International Economic Law and Policy Blog

China's Appeal in the U.S. - AD/CVD on Chinese Products Dispute

China's appeal in the U.S. - AD/CVD on Chinese Products (DS379) dispute is here: http://www.worldtradelaw.net/na/ds379-6(na).pdf  Some key issues in the appeal:

Double Remedies

This is the one I blogged about here. (In the comments on that post, I mentioned I would have further thoughts on the issue.  They are in our Dispute Settlement Commentary for the case).  Here's China's appeal on this point (footnotes omitted):

9. China seeks review by the Appellate Body of the Panel's conclusion that, in respect of the imposition of countervailing duties, the covered agreements do not require the United States to take into account the extent to which it simultaneously offsets the same subsidies through the manner in which it calculates anti-dumping duties under its non-market economy (NME) methodology.  The Panel's errors of law and legal interpretation include:

(a) The Panel erred in finding that Article VI:3 of the GATT 1994 and Article 19.4 of the SCM Agreement do not require the United States to take into account the extent to which the use of its NME methodology in a parallel anti-dumping investigation affects the existence and amount of the subsidy that remains attributable to the imported product under investigation.

(b) The Panel erred in finding that Article 19.3 of the SCM Agreement does not require the United States to take into account the extent to which the use of its NME methodology in a parallel anti-dumping investigation affects the appropriate amount of the countervailing duty to be levied.

(c) The Panel erred in finding that Article 10 of the SCM Agreement does not require the United States to take all necessary steps to  ensure that it does not offset the same subsidies twice through the imposition of two different duties, and in finding that the United States did not act inconsistently with Article 10 in imposing the challenged countervailing duty measures.

(d) The Panel erred in finding that the United States did not act inconsistently with Article 32.1 of the SCM Agreement in  imposing the challenged countervailing duty measures.

(e) The Panel erred in finding that it was China's obligation to "conclusively establish[]" that the USDOC offset the same subsidies twice in the investigations at issue.

Benchmarks in countries with market distortions 

This is the issue Julia blogged about here.  Here are some of China's points of appeal (footnotes omitted):

7. China seeks review by the Appellate Body of  the Panel's interpretation and application of Article 14(d) of the SCM Agreement as it relates to the USDOC's rejection of in-country private prices for hot-rolled steel as a benchmark in the CWP and LWR investigations.  The Panel's errors of law and legal interpretation include: 

(a) The Panel erred in interpreting Article 14(d) to permit the rejection of in-country private prices as a benchmark where the only evidence relied upon by the investigating authority is that the government is a predominant supplier of the good in question.

(b) The Panel erred in interpreting Article 14(d) to permit investigating authorities to reject private prices as a benchmark based exclusively on evidence relating to government market share, so long as the investigating authority "consider[s] … arguments and evidence" relating to factors other than government market share.

(c) The Panel acted inconsistently with Article 11 of the DSU by appearing to attribute to the USDOC a rationale for its rejection of private prices that differs from the rationale that appears in the USDOC's published determinations.

8. China seeks review by the Appellate Body of  the Panel's interpretation and application of Article 14(b) of the SCM Agreement as it relates to the USDOC's selection of loan benchmarks in the OTR, LWS, and CWP investigations.  The Panel's errors of law and legal interpretation include: 

(a) The Panel erred in finding that the benchmark used by the USDOC was "a comparable commercial loan which the firm could actually obtain on the market" within the meaning of Article 14(b).

(b) The Panel acted inconsistently with Article 11 of the DSU by failing to assess the conformity of the benchmark used by the USDOC with the legal requirements of Article 14(b).  To the extent that the Panel's findings and conclusions in respect of the USDOC loan benchmark were based on its assessment of the facts, that assessment was not objective as required by Article 11 of the DSU.

(c) The Panel erred in its interpretation and application of Article 14(b) in finding that observed interest rates for loans denominated in a particular currency can be rejected as a "distorted" benchmark, and in finding that the USDOC had a legal basis to reject observed RMB interest rates as a loan benchmark.

Krugman: "A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not."

From Paul Krugman:

One thing I’m hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery — that stuff like the South Korea trade agreement can serve as a form of macro policy.

Um, no.

...

There is a case for freer trade — it may make the world economy more efficient. But it does nothing to increase demand.

And there’s even an argument to the effect that increased trade reduces US employment in the current context; if the jobs we gain are higher value-added per worker, while those we lose are lower value-added, and spending stays the same, that means the same GDP but fewer jobs.

