The Practice of WTO Dispute Settlement: A Perspective with China’s Characteristic (Modern China and International Economic Law) 9819701848, 9789819701841

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Modern China and International Economic Law Editor-in-Chief: An CHEN

Bing Xiao Yue Peng Wenjie Yu

The Practice of WTO Dispute Settlement A Perspective with China’s Characteristic

Modern China and International Economic Law Editor-in-Chief An Chen, School of Law, Xiamen University, Xiamen, Fujian, China Series Editors Huaqun Zeng, School of Law, Xiamen University, Xiamen, China Lingliang Zeng, School of Law, Wuhan University, Wuhan, China Pizhao Che, School of Law, Tsinghua University, Beijing, China Yuejiao Zhang, School of Law, Shantou University, Shantou, China

This book series offers an essential forum for Chinese economic law scholars, as well as international scholars interested in China’s practice in the context of international economic law. It is thus the aim of this book series to publish essential monographs/compilations in the field of international economic law that focus on China, or on uniquely Chinese characteristics. This book series above all focuses on research that closely relates current practices with past history, and future policies with current circumstances, pursuing a philosophy of understanding legal practices by combining the past and present. Accordingly, top scholars in China and beyond its borders will be invited to contribute to this project from their respective areas of focus, which can cover broad topics related to international law in the current context of China’s peaceful rise, such as China’s economic policy with various countries, its participation in the WTO legal system and bilateral investment treaty practices, etc.; as well as more specific topics such as China’s domestic legislation regarding foreign business, its unique “one country, two systems” policy and its implications on external economic interactions between different “systems” within China.

Bing Xiao · Yue Peng · Wenjie Yu

The Practice of WTO Dispute Settlement A Perspective with China’s Characteristic

Bing Xiao Law School Southeast University Nanjing, Jiangsu, China

Yue Peng Law School Nanjing University Nanjing, Jiangsu, China

Wenjie Yu Law School Southeast University Nanjing, Jiangsu, China

ISSN 2364-8317 ISSN 2364-8325 (electronic) Modern China and International Economic Law ISBN 978-981-97-0184-1 ISBN 978-981-97-0185-8 (eBook) https://doi.org/10.1007/978-981-97-0185-8 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore Paper in this product is recyclable.

About This Book

The academic innovation and significance of Chinese Characteristics of WTO Dispute Settlement Practice are mainly manifested in the following aspects: First, it is located in the “perspective of Chinese characteristics”. In the field of international law research, it has long been difficult to obtain general recognition and form corresponding theoretical consensus when talking about “Chinese characteristics”, and the same is true in the field of WTO. Although there are many domestic and foreign studies on the relationship between the WTO and China, as far as domestic studies are concerned, they are mostly focused on the universality of WTO rules and the commonality of its members; and even if they are centered on China’s unique rules or cases, they mostly stay at the level of discussing individual phenomena on topic. Foreign research, especially in Europe and the United States, based on the interests and stances of developed countries in the West, presents obvious discrimination and bias colors. Facts show that there has never been a so-called purely legal issue, whether in domestic or international law, that is separate from the stance and interests of the subject. The frequent institutional frictions initiated by the United States, European Union and other major WTO members against China and the resulting series of games in the WTO dispute settlement in recent years are typical examples. Therefore, this work intends to be based on China’s position, comprehensively sorts out the elements of Chinese characteristics of WTO dispute settlement practice and at the same time launches targeted research around the real crisis faced by the WTO and its implications for the compatibility between China and other members of the WTO and the WTO multilateral system, so as to not only respond to the current reform of the WTO multilateral trading system and the real needs of China’s response to it, but also benefit China’s participation in the practice of other international systems and their integration with each other. Secondly, the “model with Chinese characteristics” is abstracted and interpreted. Previous research on China’s participation in WTO dispute settlement practice has some obvious shortcomings: first, it is more confined to individual cases and lacks comparison with the universality of cases involving other WTO members; second,

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About This Book

it is more focused on partial and individual phenomena, and lacks a comprehensive and multi-angle overall linkage; and third, it is more entangled in the static aspects of individual cases and lacks dynamic unfolding of the intrinsic causes and development of the cases. In view of this, this work intends to examine the unique practice of China’s participation in WTO dispute settlement, make a theoretical abstraction of the unique Chinese model based on the characteristics of China’s own system and the rhythm of interaction between China and the international legal system, such as China’s political and economic system, its cultural attributes and its participation in and integration into the international legal system, including the WTO and so on, and explain the formation mechanism, future direction and significant impact on the multilateral trading system of such model. Thirdly, it summarizes and focuses on the “issues with Chinese characteristics”. Previous studies on China’s issues in the WTO dispute settlement practice are mostly confined to the matter at hand, and therefore, their systematic development and the consequent excavation of the substantive issues and the breadth and depth of their argumentation are insufficient. In view of this, this work intends to, based on the characteristics of the issues involved in China’s cases, attribute each individual issue to two basic categories of legal issues: the status of the disputing parties and the invocation and application of WTO rules. The former mainly refers to China’s “unique” membership status and its rights and obligations arising from its multiple and special identity factors; the latter mainly refers to the many disputes arising from the invocation or application of WTO rules specific to China in WTO dispute settlement. In this regard, this work intends to be based on the theory and practice of international law, focusing on these issues with Chinese characteristics, not only to face up to the reality of differences between China and other members due to its own special economic system and economic volume, but also to explore the space for seeking common ground while accommodating differences under the multilateral trading system; and not only to objectively assess the rights and interests involved in the special rules and acknowledge the flaws and limitations of existing rules, but also to further explore the ways to get out of the institutional predicament caused by conflicting stances and value orientations. Fourthly, it strives to express “discourse with Chinese characteristics” in a proper and effective manner. China’s accession to the WTO and its positive action in WTO dispute settlement practice is the inevitable result of China’s reform and opening-up to the world and its integration into the international system, but it also undoubtedly puts in new elements and poses new challenges in the traditional international law theoretical system and institutional practice centered on the mainstream Western doctrines and interest orientation, thus triggering the discomfort of the traditional international system and its members is also inevitable. Therefore, this work intends to put forward suggestions from a dual dimension: for China, while summing up the lessons learned from its participation in the international legal system in a timely manner, and seeking to maximize its interests in case-by-case solutions, it also needs to be more soberly aware of and objectively deal with the international legal system,

About This Book

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including the WTO dispute settlement mechanism, so as to effectively reconcile the differences between each other and establish a good interactive relationship. As for the WTO and its developed members, they should further eliminate prejudices against China, and reasonably supplement and amend the existing doctrines and institutions, so as to overcome the inherent defects of the international legal system, and construct a logical system of WTO law in line with international jurisprudence.

Contents

1 The WTO Institutional Structure and Dispute Settlement Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 The WTO Rules System and Its Core Mechanisms . . . . . . . . . . . . . . 1.1.1 The WTO Rules System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1.2 The WTO Institutional Structure . . . . . . . . . . . . . . . . . . . . . . . 1.1.3 Core Mechanisms and Functions of the WTO System . . . . . 1.2 Overview of the WTO Dispute Settlement Mechanism . . . . . . . . . . . 1.2.1 Foundation: Experiences and Lessons from the Original GATT System . . . . . . . . . . . . . . . . . . . . . . . 1.2.2 Essence: The New System Constructed by the DSU . . . . . . . 1.2.3 Procedure: Institutional Framework and Main Process . . . . . 1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 Basic Figures of Disputes and Their Settlement . . . . . . . . . . . 1.3.2 Judicial Character of WTO Dispute Settlement . . . . . . . . . . . 1.3.3 Comments of the Dispute Settlement Mechanism . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 China’s Practice in WTO Dispute Settlement . . . . . . . . . . . . . . . . . . . . . 2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.1 Number of Disputes Involved . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 Modes of Involvement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.3 Status as Complainant/Respondent . . . . . . . . . . . . . . . . . . . . . 2.1.4 Matters Involved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.5 Outcome of the Disputes Involved . . . . . . . . . . . . . . . . . . . . . . 2.2 A Unique Model of WTO Dispute Settlement Practice in China . . . 2.2.1 Role Orientation: Full Participation, Prevention-Oriented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Scope of Disputes: Wide Variety, Rules-Concentrated . . . . .

1 1 1 2 3 8 8 11 12 16 16 22 29 33 35 35 35 36 38 41 52 60 60 62

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2.2.3 The Practice Process: Evident Periodic Features, Gradually into the Center Stage . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Chinese Special Practice of WTO Dispute Settlement . . . . . . . . 2.3.1 The Mechanism Analysis of Possibility . . . . . . . . . . . . . . . . . 2.3.2 Empirical Analysis: Actuality . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 China’s Member Status in WTO Dispute Settlement Practices . . . . . . 3.1 Basic Identification of WTO Members’ Status . . . . . . . . . . . . . . . . . . 3.1.1 Structure of WTO Members . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 “Normalized” Special Members . . . . . . . . . . . . . . . . . . . . . . . . 3.1.3 “Individualized” Special Subjects . . . . . . . . . . . . . . . . . . . . . . 3.1.4 China’s Status: Multiple Special Identities Concurrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Acceding Member Status of China . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Legal Connotations of “Terms of Accession”: Differential Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 China’s Differential Member Status—With Reference to the Founding Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.3 Differential Accession of China: With Reference to Other Acceding Members . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 China as a Developing Country Member . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 “Developing Country” in the Context of International Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 China as a Developing Country . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Perspectives on China’s Status as a Developing Member in WTO Dispute Settlements . . . . . . . . . . . . . . . . . . . 3.3.4 Crisis and Reflection on “Self-Declared” Development Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 The Status of China’s Market Economy . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 The Trouble of Integration with the Expansion of WTO Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Identification of China’s Market Economy Status: Ideal and Realistic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.3 Disputes Over Rules in DS516: The Legal Effect of the Automatic Terminating Clause in Paragraph 15 of China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.4 The DS516 Principle Debate: Rejecting “Non-market Price” Comparisons—A General Legal Principle of WTO Anti-dumping? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

64 67 67 76 91 95 95 95 97 106 113 114 115 120 133 151 151 160 164 174 177 177 182

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4 Application of China’s Accession Protocol in WTO Dispute Settlement Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 The Invocation of China’s Accession Protocol in the Disputes . . . . . 4.1.1 Basic Figures of Invocation of China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.2 Issues-Involved/Provisions-Invoked Under China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.3 Special Phenomena in the Application of China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.4 Discrepancies in Perceptions of China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Controversies Over the Nature of China’s Accession Protocol . . . . . 4.2.1 Theoretical Opinions and the Paradoxes Thereof . . . . . . . . . . 4.2.2 Nature of China’s Accession Protocol: A Multilateral Reservation Treaty Within an International Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3 Relationship Between China’s Accession Protocol and WTO Multilateral Trade Agreements . . . . . . . . . . . . . . . . 4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1 Normal “Textualism” Interpretation . . . . . . . . . . . . . . . . . . . . . 4.3.2 Incorporation of Effective Interpretation and Evolutionary Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 4.3.3 Tendency of Conservative Interpretation of China’s “WTO-Plus Obligations” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.4 Interpretation Conundrum of China’s Accession Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Evaluation and Re-evaluation of the WTO Dispute Settlement Practices in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Different Evaluation of Dispute Settlement Practices in China . . . . . 5.1.1 Negative Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.2 Positive Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 Interpretation on Tactics of Practice Mode in China . . . . . . . . . . . . . 5.2.1 A Conclusion of Tactics of the WTO Dispute Settlement Practice in China . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 Interpreting Theoretical Approaches of the WTO Dispute Settlement Practice in China . . . . . . . . . . . . . . . . . . . . 5.2.3 Three Perspectives of Interpretations of the WTO Dispute Settlement Practice in China . . . . . . . . . . . . . . . . . . . . 5.3 Classification of WTO Subjects and Possible Ways to Solve China’s Membership Status Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.1 Pros and Cons of WTO Subject Classification . . . . . . . . . . . .

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5.3.2 Solving the Problem of China’s “Developing Country” Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.3 The Rational Perception of Changing China’s “Non-market Economy” Status . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Fair Evaluation on the Characteristics of WTO Dispute Settlement Practices in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.1 Fair and Reasonable Criteria of Evaluation . . . . . . . . . . . . . . . 5.4.2 Objective and Justice Evaluation Methods . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

350 357 359 360 364 366

About the Authors

Bing Xiao, Doctor of Laws, is a Professor from Southeast University Law School. She graduated from Xiamen University Law School in 2003 with a doctoral degree in International Law. From 1990 to 2014, she taught at the Law School of Nanjing University. Since 1990, she has been engaged in teaching and conducting scientific research in the fields of International Law (International Economic Law and Private International Law), Civil and Commercial Law, and Economic Law. Her representative Chinese monographs include Study on the Implementation of the Agreement on Sanitary and Phytosanitary Measures, Study on Chinese Phenomena and Chinese Problems in WTO Dispute Settlement, International Economic Law and International Commercial Law, and she has published more than 60 specialized papers. Yue Peng, Doctor of Laws, is a Professor from Nanjing University Law School, has been instructing courses on International Economic Law, International Commercial Law and International Financial Law since 2002. He specializes in the field of International Economic Law. He has published more than 80 papers in core journals such as the Chinese Social Science and Law Review. His two Chinese representative monographs are Law Regulations of Trade Subsidy and Law Regulations of Crossborder Securities Financing, published by Law Press. He has led multiple national and ministerial-level research projects, receiving first prize and second prize in social science research at provincial level. Wenjie Yu, Doctor of Laws, is an Associate Professor from Southeast University Law School. She graduated from Nanjing University Law School in 2010 with a doctoral degree in Economic Law (International Economic Law). From 2010 to 2017, she taught at Nanjing University of Science and Technology. Since 2017, she has been instructing courses on International Economic Law, International Trade Law and International Dispute Resolution at Southeast University Law School. Her research interest lies in International Trade Law, International Investment Law and International Commercial Arbitration. Her representing papers are China’s Emerging Unilateral Sanctions: Heading toward the Rule of Law? and The Universality Tangle of Multilateral Trade Mechanism and its Breakthrough. She has led multiple national and ministerial-level research projects. xiii

Abbreviations

CPTPP CRTA DDA DSB DSM DSU ECOSOC GATS GATT IBRD IC ICJ ICSID ILC IMF ITO MRM MTAs PPMs RAMs RTAs SDT SPS TBT TPP TPRM TRIMs TRIPS UNCLOS USMCA

Comprehensive Progressive Trans-Pacific Partnership Committee of Regional Trade Agreement Doha Development Agenda Dispute Settlement Body Dispute Settlement Mechanism Understanding on Rules and Procedures Governing the Settlement of Disputes United Nations Economic and Social Council General Agreement on Trade in Services General Agreement on Tariffs and Trade International Bank for Reconstruction and Development Inuit or indigenous communities International Court of Justice The International Center for Settlement of Investment Disputes United Nations International Law Commission International Monetary Fund International Trade Organization Marine resource management Multilateral Trade Agreements Process and Production Methods Recently-acceded Members Regional Trade Agreements Special and Differential Treatment Sanitary and Phytosanitary Measures Technical Barriers to Trade Trans-Pacific Partnership Agreement Trade Policy Review Mechanism Trade-Related Investment Measures Trade-Related Aspects of Intellectual Property Rights United Nations Convention on the Law of the Sea U.S.-Mexico-Canada Agreement xv

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USTR VCLT WIPO WPR WTO WTO Agreement

Abbreviations

United States Trade Representative Vienna Convention on The Law of Treaties World Intellectual Property Organization Working Party Report World Trade Organization Marrakesh Agreement Establishing the World Trade Organization

Chapter 1

The WTO Institutional Structure and Dispute Settlement Practice

1.1 The WTO Rules System and Its Core Mechanisms The World Trade Organization (hereinafter referred to as “the WTO”), which was established by the Marrakesh Agreement Establishing the World Trade Organization (hereinafter referred to as the “WTO Agreement”) and became operational on 1 January 1995, proclaims the emergence of “an integrated, more viable and durable multilateral trading system”1 with “the stronger and clearer legal framework for the conduct of international trade, including a more effective and reliable dispute settlement mechanism”.2

1.1.1 The WTO Rules System The system of WTO rules that emerged from the Uruguay Round (as shown in Table 1.1) is centered on the WTO Agreement, as the charter, with the core system consisting of a series of four Annexes including all the arrangements agreed in the Uruguay Round negotiations and the original General Agreement on Tariffs and Trade (GATT) and the related understandings. Among these, Annexes I, II and III are the Multilateral Trade Agreements (MTAs) which, together with their related legal instruments, form a part of the WTO Agreement and which all Members are required to accept and be bound by “as one package”. As among agreements, according to Article 16.3 of the WTO Agreement, the provisions of the WTO Agreement prevail over those of the rest agreements.

