WTO finds Washington broke trade rules by putting tariffs on China; ruling angers US

GENEVA/BRUSSELS (REUTERS, BLOOMBERG) – The World Trade Organization found on Tuesday (Sept 15) that the United States breached global trading rules by imposing multibillion-dollar tariffs in President Donald Trump’s trade war with China, a ruling that drew anger from Washington. 

The Trump administration says its tariffs imposed two years ago on more than $200 billion (S$272 billion) in Chinese goods were justified because China was stealing intellectual property and forcing US companies to transfer technology for access to China’s markets.

But the WTO’s three-member panel said the US duties broke trading rules because they applied only to China and were above maximum rates agreed to by the United States. Washington had not then adequately explained why its measures were a justified exception, the panel concluded. 

“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,” US 
Trade Representative Robert Lighthizer said in response.

China’s Commerce Ministry said Beijing supported the multilateral trading system and respected WTO rules and rulings, and hoped Washington would do the same.

The decision will have little immediate effect on the US  tariffs and is just the start of a legal process that could take years to play out, ultimately leading to the WTO approving retaliatory measures if it is upheld – moves that China has already taken on its own. 

The United States is likely to appeal Tuesday’s ruling. 

That would put the case into a legal void, however, because Washington has already blocked the appointment of judges to the WTO’s appellate body, preventing it from convening the minimum number required to hear cases. 

The WTO panel was aware it was stepping into hot water. It noted that it had looked only into the US measures and not China’s retaliation, which Washington has not challenged at the WTO.

“The panel is very much aware of the wider context in which the WTO system currently operates, which is one reflecting a range of unprecedented global trade tensions,” the 66-page report concluded. 

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The panel recommended the United States bring its measures “into conformity with its obligations”, but also encouraged the two sides to work to resolve the overall dispute.

“Time is available for the parties to take stock as proceedings evolve and further consider opportunities for mutually agreed and satisfactory solutions,” it said. 

During a two-year trade war with Beijing, Trump threatened tariffs on nearly all Chinese imports – more than US$500 billion – before the two countries signed a “Phase 1” 
trade deal in January. 

Extra tariffs are still in place on some US$370 billion worth of Chinese goods, and US$62.16 billion in duties have been collected since July 2018, US Customs data show. 

Trump has described the WTO as “horrible” and biased towards China, often threatening to quit.  As he left the White House for a campaign rally, Trump said he would “have to do something about the WTO because they’ve let China get away with murder”.

He said he needed to take a closer look at the ruling, but added: “I’m not a big fan of the WTO – that I can tell you right now. Maybe they did us a big favour.” 

The decision could help fuel a Trump decision to leave the WTO or underpin US arguments for reforming the 25-year-old trade body, said Margaret Cekuta, a former USTR official who helped write a crucial report on China’s intellectual property abuses that preceded Trump’s tariffs.

“It gives the administration ammo to say the WTO is out of date. If they can’t rule on intellectual property rights, then what is their position in the broader economy going forward?” said Cekuta, now a principal with the Capitol Counsel lobbying firm.

Trump, critical of multilateral institutions, has already quit the UN cultural organisation Unesco and plans to leave the World Health Organization.

Tuesday’s announcement marks one of the first in a series of anticipated panel rulings over complaints filed by a long line of countries over Trump’s decision to slap them with steep tariffs on steel and aluminum imports.

However, Washington can effectively veto the WTO decision by lodging an appeal at any point in the next 60 days, given the Trump administration has already paralysed the WTO’s appellate body.

The dispute centres on the Trump administration’s use of a 1970s-era US trade law to unilaterally launch its commercial conflict against China in 2018.

China claimed the tariffs violated the WTO’s most-favoured treatment provision because the measures failed to provide the same treatment to all WTO members.

China also alleged the duties broke a key dispute-settlement rule that requires countries to first seek recourse from the WTO before imposing retaliatory measures against another country.

The US tariffs against China were authorised 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 US commerce.

Though the use of Section 301 is not unprecedented, the provision largely fell out of favour in the 1990s after the US agreed to first follow the WTO’s dispute settlement process before it triggered any retaliatory trade actions.

While the European Union has so far been spared US levies based on the controversial Section 301, the 27-nation bloc might breathe a sigh of relief over Tuesday’s WTO verdict. That is because the Trump administration has threatened to use Section 301 to hit European goods with levies in retaliation over the taxation of digital companies in the EU.