I. Introduction

China’s transition from a planned economy to the so-called “socialist market economy” started at the end of 1978, with a process that has gradually changed the trajectory of development previously adopted. The first thirty years (1949-1979) of the People’s Republic of China’s (PRC) policy development was modeled after the Soviet planned economy, but with specific characteristics (Chinese path to socialism). Peculiar aspects of Maoist strategy were the emphasis on economic self-sufficiency at both a national and local level and, as a consequence, the emphasis on the ability of exploiting human and technical resources through collective mobilization and organization. With the goal of the “Four Modernizations” (industry, agriculture, national defense and science & technology), a pragmatic approach was adopted, where “economic development becomes a priority over class struggle.” This new strategy led to three transformations in China’s economic development: the transformation from a centrally-planned to a market-oriented economy; the transformation from an agricultural-based to a manufacturing-and-services-based economy; and the transformation from a closed to an open economy. The ensuing trade liberalization reforms included opening up an export-oriented processing segment, implementing a unilateral trade liberalization process and joining the World Trade Organization (WTO). Further actions concerned the opening to foreign investment, through the creation of four “Special Economic Zones” (SEZ), ruled by three main guidelines: (1) creation of structures mainly designed to attract and employ foreign capital; (2) arrangement of economic activities through joint-ventures between Chinese and foreign companies; and (3) production of goods mainly addressed to foreign markets export. Since the beginning of the reforms, the Chinese economy has been expanding dramatically with annual GDP growth of 9%. The expansion of China’s participation in international trade has been one of the most outstanding features of the country’s economic development.

The WTO was only a partial worldwide trade organization before China’s accession. The road to the signature of the final agreement of accession was long, but these difficulties pale in comparison to those that have not yet been tackled in terms of achieving real implementation of its provisions throughout the PRC. China’s accession surely presents opportunities in world trade, but also poses the challenge of integrating a market with strong structural, behavioral and cultural constraints. A great number of analysts have been arguing that not only will China’s integration be long and difficult, but also could be damaging to the organization. Being a party of the international agreement and the participation to the WTO could involve China in state responsibility under the general principle “pacta sunt servanda” in case of non-compliance to its obligations. This fundamental legal principle clearly applies in the context of international negotiations and it refers to the obligation to “keeping one’s promises.” In the opinion of the authors, the most relevant obstacle to effective implementation of the WTO and bilateral agreements is the problem of “internal barriers” that have distinctive features because of China’s unique historical background including the communist period, long-standing imperial traditions and feudalism. Moreover, the lack of stable rules to define relations between the central authority and the increasingly powerful local entities undermines the good intentions of the Chinese central Government.

During the negotiations, the difficulties of Chinese government to ensure compliance with the WTO requirements and conditions were already apparent. The awareness of the market situation and the need for a reform of the Chinese legal, economical and financial order to ensure a long-term functioning of the WTO is spreading among all the member states, especially the US and the EU. For these reasons, beside the ordinary WTO Trade Policy Review Mechanism (TPRM), a special “precautionary” instrument, the Transitional Review Mechanism (TRM), was included in Section 18 of the Protocol of China’s accession to the WTO, as requested by the US and supported by the EU. Both the US and the EU were pinning a great part of their hopes and financial support on the good performance of the TRM. The TRM is more comprehensive than the TPRM. The TRM has the objective of monitoring and enforcement of implementation of WTO commitments (which TPRM does not), promoting transparency and exchange of information in trade relations with China. On the other side, the TPRM final report by the WTO secretariat does not need consensus approval of the WTO members. The review under TRM started to take place after accession and would continue each year for eight years with a final review in the tenth year or at an earlier date decided by the General Council. This mechanism requires China to provide WTO members with specific information, such as economic data, economic policies, policies affecting trade in goods, policies affecting trade in services, the trade-related intellectual property regime and specific questions in the context of the TRM. These questions are different from those required by the general notification requirement of the WTO members. The examination of this information is conducted by 16 subsidiary bodies and at the end of the year at the general council meeting. The TRM grants WTO members with additional multilateral forums to ask the Chinese Government for clarification and to improve mutual understanding in the field of China’s accession. At the 2002 TRM, it was China’s first year of WTO membership and China had to overcome its lack of experience, resources and a lack of sufficient time for preparation. At the TRM in 2005, 2006, 2007 and 2008, while appreciating the efforts made by China, the EU and the US also had to recognize the necessity of further progress on WTO commitments related to several specific fields, such as transparency, banking, telecommunications, automobile, construction, intellectual property rights, and agriculture sectors. More specifically, problems occurred have been examined in the wholesale services such as the importation and distribution restrictions applicable to copyright intensive products (books, newspapers, journals, theatrical films, DVDs and music) and to crude oil and processed oil, in the retailing services such as licensing processes, the urban commercial network plans, the direct selling services, the customs valuations (such as valuation determinations), the importing licensing, the China’s Conduct of Antidumping Investigations and in the others legislations.

From the Chinese general behavior in the framework of TRM committees at the WTO though, it seems that China does not accept this mechanism. China considers it discriminatory, because it is applicable just to China. But the negotiations for the accession of a new country to the WTO often establish more commitments than those included in the multilateral agreements (WTO plus obligation). China negotiated and signed the final agreement which had also provided the inclusion of the TRM. However China’s Protocol of Accession to the WTO does not specify all the TRM procedural rules, so China has had some discretion for providing timely answers to the questions in the TRM subcommittees. Without the introduction of supplementary procedural rules to improve the timelines of Chinese answers, the TRM procedures cannot work properly. In fact, China is constantly challenging them, since such procedures were not in the commitments and appeared to China as an attempt to renegotiate and add to the terms of its accession. During the last years, China has lowered the expectations of some of the WTO members for the outcome of the TRM. It follows that the WTO members’ participation in the review had declined in favor of bilateral negotiations which result in the best means to overcome many problems in China’s WTO compliance. According to some scholars, the general Chinese behavior not in favor of the TRM could be explained with reference to the Chinese cultural tradition, where the best way to resolve the disputes is through mediation and conciliation. The multilateral system can more easily disclose unpredictable problems or risks. It is more difficult to foresee the reactions of each part in a multilateral forum than those of one counterpart in a bilateral negotiation.

As it has already been stressed, China’s legal system was not totally and entirely ready for the accession, since most of its laws and regulations were not fully consistent with WTO provisions. Moreover, the Uruguay Round Negotiation is a Single-Undertaking, which means that every single multilateral agreement is part of a whole and indivisible package and cannot be agreed separately. During the negotiations and after the accession China has started a massive process of amendment of its domestic laws and regulations regarding all the sectors covered by WTO rules. As any new member of the WTO, China needs to reform the main sectors of its legislation. In this article the analysis will focus on the trade-related intellectual property rights and the more general WTO transparency principle.