Dispute Resolution Case (DS422) US Anti-dumping Measures on Shrimp & Diamond Sawblades from China [Fall 2014] Presenters: Stella Vewessee Henri Yuan

AGENDA Overview of U.S-China Trade Background Information MES, U.S Trade Remedy & Zeroing Facts about the Case Relevant Demand Outlook WTO Agreements & Articles Involved Measures at Issue Timeline and Procedural History Third Party Submissions DSB Proceedings Final Determination Implementation Significance of Case for U.S Trade Policy& Global Trade Relations Q&A Session

US-China Trade Since its accession into WTO on December 11, 2001, China has been actively or passively involved into the WTO dispute settlement. Since China entered the WTO ten yours ago, this is another small milestone in the tortuous trade relations between the U.S. and China. The last five years have been especially active with an acceleration of the number of cases to thwart entry of Chinese companies and their gaining market share in the U.S. This trend towards ready use of anti-dumping, countervailing duties or WTO dispute settlement for remedies has been duplicated in Europe, Australia and elsewhere. • Imports from China hit record levels, totaling $364.9 billion for the year 2010. • Chinese imports far outweighed the $91.9 billion worth of US exports going the other way. • The trade deficit with China rose by 20.4% to an all-time high of $273 billion, the largest imbalance the US has recorded with a single country. 3

AFTER CHINA JOINED WTO….

MARKET ECONOMY STATUS Defined by Article VI of the GATT 1994 and the Antidumping Agreement, the Market Economy Status (MES) refers to the eligibility of a country for the obligatory use of domestic prices or costs when determining the normal value of the products in antidumping investigations Before China joined the WTO in late 2001, it agreed that other members could treat it as a Non-Market Economy (NME) until 2015 (Accession Protocol) Arguments for denying China MES: Some firms in China still get preferential access to bank credits and government supports and some commodity prices are still largely e controlled by the government 5

DUMPING ACTIONS & NME STATUS MES in the World Trade Organization has become a top priority for Beijing because the surrogate country method just about guarantees that it will be found guilty of dumping The European Union has already responded to China's changing economy by re-classifying it as an "economy in transition." This means EU considers dumping complaints by looking at Chinese firms on a case-by-case basis (to see if they are operating in a market environment) China currently subjected to more anti-dumping measures than any other country in the WTO (Over 500 cases from about 30 WTO members. About 68% of cases resulted in punitive measures). Till 2003, U.S had 3rd highest anti-dumping actions in the WTO behind China & Korea

US TRADE REMEDY OF DUMPING U.S manufacturer or Industry files petition with both USDOC (Enforcement and Compliance within ITA and with USITC) USDOC investigates and calculates amount of dumping. USITC determines “material injury” on domestic industry (output, sales, market share, employment & profits) If both USDOC and ITC make affirmative findings, USDOC instructs U.S Customs & Border Protection to assess duties against imports of that product Duties are equivalent to the dumping margins e.g. if USDOC finds a dumping margin of 35%, Customs will collect 35% duty on the value of the product at the time of importation Typical investigation takes about 12 to 18 months but importers are required to post bond or cash within 190 days of the investigation to cover estimated amount of Anti Dumping Duties (ADD) Annual administrative review by USDOC to calculate new deposit rate 7

Difference (No Zeroing) “ZEROING” METHODOLOGY Definition: A controversial methodology used by the U.S for calculating anti-dumping duties against foreign products USDOC omits calculations were the difference between export price were and normal value is negative thus inflating dumping margins The United States is the only member state of the 153 WTO members to back zeroing, which the Appellate Body has ruled against consistently Sale Domestic Price Export Price Difference(Zeroing) Difference (No Zeroing) 1 $100.00 $90.00 $0.00 -$10.00 2 $110.00 $10.00 3 Total   Assesed Dumping Dumping Margin 10/300 x 100% 3.33% 300 = total import value 0% 8

FACTS ABOUT THE CASE US anti-dumping measures on Shrimp and Diamond Sawblades from China (Dispute Number: DS422) Complainant: People’s Republic of China Respondent: United States Dispute Subject: Anti-dumping The European Union, Honduras, Japan, Korea, Thailand and Viet Nam reserved their rights to participate in the Panel proceedings as third parties. www.dailymotion.com/video/xir5um_anti-dumping-dispute-on-chinese-shrimp_news 9

FACTS ABOUT THE CASE The United States initiated an anti-dumping investigation of certain frozen warm-water shrimp from China on January 27, 2004 (Investigation No. A–570–893). The USITC determined that the industry in the U.S was materially injured by reason of Less Than Fair Value (LTFV) imports of certain frozen warm-water shrimps and prawns from China. The USDOC initiated an anti-dumping investigation on Diamond Sawblades from China on 21 June 2005. The USDOC's final determination was issued on 22 May 2006. In this final determination, the USDOC calculated margins of dumping for Chinese exporters 10

