North Carolina Journal of International Law

"Connecting North Carolina to the World of International Law"

Can America Bring Back Industrial Jobs Without Enforcing WTO Sanctions?

By: Mike Glasser

 

 

 

 

 

 

 

Introduction

Declining employment and production in American industry is a topic that often finds itself at the forefront of the American political sphere.  Most recently, President Trump ran a successful presidential campaign promising to bring industry jobs back to American soil.[1]  Prior to the Trump administration, however, actions to curb the loss of American jobs in industry were already sought by the Obama administration.[2]  This was exemplified with the January 12, 2017 filing to the World Trade Organization (WTO) alleging a breach by Chinese banks subsidizing the aluminum industry in violation of the General Agreement on Tariffs and Trade 1994 (GATT) and the Agreement of Subsidies and Countervailing Measures (SCM Agreement).[3]

This complaint accused China of providing loans from state-run banks to aluminum producers below market interest rates.[4]  The subsidies are said to violate the SCM Agreement for “causing or threatening to cause serious prejudice to the interests of the United States through displacement and impedance of U.S. imports of primary aluminum into all third country markets.”[5]  Within weeks of the U.S. filing, Japan[6], the EU[7], Canada[8], and Russia[9] all submitted communications with the WTO requesting to join the complaint.

This type of filing and support from other member nations is consistent with one of the WTO’s missions, which includes discouraging unfair practices that lead to price instability for commodity exports.[10] However, since the initial filing, the U.S. has opted out of enforcing WTO action and sought to enforce potential tariffs under U.S. law.[11] Additionally, none of the other filling nations have sought to enforce the action.[12]

Current Status of U.S. Action: Using Established U.S. Law to Enforce Higher Tariffs Against Chinese Aluminum

Secretary of Commerce Wilbur Ross has initiated an investigation into Chinese aluminum production as it relates to national security, pursuant to Trade Expansion Act of 1962.[13]  Under this act, the Secretary of Commerce is permitted to conduct an investigation of the effects of imports on national security and submit recommendations to the President to remedy any potential issues that are shown in the findings.[14] Should the President agree with the findings and presented remedies of the Secretary of Commerce, then the President may submit those remedies to Congress to enact action that would protect the interests of national security.[15]

While this investigation would potentially allow the U.S. to levy heavy domestic tariffs against Chinese aluminum, it misses the point of the problem entirely, namely that China is flooding the global market with cheap, state-subsidized aluminum.  China’s excess aluminum capacity has decimated the U.S. economy.[16]  From November of 2015 through May of 2017, 3,500 aluminum workers lost their jobs.[17]  Since joining the WTO in 2001, China has gone from being a relatively small aluminum producer to the largest in the world, currently producing more than 50% of global aluminum supply.[18]  Over the same period, more than a dozen U.S. aluminum primary smelters in the United States were forced to close.[19]

By enforcing domestic tariffs, the U.S. will take no direct action to ensure that China reduces their overcapacity of aluminum.[20]  If the Chinese government were to pursue policies that eliminated state-subsidies, they would stop the artificial support of its aluminum industry that allows for higher production rates of aluminum.[21]  The result of such policies would decrease Chinese aluminum dumping in the world market, which would allow for supply, profitability, and employment in the U.S. aluminum industry to increase.[22]

How WTO Member Nations Can Utilize WTO Mechanisms to Stabilize Commodity Markets

Had the U.S. and other members of the WTO complaint followed through with an investigation, the potential results could have stymied production by forcing China to enact measures that would remove the adverse effects of state subsidies.[23]  This is evidenced by   China’s acceding to the WTO in December of 2001 after negotiations with the WTO to become a full member nation.[24]  The SCM Agreement is binding to all members of the WTO at the time of accession.[25]  Under the SCM Agreement, certain types of subsidies are acceptable, while others are not, making them actionable.[26]  A subsidy is potentially actionable for a variety of reasons, including but not limited to: (i) the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member[27], (ii) the effect of the subsidy is to displace or impede the exports of a like product of another Member from a third country market[28], or (iii) the effect of the subsidy is a significant price undercutting by the subsidized product as compared with the price of a like product of another Member in the same market or significant price suppression, price depression or lost sales in the same market.[29]

When a member nation is believed to participate in actionable subsidies, the WTO will create a panel to investigate the manner.[30]  If actionable subsidies are found, the subsidizing nation will have to take the appropriate steps to remove the subsidies that are adversely affecting other member nations.[31]  By acceding to the WTO in 2001, China is bound to follow the protocol SCM Agreement.[32]  Consequently, if the U.S. or any of the other parties that joined in the initial complaint were to push through a panel investigation, China would be bound to the SCM Agreement protocol.[33]  If actionable subsidies were found, this would result in a significantly substantial step in reducing Chinese aluminum in the global market. The result of such a finding could mean stabilization in U.S. industrial markets and employment.

