20 Years After Joining, China Still Shirks WTO Commitments, Harming Competitors With Innovation Mercantilism, ITIF Reports

WASHINGTON—Nearly 20 years after joining the World Trade Organization (WTO), China remains woefully short of meeting a broad range of commitments and responsibilities it made in order to join the organization, to the detriment of both its trading partners and the international economic system, according to a new analysis from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

The report details how China’s state-led economic model, driven heavily by mercantilist practices targeting innovation-driven industries, stands at odds with the foundational WTO principles of pursuing market-oriented policies while providing non-discrimination, national treatment, and reciprocity.

“China has failed to meet numerous WTO commitments on issues such as industrial subsidization, protection of foreign intellectual property, forcing joint ventures and technology transfer, and providing market access to services industries,” said Stephen Ezell, vice president of global innovation at ITIF, who authored the report. “China’s behavior toward the WTO and its trading partners is that of a nation that knew what it had to promise to enter the organization, but its actions have demonstrated it never intended to keep those promises.”

The report details two decades of false promises made by China since joining the WTO:

• China has rejected the WTO’s most foundational principle of a market-based orientation through favoring a state-led trade regime.
• China has defied WTO norms through industrial planning, intending to be an absolute global leader rather than gaining comparative advantage with other countries.
• As of 2016, China had over 150,000 state-owned or state-controlled enterprises at the central and local government levels. This goes against their initial promise to the WTO that they would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises.
• China’s subsidies have led to overcapacity, with several of their industries maintaining programs that are in direct violation of WTO subsidy rules.
• Since joining the WTO, China has not submitted a complete notification of subsidies maintained by the central government and did not notify a single sub-central government subsidy until July 2016. China has also failed to provide a period for public comment for new trade-related laws and regulations and regularly fails to publish measures in English, French, or Spanish before those measures are implemented.
• China has forced joint ventures and technology transfers, a violation of their legally binding promise to not condition investments on the transfer of technology.
• China has engaged in intellectual property theft, despite the WTO requirement of China having to recognize the Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement.
• China has abused antitrust laws, violating TRIPS Article 40 Section 8, which addresses “control of anti-competitive practices in contractual licenses” covenants.

The report also analyzes China’s discriminatory standards and practices through biased government procurement, restricting access to service markets, retaliatory use of trade remedies, and unfair trade practices that ultimately harm competitors.

ITIF offers a series of recommendations to address China’s ongoing recalcitrance:

• Develop a comprehensive “Bill of Particulars” against China.
• Revoke China’s Permanent Normal Trade Relations (PNTR) and renegotiate WTO market.
• Access schedules for Chinese goods and services.
• Pursue a non-violation nullification and impairment case against China at the WTO.
• Insist that China extend to other nations provisions from the U.S.-China Phase One agreement.
• Strengthen subsidies disciplines at the WTO.
• Create a Democracies’ Alliance Treaty Organization (DATO) for trade.
• Form a Global Strategic Supply Chain Alliance (GSSCA).
• The United States should join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and pursue free trade agreements (FTAs) with like-minded nations.
• The United States Trade Representative’s Office (USTR) should self-initiate more cases against China before the WTO.
• Elevate the focus on technology, innovation, and intellectual property (IP) in U.S. trade policymaking.

“Decades of gaming the global trading system and failing to meet WTO commitments have enabled China to accumulate tremendous trade surpluses and foreign currency reserves, which it uses to pursue domestic and foreign policy objectives,” said Ezell. “It is time for like-minded nations to join together to forcefully insist that China come into full and immediate compliance with all its WTO commitments and more broadly to contest China’s innovation-mercantilist strategies.”

Read the report.