backOn 12 December 2016, China filed a request for consultation at the World Trade Organization challenging U.S. and EU laws and regulations applicable to the treatment of China as a Non-Market-Economy (NME) in antidumping investigations. The requests were filed the day after a provision of Chinas 2001 Accession Protocol to the WTO expired. China argues that the expiration of this provision now prevents other WTO Members from applying NME antidumping methodology to imports from China. According to China, the U.S. and EU laws and regulations violate WTO obligations because such laws and regulations have not been amended to give effect to the change reflected in Chinas Protocol.
Chinas challenge is based on the expiration of subparagraph a(ii) of Section 15 of its Accession Protocol. However, it is not certain that Chinas interpretation of the expiration of this provision necessarily requires an end to the use of NME methodology.
In relevant part, Section 15 states:**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") 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 AntiDumping 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.
(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 nonmarket economy provisions of subparagraph(a) shall no longer apply to that industry or sector.
Although extensive commentary has been published on the interpretation of Section 15 (both for and against termination of NME treatment) and although the precise interpretation will be subject to far more extensive and complex examination of the text, context, negotiating history, etc., the following logical interpretation could support the expected defense that the expiration of one provision within Section 15 of Chinas Accession Protocol does not eliminate an antidumping authoritys discretion to use NME methodology in any and all circumstances.
First, based on the second sentence of subparagraph (d), December 2016 only triggers the termination of subparagraph (a)(ii). Subparagraph (d) clearly distinguishes within the same provision between the termination of subparagraph (a) in its entirety and subparagraph (a)(ii).
Second, after December 2016, all other provisions of Section 15 (including subparagraphs (a), (a)(i), and (d)) remain in force and, under settled WTO jurisprudence, must be given meaning and effect.
Third, subparagraph (a)(ii) provides only one pathway for the use of prices or costs outside China, i.e., 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. The termination of this provision eliminates this one pathway.
Fourth, given that subparagraphs (a), (a)(i), and (d) remain in force, other pathways to use NME treatment must remain available in order to give these provisions any meaning and effect. A WTO panel should reject any interpretation under which the expiration of subparagraph (a)(ii) renders the remaining provisions of Section 15 meaningless. Thus, the United States and the EU are free to use prices or costs outside China provided they do so without violating any of the other non-expiring provisions of Section 15.
Fifth, the only other rules that prohibit the use of prices or costs outside China are if
(A) Producers under investigation clearly show that market economy conditions prevail in an industry (subparagraph (a)(i));
(B) China establishes, under the national law of the importing WTO Member, that it is a market economy (subparagraph (d), first sentence); or
(C) China establishes, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector.
Accordingly, if the United States and the EU have the discretion to depart from NME treatment if Chinese producers clearly show that market economy conditions prevail in an industry and if the government of China cannot establish under U.S. or EU law that China is a market economy or that market economy conditions prevail in a particular Chinese industry or sector, the United States and the EU remain free to use prices or costs outside China as expressly provided in subparagraph (a).
Thus, by maintaining domestic legislation that allows the use of NME methodology in certain circumstances when imports from China are involved, the United States and the EU may not be acting inconsistently with their WTO obligations. In fact, Chinas challenge could arguably be viewed as premature if the WTO panel considers that U.S. and/or EU law do not require the use of NME treatment in all cases involving imports from China. If U.S. and/or EU law can reasonably be interpreted as giving the authority discretion whether to apply NME treatment, China may be forced to refile its case based on the application of the relevant laws and regulations to specific cases post-December 2016.
Notably, under the existing provisions of the WTO Anti-Dumping Agreement, WTO Members also maintain certain latitude in antidumping investigations involving imports from China to use price and cost data that are not from China. Article 2.2 provides that if domestic sales are outside the ordinary course of trade or if a particular market situation does not permit a proper comparison, an authority may rely on prices of exports to third countries or cost of production. Although cost of production should normally be based on the costs in the exporting country, current WTO jurisprudence does not, at least for the moment, preclude an authority from finding that departure from the normal situation (and use of costs in a third country) are justified when costs in the exporting country (i.e., China) are distorted by substantial state intervention.
In terms of procedure, a request for consultations is the first step to initiate formal dispute settlement at the WTO. Given that any amicable solution is unlikely to result from consultations, a WTO panel will likely be established early next year, with its ruling expected in 2018.