11-16 Flashcards
(26 cards)
Introduction to Dispute Settlement
- The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members.
- Such disputes may arise with respect to any agreement contained in the Final Act
of the Uruguay Round that is subject to the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). - **The DSB has authority to establish dispute settlement panels,
- refer matters to arbitration,
- adopt panel,
- Appellate Body and arbitration reports,
- maintain surveillance over the implementation** of recommendations and rulings contained
in such reports, and authorize suspension of concessions in the event of non- compliance with those recommendations and rulings.
2 main ways to settle dispute
once a complaint has been filed in
the WTO:
- the parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and
- through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted
by the DSB.
There are three main stages to the WTO dispute settlement process:
i. consultations between the parties;
ii. adjudication by panels and, if applicable, by the Appellate Body; and
iii. the implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.
WTO Jurisdiction – Key Points
WTO Jurisdiction – Key Points
- Scope: WTO can handle disputes between member countries about any of the agreements covered under the WTO (as per Article 1.1 of the Dispute Settlement Understanding or DSU).
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Legal Focus: The legal basis of a complaint depends on:
- The type of complaint allowed under the specific WTO agreement.
- The exact WTO rule or obligation being challenged.
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Typical Complaints:
- Usually target government actions like anti-dumping duties or trade restrictions.
- These actions are often based on domestic laws or policies.
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Challenging Laws:
- Even if no action has been taken yet, a domestic law itself can be challenged if it breaches WTO obligations or affects other members’ rights.
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Member Obligations:
- Under Article XVI:4 of the WTO Agreement, countries must align their national laws, rules, and procedures with WTO rules and commitments.
MPIA – Key Points
Multi Party Interim Appeal Arbitration Arrangement
MPIA – Key Points
- Creation: Launched in April 2020 by 19 WTO Members (now 26), as a temporary solution after the WTO Appellate Body stopped functioning in 2019.
- Reason: U.S. blocked new appointments to the Appellate Body, halting the appeal system.
- Purpose: Keeps the two-tier dispute system alive—panel ruling + appeal, with appeals done through Article 25 arbitration.
- Legal Basis: Not a new agreement—fully part of WTO rules under DSU Article 25 (arbitration).
MPIA Process – Simplified Stages
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Joining:
- A WTO Member joins by signing a joint statement (political commitment).
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Panel Stage:
- When a dispute arises between MPIA members, they agree to use MPIA for appeal.
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Panel Report Suspension:
- Before the final panel report is circulated, either side can request a suspension to allow for an appeal under MPIA.
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Appeal Process:
- A party files a notice of appeal within 20 days.
- This starts a 90-day countdown for the arbitrators to issue the MPIA award.
- The other party can also file a notice of other appeal within 5 days.
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Arbitrators:
- MPIA uses a pool of 10 arbitrators, agreed by all members.
- Each case is heard by 3 randomly selected arbitrators.
- No two arbitrators can be from the same country in a single case.
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Final Award:
- The MPIA award includes panel findings that weren’t appealed.
- It is binding under DSU Article 25(3) and is treated like a regular WTO ruling.
- DSU Articles 21 & 22 on enforcement and implementation apply to MPIA awards just like normal WTO rulings.
DSU- articles and coverage
DSU – Article 1: Coverage & Application
Scope:
* Applies to disputes under all agreements listed in Appendix 1 of the DSU.
* Includes agreements such as GATT 1994, GATS, and TRIPS.
Special Rules:
* In cases of conflict between DSU provisions and special dispute settlement rules in covered agreements, the latter prevail.
DSU – Article 2: Administration
Dispute Settlement Body (DSB):
* Comprises representatives from all WTO members.
* Responsible for administering DSU procedures.
Key Functions:
* Establishes panels to adjudicate disputes.
* Adopts panel and Appellate Body reports.
* Monitors implementation of rulings and recommendations.
* Authorizes suspension of concessions in cases of non-compliance.
DSU – Article 3: General Provisions
Objectives:
* Ensure prompt and effective resolution of disputes.
* Preserve members’ rights and obligations under WTO agreements.
Principles:
* Encourages mutually agreed solutions through consultations.
* Affirms that a solution mutually acceptable to the parties and
consistent with WTO agreements is preferred.
* Clarifies that recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered
agreements.
WTO DSU Articles 4, 5, and 6:
Article 4 – Consultations
Purpose: First step in resolving WTO disputes through dialogue.
