China in the WTO 2006: 'Law and its Limitations' in the Context of TRIPS
in the WTO 2006: 'Law and its Limitations' in the Context of TRIPS (August 30, 2011). WTO LAW AND DEVELOPING COUNTRIES, pp. 59-81, G. Bermann, P. Mavroidis, eds., Cambridge Univ. Press, 2007
download here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1919488
China's transition from a statist to market economy over the past 15 years and its successful establishment of globally competitive industry are unprecedented historical events. Although China's entry into the WTO is not responsible for that transformation, it has played an important role. Accession to the WTO was used by the government as a means not only to stabilize access to foreign markets and increase the attractiveness of China to foreign investors but also to reorient internal policies in a way that deemphasized a profound shift in government attitudes.
However, the law of unintended consequences is always at work, and the rate of China's growth and success in world markets may have been unanticipated. Developing countries that for many years had pressed in the WTO for an agreement to eliminate textile quotas found themselves seeking to re-impose restrictions in the face of highly efficient Chinese producers. China is absorbing a large and increasing share of the world's natural resources, including oil and minerals, and Chinese demand is adding to global price and availability pressures.
China's trade relations with the rest of the world are not without friction. China maintains a large trade surplus with the United States and European Union. Politicians and economists express concern that this surplus is due, at least in part, to a Chinese policy of deliberately undervaluing its currency. In late 2005, largely in response to U.S. political pressures, China moved from a fixed currency conversion rate for the Yuan to a limited floating rate tied to a basket of currencies. This move provided modest relief from currency-related confrontation with the United States, which continues at a somewhat more subdued level.
This paper focuses on the legal and WTO governance implications of China's alleged failure to fulfill its obligations under the Agreement on Trade-Related Intellectual Property Rights (TRIPS Agreement). The significant escalation of interest by the United States and other developed countries in China's intellectual property rights enforcement activity merits special attention because of its systemic implications. This subject matter forms a critical part of China's continuing WTO dialogue with the United States, European Union, Japan, and Switzerland, and it tests the capacity of the WTO dispute settlement system to constrain state behaviors.
China appears to perceive that its national interest is not aligned with its TRIPS Agreement and Accession Protocol obligations. Though the United States may well initiate a WTO dispute settlement action, it seems unlikely that doing so will result in near-term changes to China's conduct. WTO dispute settlement is not designed to force immediate changes to government behaviors, particularly when the complained-against party is not overly concerned about the potential for withdrawal of concessions. Politicians and industry leaders who are demanding changes by China will almost certainly be frustrated at the WTO.
This response will raise two questions: will the United States be justified in imposing extra-WTO legal sanctions on China, and if this is justified, will it be a good idea? The answers to these questions, explored in this paper, are 'probably yes" and "probably no,' respectively. To paraphrase the title of Olivier Long's classic work on the GATT, this case may help define the limits of the law in the WTO system.