TWN Info Service on WTO and Trade Issues (May18/22)
31 May 2018
Third World Network

Panel set to examine India's export-related measures
Published in SUNS #8690 dated 30 May 2018

Geneva, 29 May (Kanaga Raja) - The Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on Monday agreed to establish a panel, at the request of the United States, to examine certain export-related measures im posed by India.

The panel was established under special provisions of the WTO's Agreement o n Subsidies and Countervailing Measures (SCM) which enabled panel establishment at the first request in disputes involving alleged prohibited export subsidies.

Article 4.4 of the SCM Agreement states: "If no mutually agreed solution has been reached within 30 days of the request for consultations, any Member party to such consultations may refer the matter to the Dispute Settlement Body ("DSB") for the immediate establishment of a panel, unless the DSB decides by consensus not to establish a panel."

The European Union, Canada, China, Egypt, Japan, Kazakhstan, Korea, Russia and Sri Lanka reserved their third party rights to the dispute.

Meanwhile, under a separate agenda item, the United States once again said that it was not in a position to agree to a joint proposal sponsored by some 67 WTO Members that called for the simultaneous launch of the selection processes to fill three current vacancies on the seven-member Appellate Body as soon as possible (a separate article on this issue will appear in a forthcoming issue of SUNS).

This issue has been before the DSB for over 17 months now, with the US repeatedly blocking consensus to begin the selection process to fill the three vacancies on the AB.

The Chair of the DSB, Ambassador Sunanta Kangvalkulkij of Thailand, also informed Members that she had received a communication indicating that Appellate Body Member Shree Baboo Chekitan Servansing was interested in serving a second term. His first four-year term expires on 30 September.

The Chair said that she would begin consultations with Members on the matte r and report back at the next meeting of the DSB on 22 June.

According to trade officials, South Africa, on behalf of the African Group, said that the group was increasingly concerned by the recent developments with respect to the appointment of AB members.

It believed that some of the issues raised may be amenable to solutions in the short term while others would require more discussion.

The African Group was of the view that consultations on the reappointment of Mr Servansing should begin immediately so that the DSB is in a position to decide in September.


In its communication to the DSB, the US said that it requested consultation s with India on 14 March 2018 with regard to India's measures. Consultations were held on 11 April 2018, but unfortunately did not resolve the dispute.

According to the US communication, it appears that India provides export subsidies through: (1) the Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme, (2) the Merchandise Exports from India Scheme, (3) the Export Promotion Capital Goods Scheme, (4) Special Economic Zones, and (5) a duty-free imports for exporters program.

The US maintained that consistent with Annex VII of the SCM Agreement, India is subject to the obligations of Article 3.1(a) of the SCM Agreement because India's gross national product per capita has reached $1,000 per annum.

The US claimed that through each program, as reflected in the instruments listed (in the US communication), India provides subsidies contingent upon export performance.

The measures appear to be inconsistent with Article 3.1(a) of the SCM Agreement, and India appears to have acted inconsistently with Article 3.2 of the SCM Agreement.

Therefore, the US requests, pursuant to Article 6 of the DSU and Article 4. 4 of the SCM Agreement, that the Dispute Settlement Body establish a panel to examine this matter, with standard terms of reference as set out in Article 7.1 of the DSU.

In its statement at the DSB, the US said that all WTO members, including India, are required to provide any subsidies consistently with the obligations in the SCM Agreement.

In the case of India, this includes the obligation of Article 3.1 (a) of the SCM Agreement that prohibits subsidies contingent upon export performance.

Regrettably, it appears that India provides subsidies contingent upon export performance inconsistently with its WTO obligations, said the US.

In particular, India appears to provide export subsidies through (1) the Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme, (2) the Merchandise Exports from India Scheme, (3) the Export Promotion Capital Goods Scheme, (4) Special Economic Zones, and (5) a duty-free imports for exporters program.

The US maintained that prior to initiating this dispute, it attempted to re solve its concerns with India's subsidy programs, both bilaterally and in the SCM Committee.

However, India has continued to grant these export-contingent subsidies. Further, India has expanded the scope and scale of its export subsidies, the US claimed.

The US noted that consistent with Article 4.4 of the SCM Agreement, which provides for "the immediate establishment of a panel" upon a party's request, the DSB will establish the panel at today's meeting.