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Starting Consultations:
- Any member can request consultations in writing, explaining the issue and legal basis.
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Timelines:
- Response expected within 10 days.
- Consultations should start within 30 days (or 10 days for perishable goods).
- Confidentiality: All discussions are private and do not affect future legal steps.
- Third Parties: Other members with a substantial interest can join the consultations.
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Possible Outcomes:
- Agreement: Dispute ends if a mutual solution is found.
- No Agreement: After 60 days (or 20 days for perishables), the complaining party can request a panel.
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Why It Matters:
- Encourages amicable resolution.
- Saves time and costs.
- Offers flexibility for tailored solutions.
Article 5 – Good Offices, Conciliation, and Mediation
Purpose: Voluntary, informal methods to help resolve disputes.
- Voluntary: Only used if both parties agree.
- Confidential: All proceedings are private.
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Flexible:
- Can be started or stopped at any time.
- If it fails, a panel can still be requested.
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Timing:
- Panel request only after 60 days, unless both parties agree it’s failed earlier.
- Can Run Parallel: These processes can continue even while a panel is ongoing.
- Role of DG: The WTO Director-General may offer help in resolving the dispute.
Article 6 – Establishment of Panels
Purpose: Sets rules for starting formal legal proceedings at WTO.
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Panel Creation:
- If requested, a panel must be established at the next DSB meeting, unless all members agree not to (rare).
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Panel Request Requirements:
- Must be in writing.
- Must state:
- That consultations took place.
- Specific measures being challenged.
- A summary of the legal basis (clearly explaining the issue).
- If special terms of reference are requested (not standard), the proposed wording must be included.
Articles 7 and 8 of the WTO Dispute Settlement Understanding (DSU),
Article 7 – Terms of Reference
Purpose: Defines what the panel will examine and on what legal basis.
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Standard Terms (default if no agreement within 20 days):
- Panel will review the dispute “in light of relevant provisions” cited by the complainant.
- It will assist the DSB with findings and recommendations.
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Scope of Review:
- Only issues and WTO provisions listed in the panel request will be examined.
- Other WTO Members can comment if parties agree to use non-standard terms (Art. 7.3).
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No Consensus Needed:
- Panels are established even if consensus is not reached—only the first DSB meeting can block establishment.
- At the second DSB meeting, the panel is automatically established unless there’s a full consensus against it.
Understanding Articles 6 & 7 – The Panel Request
- Must be submitted in writing to the DSB Chair and circulated to all WTO Members.
- Must include:
- Confirmation that consultations took place.
- The specific measures being challenged.
- A clear legal basis for the complaint (as per Article 6.2).
- Must be submitted at least 11 days before the DSB meeting (per DSB Rules of Procedure).
- It sets both the scope of the panel’s mandate and informs the respondent and third parties.
Article 8 – Composition of Panels
Panel Member Criteria:
- Must be well-qualified individuals—can be from government, academia, or the Secretariat.
- Must have experience in trade law or WTO-related matters.
Restrictions:
- Nationals of disputing parties (or third parties) cannot serve, unless all parties agree.
Panel Size:
- Usually three members.
- Can be expanded to five, if both parties agree within 10 days of panel establishment.
Appointment Process:
- The WTO Secretariat proposes panelists.
- Parties can only reject nominees for compelling reasons.
- If no agreement within 20 days, either party may request the Director-General to appoint panelists.
- The DG appoints panelists after consulting with:
- DSB Chair,
- Chair of the relevant Council/Committee,
- Both parties to the dispute.
- Panelists act in their individual capacity, not as representatives of governments or organizations.
Articles 10 and 17 of the WTO Dispute Settlement Understanding (DSU),
Article 10 – Third Parties in Dispute Settlement
Participation Rights:
- WTO Members with a “substantial interest” in a dispute can become third parties.
- Must notify the DSB of their interest to participate.
Third Party Rights:
- May:
- Be heard by the panel.
- Submit written comments (these must be shared with the main parties and included in the panel report).
- Receive submissions from the disputing parties made during the panel’s first meeting.
If Harmed by the Measure:
- A third party can initiate its own dispute if it believes the challenged measure affects its WTO benefits.
- The new dispute should be referred to the same panel, if possible, for consistency.
Article 17 – Establishment and Function of the Appellate Body
Structure:
- A standing body of 7 members created by the DSB.
