GENEVA • President Donald Trump's plan to reshape America's global relationships will reach a critical juncture this week when the World Trade Organisation (WTO) decides whether to trigger a landmark dispute over what trade measures countries can use to protect national security interests.
The Geneva-based WTO has long avoided this politically fraught confrontation, which could irreparably harm the organisation tasked with deciding international trade disputes. But barring any unforeseen developments, the WTO was to grant requests from members including China and the European Union yesterday to determine if US steel and aluminium tariffs imposed in March - and based on national security concerns - are legal.
US trade officials say the WTO has no authority to mediate on national security matters and should issue a decision that says the matter is outside of its remit. WTO director-general Roberto Azevedo has gone so far as to warn countries against taking this dispute to the WTO, arguing that it instead "requires conversation at the highest political level".
The fight could end up sidelining the WTO.
"If the WTO finds that Trump's tariffs are permitted under the national security exception, it opens a gaping hole that would allow any other country the right to impose trade barriers on any product at any moment and for no particular reason other than protectionism," economist Chad Bown, a senior fellow at the Washington-based Peterson Institute for International Economics, said in an interview.
"Yet, if the WTO rules against Trump, he could see this as political justification to do something even more alarming, such as withdrawing the US from the agreement altogether," he said.
In applying the tariffs, Washington relied on a rarely used WTO national security exemption, which permits governments to take "any action which it considers necessary for the protection of its essential security interests".
CYBER THEFT AND ECONOMIC ESPIONAGE
China's cyber attacks against the United States have become more frequent and sophisticated since March, said the Office of the US Trade Representative (USTR).
Cyber-security firm Carbon Black found a sharp rise in attacks during the third quarter of this year against manufacturing companies - a type of attack that has been tied frequently to Chinese economic espionage.
Another cyber-security firm, Recorded Future, found a series of cyber attacks around late May originating from IP addresses linked to Tsinghua University.
These hackers appeared to be conducting surveillance on organisations related to the governor of Alaska's trade delegation trip to China, said USTR.
In the past two months, the US Justice Department also charged several Chinese agents with stealing commercial aerospace technology and US semiconductor technology.
Since March, Australia, Japan, the European Union and South Korea have reported Beijing-supported intrusions into commercial networks and cyber theft.
FORCED TECHNOLOGY TRANSFERS
China still uses restrictions on foreign investment to require or pressure US companies to transfer their technology to Chinese entities to be allowed to operate in China, said USTR.
These restrictions include limited foreign ownership, and non-transparent and discretionary licensing and approval procedures.
US and European business surveys show that this pressure is especially stark in high-technology industries like aerospace and chemical companies.
Although China has made some changes to remove or relax certain foreign ownership restrictions, these are not enough, said USTR.
PROBLEMATIC OUTBOUND INVESTMENT
Beijing continues to unfairly facilitate and direct Chinese investment in US companies, helping Chinese firms to get cutting-edge technologies in industries deemed important by state industrial plans, said USTR.
In particular, China continues to target acquiring US technology and intellectual property by venture capitalist investment - that is, funding new or small companies working on emerging technologies.
Bloomberg data showed that the value of venture capitalist deals with at least one Chinese-domiciled investor increased this year, reaching a record high last Thursday. They are focused on artificial intelligence, robotics, fintech and augmented and virtual reality.
This can lead to transfers of US technology to China, as investors can encourage their companies to collaborate with specific companies or research alliances, said USTR.
The Trump administration has already blocked the process once, and since the rules do not allow further preventive actions, the WTO will likely create a dispute settlement panel, which would consist of three experts. Any decision would likely be rendered next year or in 2020.
Dr Jennifer Hillman, a professor of law at Georgetown University and former general counsel to the Office of the US Trade Representative, said the US claim falls outside of the WTO's national security exemption, which applies to nuclear materials, arms and ammunition or measures taken in time of war or other international emergency. "The US is pushing against any scrutiny of its decision since it cannot withstand the scrutiny," she said.
The dispute request, brought by Canada, China, the EU, India, Mexico, Norway, Russia, Switzerland and Turkey, faces a significant hurdle: The WTO may be unable to render a final decision if the US continues to block new appellate body nominees. By December next year, the appellate body would not have the three members required to sign off on rulings and will essentially be paralysed.
The WTO is also expected to grant a series of US disputes over tariffs imposed by Canada, China, the EU and Mexico in response to America's metal duties. To date, seven WTO members - Canada, China, the EU, India, Mexico, Russia and Turkey - have imposed retaliatory levies on more than US$25 billion (S$34 billion) worth of US goods in response to the American tariffs.
"There is no good outcome," said Dr Joshua Meltzer, a senior fellow at the Washington-based Brookings Institution. "Once the US goes down this path, it definitely opens up space for other countries to do the same."