TWN Info Service on WTO and Trade Issues (Jul17/13)
21 July 2017
Third World Network
      
US again refuses to engage on issue of trade remedies
Published in SUNS #8504 dated 18 July 2017

Geneva, 17 Jul (Kanaga Raja) - An informal meeting of the WTO Negotiating Group on Rules on 14 July once again heard the United States categorically stating that it was not prepared to engage in negotiations on the issue of trade remedies, including on the issues highlighted by China in its proposal on enhancing transparency and due process in anti-dumping (AD) and countervailing (CV) proceedings.

At a Rules Group meeting on 31 May, the US had rejected outright a proposal by China for advancing the negotiations aimed at further clarifying and strengthening the rules on AD and CV measures (see SUNS #8474 dated 2 June 2017).

At the Rules Group meeting on 14 July, dedicated to the issue of trade remedies and horizontal subsidies, China presented a paper that follows up on its earlier proposal (TN/RL/GEN/185) that was discussed at the Rules Group meeting on 31 May.

The informal open-ended meeting of the Rules Group on 14 July also discussed a proposal from the European Union on improving disciplines on subsidies notifications (see below).

FOLLOW-UP PROPOSAL FROM CHINA

In its follow-up paper on enhancing transparency and due process in anti-dumping (AD) and countervailing (CV) proceedings (TN/RL/GEN/190), China said that transparency and due process in AD and CVD proceedings are vital for interested parties on both sides to effectively defend their rights and interests, and for investigating authorities to make fair and impartial determinations.

China said as transparency and due process are among the important and "do-able" subjects that have received in-depth discussions in previous negotiations with a relatively high level of convergence and good groundwork, and have also attracted much interest of the Members, it hereby submits this proposal on enhancing transparency and strengthening due process.

According to China, its follow-up paper has further clarified China's suggestions contained in the proposal TN/RL/GEN/185 on this subject, based mainly on the Chair's consolidated text of 2011 (TN/RL/W/254) with adjustments that, inter alia, address concerns raised by Members, particularly the developing Members, on the potential burden that may be caused to their investigating authorities.

China's earlier proposal had outlined the following aspects for further discussion and negotiation: (1) Enhancing transparency and strengthening due process; (2) Preventing AD measures from becoming "permanent"; (3) Preventing AD measures from "overreaching"; (4) Special consideration and treatment of SMEs [small and medium-sized enterprises]; (5) Transplanting similar provisions from ADA to ASCM.

Its follow-up proposal, however, focuses only on the issues of transparency and due process, and proposes amendments to the Anti-Dumping Agreement (ADA) and the Agreement on Subsidies and Countervailing Measures (ASCM).

In its follow-up paper, on the issue of transparency and due process in AD proceedings, China has outlined the following elements: petitioner's standing (ADA Article 5.4); notice before initiation (ADA Article 5.5 and Article 6.1.3); access to information (ADA Article 6.4, Article 6.5.1); and disclosure (ADA Article 6.9).

According to trade officials, China has proposed that the initiation of AD investigations only be allowed if the petition has the support of the domestic industry affected. This would specifically rule out investigations being initiated based on petitions from labour unions or employees of producers.

On transparency and due process in CVD proceedings, the Chinese paper said that it is well known that the government of the exporting Member is a party responding to countervailing investigations, and is obliged to provide a large amount of detailed information on government and national economic policies related to the alleged subsidy programs.

Therefore, said China, a "hair-trigger" initiation of countervailing proceedings may result in substantial and even unconscionably heavy burden on the government of the exporting Member.

China noted that in the current Article 11.2(iii) and Article 11.3 of the ASCM, the evidentiary standards for subsidy allegations are ambiguous and without clear instructions.

China holds that the evidentiary standards should be further clarified in order to improve the initiation standards and practices of Members, increase transparency of the process and better protect the legitimate rights of exporting Members.

The evidence laid out by petitioners for subsidy allegations must be sufficient to demonstrate such basic elements of the subsidy in question as financial contribution, specificity and benefits.

The Chinese paper said: "And the investigating authorities shall proceed with the initiation of the proceedings only with accurate and adequate evidence, so as to satisfy the requirements of due process without adding to the burden on the respondent government or unnecessarily encouraging petitioners to make hearsay or unfounded subsidy allegations."

At the Rules Group meeting, China said that its proposal was in response to the increasing challenges facing the multilateral trading system through the increased use of AD and CV measures as well as the increasing number of disputes regarding the use of such measures.

China said it recognized some hesitancy among the membership to engage in negotiations on trade remedies at this time.

It however said that it was looking to MC11 (eleventh ministerial conference in Buenos Aires this December) and beyond and that, in line with a famous Chinese saying, a journey of a thousand kilometres begins with a single step.

According to trade officials, to avoid any unnecessary misunderstandings, China said that it had no intention of linking the AD/CV negotiations with other issues.

