With help from Doug Palmer

— Western officials at the WTO are warning that China’s influence over Hong Kong is affecting the work of the international trade body, as more than 160 discrete economies gear up for next week’s meeting of the organization’s Dispute Settlement Body.

— The European Union is considering restarting a WTO case against the U.S. over steel tariffs, as Brussels vies to maintain leverage should the transatlantic partners not find an agreement by the end of the year.

— GOP Sens. J.D. Vance of Ohio, Josh Hawley of Missouri and Tom Cotton of Arkansas are calling on the Department of Commerce to suspend its review of Vietnam’s non-market economy status, citing concerns over domestic industry and China’s influence.

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WHO CONTROLS HONG KONG AT THE WTO? The American and EU delegations at the World Trade Organization are warning that the erosion of Hong Kong’s autonomy by China could undermine the international trade body, according to comments made during Hong Kong’s trade policy review on Dec. 6 and 8 in Geneva.

“The United States would like to raise concerns regarding the erosion of Hong Kong, China’s autonomy following the imposition of the National Security Law, as well as other actions taken by the People’s Republic of China,” the U.S. delegation said on Wednesday, according to a copy of its statement sent to Morning Trade.

The European Union, for its part, said the bloc remains “deeply concerned” about developments in Hong Kong in recent years and said that “we observe a continuous erosion of the ‘One Country, Two Systems’ principle and Hong Kong, China’s previous degree of autonomy.”

Officials from Brussels and Washington took particular issue with Hong Kong’s role in blocking the appointment process of a new chair of the Government Procurement Committee, which the EU argued “put enormous stress on the functioning of the WTO. This organization cannot operate if Members instrumentalise its procedural provisions for political ends.”

The flare-up comes as Western governments say China’s actions in Hong Kong — such as Beijing’s sweeping national security law imposed in 2020 — are eroding the region’s autonomy and devastating democratic principles in the region. China denies any wrongdoing, underscoring the difficulties in coming to any kind of consensus among the WTO coalition of more than 160 distinct members.

“We heard calls from another Member that raising such issues in a TPR meeting inappropriately injects politics into the WTO,” the American delegation said on Friday, according to a copy of its remarks.

“But we remind Hong Kong, China and others that we are merely calling attention to issues affecting the WTO, and remind these Members that they directly caused paralysis of one committee’s work for over a year,” it said.

Taste of what’s to come? Biden administration officials for months have raged against a WTO panel decision that found that the U.S. violated trade rules when it required products from Hong Kong to be labeled as “Made in China.” The U.S. has appealed the decision to the WTO’s Appellate Body, which has remained dormant since the Trump administration.

Coming up: Those disagreements are poised to loom over the next meeting of the Dispute Settlement Body scheduled for next Monday. The WTO’s 13th Ministerial Conference, set for late February in the United Arab Emirates, was seen as an informal target for substantial reform, but U.S. officials have categorized that timeline as optimistic, at best.

ALSO AT THE WTO — USTR DETAILS U.S. SUBSIDY INCREASE: The U.S. has taken its first stab at reporting a massive expansion in U.S. government subsidies to the WTO under a slew of legislation passed since President Joe Biden took office.

“Additional information will be provided in subsequent notifications, once the amendments and new programs have been fully implemented and the program administrators are able to provide more complete information,” USTR said in the report.

USTR does not provide an overall tally of the hundreds of billions of dollars of new federal subsidies approved by Congress in 2022 under the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act.

But the report does list dozens of new spending programs, including tax credits aimed at expanding the use of electric vehicles and renewable fuels and boosting domestic semiconductor production. There are also new subsidies for sustainable aviation fuel, clean hydrogen production and nuclear energy, among others.

Older subsidy programs for agriculture, coal, oil, natural gas, lumber, fisheries, medical, metals, minerals and shipyards are also listed in the report.

That’s just too hard: For most of the new and old programs, the United States says it is “not possible to estimate what, if any, trade effects may result from the use of this provision.” It leaves that task to other countries that could decide to challenge the measures.

EU EYES WTO CASE ON U.S. STEEL TARIFFS: The European Union is looking into restarting its case at the WTO against U.S. steel tariffs should the two sides not find an agreement by the end of the year on the terms of their truce, two EU diplomats and an EU official told POLITICO.

Catch me up: The tariffs, imposed in 2018 by then-President Donald Trump, were suspended by the Biden administration while the two sides sought a new agreement aimed at reducing global carbon emissions and excess capacity. Washington has made clear it would not reimpose its measures even if there’s no deal in those talks by the end of this year, and would instead leave in place a tariff-rate quota arrangement agreed to two years ago.

