Disputes Roundup: WTO Panels Rule on Compliance in US-China Steel, Brussels-Beijing Fasteners Cases

9 September 2015

The month of August proved to be a busy one for the global trade arbiter, with the WTO issuing panel reports on compliance in two trade remedy disputes – the first between China and the US involving steel, the second between the EU and China involving metal fasteners.

Other key items on the past month’s agenda include the review of requests for dispute panels during a 31 August meeting of the Dispute Settlement Body (DSB), as well as questions from South Korea and other WTO members over delays in dispute settlement proceedings.

Panel finds China non-compliant in steel trade remedies case

Late last month, the DSB adopted the report of a compliance panel which found that China failed to address earlier adverse rulings by the global trade arbiter concerning certain Chinese trade remedies against imports of US-made “grain oriented flat-rolled electrical steel,” which is primarily used by the power generation industry in transformers and other large electric machines. (DS414)

The duties were imposed in April 2010 following anti-dumping and countervailing duty investigations by China’s Ministry of Commerce (MOFCOM) on the imported steel. MOFCOM found that China’s domestic industry sustained material injury and that there was a causal link between the injury and the dumped steel imports from Russia as well as the dumped and subsidised imports from the US.

The subsidy that China determined to confer a benefit involved the “Buy America” provisions of the American Recovery and Reinvestment Act of 2009, as well as US state government procurement laws. The Buy American provision mandates that support from the stimulus package may only be given to projects that use US inputs, unless foreign products are substantially cheaper.

The US challenged the duties and investigations at the WTO in September 2010, arguing that those trade remedies violated certain provisions of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the Anti-dumping Agreement. Washington cited primarily procedural concerns regarding how Beijing conducted the investigations and its analysis, rather than substantive issues such as whether “Buy American” really subsidises local manufacturers.

Both a dispute panel as well as the WTO’s Appellate Body found largely in favour of the US, recommending in 2012 that China bring these measures into compliance with global trade rules. Beijing later conducted a series of re-investigations, after which it chose to keep in place the same level of anti-dumping duties for two major US steel exporters – AK Steel and ATI – while significantly lowering duties for all others. Countervailing duties have also been reduced for all exporters involved.

Chinese officials have said that the result has brought Beijing in line with its WTO obligations; however, the US argued that there are still procedural issues with how these duties were calculated and formally challenged China on its compliance.

A panel then circulated its report on 31 July of this year, finding that China failed to comply with the earlier recommendations and rulings of the dispute panel and the Appellate Body. The report said that China’s conclusion that the imports in question caused a suppressive and depressive effect on the prices of the domestic like products had no objective basis.

Taking into account MOFCOM’s defective price effects analysis; the failure in explaining how domestic industry’s inability to achieve economies of scale is linked to the increased imports; as well as the investigative agency’s failure to properly consider the effects of other causes of injury, the panel found Beijing erred in finding that the subject imports caused material injury to the domestic industry.

The panel also agreed with the US that MOFCOM failed to even attempt to provide a non-confidential disclosure of essential facts regarding domestic prices as part of its overall price effect determination. However, the panel rejected other elements of US’ claim relating to that same determination.

At the DSB meeting on 31 August, the US welcomed the compliance panel’s findings. The US also noted that China has announced the termination of the anti-dumping and countervailing duties on this type of steel, which China confirmed at the meeting.

Panel grants victory to China over EU in steel fastener compliance case

Also last month, a WTO panel said that the EU must do more to bring its anti-dumping measures on Chinese iron and steel fasteners – such as screws, nuts, and bolts – in line with global trade rules.

The case dates back to 2009, when China filed a dispute claiming that the EU’s Basic Anti-Dumping Regulation and its fasteners anti-dumping investigation violated global trade rules. The regulation provides that in case of imports from non-market economy countries, the duty shall be specified for the supplying country concerned rather than for each supplier. It also states that an individual duty will only be specified for exporters that demonstrate that they fulfil certain criteria.

China also challenged substantive and procedural aspects of the EU’s antidumping measures. In late 2010, a dispute panel supported the bulk of Beijing’s claims, with the Appellate Body later confirming most of the panel’s findings in July 2011.

Following the result, the EU adopted a new regulation and launched a review investigation, which ultimately led Brussels to continue definitive duties on certain imported fasteners at revised rates. China took issue with how the review investigation was conducted, issuing a formal WTO challenge on the EU’s compliance.

