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2018 | OriginalPaper | Chapter

The Termination of the Grandfather Clause in China’s Accession Protocol and the Normal Value Construction After Fifteen Years of Accession

Author : Xuewei Feng

Published in: Non-market Economies in the Global Trading System

Publisher: Springer Singapore

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Abstract

A complicated legal issue tests the wisdom of a treaty interpreter. The Appellate Body in recent years has called for a holistic interpretation of the law of the World Trade Organisation (“WTO”). Both the issue of whether Section 15(a) and (d) constitute a “grandfather” clause and, therefore, should be terminated after fifteen years of accession, and the issue of whether Article 2.2.1.1 of the Anti-dumping Agreement (“AD Agreement”) allows the use of foreign information to calculate producers’ production costs, deserve a holistic approach of interpretation, taking into account all the relevant provisions and covered agreements, protocols, etc. Bearing this in mind, this chapter tries to analyze the grandfather clause nature of Section 15(a) and (d) of China’s Accession Protocol and the legal consequences. Moreover, the chapter also tries to point out the differences in the governing scope of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) and the AD Agreement. Further, this chapter also aims to show how State-Owned Enterprises (“SOEs”) and subsidies can be dealt with under the SCM Agreement separately in a manner without causing double remedies. The SOE issue can also be examined under commercial operation obligations under the GATT. In such a contextual background, the WTO anti-dumping rule for calculating production costs under Article 2.2.1.1 of the AD Agreement should be interpreted in a way that only resolves normal value calculation, while not addressing price distortion or subsidy issues. With such a clear distinction of the governing scope, this chapter argues that production costs calculation under Article 2.2.1.1 cannot be interpreted as permitting the use of surrogate costs from other countries so that the surrogate country methodology in Section 15 of China’s Accession Protocol as a grandfather clause would not be reincarnated and inserted back into the AD Agreement.

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previous chapter How China Did not Transform into a Market Economy

next chapter Double Remedy: Beyond the Non-market Economy Status

Protocol on the Accession of the People’s Republic of China, WTO Doc. WT/L/432 (Nov. 23, 2001).

Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 201 (1994) [hereinafter Anti-Dumping Agreement].

Appellate Body Report, European Communities — Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, ¶392, WTO Doc. WT/DS397/AB/R (adopted July 15, 2011).

Appellate Body Report, US — Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WTO Doc. WT/DS337/AB/R (adopted May 23, 1997) (“Article XX and XI:(2)(c)(i) are limited exceptions from obligations under certain other provisions of the GATT 1994, not positive rules establishing obligations in themselves.”). In the opinion of the Appellate Body, there are two types of rules in WTO Agreement, the principle rules are those setting out positive obligations for Members, exception rules are those allowing deviation from these positive obligations. Consequently, since Section 15(a) provides Members the right to deviate from those rules in GATT 1994 and in the Anti-dumping Agreement concerning the determination of the normal value, this Protocol paragraph constitutes an exception to the general rules on normal value calculation.

General Agreement on Tariffs and Trade, Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, GATT Doc. L/4093 (adopted Dec. 3, 1979).

Appellate Body Report, EC — Conditions for Granting Tariff Preferences to Developing Countries, ¶ 90, WTO Doc. WT/DS246/AB/R (adopted Apr. 7, 2004).

First Written Submission by the European Union, European Union – Measures Related to Price Comparison Methodologies, ¶5, WTO Doc. WT/DS516 (Nov. 14, 2017), http://trade.ec.europa.eu/doclib/docs/2017/november/tradoc_156401.pdf.

General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S 1947 [hereinafter GATT 1947].

General Agreement on Tariffs and Trade, entered into force Apr. 15 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187, 33 I.L.M. 1153 [hereinafter GATT 1994]. Art. XII:1 of the GATT 1994 states, “Any State,…… may accede to this Agreement, on terms to be agreed between it and the WTO. Such accession shall apply to this Agreement and the Multilateral Trade Agreements annexed thereto.”

World Trade Organisation, Ministerial Conference Decision of 10 November 2001, ¶1.2, WTO Doc. WT/L/432 (adopted Nov. 23, 2001). “This Protocol, which shall include the commitments referred to in paragraph 342 of the Working Party Report, shall become an integral part of the WTO Agreement.”

Such principle can be similarly found in Waiver decisions made by the General Council of the Ministerial Conference of the WTO.

