regulatory state in China, is not considered in depth in this article. In Japan, regulatory policy tends to be dominated by ‘iron triangles’ or regulators, regulated firms, and politicians. See John C. Campbell, ‘Bureaucratic Primary: Japanese Policy Communities in an American Perspective’, Governance, Vol. 2, No. 1 (Jan. 1989), pp. 5–22. The rather large literature on evolving state-business relations in reform China does not parallel the ‘iron triangle’ literature in Japan, however, as they have been aimed at understanding evolving state-society relations and predicting political reform. Thus, the relationship between regulators and firms is a ripe area for research. Examples of work on state-business relations in China include: Bruce J. Dickson, Red Capitalists in China: The Party, Private Entrepreneurs, and the Prospects for Political Change (New York: Cambridge University Press, 2003); David L. Wank, ‘Private Business, Bureaucracy, and Political Alliance in a Chinese City’, Australian Journal of Chinese Affairs, No. 33 (Jan. 1995), pp. 55–71; and Jonathon Unger, ‘“ Bridges”: Private Business, the Chinese Government and the Rise of New Associations’, The China Quarterly, No. 147 (Sept. 1996), pp. 796–819.

Vogel, Freer Markets, p. 47 and Table 5.

Lardy, Integrating China into the Global Economy, pp. 40–42.

See Zweig, Internationalizing China; and Thomas G. Moore, China in the World Market: Chinese Industries and International Sources of Reform in the Post-Mao Era (New York: Cambridge University Press, 2002).

Margaret M. Pearson, Joint Ventures in the People's Republic of China: The Control of Foreign Direct Investment Under Socialism (Princeton, NJ: Princeton University Press, 1991), p. 183.

Though not apparently a goal of Zhu Rongji's at the time, this reorganization also facilitated the ability of the central government in 1999 to offer a WTO package to the US in its bilateral negotiations that would eventually be accepted. See Wang, ‘China's Stakes in WTO Accession’, pp. 8–9. Wang notes (p. 9) that ‘about 45% of cadres at the State Development Planning Commission had to be retired or get positions in non-government institutions including state-owned companies’.

This discussion is based largely on Yang, ‘Can the Chinese State Meet its WTO Obligations?’ The Party organization and local governments (counties, cities, towns and townships) were also downsized.

Vogel, Freer Markets, p. 47 and Table 5.

On fragmented authoritarianism see Kenneth Lieberthal and David M. Lampton (eds), Bureaucracy, Politics, and Decision-Making in Post-Mao China (Berkeley, CA: University of California Press, 1992). On pluralization, see David M. Lampton (ed.), The Making of Chinese Foreign and Security Policy in the Era of Reform (Stanford, CA: Stanford University Press, 2001). In the latter volume, see Margaret M. Pearson's essay, ‘The Case of China's Accession to GATT/WTO’, pp. 337–70, on foreign economic policy.

See Hong Yong Lee, From Revolutionary Cadres to Party Technocrats in Socialist China (Berkeley, CA: University of California Press, 1991); and Zhang Baohui, ‘Institutional Aspects of Reforms and the Democratization of Communist Regimes’, Communist and Post-Communist Studies, Vol. 26, No. 2 (June 1993), pp. 165–81.

An academic version of this is Zhongguo Jichu Sheshi Chanye Zhengfu Jianguan Tizhi Gaige Ketizu. Lu, ‘From Players to Referees’, p. 5, quotes the phrase from the popular magazine Liaowang [Outlook], No. 10, March 4, 2002.

Wang, ‘China's Stakes in WTO Accession’, p. 9 (1st quote) and p. 14 (2nd quote).

Kenneth J. Dewoskin, ‘The WTO and the Telecommunications Sector in China’, The China Quarterly, Vol. 167 (Sept. 2001), pp. 630–54.

The foreign business community has noted this widely though it wishes to see it go further. See, for example, Timothy Stratford, ‘Testimony At Hearings Before The Office of the United States Trade Representative Regarding China's Implementation of its WTO Commitments’, Washington DC, Sept. 18, 2002. Available at http://lists.nrb.org/japanforum/showmessage.asp?ID=5891.

Author interviews, Beijing, Sept. 2002.

The following examples are from: Wang, ‘China's Stakes in WTO Accession’; Peter Nolan, China and the Global Business Revolution (Houndmills: Palgrave Publishers, 2001), Ch. 13; and Wu Ching, ‘The Challenges Facing China's Financial Services Industry’, in Nolan, China and the Global Business Revolution, pp. 813–38.

On anti-dumping and its sister strategy, countervailing duties, see Robert E. Baldwin, ‘Imposing Multilateral Discipline on Administered Protection’, in Krueger, American Trade Policy. On Japan, see Saadia Pekkanen, ‘WTO Law and Trade Politics in Japan’, in Saadia M. Pekkanen and Kellee S. Tsai, Japan and China in the World Economy.

Braithwaite and Drahos, Global Business Regulation, p. 212.

Banning Garrett, ‘China Faces, Debates, The Contradictions of Globalization’, Asian Survey, Vol. 41, No. 3 (May/June 2001), pp. 409–27.

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Margaret Meriwether Pearson

Margaret Meriwether Pearson is Professor of Government and Politics at the University of Maryland, College Park, USA.