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Can non-market economy methodologies still be used against China in dumping calculations?

What does the Chinese protocol of accession say about dumping calculations?

The full text of paragraph 15 of the Chinese protocol of accession to the WTO is provided in the appendix at the end of this post. In summary, it states the following:

  • Preamble/Chapeau - Re-affirms that WTO anti-dumping and subsidies & countervailing measures agreements apply in proceedings involving China consistent with the following:

  • 15(a) - Authorises the use of EITHER Chinese prices or costs for the industry under investigation OR an other methodology based on rules set out in the following subparagraphs

  • 15(a)(i) - If Chinese producers show market economy conditions prevail in the industry, Chinese prices or costs must be used for the industry under investigation.

  • 15(a)(ii) - An other methodology can be used if producers cannot show that market economy conditions prevail in the industry producing the product.

  • 15(b) - if there are special difficulties in investigations under the SCM agreement, methodologies can be used for measuring a subsidy which take into account the possibility that prevailing conditions in China may not always be available as appropriate benchmarks.

  • 15(c) - WTO members must notify methodologies used in accordance with 15(a) and 15(b) to the WTO

  • 15(d) - When China has established it is a market economy, subparagraph 15(a) is terminated. - In any event, 15(a)(ii) shall expire 15 years after the date of accession. - In addition, if China establishes that market economy conditions prevail in a particular industry or sector 15(a) no longer applies to that industry or sector.

Why is there uncertainty about whether this provision still applies?

Subpararaph 15(d) states that 15(a)(ii) will expire 15 years after the date of accession so there is no doubt that something expired in 2016. However, it is also clear that paragraph 15 of the accession protocol has not expired and that parts of it still apply.


It is interesting to contrast paragraphs 15 and 16. Paragraph 16 authorises the use of China-specific safeguards for a period of 12 years after accession. Paragraph 9 of Article 16 states:


Application of this Section shall be terminated 12 years after the date of accession.

In this case, the drafters of the accession protocol have left no doubt. The whole paragraph expires leaving no ambiguity.

However, the drafters did not terminate the whole of Paragraph 15, so it would appear that the remaining provisions are still an integral part of WTO rules. The expiry of sub paragraph (a)(ii) leaves subparaph (a)(i) and the first/third sentence of subparagraph (d) in effect i.e. it is clear that these have not expired.

After December 11 2016, the remaining bits of paragraph 15 read as follows:

  • 15(a) authorises use of other methodologies subject to 15(a)(i)

  • 15(a)(i) requires that member must use Chinese prices/costs if producers show MEC in industry.

  • 15(d) first sentence – if China can show it is a market economy, then the whole provision (subparagraph (a)) expires.

  • 15(d) third sentence – if China can show that ME conditions prevail in an industry or sector, then the whole provision (subparagraph (a)) expires for that industry or sector.

It would appear that the expiry of 15(a)(ii) has not completely removed the authorisation to use other methodologies because 15(a) seems to serve that function also. Is it possible that subparagraph 15(a)(ii) was a superfluous provision in that it duplicated the authorisation already provided by 15(a)?


Paragraph 15(d) first and third sentences provide circumstances which would result in the expiry of (a) for permanent country or industry/sector graduation. It can only be assumed that the drafters understood the difference between these two provisions (i.e. paragraph (a) and subparagraph (a)(ii)).

There is a major ambiguity here. Clearly the drafters intended for something to expire so it is possible to argue that the expiry of 15(a)(ii) should have meaning. At the same time, the remaining provisions must also have meaning.

Has there been any WTO guidance on the expiry?

The Appellate Body (AB) mentioned the expiry in DS397 - EC Fasteners:


Paragraph 15(d) of China’ Accession Protocol establishes that the provisions of paragraph 15(a) expire 15 years after the date of China’s accession (para 289, page 122).

The first point to observe here is that the AB has not been precise in specifying what has expired, stating that 15(a) has expired rather than 15(a)(ii) as specified in subparagraph 15(d). It appears that the AB made a mistake in specifying what expires.


Is there any way in which the AB's statement could be seen as an attempt to clarify/interpret the ambiguity in the provisions of paragraph 15? I don't think so. The ordinary meaning of subparagraph 15(d) when it refers to 15(a)(ii) clearly cannot be read as referring to 15(a). Denying the ordinary meaning of the remaining provisions would seem to be more problematic than accepting that 15(a)(ii) was a superfluous provision.


It can also be observed that the AB's comment was not in relation to issues around non-market economy methodologies for normal value but, rather, whether paragraph 15 justified a different approach in relation to export prices. Further, the AB provides no analysis of the issue in order to make an interpretation that 15(a) has expired. Given the current sensitivity towards Appellate Body overreach, it seems highly unlikely that this statement by the AB constitutes any form of WTO jurisprudence.


The second hint of guidance comes from the EU – Price Comparison Methodologies (DS516) dispute. Leaks to the press on the confidential interim panel report suggest that the panel was going to confirm the continued applicability of the remaining parts of paragraph 15. These are only press rumours so this is not WTO jurisprudence. However, there is a wide understanding that the press reports are correct. This rings true given that China prevented the panel report from being published by requesting suspension of the proceedings and the dispute has now lapsed. Why would China do this unless the panel was going to rule against them?

Has China got the right to feel aggrieved?


To be perfectly truthful, my own understanding of this issue was that the possibility to use NME methodologies would expire after 15 years. For 15 years since Chinese accession I had not heard anyone point out that the protocol did not say what we all thought it said.


In this way, I can understand why China would feel aggrieved. It clearly thought there was an unambiguous commitment to treat it as a market economy in dumping calculations after 15 years. In all honesty, I think that was the understanding of most, if not all, commentators.


However, when the 15 years arrived, the attention on the detail of what had actually expired revealed this major ambiguity. As set out above, I therefore now believe that WTO members still have the option of using a methodology that is not based on a strict comparison with domestic prices or costs in China. Without subparagraph 15(a)(ii), importing countries can still use an alternative methodology unless the Chinese producers can clearly show that market economy conditions prevail in the industry producing the like product.


A final comment that can be made on this is that, in 2001, I think that there was genuine optimism that China was on a clear market-oriented path and that it would be a functioning market economy by 2016. In this regard, China took on the general obligations of WTO rules whilst also making various China-specific commitments. However, some would argue that China has not developed as expected. The latest USTR report on the issues states that "China's record of compliance with these terms has been poor" and catalogues a series of specific problems related to China's non-compliance with its WTO obligations.

All major trade remedy authorities continue to find that China still embraces a state-led approach to the economy and trade. Where this is the case, it is possible that distortions are created that affect domestic prices and costs and render them not suitable for use as normal value. China's moral case that it should be treated as a market economy would have more weight if its own record on WTO compliance was stronger.

What is the status of these provisions in the Vietnam and Tajikstan protocol of accession?

As with China, subparagraph 15(a)(ii) of the Vietnamese accession protocol has also expired. However, in the case of Tajikstan, all of these provisions remain in full effect until 2028.


APPENDIX


EXTRACT FROM PROTOCOL ON THE ACCESSION OF THE PEOPLE”S REPUBLIC OF CHINA

WT/L/432 23 November 2001


15. Price Comparability in Determining Subsidies and Dumping

Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement") and the SCM Agreement shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following:


(a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:


(i) If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;


(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.


(b) In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply; however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks. In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.


(c) The importing WTO Member shall notify methodologies used in accordance with subparagraph (a) to the Committee on Anti-Dumping Practices and shall notify methodologies used in accordance with subparagraph (b) to the Committee on Subsidies and Countervailing Measures.


(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.




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