Wall Street Journal Asia
Review & Outlook
June 26, 2009
http://online.wsj.com

The U.S. and the European Union raised complaints this week at the World Trade Organization over China’s export restraints on raw materials. Meanwhile, China has escalated a WTO complaint against the U.S. on poultry imports. This may sound like childish tit for tat, but it’s actually a grown-up conversation. Both cases have merit, and the WTO is the right place to resolve them.

The complaints brought by the U.S. and EU center around China’s exports of nine raw materials, including coking coal (used in steel production), bauxite (used in aluminum production) and zinc. When China joined the WTO in 2001 it agreed to eliminate most export duties, including on the materials listed in this case. But it hasn’t done so: Coke duties stand at 40%; bauxite at 15%; yellow phosphorous at 70%. The duties are designed to encourage these raw materials to stay in the country and allow domestic producers to purchase them at cheaper prices than those paid by the rest of the world.

The U.S. may have a strong legal position against China in this case, but it doesn’t exactly have the moral high ground. This is the Obama Administration’s first WTO complaint, and it’s a convenient gift to the Steelworkers Union, which supported him during last year’s election. Several of the materials are products used in steel production, and lower duties would mean cheaper inputs for U.S. steel mills and other manufacturers. That’s a good outcome, but it would be nice to think that the Administration was acting on free-trade principle not because it’s payback time.

Beijing was quick to hit back, announcing on the same day that it would request a WTO panel to investigate an effective U.S. ban on imports of Chinese poultry. This doesn’t come as a surprise — Beijing first announced this complaint in March — but the timing of the announcement is a reminder of the political overtones these cases can take on. Chinese poultry has effectively been banned from the U.S. for the past two years because of misplaced concerns about avian influenza.

Although it may appear at first blush that a trade war is brewing here, both of the cases have been building slowly for years, and the good news is that the WTO dispute resolution process offers a neutral way to work through them. More worrying signs of deterioration in the U.S.-China trade relationship are coming from other quarters.

In the U.S., Congress inserted a "Buy American" provision into the stimulus bill requiring that construction funds approved by the act be spent only on American iron, steel and manufactured goods. Beijing announced a similar "Buy Chinese" rule this month, which requires government stimulus projects to obtain permission before purchasing imported goods. In coming months, the Obama Administration will make a decision on a trade case that could impose import quotas on Chinese tires.

Beijing and Washington now have 60 days to consult each other about China’s export restraints, and about a year for the poultry case to run its course. When presenting the export restraints case, U.S. Trade Representative Ron Kirk said the Administration was "insisting on the rights of American businesses and workers to a level playing field." We’ll see whether the Administration is willing to extend these rights to U.S. trading partners too.

Printed in The Wall Street Journal, page A10