For the EU, however, the current truce isn’t good enough and the bloc seeks to improve the terms of the tariff-rate quotas. Brussels also wants to maintain leverage at the negotiating table and is leaving the door open to imposing retaliatory tariffs on approximately $6 billion worth of American exports beginning Jan. 1. Camille Gijs has more.

NEW SANCTIONS TARGETING UYGHUR FORCED LABOR: The Treasury and State departments imposed sanctions and visa restrictions on 37 people in 13 countries, including two Chinese officials for “serious human rights abuse in Xinjiang,” according to a statement.

Not far enough: Republican China hawks have complained that the fresh round of sanctions does not target senior Chinese officials, including Ma Xingrui, the Communist Chinese Party chief in Xinjiang.

“Blinken must explain why the top CCP official in Xinjiang — who implements Xi Jinping’s genocide — does not meet the criteria for U.S. sanctions,” Select Committee on the CCP Chair Mike Gallagher (R-Wis.), and Sen. Marco Rubio (R-Fla.) said in a statement.

TECH AT THE CENTER OF U.S.-CHINA ROW: A key technology in futuristic cars is quickly becoming a new flashpoint in already fraught relations between the U.S. and China, writes Tanya Snyder in an article out this morning.

The development of “lidar” sensor technology has helped fueled the rise of driverless “robotaxis” roaming cities like San Francisco and Phoenix. But as automakers prepare to deploy lidar-enabled features such as adaptive cruise control and blind spot detection in more consumer vehicles, the homegrown industry is mounting a wide-ranging lobbying offensive against a leading Chinese rival that’s stepping up its own PR game.

HAWKS TO RAIMONDO: REVERSE COURSE ON VIETNAM: Republican China hawks are calling on Commerce Secretary Gina Raimondo to suspend her department’s review into Vietnam’s non-market economy status in a letter being sent today and shared with Morning Trade ahead of its public release.

“A hasty decision to graduate Vietnam to market economy status would weaken the enforcement of U.S. trade and national security laws, embolden and advantage the Chinese and Vietnamese communist parties, and hurt American industries and their workers,” Sens. J.D. Vance (R-Ohio), Josh Hawley (R-Mo.) and Tom Cotton (Ark.) wrote to Raimondo.

Change in the works: The latest Treasury Department semiannual report to Congress noted that Vietnam was removed from a watch list, and Commerce announced in October that it would review the non-market economy status of Vietnam, kicking off a 270-day countdown, which includes a public comment period.

This week: President Xi Jinping of China gears up for a trip to Vietnam, which kicks off Tuesday, about three months after Biden’s visit to Vietnam, which resulted in modest deliverables between business stakeholders and an upgraded partnership.

The visits underscore a balancing act for the strategically located region, which has a highly integrated relationship with China. U.S. officials have signaled the review is aimed at bringing Vietnam closer to the West and away from China’s grip.

But hawks don’t agree: “Trade concessions are unlikely to substantively change Vietnam’s strategic calculous in the region. Indeed, Vietnam already enjoys a $114 billion annual trade surplus — the third largest surplus of any nation with the United States — yet, Vietnam still actively collaborates with China and is one of the largest sources of transshipped Chinese goods,” according to the lawmakers.

WISCONSINITES GRILL ADMIN OVER USMCA RULING: A coalition of House Republican lawmakers sent a letter to USTR Katherine Tai and Agriculture Secretary Tom Vilsack last week asking them to detail plans for “next steps” after the USMCA dispute settlement panel rejected a complaint that Canada overly restricted U.S. dairy imports.

— With an unpredictable year ahead, Canada’s envoy in Washington takes stock of the bilateral relationship in a Q&A with Kirsten Hillman, our Canadian colleagues report.

— The European Union says it’s time for the oil boss presiding over this year’s global climate talks to step up and push for a fossil fuel phaseout, Zia Weise and Karl Mathiesen report.

— Members of the European Parliament, EU member countries represented by the Council, and experts from the European Commission have clinched a political deal on the Artificial Intelligence Act, per Gian Volpicelli.

— The American ambassador to Canada, David Cohen, told CBC News that the U.S. has begun informal discussions on the North American Free Trade Agreement.

— National security advisers from the U.S., South Korea and Japan pledge to deepen cooperation to suppress North Korea’s development of nuclear weaponry, the AP reports.

THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected], [email protected] and [email protected]. Follow us @POLITICOPro and @Morning_Trade.