At the moment, the complaint is still pending and will remain so until a complaining party opts to request a consultation from the WTO.[34]  As a result, the only steps taken to curtail China’s effects on the global aluminum market are increased tariffs. Although this may result in slight progress on American soil, it does nothing to prevent China from overproducing aluminum and flooding the global market. Any significant action on this matter would require enough teeth to inhibit current Chinese production models. Currently, the WTO offers such a solution, but one of the complaining parties needs to take action for there to be any actual effect.

As things currently stand, WTO enforcement is still available for the U.S. to use as a tool to stop market flooding of Chinese aluminum. This raises the question: is the U.S. enacting trade tariffs as a stop-gap until they deem it an appropriate time to raise sanctioning actions against China? Or alternatively, is this an action that serves as a short-term solution to a long-term problem?  Only time will reveal an answer.

[1] See Jethro Mullen, Trump Promises More Coal and Steel Jobs. China is Cutting 500,000, CNN Money (Mar. 1, 2017), http://money.cnn.com/2017/03/01/news/china-trump-coal-steel-jobs/index.html (last visited Oct. 8, 2017).

[2] See Scott Patterson and William Maulden, U.S. Launches Formal WTO Complaint Over Chinese Aluminum, Wall Street Journal (Jan. 12, 2017), https://www.wsj.com/articles/u-s-launches-formal-wto-complaint-over-chinese-aluminum-1484234628 (last visited Oct. 8, 2017).

[3] Request for Consultations by the United States, China – Subsidies to Producers of Primary Aluminium, WT/DS519/1 (Jan. 17, 2016).

[4] Id.

[5] Id. (citing Agreement on Subsidies and Countervailing Measures, art. 6.3(b)).

[6] Request to Join Consultations by Japan, China – Subsidies to Producers of Primary Aluminium, WT/DS519/2 (Jan. 26, 2017).

[7]  Request to Join Consultation by the EU, China – Subsidies to Producers of Primary Aluminium, WT/DS519/5 (Jan. 30, 2017)

[8] Request to Join Consultations by Canada, China – Subsidies to Producers of Primary Aluminium, WT/DS519/3 (Jan. 31, 2017).

[9]  Request to Join Consultations by the Russian Federation, China – Subsidies to Producers of Primary Aluminium, WT/DS519/4 (Jan. 31, 2017).

[10] See World Trade Organization, What is the WTO?: What we Stand for, WTO.org, https://www.wto.org/english/thewto_e/whatis_e/what_stand_for_e.htm (last visited Sept. 24, 2017).

[11] See Megan Cassella, Administration Hand U.S. Aluminum Industry a Win Over China, Politico (Aug. 9, 2017), http://www.politico.com/tipsheets/morning-trade/2017/08/09/administration-hands-us-aluminum-industry-a-win-over-china-221787 (last visited Sept. 24, 2017).

[12] See id.

[13] See Press Release, Office of the Press Sec’y. Aluminum Imports and Threats to National Security, (Apr. 27, 2017).

[14] See 19 U.S.C. § 1862(b).

[15] See 19 U.S.C. § 1862(c).

[16] News Reporter-Staff Editor, China Trade Task Force: Proceeding with the WTO Case Against China’s Aluminum Subsidies is the Only Thing That Will Curtail China’s Excess Aluminum Capacity, Chems. & Chemistry Bus. (May 5, 2017).

[17] Id.

[18] Id.

[19] Id.

[20] See Letter from Charles Schumer, Senate Minority Leader, to Wilbur Ross, Commerce Secretary (Aug. 14, 2017) (on file with author).

[21] See Aluminum: Competitive Conditions Affecting U.S. Indus., Inv. No. 332-557, USITC Pub. 4703 (June, 2017).

[22] See id.

[23] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 7.8.

[24] See World Trade Organization, China and the WTO, WTO.org, https://www.wto.org/english/thewto_e/countries_e/china_e.htm (last visited Sept. 24, 2017).

[25] See Piyush Chandra, WTO Subsidy Rules and Tariff Liberalization: Evidence from Accession of China, 23 J. of Int’l Trade & Econ. Dev. 1170, 1171 (2014).

[26] See id.

[27] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 6.3(a).

[28] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 6.3(b).

[29] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 6.3(c).

[30] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 7.1-7.2.

[31] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 7.8.

[32] See Press Release, World Trade Organization, WTO Successfully Concludes Negotiations on China’s Entry (Sept. 17, 2001) (https://www.wto.org/english/news_e/pres01_e/pr243_e.htm).

[33] See id.

[34] See World Trade Organization, Agreement on Subsidies and Countervailing Measures, art. 7.8.

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