WTO Issues Mixed Ruling In US-China Case

Will WTO ruling intensify or lessen Chinese-U.S. tensions?

The World Trade Organization (WTO) Appellate Body issued a decision this week in an appeal by China to overturn a U.S. law, Public Law 112 – 99, as inconsistent with international trade rules.  Who won? It depends on who you ask, although both sides have issued statements claiming victory. The U.S. rule stands, but the body ruled in favor of China on another related issue.

Law Aimed at Countering Trade Subsidies

The U.S. law at issue was signed into law by President Obama in 2012 with the goal of countering unfair trade subsidies through the application of countervailing duty provisions of the Tariff Act of 1930 to nonmarket economies like China.

The WTO Appellate Body did uphold the lower panel’s ruling that the U.S. violated trade rules by inflicting punishment on China through both countervailing duties and antidumping measures.  The basic rationale for this part of the WTO decision was that doing so is impermissible double punishment against China for the same action.

Impact of the Ruling

This trade dispute and decision is important for a number of reasons, including the parties and subject matter involved.  The United States and China hold the world’s two largest economies, and hundreds of billion dollars trade is done between them annually.  The decision itself impacts an estimated 7 billion dollars in trade, and influences the perceived bargaining power of each country in trade negotiations with each other.

Second, at the core of the WTO case is the U.S.’s ability to utilize anti-subsidy measures like countervailing duties and antidumping measures, which directly correlates to its ability to protect U.S. producers from unfair competition from subsidized foreign competitors.  This obviously impacts businesses importing from or exporting to China, but it also impacts domestic companies whose goods compete against Chinese goods in the U.S. marketplace.

Third, the aspects of the decision that were favorable for China may encourage the country to bring more claims against the U.S. through the WTO’s dispute system. Chinese Professor of International Business and Economics Chen Weidong gave his opinion stating “The WTO ruling shows that the WTO trade dispute settlement mechanism is an effective channel for solving Sino-U.S. trade disputes.”  He contrasted this approach to negotiating directly with the U.S., which he characterized as “ineffectual.”

Countries Looking to Strengthen Relationship

Later in the week, the U.S. and China met in a less adversarial but still tense environment for their annual talks.  The issues discussed included human rights, climate change, nuclear proliferation, economic issues and perhaps, most notably, a discussion over how to change the relationship between China and the U.S. to a more collegial one.  While there were still quite a few points of contention between the countries, there were agreements reached, which provide reason for optimism moving forward.

The international trade attorneys at Whitcomb Law, P.C. make it a priority to stay up to date on international law cases and news in order to assist your business in making smart, strategic decisions that are in compliance with all applicable laws.

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