1 2

WTO Agreement, para. 4. Marrakesh Declaration of 15 April 1994, Article 1.1.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 B. Xiao et al., The Practice of WTO Dispute Settlement, Modern China and International Economic Law, https://doi.org/10.1007/978-981-97-0185-8_1

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1 The WTO Institutional Structure and Dispute Settlement Practice

Table 1.1 Rules system from the Uruguay round WTO agreement

MTAs

Annex I A. Agreements on General agreement on tariffs and Trade in Goods trade 1994 Agreement on agriculture Agreement on sanitary and phytosanitary measures Agreement on textile and clothing (Terminated on 1 January 2005) Agreement on technical barriers to trade Agreement on trade-related investment measures Agreement on implementation of Article VI (concerning anti-dumping) Agreement on implementation of Article VII (customs valuation) Agreement on preshipment inspection Agreement on rules of origin Agreement on import licensing procedures Agreement on subsidies and countervailing measures Agreement on safeguards B. General agreement on trade in services C. Agreement on trade-related aspects of intellectual property rights

Plurilateral trade agreements

Annex II

Understanding on rules and procedures governing the settlement of disputes

Annex III

Trade policy review mechanism

Annex IV

Agreement on trade in civil aviation Agreement on government procurement International dairy agreement (Expired in 1997) International Bovine meat agreement (Expired in 1997)

1.1.2 The WTO Institutional Structure In order to ensure the implementation of the agreements, the WTO has established an organizational structure with a clear division of responsibilities: the supreme level is the Ministerial Conference, composed of representatives of all WTO members, which meets at least once every two years; it has full authority “to carry out the functions of the WTO and to take actions necessary to this effect” and “take decisions on all

1.1 The WTO Rules System and Its Core Mechanisms

3

matters under any of the Multilateral Trade Agreements”.3 Decisions are arrived at by consensus, with each member having one vote. In the intervals between meetings of the Ministerial Conference, its functions shall be conducted by the General Council, which is composed of representatives of all the members, convenes to discharge the responsibilities of the Dispute Settlement Body (DSB) and those of the Trade Policy Review Body (TPRB), and guides the three independent councils for Trade in Goods, Trade in Services and Trade-Related Aspects of Intellectual Property Rights, respectively.4 The WTO regime covers almost all areas of international trade and related issues. In terms of trade, the WTO and its covered agreements incorporate for the first time agreements on trade in services and TRIPS issues as major agreements; in terms of content and issues, “some fifty other portions of the agreement address subjects as diverse as anti-dumping, agricultural trade, subsidies, technical standards, textiles, and customs valuation”5 ; in terms of implementation mechanisms, “a new set of dispute settlement procedures”,6 as well as the Trade Policy Review Mechanism (TPRM), highlights the nearly all-round supervision of trade policy.

1.1.3 Core Mechanisms and Functions of the WTO System 1.1.3.1

Core Mechanisms

The basic functions of the WTO are: (1) to facilitate the implementation, administration and operation, and further the objectives, of the WTO Agreement and its covered agreements; (2) to provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the agreements and a framework for the implementation of the results of such negotiations; (3) to settle disputes among members in accordance with Annex 2; (4) to administer the TPRM provided for in Annex 3; and (5) with a view to achieving greater coherence in global economic policy-making, to cooperate, as appropriate, with the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) and its affiliated agencies. The first function of facilitating the implementation of the WTO agreements and the achievement of their objectives describes the general objective, which is mostly reflected in the preambles or in the clauses of objective in the WTO Agreement and

3

WTO Agreement, Article 4.1 and Article 4.2. WTO Agreement, Article 4.2–4.5. 5 Jackson (2000a), p. 339. 6 Jackson (2000a), p. 339. 4

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1 The WTO Institutional Structure and Dispute Settlement Practice

its specific covered agreements, and serves as an umbrella statement of its institutional functions. The remaining functions are specific ways to achieve the general objective, presenting the functions and values that the WTO system can perform and deliver in the field of international trade respectively. The fifth function of “regulatory cooperation” reveals one prominent function of the WTO as a regulatory and cooperative body, that is to cooperate and collaborate with other international organizations for the purpose of solving particular problems and achieving a certain international economic order. The stipulation of cooperation with the IMF and the IBRD and its affiliated agencies under Article 3.5 of the WTO Agreement provides the institutional platform for such cooperation. To further illustrate the possibilities for cooperation and its effect on coherence, the WTO General Council adopted decisions and approved agreements in 1996 and 1997, agreeing to group relevant activities, in particular strengthening regular cooperation among organizations, to achieve greater coherence in global economic policy-making.7 As for negotiations, dispute settlement and policy review, they constitute the three core mechanisms for the regular functioning of the WTO system. Negotiation Forum The most conventional function of the WTO, as a pioneering multilateral trade organization, is to create and provide negotiation space, both physical and institutional, for members. Firstly, according to Article 4 of the WTO Agreement, the Ministerial Conference is the supreme authority in the entire organization and, at the request of Members, may sponsor negotiations and take decisions on any matter under the MTAs in accordance with the decision-making requirements in the relevant agreements. Secondly, individual councils can negotiate on topics under their respective agreements. Such subdivision of topics helps to disperse conflicts and increase the success rate of negotiations. Thirdly, not only the conditions and procedures for initiating negotiations, but also the voting, withdrawal and other procedures for the outcome of negotiations, are provided for, thus enabling the rapid legalization of some of the outcomes and their timely entry into force. Finally, the WTO Agreement itself contains many flexible settings, which are highly adaptable, providing sufficient room for maneuver in the complex and volatile trade negotiations. For example, under Article 4, in addition to the listed committees, the Ministerial Conference may establish other committees with functions it deems appropriate, and the General Council may assign additional functions to the committees. To further extend the applicability of the provisions of the agreements, Article 13 also provides that the WTO Agreement and the MTAs in Annexes 1 and 2 shall not apply as between any Member and any other Member if either of the Members, at the time either becomes a Member, does not consent to such application.

7

See WT/L/194, 18 November 1996; WT/GC/W/68, 13 November 1997.

1.1 The WTO Rules System and Its Core Mechanisms

5

Dispute Settlement Dispute settlement is one of the most prominent functions of the WTO system. The Dispute Settlement Mechanism (DSM) is known as the “jewel in the crown”8 of the WTO. In the GATT era, there were very few dispute settlement provisions, which were very soft (Article 22 and Article 23). It was “in the late 1950s the practice was introduced of a “panel” of individuals to make determinations and findings and recommend them to the Contracting Parties”.9 The WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) is a comprehensive revision and update of the dispute settlement arrangements that have been developed for over 40 years within the framework of the multilateral trading system under the GATT. The DSU provides a uniform set of rules applicable to disputes that may arise under the WTO agreements, covering the WTO Agreement, the GATT and other agreements on trade in goods, the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The new rules are much more detailed than those under the former GATT and provide for principles and adoption procedures which speed up the entire dispute settlement process and prevent it from being withheld. The new rules also strengthen the system by introducing an appeals procedure, “as well as the possibility of compensating for injury in one sector of trade by taking action in another sector”, and “a requirement that bans unilateral action to settle disputes in any area of trade relations covered by the WTO agreements”.10 “The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system”,11 and it has worked highly effectively. In terms of caseload, 615 cases were registered from 1 January 1995 to 31 December 2022,12 thus demonstrating the trust and reliance of WTO members on dispute settlement. In terms of the case types, although there is a clear disparity in the frequency of invocation and application of the agreements and in the distribution of cases, for example, there are more cases involving anti-dumping and countervailing than intellectual property rights;13 it is undeniable that the practice of DSM has covered all the covered agreements. In terms of binding effect, the retaliatory mechanism provided by the DSM accords some enforceability to the DSB decisions, which in turn safeguards the authority of the WTO system and the protection of the legitimate rights and interests of underprivileged members. Most importantly, the provisions and concepts of the covered agreements and the related legal instruments have been repeatedly applied in dispute settlement, thereby clarifying the meaning of and the systemic linkages among WTO rules. Although there is still no shortage of controversy, the large number of concluded cases and the 8

Sutherland (2000). Jackson (2000a), p. 407. 10 The WTO Secretariat (1999). 11 DSU, Article 3.2. 12 https://www.wto.org/english/tratop_e/dispu_e/dispu_e.htm, last visited 9 February 2023. 13 By 31 December 2022, 135 countervailing cases and 141 anti-dumping cases were registered with the DSB, while TRIPS cases were only 44. 9

6

1 The WTO Institutional Structure and Dispute Settlement Practice

de facto precedential effect of the DSB decisions have made a significant contribution to the coherence of the international trade law regime. Policy Review The TPRM is one of the distinctive features of the WTO. As early as the Tokyo Round in the GATT era, the Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance, adopted by CONTRACTING PARTIES14 agreed to “conduct a regular and systematic review of developments in the trading system”15 by councils of the multilateral system through special sessions. This was further developed by the famous Leutwiler Report and several subsequent negotiating documents in the Uruguay Round, which led to the establishment of a permanent and regular trade policy review mechanism as in Annex III.16 The mechanism was established to promote transparency in members’ trade policies and practices, compliance of members’ measures and the smooth functioning of the multilateral system, while in the meantime, the objectives of the TPRM are limited in two ways: firstly, it does not serve as basis for specific obligations under the Multilateral Agreements or dispute settlement procedures; and secondly, it does not impose new policy commitments on members. In terms of institutional structure, the TPRM both distinguishes itself clearly from the DSM established under Annex II and emphasizes its review function, defining its functional scope in both positive and negative terms. In terms of the rules and their implementation, the TPRM functions as a de facto “early warning system”.17 There is a clear value for WTO members in having a forum where they can openly discuss each other’s trade and trade-related policies, elicit information and register concerns.18 Of course, although the policy review process itself does not have a dispute settlement function, the information disclosed by the parties during such process can be used to resolve issues of interpretation of relevant provisions of WTO agreements in specific cases. For example, in US—Gambling (DS285), the panel relied on the 1999 Trade Policy Review of Philippines and Israel to illustrate the WTO members have relied on “public moral” grounds to justify certain restrictions.19

1.1.3.2

Rule of Law Function of the WTO System

As one of the pillars of the contemporary international economic order, the WTO system and the performance of its functions have made a significant contribution 14

The references in certain provisions to CONTRACTING PARTIES shall be deemed to be references to the WTO, while the other functions assigned to the CONTRACTING PARTIES acting jointly shall be allocated by the Ministerial Conference. GATT 1947, Editorial Note. 15 BISD 26S/214, para 24. 16 See Wolfrum et al. (2006). 17 See WT/MIN (99)/2, para. 4. 18 WT/TPR/27, para. 7. 19 See Panel Report, US—Gambling, WT/DS285/R, para. 6.471.

1.1 The WTO Rules System and Its Core Mechanisms

7

to the promotion of coherence in international economic policy and have played an irreplaceable and unique role in promoting the liberalization of and the rule of law in international trade. The most distinctive feature of such system and its functions lies in its “rule-based” nature. Firstly, negotiations, dispute settlement, policy reviews and regulatory cooperations are all governed by the rules set by the WTO system, and the rules and judicial procedures are applied to clarify the rights and obligations of members, so as to determine the compliance of trade policies, measures and disputes. Secondly, along with the normal operation of the DSM, especially the adoption and implementation of the reports of the panels and the Appellate Body, the domestic measures of members have been effectively regulated and the WTO legal system has the de facto effect of a world trade constitution. The scope of this constitutional effect is constantly expanding as its membership grows and the accumulation of cases continues to grow. Based upon the inclusiveness of design of its rules, many cases reflect superior judicial wisdom and technical solutions to reconcile the contradictions and conflicts between members’ right to self-regulation and the requirements of coherence. For example, cases concerning Article 20 of GATT 1994 and Article 2.2 of the Agreement on Technical Barriers to Trade (hereinafter referred to as the TBT Agreement) can provide the international community with good examples of how to resolve similar issues, such as how to deal with the relation between trade policy and the various public policy issues, including the environment, public morality, public health protection, etc. Moreover, in the process of continuous improvement of the dispute settlement mechanism, the relevant judicial techniques have also been developed to a considerable extent, and judicial concepts such as procedural justice and transparency have been disseminated worldwide, greatly enhancing the predictability and stability of international economic activities and stabilizing the world economy. Thirdly, although the WTO, evolved from GATT, has been driven and influenced by the big powers along the way, it can still be seen that developing countries, especially emerging economies, have also been provided with more opportunities to participate in the decision-making and functioning of the international economic system. The small countries have benefited more from a rules-based system than a power-based one.20 The establishment and development of the WTO system have contributed significantly to the development of the international economic law system and the overall process of building the international rule of law.

20

Barton et al. (2006), pp. 177–178.

8

1 The WTO Institutional Structure and Dispute Settlement Practice

1.2 Overview of the WTO Dispute Settlement Mechanism 1.2.1 Foundation: Experiences and Lessons from the Original GATT System The WTO’s current DSM builds upon the dispute settlement mechanism of GATT 1947. Article 3.1 of the DSU states that “Members affirm their adherence to the principles for the management of disputes heretofore applied under Articles XXII and XXIII of GATT 1947, and the rules and procedures as further elaborated and modified herein”. The two articles referred have thus been incorporated into GATT 1994 as part of the WTO dispute settlement regime. Article 22 “Consultation” and Article 23 “Nullification or Impairment” of GATT 1994 are the core rules of dispute settlement under the GATT regime. Under these rules, if a dispute arises between a contracting party and another contracting party concerning a measure, the following procedure is to be followed: (1) each contracting party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of the GATT21 ; (2) if it has not been possible to find a satisfactory solution through such consultation, the dispute may be referred to the CONTRACTING PARTIES22 ; (3) if the CONTRACTING PARTIES decide in favor of a contracting party, the other contracting party will be required to adjust its measure to perform its obligations under the GATT; (4) if no satisfactory adjustment is effected, the CONTRACTING PARTIES may authorize the complaining party to suspend the application to the other contracting party of concessions or other obligations under the agreement.23 The success of dispute settlement in the GATT era is mainly manifested in two aspects. Firstly, in terms of results, during the period from 1948 to 1994, the panel made 127 reports, 96 of which were adopted by the Council, representing an adoption rate of 75.6%; moreover, in 90% of the cases, the losing party eventually accepted the panel report. This duly reflects the effectiveness and authority of the dispute resolution mechanism.24 Secondly, in terms of the process, the initial operation was 21

GATT 1994, Article 22.1. At different development phases of the GATT, the CONTRACTING PARTIES either met every six months to deal with disputes, or dealt with them through special committees between sessions, through working groups consisting of representatives appointed by each member party, or more often through panels consisting of three or five members. However, whichever way is adopted, the final decision rests with the CONTRACTING PARTIES. 23 Throughout the entire history of the GATT, there has only been one case of authorized suspension of concessions. Against the import restrictions on dairy products imposed by the U.S., Netherlands was authorized to retaliate by imposing an upper limit of 60,000 metric tons on imports of wheat flour from the U.S. Netherlands ultimately did not implement the limitation. See Working Party Report, Netherlands Action under Article XXIII: 2 to Suspend Obligations to the United States, L/ 61, adopted 8 November 1952, pp. 1–3. 24 See https://www.wto.org/english/tratop_e/dispu_e/gt47ds_e.htm, last visited 26 May 2018. 22

