Circumventing the WTO: Impermissibility of Tariffs imposed by the U.S. and China under WTO Law
Pablo Garrido Estevez
Vol. 40 Associate Editor
In March, the Trump administration announced a 25% tariff on USD $50 billion worth of Chinese imports affecting more than 1,300 products. The Beijing government responded by imposing its own tariffs and stated that it would resort to “measures of equal scale and strength.” Both global superpowers have since then engaged in a tit-for-tat escalation of their trade war, with American tariffs now reaching USD $250 billion and China’s USD $110 billion. The Trump Administration justified its tariffs under section 301 of the Trade Act of 1974, which allows the Executive to respond to “unfair, unreasonable, or discriminatory trade practices” and under section 232 of the Trade Expansion Act of 1962 which allows for retaliatory measures to be taken for national security reasons. The unfair trade practice that led to the section 301 tariffs, according to President Trump, was China’s alleged theft of American intellectual property. The Trump Administration’s section 301 tariffs likely violate the General Agreement on Tariffs and Trade (GATT) of 1947, the treaty which led to the creation of, and which ultimately was incorporated into, the World Trade Organization (WTO) and whose purpose was to reduce trade barriers. Coincidentally, the adoption of this treaty was promoted by the world’s wealthiest nations, including the United States. Article I of GATT 1994 establishes the “most-favored nation” principle under which all trade concessions a country grants to another apply to all members of the WTO. Having one set of tariffs for Chinese products and lower tariffs for other countries would likely be deemed to violate the most-favored nation principle. In addition, Article II:1(a) establishes that each contracting party shall accord other parties treatment no less favorable than that provided for in the schedules annexed to the treaty. The United States and China both agreed to schedules which establish tariff rate commitments that each country bound itself to, and which both countries allege are being violated with the heightened tariffs. In order for President Trump to have legally imposed tariffs on Chinese imports for unfair trade practices, he would have had to follow the WTO’s dispute settlement process. Article 23 of the WTO’s Dispute Settlement Understanding establishes that when a member country seeks the redress of a violation of WTO obligations it shall not make a determination that a violation has occurred “except through recourse to dispute settlement.” In this sense, the U.S. government would have had to take its claim to the WTO and prove that China was violating its WTO obligations due to its unfair trade practices. If the U.S. government won its claim, China would be ordered to comply with its obligations or possibly face retaliatory measures from the United States. However, instead of following the WTO dispute settlement process, the Trump administration applied tariffs on Chinese products of its own accord, without authorization, and the Chinese government alleges this violated the Dispute Settlement Understanding. In response, notwithstanding having filed a complaint, the Chinese government decided to impose its own tariffs against the United States prior to the resolution of its complaint. In order to impose tariffs, even in a retaliatory manner, China needed to comply with the WTO’s dispute resolution process and obtain authorization to impose retaliatory measures, yet it did not. In this sense, Beijing’s retaliatory tariffs likely violate GATT 1994 just as the American tariffs do. At this point, both governments have filed claims before the WTO against each other – China against the U.S.’s initial imposition of tariffs in response to its unfair trade practices, the U.S. against China’s retaliatory tariffs (which China implemented contemporaneously with its WTO dispute), and China against the second round of U.S. tariffs. According to the WTO’s dispute settlement process, the parties had a 60-day consultation period to try and reach an amicable agreement for each claim. They have not reached an agreement for any of these claims, and a panel has already been established, but not yet composed in the United States’ complaint. Even though complaints have been filed by China, Mexico, Canada, and the European Union as a result of President Trump’s tariffs, and also by the United States against these countries’ retaliatory tariffs, there is a possibility that no adverse decision will ever be handed down. The vast majority of cases—as many as two thirds—before the WTO are resolved amicably and do not usually reach the point of having a decision adopted by a WTO panel. Among adjudicated cases, however, the complainant to the WTO has won approximately 90% of the time, due in part at least to states not bringing claims unless they are sure they will win. The United States for example, has prevailed in 87% of the cases it has filed and lost 75% of the cases that have been filed against it. One issue affecting the WTO dispute settlement process, however, is that by 2019 the WTO’s Appellate Body will be understaffed to hear cases due to the U.S. government blocking new nominations to the body, in demand of certain reforms. Whatever decision is handed down in these cases will likely be appealed, so an inoperative Appellate Body will likely halt their review. Nonetheless, State members are incentivized to resolve their conflicts before the adoption of any adverse decisions, and the WTO regulations provide the legal backdrop against which these negotiations are adopted. Although the lack of an adverse decision against those countries which violate WTO laws may be seen by some as counterintuitive or contrary to the traditional role of adjudicating bodies, the WTO regulations have been largely successful. Although some legal violations go unpunished, countries have greatly reduced their tariffs since the adoption of the GATT and the creation of the WTO. The average tariff levels for major GATT members were about 22% in 1947 but lowered to 5% after the Uruguay Round in 1999, and most experts attribute this reduction to the international trade system, including the WTO and its predecessor, the GATT.
