WTO ‘National Security’ Ruling Meets Trump

♠ Posted by Emmanuel in , at 3/30/2019 07:36:00 PM
From Crimea to America: considering the plight of "national security" trade barriers.
Here's a heads-up for everyone; over the next few days, the World Trade Organization is expected to rule over Russia hitting the Ukraine with trade sanctions on "national security" grounds [DS512]. In the past, such claims were considered unquestionable by the WTO. However, the expectation now is that the WTO will rule against Russia and in favor of the Ukraine.

You should be asking by now, "What do Russia-Ukraine 'national security' dust-ups have to do with the United States?" Well, it sets a precedent for the WTO proceeding with cases having to do with national security and ruling in favor of the complainant. And, insofar as the United States has hit so many of its trade partners with such claims for limiting imports, the WTO's change of heart would render the US vulnerable to a world...of hurt:
The World Trade Organization is set to rule for the first time on a dispute involving a member’s national security, challenging a key justification for President Donald Trump’s tariffs and putting the arbiter of international trade conflicts on a collision course with the U.S. The WTO will issue a ruling on a case in which Russia imposed trade restrictions on Ukraine, saying they were necessary in the interest of national security, according to an official with knowledge of the report who asked not to be named because the process is private.

The decision could still be appealed or settled outside of the WTO. The ruling confirms the WTO’s authority to determine whether such measures are necessary to protect a country’s security.
The ruling could set up a showdown as US trade partners take it to the WTO dispute settlement mechanism over similar "national security" tariffs:
A WTO ruling on the Russia dispute could force the U.S. to justify why the European Union, Canada, Mexico and a half-dozen other nations that have filed disputes against Trump’s metal tariffs, pose a security threat. “The fact that the panel is actually going to engage in an inquiry of whether there is basis for these national security measures means things are looking really bleak for the U.S.” Nicolas Lamp, a former dispute settlement attorney at the WTO, said in an interview on Wednesday. “For the U.S., this finding could confirm all their worst fears about the WTO.”
To be sure, the isolationist-nationalist Trump would like nothing more than to pull the US out of the WTO, and being taken to court there over "national security" could be the last straw. Then again, Trump is still not the United States, and there may be a more united pushback from the business community and business-minded legislators if Trump threatens WTO withdrawal.

At any rate, the fate of the WTO is going to be shaped a lot over the next few days. Stay tuned.

Grindr, a US National Security Threat

♠ Posted by Emmanuel in ,, at 3/27/2019 04:07:00 PM
Fat, old guys like Trump and Xi need not apply on Grindr, but their geopolitics still shape the app's governance.
Never let it be said that American protectionism was always staid. As it turns out, the Committee On Foreign Investment in the United States (CFIUS) is now forcing the divestment of the gay dating app Grindr by its Chinese owners who bought the service in 2016. It may sound strange, but it's true: gay bureaucrats on Grindr appear to be a security concern since they may disclose too much about their employment to boys they meet [hunky PRC spy guys, mayhaps?] in this Chinese-owned digital playground:
Chinese gaming company Beijing Kunlun Tech Co Ltd is seeking to sell Grindr LLC, the popular gay dating app it has owned since 2016, after a U.S. government national security panel raised concerns about its ownership, according to people familiar with the matter.

The Committee on Foreign Investment in the United States (CFIUS) has informed Kunlun that its ownership of West Hollywood, California-based Grindr constitutes a national security risk, the two sources said.

CFIUS’ specific concerns and whether any attempt was made to mitigate them could not be learned. The United States has been increasingly scrutinizing app developers over the safety of personal data they handle, especially if some of it involves U.S. military or intelligence personnel.

Kunlun had said last August it was preparing for an initial public offering (IPO) of Grindr. As a result of CFIUS’ intervention, Kunlun has now shifted its focus to an auction process to sell Grindr outright, given that the IPO would have kept Grindr under Kunlun’s control for a longer period of time, the sources said.
 The grounds for the CFIUS forcing divestment are unknown, but we can pretty much guess the general rationales based on other FDI transactions involving the Chinese and personal data that have been proscribed:
CFIUS’ intervention in the Grindr deal underscores its focus on the safety of personal data, after it blocked the acquisitions of U.S. money transfer company MoneyGram International Inc and mobile marketing firm AppLovin by Chinese bidders in the last two years.

