The outcome of the Panel decision in the case of Section 301 Tariffs against China (DS543) is unsurprising - few would have expected that the United States could successfully invoke the public moral exception under GATT XX(a) to justify its Section 301 tariffs. But the Panel Report does contain some surprises. One is technical: The Panel skipped a critical step in the necessity analysis - whether there were less trade-restrictive alternatives available that could achieve the same policy objective. The Panel cited China’s refusal to put forward possible alternatives as the reason for skipping the step–a major departure from the existing WTO/GATT jurisprudence.
But a bigger surprise is the absence of any discussion on China’s claim under DSU Article 23. In its request for the establishment of a panel (DS543/7), China articulated three legal bases for its complaint: GATT I:1, GATT II:1; and DSU 23. The request states: “The measures at issue appear to be inconsistent with the United States obligations under the following provisions of the GATT 1994 and DSU:
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- Article 23.1, and Article 23.2 (a), (b), and (c) of the DSU, because the United States fails to follow the required procedures and conditions set out in Article 23.1 and Article 23.2(a), (b) and (c). Specifically, when seeking the redress of the violation of obligations or other nullification or impairment of benefits under the covered agreements of WTO agreements or an impediment to the attainment of any objective of the covered agreements of WTO agreements, the United States fails to seek recourse to dispute settlement mechanism under the DSU to determine whether China's certain acts, policies, or practices identified in the Section 301 report violated a covered agreement. Instead, the United States unilaterally imposes the additional tariffs on certain imported products originated in China, which are identified in measures 1 and 2 above, based on the findings and/or determinations made in the Section 301 report.
This claim, however, is not mentioned in the Panel Report. Apparently, China dropped the claim during the Panel proceedings. But I cannot find amendment to China’s original complaint. And there is no explanation in the Panel Report about this significant change in the case.
As we all know, the unilateral nature of the Section 301 tariffs is the real issue in this case. US Section 301 actions in the 1980-90’s led to the creation of DSU Article 23, which strictly prohibits any unilateral retaliatory measure without DSB authorization. This discipline was an historic achievement of the world trading system. DSU Article 23, however, only regulates unilateral retaliation against measures covered by the WTO agreements. This limitation has become the new challenge of the day.
Just as in the 1980-90’s, the United States is resorting to unilateral trade measures to punish its trading partners for practices that are not (adequately) covered by existing trade agreements. The Section 301 tariffs were supposed to counter three types of China’s unfair practices: forced technology transfer, state-assisted acquisitions of tech-rich US firms, and cybertheft of American IP. While the latter two types are not covered by the WTO agreements, forced technology transfer is at least partially addressed by China’s Accession Protocol. If the Panel had had the opportunity to address China’s original claim under DSU Article 23, it could at least have clarified the extent to which Article 23 applies to the Section 301 tariffs and thereby highlighted the deficiency in the existing system.
In addition to the missing Article 23 claim, the Panel decision in DS543 is also shadowed by China’s violation of Article 23 in its response to the Section 301 tariffs. While pursuing this WTO case, China simultaneously imposed tit-for-tat retaliatory tariffs on US products. Compared to the first round of the Section 301 tariffs, which would not violate Article 23 to the extent they address issues not covered by the WTO agreements, China’s retaliatory tariffs from the outset and in their entirety violated DSU Article 23, as well as GATT Articles I and II. Unfortunately, the United States, apparently out of strategic calculation, has not brought a WTO case against China on these retaliatory tariffs. (The Panel seems to lament this fact. See the concluding comments of the Panel Report, para. 9.3) Instead, the United States counter-retaliated by imposing more Section 301 tariffs, eventually covering most of the Chinese imports. The US counter-retaliation only begot more Chinese retaliatory tariffs. And the Phase-One agreement reached in January 2020 merely halted further escalation of the tariff war.
In the end, the rule-based WTO system may be the most significant casualty, as the system has proven to be completely impotent in preventing the largest trade war in history. Against this background, the Panel decision in DS543 seems woefully inadequate (Worse yet, it may have set a bad precedent in GATT jurisprudence on the necessity test). As for China, the legal victory rings hollow, since it has already taken matters in its own hands in disregard of WTO law and has been suffering the political and economic consequences of the trade war ever since.
An important question for WTO Members is this: Can the multilateral system be improved so as to prevent similar unfortunate episodes in the future? I have addressed this question in a recent paper and would welcome comments from readers.
