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From Ohio to Geneva: Did Reckless US Pandering Trigger Chinese Retaliation at the WTO?

Oct 01 , 2012

This case was sure to get attention. Recorded as the 450th dispute filed at the World Trade Organization (WTO), it pits the US against China over subsidies. It thus has the cast of characters, and the kind of plot, that make headlines in today's global economy. Yet the case, known as China—Certain Measures Affecting the Automobile and Automobile-Parts Industries, was seen as being more about domestic US politics than international commerce. In the waning days of a presidential election in which Ohio looms large, it smacked of reckless pandering. Even President Obama fed this cynicism, telling union auto works in Columbus later that evening that “it's timely to be able to see you” because “we're filing a new WTO case challenging China’s illegal trade and subsidies in autos and auto parts.” Timely, yes, but was it reckless? No.

It is easy to see why some might argue the filing was reckless. After all, it led China on the very same day to file the WTO's 449th dispute, the title of which is United States—Countervailing and Antidumping Measures on Certain Products from China. In this view, Obama, who was trying to look tougher on China than his opponent, Mitt Romney, ended up triggering Chinese retaliation. The stakes include not only a long list of US trade remedies, but the methodologies that produced them. Still, this isn’t just tit-for-tat litigation; China's complaint was going to be filed in one form or another regardless of whether the US sued over auto subsidies. September 17 may have been a busy day in Geneva, but the coincidental filings should not blind us to China's wider aims, nor to the US's narrower ones.

Since joining the multilateral trade regime in 2001, China has been the complainant in 10 WTO disputes, nine of which concern trade remedies. Against the US, China has recently prosecuted two cases that bear on key definitions and methodologies pertaining to antidumping and countervailing duty determinations, in particular. Beijing's latest filing builds on these two cases and, like the second, takes another cut at the first. If the timing of this case caught some by surprise, little else about it should have. Far from being an ad hoc gesture of retaliation, this case is a part of a larger offensive against US (and other) trade remedies practices. Expect more.   

The US filing did not materialize overnight either. Various constituents, along with their representatives in Congress, have been calling for the auto subsidies case for months. And while Obama's announcement met with applause in Columbus, the filing is not as encompassing as those in the crowd might have hoped. In particular, the US is targeting subsidies that are contingent upon export, and the lack of transparency surrounding Chinese subsidies in general. This is not provocative stuff; the WTO says these kinds of subsidies are mala in se, and the charge that China doesn't notify its programs is nothing new. Forced tech transfer isn't mentioned, nor is anything about local content. Claims of this sort, advocated for by proponents of the filing, fall within WTO disciplines and could have been raised. This case could easily have been provocative.

The US also seems to be hoping to build a coalition of countries in this case. The request for consultations falls under a provision that invites others to join, and in a dispute over export subsidies, never mind one against China, there are sure to be takers. This doesn't bode well for reaching a negotiated solution, but it will help sell the case as reflecting wider concerns, not just US ones.   

Domestic politics is a funny thing. Obama told the Cleveland Plain Dealer that “when we push [the Chinese] very hard but we don't go out of our way to embarrass them, we get results.” Romney's reaction was that the filing “may sound good on the stump, but it is too little, too late….” No one said it was reckless. For its part, Beijing denied that there was anything retaliatory about the WTO's 449th dispute. Business was more muted. The Motor & Equipment Manufacturers Association, for one, said only that it would look into how the filing would impact its members. As in the solar industry, another source of US-China trade tension, global supply chains are complicating the domestic political payoff to filings like this. Auto vendors are invested in China, and they worry about how the case will affect these investments. It is getting harder to pander.

The most interesting thing about China's WTO litigation is not the number of complaints it has filed or defended against, but its appearances as a third party. The number is 91. This is Beijing's learning by watching strategy. The global economy is better off with a more vigilant China, a China that has greater confidence in the rule of law because it has the capacity to use it. It is costly to be reckless in filing against China, even on the campaign trail in Ohio, but that's not what happened. The US case is principled and modest in the expectation that China will be principled and modest too. This isn't just mutual deterrence in the back alley of the global economy. It is an outcome owing to the fact that the content of the requests exchanged on September 17 matters. The WTO helps filter good cases from bad, and the mutual deterrence is attributable to both side's capacity to advocate sufficiently well to prevent bad cases. It's a long road from Ohio to Geneva, but its good that the US and China know the way.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Edmund A. Walsh School of Foreign Service, Georgetown University

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