U.S. - Countervailing Measures (China) Dispute Settlement 437 By: Ian Nicholson, Chris Schmid, Liz Sihombing Ian

Complaint by China “The imposition of countervailing duty measures May 25, 2012: China requests consultations with the U.S. concerning… “The imposition of countervailing duty measures by the United States on certain products from China.” IAN: reference Team 3 + USDOC starting to do CVD investigations on Chinese imports (2006)

China Asserts: U.S. Inconsistencies Article VI of the GATT 1994 (ADD/CVD); Articles 1.1, 2, 11.1, 11.3, 12.7, and 14(d) of the SCM Agreement; Article 15 of the Protocol of Accession of China Ian

What are we really talking about? Mostly focused on 17 CVD investigations conducted by the U.S. Department of Commerce (USDOC) from 2007 - 2012 190 Different Subgroups Ian

Total U.S. Imports from China vs. Products under Duty Measures Chris

Products under Duty Measures (ex. Solar Panels) Chris

Products under Duty Measures (ex. Solar Panels) cont. Chris

Economic Impact of Duty Measures Products affected by duty measures accounted for only ~ 0.9% - 1.8% of China’s exports to the United States between 2007 and 2012 No significant economic implication Products under duty measures, however, performed significantly worse than products traded freely Issue grows in importance as solar panels could possibly be affected by adverse effects Chris

Timeline: 2012 - 2014 2012 May 25 = China requests consultations August 20 = China requests the establishment of a panel September 28 = DSB established the panel November 26 = Director-General composed the panel 2014 July 14 = Panel report circulated August 22 = China appeals panel decisions NOT in its favor December 18 = Appellate Body report circulated Ian

Third Parties Ian

Review of China’s Complaints Article VI of the GATT 1994 (ADD/CVD); Articles 1.1, 2, 11.1, 11.3, 12.7, and 14(d) of the SCM Agreement; Article 15 of the Protocol of Accession of China Ian

Agreement on Subsidies and Countervailing Measures (SCM) Part of the Uruguay Round (1986-1994) Family of Agreements Subsidies may play an important role in economic development Establishes three categories of subsidies: Prohibited, Actionable, Non-actionable Prohibited subsidies: Subject to new dispute settlement procedures; expedited timetable for action If found to be “prohibited,” must be immediately withdrawn. If not, complaining member is authorized to take countermeasures. Actionable subsidies: “No member should cause, through the use of subsidies, adverse effects to the interests of other signatories, i.e. injury to domestic industry of another signatory…” “Sets out disciplines on the initiation of countervailing cases” “Ensure that all interested parties can present information and argument” Ian

Breakdown of Dispute: SCM Agreement #1 Breakdown of Dispute: SCM Agreement WTO Language Article 1: Definition of Subsidy Financial contribution by a gov’t/public body; benefit conferred. Article 2: Specificity Whether a subsidy is specific to an industry, or group of enterprises; substantiated w/positive evidence. Article 11: Initiation and Subsequent Investigation Sufficient evidence/complete description of subsidy, injury, causal link, etc. China’s Beef Article 1: SOE’s as “public bodies” Article 1: Insufficient evidence for USDOC to initiate CVD’s Article 1(b): USDOC improperly found a conferred benefit, and improperly calculated the amount of alleged benefit Article 2: USDOC failed to make determination based on positive evidence Article 11: Absence of sufficient review of the petition by the USDOC Ian. Article 1: U.S. incorrectly determined that SOE’s are public bodies within the meaning of that provision Alleged provision of input goods for less than adequate remuneration

Breakdown of Dispute: SCM Agreement #2 Breakdown of Dispute: SCM Agreement WTO Language Article 12: Evidence 12.7: Interested Member/party refuses access to, or doesn’t provide, necessary information… ...within a reasonable period or significantly impedes the investigation… ...preliminary/final determinations, affirmative or negative, may be made on the basis of the facts available China’s Beef Article 12.7 USDOC’s use of “adverse facts available” to support its findings Ian USDOC CVD investigations and a preliminary or final CVD determination

