Disputes Roundup: New US-China Cases Filed, Rulings for Indonesian Disputes Released

19 January 2017

The start of the new year has marked a particularly busy time for the global trade arbiter, with a number of new complaints launched and several dispute reports released in late December and early January.

Among these was the ruling of a dispute panel which rejected the majority of Indonesia’s claims against the EU for the latter’s anti-dumping measures on imported fatty alcohols. Another panel has found that Indonesian import licensing regimes violate global trade rules, limiting agriculture imports from New Zealand and the United States.

Separately, the US has requested a panel to review Chinese price support for grains and filed a new dispute challenging the administration of tariff rate quotas (TRQs) on grains. The US has also filed a new case alleging that China has been unfairly subsidising aluminium producers.

Another issue that will continue to draw the attention of trade watchers is the ongoing debate over China’s market economy status. The Asian economy requested consultations with the EU and US over “non-market economy” treatment in anti-dumping determinations in mid-December, and could request panels to address the issue as early as February should these consultations fail to lead to a mutually agreed solution.

New aluminium case

Last week, the outgoing administration of US President Barack Obama filed a complaint against alleged subsidies provided by the Chinese government to certain domestic producers of aluminium (DS519).

The 12 January consultations request refers specifically to loans and other financing provided to certain producers, with US Trade Representative Michael Froman arguing that this support is “artificially cheap.” Paired with the use of “low-priced inputs,” the US trade chief warned that the alleged Chinese measures are making it increasingly difficult for American producers to compete in a sector that has already been bedevilled by overcapacity issues.

According to the consultations request, these alleged subsidies are in violation of several provisions of WTO subsidy rules, with the US claiming that this state aid is the source of “serious prejudice” to its domestic interests.

Specifically, the document refers to the “displacement and impedance of US imports of primary aluminium” in other markets, including China, along with affecting prices and sales and allowing the Asian economy to have an increased global market share in aluminium than it had in a less-subsidized time period.

Overcapacity in steel and aluminium has been a significant source of concern and debate on the international stage over the past year, especially with regard to the former. China is a major global producer of both metals, though top producing countries have generally agreed that the problem is global in nature and requires an international solution.

The two sides will now have a 60-day minimum window for holding consultations. By that time, Obama and his administration will have left office, leaving the decision regarding whether the US pursues the establishment of a dispute panel in the hands of incoming President Donald Trump and his trade team.

China’s agriculture support in focus

Last December, the US also asked the Dispute Settlement Body (DSB) to establish a WTO panel to hear its complaint over China’s grain subsidies (DS511).

Washington initiated WTO dispute settlement proceedings in September, claiming that Chinese price support for rice, wheat, and corn exceeded agreed limits from when Beijing joined the WTO. The governmental support programmes allegedly encourage grain production in China, displacing imports and distorting Chinese prices. (See Bridges Weekly, 15 September 2016)

Sources familiar with the meeting told Bridges that Beijing blocked the US panel request and announced its intention to “strongly defend its interests and demonstrate the WTO-consistency of its measures.”

However, outgoing US Agriculture Secretary Tom Vilsack said in a statement that the action against grain price supports in September was only “one piece of the puzzle, and now [the US] must confront China’s improper administration of its TRQs to ensure that [American] grains have… meaningful market access.”

On 15 December, the US also filed a new complaint (DS517) against China’s administration of tariff rate quotas (TRQ) for rice, wheat, and corn imports. TRQs allow for quantities of a product within the quota to be charged with lower import duties than those falling outside the quota.

Washington claims that the administration of the TRQs is non-transparent, unpredictable, and unfair. “Despite lower global prices that favour the importation of grains into China, the TRQs for each commodity persistently do not fill,” said the office of the US Trade Representative. Washington cites WTO provisions on transparency, general elimination of quantitative restrictions, and non-discriminatory administration of quantitative restrictions to support its claims.

Following the launch of the dispute, the two parties must hold consultations for at least 60 days in an effort to resolve their differences. 

Details on China NME cases

Last month, Beijing filed two WTO complaints (DS515 and DS516) against US and EU anti-dumping rules. Both WTO members have treated China as a “non-market economy” in past anti-dumping cases when calculating the normal value of Chinese goods.

“Dumping” in trade jargon refers to the practice of selling goods abroad at prices below their normal value. WTO rules allows a member to impose anti-dumping duties to counter this practice, subject to certain conditions.

Normal value usually refers to the price in the exporting country’s home market. In certain circumstances, WTO’s Anti-Dumping Agreement provides for determining this value in other ways, such as using the export price for a third country market, or constructing it using additional data such as production costs.

