United States: WTO Panel Issues Mixed Ruling In US – GPX Legislation

Keywords: World Trade Organisation, WTO, US-GPX legislation, China, countervailing duties, GPX Legislation, CVDs, import

On March 27, 2014, a WTO panel issued a mixed ruling in a challenge brought by China against a recent US legislation related to the imposition of countervailing duties ("CVDs").1 The law, enacted in March 2012 and commonly referred to as "the GPX Legislation," directly authorizes the use of CVDs against imports from nonmarket economy ("NME") countries. The panel in US – GPX Legislation rejected China's claims that the United States has acted inconsistently with its WTO obligations in enacting the GPX Legislation. However, the panel agreed with the complainant that the United States failed to investigate and avoid double remedies in 25 CVD proceedings against Chinese products and, therefore, has violated global trade rules administered by the WTO.

Background

The WTO dispute in US – GPX Legislation centers on the Unites States' treatment of China as an NME for the purposes of antidumping ("AD") and CVD proceedings. Both are common types of trade remedy proceedings, but the former is concerned with price discrimination favoring exports while the latter is concerned with illegal subsidies.

For more than 20 years, the US government refused to apply its CVD law to NMEs on private petitions. It reasoned that it could not disaggregate subsidies from other government policies in a centrally planned economy—i.e., an NME consists entirely of one entity inseparable from the government.2 This was consistent with the NME methodology for dumping margin calculation, because it arguably has offset the effect of "subsidies" through use of a market economy surrogate.

However, since 2007 the executive branch of the US government has taken a new position that though China should remain an NME in general it was no longer a "Soviet-style" economy; therefore, it now can separately identify "subsidies" from other government policies and quantify their benefits to a Chinese exporter. Years of US domestic litigation ensued surrounding two complicated legal issues: (i) as the executive branch's authority to interpret AD and CVD laws depends on legislative authorization, whether it had exceeded its legal authority in adopting the new position rendering it unlawful and void; and (ii) even assuming the executive branch acted within the legal boundaries, whether and how the "double remedies" problem, created by the concurrent application of an AD rate with an implied subsidy offset and CVDs also targeting subsidization, should be addressed.

In December 2011, a three-judge panel of a federal appellate court found that the executive branch lacked the legislative authority to apply the US CVD statute to an NME because, as it existed at the time, the statute contained an imputed prohibition against such use. While the request for a reconsideration by the entire court (i.e., an en banc re-hearing) was pending, which stalled the legal effect of the three-judge panel ruling, President Obama signed the GPX Legislation into law on March 13, 2012, amending the US CVD statute at issue in the ongoing federal litigation. The new statute expressly authorizes the application of CVDs to imports from an NME and extends the applicable period of this authorization all the way back to November 20, 2006. In addition, the GPX Legislation also has a section aimed at addressing the issue of "double remedies," which on its face only applies to proceedings initiated after its enactment in 2012.3

China's WTO Challenge

On September 17, 2012, China requested consultations with the United States regarding the GPX Legislation (numbered Public Law 112- 99), formally initiating the WTO dispute settlement process. China ultimately decided to focus its challenge on two timing-related features of the GPX Legislation: (i) Section 1 of Public Law 112-99 affirming the executive branch's authority "applies" to all CVD proceedings initiated on or after November 20, 2006; and (ii) Section 2 of the same law on "double-remedies" adjustment applies only to future proceedings, and thereby creates a vacuum period between November 20, 2006 and March 13, 2012, for which no statutory basis for adjustment was directly provided.

"RETROACTIVE" NATURE OF SECTION 1

In respect of Section 1, China raised claims under Articles X:1, X:2, and X:3(b) of the GATT 1994. Article X:1 requires laws of general application, made effective by any WTO member and pertaining to rates of duty, taxes or other charges, be promptly published in a proper manner. The panel in US – GPX Legislation (the "Panel") found that Section 1 falls within the scope of Article X:1, however, it disagreed with China that Section 1 was "made effective" back in 2006. Instead, the Panel determined that Section 1 was "made effective" on March 13, 2012, i.e., when Public Law 112-99, as a whole, formally entered into force.4 The Panel thus concluded that Section 1 was published "promptly" because it was made effective and published on the same date.5 Accordingly, the United States did not act inconsistently with Article X:1 of the GATT 1994.

