China: World Trade Organization: 2010 Marks An Important Shift For China

Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment–China Focus, February 2011

In 2010, the World Trade Organization (WTO) issued four panel decisions in ongoing cases to which the People's Republic of China (PRC) was a party. The decisions concern measures related to:

  • the importation of poultry products from the PRC;
  • antidumping (AD) measures imposed by the European Union (EU) on imports of Chinese metal fasteners;
  • safeguard measures imposed by the U.S. on imports of Chinese passenger vehicle and light truck tires; and,
  • AD and countervailing (CV) duties imposed by the U.S. relating to steel pipe, off-road tires and woven sacks.

China was the complainant in all four of the disputes. This article provides an overview of the disputes and their implications, as well as some background on notable new disputes initiated in 2010.

TREATMENT OF CHINA AS A NON-MARKET ECONOMY

Two of the cases decided by the Dispute Settlement Body (the DSB) in 2010 addressed the treatment of China as a "non-market economy" (NME).

On December 3, 2010, the WTO issued the report of the DSB Panel in the case: European Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (DS397) (Fasteners case). The case related to AD measures imposed by the EU on imports of Chinese metal fasteners, including screws, nuts and bolts. China brought the case to the WTO in July 2009 after the EU imposed import duties ranging from 26.5% to 85% on various Chinese steel and iron fasteners. The EU justified the import duties under Article 9(5) of Council Regulation (EC) No. 384/96, which provides that in cases of imports from NME countries, the duty shall be specified for the supplying country concerned and not for each supplier. Likely as a consequence of the import duties, the imports of fasteners from China to the EU reduced in value to US$555.7-million in 2009 from US$1.39-billion in 2007.

In the case, China argued that the EU had acted inconsistently with the AD and most-favoured nation (MFN) commitments under the 1994 General Agreement on Tariffs and Trade (GATT) and the Anti-Dumping Agreement (AD Agreement). It also argued that the EU was in violation of Article 15 of Protocol on the Accession of the People's Republic of China (Protocol) which covers price comparability in determining subsidies and dumping.

In its arguments before the DSB Panel, China's main claim was that the EU unfairly used costs in India and the EU itself as comparisons when determining the hypothetical production cost of fasteners in China. In its decision, the DSB Panel agreed that the EU should have calculated individual dumping margins for each known Chinese exporter or producer under investigation rather than a simple dumping margin for NME producers. The decision could change the manner in which AD authorities across the world treat imports from China, as traditionally, China is considered an NME and costs from "comparable" economies are often used to calculate margins of dumping.

The decision in the Fasteners case came on the heels of another DSB Panel decision that addressed the treatment of China as an NME. On October 22, 2010, the WTO issued the report of the DSB Panel in the case: United States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (DS379). The case related to the AD and CV duties imposed by the U.S. in several investigations in 2008 relating to steel pipe, off-road tires and woven sacks.

In the case, China argued that the implementation of the measures – including the conduct of the underlying AD and CV duty investigations – were inconsistent with the obligations of the U.S. under the WTO's AD and CV duty rules, various provisions of the Subsidies and Countervailing Measures Agreement (SCM Agreement), and Article 15 of the Protocol. China's submissions focused on technical issues related to AD and CV enforcement including whether state-owned enterprises and state-owned commercial banks could be properly considered public bodies that provide subsidies. In its decision, the DSB Panel rejected eight of the 11 complaints by China and ultimately upheld the subject measures.

IMPLICATION OF EPIDEMICS ON TRADE PRACTICES

On October 25, 2010, the DSB adopted the panel report in the dispute between China and the U.S.: United States – Certain Measures Affecting Imports of Poultry from China (DS392) (Poultry case). The measure at issue in the case was section 727 of the Omnibus Appropriations Act of 2009, passed by the U.S. Congress. The law extended a five-year U.S. ban on Chinese chicken declared after a 2004 outbreak of avian influenza (or bird flu) by effectively restricting the U.S. Department of Agriculture (USDA) from using funds allocated by the U.S. Congress to create a rule to lift the poultry ban on China. The case represented the first WTO complaint launched specifically against legislation signed by the Obama Administration.

