TWN Info Service on WTO and Trade Issues (May18/08)
14 May 2018
Third World Network

China assails US over its "unilateralism and protectionism"
Published in SUNS #8679 dated 14 May 2018

Geneva, 9 May (D. Ravi Kanth) - China tore into the "unilateralism and protectionism" unleashed by the United States in the multilateral trading system, cautioning members at the World Trade Organization's General Council meeting on Tuesday (8 May) that they face a grave moment since the establishment of the WTO in 1995, trade envoys told SUNS.

In an extraordinary development rarely witnessed at a GC meeting, the highest forum between WTO ministerial summits, China pointedly attacked the US for causing enormous damage to the multilateral trading system in general, and the WTO in particular, in three areas.

China said it had listed three items (see SUNS #8677 dated 8 May 2018) - selection of New Appellate Body Members, US Section 232 Investigations and Measures on Steel and Aluminium Products, and US Section 301 of the Trade Act of 1974 - on the GC agenda to sensitize members to "the most urgent and burning question that the WTO has to answer now: how to respond to (the US) unilateralism and protectionism."

China's trade envoy Ambassador Zhang Xiangchen said that "before the end of the Uruguay Round, GATT contracting parties have severely suffered from the unilateral and protectionist measures."

To overcome the unilateral and protectionist measures, he said, GATT contracting parties negotiated and agreed "on the Understanding on Rules and Procedures Governing the Settlement of Disputes and other WTO Agreements."

Consequently, "the prohibition on unilateral and protectionist measures became the bedrock and central elements of the multilateral trading system," the Chinese envoy maintained.

But a most dangerous and devastating situation has now arisen after the US has systematically challenged the "fundamental guiding principles by blocking the selection process of the Appellate Body members, applying restrictive trade measures under Section 232 (national security under US trade law) and threatening to impose tariff measures of 50 Billion USD on goods imports from China under Section 301 of US domestic law," Ambassador Xiangchen maintained.

"Any one of these three measures, if left untreated, will fatally undermine the functioning of the WTO," he cautioned.

"The reality," he said, "is that the WTO is currently confronted with "three hard blows".

The Chinese envoy urged members "to join efforts and defend our system, rules and order, defend the equal rights of all Members, and defend the dignity o f the international law."

Thereby, "we can collectively strengthen and improve the multilateral trading system, and prevent the unilateral or protectionist actions from damaging this system and undermining international trade," Ambassador Xiangchen said.

If members fail to safeguard the system, especially the Dispute Settlement Body and the Appellate Body, then, "the Crown Jewel of the WTO" will rapidly lose its "brilliance."

Given hundreds of trade disputes that have been resolved since 1995 in which the Appellate Body had played a vital role in "ensuring the stability and predictability of the WTO system and its rules," it is a grim situation now that "only four of the seven Appellate Body members are in office."

"If the selection process is not launched, the functioning of the Appellate Body will be paralysed, which will put the entire dispute settlement system in crisis," the Chinese trade envoy warned.

In the absence of the AB, rules will not be enforced and trust and credibility will be deeply undermined.

"Ultimately, we will not be able to effectively control the unilateralism and protectionism," Ambassador Xiangchen emphasized.

All issues can be easily addressed under the WTO framework, he said, arguing that "we cannot agree to link these [the US] concerns with the selection process."

"The Member-driven mechanism does not mean that it is driven by only one single Member [the US]," the Chinese envoy maintained.

In short, "by taking the selection process as a hostage, the US is abusing the decision-making mechanism of consensus," Ambassador Zhang Xiangchen emphasized.

He urged members, particularly the US, to start the commencing of the selection process so that the Appellate Body can resume its proper functioning at the earliest.

A large number of member-countries - the European Union, Mexico, Cambodia, Zimbabwe, Russia, Honduras on behalf of informal group of developing countries without Israel, Uganda, Japan, Bolivia, Tanzania, Qatar, Benin, Guinea, Tur key, Norway, Hong Kong-China, Brazil, Venezuela, Canada, Pakistan, Maldives, Switzerland, Australia, Myanmar, Thailand, Liberia, Kazakhstan, India, Guatemala, Korea, and Egypt - spoke at the meeting, sharing China's concern s in their respective nuanced interpretations.

In response, the US trade envoy Ambassador Dennis Shea said that the WTO rule-book has a substantial value, including for the US. "Adherence to those rules has generally contributed to global economic stability," he admitted.

"But something has gone terribly wrong in this system when those charged [i n the Appellate Body] with adjudicating rules are so consistently disregarding those very rules," the American envoy said, without offering some examples.

