TWN Info Service on WTO and Trade Issues (Jun26/10)
23 June 2026
Third World Network

Trade: US 10% tariff citing dubious BoP claim sharply questioned at WTO
Published in SUNS #10487 dated 23 June 2026

Geneva, 22 Jun (D. Ravi Kanth) -- China, Brazil, New Zealand, and Turkiye have sharply challenged the United States at the World Trade Organization over its balance-of-payments justification, which is apparently being used as a pretext to impose an allegedly illegal 10% tariff on all WTO members, according to people familiar with the development.

Earlier, the US notified the WTO's Committee on Balance-of-Payments (BoP) Restrictions that it does not "currently envision any progressive relaxation" of the 10% import surcharge imposed under Section 122 of the US Trade Act of 1974, even as WTO members grow increasingly skeptical of the 150-day measure being levied without prior consultation, said people familiar with the matter.

"Given that US law by default limits the import surcharge to a 150-day duration, the United States does not currently envision any progressive relaxation of the surcharge during the short time period that it is in force," the US declared in a document (WT/BOP/G/25) circulated on 2 June 2026.

Yet, WTO members remain deeply concerned over the unilateral 10% tariff imposed by the US under the guise of BoP restrictions, sources said.

CHINA'S QUESTIONS

In a restricted document (RD/BOP/26) issued on 15 June, a copy of which has been seen by the SUNS, China asked the US to "provide information on the United States' balance-of-payments situation, including the current state of its monetary reserves."

Beijing sought to know whether "the United States experienced a serious decline in its monetary reserves, or a threat thereof, as contemplated under Article XII of the GATT 1994."

In its baseline notification (WT/BOP/G/25), the US stated that "the balance of the current account is the most appropriate measure in assessing the size and severity of the US BoP position" and that an alternative measure is "the sum of the current account, the capital account, and net FDI."

China pressed the US to clarify as to "why does the United States consider the current account balance, or the current account balance plus the capital account balance and net FDI, to be the appropriate measure for assessing the size and severity of the US balance-of-payments position?"

It further questioned the relationship between these two measures. "How do these measures relate to the serious decline in monetary reserves contemplated under Article XII of the GATT 1994?"

More critically, China asked whether the BoP approach adopted by the US to impose the 10% tariff is "intended to apply to all Members."

China also challenged Washington on whether "the US' use of BoP criteria means that any Member running a deficit in its goods and services trade balance could invoke Article XII of the GATT 1994 to adopt restrictive measures? If not, why should different measures apply to different Members?"

According to China, "If the United States considers the current account balance, or the current account balance plus the capital account balance and net FDI, to be the appropriate measure for determining a balance-of- payments deficit, does this imply that the United States believes that the monetary-reserves-based disciplines under Article XII of the GATT 1994 should be revised?"

China further asked the US, "given the close temporal proximity between the Section 122 import surcharge and the tariffs imposed under the International Emergency Economic Powers Act (IEEPA), what is the relationship between the two measures?"

Beijing underscored the underlying rationale of Article XII of the GATT 1994 - which obliges Members, in carrying out their domestic policies, to pay due regard to the need to maintain or restore equilibrium in their balance of payments on a sound and lasting basis.

China noted that Article XII "further provides that, so far as possible, Members should adopt measures that expand rather than contract international trade."

China also drew attention to paragraphs 24 to 29 of the US basic document, which suggest that "the current account balance must equal the gap between total national saving and investment, and that the Trump Administration has enacted domestic policy measures to boost national income and saving, including the One Big Beautiful Bill Act, but that these measures were "insufficient to restore the US BoP equilibrium on a sound and lasting basis"."

Beijing asked "why does the United States consider an import surcharge to be necessary, rather than pursuing further macroeconomic measures such as fiscal consolidation and increased saving? What additional domestic policy measures does the United States intend to adopt in the future to restore equilibrium?"

China reminded the US that "Article XII of the GATT 1994 provides a limited exception to address specific balance-of-payments difficulties."

"Since the Section 122 import surcharge appears to pursue multiple policy objectives, including national security, industrial policy, and fiscal adjustment, does it go beyond what is permitted under Article XII of the GATT 1994?"

China also recalled that "a 10% surcharge is aimed to restore BoP equilibrium, without significant disruption to the trading system."

The US was asked whether it had conducted any study or assessment "prior to adopting the measure," and "did the United States conduct any assessment of its expected impact on the US balance-of-payments position, and on market access and export opportunities for its trading partners? If so, please provide the relevant assessment."

China exposed the contradictions in the US approach, noting that Washington "refers to Section 122 of the Trade Act of 1974 as the domestic legal basis for the Section 122 import surcharge."