In the case, China argued that section 727 and any closely related measures, were in violation of the quantitative restriction and MFN provisions under the GATT, the WTO's Agreement on Agriculture and various provisions of the WTO's Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). The DSB Panel concluded that the U.S. trade regime was not acting in accordance with the specified provisions of the SPS Agreement and the GATT, and has "nullified or impaired benefits accruing to China under those agreements". Although the DSB Panel found several violations, it did not recommend that the DSB request the U.S. to bring the measure at issue into conformity with its WTO obligations because the measure had already expired. Nevertheless, the decision provides guidance on the extent of the measures that may be adopted when faced with global epidemics such as avian flu or H1N1.

USE OF SAFEGUARD MEASURES AGAINST CHINA

On December 13, 2010, the WTO issued the report of the DSB Panel in the case: United States — Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China (DS399). The case related to the September 2009 decision of the Obama Administration to impose duties of up to 35% on the subject Chinese-made tires in addition to the standard 4% tariff on car and light truck tires. The measures were implemented pursuant to section 421 of the U.S. federal Trade Act of 1974 after an investigation determined that there was market disruption as a result of rapidly increasing imports of subject tires from China that were a significant cause of material injury to the domestic industry. WTO safeguard rules allow members to impose temporary extra duties on goods to counter a destabilizing flood of imports. When it introduced the duties, the U.S. government argued that the volume of Chinese tire imports had more than tripled in the previous four years, to reach US$1.8-billion in value, while U.S. production had shrunk by more than 25% in the same period, with 14% of U.S. workers in the industry losing their jobs.

In the case before the DSB Panel, China argued that the measures invoked were inconsistent with the MFN provisions under the GATT and were not properly justified pursuant to the safeguard provisions under Article XIX of the GATT, the WTO's Agreement on Safeguards and the China-specific restrictions under paragraph 16 of the Protocol, which provides a transitional product-specific safeguard mechanism. Some of China's main arguments in the case rested on the proper interpretation of key terms in the Protocol, including what constitutes imports "increasing rapidly" and how the "significant cause" standard for domestic injury in the Protocol should be interpreted relative to the provisions of the U.S. Trade Act of 1974. In its decision, the DSB Panel rejected all of China's arguments. China has 60 days from the release of the Panel decision to appeal and has publicly commented that it will do so.

NEW DISPUTES IN 2010

In 2010, a number of new requests for consultation (RFC) were brought to the DSB either by or concerning China. Some of the key cases of note include:

Grain-Oriented Flat-Rolled Electrical Steel (DS414) On September 15, 2010, the U.S. filed an RFC with China concerning China's imposition of CV duties and AD duties on grain-oriented flat-rolled electrical steel from the United States. China had imposed the measures as a response to their domestic determination that the "Buy America" provisions of the American Recovery and Reinvestment Act of 2009 and State government procurement laws were a subsidy conferring a benefit.

Electronic Payment Services (DS413) On September 15, 2010, the U.S. filed an RFC with China regarding restrictions and requirements maintained by China pertaining to electronic payment services for payment card transactions. The U.S. has alleged the restrictions and requirements are inconsistent with the General Agreement on Trade in Services (GATS).

Fasteners (DS407) On May 7, 2010, the EU filed an RFC with China relating to China's provisional AD duties on certain iron or steel fasteners from the EU. The EU is challenging the way China calculates the extent of dumping on steel fasteners such as nuts and bolts and the resulting penalty taxes imposed on imports from the EU.

CONCLUSION

China's victories in the Fasteners case and Poultry case were a key development in international trade in 2010, as China is quickly taking on a more active role in the dispute settlement process. China seems to be increasingly more comfortable challenging other countries' trade measures than it has been in the past. This is illustrated by China's effective use of the WTO to challenge the application of AD measures to China as an NME in the Fasteners case. That said, China continues to be a significant target in the dispute settlement process, with a number on ongoing actions proceeding and new actions being advanced against China.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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