The international trading system continues to teeter, and few issues in trade are more urgent than undertaking the necessary WTO reforms. The continued relevance of the institution is at stake, and any useful dialogue that could be conducted in Shanghai under Chinese leadership would be welcome.

There is however a powerful subtext to the mini-ministerial, which, over the longer term, might prove to be of equal if not greater importance than the ostensible purpose of the meeting. As the United States continues to withdraw from its historical role as de facto leader of the global trade system, China is in the process of defining the nature and the parameters of the role that it intends to play.

There are, therefore, two separate but closely related stories unfolding: 1) the ongoing efforts of ministers from key trading countries to attempt to work out much-needed WTO reforms, and 2) the gradual redefinition of China’s place and role in global trade governance.

Developments on each track are closely linked and mutually reinforcing: To the extent China can play a constructive role in galvanizing useful WTO reforms, it will burnish its credentials as a primary guardian of the global trade system. By the same token, if China is increasingly looked upon as a champion of the trade system, it will enhance its ability to shape the WTO reform process.

This leads to an obvious but critical question:

What role can – and should – China play in the WTO reform process?

When the foundations of the modern global trade system were established in the late 1940s, China – which was then isolated, agrarian, and poor — did not have a seat at the table. The United States, on the other hand, accounted for 50 percent of global GDP, and its philosophical principles (market-driven economics, open trade and investment regimes, privatization, and strong property rights – the so-called Washington Consensus principles) were ascendant.

By virtue of U.S. preeminence, the post-war trade architecture (first under the auspices of the GATT and subsequently the WTO) was predicated on the Washington Consensus principles, and the assumption that all major trading countries would inevitably subscribe to them. This was certainly the assumption made at the time of China’s accession to the WTO in 2001.

Today, thanks largely to its WTO membership, China is the leading trading nation in the world, and possesses a technologically sophisticated $14 trillion economy. Its success has been built on the back of a centrally-managed economic system that challenges many of the prevailing precepts of Western capitalism, and the foundational principles upon which the rules-based trade system was built. Contrary to expectations, China’s state-directed capitalism system is more entrenched than ever.

Incompatibilities between China's economic system and WTO rules need to be resolved

As China’s economic might continues to grow, the incompatibilities between its system and the assumptions about how trade would be conducted under a WTO rules-based system are coming into sharper relief.

Massive state-owned enterprises, enjoying direct and indirect forms of government support, are engaging in a lopsided competition against private companies that are constrained by marketplace realities. Unwritten rules and informal “understandings” between business and government can block market access in China for foreign competitors who were led to believe the door would be open. Central and provincial governments can use their oftentimes preponderant position in the market to “encourage” foreign technology transfers that otherwise would never have happened. And Chinese regulators frequently render critical decisions based not on the objective facts, but rather on the basis of China’s economic priorities.

WTO rules – at least as currently constituted – have proven incapable of satisfactorily adjudicating these systemic frictions and incompatibilities.