According to trade officials, India said that it was disappointed with the US request for a panel as it thought the consultations were constructive.

India said it provided the US with a detailed explanation regarding its programs and how they were in line with WTO requirements.

India said that it did not believe the matter was subject to the rules under Article 4.4 of the SCM Agreement.

It said that it was willing to continue discussing the matter with the US and even use the good offices of the WTO Director-General to resolve the matter amicably.


Under a separate agenda item, the US made a statement on China's technology transfer policies.

The US said at the past two monthly DSB meetings, China has raised the US investigation of China's technology transfer policies.

The US said that it has initiated a WTO dispute in relation to one aspect of those technology transfer policies.

The US maintained that the problems, however, are much broader than the matters covered by the dispute, and run contrary to basic notions of fairness that underlie the multilateral trading system.

According to the US, at the April DSB meeting, China asserted that the findings in the US investigations are "baseless".

For China to say this is unfortunate, said the US, adding that the US findings are explained in great detail in a 200-page factual report. The report analyses four particular aspects of China's distortive policies on technology transfer.

The US said it will respond in this meeting to China's assertions by summarising one aspect of China's policies covered in the investigations.

According to the US, China's state-centered, non-market policies on trade and technology transfer affect all Members.

The policies create the legal conditions for Chinese economic actors to effectively coerce foreign companies to transfer technology to Chinese firms on non-market terms.

If left unchecked, the US claimed, the commercial effect of these policies will erode all of our economies and our long-term competitiveness.

The US further said that the central pillars of China's technology transfer regime are China's foreign ownership restrictions - such as joint venture requirements and foreign equity limitations - and various administrative review and licensing processes.

In combination, the US added, these policies require or pressure technology transfer from foreign companies.

These foreign ownership restrictions prohibit foreign investors from operating in certain industries unless they partner with a Chinese company, and in some cases, unless the Chinese partner is the controlling shareholder.

According to the US, these requirements preclude foreign companies from entering the market on their own terms, and lay the foundation for China to coerce the transfer of technology.

The US maintained that when companies negotiate the terms of the joint venture, the foreign side may be asked - or required - to transfer its technology in order to finalize the partnership.

Especially in instances where the Chinese partner is a state-owned or state-directed company, foreign companies have limited leverage in the negotiation if they wish to access the market.

This type of technology transfer is often an unwritten rule for market access, the US claimed.

China states that foreign companies willingly enter into these agreements. China's tilting of the commercial playing field creates a lose-lose choice for foreign companies: they must either transfer their technology to the new China-base d joint venture, or they must cede access to one of the world's fastest-growing markets, thus harming both their short-term growth and their long-term competitiveness.

According to the US, China also uses its administrative licensing and approvals processes to coerce technology transfer in exchange for the numerous approvals needed to establish and operate a business in China.

Foreign investment in China requires obtaining numerous government approval s depending on the terms of the investment and the industry and location in which the investment occurs.

At each stage of the approval process, vaguely worded provisions provide government officials with significant discretion to impose technology transfer requirements or otherwise pursue China's industrial policy objectives, the US maintained.

Fundamentally, it said, China has made the decision to engage in a systematic, state-directed, and non-market pursuit of other Members' cutting-edge technology in service of China's industrial policy.

This is not fair. This is not how Chinese companies or individuals are treated when they go out to engage in activity in other markets, said the US.

The US said China needs to re-evaluate and undertake a serious change in its policies of seeking development at the expense of its trading partners.

According to trade officials, in response, China said that the matter at issue was not suitable for discussion in the DSB.

It noted that most of the issues raised in the Section 301 report were, as the US admitted, outside the scope of WTO rules.

In any event, the US was playing the role of judge in unilaterally determining that the Chinese licensing practices are illegal. The matter will inevitably be brought to the WTO, China argued, or the US will be contravening WTO rules.

The US alleges that China forces companies to transfer technology, yet there is nothing in China's regulatory measures requiring this, China pointed out.

The USTR concludes that China is engaged in this without providing any evidence in its report, China said.

Likewise, said China, US accusations of Chinese companies acting in a conspiracy under government orders in engaging in market transactions abroad have no basis.

Many of the findings are based on unverified and anonymous surveys in which many of the respondents anyway deny forced transfer of technology, China said.

