Proposals for reforming the WTO

The first set of proposals, entitled “WTO modernisation: Introduction to future EU proposals,” was issued by the European Union in September 2018. Three days later, Canada followed suit with its own discussion paper on “Strengthening and Modernizing the WTO.” The United States has not issued any comprehensive proposal, but used stand-alone proposals to address many specific issues directly. In addition, Canada also convened a series of meetings with a group of like-minded countries. Informally referred to as the Ottawa Group, the group includes most of the key players in the WTO, except China, India and the United States.

While they all differ from each other, the proposals by Canada, the European Union, the United States and the Ottawa Group as a whole share a lot of commonalities — especially regarding three categories of particular relevance to China.

First, the proposals align on the need to update the substantive rules of the WTO. This includes clarifying the application of “public body” rules to SOEs, expanding the rules on forced technology transfer and addressing barriers to digital trade. All of these are long-standing issues that have been litigated in the WTO. They each reflect a major concern about China’s trade and economic systems, which employ measures that are perceived as unfair trade practices. This first basket of issues includes concerns about China’s unique state-led development model, which emphasizes the role of state-owned firms in the Chinese economy, often blurring the boundary between the state and the firm. Other issues of concern include China’s overzealous drive to obtain and absorb foreign intellectual property rights, where foreign firms are met with explicit or implicit demands to trade their technologies for access to markets. Another concern touches the core of China’s authoritarian regime, especially its tight control over information and the internet.

The second category addresses the procedural issue of boosting the efficiency and effectiveness of the WTO’s monitoring functions, especially those relating to compliance with the notification requirements of the WTO, such as those on subsidies. While no WTO member may claim a perfect record on subsidy notifications, China’s failure in fulfilling the obligation is deemed particularly egregious. This seems to be a perennial problem that the US Trade Representative has been complaining about ever since China’s accession to the WTO. To address the problem, the joint draft on strengthening the notification requirements (authored by Canada, the European Union, Japan and the United States) proposed some rather drastic measures, such as naming and shaming the delinquent member by designating it as “a member with notification delay,”
curtailing the member’s right to intervene in WTO meetings and nominations to chair WTO bodies, and even levying a fine at the rate of five percent of the member’s annual contribution to the WTO.