Disputes Roundup: Compliance in Focus for Tuna, Chicken Cases

23 June 2016

A WTO panel is set to review whether China has changed its policies enough to comply with global trade rules in a dispute with the US on “broiler chicken” products, with the issue of compliance also resurfacing in a separate dispute between the US and Mexico on “dolphin-safe” tuna labelling.

The organisation’s Dispute Settlement Body (DSB) also heard on Wednesday a first request by Canada for a panel to review whether certain US duties on glossy paper are in line with global trade rules, which was blocked by Washington.

Compliance panel established in chicken duties dispute

The case between the US and China over duties imposed by the latter on imported chicken products (DS427) has now advanced to the compliance stage, with a panel being established during Wednesday’s DSB meeting in response to a US request. (See Bridges Weekly, 12 May 2016)

The panel is set to review Washington’s claims that Beijing has not complied with a 2013 ruling. The original case saw the US – which is the world’s top producer of poultry – challenge certain anti-dumping and countervailing duties that China had applied in 2010 on broiler chicken imports, which include any chicken that is not live, cooked, or canned.

The anti-dumping duties ranged between 50.3 to 105.4 percent, while the countervailing ones were between four and 30.3 percent.

Anti-dumping duties may be imposed if it is established that goods are sold in the importing market at prices below their normal value, harming that country’s domestic industry – a practice known as “dumping.” Countervailing duties aim at tackling unfair government support to companies.

Washington’s original complaint concerned both procedural aspects of the Chinese Ministry of Commerce’s (MOFCOM) investigation which led to the imposition of those duties, as well as certain substantive determinations. The US challenged the duties on the basis of the WTO’s Anti-Dumping Agreement, the Subsidies and Countervailing Measures (SCM) Agreement and the General Agreement on Tariffs and Trade (GATT) 1994.

In August 2013, a panel upheld most of the US’ claims, with the report adopted by the DSB in September of that year. (See Bridges Weekly, 5 September 2013) The two parties later agreed that China would have until 9 July 2014 to bring its measures into compliance.

China held a reinvestigation in 2014 and lowered the anti-dumping duties on certain US firms to 46.6 to 73.8 percent and the countervailing duties to four to 4.2 percent. However, US officials argue that the continued duties remain in violation of global trade rules, making it harder for its own poultry farmers to compete.

In its request, the US argues that the Chinese analyses of the alleged price effects of the imports and their impact on the domestic industry were not based on positive evidence, while the determination of the injury caused therein was based on MOFCOM’s “flawed price and impact analysis,” among other concerns.

Moreover, the US takes issue with certain procedural aspects of the investigation procedure, claiming that MOFCOM did not observe the provisions of the Anti-Dumping and SCM Agreements relating to participation of interested parties, the confidentiality of relevant information, and the provision of information regarding the essential facts under consideration and the reasons which led to the imposition of the final duties.

Finally, Washington is challenging MOFCOM’s calculation of production costs for US producers, which allegedly did not occur on the basis of the producers’ records as required by the Anti-Dumping Agreement. It also says that the anti-dumping duties applied on certain imports are above the level permitted by the Anti-Dumping Agreement.

Although consultations were held between the two trading partners on 24 May, following the US’ request late last month, the above concerns expressed by Washington were not resolved.

According to an agreement between the two members on the compliance procedures to be followed, the US had the right to request the establishment of a panel at any time after the expiry of the agreed 15-day consultations period, and China had agreed to accept it at the first DSB meeting in which the item would appear on the agenda.

Tuna dispute: another compliance panel

Wednesday’s DSB meeting also saw Mexico formally request its own compliance panel over whether the US’ latest changes to its “dolphin-safe” tuna labelling policy are in line with WTO rules (DS381).

The US did not reject the request, citing an interest in avoiding further delays, meaning the panel will go forward. Mexico had previously requested compliance consultations with the US in May, with the two sides holding talks earlier this month. (See Bridges Weekly, 25 May 2016)

The development comes one month after a compliance panel was already established following two requests by the US. (See Bridges Weekly, 12 May 2016). That panel was constituted on 27 May.

Mexico reportedly asked that the same members serve on both compliance panels, with these operating on a harmonised timeframe, sources said.

Meanwhile, arbitration proceedings are already underway to determine the level of concessions that Mexico may suspend annually against the US, after a compliance panel had found that an earlier 2013 attempt to revise the US policy did not meet Washington’s WTO obligations. (See Bridges Weekly, 28 April 2016, 24 March 2016, and 1 December 2015) The arbitrator composed almost two months ago is served by the same members who will conduct the new compliance review.

