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TWN Info Service on WTO and Trade Issues (Mar18/20)
23 March 2018
Third World Network

US compliance measures on China CV duties held contra-WTO
Published in SUNS #8648 dated 23 March 2018

Geneva, 22 Mar (Kanaga Raja) - A compliance panel at the World Trade Organisation (WTO) has largely ruled that measures taken by the United States to comply with an earlier WTO ruling concerning countervailing (CV) duty measures that it had imposed on imports of certain products from China are inconsistent with its WTO obligations.

In a somewhat mixed ruling (WT/DS437/RW), the Panel concluded that, to the extent that the US measures at issue are inconsistent with the SCM (Subsidies and Countervailing Measures) Agreement, they have nullified or impaired benefits accruing to China under that agreement.

The Panel recommended that the United States bring its measures into conformity with its obligations under the SCM Agreement.

The Panel upheld several of China's claims while rejecting some others.

It rejected the Chinese claim that the US was wrong to determine that Chinese exporters were receiving subsidies through production inputs supplied by Chinese "public bodies" (state-owned enterprises, supplying inputs to Chinese enterprises).

The three-member compliance panel however upheld the Chinese contention that several aspects of the revised US countervailing duty determinations, including use of third-country prices for assessing the benefits granted to Chinese exporters were not in accordance with the Subsidies and Countervailing Measures (SCM) Agreement.

BACKGROUND

According to the Panel report, the dispute concerns China's claims against measures taken by the United States to comply with the recommendations and rulings of the Dispute Settlement Body (DSB) in the original proceeding in US - Countervailing Measures (China).

Following the original proceedings, the United States Department of Commerce (USDOC) revised the various countervailing duty determinations.

China requested that the compliance Panel find that:

a. In connection with the USDOC's public body determinations:

i. The USDOC's public body determinations in certain Section 129 proceedings and periodic review determinations identified in annex 3 of China's panel request are inconsistent with Article 1.1(a)(1) of the SCM Agreement because they conclude that enterprises with full or majority government ownership, enterprises with less than majority government ownership, and wholly private enterprises are public bodies based on an erroneous interpretation of this term and/or in the absence of any evidence that these enterprises possess, exercise, or are vested with governmental authority pertaining to the provision of the relevant input(s).

ii. The Public Bodies Memorandum is inconsistent, as such, with Article 1.1(a)(1) of the SCM Agreement because it concludes that enterprises with full or majority government ownership, enterprises with less than majority government ownership, and wholly private enterprises are public bodies based on an erroneous interpretation of this term and/or in the absence of any evidence that these enterprises possess, exercise, or are vested with governmental authority pertaining to the provision of the relevant input(s).

b. In connection with the USDOC's benchmark determinations:

i. The USDOC's benchmark determinations in certain Section 129 proceedings are inconsistent with Articles 1.1(b) and 14(d) of the SCM Agreement because they erroneously conclude that domestic Chinese prices for the inputs at issue are not "market" prices within the meaning of those provisions and are not suitable benchmarks for evaluating the adequacy of remuneration.

ii. The USDOC's periodic review determinations identified in annex 3 of China's panel request are inconsistent with Articles 1.1(b) and 14(d) of the SCM Agreement because they erroneously conclude that domestic Chinese prices for the inputs at issue are "distorted" and therefore unsuitable as benchmarks for evaluating the adequacy of remuneration.

iii. The USDOC's benchmark determinations in certain Section 129 proceedings are inconsistent with Article 32.1 of the SCM Agreement because they constitute specific action against subsidization not in accordance with the provisions of the SCM Agreement insofar as the USDOC relied on subsidies allegedly provided to upstream input producers as a factor in its finding of "distortion".

c. In connection with the USDOC's input specificity determinations:

i. The USDOC's input specificity determinations in certain Section 129 proceedings are inconsistent with Article 2.1(c) of the SCM Agreement because the USDOC did not properly identify the existence or duration of a "subsidy programme", as this term is properly interpreted, and therefore had no basis to evaluate "the length of time during which the subsidy programme has been in operation".

ii. The USDOC's periodic review determinations identified in annex 3 of China's panel request are inconsistent with Article 2.1(c) of the SCM Agreement because the USDOC failed to take into account the factors set forth in the last sentence of that provision.

