TWN Info Service on WTO and Trade Issues (Dec22/21)
22 December 2022
Third World Network

Trade: China blocks EU panel requests over trade with Lithuania, IPRs
Published in SUNS #9716 dated 22 December 2022

Geneva, 21 Dec (Kanaga Raja) — Two requests for the establishment of dispute panels by the European Union, one on Chinese measures concerning trade in goods and services with Lithuania, and the other on China’s enforcement of intellectual property rights (IPRs), were blocked by China at a meeting of the WTO’s Dispute Settlement Body (DSB) on 20 December.

Both were first-time requests and panels establishment will be automatic when these requests come up again before the DSB.

Meanwhile, under a separate agenda item on Appellate Body appointments, the United States, for the sixty-first time, said that it was still not in a position to agree to a joint proposal by 127 WTO members that called for the simultaneous launch of the selection process to fill seven vacancies on the WTO’s Appellate Body (AB) as soon as possible.

DISPUTE OVER CHINA’S MEASURES ON GOODS & SERVICES TRADE

In the dispute raised by the EU against China’s measures affecting trade in goods and services with Lithuania, a communication from the EU (WT/DS610/8) said that the EU held consultations with China on 14 and 15 March 2022 with a view to reaching a mutually satisfactory settlement of the matter. Unfortunately, these consultations failed to settle the dispute.

According to the EU communication, its panel request relates to a complex of inter-related measures attributable to China restricting the trade in goods from or to Lithuania or linked to Lithuania. As regards the temporal aspects, in light of the fact that the adoption and maintenance of the Chinese measures has been wholly or partly hidden or disguised, and experienced by the European Union with varying intensities at different times, the European Union seeks findings regarding the existence and content of each of the measures at issue by reference to each of the following times: (1) at the end of the first quarter of 2021; (2) at the end of August 2021; (3) at the end of the final quarter of 2021; and (4) the date on which the panel is established.

Beginning in or around the final quarter of 2021, importers of products originating in Lithuania and/or transiting through Lithuanian ports and/or with some other link to Lithuania began encountering restrictions on securing customs clearance for their goods to enter Chinese territory, said the EU.

Those restrictions include in particular: (i) error messages on the IT systems used to input data necessary to secure customs clearance from the Chinese customs authorities; (ii) containers being blocked in Chinese ports pending customs clearance; (iii) failures on the part of the Chinese customs authorities to process requests for customs clearance in due time or at all.

Those restrictions are novel, numerous, recurrent, and strongly correlated in temporal and substantive terms, as well as in terms of the provenance of the goods and have persisting effects, it added.

Commencing in or around the final quarter of 2021, entities established in Lithuania began encountering difficulties relating to goods due to be exported from China to Lithuania. Those difficulties include failures on the part of the Chinese customs authorities to process requests for customs clearance for export in due time, or at all. Entities established in Lithuania, or showing a link to Lithuania, also reported the supply of services from or to Lithuania, encountered restrictions. Those restrictions have similar characteristics, said the EU.

In the same time period, entities established in Lithuania began reporting that beginning in 2021, Chinese customs authorities began refusing customs clearance for shipments of various products covered by SPS (sanitary and phytosanitary) certificates issued by Lithuanian authorities. These entities also reported that these refusals appeared to lack proper justification and occurred at an increased frequency.

The EU said as of 8 February 2022, China formalised the import bans for products that had already been blocked, by suspending the acceptance of import declarations from Lithuania.

The measures, including the SPS measures at issue, include the adoption, maintenance and application through its actions or omissions, in law and in fact, as such and as applied, by China, of import bans or import restrictions on the products at issue, from the EU or parts thereof, said the EU communication.

The means through which China imposes and administers these measures operate collectively but also separately, and affect the importation or exportation of goods from or to Lithuania, or showing a link to Lithuania, for example, through the presence of Lithuanian components. These measures predominantly concern goods from or destined for Lithuania or linked in various ways to Lithuania, but also have an effect on supply chains throughout the EU, it added.

The above-described complex of measures are inter-linked and show a targeted prohibition or restriction relating to the trade in goods from or to Lithuania or linked to Lithuania which is intended to be generally applicable, it said.

