This is a slightly longer version of my article that appeared in the New York Law Journal (August 9, 2013) ………………………………….
US-China Trade Relations — Litigation in the WTO 2001-2013
The WTO dispute resolution system is widely used and is a litigation-oriented process. It is at the core of global trade relations today. Both the United States and China have been aggressive users of it. Each country has shown a willingness to address contentious issues. This has been to the benefit of both countries. As newer trade issues arise this process will be indispensable in keeping US – China trade relations on a stable course.
My approach to assessing US-China trade litigation in the WTO is to examine the data provided by the WTO and the United States Trade Representative (USTR) concerning the WTO dispute resolution system from its inception, the activity of the Bush and Obama administrations, and China’s record in the WTO.
This is not a jurisprudential study but one assessing empirical litigation data in order to disclose implications for American trade policy and the international trade system. A series of charts with short explanatory passages helps illustrate this story. A statistical assessment of WTO litigation is essential to policymakers confronting the future of the WTO.1
The specific conclusions are straightforward. The dispute resolution system is widely used by many developed and developing countries. The US has been the most active country in it. The focus of the US has increasingly been on China and Chinese litigation has been primarily focused on the US. Further, the pace of WTO litigation among all countries has picked up.
This review of US-China litigation is of competition reflecting trade flows and friction, which are addressed successfully in a rules-based system, rather than a narrative of a deadly, winner-take-all conflict. Such legal conflict and diplomatic resolution is the way that the system was intended to work by its architects, principally the US.
My general conclusion is that, whereas the US and China are competitors, they have channeled their major trade disputes into an international diplomatic and adjudicatory mechanism that demonstrates cooperation and management. This approach is beneficial to both parties politically, US-China trade relations, and global governance.
The dispute resolution system is at the heart of the WTO and decides trade disputes between members. It is the judicial system of the WTO and of the global trading system.
The WTO and its dispute resolution system is the successor to the older, much weaker GATT system, and came into existence in 1995. For the first time in history, there is now a multilateral system that resolves trade disputes with binding decisions enforceable by sanctions. There is nothing else like this in the international economic arena today.
The basis of the dispute resolution system is the WTO’s “Dispute Settlement Understanding,” one of the multilateral agreements that came into force in 1995. It provides compulsory jurisdiction and decisions enforced by trade sanctions. It applies all the rules found in the whole range of WTO agreements relating to agriculture, intellectual property, dumping, subsidies, services, investment measures, merchandise trade, among others.
For example, the US has filed various actions against China concerning what it considers improper export subsidies and failure to enforce intellectual property rights. On the other hand, China has filed actions against the US for their imposition of antidumping duties and safeguard tariffs. Most trade cases before the WTO involve “trade remedy legislation” authorizing dumping, subsidies, and safeguard measures. The dispute resolution system is widely used by many states, but most WTO litigation involves that between the US and the EU. However, the most politicized and high- profile litigation involves the US and China.
The actual dispute resolution process combines traditional negotiations and litigation and is relatively simple and quick. From start to finish this entire process takes 12–15 months. States file a request for consultation which involves confidential diplomatic negotiations between the parties. If consultation does not result in a settlement, the complaining party may request the establishment of a panel to hear the case. This is where the litigation takes place. However, the majority of cases requesting consultation are resolved without ever going through the full litigation process.
Panel members are trade experts selected by the WTO and then chosen by the parties. The cases are decided by the panelists and not juries—a seeming adaptation of the civil-law approach to litigation. For a very long time these proceedings were closed and did not allow amicus briefs, but this has now changed somewhat.
Parties may appeal the decision of the panel to the Appellate Body which is composed of members selected by the WTO. Determinations by both the panel and Appellate Body are required to be adopted by the Dispute Settlement Body, essentially the entire membership of the WTO. In reality this adoption has proven to be automatic. When a decision is finalized, the losing party is required to bring its offending measure into compliance with the decision (technically, a recommendation) which allows it to formulate the specifics of its compliance.
If there is a failure to comply after a reasonable time, the complaining party may request the panel to impose sanctions on the losing state. Most often, these sanctions are tariff surcharges on imports from the responding state until the offending measure is removed. Requests for sanctions have been very rare and, even when authorized, they have not been imposed. States are no longer allowed to unilaterally impose trade sanctions on others unless authorized by the WTO. Only multilateral trade sanctions as authorized by the WTO are lawful under global trade law today.
At the outset of any discussion of WTO litigation, it is important to note that only approximately 1/3 of cases filed go through the entire WTO litigation system. (It is a bit higher for cases involving the US.) The first stage in the litigation process is filing a request for consultation. This stage involves confidential diplomatic negotiations. Often, cases are dropped in this stage, even when there may not have been an agreement to remove contested restrictions. Only after negotiations are unsuccessful can the parties request a panel to be formed. The chart below covers January 1, 1995 through October 31, 2012. Of the 451 cases filed (request for consultations), only 145 have led to litigation (some are still pending).