- 3 members serve on any given appeal, chosen on a rotating basis as per internal rules.
Appointment:
- Members are appointed for a 4-year term, renewable once.
- Initially, 3 members served only 2 years, chosen by lot, to stagger future appointments.
- If a vacancy arises mid-term, a new person completes the remainder of that term.
Qualifications:
- Members must be:
- Experts in law, international trade, and WTO agreements.
- Individuals of recognized authority.
- Unaffiliated with any government (to ensure independence).
Appeal Process:
- Only disputing parties, not third parties, can file an appeal.
- Appeals are limited to legal issues and interpretations—no factual review.
- Timeline: Normally completed within 60 days from the appeal request to report circulation.
Outcome:
- The Appellate Body may:
- Uphold, modify, or reverse panel findings.
- The Appellate Body report is adopted by the DSB unless all WTO Members reject it, making it effectively binding.
WTO Anti-Dumping Agreement and Article VI of GATT 1994,
Understanding Dumping and the Anti-Dumping Agreement
Definition of Dumping:
- Occurs when a product is exported at a price lower than its “normal value” (typically the price in the exporter’s domestic market).
Purpose of the Anti-Dumping Agreement (ADA):
- Governs how governments may respond to dumping.
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Allows anti-dumping duties only when:
- Dumping is proven.
- Material injury (or threat thereof) to the domestic industry is demonstrated.
- The extent of dumping (price difference) is calculated.
Focus:
- Disciplines the use of anti-dumping measures to prevent abuse.
- Reactions must be based on thorough investigation and evidence.
Article VI of GATT 1994 and the Anti-Dumping Agreement
Key Principles:
- Upholds non-discrimination: MFN (Most-Favoured-Nation) treatment.
- Imported products should not face higher internal taxes or harsher regulations than domestic products.
- Allows extra duties (anti-dumping duties) only if:
- Dumping is occurring, and
- It causes injury or threatens a domestic industry.
Article VI of GATT 1994 regarding Anti-Dumping and Countervailing Duties:
Dumping – Article VI(1)
- Dumping is condemned when it causes or threatens material injury to a domestic industry or hinders the establishment of a domestic industry.
- A product is “dumped” if it is sold in another country at a price lower than its “normal value”, which is:
- (a) The domestic market price in the exporting country, or
- (b) If that’s unavailable, either:
- (i) The highest export price to a third country, or
- (ii) The cost of production plus a reasonable margin for selling and profit.
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Adjustments must be made for differences in:
- Terms of sale
- Taxes
- Other factors affecting price comparability.
Anti-Dumping Duty – Article VI(2)
- A country may impose an anti-dumping duty up to the margin of dumping (i.e., the price difference).
- This is intended to offset or prevent the injurious effects of dumping.
Countervailing Duties – Article VI(3)
- These are duties imposed to offset subsidies (bounties) given by exporting governments.
- The duty cannot exceed the amount of subsidy estimated to be granted (directly or indirectly).
- “Countervailing duty” includes action against:
- Direct subsidies
- Indirect subsidies (e.g., on transport).
Other Key Provisions:
Article VI(4):
- No anti-dumping or countervailing duty can be applied just because the exported product was exempted from internal taxes or received a refund of such taxes in the exporting country.
Article VI(5):
- A product cannot be subject to both anti-dumping and countervailing duties to address the same issue (dumping or subsidy).
Article VI(6):
- (a) No such duties shall be imposed unless injury to domestic industry is proven.
- (b) Exception: Duties may be permitted to protect an industry in another exporting country (not the importing country), if dumping/subsidization is harming that exporting country’s industry.
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(c) In emergency cases, a country may impose a countervailing duty without prior approval, but must:
- Notify the Contracting Parties immediately.
- Withdraw the duty if disapproved.
Article VI(7) of GATT 1994, focusing on price stabilization systems and presumed non-injury:
Price Stabilization Systems – Article VI(7)
- Sometimes, governments stabilize domestic prices or support producer income (especially for primary commodities), regardless of export price fluctuations.
- This may result in export prices being lower than domestic prices.
Presumption of No Material Injury
Such a system will not be presumed to cause material injury under dumping rules if:
(a) The system also leads to higher export prices at other times compared to domestic prices, and
(b) The system is:
- Effectively regulated, e.g., by controlling production, and
- Does not unduly encourage exports or seriously harm other countries’ interests.
