US Requests WTO Panels to Rule on Two Disputes with China

18 February 2011

The US is moving forward with two separate WTO cases against China, and has sought the creation of dispute panels to determine the legality of Chinese anti-dumping duties on US steel products as well as its policies for credit-card processing companies.

The announcement by the US trade representative's office last Friday came on the tail of a Commerce Department report revealing that the US trade deficit with China grew 20.4 percent in 2010 to reach a record high of $273.1 billion.

China has been the target of a growing number of WTO cases filed recently by the US, suggesting a more muscular enforcement-oriented trade policy from the Obama administration.  In addition to the two new panel requests, the US currently has trade complaints at the WTO over Chinese export restrictions on raw materials and Beijing's support, including subsidies, for its alternative-energy industries. Washington is considering filing a separate case against China for restrictions on rare earth exports.

"In each of these cases, [the United States] will be pressing to ensure that we obtain the trade benefits provided by the WTO agreement," US Trade Representative Ron Kirk has said.

Anti-dumping on US steel imports

In 2009, China's Ministry of Commerce initiated investigations into specialty steel imports from the US, specifically "grain-oriented flat-rolled electrical steel" which is used by the power generating industry in transformers and other large electric machines.  In April 2010 the ministry began imposing antidumping duties of up to 64.8 percent and countervailing duties of up to 44.6 percent on American steel it claimed had been subsidised and "dumped" (sold below cost, or priced lower than domestic equivalents) on Chinese markets.

The US requested formal consultations with China over the duties on 15 September 2010. Such consultations are the first step in WTO dispute procedures. The US faulted China both in procedural terms, arguing that China had failed to provide adequate details about its findings and conclusions, as well as in substantive ones, rejecting, for instance, Beijing's finding that government purchases under US ‘Buy American' laws constituted a subsidy.  Having failed to reach a compromise in consultations with China, the US has proceeded to request the establishment of a panel to adjudicate the dispute.

Washington is also concerned that China's policies toward US-made steel represent a larger trend towards limiting access to its own markets.  "We have watched with growing concern China's resort to additional duties on US exports," USTR Kirk said.

However, Simon Lester, of WorldTrade, notes that the case is interesting in part because Washington is going after a practice it has frequently used itself.  "The US likes to use antidumping and antisubsidy tariffs, so it surprising that they would take another country to court for doing so," he said. "It shows [Washington] is going on the offensive."

Treatment of suppliers of electronic payment services

On 15 September 2010, the US requested consultations with China in a separate dispute over Beijing's policies in the electronic payment services sector.  Washington accuses China of violating its market access and national treatment commitments under the Generalised Agreement on Trade in Services (GATS) by allowing only one company, a Chinese entity called China UnionPay (CUP), a monopoly in supplying electronic payment services for payment card transaction denominated and paid in renminbi (RMB; also called yuan), China's currency. Suppliers of similar services from other countries - such as the US-based Visa Inc. - can only do so for payment card transactions paid in foreign currency.  In addition to the policy of allowing only CUP to supply electronic payment services for transactions in renminbi, the US is also challenging the requirement that all payment card processing devices at merchant locations in China be compatible with CUP's system, which gives CUP guaranteed access to all domestic merchants. Foreign providers, meanwhile, must negotiate for access to merchants.  The US claims that these policies violate commitments China made when acceding to WTO to open up its credit card payment sector by 2006. Beijing claims it made no such commitment.

At the centre of the dispute is China's fast-growing debit and credit card market, which saw consumers spend US$722 billion in 2009, a figure expected to double by 2012.  The Chinese payment-card business is of particular interest to US trade officials as they want to discourage other emerging economies, whose booming middle classes account for much of the sector's growth, from imposing similar restrictions."

The crux of the case comes down to China's alleged monopoly grant to CUPs in the business of intermediate payments between store and bank.  While visitors can use foreign credit cards in China, foreign card companies do not get a piece of the lucrative intermediary transactions business whereby companies get a share of the transactions between merchants and intermediary banks every time a customer makes electronic payments.

"Removal of the monopoly that China has provided to China UnionPay would create significantly expanded business opportunities in China's huge and growing market for American suppliers of this essential service," said Kirk.

A spokesman for the Chinese mission to the EU said Beijing is committed to respecting its WTO obligations, but declined to comment further.

The US is expected to formally make its request for the creation of the two panels at the next meeting of the WTO Dispute Settlement Body, scheduled for 24 February. China would have the right to block the creation of the panels once, but not if Washington repeats its request. Once a panel is established, it could take from 12 to 18 months to complete its work and issue a report.

ICTSD reporting; "US takes China to task over cards," THE WALLSTREET JOURNAL, 12 February 2011; "USTR requests WTO dispute settlement panels in two cases against China," OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, 11 February 2011; "US files two new trade cases against China with WTO," THE WASHINGTON POST, 11 February 2011; "Electronic payment trade war looms," CHINA ECONOMIC REVIEW, November 2010; "US takes disputes to WTO, China trade gap up," REUTERS, 11 February 2011; "US attacks China on two trade cases," WASHINGTON TRADE DAILY, 14 February 2011; "US Seeks WTO ruling on China's card, steel duties," BLOOMBERG, 11 February 2011.

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