Chinese Academic Dismisses US Claims of Economic Aggression
Feng Difan
/SOURCE : Yicai
Chinese Academic Dismisses US Claims of Economic Aggression

(Yicai Global) July 9 -- A leading Chinese academic has called into question US' claims that China has engaged in 'economic aggression' against the country amid the ongoing trade war.

The US cited 'economic aggression' as a key factor in slapping tariffs on imports from the country last Friday. However, the terms does not exist in international legal circles, said Cheng Dawei, a researcher of National Academy of Development and Strategy, during an interview with Yicai Global.

China acts as a contributor to the world economy rather than an aggressor, Cheng said, adding that the US' pursuit of a trade war to contain the country's economic development constitutes, in essence, economic aggression.

At the same time, America's recent measures are undermining the World Trade Organization system. The country continues to stand in the way of the selection of a new justice process for the WTO's Appellate Body in Dispute Settlement Mechanism amid repeated reports that it could withdraw altogether from the body. The global trading system could suffer as a result, Cheng says, adding that the actions taken by Trump's administration is undermining the legacy of trade governance between the world's two biggest economies.

"We hope that the US can get back on track with the multilateral trading system," Cheng said.  

China has contributed nearly 30 percent of world economic growth since its accession to the WTO, data shows. It has pursued a firm policy on limiting the depreciation of the yuan, thereby playing a key role in stabilizing and boosting the growth worldwide during the international financial crisis. In this way, China is a contributor to the world economic growth rather than an aggressor, said Cheng.

As defined by the International Military Tribunal and the UN Charter, 'aggression' covers the issue of trampled sovereignty. Politically, national sovereignty is sacred and inviolable, representing the highest interest of the state. It includes economic sovereignty, that is, the state has the highest and independent jurisdiction over its own economy. The key to economic aggression should be the violation of the economic sovereignty of other countries, said Cheng.

Cheng believes that the Trump administration has undermined the US trade governance legacy. After more than a century of trade protectionism, the US gradually moved towards free trade in the 1930s and started to facilitate the establishment of a multilateral trading system after the Second World War, which is characterized as a rule-based system that adopts the most-favored-nation treatment principle. Trade is popularized and spread to increasing member states globally via MFN, making the WTO one of the best international mechanisms established with the dominance of the US. The number of members has grown from the initial 23 to today's 164.

At the same time, one of the body's shortcomings is that essentially, the US has put in place a multilateral system and even the multilateral trading system due to political motives, such as in terms of trade governance.

When putting into practice the multilateral system after the Second World War, the US mainly worked to contain the Soviet Union and the socialist nations. Such a political goal was maintained until the first tenure of the Clinton administration. Subsequently, against the backdrop of the collapse of the Soviet Union and other conditions, the Clinton administration was faced with a new and major issue, that is, Japan and Germany had been propped up by it after the war, and so the balance could return to Germany and Japan again. At that time, the US chose to promote trade via the North American Free Trade Area.

Another important historical event was the 1999 Seattle Conference in the Clinton era. After experiencing the failure of the Seattle Conference, the US experienced great difficulty in voting and decision-making in an organization mainly composed of developing countries.

For that matter, the US started to turn to bilateral and regional agreements. The Obama administration pursued two trade agreement negotiations, namely, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, to encircle global trade. Back then, the US had started to attempt to contain China. Moving forward to the Trump administration, although it is still not possible to judge intentions, the behavior has, in fact, damaged the multilateral trading system, and destroyed the US trade governance legacy and trade legislation concept. This will trigger an effect opposite to MFN: if MFN is a friendly activity, then the trade protectionism pursued by Trump will demonstrate a differential effect. Cheng does pities the situation and hopes the US can regain its intellectual legacy while getting back on track with the multilateral system.

In terms of America's frequent Section 232 investigations, Cheng expressed his opinions the first and best way to solve problems are through the WTO and negotiations related to disputes.

The second way is to take countermeasures. The principle of its implementation is by using the 'equal measure with backward time' approach. For example, if one party imposes a tariff of USD34 billion, China will impose the same amount of tariff at a later date, indicating that China is not the initiator. Countermeasures aim to bring parties back to the negotiating table rather than carrying out a trade war.

The third way is to solve disputes through the market. The trade war will cause rising trade tariffs for enterprises, which will lead to a change of markets for companies and a transfer of trade to European and Asian markets. The transfer will also urge the US to adjust its policies, which could come around in a few months or a year later. This key market could force US voters and the government to finally choose to respect the market.

The fourth way is through legal mediation. In this case, a third-party mediator not acting in its own self-interest is required to promote reconciliation between parties. The solution needs a party to hold a neutral opinion.

The fifth way is negotiation. WTO rules allow parties to initiate negotiations at any time as part of the dispute settlement mechanism. If the US is sincere, this choice would be the best one.

The US deliberately obstructs the operations of the WTO Appellate Body, Cheng said, adding that the incapacity of the body will cause substantial damage on the global trade order. The WTO has three functions, namely, negotiation, policy review and approval and dispute settlement. At present, negotiations have stagnated and progress is not expected at the Doha Round of World Trade Talks. The most important function of the body is to settle disputes and it is the maliciousness of the US is causing substantial incapacity to the mechanisms.

On the one hand, America is hindering the possibility of China using the dispute settlement mechanism as there is no judge to try the case if the WTO Appellate Body is incapable, while on the other hand, the matter goes beyond the scope of China-US trade matters and it has caused substantial damage to the world trade system. Therefore, the selection of a new justice process for the WTO's Appellate Body is vital.

Editor: William Clegg

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Keywords: US , Trade Dispute , WTO