1.2 Overview of the WTO Dispute Settlement Mechanism

9

rather well, and the contracting parties were willing to submit their disputes to the GATT and achieved satisfactory settlement. Apart from the respect toward the GATT mechanism by majority of the contrasting parties, a number of factors attributed to such success, including that as recently negotiated agreement, there was a general consensus on what it meant and how it should be interpreted; that the number of members was relatively small and their backgrounds and interests were relatively similar; and moreover, that many of the officials dealing with GATT matters during this period had personally participated in its creation.25 From the 1960s to the 1980s, there was a marked decline in utilization of the GATT due to the increase in the number of new members and the changing needs of interests as a result of economic and social development. It was invoked on average only about once per year, with a majority of the complaints having been brought by the United States. “A number of explanations have been offered for the decline in use. First, the formation and expansion of the European Community (“EC”) diverted the attention of most European countries, which had previously been active in using the dispute settlement system. With the advent of the EC, disputes between EC members were settled within the EC institutions. Second, because certain provisions of the General Agreement–especially in respect of agriculture, textiles and safeguards (voluntary export restraints) – were not strictly enforced, a feeling developed among some contracting parties that no GATT provisions should be strictly enforced. In lieu of such enforcement, it was argued that trade disputes should be settled by negotiations, and that the provisions of the General Agreement should not necessarily be determinative of the outcome of the negotiations. Reliance on the dispute settlement mechanism was consequently viewed as inappropriate. Third, the emergence of Japan and the European Community as economic superpowers changed GATT from an organization dominated by the United States into one in which there were three recognizable power centers. These new economic powers did not necessarily view a formal dispute settlement system to be in their interests. Their newly acquired economic strength made them more interested in negotiating solutions to disputes, a method they viewed as enabling them better to protect their interests. They no longer needed a rule-based system to protect themselves from the United States”.26 After 1979, the “birth defects”27 of GATT dispute settlement became increasingly evident, starting with the sparse language of the provisions, which provide little detail as to the goals or procedures.28 This has given rise to a number of tangled problems in dispute settlement practice. Under Article 23 of GATT 1947, for example, the “nullification or impairment” of benefit has been interpreted differently by panels in different cases. In the early cases, the panels required the aggrieved party to prove that the other party’s measures had caused some kind of impairment. As proving the causation between the impairment and the action of the respondent was in fact a difficult matter, the concept of prima facie was later introduced. In 1962, Uruguay 25

See Davey (1987), p. 61. Davey (1987), pp. 62–64. 27 Jackson (1995). 28 See Jackson (2006). 26

10

1 The WTO Institutional Structure and Dispute Settlement Practice

complained against 15 developed countries to the GATT. The panel considered it necessary to clarify what constituted a nullification or impairment. In the view of the panel in that case, “impairment and nullification in the sense of Article XXIII does not arise merely because of the existence of any measures; the nullification or impairment must relate to benefits accruing to the contracting party “under the General Agreement””.29 Accordingly, the complainant needed to identify the exact benefit that is nullified or impaired. The panel held that “where there is a clear infringement of the provisions of the General Agreement, or in other words, where measures are applied in conflict with the provisions of GATT and are not permitted under the terms of the relevant protocol under which the GATT is applied by the contracting party, the action would, prima facie, constitute a case of nullification or impairment”.30 In other words, a measure is deemed to constitute a nullification or impairment prima facie whenever it violates the relevant provisions of GATT 1947. The result of such a finding is that the respondent will bear the burden of proving that its measure did not cause a nullification or impairment of the benefit of the complainant. If the respondent failed to prove such, the nullification or impairment under Article 23 is established. The panel in the United States—Taxes on Petroleum and Certain Imported Substances—further concluded that “while the CONTRACTING PARTIES had not explicitly decided whether the presumption that illegal measures cause nullification or impairment could be rebutted, the presumption had in practice operated as an irrefutable presumption”.31 In other words, a prima facie case is irrefutable. Thus, a contracting party can successfully invoke the “nullification or impairment” under Article 23 by proving that the other party has violated the relevant provisions of the GATT, regardless of whether its benefit has in fact been “nullified or impaired”. In addition, the analysis of “nullification or impairment” incorporated the elements of “adverse effect” and “frustration of reasonable expectations”, which are not necessarily applied in a cumulative way, often nullification or impairment are established by means of only one of these elements.32 More crucially, the panel report is ultimately adopted by the CONTRACTING PARTIES via the decision-making rule of “consensus”; therefore, the panel is not a formal dispute settlement body, but rather an auxiliary body to the GATT CONTRACTING PARTIES. In practice, the “consensus” rule allows a contracting party to withhold a case at any stage, and the losing party to a dispute can, through its expression of disagreement, not only refuse to consent to and “block” the adoption of an adverse report, but even refuse to consent to the establishment of a panel, thereby avoiding the consequence of an adverse decision. In other words, the fact that a losing party can unilaterally withhold its consent to prevent the establishment 29

See GATT Panel Report, Uruguayan Recourse to Article XXIII, L/1923—11S/95, adopted 16 November 1962, p.4, para. 14. 30 See GATT Panel Report, Uruguayan Recourse to Article XXIII, L/1923—11S/95, adopted 16 November 1962, p. 4, para. 15. 31 See GATT Panel Report, United States—Taxes on Petroleum and Certain Imported Substances, L/6175—34S/136, adopted on 17 June 1987, para. 5.1.7. 32 Bogdamdy (1995).

1.2 Overview of the WTO Dispute Settlement Mechanism

11

of a panel and the adoption of its report constitutes a fundamental deficiency in the GATT dispute settlement mechanism.33 In fact, with the increase in the number of the contracting parties and the increase in conflicts of interest, the parties to the disputes frequently blocked the panels’ reports. Data shows that between 1980 and 1994, 23 panel reports were not adopted, accounting for nearly three quarters of the total number of GATT non-adoption.

1.2.2 Essence: The New System Constructed by the DSU The content of WTO dispute settlement is concentrated in the DSU, which made a series of corresponding corrections to the problems of the former GATT system and constructed a new set of institutional content, of which the following aspects are highlighted.

1.2.2.1

Uniform Application

The DSM establishes “a unified dispute settlement system for all parts of the WTO system, including the new subjects of trade in services and intellectual property, thus ending controversies over which procedure to use”.34

1.2.2.2

Two-Way Decision-Making

The DSB incorporates a Negative/Reverse Consensus (hereinafter referred to as “reverse consensus”) decision-making process, where a decision will be adopted unless there is unanimous opposition. Under the DSU, matters such as the establishment of panels, the adoption of panel reports and Appellate Body reports, and the approval of suspension of concessions or other obligations are decided by reverse consensus, thus resolving the major persistent defect under the GATT regime of parties withholding the dispute settlement process or the adoption of panel reports. In the meantime, except the specified DSU matters, the DSB decisions shall be made by “positive” consensus, i.e. “The DSB shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member, present at the meeting of the DSB when the decision is taken, formally objects to the proposed decision”.35

33

Zhao (2000). Jackson (2000b). 35 DSU, Article 2.4, footnote. 34

12

1.2.2.3

1 The WTO Institutional Structure and Dispute Settlement Practice

Appellate Review

A unique new appellate review process is established whereby the standing Appellate Body hears appeals from panel cases and considers the issues of law covered in panel reports and the legal interpretations developed by the panels. The Appellate Body reports, adopted by the DSB by reverse consensus, shall be unconditionally accepted by the parties to the dispute.

1.2.2.4

Ends and Means in Concert

The DSU specifies that the purpose of dispute settlement is to ensure that disputes are resolved in a positive manner and establishes two important principles to this end. Firstly, as for the method, a solution mutually acceptable to the parties to a dispute and consistent with the covered agreements is clearly to be preferred. In the absence of a mutually agreed solution, the first objective is to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements. The provision of compensation should be resorted to only if the immediate withdrawal of the measure is impracticable and as a temporary measure pending the withdrawal of the measure. The last resort is the possibility of suspending the application of concessions or other obligations under the covered agreements.36 Secondly, as for “strengthening of the multilateral system”, members are required to have recourse to, and abide by, the rules and procedures of the DSU whenever a dispute arises or is likely to arise, and are prohibited from acting unilaterally.37 In short, the introduction of a series of judicial elements and measures in the DSU has greatly enhanced the compulsory and authoritative nature of the DSM, and the WTO has consequently become known as the “tiger with teeth”.

1.2.3 Procedure: Institutional Framework and Main Process 1.2.3.1

Institutional Framework

The management and support structure of the DSM consist of the DSB, the Director General and the Secretariat. DSB, as the governing and supervisory body of the DSM, has “the authority to establish panels, adopt panel and Appellate Body reports, maintain surveillance of implementation of rulings and recommendations, and authorize suspension of concessions and other obligations under the covered agreements”.38 In addition to the process management of the disputes, another important function of the DSB is to provide a platform for WTO members to express their views and 36

DSU, Article 3.7. DSU, Article 23. 38 DSU, Article 2.1. 37

1.2 Overview of the WTO Dispute Settlement Mechanism

13

comment on the legal interpretations and reasoning by panels and the Appellate Body. Members are also free to raise any procedural issues relating to the operation of the DSU in order to maintain their influence on the process and to exercise some control over the ongoing work of panels and the Appellate Body. The application of reverse consensus in the dispute settlement process limits the DSB’s influence over the final outcome of a dispute, and thus its involvement in dispute settlement is more diplomatic and political than judicial in nature. The Director General plays a role primarily in good offices, conciliation and mediation procedures.39 The Secretariat, as a supporting body, is mainly responsible for assisting the work of panels, providing legal assistance or legal advice and training. The judicial bodies of the DSM are panels and the Appellate Body. Panels are non-standing body, each of which is composed of three or five well-qualified professionals, makes an objective assessment of the matter in dispute, and makes such findings as will assist the DSB in making the recommendations or in giving the rulings, in accordance with the WTO rules invoked by the disputing parties.40 The Appellate Body is a standing body of the DSB and composed of seven experts of recognized authority in law, international trade and the covered agreements. Each appeal is reviewed by a tribunal of three of these experts, with the scope that “shall be limited to issues of law covered in the panel report and the legal interpretations developed by the panel”, and “the Appellate Body may uphold, modify or reverse the legal findings and conclusions of the panel”.41

1.2.3.2

Dispute Settlement Process

The WTO dispute settlement process is broadly divided into four phases in accordance with the case flow: consultation, establishment of panels and assessment procedures, appellate review and implementation. Good offices, conciliation and mediation procedures may be requested, begin and be terminated at any time in any phase; parties to a dispute may also reach a settlement in any phase through consultations. Consultation Any WTO Member which considers that its interests under the covered agreements have been impaired by measures imposed by another Member may request for consultations. The Member to which the request is made shall reply to the request within 10 days and shall enter into consultations within 30 days after the date of receipt of the request.42 Such requests for consultations shall be notified to the DSB, while consultations shall be confidential, namely “a matter reserved for the parties”, where

39

DSU, Article 5. See DSU, Article 7, 8, and 11. 41 See DSU, Article 17. 42 DSU, Article 4.3. 40

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1 The WTO Institutional Structure and Dispute Settlement Practice

the “DSB is not involved; no panel is involved; and the consultations are held in the absence of the Secretariat”.43 Request for consultation is a prerequisite to the establishment of a panel, and if it is not requested, the panel has no authority to review the case. The function of a panel is only to ascertain that consultations, if required, were in fact held or, at least, requested.44 But once the consultation is requested, the member to which the request is made may reject such request and the panel shall not terminate its review because of such rejection. However, the standard of “adequate opportunity for consultation” under Article 4.2 of the DSU is not considered by the panel to be within the scope of its review, as the panel is not involved in the consultation, during which what happened shall not fall within the scope of its concern.45 As above-mentioned, consultation is the preferred method for dispute settlement advocated by the DSM. In Mexico—Corn Syrup (DS132), the Appellate Body emphasized the importance of consultation. “Through consultations, parties exchange information, assess the strengths and weaknesses of their respective cases, narrow the scope of the differences between them and, in many cases, reach a mutually agreed solution in accordance with the explicit preference expressed in Article 3.7 of the DSU. Moreover, even where no such agreed solution is reached, consultations provide the parties an opportunity to define and delimit the scope of the dispute between them. Clearly, consultations afford many benefits to complaining and responding parties, as well as to third parties and to the dispute settlement system as a whole”.46 Establishment of Panels and Assessment If consultations fail, the complainant requests the DSB to establish a panel. The procedure of the panel review is stipulated under Article 12 of the DSU. Panel deliberations shall be confidential and the panel shall first issue the descriptive (factual and argument) sections of its draft report to the parties to the dispute for comments and then an interim report to the parties, including both the descriptive sections and the panel’s findings and conclusions. The parties to the dispute may submit a written request for the panel to review precise aspects of the interim report prior to the circulation of the final report to the Members.47 The final panel report is first issued to the parties to the dispute and then circulated to all WTO members three weeks later, with the DSB adopting the report within 60 days after the date of circulation to the members, unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adopt the report.48 43

Panel Report, EC—Banana III, WT/DS27/R/ECU, para. 7.19. Panel Report, EC—Banana III, WT/DS27/R/ECU, WT/DS75/R, WT/DS84/R, adopted 17 September 1998, para. 7.19. 45 See Panel Report, EC—Banana III, WT/DS27/R/ECU, WT/DS75/R, WT/DS84/R, adopted 17 September 1998, para. 7.19. 46 Appellate Body Report, Mexico—Corn Syrup, WT/DS132/AB/RW, para. 54. 47 The need for an interim review stage for panel reports is so rare in judicial or quasi-judicial dispute resolution procedures, that it has been a subject of debate. 48 See DSU Article 6–16. 44

1.2 Overview of the WTO Dispute Settlement Mechanism

15

Appellate Review The appellate review begins when a party to the dispute notifies the DSB and simultaneously files a notice of appeal with the Secretariat. The appellate review procedure is set up to correct possible errors of law arising from panel rulings and is therefore limited to issues of law covered in the panel report and legal interpretations developed by the panel, and does not cover factual issues. As to the demarcation between issues of law and matters of fact, the Appellate Body in EC – Hormones (DS26, DS48) held that “Under Article 17.6 of the DSU, appellate review is limited to appeals on questions of law covered in a panel report and legal interpretations developed by the panel. Findings of fact, as distinguished from legal interpretations or legal conclusions, by a panel are, in principle, not subject to review by the Appellate Body.…The consistency or inconsistency of a given fact or set of facts with the requirements of a given treaty provision is, however, a legal characterization issue. It is a legal question”49 and falls in the scope of the appellate review. The appeal proceedings generally shall not exceed 60 days from the date a party to the dispute formally notifies its decision to appeal to the date the Appellate Body circulates its report; if the Appellate Body considers that it cannot provide its report with 60 days, it shall inform the DSB in writing of the reasons; in no case shall the proceedings exceed 90 days.50 An Appellate Body report shall be adopted by the DSB and unconditionally accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following its circulation to the members.51 Implementation At a DSB meeting held within 30 days after the date of adoption of the panel or Appellate Body report, the member concerned shall inform the DSB of its intentions in respect of implementation of the recommendations and rulings of the DSB, and if it is impracticable to comply immediately with the recommendations and rulings, the member concerned shall have a reasonable period of time in which to do so.52 If the member concerned fails to bring the measure into compliance, such member shall, if so requested, enter into negotiations with a view to developing mutually acceptable compensation and if no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, the party having invoked the dispute settlement procedures may request authorization from the DSB to suspend the application to the member concerned of concessions or other obligations under the covered agreements.53 49

Appellate Body Report, EC — Hormones, WT/DS26/AB/R, WT/DS48/AB/R, adopted 16 January 1998, para.132. 50 See DSU Article 17.5. 51 DSU Article 17.14. 52 See DSU 21.3. 53 See DSU Article 22.2.

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1 The WTO Institutional Structure and Dispute Settlement Practice

If the member concerned objects to the level of suspension proposed, or claims that the principles and procedures set forth in Article 22.3 of the DSU have not been followed where a complaining party has requested authorization to suspend concessions or other obligations, the matter shall be referred to arbitration.54 Nevertheless, as aforementioned, authorized suspension of concessions or other obligations occurs where the party has failed to implement the DSB’s recommendations, but there is also a scenario where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings. Article 21.5 of the DSU provides for such dispute which “shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel”.

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice 1.3.1 Basic Figures of Disputes and Their Settlement As of 31 December 2022, 615 disputes were filed with the WTO.

