TWN Info Service on WTO and Trade Issues (Jul21/24)
28 July 2021
Third World Network

US blocks compliance panel over Chinese TRQs on agri-products
Published in SUNS #9396 dated 28 July 2021

Geneva, 27 Jul (Kanaga Raja) – A request for the establishment of a panel by China to determine whether China has complied with an earlier WTO ruling in a dispute over China’s administration of tariff rate quotas (TRQs) on certain agricultural products was blocked by the United States at a meeting of the WTO Dispute Settlement Body (DSB) on 26 July.

This was a first-time request under Article 21.5 of the Dispute Settlement Understanding (DSU) and panel establishment will be automatic when the request comes up again before the DSB.

In a related development, according to a Geneva trade official, the US informed members at the start of the DSB meeting that on 15 July it had submitted a request for authorization from the DSB to suspend concessions or other obligations with respect to China in response to what it claimed was the failure of China to implement the WTO ruling in the same dispute.

The US said that since China on 23 July had objected to the level of retaliation proposed by the US, the matter has now been automatically referred to arbitration (as set forth under Article 22.6 of the DSU).

In its communication submitted to the DSB on 15 July (WT/DS517/19), the US had said that it considers that China has failed to implement the recommendations of the DSB in the dispute China – Tariff Rate Quotas for Certain Agricultural Products (DS517).

The United States requested authorization from the DSB to suspend concessions or other obligations with respect to China at an annual level based on the level of the nullification or impairment of benefits accruing to the United States under the covered agreements from the failure of China to implement the recommendations of the DSB.

Each year, the United States would suspend concessions or other obligations equivalent to the level of nullification or impairment through a formula that relates to the value of the unfilled portion of any tariff-rate quota (TRQ) for wheat, rice, or corn, as set out in China’s WTO Schedule, it said.

According to the US communication, the value prescribed by this formula will be updated annually according to the most recent calendar year data.

The countermeasures would include suspension of concessions or other obligations (including most-favored-nation obligations) under the General Agreement on Tariffs and Trade 1994 or other agreements listed in Annex 1A of the WTO Agreement on a list of products of China to be drawn from the Harmonized Tariff Schedule of the United States, said the US communication.

Meanwhile, under a separate agenda item, the DSB agreed to establish a dispute panel, at the request of Canada, to examine measures imposed by China affecting the importation of canola seed from Canada. (See SUNS #9377 dated 30 June 2021).

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

The United States, Chinese Taipei, Singapore, the Russian Federation, Japan, India, the European Union, Brazil, Norway, and Australia reserved their third party rights to the dispute.

REQUEST FOR COMPLIANCE PANEL

In its communication to the DSB (WT/DS517/20) concerning its dispute with the United States, China said on 28 May 2019, the DSB adopted the report of the panel in DS517.

The report concluded that the basic eligibility criteria, allocation principles, reallocation procedures, and public comment process used in China’s administration of its TRQs for wheat, rice, and corn; administration of State Trading Enterprise (STE) and non-STE portions of China’s wheat, rice, and corn TRQs; and usage requirements for wheat and corn used in China’s administration of its TRQs, were inconsistent with China’s obligations under Paragraph 116 of China’s Working Party Report, as incorporated into the WTO Agreement pursuant to Paragraph 1.2 of China’s Accession Protocol.

In accordance with the report, the DSB recommended that China bring its measures into conformity with its obligations under Paragraph 116 of China’s Working Party Report, as incorporated into the WTO Agreement pursuant to Paragraph 1.2 of China’s Accession Protocol.

On 17 February 2020, China notified the DSB that it had fully implemented the recommendations and rulings of the DSB as of 31 December 2019 by adopting the following measures taken to comply:

* On 29 September 2019, the National Development and Reform Commission of the People’s Republic of China (NDRC) promulgated the Detailed Rules for Application and Allocation of Import Tariff-Rate Quotas for Grains in 2020 (Gonggao 2019 No.9).

* On 30 November 2019, the Ministry of Commerce of the People’s Republic of China (MOFCOM) promulgated the MOFCOM Decision to Abolish and Modify Some Rules (Ling 2019 No.1), which modified the Provisional Measures on the Administration of Import Tariff Rate Quotas for Agricultural Products (Ling 2003 No.4).

According to the Chinese communication, the Detailed Rules for Application and Allocation of Import Tariff-Rate Quotas for Grains in 2020 and the modified Provisional Measures on the Administration of Import Tariff Rate Quotas for Agricultural Products are consistent with the recommendations and rulings of the Panel in DS517 and the WTO covered agreements, including China’s commitments under its Protocol of Accession to the WTO.

As set forth in the Detailed Rules for Application and Allocation of Import Tariff-Rate Quotas for Grains in 2020, the overall objective of China’s administration of the TRQs is to achieve full utilization of both the STE and non-STE portions of each TRQ, consistent with market conditions.

China’s TRQs for wheat, rice and corn for the year 2020 have been fully allocated to end-users, said the Chinese communication.

Therefore, as of 31 December 2019, China had complied with the DSB’s recommendations and rulings through the adoption of the measures identified above, it added.

The process of administering the TRQs unfolds over the course of a year. On 10 August 2020, the NDRC and MOFCOM publishes the annual Reallocation Notice for Import Tariff-Rate Quotas for Agricultural Products (Gonggao 2020 No.4).

The Reallocation Notice is consistent with the recommendations and rulings of the Panel in DS517 and the WTO covered agreements, including China’s commitments under its Protocol of Accession to the WTO, said China.

