1. United States – Countervailing Duty Measures on Certain Products from China
“WTO DS437 in Perspective"
Presented by : Brenda Padilla, Erin Parker, Libabatie Pedro​

2. Table of Content 1 Historical Context on Countervailing Duty 2
Overview of Dispute - DS437 3
Business and Political Context of Dispute 4
Dispute Analysis :  China Perspective vs. U.S. Perspective  5
Overview of Specific WTO Agreements 6
Panel Proceedings and Finding   7
Appeal Proceedings 8
Implementation Procedures 9
Observation and Lessons

3. Key Definitions in DS437 The Term Countervailing Duties(CVD) Subsidies
According to the WTO, the term "Countervailing duties" shall be understood to mean a special duty levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any merchandise, as provided in the GATT 1994 Article VI. 
Subsidies
The term "subsidy" is (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit.
All three of these elements must be satisfied in order for a subsidy to exist.            
Anti-dumping
Anti-dumping measures: a penalty that a member state may assess upon an import originating from another member state pursuant to a showing that the price of the import is less than its fair value. 1

4. Historical Context to Subsidies and CVD - DS379 Case
The Appellate Body (DS379) found that the term "public body" means "an entity that possesses, exercises or is vested with governmental authority"
Government ownership isn’t enough of a case to rule as a “public body”
“Mere ownership or control over an entity by a government, without more, is not sufficient to establish that the entity is a public body"
Each government and SOEs are different
"No two governments are exactly alike, the precise contours and characteristics of a public body are bound to differ from entity to entity, State to State, and case to case"
DS437 Original dispute rulings were made by Panel and Appellate Body in 2014
Focuses specifically on 17 CVD investigations USDOC conducted from
Ruling: U.S. acted inconsistently with the SCM Agreement
"The USDOC found that SOEs were public bodies based solely on the grounds that these enterprises were (majority) owned, or otherwise controlled, by the Government of China"
Current Proceeding: China claiming the U.S. implementation of the original rulings including that USDOC failed to make valid "public body" determinations 2

5. Overview of the Dispute
WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) deems a "subsidy" to exist where there is a financial contribution by "a government or any public body" that provides a benefit to the recipient
SCM Agreement does not define "public body"
State-Owned Enterprises (SOEs) are important to the economy for many developing nations
Raises the question: Under what circumstances could their transactions be subject to the disciplines of the SCM Agreement?
Disagreement on this question have led to several WTO disputes 3

6. Overview of DS437 Case - CVD Measures on Certain Products from China
Parties Involved in Dispute
Complaint :    China 
Respondent : ​United States
Third Parties
Australia; Brazil; Canada; European Union; India; Japan; Republic of Korea; Norway; Russian Federation; Turkey; Vietnam; Kingdom of Saudi Arabia
Specific WTO Agreements Involved
- SCM Articles  1.1, 1.1(a)(1), 1.1(b), 2, 10, 11, 11.1, 11.2, 11.3, 12.7, 14(d), 30
- GATT 1994 VI
- Protocol of Accession
Subject Products in Dispute
Thermal paper, pressure pipe, line pipe, citric acid, lawn groomers, kitchen shelving, oil country tubular goods, wire strand, magnesia bricks, seamless pipe, print graphics, drill pipe, aluminum extrusions, steel cylinders, solar panels, wind towers, and steel sinks from China 4

7. Some Products of Dispute in Context
Thermal Paper
Solar Panel
Thermal Wires
Lawn Groomers
Magnesia Bricks
Kitchen Shelving
Aluminium Extrusions
Steel Cylinders
Print Graphic 5

8. Business and Political Context of the Dispute
State-Owned Enterprises (SOEs)
Important to Chinese economy - dominate China’s strategic sectors and pillar industries
Key vehicle for implementing Chinese Communist Party (CCP) policies 
Less profitable than privately owned companies
Complaints from U.S. on SOEs
China exercises bureaucratic control over the economy
Deep industrial state resembles Saudi Aramco, Korean chaebol or Singapore’s Temasek
Accuses China of subsidization to the effect of rigging markets and dumping excess capacity abroad 6

9. Fortune Global 500 List Business and Political Context of the Dispute
SOEs are the biggest barrier to entry for foreign investment
Account for:
~40% of stock market
Over 1/3rd of public investment
Benefit from very low cost of capital
Too much capital allocated to SOEs
Limits funds for privately owned companies
Lack of level playing field
Dominate heavy industry
Constrains price discovery in commodities
Determinate of China’s financial system
Top 12 Chinese companies are all state-owned 7

10. Dispute Timeline Timelines WTO Status 25 May 2012
Require for Consultation
28 September 2012 
Establishment of Panel 
14 July 2014
Circulation of Panel Report
18 December 2014
Circulation of Appellate Body
16 January 2015
Adoption of recommendations
9 October 2015
Circulation of Arbitration Report Article 21.3 (c)
21 March 2018
Circulation of Panel Report Article 21.5 8

