China, European Union accuse US of miring world trade body in crisis

Geneva/Tokyo - IMF says trade war already hurting Asia, may cut global growth forecasts

The United States came under fire from China and the European Union on Monday, accused by both major trading partners of taking protectionist measures and bringing the World Trade Organisation (WTO) to its knees.
Japan, Switzerland and Canada also criticised Washington, but US trade ambassador Dennis Shea charged that China's "unfair competitive practices" were harming foreign companies and workers in violation of WTO rules, and he vowed to lead reform efforts at the watchdog.
US President Donald Trump's administration says the WTO is dysfunctional because it has failed to hold China to account for not opening up its economy as envisaged when Beijing joined in 2001.
Shea drew a rebuke from Chinese envoy Zhang Xiangchen who said US tariffs on steel and aluminium products had allowed protectionism under the guise of dubious national security concerns.
"The multilateral trading system is in a deep crisis and the United States is at its epicentre," said EU ambassador Mark Vanheukelen
The heated words were exchanged at a review of US trade policies, held every two years.
To force reform at the WTO, Trump's team has refused to allow new appointments to the Appellate Body, the world's top trade court, a process which requires consensus among member states. As a result, the court is running out of judges, and will be unable to issue binding rulings in disputes.
Shea expressed concern about a wayward WTO dispute settlement system and said the Appellate Body had overreached in some legal interpretations.
Zhang countered that by blocking the selection of judges, Washington was putting the system into paralysis. The EU's Vanheukelen urged Washington to engage in talks on reform proposals which it presented last month with 11 other members.
Vanheukelen and Canada's envoy Stephan de Boer decried limitations on the US procurement market, in particular through "Buy American" legislation.
Japan and Switzerland also expressed concern at the US use of a national security exemption to justify its steel and aluminium tariffs, a trade official said.
Shea described the United States as "one of the most open and competitive economies in the world", with among the lowest tariffs globally, denying the US approach was "unilateralist and protectionist".
China has pursued "non-market industrial policies and other unfair competitive practices" aimed at supporting its domestic industries while restricting or discriminating against foreign companies and their goods and services, he said.
"The WTO is not well equipped to handle the fundamental challenge posed by China, which continues to embrace a state-led, mercantilist approach to the economy and trade," Shea said.
He did not refer to the dispute on steel which brought the two powers to the brink of a major trade war but defended the US "Section 301" investigation that found in March that Chinese practices related to technology transfer, intellectual property and innovation were discriminatory.
On Section 301, Zhang said the US measures vastly increased tariffs, "bringing back to life the ghost of unilateralism that has been dormant for decades".
Shea said the United States was committed to addressing concerns on WTO's functioning, adding: "Reforms are necessary for the continued viability of the institution."  
 IMF to cut global growth forecasts
Trade frictions between China and the United States are already affecting business confidence and investment in Asia, a senior International Monetary Fund official said, warning that the fund could further cut its global growth forecasts in January.
Changyong Rhee, director of the IMF's Asia and Pacific Department, said Japan and South Korea could be among countries in the region hit hardest by the trade war given their reliance on exports to China. "Investment is much weaker than expected. My interpretation is that the confidence channel is already affecting the global economy, particularly Asian economies," Rhee said.
"We see global growth a little bit slower than we forecast in October," he said on Monday.
The IMF cut its global growth forecast in October to 3.7 per cent for both 2018 and 2019, down from 3.9 per cent projected in July.
It expects Asia's economic growth to slow to 5.4 per cent next year from 5.6 per cent projected this year. Rhee said there was a chance the IMF could cut further its growth forecasts when it reviews them in January, given signs of slowdown not just in Asia but in Europe and the United States.
"Uncertainty is so large... uncertainty means you have upside potential as well as downside risk. At this moment, we believe the downside risk is a little bit higher," he said.
On China, Rhee said it was not resorting to big-scale stimulus despite growing external headwinds, given the need to deal with long-term challenges such as curbing excess debt.
"They aren't accelerating (stimulus) yet but taking the foot from the brake for the time being. But that doesn't exclude the possibility that if the trade tension escalates, if growth goes down, they are ready to use stimulus," he said.
"What we're concerned and what we're advising them is that the medium-term goals such as deleveraging are still important for financial stability," Rhee added.
"So when they actually try to use stimulus, we hope they can use more fiscal policy rather than credit expansion."