WTO Panel Says Chinese Retaliation Over Section 232 Tariffs Was Out of Bounds

A World Trade Organization dispute panel rejected China's claim that its retaliatory tariffs in response to Section 232 tariffs were justified because the U.S. steel and aluminum tariffs were a safeguard in disguise.

Although the Aug. 16 ruling said China violated the most favored nation trading principle by hiking tariffs on U.S. goods while allowing the same goods to enter at lower tariff rates from other exporters, WTO panels on the Section 232 tariffs on metals last year found that the U.S. violated the same rules China did -- hiking tariffs past their bound rates and not maintaining MFN treatment to all countries.

Those cases were brought by China, Norway, Switzerland and Turkey (see 2212090060). The dispute panels said the tariffs, which the U.S. said were needed to protect its national security, were protectionism and not a true national security matter.

The U.S. did not comply with the WTO rulings and instead appealed into the void (see 2301270030). China could do the same thing now.

Simon Lester, who once was a legal affairs officer at the Appellate Body Secretariat of the WTO, said in an e-mail interview that the two decisions are like the old saying "Two wrongs don't make a right."

The U.S. "was wrong to do it, but others were wrong to retaliate in the way that they did (immediately, without a panel ruling first). The only proper way to do retaliation is to wait for a panel ruling and then retaliate under the proper procedures," wrote Lester, who is a non-resident fellow at the Rice University Baker Institute for Public Policy's International Economics Program.

"Of course, appeals into the void get in the way of proper retaliation, and that’s why the EU has been developing a retaliation workaround," he wrote. China is a party to that arbitration system, but not the U.S., which broke the appellate body by refusing to allow re-appointments as members' terms expired.

A spokesperson from the Office of the U.S. Trade Representative said the U.S. is "pleased" with the WTO decision, which recognized "that the U.S. Section 232 actions on steel and aluminum are security measures" and that China "illegally retaliated with sham 'safeguard' tariffs."

The spokesperson also said China was hypocritical in retaliating at the same time it was suing, since the WTO allows retaliation only after it finds a country was in the wrong.

"The United States condemns China’s refusal to correct its severe and persistent non-market excess capacity for steel and aluminum that is at the heart of a global crisis that led to the U.S. Section 232 national security actions," he said. The statement also said the WTO has been ineffective at addressing this pattern "from China and others that is an existential threat to market-oriented steel and aluminum sectors and, through the effects on imports, a threat to U.S. national security, including by eroding U.S. steel and aluminum manufacturing capacity."

A Chinese spokesperson from the Commerce Ministry said, according to an unofficial translation, that it's studying the panel's decision. The ministry didn't say what its response would be.

"What I want to stress is that the root of the problem in this case lies in the unilateralism and protectionism of the U.S.," he said. He noted that many countries sued the U.S. over the 2018 tariffs.

"In December 2022, the U.S. measures have been ruled by the WTO as violating WTO rules. However, the United States insisted on going its own way, obstructing the entry into force of the expert panel's ruling, evading its implementation obligations, and refusing to cancel the illegal tariff measures.

"China demands that the United States immediately cancel the steel and aluminum 232 measures that violate WTO rules, and meet other WTO members halfway to jointly maintain the rules-based multilateral trading system."