China And The WTO

In an interesting ruling last week, the WTO upheld a claim by the US that China was unfairly restricting imports of books, songs, and movies (see report). This is of interest from a number of perspectives, and how China reacts will help to shape the path of globalisation in the immediate future. For years, the EU and the US have maintained that China has been operating a globalist policy on its exports (free access to overseas markets), whilst operating a nationalist policy for its imports (protecting the home market). For example, China only allows the import of 20 foreign movies each year. The recent ruling will have an impact on that duality and gives the Chinese Government something of a dilemma.

The WTO rules have, essentially, a liberal agenda written into their DNA. Part of this agenda is the free flow of goods and ideas. Encapsulated in the books, songs, and movies that have been restricted in China is the cultural meme of the society which produced them. For example, it would be very uncommon for a movie made in the US to question the primacy of the market, respect for the individual, and the rule of law. In promoting these values, the central tenets under which the Communist Party of China rules the nation would be called into question. Which is precisely why their official distribution is limited. The influx of predominantly western culture into China might be an act that is corrosive to the rule of the Communist Party.

And yet, if China continues to block the importation of books, movies, and songs, it lends itself open to retaliatory sanctions within the WTO framework. This may be something of a boon to western – particularly European – negotiators at the IPCC in December. There is a feeling at the moment that those countries which do not sign up to the international carbon reduction agreement are effectively giving their economies a hidden carbon subsidy. China would fall into this category. One way to address this carbon subsidy would be the imposition of a carbon tariff at the point of entry into Europe. If this were to occur within the framework of the WTO, then it would provide a very attractive solution to something of a political problem within Europe.

All of this suggests that China has arrived at something of a crossroads. For the past decade it has been able to operate a globalist approach overseas whilst maintaining a nationalist approach at home. It is coming to a point where the two are incompatible. A more globalist approach at home would imply a political loosening within China – with all the attendant risks of disintegration. However, a more nationalist approach overseas would imply a more confrontational approach to foreign affairs – with the attendant risks of greater isolation.

The Chinese government may be able to buy time by appealing the WTO decision, but this is not a long term solution. In the long term, China has to decide if it wants to join the club of developed nations (and loosen up politically) or if it wants to maintain the status quo (and sacrifice some of its industrial destiny). At present, it is hard to see which view will predominate. However, it is a space to watch closely in the coming years.