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China cleared to impose $3.6bn in new tariffs on US

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Via Financial Times

The World Trade Organization has for the first time authorised China to impose punitive tariffs against the US, allowing Beijing to slap $3.6bn in levies on American goods after ruling that US duties on steel and other products were illegally inflated.

Arbitrators at the Geneva-based body on Friday said China could impose the “countermeasures” against American imports as early as this month. If taken, such an action could trigger new tensions between the world’s largest economies as they try to finalise a truce in their much broader trade war. 

The decision by the WTO was delivered as US and Chinese officials are scrambling to find an alternative venue for Donald Trump, the US president, and Xi Jinping, the Chinese president, to sign their ceasefire, after the cancellation of this month’s Asia-Pacific Cooperation (Apec) meeting in Chile due to civil unrest. Among the possible options that have been considered would be for Mr Trump to join a gathering of Brics leaders in Brazil in mid-November, and for Mr Xi to visit the US, people familiar with the deliberations said.

“The deal is not complete but we’ve made enormous progress,” Larry Kudlow, the director of the White House’s National Economic Council, told reporters on Friday. 

Robert Lighthizer, US trade representative, and Steven Mnuchin, the US Treasury secretary, had a “constructive” call with Liu He, China’s vice-premier, on Friday, the USTR said. “They made progress in a variety of areas and are in the process of resolving outstanding issues,” it said, adding that discussions would continue at the deputy level.

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The amount of tariffs authorised by the WTO are a small fraction of the retaliatory levies already imposed by China against the US as a result of their trade war, which started in early 2018. But if applied they would nonetheless mark an important return to escalation between the two countries.

The decision is the first instance in which China has been authorised to impose retaliatory tariffs against the US or another country since China joined the WTO nearly two decades ago, a trade official in Geneva said.

The WTO case favouring China is highly technical and relates to the way the US calculates anti-dumping duties — the remedies against imports of goods that are priced at a lower level than they are in their domestic market. Several countries, including China, have challenged a methodology called “zeroing”, which has been widely used by Washington over the years to try to increase duties on imports — particularly steel.

In rulings that lie at the heart of the Trump administration’s disaffection with the Geneva-based body, especially its dispute settlement system, the WTO has said that certain aspects of this practice are illegal.

China first launched the case against the US in 2013, with the first panel ruling coming in 2016, and a final ruling by the appellate body of WTO in 2017.

But as far back as 2007, Mr Lighthizer, who was then a lawyer for the steel industry at Skadden Arps, was critical of the WTO’s rulings on “zeroing”, telling Congress they “created obligations to which the United States never agreed” and were “a clear example of WTO overreaching in the trade remedy area”. 

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A US official said it was “disappointed” by the WTO decision on Friday, saying its approach had “no foundation in economic analysis”, but Washington did not believe there would be any impact on the trade talks.

“The sdministration will be actively consulting within the US Government and with stakeholders on how to move forward. Nothing in the arbitrator’s decision, however, will undermine the commitment of the United States to using antidumping duties to address injurious dumping,” the official added.

Although the US was defeated in the case, it was quick to trumpet its victory in a separate WTO ruling against India on Thursday. A panel of judges ruled that Indian export subsidies challenged by the Trump administration violated global trade rules. 

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