China Not Living Up to WTO Commitments to Detriment of Global Trading System, Warns ITIF; Urges ‘Constructive Confrontation’ As New Path Forward

WASHINGTON—Ahead of Chinese President Xi Jinping’s visit to the United States later this month, the Information Technology and Innovation Foundation (ITIF) released a new report today outlining the many ways China has failed to live up to the commitments it made when it joined the World Trade Organization (WTO) in 2001 and describing how those broken promises have harmed the global trading system and economic growth across the United States and Europe. ITIF urged U.S. and European policymakers to adopt a new strategy of “constructive confrontation” to rein in China’s innovation mercantilism.

“Trade with China has been one step forward, two steps back for almost 15 years,” said co-author Stephen J. Ezell, vice president for global innovation policy at ITIF. “Each time China claims to move toward opening up trade, they turn around and introduce another new mercantilist trade barrier to counteract it. Unfortunately, the WTO enforcement system has been ineffective in stopping these 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. In 2001, the pundits were nearly unanimous in saying that joining the WTO could change China as it bought into the same rules of the game that everyone else plays by. Now we know that what they really bought from Geneva was a ‘get out of jail free’ card.”

In the new report, “False Promises: The Yawning Gap Between China’s WTO Commitments and Practices,” Ezell and co-author Dr. Robert D. Atkinson, ITIF’s president and founder, argue that after almost 15 years in the WTO, it has become abundantly clear that China has failed to follow through on many of the trade-liberalizing commitments it made in order to convince free trade-oriented nations to approve their accession to the WTO. Furthermore, they contend that China’s aggressive innovation mercantilism has in fact become more severe, with the country continuing to disregard core tenets of rules-based trade and seeking absolute advantage in a range of industries. This continued flouting of WTO principles poses a serious threat to the global innovation system―not to mention the U.S. and EU economies and the health of their advanced industries.

The report enumerates a series of commitments that China made when it joined the WTO but then failed to fully deliver on, including:

• Refraining from requiring technology transfer as a condition of market access;
• Joining the Government Procurement Agreement;
• Requiring state-owned enterprises to make purchases based on commercial considerations;
• Giving foreign banks national treatment;
• Opening the telecommunications market to foreign producers;
• Liberalizing foreign film distribution;
• Substantially reducing export subsidies;
• Significantly reducing intellectual property theft and violations; and
• Abiding by the Technical Barriers to Trade Agreement and not manipulating technology standards.

Ezell and Atkinson recommend “constructive confrontation” as the new path forward for U.S. and European policymakers to counter China’s innovation mercantilism. More specifically, they call for a results-oriented, not legal process-oriented, strategy; new thinking about confronting state capitalism; and better empowerment of U.S. agencies and institutions to contest Chinese technology mercantilism.

“China participating in the global trading system could be a boon for the global economy, but only if it plays by the rules and norms of the WTO. And right now, they are acting counter to both the spirit and the letter of the law,” said Atkinson. “The United States and Europe have been playing ‘whack-a-mole’—winning some cases, losing others, and failing to take on many more. The only real choice now is ‘constructive confrontation.’ Without it, the global trading system will continue to deteriorate, U.S. and EU advanced industries will continue to suffer, and China will continue to walk all over its trading partners.”

Read the report here.