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Statements by H.E. Ambassador Zhang Xiangchen of China at the WTO General Council Meeting

December 16-17, 2020

Agenda Item 4:the Development Assistance Aspects of Cotton

Thank you, Mr.Chairman. Since this is the first time I speak today, I would like to take this opportunity to sincerely thank you all for your kind wishes. In a couple of days, I’ll be ending my term and returning to China. It’s always hard to part,especially after 3 years and 8 months, in which together, we pulled through the challenging times in the history of the multilateral trading system. I cherish greatly our friendship and hope that our paths will cross again in the future.

Dear friends, the days are getting colder and the leaves are gone from the trees. But the magnolia tree I planted in my garden is already full of green flower buds. Come April and the tree will be turned into a torch of blossoms. I will not be there to see it in person, but I do believe that the coming Spring in Geneva will be splendid. Though I’ll be thousands of miles away, my heart will always be with this lovely city and all the friends I’ve made over the past years. Ne m'oubliepas.

On cotton, China supports the draft action plan to enhance support for cotton by-product development in LDC-Draft General Council Declaration(WT/GC/W/808).

China has been, as always, a strong supporter and reliable partner for C4 and LDCs for agricultural cooperation, particularly on cotton development assistance.

China also supports the statement from DDG Alan Wolff calling for increased support for the C4 action plan. China will continue to play a constructive role, through working with the WTO and other International Organizations, further explore all possibilities to expand our collaboration and work effectively with other members for the cotton related assistance,particularly by-product development in C4 and LDCs.

Agenda Item 7:A Draft for MC Decision--LDC Communication

China would like to join others in thanking the LDCs for their introduction of the proposal. Unlike college students graduating from school, countries graduating from the LDC category follow a process based on artificial criteria. It is not a solid capacity test. The LDCs are still facing tremendous challenges and high vulnerability even after graduation, and their economic and social development cannot be accomplished overnight.

China acknowledges the significant importance of the principle of smooth transition of graduated LDCs introduced by the UN General Assembly. And the WTO has a central role to play in providing a sound policy environment and regulatory framework for the sustainable development of the vast number of developing countries, especially the least-developed ones.

China supports that more care and greater attention should be given to developing countries suffering difficulties in fostering development and economy transformation, including exploring a way forward to realize smooth transition of the graduated LDCs and further integrate into the multilateral trading system, as requested by the LDC group in thiscommunication.

Agenda Item 10: Market-Oriented Conditions

Mr. Chair, as a Chinese saying goes: “Not even mountains can stop the river from flowing into the sea”. In the relationship between market and government, market obviously has the decisive power. This is a common sense. What we need to discuss here is- in today’s world, who is actually going against this common sense? Who is undermining the common rules of the international market, such as the“Most-Favoured-Nation” principle? Who is artificially altering and impeding the international flow of production factors? And who is bringing WTO back to the ages of “might is right”? Dennis mentioned recommendations contained in the Report of Global Forum on Steel Excess Capacity this morning, the question immediately comes to my mind is who is taking measures in the name of national security to distort normal trade in steel sector? If we cannot have a clear answer to these questions, and if we, as WTO members, cannot take effective measures to undo the damages and prevent future disruptions to the system,empty talks about market orientation is nothing but a quixotic quest that leads us to nowhere.

Ambassador Shea said in the July General Council meeting: “what we’re concerned with is ensuring fair competition and a level playing field; not interfering with the ability to govern”. I have to say that I have serious doubts about this statement.

The “market-oriented conditions” in the US proposal is nothing new. From my perspective, it is an extension of the “non-market economy” standard in countervailing investigations under the US domestic law. In fact, through these domestic standards, the US has high-handedly judged the economies of other countries, and the extensive application of this standard led to arbitrary decision on using the “surrogate countries” data. These unilateral actions have made a lot of companies both from China and other developing members suffer from unjust duties, affecting millions of jobs. From our experiences, these standards are utterly incompatible with the non-discrimination principle of the multilateral trade system.

The same is in the countervailing investigations. Let me give you an example. A small company in a remote village of Shanxi province produces cast iron sewage pipes. They had completely no idea why in July 2018, their company was placed on the list of countervailing investigation by the US. The determined countervailing rateamounted to 34.87%.