Key Point:
This provision protects legitimate price support schemes (like for agriculture or key commodities), provided they are balanced and fair in operation.
WTO Subsidy Categories (Color Codes – Informal Terms):
🎨 WTO Subsidy Categories (Color Codes – Informal Terms):
- 🟩 Green: Non-actionable (e.g., for research, regional development) – now defunct
- 🟨 Amber: Actionable subsidies – may be challenged if they cause harm
- 🟥 Red: Prohibited subsidies – e.g., export subsidies and those contingent on local content
- 🟧 Dark Amber: Actionable subsidies that cause “adverse effects” – focus of your question
🔶 What is a Dark Amber Subsidy?
A dark amber subsidy is:
- Not outright prohibited, but
- Actionable under the SCM Agreement if it causes adverse effects to the interests of another WTO member.
📌 Legal Basis: SCM Agreement, Articles 5 & 6
Article 5 – Adverse Effects Standard
A subsidy (that is not prohibited) is actionable if it causes:
- Injury to the domestic industry of another Member (in the import market),
- Nullification or impairment of benefits (typically tariff concessions),
- Serious prejudice to the interests of another Member (export markets).
🔍 Article 6 – “Serious Prejudice” includes:
- Displacement or impedance of imports into the subsidizing Member’s market
- Displacement of exports from another Member in third country markets
- Significant price undercutting or suppression
- Increase in world market share of the subsidizing Member
🧩 Key Criteria:
- Financial contribution by a government or public body
- Benefit conferred to recipient (e.g., loan, tax break, equity)
- Specificity: subsidy must be limited to certain enterprises, industries, or regions
- Adverse effects must be proven with evidence of harm or distortion
⚖️ Legal Consequences:
- If a dark amber subsidy is found to cause adverse effects:
- The affected Member can request consultations.
- If no resolution, it can bring a WTO dispute.
- If found illegal, the subsidizing country must withdraw or modify the subsidy.
Article 2 of the Anti-Dumping Agreement – Determination of Dumping:
Article 2 – Determination of Dumping
2.1 – Normal Value
- Dumping = Exporting a product at less than its “normal value.”
- Normal value = Price for the like product in the exporting country’s own market, under normal trade conditions.
2.2 – When Domestic Price Is Not Available or Reliable
- If no valid domestic price exists (due to unusual market conditions or low sales volume):
- Use price in a comparable third country, or
- Use cost of production + reasonable additions for administration, selling, and profit.
2.3 – Constructed Export Price
- If the export price is unavailable or distorted (e.g., due to a relationship between exporter and importer):
- Authorities can construct the export price based on the price to an independent buyer or other reasonable basis.
2.4 – Fair Comparison Requirement
- Export price and normal value must be compared fairly:
- At the same level of trade (usually ex-factory).
- At similar time periods.
- Adjust for differences in: sales terms, taxes, trade level, quantity, product features, etc.
2.5 – Indirect Exports (Transshipment)
- If products go through an intermediate country:
- Use export price from that country for comparison unless:
- The product is just transshipped.
- The product isn’t produced there.
- No valid price is available in that country.
- In such cases, compare with the price in the country of origin.
- Use export price from that country for comparison unless:
2.6 – Definition of “Like Product”
- A “like product” is one that is:
- Identical in all respects, or
- Closely resembles the product in characteristics if no identical product exists.
Articles 3 and 4 of the Anti-Dumping Agreement:
Article 3 – Determination of Injury
3.1 Requirements for Injury Determination
- Injury must be determined using positive evidence and objective analysis.
- Two key aspects must be examined:
- (a) Volume of dumped imports and their effect on prices in the domestic market.
- (b) The impact of dumped imports on domestic producers of like products.
Article 4 – Definition of Domestic Industry
4.1 Definition
- “Domestic industry” refers to:
- All domestic producers of the like product, or
- Those whose collective output makes up a major share of total domestic production.
Exceptions:
- (i) If some producers are related to exporters/importers or are importers themselves, they may be excluded from the definition of domestic industry.
- (ii) In exceptional circumstances, a Member’s territory can be split into distinct competitive markets, and producers in each may be considered a separate industry.
examples of article 4 definition of domestic industry
Absolutely! Here’s a short example for the first exception under Article 4.1(i) — where producers related to exporters/importers or who are themselves importers are excluded from the definition of the “domestic industry”:
Example of Related Producers Exception (Article 4.1(i)):
📍 Scenario: Indian Solar Panel Industry
- An anti-dumping investigation is initiated in India against cheap imported solar panels from Country X.
