This is something from a recent speech by Congressman Ro Khanna (D-CA):
The US needs to work with our allies to pursue a broad WTO dispute case against the PRC. One hurdle is that the current Dispute Settlement process cannot litigate in key China-related areas that are not adequately covered by WTO rules. New rules must be negotiated.
For starters, the WTO must reconsider its “specificity” policy.
Under the current rules, the WTO allows countries like China, to support state-owned enterprises and provide wide-spread subsidies to its economy. The WTO should stop letting its members do this.
We must also be open to suspending China’s permanent normal trade relations (NTR) with the US which was previously called the most favored nation status.
Prior to joining the WTO, US law required China’s NTR status to be renewed annually. This status is a privilege, and the US should decide this status annually—as we once did. If China does not support a constructive rebalancing of our economic relationship, we should eliminate or suspend this status.
First of all, I like the idea of working with allies to bring a broad WTO dispute case against China, and this is basically what I've argued for in the past. I'd probably prefer lots of smaller cases, but that's a minor quibble.
However, I think Khanna misunderstands the situation to some extent when he says "the current Dispute Settlement process cannot litigate in key China-related areas that are not adequately covered by WTO rules." He doesn't spell it out in great detail, but when he mentions "specificity," he is probably thinking here about the use of domestic CVDs against China, and how the rules in the SCM Agreement may limit the use of CVDs, in particular as a result of certain Appellate Body rulings. But if the question is what policies are covered by WTO rules, it's important to consider the potential for WTO complaints against China, rather than focusing so much on domestic CVDs imposed on China (with the CVDs themselves later challenged at the WTO). Direct complaints against China at the WTO are likely to be more effective than CVDs at addressing China's practices and policies, because the ruling would come from a neutral tribunal rather than from another government.
So what cases to bring? There are lots of possibilities, but as I've mentioned before, one of the broadest obligations that China has agreed to in the area of state-owned enterprises is in para. 46 of its accession Working Party report (made binding by the Accession Protocol):
46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.
How would this very broad obligation be applied to the recent behavior and actions of China with respect to its SOEs? Only one way to find out!
Of course, for such a complaint to have an impact, we need the Biden administration to engage on finding a solution to the Appellate Body appointment crisis. Perhaps the prospect of a complaint against China would convince Khanna to push for this?
As for using PNTR suspension as leverage here, that wouldn't be my choice of approach, but putting that aside, my guess is that the effectiveness depends on what kind of "constructive rebalancing of [the] economic relationship" Khanna has in mind. As discussed below, I don't think that focusing on the trade balance here makes sense. But if Khanna or others could point to specific changes they wanted in Chinese policies and practices, using the right kind of leverage (e.g., a successful WTO complaint) might be possible.
Khanna also expresses concern about the trade deficit:
A new economic patriotism must be front and center in our diplomacy with China. In our bilateral negotiations, we should set a target to reduce the trade deficit with China every year until it’s de minim[i]s.
To rebalance the trade deficit with China, we need to create a National Development Council to provide federal financing for our critical factories. I wrote a bill with Marco Rubio that would do just that. Rebalancing trade also requires properly investing the 280 billion dollars in the Chips and Science Act which I also co-authored. And it requires new chips acts for many industries. Let’s have a CHIPS act for aluminum, for steel, for paper, for microelectronics, for advanced auto parts and for climate technologies. To succeed, we’ll need expedited permitting for national projects, conditional on companies paying a prevailing wage, meeting environmental standards, and not engaging in stock buy backs.
For the reasons set out here and here, I think Khanna's focus on the trade deficit is misguided. If he wants to bring the trade deficit down, the answer is in macroeconomic policies such as savings rates and the value of the dollar. Khanna wants to talk about manufacturing in this context, but whether to subsidize U.S. manufacturing is an issue that should be debated independently of the trade deficit, because shifting the U.S. economy away from other sectors and towards manufacturing is not likely to have much of an impact on the trade deficit. I realize that in the political discourse, the words "trade deficit" tend to get people's attention, but I hope that the people using these words will eventually recognize that in terms of the substance of the issue, the existence and size of the U.S. trade deficit is driven by factors outside of trade or industrial policy.
