In March 2018, the United States released a Section 301 investigation report against China, throwing out a tariff list of Chinese products worth $50 billion. Immediately, China clearly stated that it would strongly counter the trade protection measures of the US and implement countermeasures. On April 4, China announced the counter measures as taxing $50 billion of soybeans, automobiles and chemicals imported from the US. China had been urging both sides to negotiate during the process. After the US representatives came to China for negotiation on May 3, Chinese Vice-Premier Liu He went to the US for negotiations in mid-May. On May 20, China and the US issued a joint statement announcing that the two countries had stopped the trade war and stopped adding tariffs on each other. However, not long after this, the White House claimed that the US would impose a 25 percent tariff on $50 billion Chinese imports. On June 15, the US announced the final tariff list, to which China immediately fighted back equally.
Based on the 301 investigation, this paper discusses the characteristics, legitimacy, principles and techniques of countermeasures adopted by China.
1. The countermeasures.
On Sept 11, 2009, the US invoked a special safeguard provision against Chinese tires. Several days later, China’s Ministry of Commerce initiated an anti-dumping investigation on US chicken, and automobile products. The total value of the car and the chicken was similar to that of the tire case. This was the first counteraction that China implemented during the Obama administration against US trade protectionism.
Counteraction is a measure to counter trade protectionism. When a country implements trade protection measures, the relevant countries usually implement corresponding measures. In the World Trade Organization regulations, such measures are often referred to as retaliatory measures. So, what is the relationship between retaliation and countermeasure? Why is China’s corresponding measures for the US 301 tariff list called countermeasures?
Regular retaliatory measures are taken in the way by imposing on high tariffs. For example, according to Section 301 of the US Trade Law, retaliatory measures that the US can take include quantitative restrictions, suspension of tariff reductions, and cancellation of preferential treatment. According to EU law, retaliatory business policies include suspending or withdrawing concessions concluded in commercial policy negotiations, raising current tariffs or imposing other new import fees. The retaliatory measures listed above are implemented in accordance with the domestic laws of a country. In fact, the WTO requires that a country's retaliation must be based on WTO's consent and rules. This infers that the retaliatory measures imposed by the US under Section 301 are contrary to international law.
In the 301 investigation, after the US imposed tariffs, China carried out tariff countermeasures. This is essentially a kind of trade retaliation. However, China’s tariff increase and US tariff increase have different characteristics. In the 301 case in 2018 and the tire case in 2009, the countermeasures implemented by China have numerous common features: first, both cases were implemented under the premise that China was implemented the unfair and discriminatory measures by other countries. Second, China insisted on the stance of opposing trade protectionism. Third, China had rapid responses with continuity and relavance of time. Fourth, the measures adopted by China were moderate and reflected in amount. Fifth, they were characterized by unilateralism and were a unilateral (without WTO procedures) action taken against trade restrictions of other countries or members. Sixth, the measures implemented in China had the characteristics of trade retaliation. If these measures are trade retaliation and are not authorized by the WTO, their legitimacy will be controversial.
Setting aside whether the countermeasures are legitimate or not, we can give a preliminary definition of countermeasures by combining the above analysis: Countermeasures are taken under the premise that other countries or regions first implement trade protection measures which may lead to the formation of trade protectionism and even the outbreak of trade wars. It is a protective measure which has the characteristics of unilateral, equivalence, and prior to the WTO procedure. The purpose of taking countermeasures is to prevent the spread of trade protectionism and protect national interests.
2. The legality of countermeasures
The legitimacy of a countermeasure is mainly reflected in two aspects: first, it has a legal basis in China; second, it conforms to WTO laws and regulations.
(1) China’s legal basis for countermeasures. Article 47 of the Foreign Trade Law of the People’s Republic of China stipulates: “where a country or region that has signed or jointly acceded to the economic and trade treaties or agreements with the People’s Republic of China and violates the provisions of such treaties and agreements and thus causes losses or damage to the interests the People’s Republic of China is entitled to under these treaties and agreements, or impedes the achievement of the objectives set in the treaties and agreements, the government of the People’s Republic of China has the right to request the government of the country or region concerned to take appropriate remedies measures and may suspend or terminate its performance of relevant obligations in compliance with the relevant treaties and agreements.” Article 7 stipulates: “in the event that any country or region applies discriminatory prohibition, restriction or other like measures against the People's Republic of China in respect of trade, the People's Republic of China may, as the case may be, take countermeasures against the country or region in question.” These two are the basis for China's implementation of countermeasures.
Article 7 focuses on the preconditions for the implementation of countermeasures, that is, a country or region uses discriminatory prohibitions, restrictions or other similar measures, whether or not they are within a multilateral framework. Article 47 falls within the framework of the multilateral framework. The legal basis of the countermeasures against Case 301 is in line with the applicable premise of Article 7, that is, any country or region applies protection measures first.
(2) The WTO legal basis for the countermeasures. The WTO has strict regulations on the use of trade retaliation. First, the WTO stipulates that the purpose of trade retaliation should be legal. Article 22, paragraph 8, of the Understanding on Rules and Procedures Governing the Settlement of Disputes clearly states that the measures used by China in the 2009 tire case and the 301 case in 2018 are in line with the above provisions.
