China and the World Trade Organization

China became a member of the World Trade Organization (WTO) on 11 December 2001, after the agreement of the Ministerial Conference. The admission was preceded by a lengthy process of negotiations and required significant changes to the Chinese economy. Its membership has been contentious, with substantial economic and political effects on other countries (some times referred to as the China shock) and controversies over the mismatch between the WTO framework and China's economic model. Assessing and enforcing compliance has become issues in China-US trade relations, including how China's noncompliance creates benefits for its own economy.
Until the 1970s, China's economy was managed by the communist government and was kept closed from other economies. Together with political reforms, China in the early 1980s began to open its economy and signed a number of regional trade agreements. China gained observer status with GATT and from 1986, began to work toward joining that organisation. China aimed to be included as a WTO founding member (which would validate it as a world economic power) but this attempt was thwarted because the United States, European countries, and Japan requested that China first reform various tariff policies, including tariff reductions, open markets and industrial policies.
After the 1997 Asian financial crisis, China sold off or merged many unprofitable state-owned enterprises. In 1998, China reformed the State Council to greatly reduce the mandate of the State Planning Commission and increase the mandate of the State Economic and Trade Commission. This shift also corresponded to the change in premiership from Li Peng to Zhu Rongji, the latter of whom strongly believed that China needed deeper economic restructuring. This, which had been happening since the 1980s, included crackdowns on corruption and the establishment of chambers of commerce.
The World Trade Organization Ministerial Conference of 1999 and related 1999 Seattle WTO protests were the penultimate step before Chinese accession.
Formal diplomatic relations between the United States and the People's Republic of China were not established until 1979, and even afterward, trade relations were hampered by the high tariff rates of the Smoot–Hawley Tariff Act of 1930. After the two governments settled asset claims dating from the Korean War in 1950, Congress temporarily granted China most favored nation status in 1980. Chinese-American trade was still hindered by the Jackson–Vanik amendment of 1974, which made trade with the United States contingent on certain human rights metrics.
By 1984, the United States had become China's third-largest trading partner, and China became America's 14th largest. The annual renewal of China's MFN status was constantly challenged by anti-Chinese pressure groups during US congressional hearings. For example, U.S. imports from China almost doubled within five years from $51.5 billion in 1996 to $102 billion in 2001. The American textile industry lobbied Congress for, and received, tariffs on Chinese textiles according to the WTO Agreement on Textiles and Clothing. In reaction to the 1989 Tiananmen Square protests' suppression, the Bush I administration and Congress imposed administrative and legal constraints on investment, exports, and other trade relations with China.
The Clinton presidency from 1992 started with an executive order (128590) that linked renewal of China's MFN status with seven human rights conditions, including "preservation of Tibetan indigenous religion and culture" and "access to prisons for international human rights organisations"—Clinton reversed this position a year later. Other challenges to Sino-American relations in this decade included the investigations into Chinese nuclear espionage which produced the Cox Report, the persecution of Taiwanese-American scientist Wen Ho Lee for unproven allegations of espionage for the PRC, and the 1999 United States bombing of the Chinese embassy in Belgrade. Jiang Zemin visited USA from October 27 to November 3, 1997 and Clinton paid a return trip June 25 to July 3, 1998. United States and China reached agreement on terms for China's entry into WTO after talks in Beijing in November 1999, subject to approval by Congress.
Relations warmed after the September 2001 initiation by George W. Bush of the War on Terror.
These changes were difficult steps for China and conflicted with its prior economic strategy. Accession meant that China would engage in global competition according to rules that it did not make. China's admission was "an enormous multilateral achievement" that marked a clear commitment toward multilateralism.
Under Article 15 of the protocol by which China joined the WTO, China was recognized as a Non-market economy (NME). This status allows special treatment within the WTO. The status was set for 15 years and has been disputed after 2016, the year when the 15 years had passed.
When China joined the WTO, it agreed to considerably harsher conditions than other developing countries. Furthermore, China had to deal with certain concerns linked to transparency and intellectual property that the accession to WTO underlined. It comprehensively amended its Trademark Law, Patent Law, and Copyright Law after it joined the World Trade Organization in 2001.
After its entry into the WTO (WTO) in December 2001, China began pursuing export-led growth and became a key link in global supply chains. Chinese businesses were encouraged to trade directly with foreign companies (instead of working through state-owned enterprises as previously), with the exception of certain state monopoly sectors deemed critical to national security.
China's service sector was considerably liberalized and foreign investment was allowed; its restrictions on retail, wholesale and distribution ended. Banking, financial services, insurance and telecommunications in China were also opened up to foreign investment.
China's industrious and cheap labor also proved attractive to foreign investments. China accumulated large trade surpluses and foreign currency reserves, which greatly increased government resources.
In the 2000s, China was the world's largest exporter of rare earths; it sought to restrict exports and these policies resulted in major disruption to global supply and significant price increases. In response, the United States, European Union, and Japan brought a case against China in the World Trade Organization in 2012. They contended that China's export controls effectively subsidized downstream industries relying on rare earths (such as steel, photovoltaics, and semi-conductors) by keeping inputs low. The WTO ruled against China, determining that its export controls were not justifiable according to the exceptions that China had contended. China complied with the ruling, which also prompted increased policy coordination by central ministries and provided the impetus for further domestic reform.
In 2007, the U.S. brought a WTO case against China challenging China's intellectual property laws. This resulted in China's further amendment of domestic IP laws to comply with the WTO panel's decision.
In 2024, the WTO stated that there is an "overall lack of transparency" in the Chinese government's financial subsidies for key industrial sectors.