1. US - Countervailing Measures (China) DS437
Mark Pfundstein Mark Pilling Yuri Santos

2. United States — Countervailing Duty Measures on Certain Products from China
The Dispute:
The dispute concerns several initiation decisions, as well as preliminary and final determinations in 17 countervailing duty investigations conducted by the United States' Department of Commerce (USDOC) from 2007 through 2012.
The Products: Solar panels Wind Towers Wire Strand Thermal paper Pressure pipe Coated paper Steel cylinders Line pipe Magnesia carbon bricks Kitchen shelving Seamless pipe Aluminum extrusions Steel sinks Drill pipe Tow behind lawn groomers Citric Acid Oil country tubular goods

3. Prior Proceedings
May– China requested consultations with the United States concerning the imposition of countervailing duty measures by the United States on certain products from China. 20 August– China requests the establishment of a panel by the DSG September– A panel was established by the DSB. 14 November– China requested the Director General determine the composition of the panel.
November– Chair of the panel informed the DSB that, due to the complicated nature of the case, the panel could not present its report until May
July– The Panel report was circulated to Members August– China filed an appeal. 27 August– The US filed an appeal. 18 December– The Appellate Body’s report was circulated to Members.

4. Prior Proceedings
January– The DSB adopted the Appellate Body’s report and the panel’s report, as modified. 13 February– The US informed the DSB that it intended to implement the DSB’s recommendation in a manner that respects its WTO obligations. 26 June - China requested the reasonable amount of time to be determined through Arbitration. 9 October - The Arbitrator determined the reasonable period of time as 14 months, 16 days.
April– The reasonable period of time expired. 15 April - China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU. 13 May - China requested consultations pursuant to Article 21.5 of the DSU, in connection with the United States' alleged failure to implement the recommendations and rulings of the DSB in this dispute. 8 July – China requested, pursuant to Article 21.5 of the DSU, the establishment of a compliance panel July – The DSB agreed to refer to the original panel, if possible, the matter raised by China.

5. Business-Political Context

6. U.S. v China - Energy Trade

7. Main WTO Issue Third Parties
China requested the Panel to find that the United States' investigating authority, the USDOC, acted inconsistently with the following obligations set forth in the Agreement on Subsidies and Countervailing Measures (SCM Agreement) when initiating countervailing duty investigations.
China claims that the challenge measures are inconsistent with:
Article VI of the GATT 1994 (Dumping and Countervailing Duties)
Articles 1.1, 2, 11.1, 11.2, 11.3, 12.7 and 14(d) of the Subsidies and Countervailing Measures Agreement; and
Article 15 of the Protocol of Accession of China.
Third Parties
Australia India Russian Federation Brazil Japan Saudi Arabia Canada Korea Turkey European Union Norway Vietnam

8. Decision The decision was primarily a victory for the Chinese Govt.
USDOC acted inconsistently in connection with the alleged provision of input goods for less than adequate remuneration on all counts
USDOC acted inconsistently with all of the identified countervailing duty investigations in which the USDOC has issued a preliminary or final countervailing duty determination
USDOC acted inconsistently with the alleged provision of land and land-use rights for less than adequate remuneration.
USDOC acted inconsistently in regards to export restraints allegedly maintained by China
Upheld China’s claims against USDOC findings that certain Chinese State-owned enterprises were public bodies and upheld claim regarding USDOC’s “rebuttable presumption.”
Panel found that preliminary determinations in Wind Towers and Steel Sinks were not in its terms of reference

9. Appellate Findings
China appealed on most of the issues on which the panel ruled against it, and the US cross appealed on the Panel’s determination relating to China’s panel request with Article 6.2 of the DSU.
Terms of reference
Determination of benefit
Sequence of the specificity analysis under subparagraphs of Article 2.1
Existence of an unwritten subsidy program
Identification of the jurisdiction of the granting authority
Use of available facts

10. Are State Owned Enterprises Public Bodies?
"There is no question that renewable energy companies in the United States feel pressure from China. Many of them say it is cheap capital, not cheap labor, that gives Chinese companies the main advantage.”
David B. Sandalow, the assistant secretary for policy and international affairs at the United States Energy Department.

