Abstract
The World Trade Organization is the international organization which is dealing with the rules of trade between different nations. Trade disputes impact economic situations and can result in further disagreements between the nations. China and United States have been involved in various disputes being resolved within the organization. The mechanism of the dispute settlement was implemented in the dispute DS437 United States — Countervailing Duty Measures on Certain Products from China, where China as a complainant filed a request for consultations. The dispute was resolved with the establishment of the panel, which gave the final report on which both countries were working further to achieve mutual agreement. The dispute is still not finished, but the final report concluded that the United States have in the 12 countervailing cases and hence: pressure pipe, line pipe, lawn groomers, kitchen shelving, oil country tubular goods, wire strand, seamless pipe, print graphics, drill pipe, aluminum extrusions, steel cylinders and solar panels acted incontinently with the international trade agreements. The decision and the ruling will result in enhance import of the China’s product that had unfair fees in comparison to other importers.
Introduction
The World Trade Organization – WTO is the international organization which is dealing with the rules of trade between different nations. The WTO agreements are signed by the nations in order to help exporters and importers conducting business. One of the major working areas of the organization is also dispute settlement and resolving trade quarrels and enforcing the rules. The nation can rely on the WTO if believes that their rights are being infringed under the agreement. One of the cases brought before the WTO is also the dispute DS437 United States – Countervailing Duty Measures on Certain Products from China, where the biggest communist country in the world failed a complaint against the United States concerning the impositions of countervailing duty measures on certain products from China by United States. The paper will present the background of the request for consultations, description of the event from 2012 onward, analysis of details from both sides and the panel results. The focus will be to show the effectiveness of the WTO dispute settlement with presenting the panel report in regarding to economic issues. Dispute Settlement Understanding – DSU is an important tool in enforcing the rules and ensuring the smooth trade and flows. In the case of the dispute DS437 China’s government believed the United States government violated international trade agreements. We will try to prove that the WTO dispute settlement understanding mechanism for resolving disputes has shown to be very important in the international resolutions of dispute between the China and United States, which can with cooperation and objective ruling resolve current disagreements and prevent future economic wars that could result in negative consequences in economic loss for both countries involved.
The background
China has been involved in various WTO disputes through the past. 13 times was seen as a complainer, 34 cases as respondent and 129 as a third party. On the other hand United States have been involved in the WTO disputes 109 times as complaint, 125 times as respondent and 130 times as a third party. United States have 17 times complaint over China’s disputes and China has a complaint over the United States in 9 cases (WTO, n.d.). The importance of resolving disputes without major outbreaks via the WTO dispute settlement is very important, since China and United States are involved in trading and both have been exporting and importing from each other. China was in 2015 the second largest trading partner of the United States and its third largest export market and its biggest source of imports. With increasing globalization and economic reforms in China the economies of both countries have become more integrated and dependent on each other. Mutual benefits can be achieved only with resolving the trade disputes are therefore even more important. The WTO is one of the organizations that can prevent future disagreements. United States and China trade benefits both countries. The economy of China is even more dependent on foreign trade shown in the annual trade as a percentage of the gross domestic as United States (Morrison, 2015). Any disagreement or continuation of a dispute between countries can result in the economic loss and negative direct and indirect impacts on the national economy.
China brought the case to the WTO different countervailing duty investigations against the United States Department of Commerce between 2007 and 2012. The products included solar panels, wind turbines, steel sinks, kitchen shelving and various other manufactured goods. Those products of China are worth more than $7.2 billion dollars. Under the questions were put the classifications and definitions of the state owned enterprises as public bodies. The panel needed to determine if the state owned enterprises can be classified under the public bodies that are legally subject to countervailing duties (Haley & Haley, 2013).
