Section 421: China's WTO Noncompliance and the Protection of U.S. Corporate Interests
Bouts, Michael W., Journal of Corporation Law
The United States continues to be a major global force, but the United States' relative power is in decline as the developing world continues its economic and political growth. The United States must increasingly collaborate with emerging powers and rely on the authority of international organizations such as the World Trade Organization (WTO). China, particularly, is one of the emerging powers the United States frequently must coordinate with and consult. China's economic and political rise is the major geopolitical issue for the 21st century. China is already a powerful force in the global economy, and trade with what will soon be the world's largest economy is essential for sustained U.S. economic growth.
China's membership in the WTO creates vast opportunities, but also vast potential costs for the United States. U.S. companies will have access to a massive market of goods and services. Yet, China will try to shape the WTO to its own advantage at the expense of other WTO members, including the United States.1 The WTO regulates international trade law and promotes free trade worldwide. The WTO creates "a more prosperous, peaceful and accountable world."2 China is failing to implement WTO obligations on schedule, and its noncompliance poses a threat to world trade and global prosperity if China continues to experience no significant negative consequences for its WTO noncompliance.
One way the United States can combat China's WTO noncompliance is through section 421 of the 1974 Trade Act. In 2001, the United States enacted section 421 to protect U.S. companies from Chinese exports as long as China is not in compliance with WTO obligations.3 In 2009, President Obama became the first President to provide import relief under section 421.4 On September 5, 2011, the WTO Appellate Body decided in favor of the United States on all counts in a dispute over U.S. measures to stop a surge in Chinese tires.5 WTO Appellate Body's Tires decision unequivocally validated section 421 as a legal, effective tool in U.S. trade policy with China. Section 421 expires, however, on December 11, 2013, leaving the United States without a powerful, China-specific trade remedy.6
President Obama emphasized the importance of section 421 in his 2012 State of the Union Address, saying that "[o]ver a thousand Americans are working today because we stopped a surge in Chinese tires. But we need to do more."7 President Obama also vowed to expand U.S. capabilities to combat unfair trade by creating a Trade Enforcement Unit and various other measures.8
This Note explores both the implications of the Tires decision and how the Tires decision fits into the United States' reinvigorated effort to protect U.S. companies and consumers from unfair trade practices. Part II of this Note examines U.S. trade law and gives a targeted history of Sino-U.S. trade relations. Part III details China's WTO compliance and its relationship with section 421. Part IV recommends that the President work with the WTO to create a monitoring system, that U.S. companies seek import relief from Chinese imports from the President, and that the President investigate the section 421 negotiations for error.
The background establishes the essential facts surrounding the Tires decision and its impact on U.S. trade policy. First, this Part describes the WTO and its role in global trade. Second, this Part gives a history of Sino-U.S. trade relations. Third, this Part overviews U.S. trade remedies and highlights section 421's unique role in U.S. trade law.
A. The WTO
Since 1995, the WTO has acted as the permanent governing body for world trade.9 The WTO is the sole international organization dedicated to global trade rules.10 Its goal is to "improve the welfare of the peoples of the member countries."11 The WTO works to achieve its goal through trade agreements, which create the legal framework of international commerce among member countries-a group that includes a sizeable majority of the world's trading nations. …