TRUMP, SUMMERS, CHINA & U.S. TRADE ENFORCEMENT — Know-Nothingism & International Law.

                                      Trump and Trade

            TRUMP, SUMMERS,  CHINA & U.S. TRADE ENFORCEMENT [1]

 

Dr. Stuart S. Malawer, J.D., Ph.D., Diploma (Hague Academy of International Law), is the Distinguished Service Professor of Law and International Trade (George Mason University).

  

INTRODUCTION.

 Recently Donald J. Trump vowed to rip up international trade deals and start an unrelenting offensive against Chinese trade practices.[2] No surprise there. But two weeks later Larry Summers, former President of Harvard University, former Secretary of the Treasury under President Clinton, and former Director of President Obama’s National Economic Council, went further and argued, “It adds insult to injury when governments reach agreements that further cede control to international tribunals of one sort or another.”[3]

 

Really. Let us have a look at the record, as lawyers, and let us assess what role international tribunals have played in international economic relations, in particular involving the United States and China. Specifically, this means we need to look at the record of U.S.–China litigation in the World Trade Organization’s dispute resolution system. This has been given heightened importance by the recent filing of yet another action by the Obama administration against China in the WTO over China’s newest export restrictions on minerals.[4]

 THE DISPUTE SETTLEMENT SYSTEM 

The WTO came into existence on January 1, 1995, when the Uruguay Round of trade agreements entered into force. China acceded to the WTO in 2001. The dispute resolution system is a part of the WTO. The original member countries of the WTO and those that joined subsequently now number 162. All member states are subject to the dispute resolution system.

The system provides for compulsory jurisdiction and binding decisions that may lead to sanctions.[5] The procedure is simple and quick. If one member has a trade dispute with another, it may request formal consultations. Such consultations are required before the complainant may request the formation of a panel to litigate the full matter. Panel members are selected from a list compiled by the WTO’s Director-General of experts in international trade law and policy. They serve in their individual capacities and cannot serve on a panel involving their country unless there is an agreement by the parties to the dispute.

The panel issues a recommendation, which may be appealed to the Appellate Body which is composed of persons of recognized authority in international trade and law and serving four-year terms. Once there is a final decision, which is automatically approved by the Dispute Settlement Body, the losing member is required to bring its trade restrictions into conformity with its obligations under the WTO agreements. If the member state does not do so, the winning state may request “sanctions,” which are normally tariff surcharges on products coming into it until the offending measures are lifted.

 In the 25-year history of the WTO, over 500 trade disputes have been submitted. The dispute settlement system experienced its busiest year in 2015, with an average of 30 active panels per month.[6] Most of the referred requests involved trade remedy issues regarding dumping, subsidies, and safeguards, among others.  

The United States is the leading user of the dispute resolution system,[7] though many countries use it. Developing countries now file about one-half of the cases each year. Out of the 500 cases filed, only about one-third of them wind up in full litigation before a panel. Most are settled in the diplomatic consultation stage that precedes the panel hearing. The United States has won the most of the large number of cases it litigated in the WTO as both a complainant and respondent. There have only been a handful of requests for sanctions generally, and even fewer have been authorized. However, only three or four of those requests for sanctions were actually implemented.

 U.S.–CHINA TRADE LITIGATION IN THE WTO (2001-2016). 

The United States has filed more cases against China than any other country. Interestingly, China has tended to promptly implement all adverse decisions that the United States has made against it.  

Recently the Obama administration claimed that since President Obama entered office in 2009, his administration had filed 22 WTO cases and won every one that was decided.[8] There have been 13 filings against China.

 The cases filed against China that have been won by the United States have concerned, among other issues, Chinese duties or restrictions on U.S. high-tech steel exports (DS414), violation of intellectual property rights (DS362), dumping of Chinese tires into the U.S. marketplace (DS399), restrictions on imports of autos to China (DS340), and restricted use of electronic payment systems (credit cards) in China (DS 413). They have also involved Chinese restrictions on exports of rare Earth elements (DS431) and other raw materials from China (DS394).

 The United States has lost a number of cases. For example, a 2012 case was decided against the United States that involved the use of “zeroing” as a method for calculating antidumping duties (DS422). Another case was decided in 2014 against the United States regarding its application of non-market status in calculating dumping and countervailing duties for certain Chinese imports (DS449). Yet another case decided in 2015 involved the wrongful determination that a state-owned enterprise is a public body and thus capable of providing illegal government subsidies (DS437). Indeed, just this May, China requested a compliance procedure against the United States for its failure to implement a decision involving countervailing duties on Chinese exports by state-owned enterprises (DS437).

