China loses landmark WTO dispute against the European Union
China spent four years fighting for market-economy status, a designation that would give it stronger footing with commercial partners while also curtailing their ability to retaliate over trade disputes. This week, China quietly lost that battle.
On 12 December 2016, China requested consultations with the European Union concerning certain provisions of the EU regulation pertaining to the determination of normal value for “non-market economy” countries in anti-dumping proceedings involving products from China.
When China acceded to the WTO, China and other WTO Members agreed that, for a transitional period of 15 years, China-specific treaty provisions would apply to the determination by other Members of certain elements of "price comparability" in anti-dumping proceedings involving Chinese imports. Specifically, under paragraph 15(a)(ii) of the Protocol on the Accession of the People’s Republic of China, importing WTO Members were, subject to certain conditions, exceptionally permitted to use a methodology not based on a strict comparison with domestic prices or costs in China. Paragraph 15(d) provides that "[i]n any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession", namely, on 11 December 2016.
Accordingly, from that date, the WTO rules that govern the determination by WTO Members of all elements of price comparability now apply to imports from China. However, the European Union continues to determine normal value on the basis of a special calculation methodology unless the producer establishes that it meets certain criteria, as set forth below. Thus, China argued that the European Union is in violation of its international obligations.
Specifically, China claimed that the measures by the EU appeared to be inconsistent with:
- Articles 2.1 and 2.2 of the Agreement on Implementation of Article VI of the GATT 1994 (the Anti-Dumping Agreement); and
- Articles I:1 and VI:1 of the General Agreement on Tariffs and Trade (GATT 1994).
Panel and Appellate Body proceedings
On 9 March 2017, China requested the establishment of a Panel in accordance with Article 6 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). The Panel was established by the DSU at its meeting on 3 April 2017, and was formally composed on 10 July 2017. Australia, Bahrain, Brazil, Canada, Colombia, Ecuador, India, Indonesia, Japan, Kazakhstan, Korea, Mexico, Norway, the Russian Federation, Saudi Arabia, Chinese Taipei, Tajikistan, Turkey, the United Arab Emirates and the United States reserved their rights to participate in the Panel proceedings as third parties.
On 8 December 2017, the Chair of the Panel informed the DSB that the beginning of the Panel’s work had been delayed as a result of a lack of available lawyers in the Secretariat. The Panel also informed the DSB that it expected to issue its final report to the parties not before the second half of 2018. On 26 November 2018, however, the Chair of the Panel informed the DSB that in the light of the complexity of the legal issues covered in this dispute, the Panel only expected to issue its final report to the parties during the second quarter of 2019.
On 7 May 2019, China requested the panel to suspend its proceedings in accordance with Article 12.12 of the DSU. On 21 May 2019, the European Union commented on China’s request; on 23 May 2019, China responded to the EU’s comments. On 14 June 2019, the Panel informed the DSB of its decision to grant China’s request and suspend its work. In its communication, the Panel noted that pursuant to Article 12.12 of the DSU, the authority of the Panel shall lapse after 12 months of the suspension of its work.
Since the Panel has not been requested to resume its work, pursuant to Article 12.12 of the DSU, the authority for establishment of the Panel lapsed as of 15 June 2020. By ending the dispute, China now provides the EU with greater legal certainty to combat low-price Chinese exports with artificially high tariffs.
According to Bloomberg: "The resolution is a major setback for China as the EU steps up efforts to limit its expansionist practices into the continent. On the same day that China allowed the dispute to lapse, the EU announced an unprecedented attempt to block Beijing’s subsidies to exporters. The 27-nation bloc will also unveil a proposal this week to protect European companies from Chinese takeovers."