The U.S.-China Economic and Security Review Commission’s annual report to Congress documents numerous challenges in the bilateral trade relationship and concludes that U.S. steps to address those challenges in the past have been insufficient. The report recommends that Congress take a number of actions in response, including filing a new kind of case against China at the World Trade Organization.

Continuing a theme repeated frequently by the Trump administration, the report asserts that China’s state-led, market-distorting economic model presents a challenge to U.S. economic and national security interests. The report explains that the Chinese government continues to exercise direct and indirect control over key sectors of the economy and allocate resources based on the perceived strategic value of a given firm or industry, putting U.S. and other foreign firms at a disadvantage. Repeated pledges to permit greater market access for private domestic and foreign firms remain unfulfilled, the report states, and instead leaders have prioritized efforts to consolidate control over economic policymaking. Further, China continues to violate its WTO commitments, even reversing progress on some, and to thereby undermine the multilateral system.

The report finds that the unilateral, bilateral, and multilateral tools the U.S. has used have been successful at targeting some discrete aspects of China’s industrial policies, such as individual subsidy programs or tariffs. However, the report states, U.S. policy makers have expressed growing frustration that these tools, including antidumping and countervailing duties, Section 201 safeguards, Section 232 and 301 import restrictions, bilateral discussions and forums, and WTO litigation, have each “proven limited when set against a vast array of industrial policies viewed as a political and economic imperative by Chinese leadership.”

In an effort to devise a more effective approach to the economic challenges China presents, the report recommends that Congress examine whether the Office of the U.S. Trade Representative should bring a “non-violation nullification or impairment” case against China at the WTO under Article 23(b) of the General Agreement on Tariffs and Trade. Such claims allow WTO members to dispute measures that do not explicitly violate WTO agreements but are deemed to have nullified or impaired an expected benefit; e.g., that as a result of its accession to the WTO China would participate in the multilateral trading system on open, market-oriented terms. However, the report notes that such cases have been rare and narrow in scope, making it difficult to predict the outcome if the U.S. were to pursue one.

The report recommended that Congress take the following actions as well.

– direct the Government Accountability Office to conduct an assessment of U.S.-China collaborative initiatives in technical cooperation that, among other things, considers whether the intellectual property rights of U.S. researchers and companies are being adequately protected and investigates if any U.S. companies, universities, or labs participating in U.S. government-led collaboration with China have been subject to cyber penetration originating in China

– direct the U.S. Department of Agriculture to identify the extent to which China’s asynchronous biotech review and approval system for agricultural products adversely impacts U.S. industry and work with USTR to seek bilateral or multilateral measures to address these impacts

– direct the USDA to prepare an annual report on its technical engagement with China on food safety, inspection, mechanisms for addressing sanitary and phytosanitary problems, and any technical assistance provided to China to improve its food safety inspection regime

© [2018], Sandler, Travis & Rosenberg, P.A. Originally published in the [11/21/2018] issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.