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WTO Panel Rules Against U.S. Section 301 Tariffs on Chinese Imports

Posted September 17, 2020

The World Trade Organization (WTO) dispute settlement panel ruled on Tuesday that some of the tariffs imposed by the United States on imports from China are “inconsistent” with the General Agreement on Tariffs and Trade, and recommended that the U.S. “bring its measures into conformity” with its obligations under the GATT 1994.
US-China Flagged Containers Clashing against Backdrop of WTO Logo
The three-member panel of trade experts concluded in its report “that the United States had not met its burden of demonstrating that the measures are provisionally justified.” The panel determined that the U.S. tariff measures broke various longstanding international trade rules because they were both discriminatory and excessive. Moreover, it found that Washington failed to present justification for an exemption that could have legally allowed for the tariffs.

Note: By implication, China’s retaliatory tariffs are also in violation of the same trade rules, but they have not been formally challenged by Washington.  

China Praises WTO, Condemns U.S. “Rule Breaking”

Beijing expressed its appreciation of the decision, which it commended for being “objective and fair.” China’s commerce ministry said it hoped the United States would respect the rulings of the WTO and take practical steps to maintain the multilateral trading system.

Denouncing the U.S. as “the biggest rule-breaker in the world,” the less diplomatic state-run China Times claimed the WTO’s latest ruling had “exposed the US’ unilateral and unethical behavior.” Declaring that “the WTO will not become a handy tool, nor a puppet for [the U.S.] to contain China,” the paper warned that if Washington “continues to act capriciously, then it will only face more setbacks in the international community, and feel more discomfort and isolation.”

WTO “Completely Inadequate,” Says USTR

In a statement, U.S. Trade Representative Robert Lighthizer blasted the WTO for trying to prevent the United States from helping its own workers.

“This panel report confirms what the Trump administration has been saying for four years: The WTO is completely inadequate to stop China’s harmful technology practices,” Lighthizer said. “Although the panel did not dispute the extensive evidence submitted by the United States of intellectual property theft by China, its decision shows that the WTO provides no remedy for such misconduct.”

“The United States must be allowed to defend itself against unfair trade practices, and the Trump administration will not let China use the WTO to take advantage of American workers, businesses, farmers and ranchers,” Lighthizer vowed.

The U.S. tariffs against China were authorized under Section 301 of the Trade Act of 1974, which empowers the president to levy tariffs and other import restrictions whenever a foreign country imposes unfair trade practices that affect U.S. commerce.

The Trump administration has claimed the tariffs were a necessary measure in response to China’s widespread violations of intellectual property rights and forced technology transfer policies.

Decision to Have Little Effect

While the ruling arguably bolsters Beijing’s legal claims and undermines the legitimacy of Washington’s Section 301 trade actions, it will probably have little practical effect under the circumstances.

The U.S. can (and most probably will) effectively derail the entire process by filing an appeal prior to November 14, 2020. That’s because without sufficient Appellate Body members to hear the case — thanks to Washington’s continuing refusal to appoint new members — the appeal will simply be made “into the void” where the matter will stay indefinitely pending for as long as the WTO is disabled.

Meanwhile, punitive tariffs remain in place on some US$370 billion worth of Chinese goods, and roughly US$71 billion in duties have been collected since July 2018, according to an estimate by the independent Tax Foundation.

The so-called Phase One” trade deal signed earlier this year is also not expected to be affected by the current wrangling over the WTO decision. The partial agreement called for China to purchase an additional $200 billion worth of goods from U.S. suppliers by the end of 2021. Just last month, the two countries reaffirmed their commitment to the deal in a biannual review.

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