11. Definition of a Subsidy
China’s Allegations
USDOC incorrectly determined, or did not have a sufficient basis to determine, that certain State-owned enterprises (SOEs) are “public bodies” within the meaning of that provision in certain investigations inconsistent with Article 1.1(a)1
Article 1
Definition of a Subsidy
For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as "government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees);
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)1;
(iii) a government provides goods or services other than general infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments;

12. Initiation and Subsequent Investigation
China’s Allegations
The USDOC's initiation of countervailing duty investigations in respect of allegations that SOEs confer countervailable subsidies through their sales of inputs to downstream producers, in the absence of sufficient evidence in the petition to support an allegation that SOEs constitute “public bodies” within the meaning of Article 1.1(a)(1) of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in certain investigations.
Article 11
Initiation and Subsequent Investigation
11.2 An application under paragraph 1 shall include sufficient evidence of the existence of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of Article VI of GATT 1994 as interpreted by this Agreement, and (c) a causal link between the subsidized imports and the alleged injury. Simple assertion, unsubstantiated by relevant evidence, cannot be considered sufficient to meet the requirements of this paragraph. The application shall contain such information as is reasonably available to the applicant on the following:
(i) the identity of the applicant and a description of the volume and value of the domestic production of the like product by the applicant. Where a written application is made on behalf of the domestic industry, the application shall identify the industry on behalf of which the application is made by a list of all known domestic producers of the like product (or associations of domestic producers of the like product) and, to the extent possible, a description of the volume and value of domestic production of the like product accounted for by such producers;
(ii) a complete description of the allegedly subsidized product, the names of the country or countries of origin or export in question, the identity of each known exporter or foreign producer and a list of known persons importing the product in question;
(iii) evidence with regard to the existence, amount and nature of the subsidy in question;
(iv) evidence that alleged injury to a domestic industry is caused by subsidized imports through the effects of the subsidies; this evidence includes information on the evolution of the volume of the allegedly subsidized imports, the effect of these imports on prices of the like product in the domestic market and the consequent impact of the imports on the domestic industry, as demonstrated by relevant factors and indices having a bearing on the state of the domestic industry, such as those listed in paragraphs 2 and 4 of Article 15.
11.3 The authorities shall review the accuracy and adequacy of the evidence provided in the application to determine whether the evidence is sufficient to justify the initiation of an investigation.

13. China’s Allegations
The USDOC's findings of benefit are inconsistent with Article 1.1(b) and Article 14(d) of the SCM Agreement, because the USDOC improperly found that the alleged provision of goods for less than adequate remuneration conferred a benefit upon the recipient, and improperly calculated the amount of any benefit allegedly conferred, including, inter alia, its erroneous findings that prevailing market conditions in China were “distorted” as the basis for rejecting actual transaction prices in China as benchmarks in certain investigations.
Article 14
Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient
(d) the provision of goods or services or purchase of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration. The adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale).

14. China’s Allegations
The USDOC's findings of specificity are inconsistent with Articles 2.1 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged provision of inputs for less than adequate remuneration was specific to an enterprise or industry or group of enterprises or industries in certain investigations.
Article 2
Specificity
2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as "certain enterprises") within the jurisdiction of the granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a subsidy to certain enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification.
(c) If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.3 In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation.
2.4 Any determination of specificity under the provisions of this Article shall be clearly substantiated on the basis of positive evidence.

15. China’s Allegations
The USDOC's initiation of countervailing duty investigations in respect of the alleged provision of inputs for less than adequate remuneration, in the absence of sufficient evidence in the petition to support an allegation that any such subsidy would be specific under Article 2 of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in certain investigations.

16. China’s Allegations
The USDOC's use of so-called “adverse facts available” to support its findings of financial contribution, specificity, and benefit is inconsistent with Article 12.7 of the SCM Agreement in certain instances because the USDOC did not rely on facts available on the record.
Article 12
Evidence
12.7 In cases in which any interested Member or interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available.