China said that it has engaged, and continues to engage, in good faith with the United States on its implementation of the DSB’s recommendations and rulings.

China recalled that the parties originally agreed an RPT (reasonable period of time) for China to implement those recommendations and rulings. That RPT was to expire on 31 December 2019.

As of 31 December 2019, China had fully implemented the recommendations and rulings of the DSB, it said.

Nevertheless, before the expiry of the originally agreed RPT, the parties notified the DSB of their agreement to extend the previously notified RPT to 29 February 2020 to allow the United States additional time to evaluate China’s compliance measures.

Following several further extensions of the deadline by mutual agreement, on 8 April 2021, the parties notified the DSB of their mutual agreement to again extend the RPT to 29 June 2021 to allow the United States additional time to evaluate China’s compliance measures.

Despite its adoption and notification of measures taken to comply in full with the DSB’s recommendations and rulings before the expiry of the agreed RPT, and despite China’s good faith cooperation in relation to the evaluation of those measures by the United States, the United States has filed a request under Article 22.2 of the DSU for authorization from the DSB to suspend concessions or other obligations under the GATT 1994 or other agreements listed in Annex 1A to the WTO Agreement, said China.

China said that it has objected to the level of suspension of concessions or other obligations proposed by the United States. The DSB shall refer the matter to arbitration under Article 22.6 of the DSU, it noted.

According to the Chinese communication, it is significant that the United States has filed its Article 22.2 request absent a multilateral finding that China’s measures taken to comply fail to achieve compliance.

Under the DSU, the United States was required to seek recourse to review of China’s measures taken to comply under Article 21.5 of the DSU, it said.

As the Appellate Body explained in US – Continued Suspension, “before obtaining the DSB’s authorization to suspend concessions, a Member must initiate a dispute settlement process in which it challenges the consistency with the covered agreements of a measure taken by another Member”.

Indeed, absent a multilateral finding that measures taken to comply have failed to achieve compliance, there is no basis for an Article 22.6 arbitrator to determine a level of nullification or impairment resulting from such an alleged non-compliance, said China.

Moreover, it said, the DSB cannot grant authorization to suspend concessions in any amount where the responding Member concerned has come into compliance.

Nonetheless, in this dispute, the United States has failed to initiate compliance proceedings under Article 21.5 of the DSU to seek multilateral review of actions taken by China to comply, it added.

Moreover, the United States has not followed the established practice of seeking to agree a sequencing arrangement with China that would set out the “logical way forward” in light of the apparent US disagreement that China’s measures taken to comply have achieved compliance.

In these circumstances, China, as the original respondent, is filing this request for the establishment of a compliance panel under Article 21.5 of the DSU, according to the Chinese communication.

Irrespective of whether the parties reach, in future, a sequencing arrangement for purposes of this dispute, China said it considers that the arbitrator under Article 22.6 should suspend its work, pending resolution of the dispute under the Article 21.5 proceedings.

Prompt findings under Article 21.5 will, therefore, assist the parties in securing a positive solution to the dispute, said China.

At the DSB meeting, according to a Geneva trade official, China said it strongly believes that the compliance panel will confirm that China is in full compliance with the WTO ruling.

In its statement at the DSB, the United States said it is not in a position to agree with China that it has come into compliance with the DSB recommendations in this dispute.

Noting that the DSB adopted its recommendation to China to bring its measures into conformity with its WTO obligations in May 2019, the US said that since then, China has – among other things – continued to administer its wheat, rice, and corn TRQs in a “non-transparent and unpredictable manner”.

Not only is the public process by which China administers its TRQs non-transparent, but China also has refused US requests for additional information that would allow the United States to better understand how these TRQs have been administered in practice, it added.

Without such transparency, which most WTO Members provide as a matter of good governance, and to promote market-oriented agricultural trade, the US and other WTO Members are left without the basic information necessary to assess China’s compliance with fundamental WTO obligations, said the US.

The US also said that contrary to the position taken by China, nothing in the DSU supports the view that an Article 22.6 arbitration proceeding must be suspended while the corresponding Article 21.5 proceedings are ongoing.

Where no sequencing agreement has been reached between the parties, as is the case here, a complaining member must request authorization to suspend concessions or other obligations within the time frame specified in Article 22.6 of the DSU or risk prejudicing its rights to do so at a later date. Accordingly, in this proceeding, the United States has done so in a timely manner, it added.

“Regrettably, the United States cannot at this time confirm China’s assertion of compliance with the DSB’s recommendations in this dispute.”

However, US said it stands ready to work constructively with China to reach a resolution to this dispute, as it has done since adoption of the panel report.

For these reasons, the US said that it is not in a position to agree to the establishment of a compliance panel.

US CONTINUES TO BLOCK APPELLATE BODY APPOINTMENTS

Meanwhile, under a separate agenda item, the United States, for the forty-fourth time, blocked a joint proposal by 121 WTO members calling for the start of the selection process to fill seven vacancies on the Appellate Body (AB).

The US said that it was still not in a position to agree to the joint proposal, introduced by Mexico on behalf of 121 WTO Members, that called for the simultaneous launch of the selection process to fill the vacancies as soon as possible.

The US said that it is not in a position to support the proposed decision, adding that it continues to have systemic concerns with the Appellate Body.

According to a Geneva trade official, the chair of the DSB, Ambassador Didier Chambovey from Switzerland, noted that this matter is being addressed by the chair of the WTO General Council in the run-up to MC12.

Resolving the impasse in the Appellate Body is of great interest to all WTO members, he said, adding that it is also a matter that requires political engagement by all members.