China Challenge to U.S. Tariff Increase to be Heard by WTO

Wednesday, January 30, 2019

Sandler, Travis & Rosenberg Trade Report

The World Trade Organization has established a dispute settlement panel to hear a complaint by China that U.S. tariff increases on its products are in violation of WTO rules. However, the WTO’s ability to render a final judgment is unclear given the dwindling number of Appellate Body judges.

The Trump administration has imposed tariff increases of 10 to 25 percent on $250 billion worth of imports from China following a Section 301 determination that China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory. China is alleging that these actions violate a WTO rule requiring member countries to provide the same tariff treatment to all other members. According to press sources, Chinese officials told the WTO this week that the U.S. tariffs are “posing a systemic challenge to the multilateral trading system” and that if the WTO allows them to continue without consequences “the future viability of this organization is in dire peril.”

However, the U.S. responded that “it is China, and certainly not the United States, that is threatening the overall viability of the WTO system” by bringing a case that “seeks to use the WTO dispute settlement system as a shield for a broad range of trade-distorting policies and practices not covered by WTO rules.” The U.S. also accused China of being “entirely hypocritical” by complaining about the United States’ unilateral measures while adopting its own “in connection with the very same issue.”

While the WTO panel could render a decision in this case later this year, that decision would likely be appealed by one or both parties to the Appellate Body, at which point the issue could become stalled. The Appellate Body currently has only three judges to hear appeals from dispute settlement panels, which has already pushed back decisions in a number of ongoing cases. By the end of the year only one judge will remain, leaving the body incapable of further work and delaying any future decisions indefinitely. The U.S. has blocked the appointment of new judges in an effort to resolve complaints about the operation of the Appellate Body, but no resolution of those concerns appears to be imminent.

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