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TWN Info Service on WTO and Trade Issues (Aug19/06)
20 August 2019
Third World Network

Panels set on sugar & solar cells, US objects to AB report adoption
Published in SUNS #8969 dated 19 August 2019

Geneva, 16 Aug (Kanaga Raja) - The WTO Dispute Settlement Body (DSB) on Thursday agreed to establish dispute panels, at the requests of Brazil, Australia and Guatemala, to examine measures imposed by India in favour of producers of sugarcane and sugar.

This was a second-time request and panels establishment were automatic. The United States, the European Union, Honduras, the Russian Federation, Costa Rica, Colombia, Japan, Thailand, Panama, Canada and China reserved their third party rights to the dispute.

Brazil, Australia and Guatemala also reserved their third party rights in the proceedings of each of the other complainants.

Meanwhile, under a separate agenda item on the Appellate Body (AB) and panel report over countervailing duty measures on certain products from China, the US claimed that the document before the DSB is not a valid AB report, objected to adoption of the document, and did not join a consensus to adopt it.

The DSB, however, adopted the panel report as modified by the Appellate Body, as provided in Art. 17.14 of the DSU - adoption of AB reports and its unconditional acceptance by parties to the dispute (see details below).

In other actions, the DSB also agreed to establish a panel, at the request of China, to rule on a safeguard measure imposed by the US on imports of crystalline silicon photovoltaic cells.

This was also a second-time request and panel establishment was automatic. The European Union, Japan, India, Brazil, the Philippines, Russia, Chinese Taipei, Canada and Malaysia reserved their third party rights to the dispute.

Meanwhile, a request for panel establishment by the EU to examine certain measures imposed by Turkey on the production, importation and marketing of pharmaceutical products was blocked by Turkey at the DSB meeting.

This was a first-time request and panel establishment will be automatic when the request comes up again before the DSB.

AB IMPASSE LINGERS ON

Meanwhile, under a separate agenda item, the US once again blocked the start of a selection process to fill four current vacancies on the Appellate Body (AB), as well as two vacancies that will come about when the second terms of AB members Ujal Singh Bhatia and Thomas Graham expire on 10 December 2019.

The US said that it was not in a position to agree to a joint proposal, introduced by Mexico on behalf of 114 WTO Members, that called for the simultaneous launch of the selection process to fill the four current vacancies as well as the two upcoming vacancies on the seven-member Appellate Body as soon as possible.

(Malaysia endorsed the joint proposal at the DSB meeting, bringing the total number of co-sponsors to 115).

Repeating the same arguments that it had made in previous DSB meetings, the US said that the systemic concerns that it has identified remain unaddressed.

According to trade officials, the European Union, Canada, China, Cuba, Singapore, New Zealand, India, Australia, Brazil, Chinese Taipei, Hong Kong-China, Japan, Malaysia, Norway, Mexico (for itself and the 114 co-sponsors), Korea and Switzerland took the floor to express growing concern over the impasse in the AB selection process.

Several members cited the increasing urgency to find a solution - only 16 weeks are left until the Appellate Body is down to one member - and the need for all members to play an active part in the discussions on overcoming the impasse being facilitated by the DSB chair.

The DSB chair, Ambassador David Walker of New Zealand, said that the matter urgently requires meaningful engagement by all WTO members.

He noted that he had reported to the General Council on 23 July regarding his informal process to overcome the impasse and that his report to members is public.

He also said that his door remained open to delegations for further discussions on the matter.

THREE DISPUTES RAISED AGAINST INDIA

According to trade officials, in their disputes raised against India, the three complainants - Brazil, Australia and Guatemala - have challenged India's domestic support that includes a system of administered mandatory minimum prices for sugarcane and sugar at the federal and state levels as well as production-based subsidies, soft loans, subsidies to maintain stocks of sugar, and tax rebates or exemptions provided at both the federal and state levels.

The three complainants allege that India maintains export subsidies for sugarcane and sugar in the form of subsidies contingent on export through "Minimum Indicative Export Quotas" (MIEQ) or other sugar export incentives.

According to the three complainants, as a result of the domestic support measures, India is in violation of its obligations under the WTO's Agreement on Agriculture as the resulting support exceeds India's "de minimis" level of 10% of the value of production, while the export subsidies are prohibited subsidies under the Subsidies and Countervailing Measures (SCM) Agreement.

According to trade officials, Brazil and Guatemala said they were still hopeful of a solution with India which would address their concerns.

Australia said that it remains seriously concerned about the impact of India's subsidies in contributing to over-supply in the global sugar market.

All three complainants asked India to agree to a single panel to examine their complaints, given the similarity of their claims against the same Indian measures.

According to trade officials, India said that the measures at issue were not having a trade-distorting effect on the global sugar market nor were they affecting the economic interests of the three complainants.

