TWN Info Service on WTO and Trade Issues (Nov16/03)
1 November 2016
Third World Network

China blocks panel request in raw materials dispute
Published in SUNS #8343 dated 28 October 2016

Geneva, 27 Oct (Kanaga Raja) -- A US request for a dispute panel to examine China's export restrictions on certain raw materials was blocked by China at a WTO Dispute Settlement Body (DSB) meeting on Wednesday (26 October).

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

Meanwhile, a second dedicated session of the DSB was held later in the afternoon on the question of reappointment of Appellate Body members.

The sessions have come following the US veto of the reappointment of Appellate Body member Mr Seung Wha Chang of South Korea to a second term of office. (See separate story).

US-CHINA DISPUTE OVER RAW MATERIALS

The dispute raised by the US against China is over its restrictions on the export of various forms of antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum, and tin.

In its communication, the US said that China imposes export duties on various forms of antimony, chromium, cobalt, copper, graphite, lead, magnesia, talc, tantalum, and tin.

According to the US, these materials subject to China's export duties are not listed in Annex 6 of the Accession Protocol of the People's Republic of China (WT/L/432).

The US considered these measures are inconsistent with Paragraph 11.3 of Part I of the Accession Protocol because these measures constitute taxes and charges applied to exports.

The US also complained that China imposes restrictions, such as quotas, on the export of various forms of antimony, indium, magnesia, talc, and tin.

The US considered these are inconsistent with Article XI: 1 of the GATT 1994 and China's obligations under the provisions of Paragraph 1.2 of Part I of the Accession Protocol, which incorporates commitments in Paragraphs 162 and 165 of the Working Party Report on the Accession of China (WT/MIN(01)/3) (Working Party Report), because these measures constitute export restrictions other than duties, taxes, or other charges.

With respect to the administration and the allocation of the export quotas on various forms of indium, magnesia, talc, and tin, the US said that China imposes restrictions on the trading rights of enterprises seeking to export various forms of indium, magnesia, talc, and tin, such as prior export performance requirements.

The US considered that these measures are inconsistent with Paragraph 5.1 of Part I of the Accession Protocol, as well as China's obligations under the provisions of Paragraph 1.2 of Part I of the Accession Protocol, which incorporates commitments in Paragraphs 83 and 84 of the Working Party Report, because these measures limit the right to trade.

In its statement at the DSB, the US recalled that in two prior disputes, the DSB found that China's export restrictions on various raw materials were inconsistent with WTO rules.

Unfortunately, those raw materials are not the only ones on which China has imposed export restraints. China continues to maintain export restrictions on other raw materials, the US said.

The US said its panel request reflects its concerns with China's restraints on the exportation of antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum and tin.

These materials are critical inputs to a wide range of industrial sectors in the United States and in other Members. China's export restraints provide an advantage to its domestic industries purchasing these raw materials, at the expense of industries elsewhere.

The US said that China's persistence in maintaining such export restrictions, notwithstanding US efforts to engage with China on this issue and the WTO findings in the two previous disputes "is troubling".

The US said it attempted to resolve these issues through dialogue with China on a bilateral or multilateral basis. China did not take any action to resolve the US concerns, it added.

In its statement, China expressed its strong disappointment with the United States' decision to request the establishment of a panel to examine the subject matter of the present dispute.

China said that it had sincere consultations with the US in early September and positively responded to the relevant questions.

China had reiterated its steadfast stance on respecting the WTO rules and abiding by commitments made for accession to the WTO.

Given the increasing pressure from protection of exhaustible natural resources and the environment, China's policies concerning the products at issue are an integral part of the comprehensive measures taken to promote the scientific management of natural resources products and strengthen ecological environment protection with the purpose of achieving sustainable development, it said.

In sum, China regrets to see the US decision to move this dispute to panel proceeding. It said that it is not in a position to accept the establishment of a panel.

China said that it stands ready to safeguard its rights under the DSU and the covered agreements.

In an intervention, the EU said that it shares the US concerns regarding China's continued export restrictions on certain raw materials.

The EU expressed disappointment that China maintains such restrictions despite two very clear rulings by the WTO (albeit on a different set of raw materials).

It noted that on 19 July and 19 August 2016, the EU had requested consultations with China with regard to its export restrictions on certain raw materials (DS509).

