A Respondent’s Notes on “Interfacing Twin Capitalisms: A Communitarian Approach”
By William F. Stutts [1*], Senior Counsel, Baker Botts L.L.P.; Adjunct Professor, University of Texas School of Law
In their article recently published in the Texas Journal of International Law, Professors Cho and Zheng have provided a thoughtful and detailed review of the rules and policies of the World Trade Organization (WTO) regarding whether a state subsidy is or is not ground for objection or adverse action by members against the subsidizing state. Of particular focus is the question of how the rules impact the developed nations in the West (principally noted are the United States and the members of the European Union), as compared to the way they impact other countries, particularly those with a considerable number of state-owned enterprises, and most particularly as they impact China, a relatively new member of the WTO.[2] Professors Cho and Zheng note a significantly more difficult situation for China under the subsidy rules than for the developed Western states, and identify WTO decisions and rules that complicate matters for China. To address the noted difficulties in the subsidies question, the paper proposes a different approach to standard-setting, recommending adopting rules for subsidies to be developed through a “communitarian” approach—much like mutually agreed standards developed after consultation and comparison among the members of the WTO, but possibly with an enhanced attention to the interests of the community itself rather than the interests of its members.[3]
To anchor the argument on this sort of question—one whose significance is under-appreciated by many but that involves kaleidoscopic complications—the authors have woven together two strands of analysis. The first compares the observed behavior of (for lack of a better term) the developed Western economies to a narrative arising from abstract concepts of market behavior. The second explores more finely the impacts of particular decisions or approvals or policies. In both strands, the model of the developed West is said to be set opposite that of other states, for which China seems to be used as a proxy.
At the outset, that position of China as proxy, if intended, seems less useful than taking China as a significant actor in the WTO in and for its own situation. The Chinese situation need not be used as the banner for other countries’—of the 164 members of the WTO, there are too many differences in needs and interests and systems to load them onto any other member. It is enough to say that China is a singularly important member of the WTO in its own and sole stead.
In the first strand of analysis, the article highlights some of the statements of the WTO about free markets—identifying the WTO policy as one that favors free market capitalism. And in this aspect the article depicts a system that wants to be (or is wished to be) an entirely free market inoculated from the intrusion of government interests and distortive policies. This can be sketched as a bare-knuckled, “you’re on your own” environment, driven by unrestrained, enlightened self-interest, and characterized by intense mercantililism. This expression seems to be consistent with many WTO pronouncements and protocols. In creating a comparison between that, as one profile or nature, and another, as a competing profile, it might be necessary to illuminate aspects that differ from the corresponding aspect of a constrasting system. This approach can certainly exaggerate differences. In the article’s discourse here, the opposing model would be state capitalism, characterized by highly significant (in number and influence) state owned enterprises (SOEs). Wisely, the authors note that a platonic model of a fully unregulated free market is not to be found anywhere, but the initial comparisons or contests of ideas seem to use an inoculated free market system and take a position that state capitalism (using the Chinese models as examples) is the opposing picture.
However, the point of the discourse on this point seems to be that, insofar as subsidies represent state (or public sector) incursions into free markets, the profile of the free market is really a mask. Behind that mask is a set of writhing subsidies and involvement that stand as Exhibits A, B, C, D, E (et sic in finitum) [4], for the proposition that the even the most apparently mercantile endeavors in the West include state involvement in the markets. Where that is the case, the discussion might view differences between the West’s market activity and the market activity of states characterized by SOEs as a difference in degree but not of substance between two models (the authors’ “twin capitalisms”).
It seems that the authors would agree that there is a continuum of state or public sector involvement or influence on market or mercantile activity. That acknowledgement or position does not, however, find a way within the article to resolve difficult divisions. But it also does not completely identify difficult divisions.
To identify those divisions, the second strand of analysis seems to be the authors’ most important tool for the position that the WTO system regulating subsidies contains important obstacles for jurisdictions in which SOEs strongly impact economic activity. In this strand the article details with some granularity the way that WTO’s prohibitions on subsidies do not bar (and do not intend to bar) some kinds of state subsidization in Western developed countries or regions and create a sometimes complex and internally confused situation. In fact, the authors describe the gritty reality of decision-making in the WTO, the members’ shifting responses to economic and political movements, and the intrusion of messy imperatives into a cold and clean exercise of determining whether a state has violated WTO rules. That description of the world as it exists, rather than the world made of cut-out profiles constructed to convey a lesson, is a useful description particularly when sketching out a proposal to make systems work better in the real world.
