DISPUTE SETTLEMENT

DS: 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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Summary of the dispute to date

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.

 

Panel and Appellate Body proceedings

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.

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.

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 provision, 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.

  • 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.

At its meeting on 16 January 2015, the DSB adopted the Appellate Body report and the panel report, as modified by the Appellate Body report.

 

Reasonable period of time

On 13 February 2015, the United States informed the DSB that it intended to implement the DSB's recommendations and rulings in a manner that respects its WTO obligations, and that it would need a reasonable period of time to do so. On 26 June 2015, China requested that the reasonable period of time be determined through binding arbitration pursuant to Article 21.3(c) of the DSU. On 9 July 2015, China requested the Director-General to appoint the arbitrator. On 17 July 2015, the Director-General appointed Mr Georges M. Abi-Saab to act as arbitrator under Article 21.3(c) of the DSU. On 22 July 2015, Mr Abi-Saab accepted this appointment.

On 9 October 2015, the Award of the Arbitrator was circulated to Members. The Arbitrator determined the reasonable period of time as 14 months, 16 days. The reasonable period of time will thus expire on 1 April 2016.

 

Implementation of adopted reports

On 15 April 2016, China and the United States informed the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

 

Compliance proceedings

On 13 May 2016, China requested consultations pursuant to Article 21.5 of the DSU, in connection with the United States' alleged failure to implement the recommendations and rulings of the DSB in this dispute. On 8 July 2016, China requested, pursuant to Article 21.5 of the DSU, the establishment of a compliance panel. At its meeting on 21 July 2016, the DSB agreed to refer to the original panel, if possible, the matter raised by China. Australia, Canada, the European Union, India, Japan, Korea, the Russian Federation, and Viet Nam reserved their third party rights. On 26 September 2016, China requested the Director-General to determine the composition of the panel because two of the original panelists were not available to serve in the compliance panel proceedings. On 5 October 2016, the Director-General composed the panel. On 15 November 2016, the Chairperson of the compliance panel informed the DSB that the compliance panel expected to issue its final report to the parties in the second half of 2017.

On 21 March 2018, the Compliance panel report was circulated to Members.

Background

This compliance dispute concerns countervailing duties (CVDs) imposed by the United States on imports of certain products from China.

The original panel and Appellate Body reports were adopted by the DSB on 16 January 2015, and the reasonable period of time for compliance expired on 1 April 2016. Following the original dispute, the US Department of Commerce (USDOC) revised various CVD determinations. In the revised determinations at issue, the USDOC concluded that Chinese state-owned and state-invested enterprises (SOEs/SIEs) provided inputs to Chinese exporters (mainly steel inputs) for less than adequate remuneration. This conclusion was based on two main findings:

  • That SOE/SIE providers of inputs were “public bodies” in the sense of Article 1.1(a)(1) of the SCM Agreement; and
  • That price distortions in the domestic market in China justified using third country prices as a benchmark for assessing the benefit granted to Chinese exporters under Article 14(d) of the SCM Agreement.

Claim concerning the USDOC's public body determinations

The Panel found that China had not demonstrated that the USDOC's public body analysis was inconsistent with the DSB's rulings and recommendations and with Article 1.1(a)1 of the SCM Agreement:

  • The Panel rejected the legal standard advocated by China for determining if a state-owned entity is a public body. The Panel recalled that a public body is an entity which possesses, exercises, or is vested with governmental authority to perform a governmental function. But contrary to what China argued, the Panel considered that the USDOC was not required to identify a connection between the granting of the alleged subsidy (in this case, the provision of inputs) and the relevant governmental function.
  • The Panel considered that China had not otherwise demonstrated that the USDOC erred in treating Chinese providers of steel and other inputs as public bodies in the CVD investigations at issue.
  • The Panel also found that the USDOC's “Public Bodies Memorandum”, a document describing the links between the Chinese government and SOEs/SIEs in China, was not inconsistent “as such” with Article 1.1 of the SCM Agreement. The Panel concluded that the Public Bodies Memorandum did not impinge upon the authority of the USDOC to disregard or supplement it in any given investigation, and that it did not restrict in a material way the USDOC's discretion to act consistently with Article 1.1 of the SCM Agreement.

Claim concerning the USDOC's benefit determinations

The Panel found that China had demonstrated that the USDOC's recourse to third country prices for assessing the benefit granted to Chinese exporters was inconsistent with Article 14(d) of the SCM Agreement:

  • The Panel rejected China's argument that an investigating authority can have recourse to an out-of-country price benchmark only when it has shown that prices for the input at issue are determined de jure or de facto by the government. The Panel considered that any evidence of price distortion caused by government intervention could justify disregarding in-country prices.
  • The Panel considered however that, in four CVD investigations, the evidence on the record did not support the USDOC's finding that the price of inputs in China was distorted. The Panel also noted that the USDOC had disregarded evidence in relation to certain input prices, which had been placed on the record during the relevant CVD proceedings.