If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess.

In my view, his suggestion that CVDs are "job-creating" is only accurate if you are talking about the very short term.  You can impose duties on imports (via CVDs or some other mechanism) and that may "protect" specific jobs, in the sense of sheltering them from import competition.  But when you do that, there is likely to be a protectionist response from affected trading partners, which could cause you to lose jobs in export industries.  So any net job gains will be fleeting, I would think.  (And, of course, there will be significant costs that arise from taking these actions!)

On the other hand, I am a little skeptical of claims that trade agreements will be job-creating, at least in the short term.  In a nutshell, my view is that the main economic benefit of free trade is greater allocative efficiency for the economy, which improves overall economic welfare.  I'm not sure that a shift to freer trade will have a positive net effect on short-term employment levels in the short term, though.  Rather, there will be some gains and some losses, in both (or all, in a multilateral agreement) countries.  However, in the longer term, the growing economy should lead to higher overall employment.

The Korea-U.S. FTA: We Have a Deal

As everyone has probably heard by now, U.S. and Korean negotiators were able to work out a deal on an FTA.  Reuters reports:

The United States and South Korea have reached a deal on auto issues that have blocked congressional approval of a free trade agreement for three years, sources familiar with the talks said on Friday.

A few thoughts.

1.  Negotiations Are Often Unsatisfying

This kind of deal-making always leaves a lot of principled people unhappy.  Scott Lincicome is glad that a deal was reached, but is a little annoyed that the last minute dealing was more anti-trade than free trade:

The vast majority of my issues stem from the "deal" that the negotiators achieved to reach an agreement.  It appears that, as noted above, a major breakthrough in the negotiations was that, instead of immediately eliminating its 2.5% tariff on (non-truck) passenger vehicles from Korea, the US will maintain it for 5 years and then eliminate it.  Of course, this "achievement" comes at a price: according to National Journal, Korea's 8% tariff on similar American cars will no longer be eliminated immediately and instead will be halved, with the remaining 4% eliminated pursuant to the same 5 year schedule.  

He also notes:

The Obama administration sat on a signed-and-completed multi-billion dollar free trade agreement for two years, just so that they could re-open it and increase tariffs at home and abroad - to make the agreement less free.  If this is a "victory," then what's the point of all those other nasty tariff reductions?  

Similar stuff form Don Boudreaux here.

So that's the criticism from free traders.  How about fair traders?  This is from Congressman Mike Michaud:

“We had what I thought was a productive meeting just a few weeks ago at the White House on changes we’d like to see in the agreement. At the time, we told the President that we believe the agreement as it exists now has several fundamental problems that go beyond the issues with beef and autos.
 
“But after talking to Ambassador Kirk today, I learned that these concerns were not addressed.  I had hoped for more from this White House, which campaigned on a need to change the way we negotiate trade agreements so that they truly benefit American workers and businesses.  The deal reached today, while beneficial to the auto industry, falls far short of that goal.  
 
“Moving forward, I will continue to reach out to the Administration and work with them, especially on the Trans-Pacific Partnership.  But when it comes to this deal, I will work with allies on Capitol Hill to do whatever I can to defeat it.  We need to finally live up to what the American people have been demanding for years – a substantial departure from the past, not a continuation of its mistakes.”

Similar stuff from Lori Wallach here. 

On the other hand, these people all liked it.

Whichever side you are on, there is a lot to weigh and balance with an agreement such as this (just like with any piece of legislation).  It's certainly not complete free trade, but it does reduce a lot of tariffs, so that should make free traders happy (even if they wanted more and sooner).  And it's got some enforceable labor and environment standards in there, so that should make fair traders happy.  As with any agreement or legislation, the goal is to put together majority support for it (in both countries!).  We seem to have that at the moment with the current mix of provisions, although just barely and it all feels a bit precarious.

2.  How Much Will All This Help U.S. Auto Exports? 

Autos were a big deal.  The White House fact sheet says:

The United States and Korea have reached an agreement that makes more job-creating export opportunities in a more open and fair Korean market for America’s auto companies and auto workers.  The agreement improves market access for U.S. auto companies by addressing ways Korea’s system of automotive safety standards have served as a barrier to U.S. exports.  Similarly, the agreement addresses proposed Korean environmental standards that could serve as a barrier to U.S. exports – striking a balance that respects our shared desire to reduce the environmental impact of automobiles, but alleviates a real burden placed on American auto companies importing smaller volumes into Korea.  Progress was made in several additional areas of automotive policy including on regulatory transparency and an acceleration of tariff reductions on electric cars that will encourage the development of green auto technologies.

