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The first Chinese judge of the WTO Appellate Body calls for reforms to solve issues in the WTO’s trade dispute settlement mechanism

By Wan Shuyan Updated Mar.1

Professor Zhang Yuejiao

Twenty years after China’s accession to the World Trade Organization (WTO), the global multilateral trading system is facing rising trade protectionism. Professor Zhang Yuejiao, former chair and judge of the WTO’s Appellate Body between 2007 and 2016, who currently heads the Institute for International Dispute Settlement under Tsinghua University in Beijing, believes the WTO is not just a body “in name only,” and that China should contribute to solving the WTO’s problems. For example, after the suspension of the WTO Appellate Body, China negotiated with the EU, Canada and other WTO members to reach the Multiparty Interim Appellate Arbitration Arrangement (MPIA), an alternative system that allows arbitration for parties in disputes when the Appellate Body is not functioning.  

NewsChina: How has China influenced the multilateral trade system and rule of law in the global economy and trade in the past 20 years?  

Zhang Yuejiao: China’s accession to the WTO was a big event for China and global trade. It made the World Trade Organization a truly global organization, creating intangible assets that are beyond estimation. Over 20 years, China has grown to be the secondlargest economy in the world, the largest trading nation for goods and the second-largest trading nation for services. It’s a miracle these achievements happened in just 20 years.  

From a legal perspective, China’s accession to the WTO has multiple benefits and contributions.
The first is the WTO’s most fundamental term “unconditional most-favored-nation treatment.” Before China joined the WTO, the US reviewed China’s most-favored-nation (MFN) status annually. After China’s accession to the WTO, the US removed China from the review list, granting China Normal Trade Relations (NTR) status instead. That has ensured huge certainty, predictability and stability in China-US trade, which has since seen rapid growth. MFN treatment is mutual. China has granted unconditional MFN treatment to other countries as well, facilitating their entry to the Chinese market.  

The second is tariff concessions. China has strictly complied with its commitment to tariff concessions upon its accession to the WTO, with its total import tariffs significantly reduced to 7.4 percent [from 15.3 percent]. This has facilitated the entry of goods from other countries into the Chinese market and allows Chinese consumers to buy imported products at lower prices.  
The third is transparency. At the time of its accession, China cleaned up more than 2,400 laws and regulations and 190,000 local policies and regulations that were inconsistent with WTO rules, a huge leap in the history of China’s rule of law and an unprecedented move on a global scale. It was well received and highly appreciated. The transparent legal system has helped to improve China’s business environment, with foreign investments rising every year, making China the second-largest investment destination in the world. That has boosted China’s economic development.  

The fourth is China’s active participation in the multilateral dispute resolution. The WTO dispute settlement mechanism is known as the crowning jewel of the WTO. As an active participant in dispute settlement, China has taken part in 22 cases as a complainant, 47 cases as a respondent, and 190 cases as a third party. In addition, China has done pretty well in enforcing the rulings, with a reputation for fulfillment of its international obligations, whatever the ruling turns out to be. China’s top legislature has amended China’s copyright law under a WTO panel ruling, a rare move in global legal history.  

NC: The WTO-centric multilateral trade system has encountered multiple difficulties, notably the suspension of the WTO Appellate Body. What is your view on this?  

ZY: The suspension of the WTO Appellate Body since December 2019 (when there was only one member of the Appellate Body, well below the required three members, and WTO members cannot agree on when and how to launch the selection process for vacancies since then) has greatly impacted dispute resolution. Some experts say this has regressed the WTO back to the era of GATT (General Agreement on Tariffs and Trade, which was replaced by the WTO in 1995 ). 

Suspension of the WTO Appellate Body should have been avoidable. Things should have been resolved better. But once it happened, the suspension should not last too long, otherwise you get disputes piling up, which is neither conducive to an improved WTO dispute settlement mechanism, nor to its members’ confidence in economic recovery. Therefore, it is urgent to restore the Appellate Body. I anticipate the WTO will soon be able to resolve trade disputes among its members in a just, fair, legal and efficient manner, enabling its crowning jewel to shine as usual.  

