The Final State of the Union
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Summary:
President Obama is holding China accountable on its violation of trade rules. Here's why that's important.
Today, the U.S. is launching its 14th trade enforcement challenge against China at the World Trade Organization (WTO) and its 23rd overall since President Obama took office. That’s more trade enforcement challenges than any other country over the last 8 years, and we’ve won every single one that’s been decided so far. And that can have a real impact on Americans across the country.
Read the President's statement
For many, trade policy can seem obscure and remote to their daily lives -- but America's trade policy plays an important part in helping to level the playing field for our workers and businesses in an increasingly interconnected and global economy. Leveling that playing field helps expand access for Made-in-America products and services to growing markets. And every added boost we can give to exports helps give a jolt to American wages too—as exporters pay up to 18 percent more than non-exporters. That's what the WTO and trade agreements do: Set out a clear set of rules between trading partners to ensure each country's goods and services are competing fair and square in foreign markets. And as President Obama said, "when American workers, businesses, and farmers have a fair shot to compete in the global economy, we win."
But what happens when a country decides to flout the rules in order to give their own workers or businesses an unfair advantage? That’s where trade enforcement comes in. So here’s a few answers to questions many people may have about how all this works.
How do countries know what the trade rules are?
Trade policies between countries are governed in two ways: Either by membership in organizations like the WTO, which has 164 member countries, or through bilateral or regional arrangements, such as free trade agreements,. Signing up to the WTO (known as “accession” in trade-speak) and negotiating trade agreements not only set the rules and obligate countries to follow them, but also provide a way for countries to hold each other accountable should one or more participants decide to flout those rules.
If a trade agreement—or a country’s membership in the WTO—helps lay down the rules of the road between countries, what happens if a country breaks those rules?
In the case of the WTO, becoming a WTO Member means accepting basic standards of fair trade that are agreed to across most of the globe – that’s the baseline for participation in the 21st century global trading system. Free trade agreements add to and strengthen the rules on top of the baseline set by the WTO.
These agreements yield economic benefits by breaking down barriers between countries but also allow for the best value products and services to win – rather than those most favored or most protected by one government. They can prevent countries from singling out a foreign competitor and taxing or regulating them unfairly relative to a domestic company. Or, as in the case of today’s action, they can prevent a country from unfairly advantaging their domestic industries by providing support in excess of agreed limits, distorting trade and disadvantaging their competitors.
So, when a country feels that others in the WTO may be disregarding the rules, that country can bring a case before the WTO to resolve. Independent experts are then selected to examine the matter and deliver findings which all WTO Members have agreed to adopt. To date, there have been more than 500 disputes filed at the WTO in its more than 20 years of existence.
Why has the U.S. brought cases before the WTO?
President Obama has made enforcing our trade rules a critical part of his Administration’s strategy on trade since Day 1. Vigilant monitoring and rigorous enforcement of U.S. trade rights is necessary to ensure that America’s working families are able to benefit from the job-supporting opportunities available under U.S. trade agreements.
The United States has brought 23 complaints to the WTO since 2009 – more than any other country -- and we have won every single case that has been decided so far. Export figures and industry estimates confirm that these enforcement victories are worth billions of dollars.
What kinds of cases have we brought before the WTO?
We’ve won 12 major victories affecting billions of dollars of U.S. exports. Here are three examples:
- In 2012, the WTO found that China’s duties on high-tech steel were inconsistent with the rules, duties that contributed to over $250 million in losses for American steel exporters. President Obama challenged China on its misuse trade remedies that were harming our workers and businesses – the first time any WTO member had initiated a proceeding to challenge a claim by China. Following the U.S. complaint in the WTO, China announced that it was terminating the illegal extra duties on U.S. exports.
- In August of 2014, the WTO found that China had breached WTO rules by imposing unjustified extra duties on American cars and SUVs in a case brought by the Obama administration. In 2013, an estimated $5.1 billion of U.S. auto exports were covered by those duties. Following our complaint, China terminated the illegal extra duties on American exports.