China has requested the consultations with the United States because of the various products presented in the Table 1, by which the United States allegedly acted inconsistently with various different international agreements under the WTO. China believed that the United States adopted policies that violate the international trade terms on which both have voluntarily agreed. Three major agreements in various articles were violated based on China and based on which the country filed for the consultations:
General Agreement on Tariffs and Trade – GATT 1004: article VI
Agreement on Subsidies and Countervailing Procedures – SCM Agreement: article 1, 2, 10, 11, 12, 14 and 32
Protocol on the Accession of the People’s Republic of China: article 15 (WTO, 2015).
Source: WTO, 2015.
The United States and China trade relations are of great importance for both of the countries in the global economic order. Both are well aware of the negative impacts of the unilateral trade measures which might lead to the retaliatory actions on both sides. Countries are involved in the bilateral mechanism of cooperation and their relationship demonstrates a positive development of the bilateral cooperation within the WTO framework of dispute settlement. The WTO dispute settlement mechanism is the only one in which China consented to mandatory jurisdiction with which it becomes more integrated in the international trade and legal system. The trade frictions between the countries can be resolved under the WTO system and legal framework (Hsieh, 2009).
Description of the events
The most important events in the relevance to the WTO procedures are request for consultations, panel report circulated and appellate body report circulated. After China filled a requested for consultations, China and United States did not manage to resolve the dispute in sixty days themselves in the first stage and that is why the WTO Panel was established. Both countries argued their cases in the meetings on various sessions. After the necessary meetings and submissions the panel submitted the report on which both countries appeal notice to in the timeframe of legal allowance of sixty days. After the appeal, the Appellate Panel with its permanent members appointed a team, which heard both countries appeals and after that issued the report, which the dispute settlement body adopted, since it was no consensus of both members not to do so (Ferris, 2015). For examination the case in depth the timeline follows on the major events regarding the dispute.
Analysis of both sides of the most important issues
There are various aspects on which countries had different views. First, there was a preliminary determination. Second, there were different interpretations of the findings of the United States Department of Commerce of state owned enterprises and their determination as the public bodies. Different opinions were seen in the area, whether the United States Department of Commerce’s “rebuttable presumption” is inconsistent “as such" with Article 1.1. (a)(1) of the SCM Agreement. The dispute case questioned the United States Department of Commerce definitions on the public body, application of facts available, calculation of benchmarks, decisions to initiate investigation and determination of specificity.
Main China’s arguments
Procedures of countervailing duties are inconsistent with the article VI of the GATT 1994. The article VI includes the general provisions regarding dumping and countervailing duties. The agreement on Subsidies and Countervailing Procedures – SCM Agreement was based on Chain’s claim been violated by the United States in articles 1, 2, 10, 11, 12, 14 and 32. The United States department of commerce findings are inconsistent because of the incorrectly determination of the term “public bodies” with which the state-owned enterprises are inconsistently named. China argued that the Wind Towers and Steel Sinks investigation are the issue of the dispute settlement understanding, since they are just the continuation of the same investigation and represent the same claims the China has already raised. Both countries differed in opinion on the United States Department of Commerce findings on the fact that state owned enterprises were public bodies. China claimed, that the United States were violating the provision of the SCM Agreement in Article 1.1. subsidy is deemed to exist if there are financial contributions by a government or public body within the territory of a member. They were opposing the United States Department of Commerce determines that certain China state owned enterprises were public bodies for the government ownership cannot be regarded as a basis for establishing that the entity is vested to perform a government function. United States did not impose countervailing duties in accordance with the SCM Agreement and the Article VI of the GATT 1994. The review has been inconsistent in the absence of sufficient evidence since the department found that the alleged provision of goods conferred a benefit, were not right calculated and the market was found to distort. In the report, there is no determination on the basis of positive evidence. United States have used the term “adverse facts available” inconsistently (WTO, 2014).
