China's WTO complaint related to certain anti-dumping methodologies used by the US Department of Commerce is here (the parallel complaint against the EU is here). For now, I'm not going to get into the specific methodologies or AD Agreement legal obligations, but instead will focus on the Accession Protocol provision that allowed special treatment of China for 15 years due to its status as a non-market economy. (Don't get too excited -- I don't have any answers, I'm just raising questions!)
This is an excerpt from China's complaint:
At the time of China's accession to the WTO, the Members agreed that for a period of 15 years, investigating authorities would be allowed to determine normal value in anti-dumping proceedings involving Chinese products using methodologies "not based on a strict comparison with domestic prices or costs in China". The limited authority to use these methodologies was set forth in Section 15(a)(ii) of the Protocol on the Accession of the People's Republic of China ("Protocol"), and subject to the conditions set forth therein. Pursuant to Section 15(d) of the Protocol, "[i]n any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession". Accordingly, Members were required to terminate the use of these methodologies under Section 15(a)(ii) of the Protocol no later than 11 December 2016, and the continued use of these methodologies thereafter is in violation of a Member's obligations under the covered agreements.
After 11 December 2016, the provisions of the AD Agreement and the GATT 1994 that ordinarily apply to the determination of normal value apply to imports from China without derogation. China is concerned that the provisions of U.S. law pertaining to the determination of normal value in anti-dumping proceedings involving products from China are inconsistent with those provisions.
China then sets out its specific legal claims relating to particular measures and legal obligations, and follows up with this:
The inconsistencies with the covered agreements specified above ceased to be justifiable when Section 15(a)(ii) of the Protocol expired on 11 December 2016 pursuant to Section 15(d) of the Protocol. After that date, Section 15(a)(ii) of the Protocol does not provide a legal basis for Members to determine normal value using methodologies that are "not based on a strict comparison with domestic prices or costs in China". In addition, the measures at issue are not justifiable under the second Supplementary Provision to Article VI:1 of the GATT 1994, as referenced in Article 2.7 of the AD Agreement.
Now let's look at the relevant part of the Accession Protocol, which states:
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.
....
(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.
As stated in subparagraph (d), subparagraph (a)(ii) expires in 15 years from the accession date, which is December 11, 2016. China relies on this to argue that Members were required to terminate the use of methodologies "not based on a strict comparison with domestic prices or costs in China" by this date.
Let's go through these provisions. The 15(a) chapeau establishes that "a methodology that is not based on a strict comparison with domestic prices or costs in China" is permissible, on the basis of the following two rules. Under subparagraph (a)(i), if the producers under investigation (i.e., the Chinese respondents) "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," then the government doing the investigation "shall use Chinese prices or costs for the industry under investigation in determining price comparability." That is, it cannot use third country surrogate values. However, under subparagraph (a)(ii), if those same producers "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," then the investigating Member may use something other than Chinese prices and costs, that is, it is allowed to use third country surrogate values.
The problem is that, in subparagraph (d), the Protocol explicitly identifies only "the provisions of subparagraph (a)(ii)" as those that expire. Presumably, then, the introductory part of 15(a), as well as sub-paragraph (a)(i), do not expire, that is, they are are still in force. But how exactly will the 15(a) chapeau and 15(a)(i) apply without 15(a)(ii)? Without 15(a)(ii), it looks like Members may use "a methodology that is not based on a strict comparison with domestic prices or costs in China" under 15(a) based on a single rule, as set out in 15(a)(i), which says that "[i]f 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." So that's what happens if the producers can clearly show that market economy conditions prevail. But what if they cannot? 15(a)(ii) used to address that situation by saying that, "[t]he importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China." But now 15(a)(ii) does not apply. So what should happen if the producers cannot clearly show that market economy conditions prevail?
A key question may be, were these the only circumstances under which "[t]he importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China"? No other circumstances were specified, so does that mean no other circumstances exists? Could some entity other than the producers step in with evidence about whether market economy conditions do not prevail?
As noted, I don't have any answers to this, but I am excited to see what arguments the parties come up with. One question I have is whether, pursuant to VCLT Article 31(3(b), there has been "any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation"? In this regard, how have all of the various WTO Members addressed China's market economy status in recent years?
In addition, you can certainly understand how someone might see some ambiguity here, which might suggest recourse to the negotiating history of the provision under VCLT Article 32. A lot of countries were involved in the Chinese accession negotiations. Do any of them have relevant documents that help explain how the negotiators understood the meaning of these provisions?