It hoped this clarification would dispel the misgivings of some members and encourage them to engage further in discussions on AD and CV measures.

According to trade officials, the US once again said that there was no common basis from which the Negotiating Group on Rules can constructively engage on the issue of trade remedies.

The US said it would not engage in talks on any of the items China has proposed for starting points for further discussion.

Effective trade remedies are needed more than ever to address issues such as the "historic" overcapacity crisis in key industrial sectors, a situation attributable to the non-market, non-transparent policies and distortive trade practices of one WTO member, the US maintained.

According to trade officials, Australia questioned the assertion made by China that the Chair's consolidated text of 2011 reflects a "certain degree of convergence" among members on AD/CV issues.

The EU highlighted that the paper touches upon procedural rather than transparency issues.

Both Canada and India welcomed China's decision to exclude more controversial issues from its new proposal, such as stricter disciplines on sunset reviews or anti-circumvention investigations.

According to trade officials, Korea, Singapore, Norway and Hong Kong-China were generally more supportive of China's proposal and the idea of using the Chair's 2011 text as a basis for further negotiations.

Brazil however voiced doubts about the feasibility of achieving anything on trade remedies at MC11. In its view, the talks on fisheries subsidies were more likely to bear fruit in Buenos Aires.

Turkey, EU, South Africa, Chinese Taipei and the Russian Federation voiced concerns over China's proposal requiring non-confidential summaries of an application for an AD investigation to be collected and provided to exporters before a decision is made to launch an AD investigation, and setting down what some viewed as excessively short deadlines for providing this information as well as disclosure of essential facts in an investigation.

There was also general concern over China's proposal that "accurate and adequate evidence" be provided by petitioners for CV duties that an alleged subsidy actually exists.

Canada said that this would place an "unrealistic burden" on domestic firms harmed by the subsidy practices of others.

Japan said it would make it difficult for petitioners to file applications for relief.

Australia said that allowing CV investigations to be blocked because of the non-transparent subsidy practices of others was "inherently unfair" to its industries.

According to trade officials, the EU, Singapore, and Norway welcomed assurances made by China that it was not linking an outcome on trade remedies with an outcome on fisheries subsidies.

China said that it was glad to see that transparency and due process were important topics for members.

On the Chair's 2011 text, China said that tremendous effort was made in producing that text, which "still reflects a kind of consensus."

It said that work on these issues should not start from zero.

PROPOSAL BY THE EU

In its proposal on improving disciplines on subsidies notifications (TN/RL/GEN/188), the EU noted that Article 25 of the SCM Agreement requires Members to notify subsidies, and that this requirement is a fundamental element to ensure the correct functioning of the SCM Agreement.

The objective of Article 25 of the SCM Agreement is to ensure transparency in the subsidies provided by Members so as to allow Members to review each other's actions in this regard.

Unfortunately, said the EU, the level of compliance by WTO Members with this requirement has deteriorated significantly since 1995 as the share of Members that notified subsidies decreased from 50% to 38%.

As regards the latest notification cycle, namely for 2015, out of the membership of 162, a mere 62 Members notified subsidies despite the obligation to do so by 30 June 2015.

Equally worrying is the fact that, while notifications are required for subsidy programs implemented at both the central and sub-central levels of government, some Members do not notify sub-central subsidy programs at all or these notifications are inadequate.

In addition, said the EU, the quality of actual notifications, including the attempts by some Members to notify subsidy programs that clearly fall outside the scope of the SCM Agreement to create the appearance of transparency without subjecting actual industrial subsidies to global scrutiny, also deserves attention.

It is therefore imperative to continue working towards ensuring that all Members abide by their obligations in this regard to allow full transparency in respect of subsidies being granted worldwide at all levels of government and to understand the impact that such subsidies might have on international trade in goods, the EU added.

According to the EU, one of the options to improve transparency under the SCM Agreement identified by the EU in its paper TN/RL/W/260 (of 16 July 2015) was streamlined monitoring of compliance with notification obligations consisting of a greater involvement by the WTO Secretariat.

It is important to note that this system would not increase the notification burden of Members granting subsidies and that it would not require any changes to the SCM Agreement.

Yet, if put in practice, it may considerably improve the "deplorable" level of subsidies notifications, said the EU.

The EU said it would like to explain the practicalities of such a system at a dedicated session of the Rules Group.

Other ways to improve compliance with notification obligations by WTO Members identified in the EU paper TN/RL/W/260 were incentives to notify which would require strengthening the disciplines of the SCM Agreement.

One option might be creation of a general rebuttable presumption according to which all non-notified subsidies would be presumed to be actionable.

This would require an amendment of Article 25.7 of the SCM Agreement in that where a subsidy has not been notified under Article 25, such subsidy would be presumed to be causing serious prejudice to the interest of other Members within the meaning of Article 6.