11. Contested Issue – China Perspective ​
Complaints by China : 
On 25 May 2012, China requested consultations with the United States concerning the imposition of 17 countervailing duty measured by the United States on certain products from China.
China challenged that some aspects of the identified countervailing duty investigations by the US Department of Commerce, in terms of their: opening, conduct and the preliminary investigation, evidence and final determination leading to the imposition of countervailing duties as being in err.  
Claiming that the challenge measures are inconsistent with :
           - Article VI of the GATT 1994 Article VI, XXXIII 
           - SCM Agreement Articles 1.1, 2, 11.1, 11.2, 11.3, 12.7 and 14(d); and 
           - The Protocol Accession Article 15 of the Protocol of Accession of China.
China also challenged the “rebuttable presumption” allegedly established and applied by the US Department of Commerce (USDOC) that majority government ownership is sufficient to treat an enterprise as a “public body”. 9

12. Contested Issues – U.S. Perspective
  U.S. Stance: 
U.S. Department of Commerce (USDOC) initiated an investigation into the industries in question to determine whether they were being unfairly subsidised, enough to deem them public bodies. 
U.S. stated “a proper application of the customary rules of interpretation leads to the conclusion that there will be sufficient links to establish that an entity is a “public body” within the meaning of Article 1.1(a)(1) of the SCM Agreement when a government controls the entity such that it can use the entity’s resources as its own” 
The USTR argues that instead of taking Article 1.1(a) of the SCM agreement singularly and only referring back to a prior case, the panel should consider article 9.1 of the Agreement on Agriculture. 
At the beginning of the case, the United States was highly involved in the process but as of recently it has not been. 
China has made numerous requests to the panel in terms of wording, there has not been a response from the U.S. so many of these requests have been honoured. This has only made China’s case stronger. 10

13. Contested Issues – China's Standpoint vs. U.S. Standpoint ​
China's rebuttal:
- China claims the USDOC's findings of financial contribution are inconsistent with Article 1.1(a)(1) of the SCM Agreement, because the USDOC incorrectly determined without sufficient basis, that certain State-owned enterprises (SOEs) are “public bodies” within the meaning of that provision in certain investigations.
- The “rebuttable presumption” established and applied by the USDOC in respect of whether SOEs can be classified as “public bodies” is, as such, inconsistent with Article 1.1(a)(1) of the SCM Agreement
U.S. rebuttal:
- The USDOC claim that Chinese state-owned and state-invested enterprises (SOEs/SIEs) provided inputs to Chinese exporters (mainly steel inputs) for less than adequate remuneration on the basis of two main findings:
SOE/SIE providers of inputs were “public bodies” in the sense of Article 1.1(a)(1) of the SCM Agreement; and
Price distortions in the domestic market in China justified using third country prices as a benchmark for assessing the benefit granted to Chinese exporters under Article 14(d) of the SCM Agreement. 11

14. Overview of Specific WTO Agreements in Perspective
GATT 1994 Article VI (Anti-dumping and Countervailing duties)
GATT 1994 VI recognizes that dumping, by which product of one country are introduced into the commerce of another "at less than the normal value" is to be condemned, if it causes material injury to an established and domestic industry in the importing country territory.  
Thus If price of product exported into the commerce of an importing country is:
(a) less than the normal comparable price in the exporting country, or (b) in the absence of such domestic price, is less than 
(i) the highest comparable price for the like product for export to any third country, or 
(ii) the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit. 
All above mentioned constitute dumping, for which a correctional due allowance shall be made in each case for differences in conditions and terms of sale, for differences in taxation, and for other differences affecting price comparability.  12
Source : WTO Website ​

15. Overview of Specific WTO Agreements in Perspective
SCM Agreement Articles 1, 2, 10, 11, 12.7, 14(b), 30
Article 1 : (Definition of Subsidies ) :
A subsidy shall be deemed to exist if:
(1)(a)   There is a financial contribution by a government or "any public body" within the territory of a Member 
A subsidy shall be viewed where:
1.1(a) (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); 1.1(a)(ii) - Government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)
1.1(b) A benefit is thereby conferred ( effectively constitute a benefit benchmark, as expressed under Article. 14(d) ) 13
Source : WTO Website ​

16. Overview of Specific WTO Agreements in Perspective
SCM Agreement Articles 2, 10, 11, 12.7, 14(b), 30
Article 2 : (Specificity ) 
(a) Specificity with regards to granting authority explicitly limiting access to a subsidy to certain enterprises, shall be viewed as specific to subsidy.
(b) Unless otherwise indicated as non-specificity via the establishment of objective criteria or conditions governing the eligibility for, and the amount with regards to a subsidy
Specificity shall exist, if eligibility criteria and conditions are not clear and strictly adhered to.  14
Source : WTO Website ​