1.3.1.1

Annual and Phase Distribution

The WTO case distribution is shown in Table 1.2 where each five-year period of the twenty-year period from 1 January 1995 to 31 December 2019 is counted and the three-year period from 1 January 2020 to 31 December 2022 is counted separately. Table 1.2 Annual and phase distribution of cases registered (1995–2022)55 Year

No

Year

No

Year

No

Year

No

Year

No

Year

No

1995

25

2000

34

2005

12

2010

17

2015

13

2020

5

1996

39

2001

23

2006

20

2011

8

2016

17

2021

9

1997

50

2002

37

2007

13

2012

27

2017

17

2022

8

1998

41

2003

26

2008

19

2013

20

2018

39

Total

23

1999

30

2004

19

2009

14

2014

14

2019

19

Total

185

Total

139

Total

78

Total

86

Total

105

54

See DSU Article 22.6. Unless otherwise stated, the data in the tables in this book are as of 31 December 2022 and are derived from statistics on the official WTO website, available at: http://wto.org/english/tratop_e/ dispu_e/find_dispu_cases_e.htm. 55

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

17

By 31 December 2022, the total number of 615 cases in the 28 years of DSM operation has fully reflected the demand and trust of members and its effectiveness and authority are evident to all, providing strong support for development of global economy and being one of the important pillars of the global economic governance, and a very effective one. Members resort to the mechanism to redress violations, protect their interests and prevent trade frictions from escalating into serious confrontations. Many disputes are resolved before they reach the litigation stage, but when they do proceed to that stage compliance with rulings is very high, with around 90 percent of the rulings having already been fully implemented.56 The DSM is still needed by the vast majority of members, even when there are deficiencies or even when it is now facing an immediate crisis. Of course, a comparison of DSM’s case distribution over different time periods shows that after an initial ten-year peak, the total case number has fallen back sharply, and except for 2018 when there was a significant increase due to the U.S. waging a global trade war end, the annual case load has basically remained at around 10 to 20 cases.

1.3.1.2

Types of Disputes and Invocation of Agreements

WTO dispute settlement, from the initiation of consultations by members, through panel and appellate proceedings, to final adjudication, all revolves around the invocation or application of the rules stipulated under the relevant agreements,57 and thus, the type of dispute is determined by the classification of the agreements (Table 1.3). The types of disputes visually reflect two basic features: (1) the coverage is nearly 100%, but (2) the extent of coverage varies significantly. With the exception of Annex III, which is not invocable, all multilateral agreements under the WTO framework are covered, including both substantive issues under all Annex I agreements and procedural issues under Annex II, and the plurilateral agreement on Government Procurement is also covered. However, the rate of invocation and application of the different agreements vary considerably. First of all, cases concentrate on multilateral agreements, with only four cases involving the GPA as plurilateral agreement which is less than 1% of the total caseload.58 Secondly, disputes arising from multilateral agreements are dominated by those involving the traditional trade in 56

Azevedo (2018). The WTO agreements are applied in dispute settlement in two main ways: firstly, they are invoked by the complaining parties as basis for their complaints; secondly, they are applied by panels and the Appellate Body as basis for their decisions. In the meantime, because of the interconnection among the agreements and provisions thereof, complainants often invoke multiple provisions not only of one agreement, but also of multiple agreements, in relation to a specific dispute measure. The total number of agreements invoked thus greatly exceeds the number of cases, and that is also why panels and the Appellate Body have applied multiple agreements concurrently in their decisions. 58 The four cases, DS73, DS88, DS95 and DS163, were all initiated before 1999, the first three of which were settled or withdrawn by the parties to the dispute and only DS163 was decided by a panel. 57

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1 The WTO Institutional Structure and Dispute Settlement Practice

Table 1.3 Types of WTO disputes (1995-2022)59 WTO agreements MTAs

GATT 1994 GATT annexes

Percentage of total caseload

510

82.9%

Agriculture

86

14%

SPS

53

8.6%

Textile and clothing

16

2.6%

TBT

57

9.3%

TRIMs

46

7.5%

141

22.9%

18

2.9%

Preshipment inspection

5

0.8%

Rules of origin

8

1.3%

Anti-dumping Customs valuation

Import licensing SCM Safeguards

Plurilateral trade agreements

Caseload

49

8%

135

22%

62

10.1%

GATS

33

5.4%

TRIPS

44

7.2%

DSU

20

3.3%

Civil aircraft

0

/

Government procurement

4

0.7%

International dairy

0

/

0

/

International bovine meat Protocols of accession60

39

6.3%

goods as governed by GATT 1994 and its subsidiary agreements, which account for nearly 90% of the caseload, while only 77 disputes altogether involve GATS and the TRIPS Agreement. Thirdly, disputes involving trade in goods agreements are the most, particularly concentrate on GATT 1994, the Anti-Dumping Agreement and the Subsidies and Countervailing Agreement.

59

Based on the agreements of which the rules are invoked by the complainant to initiate the dispute settlement. 60 The Protocol of Accession is a legal instrument under Article 12 of the WTO Agreement, the terms of which are agreed between the acceding member and the WTO, and is listed separately because its nature is not yet determined.

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

1.3.1.3

19

Member Participation

The WTO currently has 164 members. As of 31 December 2022, 111 members have participated in dispute cases, representing a participation rate of approximately 68%.61 The mode and extent of participation are shown in Table 1.4. The total participation of members to date is about 2/3, but in addition to the 1/3 of members who have never participated in dispute settlement, there is a wide disparity in the participation of participating members themselves: 1/3 of such members participate only as third parties, 27% of them have participated once; active members who have both filed complaints and been complained are only 35% of participating members. Moreover, even among the active members, the United States, as complainant in 124 cases, respondent in 157 cases and third party in 174 cases, participating in about 74% of the cases, and the EU, as complainant in 110 cases, respondent in 92 cases and third party in 216 cases, participating in about 68% of the cases, are the most active members, while members such as Denmark and Moldova as complainant and respondent participating in only one case respectively. Overall, the level of participation of members is proportional to their level of trade, and the most active members are concentrated in the major trading countries, especially the developed and emerging economies. On the one hand, among the developed economies, cases brought by the U.S. and the EU alone amount to approximately 40% of the total number of cases, with over 40% more initiated against the U.S. and the EU; meanwhile, members such as Canada, Japan and Australia are also among the most active members. On the other hand, emerging economies, although the total number of cases to which they are parties, differ considerably from that of the U.S. and the EU; their participation cannot be ignored, with China, India, Brazil and, later on, Russia standing out. Of particular note is the fact that 36 of the 47 LDCs identified by the UN have become WTO members. However, to date, only Bangladesh has filed a case, and nine countries—Afghanistan, Benin, Chad, Madagascar, Malawi, Senegal, Tanzania, Yemen and Zambia—have participated symbolically as third parties in cases, while the other 26 countries, including Angola, Burkina Faso, Burundi, Cambodia, Central Africa, DRC, Djibouti, Gambia, Guinea Guinea-Bissau, Haiti, Laos, Lesotho, Liberia, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Sierra Leone, Solomon Islands, Togo, Uganda and Vanuatu have never been involved in any case. In other words, 72% of the LDCs appear to have only nominal eligibility to participate in cases as WTO members, but not the capacity or interest to participate substantially.

61

https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm, last visited 9 February 2023.

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1 The WTO Institutional Structure and Dispute Settlement Practice

Table 1.4 Mode and extent of member participation (1995–2022)62 Mode of participation

Members and cases involved (number)

Total members and percentage

Symbolic participation63

Afghanistan 3, Barbados 4, Belize 4, Benin 1, Bolivia 2, Cameroon 1, Chad 1, Côte d’Ivoire 4, Dominica 3, Swaziland 3, Fiji 3, Ghana 1, Grenada1, Guyana 3, Iceland 18, Israel 11, Jamaica 8, Kenya 3, Kuwait 1, Madagascar 5, Malawi 6, Mauritius 6, Namibia 1, Nigeria 6, Oman 14, Paraguay 21, St. Kitts and Nevis 3, St. Lucia 3, St. Vincent and the Grenadines 1, Senegal 2, Suriname 1, Tajikistan 1, Tanzania 3, Yemen 2, Zambia 2, Zimbabwe 6

36 (22%) (10 members involved in only 1 case, over 1/4)

Substantial As Antigua and Barbuda 1, Bangladesh 1, Cuba 1, El participation64 complainant Salvador 1, Honduras 8, Hong Kong, China 2, New only Zealand 9, Norway 5, Singapore 1, Sri Lanka 1, Switzerland 5, Chinese Taipei 7, Tunisia 2, Vietnam 5 As respondent only

Armenia 2, Bahrain 1, Belgium 3, Croatia 1, Egypt 5, France 5, Germany 2, Greece 3, Ireland 3, Italy 1, Kazakhstan 1, Kyrgyzstan 1, Lithuania 1, Morocco 3, Netherlands 3, Portugal 1, Romania 2, Slovakia 3, Spain 3, Sweden 1, Trinidad and Tobago 2, United Kingdom 4

14 (8.5%)

22 (13.4%)

Active participation (as Argentina 22 + 22, Australia 11 + 17, Brazil 34 + 17, 39 (23.8%) complainant and respondent) Canada 40 + 23, Chile 10 + 13, China 23 + 49, Colombia 5 + 7, Costa Rica 7 + 1, Czech Republic 1 + 2, Denmark 1 + 1, Dominica 1 + 8, Ecuador 3 + 3, EU 110 + 92, Guatemala 10 + 2, Hungary 5 + 2. India 24 + 32, Indonesia 13 + 15, Japan 28 + 16, Korea 21 + 19, Malaysia 2 + 1, Mexico 25 + 15, Moldova 1 + 1, Nicaragua 1 + 2, Pakistan 5 + 4, Panama 7 + 2, Peru 4 + 7, Philippines 5 + 6, Poland 3 + 1, Qatar 4 + 1, Russia 8 + 11, Saudi Arabia 1 + 2, South Africa 1 + 5, Thailand 14 + 4, Turkey 6 + 12, Ukraine 9 + 4, UAE 2 + 1, USA 124 + 157, Uruguay 1 + 1, Venezuela 3 + 2 Top 15 of participation as third Party

Japan 227, EU 216, China 192, India 179, USA 174, Canada 172, Brazil 166, Korea 141, Chinese Taipei 136, Australia 119, Norway 118, Mexico 112, Turkey 107, Thailand 101, Russia 99

None participation

53 members

1.3.1.4

Current Status of Disputes

The effectiveness of DSM is largely reflected by the outcome of dispute resolution (see Table 1.5).

62

https://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm, last visited 9 February 2023. 63 Only as third party, neither complainant nor respondent. 64 As complainant or respondent.

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

21

Table 1.5 Status of disputes (1995–2022)65 Concluded: 289 cases (47%)

Pending: 333 cases66 (54%) Review

Withdrawn or settled

105

Implementation

In consultations

181

Compliance proceedings ongoing

9

Report(s) adopted, no 37 further action required

Panel established, but not yet composed

27

6

Panel Composed

23

Compliance proceedings completed with finding(s) of non-compliance

Implementation notified by respondent/mutually acceptable solution on implementation notified

95/23

Panel report circulated

2

Authorization to retaliate requested

12

Authorization to retaliate granted

9

Panel report under appeal

22

Report(s) adopted, with recommendation to bring measure(s) into conformity

48

Arbitration under article 25 of the DSU

1

Authority for panel lapsed

17

Compliance proceedings completed without finding of non-compliance

3

To date, the DSM closure rate has approached 50%, of which more than 50% have been concluded by way of panel or Appellate Body decisions, with the majority of cases being well implemented; only nine cases have been finally authorized for retaliation, with the United States as respondent in seven cases and Canada and the EU as respondent in the remaining two. Of the ongoing cases, more than half were in consultation; 74 have initiated and/or were in panel or Appellate Body proceedings;

65

https://www.wto.org/english/tratop_e/dispu_e/dispu_current_status_e.htm, last visited 9 February 2023. 66 Seven of these cases are in both proceedings: DS430, DS456, DS461 and DS511, which are in both “compliance proceedings ongoing” and “authorization to retaliate requested”; DS381, which is in both “compliance proceedings” and “authorization to retaliate granted”; DS316, which is in both “authorization to retaliate granted” and “compliance proceedings ongoing”; and DS559, which is in both “arbitration under Article 25 of the DSU” and “withdrawn”. Therefore, the number of cases in the table differs from the total number of cases.

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1 The WTO Institutional Structure and Dispute Settlement Practice

Table 1.6 Disputes in consultation by 31 December 2022 Year

No

Year

No

Year

No

Year

No

Year

No

1995

4

2001

10

2007

1

2013

5

2020

2

1996

12

2002

9

2008

5

2015

3

2021

2

1997

14

2003

5

2009

2

2016

5

2022

6

1998

23

2004

6

2010

6

2017

8

1999

10

2005

4

2011

1

2018

11

Total

181

2000

13

2006

3

2012

8

2019

3

48 were reviewed with reports adopted with recommendation which led to implementation; 27 were under implementation, 12 of which were requested for authorization to retaliate, with the United States as respondent in 6 cases. In addition, in the various procedures of dispute settlement, non-adjudicative methods also play an important role, including consultations prior to the establishment of panel, settlement reached by parties mutually, authorization for panel lapsed and mutually acceptable solution on implementation notified, through which more than half of the cases were concluded. This reveals that dispute settlement does not function exclusively through compulsion. In the case of consultations, for example, only in 2014 no cases remained in consultation since 1995; moreover, 141 cases have remained in consultation accumulatively over the 20 years period from 1995 to 2014. According to Article 4.7 of the DSU, if the consultations fail to settle a dispute within 60 days after the date of receipt of the request for consultations, the complaining party may request the establishment of a panel. The long-lasting consultation in practice proves that the parties have no intention of initiating subsequent proceedings and that “consultation” itself is an acceptable solution for all parties (Table 1.6).

1.3.2 Judicial Character of WTO Dispute Settlement 1.3.2.1

Mandatory Adjudication Process

Although non-adjudicative settlement is the norm in WTO dispute settlement practice, as noted above, the DSM itself and its operation is of strong judicial characteristics which are prominently reflected in the entire dispute settlement process and decisions of its judicial bodies, the panels and the Appellate Body. That is, based on the decision-making mechanism of reverse consensus, the DSM adjudication system, from the establishment of panel that initiates the case review, to the adoption of the panel and the Appellate Body reports by the DSB, and further to the authorization to retaliate, has a compulsory binding effect, namely compulsory jurisdiction, compulsory adjudication and compulsory implementation, without any hindrance by the parties to the dispute.