d. The USDOC's land specificity determination in the Thermal Paper Section 129 proceeding is inconsistent with Article 2.2 of the SCM Agreement because the USDOC did not clearly substantiate on the basis of positive evidence that the alleged land-use subsidy is limited to certain enterprises located within a designated geographical region within the jurisdiction of the granting authority.

e. In connection with the USDOC's original final determination in the Solar Panels investigation:

i. The USDOC's final determination is inconsistent with Article 1.1(a)(1) of the SCM Agreement because, as the DSB found in respect of the preliminary determination in the same investigation, the USDOC incorrectly applied a majority government ownership test for the purpose of determining whether certain entities were public bodies within the meaning of that provision.

ii. The USDOC's final determination is inconsistent with Articles 1.1(b) and 14(d) of the SCM Agreement because, as the DSB found in respect of the preliminary determination in the same investigation, the USDOC's analysis and explanation for rejecting in-country prices in its benchmark analysis was inconsistent with those provisions.

iii. The USDOC's final determination is inconsistent with Article 2.1(c) of the SCM Agreement, because as the DSB found in respect of the preliminary determination in the same investigation, the USDOC failed to take into account the two factors set forth in the last sentence of that provision in its specificity determination.

f. In connection with the periodic review determinations identified in annex 3 pertaining to the Magnesia Bricks countervailing duty order, the USDOC has continued to act inconsistently with Article 11.3 of the SCM Agreement by including within the so-called "adverse facts available rate" the alleged export restraint subsidy the investigation of which the DSB found had been improperly initiated in the original dispute.

The USDOC also acted inconsistently with Article 12.7 of the SCM Agreement by including within the so-called "adverse facts available rate" the alleged export restraint subsidy that the USDOC revoked in the Section 129 proceedings.

g. In respect of the sunset review determinations identified in annex 4 of China's panel request, the USDOC's determinations are inconsistent with Article 21.3 of the SCM Agreement because they rely on prior determinations of subsidization contained in: (i) the original investigation determinations that were found inconsistent with relevant provisions of the SCM Agreement for the reasons set forth in the recommendations and rulings of the DSB, the deficiencies of which have not been remedied by the Section 129 determinations; and/or (ii) the subsequent periodic review determinations that China considers to be inconsistent with relevant provisions of the SCM Agreement.

h. In respect of any periodic review determinations in the proceedings at issue subsequent to those set forth in annex 3 of China's panel request that involve the same errors that China identified regarding the USDOC's public body, benefit, and specificity determinations, these subsequent periodic review determinations are inconsistent with the same provisions of the SCM Agreement as are identified with respect to the periodic review determinations set forth in annex 3 of China's panel request.

Likewise, in respect of any sunset review determinations in the proceedings at issue subsequent to those set forth in annex 4 of China's panel request that involve the same errors that China identified regarding the sunset review determinations set forth in annex 4 of China's panel request, these subsequent sunset review determinations are likewise inconsistent with Article 21.3 of the SCM Agreement.

i. In respect of the measures by which the United States continues to impose, assess, and/or collect cash deposits and countervailing duties in the proceedings at issue, as well as the ongoing conduct of imposing, assessing, and/or collecting these cash deposits and countervailing duties, these measures are inconsistent with:

i. Articles 1.1(a)(1), 1.1(b), 2.1(c), 11.3, and 14(d) of the SCM Agreement in relation to specific Section 129 determinations and periodic review determinations, because the cash deposits and countervailing duties that the United States continues to impose, assess, and/or collect in the proceedings at issue are inconsistent with those provisions for the reasons detailed in relation to those determinations;

ii. Article 19.1 of the SCM Agreement, because the United States is imposing countervailing duties not in accordance with the provisions of Article 19 of the SCM Agreement;

iii. Article 19.3 of the SCM Agreement, because the United States is not levying countervailing duties in the appropriate amounts in each case; and

iv. Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994, because the United States is levying countervailing duties in excess of the amount of the subsidy found to exist.

CHINA'S CLAIMS AND PANEL FINDINGS

The Panel addressed China's claim under Article 1.1(a)(1) of the SCM Agreement in relation to the USDOC's public body determinations.

China claims that the United States failed to comply with the recommendations and rulings of the DSB under Article 1.1(a)(1) of the SCM Agreement in 11 Section 129 proceedings.

In particular, China claims that the USDOC applied an improper legal standard in its public body determinations, and that the USDOC ignored evidence that contradicted the finding that entities providing the inputs at issue are public bodies.