17. Overview of Specific WTO Agreements in Perspective
SCM Agreement Articles 10, 11, 12.7, 14(b), 30
Article 10 : (Application of GATT 1994 Article VI ) 
Members shall ensure the imposition of a countervailing duty on any product of the territory of any Member imported into the territory of another Member in accordance with GATT 1994 Article VI. Countervailing duties may only be imposed pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement and the Agreement on Agriculture.
Article 11 : (Initiation and Subsequent Investigations ) 
An investigation to determine the existence, degree and effect of any alleged subsidy shall be initiated upon a written application by or on behalf of the domestic industry.
An application under subsidy shall include sufficient evidence of the existence of :
      (a) a subsidy and, if possible, its amount
      (b) injury as stated in GATT 1994 Article VI 
      (c) a causal link between the subsidized imports and the alleged injury
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 15
Source : WTO Website ​

18. Overview of Specific WTO Agreements in Perspective
SCM Agreement Articles 1, 2, 10, 11, 12.7, 14(b), 30
Article 12.7 : (Evidence) 
In cases where interested member 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 based on the facts available.
Article 14 (b) : (Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient )
A loan by a government shall not be considered as conferring a benefit, unless there is a difference between the amount that the firm receiving the loan pays on the government loan and the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market. 
Article 30 : 
The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the DSU shall apply to consultations and the settlement of disputes under this Agreement except as otherwise specifically provided herein
Source : WTO Website  16

19. Panel Proceedings and Findings
Claim concerning the USDOC's public body determinations
Claim concerning the USDOC's benefit determinations
Claim concerning the USDOC's specificity determinations
Claim concering use of “facts available
The Panel found that the USDOC acted inconsistently with Art.  1.1(a)(1) because it determined that certain Chinese state-owned enterprises were “public bodies” based solely on the grounds that they were majority owned, or otherwise controlled, by the Government of China. 
The Panel found that the USDOC did not act inconsistently with Arts. 14(d) or 1.1(b) by rejecting in-country private prices in China as benchmarks in its benefit analysis. Thus rejected China's argument that an investigating authority can have recourse to an out-of-country price benchmark only when it has shown that prices for the input at issue are determined de jure or de facto” by the government. 
The Panel found that the USDOC did not act inconsistently with Art. 2.1 by analysing specificity exclusively under Art. 2.1(c). 
The Panel found that USDOC did not act inconsistently with Art. 12.7 by not relying on facts available on the reco 17

20. Score Board - Summary of Panel Findings
Issue
In favor of:
ASCM Art.  1.1(a)(1) (definition of “public body”)
China
ASCM Arts. 1.1(b) and 14(d) (benefit benchmark)
United States 
ASCM Art. 2.1 (specificity)
United States
ASCM Art (use of “facts available”)
The Panel recommended that the United States “bring measures into conformity” referencing article 19.1 of the DSU. 18

21. Appeal Proceedings Claim with regards to "subsidy programme":
Claim with reagrds to "benefit determinations":
Claim with reagrds to "specificity":
Claim with reagrds to the use of “facts available" :
The Appellate Body reversed the Panel's finding that China had not established that the USDOC acted inconsistently with the obligations of the United States under Article 2.1 by failing to identify a “subsidy programme”. 
The Appellate Body reversed the Panel's finding, stating that the USDOC acted inconsistently with Arts. 14(d) and 1.1(b) by rejecting prices in China as benchmarks in its benefit analyses. 
The Appellate Body found that, the Panel erred in its application of Art.  2.1(c) because it failed to provide any case-specific discussion or references to the exact USDOC determinations of specificity challenged by China.
The Appellate Body reversed the Panel's finding, observing that the Panel had acted inconsistently with DSU Art. 11 because it, inter alia, had not undertaken a critical and in-depth examination of the USDOC's statements. The Appellate Body was unable to complete the legal analysis.  19

22. Implementation Procedures
On 16 January the original panel and Appellate Body reports were adopted by the DSB, and the reasonable period for compliance was due on 1 April 2016. 
On 15 April China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.
On 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.
On 8 July China requested, pursuant to Article 21.5 of the DSU, the establishment of a compliance panel. 
On 5 October   Director-General composed the panel 
On 21 March Final compliance report to the adoptation of recommendations and rulings of the DSB  was circulated to members. 20

23. Observations and lessons learnt from Dispute......as the battle continues
Original panel ruled in favour of the U.S. 
On May 16, 2016 China requested consultations citing Article 21.5 stating the United States had failed to implement recommendations made by the panel. 
Since then, there have been multiple appeals 
The Appellate Body informed the DSB that it would not be able to circulate the Appellate Body report by the end of the 60-day period, nor within the 90-day time-frame provided for in Article 17.5 of the DSU. 
The last update on the most recent appeal was on April 27, 2018 when the United States initiated an appeal. 
Till today, the appellate body has not reached a conclusion and the case is ongoing.  21

24. Questions? 22