CFIUS does not always reveal the reasons it chooses to block a deal to the companies involved, as doing so could potentially reveal classified conclusions by U.S. agencies, said Jason Waite, a partner at law firm Alston & Bird LLP focusing on the regulatory aspects of international trade and investment. 
My belief is that it's the most pathetic American excuse for protectionism yet, but your mileage may vary.

Will Boeing's 737 Ground US-China Trade Talks?

♠ Posted by Emmanuel in , at 3/20/2019 05:19:00 PM
The only thing being "maxed" around here are US-China trade tensions.
It's a major embarrassment for the mainstay product of the United States' largest exporter of manufactures to be grounded worldwide. Remember, though, that Chinese aviation authorities were among the first to do so. Boeing's workhorse model, the 737, has had teething problems with the rollout of its latest edition, the Max 8 and 9. Worse still, the two recent crashes of the plane appear to have been caused by similar factors, shifting the likelihood of blame away from pilot error to the software of the plane.

Now, we learn that not only is the Boeing 737 Max a global aviation concern, but also one that could ground US-China trade talks. You see, one of the quicker ways to "bridge" the enormous US-China trade imbalance is for the PRC to buy big-ticket items, and few come more expensive than state-of-the-art jetliners. Unfortunately, though, the Chinese understandably balking at purchasing more 737s--these are meant more for the domestic market--may cause wider damage to trade negotiations:
China’s move to ground Boeing Co’s 737 MAX jetliners following the deadly Ethiopian Airlines crash has cast a shadow over the American planemaker’s immediate hopes for a major jet order linked to a U.S.-China trade deal, industry sources said...

Evidence of a major potential order for more than 100 jets worth well over $10 billion at list prices had risen in recent weeks as Washington and Beijing reported some progress in trade talks to resolve a months-long trade war.

Those expectations were fanned by signs of pent-up demand stemming not only from a drop in China’s public purchases as the two sides descended into a tariff war, but also because China placed no private orders for Boeing aircraft in 2018, according to trade and industry sources familiar with the matter. Now, those sources say it is uncertain how quickly China will be willing to give the 737 MAX the expected new endorsement after ordering its own airlines to stop flying the jet
Also keep in mind that the Chinese are busy rolling out their own Boeing 737 / Airbus A320 competitor, the COMAC C919. To burnish its reputation for safety, especially among PRC nationals, it may be worth denigrating the Boeing 737 as unsafe such as by canceling orders originally meant to appease the trade-crazed Donald Trump:
China may now see an opening to establish itself as more of a leader in the aerospace industry, having already embarrassed the Federal Aviation Administration by leading a global charge to ground the Max that left the U.S. regulator isolated in its defense of the plane’s airworthiness and nearly the last of its brethren to temporarily ban the jet from commercial flight. China may be wont to relinquish its newfound role as a champion of safety, particularly as Comac prepares to drive a wedge in the Boeing-Airbus duopoly with the roll-out of its C919 in 2021. China says the plane — which can fit up to 168 passengers, similar to the Max 8 plane implicated in the crashes — has more than 800 orders worldwide.
In any event, this latest brouhaha over the 737 Max surely does not look like it's helping to bring current trade talks to a successful conclusion. After all, what else big-ticket goods are still made in the USA that the Chinese would buy lots and lots of?

Did PRC Cave In to Trump on Knowledge Transfer?

♠ Posted by Emmanuel in ,, at 3/15/2019 12:20:00 PM
All hail great American leader Trump! Sort of.

One of the main grievances the United States has had about Chinese trade practices concerns requiring knowledge transfer to domestic firms. To Westerners, such provisions are increasingly questionable intrusions on their intellectual property rights at a time when PRC firms are not so far behind their developed-world counterparts or even surpass their knowledge in certain respects like in 5G.

