TWN Info Service on WTO and Trade Issues (Mar19/12)
25 March 2019
Third World Network

US keeping “Sword of Damocles” over China in bilateral talks?

Published in SUNS #8872 dated 22 March 2019

Geneva, 21 Mar (D. Ravi Kanth) – The United States wants to keep the Sword of Damocles hanging over China regardless of an outcome in the ongoing US-Chin a bilateral negotiations.

President Donald Trump said Wednesday (20 March) that he intends to keep Washington’s unilateral tariffs on Chinese goods “for a substantial period of time” even after an agreement is reached with Beijing.

In what seems like a trade-version of the “shock and awe” strategy that the US had deployed against Iraq in 2003, President Trump said “there are no plans to remove the [unilateral] tariffs once an agreement is struck.”

“We have to make sure that if we do the deal with China that China lives by the deal,” Trump told reporters before proceeding to Ohio on Wednesday, suggesting that the tariffs imposed on the Chinese goods last year must remain in place.

He did not elaborate whether the US will keep in place tariffs on all the $250 billion worth of Chinese goods or some portion of them.

He also said at a meeting in Ohio on Wednesday that he is not unduly bothered if there is no agreement with China because the US economy is in fine health while the Chinese economy is tottering.

The US President defended his unilateral steel and aluminum tariffs imposed under Section 232 provisions of the Trade Expansion Act of 1962, saying that the “big fat beautiful tariff on imported steel” was helpful in reviving the American steel industry.

Trump’s remarks reflected his chief trade negotiator and US Trade Representative (USTR) Ambassador Robert Lighthizer’s private comments that the US must continue to avail the option of imposing tariffs while keeping some of them in place for the time being.

The USTR and his negotiating team want to exert maximum pressure on China until Beijing falls in line with Washington’s unilateral demands, according to reports in the US media.

Washington prefers to retain the 25% additional tariffs imposed on $50 billion of Chinese goods levied in two stages during July and August last year on grounds that “those tariffs were meant to compensate the US for what the White House calculated was the harm to US companies caused by China’s forced technology transfers,” according to a report in the Wall Street Journal on 21 March.

The US team led by Ambassador Lighthizer will travel to Beijing next week for a face-to-face meeting with the Chinese Vice Premier Liu He on a range of divisive issues such as the enforcement provisions for ensuring that China complied with all the commitments on technology transfer and cross-border data flows, according to the WSJ.

So far, the US has insisted that it must have the right to impose retaliatory tariffs on Chinese goods if Beijing fails to implement its commitments.

“If we designate that they are not in compliance, we will resort to tariffs in a proportionate way and the Chinese have agreed not to retaliate,” the US National Economic Council Director Larry Kudlow said earlier this week on C-SPAN, according to the report in the WSJ.

China, however, maintained that it has not yet agreed to such a concession from the US.

China feels that such a provision would be a throwback to the unequal treaties that the Western countries had imposed on China in the 19th century.

China wants any enforcement provisions in the bilateral trade agreement to be “two-way, fair and equal,” Wang Shouwen, China’s vice minister of commerce, told reporters a fortnight ago.

[While US media reports suggest that US trade negotiators feel they have the upper hand and China will fold if they keep up the pressure, the Financial Times cited US agriculture secretary, Sonny Perdue, as saying in an interview that Chinese “attitudes” towards striking a trade deal have hardened, and China’s willingness to make the final concessions on a number of issues was unclear . Perdue said: “It’s not moving as quickly as we believe it should … one step forward, two steps backward.” SUNS]

In a similar vein to its trade talks, the US has resorted to a war against China’s telecommunications giant Huawei Technologies, pressuring governments like Germany and several other countries to not allow China’s Huawei to provide 5G mobile-internet infrastructure because of alleged security concerns. Some of these governments are resisting the US pressure.

The US, now facing a global backlash against US commercial airplanes following two deadly crashes of the Boeing 737 Max 8 aircraft in the past six months, wants China not to retract on its proposed purchase of the controversial aircraft.

Chinese airlines and financial leasing companies are the largest buyers of the Boeing 737 Max 8 airplanes outside the US and, after the latest Ethiopian Airlines crash and the grounding of the Boeing Max 8 airplanes (by China and Europe, and in their wake all over the world), serious doubts have been cast over Beijing’s future purchases of the aircraft.

These future purchases are one of the big-ticket items in the proposed bag of goodies worth tens of billions of dollars, which China was planning to offer to Trump as part of the US-China deal at the upcoming meeting of the two countries.

“We certainly cannot buy this model – it’s an issue of safety, not trade,” said He Weiwen, a former Chinese diplomat, in a news report carried by the Financial Times on 16 March.

“We can still purchase those, but without any doubt, there should be stricter quality checks before acceptance.”

The Boeing issue could not have come a day sooner for China, considering that the American administration has unleashed a war against Huawei on reportedly extraneous considerations.

The US demands, if agreed by China, will be a huge blow not only to China but other developing countries both in their bilateral and multilateral trade relations with the US, according to trade envoys who asked not to be identified.

The US, for example, is now adopting an extreme form of coercive strategy in the US-China trade talks as well as at the WTO, “work[ing] closely with the very-able Director-General, Roberto Azevedo” (as Lighthizer outlined in his Senate testimony), particularly in trying to impose the unilateral American reforms at the WTO.

The Office of the USTR, in its report for the fiscal year 2020 released on 19 March, indicated that it is pursuing structural reforms at the WTO, including the denial of self-declared status to leading developing countries that are members of the Paris-based Organization for Economic Cooperation and Development (OECD) or the G20 grouping that was created after the 2008 financial crisis .

[According to the five or six criteria suggested by the US, over 40 developing countries would be outside the purview of the WTO/GATT contractual S&DT rights, besides several others in individual areas of negotiations, dealing a body blow to the current WTO multilateral trading system’s architecture. SUNS]

On Tuesday, Brazil has given a green signal to the US to press ahead with its proposal to deny S&DT to developing countries such as China, India, and other developing countries.

In the fiscal justification report, the USTR said that it “will intensify leadership efforts to address key WTO institutional shortcomings, notably with regard to: differentiation among self-declared developing countries; notifications and transparency; and dispute settlement.”

The US, which is in the process of dismantling the Appellate Body at the WTO by 11 December 2019, is yet to submit a concrete proposal on how its concerns can be addressed.

The USTR along with several developed countries are privately discussing about reverting to the Article 25 arbitration process under the Dispute Settlement Understanding after the demise of the Appellate Body, according to trade envoys, who asked not to be identified.

The USTR’s document for fiscal justification has indicated that the US will energize the WTO’s negotiating function by identifying negotiating objectives “that are achievable and can promote freer and fairer trade benefiting US stakeholders.”

The US also warned that it will not allow any exceptions or carve-outs in the fisheries subsidies negotiations, insisting that it will “ensure that these [fisheries subsidies] negotiations do not result in an agreement that carves out many of the world’s largest economies.”