Article X:2 states that no measure of general application taken by any WTO member "effecting an advance in a rate of duty or other charge on imports under an established and uniform practice, or imposing a new or more burdensome requirement, restriction or prohibition on imports shall be enforced before such measure has been officially published." (emphasis added). All three panelists agreed that Section 1 is a measure of general application and it had been "enforced" prior to its official publication.

The majority of the Panel went on to find that Section 1 nonetheless falls outside the scope of Article X:2, because it neither effects an "advance" in a rate of duty or other charge on imports under an established or uniform practice, nor imposes a "new" or "more burdensome" requirement or restriction on imports. In particular, the Panel majority based its finding, in part, on the fact that Section 1 did not result in any change to the CVD rates that were already applied by the United States,6 and that the US judiciary had not ordered the executive branch to "discontinue" or "change" the relevant CVD practice when Section 1 was enacted (due to the appeal process).7 The Panel majority therefore concluded that the United States did not act inconsistently with Article X:2 of the GATT 1994. One panelist dissented from this part of the Panel majority finding and therefore reached the opposite conclusion, finding the United States in non-compliance with Article X:2.

China's third claim relied on the requirement in Article X:3 that tribunals "be independent of the agencies entrusted with administrative enforcement and their decisions shall be implemented by, and shall govern the practice of, such agencies unless an appeal is lodged." Significantly, the Panel rejected China's argument that if a legislation such as Section 1 was permissible, there would be "no point" to seeking judicial review of what an interested party considers to be unlawful agency conduct, because an independent tribunal's favorable finding could always be superseded by the enactment of a new law that renders the agency's actions lawful after the fact.8 The Panel ruled that Article X:3(b) does not prohibit a WTO member from taking legislative actions in the nature of Section 1, to wit, supersede a judicial determination that is pending when the legislation comes into force.9 Therefore, the United States did not act inconsistently with Article X:3(b) of the GATT 1994.

FAILURE TO INVESTIGATE "DOUBLE REMEDIES"

Issues surrounding the application of "double remedies" are equally contentious. They have been heavily litigated both in the United States and before the WTO. Under US laws, when imports from an NME are involved the dumping margin generally is calculated by comparing a "normal value" constructed based on a most similar market economy (i.e., the "surrogate country"), with the actual export prices charged by the producer subject to investigation. This is an "asymmetric" comparison because the constructed "normal value" in theory does not reflect any subsidy received by the producer as it is based on a third-country surrogate, whereas when subsidies have been received by the producer, the product's actual export price is presumably lower than it would have been in absence of subsidization. As a result, the NME methodology already offsets subsidies received by a foreign producer, to the extent that the subsidy has contributed to a lowering of the export price. The "double remedies" problem arises when the same subsidy is also specially investigated and the resulting CVD offsets it a second time.

In US – AD and CVDs (China), the Appellate Body ruled that applying "double remedies" through the concurrent imposition of AD duties based on the NME methodology and CVDs, was prohibited under the WTO Agreement on Subsidies and Countervailing Measures (the "SCM Agreement").10 It found the application of "double remedies" inconsistent with the requirement in Article 19.3 of the SCM Agreement that countervailing duties be levied in the appropriate amounts in each case. In US – GPX Legislation, Section 2 of Public Law 112-99 was written as inapplicable to past proceedings and, in the absence of a statutory mandate, there was no sign from the executive branch that any relief would be granted retroactively. Rather than grapple with the text of Section 2, the Panel seized on the fact that the executive branch did not investigate the potential application of "double remedies" in 25 past proceedings named by China (a fact that the GPX Legislation did nothing to change). Relying heavily on precedent, the Panel concluded that the United States therefore has acted inconsistently with various articles of the SCM Agreement.11

Implications and US Section 129 Proceedings

The United States refrained from taking a position on whether the GPX Legislation is of "retroactive application," throughout the panel process. Nevertheless, all theWTO claims regarding Section 1 amount to a legal challenge to its application to past proceedings. In essence, the United States, in the form of a new law, legitimized conduct and events that had occurred in the past. This renders moot the legal dispute over whether the past occurrences were unlawful under the old law, because their legitimacy may be derived from the new law in any event. Problematic as it may sound, the Panel sided with the United States and ratified the law's retroactive application along with the legitimacy of all past CVD proceedings relying on the authority it granted after the fact. However, more importantly, there has been no serious prediction that the new authority with respect to future proceedings would be voided either by a domestic court or a WTO tribunal. In other words, the United States' new practice applying CVDs to imports from an NME is here to stay.

