While China portrays itself as a champion of the global trading system and the WTO rules, it has a long history of misusing WTO provisions and cutting off market access to punish countries that take actions that China objects to. In a prior post, I reviewed the actions of China against Australia — actions that China has pretended were not occurring or simply reflected product quality issues or unfair trade actions by Australia. See December 22, 2020: China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with-australia-unwarranted-and-at-odds-with-chinas- portrayal-of-itself-as-a-strong-supporter-of-the-wto/.
Members have raised concerns about lack of transparency and discriminatory practices in various fora at the WTO including during the recent Trade Policy Review of China (hearing held on October 20 and 22, 2021), as captured in the Chair’s concluding statement. See WTO news release, TRADE POLICY REVIEW: CHINA, Concluding remarks by the Chairperson, 20-22 October 2021, https://www.wto.org/english/tratop_e/tpr_e/tp515_crc_e.htm (“Some Members also voiced concerns over a general increase in non-transparent and discriminatory measures and practices in China, sometimes in response to political disagreements with other trading partners. They urged China to take measures to end non-transparent and discriminatory measures.”).
Similarly, in the January 2021, USTR 2020 Report to Congress on China’s WTO Compliance (pages 7-8), USTR provided a review of a number of concerns including retaliation, intimidation and lack of transparency. https://ustr.gov/sites/default/files/files/reports/2020/2020USTRReportCongressChinaWTOCompliance.pdf
“China has been a particularly bad actor when it comes to trade remedies. While the use of trade remedies in a manner consistent with WTO rules is an important tool for protecting domestic industries
from unfair and injurious trade practices, China has made a practice of launching antidumping (AD) and countervailing duty (CVD) investigations that appear designed to discourage its trading partners from the
legitimate exercise of their rights under WTO rules. This type of retaliatory conduct is not typical of WTO
members, nor is it a legitimate basis for seeking AD and CVD relief. Moreover, when China has pursued
AD and CVD investigations under these circumstances, it appears that its regulatory authorities have tended to move forward with the imposition of duties regardless of the strength of the underlying legal claims and evidence. The United States’ three successful WTO cases challenging the duties imposed by China on imports of U.S. grainoriented electrical steel (GOES), U.S. chicken broiler products, and U.S. automobiles offer telling examples of this problem. Indeed, China’s poor behavior does not always stop after an adverse WTO ruling. In two of the three WTO cases brought by the United States on trade remedies, China did not implement the WTO’s recommendations, and the United States was forced to bring Article 21.5 compliance proceedings to secure China’s compliance.
“China’s retaliatory use of trade remedies highlights another unique issue that WTO members face when
dealing with China – the threat of reprisal. It is no secret that foreign companies are hesitant to speak
publicly, or to be perceived as working with their governments to challenge China’s trade policies or
practices, because they fear retaliation from the Chinese state. A study by one U.S. industry association noted that foreign companies confidentially have reported receiving explicit or implicit threats from Chinese government officials – typically made orally rather than in writing – about possible retaliatory actions that could have severe repercussions for a company’s business prospects in China. At the same time, it is also no secret that China threatens more vulnerable WTO members to dissuade them from speaking publicly against China.
“A further persistent problem is China’s inadequate transparency. China disregards many of its WTO
transparency obligations, which places its trading partners at a disadvantage and often serves as a
cloak for China to conceal unfair trade policies and practices from scrutiny. For example, for the first 15
years of its WTO membership, China failed to notify any sub-central government subsidies to the WTO,
despite the fact that most subsidies in China emanate from provincial and local governments. The magnitude and significance of this problem is illustrated by the five WTO cases that the United States has brought challenging prohibited subsidies maintained by China. While those cases involved hundreds of subsidies, most of the subsidies were provided by sub-central governments. The United States was able to bring those cases only because of its own extensive investigatory efforts to uncover China’s opaque subsidization practices. Most other WTO members lack the resources to conduct the same types of investigations. Today, China continues to shield massive sub-central government subsidies from the scrutiny of WTO members. Together with other non-market practices, these subsidies contribute to the serious excess capacity problems that plague industries like steel, aluminum, solar panels, and fishing and devastate global markets and foreign competitors. Industrial plans such as Made in China 2025, which reportedly targets 10 sectors in China with hundreds of billions of dollars in subsidies, inevitably will create a new wave of industries with severe excess capacity to the detriment of China’s trading partners.
