USTR Highlights Need for New Tools to Deal with Mainland China

U.S. efforts to address fundamental problems with Beijing’s “state-led, non-market approach to the economy and trade” over the past 20 years have been largely unsuccessful, highlighting the need to develop new strategies and tools, the Office of the U.S. Trade Representative concluded in its annual report on mainland China’s compliance with its World Trade Organisation commitments.

The report reiterates long-standing U.S. complaints about mainland China’s “poor” record of compliance with its WTO obligations, including “violating, disregarding and evading WTO rules to achieve its industrial policy objectives.” Moreover, mainland China’s “embrace of a state-led, nonmarket approach to the economy and trade has increased rather than decreased over time.”

The U.S. has employed a variety of bi-lateral and multi-lateral efforts to address these problems, the report states, including high-level dialogues as well as WTO enforcement measures, but “they did not result in meaningful changes.” The report identifies a number of reasons for this, including the “unenforceable” nature of commitments the U.S. secured in talks with Beijing and the inability of the WTO’s dispute settlement mechanism to effectively discipline mainland China for violating WTO rules.

It has thus become evident, the report states, that new strategies are needed, including “solutions independent of the WTO.” Curiously, however, the first identified elements of the “multi-faceted strategic approach” the U.S. is ostensibly now pursuing as a result are those the report itself found to be ineffective in the past: “working to ensure that China lives up to its existing trade commitments” and “engaging China on issues that are a priority” for the current administration, which include everything from market-distorting industrial policies, massive subsidisation of domestic industries, and state-sponsored theft of intellectual property to forced labour practices, purposeful obfuscation of trade and economic policies, and inadequate regulatory transparency.

The report also emphasises the use of “domestic trade tools strategically … to achieve a more level playing field” with mainland China. This has been a hallmark of past U.S. policies as well and has typically referred to antidumping and countervailing duties and similar measures. Going forward, however, it could mean further use of Section 301 proceedings like the one underlying the higher tariffs currently being imposed on hundreds of billions of dollars’ worth of imports from mainland China, especially given that the report appears to lend some legitimacy to at least the motivations behind that proceeding.

At the same time, the report suggests that any future such proceedings might take a different and perhaps more targeted approach. Neither the Section 301 tariffs nor the phase one trade agreement that followed “meaningfully address the more fundamental concerns” the U.S. has with mainland China, the report states, and efforts to “build a wall” between the two countries “would ignore China’s importance to, and integration in, the world economy and would only change the mode of [China’s] impact on the United States but not the ultimate result.”

The report does indicate that “existing trade tools need to be strengthened and new trade tools need to be forged.” This could presage a stronger effort by the White House to secure congressional approval of legislation recently passed by the House of Representatives that includes a number of such measures. The report itself, however, gives no further details, saying only that mainland China “pursues unfair policies and practices that were not contemplated when many of the U.S. trade statutes were drafted decades ago” and that the U.S. is therefore “exploring ways in which to update our trade tools to counter them.”

Perhaps the biggest difference between USTR’s anticipated approach and those of the past is an effort to work “more intensely and broadly with allies and like-minded partners” outside of a multi-lateral organisation context. Examples include the Trade and Technology Council established with the European Union, the Partnership for Trade recently announced with Japan, and the Indo-Pacific Economic Framework expected to be unveiled in the coming months. Work in these contexts will include not only more effective ways to address non-market policies and practices, the report says, but also efforts to “diversify international suppliers and reduce geographic concentration risk”, especially in mainland China.