MERICS Report by Mikko Huotari, Jan Weidenfeld and Rebecca Arcesati
Nearly two decades after China acceded to the World Trade Organization (WTO), its compliance record and alignment of economic policies and trading practices with existing WTO rules remains contested. With the exception of the decision to join the Information Technology Agreement (ITA) taken under President Xi Jinping, there are few signs that Beijing intends to conform to existing or emerging regulatory regimes linked to the WTO, nor to engage in meaningful reforms of the international trading system. Doing so would counter and constrain key features of China’s state-led economy. The European Union (EU) has made laudable attempts to ‘comprehensively overhaul the WTO by 2022’. However, Europe must anticipate a future in which the WTO and other international frameworks only govern some aspects of its trade relationship with China.
As this analysis sets out, China will be a comprehensive, confident, but conflicted trade actor, which continues to deviate from WTO norms, while pushing the boundaries of traditional trade policy. This creates both opportunities and challenges for Europe. To manage them, the new Commission should live up to its ‘digital, green and geopolitical’ agenda in the realm of trade and, together with the EU member states, embrace an integrated trade policy approach vis-à-vis China that is comprehensive and confident, and is guided by the need to promote European competitiveness in global trade.
An integrated EU trade policy requires (1) in-depth awareness of China’s approach to trade policy and the factors driving it, (2) EU-wide cohesion on the trade policy approach pursued towards China across different dimensions, (3) institutional capacity for EU internal coordination on relevant trade policy, (4) sufficient depth of policy proposals to implement a more integrated trade policy approach, and (5) greater coordination of EU trade policy with Organisation for Economic Co-operation and Development (OECD) partners’ trade policies. While the EU already scores well on some of these criteria, improvements are needed in the most consequential areas of economic cooperation and competition with China. This analysis will highlight such areas and provide concrete recommendations for a more integrated EU trade policy.