"What we are dealing with, fundamentally, is a steadily worsening rupture o f trust on the part of the Appellate Body... That ruptured trust has, in turn, placed in jeopardy the political sustainability of our entire dispute settlement system," the American envoy maintained.

In a series of unsubstantiated charges against the AB, Ambassador Shea said the US had warned about this for years, arguing that "the AB has not only re-written our agreements to impose new substantive rules, we Members never negotiated or agreed, but has also been ignoring or rewriting the rules governing the dispute settlement system, expanding its own capacity to write and impose new rules."

The US envoy said the AB failed to issue rulings within the stipulated 90 days. "Similarly, the AB has decided that it can deem a person who "ceases to be a member of the Appellate Body" to continue to be a member, despite there being no basis whatsoever in the DSU for such actions," the American envoy said.

"We do not see how perpetuating the existing dysfunctions through a complacent approach to the filling of Appellate Body vacancies can advance that objective," the American envoy said.

Significantly, not one member took the floor to support the US complaints about the AB; if anything, China's assessment was shared by members who took the floor, said a trade envoy, who asked not to be quoted.

[Trade observers also noted that in the early years of the WTO, as the AB handed down rulings that were favourable to the US view, and against positions of developing countries, like India, Indonesia, Brazil and the like, the US was an enthusiastic supporter of the AB and the DSU. SUNS]

Commenting on the second item on Section 232 measures, China cited several reports, including a report prepared by the US Department of Commerce, which showed that Washington's measures are not aimed at protecting "national security" of the US but rather to protect the commercial interests of its domestic industries.

China said that the US measures on steel and aluminum would be tantamount to safeguard measures under the WTO's Agreement on Safeguards.

The Chinese envoy asked if "imports subject to the restriction of the Section 232 measures on steel accounts for only 5% of the steel consumption of the US, will they threaten the "national security" of the US?"

China said members must urge "the US to honour its obligations under the WTO Agreement and immediately withdraw its Section 232 measures, so that the normal order of international trade can be restored."

In an immediate response to China's comments on Section 232, the US trade envoy said it is ironic that China is raising the issue on steel and aluminium after having created the overcapacity.

The US said that it is puzzled by China's claim that it is the victim of the American measures, saying it is not a safeguard measure.

However, several countries - South Africa, Russia, Brazil, Uganda, and Venezuela - expressed concern over unilateral measures on steel.

Japan said that the US actions on steel are regrettable, adding that unilateralism and tit-for-tat threats are not conducive to maintaining healthy trade relations.

The EU said the US measures on steel and aluminum are not driven by national security. Brussels argued that there will systemic risks because of the use of security provisions under Article 21.

The EU said issues concerning overcapacity stemming from subsidies is a cause for concern.

Turkey said that the US duties are safeguard measures under the guise of national security while Switzerland expressed concern over the knock-on effect on its small steel producers.

China reminded the proponents of the overcapacity argument, that when it kept its steel mills running in 2008 and sustained the world market, Beijing was praised by members.

It maintained that it lost thousands of jobs in the steel industry following closures in the recent past.

China also challenged the US on Section 301 actions, saying it "is prima facie incompatible with the multilateral trading system."

China said it can withstand the Section 301 actions but "we are wondering, who is the next target?"

"History teaches us that if the unilateralism is unrestrained, it would bring destruction to the world economy and rip all members," China argued.

In a sharp response to the Chinese envoy's comments, US Ambassador Dennis Shea said China, particularly its state-owned enterprises, are provided hug e subsidies to acquire technologies.

The US envoy said that the Chinese subsidies are also contributing to stealing of technologies from foreign companies.

"The truth is," said Ambassador Dennis Shea, "it is China that is the unilateralist, consistently acting in ways that undermine the global system of open and fair trade."

The US envoy gave four types of transfer of technology that include foreign ownership restrictions, China's regime of technology regulations which force US companies seeking to license technologies to Chinese entities on non-market based terms, and systematic investments for acquisition of foreign technologies and unauthorized intrusions.

The EU said that while it doesn't support unilateral measures, it remains concerned about forced transfer of technology.

Japan said it shares the US concerns about the lack of IP protection, including licensing procedures. Tokyo urged the US and China to cooperate instead of resorting to tit-for-tat trade measures.

In concluding remarks, the Chinese envoy told his US counterpart that "as trade negotiators, let's bargain with each other, instead of biting each other."

By bringing the unilateral trade measures and violations perpetuated by the US to the General Council, and by pointedly telling the US that Beijing will not be cowed down by the incessant American threats, China has given a massive shot in the arm to other members, including the erstwhile heavyweights such as the EU, Japan, and Canada (who whisper their own concerns about the US), and an opportunity for all other members to join hands to face the grave threat posed to the WTO, trade envoys said.