Protocol on the Accession of the People’s Republic of China, WTO Doc. WT/L/432 (Nov. 23, 2001), sec. 15(a) [hereinafter Chinese Protocol of Accession]. Sec. 15 (a) states:

In determining price compatibility under Article VI of the GATT 1884 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, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price compatibility; (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.

Also see Report of Working Party on the Accession of China, Compilation of the Legal Instruments on China’s Accession to the World Trade Organization, WTO Doc. WT/ACC/CHN 49 (Oct. 1, 2001) [hereinafter Working Party Report].

See Protocol Language in World Trade Organisation, Agreement on Market Access Between The Peoples Republic Of China And The United States of America in Basic Instruments & Selected Documents on the Negotiation for China’s Accession to the World Trade Organization, Vol. 20 (China Commerce and Trade Press, 2012).

Vienna Convention on the Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331.

For detailed reasoning and historical evidence, see Frieder Roessler, The Provisional Application of the GATT-Note on the Report of the GATT Panel on the ‘Manufacturing Clause’ in the U.S. Copyright Legislation, 19(3) J. World Trade 289–295 (1985).

See Roessler, id., at 289–291,and see also World Trade Organization, Analytical Index of the GATT, 1072, https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/prov_appl_gen_agree_e.pdf

Panel Report, United States — Manufacturing Clause, GATT Doc. L/5609 (adopted May 15, 1984) [hereinafter US — Manufacturing Clause]. 85d (adopted on. May 15, 1984),ean Commission ("I:1 t)].e areference to which of the 2 citations is referred to in FN 10. are.

17 U.S.C. § 601 (1982).

US — Manufacturing Clause, supra note 17, ¶5.

Panel Report, Brazilian Internal Taxes, GATT Doc. GATT/CP.3/SR.9 (adopted Jun. 30, 1949).

US — Manufacturing Clause, supra note 17, ¶ 36.

Id., ¶ 39.

Id., ¶ 38.

Id., ¶¶ 37–39.

“It noted that the Protocol had been conceived of as providing a temporary dispensation to enable contracting parties to apply Part II of the General Agreement without changing existing legislation or acting inconsistently with it.” See Id., ¶ 39.

Roessler, supra note 15, at 295.

See World Trade Organisation, The Legal Text – The Results of the Uruguay Round of Multilateral Trade Negotiation, 17 (Cambridge University Press, 1999).

Working Party Report, supra note 12, ¶ 6.

Working Party Report, supra note 12, ¶ 9.

Anti-Dumping Agreement, supra note 2, art. 2.1 Art. 2.1 provides the most normal comparison between export price and the domestic sales price as the compatible price to calculate dumping margin. When sales are not made in the ordinary course of trade or because of the particular market situation or the low volume of sales in domestic market that the relevant export price is not compatible directly with the export price, Article 2.2 of the AD Agreement provides two other ways of determining normal value (to make it compatible with the export price), namely, by using the export price to an appropriate third country, or, by using a constructed value consisting of the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs and for profits. These two latter ways are used when domestic sales price is NOT compatible with the export price. All three methodologies are normal rules for determining normal value, with only one statutory (or express) exception as provided in Ad Note paragraph 2 to GATT Article VI:1.

GATT 1994, supra note 9, Ad Note, Para 2, Art. VI:1. The Ad Note states:

It is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price compatibility for the purpose of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.

Appellate Body Report, US — Countervailing Measures on Certain EC Products, WTO Doc. WT/DS212/AB/R (adopted Dec. 9, 2002).

Id., ¶ 126.

Appellate Body Report, US — Countervailing Measures on Certain Hot Rolled Carbon Steel from India, WTO Doc. WT/DS436/AB/R (adopted Dec. 8, 2014).