WTO anti-dumping rules also recognise the possibility of not comparing the export price strictly with these home market prices in the particular situation of “non-market economies,” with the latter term referring to those countries where there is “a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the state.”

When China joined the WTO in 2001, a special provision on the “price comparability” for determining dumping was included in its accession protocol for a transitional period of 15 years. Pursuant to this provision, if the investigated producer “cannot clearly show that market economy conditions prevail in the industry,” an investigating authority may use alternative options instead of Chinese domestic prices or costs to calculate normal value.

China filed the cases against the US and EU the day after this special provision expired, noting in the case of the former that US anti-dumping law requires its investigating authority to determine normal value of exports of a “non-market economy” on the basis of constructed price in a third country, if the “available information” does not permit a determination of normal value through ordinary methods. China is classified as a “non-market economy” under the US law, said China in its consultations request.

China also complained that current EU anti-dumping law names China as a “non-market economy country” and uses a system for determining normal value on the basis of price or constructed value in a surrogate “market-economy” third country. Under this system, China noted, producers under investigation must show that their manufacturing and sales meet “market economy” criteria as described under EU law in order for EU authorities to use its ordinary methods of calculating normal value.

Beijing argues that the EU and US calculate normal value and dumping margins in a way that violates the General Agreement on Tariffs and Trade (GATT) 1994 and the Anti-Dumping Agreement, resulting in higher anti-dumping duties, and violate WTO non-discrimination obligations. Given that the provision in China’s accession protocol has expired, Beijing claims that it is no longer justifiable to use those calculation methodologies.

Washington officials have since released a statement saying that expiration of the provision does not automatically grant China “market economy” status and that “China has not made the reforms necessary to operate on market principles,” according to Reuters. The European Commission, in turn, has made a proposal in November 2016 to amend the challenged legislation, but this must still go through EU legislative procedures. (See Bridges Weekly, 24 March 2016)

WTO panel: Indonesian import licensing regimes violating trade rules

In May 2014, New Zealand (DS477) and the United States(DS478) launched a dispute against Indonesia alleging the latter had imposed illegal import restrictions and prohibitions on horticultural products, animals, and animal products. A panel was established in May 2015 to hear the complaints.

In its finding published last month, the panel reviewed several measures making up Indonesia’s import licensing regimes, which outlined import approval processes and conditioned agricultural imports on the level of domestic supply.

The panel upheld Washington and Wellington’s claims, and finds that “by virtue of their design, architecture, and revealing structure,” some of the challenged measures constitute restrictions having “a limiting effect on importation” and the others are import prohibition. The panel therefore deemed that Jakarta has violated the GATT provision on eliminating quantitative restrictions.

In this dispute, Jakarta defended its import licencing measures under the GATT’s general exception provisions, while outlining justifications for using otherwise WTO-illegal measures, so long as those measures are “necessary” to address greater public policy goals.

Nonetheless, the panel rejected that defence, saying that there does not appear to be a relationship between those public policy goals and the import measures adopted, among other reasons.

Indonesia-EU panel report released

Another case involving Indonesia (DS442) also saw the release of a panel ruling over the past month. Indonesia had launched the case to challenge an EU anti-dumping investigation and related duties on imported fatty alcohols.

Following a request by two European producers, Brussels began investigating in 2010 whether Indonesian fatty alcohols were sold at a price to Europe lower than the price on home market. Fatty alcohols are an intermediary product sourced from natural fats and oils, used as inputs for household, cleaning, and personal care products.

EU authorities imposed provisional duties on such goods, following these with definitive anti-dumping duties set at €45.63 per tonne for particular Indonesian companies and €80.34 per tonne for some others.

Indonesia filed a WTO complaint in July 2012, claiming the European Union’s anti-dumping measures violated global trade rules. The panel ruling issued last month rejected the majority of Indonesia’s claims, including those related to how EU authorities determined the “export price.” 

Furthermore, during the original investigation, Indonesian companies had claimed that factors such as the 2008 economic crisis, access to raw materials, and price fluctuations contributed to the injury suffered by European industry – arguments which EU investigators rejected. Following Jakarta’s claims, the panel examined Brussels’ injury analysis and considerations, and deemed that the EU acted in line with WTO rules.

The panel did fault Brussels for not meeting its disclosure responsibility in its investigation, as required by WTO rules.

Both sides have 60 days from when the report was circulated to appeal the panel’s findings. Under WTO rules, the Appellate Body can review aspects of law – such as legal interpretation – but generally will not interfere with the factual findings of the original panel.

ICTSD reporting; “China launches WTO complaint against U.S., EU over dumping rules,” REUTERS, 12 December 2016.

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