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WTO Membership for China and Russia Was a Mistake, USTR Says

Wednesday, January 24, 2018
Sandler, Travis & Rosenberg Trade Report

China and Russia have failed to embrace the market-oriented economic policies championed by the World Trade Organization and are not living up to key commitments they made when they joined the WTO, according to the Office of the U.S. Trade Representative’s annual reports on each country’s compliance with WTO rules. USTR Robert Lighthizer said this year’s reports show that “the global trading system is threatened by major economies who do not intend to open their markets to trade and participate fairly.”

The report on China takes a decidedly sharper tone than in previous years, asserting that the U.S. “erred in supporting China’s entry into the WTO on terms that have proven to be ineffective in securing China’s embrace of an open, market-oriented trade regime.” China has not dismantled policies and practices incompatible with the principles of non-discrimination, market access, reciprocity, fairness, and transparency, the report states, and instead remains a state-led economy that poses “serious problems” to the U.S. and other trading partners. Objectionable policies and practices include requiring or pressuring foreign companies to transfer technology as a condition for securing investment or other approvals; pursuing industrial policies that promote, guide, and support domestic industries while simultaneously and actively seeking to impede, disadvantage, and harm their foreign counterparts; and using policy tools not employed by other WTO members, including a wide array of state intervention and support that restricts, takes advantage of, discriminates against, or otherwise creates disadvantages for foreign enterprises and their technologies, products, and services.

The report also signals a shift toward more enforcement and away from the “cooperative high-level dialogues” of the past 15 years that “have largely failed” to bring China into compliance with its WTO commitments. “WTO rules are not sufficient to constrain China’s market-distorting behavior,” the report states, because Chinese policymakers are “not interested in moving toward a true market economy.” As a result, the idea that bringing more WTO cases alone will solve ongoing problems with China is “naïve at best” because the WTO dispute settlement mechanism “is not effective in addressing a trade regime that broadly conflicts with the fundamental underpinnings of the WTO system.” While the U.S. will continue to use this mechanism as an enforcement tool, the report states, it will also “take all other steps necessary to rein in harmful state-led, mercantilist policies and practices pursued by China, even when they do not fall squarely within WTO disciplines.”

Similarly, USTR states that Russia’s actions to date “strongly indicate that it has no intention of complying” with many of its WTO accession commitments and that it was “a mistake to allow Russia to join the WTO if it is not fully prepared to live by WTO rules.” The past year did see some progress, the report notes, as Russia implemented its scheduled tariff reductions, notified many draft measures to the relevant WTO committees, and “occasionally worked” with WTO members to address concerns. At the same time, Russia has “increasingly appeared to turn away from the principles of the WTO,” such as by adopting local content policies and practices and relying on “arbitrary behind-the-border measures and other discriminatory practices to exclude U.S. exports.” Other problem areas include a “burdensome and opaque” import licensing regime, a “less than transparent” customs legal regime, export restrictions, and an import ban on nearly all agricultural goods from the U.S. and other WTO members.

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