DS394. US v China. Export of Raw Materials. ITRN 603 – International Trade Relations March 6, 2013 Turki Al Hokail, Hollis Beckner & Robert Brunson 1 2 A Brief Introduction. 3 History & Context. Since ascension to WTO in 2001, several antitrust, competition & export restriction cases have been filed against China. In June 2009, the Obama Administration brought case against China for imposing export restrictions on raw materials. The US, EU & Mexico alleged that Chinese restrictions drove up material prices & were falsely issued as environmental conservation efforts. 4 History & Context. The US, EU & Mexico alleged that China violated the following provisions: Chinese Protocol of Accession: Part 1, Paragraphs 1.2, 5.1, 5.2, 8.2, 11.3 GATT 1994: Article VIII:1, VIII: 4, X:1, X:3, XI:1 5 Prior Proceedings. June 23, 2009 – US & EU filed case against China. Initial consultations to settle failed. December 21, 2009 – WTO Panel established. July 5, 2011 – First ruling passed upholding majority of claims filed against China. August 31, 2011 – China appealed. November 7, 2011 – AB heard case & upheld main aspects of Panel recommendations & validated EU claims. Obligated Chinese compliance. 6 Recent Proceedings. February 22, 2012 – DSB adopted AB report & Panel report. March 23, 2012 – China intimated to DSB plans to comply with recommendations but noted need for reasonable implementation period. May 24, 2012 – US & China notified by DSB that reasonable period of time fixed as 10 months & 9 days – expiring on December 31, 2012. 7 Dual Context: Political. US & China use litigation to ward off domestic political pressure for securing national interest. In each US case filed with WTO, Congress was about to adopt legislation against China. Obama Administration attempted to pacify Midwestern states impacted by Chinese car exports. 8 Dual Context: Business. Considerable rift in China-US B2B relationship as China imposes multiple export restrictions. Restrictions intended to ease domestic prices of raw materials. China did not allow free trade consistent with WTO provisions (GATT 1994) in order to create more favorable business environment with incentives & lower prices. 9 Main Issues Raised by US. Complainants alleged that China violated the following GATT 1994 provisions: Article VIII: Fees & Regulations associated with Imports & Exports. Article X: Publication & Administration of Trade Regulations. Article XI: General Elimination of Quantitative Restrictions. 10 Specific GATT Provisions. Sub-article VIII: 1: Fees & charges of any character in imports & exports to be abolished. Reduction of number & diversity of charges under Article VIII: 1(a). Minimization of trade complexities. 11 Specific GATT Provisions. Sub-article VIII: 4: To be applied on consular transactions. Quantifiable constraints. Licenses. Control of exchange. Statistical service. Documentation. Inspections & analysis. Sanitation & fumigation. 12 Specific GATT Provisions. Article X: 1: Regarding publication of all judicial decisions, regulations & administrative directions. Article X: 3: Administration of laws & regulations to be impartial & just. Regarding customs issues, the contracting parties will establish administrative, arbitral or judicial tribunals. Territorial laws will not be affected in relation to Application of Article X: 3(b) Article XI: 1: Restrictions & duties other than those covered in Article VIII: 1(a) will be abolished or not instituted. 13 Main Parties. Complainant: US. In addition to Mexico & EU. Other third parties: Argentina, Brazil, Canada, Columbia, Ecuador, India, Japan, Korea, Norway, Turkey & Saudi Arabia. Respondent: China. 14 Party Position: US. US Allegations: US raised complaint over export restraints & other measures imposed by China on raw materials. US alleged restraints shrank the supply of goods & consequently drove up prices. High supply & lower domestic prices created industrial advantage for China. US pointed to specific export quotas, duties & other restraints. US suggested that restraints violated China’s Ascension Protocol & GATT 1994. 15 Specific Allegations. Export Duties: US alleged export duties violated Accession Protocol Part I. Export Quotas: US alleged China’s use of export quotas violated GATT 1994, Article XI:1 & Accession Protocol, Part I. Additional Measures to Restrict Exports: US alleged China used export quotas enabled by bidding system which was not impartial. More difficult for foreign companies to meet bidding system requirements. Restrictive licensing requirements for foreign companies. 16 Specific Allegations. Additional Measures to Restrict Exports: US suggested China employed minimum export prices. Quotas & other restrictive measures are not published by China. 17 Party Position: China. Chinese Defense: China claimed export duties & quotas were used to conserve exhaustible natural resources, permitted under Article XX(b) & (g) of GATT 1994. China claimed restraints intended to protect health of citizens under Article XX(b) of GATT 1994. 18 Panel Decision. The Panel found that export duties & quotas were applied & violated China’s Protocol of Accession & GATT 1994. Article XX of GATT 1994 not applicable for China’s use of duties. Even if Article XX exceptions applied, China did not follow procedures &necessary requirements. Export duties violated Accession Protocol. China failed to show that restrictions conserved domestic raw materials. China failed to show that export restrictions would/could limit pollution & therefore promote better health for Chinese citizens. 19 Major Claims for Appeal. In appeal, China alleged US did not provide sufficient summary of legal background according to DSU Article 6.2. China suggested that a “series of measures” recommended by the Panel would create moving target problem over time. China reasserted exceptions under Article XX of GATT 1994. China asserted Bauxite restrictions only temporary to relieve shortage & therefore permissible. China suggested that licensing system, quotas, & capital requirements did not violate Accession Protocol & GATT 1994 requirements. 