See Appellate Body Report, Canada — Measures Affecting the Export of Civilian Aircraft, WTO Doc. WT/DS70/AB/R (adopted August 2, 1999); Appellate Body Report, Canada — Measures Affecting Importation of Milk and Exportation of Dairy, WTO Doc. WT/DS103/AB/R (adopted Oct. 13, 1999); Appellate Body Report, Canada — Measures Affecting Dairy Products, WTO Doc. WT/DS113/AB/R (adopted Jul. 11, 2001); Panel Report, Canada — Aircraft Credit and Guarantees, WT/DS222/P/R (Jan. 28, 2002); Appellate Body Report, Canada — Wheat Exports and Grain Imports, WTO Doc. WT/DS276/AB/R (adopted Aug. 30, 2004); Panel Report, US — Softwood Lumber III,WTO Doc. WT/DS236/AB/R (adopted Sep. 27, 2002); Appellate Body Report, US — Softwood Lumber IV,WTO Doc. WT/DS257/AB/R (adopted Jan. 19, 2004); Appellate Body Report, US — Softwood Lumber V, WTO Doc. WT/DS264/AB/R (adopted Aug. 11, 2004), Appellate Body Report, US — Softwood Lumber VI, WTO Doc. WT/DS277/AB/R (adopted Apr. 13, 2006).

Appellate Body Report, EC and Certain Member States — Large Civil Aircraft, WTO Doc. WT/DS316/AB/R (adopted May 18, 2011); Appellate Body Report, US — Large Civil Aircraft, WTO Doc. WT/DS353/AB/R (adopted March 12, 2012).

Agreement on Agriculture entered into force April 15 1994, art. 9, 1867 U.N.T.S. 410.

Panel Report, United States — Subsidies on Upland Cotton, WTO Doc. WT/DS267/P/R (adopted Sep. 8, 2004); Appellate Body Report, United States — Subsidies on Upland Cotton, WTO Doc. WT/DS267/AB/R (adopted Mar. 3, 2005). In both these cases, it was stated that export subsidies existed in violation of the Agriculture Agreement and the SCM Agreement.

Appellate Body Report, United States — Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, WTO Doc. WT/DS379/AB/R (adopted Mar. 25, 2011).

See Appellate Body Report, United States — Anti-Dumping and Countervailing Duties on Certain Products from China, ¶¶ 541–543, WTO Doc. WT/DS 379/AB/R (adopted Mar. 11, 2011).

Id., ¶¶ 582–583. Please also take note that Art. VI:5 of the GATT states, “No product of the territory of any contracting party imported into the territory of any other contracting party shall be subject to both anti-dumping and countervailing duties to compensate for the same situation of dumping or export subsidization.” See GATT 1994, supra note 9, art. VI:5.

See 社会主义市场经济图示(SozialMarktwirtschaftimSchaubil, translated by Liu Xiao Tian, Liaoning People’s Press, 1993).

Working Party Report, supra note 12, ¶ 6.

社会主义市场经济本质上是法治经济。使市场在资源配置中起决定性作用和更好发挥政府作用, 必须以保护产权、维护契约、统一市场、平等交换、公平竞争、有效监管为基本导向。完善社会主义市场经济法律制度。Socialist market economy in essence is a market economy based on rule of law. The key principle is to allow market to play a decisive role in the allocation of resources and the government to play a better role. There should be protection of properties, legal support of contracts, unified market, equal exchange and fair competition as well as effective supervision of the market as the basis of the market. The socialist market economy related legal system should be maintained and improved”. See Communist Party of China, Certain Issues on Pushing the Comprehensive Rule of Law by Communist Party Central Committee, CPC Decision during the Fourth session of the 18^th Party Central Committee, 12 (Oct. 28, 2014).

Basic Instruments and Selected Documents, supra note 13, at 788.

Appellate Body Report, European Communities — Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, ¶ 289, WTO Doc. WT/DS397/AB/R (adopted Jul. 15, 2011).

See Summary of U.S - China Bilateral Agreement, in USTR Press release No.99-95, November 15 1999: “U.S. China Sign Historical Trade Agreement”, 1107, Summary of U.S - China Bilateral Agreement, in USTR Press release No.99-95, November 15 1999:“U.S. China Sign Historical Trade Agreement”, 1107, in “中国加入世界贸易组织谈判文件资料选编第17卷”, 中国商务出版社, 主编索必成, 2012 年出版 [Basic Instruments & Selected Documents on the Negotiation for China’s Accession to the World Trade Organization, Vol. 17 (China Commerce and Trade Press, 2012)].

Regulation (EU) 2017/2321 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) 2016/1036 on Protection Against Dumped Imports From Countries Not Members Of The European Union and Regulation (EU) 2016/1037 On Protection Against Subsidised Imports From Countries Not Members Of The European Union, 2017 O.J., (L338/1).

Id., art. 1(1).

