China vs. U.S. (Various Products from China) (DS 449)(AB2014) Sam Farnoushfar Louis Feaman Xiaoxiao Feng

Historical Context 1984 – US Commerce Department makes statutory interpretation determining Non-Market Economies (NMEs) will not have Countervailing Duties (CVDs) put on them. NME does not abide by market principles - Section 771(18) of the Tariff Act of 1930 - amended, under 19 USC § 1677(18): Central role of government in allocation of resources Price and output decisions State owned/state run enterprises 1986 - Commerce Department Decision upheld in Georgetown Steel Corporation vs United States Cold War – Ideological Battle Market Capitalism in the West vs Socialist or Communist centrally planned systems US and the West want to encourage “closed” economies to open Participation in the global market by portions of the Soviet or Communist bloc ads validity to the free enterprise market side Any opening up of an economy in Soviet/Communist countries viewed as geopolitical “win” Counterintuitive to punish an emerging economy that is foraying into a market-based system

Rise of China changes Attitudes China’s rise and growing middle class over last 20 years Massive GDP growth from 1984-2012 as successive reforms take place First seen as developing nation By 2010, seen as competitor

China’s Growth

US Actions 2006-2012 Investigation into CVDs begins in 2006 Tariff Act – 1930 allows for CVDs against other market economies Appeals Court determines NMEs are exempt from CVDs according to current law PL 112-99 in 2012 1930 Tariff Act Amended to include CVDs on NMEs BUT – Law retroactive to proceedings on or after Nov 2006 Also Amended to include allowance of Antidumping Duties for NMEs Effective on publication in Mar 2012

Retroactive double dipping… Quick Poll Retroactive double dipping… …hmmmm?

Case Timeline (2012-2014) Date November 19, 2012 China established a panel December 17, 2012 The DSB established a panel February 21, 2013 China requested the Director-General to determine the composition of the panel March 4, 2013 The Director-General composed the panel March 27, 2014 The panel report was circulated to Members July 7, 2014 The Appellate Body report was circulated to Members July 22, 2014 The DSB adopted the Appellate Body report and the panel report

The Position of the main parties Panel The Position of the main parties Complainant China Respondent United States Third Parties Australia; Canada; European Union; Japan; Turkey; Viet Nam; India; Russian Federation Agreement Cited in DS 449 GATT Articles X:1; X:2, X:3(b) SCM Articles 10; 19.3; 32.1; (Agreement on Subsidies and Countervailing Measures) DSU Articles 6.2 (Dispute Settlement Understanding)

China’s position China claims that in relation to the four above-mentioned matters possible inconsistencies wit the GATT, the SCM Agreement: According to China, Section 1 of the PL 112-99 was made effective as of November 20th, 2006. But it was not published until March 13th, 2012. This is inconsistent with the requirements of Article X:1 of the GATT to be published promptly. (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.”) 2. In China’s opinion, Section 1 of the PL 112-99 should not have been enforced prior to its publication on March 13th, 2012 and therefore is inconsistent with Article X:2 of the GATT 1994 (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.”) 3 . China alleges that Section 1 of PL 112-99 is inconsistent with GATT Article X:3 because it has been retroactively applied to events between November 20th, 2006 and March 13th, 2012.

China’s position 4. China claims that the United States failed to investigate and avoid double remedies in 26 countervailing duty investigations and reviews initiated between November 20th, 2006 and March 13th, 2012. inconsistent with Article 10, 19, and 32 of the Agreement of Subsidies and Countervailing Measures (SCM). (Subsidies and Countervailing Measures (SCM) Article 19: Imposition and Collection of CVDs- “CVDs shall be levied, in the appropriate amounts in each case.”) Article 10: Members shall take all necessary steps to ensure that the imposition of a countervailing … is in accordance with the provisions of Article VI of GATT 1994 and the terms of this Agreement. Article 19.3: When a countervailing duty is imposed … such countervailing duty shall be levied… except as to imports from those sources which have renounced any subsidies in question or from which undertakings under the terms of this Agreement have been accepted. Article 32.1: No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement

The United States Position PL 112-99 is consistent with Article X:1 of the GATT 1994 because it was published on the same day it was enacted US did not enforce PL 112-99 prior to publishing it Not all general applications are covered by Section 1 of the law as it applies only to certain imports and proceedings between November 20th,2006 to March 13th, 2012 The US has exercised the right to apply CVDs to imports from China as a NME since 2006 because all WTO members are allowed to due to China’s Protocol Accession to the WTO US administrative actions taken between November 20th, 2006 and March 13th, 2012 were in accordance with pre-existing CVD law and not on a future authorization from Congress US has been consistent with applying CVDs to NME countries. PL 112-99 serves the purpose of validating the applicability of CVD law to imports from NME countries and to resolve the ambiguity created by the US Court of Appeals of the Federal Circuit in the 2011 decision

Panel Decision The Panel concluded: Section 1: Panel rejects China’s claims that Public Law 112-99 was inconsistent with GATT Article X:1; Panel rules in favor of China’s claims that the U.S had acted inconsistently with GATT Article X:2; Panel rejects China’s claims that the U.S. did not inconsistent with GATT Article X:3 Section 2: The Panel determined that the U.S. did not investigate whether “double remedies” arose in the proceedings at issues, and that the U.S. had acted inconsistently with Articles 19.3, 10 and 32.1 of the SCM agreement.

Appeal and Appellate Body Ruling Panel’s ruling that U.S. Public Law 112-99 does not violate GATT Article X:1 was not appealed. Panel’s ruling that U.S. Public Law 11-99 does not violate GATT Article X:2 was appealed and reversed. AB found that while it is possible that US may have enforced rates prior to publication of PL 112-99, this cannot be determined conclusively due to insufficient information Panel’s ruling that US P.L. 112-99 does not GATT violate Article X:3 was not appealed. Panel’s ruling on SCM was appealed. US argued that China did not identify which relevant portions of SCM were violated AB rejects appeal because it was possible to identify relevant portions of SCM, i.e. SCM 10, 19, and 32.

Implementation of DSB recommendations On August 21st, 2014, the United States notified the DSB that it would comply with the panels ruling in accordance with its WTO obligations The United States informs the WTO that it needs a “reasonable period of time” to implement the DSB’s recommendations, and on February 20th, 2015, China and the United States agree that the reasonable period of time will be 12 months with a deadline of July 22nd, 2015 On July 23rd, 2015, the China and the United States notify the DSB that they have agreed to extend the reasonable period of time to implement the DSB recommendations to August 5th, 2015 On August 21st, 2015, China and the United States notify the DSB that the dispute has been resolved in accordance with Articles 21 and 22 of the DSU Article 21: Surveillance of Implementation of Recommendations and Rulings Article 22: Compensation and the Suspension of Concessions

Article 21: Surveillance of Implementation of Recommendations and Rulings Within 30 days after the date of adoption of the panel or appellate body report, the member concerned shall inform the DSB of its intentions concerning implantation of the recommendations and rulings. If the member can not comply immediately, they will have a reasonable period of time to come into compliance The period of time can be proposed by the member concerned, pending approval by the DSB, or as it applies to this dispute, it can be a period of time mutually agreed by the parties to the dispute within 45 days after the date of adoption of the recommendations and rulings The reasonable period of time can not exceed 15 months unless the parties involved agree otherwise, and if the appellate body has acted to extend the time of providing its report, it shall not exceed 18 months The DSB shall keep under surveillance the implementation of adopted recommendations or rulings and the issue of implementation of the recommendations or rulings may be raised at the DSB by any Member at any time following their adoption.   If the matter has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances. In considering what appropriate action might be taken, the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Members concerned