However, China added, "we note that, in May this year, the US Court of International Trade (CIT) ruled that the temporary import surcharge imposed by the Trump Administration on the grounds of addressing "fundamental international payments problems" was not authorized under Section 122 and was therefore unlawful."

According to China, the CIT "held that, based on the interpretation of Section 122 reflected in relevant reports of the Senate Finance Committee, the concept of "balance-of-payments deficits" should be assessed by reference to three concepts, namely liquidity, official settlements, and basic balance."

"By contrast," China said, the "Presidential Proclamation 11012 referred to factors such as the goods trade deficit, the current account deficit, and the net international investment position, which the court found did not correspond to those three concepts."

Finally, China asked the US, "how does the United States view the CIT's interpretation of "balance-of-payments deficits"? How does the United States reconcile that interpretation with the approach taken in the Basic Document?"

BRAZIL'S QUESTIONS

In a restricted document (RD/BOP/27), seen by the SUNS, Brazil posed a barrage of questions to the US on its notification.

Brazil requested that the US "provide detailed information on its external financial position and its balance- of-payments over the past four years, and clarify why it considers that it meets the requirements for imposing restrictions under Article XII of GATT 1994."

Brazil asked the US to "specify which of the three conditions provided for in Article XII:2 of GATT 1994 forms the basis for the measure: (i) to forestall the imminent threat of a serious decline in its monetary reserves; or (ii) to stop a serious decline in its monetary reserves; or (iii) in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves."

The US must specify "the circumstances in which a decline in its monetary reserves could be considered to be "serious"," Brazil said.

Moreover, it asked, "how does the United States reconcile its resort to restrictions under Article XII of GATT 1994 on balance-of-payment grounds, with the statement of the US authorities indicating a reduction in the trade deficit in goods over the course of 2025?"

In a similar vein, Brazil further asked the US to "elaborate how it paid due regard to the advantages conferred on it by the dollar's reserve currency role as a special factor, while assessing its external financial position and its balance of payments."

Brazil also pressed the US to "elaborate how the 10% tariffs, or any other related action by it would "avoid unnecessary damage to the commercial or economic interests" of other Members, as required under provisions of Article XII:3( c)(i) of GATT 1994."

Brazil asked the US "to what extent does the US believe that simply imposing tariffs will be sufficient to restore balance-of-payments stability (either by reducing the structural deficit or even generating current account surpluses)? Does the US intend to rely exclusively on imposition of trade barriers or does it also foresee adopting other policies to address its balance-of-payments situation?"

Brazil's additional questions included:

1. "To what extent is the US government aware of the potential inflationary impact of raising tariffs, even temporarily? Could this inflationary impact reduce or eliminate, at least in part and in the medium term, the intended results of higher import tariffs? How strongly could this outcome affect the well-being of American consumers?"

2. "What are the expected macroeconomic gains from the "temporary" 10% tariff surcharge on all goods imported into the US economy at the end of the 150-day period? Are there other macroeconomic objectives for this intervention besides restoring balance-of-payments equilibrium? How does the United States consider that a time-limited intervention such as the one currently in effect can effectively address longer-term balance-of- payments challenges?"

NEW ZEALAND'S QUESTIONS

In a restricted document (RD/BOP/28), New Zealand pressed the US to clarify how its actions under BoP restrictions meet the requirements of Article XII of the GATT 1994, including:

1. "How its current circumstance amounts to "serious decline in monetary reserves" (or threat thereof) sufficient to warrant emergency trade restrictions"; and

2. "Given the acknowledgment that the United States' balance-of-payment position is driven by underlying savings-investment imbalances, how is the temporary 10% import surcharge measure consistent with the requirement that measures not exceed what is necessary to address any decline in monetary reserves."

TURKIYE'S QUESTIONS

In its restricted document (RD/BOP/29), Turkiye asked the US, "If the measure is intended to address balance- of-payments concerns, how does the United States justify excluding imports from Canada and Mexico from its scope?"

It also requested the US to "provide detailed information on the specific methodologies examined, and clarify why the current account balance was deemed chosen as the primary indicator over other alternative measurement methods."

Turkiye noted that the US said in its report to the WTO that "while Section 122 of the Trade Act of 1974 allows for import duties up to 15%, the United States has opted to apply an additional customs duty of 10%."

It sought to know from the US "the underlying economic or policy rationale for setting the duty rate specifically at 10% rather than a lower rate."

In short, China, Brazil, New Zealand, and Turkiye have laid bare what trade sources describe as apparent inconsistencies between the US measures under BoP considerations and the core BoP rules of the WTO. +