Panel Report, European Union — Anti-dumping Measures on Biodiesel from Argentina, WTO Doc. WT/DS473/P/R (adopted Mar. 29, 2016) [hereinafter EU — Biodiesel (Panel Report)]; Appellate Body Report, European Union — Anti-dumping Measures on Biodiesel from Argentina, WTO Doc. WT/DS473/AB/R (adopted Oct. 6, 2016) [hereinafter EU — Biodiesel (AB Report)].

EU—Biodiesel (Panel Report), id., ¶ 7.257; EU — Biodiesel (AB Report), id., ¶ 6.63.

EU—Biodiesel (Panel Report), supra note 52, ¶ 7.247.

Id., ¶ 7.248.

Id., ¶ 7.233.

Id., ¶ 7.232.

Id., ¶ 7.235.

EU—Biodiesel (AB Report), supra note 53, ¶ 6.71.

Id., fn. 228.

Id., ¶ 6.73.

Appellate Body Report, Argentina — Safeguard Measures on Imports of Footwear, WTO Doc. WT/DS121/AB/R (adopted Dec. 14, 1999).

Id., ¶ 81.

Id., ¶ 6.73.

EU—Biodiesel (AB Report), supra note 52, ¶ 7.233.

Id., ¶ 6.73.

Id., ¶¶ 6.78, 6.80.

Id., ¶ 6.73.

Article 2.2.1.1. of the AD Agreement provides:

For the purpose of paragraph 2, costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.

Anti-dumping Agreement, supra note 2, art. 2.2.1.1.

Appellate Body Report, US — Continued Existence and Application of Zeroing Methodology, ¶ 268, WTO Doc. WT/DS350/AB/R (adopted Feb. 4, 2009).

Appellate Body Report, United States — Continued Existence and Application of Zeroing Methodology, ¶ 268, WTO Doc. WT/DS350/AB/R (adopted Feb. 19, 2009).

Appellate Body Report, US — Softwood Lumber IV, ¶ 89, WTO Doc. WT/DS257/AB/R (adopted Jan. 19, 2004).

Appellate Body Report, US — Definitive Anti-Dumping and Countervailing Duties on Certain Products from China, ¶ 583, WTO Doc. WT/DS379/AB/R (adopted Mar. 11, 2011).

Working Party Report, supra note 12, ¶ 46–47.

法律法规全书, 第十一版,国务院法治办公室编, 中国法制出版社2013年4月出版。第4-564 页 [State Council Legislative Affairs Office, Laws and Regulations Compilation, 4-564 (11^th ed., China Legal Affairs Publishing House, April 2013).]

“A 1995 Law on Natural Monopolies mandates that government regulatory policies balance the interests of consumers and economic agents where natural monopolies exist and establishes a statutory list of natural monopolies: the gas and oil industries, electrical production and distribution, transportation, and postal and communication services”, See U.S. Department of Commerce, Inquiry into the Status of the Russian Federation as a Non-Market Economy Country Under the U.S. Anti-dumping Law, Public Document A821-816, 23 (Jun. 6, 2002), http://ia.ita.doc.gov/download/russia-nme-status/russia-nme-decision-final.htm.

法律法规全书, 第十版, 国务院法治办公室编, 中国法制出版社2011年12月出版 [State Council Legislative Affairs Office, Laws and Regulations Compilation, 2-139 (10^th ed., China Legal Affairs Publishing House, Dec. 2012).].

See 财新:“WTO 首任总干事萨瑟兰逝世重温入关那些事” [Hu Shuli, WTO’s First DG Passed Away: Memory of Events on Resumption of China’s Signatory Status to GATT, Caixin (Jan. 8, 2018)].

For a review of the history of Uruguay round negotiation on Anti-dumping Agreement, see Song Heping and Donghui Fu, Research on WTO AD and SCM Rules – Negotiation of Doha Round 20–23 (Law Press China, 2010).

Title: The Termination of the Grandfather Clause in China’s Accession Protocol and the Normal Value Construction After Fifteen Years of Accession
Author: Xuewei Feng
Publisher: Springer Singapore
Book: Non-market Economies in the Global Trading System
Print ISBN: 978-981-13-1330-1

Electronic ISBN: 978-981-13-1331-8

Copyright Year: 2018
DOI: https://doi.org/10.1007/978-981-13-1331-8_4

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