China and the WTO: Connecting the Dots, China Style

Americans and Europeans negotiating in China for a long time will recognize the pattern. A Chinese associate will make an innocuous but slightly off-topic comment in a business discussion. Later, in a seemingly unrelated discussion, the Chinese side will take offense or express surprise about the same point. Negotiators with limited China experience will wither bat the issue aside or try to win a minor point. The discussion will quickly return to more substantive matters.

When the deal falls apart soon after, the western manager will be scratching his head at the Chinese negotiator’s seeming inexplicable behavior. From the Chinese negotiator’s perspective, however, he has been open, honest – and maybe even a bit blunt.

Prediction: Within the first 6 months of  2012, China will demand a major restructuring of either the WTO or some other international economic forum – effectively removing any meaningful oversight or ability to penalize China (i.e.: member nations).

Here’s the handwriting on the wall:

China will play by rules it negotiates: official

HONOLULU | Mon Nov 14, 2011 12:58am EST
(Reuters) – China will play by the rules of international agreements that it has been party to negotiating, a Chinese official said on Sunday.
His remarks were a clear rebuttal to U.S. President Barack Obama who earlier said that China must act like a “grown up” and play by the rules of the international community in economic affairs.
“First we have to know whose rules we are talking about,” said Pang Sen, a deputy director-general at China’s Foreign Ministry.
“If the rules are made collectively through agreement and China is a part of it, then China will abide by them. If rules are decided by one or even several countries, China does not have the obligation to abide by that,” Pang said at a news conference after the APEC summit in Honolulu…

And then again yesterday – in an unattributed Op-Ed piece in the Global Times, an officially sanctioned English language PRC news site:

Time to reassess unfair WTO entry terms

Global Times | February 01, 2012 00:48
A WTO appeals panel has upheld a ruling against China restricting exports of nine types of raw materials. The ruling, completely unreasonable to Chinese, will threaten China’s resource preservation and environmental protection efforts.

China has generally been following WTO regulations and rulings. But it should find the best balance between applying WTO rules and protecting its national interests. Getting approval from the West is not our top concern.

Admittedly, joining the WTO has boosted China’s rise. However, entry was granted at the cost of China accepting some unfair terms, from which the aftereffects have gradually emerged, including this ruling. They may become a hidden problem for China’s economy.

The latest WTO ruling has highlighted the urgency of amending some of the unfair terms of The Protocol of China’s Entry into the WTO. It is also necessary to express China’s dissatisfaction and garner public support for the revision…

Should WTO rules be applied evenly, unevenly, more stringently, rewritten completely?  I don’t know – and that’s not the point of this post.

The significant issues are that

1) The Chinese side is putting an issue on the table. As far as Beijing is concerned, they are being open and direct about their concerns. The negotiation about the WTO and international trade has begun. If the western side is too slow or oblivious to catch the drift, that is their problem (from the Chinese perspective)

2) The Chinese side is setting the terms of the agenda NOW. The US and/or international side has to act immediately to push back or alter the variables, or they will be starting out at a significant disadvantage.This is where a lot of Americans negotiating in China drop the ball.

3) A common Chinese tactic is to use a manufactured conflict as an excuse to terminate an existing partnership or arrangement. Loss of fact, cultural misunderstanding or perceived insults can all be used as an exit strategy.

Look for WTO structure, rules and China’s continued membership to be major international negotiating variables within the next six months.

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