DS394. US v China. Export of Raw Materials.

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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Questions.
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