The Evolution of the Non-market Economy Treatment in the Multilateral Trading System

353 Pages·2018·3.327 MB·English

by  Bin Zhang

Bin Zhang
The Evolution of the Non-
market Economy Treatment
in the Multilateral Trading
System
The Evolution of the Non-market Economy
Treatment in the Multilateral Trading System
Bin Zhang
The Evolution
of the Non-market Economy
Treatment in the Multilateral
Trading System
123
BinZhang
EconomicsandTrade
Donghua University
Shanghai
China
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To my family and my teachers
Foreword
China’s non-market economy (NME) status in the multilateral trading system
(MTS), orconversely, theWTOanditskeymembers’NMEtreatmentofChinain
their antidumping regulations, has been one of the focal issues in the relationship
between China and the MTS. The issue reignited an extensive concern in 2016
becauseofthecontroversialprovisionscontainedinparagraph15oftheProtocolon
the Accession of China.
In fact, the NME treatment in the MTS has not been confined to a particular
traderemedymeasure.NeitherhasitbeentargetedatoneparticularNMEcountry.
It is a set of institutional arrangements devised in the development process of the
relationshipbetweenNMEsandtheMTSsincethe1960s.Drawingonthetheories
and concepts of new institutional economics, international institution, political
economy of trade policy, and game theory, this book attempts to make an inter-
disciplinary analysis of the NME treatment in the MTS. The research of this book
has the following features.
First, when discussing the GATT/WTO rules and its NME arrangements, this
book does not confine itself to traditional economic and legal approaches.
Regarding the MTS as an international institution, this book tries to analyze the
adjustment of the trade rules by the MTS during the accession process of NME
countries,aswellasitsinfluenceonNMEmembers’domesticinstitutionalchanges
during and after their accessions.
Second,thisbooktriestocoverthewholesetofNMErulesintheMTS,allthe
NME members on which the NME treatment has been imposed, and all the key
market economy members which have implemented such rules. Besides, it exam-
ines the historical development of the key NME rules on both domestic and mul-
tilateral levels and compares individual rules between times and their different
treatmentsofindividualMNEmembers.ItalsocomparesdomesticNMErulesand
practices of key market economy countries.
Third, this book studies the political-economic process of NMEs’ accession to
the MTS against the background of their transition from the planned-economy
system to the market economy system, as well as in the context of the Cold War.
vii
viii Foreword
Fromthishistoricalperspective,thisbooktriestoexposetheevolutionoftheNME
treatment, particularly its contents, function, and implementation.
The author of this book is a professor of economics at the business school of
Donghua University in Shanghai. He is also an adjunct research fellow at
Shanghai WTO Affairs Consultation Center (SCC/WTO).
Establishedin2000,SCC/WTOisanonprofitthinktankdevotedtoprofessional
advisory services and academic researches in the field of global trade and invest-
mentrules.Intheaspectofacademicresearch,SCC/WTOhasproducedaseriesof
publications in Chinese on trade-related topics and has introduced into China
numerous English works on trade and investment. The publication of this book is
thefirsttrialtotranslateourstudiesintoEnglish,andthetranslationisconductedby
the original author himself. I hope such an attempt will further promote the aca-
demic exchange between SCC/WTO and the international academia.
Shanghai, China Xinkui Wang
Chairman and President
Shanghai WTO Affairs Consultation Center
Preface
Themultilateraltradingsystem(MTS)isaninternationalinstitutionlaunchedbythe
capitalistsuperpowerafter theWWII.Advocating economicliberalism and private
ownershipofpropertyrights,theMTShasbeeninconflictwiththesocialisteconomic
systemdominatedbygovernmentplanningandpublicownership.Meanwhile,used
bythesuperpowerasaninstrumenttoconsolidateitspolitical-economicinterestsand
internationalposition,ithasalso beenantagonistwith thesocialistbloc politically.
Thus,whenthecountriesofdifferenteconomicsystemstriedtoestablishconnections
throughtheMTS,thosewiththeplannedsocialisteconomicsystemwerelabeledas
“non-market economies” (NMEs) because socialism was regarded as an opposite
ofthemarket-based capitalism.Consequently, therelationshipbetween NMEsand
theMTShasbeen apolitical-economic issueof internationalsignificance from the
verybeginning.
Since the 1960s, the attitude of NMEs toward the MTS has changed signifi-
cantly. They have been trying to integrate themselves into the MTS in order to
achieve economic gains and push forward domestic transition to market economy.
The MTS welcomed their accession, but on special terms. Although most of the
planned or transition economies are also developing countries,1 the MTS has
shapedtwodifferentsetsofinstitutionalarrangementsforthetwotypesofmembers
