DS/542, the WTO case that the US filed against China regarding China’s legal regime for foreign technology transfers, has now been suspended by order of the Panel. The parallel case that was filed later by the European Union has not yet been similarly suspended.
When I was in Beijing earlier this June 2019, I gave several talks regarding US-China trade, and I questioned why the US case was not suspended or dismissed. The US case set forth a very limited “de jure” or “as such” case of violation of certain TRIPS obligations, including national treatment with respect to licensing of patents, as well as TRIPS-inconsistent measures regarding the contribution of patents to joint ventures. By filing the case immediately after the 301 Report regarding technology transfer and innovation, the US case seemed to be making the point that the WTO was still a viable mechanism for certain of the US complaints regarding China’s technology transfer regime. It was welcomed by those who believe that the WTO continues to play an important role in trade disputes. Suspending the case now in a sense confirms that Donald Trump accomplished legislative reform more quickly with jaw-boning and tariffs than the WTO could have with dispute settlement proceedings.
However, the White House should also not rush to praise itself on the utility of its approach to using the WTO dispute mechanisms. As I previously noted, the US complaint was narrow. It only focused on a few laws and regulations regarding patents. With the passage earlier this year of numerous legislative reforms, including removal of the most offensive provisions of the Administration of Technology Import/Export Regulations, as well as amendments to the Joint Venture Implementing Regulations what the US sought to challenge as de jure WTO violations have been resolved. Numerous other issues that were identified in the Section 301 report, whether credible or not, were not raised in the WTO complaint. In some aspects, this case was long overdue and relatively straight-forward.
Why has the EU case not been dismissed? One explanation may be that the EU may yet follow the lead of the US in seeking a suspension based on how the current legislative packages are implemented. If the EU does not move to suspend the case, an alternative explanation is that the EU case was more comprehensive than the US case and therefore harder to suspend or dismiss. The EU case may yet stand as a raison d’etre for the WTO dispute mechanism. The EU raised concerns over a wider range of laws, regulations, and policies, including Made in China 2025, antitrust laws and new electric vehicle regulations. It also included catch-all claims that extended to how laws and other normative documents are implemented, including their “nullify[ing] or impair[ing]” the benefits accruing to the European Union.
In its summary of the EU complaint, the WTO docket sheet narrowed the EU’s complaints down to more closely mirror the US complaints. If these are indeed the only claims that the EU is now pursuing than a similar suspension would make sense. However, if the complaint remains unamended, it is the kind of complaint the US might have filed as an outcome of the Section 301 investigation. This now leaves the EU with the option of continuing to push for additional improvements in tech transfer to China through the WTO system or, instead, pursuing other solutions such as trade diplomacy.