It would then be for the subsidizing Member to demonstrate that the subsidy in question did not cause these effects.

This system would not alter the extent of subsidies notifications for the subsidizing Member. It would only create a strong incentive to comply with the existing obligations under the SCM Agreement, the EU maintained.

Another, admittedly more moderate option to address the transparency problem would be a presumption of actionability that would be based on the mechanism of the current Article 25.10 of the SCM Agreement.

Thus, the presumption of actionability would exist only for subsidies that a Member brought to the notice of the SCM Committee because the subsidizing Member had not notified such subsidies despite having been called on to do so beforehand by the other Member.

Of course, this would also be a rebuttable presumption of actionability.

Therefore, the subsidizing Member would still be allowed to demonstrate that the subsidy in question did not cause the serious prejudice. This option would thus require an amendment to Article 25.10 of the SCM Agreement.

According to the EU, such system would not create any extra burden on the regular subsidy notifications of the subsidizing Member because the initiative and the workload would be on the Member that considers that the subsidizing Member did not notify specific subsidies in accordance with Article 25 of the SCM Agreement.

The subsidizing Member would only have to determine whether such allegedly non-notified subsidies should have been notified.

In the affirmative, it would simply take the non-notified subsidies and notify them thus complying with its notification obligations.

On the contrary, if such allegedly non-notified subsidy should not have been notified, for example, because it was not specific or because any of the conditions of Article 1 of the SCM Agreement was not met, there would be no risk for the subsidizing Member anyway because the rebuttable presumption would allow it to demonstrate that the non-notified support is not a subsidy within the meaning of the SCM Agreement, the EU maintained.

At the Rules Group meeting, the EU said the problem was not only members failing to submit required subsidy notifications, but submitting poor-quality notifications, including submission of information on non-specific programs that do not have to be notified under the SCM Agreement.

The EU claimed that this is being done in order to give the appearance of transparency while failing to notify subsidies in critical sectors.

The EU said that the notification requirement has become such an "abstract concept" that some countries calling for more stringent notification requirements in the fisheries subsidies negotiations have failed to notify a single subsidy to the WTO since its establishment in 1995.

According to trade officials, while many delegations agreed with the EU's assessment that the current state of subsidies notifications by WTO members is, in the EU's words, "dismal and deteriorating," most were of the view that the remedies proposed by the EU - including the idea that non-notified subsidies would automatically be assumed to be in violation of WTO rules - went too far and raised fundamental legal issues which they were not prepared to engage on at this stage.

Most supportive of the EU on the idea of improving subsidy notifications was Australia, which said notifications were not "second-tier obligations."

It said it was prepared to consider the ideas put forward by the EU, including the general rebuttal presumption.

According to trade officials, the US also thanked the EU for putting forward "creative ideas" to address an issue which WTO members needed to resolve now.

It however expressed concern over some elements of the EU proposal. It said that efforts could be made under existing rules to improve the situation, such as using the WTO's trade policy reviews to highlight a member's effort on notifications.

New Zealand was also supportive and echoed US calls for continued efforts to improve the notification record through work in the WTO's SCM Committee, the Goods Council and trade policy reviews.

According to trade officials, Russia, China, Canada, Japan, Brazil, Singapore, Switzerland, Norway, Chinese Taipei, India, and Korea however said that the EU proposal went too far, especially on the idea of the general rebuttal presumption, which would reverse the burden of proof on the legality of a subsidy from the member complaining about a subsidy to the member granting it.

Such a change would alter the existing rights and obligations of members under the SCM Agreement and have implications for the WTO's dispute settlement system, many of them pointed out.

Brazil and Russia also questioned enhancing the role of the WTO secretariat by giving it the power to evaluate and assess the notification of members.

China appreciated the EU's intention to improve the level of compliance with subsidy notifications, but said that taking account of the current situation in the rules negotiations, "maybe it's not the right time to discuss these controversial issues."

According to trade officials, the EU said that it was surprised to hear that now was not the right time to discuss this issue, particularly given that most of the criticisms regarding notifications were addressed to this particular member.

The EU also said that it believed efforts to address the problem in the SCM Committee and Goods Council had failed. The discussions have been going on for several years and the only result is an ever-deteriorating situation.

Because these efforts have failed, members need to come up with new ideas which would incentivise members do something about the problem, it maintained.

The EU said that it was prepared to discuss its ideas further and that members should do so at a Rules Group meeting dedicated to the issue.

The Chair of the Rules Group, Ambassador Wayne McCook of Jamaica, noted that some members indicated a desire for more bilateral engagement with China and the EU on their proposals. He also noted the EU's wish to hold a dedicated session on improving subsidies notifications.

The Chair called on members to further consult with the proponents and engage on the issues raised.

In the meantime, he said he would consult with the proponents on what time would be best to hold a dedicated session.