China also presents an "as such" claim against the "Public Bodies Memorandum", which was relied upon by the USDOC in the public body determinations made in these Section 129 proceedings.

On China's "as applied" claim under Article 1.1(a)(1) of the SCM Agreement, China argues that the USDOC based its public body determinations on an incorrect finding that the entities providing the inputs at issue possessed, exercised, or were vested with governmental authority.

In this connection, China criticizes what it considers to be the USDOC's failure to demonstrate a relationship between the identified "government function", namely to uphold and maintain the socialist market economy in China, and the sale of the relevant inputs in the investigations at issue.

China contends that "the USDOC's failure to engage in a case-by-case analysis and to identify a relevant "government function" in relation to each of the countervailing duty investigations at issue in the Section 129 proceedings renders the USDOC's public body determinations in all twelve investigations inconsistent with Article 1.1(a)(1) of the SCM Agreement."

Following its analysis on China's "as applied" claim under Article 1.1(a)(1) of the SCM Agreement, the Panel concluded that the USDOC relied upon the evidence and analysis discussed above to reach its conclusion that "certain state-invested enterprises are used "as instrumentalities to effectuate the governmental purpose of maintaining the predominant role of the state sector of the economy and upholding the socialist market economy"."

The conclusions reached by the USDOC in this respect were based on its analysis of "meaningful control" as evidence that investigated entities exercise, possess, or have been vested with governmental authority to perform a government function.

"We found that the USDOC did not misconstrue the substantive legal standard for a public body inquiry in its analysis."

Moreover, within this analytical framework, the Panel said that it found that the evidence in the Public Bodies Memorandum and CCP (Chinese Communist Party) Memorandum was relevant to the public body analysis, and that the USDOC requested information concerning all investigated entities that would be relevant to establishing that a particular entity possesses, exercises, or is vested with governmental authority to perform a government function.

The Panel noted that the USDOC's approach was guided by the categories of enterprises based on the level of government ownership set out in the Public Bodies Memorandum, as the USDOC sought different entity-specific information according to these different categories.

In the Panel's view, the Public Bodies Memorandum and the USDOC's determinations situate "government ownership" within "the institutional and SIE (state-invested enterprise)-focused policy setting of China" and the manifold indicia of control set out therein.

Therefore, the Panel does not consider that the USDOC's determinations were based on "mere ownership or control over an entity by a government, without more", given the legal analysis and broader factual background upon which those determinations were based.

The Panel rejected China's position regarding the applicable legal standard insofar as it would require a particular degree or nature of connection between an identified government function and the financial contribution in question.

"We further find that the USDOC's determinations were based on relevant legal criteria and evidence, and that China has not demonstrated that the USDOC acted inconsistently with Article 1.1(a)(1) by failing to consider relevant evidence on the record."

The Panel thus concluded that China has not demonstrated that the United States acted inconsistently with Article 1.1(a)(1) of the SCM Agreement in the Pressure Pipe, Line Pipe, Lawn Groomers, Kitchen Shelving, OCTG (oil country tubular goods), Wire Strand, Seamless Pipe, Print Graphics, Aluminum Extrusions, Steel Cylinders, and Solar Panels Section 129 proceedings.

The Panel then addressed China's claim that the Public Bodies Memorandum itself is a measure inconsistent "as such" with Article 1.1(a)(1).

China considers that the Public Bodies Memorandum is inconsistent "as such" with Article 1.1(a)(1) of the SCM Agreement because it lays out the analytical framework that the USDOC will apply prospectively when there is an allegation that a commercial entity in China is a public body.

The Panel said in its view, the USDOC's discretion to consider other evidence in a given investigation for all categories of enterprises, even where the Public Bodies Memorandum is on the record, is clear from the fact that the USDOC provides respondents with an opportunity "to rebut, clarify, or correct the factual information" that is placed on the record.

The Panel also considered relevant the actual practice of the USDOC in issuing questionnaires requesting information according to the different categories of entities identified in the Public Bodies Memorandum.

This includes questions about the applicability of government policies (including industrial policies and plans discussed in the Public Bodies Memorandum) to all entities and industries at issue in the investigation, as well as entity-specific questions relating to various additional aspects of governmental control that are directed toward entities in the second and third categories.

Moreover, the Panel noted that in at least one investigation, the USDOC concluded that certain entities were not public bodies on the basis of evidence provided by the respondent pertaining to the exercise of meaningful control by the GOC (Government of the People's Republic of China).

