US-CHINA WTO LITIGATION -- TRUMP & TARIFFS -- ANY LESSONS?

U.S.–China trade relations are the most important bilateral trade relations today. The conflict between these countries has already progressed to a trade war. What is not well known is how this conflict is playing out in the WTO’s dispute resolution system.

An examination of the trade cases filed by both China and the U.S. in the WTO during the first two years of the Trump administration is extraordinarily illuminating. Careful analysis reveals important facts that are not well known and are often miscast as reality.

This litigation has implications for trade relations with China; broader U.S. trade policy; and even broader U.S. policy toward international law, multilateral institutions, and the international political system.

Between January 2017 and October 2018, China initiated five cases against the United States. These questioned the conformity of various signature trade actions by the Trump administration. For example, China attacked the imposition of tariffs on solar panels as a safeguard measure and attacked the imposition of other tariffs on steel and aluminum by the U.S. as a national security measure. Two cases also questioned the U.S.’s unilateral retaliation against a broad range of China’s exports to the U.S.

Most recently, China questioned the validity of U.S. tariffs on exports that were imposed as retaliation for alleged intellectual property rights violations. The U.S. contends that China requires forced technology transfer as a condition for entering into joint ventures. China argues that these are essentially private corporate transactions that are utilized worldwide by many firms as a means of doing business and securing market access.

The U.S. has only belatedly filed two cases against China. One contends that the Chinese response to new U.S. tariffs because of intellectual property rights violations was filed too early. The other argues that China’s retaliatory tariffs, imposed in response to U.S. tariffs on steel and aluminum imports, which were based on a national security rationale, cannot be reviewed by the WTO. 

It is clear that China is trying to rely on the WTO’s dispute resolution system as a means of managing U.S.–China trade relations. The Trump administration has only barely begun to catch up.

The backdrop to this series of litigations by both parties is the Trump administration’s very public disdain for the WTO. The administration has condemned the WTO’s ability to negotiate newer trade rules (the WTO’s negotiations have been a failure) and called for possible withdrawal from the WTO. In addition to this threat, the Trump administration has focused its criticism particularly on the dispute resolution system, where it claims the decisions have ignored the law and the US has lost all its cases.

The facts demonstrate otherwise.

The U.S. was a major supporter of the establishment of the WTO. In addition, it was the principal architect of the dispute resolution system, which involves both diplomatic negotiations and, if they fail, binding adjudication with enforcement. The U.S. negotiated this because it was perceived to be in its national interest and exercise of its national sovereignty.

The U.S. wanted to create a rules-based trade system as a means of diplomatically resolving and adjudicating disputes—a system that would mirror the U.S. legal system and its unique values. In this system, rights and obligations are assumed by all nations as a means of creating a multilateral system. Where the law of the jungle (power politics) gives way to the rule of law with mutual benefit for all.

Since 1995, the U.S. has been the greatest user of the WTO’s dispute resolution system. The U.S. has won most of its cases. In fact, surprisingly, China has implemented all decisions that have gone against it. The U.S. has not.

My conclusions are as follows: first, it is in the national interest of the U.S. to remain in the WTO. Second, it is similarly in our interest to remain part of the dispute resolution system. Third, a wide variety of U.S.–China trade disputes have been litigated. China has implemented all adverse decisions, but the US has not, especially regarding the methodology of determining dumping and subsidy cases.

There is no reason U.S.–China trade issues cannot be settled in the WTO’s dispute resolution system. Facts support this. It is better to settle trade disputes in the WTO than on the global stage, where trade disputes can easily spill over to a real battlefield.