MNI POLICY: U.S. Rejects China Sanctions After WTO Ruling

-- Washington Seeks WTO Dispute Settlement, Despite Block On New Judges

By Brooke Migdon

     WASHINGTON (MNI) - The U.S. said Monday it would reject sanctions imposed

by China stemming from a World Trade Organization ruling on an Obama-era

dispute, although the case will likely stall as Washington continues to block

the reappointment of new WTO appeals judges.

     The WTO Appellate Body ruled in July that the U.S. had failed to comply

with a 2012 ruling concerning the imposition of tariffs on Chinese solar panels

and steel products. Earlier this month, China announced it would respond with

$2.4 billion in compensatory sanctions, which the U.S. objected to on Monday

during a meeting of the WTO Dispute Settlement Body (DSB) in Geneva,

Switzerland.

     Under a WTO statute, the filing of an objection automatically sends the

matter to WTO arbitration, and under a related mandate, although each party may

agree on an arbitrator, members of the original WTO panel or Appellate Body

report are typically appointed. The results of the arbitration are then approved

by the DSB.

     --TERM LIMITS

     The U.S. announced last year that it would block the reappointment of

further WTO Appellate Body members serving as appeals judges within the WTO's

dispute settlement arm. Now only three -- the minimum amount for the system to

function -- of the standard set of seven remain appeals judges remain in

position, and the terms of two of them end in December.

     Factoring in the time it will likely take to appoint an arbitrator, reopen

the case, and render a decision, there won't be a "functioning" Appellate Body

by the time the arbitration concludes, according to Gary Hufbauer, a senior

fellow at the Peterson Institute for International Economics and former Deputy

Assistant Secretary for International Trade and Investment Policy of the U.S.

Treasury.

     "Assuming the U.S. doesn't like what the arbitrator says, it will appeal

the case to the non-existent Appellate Body," he said, adding that the U.S. will

likely use the absence of the Appellate Body to prevent the tariffs from coming

into force.

     --CHINA MOVES

     But Hufbauer said China will likely impose the tariffs regardless.

     "The wheels are coming off the system," he said. "The whole role of the WTO

in limiting unilateral measures has broken down."

     Despite the potential to backfire, the U.S. also said Monday that it would

continue to block the appointment of new members, citing the Appellate Body's

alleged "disregard" for recognized rules.

     "The systemic concerns that we have identified remain unaddressed," a

Geneva-based U.S. trade representative said in a statement following the

meeting. "If WTO Members say that we support a rules-based trading system, then

how can we permit the WTO Appellate Body to break the rules we agreed to in

1995?"

     WTO member nations should not expect the U.S. to budge anytime soon -- at

least not before the 2020 U.S. presidential election, Hufbauer said.

     "There will not be an Appellate Body resurrection for a while," he said. "I

don't think the outcome of a single case will change the United States' view --

not with Trump as president or Lighthizer as the USTR."

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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