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

23

The data shows that the ratio of cases reviewed and decided by panels or the Appellate Body to the entire caseload has remained at around 40–50%, thus allowing the application and clarification of the WTO agreements and their provisions as basis for decisions. For different types of disputes, the proportion of disputes decided under the respective agreements varies, but the difference is not significant and generally fluctuates around the 40–50% average. Of course, since the application of the rules in non-adjudicated cases is limited to unilateral invocation by the complainant or by the respondent in defense, the correctness of such invocation cannot be directly verified due to the lack of clarification by panels and the Appellate Body. In this regard, although some scholar believes that the WTO (dispute settlement) system can provide “some predictability that promotes settlements or withdrawals of cases”,67 from another perspective, the inadequate supply of WTO rules may also cause parties to circumvent the adjudication. However, in any case, the fact that a considerable number of disputes have been settled without adjudication, excluding the cases yet to be decided, is to a large extent an indication that the factual disputes between the parties have been put to rest, rather than that the cognitive deviations or differences between the parties regarding the WTO rules have also been resolved.68

1.3.2.2

Relatively Independent Adjudicative Body

According to the DSU, both panels and the Appellate Body have independent adjudicative status as judicial bodies of the DSM. Firstly, with respect to the composition of panels and the Appellate Body, panel members should be selected with a view to ensuring the independence of the members, a sufficiently diverse background and a wide spectrum of experience; citizens of Members whose governments are parties to the dispute or third parties shall not serve on a panel concerned with that dispute, unless the parties to the dispute agree otherwise; the parties to the dispute shall not oppose nominations proposed by the Secretariat except for compelling reasons; panelists shall serve in their individual capacities and members shall therefore not give them instructions nor seek to influence them as individuals with regard to matters before a panel.69 Furthermore, members of the Appellate Body shall be unaffiliated with any government and shall not participate in the consideration of any dispute that would create a direct or indirect conflict of interest.70 Secondly, as far as deliberations are concerned, the deliberations of both panels and the Appellate Body shall be confidential; reports shall be drafted without the presence of the parties to the dispute and opinions expressed in the reports by individuals shall be anonymous71 ; and there shall be no ex parte communications with the panel or Appellate Body concerning

67

Jackson (2006), p. 160. See Xiao (2010). 69 See DSU Article 8. 70 See DSU Article 17.3. 71 See DSU Article 14, Article 17.10, and Article 17.11. 68

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1 The WTO Institutional Structure and Dispute Settlement Practice

matters under consideration by the panel or Appellate Body.72 Thirdly, as far as the outcome is concerned, reports shall be adopted and then accepted unconditionally by the parties, unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by consensus not to adopt the report.73

1.3.2.3

A Tendency Toward More Active and Rigid Adjudication

As determined by compulsory jurisdiction, for panels and appellate bodies, there is no challenge of jurisdiction over the dispute, only a question of how it is decided, which is then a question of the degree and intensity of discretion to be exercised on a case-by-case basis, and therefore is essentially a matter of adjudicative strategy. A review of over 20 years of dispute settlement adjudication reveals that DSM adjudicators, particularly the Appellate Body, have evolved from a relatively restrained approach in the early years to an increasingly active one. Rigid Effects of the DSM System by Design The first is the principle of “responsiveness upon request”, which means that both panels and the Appellate Body should consider and respond to the requests within the scope of their competence. The complainant often invokes as many of the relevant rules as possible and alleges that the measure complained of constitutes a violation, which may be upheld in full or in part by the panel and the Appellate Body. In practice, the vast majority of disputes are decided in favor of the complainant. Secondly, the decision must address the merits, namely the adjudicator cannot refuse to adjudicate on whether the measure complained of violates the WTO rules, but should normally give a definite, yes-or-no judgment. At the same time, as WTO obligations are usually applied cumulatively,74 members must comply with them concurrently as long as they do not conflict with each other. The cumulative application of the obligations reinforces the rigidity of the outcome of a yes-or-no decision. Thirdly, the Appellate Body has greater discretion and incentive for judicial expansion than panels. This is mainly because, while panels decide independently on the application of the law, the Appellate Body makes the final decision due to the existence and operation of the appeal process. With such conferral of decision-making power, “the Appellate Body created itself as a judicial branch in a distant, even potentially contentious or oppositional, relationship with the WTO institution”.75 It is precisely such a power that allows the Appellate Body to illustrate how its correction of the panel’s legal interpretation is to be applied to the facts of the dispute, to afford no particular deference or even respectful consideration to decisions of the 72

DSU Article 18.1. DSU Article 16 and Article 17.14. 74 See Appellate Body Report, Korea—Dairy, WT/DS98/AB/R, adopted 14 December 1999, para. 21. 75 Howse (2016). 73

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

25

panel under appeal, to the point of “gratuitously scathing” criticism of panel rulings, and to emphasize the precedential weight of the Appellate Body’s own decisions relative even to past adopted decisions of GATT panels.76 Practice shows that the active and rigid tendency to adjudicate is mainly reflected in the decisions of the Appellate Body. Expansion of Interpretation: Semantic → Systemic → Evolutionary (1) Textual Approach Dispute settlement under the DSM is primarily accomplished through the interpretation and application of WTO rules, with Article 3.2 of the DSU requiring that customary rules of interpretation of public international law be followed, and the Appellate Body decisions establishing the Articles 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT) as rules of interpretation. Under the influence of such interpretation rules, the Appellate Body generally adopted a textual approach to interpretation for the first six to eight years, with the exception of some individual cases. The rationale of its strong textual bent was to establish the credibility of the Appellate Body as a new institution, by trying to be as objective as possible and avoiding circumstances and activities that would allow nation-state governments (members of the WTO or otherwise) to accuse the Appellate Body of tilting one way or another for bias reasons.77 (2) Effectiveness Principle and Systemic Approach In order to preserve the integrity and dynamism of the WTO system and the pursuit of free trade, the Appellate Body adopted the systemic interpretation approach widely. In Korea—Dairy (DS98), the Appellate Body held that “a treaty should be interpreted as a whole, and, in particular, its sections and parts should be read as a whole”.78 Application of the principle of effectiveness is also reflected in the systemic approach to interpretation. In US—Gasoline (DS2), the Appellate Body held that “one of the corollaries of the ‘general rule of interpretation’ in the Vienna Convention is that interpretation must give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility”.79 Since then, effectiveness principle was applied by the Appellate Body in a number of cases.80 In the meantime, the Appellate Body held that the “sections and parts that should be read as a whole” 76

Howse (2016). Jackson (2006), p 187. 78 See Appellate Body Report, Korea—Dairy, WT/DS98/AB/R, adopted 14 December 1999, para. 81. 79 See Appellate Body Report, US—Gasoline, WT/DS2/AB/R, adopted 29 April 1996, p. 23. 80 For Example, Appellate Body Reports, Japan—Alcoholic Beverages II, WT/DS8/AB/R, WT/ DS10/AB/R, WT/DS11/AB/R, adopted 4 October 1996, p. 12; Appellate Body Reports, Canada— Dairy, WT/DS103/AB/R, WT/DS113/AB/R, adopted 13 October 1999, para. 133; Appellate Body Reports, EC—Banana III—Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/ AB/RW2/ECU, WT/DS27/AB/RW/USA, adopted 26 November 2008, para. 422. 77

26

1 The WTO Institutional Structure and Dispute Settlement Practice

includes contextual interpretation, which is not limited to the terms and clauses under the covered agreements, but extends flexibly to documents developed by other international organizations. For example, in EC—Chicken Cuts (DS269, DS286), the Appellate Body held that the Harmonized Commodity Description and Coding System (hereinafter the “Harmonized System”) developed by the World Customs Organization is “context” under Article 31(2)(a) for the purpose of interpreting the WTO agreements.81 But in China —Auto Parts (DS339, DS340 and DS342), the Appellate Body considered that the Harmonized System does not provide context that is relevant to the threshold question or to the assessment of the respective scope of application of “ordinary customs duties” in the first sentence of Article II:1(b) and “internal charges” in Article III:2 of the GATT 1994 that must be undertaken in answering that question.82 The adoption of different interpretative approaches can lead to different conclusions. For example, textual interpretation and teleological interpretation are a typical pair of interpretative approaches that tend to lead to differences in interpretation. When such different conclusions conflict with each other, the Appellate Body often tended to favor the completeness and dynamism of the WTO system for the purpose of trade liberalization, and accordingly made law by filling gaps and clarifying ambiguities.83 (3) Evolutionary Approach In order to adapt to changes in the external environment of the WTO and to preserve the institutional dynamic nature of the WTO system and the effectiveness of the WTO treaties, the Appellate Body further incorporated evolutionary interpretation which emphasizes that the interpretation of the scope or meaning of concepts in the rules should change over time, although the nature of revolutionary interpretation is controversial: an approach to interpretation,84 an interpretative route85 or a result of interpretation?86 In some disputes, the Appellate Body begun to adopt this up-to-date approach to interpretation. For instance, in US—Shrimp (DS58), the Appellate Body held that the generic term “natural resources” in Article XX(g) is not “static” in its content or reference but is rather “by definition, evolutionary”87 ; that the words of Article XX(g), “exhaustible natural resources”, were actually crafted more than 50 years ago and they must be read by a treaty interpreter in the light of contemporary concerns of the community of nations about the protection and 81

See Appellate Body Reports, EC—Chicken Cuts, WT/DS269/AB/R, WT/DS286/AB/R, adopted 12 September 2005, para. 199; see Appellate Body Reports, China —Auto Parts, WT/DS339/AB/ R, WT/DS340/AB/R, WT/DS342/AB/R, adopted 15 December 2008, para. 149. 82 See Appellate Body Reports, China—Auto Parts, WT/DS339/AB/R, WT/DS340/AB/R, WT/ DS342/AB/R, adopted 15 December 2008, para. 166. 83 See Barton et al. (2006). p 81, 82. 84 Sun (2015). 85 Lv (2016). 86 Djeffal (2016). 87 See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, adopted 12 October 1998, para. 130.

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

27

conservation of the environment88 ; and that in line with the principle of effectiveness in treaty interpretation, Article XX(g) may be read as referring to the conservation of not only exhaustible mineral and other non-living natural resources, but also exhaustible natural resources, whether living or non-living.89 In China—Publications and Audiovisual Products (DS363), the Appellate Body considered that the terms used in China’s GATS Schedule (“sound recording” and “distribution”) are sufficiently generic that what they apply to may change over time.90 Evolutionary approach is used as opposed to the principle of “intertemporality”, the distinction between which lies in whether to take into account the change occurs between the moment of the conclusion of the treaty and the moment of interpretation. Under the principle of intertemporality, when determining the reference period to interpret the terms of treaties between States, the date of the treaty’s conclusion is viewed as the relevant date; evolutionary interpretive method, however, avoids locking the scope of the convention into the past, offering a more contemporary reading that uses new concepts, facts or rights.91 Evolutionary interpretation covers not only linguistic and technological but also political and sociological changes, but seems to stay, for the moment, a protean notion—sometimes used inaccurately, or used loosely.92 Such inaccuracy and looseness also can be found in the practice of the Appellate Body. Furthermore, the consideration of such changes in the evolutionary interpretation by the Appellate Body while preserving institutional dynamics and treaty effectiveness may also lead to the ignorance of member’s ex parte interpretation and sovereignty. The continuous expansion of the Appellate Body’s approach to treaty interpretation clearly reflects its positive and active tendency toward judicialization. Reconstruction of Rules by Way of Deduction The interpretation during the rule application includes both the clarification of the original meaning of the rule and the filling of the loopholes in the rule, thus inevitably introducing a series of new concepts and/or new contents, and serving as creation process where such rule evolves into a new rule. For example, due to the absence of a remand mechanism, the Appellate Body may complete its analysis on the basis of reversing the panel’s decision on legal issues resolved by the panel. In the US—Gasoline (DS2),93 Canada—Periodicals (DS31),94

88

See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, adopted 12 October 1998, paras. 129 See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, adopted 12 October 1998, paras. 131 90 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, adopted 21 December 2009, para. 396. 91 Marceau (2018). 92 See Marceau (2018), p. 791, 813. 93 See Appellate Body Report, US—Gasoline, adopted 29 April 1996, WT/DS2/AB/R, p.19. 94 See Appellate Body Report, Canada—Periodicals, adopted 30 June 1997, WT/DS31/AB/R, p. 24. 89

28

1 The WTO Institutional Structure and Dispute Settlement Practice

EC—Poultry (DS69),95 US—Shrimp (DS58)96 and Australia—Salmon (DS18),97 in order to resolve the dispute between the parties, the Appellate Body, having overturned the panel’s rulings and conclusions on issues of law, completed the legal analysis by reviewing and adjudicating issues that had not been specifically addressed by the panel. Although the Appellate Body has stressed its restraint in deciding whether to complete the legal analysis, i.e. to complete the analysis only if the factual findings by the panel, or the undisputed facts on the panel record, provide a sufficient basis for the Appellate Body to do so,98 this “complete the analysis” approach has been adopted in multiple cases where its legality and legitimacy have been challenged. Firstly, “completing the analysis” exceeds the Appellate Body mandate under DSU Article 17.13 of “upholding, modifying or reversing” legal findings or conclusions of the panel. Secondly, the Appellate Body’s “completing the analysis” leaves the parties without an appeal, which consequently deprives the parties of their rights to appeal. Thirdly, there is uncertainty as to whether the Appellate Body decides to complete the analysis until its final report is issued, at which point, the member has no opportunity to adequately defend their positions regarding “the analysis completed”, which in turn raise issues of procedural uncertainty and due process.99 Also, in US—Clove Cigarettes (DS406), the Appellate Body created a new concept of “legitimate regulatory distinction” for Article 2.1 of the TBT Agreement.100 The measure at issue was a ban imposed by the U.S. on the import of clove cigarettes from Indonesia while allowing domestic production of menthol cigarettes in the U.S. The U.S. posited that its regulatory distinction between the two types of cigarettes was based on consumer tastes and habits.101 The Appellate Body held that Article 2.1 of the TBT Agreement does not prohibit a legitimate regulatory distinction, which is permissible even if it has a detrimental impact on competitive opportunities for imports, while the justification for the regulatory distinction advanced by the U.S. failed to show that the detrimental impact on competitive opportunities for imported clove cigarettes stemmed from a legitimate regulatory distinction.102 In order to define the concept of legitimate regulatory distinction, the Appellate Body introduced a range of other concepts, such as “even-handed”, which means 95

See Appellate Body Report, EC—Poultry, WT/DS69/AB/R, adopted 23 July 1998, para. 156. See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, adopted 12 October 1998, para. 123. 97 See Appellate Body Report, Australia—Salmon, WT/DS18/AB/R, adopted 20 October 1998, para. 118. 98 See Appellate Body Report, EC and Certain Member States—Large Civil Aircraft, WT/DS316/ AB/R, adopted 18 May 2011, para. 1140. 99 See Pauwelyn (2007). 100 TBT Agreement, Article 2.1 Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favorable than that accorded to like products of national origin and to like products originating in any other country. 101 See Appellate Body Report, US—Clove Cigarettes, WT/DS406/AB/R, adopted 4 April 2012, para. 19. 102 See Appellate Body Report, US—Clove Cigarettes, WT/DS406/AB/R, adopted 4 April 2012, paras. 174–175, 225. 96

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

29

in determining whether a technical regulation discriminates against imported products, it is necessary to examine whether such technical regulation is fair.103 Where a regulatory distinction is not designed and applied in an even-handed manner— for example, because it is designed or applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination—that distinction cannot be considered legitimate and, thus, the detrimental impact will reflect discrimination prohibited under Article 2.1.104 The Appellate Body further held that Article 2.1 is a nondiscrimination provision in respect of technical regulations and that it is only the regulatory distinction that accounts for the detrimental impact on imported products that is to be examined to determine whether it is “a legitimate regulatory distinction”.105 In other words, the review of the fairness of a measure is a review of the fairness of the design or application of the regulatory distinction, rather than a review of whether the measure discriminates against imported products. Hence, the Appellate Body, in its interpretation and application of Article 2.1, first introduced the concept of “legitimate regulatory distinction” and then introduced the concept of “even-handed” to interpret “legitimate”, the application of which required further interpretation by the Appellate Body.106 Such constant deduction of new rules is undoubtedly judicial law-making.

1.3.3 Comments of the Dispute Settlement Mechanism 1.3.3.1

Positive Comments as Mainstream

Since its inception, the DSM has been criticized in one way or another, but positive comments have been overwhelmingly dominant. The WTO Agreement emphasizes that the WTO system is “the stronger and clearer legal framework for the conduct of international trade, including a more effective and reliable dispute settlement mechanism”.107 The DSM, with its judicial character, providing a strong institutional support for upholding the WTO’s “rule-based” core value of rule of law, has thus been hailed as the “jewel in the crown”, and positively affirmed and firmly upheld by the majority of WTO members.

103

See Appellate Body Report, US—Clove Cigarettes, WT/DS406/AB/R, adopted 4 April 2012, paras. 182, 215; Appellate Body Report, United States—Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, WT/DS381/AB/R, adopted 16 May 2012, para. 232. 104 Appellate Body Report, United States—Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/AB/R, WT/DS386/AB/R, adopted 29 June 2012, para. 293. 105 See Appellate Body Reports, EC—Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, adopted 22 May 2014, paras. 5.311–5.312. 106 See Appellate Body Reports, EC—Seal Products, WT/DS400/AB/R, WT/DS401/AB/R, adopted 22 May 2014, para. 2.1. 107 Marrakesh Declaration of 15 April 1994, Article 1.1.

