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DISPUTE SETTLEMENTS 440, 419, 431 & 437 ITRN 603 Pamela Rooney, Ana Rogers & Betsy Savage

DISPUTE SETTLEMENTS 440, 419, 431 & 437 ITRN 603 Pamela Rooney, Ana Rogers & Betsy Savage. Introduction.

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DISPUTE SETTLEMENTS 440, 419, 431 & 437 ITRN 603 Pamela Rooney, Ana Rogers & Betsy Savage

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  1. DISPUTE SETTLEMENTS440, 419, 431 & 437ITRN 603Pamela Rooney, Ana Rogers & Betsy Savage

  2. Introduction The following 4 dispute settlements between China and the U.S. expose the complexities of an international trade system that has to accommodate partners at different levels of economic development, government interference and trade liberalization.

  3. DISPUTE SETTLEMENT440U.S. v. China — Anti-Dumping & Countervailing Duties on Certain Automobiles from the U.S.

  4. Background - Leading up to DS440 • This is the third dispute settlement the U.S. has filed against China concerning antidumping and countervailing measures targeting U.S. exports • September 2009 – President Obama imposes a 3 year safeguard measure against Chinese tire imports after an investigation indicating domestic market disruption • December 2011 – After investigating imports of American-made cars and SUVs, China’s Ministry of Commerce imposes both antidumping and countervailing duties on imports of American-produced automobiles • July 2012 - The U.S. requests consultations with China to impose anti-dumping and countervailing measures on certain automobiles from the U.S., including any and all annexes

  5. Antidumping and Countervailing Duties on U.S. Automobile Imports to China (%)

  6. DS 440 Background, Cont’d • August 2012 – The U.S. and China held a consultation meeting which did not result in resolving the charges being brought against China • September 17, 2012 – The U.S. requests the establishment of a panel  September 28, 2012, China objects to the establishment of a panel • October 2012 – U.S. resubmits its request for the establishment of a panel, at which time the panel is created • Colombia, the European Union, India, Japan, Korea, Oman, Saudi Arabia and Turkey reserved their third party rights • February 1, 2013 - the U.S. requested the Director-General to determine the composition of the panelFebruary 11, 2013, the Director-General composed the panel

  7. WTO Issues - Article VI of GATT 1994 Part I: Anti-dumping

  8. WTO Issues - Article VI of GATT 1994 Part V: Subsidies & Countervailing Measures

  9. Position of Parties • The United States believes that China: • initiated the investigations without sufficient evidence • failed to objectively examine the evidence • made unsupported findings of injury to China’s domestic industry • failed to disclose “essential facts” underlying its conclusions • failed to provide an adequate explanation of its conclusions • improperly used investigative procedures • failed to require non-confidential summaries of Chinese company submissions • China has not commented on the DS440 allegations being brought against it.

  10. Resolution Proposal • The U.S. requests that the Panel find that China’s measures are inconsistent with its obligations under the • GATT 1994 • SCM Agreement • AD Agreement • The U.S. requests that the Panel recommend that China bring its measures into conformity with these obligations • China says it will respond to the consultations request “in line with the procedural rules of WTO dispute settlement” - According to a statement issued by the Head of the Ministry of Commerce’s Department of Treaty and Law

  11. National & International Implications • China is currently the U.S.’s second-largest trading partner, its third-largest export market, and its biggest source of imports • General Motors has invested heavily in China, having sold more cars in China than in the U.S. from 2010 to 2012, despite having been the most heavily penalized automaker (12.9% CVD and 8.9% AD) • Taking a more aggressive stance against China over its trade policies could induce it to retaliate against U.S. exports toChina • Since having joined the WTO, China has been the target of 29 WTO disputes initiated by its trading partners.  If current trends continue, this could raise important systemic issues for the WTO and its existing rules in coping with the challenges posed by large trading countries, such as China.

