The World Trade Organization has again ruled against trade measures the U.S. imposed on national security grounds and Washington has again condemned the WTO decision. These and other developments – including the U.S.’ sustained refusal to allow a resumption of Appellate Body proceedings, increased use of potentially violative domestic subsidies, and consistent complaints about WTO overreach – are raising questions about the U.S. commitment to the WTO at a time of increasing uncertainty in global trade.

U.S. law (19 USC 1304) requires articles of foreign origin to be marked so as to indicate their country of origin to purchasers. Pursuant to a July 2020 executive order, U.S. Customs and Border Protection announced the suspension of the application of section 201(a) of the U.S.-Hong Kong Policy Act of 1992, under which the U.S. continued to treat Hong Kong as a separate customs territory after it reverted to Chinese control in July 1997, to 19 USC 1304. As a result, unless excepted from marking, goods produced in Hong Kong must be marked to indicate China, rather than Hong Kong, as their country of origin. This requirement took effect Nov. 9, 2020.

WTO rules allow members to impose trade restrictions for national security reasons and the U.S. argued in a case brought by Hong Kong that its labeling change qualified for the national security exemption because it was made in response to China’s “highly concerning actions” to erode Hong Kong’s “autonomy and the human rights of its people.” However, a WTO panel ruled that the situation cited by the U.S. “has not escalated to a threshold of requisite gravity to constitute an emergency in international relations” that would justify the labeling change under the national security exemption.

The Office of the U.S. Trade Representative responded swiftly, saying that it “strongly rejects the flawed interpretation and conclusions” of the panel and that the labeling change will not be removed. “Taking action to protect national security is a right inherent to any sovereign nation and explicitly reflected in the WTO Agreement,” USTR said, “and the WTO has no authority to second-guess the ability of a WTO Member to respond to what it considers a threat to its security.” However, the panel said the national security exemption “is not entirely self-judging” and that it therefore has the authority to review related actions.

The WTO made a similar ruling in a separate case regarding the U.S.’ Section 232 tariffs on imports of steel and aluminum, and the U.S. rejected that decision as well. USTR Katherine Tai said the WTO “is getting itself on very, very thin ice” with these decisions, which “challenge the integrity of the system.” However, Hong Kong commerce minister Algernon Yau said it is Washington itself that is posing that threat, asserting that the U.S. “has disregarded international trade rules, attempted to impose discriminatory and unfair requirements unilaterally, unreasonably suppressed Hong Kong products and enterprises, and politicized economic and trade issues.”

For more information on this case, please contact attorney Elise Shibles at (415) 490-1403 or via email or attorney Larry Ordet at (305) 894-1003 or via email.

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