It is certainly up for debate whether China or the United States is being hurt the most amid Trump's ongoing tariff-slapping frenzy, but that the Chinese are eager to have these tariffs removed is beyond any doubt. We recently received evidence of this assertion with their "legislature" quickly passing a law watering down these technology transfer requirements:
The National People's Congress voted 2,929 in favour of the law -- with eight against and eight abstentions -- barely three months after a first draft was debated, an unusually quick turnaround for the legislature, which meets once a year. The move comes as US and Chinese negotiators hold complex talks aimed at resolving a months-long trade war that has pounded businesses with tariffs on $360 billion in two-way commerce.
Although the specifics are not yet definitive, the rough outlines appear to be like so:
China will also amend its intellectual property law and "introduce a punitive damages mechanism to ensure that all infringements will be seriously dealt with", Chinese Premier Li Keqiang told reporters at the end of the parliament's two-week session. The changes will "ensure violators have no place to hide", he said. 

Under the bill, foreign investors will enjoy the same privileges as Chinese companies in most sectors, except those placed on "negative lists", officials say.
That said, foreign investors are still, rightly, more concerned with how these IP law changes are implemented than what is written on paper:
Tim Stratford, chairman of the American Chamber of Commerce in China, said "the last minute efforts are appreciated". But, he added, the changes "only address a small slice of the overall set of concerns our members have about the uneven playing field foreign companies encounter in China".

The chamber was concerned about vague language in provisions that allowed local governments to expropriate investments that "harm public interest" and the inability to appeal against the outcome of national security reviews.

Jacob Parker, Beijing-based vice president at the US-China Business Council, welcomed the "positive language" in the bill but added that "real investment on the ground will depend on how narrowly tailored those negative lists are going forward".

Businesses are still concerned that industry-specific laws and local administrative approvals may impede full market access despite provisions in the negative list.
As always, implementation is going to be more important to foreign investors as to whether their longstanding IP concerns are met or otherwise. And, I suspect this story will continue long after Trump has departed the scene. 

Did US Win Big Over PRC Ag @ WTO?

♠ Posted by Emmanuel in ,, at 3/12/2019 02:31:00 PM
There was actually a  (pre-Trump) time when the "WTO court" actually functioned. But no longer.
In case you missed it, the WTO recently ruled against Chinese agricultural subsidies that the United States complained about. Note this case, DS511, predates the Trump administration and was originally during that of his predecessor, Barack Obama. Given that China is a huge market for foodstuffs--they need to feed 1.4 billion folks--it's a pretty big deal for those who hope to export agricultural products to China. Unbeknownst to most of the rest of us, China is by now actually the biggest agricultural subsidizer of them all--no mean feat considering that list includes wealthy areas like the United States and the European Union:

Kristen Hopewell of Edinburgh University explains:
China is now the world’s largest subsidizer of agriculture — Beijing provided an estimated $212 billion in farm subsidies in 2016, significantly more than the European Union ($100 billion), United States ($33 billion) or any other country.

Subsidies now make up a significant portion of earnings for Chinese farmers, accounting for 38 percent of their revenue for wheat, 29 percent for corn and 32 percent for rice. By comparison, U.S. subsidies constitute 8 percent of U.S. farm earnings for wheat, 4 percent for corn and 2 percent for rice.

Beijing’s support to China’s agriculture sector includes government purchases at above-market prices, as well as market price support programs, where farmers receive a direct payment from the government if market prices fall below a minimum set price.
China's pattern of accumulating massive stockpiles of agricultural products and then dumping these at presumably below-market prices would represent a massive distortion to global agricultural markets:
And there’s another issue: China’s policy of supporting producers by purchasing agricultural commodities at above-market prices has led to the accumulation of massive government stockpiles. By 2016, China had amassed 60 percent of the world’s cotton supplies, over 50 percent of its corn, 40 percent of wheat and 21 percent of soybeans.

