China v. U.S. (Various Products from China) (DS 449) (AB 2014) By: Laura Gouge Goce Janevski Larry Jones

Historical Context

Background/History?  Complaint originated from China in 2012 against United States  Failure of US to investigate and avoid double remedies on Countervailing Duties (CVD’s)  Measures taken by US application of CVD’s to imports on NME’s  US Tariff Law from 1930 cited as source of NME (prior to GATT 1947)  US attempted to collect CVD’S starting in November 2006 violating the Subsidies and Countervailing Measures (SCM) Agreement pursuit to their authority  Despite attempts to collect CVD’s in 2006, in addition attempted to make retroactive complaints by Chinese by passage of law on March 13, 2012  Dates back to case in US Court of International Trade in 2007  Chinese company was ruled against by USDOC based on NME “presumption of government control” which took place prior to March 2012  GATT 1994 and WTO Laws both cited in complaint against US  Articles invoked include pre-WTO days and Agreements assigned after

Prior Actions  Previously date back to November 20, 2006 according to dispute  US law prior to being passed implemented CVD’s on Chinese imports  Section 1 of US Public Law was passed in March 2012  September 2012 China requested consultations with US over law  November 2012 China requested establishment of a DSB panel  February 2013 China requested Director General form a panel  September 2013 Chair of DSB panel informed DSB plans to issue a report by December 2013 (90 days, done by November 30, 2013)  March 27, 2014 panel report was circulated to members  Panel determined that US didn't investigate whether “double remedies” arose in the proceedings at issue-acted inconsistently with SCM Agreement  April 2014 US and China both appealed to Appellate Body  Each countries appeal dealt with certain issues of law in panel report

Most Recent Proceedings  July 22, DSB adopted its recommendations and rulings in the dispute (US has been in close contact with DSB since July 7, 2014  August 21, 2014 and August 29, 2014-US announced intention to implement the DSB's recommendations and rulings in this dispute  Generally a sixty-day time period for this implementation (or up to 90 days)  US stated it needs a reasonable amount of time to implement recommendations and rulings based on DSB rulings  Most recent communication occurred September 15, 2014 between US, China and DSB regarding Article 21.3c and the desire to conform/implement

Business Context  Recent events (over the past six months) the line between political and business (economical) has blurred  China’s state-run economy has exacerbated tensions between multi-nationals comp. and between gov’ts  Cyber disputes are at the fore front of the conflict between the Communist Party and major companies (Cisco and IBM (NYT))  Rise of Alibaba as a competitor to US and multinational companies has raised specter for more disputes  In lieu of September’s rulings and the Chinese gov’t willingness to prosecute US companies  September 2014-Solarworld (largest manufacturer of solar panels) has requested US gov’t assistance  Report indicates how new prosecution underscores the sophisticated ways that Chinese companies are retaliating against trade obstacles, especially the use of cyber warfare  “The Chinese have taken their efforts on behalf of their economy — and a lot of them are state-owned enterprises, a lot of them are state-supported — to a level that I think most people within the trade area haven’t seen” said Paul C. Rosenthal(Cardwell, NY Times)

Political Context  September China denied complaints by foreign businesses and governments  China’s continuing legal crackdown represents an effort to discriminate against multinational companies and help Chinese companies compete (NYT)  China is more than willing to prosecute foreign companies (violations of anti-trust laws)  In similar fashion, US NME laws contrasted with China’s tactics; denial of complaints and failure to prosecute are used to keep the balance of power tilted in each country’s favor  Recent events raised stakes regarding anti-trust cases and pending cases with the WTO  US Chamber of Commerce issued new report on 9/8/14 regarding anti-trust enforcement  Report noted that the antimonopoly law could be used as a tool to allow the market to play a primary role in China’s economy, a stated goal of the proposals announced in November 2013 by President Xi Jinping after a major plenary meeting of the Communist Party leadership

What is the problem? US Laws, WTO agreements, and duplications

Overview of Complaints by China 3. Anti-dumping measures associated with the above time period 4. USDOC double remedies with respect to the decisions in 2 and 3 1. U.S. Public Law Countervailing duty by US authorities between November 2006 and March 2012 Source: WTO: DISPUTE DS449 “United States – Countervailing and Anti-dumping Measures on Certain Products from China”

U.S. Law in question: Public Law or GPX Legislation Became Law on March 13, 2012 “To apply countervailing duty provisions of the Tariff Act of 1930 to nonmarket economy countries, and for other purposes.” (P.L )  What is a “nonmarket economy”?  A non-market economy includes “any foreign country that the administering authority [Commerce] determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise.” [19 U.S.C. § 1677(18)(A) (2006)]

WTO Agreements Articles VI, X:1, X:2, X:3 of General Agreement on Tariffs and Trade (GATT 1994)  “Article VI: Anti-dumping and Countervailing Duties”  What is Dumping: When an imported product is priced lower than in the exporting countries home market or less than the highest price for the product exported to any third country or is lower than the cost of production plus additional cost for selling and reasonable profit in “ordinary trade”  Countervailing duty will not exceed the subsidy or “bounty” estimated  “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”  “Article X: Publication and Administration of Trade Regulations”  X:1- All laws, regulations, etc. will be published in a manner that is easy for other Member countries to locate  X:2- Must enforce rules that are “an established and uniform practice” and cannot “imposing a new or more burdensome requirement…before such a measure has been officially published”  X:3-  A)Laws must be “uniform, impartial, and reasonable”  B) Must have a way to promptly “review and correct administrative action relating to customs matters”  C) If you already have a review board in B, then this agreement does not nullify it. Source: GATT 1994.

