Dispute Settlement in the WTO
CHINA – RAW MATERIALS
DS394, 395, 398
Presented by: Simone Perez
Drew Ringley
Jhonny Merino
*
LET’S TRADE RAW
Introduction
The WTO adopted the Appellate Body and panel reports on
the China—Raw Materials dispute brought by the EU,
Mexico, and the United States against Chinese export
restrictions and export taxes on bauxite, coke, fluorspar,
magnesium, manganese, silicon carbide, silicon metal,
yellow phosphorus, and zinc.
The decisions offer first impressions on a WTO member
government’s ability to regulate trade and public
international law norms regarding its natural resources.
Dispute Overview
Export Restraints of Raw Materials.
○ 32 measures through which China allegedly imposes
restraints on the exports in question and note that there
appear to be additional unpublished restrictive measures.
○ The Chinese measures as well as any amendments,
replacements, related measures, and implementing
measures was a violation of several agreements.
United States Position
June 23, 2009- the United States requested consultations with
China in regards to their “restraints on the export from China
of various forms of raw materials.” 1
“China imposes on the exportation of these raw materials:
(1) export duties;
(2) export quotas;
(3) export licensing; and
(4) minimum export price requirements.” 2
The United States believed that the export restraints would
“nullify or impair” possible benefits to “the United States
directly or indirectly under the cited agreements.” 3
China’s Position
Two Arguments in defense of export duties and quotas:
1) Justified due to the “conservation of exhaustible natural
resources of some of the raw materials,” and 4
2) “were necessary for the protection of health of its
citizens.” 5
Other Players
July 2, 2009, the European Union joined
July 6, 2009, Canada, Mexico and Turkey joined the
consultations.
China accepted the requests of all of the above countries to
join the consultation. 6
Panel Report
The Panel found:
● China’s export duties and quotas on some raw materials
were inconsistent with their WTO obligations
● Panel found China could not use the exceptions in Article
20 of the GATT 1994 to justify its export duties 7
● Panel did not agree with US and Mexico’s claim that the
allocation and administration of export quotas violated
WTO obligations
● However, European Union brought a separate claim on
the issue and succeeded 8
Specific Agreements Cited
GATT 1994
● Article VIII, VIII:1, VIII:4
● Article X, X:1, X:3
● Article XI, XI:1
Protocol of Accession of the People’s
Republic of China (Accession Protocol)
● Part I, para. 1.2, para. 5.1, para. 5.2,
para. 8.2, para. 11.3
*
Explanation of GATT 1994: Art. VIII,
VIII:1, VIII:4, X, X:1, X:3, XI, XI:1.
Article VIII, Article VIII:1, Article VIII: 4
Fees & formalities connected with importation and exportation are
covered in this specific article.
● These should be a fair reflection of cost and not be used as a
means of protection
Article X, Article X:1, Article X:3
This article covers the publication and administration of trade regulations.
● All trade measures of Members should be published and
transparent
Article XI, Article XI:1
Covers the general elimination of quantitative restrictions.
● Trade restrictions should be in the form of duties, taxes, and
other charges whether effective through quotas, import and
export licenses, and other measures, ultimately requiring the
tariffication of all quantitative restrictions. All new trade
measures to be in the form of tariffs.
Agreements (GATT)
Article VIII: Fees and Formalities connected with
Importation and Exportation
1.(a) All fees and charges of whatever character (other than
import and export duties and other than taxes within the
purview of Article III) imposed by contracting parties on or in
connection with importation or exportation shall be limited in
amount to the approximate cost of services rendered and
shall not represent an indirect protection to domestic
products or a taxation of imports or exports for fiscal
purposes.
*
Agreements (GATT) Continued.
Article VIII: Article VIII: Fees and Formalities connected
with Importation and Exportation
4.
The provisions of this Article shall extend to fees, charges, formalities
and requirements imposed by governmental authorities in connection with
importation and exportation
Article X: Publication and Administration of Trade
Regulations
1.
Laws, regulations, judicial decisions and administrative rulings of
general application, made effective by any contracting party, pertaining to the
classification or the valuation of products for customs purposes, or to rates of
duty, taxes or other charges, or to requirements, restrictions or prohibitions on
imports or exports or on the transfer of payments therefor, or affecting their
sale, distribution, transportation, insurance, warehousing inspection, exhibition,
processing, mixing or other use, shall be published promptly in such a manner
as to enable governments and traders to become acquainted with them.
