Sun Zhenyu, China’s first ambassador to the WTO and president of China Society for World Trade Organization Studies. Sun served as the ambassador to the WTO for 9 years, the Chinese delegation to the WTO has made great efforts in dealing with trade frictions, resolving trade disputes, fulfilling the nation’s WTO commitments, and facilitating the Doha Round of negotiations. un Zhenyu, president of China Society
for World Trade Organization Studies delivered a speech titled Review and Outlook on the 10th Anniversary of China’s Entry into the WTO at the Third International Business Development Forum held in May. He reviewed and analyzed China’s ten
years in WTO, pointing out that China needs to continue its drive of reform and opening up. The following is an abstract of Sun’s speech.
What did we do in the past decade?
At the time when China joined the WTO, the Chinese people, especially the academia and related government ministries were quite concerned and held different opinions about the event. Their misgivings were justified. China was at a critical time of stateowned enterprises reform. 20 million workers, many of whom in the textile and sunset industries, were laid off due to the restructuring of industries. With a great amount of bad loans, Chinese banks were reorganized, and some of their assets were stripped. Under such circumstances, it was justified to worry about our WTO commitments on top of the general obligations. Former Premier


Zhu Rongji said that China’s entry into the WTO could be beneficial and destructive as well. If we do a good job, it will bring more benefit than harm.
The rest of the world was also worried. They were afraid that Chinese products might be too competitive in some sectors and put them in a disadvantageous position.
Their second concern was whether China could deliver all the commitments it made. What if it failed to?
The past decade proved the worries of China and the rest of the world unnecessary.
What did we do? The most important thing we did was to fulfill our WTO commitments. Since the entry into the WTO, we have changed between 1,000 to 2,000 national laws and regulations and annulled another 500 to make sure Chinese laws and regulations are consistent with WTO rules. In addition, 90,000 local laws and regulations were changed or abolished. It was a huge amount of work. No other nation could do this, even the United States.
We did so much work in only two or three years, which had profound impact on China’s legal system. Former president of China Law Society said that legislation in China was not that transparent before the entry into the WTO. After that, we had to sort out our laws and regulations, and the legislative process had to be more transparent. For instance, we have to listen to the opinions of the public over taxation and the legislation on taxation needs to be transparent. So it is fair to say entry into the WTO has improved China’s legal system.
By fulfilling our commitments, we won the trust of WTO nations. They consider China a nation who keeps its promise. That’s why the United States later began to see China as a responsible stakeholder to partner and compete with, instead of a rogue state to suppress.
The second important thing we did was to lower tariffs. We have fulfilled all of our commitments except on auto parts.
Fulfilling our tariff commitments has greatly improved our customs management system and tax system. Before the entry into the WTO, we had high tariffs and were very protective of domestic industries. Tariff on car imports was as high as 200%. Auto parts smuggling was very lucrative. Car smuggling was rampant in southern China. Now with low tariffs, it is not worth to smuggle at the risk of going to jail.
Tariff reduction is an effective way to prevent smuggling. It is also helpful to the crack down on corruption. Before the entry into the WTO, quota permits were needed for import. Obtaining the import quota permit means raking in huge profit. Some government officials were bribed to issue permits.
The third thing we did was in inspection and quarantine standards. The inspection of products, animals and plants, and health were combined. Before 2001, China had different standards over domestic and foreign products. As required by the WTO, the Bureau of Quality Supervision was set up, with the same standards on domestic and foreign products.
We made efforts to give equal treatments to Chinese and foreign companies. Foreign companies getting super-national treatments enjoyed 15% income tax while Chinese companies had to pay 33%. It was not fair. After adjustment, foreign and domestic private enterprises are subject to the same 25% income tax and the same customs duties. Non-discrimination is an important principle of the WTO.
We are yet to improve in such aspects as the reform of state-owned enterprises and private enterprises’ access to finance. Some foreign investors have complained that the business environment in China has tightened, but has improved. All enterprises should be treated equally.
There was a significant adjustment in the agricultural sector. After the accession to the WTO, people were worried that the agricultural sector might be battered and harm the stability of the nation. An important measure we took was to abolish the agricultural tax, which lasted two thousand years in China. In westerns countries, farmers don’t pay tax and receive heavy subsidies.
We strengthened our support for agriculture and farmers in accordance with WTO rules. In the past ten years, we did our best to bring benefits to farmers. We adopted favorable policies on agriculture, farmers, and rural areas. Also, we offered more subsidies to famers under the WTO policy of green box and minimal support.
Generally speaking, fulfilling WTO commitments is one of our most important tasks in the past decade. It won China worldwide reputation,
and facilitated domestic reform.
Besides fulfilling commitments, we have also learned to use WTO rules to solve trade frictions and disputes.
Many foreigners are concerned about China’s accession to the WTO, because of the country’s strong competitiveness. The most typical example is textiles. China is a major exporter of garments. Before 2001, the U.S. and Europe were the rulemakers. They opened sectors they are competitive in, and set tight quotas and high tariffs in sectors they were not competitive in. During negotiations on China’s entry into the WTO, they committed to abolish the quota system by 2005, and to go with WTO rules in trade on textiles.
All U.S. and EU quotas on textiles were abolished by 2005, when China had become a WTO member. After that, China’s textile and garment exports saw phenomenal growth, with an increase of 70% to 100%. EU’s fear of Chinese exports prompted it to suppress and negotiate with China, resulting in a very complicated situation. After the abolishment of quotas, China took much of Turkey, Bangladesh and other developing nations’ market share in the U.S. and EU, resulting in the confrontation between China and other developing nations. Under such circumstances, although we didn’t like the double standards of the U.S. and the EU, we could not hurt too much the interests of other developing countries. Therefore, China’s Ministry of Commerce renegotiated with the European Union and the United States, and agreed to extend the quota to 2008, easing the attention of other developing countries on this issue.
