TWN Info Service on WTO and Trade Issues (Nov16/17)
28 November 2016
Third World Network

Panel set over China's export restrictions on raw materials
Published in SUNS #8363 dated 25 November 2016

Geneva, 24 Nov (Kanaga Raja) -- The Dispute Settlement Body (DSB) of the World Trade Organisation (WTO) on Wednesday (23 November) agreed to establish a panel, at the request of the European Union, to examine China's export restrictions on certain raw materials.

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

Brazil, Canada, Chile, Colombia, Ecuador, India, Indonesia, Japan, Korea, Mexico, Oman, Chinese Taipei, Viet Nam, the United States, the Russian Federation, Norway, Kazakhstan and Singapore reserved their third party rights to the dispute.

At an earlier meeting on 8 November, the DSB had agreed to establish a panel, at the request of the United States, to examine the same issue (see SUNS #8352 dated 10 November 2016).

Also at the DSB meeting on 23 November, Antigua and Barbuda informed the DSB that, if an appropriate and beneficial settlement is not reached with the US by year-end in the gambling dispute, the government will be compelled to take action to enforce the suspension of copyright on the sale of US intellectual property, consistent with the award of the DSB (to the tune of US$21 million annually). (See below.)

In other actions, the EU blocked a first-time panel request by the Russian Federation over cost adjustment methodologies and certain anti-dumping measures imposed by the EU on imports from Russia.

Also at the meeting, the Russian Federation blocked a first-time panel request by Ukraine over measures imposed by the Russian Federation affecting the importation of railway equipment and parts thereof.

Panels establishment will be automatic when both requests come up again before the DSB.

EU-CHINA DISPUTE OVER RAW MATERIALS

The dispute raised by the EU against China is with respect to China's restrictions on the exportation from China of various forms of antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum and tin.

In its communication to the DSB, the EU complained that China imposes export duties on various forms of antimony, chromium, cobalt, copper, ferronickel, graphite, lead, magnesia, talc, tantalum and tin.

These materials are not listed in Annex 6 of the Protocol on the Accession of the People's Republic of China (WT/L/432) (Accession Protocol), it said.

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

The EU considers these measures 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.

The EU further complained that China imposes additional requirements and procedures with respect to the administration and the allocation of the quantitative export restrictions on various forms of indium, magnesia, talc and tin, including restrictions on the trading rights of enterprises seeking to export those products, such as prior export experience requirements, and other conditions that appear to treat foreign and foreign invested entities differently from domestic entities.

The EU considers that these measures are inconsistent with paragraphs 5.1 and 5.2 of Part I of the Accession Protocol, as well as China's obligations under the provisions of paragraph 1.2 and 1.3 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. (See SUNS #8352 dated 10 November 2016.)

In its statement at the DSB. China expressed disappointment with the EU's decision to request the establishment of a panel to examine the subject matter of the present dispute again at this meeting.

China said that it has reiterated its steadfast stance on respecting the WTO rules and abiding by its commitments made for accession to the WTO.

Given the increasing pressure for 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.

China noted that on 31 October, it published its Total Export Quotas of Industrial Products and Agricultural Products of 2017.

Regrettably, it said, the EU did not carefully review the new measures and decided to move this dispute to panel proceeding.

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

According to trade officials, the EU referred to China's announcement at the DSB meeting on 8 November that it had published, on 31 October, its Total Export Quotas of Industrial Products and Agricultural Products for 2017.

The EU said that it was not clear what that announcement means, but if it means removing the restrictions in question, the EU was willing to work towards a solution of the dispute while the panel proceedings go ahead.

The US shared the concerns of the EU that China's export duties, export quotas and restrictions on the rights of enterprises seeking to export are inconsistent with WTO rules.

The US noted that it had also brought a dispute regarding those export restraints and that a panel was established in that dispute at a DSB meeting on 8 November.

ANTIGUA-US GAMBLING DISPUTE

Antigua and Barbuda made a statement under the agenda item of US measures affecting the cross-border supply of gambling and betting services.

It noted that it has been 12 long years since an Arbitration panel, established under the rules and procedures of the DSB, issued a decision that found the US in violation of international obligations under the General Agreement on Trade in Services. It was a decision upheld by several Appeal panels.

Over that entire 12-year period, the representative from Antigua and Barbuda told the DSB, "my small country, with a Gross Domestic Product of just $1 billion, has been deprived of trade revenues which now exceed $250 million."

For the country's tiny economy, $250 million is a meaningful sum of money. Its loss has significantly retarded economic growth and social development.