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1 The WTO Institutional Structure and Dispute Settlement Practice

The outstanding achievements of the DSM are manifest in terms of its functionality and effectiveness. As for the function, the DSM is a judicial mechanism created to address the shortcomings of the GATT dispute settlement mechanism. Due to the “consensus” rule of the GATT dispute settlement mechanism, the losing party can easily prevent the adoption of panel reports, and disputes between members can only be resolved through negotiation, but not at the “legal” dimension, resulting in a lax legal framework for the GATT and, consequently, the limited effectiveness of its free trade rules and dispute settlement mechanism. The WTO has developed a quasi-judicial body, the DSB, and while respecting national sovereignty, has established a set of adjudicative procedures that members decide to follow for compelling reasons. Indeed, the effective functioning of the DSM depends on the credibility of dispute settlement adjudication. For this reason, as mentioned above, the institutional design of relatively independent judiciary and independent adjudication from foreign interference allows the DSM to perform a judicial function in providing security and predictability to the WTO multilateral trading system. The security and predictability of the system not only provide an incentive for policy-makers to shift resources from protective to productive uses, but also gain the trust of members. The incorporation of the “reverse consensus” rule has greatly enhanced the effectiveness of WTO rules. As panels and the Appellate Body decisions play a central role in clarifying and enforcing the legal obligations under the WTO agreements, they uphold the authority of the WTO system in terms of its institutional function, so that it is “no longer a system simply based on consensus, reciprocity, and a balancing of concessions. Rather, it is a system based on rules that reflect the reality of the administrative state”.108 As for effectiveness, firstly, the number of disputes registered is close to 600 in 25 years, which is not only far beyond the GATT era, but also one of the highest among all international organizations today. The trust and reliance of WTO members on the DSM are evident. Secondly, in terms of the types of disputes, the DSM covers all the covered agreements under the WTO multilateral system, despite the obvious differences in the frequency of invocation and application of the agreements and the distribution of cases. Thirdly, the WRO rules and the connotations of the concepts involved have been clarified and specified through repeated application and interpretation in dispute settlement, thereby increasing the certainty, consistency and effectiveness of the international trade law regime. Last, in terms of compliance, the implementation rate of DSB decisions is 90%, which means that even though the panel and Appellate Body decisions are contested by parties to the disputes, they still accept and generally comply with and implement these unfavorable decisions of their own volition. This shows that the superior judicial competence of the panel and Appellate Body members has enabled the multilateral trading system to achieve fairness, effectiveness and predictability, and the authority of the DSM and the WTO system has been widely recognized and actively upheld by the members. In a nutshell, the long-standing general consensus among WTO members is that “the wide use of the WTO dispute settlement system in the 23 years of its existence 108

Ala (2011).

1.3 The Operation of the WTO Dispute Settlement Mechanism in Practice

31

was a testament to Member’s trust in the impartiality and effectiveness of the WTO dispute settlement system”.109

1.3.3.2

Negative Comments from Individual States

By now, negative comments of the DSM are mainly case-specific and from individual states. Challenges and criticism of panel or Appellate Body decisions in individual cases have persisted, not only against the adjudication process, but also blaming the conclusions of the rulings. For example, with regard to “amicus curiae”, the African Group claimed that panels and the Appellate Body repeatedly exceeded their terms of reference in interpreting and applying the covered agreements to the fundamental detriment of the interests and rights of developing country members under the WTO. “The expression amicus curiae should not be used under Article 13 of the DSU”.110 Similar concerns were expressed by members such as Cuba, Honduras, India, Malaysia, Pakistan, Sri Lanka, Tanzania and Zimbabwe in one of their proposals relating to the DSU, which claimed that if member governments were required to respond to amicus curiae briefs, it would add to their obligations beyond what was negotiated.111 Much of the criticism directed at individual cases also focuses on the interpretation and application of WTO provisions by panels and the Appellate Body, ranging from the view that there are technical or cognitive errors in the interpretation or application, to the view that their decisions exceed their competence or the interpretation expanded beyond what was expected and intended during the negotiations of these provisions. The institutional accusations and challenges to the DSM have come mainly from the U.S. Since the Trump administration took office in 2016, it had repeatedly claimed that the WTO is a disaster and threatened to withdraw, citing “unfairness”. The U.S. targeted the Appellate Body and, using the DSU’s “positive consensus” decisionmaking mechanism, blocked the normal selection process of several Appellate Body members, rendering the Appellate Body unable to function legally and completely “paralyzed” in December 2019. The President’s 2018 Trade Policy and the 2020 USTR Report on the Appellate Body of the World Trade Organization listed a number of “sins” of the Appellate Body, mainly on two dimensions: one relates to compliance with the rules, including procedurally, serious violations of the DSU, such as disregarding the mandatory 90-day deadline for issuing a report, allowing former members to decide cases after their terms have ended, lack of transparency, reviewing panel findings of fac, etc. and substantively, overstepping its authority by erroneous interpretation of WTO rules. The other concerns the adjudication, including issuing 109

Dispute Settlement Body, Minutes of Meeting on 27 April 2018, WT/DSB/M/412, 1 August 2018, para. 9.19. 110 Dispute Settlement Body, Negotiations on the Dispute Settlement Understanding—Proposal by the African Group, TN/DS/W/15, 25 September 2002, pp. 1, 5–6. 111 See Dispute Settlement Body, Negotiations on the Dispute Settlement Understanding—Proposal by Cuba, Honduras, India, Malaysia, Pakistan, Sri Lanka, Tanzania and Zimbabwe, TN/DS/W/18, 7 October 2002, pp. 2–4.

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advisory opinions on issues not necessary to resolve a dispute, reviewing issues not appealed by the parties to the dispute, claiming its reports are entitled to be treated as precedent, etc.112

1.3.3.3

Neutral Stance

On the one hand, it needs to be clarified that the U.S. criticism of the DSM can be discussed and accepted in a factual manner, but its outright negative attitude and obstruction of the normal functioning of the Appellate Body are unjustified. This is partly to vent its frustration over the loss of its cases and partly to raise the bar for future negotiations. In fact, as mentioned earlier, the U.S. ranks first in the number of cases submitted to the DSM and is the biggest user and beneficiary of the DSM; moreover, it is still filing complaints and appeals even while blocking the selection of Appellate Body members.113 Of course, if WTO reform fails to meet or respond to its core demands, while the crisis of suspension of the Appellate Body is inevitable, the DSM also faces a regression back to the GATT regime. On the other hand, the settlement of trade disputes between members is an essential function of the DSM. Through dispute settlement, the DSM provides “security and predictability to the multilateral trading system”.114 In order to perform this function, the DSU sets multiple requirements for the mechanism, such as “clarify” the provisions of the covered agreements “in accordance with customary rules of interpretation of public international law”, seek “prompt settlement”, “satisfactory settlement” and “positive solution” of disputes, and “not nullify or impair benefits accruing to any Member under those agreements, nor impede the attainment of any objective of those agreements”.115 However, the international community is an anarchic society and no organization is above the sovereignty of states, nor is the WTO. As a member-driven organization, any decision it makes requires sovereign action by the member states to enforce. The DSM has therefore always had to deal with the fundamental paradox of respecting the sovereignty of members and expecting them to comply with WTO rules, including unfavorable rulings, between which the DSM wanders, trying to achieve a dynamic balance in between. In any case, one should believe that, provided with the fact that the DSM was able to retain a strong level of support from WTO members,116 and its irreplaceable role in resolving trade conflicts between states, the establishment of a provisional appeal mechanism by members other than the U.S. as an alternative to the existing Appellate 112

See USTR, The President’s 2018 Trade Policy Agenda, https://ustr.gov/sites/default/files/ files/Press/Reports/2018/AR/2018%20Annual%20Report%20I.pdf, last visited 16 July 2019; See USTR, USTR Issues Report on the WTO Appellate Body, https://ustr.gov/sites/default/files/Rep ort_on_the_Appellate_Body_of_the_World_Trade_Organization.pdf, last visited 7 April 2020. 113 From 2017 to 2022, the U.S. filed as complainant a total of 12 cases at the DSM (3 in 2017; 8 in 2018; 1 in 2019); of the 22 appeals currently filed, the United States has filed 12. 114 DSU, Article 3.2. 115 DSU, Article 3.2, 3.3, 3.4, 3.5 and 3.7. 116 See Wilson (2005).

References

33

Body could be one way to alleviate the current dispute settlement dilemma, for which theoretical arguments have been made in various quarters.117 The EU and Canada also started their bilateral attempts in 2019.118 On 27 March 2020, China, the EU and 14 other WTO members decided on 27 March on a Multiparty Interim Appeal Arbitration Arrangement (MPIA) that will allow these members to bring appeals and solve trade disputes among them, despite the current paralysis of the WTO Appellate Body. On 30 April 2020, China, the EU and 17 other WTO members formally submitted a notification to the WTO to jointly establish the MPIA.119 This arrangement has been in operation since the date of the filing of the notification. During the suspension of the Appellate Body, the disputes on appeal between the participants will be solved in accordance with the provisions of Article 25 of the DSU and the rules of procedure for appeal arbitration agreed thereunder.

References Ala P (2011) From the periphery to the centre? The evolving WTO jurisprudence on transparency and good governance. In: Redesigning the world trade organization for the twenty-first century. Wilfrid Laurier University Press, Ottawa, p 181 Azevedo R (2018) Why we need the WTO now more than ever. In: The globe and mail. Available via https://www.theglobeandmail.com/business/commentary/article-why-we-needthe-world-trade-organization/. Accessed 6 Apr 2022 Barton JH et al (2006) The evolution of the trade regime. Princeton University Press, New Jersey Bogdamdy AV (1995) The non-violation procedure of article XXIII: 2, GATT: its operation and rationale. J World Trade 26(4):101 Darrah K (2019) EU and Canada agree on interim alternative to WTO appeal court. Available via https://www.ft.com/content/8714fb22-ae1b-11e9-8030-530adfa879c2. Accessed 19 Apr 2023 Davey WJ (1987) Dispute settlement in GATT. 11 Fordham Int’l L.J. 51:61 Djeffal C (2016) Static evolutive treaty interpretation. Cambridge University Press, p 22 Howse R (2016) The world trade organization 20 years on: global governance by judiciary. Eur J Int Law 27(1):9, 31 Jackson JH (2000a) The jurisprudence of GATT & the WTO. Cambridge University Press, Cambridge Jackson JH (2006) Sovereignty, the WTO, and changing fundamentals of international law. Cambridge University Press, Cambridge, p 143 Jackson JH (1995) The world trade organisation: watershed innovation or cautious small step forward? World Econ 18(5):11, 12 Jackson JH (2000b) The role and effectiveness of the WTO dispute settlement mechanism. In: Brookings trade forum 2000, p 185. https://doi.org/10.1353/btf.2000.0007 LV XJ (2016) Environmental elements of the WTO subsidies regime and the evolutionary treaty interpretation route—insights from the Canada—renewable energy case. Jinan J 9:50–57

117

See Shi (2019). On 25 July 2019, the EU and Canada agreed a new trade dispute resolution system as a temporary substitute to the World Trade Organization’s appeal court, which is edging toward collapse. The agreement announced will be based on existing WTO rules but will only apply to disputes between Canada and the EU. See Darrah (2019). 119 WTO document, JOB/DSB/1/Add.12, 30 April 2020. 118

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Marceau G (2018) Evolutive interpretation by the WTO adjudicator: sophism or necessity. J Int Econ Law 21(4):791, 791–792 Pauwelyn J (2007) Appeal without remand: a design flaw in WTO dispute settlement and how to fix it. ICTSD Dispute Settlement and Legal Aspects of International Trade Issue Paper No. 1, International Centre for Trade and Sustainable Development, Geneva, Switzerland, p 12–15 Shi JX (2019) Crisis and reform of the appellate body of world trade organization. Stud Law Bus 3:158–162 Sun NX (2015) Evolutionary treaty interpretation and its application in WTO dispute settlement. Glob Law Rev 5:166-169 Sutherland PD (2000) Concluding the Uruguay round—creating the new architecture of trade for the global economy. Fordham Int’l L.J 24(1):26 The WTO Secretariat (1999) Guide to the Uruguay Round agreements. Kluwer Law International, Hague, pp 17–18 Wilson B (2005) The WTO dispute settlement system and its operation: a brief overview of the first ten years. Key issues in WTO dispute settlement: the first ten years. Cambridge University Press, Cambridge, pp 23–24 Wolfrum R, Stoll P-T, Kaiser K (2006) WTO-institutions and dispute settlement. Martinus Nijhoff Publishers, pp 622–623 Xiao B (2010) Analysis of the differences in the application of rules in WTO dispute cases. Law Sci 9 Zhao WT (2000) World trade organization. Jilin People Press, Jilin, p 458

Chapter 2

China’s Practice in WTO Dispute Settlement

China’s participation in dispute settlement as a member of the WTO is mainly in the capacity of a party (complainant or respondent) or a third party (hereinafter collectively referred to as “disputes involving China”).1 In the process, China, same as other members, has accompanied the DSM from its heyday to its crisis, and the corresponding transformation of role and the characteristics of practice of China from “accession” to “integration” have attracted wide attention.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute Settlement The number of disputes involved, modes of involvement, status as complainant/ respondent, the issues involved and the outcome of the disputes involved constitute the basic elements of WTO disputes, with which the basic pattern of China’s participation in WTO dispute settlement practice can be drawn.

2.1.1 Number of Disputes Involved From 1 January 2002 to 31 December 2022, the total number of disputes involving China was 260, accounting for 69.7% of the total number (373) in the same period, during which China developed from a “latecomer” to one of the most important 1

According to Article 10 of DSU, “third party” refers to any member having a substantial interest in a matter before a panel and having notified its interest to the DSB. The purpose of third parties participating in the dispute settlement process is primarily to express their concerns and to state their understanding of the relevant rules and obligations, thereby influencing the judgment of the panel or the Appellate Body.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 B. Xiao et al., The Practice of WTO Dispute Settlement, Modern China and International Economic Law, https://doi.org/10.1007/978-981-97-0185-8_2

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2 China’s Practice in WTO Dispute Settlement

Table 2.1 Involvement of China in 2002–2022 Time

Number of disputes

Number of China’s disputes

Number of disputes with China as complainant or respondent (ratio)

Number of disputes with China as third party (ratio)

2002

37

20

1 (2.7%)

19 (51.4%)

2003

26

17

0

17 (65.4%)

2004

19

10

1 (5.3%)

9 (47.4%)

2005

12

6

0

6 (50%)

2006

20

11

3 (15%)

8 (40%)

2007

13

7

5 (39.5%)

2 (15.4%)

2008

19

13

6 (31.6%)

7 (36.8%)

2009

14

13

7 (50%)

6 (42.9%)

2010

17

12

5 (29.4%)

7 (41.2%)

2011

8

7

3 (37.5%)

4 (50%)

2012

27

21

10 (37%)

11 (40.7%)

2013

20

14

2 (10%)

12 (60%)

2014

14

13

1 (7.1%)

12 (85.7%)

2015

13

11

3 (23.1%)

8 (61.5%)

2016

17

13

6 (35.3%)

7 (41.2%)

2017

17

10

1 (5.9%)

9 (53%)

2018

39

32

9 (23.1%)

23 (59%)

2019

19

17

2 (10.5%)

15 (79%)

2020

5

3

1 (20%)

2 (40%)

2021

9

7

3 (33.3%)

4 (44.4%)

2022

8

3

3 (37.5%)

0

Total

373

260

72 (19.3%)

188 (50.4%)

participants and active members of the DSM. Since its accession to the WTO, China has participated as a third party in 188 disputes, accounting for 50.4% of the total number of disputes during the same period, ranking first among WTO members, and as a party in 72 disputes, accounting for 19.3%, second only to the U.S. and the EU. The specific number of disputes involved in each year is shown below (Table 2.1).

2.1.2 Modes of Involvement WTO members are involved in disputes either as parties or as third parties. To reflect the involvement of WTO members in disputes, the different modes of involvement should be examined separately as well as in combination.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

37

Table 2.2 Comparison of China’s involvement as parties with other WTO members in 2002–2022 Member

Number of disputes involved 2002–2006

2007–2011

2012–2016

2017–2022

Total

United States

55

31

30

40

156

European Union (formerly EC)

43

23

25

21

112

Japan

6

2

9

6

23

Korea, Republic of

9

3

4

7

23

India

9

4

8

9

30

Brazil

7

3

7

5

22

Mexico

13

5

2

3

23

Canada

12

8

3

10

33

Russian

0

0

11

8

19

China

5

26

22

19

72

2.1.2.1

As Complainant or Respondent: 3rd in the Rankings

Taking the United States, the EU, Japan, South Korea, India, Brazil, and Mexico as reference points, which have the highest number of disputes, are representative of various types of countries or regions, and have various close ties with China. Firstly, although there have been fluctuations in the number of disputes in which other members participate as parties in recent years, overall, the trend of a decrease in their number of cases and their proportions is relatively evident. Because the total number of countries involved was high in the early years, the 10 percent involvement rate was already very high, while the remaining countries, other than the U.S. and the EU, were involved in a much lower number of disputes at every stage, and the negative difference in the proportion was significant. China’s performance is the opposite: whether in absolute or relative terms, horizontally or vertically, the upward momentum of its involvement is very prominent. In particular, after the transitional period of its accession, the number of disputes in which China is involved has increased multiple times, rapidly leaped to and remained at the top ranks among the 164 members, currently ranking third only after the U.S. and the EU (Table 2.2).