To dispose of these large stocks, the government periodically auctions them off at below-acquisition cost. Analysts believe China’s policies exert “a colossal influence” on world prices, given the size of its state reserves. A mass sell-off from China’s sugar reserves in 2016, for example, helped to push the global price of sugar down by almost a quarter.
But, as with most things happening under the Trump administration, there's a catch which alludes to the post title: Is the US "winning big" against China with this ruling going forward? Ironically, the Trump administration's ongoing efforts to kill the WTO by starving its judicial system of appeals court judges may soon backfire: All China needs to seemingly do is appeal the case and it will come to a standstill since there will be insufficient numbers of appeals court judges to make an appeals ruling on this case...or any WTO appeals case for that matter:
But the Appellate Body, well, is short of bodies. The Trump administration has been blocking all appointments to the Appellate Body as the terms of its current judges expire. The Appellate Body has been reduced to three judges — the minimum needed to adjudicate a dispute — with the remaining four of its seven seats vacant.

Two of those judges will reach the end of their terms in December [2020], leaving the Appellate Body without enough judges to review cases.

And once an appeal is lodged, a dispute settlement panel decision remains blocked until the decision of the Appellate Body. This means that without a functioning Appellate Body, China may be able to simply block the WTO ruling on its agricultural subsidies, placing the case in legal limbo.
Talk about shooting yourself in the foot: the United States--or at least the Barack Obama-era remnants of it--secure a famous victory at the WTO. However, the Trump administration, in its haste to render the WTO ineffective since it hates all kinds of multilateral institutions, has made enforcement of this ruling unlikely to happen.

Once more, good job, Trumpy (with a hat tip to trade-o-phobe USTR Robert Lighthizer). 

Techlash: Huawei Strikes Back at Canada, US

♠ Posted by Emmanuel in ,, at 3/04/2019 02:37:00 PM

I suppose the headlines Huawei garners is related to what's at stake with 5G coming into wider commercial use. Will China be able to capitalize on its little-doubted technical advantage in 5G, or will the US be able to negate this advantage by getting its allies to boycott PC 5G gear over "security" concerns? Previously we talked about its attempts to use soft power--gaining influence not through the use of coercion but rather through attraction. Apparently, though, there are limits to the Huawei folks' patience with trying to win friends and influence people. Not having been very successful swaying North American (US and Canadian) public opinion, Huawei is now resorting to old-fashioned litigation.

In Canada, detained CFO Meng Wanzhou's lawyers intend to sue the government with her extradition to the United States imminent:
Ms Meng's claim - filed in British Columbia's Supreme Court on Friday - seeks damages against the Royal Canadian Mounted Police (RCMP), Canadian Border Services Agency (CBSA) and the federal government for allegedly breaching her civil rights under Canada's Charter of Rights and Freedoms. She says CBSA officers held, searched and questioned her at the airport under false pretences before she was arrested by the RCMP.

Her detention was "unlawful" and "arbitrary", the suit says, and officers "intentionally failed to advise her of the true reasons for her detention, her right to counsel, and her right to silence".
And speaking of the Yanks, Huawei is also preparing a case in US of A aimed at restrictions on federal purchases of its gear over alleged spying concerns:
The Chinese electronics giant Huawei is preparing to sue the United States government for banning federal agencies from using the company’s products, according to two people familiar with the matter.

The lawsuit is due to be filed in the Eastern District of Texas, where Huawei has its American headquarters, according to the people, who requested anonymity to discuss confidential plans. The company plans to announce the suit later this week.

The move could be aimed at forcing the United States government to more publicly make its case against the Chinese equipment maker. It is part of a broad push by Huawei to defend itself against a campaign led by the United States to undermine the company, which Washington sees as a security threat. Executives have spoken out strongly against America’s actions, and new marketing campaigns have been aimed at mending the company’s image among consumers.
I don't think that Huawei actually expects the federal ban on purchases of Huawei telecoms gear to be overturned. Rather, it's an effort intended to force the US government to identify rationales for banning Huawei from federal procurement. Once identified, these rationales could serve the basis for further PRC legal action against the United States. You do have to wonder though how much mileage legal action will get them, or whether public opinion only turns more against them in North America. (PRC) heavy-handed actions do not necessarily right (North American) heavy-handed actions.