WTO Trade Review of China Calls for Increased Transparency, Reduced Barriers

China Recognized for Duty-Free Scheme for LDCs, Etc.

The WTO states that there has been recognition of China's constructive role in resisting protectionist pressures and boosting global demand during the recent economic downturn, appreciation for its stepped-up involvement in South-South trade and its duty-free scheme for imports from least-developed countries (LDCs). The WTO also acknowledges that China has continued the gradual liberalization of its trade and investment regimes.

WTO Says Lack of Transparency, Trade Barriers Still Problems

Despite such progress, the WTO states that the following problems remain since China’s last trade policy review in 2008¹(partial list):

Lack of transparency. Certain aspects of China's trade policy regime remain complex and opaque. For example, there are no apparent criteria for publication of government regulations, and sometimes, no advance notice is given for changes (such as when voluntary standards become mandatory). The WTO notes that China ranked 38th among 48 countries in the 2009 Opacity Index, which measures the degree to which countries lack clear, accurate, easily discernible, and widely accepted practices governing the relationships among governments, businesses, etc.

Tariffs still average 9.5%, can be complex. The tariff remains one of China's main border measures with an average applied MFN tariff rate of 9.5% in 2009 (down from 9.7% in 2007. China's tariffs can also be complex, as China’s applied MFN tariff contains 60 different ad valorem rates. Tariff exemptions are provided for, among other things, goods imported in bond under processing trade (which accounted for about 40% of China's international trade), if they are exported within a certain period.

Regulatory barriers. The WTO states that China should continue reducing regulatory and other barriers to trade, especially customs procedures, technical regulations and standards (including SPS measures) and certification practices, import licensing, and export restrictions (notably taxes and partial VAT rebates)

Export restrictions. China's export regime is still characterized by various restrictions, notably prohibitions, licensing, quotas, taxes, and less than full rebates of value added tax (VAT) on exports. Export taxes and VAT rebates on exports are also adjusted from time to time, according to the authorities, to reflect the changing international environment, or to save energy, protect the environment, and conserve natural resources.

Concern about indigenous innovation, progress in IPR. The WTO also noted concerns over China's indigenous innovation policies², and their effect in restricting access for foreign products, investors, technology and intellectual property. It adds that China may need to accelerate its progress in intellectual property rights protection in order to achieve its goal of having comparatively high standards by 2020.

Trade Developments Since Last Review

Since China’s last review in 2008, the following trade developments have taken place:

Export dependence & overreliance on manufacturing exposed. China's dependence on export-led growth left it vulnerable to the effects of the global economic recession that began in late 2008. In 2009, China's exports fell by 16%, and imports fell by 11%, reflecting the high import-intensity of its manufactured exports. In addition, China's heavy reliance on manufacturing has resulted in over-investment and excess capacity in certain industries, which became obvious when external demand declined.

GDP rebounded, became world’s largest exporter. Despite its problems, growth rebounded in subsequent quarters so that in 2009 overall, China achieved real GDP growth of 8.7%. In January 2010, China overtook Germany to become the world's largest exporter. China remains the world's second largest importer, behind the U.S.

Made innovation a development strategy. China identified the promotion of innovation as a national development strategy. In June 2008, China’s State Council issued the Outline of the National Intellectual Property Strategy, with a view to enhancing IPR protection and promoting the creation and utilization of intellectual property, and thus encouraging innovation activities. China’s indigenous innovation policy has been widely criticized by the U.S. and others.²

Took its first CV measures (against U.S.). China also initiated its first countervailing investigation in June 2009. By the end of 2009, it had initiated three investigations, involving grain-oriented flat-rolled electrical steel, chicken meat, and saloon and cross-country cars, all originating in the U.S. In December 2009, China imposed provisional CV duty measures on grain-oriented flat-rolled electrical steel from the U.S. China also remained the most frequent target of antidumping measures.

Intensified pursuit of FTAs, etc. China continued to intensify its pursuit of bilateral/regional free-trade agreements. Since its last review, the China--New Zealand FTA entered into force on October 1, 2008, the China--Singapore FTA entered into force on January 1, 2009, and the China--Peru FTA was signed in April 2009. In addition, the China and Pakistan agreement on trade in services entered into force in October 2009, and the China--ASEAN FTA on Investment was signed in August 2009. Five further FTAs (with Australia, Costa--Rica, GCC, Iceland, and Norway) are being negotiated.

Amendments to trade-related laws. China continued to review, revise, or amend its trade related laws since its last review. These included the Anti-Monopoly Law (effective August 1, 2008), China's first comprehensive competition law, and the Patent Law (effective October 1, 2009), which strengthened patent protection by, among other things, increasing penalties against infringement. China also notified the WTO that it was revising its Copyright Law based on recommendations and rulings of a WTO dispute settlement panel.

(See the “Trade Policies and Practices by Measure” section for a general overview of China’s trade procedures during the period of review. For example, this section states that there were no major changes in China’s Customs procedures or preshipment requirements since China's previous review; that there were no changes to its rules of origin during the period of review; that 95 tariff lines were subject to non-automatic import licensing in 2009; etc.)

¹All WTO members are reviewed under the Trade Policy Review Mechanism, with the frequency of each country’s review varying according to its share of world trade. Like the U.S., China is reviewed every two years.

²See ITT’s Online Archives or 05/2010 and 05/17/10 news, 10052167 and 10051764, for most recent BP summaries regarding indigenous innovation.

(See ITT’s Online Archives or 06/07/10 news, 10060409, for BP summary of Xinhuanet’s reaction to this WTO criticism of China’s export restrictions.

See ITT’s Online Archives or 06/11/08 news, 08061135, for BP summary of the WTO’s 2008 Trade Policy Review for China.)

EU statement on China’s 2010 Trade Policy Review (dated 06/02/10) available here.