Article 22: Compensation and the Suspension of Concessions Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within a reasonable period of time. Neither is preferred to full implementation of DSB recommendations and rulings Article 22 essentially states that if the member concerned has not brought the issue into compliance within the period of time discussed in Article 21, the member can enter into negotiations with the party that invoked the dispute to develop mutually acceptable compensation within 20 days of the expiration of the reasonable period of time If no satisfactory compensations ha been agreed upon, the party that invoked the dispute may request authorization from the DSB to suspend concessions or other obligations, applying the following principles: Generally, the complaining party should seek to suspend concessions or other obligations with respect to the same sector in which the DSB has found a violation. If that is impracticable, they may consider other sectors The level of the suspension of concessions or other obligations shall be equivalent to the nullification or impairment The suspension of concessions or other obligations shall be temporary and shall only be applied until the Member that must implement the recommendations or ruling has provided a solution to the issue at hand or mutually satisfactory solution has been reached

DS449 within the Context of the Global Trading System China’s recognition in the WTO as a Non-Market Economy was a key element of this case as the GPX legislation amended the Tariff Act of 1930 to explicitly apply countervailing duty provisions to non-market economy countries China maintains that as a condition of its 2001 accession to the WTO, it was to be given 15 years to enact market reforms during which time it could be treated as a non-market economy, and that after the specified time had passed, it was to be treated as a market economy, taking effect on December 11th, 2016

Context within the Global Trading System Due to China’s non-market economy status, anti-dumping and countervailing duties can be calculated by looking at similarly situated third-countries, or surrogates. In practice, this allowed the importing country to charge higher tariffs. On December 12th, 2016, China requested consultations with the United States concerning certain provisions of U.S. law regarding the determination of normal value for non-market economy countries in anti-dumping proceedings involving products from China. DS515 – Measures Related to Price Comparison Methodologies China also simultaneously requested consultations with the European Union over the same matter (DS516). This case is furthest along in the dispute settlement process. Most recently, the panel was composed on July 10th, 2017

Looking Forward Trump administration officials who have long argued that the rules of the WTO are incapable of dealing with China’s “command economy” are currently looking at DS516 as a test of the efficacy of the DSU USTR Robert Lighthizer testified to Congress in June that “[DS516] is without question the most serious litigation matter we have at the WTO right now,” and that a Chinese victory ”would be cataclysmic for the WTO.” Officials from the United States expect the dispute to drag on into 2019, with the complaint involving the United States (DS515) expected to drag on even longer

China’s NME Status in the Future DS397 - Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China This case also revolved around China’s status as a non-market economy A third party supplier based out of India (Pooja Forge) was used as a surrogate to determine fair market value Ultimately, the European Union lost this case. More importantly, one of the appellate judges seemed to subscribe to China’s view of its 2001 accession protocol concerning the status of its economy, stating that: “We consider that, while Section 15 of China’s Accession Protocol establishes special rules regarding the domestic price aspect of price comparability, it does not contain an open-ended exception that allows WTO Members to treat China differently for other purposes under the Anti-Dumping Agreement and the GATT 1994” The European Union responded by enacting new rules stating that third country pricing can be applied on a case by case basis regardless of market economy status if it can be shown that prices are being distorted. The United States endorses this view and also points to the precedent of non-market treatment for former Soviet States while they were in transition under the GATT China argues that this is a trick to merely avoid the label of non-market economy and that furthermore, there is no agreed upon definition as to what exactly constitutes a market economy

Resources https://bibliotecadigital.fgv.br/dspace/bitstream/handle/10438/15865/LATAM%20-%20WTO%20and%20NMEs.pdf https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=2418&context=law_and_economics https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds449sum_e.pdf WTO News item announcing China’s complaints against the U.S. (DS515) and E.U (DS516) DS397: European Communities — Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China The Economist article concerning DS516: China takes on the EU at the WTO Financial Times article: US seeks to deny China market economy status in WTO ICTSID article concerning DS397 China fasteners case: WTO Appellate Body Grants China Victory in EU Fasteners Case Reuters article: US formally opposes China market economy status at WTO DS449: Report of the Appellate Body DS449: United States – Countervailing and Anti-dumping measures on Certain Products from China