The Determinants of China’s Compliance with WTO Rules

Summary

Compliance is an important concept for studying the impact of international law on state behavior. There has been a growing interest in exploring the role of the WTO remedy mechanism in the compliance of the WTO rules, which can be attributed to international law, international relations and law and economic scholars. Generally, states comply with international law for three reasons: reciprocity, reputation and retaliation. The WTO is a comprehensive regime addressing the trade issues of different sectors among member states, which are at various levels of economic development. Compared with the other international regimes, the WTO, which resorts under two important monitoring mechanisms, the Dispute Settlement Mechanism (DSM) and the Trade Policy Review Mechanism, is considered to exert greater efforts to enhance compliance with WTO requirements. As Jackson stated, the innovation of the WTO DSM is highly successful and effective. China joined in 2001 the WTO as a new member. Since then, China has undertaken efforts to comply with WTO requirements by gradually ending trade restrictions and liberalizing its foreign trade regime. However, various trade measures and policies are still challenged by WTO members and complaints about China’s violation of the WTO rules have increased since 2006. China’s behavior raised questions: do the remedies of the WTO effectively induce China’s compliance? What are the determinants of China’s compliance/non-compliance with WTO rules?

This study discusses these questions from a law and economic approach. It analyzes compliance theories from international law, international relations, and law and economic perspectives and summarizes possible incentives of states’ compliance with WTO rules. In addition, the history of the WTO and the WTO DSM are reviewed from a law and economic perspective. This study further explores the five steps of state’s decision making process when they participate in the WTO DSM and examines China’s behavior in the twelve cases that China was involved in the WTO DSM as a respondent.

Based on the conclusions drawn from the analysis and China’s behavior in the cases, this study first confirms the compliance theories. Generally, reciprocity, reputation and retaliation influence China’s behavior. Furthermore, the study questions the effectiveness of the WTO formal remedy mechanisms. The current formal remedy mechanisms in the WTO do not effectively induce China’s compliance. Finally, the study offers a cautious suggestion regarding the WTO remedy mechanism.