Taken together, these considerations indicate that the nature of the Public Bodies Memorandum is that of a resource available to the USDOC for use in making public body determinations, but it does not restrict the USDOC's discretion to supplement the record or take into account and rely on additional information that is provided in a particular investigation.

The Panel found that, although it may be a rule or norm of general or prospective application, the Public Bodies Memorandum does not restrict in a material way the USDOC's discretion to act consistently with Article 1.1(a)(1).

It thus concluded that China has not demonstrated that the Public Bodies Memorandum is inconsistent "as such" with Article 1.1(a)(1) of the SCM Agreement.

On China's claim under Articles 1.1(b) and 14(d) of the SCM Agreement in relation to the USDOC's benefit determinations, the Panel noted that China claims that the USDOC's revised benefit analysis and determinations in the OCTG, Solar Panels, Pressure Pipe, and Line Pipe Section 129 proceedings are inconsistent with Articles 1.1(b) and 14(d) of the SCM Agreement.

In particular, China claims that the USDOC improperly rejected Chinese prices as benchmarks by relying on an incorrect legal standard under Article 14(d), and on the erroneous conclusion that Chinese prices for the inputs at issue are not "market-determined".

In the present dispute, the Panel noted that the disagreement between the parties concerns the USDOC's determination that in-country prices in China are not "market-determined" and thus cannot be used as a benchmark for the purpose of determining the adequacy of remuneration under Article 14(d).

Following its analysis, the Panel found that the USDOC acted inconsistently with Articles 1.1(b) and 14(d) in concluding that there were no market-determined in-country prices for the inputs at issue that could be used as benchmarks to determine the adequacy of remuneration in the four investigations at issue.

In particular, the USDOC failed to explain, in the OCTG, Solar Panels, Pressure Pipe, and Line Pipe Section 129 proceedings, how government intervention in the market resulted in domestic prices for the inputs at issue deviating from a market-determined price.

In addition, in the Section 129 proceedings on Pressure Pipe, Line Pipe, and OCTG, the USDOC failed to consider price data on the record.

For these reasons, the Panel found that the USDOC failed to provide a reasoned and adequate explanation for its rejection of in-country prices in its benchmark determinations.

The Panel thus concluded that China has demonstrated that the United States acted inconsistently with Articles 1.1(b) and 14(d) of the SCM Agreement in the OCTG, Solar Panels, Pressure Pipe, and Line Pipe Section 129 proceedings.

On China's claim under Article 32.1 of the SCM Agreement, the Panel rejected China's argument that the reliance on subsidies to input producers in the determinations at issue represents specific action taken against the "direct and indirect benefits allegedly conferred upon SOEs (state-owned enterprises)", and thus concluded that China has not demonstrated that the USDOC's preliminary and final determinations in the OCTG, Line Pipe, Pressure Pipe, and Solar Panels investigations are inconsistent with Article 32.1 of the SCM Agreement.

The Panel thus concluded that China has not demonstrated that the United States acted inconsistently with Article 32.1 of the SCM Agreement in the OCTG, Line Pipe, Pressure Pipe, and Solar Panels Section 129 proceedings.

The Panel further addressed China's claims that the USDOC's de facto specificity determinations remain inconsistent with Article 2.1(c) of the SCM Agreement because the USDOC failed to take account of the length of time during which the relevant subsidy programme has been in operation.

Following its analysis, the Panel found that the United States did not comply with the requirement contained in Article 2.1 (c) to "take account of the length of time during which the subsidy programme has been in operation" because it failed to adequately explain its conclusions regarding the existence of the relevant subsidy programme.

The Panel thus concluded that China has demonstrated that the United States acted inconsistently with Article 2.1 (c) of the SCM Agreement in the Pressure Pipe, Line Pipe, Lawn Groomers, Kitchen Shelving, OCTG, Wire Strand, Seamless Pipe, Print Graphics, Aluminum Extrusions, Steel Cylinders, and Solar Panels Section 129 proceedings.

On China's challenge to the USDOC's regional specificity determination in the Section 129 proceeding on Thermal Paper, the Panel recalled that it has rejected China's argument that the USDOC applied a legal standard that was inconsistent with Article 2.2.

Moreover, in the absence of a claim under Article 12.7, "we have no basis to consider the consistency of the USDOC's reliance on adverse facts available, and China did not demonstrate that the USDOC's determination was not supported by its factual findings and the evidence on record," it said.