Claim concerning the USDOC's specificity determinations

The Panel found that China had demonstrated that the USDOC's revised specificity determinations were inconsistent with Article 2.1(c) of the SCM Agreement. The Panel found that the United States had not complied with the requirement contained in Article 2.1(c) to “take account of the length of time during which the subsidy programme has been in operation” because the USDOC had failed to adequately explain its conclusions regarding the existence of the relevant subsidy programme.

Other claims

The Panel found other inconsistencies related to public body, price benchmarks, and de facto specificity in various administrative reviews based on reliance on determinations that had been previously found to be WTO-inconsistent.

China also raised various other claims on which the Panel found that it had failed to demonstrate an inconsistency with the relevant provisions of the SCM Agreement, including regional specificity under Article 2.2 of the SCM Agreement, sunset reviews under Article 21.3 of the SCM Agreement, and the “ongoing conduct” of imposing and collecting CVDs on the basis of WTO-inconsistent determinations.

On 27 April 2018, the United States notified the DSB of its decision to appeal to the Appellate Body certain issues of law covered in the compliance panel report and certain legal interpretations developed by the compliance panel. On 2 May 2018, China notified the DSB of its decision to cross-appeal.

Although the appeal in this dispute was initiated in April 2018, work on this appeal could gather pace only in October 2018. On 2 July 2019, the Chair of the Appellate Body notified the Chair of the DSB that the Appellate Body Report in these proceedings would be circulated to WTO Members on 16 July 2019. In an earlier communication, the Chair of the Appellate Body had explained that this was due to a number of factors, including the backlog of appeals pending with the Appellate Body at present and the overlap in the composition of all divisions resulting in part from the reduced number of Appellate Body Members.

On 16 July 2019, the Appellate Body report was circulated to Members.

The Panel's terms of reference — Article 21.5 of the DSU

  • The Appellate Body found that the Panel correctly assessed the scope of the measures falling within its terms of reference in these Article 21.5 proceedings. In keeping with prior panel and Appellate Body reports on this issue, the Panel properly based its analysis on the criteria of the measure's relationship in terms of nature, timing, and effects. Accordingly, the Appellate Body upheld the Panel's conclusions, that the subsequent reviews at issue as well as the Final Determination in another investigation fell within the Panel's terms of reference under Article 21.5 of the DSU.

Public bodies — Article 1.1(a)(1) of the SCM Agreement

  • The Appellate Body held that a public body inquiry under Article 1.1(a)(1) of the SCM Agreement does not hinge on the conduct of the investigated entity, but rather on the core characteristics of the entity itself and its relationship with government, in light of the legal and economic environment in which the entity operates. In this respect, the Appellate Body held that under Article 1.1(a)(1) of the SCM Agreement, “government” and a “public body” share a degree of commonality or overlap in their essential characteristics — i.e. they both possess, exercise, or are vested with governmental authority. While an entity's conduct or practice may constitute evidence relevant to the inquiry, an investigating authority need not necessarily focus on every instance of conduct in which that entity may engage, or on whether each such instance of conduct is connected to a specific “government function”. On this basis, the Appellate Body upheld the Panel's finding that Article 1.1(a)(1) does not prescribe a connection of a particular degree or nature that must necessarily be established between an identified government function and the particular financial contribution at issue. The Appellate Body also upheld the Panel's finding that the USDOC's public body determinations at issue were not based on an improper legal standard. The Appellate Body did not address China's additional claims in respect of the USDOC's public body determinations at issue.
  • Further, the Appellate Body agreed with the Panel that the Public Bodies Memorandum bears a close relationship to the declared measure taken to comply, and that China could not have challenged the Memorandum in the original proceedings. Thus, the Appellate Body upheld the Panel's finding that the Public Bodies Memorandum fell, “as such”, within the scope of the compliance proceedings. However, the Appellate Body considered that China's appeal regarding the Public Bodies Memorandum “as such” was premised on China's position that Article 1.1(a)(1) requires the establishment of a connection between an identified government function and the particular financial contribution at issue. Having already rejected China's position, the Appellate Body did not further address China's appeal and the participants' arguments on the Public Bodies Memorandum “as such”.
  • The Appellate Body report contains a separate, concurring opinion by one member of the Division on this issue.