Likewise, requiring foreign firms to enter into joint ventures with Chinese partners is permitted under China's WTO accession commitments, yet the USTR claims that these partnerships are leading to forced transfer of technology without providing any evidence.

Technology transfer is a normal commercial activity, China underlined, noting that the US is one of the main beneficiaries of this, and Chinese firms welcome such agreements in which they pay fair and reasonable royalties on the use of the technology.

It's normal business done on mutually agreed terms, China said.

Intellectual property and technology transfer should serve as a bridge for disseminating knowledge and enabling benefits to be shared by all, and not to be used as a tool for trade protectionism, said China.

China always respects WTO rules and will not hesitate to use these rules to safeguard its rights, it said.

According to trade officials, the European Union, Japan and Chinese Taipei said they shared US concerns about China's policies and/or forced transfer of technology.

The EU said that it shares both the concerns expressed by the US and the description of the problem regarding China's technology transfer policies.

According to the EU, foreign ownership restrictions, opaque administrative procedures, vague and unclear rules that leave discretionary leeway to the administration, discriminatory laws and practices, lack of transparency and consistency, are all elements that create the conditions for the Chinese government and State-influenced actors to pressure foreign companies to transfer their technology to Chinese entities.

Foreign investors know that the transfer of technology is an unavoidable requirement they will have to satisfy if they wish to enter the Chinese market. Most of them have no choice but to accept these conditions if they want to survive on the global scale, the EU maintained.

Foregoing the Chinese market is simply not an option as this would mean undermining their short-term growth and profitability to the advantage of competitors.

Typically foreign companies are pressured into transferring their technology through informal and non-written practices that are steered by an internal eco-system developed through top-down education, strategic planning and industrial policy.

Companies are afraid to complain openly about this situation. They face a  tangible and concrete risk of retaliation to their businesses, and this is a risk they cannot afford to take, the EU claimed.

All this being said, the EU believes that there are ways to find solutions to these issues other than resorting to unilateral actions that risk undermining the multilateral trading system and triggering unnecessary trade wars.

Therefore, the EU said it will not support any measure which would be contrary to the WTO system, and called on the relevant Members to ensure WTO compliance of their trade actions.

According to trade officials, Pakistan said that it agreed with China that the DSB was not the forum to discuss such matters.

Brazil said it was closely following the US actions under Section 301 and that any action should be consistent with WTO rules.

Venezuela said it was against any action that ran counter to WTO rules.


The EU made a statement under the agenda item of European Communities and certain Member States - Measures affecting trade in large civil aircraft - Communication by the European Union (WT/DS316/34, regarding the US complaint against Airbus).

The EU referred to its communication filed with the WTO on 17 May which was circulated to all WTO Members before the DSB meeting.

(The communication was sent out two days after the Appellate Body had issue d its ruling on EU compliance with the WTO's findings in the dispute DS316. See SUNS #8683 dated 18 May 2018 for details of the Appellate Body's findings).

The EU said through that communication it had informed the DSB that it has taken appropriate steps to bring its measures fully into conformity with its WTO obligations, and comply with the recommendations and rulings with respect to the present dispute.

Specifically, the EU said, among the measures notified by the EU are contractual changes to the loan terms for the A380 and the A350XWB models of aircraft, where it was found that the repayable loans provided to Airbus for these aircraft did not sufficiently reflect market conditions.

The measures by the EU included in the compliance communication include contractual changes to these loan terms in order to bring them in line with market benchmarks.

The EU said it stands ready to engage with the United States on the basis of its compliance communication to close the aircraft-chapter at long last.

The EU also said it expected the report of the Appellate Body and of the panel to be adopted later at this meeting in line with the rules applicable to all Appellate Body reports, i.e., pursuant to Art. 17.14 of the DSU, through the procedure known as "negative consensus".

In its statement, the US said that it was surprised to receive this communication only when circulated to all WTO members.

Given that the US brought this dispute, and will be entitled to take further steps under WTO rules once the compliance reports are adopted later in this meeting, it would have thought that the EU would contact the US directly if it had information relevant to resolving this dispute.

The EU's failure to communicate directly with the US might therefore communicate a lack of seriousness about resolving this dispute, it maintained.