WTO agreement (Conti.)  Articles 9 and 11 of the Anti-Dumping Agreement  “Article 9: Imposition and Collection of Anti-Dumping Duties”  Total duties should be applied within 18 months on a “retrospective basis” (closer to 12 months preferred). Also, if an exporter of the same product had not exported to the country during the dumping period they must investigate that company promptly to levy an additional duties.  “Article 11: Duration and Review of Anti-Dumping Duties and Price Undertaking”  Duties are only “as long as and to the extend necessary to counteract dumping which is causing injury”  Must review cases if requested, after a 5-year period maximum, or if a reasonable amount of time is determined before the five year period. All reviews must be completed within 12 months. Source: WTO: Anti-Dumping Agreement.

WTO Agreement (conti.) Articles 10, 15, 19, 21 and 32 of the Subsidies and Countervailing Measures (SCM) Agreement  “Article 10: Application of Article VI of GATT 1994”  Must follow the rules laid out for investigation in the GATT 1994 and the Agreement on Agriculture  “Article 15: Determination of Injury”  Must used article VI from the GATT 1994 and take into account both volume and effect of the volume, as well as the impact of imports on domestic producers. You may also investigate two countries together, as long as the both meet the minimum needs for an investigation and the imports aren’t too small. You must also take into account the domestic markets factors effecting production. Must be based on FACT.  “Article 19: Imposition and Collection of Countervailing Duties”  Countervailing duties should be fairly accessed and be no more than the subsidy, if there is a lesser duty that would remove harm to the domestic industry. Also, the importing Member country should take into account domestic interested parties that might be negatively affected by the countervailing duties. Source: WTO: Subsidies and Countervailing Measures Agreement.

WTO Agreement (conti.) Articles 10, 15, 19, 21 and 32 of the Subsidies and Countervailing Measures (SCM) Agreement  “Article 21: Duration and Review of Countervailing Duties and Undertakings”  Countervailing duties are only “as long as and to the extend necessary to counteract subsidization which is causing injury”  Must relook at if requested, 5-year period max, or if a reasonable amount of time is determined before the five year period. All reviews must be completed within 12 months.  “Article 32: Other”  This covers a broad range, from non accountability until after WTO membership, following only the GATT 1994 interpretations, and “reservations” of provisions without consent of all other members.

Positions and Decisions

US Position  In 2006, USDOC concludes: China granted a subsidy to certain Chinese companies and, consequently, the CVD law could be applied  In 2007, GPX filed an appeal to the US Court of International Trade to challenge the CVD law and the China question. The US defense was successful  After the appeal, the Federal Circuit concluded that DOC could not apply the CVD law to China as long as China was classified as an NME  In 2012, GPX Legislation was passed confirming that the CVD law applies to imports from all countries, including NME countries

Complaint by China On September 17, 2012, China requested consultations with the United States concerning the following measures:  GPX Legislation- not published promptly, applied retroactively, did not implement the GPX Federal Circuit decision  US did not investigate double remedies in 25 cases -CVD and antidumping (AD)- initiated during 2006–2012 (obligations under Article 19.3 of the Subsidies Agreement)

Complaint by China (cont.) November 19, China requests a panel  WTO Panel in March 2014 rejects China’s claims that the GPX Legislation violated the United States’ WTO obligations under Article X of the GATT  The Panel found that the US failed to satisfy its obligation under Article 19.3 of the Agreement on Subsidies and Countervailing Measures

Appellate Body Claim of error by China – Appellant  China requests the Appellate Body to reverse the Panel's finding that the United States did not act inconsistently with Article X:2 Argument of the United States – Appellee  The Panel was correct in finding that China failed to establish that Section 1 of PL is inconsistent with Article X:2 of the GATT In the 60 days’ timeframe, both, United States and China appealed aspects of the Panel’s ruling to the Appellate body. On July 7, 2014, the Appellate Body report was circulated to Members.