We had a look at how the investigation arrived to such an erroneous conclusion. First, it was determined that since there’re state-owned enterprises in China, there must be a market distortion in production factors in China. Second, based on the first assumption, the countervailing rate was calculated using the prices in the third country market, while completely ignoring the real market prices in China. According to this reasoning, the company received various kinds of subsidies, including on purchases of iron ore, scrap iron, coke, electricity and even on interest rates of loans. In fact, the company received none of these so-called subsidies. The support it received from the government, if any,is only 0.12%. There’re many more examples of such distortions of using the US’s own standards to inflate the subsidies of other countries, which can be found in the studies by professor Simon Evenett from St. Gallen University.

The term“market-oriented conditions” may sound completely harmless. However, not all that is wrapped in gold paper is a chocolate. My chef likes to pick mushrooms on his weekends walks and has developed quite a bit of knowledge of mushrooms.He tells me: beware of the brightly coloured ones, they’re most likely to be poisonous.

Thank you.

Agenda Item 11: S&D of Developing Members

Mr. Chair, after our debate at the last General Council on the US proposal, a senior Secretariat officer approached me and said half-jokingly and half with sympathy: “this kind of debate is really a test to the diplomats’ patience”. According to my understanding,to put this in a less diplomatic way, it means: “why are you guys keep fighting endlessly over something that is resultless, ça suffit!?”

I completely understand how he felt, and I have to confess that my patience normally goes to ladies and children. However, it is not within my capacity to stop the US from coming back to this proposal. I recall that previously I have quoted the rules of procedures of the General Council, that members should refrain from repeatedly raising the same issue. As you can see, it didn’t work. And since this proposal obviously concerns China, I have no choice but to make another response. I hope to have your indulgence.

To make sure that it doesn’t get on the nerves of my friend of the Secretariat, I will not repeat what I have said in the past, or swarm you with data and facts. Let me just share with you a story.

This story pertains to what Ambassador Shea said in our previous meeting: “The more economically advanced of these countries are clearly capable of negotiating the flexibilities they need, rather than availing themselves of blanket S&D”.

Let me begin the story. The time is 7th of June, 2001. In the evening, by the Huangpu River in Shanghai, the APEC trade ministers are gathered at the Shanghai International Convention Centre for the APEC Trade Ministers Meeting.

It was soon noticed that both Chinese Trade Minister Mr. Shi Guangsheng and US Trade Representative Robert Zoellick have disappeared from the meeting. Where did they go? The answer is in a small meeting room nearby, the two were having a long debate over the last remaining issue in China’s accession to the WTO, i.e. China’s agricultural subsidies. The US side insisted that China should make acommitment at the level of developed countries, that is 5% of the total value of production. China on the other hand, insisted at 10%, which is the level of developing countries. I was in that room, assisting my trade minister.

Both sides had strong arguments and refused to compromise. After a long debate, Zoellick proposed 7.5%, saying that this is the mid-point between the levels of developed and developing countries, which is 5% and 10% respectively, and a mid-point should be an acceptable outcome in any negotiation. Mr. Shi nevertheless did not accept this mid-point approach.He said “any deviation from 10%, however small, is a compromise on the part of China. And for the sake of reaching an agreement and as a response to the flexibility shown by the US, China is prepared to accept 9%”.

Allow me here to give you some background to this debate. The reason why the US was willing to go up from 5% to 7.5% was largely because of a joint communique issued on March 13, 1995, between then Chinese Minister of Foreign Trade Madame Wu Yi and US Trade Representative Mickey Kantor. In paragraph 7, the communique reads: “The United States and China will pursue China’s WTO accession talks on a flexible, pragmatic basis and agree to address realistically the issue of China’s developing country status on the basis of the Uruguay Round Agreement”.

This sentence was a result of a long and difficult negotiation, in which I personally participated, and this communique formed the fundamental policy basis for China and the US to reach the agreement on China’s accession to the WTO.

Because of this communique, back in that meeting room by the Huangpu River, even though both sides were locked in on their own numbers, none of them brought up the issue of whether China is a developing country or if China should enjoy special and differential treatment.

“Our recognition of China’s developing country status is already a big step forward”, Zoellick said. He insisted that 9% was too high because at that time, China only had limited subsidies in agriculture. “How much subsidies we give to farmers is a matter of our capacities. Whether or not we can do that is a matter of our right”. Minister Shi replied determinedly.

This was followed by a silence from both sides. The meeting was temporarily adjourned. Phone calls were made from Shanghai to Washington, while the drowsy-eyed delegates had minutes of sleep on the couches outside of the meeting room.