As the consultations failed to resolve the dispute and the EU has not received any information from China that the export restrictions in question will be removed, the EU said that it will later today request that the establishment of a panel in its own dispute be put on the agenda of the next DSB meeting.

EU-ARGENTINA BIODIESEL DISPUTE

In other actions, the DSB adopted the Appellate Body and panel reports in the dispute over anti-dumping measures imposed by the European Union on biodiesel from Argentina.

In a ruling issued on 6 October, the Appellate Body had upheld an earlier panel ruling that anti-dumping measures imposed by the EU on imports of biodiesel from Argentina were inconsistent with its WTO obligations (see SUNS #8330 dated 11 October 2016 for details of the AB ruling).

In its statement at the DSB, the EU welcomed the Appellate Body's confirmation of the panel's finding that the second subparagraph of Article 2(5) of the EU's basic anti-dumping regulation is WTO-consistent.

As regards the EU regulation imposing anti-dumping duties on imports of biodiesel from Argentina, the EU said that it is pleased that the panel and Appellate Body have rejected a number of claims of WTO-inconsistency.

Nevertheless, the EU added, the panel and Appellate Body have made certain findings of WTO-inconsistency with regard to the specific anti-dumping measures imposed on biodiesel from Argentina.

The EU took note of the Appellate Body clarification that Article 2.2 of the Anti-Dumping Agreement and Article VI: 1(b)(ii) of the GATT 1994 do not preclude an investigating authority from using information on the cost of production "in the country of origin" from sources outside the country as long as this information is apt or capable of yielding a cost of production in the country of origin.

Argentina said that the rulings were of great value to the country as well as to the trading system.

According to Argentina, all members have an interest in clear guidelines on the construction of "normal value" or the cost of production which is used to determine whether dumping is taking place. These normal values cannot be based on hypothetical costs, said Argentina.

The US commented on the Appellate Body's findings and conclusions.

According to the US, the reports of the Panel and the Appellate Body in the dispute make findings on a number of matters regarding the interpretation and application of the Agreement on the Implementation of Article VI of the GATT 1994.

The US understands from those reports that those findings turn on the facts and circumstances of the specific anti-dumping investigation at issue in this dispute.

The US also drew attention to what it said was an important systemic issue with implications for the operation of the dispute settlement system.

This issue is how the Appellate Body should approach appeals from panel findings on the meaning of municipal law, as well as how the Appellate Body approached Argentina's particular appeal in this dispute on the meaning of the EU law being challenged.

According to the US, in the WTO system, or in any international law dispute settlement system, the meaning of municipal law is an issue of fact.

In contrast, the interpretation of the WTO Agreement, or other relevant international law, is the issue of law for that system.

This proposition is not controversial, the US claimed. For example, one of the standard treatises on international law (Brownlie) states that "municipal laws are merely facts which express the will and constitute the activities of States."

The US maintained that the Appellate Body, however, has treated panel findings on the meaning of municipal law as a matter of WTO law, to be decided by the Appellate Body de novo in an appeal under Article 17.6 of the DSU.

The Appellate Body has given no rationale - based in the text of the DSU or in any other source - for this fundamental departure from the principle that the meaning of municipal law is an issue of fact in international dispute settlement.

In its report in this dispute, the Appellate Body's explanation for the proposition that the meaning of municipal law is an issue of law under Article 17.6 is a single sentence: "Just as it is necessary for the panel to seek a detailed understanding of the municipal law at issue, so too is it necessary for the Appellate Body to review the panel's examination of that municipal law."

According to the US, the only basis given for this assertion is a citation to the Appellate Body's own report in India - Patents (US).

That report, however, provides no meaningful explanation for this proposition. Ironically, said the US, India - Patents (US) cites the very same international law treatise quoted above, that municipal law is an issue of fact for the purpose of international dispute settlement.

That is, the India - Patents report cites a treatise that stands for the opposite of what the Appellate Body cites it for, the US added.

Further, the Appellate Body's stated rationale - that a "detailed understanding" is important - says nothing about the proper role of the Appellate Body in reviewing a Panel's finding.

Indeed, said the US, many factual issues in WTO dispute settlement require "detailed understanding".