India also said that the measures were consistent with its WTO obligations. The support is intended to provide for, and avoid the over-exploitation of 35 million vulnerable, resource-poor farmers in the country, it added.

India said it could not agree to the establishment of a single panel as the matters were distinct and separate.

CHINA-US DISPUTE OVER SOLAR CELLS

The dispute raised by China against the US concerns the US definitive safeguard measure on imports of certain crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products (including, but not limited to, modules, laminates, panels, and building-integrated materials - CSPV products).

In its communication to the DSB, China said that the US imposed the definitive safeguard measure on imports of crystalline silicon photovoltaic products pursuant to Proclamation 9693 of January 23, 2018 - To Facilitate Positive Adjustment to Competition from Imports of Certain Crystalline Silicon Photovoltaic Cells (Whether or Not Partially or Fully Assembled Into Other Products) and for Other Purposes, 83 Fed. Reg. 3541 (25 January 2018).

This safeguard measure was notified to the WTO on 26 January 2018.

The safeguard measure on CSPV products was based on the United States International Trade Commission (USITC) determination of injury on September 22, 2017 and the report to the President on November 13, 2017 regarding the Investigation No. TA-201-75.

On 27 November 2017, the United States Trade Representative (USTR) subsequently requested that the USITC identify any unforeseen developments that led to the CSPV products at issue being imported into the United States in such increased quantities to cause serious injury.

The USITC's supplemental report was forwarded to the President on 27 December 2017.

According to China, the measure took the form of a tariff-rate quota on imports of solar cells imposed for a period of 4 years, with unchanging in-quota quantities and annual reductions in the rates of duty applicable to goods entered in excess of those quantities in the second, third, and fourth years.

In addition, the measure took the form of an increase in duties on imports of modules, imposed for a period of 4 years with annual reductions in the rates of duty in the second, third, and fourth years. The duty rate for the first year was set at 30%.

Subsequently, on 18 February 2018, USTR established additional procedures for interested parties to request that certain products be excluded from the safeguard measure on CSPV products.

Fifty-three individual exclusion requests were submitted to USTR. As of 8 July 2019, eleven of those exclusion requests had been granted.

Based on the content of the USTR Notice, it appears that all other individual exclusion requests were denied, said China.

China considers that the safeguard measure imposed by the US on CSPV products is inconsistent with the obligations of the United States under the GATT 1994 and the Agreement on Safeguards.

In its statement at the DSB, China said that it does not deny the right of WTO Members to temporarily suspend concessions and take safeguard measures consistent with WTO rules.

However, Chine noted that Article XIX of the GATT 1994 qualifies safeguards as an "emergency action on imports" that must be seen as "extraordinary remedy" subject to specific and strict requirements.

The non-compliance with these requirements impermissibly disrupts the global trade flow as a whole since the measures are applied disregarding the origin of the product, it said.

China reiterated that the US has failed to conform to the most essential conditions that would justify the imposition of safeguard measures on CSPV products.

It said that it is confident that the Panel will also find that the US did not respect many of the procedural guarantees governing the safeguard proceedings.

These defects have resulted in the imposition of safeguard measures that do not constitute relief limited to what is necessary to "prevent or remedy serious injury and facilitate adjustment" in accordance with the obligations under the Safeguards Agreement.

China also expressed surprise at the contention of the US that China's panel request includes a claim not referenced in the request for consultations, though the US did not specify which claim it referred to.

The US said that it imposed a safeguard measure after the competent authority, the US International Trade Commission, determined that increased imports of CSPV products were the substantial cause of serious injury to the domestic industry producing like or similar products.

Accordingly, the US regretted that China has chosen for a second time to request establishment of a panel with regard to this matter.

The US said it is prepared to engage in these proceedings and to explain to the panel that China has no legal basis for its claim.

The US said that in light of China's stated confidence in the claims brought, it would expect China to support, in the context of this dispute, making the panel meetings open to observation by other WTO Members and the public and to making China's submissions publicly available.

The US maintained that China has made publicly available a submission in one recent dispute, European Union - Measures Related to Price Comparison Methodologies (DS516), and the US saw no reason why China would be less transparent in this dispute, challenging a safeguard measure, than in that dispute, challenging anti-dumping measures.

In a second intervention, China said the US has failed to conform to the essential conditions that would justify the imposition of CSPV safeguard measures.

In particular, said China, the US did not provide a reasoned and adequate explanation for its determinations, and did not adequately justify its finding of an increase in imports that resulted from "unforseen developments".

The US also failed to adequately justify its finding that imports "caused or threatened to cause" serious injury to the domestic industry.

In addition to these substantive problems, the US has violated procedural requirements that guarantee the legitimacy of the safeguard proceedings, said China.