Besides, the WTO principle of trade retaliation is that the prosecution should first seek an experts panel or an appellate body to determine whether the respondent has breached its obligations or caused loss of interest or impairment. This principle requires that the implementation of trade retaliation must follow the judgment made by the expert group or the appealing body. In the 301 case, China expressed the hope that the Sino-US trade dispute would be resolved through the WTO. China has been trying to seek a way to resolve the dispute. However, the US is pressing hard and will not allow China to complete the WTO process. Therefore, the difference between countermeasure and multilateral retaliation is that countermeasure is preceded by the WTO procedure. In the WTO law, trade retaliation is the last resort, and the purpose is to force the relevant members to execute the WTO judgment by retaliation. Countermeasure is a quick response. In order to prevent the US from provoking troubles and promoting trade protectionism, it is necessary to take countermeasures. As the process of the WTO's retaliation mechanism is too long, countermeasure is a quick response mechanism that can be used.
3. The principles and techniques of countermeasures against 301 investigation
In the 301 case, China, squashed by the increasing trade protectionism, has never given up the right to fight back and safeguard its economic sovereignty. However, China’s implementation of countermeasures is quite restrained, mainly to avoid countermeasures that constitute trade protection. The WTO's definition of trade protectionism includes the frequent occurrence of trade retaliation.
Countermeasures are seemingly a protective measure, but from the analysis of this article, it can be seen that countermeasures are a protective action under the pressure of protectionism. In order to prevent itself from becoming a tool of trade protectionism, China strongly emphasizes the principle of implementation of countermeasures, that is, the premise of application (other countries use first), equivalence (equal in amount of money, strength and size) and negotiable (if the effect of threat and balance is achieved, we can return to the negotiating table).
When taking countermeasures, China has embodied structural skills in the selection of tariff products, which is significantly different from the madness of the US government. On June 15, the Chinese government's tariff list mainly included intermediate products and transportation equipment. The list also included tariff on US auto exports worth $11.3 billion. The inclusion of intermediate products in the tariff list is a warning to the US that launching a trade war will backfire. According to data from the US trade representatives, 87 percent of computer and electronic products exported from China to the US are produced by multinational companies, indicating that the 301 tariffs also hurt US multinationals. China's tariff list also includes agricultural products such as soybeans, most of which come from states dominated by Republicans. China hopes that state legislators and voters will exert influence on Trump and persuade him to withdraw trade protection measures.
So far, China’s countermeasures against the US have been quite restrained and are limited to tariff measures. Apple has a market of $40 billion in China. If China takes measures against US companies in China, it will cause serious damage to Apple. However, if the US government escalates its protectionism plan, as the US president has said that it would add additional $200-billion-tariffs, this will inevitably trigger a change in the structural configuration of China’s countermeasures. At that time, the trade war will break out in all aspects.
Cheng Dawei is a research fellow with National Academy of Development and Strategy and a professor of School of Economics, Renmin University of China. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
3. The principles and techniques of countermeasures against 301 investigation
In the 301 case, China, squashed by the increasing trade protectionism, has never given up the right to fight back and safeguard its economic sovereignty. However, China’s implementation of countermeasures is quite restrained, mainly to avoid countermeasures that constitute trade protection. The WTO's definition of trade protectionism includes the frequent occurrence of trade retaliation.
Countermeasures are seemingly a protective measure, but from the analysis of this article, it can be seen that countermeasures are a protective action under the pressure of protectionism. In order to prevent itself from becoming a tool of trade protectionism, China strongly emphasizes the principle of implementation of countermeasures, that is, the premise of application (other countries use first), equivalence (equal in amount of money, strength and size) and negotiable (if the effect of threat and balance is achieved, we can return to the negotiating table).
When taking countermeasures, China has embodied structural skills in the selection of tariff products, which is significantly different from the madness of the US government. On June 15, the Chinese government's tariff list mainly included intermediate products and transportation equipment. The list also included tariff on US auto exports worth $11.3 billion. The inclusion of intermediate products in the tariff list is a warning to the US that launching a trade war will backfire. According to data from the US trade representatives, 87 percent of computer and electronic products exported from China to the US are produced by multinational companies, indicating that the 301 tariffs also hurt US multinationals. China's tariff list also includes agricultural products such as soybeans, most of which come from states dominated by Republicans. China hopes that state legislators and voters will exert influence on Trump and persuade him to withdraw trade protection measures.
So far, China’s countermeasures against the US have been quite restrained and are limited to tariff measures. Apple has a market of $40 billion in China. If China takes measures against US companies in China, it will cause serious damage to Apple. However, if the US government escalates its protectionism plan, as the US president has said that it would add additional $200-billion-tariffs, this will inevitably trigger a change in the structural configuration of China’s countermeasures. At that time, the trade war will break out in all aspects.
Cheng Dawei is a research fellow with National Academy of Development and Strategy and a professor of School of Economics, Renmin University of China. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
