Shipping containers stacked at Kwai Tsing Container Terminal, operated by Hong Kong International Terminals Ltd. (HIT), a unit of CK Hutchison Holdings Ltd., are seen from the Mitsui O.S.K. Lines Ltd. (MOL) Triumph container ship docked at the terminal in Hong Kong, China. (Photographer: Paul Yeung/Bloomberg)

Trump's China Tariffs Likely to Be Investigated by the WTO

(Bloomberg) -- Tensions between the U.S. and China are about to get more complicated, with the World Trade Organization poised to begin an investigation into President Donald Trump’s tariffs on $250 billion of Chinese goods.

On Monday, the Geneva-based arbiter of trade disputes will likely launch an inquiry into whether the U.S. 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 Jan. 30, and if a deal isn’t reached by March 1, the Trump administration has threatened to raise the tariff rate on $200 billion in Chinese goods to 25 percent from 10 percent.

“This WTO case is especially significant because it deals with the central international legal issue in the U.S. conduct of its trade war with China,” James Bacchus, a former Democratic congressman and onetime head of the WTO’s appellate body, said in an email. “I believe these U.S. tariffs are inconsistent with WTO obligations, but it will be left to my successors on the WTO appellate body to decide.”

Existential Threat

The WTO is already facing an existential threat over a hold the U.S. has placed on new appellate judge nominations. Absent any reforms, the decision-making wing of the organization will have too few judges to rule on cases by the end of the year. This new investigation could further antagonize the U.S., 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 U.S. The investigation is likely to move ahead on Monday because WTO rules prevent members from blocking a dispute inquiry a second time.

Trump's China Tariffs Likely to Be Investigated by the WTO

But China won’t be expecting a resolution to the investigation any time soon due to a backlog in the WTO dispute settlement system. So far, 23 disputes have been brought against the current U.S. administration, including an EU inquiry into tariffs levied against aluminum and steel imports.

“These trade tensions are not only a threat to the system, they are a threat to the entire international community,” Roberto Azevedo, the director-general of the WTO, said on a panel in Davos on Jan. 24. “The risks are very real and there will be economic impacts.”

Intellectual Property

The case cuts to the heart of the U.S.-China trade conflict because Trump says the tariffs are necessary to counter an alleged Chinese campaign to steal American intellectual property.

China’s dispute alleges the U.S. tariffs violate the WTO’s most favored nation provision because the measures fail to provide the same tariff treatment that the U.S. offers to imports of all other WTO members.

The U.S. counters that the tariffs fall outside the WTO’s remit because they address trade issues that are not specifically covered under WTO rules.

©2019 Bloomberg L.P.