In One Sentence

• China has announced plans to challenge the Biden administration’s export control measures on semiconductors at the World Trade Organization (WTO), which the U.S. will likely defend via the GATT Article XXI national security exception.
• China has won two recent cases against the U.S. over the national security exception defense, including on the Section 232 tariffs on steel and aluminum and the 2020 prohibition of the “Made in Hong Kong” labelings.
• Tensions between the U.S. and China have increased at the WTO as the two exchanged heated arguments over China’s “dumping and subsidization” and the U.S.’ trade restrictions that are “destroying” the multilateral trading system. 
• The U.S. Trade Representative (USTR) has decided to extend for another nine months 352 product exclusions related to its Section 301 tariffs on China.
• Taiwan has requested to join China’s challenge of the U.S.’ export controls on semiconductor at the WTO. 

Mark the Essentials

• Calling for the administration to establish regular, evidence-based and quantitative analysis on U.S.-China trade, retiring Senator Rob Portman argued that the U.S. should rely on “data rather than emotion” to “work strategically towards decreasing or increasing trade integration with China.”
• Meanwhile, former U.S. Trade Representative Robert Lighthizer is advocating for an “explicit policy of strategic decoupling” which includes tariffs on all imports from China, the further tightening of export controls, and significant limitation of investment flows between U.S. and China. 
• The U.S. and Taiwan conducted the second negotiating round of their 21st-Century Trade Initiative from January 14-17, aiming to deepen the economic and trade relationship and advance mutual trade priorities but will not include market-access provisions. 
• Noting that China has a “very dire” economic outlook in the near term, think tank analysts and business consultants are saying that China will be in need of more foreign investment and will have lesser leverage to retaliate against U.S. economic and technology restrictions.
• Emphasizing China’s “increasing use of economic coercion” in the recently passed National Defense Authorization Act for 2023, Congress has demanded the administration to establish a task force to oversee and implement an integrated strategy in response to these “coercive economic practices.”
• Head of the Commerce Department’s Bureau of Industry and Security Alan Estevez has asked for more funding and new technology tools so that the agency can have sufficient “manpower and automated capability” to address the “massively increased” demands for export control administration and enforcement.

Keeping an Eye On…

• China (and Hong Kong) enjoyed a good run at the expense of the United States in the WTO’s dispute settlement system in December 2022. From the moment that the ink had dried on the filings in their steel and aluminum dispute case and origin marking requirement case, respectively, it was clear as daylight that the constituted panels would strike down the United States’ GATT article XXI (national) security exception-based defense. In the space of two weeks in December, the WTO panels did exactly that. In the steel dispute case, the panel ruled that the United States’ security exception-based defense of its Section 232 tariffs was indefensible and inconsistent with its GATT obligations. Excess capacity in the steel industry might be a “matter of international attention” but was hardly tantamount to being “an emergency in international relations.” Ducking under the WTO’s Article XXI security exception was not an acceptable use of the provision. Similarly, in the origin marking requirement dispute case, by compelling Hong Kong exporters to incorrectly label their exports as a product of China, the USTR had conferred a competitive disadvantage on these exporters. Since the U.S. continues to carry on trade with the customs territory of Hong Kong more-or-less just as before—with the exception of the origin marking requirement and some export controls—it was hardly the case that U.S.-Hong Kong international economic relations were at or near a point of breakdown. Washington’s justification for an exception based on national security considerations was far-fetched. For those inclined to believe that Beijing will also win its most recent challenge against the Biden administration’s export control measures on semiconductors and advanced computing (the U.S. has once again mounted its defense utilizing the Article XXI security exception), they should not count their chickens before they hatch. The regulations are doubtlessly intended to roll back and degrade China’s existing civilian semiconductor and computing capabilities, and commercial applications thereof. But the regulations have been artfully written by the Commerce Department to construe that American sales of advanced node semiconductors, semiconductor tools, and advanced computing equipment to China essentially amounts to support for the latter’s weapons development program. This includes the development of weapons of mass destruction. Given the inclination of WTO panels to substantially—although not completely—side with the self-judging nature of the Article XXI security exception, it is likely that the panel (which has not yet been constituted) will find the export control measures to be one that could reasonably be “consider[ed] necessary for the protection of the [U.S.’] essential security interests” particularly those “related to fissionable material or the materials from which they are derived.” China may not be lucky a third time around at the WTO.

Expanded Reading

• US pressures Asian allies to join crusade against Chinese chipmakers, The Register, January 9, 2023 
• As G7 Head, Japan Wants Member Countries to Team Up Against China’s ‘Economic Coercion’, Time, January 6, 2023 [Paywall]
• Taiwan Wants to Join WTO Talks on China’s Protest Against US Chip Sanctions, Bloomberg, January 5, 2023 [Paywall]
• The World Trade Organization’s gift to Joe Biden, The Hill, December 23, 2022 
• US trade chief says new tools needed to counter China’s ‘20-year distortions’ affecting global economy, South China Morning Post, December 20, 2022 [Paywall]
• The U.S. Needs to Change the Way It Does Business With China, The New York Times, December 18, 2022 [Paywall]
• US adds 36 Chinese companies to trade blacklist, Financial Times, December 15, 2022 [Paywall]
• The Right Time For Chip Export Controls, Lawfare, December 13, 2022 [Paywall]