On Friday, March 23, 2018, following President Trump’s signing of an executive memorandum directing the U.S. Trade Representative to propose a list of unspecified tariff increases on what the White House suggested might total approximately US $60 billion worth of Chinese imports into the United States, China's Ministry of Commerce (“MOFCOM”) responded with plans for compensatory tariffs on 128 U.S. products that will include wine, fruit, steel and pork. The announcement from Beijing details a two-phase plan targeting approximately US $3 billion worth of products from the United States if an agreement can not be reached with Washington.
MOFCOM has published a detailed list that involves products under seven major categories and 128 harmonized tariff schedule (“HS”) codes. The first part covers products under 120 HS codes impacting US $977 million in U.S. exports, including fresh fruit, dried fruit and nut products, wine, modified ethanol, American ginseng and seamless steel pipes. The second part covers products under eight HS codes impacting US $1.992 billion in U.S. exports, including pork, pork products and aluminum scrap. Major U.S. agricultural exports such as soybeans and beef (which was recently permitted to be imported into China) are not included.
According to MOFCOM, if the two countries fail to reach a trade compensation agreement within the stipulated time, China will suspend tariff concessions under the GATT 1994 for the first part of the products which will result in imposition of 15% import tariff on these products. A 25% tariff would be imposed on the second part of products after further assessing the impact of the U.S. measures on China. MOFCOM stressed that China would reserve the right to adjust measures based on “actual situations.”
We note that the measures in the notice have not been introduced in response to President Trump’s March 22 President Memorandum requiring the USTR to propose a list of tariff increases against China based on Section 301 of the U.S. Trade Act of 1974. Instead the measures are a reaction to President Trump’s March 8 imposition of steel and aluminum tariffs in accordance with the Section 232 of the Trade Expansion Act of 1962, which was not solely targeting Chinese imports.
China alleges that the Section 232 measures taken by U.S. were in violation with WTO rules, and that the “national security exception” of Article XXI of WTO’s General Agreement on Tariffs and Trade (“GATT”) should not apply to such situations without explaining why it thought this was the case. China further maintains that the Section 232 measures actually constituted “safeguard measures” described in Article XIX of the GATT. However, even if the United States cannot justify use of the “national security exception,” China cannot simply declare it a safeguard measure and subject it to the safeguard compensatory tariff procedures. Article XIX’s safeguard provisions are only available where goods have been imported “in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products.” There is no claim by the United States of increased steel or aluminum imports nor does China have any evidence that these occurred, mostly because there is no such evidence.
Public comments are solicited by China on the measures introduced in the notice, and the public comment period will close on March 31, 2018. MOFCOM did not specify the date when the measures would be implemented. But according to the WTO Agreement on Safeguards, if no agreement is reached within 30 days in the consultations proceedings, then China may suspend the application of substantially equivalent concessions or other obligations under GATT 1994 upon the expiration of a 30-day prior notification to the Council for Trade in Goods (the “Council”), unless the Council disproves.
According to MOFCOM, the measures in the notice today were introduced to “balance the loss caused to China by U.S.’ Section 232 measures.” Additional Chinese countermeasures may be on the way to “balance the losses” caused by the Section 301 measures if the situation keep escalating.
China’s decision to take countermeasures is also likely to impact key industries based in the mid-west and southeastern parts of the United States along with their supply chains across the United States.
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