DS 449-China v. U.S. (Various Products from China) Eric Chidlress Amro Eisa Heather Gordon

Antidumping Duties vs. Countervailing Duties  ADDs and CVDs are two ways to remedy the same problem: artificially low priced imported goods.  ADDs are applied against goods when a manufacturer has set the price of that good lower in a foreign market than their own market.  Traditionally, dumping is determined by comparing domestic and foreign goods prices. In an NME domestic pricing cannot be trusted, so agents rely on pricing from third-country sources. These “surrogate values” are used to make a final calculation to determine the correct price for an imported good.  CVDs are applied against goods which receive a government subsidy or bounty.  A subsidy is actionable when there exists a market distortion from its use (SCM 1.1). In an NME, there is no market to distort, therefore there is no room for an actionable subsidy to exist.

Price Calculation for Non-market Economies (NMEs)  “Requires the company to report the quantities of each item used in making the subject merchandise (including labor, materials, and energy), and it uses that information to calculate a cost of production by multiplying the quantities of each reported ‘factor of production’ by "surrogate values" for those factors obtained from market economies” (Feldman 2013).  “Commerce used as its benchmark (Bangkok values), for the price a Chinese company was paying for land in rural Shandong Province” (Feldman 2013).

Treatment of NME Imports by US Agencies  US Dept. of Commerce had a longstanding policy of not applying CVDs to NMEs.  US GAO warned in 2005 that Commerce lacks the explicit legal authority to do so.  Specifically warns of the potential for double remedies or “double counting.”

History of Commerce, CVDs, and NMEs  First CVD investigation on Chinese imports:  2006 investigation against Chinese coated free sheet paper.  Commerce cites Georgetown Steel Corp. v. United States (1986) as establishing precedence that the agency may apply CVD at its discretion.  “Given these developments, we believe that it is possible to determine whether the PRC Government has bestowed a benefit upon a Chinese producer (i.e., the subsidy can be identified and measured ) and whether any such benefit is specific. Because we are capable of applying the necessary criteria in the CVD law, the Department’s policy that gave rise to the Georgetown Steel litigation does not prevent us from concluding that the PRC Government has bestowed a countervailable subsidy upon a Chinese producer” (Dept. of Commerce public document C ).

History of the Case  China joins WTO on December 11, 2001 as an NME.  Between , the US Dept. of Commerce conducts 31 parallel investigations to determine ADD and CVD measures.  March 2012: Obama signs PL (GPX legislation), explicitly allowing Commerce to apply CVDs to NMEs countries.  September 2012: China submits a request for consultations in reference to PL to the WTO.

Contested US Law  US Public Law (GPX Legislation) amended the United States Tariff Act of  GPX legislation is retroactive to November 20,  The law explicitly allows for Commerce to apply CVDs in addition to ADDs to NMEs.

WTO Issue: Publication and Transparency  X:1 “Laws, regulations, judicial decisions and administrative rulings of general application … shall be published promptly in such a manner as to enable governments and traders to become acquainted with them.”  X:2 “No measure of general application taken by any contracting party effecting an advance in a rate of duty or other charge on imports under an established and uniform practice … shall be enforced before such measure has been officially published.”

WTO Issue: Double remedies  Double remedies, or double counting, occurs when both CVD and ADD result in offsetting a subsidy twice.  Article VI:2- “In order to offset or prevent dumping, a contracting party may levy on any dumped product a ADD not greater in amount than the margin of dumping in respect of such product.”  Article VI:3- “No CVD shall be levied on any product of the territory of any contracting party imported into the territory of another contracting party in excess of an amount equal to the estimated bounty or subsidy…”  Subsidies and Countervailing Measures (SCM) Article 19: Imposition and Collection of CVDs- “CVDs shall be levied, in the appropriate amounts in each case.”

China’s Position  United States actions are inconsistent with:  Articles 10, 15, 19, 21, and 32 of the SCM Agreement;  Articles VI, X:1, X:2, and X:3 of GATT 1994; and  Articles 9 and 11 of the Anti-Dumping Agreement.  GATT 1994 Article VI:5: “No product of the territory of any contracting party imported into the territory of any other contracting party shall be subject to both anti-dumping and countervailing duties to compensate for the same situation of dumping or export subsidization.”

China’s Position cont.  GPX legislation is inconsistent with Article X due to its retroactive nature (GPX is “enforcing” actions taken between 2006 and 2012).  Commerce failed to investigate whether double remedies arose from 25 parallel CVD and ADD proceedings between 2006 and  Congress failed to give Commerce explicit legal authority to avoid issues of double remedies.