The compliance panel backed China on its claims that the European Commission broke trade rules regarding the treatment of certain information as confidential, as well as failed to fulfil procedural requirements set forth in the AD Agreement on providing interested parties such as those Chinese producers, at a minimum, information regarding the product groups that will be used as a basis for the price comparisons.

The panel also found that the Commission failed to take into account exports of all product types falling within the definition of like product – a violation of the AD Agreement’s requirement for a fair comparison between export price and normal value in the determination of dumping.

In addition, the panel said that the Commission’s injury determination, based on the data obtained from an incorrectly-defined domestic industry, violated the AD Agreement.

MOFCOM officials welcomed the panel decision, adding that the EU should cancel the anti-dumping measures as soon as possible, while acknowledging Brussels’ right to appeal the result. The EU submitted on Wednesday a notice of appeal in the case, the WTO confirmed in a press release.

Korea blocks panel request from Japan in SPS dispute

Also at the 31 August DSB meeting, South Korea blocked a first request from Japan for the establishment of a panel to hear Tokyo’s complaint over sanitary and phytosanitary (SPS) measures – such as import bans and additional testing and certification requirements for some Japanese food products – introduced by Seoul following the Fukushima Daiichi nuclear power plant accident in 2011 (DS495).

The panel request came after earlier consultations between the parties failed to reach a resolution. (See Bridges Weekly 28 May 2015)

In its panel request, Japan claims that Korea has breached its transparency and non-discrimination obligations under several provisions of the SPS Agreement, and that the Korean policy nullifies or impairs benefits that should accrue to Japan. On the transparency side, these include requirements that Seoul publish promptly, explain, and respond to questions regarding the SPS measures.

Japan also claims that the alleged import bans and additional testing and certification requirements violate SPS rules, arguing that these arbitrarily and unjustifiably discriminate between members where identical or similar conditions prevail, or constitute a disguised restriction on international trade. Tokyo also claims that these policies are more trade restrictive than needed to achieve the appropriate level of protection, among other concerns.

While this panel request was blocked by Seoul, WTO rules allow Japan to make a second request later on, in which case a panel would be established automatically.       

Panel established in EU-Indonesia biodiesel case

Separately, a dispute panel has now been established to hear Indonesia’s complaint (DS480) against the EU’s anti-dumping duties on biodiesel imports, following a second request from Jakarta. A previous request had been blocked by Brussels in July. (See Bridges Weekly, 23 July 2015)

These same duties are already the subject of a separate dispute (DS473) filed by Argentina against the 28-nation bloc. That case is under review by a panel, with results currently due by year’s end.

Indonesia, in its complaint, has specifically cited concerns over the EU’s “cost adjustment methodology” in the anti-dumping investigation, among other allegations.

Argentina and Indonesia – the world’s top biodiesel suppliers – together make up 90 percent of the EU’s biodiesel imports, as well as over 20 percent of the 28-nation bloc’s market share. The duties at issue were confirmed by Brussels two years ago.

Korea questions dispute settlement delays

Various WTO members at the 31 August DSB meeting also raised concerns over the delays in the dispute settlement process, sources say. The item was placed on the meeting agenda by South Korea, which referred specifically to the news that a WTO panel set up in July to hear its dispute with the US on anti-dumping measures on certain oil country tubular goods (OCTG) will not begin its work until the end of 2016, at the earliest.

While acknowledging the challenges and constraints that the WTO secretariat faces with its hefty caseload, South Korea said that the delay is “simply unreasonable,” sources familiar with the meeting confirmed. South Korea also cited the potential economic ramifications of this delay for the affected industry, given that these allegedly illegal trade measures would remain in place for longer.

South Korea reportedly warned that the WTO’s dispute settlement function risks “becoming toothless” unless these delays are addressed.

Seoul’s statement drew support and similar questions from a raft of WTO members, including Argentina, Australia, Brazil, Canada, Chile, China, Chinese Taipei, the EU, Guatemala, India, Japan, Mexico, Norway, Pakistan, and Russia.

The US, which is the respondent in the dispute in question, also supported South Korea in these concerns, while disagreeing with Seoul’s specific claims over the harm its companies are facing from Washington’s duties.

“That said, for some time the dispute settlement system has been facing significant delays, first at the appellate stage, and now at the panel stage,” the US said in its statement.

Various members asked for additional case-specific information from the secretariat regarding the reason and nature of the delays, noting the potential damage to the dispute settlement system’s credibility should these delays persist or worsen.

Members also praised the work of the secretariat and panellists to date, while noting that the solution – including the possibility of increasing the secretariat’s resources – needs to come from the WTO membership itself through further discussions.

ICTSD reporting.

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