CPEC and WTO Law: Are China's Trade Preferences to Pakistan Consistent with WTO Obligations?

Abstract

The China-Pakistan Economic Corridor (CPEC), as a central element of China's Belt and Road Initiative (BRI), has significantly transformed trade, investment, and infrastructure cooperation between the two countries. Although CPEC promises Pakistan a huge reward in its economy and well as achievement of Chinese regional policy agenda, legal consequences of such preferential trade agreements derived by this project are questionable depending on the legal aspects of the international trade regime. More particularly, how the regularity of such preferences is in tandem with the requirements of the World Trade Organization (WTO) should be properly investigated legally. The most important concept of WTO legal perspectives is Most-Favored Nation (MFN) treatment which requires member states to treat each trading partner equally. With this principle, a benefit of trade to a couple of members must be presented to others. China's preferential treatment of Pakistan under CPEC, particularly in the form of tariff concessions, investment guarantees, and special economic zones, appears to challenge this rule of equal treatment. Nonetheless, the WTO law has exceptions which may permit differentiation treatment in some occasions like regional trade and exemption in development for the developing nations. This paper looks into how the trade preferences to be enjoyed based on the CPEC lie within the acceptable pale of such exceptions. It looks into the legal specifications of WTO agreements on the preferential trade arrangements and determines whether CPEC fits the ardent requisites, including transparency, notification and liberalization on a two-way basis. In its enquiry, it also entails a doctrinal analysis of WTO case law, which has beaten out a narrow scope of scope under which developing countries can operate and practice discriminatory trade without being in violation of the WTO. The paper also takes into account the wider implications of the two countries being developing countries in the WTO framework (China and Pakistan). It examines the possibility of the trade arrangements provided under CPEC falling into the category of South-South cooperation and the degree at which such a classification enjoys legal protection of the WTO rules. The study also addresses the question whether the strategic and developmental objectives that are being sought to meet via CPEC are in line with the major principles of a multilateral trading system, or not very likely to affect coherence and credibility of the latter. The final argument given in the paper is that on the one hand, CPEC is a strategic vision of economic connectivity and regional development; on the other hand, the case poses a legal challenge to long-term stability and elasticity of WTO rules. Trade preferences granted by China to Pakistan should be organized in line with the law on WTO so that it does not conflict with international trade laws. To achieve such compatibility, one needs to have a well-thought-out legal engineering, open institutional interaction and, perhaps, a review of the correctness of the balance in global trade development bilateralism and multilateralism.