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China Trade Problems Demand Efforts Outside WTO, Report Says

Wednesday, February 06, 2019
Sandler, Travis & Rosenberg Trade Report

The U.S. is taking a more aggressive approach to ensure that China, not the U.S., bears the costs of its non-market economic system, according to a report from the Office of the U.S. Trade Representative. At the same time, the U.S. will encourage China to make fundamental structural changes to its approach to the economy and trade.

USTR’s annual report on China’s compliance with its World Trade Organization accession commitments concludes that in recent years China has moved further away from open, market-oriented policies and instead has more fully embraced a state-led, mercantilist approach to the economy and trade. Unfulfilled bilateral and multilateral commitments in this area include refraining from forcible technology transfer from U.S. companies; opening the electronic payment services market; and reviewing applications of agricultural biotechnology products in a timely, ongoing, and science-based manner. China has also continued to use export and import substitution subsidies in sectors such as automobiles, textiles, advanced materials, medical products, and agriculture despite explicit prohibitions in WTO rules, and it has repeatedly deployed illegal export restraints (quotas, licensing, duties, etc.) on raw material inputs to provide cost advantages to downstream producers in China at the expense of foreign producers.

However, the report states, current WTO rules and mechanisms are limited in their ability to address these challenges, and recent proposals for WTO reform “seem only marginally focused on the China problem.” As a result, strategies for “fixing the unique and very serious problems posed by China and its trade regime” must initially include “actions not currently set out in the WTO agreements.”

The report anticipates that such strategies will continue to be required until the U.S. and other WTO members “are able to successfully persuade China to make the needed fundamental changes to its trade regime.” The U.S. will seek to do so by utilizing all available tools, the report states, including domestic trade remedies (e.g., the Section 301 additional tariffs), bilateral negotiations, WTO litigation, and strategic engagement with like-minded trading partners.

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