By the same token, $250 million represents the paltry sum of point nought, nought, nought, three per cent (.0003%) of only one year of the US Gross Domestic Product, it said.

Further, over the last 12 years, the United States has enjoyed a balance of trade surplus with Antigua and Barbuda of over $1 billion.

"Over all this time my government has patiently engaged in good faith consultations with the Government of the United States in the genuine hope that the harm done to our economy by US action would be repaired through a settlement that recognises justice and fairness."

"Alas, the US has not been able to propose terms for a settlement that would even remotely compensate for the harm that has been done to our economy and continues to impact it negatively," said the delegate from Antigua and Barbuda.

And while the US continues to act in contradiction of the rulings and recommendations stipulated by the DSB concerning Antigua and Barbuda, it remains the most active user of the institution's Dispute Settlement System.

The United States' continued non-compliance in this matter should concern every Member of this esteemed organisation, said Antigua and Barbuda.

"Each of us - and all of us - are equally responsible for upholding and safeguarding the WTO's institutional integrity."

Consequently, the protracted failure by the US to settle this matter, despite the fact that it is not compliant with WTO rules, has the potential to collapse confidence in the efficacy and credibility of the rules-based trading system, it underlined.

Antigua and Barbuda, one of the smallest economies in the world, is yet to reap any benefit from having prevailed against the United States through the rulings and recommendations of the DSB.

"My government has almost exhausted its patient efforts to reach a settlement with the US. This is regrettable since, on our side, we have always conducted our relations with the US at a high level of regard and cooperation."

Antigua and Barbuda advised the DSB that it is now engaged in a final effort with representatives of the US Trade Representative's Office to reach an agreed settlement.

"We hope that a sense of right will prevail. But, we cannot go beyond the end of this year," said the delegate from Antigua and Barbuda.

Antigua and Barbuda further said that its economic growth and social development has been materially and adversely affected by the loss of substantial trade revenues.

In light of the above, Antigua and Barbuda informed the DSB that, if an appropriate and beneficial settlement is not reached with the US by year-end, the government will be compelled to take action to enforce the suspension of copyright on the sale of US intellectual property, consistent with the award of the DSB.

[In an award issued on 21 December 2007, the WTO Arbitrator determined that Antigua and Barbuda may request authorisation from the DSB to suspend the obligations under the TRIPS Agreement at a level not exceeding US$21 million annually.

[In its request for authorisation to suspend concessions or other obligations, Antigua had indicated that it intends to take countermeasures in the form of suspension of concessions and obligations under the following sections of Part II of the TRIPS Agreement: Section 1: Copyright and related rights; Section 2: Trademarks; Section 4: Industrial designs; Section 5: Patents; and Section 7: Protection of undisclosed information.]

According to trade officials, the US expressed disappointment that Antigua characterized the efforts so far to reach a settlement as "bad faith" when it was taking a constructive approach.

The US said it worked months with Antigua in 2008 on a "generous" settlement package, only to see Antigua repudiate it.

The US said that it looks forward to further engagement with Antigua on the issue. It however cautioned that the "unprecedented step" towards proceeding to suspend intellectual property rights would run counter to Antigua's own interests.

According to trade officials, several members including Dominica (on behalf of the Organisation of Eastern Caribbean States), Venezuela and Argentina expressed support for Antigua and Barbuda.

OTHER MATTERS

Under the agenda item of certain measures relating to solar cells and solar modules, India said on 10 November, it had informed the DSB by letter that it intended to implement the recommendations and rulings of the DSB in a manner that respected its WTO obligations.

It said that it would need a reasonable period of time in which to implement the DSB's recommendations and rulings.

It looked forward to working with the US on reaching a mutually acceptable reasonable period of time.

The US noted India's comments regarding the need for a reasonable period of time and stands ready to discuss with India, a reasonable period of time for implementation of the DSB's recommendations and rulings.

Under the agenda item of anti-dumping measures on biodiesel from Argentina, the EU said that it intends to implement the recommendations and rulings in this dispute in a manner that respects its WTO obligations.

It said that it will need a reasonable period of time in which to do this, and that it is ready to discuss this matter with Argentina in due course.

According to trade officials, Argentina was of the view that the findings could be implemented in a rapid manner and it is prepared to discuss the reasonable period of time needed with the EU.