 Newer cases that have been brought by the United States involving Chinese taxation on aircraft (DS501) and “demonstration bases” (special manufacturing zones) are pending and seem to be in the process of settling before litigation (DS489). Both involve issues of subsidies. The 12th case filed by the Obama administration against China was filed in June. It involves Chinese compliance with a prior decision regarding the dumping and countervailing duties imposed on the import of U.S. broiler chickens (DS427). The only other compliance case ever filed by a WTO member was also filed by the United States, and it was decided last year (DS414). The most recent case filed this July, the 13th by the Obama administration, contests China’s export restriction on nine minerals (DS508). As was recently observed, “[I]t is becoming clear that the US and its geopolitical rival are already skirmishing ahead of what could be a combative summer.”[9]

 Perhaps the most important metric to look at when determining a member’s compliance with the WTO’s decisions is whether it has authorized sanctions against a country for not implementing its panel or Appellate Body recommendations. China has never been sanctioned, and no such sanctions have ever been authorized in U.S.China disputes.

 CONCLUSIONS.

 What are my conclusions? 

  • The Obama administration has been very active in WTO litigation and successful in WTO litigation against China specifically.

  • The United States has lost only a few cases brought against it by China.

  • China has implemented adverse WTO decisions. This shows a positive aspect of China’s engagement in the global trading system and its acceptance of and role in developing rules of the road.

My take is that as the primary architect of the WTO, its dispute resolution system, and its judicial and rules-based approach to global trade relations, the United States should be proud of its role in promoting global governance in trade relations utilizing a unique judicial mechanism. This has been the most successful international tribunal in the post-war era.

 The system has served U.S. national interests well in resolving trade disputes in general and those between the United States and China in particular. It is not the absence of litigation that makes a system successful. Rather, it is how the cases are resolved when commercial disputes arise, as they do when more international commercial transactions occur. So far they have been successfully resolved within the system.

 Hopefully, the judicial and diplomatic approach developed in the WTO can be expanded to apply to non-commercial disputes between China and the United States, other countries and indeed to both international economic relations and international political relations in general. After all, the commercial and political relationships between China and the United States and other countries are critically interrelated and are the utmost important as the 21st century rolls along.

For example, the Permanent Court of Arbitration’s recent decision against China concerning the South China Sea, a waterway which carries $5 trillion in annual trade, only highlights the importance of international tribunals’ attempting to clarify the rules of international relations in a volatile area of high global politics.[10] Such decisions provide a basis for renewed diplomatic negotiations.

In this case the decision provides China with an opportunity to focus upon its observance of established international legal rules and whether it wants to become a responsible member of the international system. A recent editorial in the Financial Times stated, “Failure to do so would damage its [China’s] credibility in a host of international forums that use treaty agreements to govern behavior in commerce, the environment, politics and defense.”[11]

Trade enforcement strategy, including the use of the WTO’s dispute resolution system, is an important trade policy and foreign policy issue. Above all else, it has huge geopolitical implications for U.S. national security. This is especially true in the context of U.S.–China relations as well as international relations in general.  

I am not surprised about Donald Trump’s know-nothingism. But Larry Summers’s is very, very disconcerting. He ought to take a course in international law.

…………………………………………………………………………………..

[1] An earlier version of this article was printed as an Op-Ed in the RICHMOND TIMES-DISPATCH (June 19, 2016).
[2] “Trump Takes Aim at Trade Pacts and ‘Globalism’.” NEW YORK TIMES (June 29, 2016).
[3] Summers, “How to Embrace Nationalism Responsibly.” WASHINGTON POST (July 10, 2016).
[4] “Obama Launches Trade Complaint amid Growing Tension with China.” FINANCIAL TIMES (July 14, 2016); “United States Challenges China’s Export Duties on Nine Key Raw Materials to Level Playing Field for American Manufactures.” USTR NEWS (July 14, 2016).
[5] Malawer, “World Trade Organization after 10 Years: Litigation, Consultation.” 232 NEW YORK LAW JOURNAL (N0. 10) (December 8, 2004).
[6] “Chapter — Dispute Settlement Activity in 2015” in WTO ANNUAL REPORT FOR 2016. https://www.wto.org/english/res_e/booksp_e/anrep_e/anrep16_chap6_e.pdf
[7] Malawer, “U.S.-China Trade Relations – Litigation in the WTO 2001-2014.”
INTERNATIONAL LAW PRACTICUM (Spring 2014) Vol. 27, No. 1.
[8] “United States Challenges China’s Export Duties on Nine Key Raw Materials to Level Playing Field for American Manufactures.” USTR NEWS (July 14, 2016).
[9] Donnan, “US and China Skirmish as Trade Clash Looms.” FINANCIAL TIMES (March 11, 2016).
[10] Press Release, “The South China Sea Arbitration (Republic of the Philippines v. the People’s Republic of China).” PERMANENT COURT OF ARBITRATION (July 12, 2016).
[11]Lead Editorial, “A Big Test for Beijing over the South China Sea.” FINANCIAL TIMES (July 13, 2016).
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About Stuart Malawer

Distinguished Service Professor of Law & International Trade at George Mason University (School of Public Policy).
This entry was posted in Global Trade Relations. Bookmark the permalink.

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