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Trade war between the United States and China is escalating. The US imposed an additional 25 percent tariff on US$34 billion of Chinese goods on July 6, and China retaliated with a similar tariff on US imports worth US$29.6 billion. The US may impose an additional 25 percent tariff on another US$16 billion of Chinese goods in September and perhaps a third new tariff of 10 percent on another US$200 billion in trade later this year. Both countries have also used other policy instruments in their trade fight. But, it must be understood by both sides that even trade wars have to abide by international laws of economic warfare.

“How can foreign trade be properly regulated by uniform laws without some acquaintance with the commerce, the ports, the usages and the regulations of the different states?” This pertinent question was raised by James Madison, fourth President of the United States, in the year 1788 in Federalist No. 53.

Foreign trade laws had remained a contentious issue for years. But the recent US-China conflagration has put the spotlight back on this issue.

International trade has been growing steadily in the last decade. WTO has suggested that the trade growth in 2017 was the strongest since 2011. But, now, the US is taking a strong position.

In 2017, the US Trade Representative initiated an investigation under Section 301 of the Trade Act of 1974 into the China’s acts, policies and practices related to technology-transfer and intellectual property. The said Article states that if the United States Trade Representative (USTR) determines that the rights of the United States under any trade agreement are being denied or an act, policy or practice of a foreign country violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under any trade agreement or is unjustifiable and burdens or restricts United States commerce, the Trade Representative is authorised to suspend, withdraw or prevent the application of benefits of trade agreement concessions to carry out a trade agreement with the foreign country or impose duties or other import restrictions on the goods.

The USTR Report held that China was involved in theft from the computer networks of US companies which provided the Chinese government with unauthorized access to intellectual property and trade secrets which, in turn, helped China in achieving its strategic development goals, including its science and technology advancement, military modernisation as well as economic development.

Sections 301-310 of the Trade Act of 1974 which authorize certain actions by USTR, including the suspension or withdrawal of concessions or the imposition of duties or other import restrictions, in response to trade barriers imposed by other countries was earlier challenged before the WTO.

The complaint brought by the European Union alleged that by imposing strict time limits within which unilateral determinations must be made and trade sanctions taken, sections 305 and 306 of the Trade Act did not allow the US to comply with the rules of the Dispute Settlement Understanding (DSU) in situations where a prior multilateral ruling under the DSU on conformity of measures taken pursuant to implementation of Dispute Settlement Board (DSB) recommendations had not been adopted by the DSB.


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