- Among the Indian manufacturers, Company A is a joint venture with a major exporter from Country X, and imports 70% of its solar panels from that exporter.
⚖️ Application of Article 4.1(i):
- Because Company A is related to the exporter and also an importer of the allegedly dumped product, it may not be considered part of the domestic industry for the purpose of injury analysis.
- The rest of the Indian solar panel manufacturers would be treated as the relevant domestic industry.
This exception prevents conflicted producers from skewing the injury determination.
Certainly! Here’s an example to illustrate the exception under Article 4.1(ii) of the Anti-Dumping Agreement — where a Member’s territory can be divided into separate competitive markets and each treated as a distinct domestic industry:
Example of the “Separate Competitive Markets” Exception (Article 4.1(ii)):
📍 Scenario: Canada’s Steel Market
- Canada has two distinct steel-producing regions: Eastern Canada (e.g. Ontario and Quebec) and Western Canada (e.g. Alberta and British Columbia).
- Due to geographical distance, transportation costs, and regional demand differences, these two regions function as separate competitive markets for steel.
- Imported steel from another country (say, China) is mostly dumped into Western Canada, severely harming producers there.
- Meanwhile, producers in Eastern Canada are not significantly affected.
⚖️ Application of Article 4.1(ii):
- In this case, Canadian authorities may treat Western Canadian producers as a “separate domestic industry” and initiate anti-dumping measures based solely on injury in that regional market.
- This ensures that dumping which targets a specific regional market can still be addressed, even if the national industry as a whole isn’t affected.
This provision ensures targeted regional injury doesn’t go unremedied due to averaging across unaffected regions.
Article 5 – Initiation and Subsequent Investigation from the Anti-Dumping Agreement:
Article 5 – Initiating an Anti-Dumping Investigation
🔹 5.1 – How Investigations Start
- Investigations normally begin when a written application is submitted by or on behalf of domestic industry.
🔹 5.2 – What the Application Must Include
The application must have evidence of:
- Dumping
- Injury to the domestic industry
- A causal link between dumping and injury
The following information (as available) should also be included:
- Who is applying + their production data
- Product details – description, export country, exporters, importers
- Price data – domestic prices, export prices, resale prices
- Impact evidence – import volumes, price effects, and industry injury
> ⚠️ Mere claims without proof are not enough.
🔹 5.4 – Support Threshold for Investigation
Authorities check if the application has enough backing:
- Application is valid if supported by producers representing over 50% of the domestic industry that has expressed an opinion.
- But, if less than 25% of total domestic production supports it, no investigation will be initiated.
🔹 5.6 – Investigations Without an Application
Authorities can start investigations on their own (suo motu) in special cases, but only if they already have strong evidence of:
- Dumping
- Injury
- Causal link
🔹 5.8 – When Investigations Must Be Dropped
Investigations must end quickly if there isn’t enough evidence.
- If dumping margin is less than 2%, it’s called de minimis → investigation ends.
- If dumped imports from a country are less than 3% of total imports, it’s negligible – unless several such countries together exceed 7%.
🔹 5.9 – No Delay at Customs
Ongoing anti-dumping investigations should not delay customs clearance of imports.
🔹 5.10 – Time Limit
Investigations should finish:
- Normally within 1 year
- Absolutely no more than 18 months
Article 11 – Duration and Review of Anti-Dumping Duties and Price Undertakings:
Article 11 – Duration and Review of Anti-Dumping Measures
🔹 11.1 – Duration of Anti-Dumping Duty
- An anti-dumping duty should only stay in place as long as it is needed to counteract the injury caused by dumping.
🔹 11.2 – Review of Anti-Dumping Duty
- Authorities must review if the duty is still needed:
- On their own, or
- Upon request by any interested party that provides new, relevant evidence.
- Interested parties can ask for a review to check:
- Whether the duty still offsets dumping
- Whether injury would continue or recur if the duty was removed or changed.
- If authorities decide the duty is no longer needed, it will be terminated immediately.
🔹 11.3 – Five-Year Rule for Anti-Dumping Duty
- An anti-dumping duty must end after 5 years from the date it was imposed, or from the last review.
