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THE WTO DISPUTE BETWEEN THE US & CHINA |

THE WTO DISPUTE BETWEEN THE US & CHINA

I. Background

On 18 August 2017, the United States Trade Representative (“USTR”) initiated an investigation concerning alleged acts, policies, and practices by China related to technology transfer, intellectual property, and innovation. On 22 March 2018, the USTR released its report on the investigation under Section 301 of the Trade Act of 1974 (“Section 301 Report”). On the same date of 22 March 2018, the United States (the “US”) issued a Presidential Memorandum, in which the USTR was directed to take all appropriate action under Section 301 Report to address China’s state-sanctioned technology theft, subsidies, and other “unfair practices” allowed under China’s trade rules, and that such action should include increased tariffs on imported goods from China.

Thereafter, the USTR published a series of notices, according to which the US started to impose 25% additional tariffs on approximately $34 billion of Chinese imports from 6 July 2018, and impose 10% additional tariffs on approximately $200 billion of Chinese imports from 24 September 2018. The latter tariff increases increased up to 25% as well in May 2019.

II. Parties’ claims and arguments

In 2018, China brought this case to be heard at the WTO Dispute Settlement Body (“DSB“) under the WTO dispute settlement mechanism. Before the Panel, China challenged:

Additional duties of 25%, imposed on 20 June 2018 on a list of 818 tariff subheadings with an approximate annual trade value of USD 34 billion of products imported from China, as of 6 July 2018; and
Additional duties of 10% imposed on 21 September 2018 on a list of 5,745 tariff subheadings with an approximate annual trade value of USD 200 billion of products imported from China, as of 24 September 2018, subsequently raised in May 2019 to 25 %.
China claimed that these additional duties were inconsistent with the US’s Most-Favoured-Nation treatment obligation under Article I:1, and the obligation to base “duties or charges” levied on the Schedules of Concessions annexed to the WTO’s General Agreement on Tariffs and Trade 1994 (“GATT 1994”) under Article II:1(a) and (b) of the GATT 1994.

In response, the US raised two main sets of arguments:

that by engaging in bilateral negotiations to address several trade concerns, evidenced by the Phase One: Economic and Trade Agreement which had been signed last January, the parties had decided to settle their dispute outside the WTO, and thus reached a “settlement of the matter” within the meaning of Article 12.7 of the DSU; for that reason, the Panel should confine its report to a brief statement of the facts and a notation that a settlement has been reached; and
that, in any event, the additional duties were necessary and to protect “public moral”, justified as an exception under Article XX(a) of the GATT 1994 because the US adopted them to “obtain the elimination” of conduct that violates US standards of right and wrong, and only adopted after a decade of trying to address the problems through other means, including dialogue, admonishment, multilateral forums, bilateral mechanisms, the pursuit of criminal charges, etc.
China, on the other hand, claimed that the US unsuccessfully proved any relevance between the additional tariffs and the protection of “public morals” as claimed by the US, as well as how the products affected by the duties had benefited from the unfair practices in the first place.

III. Panel’s findings: the US’s tariff imposition was WTO-inconsistent

On 15 September 2020, after more than two years since the day China first requested consultations with the US, the WTO Panel released its conclusions and recommendations.

In the Report of the Panel, it recognized that an ongoing bilateral process was taking place between China and the US. However, the Panel observed that this bilateral process seemed to be parallel to the panel proceedings, and not intended, by China at least, to replace them, thus concluding that the parties had not reached a mutually satisfactory agreement of the matter outside the WTO mechanism.

Through the evidence as provided by China, the Panel found that it was sufficient to presume that such additional duties were, at first appearance, inconsistent with Article I:1 of the GATT 1994 because they applied only to products from China; and, at first appearance, inconsistent with Article II of the GATT 1994, because they were applied in excess of the rates to which the US bound itself in its Schedule of Concessions.

The Panel also stated that the US had not provided an explanation demonstrating how the imposition of additional duties on the selected imported products was apt to contribute to the public morals objective invoked, and, following on from that, how they were necessary to protect public morals. The Panel found, accordingly, that the United States had not met its burden of demonstrating that the measures are provisionally justified under Article XX(a).

In its “Concluding Comments”, the Panel emphasized the Panel’s awareness of the wider context in which the WTO system currently operates, which was “one reflecting a range of unprecedented global trade tensions”. However, its mission was only to perform diligently its adjudicatory role in relation to the matters that fell within its terms of reference, not on any matters other than those it had been specifically tasked to deal with.

IV. Current status of the dispute

On 26 October 2020, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law and legal interpretations in the Panel Report. But the case could then enter a legal paralysis because the US has blocked the appointment of new panelists to the Appellate Body, preventing it from convening the minimum number required to hear cases.

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