The Trump administration’s duties on a gargantuan list of tariff sub-headings stem from a Section 301 investigation that was undertaken earlier this year on China’s technology transfer, intellectual property rights and innovation policies and practices. The investigation found that Beijing coercively pressures US companies to transfer technologies on non-market terms as a condition for entry into the Chinese market.
Conditioning the approval of foreign inward investment-related applications on the basis of mandated performance requirements, such as technology transfer, local content, offsets and export performance, is an area of economic policy-practice that is covered — and forbidden — by World Trade Organization (WTO) law. If China engages in such policies and practices, as alleged in the Section 301 report, it is in material violation of its WTO Accession Protocol. But when dared by Beijing to mount a challenge against its technology transfer policies within the WTO’s dispute settlement system, Washington confessed at a 27 March dispute settlement body meeting that it had no case to submit. Its legal challenge was limited to two extraneous intellectual property rights-related claims.
The US accusation against China’s unfair practices is based on its skewed Section 301 standard of ‘unreasonable-ness’. An ‘unreasonable’ foreign trade practice, according to the United States, can simply be one that is unfair ‘while not necessarily in violation of … the international legal rights of the United States’. This may be a sufficient basis for unilateral action in the United States’ eyes but it is an insufficient and illegal basis in the eyes of the international community. The Section 301 report is rich in anecdotal instances of abusive Chinese practices but shallow in identifying the specific regulatory provisions that need altering. It is not a helpful guide to inform corrective action.
The Trump administration’s Section 301 tariffs are illegal on a multitude of other fronts — each of which is known or acknowledged by its architects.
US Trade Representative (USTR) Robert Lighthizer lamented in testimony before a congressionally constituted US–China Commission that Washington had forfeited most of its ability to use Section 301 to take effective action against China. He noted that ‘as part of the Uruguay Round Agreement Act, Section 301 was amended so that [the] USTR was not required to take action where a WTO dispute settlement body has found that the rights of the United States are not being violated’. In this instance of China’s technology transfer requirement, the USTR is not even challenging these practices at the WTO yet has moved to impose tariffs.
Lighthizer noted additionally that ‘during a case before the WTO [referring to a late-1990s EU-initiated case], the United States stated that it would not conduct a Section 301 investigation in such a manner as to unilaterally determine whether another country is violating a WTO Agreement’. The United States’ retaliatory remedies, too, would not be implemented until the dispute settlement body had ruled on the matter, and the remedies would be commensurate to that authorised by the body.
On each of these procedural points, Lighthizer now knowingly misinterprets US law and deliberately violates international law.
US Commerce Secretary Wilbur Ross acknowledged in a speech at the National Press Club that the Section 301 tariffs did not conform to WTO law. ‘The combination of MFN [most favoured nation] and bound tariff rates prevent us from having reciprocal tariffs’, he admitted.
As per the predictability principle, Washington is required to bind and notify its tariff offers, which amount to ceilings on leviable duties. By imposing an additional 25 per cent duty and thereby breaching its notified ceilings, the United States is in violation of the relevant WTO articles. As per the most-favoured-nation principle, Washington is not allowed to discriminate between trading partners. But by unilaterally raising customs duties in ‘connection with importation’ from China, and with regard to China only, the United States is failing to extend ‘immediately and unconditionally … the advantage, favour, privilege or immunity’ that it has granted to all its other trading partners for ‘like products’.
The Trump administration has disturbingly chosen to double-down on rather than dial down its disregard for the MFN obligation. In late June, a mock bill was circulated within the White House that — akin to the Section 301 statute — would have authorised US presidents to ‘adjust tariff rates to reciprocal levels’ at their discretion against a foreign country (and regardless of US tariff bindings), even when no legal violation of US rights had occurred. The effort was ultimately unsuccessful, but future such efforts might not be so in the febrile trade politics of Washington.
The most-favoured-nation obligation has been a central pillar of the global trading order since the end of World War II. ‘That international trade should be abundant, that it should be multilateral, [and] that it should be non-discriminatory’ was the widely expressed sentiment at the Preparatory Committee gathered in October 1946 to frame the charter for the post-war trading order. These must unswervingly remain the guiding principles of the international trading system in the 21st century. And the United States’ trading partners must band together and rededicate themselves to fortifying these very principles on which their prosperity is founded.
Sourabh Gupta is a senior fellow at the Institute for China-America Studies in Washington DC.