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Mixed Ruling in WTO Case Could Yield Further U.S.-China Trade Tensions

Friday, July 19, 2019
Sandler, Travis & Rosenberg Trade Report

The World Trade Organization issued this week a mixed ruling in a long-running case challenging more than a dozen U.S. countervailing duty orders on imports from China. While the U.S. criticized the decision, press reports indicate that it could face retaliatory trade sanctions if it does not comply.

The CV duty orders at issue cover the following goods from China: lightweight thermal paper, pressure pipe, line pipe, citric acid, tow-behind lawn groomers, kitchen shelving and racks, oil country tubular goods, pre-stressed concrete steel wire strand, magnesia carbon bricks, coated paper, drill pipe, aluminum extrusions, high-pressure steel cylinders, and solar cells.

The U.S. revised the duty rates in several of these orders in 2016 in response to a previous WTO decision. However, according to press reports, the WTO Appellate Body found that the U.S. improperly used pricing from third countries in determining these rates and should have used pricing from China instead. The Office of the U.S. Trade Representative criticized this finding because it believes that China does not have a market economy and that its domestic prices are therefore “distorted.”

The Appellate Body did agree that the Chinese government subsidized production of some of the goods at issue and validated the method used by the U.S. to make that determination. Nevertheless, USTR complained that as a whole the decision “undermines WTO rules” and illustrates the concerns the U.S. has raised about the Appellate Body’s functioning, including “adding to WTO member obligations and diminishing their rights, exceeding the mandatory 90-day deadline for reports, permitting individuals to continue to serve on appeals past the end of their terms, engaging in fact-finding on appeal, and treating prior reports as precedent.”

If the U.S. does not comply with the WTO ruling by recalculating the CV duties, China could impose retaliatory sanctions against U.S. goods. China has previously asserted that the U.S. measures affected about $7.3 billion in annual Chinese exports, which could translate into the amount of retaliation it might seek, but a final amount would have to be determined by the WTO.

In the meantime Beijing has given no initial indication as to whether and when it might retaliate, instead calling on the U.S. to “take concrete measures immediately” to comply with the ruling. USTR, however, made no mention of compliance and instead emphasized its determination to “take all necessary steps to ensure a level playing field so that China and its SOEs stop injuring U.S. workers and businesses.” 

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