BY ELLEN ZENG
In the six years since China has joined the WTO, it has fulfilled the easiest obligations while the hardest obligations are still outstanding, explained Assistant United States Trade Representative Tim Stratford, HLS ’81, in a talk given to Professor William Alford’s class entitled “Comparative Law: Why Law? Lessons from China.” Mr. Stratford, essentially the equivalent of an assistant cabinet officer, is the person charged with overseeing the trade relationship between U.S. and China.
According to Mr. Stratford, China’s accession to the WTO has proved to be a boon for both countries. In the last six years, according to a U.S.-China Business Council Survey, bilateral trade in goods between the two countries has tripled. In addition, 87% of U.S. operations in China report a profit and 93% report positive medium-term prospects. More importantly, a World Bank study shows that during the past two decades, hundreds of millions of Chinese have been pulled out of poverty. Despite these successes, U.S.-China trade relations continue to face many challenges. These challenges, Mr. Stratford explains, largely arise “because of China’s incomplete transition from a planned economy to a market economy governed by rule of law.”
Some of the major problems confronting U.S. businesses in China include IP infringement, China’s use of market distorting polices and practices, and a lack of transparency in Chinese laws. In the area of IP infringement, China produces counterfeit goods ranging from fake Gucci bags to pharmaceutical products. As Mr. Stratford noted, if China cannot stop the production of simple goods, how can they stop IP infringements in more sophisticated areas, such as those involving complex patents?
Another area of major concern comes from the Chinese government’s use of market distorting policies and practices. For example, many of China’s state-owned enterprises are not competitive, so without the use of industrial policies and preferences for state-owned enterprises, these enterprises would fail. However, because of unemployment concerns and a lack of a social welfare net, Chinese government officials -especially at the local level- continue to support these non-competitive companies to the detriment of competing foreign companies and China’s own economic development.
A lack of transparency in Chinese laws presents a third major area of concern. In the Protocol of Accession of the People’s Republic of China, the Chinese government promised to provide a reasonable comment period before implementing laws, as well as make available upon request copies of existing laws. Neither of these obligations has been fully met.
One of the major hurdles in solving these problems lies in the challenge of distinguishing lack of capacity with lack of will on the part of the Chinese government. In certain policy areas, the U.S. and China disagree, and a lengthy dialogue may be needed to persuade Chinese leaders to alter their policies. On the other hand, in other policy areas, the two governments agree, but China at times does not have the capacity to implement the policies in the near future.
This lack of capacity results from inadequacies in China’s political, regulatory, legal, and financial infrastructures. According to Professor Alford, although China is a unitary national system, Beijing at times “falls well short of what they would like to accomplish,” for example, in local protectionism, corruption, and the lack of an independent judiciary impede enforcing IP rights. Changes to institutional structures to give China the ability to solve problems take time.
Unfortunately, even when China’s delay in resolving problems is reasonable, the U.S. often cannot afford to be patient because of the harm to American industries. To prevent such harm, the current policy is to hold China accountable as a normal trading partner. In spite of this goal, some question whether the U.S. is actually willing to enforce rules on China. Factors affecting enforcement decisions could include the fact that China owns the second largest amount of U.S. debt among foreign countries, the existence of a more delicate political relationship than with other major U.S. trading partners, and the concern that enforcing rules can create retaliatory impacts on U.S. companies in China.
Mr. Stratford acknowledged that there are no easy solutions when dealing with China and underscored the importance of maintaining an open dialogue. He cautioned that trade relations are dynamic, and emphasized that both sides are working hard to manage the rapidly evolving bilateral relationship.