“For years, the United States has urged China to change the behaviors described above and become a
responsible member of the WTO. In the future, the United States will continue this effort. The United States also will continue to use the WTO dispute settlement mechanism as an enforcement tool as
appropriate and will continue working through WTO committees and councils and other WTO bodies to
seek effective actions to curb problematic Chinese policies and practices.”
The Chinese actions against Lithuania and indirectly against the European Union and United States
Last year, China embargoed imports from Lithuania after a warming of relations between Lithuania and Taiwan (Chinese Taipei). There are many articles on the row between China and Lithuania, but China’s political concerns about Lithuania’s actions towards Taiwan have led it to put pressure on European and U.S. companies in China to cut off using Lithuanian parts as well as embargoing imports from Lithuania and from other countries where products include Lithuanian components. See, e.g., Politico, China’s trade attack on Lithuania exposes EU’s powerlessness; Companies from several EU countries that depend on Lithuanian supply chains are now finding they face blockades at Chinese ports, December 16, 2021, https://www.politico.eu/article/china-trade-attack-on-lithuania-exposes-eu-powerlessness/ (“As Lithuania sought to deepen diplomatic ties with Taiwan over recent months, Beijing has moved to make an example of Vilnius by flexing its massive trade muscle and stopping imports of Lithuanian goods. Business organizations told POLITICO that China’s embargo is now hitting manufactured goods from other EU countries — such as France, Germany and Sweden — that are dependent on Lithuanian supply chains.” “A China-based business executive told POLITICO that Beijing is putting pressure on EU businesses to stop importing Lithuanian products. The executive explained that two German companies in the auto industry had parts stopped at Chinese ports in recent days because they were manufactured in Lithuania. Some of these components could take years to be replaced with trusted alternative suppliers, he added.”); Bloomberg, Europe Raises China-Lithuania Trade Dispute With WTO Chief, December 9, 2021, https://www.bloomberg.com/news/articles/2021-12- 09/europe-raises-china-lithuania-trade-dispute-with-wto- chief#:~:text=The%20EU%20raised%20Lithuania’s%20claim,denied%20it’s%20blocking%20Lithuania’s%20exports (“The European Union raised its concerns over a growing dispute between member state Lithuania and China to the World Trade Organization as efforts by the bloc to get information from Beijing have been rebuffed.” “‘The EU is informed that Lithuanian shipments are not being cleared through Chinese customs and that import applications from Lithuania are being rejected,’ the EU’s trade chief, Valdis Dombrovskis, told reporters in Brussels on Thursday.”).
Typically, the Chinese government has hidden behind claims of faulty products, have denied intimidation or failing to grant import licenses. See, e.g., Foreign Ministry Spokesperson Zhao Lijian’s Regular Press Conference on December 22, 2021, question from The Paper and answer by Zhao Lijian https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/202112/t20211222_10474336.html:
“The Paper: During the phone call with Lithuanian Prime Minister Ingrida Simonyte on December 21, US Secretary of State Antony Blinken said he noted public reports that China’s customs authorities are not clearing Lithuanian shipments or shipments with Lithuanian components, and that they are rejecting import applications from Lithuania. He said that such measures appear to constitute economic coercion. The US underscored its support for Lithuania and the commitment to work with like-minded countries to push back against China’s coercive diplomatic and economic behavior. What is China’s comment?
“Zhao Lijian: The Lithuanian side bears the sole responsibility for the severe difficulties in China-Lithuania relations. The claim that China’s authorities ‘are not clearing Lithuanian shipments’ and that ‘they are rejecting import applications from Lithuania’ is not true. If companies face technical problems in exporting certain products to China, they can report to competent Chinese authorities through normal channels.”
Nonetheless, Chinese media understand the embargo applied by China against Lithuanian goods and other goods incorporating Lithuanian components. See, e.g., South China Morning Post, China snubs EU efforts to mediate in Lithuania row, as trade embargo worsens, 9 December 2021, https://www.scmp.com/news/china/diplomacy/article/3159086/china- snubs-eu-efforts-mediate-lithuania-row-trade-embargo.
The U.S. has announced its support for Lithuania and the European Union in seeking to end the bullying and coercion. See, e.g., USTR press release, Readout of Ambassador Katherine Tai’s Call With Lithuanian Foreign Minister Gabrielius Landsbergis, January 5, 2022, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/january/readout- ambassador-katherine-tais-call-lithuanian-foreign-minister-gabrielius-landsbergis; U.S. Department of State Press Release, Secretary Antony J. Blinken and German Foreign Minister Annalena Baerbock at a Joint Press Availability, January 5, 2002, https://www.state.gov/secretary-antony-j-blinken-and-german-foreign-minister-annalena-baerbock-at-a-joint-press- availability/. The USTR readout and an excerpt from Secretary Blinken during the joint press conference are copied below.