Breakdown of Dispute: SCM Agreement #3 Breakdown of Dispute: SCM Agreement WTO Language Article 2: Specificity 2.2: Subsidy limited to certain enterprises shall be specific 2.4: Positive evidence China’s Beef Article 2: USDOC failed to make a proper determination… No basis of positive evidence Ian Alleged provision of land and land-use rights for less than adequate remuneration

Breakdown of Dispute: SCM Agreement #4 Breakdown of Dispute: SCM Agreement WTO Language Articles 11. 2 & 11.3: Initiation and Subsequent Investigation Article 1: Definition of a Subsidy China’s Beef Article 11: USDOC’s initiation of CVD investigations inconsistent Article 1: USDOC’s determination that export restraints provided a “financial contribution” is inconsistent with Article 1.1(a) Ian Export restraints allegedly maintained by China

Response from the United States? Ian

Panel’s Findings Upheld China’s claims: USDOC findings that certain Chinese SOE’s were “public bodies;” Alleged subsidies were regionally specific; Existence of financial contributions in light of Chinese export restraints. Partially rejected China’s claim: USDOC findings that alleged subsidies were specific to certain enterprises Rejected China’s claims: USDOC citing “market distortions” to justify use of an out-of-country benchmark in calculations USDOC finding sufficient evidence of → financial contributions by public bodies and specificity to justify the initiation of CVD investigations Use of “adverse facts available” Liz

Refresher + China’s Appeal 2012 May 25 = China requests consultations August 20 = China requests the establishment of a panel September 28 = DSB established the panel November 26 = the Director-General composed the panel 2014 July 14 = panel report circulated August 22 = China appeals panel decisions NOT in its favor December 18 = Appellate Body report circulated Liz

Appellate Body Findings Regarding the Panel’s finding concerning the private “benchmarks”: AB reverses (siding with China) Regarding the Panel’s finding concerning the USDOC’s determinations of “specificity”: AB upholds: USDOC acted inconsistently AB reverses: China had not established that USDOC acted inconsistently, by failing to identify “subsidy programme”  & “granting authority.” AB finds it is unable to complete the legal analysis in this regard Regarding the Panel’s finding concerning the USDOC’s “adverse facts available”: AB reverses it, siding with China. AB and Panel recommend the United States remedies inconsistencies AB Report was signed December 12, 2014 Liz

Timeline: 2015 - Present 2015 January 16 = DSB adopted Appellate Body report/panel report (modified) February 13 = U.S. informs DSB of intention to implement DSB’s recs June 26 = China requests the “reasonable period of time” to be determined by arbitration 2016 April 1 = date when “reasonable period” expires Liz

Statement by the United States Two main complaints: Proper role of panels and the Appellate Body; Appellate Body’s findings Fundamental role: consider evidence/arguments; make objective assessment Instead, AB Report suggests independent investigations and applying new legal standards is okay, “regardless of what either party actually argues to the panel.” Panel did its job; AB developed legal interpretations of SCM and applied them to U.S. measures w/o regard to the case made by China Determining market benchmarks: AB departed from finding in US - Softwood Lumber IV re: private prices AB provided “no meaningful explanation about how a price by a government entity could be used to establish a market-based benchmark.” Ian

Key Observations Affected goods ~ $7.2 billion in export sales (significant to China) China’s inclination to continue participating in the DSU process China pursues settlement through WTO due to the failure of bilateral talks Double duties because Chinese’s status of NME Mixed feelings from the AB rulings for the third parties: Due to Chinese export subsidies, it can hurt the competing manufacturers; Increased CVD’s on Chinese solar panels (slowing Chinese production) encourages fair competition; German-US solar manufacturer (SolarWorld) asks EU Commission to do investigations Canada and SEIA: CVDs is disruptive and damage solar energy industry Mistrust in Chinese government’s economic data and subpar panel quality Chris/Liz: SEIA --- data from articles, see what they have reports on Chinese subsidies (2007 - 2012)

The Road Ahead April 1 = date when “reasonable period” expires Though China “won” this case, the AB decision did not meaningfully restrict the application of CVD’s to solar panel goods in future cases Economic view: DSB recommendations are not strong enough to combat the impact to the clean energy industry Move away from a reliance on the AB and focus on possible cooperation (e.g., Environmental Goods Agreement). Move from litigation to negotiation. Chris/Liz: Environmental goods agreement (is Chinese a part of this agreement)