By way of contrast, the "double remedies" issue is of a more enduring nature. Irrespective of the pre-GPX Legislation era, it is hardly disputed that CVDs may be levied lawfully against imports from an NME after the law entered into force. With respect to the law's prospective application, the question is "how," to which "double remedies" directly relates. Section 2 of the GPX Legislation was drafted in broad strokes, and it does not apply to proceedings initiated before the law's enactment. Nevertheless, the relevant practice is developing within the US system.

As a result of US – AD and CVDs (China), the United States had to initiate several Section 129 proceedings, which resulted in a reduction of the combined duties in four trade remedy cases targeting Chinese imports. If the Panel ruling is maintained, it likely again will have to reopen the 25 investigations and reviews by way of Section 129 proceedings, in order to determine whether double remedies were applied. In the Section 129 determinations to date, the executive branch followed a practice of reducing the total CVD rate by 63.07 percent of what may be called "input subsidies" (e.g., government provision of raw materials without charge), to the exclusion of other common types of government assistance (e.g., subsidized bank loans).12 This sheds some light on how Section 2 may be implemented in future trade remedy cases against NME imports.

The United States and China each have incentive to file an appeal to the Appellate Body. Although it is hard to predict the result regarding Section 1's "retroactive application," the United States no doubt would face an uphill battle on the double remedies front. In any event, as the legal fight over "past authority" drawing to a close, more attention and scrutiny may shift to the issue of whether the US government's looming practice on double remedies adjustment can withstand a challenge under US laws and globe trade rules.

Originally published April 4, 2014

Footnotes

1 Panel Report, US–Countervailing Duty and Antidumping Measures (China),WT/DS449/R (Mar. 27, 2014) ("US– GPX Legislation").

2 See, e.g., Georgetown Steel Corp. v. United States, 801 F.2d 1308, 1314-18 (Fed. Cir. 1986) ("Even if one were to label these incentives as a 'subsidy,' in the loosest sense of the term, the government of those [NMEs] would in effect be subsidizing themselves.").

3 For more background on the US litigations and enactment of GPX Legislation, see our Legal Updates, US Court of International Trade Orders US Government to Cancel Countervailing Duties on Chinese Off-the-Road Tires; Federal Circuit Exempts Non-Market Economy Country Exports from US Countervailing Duty Law; President Obama Signs Legislation Applying Anti-Subsidy Trade Law to Imports from Non-Market Economies Such As Vietnam and China.

4 Panel Report, US–GPX Legislation, para. 7.88.

5 Id.

6 Id. Para. 7.189.

7 Id. Para. 7.184 & 190

8 Id. Para. 7.283.

9 Id. para. 7.291–7.292.

10 Appellate Body Report, US–Anti-Dumping and Countervailing Duties (China),WT/DS379/AB/R (Mar. 11, 2011).

11 Panel Report, US–GPX Legislation, para. 8.1.c.

12 US Department of Commerce, Section 129 Determination of the Countervailing Duty Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of China: "Double Remedies" Analysis Pursuant to theWTO Appellate Body's Findings inWTO DS 379 (May 31, 2012), available at https://docs.google.com/file/d/0B3psE802f8WOZzQxSWE4Nno3bnM/edit?usp=drive_web&pli=1, unchanged by Final Determination: Section 129 Proceeding Pursuant to theWTO Appellate Body's Findings inWTO DS379 Regarding the Antidumping and Countervailing Duty Investigations of CircularWelded Carbon Quality Steel Pipe from the People's Republic of China (July 31, 2012), available at http://enforcement.trade.gov/download/section129/prc-cwcq-steel-pipe-Final-129-Determination-20120830.pdf.

Learn more about our International Trade and Government Relations practices.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions