China and the World Trade Organization

1. China and the World Trade Organization Tim Brightbill

2. Introduction • China joined the WTO in 2001, and it is increasingly involved in WTO disputes. • World Trade Organization dispute panels have addressed key trade law issues involving China in several recent cases • United States – Various Products from China (AD/CVD) • United States – Tires from China (Section 421) • EU – Fasteners from China • The ongoing proceeding in China –Raw Materials could have a significant impact on key raw materials for making steel • The United States has also requested consultations with China through the WTO regarding China’s subsidies to the green technology industries

3. United States: Various Products from China (AD/CVD) • China sought WTO dispute settlement regarding U.S. antidumping (AD) and countervailing duty (CVD) cases involving four different sets of products, including pipe and tube • The WTO panel upheld a number of key aspects of the U.S. determinations

4. United States: China (AD/CVD) • Sales of inputs by state-owned enterprises (SOEs) at below-market rates could constitute a subsidy • State-owned enterprises are “public bodies” capable of bestowing subsidies • Majority government ownership indicates government control of a company • Where SOEs dominate a market, the U.S. Department of Commerce properly looked to benchmarks outside of China to value inputs • Land • Bank loans

5. United States: China (AD/CVD) • Double counting: The panel found that, because of the AD methodology the United States applies to non-market economy (NME) countries like China, applying both countervailing duties and antidumping duties to a given product could theoretically result in double-counting subsidies • But the WTO Agreement on Subsidies and Countervailing Measures does not prohibit this result, so the Panel held that the U.S. action was GATT-legal • The panel also found that imposition of both antidumping and countervailing duties to Chinese products does not violate the most favored nation requirement of the GATT

6. Ramifications • China has appealed the panel decision to the WTO Appellate Body • The Appellate Body recently held a hearing on the appeal • If the decision is upheld, the United States will be able to continue • To treat sales of inputs by SOEs at below-market prices as bestowing countervailable subsidies • To apply both antidumping and countervailing duties to imports from China without taking any steps to eliminate “double counting”

7. United States – Tires from China (Section 421) • After an investigation in response to a petition under Section 421 • The U.S. International Trade Commission found that imports of certain types of tires from China were disrupting the U.S. market • President Obama determined to impose additional duties on imports of tires from China • This was the first time the WTO had considered the legality of measures taken by the United States under Section 421 • China argued that a number of aspects of the U.S. decision violated China’s rights The WTO rejected essentially all of China’s arguments

8. Tires from China: Key Panel Holdings • Imports did not have to increase at an accelerating pace to qualify as “increasing rapidly” • Imports were only required to be a significant cause of market disruption, not the only cause or even the chief cause of disruption • There was no requirement that there be any statistical correlation between increases in imports and indicators of injury to the U.S. industry

9. Tires from China: Ramifications • In this decision, the WTO panel upheld the use of Section 421 • Indeed, this is the first time a WTO panel has upheld any U.S. safeguard measure • China has appealed this ruling to the Appellate Body • The Appellate Body’s ruling could be crucial to the future application of Section 421 • Section 421 is available to address other import surges from China (but expires in 2013).

10. EU: Fasteners from China • China challenged the EU’s antidumping duties on imports of steel and iron fasteners from China • The WTO panel held that the EU’s use of a single country-wide antidumping duty rate to most Chinese producers violated the WTO Antidumping Agreement and the GATT • The panel held that, if a producer provided the EU with the necessary information, the EU was required to calculate an individual rate for it • The United States applies a similar approach (but with differences) to China

11. China – Raw Materials • The United States, the EU, and Mexico have challenged China’s application of a variety of restrictions to exports of key raw materials used in steel making, including • Coke • Refractory bauxite • Fluorspar • Zinc • The restrictions China applies include • Export duties • Export quotas • Restrictive bidding procedures

12. China – Raw Materials • China has argued that these measures are justified to prevent pollution and to preserve natural resources • China has also claimed a “sovereign right to regulate” its raw material exports • The panel will release its decision this year: • The interim report is due February 18, 2011 • The final report is due April 1, 2011 • This decision could have a major impact on international trade in raw materials for steel making • Many other countries also restrict exports of raw materials, especially steel scrap • USTR is very interested in a potential case regarding China’s restrictions on exports of rare earths and other raw materials

13. China – Green Energy Technology • The USW has filed a petition asking USTR to investigate a number of China’s policies regarding “green technology” • The Chinese practices identified include • Subsidies to the solar and wind power industries • Restrictions on exports of rare earths, antimony and tungsten • Measures discriminating against foreign companies attempting to enter Chinese renewable energy industries • Technology transfer requirements • USTR has requested consultations with China through the WTO regarding subsidies to the wind industry • USTR has stated that it will continue to investigate the other measures

14. China’s Steel Industry • China’s trade law violations relating to its steel industry are well documented • Subsidies • State ownership and control • Massive market distortion (overcapacity) • USTR WTO litigation has become more aggressive • It is time to take a serious look at a comprehensive challenge to China’s steel-related WTO violations

15. Conclusion • Recent decisions involving China have largely upheld U.S. laws, regulations, and decisions • The United States is more aggressively using WTO challenges to address China’s failure to meet its international trade commitments • A favorable decision in the China – Raw Materials case could substantially increase trade of key raw materials for making steel • Important to consider future cases against China’s export restrictions (on rare earths and other raw materials) and its many trade-distorting actions on behalf of its steel industry