Main United States’ arguments
United States argued that the Wind Towers and Steel Sinks investigations are outside the terms of the panel proceeding. They argued that they were never the subject of the consultation between both countries and they were not included in the China’s request for the consultations. Based on the country stance country must give the regarding matter before the establishment of the panel. The topics are therefore the expansion of the dispute. The preliminary determinations are not a natural evaluation of legal claims. United States argued that China failed to establish the legal foundation and constructive explanation. Further on United States believed the Chinese had a flawed interpretation of the public body and that the financial contribution is a conveyance of value. Based on the United States, China has failed to establish a prima facie case in seven challenged regional specificity determinations and with respect to alleged violations of the SCM Agreement. United States have opposed and had a different interpretation of every China’s claim and most of its claims have failed to make a prima facie case. The complaint did not analyze every initiation or determination which differs based on the context and there were lack of case-by-case basis (WTO, 2014).
Panel Results
The panel found that the preliminary countervailing in the Wind Towers and Steel Sinks are not within the Panel’s terms of reference. Panel results in the area of the United States Department of Commerce’s finding on certain stated owned enterprises were defined as public bodies ruled that the United States acted inconsistently. The determination was based on the ground that they were in majority owned by the government of China, but sole control or ownership is not sufficient to establish and determine the public body. A public body is “an entity vested with certain governmental responsibilities, or exercising certain governmental authority,” so investigating authority must evaluate the core features of the entity in question and its relationship to the government, in order to determine whether it has the authority” (WTO, 2014, 35). The panel found out that in the 12 countervailing duty investigation United States acted inconsistently with determining them as the public bodies. The United States Department of Commerce’s policy which presumed that the majority government-owned entities are public bodies is inconsistent. The evidence of government ownership of an entity can serve as evidence that the entity is a public body. The state ownership is not a decisive criterion, but can serve as evidence (WTO, 2014).
The Panel report almost in all investigations upheld China’s claims and ruled that the United States violated the rule and made recommendations that the United States must bring the countervailing duties in accordance with the SCM Agreement. In 12 out of 17 countervailing duties disagreed that state owned enterprises were public bodies. The dispute was regarding to the solar panels, wind towers, thermal paper, coated paper, tow-behind lawn groomers, kitchen shelving, steel sinks, citric acid, magnesia carbon bricks, pressure pipe, line pipe, seamless pipe, steel cylinders, drill pipe, oil country tubular goods, wire strand and aluminum extrusions. In the 12 countervailing cases and hence: pressure pipe, line pipe, lawn groomers, kitchen shelving, oil country tubular goods, wire strand, seamless pipe, print graphics, drill pipe, aluminum extrusions, steel cylinders and solar panels the United States acted incontinently with the SCM Agreement. The panel therefore upheld certain China’s claims against the United States Department of Commerce findings. The panel also partly rejected China’s claim of alleged subsidies as being specific to certain enterprise. The rejections of China’s claim were seen in the area of the use of the adverse facts available, the existence of the sufficient evidence of financial contributions by public bodies to justify the initiation of countervailing duty investigations and that there was market distortion. China did not establish that four countervailing investigation steel cylinders, solar panels, wind towers and steel sink were wrongly initiated. The WTO did therefore reject many of the Chinese challenges to United States countervailing duties. United States won in the area of the panel decision to partially reject the claim that the alleged subsidies were specific to concrete enterprises (International Center for Trade and Sustainable Development, 2014). The WTO dispute settlement showed that the United States has violated its WTO obligations in applying countervailing duties on the products from China. United States have inconsistently applied fees to particular imported Chinese products. Evaluation of the panel results have been confirmed by various third parties participants in the dispute (WTO, 2014).
Economic changes due to the WTO DS437
Economic trade will definitely be changed in the foreseeable future in the area of disputed 12 items on which United States violated the international trade agreements with applying high fees on the China’s products. The access to the American market will be easier for the China’s producers. It is too early to make the analysis of the exact impacts the ruling will have, but it will definitely promote and increased the import of China’s products in the disputed area. The data about the import of the exact dispute products is very hard to find, since the reports and conclusion from various organizations also the United States International Commerce Organization is making statistical reports of the export, import and overall trade between the United States and China on broader topics and not on specific products. China is being more involved in the international treaty rules and international organization, which will also result in the changes trade between the nations. The trades between the nations will definitely increase in time, were the just fees will be applied for the disputed China’s products.