The WTO dispute resolution system has been widely utilized by both developed and developing countries. Developing countries have filed over 1/3 of the requests for consultation. For example, in 2012 Latin American countries alone filed 9 of the 27 requests for consultation.2 “(D)eveloping countries participated strongly in the dispute settlement system, both as complainants and respondents.3
The US has been extremely active in the WTO litigation process. In fact, it has been the most active member.4 The US was brought before the WTO approximately 50% more often than it brought cases. As the complainant, it brought a total of 99 cases. (This includes 9 compliance cases which were brought after the original case in order to secure compliance.) It was a respondent in a total of 140 cases. (This includes 16 compliance cases.) Of the 90 original cases it brought, 42 were fully litigated, resulting in 38 wins and just 4 losses. Of the 124 original cases brought against the US, it lost 50, but won a relatively high number of 17. In total, the US won just about as many cases as it lost (55 wins and 54 losses). It is interesting to note that a significantly higher number of cases went on to the full litigation process when it was the respondent than when it was the complainant.
Bush & Obama Administrations (2001-2013)
During the last presidential election, President Obama made much of his record for bringing legal actions against China and his aggressiveness in the WTO legal process as a means of enforcing global trade obligations.
It is interesting to note that President Clinton actually brought a far larger number of cases before the WTO than either President Bush or President Obama. Over eight years, President Clinton brought 69 cases, whereas President Bush brought 24 cases. In four years, President Obama brought only 11 cases. China was not a member of the WTO during President Clinton’s administration. This decrease in number of cases brought subsequent to the Clinton years may well indicate that the United States is more satisfied today that trade obligations are being observed than in the earlier years of the WTO.
Comparing President Bush’s eight years and President Obama’s first four years, it is clear that President Obama has been more aggressive than his predecessor. President Obama brought 8 cases in four years compared to President Bush’s 7 cases in 8 years. What is most interesting is that President Obama was much more focused on China in WTO litigation than President Bush. President Bush brought a total of 24 cases; only 7 were directed against China. President Obama brought 13 cases; 8 of them were against China. Therefore, it is fair to conclude that President Obama was very aggressive against China in his four years. I would add that he was hyper-focused on this litigation.
China in the Dispute Resolution System.
Almost immediately after its accession to the WTO, in 2001, China became extremely active in the WTO litigation process. In fact, China filed a case against the US before the US filed its onslaught of cases against China.5 China and the US have been major adversaries in the WTO’s litigation process, but China’s litigation has also involved other member states, such as the European Union (EU) and Japan.
China has brought 11 actions against WTO members. It brought 8 cases against the US and 3 against the EU. However, China has been brought before the WTO more often than it has brought cases. China has been a respondent in 31 cases. The US brought 15 cases, whereas the EU brought 7. Further, 9 other cases have been filed, including those by Mexico and Japan. It should be noted that most of the cases brought against China were parallel actions to those filed by the US, although some were totally independent. Parallel actions are those that by-and-large mimic US arguments and legal issues. They merely involve different countries with their own fact- specific situations.
In the 11 cases brought by China, 5 were decided concerning the US. The others are pending. China won 3, and the US prevailed in 2. These cases almost exclusively involved dumping and safeguard issues. In the 15 actions brought by the US against China, the US won all of the 6 decided cases. The other cases are pending. The cases won by the US involved, among other issues, intellectual property rights, dumping, and export controls. Therefore, in the 11 decided cases involving the US and China, the US won a total of 8 cases, whereas China won 3.
One of the highest profile trade issues, the valuation of the yuan, has not been submitted by the Obama administration to the WTO, despite significant demands from Congress and the public that undervaluation amounts to an export subsidy. In my opinion, both the Bush and the Obama administrations understand that the WTO agreements were never intended to cover this type of currency-exchange issue. Similarly, no cases have been filed by China against the US concerning US restrictions on Chinese direct investment in the US when based upon claims of national security. The WTO provides architecture for global trade relations. The WTO’s central mandate is trade, not finance nor investment.
The Obama administration has not filed a new case against China since the2012 election. In contrast, both the EU 6and Japan 7 have filed actions. Moreover, China has filed a recent action against the EU8 as well as against others.
