This week we present Part Two of “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse).” It is entitled, “The Broken Promise To China.” Part One, entitled “Rewriting Subsidies Law To Fit Chinese Facts,” was posted last week.
The Broken Promise To China
Entry into the WTO a decade ago has paid off handsomely for China, enabling its trade to flourish and accelerate its economic growth and development. However, a critical element of China’s accession was acceptance of the rule of law. China was required to accept the arbitral procedures and consequences of WTO membership, but reciprocally was promised the benefits of those procedures. Not long after its accession, the United States and other countries brought cases against China. China quickly joined other countries challenging American safeguards against steel, and soon thereafter began to bring cases against the United States and other countries on its own.
Nothing could be more satisfying to proponents of the international rule of law than to persuade a country operating outside that framework for more than a half-century to change its ways and enlist in the procedures of the international community. China was quick, in the first cases brought against it, to accede. Instead of availing itself of the full and often protracted means of delaying undesirable outcomes, China promptly settled cases, acknowledging with little dispute when the complaints against it seemed justified.
It took longer for China to appreciate that generosity with the rules typically is not reciprocated in the WTO, least of all by the United States. The United States normally resists claims against it through every procedural device and interpretation possible. Perhaps the most celebrated example is the antidumping technique of “zeroing,” which the United States lost before the Appellate Body of the WTO in 2004, yet has found ways to continue the practice, in one form or another and despite more than a dozen WTO cases brought against it, since it first lost before a WTO panel a decade ago. The United States has insisted that it plays by the rules and that China does not. To the extent that China has been playing by the same rules as the United States since its accession to the WTO, it has played by the same rules differently and generally not as characterized by the United States.
The WTO is not the only forum in which China had to be persuaded to participate as a price and privilege of conducting its affairs according to the rule of law. Until November 2006, trade remedy cases against China in the United States did not technically or formally involve the Chinese Government because they were always and only antidumping cases. Antidumping allegations revolve around setting prices, which as a matter of the antidumping law is done by companies, not governments. Once the U.S. Department of Commerce began accepting countervailing duty petitions, however, the Chinese Government could not remain on the sidelines. The allegations necessarily involved government activities and programs, and even were it not to avail itself of legal rights, the Government of the People’s Republic of China would have to answer questionnaires and be involved in the investigations.
China was far more reluctant to avail itself of the judicial institutions and procedures of the United States than it had been of the WTO. For all foreign governments there is a hesitation to be a party in U.S. courts and submit sovereignty to the judgments and authority of U.S. judges. For six years, the Government of China has avoided initiating legal procedures in trade matters in U.S. courts, but with caution and reluctance it has begun to participate, conspicuously as an interested party in the GPX case.
Lawyers representing the Chinese Government in countervailing duty cases have urged the Government to participate in the domestic judicial process of the United States. The WTO is slow and its remedies, prospective only, are limited in time, scope, and character. At best, a prevailing party can impose tariffs on products of a losing party. Because disputes are over imports and exports, the merchandise subject to WTO compensation (commonly called “retaliation”) is not the merchandise subject to the dispute. Consequently, the WTO resolves disputes, when parties do not capitulate, through collateral attacks on other merchandise. Often the consumers of the prevailing country are the losers.
Domestic judicial procedures in the United States can move more quickly than the arbitral procedures at the WTO, and remedies are more generous and comprehensive. Deposits being held can be returned with interest, whereas a WTO order cannot see to the return of deposits at all. Obstacles to trade can be removed swiftly. Agencies can resist judicial orders for a long time but, in most instances, the U.S. market can reopen for subject merchandise more quickly than from decisions at the WTO because all of the procedural protections the agencies enjoy domestically they enjoy at the WTO in addition to the WTO’s own procedural obstacles for a complaining country. At the WTO there can be almost endless contention over remedies, whereas prescribed remedies in domestic law are known early in the process even though it may take a very long time to implement them.
These preferable remedies of the domestic judicial process are valid only when the process is fair and transparent and all the parties have reason to believe that they will be treated equally under the law. In general, U.S. judicial proceedings live up to this promise and, in the GPX case, did so for China.
Click here for Chinese translation
The promise to China of reward and fair treatment from playing by the rules is being broken and, ironically, it is China standing accused of a disregard for the rule of law. According to the Ranking Member of the House Ways and Means Committee, Sander Levin (D-Michigan), “China is tilting the field of competition by not playing by the rules and this bill restores a key instrument of our nation to hold China accountable.” The Ranking Member of the Trade Subcommittee, Jim McDermott (D-Washington), added to the theme, “China has been breaking international trade rules . . . Now our own courts have naively weighed in . . .” Presumably, then, China naively trusted in the U.S. judicial system. Trade Subcommittee Chairman Kevin Brady (R-Texas) asserted that the legislation “provides a WTO-consistent tool to offset these market-distorting subsidies.” Except that the legislation is not WTO-consistent and the alleged subsidies, according to the United States, have no market to distort.
China challenged the United States at the WTO and won. It joined a suit in U.S. courts and won. Congress then stepped in and, as the White House trumpeted the result, “This legislation overturns that [Court of Appeals] decision,” even though it does not overturn the decision as to the parties in the case. So much for playing by the rules.