In a sense, the topic calls for a sort of economic realpolitik rather than a formula-driven line-up of pugilists. So, from the lens of economic realpolitik, the force of the article comes not from debunking a dichotomy that didn’t need to be debunked (because, in actual economic life, the dichotomy never existed), but rather identifying the different and more difficult path for countries whose economies are characterized by SOEs’ influence.
The article seems to indicate that the difficulty in the current WTO system (that is, tension between unrestrained free market capitalism and state capitalism) may result from the stresses of the pandemic, “weaponization” of trade and currency, and forms of economic nationalism (mercantilism) that started in the Obama presidency in the U.S., as bulked up during the Trump presidency. However, the problem noted and the suggestion of some ideas for removing roadblocks to agreement or progress have been noted for more than this century, well back into the Bush and Clinton administrations in the U.S. [5] Even in the first decade of this century, there were calls for some “economic realpolitik” and, in American circumstances, a turn away from the formulae espoused by the American Left and the American Right. [6]
One major contribution of the article is the expert, detailed, and structured exploration of the problems in the WTO’s policing and limitation of state subsidies that are feared to distort market pricing (and therefore distribution). Some of the citations of particular developments in that policing (or positions within specific WTO Members) are, however, cited or linked to other developments as though they caused or arose from each other, but the actual linkage can be elusive. The authors’ description of the policing process highlights the process of resolving specific claims or infractions in disputes, and takes the results of those resolution as the body of legal rules that govern the obligations of all WTO members. In some sense, this has the feel of common-law based development of legal rules.
The authors have offered a revised system to provide a flattened playing field, with China as the main member of the WTO that is disadvantaged by the WTO’s current patchwork of limitations on subsidies. That revision would be a “communitarian” approach, based on and expanding on some particular initiatives and undertakings in the WTO for discrete and smaller scope issues, relying on cooperation more than competition and on mutual adjustment over fixed boundaries. This approach is grounded on perceived good faith, and seemingly extensive disclosure among the most influential players (which, to hazard a guess, are the US, the EU and China, which is probably not far from gritty reality).
The article has a task of describing circumstances and areas in which improvement can be, or should be, made, and setting out in greater or lesser detail a path out of a bog. All the same, a topic as pervasive as subsidies in global commerce meets important and in some cases overwhelming forces outside the scope of an article. The authors mention and rue several elements-- weaponization of trade tools or politicization of positions. But multilateral and broad-based agreements and groups of nations, such as the WTO, cannot be free from domestic or regional policies, or jostling for influence, and perhaps they should not be. Unfettered and candid discussions of trade policy, and of national security and defense, while relevant to a fuller understanding within such a large community, cannot be offered casually—and should not be undertaken lightly. Where national policies exist for compelled transfer of rights to a host country-sponsored SOE as a price for participating in the host country economic activity, or where broad limitations exist in one country on fundamental economic actions by citizens (physical or legal) of another country, those policies and limitations can be expected to impact general dealings with the host countries and necessarily muddy the clear water of community cooperation necessary for collectively agreed multilateral standards. And no WTO member can fully be a proxy for another.
But, as this article demonstrates, there are hopeful ways of establishing productive and cohesive structures for activities that will improve the lives of all concerned. That can be worth the candle.
[1*] Senior Counsel, Baker Botts L.L.P.; Adjunct Professor, University of Texas School of Law. The views offered in this note are mine alone. They are not to be attributed to, nor do they reflect (or intend to reflect) the views of that firm or university or school, or any of the lawyers, instructors, clients, or staff of (or for that matter students at or visitors to) either the firm or the university.
[2] Lest “relatively new” be misunderstood, China became a member of the WTO in 2001, which was some years after the great bulk of the membership of the WTO was formed, but more than 20 years ago.
[3] The Stanford Encyclopedia of Philosophy contains a relatively thorough discussion of the idea of communitarianism, exploring many of the faces of the concept and thought. Communitarianism, Stan. Encyclopedia Phil. (May 15, 2020), plato.stanford.edu/entries/communitarianism. Many of those faces seem unimportant to the themes and ideas in Professor Cho and Zheng’s article, which concentrates much more on the political manifestation of communitarianism, as opposed to the elements that explore the balance between a specific individual and the community itself. In that wider area it seems that the concepts at work in the communitarian environment set themselves against the thoughts that underly John Rawls’ Theory of Justice.
[4] And so on in the end.
[5] Unconstrained and unhindered by any research, empirical observation, or intense study, I would guess that this dynamic has existed for several centuries. Or millennia.
[6] That view echoes, but does not parallel, the description of communitarian processes as removing the process from policies widely identified with the intense Left and those identified with the intense Right.