since the 1960s, namely, the special and differential (S&D) treatment based on
non-reciprocity for developing members and the special and discriminatory treat-
ment based on specific reciprocity for NME members. The latter is called NME
treatment in this book.
Concerning the NME treatment, there are two aspects of inadequacies in the
academic research. First, the basic legal framework of the treatment took shape
during the Cold War, but the economic and legal researches on the GATT and its
NME rules have seldom taken such a political environment into consideration.
1TherearenoWTOdefinitionsof“developed”and“developing”countries.Membersannounce
forthemselveswhethertheyare“developed”or“developing”countries.However,othermembers
can challenge the decision of a member to make use of provisions available to developing
countries.
ix
x Preface
Meanwhile, the history researches on the Cold War and the East-West trade rela-
tions also barely addressed the GATT issues, not to mention such a specific
arrangement as NME treatment.2 Second, literatures in recent years limited them-
selves to the NME treatment of China after its accession to the WTO and mainly
focused on such a treatment in antidumping investigations. There have been some
in-depth and comprehensive explorations on the special provisions in the Protocol
on China’s Accession to the WTO,3 but most of them are cross-section and tech-
nical interpretations from legal perspective, rather than time-series analyses from
political-economic perspectives connecting the NME treatment of China with that
of small planned economies during the Cold War.
As a matter offact, it is the accession of transition economies since the 1990s,
particularly the accession of China in 2001, that made the MTS renovate its insti-
tutionalarrangementsdevelopedduringthe1950sandthe1960sforsmallplanned
economies. For that reason, this book tries to integrate the different arrangements
devised in the MTS for small and large NMEs into one analytical framework.
Exploringtwosetsofrules(GATT/WTO-minusandGATT/WTO-plus)alongthree
historical stages (shaping, weakening, and strengthening), the focal point of this
bookistouncoverthecompositionandstructureoftheNMEtreatment,itsevolving
logic and process, and the nature and trend of the political-economic relations
between NMEs andthe MTS.
The basic conclusions of this book are as follows.
First, the core of the political-economic relationship between NMEs and the
MTS is the whole set of the special institutional arrangements, that is, a series of
NME-related rules or provisions devised by the MTS duringthe accessionprocess
ofplannedandtransitioneconomies.Theformationandevolutionofthoserulesisa
dynamic process of the political-economic two-dimensional game between NMEs
andmarketeconomies(MEs),particularlybetweennon-marketandmarketpowers,
on the issue of the treatment of NME members in the MTS.
Second, the NME arrangements are composed of two types of special rules:
GATT-minus and GATT/WTO-plus rules. The GATT-minus rules, mainly includ-
ingsuchtrade-focusedprovisionsasquantitativerestrictions,importcommitments,
special safeguard measures, the surrogate price methodology for antidumping
investigations, and the review mechanism of accession protocols, are the discrimi-
natory rules developed during the process of planned economies’ accession to the
GATT. The GATT/WTO-plus rules, which were shaped during the process of
transition economies’ accession to the WTO, include such domestic-policy-related
special provisions as economic transition, state-owned enterprises, privatization,
trade-related legislation, judicial review,and authority ofsub-central governments.
2Mckenzie(2008)analyzesthereasonsfortheseparationbetweentheColdWarresearchandthe
GATTresearchandmakesameaningfulattempttobringstudiesonthespecificGATTissuesinto
the“new”ColdWarhistoryresearch.
3See,forexample,Qin(2003).
Preface xi
Third, theNMEarrangementsoftheMTShavebeenevolvingwith aU-shaped
trajectory during the following three historical stages: the accession of small
planned economies in the 1960s and the 1970s, the accession of small transition
economiesinthe1990s,andtheaccessionoflargetransitioneconomiesintheearly
twenty-first century.
Today, China, as a large transition economy, is the only member who suffers
from all-round NME treatments in the MTS. Although it is difficult to predict
whether China would achieve a real and complete market economy treatment
without changing its political system, China has been pursuing persistently with a
cooperative strategy in the economic game to balance the potential conflict in the
politicalgamewiththeMEpowers.Moreover,theNMEtreatmentisaninstrument
for both engagement and containment strategies adopted by the MTS and its key
MEmemberstowardNMEmembersandisstillrenewingwiththedevelopmentof
multilateraltraderules.Therefore,thebalancingstrategywillbeChina’sfirstchoice
in dealing with the relationship with the MTS and ME powers in the long run.
Shanghai, China Bin Zhang