China v. U.S.
(Various Products from
China)
(DS 449) (AB 2014)
By:
Laura Gouge
Goce Janevski
Larry Jones
Historical Context
Background/History?

Complaint originated from China in 2012 against United States


Measures taken by US application of CVD’s to imports on NME’s


Despite attempts to collect CVD’s in 2006, in addition attempted to make retroactive
complaints by Chinese by passage of law on March 13, 2012
Dates back to case in US Court of International Trade in 2007


US Tariff Law from 1930 cited as source of NME (prior to GATT 1947)
US attempted to collect CVD’S starting in November 2006 violating the Subsidies
and Countervailing Measures (SCM) Agreement pursuit to their authority


Failure of US to investigate and avoid double remedies on Countervailing Duties (CVD’s)
Chinese company was ruled against by USDOC based on NME “presumption of
government control” which took place prior to March 2012
GATT 1994 and WTO Laws both cited in complaint against US

Articles invoked include pre-WTO days and Agreements assigned after
Prior Actions

Previously date back to November 20, 2006 according to dispute

US law prior to being passed implemented CVD’s on Chinese imports

Section 1 of US Public Law 112-99 was passed in March 2012

September 2012 China requested consultations with US over law

November 2012 China requested establishment of a DSB panel

February 2013 China requested Director General form a panel

September 2013 Chair of DSB panel informed DSB plans to issue a report by
December 2013 (90 days, done by November 30, 2013)

March 27, 2014 panel report was circulated to members


Panel determined that US didn't investigate whether “double remedies” arose in
the proceedings at issue-acted inconsistently with SCM Agreement
April 2014 US and China both appealed to Appellate Body

Each countries appeal dealt with certain issues of law in panel report
Most Recent Proceedings

July 22, 2014- DSB adopted its recommendations and rulings in the dispute
(US has been in close contact with DSB since July 7, 2014

August 21, 2014 and August 29, 2014-US announced intention to implement
the DSB's recommendations and rulings in this dispute


Generally a sixty-day time period for this implementation (or up to 90 days)
US stated it needs a reasonable amount of time to implement
recommendations and rulings based on DSB rulings

Most recent communication occurred September 15, 2014 between US, China and
DSB regarding Article 21.3c and the desire to conform/implement
Business Context


Recent events (over the past six months) the line between political and business (economical)
has blurred

China’s state-run economy has exacerbated tensions between multi-nationals comp. and between
gov’ts

Cyber disputes are at the fore front of the conflict between the Communist Party and major companies
(Cisco and IBM (NYT))
Rise of Alibaba as a competitor to US and multinational companies has raised specter for more
disputes


In lieu of September’s rulings and the Chinese gov’t willingness to prosecute US companies
September 2014-Solarworld (largest manufacturer of solar panels) has requested US gov’t
assistance

Report indicates how new prosecution underscores the sophisticated ways that Chinese companies are
retaliating against trade obstacles, especially the use of cyber warfare

“The Chinese have taken their efforts on behalf of their economy — and a lot of them are state-owned
enterprises, a lot of them are state-supported — to a level that I think most people within the trade
area haven’t seen” said Paul C. Rosenthal(Cardwell, NY Times)
Political Context


September 2014- China denied complaints by foreign businesses and governments

China’s continuing legal crackdown represents an effort to discriminate against multinational
companies and help Chinese companies compete (NYT)

China is more than willing to prosecute foreign companies (violations of anti-trust laws)
In similar fashion, US NME laws contrasted with China’s tactics; denial of complaints and
failure to prosecute are used to keep the balance of power tilted in each country’s favor


Recent events raised stakes regarding anti-trust cases and pending cases with the WTO
US Chamber of Commerce issued new report on 9/8/14 regarding anti-trust enforcement

Report noted that the antimonopoly law could be used as a tool to allow the market to play a
primary role in China’s economy, a stated goal of the proposals announced in November 2013
by President Xi Jinping after a major plenary meeting of the Communist Party leadership
What is the problem?
US Laws, WTO agreements, and duplications
Overview of Complaints by China
1.
U.S. Public Law 112-99 3.
2.
Countervailing duty by
US authorities
4.
between November
2006 and March 2012
Anti-dumping
measures
associated with the
above time period
USDOC double
remedies with
respect to the
decisions in 2 and 3
Source: WTO: DISPUTE DS449 “United States – Countervailing and Anti-dumping Measures on Certain Products from China”
U.S. Law in question:
Public Law 112-99 or GPX Legislation
Became Law on March 13, 2012
“To apply countervailing duty provisions of the
Tariff Act of 1930 to nonmarket economy
countries, and for other purposes.” (P.L. 112-99)
 What
A
is a “nonmarket economy”?
non-market economy includes “any foreign country that
the administering authority [Commerce] determines does
not operate on market principles of cost or pricing
structures, so that sales of merchandise in such country
do not reflect the fair value of the merchandise.” [19
U.S.C. § 1677(18)(A) (2006)]
WTO Agreements
Articles VI, X:1, X:2, X:3 of General Agreement on Tariffs and Trade (GATT 1994)


“Article VI: Anti-dumping and Countervailing Duties”

What is Dumping: When an imported product is priced lower than in the exporting countries
home market or less than the highest price for the product exported to any third country or is
lower than the cost of production plus additional cost for selling and reasonable profit in
“ordinary trade”

Countervailing duty will not exceed the subsidy or “bounty” estimated

“5. No product of the territory of any contracting party imported into the territory of any
other contracting party shall be subject to both anti-dumping and countervailing duties to
compensate for the same situation of dumping or export subsidization”
“Article X: Publication and Administration of Trade Regulations”

X:1- All laws, regulations, etc. will be published in a manner that is easy for other Member
countries to locate

X:2- Must enforce rules that are “an established and uniform practice” and cannot “imposing a
new or more burdensome requirement…before such a measure has been officially published”

X:3-
Source: GATT 1994.