The Panel thus concluded that China has not demonstrated that the United States acted inconsistently with Article 2.2 of the SCM Agreement in the Thermal Paper Section 129 proceeding.

On China's claims concerning the final determination in the original Solar Panels investigation, the Panel considered that China has made a prima facie case that the final determination in the original Solar Panels investigation is inconsistent with Articles 1.1(a)(1), 1.1(b) and 14(d) and with Article 2.1(c) of the SCM Agreement.

Because the United States has not rebutted China's arguments in relation to the final determinations made, the Panel found that China has demonstrated that the final determination in the original Solar Panels investigation is inconsistent with Articles 1.1(a)(1), 1.1(b), 2.1(c), and 14(d) of the SCM Agreement.

The Panel thus concluded that China has demonstrated that the United States acted inconsistently with Articles 1.1(a)(1), 1.1(b), 2.1(c), and 14(d) of the SCM Agreement in the final determination of the original Solar Panels investigation.

The Panel also addressed China's claims that the United States has failed to bring itself into conformity in respect of measures subsequent to the USDOC's original determinations that were found to be inconsistent in the original dispute.

These measures include administrative reviews and sunset reviews that China contends are "subsequent closely connected measures" that are within the Panel's terms of reference in this proceeding under Article 21.5.

The Panel found that the administrative and sunset reviews identified by China, including those that came into existence after the establishment of this Panel, fall within its terms of reference under Article 21.5 of the DSU by virtue of their close relationship to the recommendations and rulings of the DSB and the relevant Section 129 determinations of the USDOC.

With respect to China's claims concerning the Kitchen Shelving, OCTG, Aluminum Extrusions, Solar Panels, and Magnesia Bricks administrative reviews, the Panel found that:

i. China has demonstrated that the United States acted inconsistently with Articles 1.1(a)(1) and 2.1(c) of the SCM Agreement in the three Kitchen Shelving administrative reviews.

ii. China has demonstrated that the United States acted inconsistently with Articles 1.1(a)(1) and 2.1(c) of the SCM Agreement in the first OCTG administrative review and that the United States acted inconsistently with Article 2.1(c) of the SCM Agreement in the second OCTG administrative review.

iii. China has not demonstrated that the United States acted inconsistently with Articles 1.1(b) and 14(d) of the SCM Agreement in the first OCTG administrative review nor that the United States acted inconsistently with Articles 1.1(a)(1), 1.1(b), and 14(d) of the SCM Agreement in the second OCTG administrative review.

iv. China has demonstrated that the United States acted inconsistently with Articles 1.1(a)(1) and 2.1(c) of the SCM Agreement in the first Aluminum Extrusions administrative review and that the United States acted inconsistently with Article 2.1(c) of the SCM Agreement in the second and third Aluminum Extrusions administrative reviews.

v. China has not demonstrated that the United States acted inconsistently with Article 1.1(a)(1) of the SCM Agreement in the second and third Aluminum Extrusions administrative reviews.

vi. China has demonstrated that the United States acted inconsistently with Article 2.1(c) of the SCM Agreement in the first Solar Panels administrative review.

vii. China has not demonstrated that the United States acted inconsistently with Articles 1.1(a)(1), 1.1(b), and 14(d) of the SCM Agreement in the two Solar Panels administrative reviews nor that the United States acted inconsistently with Article 2.1(c) of the SCM Agreement in the second Solar Panel administrative review.

viii. China has not demonstrated that the United States acted inconsistently with Articles 11.3 and 12.7 of the SCM Agreement in the two Magnesia Bricks administrative reviews.

The Panel also found that China has not demonstrated that the United States acted inconsistently with Article 21.3 of the SCM Agreement in the Thermal Paper, Pressure Pipe, Line Pipe, Kitchen Shelving, OCTG, Wire Strand, Magnesia Bricks, Seamless Pipe, Print Graphics and Aluminum Extrusions sunset reviews.

With respect to the ongoing conduct of imposing, assessing, and collecting countervailing duty and cash deposits under the countervailing duty orders at issue, the Panel found that China has not demonstrated the existence of ongoing conduct inconsistent with Articles 1.1(a)(1), 1.1(b), 2.1(c), 2.2, 11.3, and 14(d) of the SCM Agreement and with Articles 19.1, 19.3, and 19.4 of the SCM Agreement.

 


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