Agreements affecting international trade policy which are in force between the
government or a governmental agency of any contracting party and the
government or governmental agency of any other contracting party shall also
be published. …….
*
Agreements (GATT) Continued
Article X: Fees and Formalities connected with
Importation and Exportation
3. a)
Each contracting party shall administer in a uniform, impartial and
reasonable manner all its laws, regulations, decisions and rulings of the
kind described in paragraph 1 of this Article.
(b)
Each contracting party shall maintain, or institute as soon as
practicable, judicial, arbitral or administrative tribunals or procedures for
the purpose, inter alia, of the prompt review and correction of
administrative action relating to customs matters. Such tribunals or
procedures shall 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
with a court or tribunal of superior jurisdiction within the time prescribed
for appeals to be lodged by importers; Provided that the central
administration of such agency may take steps to obtain a review of the
matter in another proceeding if there is good cause to believe that the
decision is inconsistent with established principles of law or the actual
facts.
*
Appellate Body
August 31, 2011, China stated its intention to appeal
September 6, 2011, the US stated its intention to appeal
October 28, 2011, the Chair of the Appellate Body stated
that due to the size of the appeal it would take longer than
90 days 9
Appellate Body
Appellate Body upheld the Panel's finding that:
● China’s export duty and quota measures needed to be
brought into conformity with WTO obligations
● China’s export quota on “refractory-grade bauxite” was
not proven by China to be “‘temporarily applied’ to
either prevent or relieve a ‘critical shortage’” 10
Appellate Body
Appellate Body found the Panel's erred in their:
● understanding of “‘made effective in conjunction with’ in
Article XX(g) of the GATT 1994” as ensuring the
“effectiveness of restrictions on domestic production and
consumption” 11
● findings regarding the allocation and administration of
export quota, fees and formalities associated and export
licensing requirements and declares the Panel’s finding
as “moot and of not legal effect” 12
Findings
1. The decision provided guidance on how exceptions to GATT prohibition
on export restrictions relate to general international law principles
regarding sovereignty over natural resources.
1. Clarified the relationship between China’s Accession Protocol and the
GATT, particularly finding that China could not invoke GATT exceptions
with respect to certain accession commitments that exceeded basic GATT
disciplines.
1. The Appellate Body confirmed that the complainants could challenge
temporary but renewable measures by China that operated jointly with
other measures to restrict exports.
4. Inconsistent with WTO obligations
History
The Appellate Body has interpreted China's Accession Protocol on two
previous occasions, once dealing with the availability of Article XX as a
defense to justify a violation of China's Accession Protocol. In China –
Publications and Audiovisual Products, China invoked Article XX of the GATT
1994 to justify a violation of Paragraph 5.1 of its Accession Protocol dealing
with trading rights.
In its assessment, the Appellate Body did not discuss the systemic relationship
between provisions of China's Accession Protocol and those of the GATT
1994, within the WTO Agreement.
The Appellate Body instead focussed on the text of the relevant provisions of
the Protocol, including an examination of the meaning of the particular terms at
issue, as well as the surrounding context and overall structure of the Accession
Protocol.
Context
In the present dispute, the Panel is not dealing with Paragraph 5.1 of
China's Accession Protocol; rather the Panel must interpret the
altogether different language found in Paragraph 11.3 of China's
Accession Protocol in order to determine whether GATT Article XX
defences are available to justify violations of Paragraph 11.3 of
China's Accession Protocol.
"China shall eliminate all taxes and charges applied to exports unless
specifically provided for in Annex 6 of this Protocol or applied in
conformity with the provisions of Article VIII of the GATT 1994."
Context - Annex 6
For the Panel, the ordinary meaning of the terms "shall eliminate" is that China, at the time
of the conclusion of its Accession Protocol, was maintaining export duties. The
complainants report that at the time of its accession to the WTO, China maintained export
duties on 58 products. Annex 6 of China's Accession Protocol lists 84 products on which
some export duties were possible. At the time of China's accession to the WTO, WTO
Members and China agreed that China would not maintain any export tariff taxes and
charges, except on those 84 products and within the maximum levels provided in Annex 6,
or if such charges could be justified under GATT Article VIII.