US OBJECTION TO AB REPORT ADOPTION

Under a separate agenda item, WTO members formally adopted the panel ruling, as amended by the Appellate Body, in dispute "United States - Countervailing Duty Measures on Certain Products from China" (DS437).

In a ruling issued on 16 July, the Appellate Body had upheld the findings of a compliance panel report that had concluded that the United States had not fully complied with an earlier WTO ruling concerning countervailing duties imposed by the US on a range of Chinese goods.

The AB had recommended that the DSB request the United States to bring its measures found in its report, and in the panel report as modified by the AB's report, to be inconsistent with its obligations under the SCM (Subsidies and Countervailing Measures) Agreement, into conformity with that Agreement.

In the AB report, one member of the three-member AB division bench had provided a separate opinion that addressed the findings concerning the issues of public body, benefit and specificity (see SUNS #8949 dated 18 July 2019).

At the DSB meeting on Thursday, both China and the US made long statements on the AB rulings.

China expressed disappointment with various aspects of the AB ruling, in particular with regard to the AB's interpretation of the term "public body" under the WTO subsidy rules.

China was of the view that the Panel and Appellate Body's "sweeping interpretation" as to what entity can be considered a "public body" for the application of duties is "dumbfounding" to China.

In China's view, it confounds the entire purpose of the inquiry to attribute conduct to a WTO Member even when that conduct is un-related to any government authority with which an entity has been vested.

China also commented on the findings of the Panel and AB as they relate to the US Department of Commerce's use of non-Chinese benchmarks to evaluate the adequacy of remuneration under Article 14(d) of the SCM Agreement; and the issue of specificity under Article 2.1(c) of the SCM Agreement.

China went on to say that it hoped that its remarks have made clear that the US does not have a monopoly on dissatisfaction with AB reports.

Any member that is active in dispute settlement has received an AB report with which it disagrees, sometimes strongly.

Today's report is such a report for China, at least with respect to the public body issue.

Where the US does appear to have a monopoly is in thinking that an adverse AB report means that the AB has somehow exceeded its authority under the DSU.

China said that it does not think that. It believes that Members should work together to ensure that this vitally important system keeps working.

As for the specific dispute, the recommendations and rulings that are being adopted today make clear that the US Department of Commerce (USDOC) should cease its practice of countervailing alleged "input subsidies" in investigations of Chinese products.

These countervailing duty determinations are, at a minimum, based on unlawful approaches to the evaluation of benefit and specificity, said China.

China said once these errors are corrected there is no basis in law or fact to conclude that the manufacturers of the products under investigation received inputs for less than adequate remuneration pursuant to a subsidy programme that is limited to certain enterprises.

While the recommendations and rulings relate only to the specific countervailing duty investigations at issue, China called upon the US to reform its countervailing duty practices more generally to conform to these rulings, with respect to investigations of both Chinese products and those of other Members.

The USDOC's abuses of Article 14(d), in particular, have gone on for far too long. Especially at a time when the resources of the DSB are under strain, Members should not be forced to keep returning to the DSB to ensure that the US adheres to its commitments under the SCM Agreement, said China.

According to trade officials, the US also made a long statement criticising the findings of the Panel and the AB on the key issues of interpretation of "public body", use of benchmarks for determining adequate remuneration, and whether the subsidies in question were specific to certain Chinese producers.

On all these issues, the US referred to the dissenting opinion issued by one of the three AB members that questioned the majority's findings on these three key issues.

According to the US, the three issues on appeal involved the compliance Panel's findings on (1) public body, (2) third-country benchmarks and market distortion, and (3) de facto specificity.

On the issue of public body, the US said that although the AB report recognizes that Commerce has proved through an exhaustive analysis that China uses state-owned enterprises (SOEs) to subsidize and distort its economy, the report has repeated an unclear and inaccurate statement of the criteria for determining whether an entity is a public body.

Rather than clarify how that approach is mistaken, the appellate report continues to endorse an approach that is nowhere reflected in the text of the Subsidies Agreement. The result is to significantly limit the ability of governments to effectively combat unfairly subsidized imports.

On the issue of out-of-country benchmarks and market distortion, the US said that the AB report found that, notwithstanding that China uses SOEs to subsidize and distort its economy, Commerce must use distorted Chinese prices to measure subsidies, unless Commerce provides even more analysis than the hundreds of pages in these investigations.

This conclusion ignores the findings of the World Bank, OECD working papers, economic surveys, and other objective evidence, all cited by Commerce in the determinations at issue.

On the issue of de facto specificity, the report proceeded to find that evidence of a "systematic series of actions" is required and agreed with the compliance Panel that Commerce had not adequately explained the "systematic" nature of subsidies at issue.

Yet none of these so-called requirements is reflected in the Subsidies Agreement, said the US.

