March 22, 2018 10:09AM

Disciplining China at the WTO

The scope of the Trump administration's Section 232 "national security" tariffs is filled with uncertainty -- exemptions are being negotiated this week -- but we are already on to the next set of aggressive trade moves: reports suggest that the administration will announce tariffs on imports of Chinese products today, as punishment for China's alleged unfair trade practices. This would be a unilateral response to China's practices, with the U.S. Trade Representative acting as the judge, jury, and executioner. This approach may not be all that effective in getting China to change, and risks retaliation by China.

But there is another way: Bring complaints against China to the WTO, and get rulings from a neutral arbiter on these practices.

Unfortunately, the Trump administration does not seem to have much confidence in the ability of WTO dispute settlement to discipline China. Leading administration officials have referred to the WTO’s "abject failure to address emerging problems caused by unfair practices from countries like China" and its "inability to resolve disputes, limit subsidies or draw China into the market status that was envisioned when China joined the WTO”; and have declared that the WTO "is not equipped to deal with [the China] problem."

divIs this skepticism justified? We looked at all of the WTO complaints against China, and we see something quite different. In almost all complaints brought against China, whether litigated fully or resolved without litigation, the complainants have made at least some progress towards their goals of greater market access in China. Overall, it's a pretty good record of success, both on its own and in comparison to how other countries have reacted to WTO complaints.

A table of all the cases is here (this is a work in progress, part of a longer paper we are working on). Here is a brief narrative summary.

China joined the WTO in 2001. The first complaint against it was brought in 2004, with governments perhaps letting China gain some experience with the system before challenging it in dispute settlement. In the 14 years from 2004-2017, 39 complaints were brought against China, on 26 separate issues ("matters" in WTO-speak -- sometimes multiple countries complained about the same matter, so there are more complaints than matters). In that time, China was second only to the United States in the number of complaints it faced.

Of the 26 matters litigated against China, 4 are still pending. 12 have been litigated all the way through, and 10 were resolved through some kind of settlement, or not pursued after the measure was modified. These cases addressed a wide range of issues: Export restrictions, subsidies, intellectual property protection, discriminatory taxes, trading rights, specialized services, and trade remedies.

In all the completed cases, with one exception where a complaint was not pursued, China's response was to take some action to move towards greater access. This was done either through an autonomous action by China, a settlement agreement, or in response to a panel/appellate ruling.

For the cases where there was a WTO ruling, there was sometimes a dispute about compliance with the ruling (as happens with other countries as well), and China's compliance came only after the follow-up complaint procedure provided for in WTO law (Article 21.5 of the WTO's Dispute Settlement Understanding). In other cases, the complainants have disputed whether China has complied, but have not brought an Article 21.5 complaint to push China to comply.

The overall picture of China's response to WTO complaints looks very much like the situation of other governments who face such challenges. China has made efforts to comply, although some issues are still contested. There are no cases where China has simply ignored rulings against it, as has happened with some other governments. For example, the United States has not complied in the cotton subsidies complaint brought by Brazil, and the EU still does not allow hormone treated meat to be sold there even after losing a complaint brought by Canada and the U.S.

Today's announcement is just the beginning. In the coming weeks and months, the Trump administration will have some decisions to make on how exactly it will implement this announcement so as to address Chinese protectionism and other trade practices. The administration's instinct seems to be that unilaterally imposed tariffs are the best option. But the WTO offers a better way, and the administration should consider joining with other governments to pursue more WTO complaints against China (and negotiating new rules -- e.g., on state-owned enterprises -- where WTO rules are lacking).