TWN Info Service on WTO and Trade Issues (Feb19/18)
28 February 2019
Third World Network

US may not use WTO dispute system over US-China trade deal

Published in SUNS #8855 dated 27 February 2019

Geneva, 26 Feb (D. Ravi Kanth) – The United States has signalled that it will prefer not to use the World Trade Organization’s dispute settlement system or the Appellate Body (AB) in case Beijing fails to implement the commitments set out in the proposed comprehensive “trade agreement” between the US and China.

As regards enforcing the commitments in the proposed “trade agreement” with China and any trade disputes that could arise in case of non-implementation by China, the US Trade Representative Ambassador Robert Lighthizer is toying with the solution of “loosen[ing] or reinstate[ing] US tariffs depending on Chinese compliance with the deal,” according to the Financial Times of 26 February .

Lighthizer, as the FT notes, “is no fan of the World Trade Organization’s dispute resolution panels, nor does he like deal-specific dispute resolution panels, such as the ones involved in the North American Free Trade Agreement.”

[It is not clear how either side can invoke the WTO’s dispute settlement system, unless they both agree, not only to notify the WTO the full details of their agreement (as the WTO requires them to do), but also incorporate the terms of their accord into their respective schedules under the GATT (and its various agreements in Annex IA to the WTO Agreement), GATS and TRIPS Agreement. SUNS]

The US seems now determined to make the WTO’s Appellate Body non-functional by December 2019, thus making the dispute settlement system ineffectual.

The US did not even attend the meeting on 14 February, convened by Ambassador David Walker of New Zealand, who is now tasked by the WTO’s General Council chair Ambassador Junichi Ihara of Japan to resolve the AB crisis, said trade envoys, who asked not to be quoted.

The US President Donald Trump said on Sunday (24 February) that he has delayed the imposition of the unilateral tariffs on $200 billion of Chinese goods on 1 March due to “substantial progress” in bilateral negotiations with the Chinese negotiators last week.

The two sides are in “advanced stages” for finalizing a comprehensive “trade agreement”, instead of memorandums of understanding (MoUs).

The US President said he would “probably” meet with his Chinese counterpart President Xi Jinping next month in his Mar-a-Lago estate in Florida.

The US trade representative (USTR) Ambassador Robert Lighthizer, who led the US team during the bilateral negotiations with China in Washington last week, preferred to conclude six MoUs with China covering the market access concessions offered by China and rules pertaining to subsidies offered to the Chinese state-owned enterprises, prohibitions on the alleged mandatory transfer of technologies to the Chinese joint venture partners, stringent provisions for enforcing intellectual property rights, and other regulatory and enforcement provisions among others.

However, President Trump shot down the USTR’s pursuit of MoUs, saying the MoUs are not legally-binding.

He pulled up Ambassador Lighthizer before cameras on 23 February, and said Ambassador Lighthizer should not pursue MoUs.

Instead, said President Trump, the US must focus on a comprehensive trade agreement, embarrassing his chief trade negotiator before reporters.

According to the preliminary details of the proposed bilateral agreement, China is expected to provide tens of billions of dollars of market access for American agricultural products such as soybeans, corn, wheat, and poultry among other items.

China would also open up its financial services market for enabling Visa and Mastercard to operate freely in the Chinese market.

Leading financial firms from Wall Street, which played a crucial role in forcing President Trump to settle for a deal with China, are going to be the biggest beneficiaries, according to media reports.

According to the Wall Street Journal of 24 February, China appears, however, to have yielded little on the intrusive structural reforms in the Chinese economy, demanded by Washington.

To satisfy US President Donald Trump’s growing impatience for a deal, China has agreed to buy tens of billions of dollars of American soybeans, energy products as well as financial services.

China has also agreed to curb alleged currency manipulation which, according to the US Treasury Secretary Steven Mnuchin, would be tantamount to “one of the strongest ever on currency.”

The Chinese negotiators led by their Vice Premier Liu He, however, held their ground on the comprehensive reforms in Chinese trade policies such as firm commitments for eliminating subsidies for the state-owned Chinese enterprises and stringent laws for intellectual property provisions to stop the alleged mandatory transfer of technology by the foreign companies.

Effectively, the chief US trade negotiator and trade representative Robert Lighthizer, who articulated the American positions for dismantling the Chinese developmental model, seems to have suffered a setback, according to the Wall Street Journal of 24 February.

Ambassador Lighthizer also pressed China to allow US cloud-computing companies to operate in China on equal terms as Chinese companies.

At present, Inc and Microsoft Corp are not allowed to offer their own services in China on national security considerations. China also insisted that the US must lift the restrictions and other impediments for China’s leading telecommunication companies, particularly Huawei, and a resolution to a long-running dispute between semiconductor rivals Micron Technologies and Fujian.

According to The Wall Street Journal of 23 February, China hawks in the American business community are troubled by President Trump’s “impatience” for a deal and “speculation of a split on China’s policy [stand] between President Trump and his lead trade negotiator, Robert Lighthizer, following a testy exchange between the two in the Oval office Friday.”

Clearly, the USTR has signalled that Washington will not pay much attention to the WTO’s dispute settlement system any longer.

The USTR’s stance was reinforced at the WTO during the meetings convened by the New Zealand Ambassador Walker for resolving the impasse created by the US on the AB.

During a meeting on 14 February, the US did not even attend the meeting. Trade envoys asked Ambassador Walker what is the use of having the meeting to address the US concerns on the AB when it is not even prepared to attend the meeting?

Subsequently, the US attended the meeting on 18 February but remained mute during the proceedings, said a trade envoy who asked not to be quoted.

At the regular Dispute Settlement Body meeting on 25 February, the US stuck to its intransigent position for blocking the AB appointments by saying that it is not in a position to agree to a joint proposal by 73 members on grounds that the “systemic” concerns raised by Washington remain unaddressed.

The US has not even offered any concrete proposal until now on how to address its concerns.

In short, the US stance on the enforcement mechanism in the bilateral deal with China is almost identical to the US stance at the WTO where it wants to shut down the AB and turn the dispute settlement system into a proverbial vegetable.