WTO Case DS437WTO Case DS437GROUP 7

Martha Van LieshoutMauricio Valdes

Yulia Tsimafeishyna

1

BackgroundBackground

China brought the case to the WTO concerning 17 countervailing duty (CVD) investigations against the United States Department of Commerce (USDOC) between 2007 and 2012.

The cases in question disputed the USDOC’s definition of a public body, application of facts available, calculation of benchmarks, determinations of specificity, and decisions to initiate investigations.

2

Products InvolvedProducts Involved

Products included solar panels, wind turbines, kitchen shelving, steel sinks, and other manufactured goods.

Chinese products worth more than $7.2 billion dollars.

3

TimelineTimeline

25 May 2012 – China requested consultations with the United States

20 August 2012 – China requested the establishment of a panel

28 Sept 2012 - Panel established by Dispute Settlement Body (DSB)◦ Third Parties: Australia, Brazil, Canada, the European Union, India,

Japan, Korea, Norway, the Russian Federation, Turkey and Vietnam26 November 2012 – Director-General composed the panelJuly 2014 – the Panel report was circulated to Members22 August 2014 – China appealed WTO decision

4

Principal WTO Agreements Principal WTO Agreements InvolvedInvolved

China brought the case to the WTO, arguing that the U.S. violated: ◦Article VI of GATT (Anti-Dumping and

Countervailing Duties)◦Articles 1.1, 2, 11.1, 11.2, 11.3, 12.7 and 14(d)

of Subsidies and Countervailing Measures Agreement (SCM Agreement)

◦Article 15 of Protocol Accession of China

5

Basic Principle InvolvedBasic Principle Involved

In bringing the case to the WTO, China argued that the countervailing duties were wrongfully imposed on Chinese exports, because the United States falsely classified Chinese State-Owned Enterprises (SOEs) as “public bodies”.

6

Basic Question to be DeterminedBasic Question to be Determined

The panel must then determine whether the SOEs can be classified as public bodies, and therefore legally subject to CVDs.

7

U.S. Imposition of Countervailing U.S. Imposition of Countervailing Duties Duties

The United States requested that the panel reject China's claims in this dispute.

Rules for CVDs detailed in the SCM Agreement

Why would the United States impose countervailing duties?◦Countervailing duties are used to counter “unfair”

subsidies ◦The U.S. believed that it did not violate SCM

Agreement because the SOEs could be classified as “public bodies”

8

Panel ResultsPanel Results

Panel Report distributed on July 14, 2014For the most part, the panel upheld

China’s claims that U.S. violated WTO rules.

Recommended that the U.S. bring the countervailing duties at issue in full compliance with the SCM Agreement.

9

Panel Reasoning: Countervailing Panel Reasoning: Countervailing DutiesDuties

• In 12 of 17 of the CVD investigations, the panel disagreed with the USDOC that SOEs were “public bodies”

• WTO says that you cannot prohibit imports by increasing fees specifically to those products

The WTO made a similar ruling in China’s earlier challenge of other U.S. CVDs (DS379).

◦ Used as precedent for this case

10

Panel Reasoning: Public BodiesPanel Reasoning: Public Bodies

• Panel: a “public body” is one that has the authority to perform government functions. Owning or controlling an entity is not

enough to establish that it’s a public body Decision: U.S. did not have “sufficient

evidence” alleging that the SOEs constitute public bodies

• Thus, U.S. imposition of countervailing duties on these 12 cases is inconsistent with WTO rules

11

Panel Reasoning: Rebuttable Panel Reasoning: Rebuttable PresumptionPresumption

The Panel faulted the United States for a “rebuttable presumption” that a state-owned enterprise (SOE) is a public body if there is majority ownership by the government.

12

What does this mean for the U.S.?What does this mean for the U.S.?

For the most part the United States failed to show sufficient evidence to support its claims

However, the ruling was not all in China’s favor

U.S. needs to broaden their definition of a “public body” and reconsider use of countervailing duties

13

Reception in the U.S. Reception in the U.S.

• In July, the Office of the USTR released a statement explaining the “mixed results” of the case

• The statement explained that “the WTO panel rejected most of the claims brought by China”

Source: “WTO Panel Issues a Mixed Result in China’s Challenge to U.S. Countervailing Duties”, Office of the U.S. Trade Representative, July 2014

14

Froman’s StatementFroman’s Statement

“The WTO panel’s decision to reject many of China’s challenges to U.S. countervailing duties on unfairly subsidized Chinese imports is a victory for American businesses and workers”

15

Current Status of the CaseCurrent Status of the Case

Panel report under appeal on August 22, 2014

Generally, the Appellate Body has up to 3 months to conclude its report.

In the appeal, China has asked that the Appellate Body reverse the panel’s finding that upheld the U.S. Department of Commerce decision to use “out-of-country” prices as potential benchmarks in the CVD cases under review.

16

Significance of case for U.S. Trade Significance of case for U.S. Trade Policy & Trade Relations Policy & Trade Relations

Washington has repeatedly argued that Chinese State-owned enterprises (SOEs) are the recipients of unfair government support. ◦Will need to change our definition of a public body,

or continue to see countervailing duty cases brought before the WTO

Makes it easier for those producers to be more competitive on the global market

By having the WTO dispute Panel rule that the U.S. was in violation of global rules against some of Chinese exporters, this helps to level the playing field of other countries

17

Significance of the WTOSignificance of the WTO

When significant amounts of money are involved in trade disputes, cases are brought to the WTO to avoid trade wars.

Important for the WTO Panel to establish what does and does not qualify as legal practice.

Each new WTO case tried sets a new precedent for future negotiations.

18

China’s Ties AbroadChina’s Ties Abroad

6th BRICS Summit, Brazil, Russia, India, China, and South Africa announced the creation of the New Development Bank (NDB)

President Xi met with leaders of Community of Latin American and Caribbean States (CELAC) to establish the China-CELAC Forum, and proposed $5 billion in initial funding for the China-Latin America Cooperation Fund.

China continues developing alliance with other countries and continues to develop free trade agreements with South American countries which can have a significant impact on imports/exports between the U.S. and China.

19

Questions?Questions?20