U.S.’s Position  Article X: GPX legislation only reaffirmed a pre-existing US CVD law. It did not change or otherwise affect CVD proceedings.  Article 19: “China has not made a prima facie case for its claim under the SCM Agreement; and it erroneously interprets Article 19.3 of the SCM Agreement. As a result, its claim that the United States acted inconsistently with Article 19.3 of the SCM Agreement is baseless” (WTO Panel Report Addendum 1).  Articles 10 & 32: “Because China's claims under Article 19.3 of the SCM Agreement fail, its consequential claims under Articles 10 and 32.1 of the SCM Agreement must also fail” (WTO Panel Report Addendum 1).

Most Recent Rulings (Appellate Body)  Upheld on appeal: “As regards China’s claims relating to “double remedies”, the Panel determined that the United States did not investigate whether “double remedies” arose in the proceedings at issue, and that it was therefore acting inconsistently with Articles 19.3, 10 and 32.1 of the SCM Agreement” (WTO Panel Ruling).  Reversed on appeal: “According to the Panel majority, the United States did not therefore act inconsistently with Article X:2 of the GATT 1994” (WTO Panel Ruling).  Appellate ruling: “… the Appellate Body was unable to complete the analysis and arrive at a conclusion as to whether Section 1 had changed the US countervailing duty law” (WTO Appellate Report).  A win for the United States?

Dispute Implementation  US Public Law (GPX legislation) is still law.  The US was required to bring the 25 double remedies cases from into compliance be re-evaluating the import duties to fulfil its obligations under the SCM agreement.  In Aug 2014, the US said it would follow DSB recommendations in due course. By Aug 2015, the dispute was settled.

Looking Ahead  The provision in China’s WTO accession protocol allowing other WTO members to treat it as an NME expires in Dec  A decision needs to be made by the new US president and the EU whether or not to treat China as market economy in late 2016.

Infographic on NME vs MES status From Barone 2015

US Political Context  The GPX legislation was passed very quickly, in under two weeks, as Congressional rules were suspended to expedite the law’s passage.  Trade Facilitation and Trade Enforcement Act of 2015 passed in February  “Granting Beijing MES would make it easier for Chinese companies targeted in WTO anti-dumping cases to defend themselves, leading some to warn of ‘disastrous consequences’ for the EU and US” (Mitchell 2015).

European Political Context  The Economic Policy Institute found that recognizing China as a market economy “would put 1.7 million to 3.5 million EU jobs at risk” because it would be easier for Chinese companies to export cheaper goods to the EU and fight EU imposed tariffs in the WTO (Scott 2015).  The report makes a “highly conservative” assumption that Chinese imports would increase by 25%-50% over the 3-5 years following MES status (Scott 2015).  Manufacturing is expected to be the hardest hit industry, losing % of its total employment. Germany has the most jobs in jeopardy.

MES Opposing Viewpoints  Cato Institute:  GPX legislation hurts domestic importers.  China’s protocol of accession is understood to end NME status at the end of  Keeping NME status will create unnecessary conflict between China and the US.  Wiley Rein LLP:  The US can continue to treat China as an NME, because only one provision in the accession protocol is expiring. The remaining provisions state that WTO members can use surrogate costs until China has met market economy conditions.  Ample evidence that the Chinese govt. influences costs, including the centralized organizational role of the Communist Party over Chinese industry.

Works Cited  Barone, Barbara. (2015). One year to go: The debate over China’s market economy status (MES) heats up. European Parliament Directorate-General for External Policies. Retrieved from  Feldman, Elliot J, and John J Burke. (2013). "Testing the Limits of Trade Law Rationality: The GPX Case and Subsidies in Non-Market Economies." American University Law Review 62, no  Mitchell, T. (2015). China revs up its bid for WTO market economy status. Financial Times. Retrieved from  Price, A. (2015). The Treatment of China as a Non-Market Economy Country after Retrieved from pdf  Scott, Robert E, & Xiao Jiang. (2015). Unilateral grant of market economy status to China would put millions of EU jobs at risk (No. #407). Washington, DC: Economic Policy Institute. Retrieved from  Spetrini, Joseph. (2007). Countervailing Duty Investigation of Coated Free Sheet Paper from the People’s Republic of China - Whether the Analytical Elements of the Georgetown Steel Opinion are Applicable to China’s Present-Day Economy. (No. C Investigation Public Document). Department of Commerce. Retrieved from  U.S.-China Trade: Challenges and Choices to Apply Countervailing Duties to China. (2006). U.S. Government Accountability Office. Retrieved from  Watson, K. W. (2016, March 9). It’s Time to Dump Nonmarket Economy Treatment. Cato Institute. Retrieved from  WTO | dispute settlement - the disputes - DS449. (n.d.). Retrieved from