International Economic Law and Policy Blog

The Missing Legal Strategy for the US-China Trade War

The Missing Legal Strategy for the US-China Trade War

Steve Charnovitz

23 May 2019

The Trump Administration's strategy against China suffers many flaws, the most serious of which is the failure to use judicial procedures in the WTO.  As my recent study https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3390659 explains, the Trump Administration his lodged only three WTO cases against China, when assuming the various allegations to be true, dozens of cases should have been lodged.

In talks in legal and business circles, I have often heard the excuse that cases against China cannot be easily brought and prosecuted because companies are not willing to go on the record to make claims against alleged Chinese practices such as "forced" technology transfer. Time after time, I have heard that companies won't publicly disclose specific acts of abuse by Chinese officials out of a fear of formal and informal Chinese governmental retaliation. 

This argument ignores the relaxed rules of evidence before WTO panels and the panel's broad power to seek information outlined in DSU Article 13.

Had the United States brought WTO legal cases against China, evidence of an improper Chinese government role could have been presented in the form of anonymized questionnaire data to US (and non-US) companies suffering from abusive practices by the Chinese government or related entities.  The US government could also have presented reports from independent experts who themselves spoke with private sector victims.

Then in a judicial proceeding, the panel would have been able to seek whatever information it needed to verify or refute the US prima facie case.  As DSU Article 13 explains, the panel would have been able "to seek information and technical advice from any individual or body which it deems appropriate."  This could have included the Chinese government as well as market participants and independent experts pursuant to DSU Article 13.2.  As DSU Article 13.1 notes, the panel would have been enable to establish procedures to identify and prevent disclosure of any information given to the panel confidentially.

As I noted in a recent piece in the Wall Street Journal, the Trump Administration has shown little interest in putting law at the centerpiece of its China strategy https://www.wsj.com/articles/u-s-china-talks-ignore-global-trade-rules-11558123934.

With no interest in law as the central means of regulating anti-competitive governmental behavior, Trump's USTR has shown no evidence of even thinking about how to solve the alleged factfinding problems that the business community routinely points to as an explanation for why it may be difficult to bring and win legal cases against China at the WTO.

My study (now posted on SSRN) of the Trump  Administration's strategy on US-China economic relations shows how the Administration has missed the opportunity to more clearly define what China is doing wrong and to articulate the norms that may be needed to regulate state capitalism or state socialism.   

 

China - Financial Information Services: The Complaints

The consultations requests in the China - Financial Information Services dispute are now available: EC request and U.S. request.  GATS claims (XVI, XVII and XVIII) and China's protocol of accession are the focus, but there is also a TRIPS claim in the EC request.  Here's a brief summary of some of the key aspects of the dispute, from the U.S. complaint:

China requires foreign financial information suppliers to supply their services through an entity designated by Xinhua News Agency ("Xinhua"). Xinhua has designated only one agent, China Economic Information Service ("CEIS"), one of Xinhua's commercial enterprises. China prohibits foreign financial information suppliers from directly soliciting subscriptions for their services, requiring that solicitation of subscriptions be done through the Xinhua-designated entity. China likewise prohibits users of financial information services in China from directly subscribing to services supplied by foreign suppliers. Furthermore, in order to renew their licences, China requires foreign financial information suppliers to provide the Foreign Information Administration Center ("FIAC"), a regulatory body within the Xinhua framework, detailed and confidential information concerning their financial information services and their customers along with a copy of an agreement with the designated agent. China also requires customers to provide FIAC detailed information regarding their financial information services contracts with foreign suppliers. These and other requirements and restrictions appear to accord less favorable treatment to foreign financial information services and service suppliers than that accorded Chinese financial information services and service suppliers which are not affected by these requirements and restrictions.

The China Financial Information Services Dispute Is Here

The U.S./EU complaints against alleged Chinese restrictions on financial services are now official.  From USTR's press release:

The United States maintains that China’s restrictions and requirements limit the ability of foreign suppliers of financial information services to conduct business in China and place them at a competitive disadvantage in the marketplace. The apparent conflict of interest of China’s regulatory authority compounds these issues. As such, China appears to be acting inconsistently with several WTO provisions, including Articles XVI and XVII of the General Agreement on Trade in Services as well as commitments made by China in its WTO accession agreement.

Here's a USTR fact sheet as well.

From EC DG Trade's background memo:

The relevant Chinese measure appears to breach China's GATS commitments on national treatment and market access, which require that foreign companies can operate in China and are not treated less favourably than local ones. It is also contrary to obligations not to cut back on existing rights for companies and to provide regulatory independence, which China committed to ensure at the time of its WTO Accession in 2001.

The official WTO consultations request documents should be available later this week.

ADDED:

Who are the companies that are the major players in the industry?  AFP reports:

Financial information services, the subject of WTO trade complaints against China by the US and European Union, are dominated by US firm Bloomberg and Canadian-British Thomson-Reuters in the process of merging.

The two heavyweights, each with a third share of the global market, are trailed at a distance by three US companies and one Swiss firm, according to Inside Market Data, which reports on the global financial market data sector.

US-based Interactive Data, owned by British group Pearson, is the closest runner-up, with a five percent market share.

Dow Jones, bought last year by News Corporation, holds a three percent slice, as does US rival Factset. Switzerland-based Telekurs has a two percent share.

New News on the China Financial News Dispute

As mentioned a couple months ago, some countries had expressed concerns that China was placing restrictions on foreign providers of news-related financial information services.  Things seem to be heating up.  As reported by the AP:

The United States has told China to get serious about loosening restrictions on foreign news agencies, in what could be a last chance to talk before the U.S. files a complaint with the WTO over Chinese trade policy, the Associated Press learned Wednesday.

In a letter to Chinese trade officials, the office of the U.S. Trade Representative signaled it has run out of patience with China's refusal to change rules introduced two years ago that appeared to boost the official Xinhua News Agency at the expense of news and financial information companies such as Reuters Group PLC and Bloomberg LP.

As noted, this article was from the AP.  I'll be curious to see how Reuters, Bloomberg and Xinhua cover the dispute.

ADDED:  Here is a Reuters article.  They don't seem to be taking the issue too personally.

AND here comes the EU as well.

No News is Bad News at the WTO?

Another China WTO dispute on the horizon:

China was criticised at the World Trade Organisation on Monday for its restrictions on foreign news agencies who are unable to sell their information to local media, trade sources said.

Canada, the United States, Japan and the European Union all requested more information from China over the measures it introduced last year, during a meeting on financial services at WTO headquarters here, the sources said.

In September 2006, China renewed the monopoly held by the state news agency Xinhua, which precludes foreign providers of news financial information services from dealing directly with Chinese clients, but instead have to go through a Xinhua affiliate.

China said in response that it did not make any commitments on news agency services during its WTO accession talks in 2001.

"Although some foreign news agencies are providing 'financial information services' for their Chinese users and claim themselves to be 'financial information providers' or 'financial services companies', their identities as 'news agencies' remain unchanged," China's delegate told the meeting.

"Therefore, the foreign news agencies releasing news and information in the territory of China shall comply with the measures," the Chinese representative added.

I don't know exactly which companies are behind this, but the reference to "financial information services" sounds like it could be companies like Bloomberg.  Maybe Michael Bloomberg should run for President so that he can push this issue himself.