How China and the U.S. Handle WTO Complaints

Includes: CNY, FXI, UDN, UUP
by: Howard Richman

The way China and the United States handle WTO complaints differs. We allow the complaints to drag through adjudication for years. We in the U.S. will even win a WTO decision, but then simply wait while China does nothing, as in the case of China's excessive tariffs on foreign auto parts.

China has a different method for handling WTO complaints. At the same time that she files the complaint, she takes an action against American products that is way out of proportion, forcing America to cave.

Last week, at the same time that China filed a WTO complaint against an American ban on her cooked-chicken products, she completely cut off further issuance of licenses to import American chicken (13% of all of our exported chicken). Here is the story from Kim Souza in The Morning News:

SPRINGDALE — Despite news reports from China that U.S. chicken imports will continue as normal, the country has put a de facto import ban in place, said Farha Aslam, industry analyst with Stephens Inc....

News that Chinese importers of U.S. chicken were not able to get permits for importing American poultry products Thursday was a reversal of prior actions, as China's Ministry of Commerce refuted the ban claims just two days ago...

The Chinese government filed a complaint against the U.S. with the World Trade Organization saying that U.S. congressional actions to limit Chinese poultry from coming into the U.S. were unfair, malicious and violate global trade rules.

China is practicing protectionism through a variety of means including tariffs, a dollar-yuan peg to keep American products expensive and Chinese products inexpensive, and various non-tariff barriers including import licenses. In 2008, China imported just 25¢ from the United States for every $1 we imported from her.

She is so effective with non-tariff barriers to foreign products that, according to the World Bank, her imports are expected to decrease this year even while her economy grows at a 7.2% clip.

Throughout this Great Recession, she has been steadily hiking her export subsidies, just raising subsidies on textiles, for example, from 15% to 16%. She is insuring that Chinese businesses can produce below cost so that they can steal market share by driving their foreign competitors bankrupt.

In response, the only thing that President Obama has done is file a WTO complaint that China will ignore. If we had a competent government, it would do what we suggest in Trading Away Our Future:

We would announce to all the countries that have been accumulating dollar reserves in order to run a trade deficit with the United States, that effective the following year their deficit on goods and services would have to be reduced twenty percent. They may respond to this challenge by planning to increase their imports from us, reduce their exports to us, or some combination of both. Failure to meet this annual goal would result in our imposition of a requirement that all imports from the offending country would require an Import Certificate (IC) purchased from the US Treasury Department or other designated agency of the federal government. (The US Treasury Department has experience in auctioning off its own obligations; much the same process would be involved in auctioning off import certificates.)

Prospective importers from countries that fail to reduce their deficits in timely fashion would have to apply for an IC and follow the Treasury’s instructions. Over a period of five years, the US Treasury Department would steadily reduce the amount of available import certificates so that the targeted country’s trade exports to the United States would be no higher than 5% above their imports from the United States. The Treasury would publish the amount of ICs issued and available and the date of each auction. Each certificate would have to be utilized within a specified period. (pp. 95-96)

The Richman plan would force China to take down her barriers to American products and stop dumping her products below cost in American markets. President Obama's WTO complaints will drag on for years through the WTO adjudication process while China steals our remaining industries.

Disclosure: No positions.