WTO Dispute Roundup: Panels Created on Seals, China

30 March 2011

WTO members last week established four panels to adjudicate disputes, two concerning import bans on seal products, one over Chinese measures on credit cards, and one concerning Chinese anti-dumping duties imposed on US steel. At the same 25 March meeting of the WTO Dispute Settlement Body, they adopted an Appellate Body ruling against US anti-dumping and countervailing duties levied on certain Chinese imports. Members also heard from China on its efforts to comply with a WTO panel ruling against its restrictions on copyrighted goods such as books, DVDs, and music.

The DSB, which meets roughly once a month, is composed of diplomats representing all WTO members. It has the authority to establish panels to adjudicate disputes, adopt panel and Appellate Body reports, assess whether members are implementing rulings, and authorise retaliatory measures when they are not.

Panels established in seal products case

Dispute panels were formally established to investigate whether an EU regulation banning imports of seal products complies with WTO rules, in a case that has received attention disproportionate to the modest commercial value at stake.

Canada initiated dispute proceedings in November 2009; and sought the creation of a panel in February of this year, after consultations failed to yield a resolution (WT/DS400/4). The EU rejected the first request, but, as per WTO rules, could not do so a second time.  The EU ban on seal products is based on arguments that seal harvesting practices from commercial operations - like those in Canada - are "inherently cruel" and "inhumane." But Canada strongly rejects that rationale, arguing that seal harvesting in Canada is done humanely and that its sealing practices are "safe, sustainable, and economically legitimate."

Canada has also made a separate request for the establishment of a panel against Belgium's and the Netherlands' more stringent national-level bans on seal products (WT/DS369/2).  However, the Belgian and Dutch governments are in the process of repealing their laws so that they are limited to implementing the EU regulation, at which point Canada would be expected to drop its additional claims against the two countries' measures, EU officials said.

Norway, too, requested the establishment of a panel to decide the legality of the EU's ban on seal products, but the EU was able to block it, as the request was Norway's first (WT/DS401/5).  Norway said that none of the species hunted were endangered, and none were listed by CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora).  It added that such a ban infringes on WTO members' right to trade in marine resources harvested in a sustainable manner.

Two panels to investigate Chinese policies

Panels have been established in two separate WTO cases pitting the US against China, after Washington made its second request in both disputes.

One case (WT/DS414/2) involves anti-dumping duties imposed by China on US steel imports, specifically "grain-oriented flat-rolled electric" steel which is used by the power generating industry in transformers and other large electric machines.  The US is particularly concerned with the way in which China conducted its anti-dumping investigations, arguing that Beijing failed to provide adequate details about its findings and conclusions.  The US said there were profound procedural and substantive deficiencies in the investigation in violation of WTO rules.

The other case (WT/DS413/2) concerns China's credit card market, and what Washington claims is a monopoly for supplying electronic payment services for one Chinese company, China UnionPay, in violation of Chinese commitments under the General Agreement on Trade in Services (GATS).

In each case, China countered that it consistently followed its WTO obligations and would vigorously defend its measures before dispute settlement panels.

China: "Tremendous efforts" to comply with copyright ruling

As for its compliance with a 2009 WTO ruling against restrictions on copyrighted goods such as books, DVDs, and music, China told the DSB that it had complied with "most measures at issue" in the case. The US disagrees and is considering whether to impose sanctions.

In the case, the US argued that Beijing's requirements for copyrighted publications and audiovisual products - books, journals, video games, music, DVDs and the like - to be imported and distributed via a handful of state-approved or state-run middlemen violated China's WTO commitments and encouraged the already rampant piracy that severely hampered the ability of US producers of such products to make money in China.

China lost an Appellate Body ruling in December 2009 and the parties agreed that China would implement the decision by 19 March 2011.

"China made tremendous efforts to implement the DSB's rulings and recommendations and so far has completed amendments to most measures at issue," it said in a statement during last Friday's meeting. China added that it "hoped that this would fully demonstrate its sincerity to implement the rulings."

The US, on the other hand, said it is "troubled by the lack of any apparent progress by China in bringing its measures relating to films for theatrical release into compliance with DSB recommendations and rulings." The US added that it "also has significant concerns about the incomplete progress relative to China's measures relating to audio visual home entertainment products, reading materials and sound recordings."

The US then informed the DSB membership that it has begun discussions with China about the possibility of requesting authorization to impose sanctions against China for failing to comply with the ruling.

AB report favouring China over US adopted

In a move that was largely a formality, the DSB meeting adopted the Appellate Body's 11 March ruling that backed China in its case (WT/DS379/AB/R) against US anti-dumping and countervailing duties imposed on several types of Chinese steel pipes, off-road tyres and woven sacks. The Appellate Body overturned US victories at the panel level.

The DSB's formal adoption of the Appellate Body ruling, which could only have been blocked by consensus among all of the WTO's 153 members - including China, the victor - means that the US must now bring its practices into conformity with the AB's findings or possibly face retaliatory sanctions from Beijing.

As recently reported in Bridges, appellate judges in the case determined that the US had acted inconsistently with WTO rules by simultaneously imposing both countervailing duties, or duties used to combat illegal subsidies, and anti-dumping duties, or duties imposed to punish the practice of selling goods in foreign markets below cost, without having assessed whether the two duties amounted to "double remedies."

The AB also restricted the definition of "public body" under the subsidy agreement, which sets out the guidelines for determining whether a subsidy in contravention of WTO rules exists.  The US had argued that a public body exists when the government is the majority owner of that entity thereby controlling it.  The AB, on the other hand, said that a public body is one vested with governmental authority and performing a governmental function.  The new ruling therefore makes it more difficult for the US to classify state-owned enterprises in China as public bodies subsidised by the government and subject to countervailing duties.

ICTSD reporting.

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