The EU said these measures are attributable to China which, through actions of the Government, and/or through measures designed, promulgated, or applied by entities (including local government bodies, non-governmental bodies and state-owned enterprises) in Chinese territory acting as, under the authority of, or in concert with the Government, has encouraged, incentivised or otherwise instigated a coordinated policy designed to restrict trade from and with the EU, and more specifically, Lithuania, in a manner that is inconsistent with the terms of the covered agreements.

In particular, the acts or omissions of the General Administration of Customs China resulting in the failure to take administrative actions or decisions necessary for customs clearance, as well as the unjustified refusal to grant customs clearance, has the effect of prohibiting or restricting importation, it added.

China also grants less favourable treatment for transit for products with a link to Lithuania as described above, it said.

The EU said China arbitrarily or unjustifiably discriminates between the EU and other Members where identical or similar conditions prevail, including between China’s own territory and that of the EU, in applying sanitary and phytosanitary measures, and further applies sanitary and phytosanitary measures in a manner which constitutes a disguised restriction on international trade, when goods with a link to Lithuania are involved.

The European Union considers that in light of the matters highlighted above, the measure or series of measures described are inconsistent with China’s obligations under the following provisions of the covered agreements:

* Article I:1 of GATT 1994, because, by its acts or omission as regards the operation of its custom clearance procedures to goods originating in Lithuania and/or transiting through Lithuanian ports and/or with some other link to Lithuania, China has not and is not according immediately and unconditionally to the like product originating in or destined for the territory of the EU with respect to all rules and formalities in connection with importation and exportation, the advantages, favours, privileges or immunities granted by China to any product originating in or destined for any other country.

* Article V:6 of GATT 1994, because, by its acts or omission as regards the operation of its custom clearance procedures to goods transiting through Lithuania, China has accorded and accords to products which have been in transit through the territory of another Member treatment less favourable than that which it accords to such products that have been transported from their place of origin to their destination without going through the territory of that other Member.

* Article X:3(a) of GATT 1994, because China has administered and administers its laws, regulations, decisions and rulings of the kind described in Article X:1 of GATT in a manner that is not uniform, impartial and reasonable.

* Article XI:1 of GATT 1994, because China has instituted and is maintaining prohibitions or restrictions other than duties, taxes or other charges on the importation of products from the territory of the EU.

* Article 7 of the TFA (Trade Facilitation Agreement), because for products originating from the territory of the EU, China has not maintained and is not maintaining procedures allowing for the submission of import documentation and other required information, including manifests, in order to begin processing prior to the arrival of goods with a view to expediting the release of goods upon arrival.

* Article 10 of the TFA, because China has not adopted and/or applied import, export, and transit formalities and documentation requirements with a view to a rapid release and clearance of goods, particularly perishable goods. Furthermore, China has not adopted and/or applied import, export, and transit formalities and documentation requirements in a manner that aims at reducing the time and cost of compliance for traders and operators.

* Article 2.2 of the SPS Agreement (Agreement on the Application of Sanitary and Phytosanitary Measures), because China has not ensured, and does not ensure, that the measures at issue are not applied beyond the extent necessary to protect human or animal life or health. Further, China has not ensured, and does not ensure, that the measures at issue are based on scientific principles. It appears that there is no scientific basis, whether specific or general, for restricting imports from within Lithuania; or with respect to all the products at issue. China failed and fails to ensure that the measures at issue are not maintained without sufficient scientific evidence.

* Article 2.3 of the SPS Agreement, because China has not ensured and is not ensuring that the sanitary and phytosanitary measures which it applies do not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail, including between their own territory and that of the EU and has applied sanitary and phytosanitary measures in a manner which constitutes a disguised restriction on international trade.

* Articles 3.1 and 3.2 of the SPS Agreement, because the measures are neither “based on” nor “conform to” the relevant international standards, guidelines or recommendations as laid down by the Codex Alimentarius, World Organization for Animal Health (“OIE”), or International Plant Protection Convention (“IPPC”), as provided for in Articles 3.1 and 3.2 of the SPS Agreement.