In the Panel's view, the ordinary meaning of these two sentences of Annex 6 is very clear.
The use of the term "maximum levels" sets a definitive ceiling in excess of which China
may not impose export duties. Furthermore, the second sentence makes clear that any
increase in the export duty rates applied at the time of the conclusion of China's Accession
Protocol could be effected only in exceptional circumstances following consultations with
affected Members.
Business/Political/Economic
Environment
In 2009, the U.S. unemployment rate hit 10.2%, which was the highest
in 26 years and was the peak of unemployment during the recession.
-
Could this have had an impact on pressuring the U.S. to take
steps to stop “unfair” competition from China with raw
materials used in manufacturing?
Business/Political/Economic
Environment
Excerpt from Obama campaign speech in 2008 at the Alliance for
American Manufacturing Association forum on trade and manufacturing:
“We need real change, and that’s what I’m offering. I’m offering a new, more
transparent and more inclusive path on trade so we can help promote an
integrated global economy where the costs and benefits are distributed more
equitably. And it starts with a principle I’ve always believed in – that trade
should work for all Americans....
That’s why we need to finally confront the issue of trade with China. As I’ve
said before, America and the world can benefit from trade with China. But
trade with China will only be good for you if China itself plays by the
rules and acts as a positive force for balanced world growth.”
Implementation
March 23, 2012, China stated its intent to address the
recommendations however it requested a “reasonable period”
in which to accomplish.12
May 24, 2012, China and US came to agreement of what a
“reasonable period” time frame was.13
January 28, 2013, China reported on December 28, 2012
China had implemented legislation to address the panels
recommendations. 14
Conclusion
The China—Raw Materials case provides a cautionary tale
for raw-material exporting countries as they negotiate
WTO accession. It suggests that if an acceding country
wishes to invoke GATT Article 20 and other exceptions to
manage its resource exports, it must ensure that its terms
of accession expressly provide for such measures.
More generally, the issue of the relationship between rights
under general public international law, such as permanent
sovereignty over natural resources, and WTO obligations
continues to be a source of tension. The panel in China—
Raw Materials confronted the issue explicitly, concluding
that WTO obligations prevailed.
Bibliography
WTO. “ Panel and Appellate Body proceedings” in “Dispute Settlement: Dispute DS 394, China- Measures Related to the
Exportation of Various Raw Materials.” http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds394_e.htm
“WTO: China- Measures Related to the Exportation of Various Raw Materials.” AB-2011-5.
https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009Html.aspx?Id=93421&BoxNumber=3&DocumentPartNumber=1&Language=E&Window=L&PreviewContext=DP&FullTextSearc
h=#KV_GENERATED_FILE_00002f.htm
“Dispute Settlement: Dispute DS 394, China- Measures Related to the Exportation of Various Raw Materials.” Panel Report,
WTO. https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009DP.aspx?language=E&CatalogueIdList=55573,108753,96753&CurrentCatalogueIdIndex=1&FullTextSearch=.
“General Agreement on Tariffs and Trade 1994” WTO.
http://www.wto.org/english/res_e/booksp_e/analytic_index_e/gatt1994_04_e.htm#article8
“Protocol on the Accession of the People’s Republic of China.” www.mofcom.gov.cn/table/wto/law02.doc
WTO Appellate Body Report, China - Measures Related to the Exportation of Various Raw Materials, 2012,
http://www.wto.org/english/tratop_e/dispu_e/394_395_398abr_e.pdf
“Summary of GATT Articles” Read, Robert; www.lancaster.ac.uk/staff/ecarar/gatt%20articles.doc
“U.S. Unemployment Rate Hits 10.2%, Highest in 26 Years”; New York Times; Goodman, Peter; 11/07/2009;
http://www.nytimes.com/2009/11/07/business/economy/07jobs.html?_r=0
“Obama's Speech on Manufacturing and Trade” Speaker: Barack Obama, Published April 14, 2008.
http://www.cfr.org/elections/obamas-speech-manufacturing-trade/p16018