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U.S. and Mainland China Continue to Spar at WTO over Section 301 Tariffs

The United States filed a written submission on 27 August in Geneva in response to repeated mainland Chinese requests for World Trade Organisation dispute settlement panel rulings against the additional U.S. tariffs on mainland Chinese products. Beijing requested dispute settlement consultations in April 2018, shortly after the Trump administration released an initial list of mainland Chinese goods it was considering for additional tariffs. Additional consultation requests were filed in July and September 2018, following the imposition of additional tariffs on more mainland Chinese goods. Each time, the United States agreed to consultations in principle but insisted that it was doing so without prejudice to its stance that mainland China had not met the requirements for submitting a request.

The United States now argues that mainland China’s decision to launch a dispute is “hypocritical” because it has imposed retaliatory tariff measures on most U.S. exports. Specifically, it contends that Beijing “cannot legitimately challenge measures at issue for being “unilateral” and WTO inconsistent, while at the same time openly adopting its own unilateral tariff measures in connection with the very same matter.”

In addition to the retaliatory tariffs, the United States also criticised the fact that Beijing is ostensibly (i) using administrative tools to target U.S. businesses, either through heightened scrutiny of their business operations or through the imposition of what appear to be retaliatory administrative sanctions; (ii) threatening retaliation against any company that complies with certain U.S. laws or makes business decisions that undermine government interests; and (iii) considering a ban or restrictions on rare earth exports.

The U.S. statement maintains that mainland China’s retaliatory actions amount to the two parties' agreeing to handle the matter outside of the WTO framework. The United States said that a dispute settlement panel statement should simply note that “the parties have reached their own solution.”

The United States is also seeking to advance an unusual argument based on “public morals.” Washington has insisted that its Section 301 actions focus on four policies: (i) foreign ownership restrictions to pressure technology transfer from foreign companies, (ii) regulations that force foreign companies to licence technologies on non-market-based terms, (iii) acquiring foreign assets to obtain cutting-edge technologies, and (iv) cyber intrusions and trade secret theft. The United States and mainland China are discussing the second issue under the auspices of a WTO dispute settlement panel established in November 2018 but no WTO discussions are being held on other issues.

The United States therefore argues that since the WTO is having no impact on the other three issues, it needed to take strong measures to address actions it sees as an affront to U.S. public morals, noting that “the sense of right and wrong held by U.S. society is further offended if such fundamentally unfair policies and practices are left unchecked.” The U.S. statement further asserts that “China’s policy and practice of state-sanctioned theft implicates “public morals” within the meaning of Article XX(a) because it violates prevailing U.S. “standards of right and wrong” as reflected in the state and federal laws of the United States, under which the act of “theft” is universally deemed a criminal offense.” The U.S. submission thus views a lack of a level playing field for U.S. exporters as an offense to U.S. public morals.

The U.S. submission notes that prior examples of actions taken pursuant to GATT Article XX(a) to protect public morals have focused on measures designed to prevent (i) money laundering, organised crime, fraud, underage gambling and pathological gambling; (ii) the dissemination of audio-visual products and publications that contain morally objectionable content; and (iii) harm to animal welfare. One would assume that most WTO members would agree that these three elements may reasonably constitute affronts to “public morals.” Even if the United States argues, not without some basis, that the multi-lateral system has not always moved in the direction or speed that many WTO members would prefer, no other WTO member has taken actions quite like the U.S. Section 301 tariffs. While the United States continues to hold discussions with other WTO members on possible WTO reform, it will be interesting to follow the response to the U.S. submission and its attempt use a “public morals” claim to justify the Section 301 tariffs.

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