DISPUTE SETTLEMENT: DISPUTE DS437

United States — Countervailing Duty Measures on Certain Products from China


This summary has been prepared by the Secretariat under its own responsibility. The summary is for general information only and is not intended to affect the rights and obligations of Members.

  

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Current status  back to top

 

Key facts  back to top

Short title:
Complainant:
Respondent:
Third Parties:
Agreements cited:
(as cited in request for consultations)
Request for Consultations received:
Panel Report circulated: 14 July 2014
Appellate Body Report circulated: 18 December 2014

  

Summary of the dispute to date  back to top

The summary below was up-to-date at

Consultations

Complaint by China.

On 25 May 2012, China requested consultations with the United States concerning the imposition of countervailing duty measures by the United States on certain products from China.

China challenges various aspects of certain identified countervailing duty investigations, including their opening, conduct and the preliminary and final determinations that led to the imposition of countervailing duties.  China also challenges the “rebuttable presumption” allegedly established and applied by the US Department of Commerce that majority government ownership is sufficient to treat an enterprise as a “public body”.

China claims that the challenge measures are inconsistent with:

  • Article VI of the GATT 1994;
     
  • Articles 1.1, 2, 11.1, 11.2, 11.3, 12.7 and 14(d) of the SCM Agreement; and
     
  • Article 15 of the Protocol of Accession of China.

On 20 August 2012, China requested the establishment of a panel.  At its meeting on 31 August 2012, the DSB deferred the establishment of a panel.

 

Panel and Appellate Body proceedings

At its meeting on 28 September 2012, the DSB established a panel.  Australia, Brazil, Canada, the European Union, India, Japan, Korea, Norway, the Russian Federation, Turkey and Viet Nam reserved their third party rights.  Subsequently, Saudi Arabia reserved its third party rights.

On 14 November 2012, China requested the Director-General to determine the composition of the panel.  On 26 November 2012, the Director-General composed the panel. On 29 April 2013, the Chair of the panel informed the DSB that the timetable adopted by the panel after consultations with the parties envisaged that the final report would be issued to the parties by January 2014. On 18 November 2013, the Chair of the panel informed the DSB that due to the complexity of the issues raised by the parties in this dispute, the panel expected to conclude its work in May 2014.

On 14 July 2014, the panel report was circulated to Members.

Summary of key findings

The dispute concerns several initiation decisions, as well as preliminary and final determinations in 17 countervailing duty investigations conducted by the United States' Department of Commerce (USDOC) from 2007 through 2012. The Chinese products concerned by these investigations consist of solar panels; wind towers; thermal paper; coated paper; tow behind lawn groomers; kitchen shelving; steel sinks; citric acid; magnesia carbon bricks; pressure pipe; line pipe; seamless pipe; steel cylinders; drill pipe; oil country tubular goods; wire strand; and aluminum extrusions.

China requested the Panel to find that the United States' investigating authority, the USDOC, acted inconsistently with the following obligations set forth in the Agreement on Subsidies and Countervailing Measures (SCM Agreement) when initiating countervailing duty investigations, and making preliminary and final determinations in these investigations:

  1. In connection with the alleged provision of input goods for less than adequate remuneration:
    1. That the USDOC's findings of financial contribution are inconsistent with Article 1.1(a)(1) of the SCM Agreement, because the USDOC incorrectly determined, or did not have a sufficient basis to determine, that certain State-owned enterprises (SOEs) are “public bodies” within the meaning of that provision in certain investigations;
    2. That the “rebuttable presumption” established and applied by the USDOC in respect of whether SOEs can be classified as “public bodies” is, as such, inconsistent with Article 1.1(a)(1) of the SCM Agreement;
    3. That the USDOC's initiation of countervailing duty investigations in respect of allegations that SOEs confer countervailable subsidies through their sales of inputs to downstream producers, in the absence of sufficient evidence in the petition to support an allegation that SOEs constitute “public bodies” within the meaning of Article 1.1(a)(1) of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in certain investigations;
    4. That the USDOC's findings of benefit are inconsistent with Article 1.1(b) and Article 14(d) of the SCM Agreement, because the USDOC improperly found that the alleged provision of goods for less than adequate remuneration conferred a benefit upon the recipient, and improperly calculated the amount of any benefit allegedly conferred, including, inter alia, its erroneous findings that prevailing market conditions in China were “distorted” as the basis for rejecting actual transaction prices in China as benchmarks in certain investigations;
    5. That the USDOC's findings of specificity are inconsistent with Articles 2.1 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged provision of inputs for less than adequate remuneration was specific to an enterprise or industry or group of enterprises or industries in certain investigations;
    6. That the USDOC's initiation of countervailing duty investigations in respect of the alleged provision of inputs for less than adequate remuneration, in the absence of sufficient evidence in the petition to support an allegation that any such subsidy would be specific under Article 2 of the SCM Agreement, and in the absence of a sufficient review of the petition by the USDOC in respect of this allegation, is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in certain investigations.
  2. In connection with all of the identified countervailing duty investigations in which the USDOC has issued a preliminary or final countervailing duty determination:
    1. That the USDOC's use of so-called “adverse facts available” to support its findings of financial contribution, specificity, and benefit is inconsistent with Article 12.7 of the SCM Agreement in certain instances because the USDOC did not rely on facts available on the record.
  3. In connection with the alleged provision of land and land-use rights for less than adequate remuneration:
    1. That the USDOC's findings of specificity are inconsistent with Articles 2.2 and 2.4 of the SCM Agreement, because the USDOC failed to make a proper determination on the basis of positive evidence that the alleged subsidy was specific to an enterprise or industry or to a group of enterprises or industries in certain land specificity investigations.
  4. In connection with export restraints allegedly maintained by China:
    1. That the USDOC's initiation of countervailing duty investigations in respect of these allegations is inconsistent with Articles 11.2 and 11.3 of the SCM Agreement in certain investigations;
    2. That the USDOC's determination that export restraints provided a “financial contribution” is inconsistent with Article 1.1(a) of the SCM Agreement in certain investigations.

The United States requested that the Panel reject China's claims in this dispute. It also requested that the Panel to disregard China's claims pertaining to the preliminary determinations in Wind Towers and Steel Sinks. According to the United States, as China did not request consultations on these determinations, such determinations should be outside the terms of reference of this panel proceeding.

Regarding China's claims made on an “as applied” basis, the Panel upheld China's claims against the USDOC's findings (i) that certain Chinese State-owned enterprises were public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement, capable of providing financial contributions; (ii) that alleged subsidies were regionally specific; and (iii) on the existence of financial contributions in light of export restraints maintained by China. The Panel partially rejected China's claims against the USDOC's findings that alleged subsidies were specific to certain enterprises. The Panel rejected China's claims against the USDOC's findings (i) that there was “market distortion” justifying the use of an out-of-country benchmark in the benefit calculation; (ii) that there was sufficient evidence of financial contributions by public bodies and of specificity to justify the initiation of countervailing duty investigations; and (iii) on the use of “adverse facts available”.

Regarding China's claims made on an “as such” basis, the Panel upheld China's claim challenging the USDOC's “rebuttable presumption” that majority State-owned enterprises are public bodies within the meaning of Article 1.1(a)(1) of the SCM Agreement, and thus capable of conferring a financial contribution.

As a consequence of the inconsistencies of the USDOC's actions with Articles 1, 2 and 11 of the SCM Agreement, the United States has acted inconsistently with Articles 10 and 32.1 of the SCM Agreement.

The Panel concluded that, to the extent that the measures at issue are inconsistent with certain provisions of the SCM Agreement, they have nullified or impaired benefits accruing to China under that agreement. Pursuant to Article 19.1 of the DSU, the Panel recommended that the United States bring its measures into conformity with its obligations under the SCM Agreement.

The Panel found the preliminary determinations in Wind Towers and Steel Sinks not to be within its terms of reference.

