Will China change its trade behaviour? US representative to the WTO is sceptical

Even as the Trump administration pursues revisions to the World Trade Organisation's rules, its own ambassador to the global trade body is dubious that they will ultimately change China's behaviour.

"We're probably a little more sceptical about the viability of the rules to actually significantly modify China's behaviour," Dennis Shea, deputy US Trade Representative and ambassador to the WTO, said on Friday. "But that does not mean we should not pursue this approach."

While trade tensions between the world's two largest economies have mushroomed over the past few months " and as both sides have levied barrages of import tariffs at each other " the US has pursued a series of WTO rule changes intended to force China to end trading practices perceived by many to be unfair.

The US has joined forces with Japan and the European Union to push for updates to WTO mechanisms that would better challenge China on its use of state subsidies of certain industries and forced technology transfers, as well as its WTO designation as a developing country, which allows China exemptions from certain rules.

China looks to Europe on WTO reform as pressure builds from 'united front'

Representatives from the US, EU and Japan met in September on the sidelines of the UN General Assembly meetings in New York, where they issued a trilateral statement confirming their commitment to pursuing WTO reform.

Though statements issued by the US Trade Representative about WTO reform have not mentioned China by name, US officials have confirmed that China is the target of the proposed changes.

Dealing with China's non-market economy was "the most important issue of WTO reform," said Shea, who was speaking at the Centre for Strategic and International Studies in Washington. "And it's probably the toughest."

US President Donald Trump's top economic adviser, Larry Kudlow, told CNBC on Friday that the White House was seeking the eradication of non-reciprocal trade practices around the world and for trading powers, including China, to "play by the rules of the WTO, which itself is going to require reform."

"It's a trade reform effort that, I think, will pay off huge economic growth dividends down the road," said Kudlow, director of the National Economic Council.

White House economic adviser Larry Kudlow said he thought the WTO campaign 'will pay off huge economic growth dividends down the road'. Photo: Abaca Press via TNS

Each member of the US-EU-Japan trilateral commitment agreed to achieve domestic consensus on the proposed changes by the end of this year, said Shea. They would then "reach out to other countries " other WTO members " probably early next year."

Shea said that a number of WTO member countries " so-called "friends of the system" " were reluctant to support drastic changes that challenged the status quo of the organisation. "They want to be middle-of-the-roaders, when in fact they really need to pick a lane," he said, expressing hope that those countries would join in "supporting what we're trying to achieve there and calling out the problem".

In most cases, changes to the WTO rules require a unanimous vote of WTO's 164 members.

Shea said he did not know how China would respond to the proposed changes, but suggested that there had already been preliminary discussions in which China had suggested a tit-for-tat approach to agreeing on reforms.

"They are reacting initially saying 'OK, you throw down industrial subsidies, I'm going to throw down export restraints and investment restrictions," he said.

Trump says he will pull US out of WTO 'if they don't shape up'

That significant conversations of changes to the WTO were now taking place was credited by Shea to the Trump administration's aggressive stance on trade.

"The discussion of WTO reform would not have happened but for the disruptive leadership " the disruptively constructive leadership " of the United States," he said.

The WTO's director general Roberto Azevedo has appeared to welcome Trump's aggressive push for changes to the organisation, but warned against reforms going too far.

Roberto Azevedo, WTO director general of the World Trade Organisation (WTO), said of US President Donald Trump, 'he begins to shake the tree pretty hard'. Photo: Bloomberg

Addressing President Trump's decidedly disruptive threat in August to withdraw the US from the WTO if it did not "shape up," Shea stopped short of saying that withdrawal would be an appropriate next step for the US, but said he agreed that that urgent reform was needed.

"That's my job at the WTO," he said. "I'm delivering some difficult messages, hopefully in a friendly way."

Former USTR Carla Hills said that securing any true progress with China would depend on the US taking a diplomatic approach.

Work with allies to update WTO rules, former US officials tell Trump

"I believe that if we joined hands with those like-minded nations and talked in a courteous fashion to China, that we would make better progress than by screaming," Hills told the South China Morning Post.

"You have to understand what some of the problems are at the other side of the table," Hills, who served as the top US trade negotiator for President George H.W. Bush, said.

China is transitioning from a heavy-industry economy to a consumer economy, she said, but its millions of workers at state-owned enterprises could not simply be laid off without having an impact on the country's growth and stability.

"China has its political challenges too," she said, calling on the US to "try to work through the thicket in a way that you have a win-win situation."

This article originally appeared on the South China Morning Post (SCMP).

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