TWN Info Service on WTO and Trade Issues (May18/02)
3 May 2018
Third World Network

China calls for common front on US S.301 measures
Published in SUNS #8673 dated 2 May 2018

Geneva, 30 Apr (D. Ravi Kanth) - China has called for a common front against the United States at the World Trade Organization for fighting the "unilateralism and protectionism" unleashed by Washington through its "crowbar trade measures" under Section 301 of the US Trade Act of 1974, according to people familiar with the development.

In a hard-hitting statement delivered at the WTO's Dispute Settlement Body meeting on Friday (27 April), China said "we believe the time has come for all members to join with each other to take actions against the unilateralism a nd protectionism manifested in the US conduct, so that what has happened time after time in the past will not repeat itself in the future."

The unilateral measures in the US Section 301 posed a systemic threat to the global trading system, China said.

"What certainly has happened today is that the unilateral nature of the US Section 301 is revived and is now challenging the foundations of the rules-based multilateral trading system," China pointedly said.

Against the backdrop of the US Section 301 investigations into China's IP (intellectual property) policy regime on purported grounds of "unfair economic practices" adopted by Beijing and the subsequent threat last month of US trade retaliatory measures to the tune of US$50 billion, China said there is a material change in the dynamics of unilateral positions adopted by the US.

Chronicling the background to the enactment of Section 301 in 1974, China said that "the US has initiated 125 investigations under Section 301 of the Trade Act of 1974 and retaliated in 17 instances."

"Between 1974 and 2018," China pointed out, "the US has initiated 27 investigations against EC (later the EU), 16 investigations against Japan, 14 investigations against Canada, 11 investigations against Korea, 8 investigations against Brazil, 6 investigations against Argentina, 6 investigations against Chinese Taipei, 5 investigations against India, 3 investigations against Thailand, 2 investigations against Belgium, France, Indonesia, Italy, Portugal, Spain, Sweden, Switzerland, the UK (United Kingdom), Ukraine respectively, and one investigation against Australia, Austria, Colombia, Costa Rica, Denmark, Germany, Guatemala, Honduras, Ireland, Mexico, Norway, Pakistan, Paraguay, Netherland, Turkey and the Soviet Union respectively."

China said that the Section 301 investigations remained a nightmare for countries before the establishment of the WTO, particularly for those countries that did not possess the negotiating leverage. Shockingly, with a low- threshold for the Section 301 investigations, "roughly one third of all Section 301 investigations were self-initiated by the US government, namely without any petition by an y domestic industry," Beijing maintained.

"Twenty-three years after the establishment of the WTO [in 1995], Section 3 01 of the Trade Act of 1974 continues to serve as the tool of the US to take unilateral actions against other members," China said.

According to China, a WTO dispute settlement panel in 2000 had clearly rule d that even though Section 301 is not inconsistent with Article 23 of the Dispute Settlement Understanding that deals with strengthening multilateralism, any actions taken under Section 301 must be based on the "rulings and recommendations" issued by the DSB (Dispute Settlement Body).

"Contrary to these commitments, none of the decisions or actions taken by the US in this recent Section 301 investigation was based on any adopted rulings or recommendations of the DSB," China emphasised.

Strangely, "the US defended its Section 301 investigations and subsequent actions by asserting that the US made no findings in the Section 301 investigation that China had breached its WTO obligations," China said. Yet, "the US argues therefore it was entitled to take retaliatory trade measures against China regardless of whether those retaliatory measures conform to the WTO rules," China said.

Clearly, "this is a fundamental misinterpretation of Members' WTO obligations," China maintained.

Citing Article 1 and Article 2 of the GATT 1994 which requires members to provide MFN (most-favoured-nation) treatment to all other contracting parties and each contracting party to accord same treatment as per the schedules of concessions, China said "the precondition suggested by the US is not justified."

Last month, China launched at the WTO a trade dispute against the US Section 301. At last week's DSB meeting (where the Chinese dispute came up), several other countries - Pakistan, Russia, Hong Kong-China, Chinese Taipei, the European Union, Brazil, India, and Norway - cautioned the US about the dangers that the US unilateral actions posed to the global trading system.

Chinese Taipei and the EU said while they share the US concern about China' s alleged violations of intellectual property rights, the best way to address the matter was through the multilateral trading system.

Without naming the US, India said "adoption of unilateral measures by Members will erode our long-cherished principles of predictability and non-discrimination and can lead to a real risk of a full-blown trade war."

"As a firm supporter of the rules-based multilateral trading system," India said "gaps, imperfections and unfair elements in trade rules need to be discussed and reformed in the WTO."

"Unilateral measures, on the other hand, could stop the fragile global economic recovery in its tracks, with consequences for jobs, GDP growth and development that would harm us all," India argued.

In a sharp response to China's trenchant criticism on the Section 301, the US said it had already catalogued the Chinese abuse of IPRs in its trade dispute complaint filed last month. "Instead of addressing its damaging and discriminatory policies, China accuses the US of "unilateralism," the US argued.

The controversial Chinese practices, according to the US, include "foreign ownership restrictions" involving joint venture requirements and foreign equity limitations, "China's regime of technology regulations" that force the American companies to transfer technology, China's facilitation of investment systematically to take over foreign companies and assets, and China's theft of sensitive commercial information and trade secrets from the computer networks.

China, however, dismissed the US statement, saying that it is a "wilful distortion of facts" and that the alleged policies on technology transfer and licensing on non-marketing terms was "entirely without basis."

China slammed the United States for rejecting Beijing's complaint for invoking dispute settlement proceedings against Washington at the World Trade Organization over the proposed tariff measures following the Section 301 investigations that have not been applied as yet against China.

On April 13, the US said China's request for dispute settlement consultations on April 4 "does not meet the requirements of Article 4 [consultations] of the DSU [dispute settlement understanding]" since the US has not adopted any tariff measures with respect to China.

The US has said that since China's complaint revolves around the "proposed tariff measures" which have not been adopted against China, the issues raised in China's complaint "are not measures affecting the operation of any covered agreement taken within the territory of" a Member, within the meaning of DSU Article 4.2. Consequently, "China's letter therefore does not "identif[y] the measures a t issue" pursuant to DSU Article 4.4 as there are no tariff measures in existence," the US said.

In sharp response to the US rejection, China has said, in a communication o n April 25, that the measures raised by China are explicitly based on legal provisions.

China ridiculed the US that, after having rejected China's request for consultations, it is ready to enter into consultations with "China with respect to the United States's concern on China's relevant policies addressed in the Section 301 investigation as well as China's Public Notice on imposing additional tariffs on certain products originating from the United States."

"I regret to inform you that such request obviously exceeds the scope of China's consultations request dated 4 April 2018," China said.

"In addition, it is confused by the logic taken by the United States," China argued, saying "on the one hand, the United States emphasizes that the policies addressed in the Section 301 investigation do not appear to implicate WTO obligations except for the measures under China - Certain Measures Concerning the Protection of Intellectual Property Rights (DS542); on the other hand, your 13 April letter requests to discuss China's policies addressed in the Section 301 investigation, which appears that the United States also recognizes the policies addressed in Section 301 investigation do implicate the WTO rules."

China said that it will go ahead with the "consultations between our two sides [which] will be conducted in accordance with Article 4 of the DSU and will only cover the measures at issue identified explicitly in the DS543 consultation s request, including the list of imported products originating from China for additional tariffs dated 3 April, the Section 301 investigation report date d 22 March, etc."

In short, China seems to have decided to take the fight against the US unilateral actions to finish at the WTO. It remains to be seen whether developing and the least-developed countries will coalesce around the issues raised by China.