On 22 August 2014, China filed an appeal covering most of the issues on which the Panel did not rule in its favour. On 27 August 2014, the United States filed a cross-appeal of the Panel's preliminary determination relating to the consistency of one section of China's panel request with Article 6.2 of the DSU. The United States did not appeal the Panel's finding that the USDOC's application of a “rebuttable presumption” to determine whether certain entities can be characterized as “public bodies” was inconsistent “as such” with Article 1.1(a)(1) of the SCM Agreement. Nor did the United States challenge on appeal the Panel's finding that the “public body” determinations made by the USDOC in 14 countervailing duty investigations were inconsistent with the same provision1 , or the Panel's findings regarding the USDOC's treatment of certain export restraints in two of the investigations at issue.

On 18 December 2014, the Appellate Body report was circulated to Members.

Summary of key findings

  • Terms of reference: In its other appeal, the United States claimed that the Panel erred in concluding that China's panel request, as it relates to China's facts available claims under Article 12.7 of the SCM Agreement, was consistent with Article 6.2 of the DSU. The Appellate Body considered it to be clear from China's panel request that China was challenging all instances where the USDOC used “facts available” across the 22 measures at issue listed in China's panel request. The Appellate Body also disagreed with the United States that Article 12.7 of the SCM Agreement contained multiple, distinct obligations. The Appellate Body therefore rejected the United States' appeal and upheld the Panel's conclusion, finding that China's panel request, as it relates to China's facts available claims under Article 12.7, provided a “brief summary of the legal basis of the complaint sufficient to present the problem clearly”, as required under Article 6.2.
     
  • Determination of benefit: With respect to the issues raised by China on appeal, the Appellate Body reversed the Panel's finding upholding the USDOC's rejection of private prices as potential benchmarks in the investigations at issue on the grounds that such prices were distorted. The Appellate Body also reversed the Panel's finding that China failed to establish that the USDOC acted inconsistently with the obligations of the United States under Articles 14(d) and 1.1(b) of the SCM Agreement in respect of the benefit analysis in the OCTG, Solar Panels, Pressure Pipe, and Line Pipe investigations, and found, instead, that the USDOC acted inconsistently with the United States' obligations under Articles 14(d) and 1.1(b) of the SCM Agreement by rejecting prices in China as benchmarks in its benefit analyses in these four countervailing duty investigations. While the Appellate Body agreed with China that there is a single definition of the term “government” for purposes of the SCM Agreement, it observed that it does not follow that, in determining the appropriate benefit benchmark under Article 14(d), investigating authorities are required to limit their analysis to an examination of the role played in the market by government-related entities that have been properly found to be government in the narrow sense or public bodies. However, because the issue of whether a price may be relied upon for benchmarking purposes under Article 14(d) is not a function of its source, but rather, whether it is a market-determined price reflective of prevailing market conditions in the country of provision, the Appellate Body stated that the selection of a benchmark for the purposes of Article 14(d) cannot, at the outset, exclude consideration of in‑country prices from any particular source, including government‑related prices other than the financial contribution at issue. The Appellate Body explained that a finding of inconsistency with Article 14(d) depends on whether the investigating authority conducted the necessary market analysis in order to evaluate whether the proposed benchmark prices are market determined such that they can be used to assess whether the relevant goods have been provided for less than adequate remuneration.
     
  • Sequence of the specificity analysis under the subparagraphs of Article 2.1: The Appellate Body upheld the Panel's finding that China did not establish that the USDOC acted inconsistently with the obligations of the United States under Article 2.1 of the SCM Agreement by analysing specificity exclusively under Article 2.1(c). Whereas the specificity analysis under each subparagraph of Article 2.1 should “ordinarily” proceed in a certain sequence, the Appellate Body did not exclude the possibility that, in certain circumstances, an investigating authority could properly conduct the specificity analysis without examining the subparagraphs of Article 2.1 in a strict sequential order. The Appellate Body found that the application of the principles laid down in subparagraphs (a) and (b) does not necessarily constitute a condition that must be met in order to consider the factors listed under subparagraph (c). Recalling that “there may be instances in which the evidence under consideration unequivocally indicates specificity or non‑specificity by reason of law, or by reason of fact, under one of the subparagraphs, and that in such circumstances further consideration under the other subparagraphs of Article 2.1 may be unnecessary”, the Appellate Body disagreed with China that the first sentence of Article 2.1(c) conditions the assessment of de facto specificity on the basis of the factors listed under that subparagraph upon an application of the principles set out in subparagraphs (a) and (b). The Appellate Body further noted that China had not pointed to any evidence that was before the USDOC of the kind that would ordinarily be examined in determining de jure specificity under subparagraphs (a) and (b).
     