- However, it can stay longer if a review finds that dumping and injury would likely continue or recur if the duty ends.
- The review must happen before the 5-year deadline to determine if the duty should stay.
🔹 11.4 – Review Procedure
- Reviews will follow the same procedures as the original anti-dumping investigation (outlined in Article 6).
- Reviews should be completed within 12 months of being started, unless there are special circumstances.
🔹 11.5 – Application to Price Undertakings
- The rules in this article also apply to price undertakings (commitments by exporters to raise prices to avoid duties) as per Article 8.
US-China Dumping Case, 2011:
US-China Dumping Case, 2011
Dispute Overview
- Issue: China imposed anti-dumping and countervailing measures on broiler chicken products imported from the United States.
- The United States challenged China’s investigation and methodology in applying these measures, claiming violations under the Anti-Dumping Agreement, Subsidies and Countervailing Measures (SCM) Agreement, and GATT 1994.
US Claims Against China:
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Failure to Provide Due Process:
- China didn’t allow interested parties to meet and present views (Article 6.2 of the Anti-Dumping Agreement).
- China didn’t provide non-confidential summaries, hindering US parties from defending their interests.
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Failure to Disclose Information:
- China didn’t disclose essential facts regarding calculations for “all others” rates (Article 6.9 of Anti-Dumping Agreement, Article 12.8 of SCM Agreement).
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Incorrect Calculation of Normal Value:
- China rejected the US respondents’ cost allocations and imposed its own methodology, which was inconsistent with actual production costs (Article 2.2.1.1 of the Anti-Dumping Agreement).
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Unfair Comparison of Export Price and Normal Value:
- China improperly adjusted the export price by including freezer storage costs, which was not fair under Article 2.4 of the Anti-Dumping Agreement.
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Improper Calculation of Subsidization:
- China wrongly calculated the per-unit subsidization of subject imports and incorrectly allocated subsidies received for all chicken products only to the subject products (Article 19.4 of the SCM Agreement, VI:3 of GATT 1994).
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Use of “Facts Available”:
- China used “facts available” to determine duties for unknown US exporters, which was inconsistent with Articles 6.8 of Anti-Dumping Agreement and 12.7 of SCM Agreement.
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Improper Definition of Domestic Industry:
- China wrongly defined the domestic industry, not considering it as “domestic producers as a whole” (Article 4.1 of the Anti-Dumping Agreement and Article 16.1 of the SCM Agreement).
Panel’s Ruling:
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The Panel agreed with most of the US claims:
- It found that China violated certain provisions of the Anti-Dumping and SCM Agreements.
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Exceptions:
- Article 2.4 Claim: The Panel sided with China, ruling that the US claim was outside the Panel’s terms of reference because it wasn’t included in the request for consultations.
- Domestic Industry Definition: The Panel ruled that there is no obligation to define the “domestic industry” as the “whole” before considering a major proportion of producers, rejecting the US claim under Article 4.1.
Outcome:
- DSB Adoption: The Panel Report was adopted on 25 September 2013.
- China’s Response: On 22 October 2013, China notified the DSB that it would implement the recommendations and would need time to comply.
- Further Steps: On 15 July 2014, both China and the United States agreed on procedures for implementing the ruling under Articles 21 and 22 of the Dispute Settlement Understanding (DSU).
This case is an example of trade dispute resolution through the WTO, highlighting issues related to anti-dumping investigations, transparency, and procedural fairness.
No worries! Let me break it down for you in simpler terms:
The Case: US vs China on Dumping of Chicken Products (2011)
What Happened?
- China’s Action: China imposed anti-dumping and countervailing duties (basically taxes on imports) on US broiler chicken products, which meant the US chicken was taxed more than Chinese chicken because China claimed the US was “dumping” chicken at unfairly low prices (lower than what it costs to make it).
- US’s Complaint: The United States didn’t think China followed the proper rules when investigating and imposing these taxes. So, the US took China to the WTO (World Trade Organization) to challenge China’s actions.
The US’s Claims Against China:
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Not Giving a Fair Opportunity to Respond:
- The US claimed China didn’t let them fully respond to the investigation, especially when it came to showing how these duties (taxes) were unfair.
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Not Sharing Information:
- The US argued that China didn’t provide important information, which made it harder for the US to defend its case.
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Mistakes in Cost Calculations:
- China wrongly calculated the cost of producing the chicken in the US, and this led to incorrect “normal value” (price comparisons). According to the rules, they should have used the real cost data from the US producers, but they didn’t.