The interim rule issued in March 2016 by the US National Oceanic and Atmospheric Administration (NOAA) introduced certain regulations implementing the Dolphin Protection Consumer Information Act and amending, among other provisions, the certification standards for “dolphin-safe” tuna labelling. (See Bridges Weekly 24 March 2016)

Mexico claims that the US has not brought its policy in line with the DSB’s recommendations and rulings and that this new measure is inconsistent with WTO rules, citing the most-favoured-nation (MFN) treatment and national treatment provisions of the Agreement on Technical Barriers to Trade (TBT Agreement) and the General Agreement on Tariffs and Trade.

According to Mexico, the “2016 Tuna Measure,” which consists of the interim rule and other allegedly unchanged parts of 2013 tuna measure, among other instruments, continues to accord to its tuna and tuna products with treatment less favourable than that accorded to similar products originating in the US or elsewhere.

In its compliance panel establishment request in April, the US argued that 2016 Interim Final Rule, “among other changes, revises the design of the determination provisions and certification, tracking, and verification requirements such that any detrimental impact stems exclusively from legitimate regulatory distinctions.”

The US had highlighted that the two parties disagreed on the WTO-consistency of the 2016 Rule, and therefore Washington was asking for a compliance panel to examine the issue.

The spat between the two North American members dates back to 2008, with the WTO’s Appellate Body confirming in 2012 that the “dolphin-safe” tuna labelling was unfairly discriminating against imported tuna and tuna products from Mexico, thus being inconsistent with trade rules. (See Bridges Weekly, 16 May 2012)

Canada requests panel in paper dispute

On 9 June, Canada circulated a request to establish a panel (DS505) on issues related to US countervailing measures on imported “supercalendered” paper – a type of glossy paper commonly used in magazines and catalogues.

Canada’s request follows consultations held on 4 May where the parties were unable to reach an agreement.  (See Bridges Weekly, 14 April 2016)

At issue in the case are countervailing duties imposed by the US on these imports, following an investigation launched in March 2015 in response to a petition from the US-based Coalition of Fair Paper Importers.

In 2014, imports of supercalendered paper from Canada were valued at an estimated US$868.4 million. The duties ultimately agreed by US investigating authorities ranged between 17.87 and 20.18 percent – affecting almost C$1 billion in annual exports of the product, according to a CBC News report.

Canada has raised a series of substantive and procedural aspects of the US countervailing measures, arguing that these violate the General Agreement on Tariffs and Trade 1994 and the Agreement on Subsidies and Countervailing Measures.

Under the SCM Agreement, a subsidy is a government financial contribution, or income or price support, which confers a benefit and is specific to an enterprise or industry. 

Canada said that the United States mistakenly found that a Canadian power company was directed by the Government of Nova Scotia to sell electricity to a paper company at less than was due, thus giving a financial contribution and related benefit.

According to Canada, the US also failed to find which company was the “right recipient” of certain financial contributions and benefits, leading to mistakes in later imposing and collecting the duties.

Canada also alleged that the US improperly launched the probes based on insufficient evidence, along with raising due process concerns and other procedural issues. Other claims included certain aspects of “expedited reviews” for two Canadian paper companies, along with the US’ allegedly “improper” use of adverse facts available either as “ongoing conduct” or “a rule or norm of general and prospective application” to invalidate information “discovered” during an investigation.

Under WTO rules, respondents in a dispute are allowed to reject a first panel request; should Canada table a second request, a panel will automatically be established.

AB appointments pending, DS proposal

Meanwhile, the issue of how to resolve two open slots on the WTO’s Appellate Body – the organisation’s highest court – continues unresolved, sources confirmed.

Consultations to date reportedly suggested that members will need to consider the two vacancies jointly, sources said. While one slot is open following the US’ move to block the re-appointment of Seung Wha Chang – a move that was lambasted by various other WTO members, citing systemic concerns – the other is to fill a slot following the end of Yuejio Zhang’s second and final Appellate Body term. (See Bridges Weekly, 25 May 2016)

Xavier Carim, the South African ambassador who chairs the DSB, told member that he hopes the matter can be resolved for the next meeting of the group in late July.

Separately, Canada tabled a series of “room documents” outlining proposals for members to help improve the functioning of disputes at the WTO, particularly in light of the growing number and complexity of cases, which take several years to advance.

If these proposals move forward, Canada suggested, these could apply first to interested members, with a view to possibly getting all WTO members on board in the future.

ICTSD reporting; “U.S. seeks WTO dispute panel in chicken dispute with China,” REUTERS, 27 May 2016; “Canada launches WTO complaint against U.S. on glossy paper duties,” REUTERS, 31 March 2016; “Ottawa seeks WTO ruling on U.S. duties on Canadian paper,” CBC NEWS, 30 March 2016.

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