2.1.2.2

As Third Party: 1st in the Rankings

See Table 2.3. As WTO members cannot be a party and a third party at the same time in a particular dispute, it is inevitable that when one mode of involvement rises for a member, the other mode of involvement is more likely to fall. Most members’ involvement follows this pattern, whereby a decrease in party involvement is accompanied by a corresponding increase in third-party involvement, but China’s third-party involvement has not reduced as a result of significant increase in its party involvement. To

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2 China’s Practice in WTO Dispute Settlement

Table 2.3 Comparison of China’s involvement as third party with other WTO members in 2002– 2022 Member

Number of disputes involved 2002–2006

2007–2011

2012–2016

2017–2022

Total

United States

29

23

45

35

132

European Union (formerly EC)

38

37

48

51

174

Japan

43

35

47

57

182

Republic of Korea

24

21

50

28

123

India

18

25

54

50

147

Brazil

33

19

45

54

151

Mexico

28

20

16

30

94

Canada

30

11

42

52

135

0

3

35

61

99

59

26

50

53

188

Russian China

date, China has participated as a third party in more than half of the total 373 WTO disputes, ranking 1st, during the 21 years since its accession. China’s active participation as a third party is due to the objective factor that China, as a major trading country, has a broader substantive interest in a wide variety of disputes, as well as subjective concerns such as the accumulation of experience and the expression of its own interests and legal opinions.

2.1.3 Status as Complainant/Respondent Party status refers to the specific role of a WTO member as a party in a dispute— complainant or respondent. It can be examined from two different perspectives: the first is the different roles of the parties themselves—to complain or to be complained? The second is the role of the other party—to complain of whom and be complained by whom?

2.1.3.1

Different Roles of China

As a party, after the transition period, China has consistently been involved in more disputes as respondent than as complaint, no matter in terms of annual involvement or cumulative total involvement (Tables 2.4 and 2.5). The data shows that, in general, China’s involvement in disputes has maintained a rather steady pace: as for disputes with China as a complainant, except for the only 1 dispute in the 5-year transition period and a steep increase to 5 disputes in 2018, for the remaining years there were roughly 1 to 3 disputes, with an annual average of no

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

39

Table 2.4 Comparison of China’s party status in 2002–2022 Time

Disputes as complainant (percentage of total WTO disputes for the year)

Disputes as respondent (percentage of total WTO disputes for the year)

China’s involvement/total number of disputes As complainant

As respondent

2002

1 (2.7%)

0

2003

0

0

1/114 ≈0.88%

4/114 ≈3.5%

2004

0

1 (5.26%)

2005

0

0

2006

0

3 (15%)

2007

1 (7.73%)

4 (30.77%)

2008

1 (5.3%)

5 (26.3%)

7/71 ≈9.86%

19/71 ≈26.8%

2009

3 (21.4%)

4 (28.6%)

2010

1 (5.88%)

4 (23.5%)

2011

1 (12.5%)

2 (25%)

2012

3 (11%)

7 (26%)

2013

1 (5%)

1 (11%)

7/91 ≈7.7%

15/91 ≈16.5%

2014

0

1 (7.1%)

2015

1 (7.7%)

2 (15.4%)

2016

2 (11.8%)

4 (23.5%)

2017

0

1 (5.9%)

2018

5 (12.8%)

4 (10.3%)

8/97 ≈8.25%

11/97 ≈11.3%

2019

1 (5.3%)

1 (5.3%)

2020

0

1 (20%)

2021

1 (11.1%)

2 (22.2%)

2022

1 (12.5%)

2 (25%)

Total

23 (6.2%)

49 (0.13.1%)

23/ 373≈6.2%

49/ 373≈13.1%

more than 2 disputes, the proportion of which in the total WTO disputes for the year is only slightly higher than 20% in 2009. As for disputes with China as a respondent, the number of disputes has increased rapidly immediately after the transition period, and the proportion of such disputes in the total WTO disputes for the year is at a high level in most years. In terms of the status of the parties, the data shows that most of the other members involved in a large number of disputes have complained more than responded (Japan, Korea, Brazil, Canada, Mexico) or maintained a balance between complaining and being complained (the EU). However, in contrast, China, on the one hand, along with the U.S., India and Russia, is in an “inverted” status of being complained more than complaining, and such “inverted” status of China is most pronounced, with the gap always being 2

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2 China’s Practice in WTO Dispute Settlement

Table 2.5 Comparison of China’s party status with other WTO members in 2002–2022 Member

Disputes as complainant

Disputes as respondent

United States

55

101

European Union (formerly EC)

54

58

Japan

19

4

Republic of Korea

15

8

India

11

19

Brazil

17

5

Mexico

15

8

Canada

21

12

Russian

8

11

China

23

49

to 3 times, not only higher than that of India and Russia, but also no less than that of the U.S. It should be noted that in the decade of 2007–2016, the U.S. was not significantly “inverted”, while since 2018 there was a surge in disputes as a result of the global trade war, of which in particular, were 9 complains brought by 9 members, including China, about the duties and related measures imposed by the U.S. on steel and aluminum imports.2 India was in a balance until 2018 and was “inverted” in 2019 by a surge of 7 disputes.3 On the other hand, since 2018, the degree of “inversion” of China has to some extent shifted: complaining more than being complained in 2018, in balance in 2019, and no increase in the degree of “inversion” in each of the 3 years from 2020 to 2022.

2.1.3.2

Different Roles of the Other Party

China as Complainant: Complain About Whom? The common pattern of complaints by WTO members shows that, firstly, the targets of complaints are concentrated in some particular countries or regions, regardless of which member is the complainant and at which stage. In recent years, along with the decline in the absolute number of disputes, the greater concentration of targets has become more apparent. Secondly, despite the overall concentration of targets, for the majority of members, their respective targets are still diverse, of which the U.S., the EU and Japan being the most prominent, with Mexico and Brazil, as developing countries, not far behind. Thirdly, China, after its accession to the WTO, especially after the transition period, has become one of the main targets for many members.

2 3

US—Steel and Aluminum Products, DS544, 547, 548, 550, 551, 552, 554, 556, 564. DS579, DS580, DS581, DS582, DS584, DS585, DS588.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

41

China’s complaints are more focused, with the exception of 1 complaint against Australia in 2021,4 all of which are directed at the U.S. and the EU, with a particular focus on the U.S. To date, of the 23 complaints brought by China, 17 are against the U.S. China as Respondent: complained by whom? The status of WTO members as respondents shows that: (1) Japan, Korea, Brazil and Mexico have exited from the group of members with a high percentage of being complained. (2) India has fluctuations, from 5 disputes in 2002-2006, declining to 2 disputes in 2007–2011, with zero dispute in 2009 and 2011, and rising to 4 disputes in 2012–2016, with zero dispute only in 2014, and rising again to 7 disputes in 2017–2022, but with zero disputes in 2017, 2010, 2021 and 2022, and all 7 disputes filed solely in 2019. (3) The U.S. and EU have been complained the most, always being the main targets of other members. Compared to other members, what is unique about China’s involvement lies in: firstly, since its accession to the WTO, while all other members saw a significant decline in the number of disputes brought against them, China was the only member to buck the trend—instead of declining, the number rose and the rate of increase was at a high level. Secondly, along with the increased number of disputes filed against China, the variety of complaints has also increased. 27 disputes were filed against China in 2007–2013, higher than the number of disputes filed against the U.S. and the EU during the same period, ranking 1st among all members; as for 2014–2019, China ranked 2nd only to the U.S., but up to this point, the variety of complaints has not yet increased year on year. The U.S. as a complainant accounts for more than half, 52.3% precisely, of the disputes against China, while the EU accounts for 20.5%. The situation has changed in the past three years. Of the 5 complaints filed against China in 2020–2022, the EU and Australia filed, respectively, 25 and Japan 1.6 Australia and Japan have never filed a complaint against China before.

2.1.4 Matters Involved Matters involved refer to the causes and issues of a dispute brought by a WTO member. Matters involved in disputes to which China is a party are examined in order to identify “why China complains” (the matters involved when China is the 4

Australia-Anti-Dumping and Countervailing Duty Measures on Certain Products from China, DS603. 5 EU file 2 claims against China in 2022: DS610, DS611; Australia file 2 claims against China in 2020 and 2021: DS598, DS602. 6 Japan file 1 claim against China in 2021: DS601.

42

2 China’s Practice in WTO Dispute Settlement

complainant) and “why China is complained” (the matters involved when China is the respondent), respectively, and are further compared with the general matters involved in the WTO dispute settlement in order to reveal the China’s characteristic in WTO dispute settlement practice.

2.1.4.1

Comparison of Matters Involved When China as a Complainant and a Respondent

Tables 2.6 and 2.7 set out, respectively, all the matters involved and the agreements invoked in disputes to which China is a party. The contrast is striking: in addition to the aforementioned “inverted” status of being complained more than complaining, there is also a gap in the breadth, depth and intensity of the matters involved. In terms of the breadth and depth of the measures at issue, over 80% of the measures complained of by China are trade remedy measures under the Multilateral Agreements on Trade in Goods, the industries involved are concentrated in the secondary industry (manufacturing industry), and the products involved are mostly traditional tangible goods. However, the measures complained of against China include following characteristics. Firstly, most of the measures are covered by the WTO multilateral trading system, falling into the categories of not only trade remedies, but also various trade-related measures such as investment, taxation, finance and intellectual property rights. Secondly, almost all levels and forms of legislation and law enforcement in China are covered. The legislation includes laws, administrative regulations and departmental rules at national level, as well as local legislation, government regulations and various normative documents at local level, and even policy documents of the party and government departments at all levels from central to local. The law enforcement includes both administrative and judicial enforcement of law. Thirdly, all three major industries (agriculture industry, manufacture industry, and services and circulation industry) are covered. Fourthly, while the types of products include both tangible goods and intangible technologies and services, they also span both the material and spiritual spheres. The material products include both general production and consumption materials and special rare raw materials and energy products, and the spiritual products include both traditional paper-based products and modern digital products. In terms of the scope and focus of the WTO-covered agreements involved, most of China’s complaints were filed citing the Multilateral Agreements on Trade in Goods (GATT 1994 and other agreements), with a focus on agreements on anti-dumping, countervailing and safeguard measures. However, as for the complaints against China, (1) the agreements invoked cover all three major areas of WTO MTAs—trade in goods, trade in services and trade-related intellectual property rights; (2) more than half of the Multilateral Agreements on Trade in Goods, are invoked, with multiple invocations of the Agreement on Subsidies and Countervailing Measures (SCM), the Agreement on Trade-Related Investment Measures (TRIMs), the Anti-Dumping Agreement and the Agreement on Agriculture; (3) China’s Accession Protocol is invoked most frequently: out of a total of 49 cases, the Protocol is invoked in 29

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

43

Table 2.6 Matters involved—China as complainant Time

Disputes no

Short title/title

Agreements cited

2002

DS252

US-steel safeguards

GATT 1994/safeguards

2007

DS368

US-preliminary anti-dumping and GATT 1994/anti-dumping/SCM countervailing duty determinations on coated free sheet paper from China

2008

DS379

US-anti-dumping and countervailing duties (China)

GATT1994/anti-dumping/SCM/ China’s accession protocol7

2009

DS392

US-poultry (China)

GATT1994/agriculture/SPS

DS397

EC-fasteners (China)

GATT 1994/anti-dumping/ agreement establishing the world trade organization/China’s accession protocol

DS399

US-tyres (China)

GATT1994/China’s accession protocol

2010

DS405

EC-footwear (China)

GATT1994/anti-dumping/ agreement establishing the world trade organization/China’s accession protocol

2011

DS422

US-shrimp and sawblades

GATT1994/anti-dumping

2012

DS437

US-countervailing measures (China)

GATT 1994/ SCM/China’s accession protocol

DS449

US-countervailing and anti-dumping measures (China)

GATT1994/anti-dumping/SCM

DS452

European Union and certain member states-certain measures affecting the renewable energy generation sector

GATT1994/SCM/TRIMs

2013

DS471

US-anti-dumping methodologies (China)

GATT1994/anti-dumping

2015

DS492

EU-poultry meat (China)

GATT1994

2016

DS515

US-measures related to price comparison methodologies

Agreement establishing the world trade organization/GATT1994/ anti-dumping

DS516

EU-measures related to price comparison methodologies

GATT1994/anti-dumping

DS543

US-tariff measures (China)

GATT1994/DSU

DS544

US-steel and aluminum (China)

GATT1994/safeguards

DS562

US-safeguard measure on PV products (China)

GATT1994/safeguards

2018

(continued)

7

Accession of the People’s Republic of China, WT/L/432, decision of 10 November, 2001.

44

2 China’s Practice in WTO Dispute Settlement

Table 2.6 (continued) Time

Disputes no

Short title/title

Agreements cited

DS563

US-certain measures related to renewable energy

GATT1994/SCM/TRIMs

DS565

US-tariff measures on certain goods from China II

GATT1994/DSU

2019

DS587

US-tariff measures on certain goods from China III

GATT1994/DSU

2021

DS603

Australia-AD/CVD on certain products (China)

Anti-dumping/GATT1994/SCM

2022

DS615

US-semiconductors (China)

GATT1994/GATS/TRIMs/TRIPS

cases, with a focus on the “WTO-plus” obligations therein; (4) majority of the 18 complaints against China invoking the SCM alleges that China has adopted subsidies prohibited by Article 3 of the SCM, and although these allegations may not be fully substantiated, they at least indicate that its trade measures are the prioritized targets of other members; (5) 10 complaints against China invoke the Anti-Dumping Agreement and account for the 50% of the 20 disputes involving China and invoking this Agreement, which is clearly an exceptional case when China is complained more than twice as many as it complains generally; (6) 2 complaints against China invoke the TFA, which has been invoked in only 4 disputes since it came into force in 2017. In terms of the specific industries involved, of the 40 disputes between the U.S. and China, the complaints by the U.S. against China involve integrated circuits, automobiles, new energy, steel, mineral raw materials, financial services, agriculture, broiler products, protection of intellectual property rights, publications and audiovisual products, aircraft, etc. The complaints by China against the U.S. involve manufacture, new energy, poultry, etc. The complaints by the EU against China involve financial services, mineral raw materials, steel, technology transfer, etc., while the complaints by China against the EU involve shoes, renewable energy, poultry, etc. In contrast, the types of subjects involved in the complaints by the U.S. against China have the largest amount, among which are the key high-tech intensive industries, such as aircraft manufacture, integrated circuits and financial services. The complaints by the EU against China are similar, which further involve China’s technology transfer policies, reflecting the increasingly intense contradictions and conflicts between the developed countries and the emerging developing countries in the area of high technology. The complaints by China against the U.S. and the EU involve some areas of technology in which China has maintained certain advantages, such as wind power equipment. In addition, after 2012, there is a significant period of concern about China’s trade policies in important areas of modern industry, such as exports of mineral raw materials, aircraft manufacture and high-performance stainless steel seamless tubes.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

45

Table 2.7 Matters involved—China as respondent Time

Disputes no

Measure/short title

Agreements cited

2004

DS309

China—value-added tax on integrated circuits

GATT 1994/GTAS

2006

DS339

China—auto parts

GATT 1994/TRIMs/SCM/ China’s accession protocol

DS340 DS342

2007

2008

DS358 DS359

China-taxes

GATT1994/TRIMs/SCM/ China’s accession protocol

DS362

China—intellectual property rights

TRIPS

DS363

China—publications and audiovisual products

GATT1994/GATS/China’s accession protocol

DS372

China—measures affecting TRIPS/GATS financial information GATS/China’s accession services and foreign financial protocol information suppliers

DS373 DS378 DS387

China—grants, loans and other incentives

GATT1994/Agriculture/SCM/ China’s accession protocol

China—raw materials

GATT 1994/China’s accession protocol

DS407

China—provisional anti-dumping duties on certain iron and steel fasteners from the European Union

GATT1994/anti-dumping

DS413

China—electronic payment services

GATS/DSU

DS414

China—GOES

Anti-dumping/GATT1994/ SCM

DS419

China—measures concerning GATT 1994/SCM/ wind power equipment China’s Accession Protocol

DS425

China—X-ray equipment

GATT1994/Anti-dumping

DS427

China—broiler products

GATT1994/Anti-dumping/ SCM

DS431

China—rare earths

GATT1994/China’s accession protocol

DS388 2009

GATT 1994/TRIMs/SCM/ Rules of origin/China’s accession protocol

DS390 DS394 DS395 DS398

2010

2011

2012

DS432 DS433

(continued)