Based on the US review since WTO members received this communication, the EU document does not reflect new developments that might somehow resolve this longstanding dispute, said the US.

To the contrary, over six years ago, back in December 2011, the EU submitted a similar document. That 2011 document itemised 36 so-called "steps" that the EU characterised as actions taken to come into compliance with the original WT O findings.

The compliance panel, however, found that 34 of these supposed steps were not even actions at all, said the US.

In short, the 36 "steps" listed in the 2011 document certainly did not bring the EU into compliance with the recommendations of the DSB.

According to the US, today's document identifies 18 so-called "steps". Most of them are essentially the same as the items listed in the 2011 document, it said.

The reports proposed for adoption today found the EU's supposed "steps" did nothing to end the inconsistency with Articles 5 and 6.3 of the SCM Agreement.

For instance, said the US, in today's document, the EU characterises as a "measure taken to comply", the "attenuation, through the passage of time and events that occurred during that time" of a causal link.

The US said it fails to see how anyone could characterise this as a "step", let alone a "measure taken to comply".

Indeed, said the US, the EU itself seems to have difficulty deciding how to characterise it - the EU document alternates between "step", "measure taken to comply", and "measure that constitutes appropriate step."

The US maintained that there are a handful of new assertions, namely that the EU member States re-negotiated certain financing packages to reflect "a contemporaneous market benchmark".

But these assertions are so vague that they indicate nothing about what, if anything, may have been done.

The EU has been arguing for a decade that its financing of Airbus reflected market benchmarks. Four sets of dispute reports have disagreed with that assertion.

In this light, it is difficult to give any credence to the EU's latest assertions. Indeed, in the past, the EU has used these sorts of vague assertions to cloak non-compliance with its WTO obligations, said the US.

The US said it remains ready to hold serious discussions with the EU with the goal of reaching a mutually agreed solution.

But this would require the EU to communicate directly and candidly with the US, rather than indirectly and vaguely through a communication to all WTO members.

It would be regrettable if this document signalled not a desire to fix EU contraventions of WTO rules, but rather an intention to prolong this already lengthy dispute, it said.

Later in the meeting, under a separate agenda item, the DSB formally adopted the compliance panel report in DS316, as amended by the Appellate Body.

According to trade officials, several members intervened with respect to the US argument that, because an Appellate Body member continued to work on the ca se even after his term as Appellate Body member expired (Peter Van den Bossche), the ruling was not issued consistent with the WTO's dispute settlement rule s and that the ruling could not be adopted as an Appellate Body report subject to the normal "negative consensus" rules whereby a ruling can only be blocked from formal adoption if all members in attendance reject the ruling.

However, acknowledging that both the EU and the US supported the adoption o f the ruling, the US invited members to adopt the ruling on the basis of "positive consensus," i.e. on a unanimous basis.

According to trade officials, the EU was joined by Brazil, Australia, Japan, New Zealand, Norway, China and Mexico in rejecting the US claims and arguing that the normal "negative consensus" rules apply.

The EU recalled that the rules and procedures of the DSU exclude the right of any particular WTO Member to block the adoption of panel or Appellate Body reports. This is a central feature of the DSU, and a major difference with the dispute settlement mechanism that operated under the GATT 1947.

The EU said it understands that there is no formal objection today to the adoption of the Appellate Body report.

In any event, the EU emphasized that it will not be the case today that "the DSB decides by consensus not to adopt" the reports. Therefore, both panel and Appellate Body reports will in any event be "adopted by the DSB" within the meaning of Articles 16.4 and 17.14 of the DSU.


Meanwhile, in other actions, the DSB agreed to establish a panel, at the re quest of Korea, to examine anti-dumping and countervailing duties imposed by the US on certain products and the use of facts available.

This was a second-time request and panel establishment was automatic.

The EU, Japan, Canada, Egypt, Russia, India, Kazakhstan, China and Norway reserved their third party rights to the dispute.

A request for the establishment of a panel by the United Arab Emirates over anti-dumping measures imposed by Pakistan on biaxially oriented polypropylene film from the UAE was blocked by Pakistan.

This was a first-time request and panel establishment will be automatic when the request comes up again before the DSB.

The DSB formally adopted the Appellate Body and panel reports in the dispute over countervailing measures imposed by the EU on certain polyethylene terephthalate from Pakistan.