Autos were also the subject of a separate fact sheet here.  

I find this part particularly interesting because one of the long-standing criticisms of the U.S. trade negotiating position in relation to automobiles is that U.S. car-makers don't make products that Korean and other foreign consumers want.  In a nutshell, they make big cars and trucks, whereas foreign consumers want small cars. So now we may have a good test.  It appears that Korean tariffs and taxes on cars have been reduced for U.S. car-makers, and regulations eased.  Given that, will U.S. car-makers now be able to increase their exports of automobiles to Korea?  What are the implications if they cannot?

3.  The Impact of Investor-State Dispute Settlement

A while back, Global Trade Watch helpfully pointed out a number of potential investor-state claimants who might bring a case as a result of a U.S.-Korea FTA.  The question now is, how long before the first of these cases comes along?  And when the cases do come, what will the political impact be, in both the U.S. and Korea?

Some day, under some agreement, there will be a big, controversial investor-state case against the U.S. where the claimant actually wins.  It may be that until that happens, the U.S. will continue with its current approach to the issue (as long as our trading partners accept it, which may not always be the case).  But the more of these agreements that are in force, the greater are the chances of such a case coming along.  There's no way to predict how it will all unfold, if and when that case comes, and it seems to me that it's hard to gauge the future of investor-state until this occurs.  (The same probably applies to many other countries, possibly including Korea.) 

More on State Capitalism and Trade Rules

For those who were interested in Julia's post from last week, check out this EU argument in the EC - Fasteners case (the panel report was circulated on Friday):

7.86 ... the European Union maintains that in non-market economies, the State may be found to be the source of dumping.  In such cases, the investigating authorities can, in effect, treat the State as a "producer", calculate a single margin of dumping and duty rate for the State, and assign that country-wide duty to producers that  cannot demonstrate that they are independent from the State.

It's a little hard to summarize the issues and findings, but see paras. 7.51-98 for the details.

Legalized Online Gambling in the Lame Duck?

No doubt Antigua, the complainant in the U.S. - Gambling dispute, would still like to have (legal) access to the U.S. online gambling market.  Will they get it?  From the AP:

Senate Majority Leader Harry Reid is pushing behind the scenes for lame-duck legislation that would allow poker games over the Internet but restrict initial licenses to casinos and racetrack operators that have been in businesses at least five years.

Some of the biggest casino operators in Reid's home state of Nevada are eager to get a piece of the online gambling industry, which generates an estimated $5 billion a year for offshore operators

...

Under the draft legislation circulated to various Senate offices, states and Indian tribes would oversee regulation of the online poker license-holders.

The article doesn't say it explicitly, but I assume they mean that the "initial" licenses are restricted to operators who have been in business in the U.S. for at least five years.  Presumably most, if not all, such companies are domestically, rather than foreign, owned.  That might make it hard for Antiguan companies to offer their services under this legislation.  Unless, perhaps, a U.S. company that qualifies forms a partnership with the Antiguan (or other foreign) company?  Lots of details to work out along these lines, but of course that assumes the legislation will pass, which may be a long shot.

Australia - Apples: Some Appellate Body Statements on "Purpose"

Any time the Appellate Body says something about "purpose" (or "intent" or "aim" or "motive"), in whatever context, it's worth noting, because it may have broader implications.  This is from the Australia - Apples AB report, in the context of the SPS Agreement Annex A(1) definition of SPS measures:

172. A fundamental element of the definition of "SPS measure" set out in Annex A(1) is that such a measure must be one "applied to protect" at least one of the listed interests or "to prevent or limit" specified damage. Subparagraph (a) brings within the scope of the definition measures applied to protect animal or plant life or health within the Member's territory from specified risks related to pests and diseases. The word "to" in adverbial relation with the infinitive verb "protect" indicates a purpose or intention. Thus, it establishes a required link between the measure and the protected interest. In that sense, the Appellate Body in Australia – Salmon referred to a Member's "appropriate level of protection" and explained that this level is an objective, and that the SPS measure is an instrument chosen to attain or implement that objective. We note, in addition, that the word "applied" points to the application of the measure and, thus, suggests that the relationship of the measure and one of the objectives listed in Annex A(1) must be manifest in the measure itself or otherwise evident from the circumstances related to the application of the measure. This suggests that the purpose of a measure is to be ascertained on the basis of objective considerations.

