WASHINGTON (BLOOMBERG) - Tensions between the United States and China are about to get more complicated, with the World Trade Organisation poised to begin an investigation into President Donald Trump's tariffs on US$250 billion (S$340 billion) of Chinese goods.
On Monday (Jan 28), the Geneva-based arbiter of trade disputes will likely launch an inquiry into whether the US duties run afoul of a requirement that all WTO members give each other the same tariff treatment, as China asserts.
The investigation comes at a delicate moment between the world's two largest economies. A new round of trade talks is scheduled to begin on Wednesday, and if a deal isn't reached by March 1, the Trump administration has threatened to raise the tariff rate on US$200 billion in Chinese goods to 25 per cent from 10 per cent.
"This WTO case is especially significant because it deals with the central international legal issue in the US conduct of its trade war with China - whether the US can impose trade restrictions on China in response to alleged Chinese WTO violations without first seeking dispute settlement in the WTO," Mr James Bacchus, a former Democratic congressman and onetime head of the WTO's appellate body, said in an e-mail. "I believe these US tariffs are inconsistent with WTO obligations, but it will be left to my successors on the WTO appellate body to decide."
The WTO is already facing an existential threat over a hold the US has placed on new appellate judge nominations. Absent any reforms, the decision-making wing of the organisation will have too few judges to rule on cases by the end of the year. This new investigation could further antagonise the US, which sees the WTO as overstepping its authority.
This is China's second request for an inquiry on the matter, the first one last month was vetoed by the US. The investigation is likely to move ahead on Monday because WTO rules prevent members from blocking a dispute inquiry a second time.
But China won't be expecting a resolution to the investigation anytime soon due to a backlog in the WTO dispute settlement system. So far, 23 disputes have been brought against the current US administration, including an European Union inquiry into tariffs levied against aluminium and steel imports.
"These trade tensions are not only a threat to the system, they are a threat to the entire international community," Mr Roberto Azevedo, the director-general of the WTO, said on a panel in Davos last Thursday.
"The risks are very real and there will be economic impacts."
The case cuts to the heart of the US-China trade conflict because Mr Trump says the tariffs are necessary to counter an alleged Chinese campaign to steal American intellectual property.
China's dispute alleges the US tariffs violate the WTO's most favoured nation provision because the measures fail to provide the same tariff treatment that the US offers to imports of all other WTO members.
The US counters that the tariffs fall outside the WTO's remit because they address trade issues that are not specifically covered under WTO rules.