Global membership

Way back in 1986, China applied for membership in the General Agreement on Tariffs and Trade (GATT) initiative, the predecessor to the World Trade Organization (WTO). The application failed to generate much enthusiasm among existing members, promoting Beijing to back off.

In 1998, however, Prime Minister Zhu Rongji made another attempt. He saw the country facing massive economic problems that threatened to escalate without reforms.

"There were many necessary reforms but they couldn't be implemented," said Doris Fischer from the German Development Group. The Chinese leader, she said, made a clever move to introduce reforms by arguing that the country required them to be accepted into the global trade organization.

Seeking assurances

Because China was not just any country but one with the world's largest population and pool of cheap labor, Americans and Europeans worried that global markets would be flooded with Chinese products. Accordingly, both groups sought assurances from the Chinese.

The Americans and Europeans reserved "certain intervention options, giving them the certainty to say 'This is a very important, large producer and consumer of goods - we want to enter this market and need China's membership in the WTO,'" said Rolf Langhammer, vice president of the Kiel Institute for the World Economy.

On December 11, 2001, China finally joined the WTO as its 142nd member. "We paid a high price for the membership," said Chinese Minister of Commerce Chen Deming, referring to the pressure that Chinese farmers and employees in ailing state-owned companies have faced in adjusting to a new economic order.

"China has mastered the adjustment fairly well," Fischer added. A flood of migrant workers, she said, have poured into cities and found work in the budding private sector.

And two other groups have benefitted as well, commented Landhammer, "Consumers have enjoyed relatively low prices, considering China has a tendency toward higher inflation than other countries, and then there are the users of imported goods."

Intellectual property rights

China has made good on its promise to lower import duties and open its service sector to foreign companies, according to Chen Deming. Among other steps, the government has approved more than 3,000 rules and regulations, including new laws on protecting intellectual property right.

Langhammer pointed to progress in this area, for instance, in the number of new lawyers being trained. Yet he said "there is still a tendency among Chinese companies to copy products - pure and simple."

If litigation in this area is far less than assumed, it is significant in the area of anti-dumping, where China has become increasingly defensive. "The fact that China uses the WTO as an instrument to protect its interests is an incredible success," Fischer said. "The country clearly understands the function, significance and benefit of the WTO."

The global trade organization has sided twice with the Chinese, in brawls with the EU over punitive tariffs on shoes and screws from China. In July 2011, the country suffered a defeat: An arbitrary court in Geneva ruled that Beijing's export quotas on nine rare earths were not consistent with the world trade regime. The legal challenge was led by the EU, United States and Mexico. Policymakers in Beijing responded by signaling a willingness to alter its raw materials strategy.

China's WTO story isn't just about legal disputes, however; it's also about an economic boom. From 2002 to 2008, the Chinese economy grew annually by 11.4 percent. In 2000, the country was the world's seventh largest exporter and eight-largest importer.

Billions in direct investments

By comparison, last year it was the world's largest exporter and number two for imports. The Chinese share of global trade has tripled to 10.4 percent since joining the WTO. The world's largest growth market has meanwhile attracted more than $700 billion in direct investments.

However, the global financial and economic crisis has impacted global trade as well as the WTO. Even though protectionism hasn't spread, negotiations over the ending customs duties and subsidies - the so-called Doha global trade rounds - could well fail.

What is missing, according to Langhammer, is a hegemon committed to implementing the WTO framework. The Europeans aren't willing to take on this role, nor are the American or the Asians.

"That's the WTO's real dilemma," he said. "Alone, the organization can accomplish little with its framework. It is always dependent on the 'good will' of its key partners."

Author: Zhang Danhong / jrb

Editor: Sean Sinico