Generally, I really love this time of year. The weather’s getting tolerable, the US election season is in full swing, the summer is over and folks are going back to work, and WTO cases are being filed hither and yon.

Then again, the US just announced two new cases against China, and I have to say that I’m getting the US-China WTO blues. I’ll get into a bit more detail below, but my initial reaction is that one case has a better chance of success than the other, and both of them smack of politics. So let’s get started.

Background

The US mid-term elections take place on November 2, and the campaigning is at a fever pitch. All of our old friends are running about frantically: the racists, the class warriors, the Tea Baggers, the Jesus freaks, the budget deficit concern trolls, the opportunists (well, all of them are that), and of course the China Bashers.

And a fun time was had by all.

The important thing to remember is that the election is upon us, and the Obama Administration is not so happy. They are going to get trounced and are looking for ways to minimize the carnage. There are two ways to do this. First, you can ride a popular issue and enlist support among your base, or second, you can kiss the ass of a rich lobby and make sure you have enough money to spend on political ads.

Both of these WTO cases, coincidentally enough, not only make important Democratic Party lobbies happy, but may also result in an increase in campaign contributions from those lobbies. What a great deal!

Let’s take a quick look at the two cases. Here’s how the US Trade Representative’s office announced the actions:

United States Trade Representative Ron Kirk announced today that the United States has filed two cases against China at the World Trade Organization (WTO). One case requests dispute settlement consultations – the first step in litigation – regarding China’s imposition of antidumping (AD) duties and countervailing duties (CVD) on imports of grain oriented flat-rolled electrical steel (GOES) from the United States. The other case requests consultations regarding China’s discrimination against U.S. suppliers of electronic payment services.

Steel Anti-dumping Case

The allegations in this case are rather technical and involve violations of the WTO’s anti-dumping (AD) rules. As I’ve talked about on this page before, AD is a detestable aspect of the modern trade regime that makes no economic sense. Punishing firms for selling goods cheaply is just plain weird.

WTO rules allow nations to have their own AD regimes as long as they follow certain requirements. The US is claiming that China failed to do so with these steel duties.

China’s antidumping and subsidy determinations in the GOES investigations appear to violate numerous WTO requirements. In the United States’ view, China initiated both investigations without sufficient evidence; failed to objectively examine the evidence; failed to disclose “essential facts” underlying its conclusions; failed to provide an adequate explanation of its calculations and legal conclusions; improperly used investigative procedures; failed to provide confidential summaries of Chinese submissions; and included U.S. federal and state programs that were not identified in the notice of initiation of the CVD investigation.

The detailed allegations, with legal citations to WTO rules, can be found here.

To be honest, I’m biased against AD. I find that the process is too political and that, way too many times, a particular result can be engineered given most nations’ flexible analysis procedures. China and the US both play AD games.

I can’t say for sure whether these steel duties are in technical violation of WTO AD rules, but I am skeptical over the ability of the US to prove it. Some of the allegations include such general claims like “China failed in its analysis to take into account X” when making the determination. Come on. What sort of claim is that? Looks like it calls for a hell of a lot of subjectivity, and you would think that the WTO panel would defer to national law on this sort of thing.

That’s the main reason I see this steel case as a sop to the steel industry and, more importantly, the steel union. Big contributors and boosters of Democrats, particularly in the Midwest. Merits of the case notwithstanding, just take a look at this quote from USTR’s chief Ron Kirk and draw your own conclusions regarding the political context:

This case makes clear that the United States will not permit China to threaten American steelworkers’ jobs by using antidumping and countervailing duty proceedings to harass U.S. exports.

Financial Services

This case is about credit cards, and has much more merit than the steel case, at least on its face. Here’s the USTR statement:

China prohibits foreign suppliers from handling the typical payment card transaction in China, in which a Chinese consumer makes a payment in China’s domestic currency, the renminbi (RMB). Instead, China has created a “national champion” in allowing only CUP [China Union Pay] to provide these services. Meanwhile, with regard to payment card transactions in foreign currency, like those involving Chinese tourists visiting other countries, China imposes requirements and restrictions that favor CUP over foreign suppliers.

Yeah, that’s an accurate statement. There are serious restrictions over here for foreign suppliers of financial services. The question is what China agreed to do about that when it joined the WTO. For that, we have to take a look at the China Accession Agreement, specifically its services schedule, Section II 7(B), page 34 of the Word version (you can find the text at the WTO site here).

In its letter to the WTO, the USTR has extracted the pertinent language:

In the financial services sector, as set out in China’s GATS Schedule of Specific Commitments on Services (the “Schedule”), China undertook both market access and national treatment commitments with respect to:

1. Banking services as listed below: . . . All payment and money transmission services, including credit, charge and debit cards, travellers cheques and bankers drafts (including import and export settlement);
2. Other financial services as listed below: . . . provision and transfer of financial information, and financial data processing and related software by supplier of other financial services; and
3. Advisory, intermediation and other auxiliary financial services on all activities listed in subparagraphs (a) through (k), including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy.

Basic credit card services are covered in that first bullet point, while the second and third involve related services. According to the text, all local currency restrictions are to be phased out within six years of accession. The US is therefore claiming that these restrictions on foreign credit cards should have been lifted by 2006.

I will be very interested to see China’s response to this case. Unlike the steel AD matter, which involves a whole lot of subjective digging into China’s domestic AD regime, the credit card dispute relates to specific promises made when China joined the WTO. There are only two types of defenses here, I think: either these specific services do not fall within the scope of the phase-outs to which China committed, or China is otherwise justified in maintaining the restriction based on other concerns (e.g. stability of banking system, currency regime). I don’t know enough about this sector to make a prediction here, so all I can say is that the US prima facie case looks a lot better than some others it has filed with WTO in the past few years (including this steel AD matter).

So why do I have the US-China WTO blues?

Notwithstanding the merits of these cases, I find the timing just a bit too convenient for the Obama Administration. I’m sure they can find 100 different people in USTR who will swear on their mother’s grave that these cases were in the works months ago, but I’m not buying it.

The steelworker’s union has been making a huge amount of noise recently, and the unions are (justifiably) pissed off with Obama over unrelated issues, such as healthcare and card check legislation. The unions have not gotten what they expected out of this president. Throwing these guys this case right before the elections? Come on.

And the financial services industry? These folks have traditionally been in the top three in amounts given to US politicians (of both parties). How have they been treating Democrats this election cycle? This might help answer that question:

Just two years after Mr. Obama helped his party pull in record Wall Street contributions — $89 million from the securities and investment business, according to the nonpartisan Center for Responsive Politics — some of his biggest supporters, like [JPMorgan Chase's CEO] Mr. [Jamie] Dimon, have become the industry’s chief lobbyists against his regulatory agenda.

Republicans are rushing to capitalize on what they call Wall Street’s “buyer’s remorse” with the Democrats. And industry executives and lobbyists are warning Democrats that if Mr. Obama keeps attacking Wall Street “fat cats,” they may fight back by withholding their cash.

Democrats are struggling, and a big contributor is punishing them by withholding cash. Tell me again that this is all a coincidence.

Disclaimer: As usual, my opinion above is that of a trade hobbyist. Only someone who not only thoroughly knows WTO law, but also China’s credit card industry (alternatively China’s AD rules) would be able to offer an educated guess as to the strength of these cases.