The World Trade Organisation gave China the green light to implement $3.57 billion (Dh13bn) in sanctions annually against the US in compensation for failure to remove anti-dumping duties, in a case dating to the administration of president Barack Obama that could weigh on ongoing talks to resolve the current tariff war.
The damages awarded by a three-member arbitration panel are about half of the $7.043bn that China sought from the Geneva-based organisation as it argued that some US anti-dumping rules are illegal, according to a 68-page report on the WTO's website. The amount awarded is the third highest in the WTO's history.
"China may request authorisation from the Dispute Settlement Body to suspend concessions or other obligations at a level not exceeding $3.579bn per annum," the WTO said in its report on November 1.
The ruling comes amid negotiations between the world's two biggest economies about "phase one" of an agreement for a long-awaited trade deal. On Friday, the US and China said they made progress in the talks aimed at resolving the 16-month trade war that has hurt global economic growth.
The global economy is projected to grow 3 per cent this year, its slowest expansion since the 2008 global financial crisis, as a result of protectionist policies and increased uncertainty related to trade, the International Monetary Fund said in October.
The WTO ruling gives China a legal edge against President Donald Trump's administration and may increase tensions during the ongoing talks on the trade war, which has led to retaliatory tariffs worth $500bn in goods from trading both ways.
The issue at the centre of the case, which dates back to December 2013, is the US use of anti-dumping duties imposed on 13 Chinese products. In 2016, a WTO panel ruled the US anti-dumping duties were illegal, turning the case in Beijing's favour.
The case was related to industries-- including metals, electronics, machinery--and Washington's methodology of calculating anti-dumping tariffs, particularly the "zeroing" method.
The US's use of the "zeroing" method tends to increase the level of American anti-dumping duties on foreign producers, which the WTO has ruled repeatedly to be illegal in a series of trade spats presented to the Geneva-based organization.
However, Washington has defied those rulings and continued to employ this method of calculation because of domestic pressure from industries who depend on anti-dumping tariffs to keep out cheaper Chinese and foreign imports.
After the WTO ruling on November 1, China now has the right to ask the WTO's dispute settlement body to approve retaliatory tariffs on US goods and these requests have typically been granted.
The next move by the US would include changing its illegal anti-dumping tariffs on Chinese imports in question or resolving the issue with China directly--a step that would be part of the broader trade talks between Washington and Beijing.
The US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin made progress on a variety of issues during a telephone call on Friday with China’s Vice Premier Liu He about an interim trade agreement, the USTR said in a statement, according to Reuters.
“They made progress in a variety of areas and are in the process of resolving outstanding issues,” USTR said. “Discussions will continue at the deputy level," according to the statement.
The Chinese Ministry of Commerce said the two sides conducted “serious and constructive” discussions on “core” trade points and talked about arrangements for the next round of talks, according to CNBC.