Benefit — Articles 1.1(b) and 14(d) of the SCM Agreement

  • The Appellate Body found that central to the inquiry under Article 14(d) in identifying an appropriate benefit benchmark is the question of whether in‑country prices are distortedas a result of government intervention. Different types of government interventions could result in price distortion, such that recourse to out-of-country prices is warranted, beyond the situation in which the government effectively determines the price at which the good is sold. The determination of whether in country prices are distorted must be made case by case, based on the relevant evidence in the particular investigation and taking into account the characteristics of the market being examined, and the nature, quantity, and quality of the information on the record. The Appellate Body upheld the Panel's finding that Article 14(d) does not limit the possibility of resorting to out-of-country prices to the situation in which the government effectively determines the price at which the good is sold.
  • The Appellate Body found that there may be different ways of demonstrating that prices are actually distorted, including a quantitative assessment, price comparison methodology, a counterfactual, or a qualitative analysis. While evidence of direct impact of government intervention on prices may make a finding of price distortion likely, evidence of indirect impact may also be relevant. At the same time, establishing a nexus between such indirect impact of government intervention and price distortion may require more detailed analysis and explanation. Independently of the method chosen by the investigating authority, it has to adequately take into account the arguments and evidence supplied by the petitioners and respondents, together with all other information on the record, so that its determination of how prices in the specific markets at issue are in fact distorted as a result of government intervention be based on positive evidence. The Appellate Body considered that the Panel's reasoning is consonant with its interpretation of Article 14(d).
  • The Appellate Body understood the Panel to have rejected as insufficient and problematic the USDOC's determination that prices in the entire steel and solar-grade polysilicon sectors in China cannot be used as benefit benchmarks in the absence of a specific assessment of how government intervention had resulted in price distortion in the four input markets at issue. Furthermore, the Appellate Body understood the Panel to have been concerned with the focus of the USDOC's analysis in the Benchmark Memorandum on the pervasiveness of government involvement in China's SIEs' decision-making in general and in the steel sector as a whole, rather than on how specifically this involvement influenced pricing decisions regarding the inputs at issue and resulted in price distortion with respect to the determinations at hand. The Appellate Body therefore found that the United States had not established that the Panel erred in its interpretation and application of Article 14(d) of the SCM Agreement in finding that the USDOC had failed to explain, in the OCTG, Solar Panels, Pressure Pipe, and Line Pipe Section 129 proceedings, how government intervention in the market resulted in domestic prices for the inputs at issue deviating from a market-determined price, as well as that the USDOC failed to consider price data on the record.
  • The Appellate Body report contains a separate, dissenting opinion by one member of the Division on this issue.

Specificity — Article 2.1(c) of the SCM Agreement

  • With respect to the Panel's interpretation and application of Article 2.1(c), the Appellate Body agreed with the Panel that, while “evidence of ‘a systematic series of actions’ may be particularly relevant in the context of an unwritten programme, the mere fact that financial contributions have been provided to certain enterprises is not sufficient to demonstrate that such financial contributions have been granted pursuant to a plan or scheme for purposes of Article 2.1(c).” The Appellate Body also found that the Panel's subsequent review of the USDOC's analysis properly focused on “whether the information relied upon by the USDOC supports its finding of a systematic series of actions evidencing the existence of a plan or scheme pursuant to which subsidies have been provided”. The Appellate Body added that, in its reasoning, the Panel rightly contrasted the USDOC's failure to explain “systematic activity … regarding the existence of an unwritten subsidy programme” with information before the USDOC merely indicating “repeated transactions”. On this basis, the Appellate Body disagreed with the United States insofar as it had argued that the Panel erred in its articulation of the standard to be applied under Article 2.1(c). The Appellate Body also disagreed with the United States to the extent it had claimed that the Panel's finding under Article 2.1(c) was based on an isolated reading of the USDOC's specificity analysis. For these reasons, the Appellate Body upheld the Panel's finding that the United States acted inconsistently with Article 2.1(c) of the SCM Agreement in 11 of the Section 129 proceedings at issue in this dispute.
  • The Appellate Body report contains a separate, dissenting opinion by one member of the Division on this issue.

At its meeting on 15 August 2019, the DSB adopted the Appellate Body report and the panel report, as upheld by the Appellate Body report.

 

Proceedings under Article 22 of the DSU (remedies)

On 17 October 2019, China requested the authorization of the DSB to suspend concessions or other obligations pursuant to Article 22.2 of the DSU on the grounds that the United States had failed to comply with the DSB's recommendations and rulings within the reasonable period of time provided in agreed procedures under Articles 21 and 22 of the DSU (sequencing agreement). On 25 October 2019, the United States informed the DSB that it objected to China's proposed level of suspension of concessions pursuant to Article 22.6 of the DSU.

At the DSB meeting on 28 October 2019, the Chair of the DSB took note that the matter raised by the United States had been referred to arbitration pursuant to Article 22.6 of the DSU.

 The Arbitrator was composed by one of the original panelists and two other individuals.

On 26 January 2022, the arbitration report was circulated to Members.

In its request to the DSB, China had requested DSB authorization to suspend concessions or other obligations to the United States with respect to goods under the agreements described in Article 22.3(g)(i) of the DSU at an annual amount of USD 2.4 billion. According to China, this was equivalent to the level of nullification or impairment caused by the United States' failure to implement the DSB recommendations and rulings concerning the imposition of countervailing duties on a range of Chinese products, and the investigations leading to the imposition of such duties.

The decision by the Arbitrator was circulated to WTO Members on 26 January 2022. The Arbitrator determined that the appropriate level of nullification or impairment was USD 645.121 million per annum. The Arbitrator concluded that, in accordance with Article 22 of the DSU, China may request authorization from the DSB to suspend concessions or other obligations at a level not exceeding USD 645.121 million per annum.

 

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