Embargoes and Sanctions.

Shortly after the Tribunal ruling, China’s Deputy Minister of Trade was careful to encourage Chinese citizens to not boycott United States. and the Philippines; however, that does not mean that sanctions and boycotts are off the table. Bloomberg reported on August 4 that China will likely resume trade retaliation tactics against South Korea for its decision to deploy the U.S. THAAD missiles to counter North Korean missile launches. Korea’s International Trade Association has identified twenty-six measures currently in place to restrict trade and is expecting more nontariff barriers such as bogus safety inspections of inbound products, the establishment of new licensing requirements and manipulation of quarantine and safety inspections to frustrate Korean imports.

The above actions are not unprecedented and could target Japan. In 2010, Chinese customs officials halted the shipments of rare earth minerals destined for Japan (for user in hybrid cars, wind turbines and guided missiles) as a form of protest for detention of a Chinese fisherman fishing near the Senkakus. The United States has also been victimized by China’s extensive unfair trade practices (dumping and illegal subsidies), theft of intellectual property and hacking of U.S. companies. Working within the WTO system, the United States has filed a record number of suits versus China in the WTO on behalf of U.S. poultry producers and is now considering the unilateral institution of a total ban on Chinese steel imports because of illegal price fixing and other illegal actions by Chinese steel producers.    

The use of nontariff barriers has been a favorite ploy by countries to sneakily frustrate imports to protect local producers while at the same time staying compliant with the WTO rules. As for embargoes, Article 21 of the World Trade Organization recognizes that states can impose measured national security and health and welfare controls on both exports and imports to protect their citizen’s “essential security interests” or to prevent the proliferation of weapons. Using this exception, China passed new a national security laws in 2015 which required foreign technology companies to be “secure and controllable” by Chinese National Security Agencies as a way of pushing out foreign technology firms, like Microsoft, Apple and Cisco in favor of local suppliers.

In the short term, China has considerable legal room to maneuver should it wish to impose national security controls or erect non-tariff barriers to punish Japan. WTO cases are time very time-consuming to document and litigate. But, that same legal maneuver space can also be exploited by Japan to frustrate Chinese imports and place limits on its exports of mostly electrical and industrial equipment to China.

History confirms that China would suffer likely more than the Japan as a result of an embargo. Tough Allied embargoes against Nazi Germany and Italy proved ineffective when self-interest among allied business interests caused the embargoes to leak or, in the case of Germany, forced innovation when Germany developed synthetic substitutes for oil and other commodities.  When the U.S. embargoed wheat exports to the USSR in 1973 to the USSR, Canada and Australia picked up the business. This point is especially important in the current situation: if China were to stop buying Japanese finished products, the world economy is sufficiently diverse to compensate for some of these losses. Likewise, a government approved boycott of Japanese products would, apart from the legal repercussions, would have extremely destructive impacts on its economy since China is very much an international trading nation.

Assessment

China needs to ask itself what it is trying to achieve in the ECS. If their intent is to beat Tokyo into submission or lure it into a limited and protracted war of attrition to undermine public support for Abe, it seems very unlikely that Tokyo will take the bait.  If their intent is to provoke a full-scale military attack which they will win, they are likely to be very disappointed; particularly since U.S. forces will be present to backstop Japanese offensive operations and protect Japan’s homeland. Inexorably, China is painting itself into a corner in which its escape options become more limited. While it was hoped by officials in the U.S. and elsewhere that China would eventually come to the realization that they needed to capitalize on the favorable aspects of the ruling and “pivot” on those they did not like, that is not happening. The recent military displays in the ECS, the threatened sanctions towards South Korea, continued “trashing” of the Tribunal ruling, and the harsh rhetoric towards Tokyo suggest that China is opting for confrontation versus conciliation and now runs the risk of becoming involved in a major military conflict.  China says that it is committed to a rules based order and leadership in Asia but its recent actions say otherwise. Lastly, and perhaps most importantly, pursuit of high risk strategies which could place China’s international trading relations at risk is antithetical to the Chinese Community Party’s 13th Five Year Plan for 2016–2020 to promote balanced international trade, inbound investment, and free trade zones. It is entirely possible that China’s leadership does not fully appreciate the dangerous choices their countrymen are making and how their actions are being perceived on the world stage. Recent military encounters in the East China Sea especially are occurring frequently and the potential for a costly misstep increases with each passing day. China’s leaders need to appreciate that they may be setting into motion a Japanese military juggernaut that it cannot stop.

A maritime and international lawyer, Mark E. Rosen is the SVP and General Counsel of CNA and holds an adjunct faculty appointment at George Washington School of Law.  The views expressed in this paper are those of the author alone and do not represent the views of CNA or any of its sponsors.

Image:  Vessels in a line. David Didier. United States Government work. Public Domain.​