 Ana Swanson, White House Unveils Tariffs on 1,300 Chinese Products, The New York Times (Apr. 3, 2018), https://www.nytimes.com/2018/04/03/us/politics/white-house-chinese-imports-tariffs.html.  Annalisa Merelli, The Full List of 128 US Products Targeted by China’s Retaliatory Tariffs, Quartz (Apr. 2, 2018), https://qz.com/1242652/china-tariffs-the-complete-list-of-128-affected-good-class-of-goods.  Dorcas Wong & Alexander Chipman, The US-China Trade War: A Timeline, China Briefing (Nov. 12, 2018), http://www.china-briefing.com/news/the-us-china-trade-war-a-timeline.; Press Release, United States Trade Representative, USTR Finalizes Tariffs on $200 Billion of Chinese Imports in Response to China’s Unfair Trade Practices, (Sept. 18, 2018), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200  Trade Act of 1974 § 301, 19 U.S.C. § 2411 (2018).  Trade Expansion Act of 1962 § 232, 19 U.S.C. § 1862 (2018); Press Release, United States Trade Representative, Section 301 Report into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, (Mar. 27, 2018), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/march/section-301-report-chinas-acts  Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 155, 33 I.L.M. 1144  Panos Mourdoukoutas, China Moves The Trade War to WTO, And That Doesn’t Look Good For America, Forbes (Sep. 2 2018), https://www.forbes.com/sites/panosmourdoukoutas/2018/09/02/china-moves-the-trade-war-to-wto-and-that-doesnt-look-good-for-america/#7f43eaaf5788.  DS565 Dispute Summary, World Trade Organization, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds565_e.htm (last visited Nov. 27, 2018); DS558 Dispute Summary, World Trade Organization, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds558_e.htm (last visited Nov. 27, 2018)  Though the Trump Administration did file a claim regarding China’s violation of the TRIPS agreement on intellectual property (particularly articles 3, 28.1(a), 28.1(b), and 28.2) on March 23, 2018, it did not attempt to complete the dispute resolution process before issuing tariffs against China.  DS543 Dispute Summary, World Trade Organization, https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds543_e.htm (last visited Nov. 27, 2018)  DS565 Dispute Summary, supra note 9.  Farley, supra note 7.  Jennifer Epstein, Trump Says WTO Is Treating The U.S. ‘Very Badly’ Despite Wins, Bloomberg (July 2, 2018), https://www.bloomberg.com/news/articles/2018-07-02/trump-says-wto-is-treating-the-u-s-very-badly-despite-wins.  Vivian Daniele Rocha Gabriel, The Role of the European Union in the Dissolution of the Appellate Body Crisis, MJIL Online https://www.mjilonline.org/the-role-of-the-european-union-in-the-dissolution-of-the-appellation-body-crisis/ (last visited Nov. 27, 2018) The views expressed in this post represent the views of the post’s author only.