  12. Current Status on DS440 • September 25, 2013 – The panel informed the Dispute Settlement Body that it was not able to issue a report within six months (in accordance to Article 12.9) • The Panel expects to issue its final report to the parties by March 2014, in accordance with the timetable adopted after consultation with the parties

  13. DISPUTE SETTLEMENT419U.S. v. China — Subsidies and Wind Power (Pending)

  14. DS 419 – History and Context • September, 2010 – U.S. United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union file petition with the U.S. administration to launch a formal investigation into Chinese support to its clean energy and tech sector. • December 22, 2010 - The U.S. requests consultation with China concerning measures providing grants, funds, or awards to enterprises manufacturing wind power equipment (including overall unit, & parts thereof) in China • January 12, 2011 – European Union requests to join consultation • January 17, 2011 – Japan requests to join consultation

  15. DS 419 – History and Context Continued • China's 12th Five Year Plan for Economic and Social Development Plan includes $473.1 billion spend on renewable energy • Half of Chinese Wind procurement is decided by State Owned Enterprises • Chinese Wind Power has two prong approach • Connect more renewable energy to the grid • Develop manufacturing base for wind turbines for export • Chinese Wind Power energy generation underperforming leading to emphasis on exports

  16. Main WTO Issue • GATT 1994: Article XVI:1 • Clarifies that any contacting party that grants a subsidy which operates to increase exports of any product, or to reduce imports of any product, shall notify the CONTRACTING PARTIES in writing of the extent and • nature of the subsidization. • Subsidies & Countervailing Measures Agreement • Article 3, 25.1, 25.2, 25.3, 25.4 • Prohibits grants as a form of subsidy and clarifies reporting requirements • Protocol of Accession: Part 1, paragraph 1.2. • Clarifies that China will abide by the WTO rules as written prior to their joining the WTO and will notify members of subsidies in one of the three approved languages

  17. DS419 – Position of the Parties • June 7, 2011 – USTR announces China agrees to bring an end to a controversial public fund for wind power manufacturing. USTR considers this a WTO victory • “The United States is pleased that China has shut down this subsidy program. Subsidies requiring the use of local content are particularly harmful and are expressly prohibited under WTO rules. This outcome helps ensure fairness for American clean technology innovators and workers. We challenged these subsidies so that American manufacturers can produce wind turbine components here in the United States and sell them in China. That supports well-paying jobs here at home,” • June 9, 2011 - China responds to USTR statement regarding suspension of Special Fund for Wind Power Equipment Manufacturing • Rejects US take on the issue states “The aim of the measure at issue is to enhance investments on research and development in wind power technology, but not to use domestic goods instead of imported goods”

  18. Resolution • At this time the dispute seems to be resolved although the resolution took place outside the parameters of the WTO resolution system

  19. National and International Implications • The removal the subsidy program by China is favorable for the U.S. renewable energy equipment market however it came late in the game • China has already dominated the Wind Power equipment market and the removal of the subsidies is actually favorable for China as they move to exports • Grant program was no longer needed – provided one off subsidies to countries for first 50 turbines. • Will empower other industries to petition their government and countries to file complaints with regards to renewable energy • Japan vs. Canada – Solar Energy

  20. DISPUTE SETTLEMENT431U.S. v. China — Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum

  21. DS 431 – REE Trade and Complaint History • Pre 1990’s: US, Australia major REE producers • 1990’s: China exports REEs, prices plunge, driving producers from market and creating monopoly • “The Middle East has oil; China has rare earths” – Deng Xiaoping • 2002 – Major US mine Mountain Pass closes • China attempts to buy control of Australia’s largest REE mine • 2008: China begins imposing export quotas • September 2010: Japan captures Chinese fishing boat in disputed territory; China embargos REE export to Japan • October 2010: China embargos REE exports to US • 2011- current: Export quotas continue to decline; worldwide demand increases, and prices rise 13 March 2012: US requests consultations; conducted 25-26 April 27 June 2012: US requests establishment of panel 23 July 2012: DSB established Single Panel for US, EU, and Japan complaints 24 Sept 2012: Panel composed 22 March 2013: Panel Chair indicates final report to be issued 21 Nov 2013 China controls 97% of worldwide Rare Earth Element (REE) production

  22. REE Context • Rare Earth Elements are critical to: • High-technology products • Miniature batteries, wind turbines, hybrid cars • Defense Articles • Missile guidance systems, radar systems • Export restriction drives end product manufacturing into China

  23. Main WTO Issue • US (and EU and Japan) assert that China’s Export Restrictions are inconsistent with: • GATT 1994 Article XI: General Elimination of Quantitative Restrictions • No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party… on the exportation or sale for export of any product destined for the territory of any other contracting party • Article VIII – Fees and Formalities – Export duties, prior performance, minimum capital • Article X – Publication and Administration of Trade Regs – Unpublished restrictions that are not administered in “uniform, impartial, and reasonable” • China’s Protocol of Accession Para 11.3: • China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 • REEs not included in Annex 6