APPELLATE BODY APPOINTMENTS

Under the agenda item of Appellate Body appointments, members accepted the recommendation of a WTO Selection Committee to appoint Ms. Zhao Hong of China, and Mr. Hyun Ching Kim of Korea, to respective four-year terms as Appellate Body members. Their terms will begin on 1 December 2016.

According to trade officials, the chair of the DSB, Ambassador Xavier Carim of South Africa, recalled the processes for filling the two vacancies.

He said that the first process was to replace Ms. Yuejiao Zhang (also of China), whose second and final four-year term as Appellate Body member expired on 31 May.

Seven candidates were interviewed for the post, and the Selection Committee met with 50 delegations to hear their views on the candidates, with 23 delegations submitting written views, the chair said.

The second was to replace Mr Seung Wha Chang of Korea, who was not reappointed to a second term. (The US stood alone in vetoing the re-appointment of Mr Chang for a second term.)

According to the chair, seven candidates were interviewed for that post - five from the previous selection process who were re-nominated by their respective governments, and two new candidates.

The Selection Committee met with 57 delegations, with 30 delegations submitting their views in writing.

According to trade officials, some 20 delegations spoke and welcomed the new AB members.

A number of Members said the appointments would fill critical vacancies in the AB at a time when its workload is expected to increase sharply.

Several Members underlined the importance of the new members safeguarding the impartiality and independence of the AB.

Both Korea and China thanked members for the confidence expressed in their successful candidates.

[Meanwhile, in a special lecture at WTO headquarters on 22 November, Mr Thomas R. Graham, the Chairman of the WTO Appellate Body, warned that the massive volume of appeals next year and beyond, some very large, will tie up a large part of the Appellate Body staff, and will command much of the time and energy of Appellate Body Members, for long periods of time. And that, in turn, will reduce its capacity to staff and consider other appeals in parallel.

[He was speaking at an event co-hosted by the World Trade Institute of the University of Bern, the University of Geneva Law School and the Graduate Institute of International and Development Studies.

[Speaking on the state of the WTO Appellate Body, Graham said 2016 has been a difficult year. One Appellate Body colleague completed her second term and rotated off, and another AB colleague was not reappointed to a second term, giving rise to a discussion in the Dispute Settlement Body dedicated to the subject of the independence and impartiality of the Appellate Body in relation to the reappointment process, "a discussion that we have followed and appreciate."

[Looking ahead, he said, things are not going to get easier. For one thing, many things are unforeseeable. And for another, the "tsunami" of cases that has long been predicted is now upon us, he said. He noted that three appeals are in process currently, including the enormous Airbus compliance appeal, and China's appeal in US Anti-dumping and Countervailing Duty Methodologies.

["We have been told by the Directors of the Legal and Rules Divisions to expect about 26 panel reports to be issued during 2017 -- twenty-six -- including another enormous appeal, the Boeing Section 21.5 compliance case, and an appeal of the large and complex Australia Plain Packaging panel decision."

["Since historically more than two-thirds of all panel reports are appealed, we can expect 17 or 18 new appeals next year, along with the carry-over of Airbus, Methodologies, and Russia Pigs - the three appeals that are currently pending," he said.

["In other words, we are expecting next year almost three times the number of appeals that we had in the busy year that we are now completing, and those 20-plus appeals next year will, almost certainly, include cases that are unusually large and complex. This tsunami will cause a backlog that will build up and continue beyond 2017."

["Moreover, during 2017 we will lose two more veteran Appellate Body Members whose second terms will expire, so there will be two more vacancies to be filled. By the end of next year, four of the seven Appellate Body Members will not have served more than one year. Currently, we have only 16 lawyers to help us, a number that is flatly inadequate for the caseload we are facing. By comparison, more than 45 lawyers are working at the panel stage," said Graham.

[He further noted that in the Appellate Body's first three years appeals averaged three per year. In the most recent three years there have been 24 appeals in total, an average of eight per year. And next year, the Appellate Body expects to be dealing with 20 or more appeals, between two and three times the annual average. And the cases have grown much larger.

[The length of WTO panel reports that have been appealed has more than doubled since the early years of WTO dispute settlement to an average of more than 350 pages. The average number of exhibits submitted by the parties to panels, and, thus, frequently on appeal to the Appellate Body, has increased from around 60 per case in the early years, to over 500 currently.

[Graham also said that he and his colleagues welcome the discussion in the "Dedicated Session" that is taking place in the DSB (on changes to the AB reappointment process). "Needless to say, the independence and impartiality of adjudicators are vital to any adjudicative system, including the WTO dispute settlement system, and we need to safeguard it," he said.] +