Soon the meeting was resumed. US raised its offer from 7.5% to 8%, China responded by going down from 9% to 8.5%. No side was willing to move further, so the meeting was again adjourned, resumed, more phone calls, more debates…

Let me cut the story of that night short. By dawn of the next day, when the sky was showing pale blue, and the boats started shuffling on the Huangpu River, the two sides agreed on 8.5% and the deal was concluded.

Looking back at that night-to-dawn negotiation, 8.5% and 7.5%, what difference does 1% make? Well,it makes about 20 billion dollars of additional subsidies to Chinese farmers.This might seem like a large number, but spread over 200 million farmers in China,each farmer may receive only about 100 dollars over the course of a year.

That is not a big win. But one thing we should be clear: without that persistence in the final stage of the negotiation, without the 1995 communique that committed to address realistically the issue of China’s developing country status and treatments, it would have been impossible for China to get this precious 1%, and perhaps even securing 7.5% would have been difficult. As we see from the deals of other developing countries that joined the WTO after China’s accession, without a warranty on their developing country status, they had to accept 5%.

Here the story should have ended, but it did not. As foreseen at the time of the negotiation, China’s industrialization accelerated after the accession to the WTO, and the price of agricultural capital goods increased rapidly. The policy space that China gained in that night-to-dawn negotiation is becoming short of meeting the demand.

What makes things worse is that in February and April 2019, we lost two cases on agriculture at the WTO. Personally I disagree with the decision of the panel on “Quantity of Eligible Production (QEP)”, which uses annual aggregate production, instead of actual amount of procurement, as the basis for calculating subsidies.

Apparently the panel members did not have a thorough understanding of China’s procurement system,which led them to the wrong conclusions. Nevertheless, we have accepted the ruling and have made adjustments within the prescribed timeframe because in our view respecting the dispute settlement system is one of the obligations members should undertake. This means an inflated denominator for China’s agricultural domestic support, thus further squeezing the space for the support that the government can provide to the farmers. Almost 100 million wheat and rice farmers will be affected by the relevant policy adjustments, who are among the most needed on the government support for their livelihood.

History is never far from us. Even today, I can still recall the neon light reflections on the night Huangpu River from the Convention Centre. What I learned from this story is that for many developing countries, the so-called “blanket special and differential treatment” is nothing but a beautiful promise. To win real and meaningful S&D in the negotiations, they need to rely on the institutional rights endowed to them by the Uruguay Round agreement and their WTO accession agreements. These institutional rights are irreplaceable, and we cannot hope that articulate negotiations or sympathetic counterparts can provide the same level of flexibilities.

Thank you.

Agenda Item 12: WTO Reform Proposal by some Developing Members

Mr. Chair, China appreciates and supports the proposal on WTO reform submitted by African Group and other developing Members. Like the co-sponsors, China also believes that the WTO indeed needs a reform.

One of the key objectives of such a reform is to allow developing members, which are the majority of the multilateral trading system, to benefit from their participation rather than satisfying a few members who discontented with losing some cases at the WTO.

Objectively speaking,over the past decades, despite their efforts to overcome tremendous challenges,developing members have not benefitted sufficiently from their participation in the multilateral trading system. The international rules remain imbalanced and the goals set by the Doha Development Agenda remain unaccomplished. DDA now might already sound like a phrase from the distant past for some members, but the development objective of the trade negotiations cannot and should not change.

Mr. Chair, WTO reform is to strengthen the multilateral trading system, to improve the existing rules, not to completely revamp and start all over again. The bedrocks of the WTO, such as MFN, special and differential treatment, consensus-based decision-making, independent, impartial and two-tiered dispute settlement mechanism, should remain at the foundation of this organization. Without these,the system would easily topple to the ground.

The 164 members of the WTO are of diverse historical and cultural backgrounds, having their own unique economic models and development paths. Reform of the WTO can only succeed with full and mutual respect of these differences, while seeking convergences. We should proceed with incremental steps and be realistic of what is achievable. Overstepping or imposing one’s own views onto others simply won’t work.

Reform means change,and reform means innovation. We need the brave explorers to chart out the paths ahead of us and venture down the roads. But for these explorers, they should have a clear mind that the goal is not to find new paths for themselves, so that they can navigate the new landscape shaped by new technologies and new business models; The objective should be to explore a common path for all 164 members,so that all of us can move forward together towards sustainable development,and leave no one behind.

We look forward to advancing together with all WTO members on the right path for WTO reform, in the right direction and with the right approach.

Thank you.