  • Existence of an unwritten subsidy programme: The Appellate Body reversed the Panel's finding that China had not established that the USDOC acted inconsistently with the obligations of the United States under Article 2.1 by failing to identify a “subsidy programme”. The Appellate Body noted that the reference to “use of a subsidy programme” in Article 2.1 suggests that it is relevant to consider whether subsidies have been provided to recipients pursuant to a plan or scheme. The Appellate Body also found that the existence of an unwritten subsidy scheme or plan may be evidenced by, inter alia, a systematic series of actions pursuant to which financial contributions have been provided to certain enterprises. The Appellate Body found, however, that the Panel did not apply Article 2.1(c), as properly interpreted, because it failed to provide any case-specific discussion or references to the particular USDOC determinations of specificity challenged by China on an “as applied” basis. As a consequence, the Appellate Body reversed the Panel's finding and was unable to complete the analysis.
     
  • Identification of the jurisdiction of the granting authority: The Appellate Body also reversed the Panel's finding that China had not established that the USDOC acted inconsistently with the obligations of the United States under Article 2.1 by failing to identify a “granting authority” in each of the specificity determinations at issue. The Appellate Body considered that the identification of the “jurisdiction of the granting authority” involves a holistic analysis and does not focus on the identity of the “granting authority” independently from its “jurisdiction”. The Appellate Body therefore disagreed with China that identification of the jurisdiction must necessarily be preceded by identification of the granting authority. Noting that the notion of jurisdiction is linked to, and does not exist in isolation from, the granting authority, the Appellate Body observed that a proper identification of “the jurisdiction of the granting authority” will require an analysis of both the “granting authority” and its “jurisdiction” in a conjunctive manner. However, the Appellate Body found that the Panel had conducted an extremely cursory analysis in rejecting China's claims on the basis that it appeared “that the relevant jurisdiction was at the very least implicitly understood to be China in the challenged investigations”. Consequently, the Appellate Body reversed the Panel's finding and was unable to complete the analysis.
     
  • Use of facts available: The Appellate Body found that the Panel acted inconsistently with its obligations under Article 11 of the DSU in assessing China's claims under Article 12.7 of the SCM Agreement. The Appellate Body reversed the Panel's finding that China had not established that the USDOC acted inconsistently with the United States' obligations under Article 12.7 of the SCM Agreement by not relying on facts on the record in 42 “adverse” facts available determinations across the 13 investigations challenged by China. The Appellate Body recalled that Article 12.7 requires that an investigating authority must use those facts available that reasonably replace the missing “necessary” information that an interested party failed to provide. The Appellate Body also reiterated that ascertaining reasonable replacements for the missing information involves a process of reasoning and evaluation on the part of the investigating authority, although the evaluation that is required, and the form it may take, depend on the particular circumstances of a given case, including the nature, quality and amount of the evidence on the record and the particular determinations to be made. With respect to China's claim of error under Article 11 of the DSU, the Appellate Body found that the Panel failed to address each of the 42 instances of the USDOC's use of “adverse” facts available challenged by China. Moreover, the Appellate Body found that, in respect of the instances of the use of “adverse” facts available by the USDOC that the Panel did discuss in its Report, the Panel focused on the language and formulations used by the USDOC in its determinations, without undertaking a critical and in-depth examination of the USDOC's statements to assess whether the USDOC complied with Article 12.7 of the SCM Agreement. For these reasons, the Appellate Body reversed the Panel's finding that China failed to establish that the USDOC acted inconsistently with the United States' obligations under Article 12.7. Having reversed the Panel's conclusion, the Appellate Body did not complete the legal analysis, noting that completion in the present case would be of limited value in resolving the dispute and would also raise due process concerns.

 

Note:

1. The United States did, however, appeal the“public body” issue in US — Carbon Steel (India). The Appellate Body report in that dispute was circulated on 8 December 2014.

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