* Articles 5.1 and 5.2 of the SPS Agreement, because China does not ensure that the measures at issue are based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organizations, as required by Article 5.1 of the SPS Agreement. China has neither provided, nor referred to, any such risk assessment or completed any risk assessment.

Further, in adopting, maintaining and/or applying the measures at issue, China did not take into account available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; the prevalence of specific diseases or pests; the existence of pest- or disease-free areas; the relevant ecological and environmental conditions; and quarantine or other treatment. Had China properly taken these matters into account, it would have concluded that the measures at issue are unnecessary and unjustified.

* Article 5.6 of the SPS Agreement, because when establishing and maintaining the measures at issue, China has failed and fails to ensure that they are not more trade-restrictive than required to achieve their appropriate level of sanitary protection, taking into account technical and economic feasibility, as required by Article 5.6 of the SPS Agreement. China has failed and fails to take into account that there are other measures, which are reasonably available taking into account technical and economic feasibility, that achieve China’s appropriate level of sanitary protection and that are significantly less restrictive to trade. In particular, as regards wheat, the alternative measures would take into account the standards for establishing pest free areas as determined by the IPPC. China should recognise Lithuanian territory as a non-affected area.

* Article 5.8 of the SPS Agreement because, when the EU requested China to provide the reasons for the sanitary or phytosanitary measures constraining exports of logs, peat and wheat, for which the EU has reason to believe that they are not based on the relevant international standards, guidelines and recommendations, China did not provide the reasons.

* Article 8 of the SPS Agreement, because in the operation of control, inspection and approval procedures, China has not ensured and is not ensuring that the procedures are not inconsistent with the provisions of this Agreement.

* Article 8 and Annex C.1(a), (b) and (c) of the SPS Agreement, because China has failed, and fails to ensure, with respect to its procedures for checking and ensuring the fulfilment of sanitary measures, that such procedures have been undertaken and completed without undue delay and in no less favourable manner for imported products than for like domestic products, as required by Annex C.1(a) to the SPS Agreement.

Furthermore, with respect to Annex C.1(b) to the SPS Agreement, China has failed, and fails to ensure, that the competent body transmits, as soon as possible, the results of the procedure in a precise and complete manner to the applicant, so that corrective action may be taken if necessary; that even when the application has deficiencies, the competent body proceeds, as far as practicable, with the procedure if the applicant so requests.

* Article III:4 of GATT 1994 for the reasons stated above, the measures at issue are inconsistent with China’s obligations under GATT 1994, and specifically Article III:4 (national treatment with respect to internal regulations) because China accords to imported products treatment less favourable than that accorded to like products of national origin.

The EU said that the measures by China appear to nullify or impair the benefits accruing to the European Union directly or indirectly under GATT 1994, the SPS Agreement, and the TFA.

In its statement at the DSB meeting, China expressed regret over the EU’s decision to request a panel. It said it was not in a position to support such a request.

China said that it attaches great importance to the WTO rules and its relevant commitments and carries out foreign trade with the EU and other WTO members in a manner that is transparent and compatible with the WTO rules.

DISPUTE OVER CHINA’S ENFORCEMENT OF IPRs

In the dispute raised by the EU against China’s enforcement of intellectual property rights (IPRs), a communication from the EU (WT/DS611/5) said that the EU held consultations with China on 6, 7 and 12 April 2022 with a view to reaching a mutually satisfactory settlement of the matter. Unfortunately, these consultations failed to settle the dispute.

According to the EU communication, China has introduced, maintains, and implements a policy which, in the context of judicial procedures concerning the enforcement of intellectual property rights, empowers Chinese courts to prohibit patent holders from asserting their rights protected by the TRIPS Agreement in other jurisdictions.

It said that this prohibition materialises through the issuance by Chinese courts of provisional measures (“anti-suit injunctions”) that forbid patent holders to commence, continue or enforce the results of any legal proceedings before any non-Chinese court and which are enforced through daily penalties in case of infringement. Such penalties can be, and have been, set at the maximum level allowed for under Chinese Civil Procedure Law and they accumulate daily.