Some observers argue that constant litigation is corrosive to the international trading system. For example, one commentator laments the fact that “more and more of the work of trade relations has shifted away from negotiations and towards litigation and arbitration.”9
Another argues, “The Obama administration has put enforcement of trade agreements at the heart of the approach toward China … But winning in the courtroom is often only the start of the battle.”10
However, others have taken a more nuanced approach. In fact, an earlier skeptic recently stated, “In fact, the situation is more complex, and less worrying, than it might appear … (A) heartening amount of the litigation has actually been aimed at preventing arbitrary trade restrictions in the future … Much is aimed at obtaining rulings preventing others using ‘trade defense’ instruments, such as antidumping and countervailing duties as a politicized tool of arbitrary retaliation.”11
I view US-China litigation in the WTO as validating the strength and critical importance of the WTO and its dispute resolution system. China is now the second-largest economy in the world. It is expected that disputes increase with trade flows. The strength of the international system is not the absence of disputes, but the way that they are resolved. The failure of the WTO to conclude the Doha round of negotiations and the formulation of new trade rules only highlights the growth and immense historical significance of the dispute-resolution system.
An examination of the cases involving China shows that trade disputes that arise between it and the United States are submitted to the WTO and are resolved, either by diplomatic negotiations in the consultation stage or in the litigation phase. No enforcement actions by either country asking for sanctions have been filed under Article 22 of the Dispute Settlement Understanding. The primary focus of China’s litigation in the WTO has been the US.
Nevertheless, China is paying an increasing amount of attention to the EU and other countries.12 China’s use of the dispute resolution system and observance of its decisions are beneficial developments in promoting a rules-based global trading system. It shows a growing acceptance of global trade rules by China. This is a shift from China’s skeptical view of international law bred in the 19th- century era of unequal treaties imposed by Western powers. This newer view represents an understanding that to benefit from the global trading system it needs to follow the rules of the road.
An analysis of all WTO cases filed in 2012 in The WTO Annual Report for 2013 shows that the US filed 5 cases (requests for consultation), whereas China and Japan filed 3 each.13 The main targets of all litigation were China (7), the US (6), and the EU (3).14 The report concluded, “In sum, WTO dispute settlement activity increased markedly in 2012. It is clear that WTO members, both developed and developing, continue to have a high degree of confidence in the WTO dispute- settlement mechanism to resolve their disputes in a fair and efficient manner. It is also evident that members are confident that the system is capable of adjudicating a wide variety of disputes covering significant questions and complex issues.”15
It is worthwhile to note the recent observation by Pascal Lamy, Director General of the WTO.16 He argued that trade frictions are a statistical proportion of trade volumes, whereas trade disputes are a statistical proportion of trade frictions. He brushed off concerns about the increasing number of trade disputes between the US and China. He contended that the WTO mechanism takes the heat out of disputes by utilizing a process that is rules-based, predictable, and respected.17
Lamy warned in a subsequent presentation that geopolitics is back at the trade table.18 He noted that the value chains are multilateralizing and that trade governance needs to meet this challenge. Lamy argued that China would benefit from taking a more active role in global governance in trade and related issues. “China’s economic take-off benefited from a stable external environment. Its sustainability depends on a well-functioning global trading system. As a key stakeholder, China should take a more proactive role in international economic governance ….”19
While inheriting a complex trade situation20, the Obama administration has clearly put trade at the heart of its second-term agenda.21 This policy includes negotiating the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). However, at the core of the administration’s trade policy is its insistence on greater trade enforcement by US trade agencies and the WTO, particularly with China. What is the sense of negotiating rules if they are not enforced? New Secretary of State John Kerry succinctly stated, “Foreign policy is economic policy.”22
The 2012 Report to Congress on China’s WTO Compliance by the USTR stated clearly the central position of WTO litigation in US – China trade relations, “When trade frictions have arisen, the United States has preferred to pursue dialogue with China to resolve them. However, when dialogue with China has not led to the resolution of key trade issues, the United States has not hesitated to invoke the WTO’s dispute settlement mechanism. In fact, the United States has used this mechanism against China more than any other WTO member.”23 This policy is set to continue under the newly appointed USTR Michael Forman, a former member of the National Security Council.24
At least in terms of adjudicating trade disputes and governing existing and emerging trade issues, the WTO has proven itself well beyond the grandest dreams of the early architects of the dispute resolution system.
Newer trade issues are emerging swiftly between ever more countries in this rapidly globalizing trading system. For example, the EU25 and Japan have recently filed the first cases in the WTO against the Russian Federation just joined the WTO last year. A recent WTO panel, “Defining the Future Trade Issues,” released its report in April of this year.26
It enumerated nine issues, including competition policy, international investment, currencies, labor, climate change, corruption,27 and coherence of international economic rules. Some of these issues have been around for a while, and some have become much more pressing.
To this list, I would add the issue of cyberespionage for commercial and economic gain as a new front in global trade wars. The Obama administration has suggested28 that trade tools should be become the scourge of many countries and international organizations. They have targeted it as economic development and national budgets come under increasing pressure because of global economic problems.31 These areas could certainly benefit from greater multilateral-based solutions through the WTO perhaps leading to trade agreements relating to direct investment (TRDI) and to international taxation (TRIT). These areas as they relate to trade may even be subject to future litigation in the WTO under existing rules.