173. We consider that the meaning that has been attributed to the phrase "applied ... so as to afford protection" in the context of Article III:1 of the GATT 1994 may provide some assistance to the interpretative task before us. The language of Annex A(1)(a) to the SPS Agreement is similar to Article III:1 of the GATT 1994, to the extent that both provisions use the word "applied", and in both provisions this word is followed by the infinitive of purpose, namely, "to protect" or "to afford protection", respectively. With regard to Article III of the GATT 1994, the Appellate Body has opined that, although the purpose of a measure is not easily ascertained, it can often be discerned from the measure's design, architecture, and structure. A similar approach is called for under Annex A(1)(a) to the SPS Agreement. Whether a measure is "applied ... to protect" in the sense of Annex A(1)(a) must be ascertained not only from the objectives of the measure as expressed by the responding party, but also from the text and structure of the relevant measure, its surrounding regulatory context, and the way in which it is designed and applied. For any given measure to fall within the scope of Annex A(1)(a), scrutiny of such circumstances must reveal a clear and objective relationship between that measure and the specific purposes enumerated in Annex A(1)(a).

So, according to the Appellate Body, its previous analysis of "purpose" under GATT Article III:1 is relevant for examining "purpose" under Annex A(1).  Presumably this interpretive approach works in reverse as well, so that everything said in Apples in the context of Annex A(1) applies to future cases involving Article III:1.

So what is interesting about what the Appellate Body said in Apples?  Here's a key sentence:  "[a measure's purpose is to be ascertained] not only from the objectives of the measure as expressed by the responding party, but also from the text and structure of the relevant measure, its surrounding regulatory context, and the way in which it is designed and applied."  The first part indicates that the objectives "as expressed by the responding party" are relevant to the purpose analysis.  A couple obvious questions:  Just how relevant are they? Are they more or less important than the other factors?

As to these other factors, the Appellate Body mentions "the text and structure of the relevant measure, its surrounding regulatory context, and the way in which it is designed and applied."  I've seen "text and structure" and "designed and applied" before in the context of Article III.  I'm curious about the "surrounding regulatory context," though. I see that the Appellate Body used that term in China - Audiovisual Products (I didn't come across it in other Appellate Body reports, but I only looked quickly) when looking at China's Article XX(a) defense: 

Whether the necessary objective link exists in a specific case needs to be established through careful scrutiny of the nature, design, structure, and function of the measure, often in conjunction with an examination of the regulatory context within which it is situated.

(See para. 230)  What exactly is this "regulatory context"?  How will this element be applied under Article III:1?

As a final point, it's great to have these elaborations related to Article III:1. The more interesting question, though, is how this will apply, if at all, to Article III:2, first sentence and Article III:4.

Australia - Apples: The SPS Agreement Standard of Review under Article 5.6

It appears that a WTO panel can be too deferential in applying its standard of review under the SPS Agreement.  This is from Monday's Australia - Apples AB report:

356. In considering further the Panel's approach to analyzing whether New Zealand's proposed alternative measures meet Australia's appropriate level of protection, we note that the Panel repeatedly stated that it had to be careful not to "slip into conducting a de novo review". The Panel's caution was, however, misplaced. Caution not to conduct a de novo review is appropriate where a panel reviews a risk assessment conducted by the importing Member's authorities in the context of Article 5.1. However, the situation is different in the context of an Article 5.6 claim. The legal question under Article 5.6 is not whether the authorities of the importing Member have, in conducting the risk assessment, acted in accordance with the obligations of the SPS Agreement. Rather, the legal question is whether the importing Member could have adopted a less trade-restrictive measure. This requires the panel itself to objectively assess, inter alia, whether the alternative measure proposed by the complainant would achieve the importing Member's appropriate level of protection. The fact that, in the present case, the alternative measures proposed by New Zealand in the context of its claim under Article 5.6 had also been assessed in the IRA did not alter the nature of the Panel's task under Article 5.6.

What this says to me is two things: (1) in the Appellate Body's view, the standard of review is different under different provisions, and it is important to follow the text of the provision at issue in determining the standard to apply; and (2) the SPS Agreement standard of review may not be as deferential under certain provisions as some people might like.