But that provides no basis for treating those factual issues as issues of law to be decided de novo by the Appellate Body on appeal, it maintained.

According to the US, the problems with the Appellate Body's approach is highlighted by this very appeal.

One of Argentina's claims was that a provision of EU law, the Basic Regulation, was inconsistent "as such" with the AD Agreement. On appeal, Argentina claimed that the panel erroneously construed that EU law.

Argentina's argument was based on the text of the EU provision, legislative history, a supposed EU practice in several other investigations, and certain EU court decisions.

On appeal, Argentina claimed both that the Panel's interpretation of EU law was wrong as a matter of law (although under what provision of the AD Agreement or the DSU remains unclear) and that the Panel failed to make an "objective assessment of the matter" under Article 11 of the DSU.

The US said that especially given the panel's alleged error in examining all of the different types of evidence introduced by Argentina, the Appellate Body could have, and should have, handled this matter as an appeal under Article 11 of the DSU.

In an Article 11 appeal, of course, the Appellate Body would not have conducted a de novo review of EU law, but rather would have examined whether the panel had exceeded its "margin of appreciation" as the trier of fact.

The Appellate Body, however, examined the meaning of the EU law both as a de novo legal issue, and then proceeded to conduct a separate examination of whether the Panel made an objective assessment, the US maintained.

"Frankly, this approach does not make sense. It departs from the Appellate Body's frequent admonition that a party should present an issue as an error of law or an error under Article 11, but not both types of claims with respect to the same issue," said the US.

Furthermore, it raises the prospect that the Appellate Body might find that the Panel made an objective assessment of a complex factual record, and at the same time might find that precisely the same panel was incorrect simply because the Appellate Body made a different factual determination based on its own de novo review.

This type of outcome - which follows from the Appellate Body's finding that it can conduct its own de novo review of the meaning of domestic law - is inconsistent with the appropriate functioning of the dispute settlement system, argued the US.

It departs from the basic division of responsibilities where panels determine issue of fact and law, and the Appellate Body may be asked to review specific legal interpretations and legal conclusions, it added.

OTHER ACTIONS

Under the agenda item of US anti-dumping and countervailing measures on large residential washers from Korea, the US said that it intends to implement the recommendations of the DSB in this dispute "in a manner that respects US WTO obligations".

It said that it will need a reasonable period of time for implementation, adding that in accordance with Article 21.3(b) of the DSU, it will discuss this matter with Korea with a view to reaching agreement on the period of time.

Korea welcomed the US statement that it intends to comply with the recommendations and rulings of the DSB in this dispute.

It urged the US to take the necessary steps to immediately bring its measures into conformity with its obligations under the WTO Agreements.

Korea believed that the appropriate and reasonable period of time for the US to take necessary steps should be as prompt as possible pursuant to Article 21.1 (of the DSU).

In this regard, it said that it is prepared to enter into consultations with the US under Article 21.3(b) of the DSU on the reasonable period of time necessary for prompt compliance.

Under the agenda item of Russian tariff treatment of certain agricultural and manufacturing products, Russia informed the DSB that the overwhelming majority of the measures challenged by the EU had already been brought by Russia into compliance with its WTO obligations prior to, and in the course of, the dispute settlement proceedings.

With respect to the remaining measures, Russia said that it intends to implement the recommendations and rulings of the DSB in accordance with Article 21.3 of the DSU.

To this end, it said that it needs a reasonable period of time for implementing the DSB recommendations and rulings in this dispute, and looked forward to discussing this matter with the EU in due course with the view to resolving it in full accordance with the provisions of the DSU.

The EU welcomed Russia's statement on its intention to comply and is ready to discuss a reasonable period of time to do so.

While it took note of the modifications that have already occurred for certain tariff lines, the EU urged Russia to promptly take the necessary steps to ensure WTO compatibility of the measures for which inconsistency remains.

The EU said that it expects that the Russian Federation will fully respect the bindings that it committed in its Schedule.

Meanwhile, the item of US measures affecting the cross-border supply of gambling and betting services - statement by Antigua and Barbuda, was removed from the agenda.

According to trade officials, the chair of the DSB, Ambassador Xavier Carim of South Africa, informed members that Antigua and Barbuda, in a letter dated 24 October, requested that their delivery of the statement be deferred to the next regular DSB meeting. +