- In 2015, the U.S. challenged India on its ban of U.S. agricultural products, like poultry, eggs, and live pigs, allegedly to protect against the avian flu. The U.S. challenged India’s ban, and the WTO found in favor of our charge that India’s ban breached numerous international trade rules, including one preventing countries from imposing a ban without sufficient scientific evidence.
What is the case that President Obama is bringing before the WTO today?
The case we are bringing to the World Trade Organization (WTO) says very plainly that China’s excessive government support for rice, wheat, and corn must end. China made clear and specific commitments to the WTO on the level of government support it would provide for rice, wheat, and corn, but China’s government support programs go well beyond those limits.
But right now, China is providing trade-distorting farm subsidies, otherwise known as government domestic support, to wheat, rice, and corn producers in excess of the amounts permitted by their commitments. In 2015 alone, we estimate that the aggregate value of support China provided to producers of these crops was nearly $100 billion in excess of China’s permitted level of support. China has set prices for wheat, corn, and rice well above market levels, which leads to overproduction in China and puts American farmers at a competitive disadvantage. Here’s why:
China is the second largest export market for U.S. agricultural products, after Canada, accounting for 15 percent of total agricultural exports from the United States in 2015. The United States exported nearly $2.3 billion of wheat, rice, corn, and products produced using those commodities to China in 2015. But China’s excessive level of domestic support increases Chinese commodity prices and creates incentives for increased Chinese production of agricultural products. That shrinks the market size for U.S. products and restricts the growth potential in the Chinese market for U.S. exporters of these grains.
America’s rice, wheat, and corn industries are vitally important to our national economy. Together, exports from these industries contribute an estimated $70 billion to the United States economy every year, and support 200,000 American jobs. Our farmers rely on access to China’s market to compete globally and support jobs and our economy back home.
As President said about today’s case:
When American workers, businesses, and farmers have a fair shot to compete in the global economy, we win. And when other countries flout the rules to try and undercut American workers and farmers, we hold them accountable. That’s what my Administration has done consistently in taking more claims to the World Trade Organization than any other country – and that’s exactly what we’re doing once again today by filing our latest complaint against China before the WTO.
How many cases have we brought against China?
Fourteen out of our 23 complaints at the WTO involve China. Under President Obama, we’ve won every case that has been decided so far and a total of 7 against China.
Now that you’ve brought the case to the WTO, what happens next?
Under WTO dispute settlement procedures, we will hold consultations with China with a view to resolving these matters during those consultations. If the United States and China are not able to reach a mutually agreed upon solution, the United States may request the establishment of a WTO dispute settlement panel. And because the measure we are challenging appears to provide advantages to Chinese farmers at the expense of farmers all over the world, not just the United States, this may impact other WTO member countries as well.
How else is President Obama making sure that countries play by the rules?
Actually, the President’s efforts to negotiate high-standard free trade agreements are a big part of that. The Trans-Pacific Partnership, or the TPP, is a trade agreement with 12 nations that puts in place the highest standards of any trade deal in history. From combatting illegal wildlife trafficking and banning child and forced labor to protecting a free and open internet and simplifying export rules for small businesses, the TPP ensures that our values are reflected in trade policies for the Asia-Pacific. And that’s important, because the Asia-Pacific houses some of the fastest growing markets in the world.
TPP will also make it easier for American entrepreneurs, farmers, and small business owners to sell Made-In-America products abroad by eliminating more than 18,000 taxes and other trade barriers on American products across the 11 other countries in the TPP—barriers that put American products at an unfair disadvantage today. And make no mistake, the U.S. is in a race with China to help define the rules of road in the region. China is looking to negotiate its own trade deal – one that doesn’t reflect American values and one that will leave U.S. workers and businesses behind. That’s why we need Congress to ratify the TPP this year.
In a century defined by an increasingly globalized economy, we cannot let other countries pass us by. If we don't pass this agreement and write the rules, our competitors will set weak rules of the road, threatening American jobs and workers while undermining U.S. leadership in Asia.
