WTO Awards China $645M in Retaliation Against U.S. in Long-running Subsidy Dispute

Trade Update • JANUARY 27, 2021

A World Trade Organization arbitration panel yesterday authorized China to impose retaliatory tariffs worth $645 million on imports from the United States in a decade-old dispute over U.S. anti-subsidy duties on various Chinese products including thermal paper, solar panels, wind towers, steel sinks and several types of pipes.

The Biden administration, which is unable to appeal the decision, called it “deeply disappointing” and said it reinforces the need to reform the WTO’s rules, claiming they were being “used to shield China’s non-market economic practices and undermine fair, market-oriented competition.”

The Appellate Body’s “erroneous” interpretations “damage the ability of WTO members to defend our workers and businesses from China’s trade-distorting subsidies,” said USTR spokesman Adam Hodge.

Beijing welcomed the decision, saying it “once again proves that the U.S. has long violated WTO rules, abused trade remedy measures, and refused to fulfill its international obligations.”

China’s Ministry of Commerce said the decision was of “great significance in rectifying U.S. countervailing duties” and urged the U.S. to “find no more excuses and immediately correct the wrongdoings” in its trade practices.

Background

The dispute, brought by China in 2012 over U.S. countervailing duties imposed by the Obama administration between 2008 and 2012 on a range of Chinese products, centered on the U.S. interpretation of what constitutes a government-controlled entity.

China challenged several aspects of the investigations conducted by the U.S. Commerce Department, including the application of an alleged “rebuttable presumption” used to determine whether Chinese state-owned enterprises qualify as “public bodies” within the meaning of the WTO Agreement on Subsidies and Countervailing Measures. China further challenged several aspects of Commerce’s determinations stemming from such investigations.

While dismissing some of China’s claims, the WTO repeatedly ruled against the U.S. in key aspects of the dispute, culminating in a 2019 Appellate Body decision that faulted Commerce’s calculation of countervailing duties in a dozen cases because it failed to adequately prove Chinese prices were distorted, a necessary requirement for an investigating authority using out-of-market prices. In response, the U.S. accused the WTO Appellate Body of having acted beyond the scope of its authority — a frequent and longstanding complaint that led to the U.S. blocking any new appointments since 2017.

China initially sought $2.4 billion in retaliation, but U.S. objections sent the matter to arbitration, during which Beijing reduced the amount requested to $789 million. The U.S. had proposed that the level of “nullification or impairment” of benefits to China by the goods involved in the dispute should not exceed $106 million, a far cry from the $645 million that was finally awarded.

Next Steps

The latest ruling allows China to take action to be compensated for what the arbitrator determined were unfair U.S. countervailing duties on various Chinese goods.  Before doing so, however, Beijing must first request formal WTO authorization to retaliate against U.S. goods and services, something that could be granted as soon as next month.

The Biden administration could also attempt to avoid China’s WTO-authorized tariffs, but to do so would involve revising U.S. countervailing duties, an unlikely move given that it would face intense opposition from key U.S. manufacturing sectors like steel and aluminum.

At a press briefing today, Ministry of Commerce Spokesman Gao Feng said China “will keep a close watch on the next moves of the U.S. and reserves the right to take further action.”

In this regard, it’s worth noting that China has yet to apply retaliatory penalties on U.S. goods up to an amount of nearly $3.6 billion that a WTO arbitrator authorized in a separate decision in November 2019.