The recently released World Trade Report for 2013 by the WTO assesses the factors shaping the future of world trade. It concludes, “[T]he landscape and nature of world trade are changing fast. As trade evolves, new policy challenges will arise. If properly managed, international trade will further increase prosperity around the globe.”32
Challenges remain and are expected to continue. Those relating to the most important bilateral trade relations in the world today between the US and China are set to grow as trade develops even more. Global transactions in a multijurisdictional world need a mechanism to resolve a wide range of business, trade, and economic issues. In addition to this newer issue, I would add two additional issues: foreign direct investment and taxation. Growing foreign investment by Chinese companies has raised questions of national security.30 Tax avoidance has an increasingly interconnected trading system and a less hierarchical political system, cooperation through diplomacy and adjudication is preferable to outright power-politics confrontation. Each country has shown that it is willing to work with the other to apply the rules of global trade, which will need to continue as new disputes arise and even newer trade issues evolve.
1 A new study recently released by the WTO and written by Professor Craig VanGrasstek presents, in part, such a statistical assessment of WTO litigation that relies upon data compiled by the WTO. “Dispute Settlement.” (Chapter 7) in C. VanGrasstek, “The Future and History of the WTO.” (2013).
2 “2013 WTO Annual Report” 82 (WTO 2013) at
4 Of 451 filed cases (requesting consultation and sanction), the US filed 239.
5 DS 252. China v. US (US Safeguard Measures on China Steel Imports) (March 26, 2002).
6 DS 360. EU v China (China A/D Duties on EU Steel Imports) (June 13, 2013).
7 DS 454. Japan v. China (China A/D Duties on Japan Steel Imports) (May 24, 2013).
8 DS 454. China v. EU (European Subsidies in Renewable Energy Sector) (Nov. 5, 2012).
9 Beattie, “How Lawsuits Are Coming to Dictate the Terms of Trade.” Financial Times (February 20, 2007).
10 Schneider, “At WTO, US Racks up Wins Against China, But the Benefit Is Less Than Certain.” Washington Post (August 9, 2012).
11 Beattie, “Decommission the Weapons of Trade Warfare.” Financial Times (August 8, 2012).
12 Yap and Shangguan, “China Ups Ante in Trade Spat with E.U.” Wall Street Journal (June 5, 2013) (involving solar panels and wine subsidies).
13 “2013 Annual Report of the World Trade Organization.” 82 (WTO 2013).
15 Id. 89.
16 Politi, “Lamy Dismisses Rise in U.S.-China Disputes.” Financial Times (October 1, 2012).
18 Lamy, “Putting Geopolitics Back at the Trade Table.” WTO News (January 29, 2013).
19 Lamy, “China Should Be More Active in Global Economic Governance.” WTO News (March 24, 2013).
20 Schneider, “Inheriting a Complex Trade Agenda.” Washington Post (June 22, 2013).
21 McGregor, “Obama Puts Trade at Heart of Agenda.” Financial Times (February 5, 2013).
22 Gordon, “Kerry Links Economics to Foreign Policy.” New York Times (January 25, 2013).
23 “2012 Report to Congress on China’s WTO Compliance.” (USTR) (December 2012).
24 Goldfarb, “More Obama Appointments: Froman for Trade Representative.” Washington Post (May 13, 2013).
25 “EU Files Dispute Against Russia.” WTO News (July 9, 2013).
26 “The Future of Trade: The Challenges of Convergence.” (WTO Panel Report to the Director-General) (April 24, 2013).
27 “A Resource Guide to the U.S. Foreign Corrupt Practices Act.” (USDOJ and SEC) (November 2012).
28 “The Administration will utilize trade policy tools to increase international enforcement against secret theft to minimize unfair competition against US companies.” “Administration Strategy on Mitigating the Theft of
US Trade Secrets.” 4 (White House) (February 2013). “Finally, we need China to engage with us in a constructive direct dialogue to establish norms of behavior in cyberspace.” “Remarks by Tom Donilon to the Asia Society — The US and Asia-Pacific in 2013.” (White House) (March 11, 2013).
29 Nakashima, “Cyber-Spying Said to Target US Business.” Washington Post (February 11, 2013).
30 Herzstein, “The Dangers Behind the Smithfield Deal.” Washington Post (June 1, 2013). See also, Malawer, “Chinese Investment and State Economic Development.” New York Law Journal (October 2011).
31 Houlder, “Nations on Defensive as Anger Grows Over Tax Avoidance.” Financial Times (April 29, 2013).
32 “2013 World Trade Report.” 291 (WTO 2013).
33 Croft, “Law & National Borders — Legal Minefields Sit on National Borders.” Financial Times (May 2, 2011).