After another round of negotiations on textiles in 2008, Chinese textile exports increased but at a lower rate. Other developing nations got used to it. China’s market share went stable at a lower level. The issue was finally resolved.
In such situation, developed countries take anti-dumping, trade protectionism, and other measures to restrict Chinese exports. Developing countries worry about China taking their market share. It’s a great challenge for China to tactically deal with trade frictions. China’s export momentum was very strong, especially during the financial crisis. In 2009 export volume fell worldwide. China’s exports fell 20%, but its share of the world market increased to 9.9% from 9.1%, attesting to the strong competitiveness of Chinese exports.
They took anti-dumping measures against us, but we didn’t react strongly. Sometimes we reacted with anti-dumping measures against them to offset the effects, telling them to stop constant provocation. We understand their difficulties. We need to handle the matter properly.
Chinese enterprises are now very experienced and many of them are very successful in dealing with foreign anti-dumping measures and maintaining export volume.
Solving disputes under WTO rules is also an important issue. We were involved in over 20 cases since joining the WTO, with us being the demandant in 8 of the cases. We learned a lot from those experiences. Our first case was against the United States. Together with the EU, Japan, and Canada, we accused the United States of protecting its steel industry. In that case, the United States was obviously wrong to engage in protectionism. It had to do that because of its domestic politics. The case was led by the EU, who taught us how to win the case. We won it. We trained a lot people during the case. People with the EU joked, “We’ve taught you how to win a case, and someday you will use the knowledge against us.” Unfortunately, they were right. We just won a case of fasteners against the EU.
Of the cases other nations initiated against us, we lost one on auto parts. But Chinese auto industry was given three years to get used to the adjustment. We complied with the WTO ruling and made corrections accordingly. We lost the cases on intellectual property rights, but we won the resolutions on the criminal threshold, the extent of infringement, and sentence. Also, although we lost cases on publications, we made the best efforts to get rulings in our favor.
Of the cases we initiated, we won the ones on U.S. steel, anti-dumping and anti-subsidy measures. Records show that the EU and the United States won 80% of the cases they initiated and lost 80% of the ones initiated by other nations against them. China, a new member of the WTO, holds a similar record. Through the WTO, some laws would be changed after the settlement of a dispute. However without WTO, it is extremely difficult for one nation to ask other nations, the United States and the EU for example, to change their laws.
The fourth important thing we did was to participate in the formulations of WTO rules. Since the entry of the WTO, we didn’t just follow the rules, but also made rules, mainly in the Doha Round of negotiations. China’s role in the negotiations was increasingly important, and we are now one of the most important members. Minister of Commerce Chen Deming participated in the negotiations in July 2008 which lasted ten

days and nights. It was a shame no breakthrough was made due to the domestic politics of India and the United States. We will have to wait to see if developments could be made in 2012 after the U.S. presidential election. Although no significant agreement has been reached during the Doha negotiations, we have been working actively on it. The major problem is that the current American administration doesn’t need it. The next administration will have to consider this issue.
New situation and challenges we face
After thirty years of reform and opening up, many Chinese enterprises are facing grim challenges. The business environment is not as good as before, with rising labor costs, the appreciation of RMB, and stricter environmental requirements.
Processing and manufacturing sector accounts for 50% to 60% of China total exports. It’s a great challenge to change the growth pattern of processing and manufacturing enterprises and increase their added value through technological innovations.
The world has higher requirements on China as it became the world’s second largest economy and the largest exporter. China is suppressed on the one hand and encouraged on the other to assume the responsibility of developed nations, which is beyond its capacity. Now we are feeling increasing pressure.
The internal driving force of reform in China is not as strong as before. The reform is facing great obstacles and difficulties as it involves the interests of all walks of the society. Therefore, external force is needed, especially when it comes to the reform of government functions, so as to create a better environment for Chinese enterprises.
Finally, governments at central and local levels have a new generation of leadership. Their predecessors were trained on WTO rules, and have a clear idea about trade within the framework of WTO. However, the new leadership holds national stability a top priority, with less effort on reform. They need to be trained on WTO rules.
Ideas and suggestions
What should we do in face of the new challenges?
First, continue the drive of reform and opening up. We need to continue to reform and innovate, so as to facilitate the economic development. Our legislative process needs to more transparent. And legislations should be designed to benefit the economy in the long run and to protect the underprivileged, rather than for the sake of government administration. It is also important to change the functions of the government. There is still a long way to go to transform the Chinese government into a service government. One of the main features of the market economy is the market allocation of resources. Some senior leaders criticize that the role of the invisible hand is more and more limited, while the visible hand stretches farther and deeper. More effort needs to be made to promote reform in China.
Second, continue to participate in the international game using WTO rules. We should establish solidarity with developing countries in world trade. During the formulation of rules, we should have our voices heard, and work for the interests of developing countries.
Actively participate in the Doha negotiations and facilitate regional trade cooperation. Prepare to launch a new round of training, particularly training of leaders of ministries and provincial and municipal governments. It is important for the decision-makers to understand WTO rules and not to adopt polices contradictory to WTO requirements.
In short, China should continue with its drive of reform and opening up, unite with other emerging economies and developing countries, strengthen its right to speak, actively participate in international rule-making, and create a better international environment for its economic development.