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Price Comparisons Were Unfair:
- China adjusted the price unfairly by including storage costs that shouldn’t have been part of the calculation.
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Wrongly Calculating Subsidies:
- China was accused of miscalculating subsidies (government help) given to US chicken producers and wrongly applying those subsidies to all chicken products, even if they weren’t related to the product being investigated.
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“Facts Available” Issue:
- China used “facts available” to determine duties for some US chicken exporters, which the US said wasn’t fair.
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Wrong Definition of Domestic Industry:
- The US claimed that China didn’t define the “domestic industry” (local producers in China) correctly when it conducted the investigation.
What Did the WTO Panel Say?
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Most US Claims Were Correct:
- The WTO panel agreed with the US on most points, meaning China didn’t follow the proper rules in investigating and imposing these taxes.
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Exceptions:
- Article 2.4 Claim: The WTO disagreed with the US on one point. They said that the US didn’t raise a particular issue properly when it first asked for a consultation (discussions). So, the US couldn’t argue about it in this case.
- Domestic Industry Definition: The WTO ruled that there’s no requirement to define the domestic industry (local producers) as “the whole” before considering a major proportion of them. So, China was fine in defining the industry that way.
Outcome:
- WTO Ruling Adopted: The WTO’s decision was accepted by all members (including China) on 25 September 2013.
- China’s Response: China said it needed some time to implement the decision and adjust its actions.
- Next Steps: China and the US agreed on how they would move forward in terms of implementing the decision, which was finalized by 15 July 2014.
In Simple Terms:
- The Issue: China charged extra taxes on US chicken, claiming it was sold at unfairly low prices (dumping).
- The US Complained: The US said China made mistakes in the investigation process, didn’t give enough chances to respond, and wrongly calculated costs and prices.
- The WTO Panel Agreed with the US: Most of the US’s complaints were correct, meaning China didn’t follow the rules properly.
- Result: China had to change its actions, but it took time to fix things.
Is this clearer now? Let me know if you want me to explain any part more!
Section A – Subsidies in General
Section B – Additional Provisions on Export Subsidies
🔸 Section A – Subsidies in General
- Any country that provides a subsidy (including income or price support) which affects exports or imports must notify the CONTRACTING PARTIES in writing.
- The notification must state:
- The extent and nature of the subsidy.
- The estimated effect on the quantity of products exported or imported.
- The circumstances that made the subsidy necessary.
- If the subsidy causes or threatens serious prejudice to the interests of another country:
- The subsidizing country must, on request, enter into discussions with the affected country (or countries) or with the CONTRACTING PARTIES.
- The purpose is to explore limiting the subsidy.
🔸 Section B – Additional Provisions on Export Subsidies
- Export subsidies can harm other countries and disturb normal trade, so countries are advised to avoid using them—especially for primary products (raw materials or basic agricultural goods).
* If a country does subsidize exports of primary products:
- It must not result in that country gaining more than an equitable share of global exports of that product.
- This is assessed based on past trade shares and special factors affecting trade.
- From 1 January 1958 (or as soon as possible after), countries must stop export subsidies (direct or indirect) on non-primary products that result in lower export prices than domestic prices for the same product.
- Until 31 December 1957, countries must not expand such subsidies beyond what existed as of 1 January 1955.
- The CONTRACTING PARTIES will periodically review these rules to assess their effectiveness in promoting fair trade and avoiding harmful subsidies.
WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement)
Here’s a clear bullet-point summary of the key points from your extract on the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement):
🔹 General Overview
- The SCM Agreement governs subsidies and countervailing duties (CVDs).
- It has two main parts:
- Multilateral disciplines (rules on whether subsidies are allowed).
- Countervailing measures (unilateral remedies for injury from subsidized imports).
🔸 Enforcement Mechanisms
- Multilateral: Countries can bring disputes to the WTO Dispute Settlement Body (DSB).
- Unilateral: Countries can initiate their own countervailing duty investigations and impose duties if conditions are met.
🔹 Article 1 – What Counts as a Subsidy?
A subsidy exists if:
✅ A. There is a financial contribution or price/income support:
- Direct transfers (e.g., grants, loans, equity infusions).
- Forgone revenue (e.g., tax breaks).
- Provision of goods/services (except general infrastructure).
