In the Section 301 petition recently filed by a group of unions, the petitioners argued that "Section 301 provides an appropriate mechanism for addressing China’s policies in the maritime, logistics, and shipbuilding sector." They offer three reasons for this:
First, traditional trade remedies are not available to address China’s unfair trade practices in this area, as the vast majority of ships produced in China are used in international commerce, and never imported into the United States. Second, the statute gives the United States Trade Representative (“USTR”) the power not only to impose tariffs, but also to impose fees and other restrictions, as well as take all other appropriate and feasible action within the power of the President. Third, Congress explicitly recognized that, by definition, support for the construction of foreign vessels used in international trade burdens or restricts U.S. commerce and thus is a proper target for action under Section 301.
I want to focus on the first reason, which is that "traditional trade remedies are not available." I agree that these remedies are not going to be of much use here because of the limited Chinese imports, but as I argued recently, even if there were lots of Chinese imports, there are better remedies available if your goal is "to address China’s unfair trade practices." Countervailing duties involve unilateral judgments that aren't likely to change the behavior of the government providing the subsidies, which limits the impact they will have. By contrast, in an Article 5 "adverse effects" complaint at the WTO, you could get a ruling that would be seen as objective and therefore would be more likely to have an impact on the Chinese practices. (Obviously I'm not going to offer a guarantee of Chinese compliance here; I'm just talking about probabilities.)
Recall that Article 5 provides for complaints against subsidies that cause the following adverse effects:
Article 5: Adverse Effects
No Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1, adverse effects to the interests of other Members, i.e.:
(a) injury to the domestic industry of another Member11;
(b) nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994 in particular the benefits of concessions bound under Article II of GATT 199412;
(c) serious prejudice to the interests of another Member.13
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11The term "injury to the domestic industry" is used here in the same sense as it is used in Part V.
12The term "nullification or impairment" is used in this Agreement in the same sense as it is used in the relevant provisions of GATT 1994, and the existence of such nullification or impairment shall be established in accordance with the practice of application of these provisions.
13The term "serious prejudice to the interests of another Member" is used in this Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT 1994, and includes threat of serious prejudice.
Importantly, with Article 5, the WTO remedy can be broader than just imposing tariffs on the subsidized imports, as would happen with CVDs. This gives the complaining government a greater ability to induce changes to the subsidy measures.
In addition, to quote a friend of mine, "CVDs can deal with one destination market only, namely that of the CVD imposing country. Adverse effects can be established additionally in the market of the subsidising country and the markets of other countries, i.e. every market where the products compete."
It doesn't feel like USTR is in the mood to bring WTO complaints these days, but nevertheless I think that if the goal is to induce a change in China's practices, this option is worth considering. (And for what it's worth, the petition does mention this explicitly as a goal when discussing the possible remedies, with one remedy being: "(1) a fee on vessels built in China that dock at U.S. ports to offset China’s unfair practices and create an incentive to eliminate those practices.")
