USTR's China WTO Report Underscores Need to Go Beyond WTO to Confront China
The Office of the U.S. Trade Representative laid out the externalities to other economies of China's state-led economy in a 72-page annual report to Congress. "Since last year’s report, our assessment of China’s record in terms of transitioning to a market economy has not changed," the report said. While the report's framing is about how China complies with World Trade Organization rules, the authors minimized the WTO's ability to constrain China and emphasized that countries must expand domestic trade remedies or develop other tools to deal with China's rise.
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When China was allowed to accede to the WTO, and thereby benefit from most favored nation tariffs, "it clearly was not contemplated that any WTO member would reject market-based policies in favor of a state-led trade regime. It also was not contemplated that any WTO member would pursue mercantilist outcomes instead of policies promoting a fairer and more open multilateral trading system," the report said.
The authors said the WTO's dispute settlement mechanism cannot work when action is so obscured it cannot be proven. "The value of the dispute settlement mechanism is also undermined where a WTO Member does not operate in good faith," they wrote.
Even just reiterating the values of the WTO ran into political problems in Geneva, the report said. "[T]ogether with like-minded partners, the United States has proposed that the WTO adopt a joint statement on the importance of market-oriented conditions for fair trade, thereby drawing a contrast to non-market economic practices, with the aim of shaping future WTO reform discussions. Although many other WTO members agree with the goals of these proposals, other concerns, including wanting to avoid confronting China and incurring China’s economic retaliation, appear to have limited public support among WTO members."
"While the WTO remains a strong focus for many of the United States’ trading partners, there is a growing awareness that it may be necessary to pursue some solutions outside the WTO in order to avoid the severe harm that will likely continue to result from China’s state-led, non-market economic and trade regime. For example, some of the United States’ trading partners are now exploring possible new domestic trade tools," the report said. And it said, it's clear that the U.S. needs new domestic trade tools "reflecting today's realities."
A rewrite of antidumping duty and countervailing duty laws, and new powers to fight duty evasion, are included in the House's China competition package. It remains to be seen if the Senate will accept them in the final package (see 2202020055).
The report said that China fulfilled some of its promises under the Trump trade agreement, also known as phase one, particularly in intellectual property protection and purchases of non-meat agricultural commodities. "China’s approach to agricultural biotechnology remains among the most significant commitments under the Phase One Agreement for which China has not demonstrated full implementation," it said. China also hasn't changed its regulations on swine and cattle who were fed ractopamine.
"If China fully implements the Phase One Agreement, it will help establish a more solid foundation for bilateral engagement on more significant outstanding issues," the report said, but it also said even if it was fully adhered to, that wouldn't come close to solving the "fundamental concerns" the U.S. has with how China's economic practices harm U.S. workers and businesses.
Although much of the report was a retread of the history of U.S.-China trade discussions and complaints, there were some developments from 2021 highlighted. The report's authors said they are worried that China might include rare earth exports under its export controls regime. And, they said, China is abusing AD/CVD with cases against U.S. exports of n-propanol, polyphenylene sulfide, ethylene propylene diene monomer and polyvinyl chloride. "China found a 'non-market situation' in certain energy sectors in the United States. However, these findings were made without defining the term 'non-market situation' or identifying any legal basis in China’s law to make these findings," the report said.