  24. DS431 – Position of the Parties US1 • Export quotas are inconsistent with GATT Article XI • The quotas force “downstream” industries to China to the detriment of other members • Export duties on REEs violates China’s Accession Protocol 11.3; DS 394 China-Raw Materials established precedence that GATT Article XX(g) does not apply2 • No evidence is provided that export duties on REEs are connected to environmental or health goals (which would be related to mining, not export) China • GATT Article XX (g) allows restrictions if related to the conservation of exhaustible natural resources • The quotas support reduction of illegally produced material • GATT Article XX (b) allows export duties on REEs to protect human health

  25. Article XX(g) • To use Article XX(g) to impose numerical export quotas, two conditions must be met: • Quota is established to conserve natural resources • Quota has parallel domestic program to establish “evenhandedness” (based on China-raw materials Appellate conclusion) • While the first condition is doubtful, the second is not met since there is no domestic regulation.

  26. Resolution Possibility • China must bring its measures into compliance with its commitments and remove the export quotas • If conservation is a goal, then production quotas should be imposed • A single market for REEs should exist, not separate domestic and foreign markets

  27. National and International Implications • China has established a near-monopoly of REE production • Single source of REEs coupled with export quotas: • Drives manufacturing of high-tech equipment into China • Increases availability risk and market uncertainty • Makes the world beholden to China for REE supply – at any price • Potentially prevents production of advanced products and national security assets What if the export quota were zero?

  28. DISPUTE SETTLEMENT437China v. U.S. — Countervailing Duties Measures on Certain Products from China

  29. DS 437 – History and Context • China is challenging the US Department of Commerce (USDOC) determinations that led to imposition of countervailing duties (CVD) on certain products imported into the US from China • Products include paper, pipes, citric acid, lawn groomers, shelving, wood flooring, photovoltaic cells, sinks1 • 97 alleged breaches across 22 products • The CVDs are based on the products receiving subsidies including below-cost inputs from SOEs • CVD is a trade remedy that allows governments to take remedial action in situations where the domestic industry is being injured by subsidies in the exporting country • Complaints against trade remedies increased in 20122 • DS 437 is one of the largest disputes in history of WTO3

  30. Timeline • 25 May 2012 – Request for Consultation • 28 Sept 2012 - Panel established by DSB • 26 November 2012 – Panel Composed by DG • January 2014 – Final Report expected

  31. Main WTO Issue • China asserts that the CVD determinations are inconsistent with: • GATT Article VI - Anti-dumping and Countervailing Duties • Subsidies and Countervailing Measures Agreement Articles 1, 2, 10, 11, 12, 14 and 32 (definitions and calculations, but NOT 15 – Determination of Injury) • Article 15 of China’s Protocol of Accession (Price Comparability in Determining Subsidies and Dumping) • Related cases: • DS379 (2008) - US imposed CVDs; public body = “any entity controlled by a government” • DS449 (2012) - US imposed CVDs

  32. DS437 – Position of the Parties China – Commerce’s CVD determinations are inconsistent with GATT, SCM, Accession Protocol4 • SOEs (which provide inputs to downstream manufacturers at below market cost) are not “public bodies” • Subsidies were not specific to a specific enterprise • Absence of sufficient evidence to make claims US – claim has no merit and should be rejected by Panel3 • Arguments lack supporting text to identify deficiencies in Commerce’s findings (request is 3 pages) • Panel request includes topics not covered in request for consultations • China has misinterpreted the SCM agreement • Evidence not provided

  33. Sample CVD Order Notice – Federal Register Certain Kitchen Appliance Shelving and Racks from the People’s Republic of China: Countervailing Duty Order5 Directs Customs and Border Patrol to assess CVD on items (based on HS and specific product parameters) entered or withdrawn form warehouse after the publication date.

