TWN Info Service on WTO and Trade Issues (Oct17/11)
16 October 2017
Third World Network
       
US reiterates it will not engage in negotiations on trade remedies
Published in SUNS #8552 dated 13 October 2017

Geneva, 12 Oct (Kanaga Raja) - The United States once again categorically stated that it was not prepared to engage in negotiations on the issue of trade remedies, including on the issues highlighted by China in its latest proposal.

This US reiteration came at an informal open-ended meeting of the WTO Negotiating Group on Rules on 11 October that was dedicated to discussing the issues of trade remedies and horizontal subsidies.

The informal meeting also discussed the European Union's proposal on improving disciplines on subsidies notifications (see below).

PROPOSAL BY CHINA ON TREATMENT OF SMEs

China's follow-up paper (TN/RL/GEN/194) on special consideration and treatment of small and medium-sized enterprises (SMEs) in anti-dumping (AD) and countervailing (CVD) proceedings further clarifies the suggestions that China had made in its proposal (TN/RL/GEN/185) submitted earlier this April. (See SUNS #8450 dated 26 April 2017).

In its follow-up paper, China said it is well-accepted that SMEs with their vigour and competitiveness are among the powerhouses for creating job opportunities and promoting technology innovation as well as economic development.

Acknowledging SMEs' increasingly important role in international trade in recent years, facilitating SMEs' integration into international trade has become a common interest among Members.

In light of the global and local economic difficulties, it is the Members' shared responsibility to help create a free trading environment for the SMEs and facilitate their participation in international trade and cooperation, it argued.

China said that its paper is aimed at encouraging the investigating authorities to make positive efforts to identify small and medium-sized enterprises when appropriate, take due account of the unique or disproportionate difficulties confronted by them in responding to proceedings, and provide them with any practicable assistance or help to reduce their burden thereof.

China said although it focuses on the SME's participation as respondents, any proposal from the Membership with respect to SME's participation as petitioners is welcome as a basis for subsequent discussions on this topic.

With respect to SMEs' participation in responding to AD and CVD proceedings, China noted that Article 6.13 of the Anti-Dumping Agreement (ADA) and Article 12.11 of the Agreement on Subsidies and Countervailing Measures (ASCM) both provide that "[t]he authorities shall take due account of any difficulties experienced by interested parties, in particular small companies, in supplying information requested, and shall provide any assistance practicable".

China further noted that SMEs face multifarious difficulties and bear a heavy burden in responding to trade remedy proceedings in practice, which may involve several procedural aspects such as access to information, questionnaire, extension, sampling, and price undertaking.

For instance, they may have difficulty in obtaining qualified professional assistance from lawyers or experts due to high financial expenses.

Because of lack of experience and expertise, even when SMEs have already done their best in cooperating, their [responses to] questionnaires may still be less than ideal or even incomplete, which could often lead to unfavourable or even excessively highest rates for them, said China.

Their applications for price undertaking are also easily disregarded due to their small percentage of industrial representativeness.

The above has, in turn, contributed to SMEs' reluctance in responding to other AD and CVD proceedings, resulting in a worse-off situation for SMEs in international trade.

According to China, as the existing Article 6.13 of ADA and Article 12.11 of ASCM, or the previously proposed amendments to Article 6.13 of ADA are insufficient to cover all the typical difficulties confronted by SMEs, it is necessary to add a self-standing article "Small and Medium-sized Enterprises" to ADA and ASCM to address the issues highlighted.

China has proposed the following for discussion:

In principle, the authorities shall, when appropriate or requested, make positive efforts to identify SMEs as respondents, take due account of the unique or disproportionate difficulties experienced by them in the process of investigations and provide them with any practicable assistance.

In detail, assistance to SMEs may include but is not limited to:

a. The authorities shall take due account of difficulties of SMEs in gaining access to information and take appropriate measures to ensure their easier access to relevant information including initiation, questionnaire, disclosure and public notice etc.

b. The authorities shall give full consideration to SMEs' comments and opinions when sampling for limited examination. If SMEs have genuine difficulties in providing full cooperation and present justifiable explanation therefor, the authorities may decide not to select them for limited examination.

c. If SMEs are unable to submit [responses to] questionnaires on time with good cause, the authorities shall grant them reasonable extension upon request unless such extension will significantly impede the investigation.

d. The authorities shall provide any assistance practicable to SMEs when they supply information requested by the authorities, including responding in a timely manner to requests for clarification of questionnaires and permitting SMEs to submit [responses to] questionnaires in less burdensome ways.

e. The authorities shall take due account of price undertakings offered by SMEs where appropriate.

f. Even when information provided by SMEs may not be ideal in all respects, this situation shall not lead to a result which is less favourable to SMEs if they have provided cooperation to the best of their abilities.

China recalled from previous discussions in the context of this issue that some Members raised the question of how to define SMEs.

"It is our understanding that there is no established or generally accepted definition or test of SMEs among the Membership, particularly for the purpose of AD and CVD proceedings," it noted.

Therefore, China believed it would be better to leave this issue to be decided upon by investigating authorities based on their domestic regulations, industry-specific standard, common practice or the case-by-case situation.

China said it is also conscious of the additional administrative burden that may come to bear on the authorities of some of the developing Members as a result of the above proposed amendments.

It thus recommended "an incremental approach" for the adoption by such Members and extension of technical assistance to them under the principle of special and differential treatment.

According to trade officials, in introducing its paper at the informal meeting, China said SMEs were important for creating job opportunities and promoting economic development and that WTO members needed to help create an environment for SMEs to facilitate their participation in international trade.

However, it pointed out, SMEs face many difficulties and bear a heavy burden in responding to trade remedy proceedings.