The EU said this policy was first introduced by means of a decision by China’s Supreme People’s Court (“SPC”) dated 28 August 2020 in Huawei v Conversant (“SPC decision of 28 August 2020”). The SPC established that Article 100 of the Civil Procedure Law of the People’s Republic of China (“Civil Procedure Law”) allows a Chinese court to adopt a provisional measure prohibiting a party from applying for enforcement of judgments of a non-Chinese court or from seeking judicial relief out-with the jurisdiction of China. Furthermore, it decided that in case of violation of that “anti-suit injunction”, a Chinese court can impose the maximum fine possible under Article 115 (1) of the Civil Procedure Law of 1 million RMB per day.

By decision of 11 September 2020, the SPC denied Conversant’s request for reconsideration of the SPC decision of 28 August 2020 and maintained the anti-suit injunction and the daily penalties. The European Union understands that anti-suit injunctions generally remain valid until the final judgment in the case before the Chinese court becomes effective.

The EU said the policy has been further elaborated by Chinese courts in at least four other cases where anti-suit injunctions were issued. In three of these cases, the anti-suit injunctions have been confirmed upon review and maintained. In addition, the Hubei Province High Court, Guangdong Province High Court and the Guangdong Province Communist Party Political and Legal Committee confirmed the correctness and exemplary character of those judicial decisions in their respective Provinces. The SPC has further elaborated and promoted the policy in a number of official and public documents issued in 2021 and 2022. The National People’s Congress Standing Committee has endorsed the policy as applied in 2021 and 2022. According to official statements issued in 2021 and 2022, the policy will continue to be applied in the future.

Patent holders are prohibited from asserting their rights before a non-Chinese court through the adoption of anti- suit injunctions, as described above, said the EU communication.

After the SPC decision of 28 August 2020, this has been done in a number of decisions adopted by Chinese courts, said the EU, citing four anti-suit injunctions issued by the Intermediate People’s Courts.

The SPC has confirmed that Chinese courts can put in place worldwide, prospective anti-suit injunctions, including a prohibition from initiating any patent infringement case before any non-Chinese jurisdiction, and a prohibition to request an injunction or similar relief measure, under the sanction of 1 million RMB daily penalties, not limited to specific scope, conditions or circumstances related to the concrete cases submitted to the court in question, it said.

Every year, the SPC selects ten IP cases in cooperation with the Provincial High Courts, for them to serve as an example and guidance for courts (“top ten typical IP cases”), the EU noted.

The rules for act preservation measures in intellectual property disputes are set in the Civil Procedure Law of the People’s Republic of China, in particular Article 103 and 104, the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Review of Act Preservation in Intellectual Property Disputes (as last amended on 26 November 2018) and the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (as last amended on 22 March 2022).

The rules on fines for violation of act preservation measures are set in the Civil Procedure Law of the People’s Republic of China, in particular Article 118, and Article 184 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law of the People’s Republic of China (as last amended in 2022), said the EU.

According to the EU communication, the measures at issue are the following:

(1) the anti-suit injunction policy maintained by China as a measure of general and prospective application prohibiting a party in litigation concerning SEPs (standard essential patents) in China from applying for enforcement of judgments of any non-Chinese court in the territories of other Members or from seeking any judicial relief out-with the jurisdiction of Chinese courts.

(2) the continued issuance by Chinese courts of anti-suit injunctions in successive cases concerning SEPs prohibiting a party from applying for enforcement of judgments of a non-Chinese court in the territories of other Members or from seeking judicial relief out-with the jurisdiction of Chinese courts.

(3) specific instances of application by Chinese courts of anti-suit injunctions in cases concerning SEPs in China prohibiting a party from applying for enforcement of judgments of a non-Chinese court in the territories of other Members or from seeking judicial relief out-with the jurisdiction of Chinese courts.

The EU challenged these measures as such and also the instances of application by various Chinese courts.

It said the measures described are inconsistent with China’s obligations under the covered agreements, in particular:

* Article 1.1, first sentence, of the TRIPS Agreement, in conjunction with Article 28.1 of the TRIPS Agreement, because China’s measures restrict, or seek to restrict, the exercise by patent owners of their exclusive rights to prevent third parties not having the owner’s consent from making, using, offering for sale, selling, or importing the product that is the subject matter of a patent or that is obtained directly by a patented process.

