On 30 January 2012, the WTO Appellate Body confirmed most of the findings made by a Panel in 2011, that mainland China’s export restrictions on various raw materials are incompatible with WTO law. In its report, released in July 2011, the Panel had found that the export duties and quotas maintained by the Chinese mainland on bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc were in breach of its Accession Protocol to the WTO and the GATT of 1994.
The findings made by the Appellate Body are particularly significant for two reasons. In the first place, the Appellate Body confirmed that mainland China is precluded from invoking the justifications laid down in Article XX of the GATT to deviate from the commitment, made in paragraph 11.3 of its Accession Protocol, not to impose charges and duties on exports.
In finding thus, the Appellate Body held that the obligation, which applies only specifically to the Chinese mainland through its Accession Protocol, is virtually unqualified: it cannot deviate from it by invoking the general GATT exceptions contained in Article XX which would have allowed the Chinese mainland to claim – albeit under stringent conditions – that the export duties were justified to protect the environment, or human, animal or plant life or health.
The second reason why the ruling is perceived as significant is that it is considered to set a precedent for the restrictions applied by the Chinese mainland on other, so-called “rare earth materials”, which are used in a variety of high-tech products (e.g., mobile phones). Mainland China produces 95% of these materials and has been limiting their export, just as with raw materials, on environmental grounds. The report of the Appellate Body indicates that, in case of a challenge, mainland China will not be able to invoke Article XX of the GATT to justify the restrictions in the form of duties or charges on the export of rare earth materials.
However, mainland China could limit actual production instead of exports of rare earth materials, which would not be open to a challenge under WTO rules. Another possibility for the Chinese mainland would be to apply quantitative restrictions instead of export duties, which could be justified under Article XX of the GATT. The strict conditions to which Article XX justifications (e.g. protection of the environment) are subject, however, make the latter possibility an unlikely one.
Another recent trade development saw the EU and the Chinese mainland agree on 12 October 2012 as a deadline for the EU to implement the rulings and recommendations of the Dispute Settlement Body of the WTO in the EC-Fasteners case. The ruling by the Appellate Body was a significant victory for the Chinese mainland. Hong Kong traders should be aware that it will have lasting consequences on how the EU conducts anti-dumping investigations against producers located in mainland China.
Indeed, under the EU’s Basic Anti-Dumping Regulation, an exporter or producer from a WTO Member designated as a non-market economy country under EU law, like mainland China, receives a country-wide dumping margin and a country-wide anti-dumping duty unless it demonstrates that its export activities are sufficiently independent from the State to warrant individual treatment. This has become highly problematic for producers in mainland China, who have little, if any, control over the rate of duties that can be imposed on them in case of an anti-dumping investigation.
However, the Appellate Body has held that the WTO Anti-Dumping Agreement requires an investigating authority to calculate individual and not country-wide dumping margins for each foreign exporter or producer as well as the imposition of individual anti-dumping duties on each foreign exporter or producer named in an investigation. The Appellate Body sided with the Chinese mainland when it found that the EU Basic Anti-Dumping Regulation is inconsistent with these obligations in its treatment of so-called non-market economies.
A related recent trade development refers to reports that the review of trade defence instruments, launched by the European Commission late last year, will address the WTO’s Appellate Body report in the abovementioned EC-Fasteners case. Besides a review of how the EU grants individual treatment to exporters, it might also need to take action with respect to the EU’s failure to comply with the three-month deadline for granting or refusing market economy treatment to companies.
It now seems probable that the deadline could be doubled in the Basic Regulation, from three to six months. These reports are surfacing while a trade defence evaluation study, which has been promised by the Directorate General for Trade of the European Commission, is being conducted. A draft report was issued to the Commission by the consultant carrying out the study, BKP Development, at the end of 2011 and is expected to be published soon.
The results of BKP’s online survey of EU firms showed that the main issues are a lack of transparency in these investigations and of accessibility of trade defence instruments to SMEs.
Another recent development saw a producer of hand-pallet trucks from the Chinese mainland, Crown Equipment, and its German distributor, Crown Gabelstapler, lodge an action at the EU General Court against anti-dumping duties imposed on its products following an expiry review. After the company had initially volunteered to be included in the sample used to set the anti-dumping duties, it withdrew its cooperation as the proceeding advanced. Duties of between 7.6% and 46.7% were imposed on hand-pallet trucks from mainland China and shipped via Thailand.
In a further trade development, EUROFER, a trade association representing European steel producers, filed an anti-subsidy complaint with the European Commission on 6 January against imports of organic coated steel from the Chinese mainland. In its press statement, Eurofer indicates that it provided "overwhelming evidence that the surges in EU steel imports of Chinese organic coated sheet are the result of massive subsidisation." The complaint follows the earlier initiation of an anti-dumping investigation by the Commission on the same product following a complaint from EUROFER.
Hong Kong traders with business interests in the mainland will recall that so far, only two anti-subsidy investigations, one on wireless wide area networking modems and one on coated fine paper, have been conducted against mainland China by the EU.
In a final trade development, Zhejian Xinan Chemical Industrial Group (Xinanchem) received backing from Advocate General (AG) Juliane Kokott in an appeal of the EU Council against a judgment by the EU’s General Court in 2009. The case concerns anti-dumping duties imposed on imports of herbicide glyphosate.
In its decision, which was appealed by the EU Council, the General Court held that the Commission had incorrectly presumed that there was State control over the company, which precluded the company from receiving "market economy status" and had the duties applicable to its products determined on the basis of a comparison with a third country (Brazil). The AG expressed the opinion that the appeal by the EU Council against the decision of the General Court ought to be dismissed.
