China's expanding economic influence and the distinctive characteristics of its state-led economic model have evoked a mix of admiration and anxiety. Consequently, there is a growing narrative that questions the World Trade Organization's (WTO) ability to effectively address the practices of China that contravene the principles of the multilateral trading system. This situation is blamed for the deterioration of the WTO's dispute settlement and negotiation functions and its overall effectiveness.
In Between Market Economy and State Capitalism: China's State-Owned Enterprises and the World Trading System, Henry Gao and Weihuan Zhou, two experts on international trade law, challenge this conventional narrative and address two key questions. First, how compatible is China's state capitalism with the existing rules and norms of the world trading system? Second, can existing WTO rules address China's state capitalism, particularly the market-distortive conduct of Chinese state-owned enterprises (SOEs) that are supported by industrial policies and subsidies?
To answer these questions, the book first provides an in-depth examination of China's state capitalism, with a particular focus on the role of SOEs and their impact on the global trading system. It delves into the historical context of China's SOE reform, tracing the transformation since 1978 through five distinct phases and highlighting the shift from market-oriented reform towards a resurgence of government influence and control in recent years. The book then convincingly debunks the myth that China's state capitalism is a new problem, illustrating how concerns about state intervention and market distortions were tackled during China's accession to the WTO in 2001.
Drawing on China's WTO accession package, legal analysis of WTO rules and jurisprudence, and dispute cases involving China, the next part of the book evaluates the effectiveness of various WTO rules in disciplining the market-distortive behaviours of SOEs and subsidies. The authors acknowledge that some rules have limited effectiveness, but they also identify both China-specific rules and WTO rules on subsidies as more effective tools that can be employed strategically to counter the market distortions caused by China's SOEs and government subsidies.
In addition, the book critically assesses new rules on SOEs that have emerged in international trade and investment agreements outside the WTO framework, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Comprehensive Agreement on Investment (CAI) between the European Union and China. The authors argue that while these rules offer some innovations, they do not significantly enhance existing WTO rules in addressing the challenges posed by China's state capitalism.
The book concludes by proposing two approaches for addressing China's state capitalism within the framework of the WTO. First, it advocates for the utilization of existing WTO rules to initiate cases against China, specifically targeting practices related to SOEs and subsidies. Second, it recommends engaging China in multilateral negotiations, as opposed to bilateral discussions, to effectively address the challenges that arise from China's state capitalism. In this context, a deeper exploration of why litigation strategies have been under-utilized thus far would have been beneficial and help provide more insights into how such a strategy can be implemented to produce tangible results.
Throughout the book, the authors express hope for the future of the WTO as an institution capable of managing the challenges posed by China's state capitalism. They argue that with the right strategies and a commitment to multilateralism, the WTO can navigate the complexities of China's state-driven economic model and maintain a rules-based international trading system.
Overall, Between Market Economy and State Capitalism: China's State-Owned Enterprises and the World Trading System offers a vital contribution to the ongoing discourse surrounding China's state capitalism and its implications for the world trading system. Scholars from a diverse array of fields, such as international trade, international political economy, Chinese studies and international law, will find this book to be an invaluable resource thanks to its comprehensive analysis of China's state capitalism and its intricate interactions with the global trading system, particularly the WTO. Furthermore, policymakers and international trade practitioners stand to benefit from the book's insights into the complexities of China's unique economic model and the far-reaching implications it has for the effectiveness and sustainability of the multilateral trading system.
The key message of the book, that the WTO is well-equipped to address the challenges presented by state capitalism in China and beyond, offers a refreshing and reassuring perspective during a critical period in which the global trade body faces an existential crisis. As its 164 member countries scramble to find ways to repair the embattled dispute settlement system by 2024, the WTO's future hangs in the balance.
While the authors of the book maintain a cautiously optimistic outlook, readers might be left wondering whether their sage advice may have arrived too late or, even worse, could fall on deaf ears in the age of deglobalization and heightened geopolitical tensions. Despite the daunting task at hand, the book serves as an important reminder that cooperation and multilateralism are still the most viable paths forward. By emphasizing the potential of strategic litigation and constructive engagement with China, Gao and Zhou provide a roadmap for navigating the complexities of ongoing and future negotiations within the context of the global trading system.