On each of these three issues, the dissent strongly criticized the findings as, among other things, reflecting a fundamental misunderstanding of the Subsidies Agreement, exceeding the mandate of the Appellate Body to review issues of law covered in the panel report, and articulating an incoherent legal standard that is not in accordance with the ordinary principles of treaty interpretation, it added.

Through the interpretations applied in this proceeding, based primarily on erroneous approaches by the Appellate Body in past reports, the WTO dispute settlement system is weakening the ability of WTO Members to use WTO tools to discipline injurious subsidies, the US maintained.

The Subsidies Agreement is not meant to provide cover for, and render untouchable, one Member's policy of providing massive subsidies to its industries through a complex web of laws, regulations, policies, and industrial plans.

Finding that the kinds of subsidies at issue in this dispute cannot be addressed using existing WTO remedies, such as countervailing duties, calls into question the usefulness of the WTO to help WTO Members address the most urgent economic problems in today's world economy, it said.

The US also viewed the document before the DSB today as not a valid Appellate Body report and objected to its adoption.

In this context, it raised two systemic concerns. The first concern regards the service on this appeal of an ex- Appellate Body member whose term had expired on September 30, 2018.

The DSB had taken no action to permit him to continue to serve as an Appellate Body member. Therefore, he was not an Appellate Body member on the date of circulation of this document, said the US.

As the United States has explained with respect to prior reports for appeals on which an ex-Appellate Body member served, under these circumstances, the AB "report" has not been provided and circulated on behalf of three Appellate Body members, as required under DSU Article 17.1, it said.

In fact, given that the two valid Appellate Body members may have voted in opposite ways on the issues of public body, benchmark, and specificity, there may not even be a "majority" view in the document, only two separate opinions, it said.

With regard to the second systemic concern, the US said mandatory language in Article 17.5 of the DSU states: "In no case shall the proceedings exceed 90 days."

And that provision specifically states that "the proceedings" encompass "the date the Appellate Body circulates its report."

The Appellate Body notified the DSB through a letter dated June 26, 2018, that it would not be able to complete its report within 60 days. The letter went on to state that it would not be possible for the Appellate Body to circulate a report within the 90-day timeframe required by Article 17.5. And, in fact, 446 days passed between the date of the Notice of Appeal in this dispute and circulation of the document as a purported Appellate Body report.

As the document has not been issued by three Appellate Body members and was not issued within 90 days, consistent with the requirements of Article 17 of the DSU, it is not an "Appellate Body report" under Article 17, and therefore it is not subject to the adoption procedures reflected in Article 17.14.

Rather, the DSB should consider its adoption subject to the positive consensus rule applicable to DSB decisions, pursuant to DSU Article 2.4 and WTO Agreement Article IX:1, note 3, said the US.

According to trade officials, several members then took the floor to comment on the separate opinion in the Appellate Body report and the US statement.

China said that it respects the right of individual members of the AB to provide separate opinion. It is, however, the majority opinion that provides the basis for the recommendations and rulings of the DSB.

China stressed that the report before the members is an AB report which shall be adopted under the negative consensus rule set out in Article 17.14 of the DSU.

Today, there is no consensus among Members to not to adopt this AB report. Therefore, this AB report shall be adopted in accordance with Article 17.14 of the DSU.

Any suggestion to derogate the application of the negative consensus rule or impose pre-condition to it is without legal merit, it said.

According to trade officials, the European Union, Canada and Australia also said the report should be adopted in line with Article 17.14 of the DSU.

The EU and Canada also expressed additional concerns about the separate opinion in the Appellate Body report.

The EU said that while separate opinions were allowed, they should be exercised with respect to the integrity of the Appellate Body's collegial institution and that disagreements should be expressed in a more "sober" manner.

The DSB adopted the panel report as modified by the Appellate Body.

In a second intervention, the US said that it has described serious substantive concerns, including erroneous interpretations of "public body", out-of-country benchmark, and specificity; diminishing US rights and adding to US obligations; engaging in fact-finding; and treating prior reports as "precedent."

Given these concerns, the US does not endorse the findings set out in the document circulated as a purported Appellate Body report.

Nor can the United States support an ex-Appellate Body member's continuation of service without authorization by the DSB, or a failure to adhere to the deadline in Article 17.5, it said.

Accordingly, the US said it reiterates its view that the document before the DSB today is not a valid Appellate Body report, objects to adoption of the document, and does not join a consensus to adopt it.

In response, the EU reminded members that the DSB has adopted the report, and that therefore subsequent adjudicators in the dispute, including arbitrators, will work on the basis that the Appellate Body report was adopted and unconditionally accepted by the parties.

The adjudicators will also reject any attempt by any party to frustrate their work by saying the member objected to the adoption of the report, it said.

 


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