A)Laws must be “uniform, impartial, and reasonable”

B) Must have a way to promptly “review and correct administrative action relating to customs matters”

C) If you already have a review board in B, then this agreement does not nullify it.
WTO agreement (Conti.)

Articles 9 and 11 of the Anti-Dumping Agreement

“Article 9: Imposition and Collection of Anti-Dumping Duties”


Total duties should be applied within 18 months on a “retrospective
basis” (closer to 12 months preferred). Also, if an exporter of the
same product had not exported to the country during the dumping
period they must investigate that company promptly to levy an
additional duties.
“Article 11: Duration and Review of Anti-Dumping Duties and Price
Undertaking”

Duties are only “as long as and to the extend necessary to counteract
dumping which is causing injury”

Must review cases if requested, after a 5-year period maximum, or if
a reasonable amount of time is determined before the five year
period. All reviews must be completed within 12 months.
Source: WTO: Anti-Dumping Agreement.
WTO Agreement (conti.)
Articles 10, 15, 19, 21 and 32 of the Subsidies and Countervailing Measures (SCM)
Agreement

“Article 10: Application of Article VI of GATT 1994”


“Article 15: Determination of Injury”


Must follow the rules laid out for investigation in the GATT 1994 and the Agreement on
Agriculture
Must used article VI from the GATT 1994 and take into account both volume and effect of the
volume, as well as the impact of imports on domestic producers. You may also investigate two
countries together, as long as the both meet the minimum needs for an investigation and the
imports aren’t too small. You must also take into account the domestic markets factors
effecting production. Must be based on FACT.
“Article 19: Imposition and Collection of Countervailing Duties”

Countervailing duties should be fairly accessed and be no more than the subsidy, if there is a
lesser duty that would remove harm to the domestic industry. Also, the importing Member
country should take into account domestic interested parties that might be negatively affected
by the countervailing duties.
Source: WTO: Subsidies and Countervailing Measures Agreement.
WTO Agreement (conti.)
Articles 10, 15, 19, 21 and 32 of the Subsidies and Countervailing
Measures (SCM) Agreement


“Article 21: Duration and Review of Countervailing Duties and
Undertakings”

Countervailing duties are only “as long as and to the extend necessary to
counteract subsidization which is causing injury”

Must relook at if requested, 5-year period max, or if a reasonable amount
of time is determined before the five year period. All reviews must be
completed within 12 months.
“Article 32: Other”

This covers a broad range, from non accountability until after WTO
membership, following only the GATT 1994 interpretations, and
“reservations” of provisions without consent of all other members.
Positions and Decisions
US Position

In 2006, USDOC concludes: China granted a subsidy to
certain Chinese companies and, consequently, the CVD law
could be applied

In 2007, GPX filed an appeal to the US Court of
International Trade to challenge the CVD law and the China
question. The US defense was successful

After the appeal, the Federal Circuit concluded that DOC
could not apply the CVD law to China as long as China was
classified as an NME

In 2012, GPX Legislation was passed confirming that the
CVD law applies to imports from all countries, including NME
countries
Complaint by China
On September 17, 2012, China requested consultations with the
United States concerning the following measures:

GPX Legislation- not published promptly, applied retroactively,
did not implement the GPX Federal Circuit decision

US did not investigate double remedies in 25 cases -CVD and
antidumping (AD)- initiated during 2006–2012 (obligations under
Article 19.3 of the Subsidies Agreement)
Complaint by China
(cont.)
November 19, 2012- China requests a panel

WTO Panel in March 2014 rejects China’s claims that the GPX
Legislation violated the United States’ WTO obligations under
Article X of the GATT

The Panel found that the US failed to satisfy its obligation under
Article 19.3 of the Agreement on Subsidies and Countervailing
Measures
Appellate Body
Claim of error by China – Appellant
 China
requests the Appellate Body to reverse the Panel's
finding that the United States did not act inconsistently with
Article X:2
Argument of the United States – Appellee

The Panel was correct in finding that China failed to establish
that Section 1 of PL 112-99 is inconsistent with Article X:2 of
the GATT 1994.
In the 60 days’ timeframe, both, United States and China
appealed aspects of the Panel’s ruling to the Appellate body. On
July 7, 2014, the Appellate Body report was circulated to
Members.
Appellate Body
(cont.)

Agreed with China that the wrong legal standard was used

Determined that it could not complete the analysis and
apply the correct legal standard based on the Panel’s
factual findings

Did not rule that the GPX Legislation violates any WTO
obligation

Agreed with China that it had jurisdiction to consider
China’s double remedies claims
Implementation
At this point everything is still pending
and there hasn’t been adjudication
We are waiting for USTR and USDOC
their actions/reaction
How do we Fix this?
Option 1


Remove China from the list as a Non-Market Economy
Why this won’t work?

China is a communist country whose market is closely controlled by the
government, this makes it impossible for the US to compete fairly in normal
economic trade
Option 2


US changes the double remedies procedures that the ITC and USDOC utilized to
prosecute
Why this won’t work?

The U.S. will fight this as Subsidization and Dumping are two distinctly different
types of transactions.
How do we Fix this? (Conti)
Option 3



Review any case between November 2006 to March 2012 that the US used double
remedies on China
Why this wont work?

It would set a bad precedent between the US, the WTO and member states; other
states might decide to ask for a review as well

US laws would need to be changed

Time, cost and man power
Why the US won’t do this?

This would take away some US sovereignty

The US might decide it is worth fighting to change this in the WTO
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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Products from China”, WTO. http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds449_e.htm.