DS: United States — Tariff Measures on Certain Goods from China

This dispute concerns China's challenge to the additional duties that the United States imposed on certain products from China. The United States imposed these additional duties pursuant to the findings of a Section 301 Report addressing China's practices related to technology transfer, intellectual property, and innovation, which the United States considers to be unfair and distortive policies of “state-sanctioned theft”, misappropriation of US technology, intellectual property, and commercial secrets.

Before the Panel, China challenged:

• the 25% additional duties imposed in June 2018 on a first set of products with an approximate annual trade value of USD 34 billion (List 1); and
• the additional duties on a second set of products with an approximate annual trade value of USD 200 billion (List 2), initially imposed in September 2018 at 10% and subsequently raised in May 2019 to 25%.

China claimed that these additional duties were inconsistent with Articles I:1 and II:1(a) and (b) of the GATT 1994.

The United States raised two main sets of arguments in response:

• that by engaging in bilateral negotiations to address several trade concerns — including some matters covered by this dispute —  the parties had decided to settle their dispute outside the WTO, and thus reached a “settlement of the matter” within the meaning of the third sentence of Article 12.7 of the DSU; for that reason the Panel should confine its report to a brief statement of the facts and a notation that a settlement has been reached; and
• that, in any event, the additional duties were justified under Article XX(a) of the GATT 1994, as measures necessary to protect US public morals. The United States argued that   China's acts, policies, and practices addressed in the relevant Section 301 Report amounted to “state-sanctioned theft” and misappropriation of US technology, intellectual property, and commercial secrets, and this violated the public morals prevailing in the United States.

Panel's findings

The Panel recognized that an ongoing bilateral process was taking place between China and the United States. However, the Panel observed that this bilateral process seemed to be parallel to the panel proceedings, and not intended, by China at least, to replace them. The Panel found that the parties had not reached a settlement of the matter within the meaning of the third sentence of Article 12.7 of the DSU

The  Panel found that the challenged additional duties were prima facie inconsistent with Article I:1 of the GATT 1994 because they applied only to products from China; and prima facie inconsistent with Article II of the GATT 1994, because they were applied in excess of the rates to which the United States bound itself in its Schedule of Concessions.

With respect to the United States' defence under Article XX(a) of the GATT 1994, the Panel adopted a holistic approach to determining whether the measures at issue were “necessary to protect public morals”. This approach involved an overall assessment based on the Panel's interpretation of each element of Article XX(a) and on its application to the specific facts of this dispute. Following this holistic approach, the Panel refrained from reaching any intermediate conclusions before completing the entire analysis of whether the measures could be shown by the United States to be provisionally justified.

With respect to the identification of the public morals objective invoked by the United States, the Panel observed that the “standards of right and wrong” invoked by the United States (including norms against theft, misappropriation and unfair competition) could — at least at a conceptual level — be covered by the concept of “public morals” in Article XX(a).

With respect to the necessity of the measures, the Panel focused its analysis on the United States' explanation of how the specific measures that it chose to impose, i.e. additional duties on a wide range of selected products from China, contributed to the public morals objective invoked. The Panel directed its enquiry towards seeking to identify the nexus between the measures the United States had chosen and the US public morals concerns, in order to inform the examination of the question of whether and how the measures contributed, and could therefore be demonstrated to be “necessary”, to protect public morals within the meaning of Article XX(a).

Regarding the imposition of additional duties on List 1 products, the Panel found that the United States had not provided an explanation demonstrating a genuine relationship of ends and means between the imposition of additional duties on these products and the public morals objective invoked by the United States. The Panel found, in particular, that the United States had not provided evidence in support of its assertion that the products on which it imposed additional duties benefitted from practices of China that the United States considered to be contrary to its public morals, nor evidence that would more generally demonstrate how the additional duties it applied to selected products otherwise contributed to its public morals objective.

Regarding the imposition of additional duties on List 2 products, the Panel found that the United States had not provided an explanation that would allow the Panel to understand an “ends and means” relationship between the additional duties on List 2 products and the public morals objective invoked by the United States.

In summary, the Panel concluded that the United States had not provided an explanation demonstrating how the imposition of additional duties on the selected imported products in List 1 and List 2 was apt to contribute to the public morals objective invoked, and, following on from that, how they were necessary to protect public morals. The Panel found, accordingly, that the United States had not met its burden of demonstrating that the measures are provisionally justified under Article XX(a).

The Panel Report contains additional “Concluding Comments” emphasising the Panel's awareness of the wider context in which the WTO system currently operates, which was “one reflecting a range of unprecedented global trade tensions”. The Panel pointed out that its role was not to draw any legal conclusions or make recommendations on any matters other than those it had been specifically tasked to deal with. In this connection, the Panel recalled that the Government of the United States had not, up to the present time, initiated action under the WTO DSU with respect to measures that China had imposed in response to the United States measures at issue in this dispute. The Panel emphasized that it had sought to perform diligently its adjudicatory role under Article 11 of the DSU in relation to the matters that fell within its terms of reference. Finally, the Panel expressed its encouragement to the parties to continue to work for a mutually agreed solution to the matters raised in the dispute.