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US-China Trade War of Words Aired at WTO Review

The United States and China took their trade war to the World Trade Organization (WTO) this week during a two-day U.S. trade policy review, throwing charges of unfair trade practices and protectionism at each other.

Dennis Shea, U.S. ambassador to the WTO, said, “We are committed to reforming the global trading system in ways that lead to fairer outcomes for U.S. workers and businesses, and more efficient markets for countries around the world. U.S. trade policy is driven by a pragmatic determination to secure these objectives. Our trade policy is steadfastly focused on the national interest, including retaining and using U.S. sovereign power to act in defense of that interest,” according a transcript of his remarks posted by the U.S. Trade Representative’s Office.

According to Shea, the U.S. “is raising serious concerns” about the WTO’s functioning and direction and the challenges posed by China’s “state-led, mercantilist approach to the economy and trade.”

“This is not mere chatter, nor is it unilateralist or protectionist,” he told WTO members in Geneva. “The United States is taking important steps to begin to address these fundamental issues, and we are committed to working with like-minded members to do so.”

The WTO dispute settlement system, Shea said, has given itself powers members of the trade organization never intended for it to have, including where panels or the Appellate Body have looked to diminish WTO rights or member obligations.

What’s more, he added, “the WTO is not well equipped to handle the fundamental challenge posed by China, which continues to embrace a state-led, mercantilist approach to the economy and trade.” Continuing, he said, “China pursues an array of non-market industrial policies and other unfair competitive practices aimed at promoting and supporting its domestic industries, while simultaneously restricting, taking advantage of, discriminating against, or otherwise creating disadvantages for foreign companies and their goods and services.”

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Things like forced technology transfer to maintaining “severe” excess industry capacity has heavily skewed the playing field in China’s favor, Shea argued, noting that the country’s actions are harming the U.S. as well as other WTO members. China’s actions, he said, are incompatible with the market-based approach many other members have fallen in line with.

Chinese envoy Zhang Xiangchen said U.S. tariffs on steel and aluminum had allowed protectionism under the guise of questionable national security concerns, Reuters reported. On the Section 301 tariffs, Zhang said the U.S. measures brought “back to life the ghost of unilateralism that has been dormant for decades,” according to Reuters.

The European Union, Japan, Switzerland and Canada also criticized Washington, with EU ambassador Mark Vanheukelen saying, “The multilateral trading system is in a deep crisis and the United States is at its epicenter,” Reuters reported.

The heated exchange and trade war is related USTR’s action in June when it issued a list of products covering 1,102 separate tariff lines valued at $50 billion that were subject to an additional 25 percent tariff. The WTO trade policy review report noted that the measure entered into effect on July 6, for 818 lines, covering approximately $34 billion worth of imports from China. China responded by imposing increased duties on goods imported from the U.S.

In response, USTR proposed to take further action in the form of an additional 10 percent duty on Chinese products covered in 6,031 tariff subheadings, with an annual trade value of $200 billion. An additional 25 percent tariff tranche that would include apparel and textiles imports from China has been delayed while the two countries negotiate a potential end to the trade dispute.

Shea acknowledged that “the application of our trade laws to address injurious and unfair competition has perhaps garnered the most public attention.” For example, he cited the determination made in March “that the acts, policies and practices of China related to technology transfer, intellectual property and innovation covered in the investigation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

“Some are criticizing the United States’ approach as unilateralist and protectionist,” he said. “In our view, this is a serious and perhaps purposeful misread of our actions and intentions. In the case of the Section 301 investigation, the facts demonstrating forced technology transfer were quite clear and the United States had a stark choice: either take action to protect itself against the serious, ongoing harm from China’s policies and practices or accept that this harm will continue because the WTO does not provide the necessary disciplines or remedies. We would prefer being able to use the WTO, but China’s trade regime increasingly is not compatible with it.”

Shea defended the U.S. and Trump administration as having “one of the world’s most open trade regimes that is firmly based in the rule of law and that is a powerful engine for global growth,” and called out the country’s position as the world’s largest single-country importer.

U.S. tariffs are among the lowest in the world, he noted. The current U.S. simple average tariff is 3.4 percent on an applied basis under the WTO and 2.4 percent on a trade-weighted basis. By comparison, simple average applied tariffs among the U.S.’s top five trading partners range from 4 percent to 9.8 percent, and trade-weighted average tariffs range from 2.5 percent to 5.2 percent, he said.

“In 2017, nearly 70 percent of all U.S. imports, including those under preference programs, entered the United States duty-free,” Shea told the WTO.

The U.S. wants to work with countries that are “ready and able to negotiate free, fair and reciprocal trade agreements,” Shea said pointing to actions to back the claim.

In late September, the U.S., Mexico and Canada reached an agreement to modernize the North American Free Trade Agreement, signing the U.S.-Mexico-Canada Agreement in late November, Shea noted. That same month, the U.S. and South Korea signed final texts reflecting the outcomes of negotiations to improve the United States-Korea Free Trade Agreement. In October, USTR notified Congress that the administration intends to negotiate separate trade agreements with Japan, the EU and the U.K.