Opinion

China broke the rules of global trade – but for good reason

Daniel Poon says the global trade regime that now exists has become an example of institutional overreach: backed by its developed-country members, the WTO has effectively reduced the policy space of developing countries to become rich themselves

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While many people have debated the rights and wrongs of Chinese trade policies, there has been little open contemplation of why China adopted such practices in the first place. Photo: Reuters

Daniel Poon is an economist with the United Nations Conference on Trade and Development (UNCTAD), Division on Globalisation and Development Strategies.

Published: 2:00pm, 21 Jun 2018Updated: 6:53pm, 21 Jun 2018

The US-China trade dispute is off again, on again. While many people have debated the rights and wrongs of reining in Chinese trade policies, there has been little open contemplation of why China adopted such practices in the first place and what that might suggest about development prospects under existing global trade rules.

It is no secret that in the post-second world war era, only a small number of developing countries have joined the ranks of high-income countries, and only a handful of these have done so by establishing competitive home-grown industries in capital- and technology-intensive manufacturing sectors. This handful are found in East Asia: Japan, South Korea and Taiwan.

It is widely acknowledged that the state played a substantial strategic role in these cases.

For those wishing to replicate their success, however, some argue that the relevance of their experience is limited because the global trading system has changed. Policy instruments like “performance requirements” that were once permitted were banned when the World Trade Organisation came into force in 1995. Other practices, like technology licensing agreements, were discouraged in favour of foreign direct investment flows, which allowed foreign investors greater control over technology transfers.