Disputes Roundup: China Raw Materials Case Advances to WTO Panel Stage

24 November 2016

The past weeks have seen a series of developments in WTO dispute settlement, including the establishment of panels in separate US and EU complaints over alleged Chinese export restrictions on select raw materials.

Along with the developments in the raw materials cases, a US-China dispute concerning anti-dumping methodologies has now moved to the appeals stage, while Brazil has launched a case challenging countervailing duties imposed by the US on certain steel products.

Raw materials in focus

The dispute over China’s export restrictions on various raw materials has now moved to the panel stage at the WTO, after both the EU and US tabled second panel requests on the subject. 

Earlier this year, the US and the EU had each filed requests for consultations (DS508, DS509) challenging Beijing’s export duties, export quotas, and quota administration rules on a set of raw materials that are essential inputs to a range of industries.

The raw materials include antimony, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum, and tin, which are used in the aerospace, automotive, electronics, and chemical industries, among others. (See Bridges Weekly, 21 July 2016)

The complaining parties claim that the measures create an unfair advantage for Chinese manufacturers and violate WTO rules on export prohibitions or restrictions, as well as the terms of Beijing’s accession protocol from when it joined the global trade body. 

Beijing has defended the measures as necessary for environmental protection. The government has also expressed its regrets that the complainants had not, prior to the panel requests, properly reviewed China’s recently published document on its Total Export Quotas of Industrial Products and Agricultural Products of 2017.

After the first round of panel requests had been rejected by Beijing, a second request by the US led to the establishment of a panel in that dispute on 8 November. The EU had tabled its first request at that same meeting, which was rejected by China. (See Bridges Weekly, 3 November 2016)

At its meeting on 23 November, the Dispute Settlement Body (DSB) heard a second panel request by the EU, which under WTO rules leads to the automatic establishment of a panel.

Both the EU and US have previously been involved in cases challenging Chinese export restrictions on a range of other raw materials and rare earths. Both disputes ruled against the use of such measures at both panel and Appellate Body stages.

China appeals WTO panel ruling on US anti-dumping methods

Separate, a case concerning anti-dumping methodologies (DS471) moved to the next stage in the WTO dispute settlement process, as China announced its appeal of an earlier panel ruling involving the US.

In late 2013, China launched a complaint against certain methodologies used by the US in various anti-dumping investigations involving Chinese products. The WTO panel circulated its ruling on the case in October 2016.

One of Beijing’s claims related to the use of the so-called “weighted average-to-transaction (WA-T) methodology” by US authorities in calculating the dumping margin, which is only permitted under certain conditions in exceptional cases.

The panel found that the application of this method to all export sales was not justified and violated the WTO Anti-Dumping Agreement, and also took issue with the use of “zeroing” in the WA-T methodology.

Secondly, the panel agreed with China that the US’ “single rate presumption” violated WTO law, as multiple exporters from non-market economies (NMEs) were treated as one NME-wide entity based on a presumption of government control and singularity.

The panel rejected China’s third claim that the systematic conduct of US authorities to use adverse inferences and facts when it finds that an NME-wide entity has failed to cooperate constituted a rule inconsistent with WTO norms. 

On 18 November, China informed the DSB of its intention to appeal the panel’s decision. The appeal notice was not yet publicly available when Bridges went to press. Usually, the Appellate Body will review facts of law and legal interpretation, and will generally not interfere with the factual findings of the case.

New Brazil-US case on steel countervailing measures

Brazil launched this month a new trade dispute against the US (DS514), complaining against countervailing duties imposed on Brazilian imports of cold- and hot-rolled steel flat products, along with the related probes which led to those measures.

In early 2016, the US imposed countervailing duties on imports of the products after investigations into 36 Brazilian measures. Such duties are permitted by WTO law under certain conditions to offset unfair state aid provided by a government to its producers.

According to Brazil, the US investigations as well as the countervailing duties themselves were inconsistent with the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the General Agreement on Tariffs and Trade (GATT) 1994.

More specifically, Brazil argues that the countervailing duty investigations were conducted without sufficient evidence and based on inaccurate data, taking into account only seven out of the twelve domestic producers. In addition, Washington allegedly failed to demonstrate that the Brazilian measures conferred a benefit to domestic producers and that these were “specific” within the meaning of the WTO’s subsidy rules.

Even if the measures were to be recognised as countervailable subsidies, Brazil claims that their amount has been miscalculated and that the countervailing duties are set too high. Therefore, the US duties have a serious adverse impact on Brazilian exports of cold- and hot-rolled steel flat products to the US and violate WTO rules.

The parties now have 60 days to attempt to resolve the dispute through consultations. Should they fail to find a mutual solution, Brazil may request the DSB to establish a panel to hear the case.

ICTSD reporting.

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