China Esquire

What has been surprising among the China law blogger community is the dearth of commentary on China’s first loss at the WTO. It was a surprise to me that they had never lost before, but WTO proceedings are not something I am terribly familiar with.

AFP reports ( h/t to Chinese Law Prof Blog):

China can expect more tough fights at the WTO after its landmark defeat on car-part tariffs, as countries fed up with its practices will look to the global trade body for help, experts said Thursday.

The case on auto parts was among a growing line of complaints at the World Trade Organisation targeting China, and the victory by the plaintiffs’ side could embolden nations to take a tougher action against the trading behemoth.

“The US could become more aggressive,” said Andy Xie, an independent economist based in Shanghai. “I think Europe, now with two-way trade in favour of China, could also be more aggressive.”

The case is the first time China has been the subject of a complaint that went all the way through to the WTO’s Dispute Settlement Body since it joined the organisation in 2001.

Beijing has a minimum local content requirement of 60 percent for home produced cars and if this is exceeded, it then levies the same tariff on the vehicle as it would if it was imported completely built.

Now the question is, what is China going to do about it this inconvenience? One response is to respect it, learn more about WTO procedure, and prepare for the future, where lessons learned here can allow China to better represent itself before the WTO in the future. That seems to be the thought of the AP:

China refused Thursday to say how it will respond to a defeat in a World Trade Organization dispute over auto parts but expressed respect for the WTO process.

“China respects the procedure to solve the dispute, but we will not comment on the issue until it is solved,” said Foreign Ministry spokesman Liu Jianchao at a regular news briefing. He said he was speaking on behalf of China’s Ministry of Commerce, the department that normally handles such disputes.

Liu did not answer a reporter’s question about whether Beijing will appeal.

The AFP article article, on the other hand, suggests a much darker “solution” to China’s setback, which is to withdraw from the WTO:

For its part however China sees itself as a defender of the WTO system, and such a loss could trigger a backlash at home, said Mei Xinyu, a trade expert with the Ministry of Commerce.

“It could push China to re-examine the rationality of WTO rules as well as our price for joining WTO,” said Mei.

China this year lodged its own complaint of its own over what it claimed were unfair US anti-dumping and anti-subsidy investigations into products such as specialist paper, although Mei said they had much to learn.

“Our skills with the WTO rules are far less than those of the US and Europe. But if we keep avoiding solving problems by WTO’s dispute settlement mechanism, we are giving our opponents a chance to cheat us,” he said.

Of course, it is a possibility that China will bow out of the WTO. But somehow, I have my doubts that China would take this action. It’s joining the WTO in 2001 was heralded as a big deal in the media. I wasn’t so interested in China trade back then, but even I heard a lot about it. It made China look really good–all of the western media outlets were praising China, talking about how it was developing as a superpower, and trumping up China’s economic boom. I can’t imagine the huge backlash that would happen if it backed out, but let’s just say it would be really ugly. And China can’t stand to lose face that way.

The other thing is that the Chinese are passive aggressive. They will likely eat the shame, deny it of course, but then use that as a springboard to become experts in the WTO law and process… and use it to teach other nations a lesson in the future. Whether it will actually be able to do so is a separate question, but I can imagine that this will be the government’s response in the long run.

Silicon Hutong recently had a post about why Spielberg’s withdrawal from the Olympics would not work because it is passive aggressive. It reminded me a lot about the WTO situation:

If there is a single lesson to be drawn from history, it is that the Chinese government has a passive-aggressive streak that is both wide and deep. Public efforts by governments, organizations, or individuals from outside of China to coerce or embarrass Beijing into a policy change on matters either foreign or domestic do not work. Instead, they consistently provoke a visceral negative response that is often seen by outsiders as disproportionate or even extreme.

There are cultural, historical, and political reasons for this. One need only review with a measure of empathy the past two centuries of China’s international relations, its serial humiliations at the hands of the European powers, Japan, Russia, the United States and even, briefly, Vietnam to understand why no Chinese leader, government, or party could be seen to cave to a foreign demand.

And it is not that the Party will not stand for it – the Chinese people will not. A little time in Internet chat rooms in China or actually speaking to people here would tell you as much.

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