Donald Trump‘s trade tsar has fired a warning shot at both Beijing and the World Trade Organisation, cautioning that any decision to label China a “market economy” would have “cataclysmic” consequences for the body.

Testifying before Congress on Wednesday, Robert Lighthizer said the US was eager to see changes in the WTO’s dispute resolution system, arguing that the country had unfairly ended up as the top target for complaints in the global trade court.

But the US trade representative singled out a dispute brought last December by China against the EU and US over whether it should be deemed a market economy as the “most serious litigation that we have at the WTO right now”.

Receive 4 weeks of unlimited digital access to the Financial Times for just $1.

“I have made it very clear that a bad decision with respect to the non-market economy status of China . . . would be cataclysmic for the WTO,” he said.

Mr Lighthizer did not say what US action that would lead to and he added he was “assuming . . . that the WTO is going to do the right thing”. But the warning pointed to how the Trump administration is upending the US relationship with the WTO and other multilateral institutions it helped create following the second world war.

During his campaign for president Mr Trump threatened at one point to pull the US out of the WTO. While his administration has since moderated its tone it has also made its sceptical view of the Geneva-based body clear since taking office.

Mr Lighthizer is a longstanding critic of the WTO and has argued for the US to take a far more muscular approach to its relationship with both the trade body and China. In written testimony to Congress in 2010 he called for the US to end what he called its “unthinking, simplistic and slavish dedication” to WTO rules.

The issue of China’s market economy status in the WTO also falls within one of Mr Lighthizer’s areas of expertise. He is a former trade lawyer who made his fortune bringing anti-dumping cases on behalf of the US steel industry.

Beijing contends that the agreement when it joined the WTO in December 2001 was that it would automatically be awarded market economy status for the purpose of the calculations used in anti-dumping cases. Currently, its non-market economy status means that the US and other countries can use prices in third countries to determine the size of punitive tariffs used to combat dumping, or the selling below cost of products, by Chinese companies.

In written testimony submitted on Wednesday, Mr Lighthizer said he had already begun discussions with the WTO’s director-general, Brazilian Roberto Azevedo, and others about reforming the WTO’s dispute system.

“This is now a topic of serious discussion at the WTO,” he wrote. “We expect to see meaningful changes in order to maintain the relevance of the system.”

But Mr Lighthizer also made clear that he expected very little to come out of broader WTO negotiations in the short term.

The Trump administration has so far taken a more cautious approach towards trade with China than the president promised during his campaign. On the campaign trail Mr Trump railed against the US’s $300bn annual trade deficit with Beijing and threatened to impose tariffs on Chinese goods and label China a currency manipulator.

After a meeting with Chinese leader Xi Jinping earlier this year Mr Trump announced a 100-day plan to tackle trade issues and promised a friendlier tone if Beijing reined in North Korea. As part of that process Washington and Beijing announced an interim deal last month that allowed a resumption of US beef exports to China and paved the way for other measures including additional US LNG exports.

But Mr Lighthizer said on Wednesday that this was just one strand of discussions and warned that many other tough negotiations lay ahead. Among the issues the US was now focusing on were new barriers to US tech companies doing business in China, he said.

“The pressure is still on,” he said. “The trade deficit still hasn’t come down.”

More from Financial Times:
Big China companies targeted over ‘systemic risk’
Kalanick departure leaves scandal-hit Uber’s top ranks vacant
Young Brazilian politicians push for generational change

Facebook Comments