Article 6.13 of the WTO's Anti-Dumping Agreement (ADA) and Article 12.11 of the Agreement on Subsidies and Countervailing Measures (ASCM) recognize the special needs of SMEs but these provisions are insufficient to cover all the problems SMEs face, China said.

As a result, a "self-standing article" needs to be written into the ADA and SCM Agreement to address the issues highlighted.

Among others, this article shall require authorities to ensure easier access for SMEs to relevant information related to a trade remedy investigation, grant SMEs reasonable extensions to deadlines for submitting information, provide assistance to SMEs in responding to requests for information, and ensure that results of an investigation are not less favourable to an SME if the information for an investigation is provided to the SME's "best abilities".

According to trade officials, nearly all delegations recognised the problems faced by SMEs in participating in, or responding to, trade remedy investigations and the constraints they face.

However, a number of members including the Russian Federation, Japan and Norway said the rights of larger firms risked being diminished by the proposal and that it could lead to discrimination.

Russia, Korea, Canada, Argentina, Thailand, and Chinese Taipei were of the view that the large discretion being given to domestic authorities to determine what firms qualified as SMEs could lead to disputes and place a big burden on authorities in making the determinations.

According to trade officials, some members including Russia and India said that instead of focusing on SMEs only, it would be more fruitful to consider how to assist all companies, regardless of size, when targeted in AD and CVD proceedings.

The European Union said that it was important to look at the issues faced by SMEs not only as targets in trade remedy investigations but also as victims of unfair trading practices.

According to the EU, it is exposure to such unfair practices, first and foremost, which threatens SMEs the most.

Australia pointed to the wide differences among members regarding the definition of SMEs and the problems it could cause.

It noted that an SME in Australia is any firm with up to 200 employees while an SME in China is any firm with up to 3,000 employees.

The EU informed that under its 2003 recommendation, "small" firms are defined as those with less than 50 employees.

According to trade officials, a number of members (Switzerland, Peru and India) said that they believed that the Chinese proposal merited further discussion.

Several members also reiterated their view that the discussions within the Negotiating Group on Rules on trade remedies and horizontal subsidies should not be linked to any other issue, especially new disciplines on fisheries subsidies.

Hong Kong-China and Brazil said they had an interest in the issues raised by China but that the talks on fisheries subsidies were the immediate priority.

According to Singapore, any outcome on these issues would be a long-term project.

According to trade officials, the United States once again stated - as it had in earlier meetings of the Negotiating Group on Rules on China's previous proposals - that there was no common basis from which members could constructively engage on trade remedies, including the issues outlined in China's latest paper (see SUNS #8505 dated 18 July 2017).

Accordingly, the US said that it would not engage on these issues or any others identified by China.

Effective trade remedies are needed more than ever to address issues such as the historic overcapacity situation in several 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, China said that it appreciated the comments from members. It explained that it was proposing "encouraging" rather than "mandatory" language which would not change existing obligations or impose an excessive burden on authorities.

With respect to the core issue of defining what firms qualify as SMEs, China said given the different practices among members, it was better to leave it to investigating authorities to decide in line with their domestic regulations.

However, it said that it was open to any suggestions on the issue.

China further said it did not believe the existing provisions under Articles 6.13 of the ADA and 12.11 of the SCM Agreement were sufficient to address the problems currently faced by SMEs targeted in trade remedy investigations.

The Chair of the Negotiating Group on Rules, Ambassador Wayne McCook of Jamaica, said that he was aware that China was engaging members bilaterally on these issues and that he looked forward to hearing from them in the future on prospects for future discussions.

The Chair also underlined that each issue discussed within the Negotiating Group would be addressed on its own merits and that all proposals would be afforded an opportunity for discussion.

EU PROPOSAL ON SUBSIDIES NOTIFICATION

The EU's proposal on improving disciplines on subsidies notification (TN/RL/GEN/188) was first presented in July, and the EU answered the various questions posed on its proposal at the informal meeting this week.

In its proposal, 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.

One option that the EU proposed is the 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, it suggested.

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, said the EU.

According to trade officials, while nearly all the members that spoke expressed support for the idea of improving subsidy notifications, they however offered mixed views over the EU's proposal.

The US welcomed what is said are the "bold ideas" set out in the EU proposal. Australia said that it was prepared to "explore all options" in order to improve reporting.

However, other members continued to express reservations with the "general rebuttal" presumption proposed by the EU, as well as the more moderate second option (a presumption of actionability).

According to trade officials, Brazil said the EU proposal could pose particular problems for developing country members and that the SCM Agreement already had mechanisms to deal with problems of transparency.

China pointed out that the problem of non-notification was mainly due to capacity constraints, particularly in developing countries.

It said that the EU's "general rebuttal" presumption would upset the balance of rights and responsibilities under the SCM Agreement by increasing the burden of proof for members providing subsidies.

Korea said the responsibility of providing notifications belongs to the subsidizing member, not the member taking CVD actions. The EU proposal could lead to a sharp increase in CVD measures, it cautioned.

Canada said while transparency was critical in ensuring the functioning of WTO subsidy disciplines, it was not currently in a position to support the EU proposal.

Russia also expressed concerns about shifting the burden of proof to subsidizing members under the EU's "general rebuttal" presumption. It said that it could not endorse the proposal as currently drafted.

Norway said it was not convinced that the EU proposal was the best way to address the problem of notification.

New Zealand suggested using existing rules and institutions, such as the Trade Policy Reviews of members, to address the problem.

Singapore, Japan and Chinese Taipei said that they were open to further discussions on the EU proposal.

The Chair said that the EU may wish to bring back its proposal for further discussions and that he would leave open how and when to reconvene the talks.