- Government-directed subsidies via private bodies.
- Any income/price support under GATT Article XVI.
AND
✅ B. A benefit is conferred on the recipient.
Purpose of Article 2
🔹 Purpose of Article 2
- Determines whether a subsidy is “specific” to certain enterprises or industries.
- Only specific subsidies are subject to WTO disciplines like prohibition or countervailing duties.
🔸 2.1 – Types of Specificity
(a) Explicit Specificity – Always Specific
- If the law or authority explicitly limits the subsidy to certain companies or industries → it is specific.
(b) Objective Criteria = No Specificity
- If access to the subsidy is based on clear, objective, automatic rules (e.g., written in law or regulation) → it is not specific, if:
- Eligibility is automatic.
- Conditions are consistently applied and verifiable.
(c) De Facto (Actual) Specificity – Can Still Be Specific
- Even if a subsidy appears general, it may be effectively specific based on:
- A limited number of recipients.
- Predominant use by certain enterprises.
- Large disproportionate benefits to some enterprises.
- Discretionary decision-making by the granting authority.
- Must also consider:
- How diverse the economy is.
- How long the subsidy program has existed.
🔸 2.2 – Regional Specificity
- If a subsidy is limited to a specific geographic region → it is specific.
- But changing general tax rates by a government is not considered specific.
🔸 2.3 – Prohibited Subsidies
- Any subsidy that falls under Article 3 (prohibited subsidies) is automatically specific.
🔸 2.4 – Evidence Requirement
- The finding of specificity must be shall be clearly substantiated on the basis of positive evidence.
examples for article 2 of SCM agreemnt
🔹 1. Explicit Specificity (Article 2.1(a))
Example:
A government announces a subsidy program only for textile manufacturers to modernize their machinery.
- 🎯 Why it’s specific: The subsidy is explicitly limited to one industry (textiles), so it is considered specific.
- ✅ Result: It can be challenged under WTO rules if it causes harm to another country.
🔹 2. Non-Specific – Based on Objective Criteria (Article 2.1(b))
Example:
A government offers a 10% tax credit to any company (regardless of industry) that hires more than 50 employees and operates in rural areas. This is written into tax law.
- 🎯 Why it’s not specific: The eligibility is automatic and based on objective, written conditions. It’s open to all enterprises that meet the criteria.
- ❌ Result: This is not considered specific and generally not subject to countervailing measures.
🔹 3. De Facto (Actual) Specificity (Article 2.1(c))
Example:
A government has a broad subsidy program for “innovation and R\&D”, but in practice, 90% of the funds go to just three major car manufacturers, year after year.
- 🎯 Why it’s specific: Though the program looks general, it’s predominantly used by a limited number of enterprises, and the authority exercises discretion in granting subsidies.
- ✅ Result: The subsidy may be found to be de facto specific and subject to challenge.
Article 3 (Prohibition) and Article 5 (Adverse Effects) of the SCM Agreement:
🔹 Article 3 – Prohibited Subsidies
🚫 What’s prohibited:
-
Export-contingent subsidies
- ➤ These are subsidies that depend on a company exporting its goods.
- ✔ Example: A government gives a cash bonus or tax break only to companies that export 70% or more of their products.
-
Import-substitution subsidies
- ➤ Subsidies that depend on using local/domestic goods instead of imports.
- ✔ Example: A car manufacturer receives a subsidy only if it sources 60% of its components from domestic suppliers.
🔒 Rule:
- WTO Members cannot grant or maintain such subsidies under any circumstance (except for agricultural exceptions under the Agreement on Agriculture).
🔹 Article 5 – Adverse Effects
⚠️ Even if a subsidy isn’t prohibited, it still should not harm other countries. It must not cause:
-
Injury to another Member’s domestic industry
- ✔ Example: Country A subsidizes its steel industry → steel is dumped at low prices in Country B → steelmakers in Country B suffer losses.
-
Nullification or impairment of GATT benefits
- ✔ Example: Country A gives a subsidy that undermines a tariff concession made to Country B under GATT → Country B can’t fully use its market access rights.
-
Serious prejudice to another Member’s interests
- ✔ Example: Country A’s subsidies lead to significant market displacement or price undercutting in third-country or global markets, affecting Country B’s competitiveness.
🚫 Note:
- Article 5 doesn’t apply to subsidies given to agricultural products, which are governed by different rules (Article 13 of AoA).
