CHINA’S COUNTER-PUNCHES IN TIT-FOR-TAT RETALIATION AGAINST U.S. PROPOSED TARIFFS

By Megan J. Penick and Jeffrey A. Rinde

China Initiates 178.6% Tariff on U.S. Sorghum Imports

In its latest salvo in the U.S.-China trade dispute, China has imposed a 178.6% tariff on sorghum imports from the U.S., claiming the U.S. is unfairly dumping sorghum on the Chinese market.[1] The U.S. is the world’s largest producer of sorghum, a cereal crop used for cattle feed, among other things. [2]  The U.S. was expected to export some 168,000 metric tons of grain sorghum during the 2017/2018 marketing year, some 90% of which was destined for Chinese markets.[3]  The U.S. began exporting sorghum to China in large amounts beginning in 2013 when Chinese farmers found that it was a cheap alternative to their higher cost corn feed.[4]  Sorghum is also used as a sweetener in many products, including China’s traditional alcohol, baijiu.[5] Since 2013, the U.S. sorghum industry has been exporting between $1-2 billion worth of sorghum to China annually.[6] Thus, China’s imposition of this large tariff on sorghum imports is likely to have a deleterious effect on U.S. sorghum growers and sorghum producing states such as Kansas and Texas.  Since imposing the 178.6% tariff, Chinese importers have begun looking for sorghum imports from other countries, such as Australia, and U.S. sorghum growers have seen their crop prices drop by 20-25%.[7] 

China Brings its Dispute with the U.S. to the World Trade Organization

On April 4, 2018, China initiated a dispute through the World Trade Organization against the U.S. claiming the U.S.’s imposition of tariffs of 25% and 10%, respectively, on steel and aluminum imports was inconsistent with the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, as well as the Agreement on Safeguards, which sets forth the means for safeguarding the measures outlined in GATT 1994.[8]  President Trump imposed the tariffs by Presidential proclamation on March 9, 2018.  The Trump Administration later temporarily suspended the tariffs for several U.S. trading partners, including Mexico, Canada, Argentina, South Korea, Brazil, Australia and the European Union.  Notably absent from that list is U.S. ally Japan.[9]

China’s dispute, called a “Request for Consultation,” raised the following issues:

• the U.S. has failed to properly determine and provide reasoned and adequate explanation for unforeseen developments, imports in increased quantities and under such conditions that would cause or threaten to cause serious injury to Chinese domestic producers;
• the U.S. has failed to follow proper procedures in implementing the tariffs, including notification and consultation procedures;
• the U.S. has imposed import duties in excess of the duties allowed for under GATT 1994, and has failed to exempt China from such import duties;
• the U.S., through selectively applying its import duties on aluminum and steel imports originating from certain WTO member states, has failed to extend such advantage, favor, privilege or immunity to China; and
• through failing to apply such import duties equally, the United States has failed to administer the WTO’s laws, regulations, decisions and rulings in relation to the import duties in a uniform, impartial and reasonable manner.[10]

Since China initiated the action, India, Russia, Thailand and Hong Kong have each filed a “Request to Joint Consultations,” allowing them, essentially, to piggyback on China’s claim. 

On April 17, 2018, the U.S. formally responded to China’s Request for Consultation with its own communication, stating, in essence, that China’s letter does not meet the WTO’s procedural requirements for filing a dispute as China’s letter only addresses “proposed tariff measures,” and does not address a matter that is specifically directed at China.  Nonetheless, the U.S. stated in its response that it is open to negotiations and consultations with China and stated that the U.S. 
“looks forward to hearing from China [concerning] how it intends to address China’s trade-distorting policies....”[11]

On April 25, 2018, China responded to the allegations made by the U.S. While China set forth that it was “confused by the logic taken by the U.S.,” it nonetheless indicated its willingness to engage in negotiations with the U.S. at a mutually agreed upon time in accordance with WTO rules.

CKR’s China Practice Team is closely monitoring developments in the trade conflict between the U.S. and China and will publish weekly updates for our readers. 

Jeffrey Rinde - jrinde@ckrlaw.com

Megan Penick - mpenick@ckrlaw.com

Jing Li - jli@ckrlaw.com

Ning Zhang - nzhang@ckrlaw.com

Wei Zhang - wzhang@ckrlaw.com

DISCLAIMER: This article is not intended to provide legal advice, and no legal or business decision should be made based on its contents.