World Trade Organization Panel Finds Section 301 Tariffs on Chinese Products Violate WTO Rules, but Decision Unlikely to Have Impact on Tariffs

On September 15, 2020, a World Trade Organization (“WTO”) panel found that the Trump Administration’s unilateral tariffs imposed on Chinese products violated WTO rules regarding nondiscrimination and import tariff rates agreed to by the United States.  The dispute concerned China’s challenge to the Trump Administration’s tariffs imposed pursuant to the Trump Administration’s investigation under Section 301 of China’s intellectual property and technology transfer practices.  Specifically, China challenged USTR List 1 (discussed here) and List 3 (discussed here).

The United States argued that the parties had decided to settle the dispute outside of the WTO by engaging in bilateral negotiations.  Accordingly, the United States argued, the parties had reached a settlement under the WTO rules. The panel found that the negotiations appeared to be parallel to the panel proceedings as opposed to instead of the proceedings, noting China’s contentions that it had not agreed to terminate the dispute and the tariffs at issue remain unresolved.  The United States argued that the tariffs were justified as measures necessary to protect U.S. public morals prevailing in the United States, citing U.S. laws that prohibit misappropriation of U.S. technology, intellectual property, and cyber-enabled theft, among others.  The panel found that the United States had not demonstrated the required link between tariffs on the selected Chinese products and the public morals invoked.

What’s next?

The panel’s decision is expected to have little, if any, impact on the current U.S. tariffs on Chinese products.  The United States likely will likely file an appeal as doing so will stall the proceedings for the foreseeable future.  This is because, citing procedural and substantive concerns regarding the functioning of the Appellate Body, the United States has been blocking appointments of replacement Appellate Body judges as the terms of the existing judges expired.  As of December 11, 2019, there were insufficient judges remaining to form the minimum quorum required to hear appeals.

Typically, Panel reports which are not appealed within 60 days are adopted by the Dispute Settlement Body, resulting in the losing member having to take steps to bring its measure(s) into conformity or risk the imposition of retaliatory sanctions authorized by the WTO. In the current scenario, however, an appeal by the United States to an Appellate Body that can no longer hear appeals will effectively block the adoption of the Panel Report indefinitely.  For its part, China has already taken matters into its own hands. Between July and September 2018 China responded to the U.S. action by imposing its own retaliatory tariffs on U.S. imports, well before the ruling from the WTO Panel in its favor.  Consequently, the Panel’s ruling will not compel either the United States to revoke its tariffs or cause China to cease its retaliatory measures.