The World Trade Organisation has announced that China has officially initiated a dispute complaint regarding the U.S. and their recently introduced tariff measures.
The official release from the WTO states that China is claiming that the 10% additional duty that the U.S. has introduced on all goods originating from China, as well as the measures regarding the availability of drawback and de minimis treatment, fall foul of the U.S. most favoured nation obligations.
What are the Most Favoured Nation Obligations?
The WTO introduced the Most Favoured Nation principle in an attempt to prevent countries from applying more favourable, or less favourable, tariff rates to different countries. As such all WTO members are required to provide the same duty rates for their products. For example, under this principle, the U.S. are not allowed have a 10% duty rate on pens which are of Chinese origin when the duty rate for the rest of the world is 2%.
Of course there are exemptions to this rule. Countries are allowed to negotiate trade agreements which allow countries to access a lower rate of customs duty for originating goods. There is also the Developing Countries Trading Scheme (GSP in the EU) which provides a preferential tariff rate on imports from particular countries.
Also, there are exceptions when additional trade duties are placed on WTO members. This could be in the form of anti-dumping measures to protect a countries own manufacturing, or as a deterrent to trade with a particular country due to the actions of that particular state (currently in place on Russia and Belarus for example).
What are the Next Steps?
The request for consultations formally initiates the WTO dispute process. The consultation period gives the parties an opportunity to discuss the matter and to hopefully come to a solution without further action having to be taken. It is similar to undertaking mediation prior to a court case.
If, after 60 days, no solution has been found, China can request adjudication by a WTO panel.
What Impact Could this have on the U.S.?
As stated in the paper “The Effective of the WTO Dispute Settlement System: A Statistical Analysis” between 1995 – 2015 there was a compliance rate of roughly 80% when it came to countries complying with a WTO decision. However, of the 38 suspension requests during that time (a reasonable calculator to determine non-compliance), 68% were filed against the U.S.
To further highlight the U.S. historic lack of compliance with WTO rulings, the same report states that more than one third of countries who successfully complained about U.S. actions were forced to turn to trade sanctions in an attempt to obtain U.S. compliance. LAW_2017_11.pdf
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