17. China’s Allegations
The USDOC's findings of specificity are inconsistent with Articles 2.2 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged subsidy was specific to an enterprise or industry or to a group of enterprises or industries in certain land specificity investigations.
The USDOC's initiation of countervailing duty investigations in respect of these allegations is inconsistent with Articles 11.2 and of the SCM Agreement in certain investigations
The USDOC's determination that export restraints provided a “financial contribution” is inconsistent with Article 1.1(a) of the SCM Agreement in certain investigations

18. Consistent or Inconsistent with WTO Obligations
China prevailed on most of its complaints; the US was found to be inconsistent with its WTO obligations on the major points:
Definition of Public Bodies, i.e. State-Owned Enterprises
American rejection of private prices on the grounds the such prices are market distortions
Use of “adverse facts available”
Legality of subsidies in certain geographical regions.
Consequently, the US must change its laws, regulations, or policies to become consistent with its WTO obligations as outlined in rulings this case.
Consistent

19. Implementation of Changes
Section 129(b)(1) of the Uruguay Round Agreements Act (URAA) sets out procedures to by which a Member may make modifications to become consistent with its WTO Obligations. The United States chose to implement its modifications through remedial administrative action.
The implementation process for the countervailing duty investigations at issue in this dispute, as outlined by the United States, consists of the following specific administrative steps:
pre-commencement analysis and consultations;
seeking information from interested parties and analysing that information;
verification of the information received;
issuing of preliminary determinations;
receipt of case and rebuttal briefs;
issuing of final determinations;
correction of ministerial errors; and
consultations with the US Congress and implementation.

20. Implementation of Changes
To achieve consistency with WTO obligations a "reasonable period of time" is determined in the light of the volume and complexity of the administrative action required :
US argued for a 19 month implementation period.
China argued for a 10 month implementation period.
WTO Arbitrator set an implementation period of 14 months and 16 days from 16 January 2015, thereby making the deadline 1 April 2016.
The final notice was published in the Federal Register on 9 June 2016.
On 15 April 2016, China and the United States concluded an agreement on the procedures under Articles 21 and 22 of the Dispute Settlement Understanding that would apply between them for the purposes of this dispute (the "sequencing agreement").
China filed a request for consultations on 13 May The parties held consultations on 27 May 2016 pursuant to paragraph 1 of the sequencing agreement, but the consultations failed to resolve the dispute.

21. Implementation of Changes
China alleges the continued and ongoing application by the USDOC of unlawful standards and methodologies for determining financial contribution, specificity, and benefit in respect of the alleged provision of inputs and land-use rights for less than adequate remuneration.
At its meeting on 21 July 2016, the Dispute Settlement Body referred the dispute, if possible, to the original Panel.
A new Panel was established on 5 October 2016.
Third Parties: Australia, Canada, European Union, Japan, Republic of Korea, India, Russian Federation, and Vietnam

22. Lessons for the Future
For the case at hand, the US will have to comply with the rulings; although the ongoing dispute regarding compliance mean the process is far from over.
The United States’ application of WTO regulations are not necessarily wrong; rather, they are a matter of interpretation. State-Owned Enterprises exist. Private pricing not based on market conditions exist. Governments provide various kinds of aid to companies.
Although the US was unsuccessful in its application of WTO regulations on this time, it could conceivably be successful using the same reasoning in a future case with a different product, company, or industry, or perhaps with better data and evidence.
For example, concerning Thermal Paper, USDOC determined following programs countervailable in the original investigation:
The reasons for a countervailing duty on Thermal Paper seem legitimate contenders for WTO violations. Although they were deemed inconsistent in this case, in a different case or context or with better data, the outcome of a future WTO dispute could be different.
The expiration of the market/non-market economy provision in China’s WTO Accession Protocol in December has direct bearing on this case. Once/If that provision lapses, one of the tools WTO members can use to combat Chinese government intervention in their economy will be gone. It may be harder to determine government intervention
Income Tax Exemption/Reduction under the Two Free/Three Half Program
Local Income Tax Exemption and Reductions for “Productive” Foreign Invested Enterprises (FIEs)
Domestic VAT Refunds for Companies Located in the Hainan Economic Development Zone
Exemption from City Maintenance and Construction Taxes and Education Surcharges for FIEs
Provision of Electricity for Less Than Adequate Remuneration (LTAR)
Provision of Land for LTAR in the Yangpu Economic Development Zone
VAT and Tariff Exemptions on Imported Equipment
VAT Rebates on Domestically Produced Equipment
Provision of Papermaking Chemicals for LTAR
Income Tax Subsidies for FIEs Based on Geographic Location
Preferential Tax Policies for Research and Development (R&D) at FIEs
Policy Loans to Coated Paper and Related Pulp Producers from State-Owned Commercial Banks and Government Policy Banks

23. Questions?