WTO: Should U.S. Sue China Over Trade?


In international trade, Gov. Romney argued in the Republican debates that we have been run over by China. Although he does not want a trade war, he believes we are being used. He said he would issue an Executive Order identifying China as a currency manipulator, because they artificially set the prices of their goods below market levels. He would sue China in the World Trade Organization (WTO), because the Chinese do not play by the rules. He wants to win the right to impose tariffs against them.

Former Gov. Huntsman worried if we won the right to impose tariffs, we would get the same in return, because we manipulate our currency, and a trade war would only hurt our exports. He questioned whether the WTO even allows currency issue disputes.

What would a U.S. complaint in the WTO against China involve?

The WTO, the world’s primary trade organization, with 153 member nations, came into being in 1994. China joined in 2001. Each WTO country has an obligation to conform their laws to the basic agreements that make up the organization. Rules, such as those forbidding unfair trade, are enforced against member states.

Dumping and the providing of subsidies are considered unfair trade practices. Dumping involves bringing goods into a country at less than their normal value. Governmental subsidies that distort product prices are also forbidden. Where there is a violation, states cannot take unilateral action, but must sue.

The WTO, based in Geneva, Switzerland, has a Dispute Settlement Body (DSB) which presides over the resolution of trade disputes between member states. WTO nations agree in advance to submit to the compulsory jurisdiction of the DSB. When one nation files a complaint against another, alleging a violation of WTO rules, they must first try negotiation.

If negotiations fail, the DSB sets up a 3-member ad hoc Dispute Settlement Panel. Each party submits written arguments, known as submissions. Experts are consulted. The Panel considers the facts and then issues a Panel Report in English, French and Spanish, which may include an order to remove inconsistent measures, give the injured country the authority to retaliate with tariffs against certain products, or they may grant restitution.

After the Panel Report is approved of by the DSB, the losing party may file an appeal. The WTO has a standing 7-member Appellate Body drawn from different geographic areas. New facts are not heard on appeal, as reviews are limited to alleged errors of law.

The U.S. would have the burden of proving China engaged in unfair trade practices, such dumping or illegal subsidies. Even if a violation by China was shown, Huntsman is correct, because the Chinese would certainly file a countersuit against the U.S., claiming we provide subsidies and also violate the WTO rules. If China won their case, we would have to prepare for losses in our export businesses, as a result of tariffs imposed against our goods.

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