“January 05, 2022
“WASHINGTON – United States Trade Representative Katherine Tai today spoke with Lithuanian Foreign Minister Gabrielius Landsbergis and expressed the United States’ continuing strong support for Lithuania in the face of economic coercion from the People’s Republic of China (PRC).
“Ambassador Tai emphasized the U.S. commitment to working with the European Union and its Member States to address coercive diplomatic and economic behavior. They discussed the importance to addressing our shared challenges through a close, transatlantic partnership that embraces and reflects U.S. and EU jointly-held values, which can be supported in part through the U.S.-EU Trade and Technology Council. Ambassador Tai and Minister Landsbergis both noted that the United States and the EU, as democratic market economies, share a number of core values and principles that we need to defend internationally.
“Ambassador Tai and Minister Landsbergis agreed to stay in regular communication to strengthen the U.S. – EU and U.S. – Lithuanian economic relationship and to continue to address the PRC’s economic coercion.”
SECRETARY BLINKEN:
“The foreign minister and I also discussed China. Germany and the United States agree on the importance of transatlantic coordination on China because it poses a significant challenge to our shared values; to the laws, rules, and agreements that foster stability, prosperity, and freedom worldwide. We also agreed that together, we will continue to build, across the board, an affirmative vision for the future because fundamentally, this is about what we’re for together, not what we’re against.
“Having said that, we have immediate concern about the Government of China’s attempts to bully Lithuania, a country of fewer than three million people. China is pushing European and American companies to stop building products with components made in Lithuania or risk losing access to the Chinese market, all because Lithuania chose to expand their cooperation with Taiwan.
“Here again, this isn’t just about Lithuania, but about how every country in the world should be able to determine its own foreign policy free from this kind of coercion. And the United States will work with our allies and partners, including Germany, to stand up against intimidation like this from China by strengthening our economic resilience, diversifying our supply chains, and countering all forms of economic blackmail. And we’ll continue to stand together against flagrant human rights abuses by the Government of China and advocating for universal human rights around the world.”
China responded to the U.S. statements of support for Lithuania viewing such support as an effort to create a wedge between China and Taiwan. See, e.g., NPR, China lashes out at U.S. for supporting Lithuania in feud with Beijing over Taiwan, January 6, 2022, https://www.npr.org/2022/01/06/1070856065/china-lashes-out-at-us-for-supporting-lithuania-in- feud-with-beijing-over-taiwan.
China’s actions undermine integrity of WTO system and promote retaliation
While many WTO Members may take actions that are inconsistent with WTO obligations over time, the WTO is premised on Members’ commitment to compliance, transparency to permit trading partners to understand and, where appropriate, challenge Member policies, laws, regulations, practices and actions. While non-trade issues are relevant in most/all bilateral relationships, the WTO is premised on Members not taking trade actions that are inconsistent with WTO obligations for political reasons.
China’s practice of taking punitive actions against trading partners where it disagrees with actions taken by such trading partners, hiding the fact and denying the existence of such actions, intimidating companies invested in China or exporting to China and misusing WTO trade defense tools and standards as a means of retaliation is clearly contrary to a rules based approach to trade embodied by the WTO.
Uncorrected, such actions encourage large trading partners to consider unilateral retaliation options as is happening now in the European Union. See Politico, France eyes quick anti-China action to bail out Lithuania in trade war, January 6, 2022, https://www.politico.eu/article/france-china-measures-lithuania-new-trade-weapons/ (“France wants the EU to punch back quickly to stop China holding the bloc hostage in a snowballing trade conflict over Lithuania.” “The EU has plans to roll out a new trade weapon called an ‘anti-coercion instrument’ to retaliate in precisely these kinds of cases but that fresh legislation could take years to fully enter into force and Paris is signaling that action over Lithuania would be needed well before that. When asked whether Paris would push for EU action to resist Beijing before the anti-coercion instrument is ready, a senior French government official on Thursday told POLITICO: ‘Yes. We will take measures very quickly.’”).
Presumably, like minded Members (e.g., U.S., EU, Japan, Korea, Canada, Australia, New Zealand and others) will be looking at what types of WTO reforms would have a better chance of minimizing the type of bullying and economic coercion being practiced by China. The real question is whether such reforms can be adopted and whether they could be effective. Any such reforms are years away in a best case situation. Until then, one should expect continued flouting of WTO rules by China when it finds such actions politically attractive.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.