The Elephant in the "Green Room": China and the Doha Round

Aaditya Mattoo (The World Bank), Francis Ng (The World Bank) and Arvind Subramanian (PIIE)
Policy Brief
May 2011

China's global economic dominance has changed the dynamic of the Doha Round of multilateral trade negotiations, which has been languishing for nearly 10 years. Whereas earlier lack of enthusiasm from the private sector debilitated Doha, today fear of competition from a dominant China inhibits progress. Progress now hinges critically on greater market opening not in services or agriculture but in manufacturing, where China is a large supplier to all the major markets, and its presence has grown significantly over the course of the Doha Round negotiations. China looms especially large in the markets of major trading partners in sectors where protection is greatest. China's share in these sectors in Japan is over 70 percent, in Korea over 60 percent, in Brazil about 55 percent, in the United States, Canada, and the European Union about 50 percent each. Liberalization under the Doha agenda, especially in the politically charged, high-tariff sectors, is increasingly about other countries opening their markets to Chinese exports.

China has achieved trade dominance to a large extent through its successful growth strategy, but the problem is the strong political perception that China's export success has been achieved, and continues to be sustained, in part by an undervalued exchange rate. It seems unlikely and politically unrealistic to expect China's trading partners to open further their markets to China when China is perceived as de facto (via the undervalued exchange rate) imposing an import tariff and export subsidy not just in selected manufacturing sectors but across the board. Unless Chinese currency policy changes significantly, and unless there can be credible checks on the use of such policies in the future, concern will remain in many countries, both industrial and emerging-market, about the increased competition from China that liberalization under Doha might unleash. Instead of blaming one another for the current impasse, countries need to confront Chinese trade dominance to revive Doha or look beyond it.