Conclusion
Trade disputes can result in a vast finical amount and the WTO Panel establishes what legal practices are and creates the precedent for future negotiations between the nations. The countervailing duties were wrongfully imposed on Chinese exports. The WTO has the mechanism of the dispute settlement understanding under which the dispute DS437 between the United States and China is being resolved. WTO dealt with the international trade disputes over various different items. Dispute settlement understanding is being resolved through the panel process. It has been going on for four years, since the year 2012 onward with the last changes to be adopted by the United States by the end of April this year. China has filed a request for consultations with the United States that was not resolved bilateralyl and was further resulted in the request for panel decision. The Dispute Settlement Body, panels, appellate body and arbitrators were included in the process. The dispute settlement understanding is a very complex process with involving legal issues, complaints, views, applies from different nations with involving various experts. The assessment of the process shows that is one of the most effective ones since China recognizes only the WTO dispute settlement mechanism and has consented to mandatory jurisdiction. With bilateral cooperation and resolving disputes unilateral actions that could result in economic loss and greater disputes are diminished. The direct consequences of the dispute between countries are limited since the United States needs to investigate the application of double remedies in various cases where the trade international trade agreements have been violated. A WTO mechanism for resolving disputes is an international one with making an objective ruling with involving both parties in order to resolve disputes. The WTO case DS437 have focused on 17 specific countervailing duty investigations that the United States Commerce Department conducted between the years 2007 and 2012 on various products. The significant trade interest in the value of products from China is great because of the worth of the products of several billion dollars. WTO rules were explained in the Panel report. The WTO DS437 proves that the WTO dispute settlement understanding mechanism for resolving disputes is very important in the international resolutions of disputes among the China and United States, which can with cooperation and objective ruling resolve current disagreements and prevent future economic wars that could result in negative consequences in economic loss for both countries involved. it can be long lasting with taken into account complex picture of the issues being discussed, but can reach the settlement between the disputed countries The countries are economically interdependent and every dispute and inability of reaching agreements can hinder the economic progress. The impact of the decision and its implementation has yet to be seen which will definitely result in the changed of the volume of trade in the disputed products between China and United States.
Work cited
Ferris, John. 2015. Fueled by Free Trade: WTO Trade Agreements Ensuring the Proliferation of Solar Technology. William & Mary Environmental Law and Policy Review. Vol. 39, issue 3. Retrieved http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=1633&context=wmelpr
Haley, C. V. Usha, Haley, T. George. 2013. Subsidies to Chinese Industry: State Capitalism, Business Strategy and Trade Policy. New York: Oxford University Press.
Hsieh, Pasha L. 2009. China-United States Trade Negotiations and Disputes: The WTO and Beyond. Asian Journal of WTO and International Health Law and Policy. , 4(2), 368. Research Collection School Of Law. Retrieved http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1524&context=sol_research
International Center for Trade and Sustainable Development. 2014. WHO Panel Grant China Victory in US Dispute Over State-Owned Enterprises. Bridges, Vol. 19. No.26. Retrieved http://www.ictsd.org/bridges-news/bridges/news/wto-panel-grants-china- victory-in-us-dispute-over-state-owned-enterprises
Morrison, M. Wayne. 2015. China – U.S. Trade Issues. Congressional Research Service. Retrieved: https://www.fas.org/sgp/crs/row/RL33536.pdf
WTO – World Trade Organization. N.d. Disputes by country/territory. Retrieved https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm
WTO –World Trade Organization. 2014. United States – Countervailing Duty Measures on Certain Products From China: Report of the Panel. Retrieved http://www.adcommission.gov.au/adsystem/referencematerial/Documents/437r_e.pdf
WTO – World Trade Organization. 2015. Dispute settlement: Dispute DS437: United States – Countervailing Duty Measures on Certain Products from China. Retrieved https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds437_e.htm