I am confident that it is only a matter of time before the WTO Appellate Body is reinstated. The vast majority of its members support its resumption. Some members have proposed setting up working groups through ministerial meetings to explore solutions to certain specific issues.  
Overall, the WTO reform is moving forward. Its members are actively pushing for negotiations on fishery subsidies, the digital economy, e-commerce and investment facilitation.  

We still face many challenges and additional issues, which need to be addressed with a positive attitude. For example, how can the Appellate Body and its expert panels improve their work, with more streamlined documents, shorter processing times, less burden on members and ensuring that members are ready to enforce the rules.  

NC: There is concern that development of regional free trade agreements (FTA) at the critical turning point of globalization means the WTO has already failed. What do you think? 
ZY: In October 2016 in my farewell speech, I heard some claiming the WTO was dysfunctional. But I don’t think this is true. The three pillars of the world economy are GATT/ WTO, the International Monetary Fund and the World Bank, all of which originated at the 1944 Bretton Woods Conference. They all have historic significance, providing good legal rules for international economic governance. An enforceable package of over 60 trade agreements has been reached under the umbrella of eight rounds of WTO negotiations. This is a huge contribution to the efforts to avoid fragmented international law. The WTO will not fail. We should have confidence in that.  

Although the world is still overshadowed by Covid-19, trade among WTO members continues, and the WTO will not cease. 
Regional FTAs and the WTO are not in conflict. Many rules are formulated based on WTO rules and could serve as useful supplements to the WTO system. Many regional trade agreements have been reached. For example, the EU has reached FTAs with Canada, Japan, Mexico and the Common Market of the South (MERCOSUR). China’s accession to the Regional Comprehensive Economic Partnership (RCEP) is also a successful example. In September 2021, China formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  

As the Chinese saying goes, “a neighbor living nearby is better than a relative far away.” Regional FTAs are consistent with WTO rules and are enabling longer and more stable global supply chains, easier communication and lower costs. They resonate with the trend of a diverse trade market.  

Covid-19 is still spreading across the world and hindering economic development. WTO members really need to support each other to prevent economic downturns and ensure early recovery, and work together to make the world a better place.  

NC: WTO members are divided on what and how to change. What do you think of the reform and China’s role?  

ZY: WTO members should actively fulfill their obligations and responsibilities. On May 13, 2019, China submitted to the WTO China’s Proposal on WTO Reform. China should actively take part in the formulation of WTO rules and actively put forward its opinions and proposals for addressing existing issues in international trade.  

But reform is not destruction and reconstruction, rather the improvement of WTO rules. The non-discriminatory principle of the WTO’s basic rule of most-favored-nation treatment should not be changed, nor should it be turned into a rule used by a few countries against any other country, which is against international law, the Charter of the United Nations and WTO rules. Adherence to WTO rule-based multilateralism and extensive participation in reforms are a step forward for international economic governance.  

Besides, dispute resolution is currently timeconsuming and costly, and it needs to be improved. Dispute resolution is a public good. As for how to make it fast, efficient, concise, low-cost and enforceable, and more reflective of the features of a public good, more convenient means can be adopted, such as online smart courts, smart arbitration tribunals, online filing of documents and online trials and arbitration, which could boost efficiency. International dispute resolution personnel must be independent and impartial and avoid conflicts of interest. They must be internationally recognized legal and trade experts with wide representation. 
Overall, all means must be utilized to solve problems. The WTO is a member-driven international agency which needs its 164 members to work together to better use the roles of director general and the secretariat, and actively push for reforms. And in this way, the WTO’s rule-based multilateral trade system could play a bigger role in advancing the rule of law in global economy and trade. This is what is most important.