  34. Resolution Possibilities • Because of the visibility of China-US trade disputes, it is not likely that the Panel can simply dismiss the Complaint • The breadth of the products may need narrowed and China requested to address specific deficiencies in USDOC calculations • Group by Steel products, paper products, chemicals • Products with CVD determination orders (vice initiations)

  35. National and International Implications • Do independent CVD (and AD) determinations hold up upon contention or is direct complaint more effective? • What is the role of State Owned Enterprises – public or private? • What is the Panel’s responsibility for discovery when complaints lack data fidelity? • CVDs level the field between two members, but formal complaint resulting in removal of subsidy benefits all members

  36. Takeaways • Do these cases improve the liberalization of global trade? • Do these seemingly retaliatory cases have the potential to overwhelm the WTO process? • Do such cases have the potential of overburdening the DSB, instead of utilizing it for more grievous trade disputes? • Do developing countries benefit from these decisions? • Is the WTO becoming a forum for geopolitical posturing? • In light of China’s lack of transparency, how (if at all) can the WTO further ensure that countries such as China are not evading their transparency commitments?

  37. Notes • In FR 74 14 Sept 2009 p. 46971, also A/D determination – same for others? Why is A/D not contested by China? CVD starts p 46973. • “Ministerial errors” are identified by Chinese industry and corrected by USDOC prior to final CVD order; see FR 75 17 November 2010 p. 70202. But caused CVD to increase. • Types of subsidies for coated paper: Preferential Lending to the Coated Paper Industry, Income Tax Subsidies for FIEs Based on Geographic Location, Exemption from Maintenance and Construction Taxes, VAT and Tariff Exemptions on Imported Equipment

  38. References (slides 3-12) • http://www.ustr.gov/about-us/press-office/press-releases/2012/july/obama-administration-challenges-chinas-unfair-duties-american-made-cars • http://www.ustr.gov/sites/default/files/US.Sub1_.DS440.ForPosting.pdf • http://www.fas.org/sgp/crs/misc/R40844.pdf • https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/ds440/*)&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# • http://www.ustr.gov/webfm_send/3492 • http://www.wto.org/english/docs_e/legal_e/19-adp.pdf • http://www.fas.org/sgp/crs/row/RL33536.pdf

  39. References (slides 13-19) http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds419_e.htm http://www.fratinivergano.eu/Trade%20perspectives%202011/Issue%20No.%201.pdf http://www.ustr.gov/about-us/press-office/press-releases/2011/june/china-ends-wind-power-equipment-subsidies-challenged http://www.windpowermonthly.com/article/1076799/end-chinese-equipment-subsidy-sight-us-calls-wto http://www.forbes.com/sites/jackperkowski/2012/07/27/china-leads-the-world-in-renewable-energy-investment/ http://www.renewableenergyworld.com/rea/news/article/2013/08/despite-slowdown-china-to-hold-wind-power-market-leadership-to-2020 http://ictsd.org/i/news/biores/108435/

  40. References (slides 20-27) • USTR. China – Measures related to Rare Earths, Tungsten, and Molybdenum. US Second Integrated Executive Summary. 25 July 2013. http://www.ustr.gov/sites/default/files/DS431.US_.Exec_.Summ_.2.Public.pdf. Accessed 14 September 2013. Dickinson, Steve. China Business, Legal News. 19 Jan 2011. www.chinalawglog.com/2011/01/china_rare_earths_quota_-_the_facts_and_the_law.html. Accessed 15 Sept 2013. 2. Week 5 reading Dispute Settlement Anrep13, p. 91. Appellate body report for the combined panel of US, Mexico, and EU was issued on 30 Jan 2012.

  41. References (slides 28-36) • US Federal Register Volume 77, Number 180, September 17, 2012. http://www.gpo.gov/fdsys/pkg/FR-2012-09-17/html/2012-22870.htm. Accessed 14 Sept 2013. • Week 5 reading – Dispute Settlement anrep13 Ch 5; p. 87 • USTR. United States – Countervailing Duty Measures on Certain Products from China (DS437). Executive Summary of First Written Submission of the USA. 22 March 2013. www.ustr.gov/sites/default/files/DS437.US_.Exec_.Summ_.Sub1_.Public.pdf. Accessed 28 Sept 2013 • United States – Countervailing Duty Measures on Certain Products from China. Request for Consultations by China. 25 May 2012. www.worldtradelaw.net/cr/ds437-1(cr).pdf. • Federal Register/Vol. 74, No. 176/Monday, September 14, 2009/Notices. P. 46975. www.gpo.gov/fdsys/pkg/FR-2009-09-14/pdf/FR-2009-09-14.pdf • Federal Register/Vol. 75, No. 221/Wednesday, November 17, 2010/Notices. P. 70202. www.gpo.gov/fdsys/pkg/FR-2010-11-17/pdf/FR-2010-11-17.pdf

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