INCREASING U.S DEMAND FOR SHRIMP 3% of shrimp supply produced through aquaculture by natural fisheries and over 90% is either farmed or imported 75% of farmed shrimp is produced in Asia, primarily in China and Thailand Aquaculture Definition -- the cultivation of marine life, in our case shrimp, for human consumption. This began in the 70s on a very low scale in Southeast Asia, but has since grown in order to keep with the high demand for fish and shrimp consumption in the US, Europe and Japan. Although only 3% of the US shrimp industry is currently done through aquaculture, it is one of the fastest growing areas of food production in the U.S.[2]. Approximately 90% of all U.S. shrimp consumption is farmed and imported.[34 -- Aquaculture is an especially important economic activity in China. Between 1980 and 1997, the Chinese Bureau of Fisheries reports, aquaculture harvests grew at an annual rate of 16.7 percent, jumping from 1.9 million tonnes to nearly 23 million tonnes. In 2005, China accounted for 70% of world production. Source: “Frozen Warmwater Shrimp from Brazil, China, India, Thailand, and Vietnam”, US International Trade Commission, March 2011 11

SHRIMP IMPORT FROM CHINA Imports currently represent over 80 percent of the United States supply of shrimp, with aquaculture making up over 80 percent of shrimp imports. It appears, therefore, that foreign aquaculture of shrimp has had a large impact on prices in the United States shrimp market and consequently on United States producers. Some view this as efficient overseas production to benefit United States consumers, while others feel that it represents dumping on the United States market to the detriment of domestic shrimp producers. Source: China’s Growth and Seafood Market, ‘Southern Shrimp Alliance’, November 2011 12

MARKET FOR DIAMOND SAWBLADES US Demand for Diamond Sawblades The U.S. diamond sawblade market is supplied by three sources: domestic producers, non-subject imports, and imports from Korea and China Demand for diamond sawblades is derived from the demand for construction projects cutting various aggregates like stone, concrete, asphalt, masonry, brick, block, marble granite, and tile Non-Substitutes: U.S. producers focus on larger blades used in professional construction applications whereas imports of diamond sawblades from China and Korea are commonly used general contractors and for personal home improvement projects diamond sawblade market is highly segmented and consists of two distinct parts: the professional construction market and the general use •Domestic Interest •USDOC •Companies involved in the shrimp and diamond sawblade markets •Other agriculture, aquaculture, and metal industries •Foreign Interest •Direct Involvement: China •Countries that are currently exporting, or are seeking to export, shrimp or diamond sawblades to the United States •Countries that export related products to the United States •Third parties involved: European Union, Honduras, Thailand, Japan, Republic of Korea, Vietnam US Domestic producer: > 14 inches diameters or larger Chinese producer: < 10 inches diameters or smaller Source: “Diamond Sawblades and Parts Thereof from China and Korea”, US International Trade Commission, August 2005

ARTICLES & WTO AGREEMENT AND INVOLVED Article VI of GATT 1994: Anti-Dumping and Countervailing Duties Violation of first sentence of Article 2.4.2 of the WTO Anti-Dumping Agreement China alleged that the US Department of Commerce's (“USDOC”) use of zeroing in the original investigation and several administrative reviews to calculate dumping margins for the subject imports is inconsistent with the United States' obligations under Article VI:1 and VI:2 of the GATT 1994 and Articles 1, 2.1, 2.4, 2.4.2, 5.8, 9.2, 9.3, and 9.4 of the Anti-Dumping Agreement. 14

FIRST SENTENCE OF ARTICLE 2.4.2 “Subject to the provisions governing fair comparison in paragraph 4, the existence of margins of dumping during the investigation phase shall normally be established on the basis of a comparison of a weighted average normal value with a weighted average of prices of all comparable export transactions or by a comparison of normal value and export prices on a transaction-to-transaction basis” 15

MEASURES AT ISSUE USDOC “Five Components” (five-step approach) in calculating dumping margins – “Zeroing” In the calculation of the dumping margins for mandatory respondents Allied, Yelin and Red Garden in the Shrimp investigation, by the use of the zeroing methodology, the United States acted inconsistently with the Anti-Dumping Agreement In the calculation of the “separate rate” for non-mandatory respondents in the Shrimp investigation, by relying on company-specific dumping margins that were calculated with the use of the zeroing methodology, the United States acted inconsistently with the Anti-Dumping Agreement In the calculation of the dumping margin for AT&M in the Diamond Sawblades investigation, by the use of the zeroing methodology, the United States acted inconsistently with the Anti-Dumping Agreement The United States did not contest any of China’s claims 16

SHRIMP INVESTIGATION: ‘ZEROING’IMPACT Final Determination issued in Dec 2004. Feb 2005 and August 2006 first and second final amended determination issued respectively. September 2 2010 a Remand determination issued which revised scope of investigation to include dusted shrimp following decision by U.S Court of International Justice (CIT). A second remand determination was issued in May 2011 (on table above) Source: Executive Summary of the First Written Submission, China, Feb. 9, 2012

TIMELINE/PROCEDURAL HISTORY In May, USDOC published the final determination with a calculated dumping margin of 2.50% of AT&M In June, USDOC published an amendment and revised the dumping margin of AT&M to 2.82% In Feb. USDOC issued Shrimp Amended Determination to correct ministerial errors with recalculated dumping margins The United States initiated anti-dumping investigation of shrimp from China in January 2004 In April, a result of injury-likelihood determination, USDOC published notice of continuation of the anti-dumping duty order on Shrimp from China 2004 2005 2006 2010 2011 In December, USDOC published Shrimp Final Determination with dumping margins The United States initiated anti-dumping investigation of Diamond Sawblades from China in June 2005 In Sep. 2010, USDOC issued amended final determination pursuant to a decision made by the US Court of International Trade. In July, China requested consultations with respect to anti-dumping measures on certain frozen warmwater shrimp and diamond sawblades from China In Aug 2006, USDOC issued Second Amendment to an additional 11 Chinese exporters 18

THIRD PARTY STATEMENTS TO WTO PANEL Countries Reference Cases In favor of… Dumping within meaning of Article 2.4.2 – product as a whole and not model, product type or category U.S – Stainless Steel (Mexico) ENDING U.S Zeroing practice US –AD Measures on PET bags from Thailand US-Shrimp (Ecuador) US-Softwood Lumber (Canada) US-Zeroing (Korea) CHINA US-AD Measures on PET bags US-Shrimp (Thailand) Above cases held zeroing to be inconsistent with U.S obligations under the anti dumping agreement Korea and Vietnam also reserved their right to participate in the panel proceedings but did not submit statements 19

DSB PROCEEDINGS Consultations were held on May 11 2011 and September 8 2011 Agreement on Procedures between China & U.S – October 11, 2011 Panel established on October 25, 2011 Article 11 of DSU – Panel needs to make “objective assessment of the facts” even though U.S does not contest China’s claims China also still has the burden of proof – “prima facie” China provided statement from Valerie Owenby as expert witness and computer programing logs from USDOC Third party submissions from EU, Japan and Thailand Panel decided to not hold any meetings with the parties or third parties Parties will cooperate so panel can complete its work within 3 months Reasonable period of time to bring measures into conformity will be 8 months U.S will use section 12(b) of URAA to recalculate margins of dumping Owenby background is int’l trade regulation & worked as Sr. Compliance specialist at USDOC. Today she is a principal with Capital Trade a DC based firm that assists companies and law firms with anti-dumping and countervailing duty cases. 20

FINAL DETERMINATION Interim Panel Report was released on April 2012 and the Final Report June 8, 2012 The Panel found China had proved that zeroing was used in calculating the dumping margins for mandatory respondents in the shrimp investigations and AT & M in in the diamond sawblades case and this was inconsistent with Art. 2.4.2, of the Anti-Dumping Agreement. Under article 19.1 of the DSU panel recommended that U.S bring its measure into conformity with its obligations under this Agreement Concerning the separate rate in the shrimp investigation the panel did not believe China had met the burden of proof on how Art 2.4.2 could provide a legal basis. However following the reasoning of the US-Shrimp (Ecuador) case, panel decided that the separate rate had also incorporated the inconsistent zeroing methodology which was inconsistent with Art 2.4.2 of the Anti-Dumping Agreement 21

IMPLEMENTATION In February 2012, USDOC announced a policy change to end zeroing threatened by EU and Japan in order to initiate trade retaliation on U. S exports According to the “Agreement on Procedures”, the reasonable period of time for the United States to implement the DSB recommendations and rulings expired on 23 March 2013 (8 months) At the DSB meeting on March 26, 2013, the United States informed the DSB that it had implemented the DSB recommendations and rulings but China did not share the US' views because it had failed to revoke the anti-dumping duty on sawblades US increased anti-dumping duties on China’s three largest exporters of diamond sawblades and sawblade parts during 2012 and 2013. Gang Yan’s applicable duties were increased from zero to 164.09% as a result of the Chinese government’s control over the company. USDOC change will apply to all cases with a preliminary result issued after April 2012 or for administrative reviews post this date for already finalized cases 22

US Imports of diamond saw blades and parts As shown in the graph, the imports of diamond sawblades from China had been rapidly increasing until around the time the AD investigations were initiated. Although the imports from China dropped subsequently for a few years due to the global financial crisis, it soon picked up the general trend of rapid increase In contrast, despite its much smaller export volume. US Imports of diamond saw blades and parts Source: “United States-Anti-dumping Measures on Certain Shrimp and Diamond Sawblades from China: never ending zeroing in the WTO?”, World Trade Review, March 2014 23

SIGNIFICANCE ON US TRADE POLICY Increasing volume of cheaper imports from China hurts U.S manufacturers and producers. This case illustrates a typical U.S “trade protectionism” measure to secure the competitiveness of domestic producers. China’s NME status exempts it from countervailing duties, so USDOC uses ADD to target export subsidies received by Chinese manufacturers (Diamond sawblades duties on Gan Yang) 24

SIGNIFICANCE ON GLOBAL TRADE RELATIONS U.S still exerts sovereignty in international trade but is receiving increasing push back from other WTO members The case highlights the systemic problems of the WTO dispute settlement system when it comes to the implementation of rulings Trade is the lifeblood of the global economy, but it also carries risk. If companies find themselves caught in trade disputes, then they should engage in proactive programs to defend the integrity of their operation. 25

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