Appellate Body (cont.)  Agreed with China that the wrong legal standard was used  Determined that it could not complete the analysis and apply the correct legal standard based on the Panel’s factual findings  Did not rule that the GPX Legislation violates any WTO obligation  Agreed with China that it had jurisdiction to consider China’s double remedies claims

Implementation At this point everything is still pending and there hasn’t been adjudication We are waiting for USTR and USDOC their actions/reaction

How do we Fix this? Option 1  Remove China from the list as a Non-Market Economy  Why this won’t work?  China is a communist country whose market is closely controlled by the government, this makes it impossible for the US to compete fairly in normal economic trade Option 2  US changes the double remedies procedures that the ITC and USDOC utilized to prosecute  Why this won’t work?  The U.S. will fight this as Subsidization and Dumping are two distinctly different types of transactions.

How do we Fix this? (Conti) Option 3  Review any case between November 2006 to March 2012 that the US used double remedies on China  Why this wont work?  It would set a bad precedent between the US, the WTO and member states; other states might decide to ask for a review as well  US laws would need to be changed  Time, cost and man power  Why the US won’t do this?  This would take away some US sovereignty  The US might decide it is worth fighting to change this in the WTO

Bibliography  Bradsher, Keith and Buckley, Chris. “China Fines GlaxoSmithKline Nearly $500 Million in Bribery Case.” New York Times. Published: September 19, Date Visited: September 26,  Brown and Mayer. “Legal Update: WTO Panel Issues Mixed Ruling in US-GPX Legislation”, Marin Dale. Published: April 4,  Cardwell, Diane. “Solar Company Seeks Stiff U.S. Tariffs to Deter Chinese Spying: SolarWorld Americas Says Hackers in China Stole Documents.” New York Times. Published: September 1, Date Visited: September 26, urged-as-new-deterrent-against-cybertheft.html?_r=0. urged-as-new-deterrent-against-cybertheft.html?_r=0  Croibier, Ellen. “WTO Appellate Body Issues Report In China’s Challenge To U.S. Trade Laws”, Trade Reform. Posted on: August 5, Date Visited: September 21, laws/ laws/  Gough, Neil. “China’s Antitrust Campaign Seen as Possible Breach of W.T.O. Rules.” New York Times. Published: September 8, Date Visited: September 26, violating-trade-accords.html?_r=0. violating-trade-accords.html?_r=0  Heather, Sean and Waterman, Jeremie. "Competing Interests in China's Competition Law Enforcement: China's Anti-Monopoly Law Application and the Role of Industrial Policy." United States Chamber of Commerce. Published; September 9, Date Visited; September 26,

Bibliography  Lev-Ram, Michael. “Huawei (yes, Huawei) pushing for global security standards.” Fortune. Published: October 18, Date Visited: September 26,  Malawer, Stuart. “Commercial Cyberespionage, U.S. Foreign Policy, Criminal Prosecutions — What Next for U.S. – China Trade Relations?” GLOBAL TRADE RELATIONS ……………………… Trade News & Legal Commentary. Published: May 27, Date Visited: September 26, criminal-proscutions-what-next-for-u-s-china-trade-relations/. criminal-proscutions-what-next-for-u-s-china-trade-relations/  Ramzy, Austin. “China Pulls Cisco Into Dispute on Cyberspying.” New York Times. Published: May 27, Date Visited: September 26, cyberspying.html?action=click&module=Search&region=searchResults&mabReward=relbias&. cyberspying.html?action=click&module=Search&region=searchResults&mabReward=relbias&  Swire, Mary. “WTO Rules In Latest US-China Case On GPX Legislation”, Tax-News.com. Published: July news.com/news/WTO_Rules_In_Latest_USChina_Case_On_GPX_Legislation____65214.html. news.com/news/WTO_Rules_In_Latest_USChina_Case_On_GPX_Legislation____65214.html  Wong, Edward. “American Businesses in China Feel Heat of a Cyberdispute.” New York Times. Published: May 31, Date Visited: September 26, cyberdispute.html?_r=0. cyberdispute.html?_r=0

Bibliography (cont.)  “Agreement on Subsidies and Countervailing Measures”, WTO.  “General Agreement on Tariffs and Trade (GATT 1947)”, WTO.  “Uruguay Round Agreement: Agreement on Implementation of Article VI of the GATT 1994”, WTO.  “U.S.C. –Title 19 Customs Duties: AD/CVD ”, USTR. Page: partIV-sec1677.pdf. partIV-sec1677.pdf  United States Chamber of Commerce. chinas-competition-law-enforcement-chinas-anti-monopoly-law-application  "United States Countervailing And Anti Dumping Measures On Certain Products From China," Appellate Body: WTO. DP.aspx?language=E&CatalogueIdList=123584,119240,117164,115288,95244,53282&CurrentCatalogue IdIndex=0&FullTextSearch=. Date Visited: September 20, DP.aspx?language=E&CatalogueIdList=123584,119240,117164,115288,95244,53282&CurrentCatalogue IdIndex=0&FullTextSearch=  “U.S. Public Law ”, U.S. Government Printing Office. March 13,  “WTO: DISPUTE DS449; United States – Countervailing and Anti-dumping Measures on Certain Products from China”, WTO.