20 Appellate Body Decision. AB supported Panel recommendation of “series of measures” to bring export controls into conformity with WTO. AB agreed Article XX exceptions of GATT 1994 not valid. AB found that Bauxite quotas were not in compliance Article XI:2(a) of GATT 1994 to alleviate a critical shortage. 21 Appellate Body Decision. AB found errors in DSU Article 6.2 application of the Panel. The complainants failed to provide “sufficiently clear linkages” between obligations & the measures in question. Therefore did not meet Article 6.2 requirement to provide summary of legal basis of complaint sufficient to present the problem clearly. Section III therefore identified as moot & of no legal effect. 22 Appellate Body Decision. The AB found that the Panel did in fact conduct an objective assessment under Article 11 of the DSU. AB found that Panel improperly interpreted Article XX(g), specifically the statement “made effective in conjunction with...” AB reversed the Panel’s interpretation & found that Article XX(g) did not require trade restriction to be aimed at ensuring the effectiveness of domestic restrictions as the Panel had found. 23 Implementation. China required to implement recommendations in 10 month period ending on December 31, 2012. China required to eliminate export duties, quotas & other measures found to violate GATT 1994 & Accession Protocol. China fully implemented recommendations by deadline with new provisions: Tariff Implementation Program. Catalogue of Goods Subject to Export Licensing Administration. 24 Implementation. 2013 Tariff Implementation Plan went into effect on January 1, 2013. The program established import tariff reductions. Established temporary preferential tax policy on 784 imported products. Enables 784 products to enjoy lower tax rate than most-favored nation (MFN) tariff. Products fall into 5 categories: Those related to human living & healthcare. High-tech equipment, raw materials & spare parts. Energy & natural resources. Those that benefit agricultural development. Those that benefit the textile industry. 25 Implementation. Catalogue of Goods for Export Licensing also went into effect on January 1, 2013. Catalogue consists of 2 parts: Part I – the list of dual-use items & technologies subject to import licenses. Part II – the list of dual-use items & technologies subject to export licenses. Total number of items (including technology) subject to import or export license has been increased from 934 to 940 under the new version. 26 Comments & Observations. In late January, China & US submitted agreement to DSB for established procedures for resolving claims related to Articles 21 & 22 of the DSU to facilitate resolution & avoid further procedural dispute. Agreement provisions include: 15-day consultation period. Cooperation & agreement to expedite Article 21.5 panel report. Streamlined adoption of report. If appealed, further provisions for streamlined process. 27 Comments & Observations. China remains the focus of many WTO disputes. Last year China had the highest number of claims brought against it (7). As recently as March 4, Yi Xiaozhun, permanent Chinese representative to the WTO, cautioned that China “remain alert to the intensity, measures & involved industrial sectors concerning trade restrictions,” particularly with the US & Eu. 28 Comments & Observations. In 2012, US, Japan & EU brought similar case against China (DS431, DS 432 & DS433). The complainants allege China maintains export restrictions, duties & quotas as well as licensing requirements related to rare earth materials. Again several third party countries joined. Panel established in September 2012. 29 Comments & Observations. Since accession, China appears to have headed in the right direction in adopting a framework to justify quotas under WTO rules. As evidenced by: Phased tariff reductions, including the elimination of tariffs on goods covered by the ITA. Phasing out import quotas. Licenses and other border NTBs. Expanding trading rights. 30 Comments & Observations. China uses various non-tariff border measures, such as import & export licensing and state trading to "guide" the allocation of resources. Overall applied MFN tariffs remain close to China's bound rates, while the average applied MFN tariff is unchanged, at 9.5 percent. 31 Comments & Observations. In forecasting future disputes & anticipating defenses for WTO violations, China’s justification for export restrictions include: Defusing tensions with trade partners. Reducing energy consumption. Combating food inflation. Promoting downstream industries through cheaper inputs. 32 References. Announcement No. 98. Ministry of Commerce. General Administration of Customs. 30 Dec. 2011. Bown, C. P. US-China Trade Conflicts and the Future of the WTO. World Affairs, 33, 27. 2009. China: Measures related to the Exportation of Various Materials. Reports of the Appellate Body AB 2011:5. World Trade Organization. 2013. žChina-Measures Related to the Exportation of Various Raw Materials: Dispute Settlement Dispute DS 394. World Trade Organization. 2013. Chinese WTO Violations Claimed by the United States and Panel and Appellate Body Findings. Stewart & Stewart. 30 March 2012. Erixon, Fredrik, and Patrick Messerlin. China’s Trade Policy Post-WTO Accession. European Centre for International Political Economy. 2009. 33 References. He, Nadine. China to Lower Import Tariffs on 784 Products Since 2013. ChemLinked. 19 Dec 2012. Status Report by China. China-Measures Related to the Exportation of Various Raw Materials: Dispute Settlement Dispute DS 394. World Trade Organization. 18 Jan 2013. Understanding Between China and the United States Regarding Procedures under Articles 21 and 22 of the DSU. China-Measures Related to the Exportation of Various Raw Materials: Dispute Settlement Dispute DS 394. World Trade Organization. 23 Jan 2013. WTO rules in favor of EU against China's export restraints on raw materials. EUROPA. 2012. 34 Questions.