* Article 1.1, first sentence, of the TRIPS Agreement, in conjunction with Article 28.2 of the TRIPS Agreement, because China’s measures, by prohibiting access to non-Chinese courts for the owners of the type of patents at issue, restrict, or seek to restrict, the exercise by patent owners of their right to conclude licensing contracts.

* Article 41.1, second sentence, of the TRIPS Agreement, because China’s measures create barriers to legitimate trade and fail to provide for safeguards against the abuse of enforcement procedures. China’s measures create barriers to legitimate trade because they prevent, or seek to prevent, patent owners in other Members from availing themselves of enforcement procedures that permit effective action against any act of infringement of intellectual property rights covered by the TRIPS Agreement, including expeditious remedies to prevent infringements and remedies, which constitute a deterrent to further infringements. Moreover, by granting worldwide anti-suit injunctions with little consideration of their impact on the enforcement procedures in other Members, China fails to provide for safeguards against the abuse of litigation procedures. The Chinese courts should have satisfied themselves with a sufficient degree of certainty that the applicant’s right was being infringed or that such infringement was imminent. Furthermore, the security or equivalent assurance that was required from the applicant by the Chinese courts was not sufficient to protect the defendant and to prevent abuse.

* Article 1.1, first sentence, of the TRIPS Agreement, in conjunction with Article 44.1 of the TRIPS Agreement, because China’s measures prevent, or seek to prevent, the judicial authorities of the other Members from ordering a party to desist from an infringement at the request of patent owners involved in patent litigation in China.

* Section 2(A)(2) of the Protocol on the Accession of the People’s Republic of China, as China, through the issuance by Chinese courts of anti-suit injunctions in the abovementioned patent litigation cases, by favouring the applicant in assessing and setting the conditions for the anti-suit injunctions in those cases, and by imposing penalties on a daily basis, has not applied and administered its laws, regulations and other measures in a uniform, impartial and reasonable manner, in particular Article 103 and 188 of the Civil Procedure Law of the People’s Republic of China and the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Review of Act Preservation in Intellectual Property Disputes, and Article 184 of the Interpretation of the Supreme People’s Court on the Application of the Civil Procedure Law.

The EU also claimed that China has failed to publish at least three decisions that were mentioned in official Chinese government publications and referenced as guiding materials. It said they cannot be found online on China’s official website for judgements, which the European Union understands to be the official medium for publication.

It said the elements described are inconsistent with China’s obligations under the TRIPS Agreement, in particular Article 63.1, because China has not published, or made publicly available, in such a manner as to enable governments and right holders to become acquainted with them, final judicial decisions of general application, made effective by China pertaining to the subject matter of the TRIPS Agreement.

The EU further highlighted China’s alleged failure to supply information on final judicial decisions of general application pertaining to the subject matter of the TRIPS Agreement.

It said on 6 July 2021, the European Union sent an official request for information pursuant to Article 63.3 of the TRIPS Agreement requesting further information on a number of recent judicial decisions and regulations relating to patents. The request concerned, in particular, court cases where decisions were taken in court procedures related to patent licensing and royalty rates, and enforcement of injunctions. These decisions were mentioned in official Chinese government publications and referenced as guiding materials.

On 7 September 2021, China answered that there is no obligation under the TRIPS Agreement to respond to that request and provided only two paragraphs with little detail, it added.

The EU said the elements described are inconsistent with China’s obligations under the TRIPS Agreement, in particular Article 63.3, because China, in response to the European Union’s written request, failed to provide a complete description of the measures that it applies.

According to the EU communication, the measures maintained by China relating to the protection and enforcement of intellectual property rights, China’s failure to publish final judicial decisions of general application pertaining to the subject matter of the TRIPS Agreement, and China’s failure to supply information on final judicial decisions of general application pertaining to the subject matter of the TRIPS Agreement, appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the covered agreements.

In its statement at the DSB, China said it regretted and was puzzled by the EU’s panel request. It said it was not in a position to support the request.

As for the claims at issue in the dispute, China said that it is neither the creator nor the major user of the anti-suit injunction and that the domestic courts of many WTO members, particularly in the EU, have issued a considerable number of injunctions in standard essential patents-related litigation. +