46

2 China’s Practice in WTO Dispute Settlement

Table 2.7 (continued) Time

Disputes no

Measure/short title

Agreements cited

DS440

China—autos (US)

GATT1994/Anti-dumping/ SCM

DS450

China—certain measures affecting the automobile and automobile-parts industries

GATT 1994/SCM/China’s accession protocol

DS451

China—measures relating to the production and exportation of apparel and textile products

GATT 1994/agriculture/SCM/ China’s accession protocol

DS454

China—HP-SSST (Japan)

GATT1994/Anti-dumping

2013

DS460

China—HP-SSST (EU)

GATT1994/Anti-dumping

2014

DS483

China—cellulose pulp

GATT1994/Anti-dumping

2015

DS489

China—demonstration bases SCM

DS501

China—tax measures concerning certain domestically produced aircraft

GATT 1994/China’s accession protocol

DS508

China—raw materials II (US)

GATT 1994/China’s accession protocol

DS509

China—raw materials II (EU)

DS511

China—agricultural producers

Agriculture

DS517

China—TRQs

GATT 1994/China’s accession protocol

2017

DS519

China—subsidies to producers of primary aluminum

GATT 1994/SCM

2018

DS542

China—intellectual property rights II

TRIPS

DS549

China—certain measures on the transfer of technology

TRIPS/GATT1994/China’s accession protocol

DS558

China—additional duties (US)

GATT1994

DS568

China—certain measures concerning imports of sugar

GATT 1994/agriculture/import licensing/safeguards/China’s accession protocol

2019

DS589

China—canola seed

GATT 1994/SPS/TFA

2020

DS598

China—AD/CVD on Barley (Australia)

Anti-dumping/GATT1994/ SCM

2021

DS601

China—AD on stainless steel Anti-dumping/GATT1994 (Japan)

2016

(continued)

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

47

Table 2.7 (continued) Time

2022

2.1.4.2

Disputes no

Measure/short title

Agreements cited

DS602

China—AD/CVD on wine (Australia)

Anti-dumping/GATT1994/ SCM

DS610

China—goods and services (EU)

GATS/GATT1994/SPS/ China’s accession protocol/ TFA

DS611

China—IPRs enforcement (EU)

TRIPS/China’s accession protocol

Comparison of Matters Involved Between China and Other Members as a Party

As shown in Table 2.8, compared to the norm of invoking the particular WTO-covered agreement, China’s involvement falls into three broad categories: Consistent with the Normality Among the 17 covered agreements listed in Table 2.8, GATT 1994, Agreement on Anti-dumping, SCM, Agreement on Agriculture and Safeguard Agreement are the most invoked agreements; the respective number of disputes invoking each agreement exceeds 10% of the total WTO disputes. The top three covered agreements invoked in the disputes involving China are concurrent with these most invoked agreements, and the least invoked agreements, excluding the TFAs that came into force afterward, such as Agreement on Preshipment Inspection and Agreement on Customs Valuation, are also concurrent with the norm. Deviation from the Normality: More than the Norm Such deviation is manifested in two aspects. On the one hand, some covered agreements including the Protocol of Accession, TRIMs and GATS, are not often invoked in the WTO dispute, while among which the disputes involving China, no matter in terms of the quantity, or in terms of the proportion, are at the top. The disputes invoking Protocol of Accession account for not only 45.8% of the total disputes involving China, but also 82.5% of the total disputes invoking such agreement. The disputes invoking the TRIMs and GATS are the same. On the other hand, some covered agreements such as TRIPS, Agreement on Rules of Origin, DSU and TFA are invoked in the disputes involving China, the quantity of which is small but the proportion is high, which account for over 20% of the total disputes invoking the respective agreement. It is noteworthy that, as above-mentioned, China is mainly in the position of respondent in these disputes: 28 complaints against China out of 33 disputes involve Protocol of Accession, accounting for 84.8%; 7 complaints against China out of 8 disputes involve GATS, 87.5%; 5 complaints against China out of 6 disputes involve TRIPS, 83.3%; 5 complaints against China out of 8 disputes involve TRIMs,

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2 China’s Practice in WTO Dispute Settlement

Table 2.8 Agreements invoked—comparison of China as a party with the norm of WTO dispute settlement8 WTO agreements invoked

1995–2022 (615 disputes)

2002–2022 (After China’s accession to WTO)

Number of disputes

Proportion of Number disputes to of WTO total (615) disputes WTO disputes (%)

Number of disputes involving China

Proportion of disputes involving China to total (72) disputes involving China %()

Proportion of disputes involving China to WTO dispute invoking the same agreement (%)

GATT 1994

510

82.9

339

63

87.5

18.6

Anti-dumping

142

23.1

103

21

29.2

20.4

SCM

135

22

92

25

34.7

27.2

Agriculture

86

14

46

7

9.7

15.2

Safeguards

62

10.1

44

4

5.6

9.1

TBT

57

9.3

30

0

0

0

SPS

53

8.6

34

3

4.2

8.8

Import licensing procedures

49

8

21

1

1.4

4.8

TRIMs

46

7.5

28

8

11.1

28.6

TRIPS

44

7.2

20

6

8.3

Protocol of accession

39

6.3

39

33

45.8

84.6

GATS

33

5.4

19

8

11.1

42.1

DSU

20

3.3

14

3

4.2

21.4

Customs valuation

18

2.9

8

0

0

Rules of origin

8

1.3

5

1

1.4

Preshipment inspection

5

0.8

5

0

0

TFA

4

0.7

4

2

2.8

30

0 20 0 50

62.5%; and complaints against China account for 100% of the disputes involving the Agreement on Rules of Origin and TFA.

8

There are also differences in the invocation of covered agreements in dispute resolution. Agreements comparable to those invoked in the disputes involving China are listed as references.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

49

Deviation from the Normality: Less than the Norm Such deviation refers to the scenario where disputes involving China are less than the norm, not only in terms of quantity but also in terms of proportion. The most typical of such scenario is the disputes involving technical trade measures, including SPS and TBT. With reference to the norm of WTO disputes, disputes involving these two agreements are basically in the middle of 8–10% of the total number of disputes. However, while the total number of disputes involving China is increasing, the number of disputes invoking these two agreements is very small: 3 SPS disputes and 0 TBT dispute (Tables 2.9 and 2.10). On the one hand, an examination of the reality of China’s foreign trade reveals that technical trade measures have replaced the traditional trade barriers (tariffs, licenses, quotas and anti-dumping and countervailing measures) as one of the biggest obstacles to Chinese enterprises’ exports for many years in a row, especially in the agricultural and food products industry and the electromechanical instruments industry. Annually about 1/3 of export enterprises are affected by foreign technical trade measures, leading to the direct losses rising every year. Although developed countries such as the EU, the U.S. and Japan are the main sources of technical trade measures affecting the exports of Chinese enterprises, the influence of ASEAN and Korea should not be underestimated. Table 2.9 SPS Disputes in WTO dispute settlement from 2002 to 2022 Time

Number of disputes

Complainant (number of disputes)

Respondent (number of disputes)

2002

5

United Stated/Hungary/Philippines (2)/ European Union

Japan/Turkey/Australia (2)/ India

2003

6

Nicaragua/European Union/United Stated/ Canada/Argentina/Hungary

Mexico/Australia/European Union(3)/Croatia

2007

1

New Zealand

Australia

2008

2

Canada/Mexico

United Stated(2)

2009

3

United Stated/Canada/China

European Union(2)/United Stated

2010

1

Indonesia

United Stated

2012

3

United Stated/Argentina(2)

India/United Stated(2)

2014

2

European Union/Brazil

Russian/Indonesia

2015

1

Japan

South Korea

2016

1

Brazil

Indonesia

2017

3

Mexico/Russian/Ukraine

Costa Rica/Ukraine/Russian

2018

1

Viet Nam

United Stated

2019

1

Canada

China

2021

2

Costa Rica/Brazil

Panama/European Union

2022

2

European Union/South Africa

China/European Union

50

2 China’s Practice in WTO Dispute Settlement

Table 2.10 TBT Disputes in WTO dispute settlement from 2002 to 2022 Time Number of disputes Complainant (number of disputes)

Respondent (number of disputes)

2002

2

Argentina/European Union

European Union/India

2003

4

Australia/United Stated /Canada/Argentina

European Union(4)

2007

1

Canada

European Union

2008

3

Mexico(2)/Canada

United Stated(3)

2009

3

United Stated/Canada/Norway

European Union(3)

2010

1

Indonesia

United Stated

2012

4

Ukraine/Honduras/Dominican /Mexico

Australia(4)

2013

4

Cuba/Argentina/Japan/Indonesia Australia (2)/European Union/ Russian

2014

1

Brazil

Indonesia

2015

1

Ukraine

Russian

2016

1

Brazil

Indonesia

2017

2

Ukraine/Russian

Russian/Ukraine

2019

1

Indonesia

European Union

2020

1

Hong Kong, China

United Stated

2021

1

Malaysia

European Union

On the other hand, an examination of WTO dispute settlement practice shows that: (1) the number of complaints filed by developing members is higher than that of developed members (20:14 for SPS disputes and 19:11 for TBT disputes), and such trend is more obvious in recent years, which proves that the WTO is an important legal mechanism to resolve such disputes for members, whether they are developed or developing members. (2) The respondents are predominantly developed members, in particular in 20 of the 34 SPS disputes and 23 of the 30 TBT disputes, which reveals that technical trade measures by developed members, especially the US (SPS: 7/34; TBT: 5/30), the EU (SPS: 7/34; TBT: 12/30) and Australia (SPS: 4/34; TBT: 6/30), are the main factors impeding trade and triggering such disputes. (3) In recent years, there has been an increasing trend of developing members being complained and complaining against each other. Based on the above observations, from the perspective of a complainant, the small number of complaints seems to be unusual and abnormal. Nevertheless, this is exactly why, although there is only 1 SPS dispute filed by China,9 it is a major breakthrough: (1) China challenged the U.S. technical legislation and its main claim is upheld by the panel; (2) China made its first attempt as a complainant in an area other than trade remedies; (3) it is the first dispute to address the equivalence issue of the SPS Agreement and is of great significance for the interpretation of the rules involved. 9

United States-Certain Measures Affecting Imports of Poultry from China, DS392.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

51

From the perspective of a respondent, although China has the highest number of notifications of TBT and SPS measures among WTO members, only 2 SPS disputes and no TBT dispute have been filed so far, the only reasonable explanation for which is that the technical trade measures of China has not constitute barriers to imports from major trading members yet.

2.1.4.3

Development of Matters Involved in Different Stage

The development of China’s involvement in the four phases (as in Table 2.11) after its accession is consistent with the norm of WTO dispute settlement practice in two aspects. Firstly, the transition period is relatively steady, with majority of the disputes initiated in the last year (2006) of the transition period. Secondly, the distribution of types of disputes in each phase aligns with the usual pattern, such as the majority of disputes is concentrated in GATT 1994, trade remedy measures. However, in the meantime, what is of Chinese characteristics is that, for one thing, although the number of disputes during the transition period is small, the range of WTO agreements invoked or applied is relatively broad. In addition to GATT 1994, the SCM Agreement and the Agreement on Safeguards, the TRIMs Agreement, GATS and the Agreement on Rules of Origin, which are rarely involved in WTO disputes, have all been addressed in the disputes involving China. Secondly, after the transition period, along with the rapid increase in the number of disputes involved, the types of disputes also grow and continue to expand and extend. To date, disputes involving China have covered most types of the WTO MTAs. Thirdly, the respective proportion of various types of disputes is relatively large, including not only GATT 1994, agriculture, antidumping and countervailing disputes, the numbers of which are among the largest, but also TRIMs, TRIPS, GATS, DSU, TFA and other types of disputes, the numbers of which are among the small ones. Fourthly, and most notably, it’s in a dispute involving China where a Protocol of Accession has been invoked for the first time in a WTO dispute,10 and although there have been several such disputes concerning members’ Protocols of Accession to date,11 China and China’s Accession Protocol have undoubtedly been the focus of this type of disputes settlement. Indeed, the many 10

Article 12 of the WTO Agreement: “Any State or separate customs territory possessing full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement and the Multilateral Trade Agreements may accede to this Agreement, on terms to be agreed between it and the WTO”. The Protocol of Accession is a legal document that records the conditions agreed between each acceding member and the WTO. From the establishment of the WTO to China’s accession, a total of 14 other members have acceded, but none of the Accession Protocols have been invoked or applied in dispute settlement cases until 2006 in China—Measures Affecting Imports of Automobile Parts (DS339, 340, 342) being the first of its kind. 11 In addition to China’s Accession Protocol, six other WTO disputes have invoked other accession protocols: United States—Anti-dumping Measures on Certain Shrimp from Viet Nam (DS404) and United States—Anti-dumping Measures on Fish Fillets from Viet Nam (DS536), invoking the Protocol of Accession of Vietnam; Russia—Measures Concerning the Importation and Transit of Certain Ukrainian Products (DS532), Russia —Traffic in Transit (DS512) and Russian-Certain Measures Concerning Domestic and Foreign Products and Services (DS604), invoking the Protocol

52

2 China’s Practice in WTO Dispute Settlement

“WTO-Plus” obligations contained in China’s Accession Protocol have been hotly contested in each of these disputes. In terms of the specific issues involved in the disputes to which China is a party, although a wide range of issues is covered, some provisions of fundamental principles have always been the focus of attention. For example, the issue of most-favorednation treatment, which is regarded as the cornerstone of the entire multilateral system, as well as the issues of national treatment and transparency, not only has often been involved in disputes in the first decade, but also has often been the focus of recent disputes since 2017, covering GATT 1994, TRIPS and GATS

2.1.5 Outcome of the Disputes Involved The outcome of the WTO disputes seems hard to be described as a simple win or lose, because objectively, the measures at issue in one dispute are often multiple, while the ruling rarely supports or declines all of them; moreover, such multiple measures are sometimes prioritized so that it is impossible to define a win or lose clearly with quantitative criteria.12 Subjectively, the motivations to complain are multiple, which may be concerns about substantive interests, or considerations of procedural strategy, and therefore in practice, there is no lack of such phenomenon when every party in one dispute claims that it wins. For this reason, the outcome of the disputes will be observed from the perspective of the dispute resolution methods and the adjudication process as reflected in the development of disputes, rather than win or lose. As shown in Tables 2.12 and 2.13, of the 72 disputes to which China is a party, 20 disputes are in consultations; 9 disputes are pending panel review, at the stage of either panel established but not yet composed or panel composed; 9 disputes are settled or terminated, including 7 disputes settled or terminated (withdrawn, mutually agreed solution) and 2 deputies with authority for panel lapsed; 34 disputes are reviewed and ruled by panels or the Appellate Body, including 11 effective panel reports (3 as complainant, 8 as respondent), 20 effective Appellate Body reports (7 as complainant, 13 as respondent) and 3 panel reports under appeal.

of Accession of Russia; Ukraine—Measures relating to Trade in Goods and Services (DS525), invoking the Protocol of Accession of Ukraine. 12 For example, in EC—Anti-Dumping Measures on Fasteners (DS397), although only 8 of the 20 measures complained of by China are upheld and the remaining 11 are dismissed for lack of evidence, the rule still found in favor of China because it upheld China’s main claim for the revocation of the anti-dumping measures.

16

Safeguards

6

6

1

3

2

4

Import licensing procedures

TRIMs

TRIPS

Protocol of accession

GATS

DSU

11

18

Agriculture

SPS

30

SCM

6

33

TBT

88

Anti-dumping

0

1(50%)

3(100%)

0

3(50%)

0

0

0

1(6.3%)

0

3(10%)

0

5(5.7%)

4

5

17

4

4

0

7

8

4

9

16

19

83

Number of disputes

Number of disputes

Number of disputes involving China

2007–2011 (71 disputes)

2002–2006 (114 disputes)

GATT1994

WTO agreements

Table 2.11 WTO agreements invoked by China as a party

0

5(100%)

15(88.2%)

4(100%)

2(50%)

0

1(14.3%)

0

0

4(44.4%)

10(62.5%)

9(47.4%)

21(25.3%)

Number of disputes involving China

1

3

11

5

14

12

7

11

9

13

24

26

62

Number of disputes

2012–2016 (91 disputes)

0

0

11(100%)

0

1(7.1%)

0

1(14.3%)

0

0

2(15.4%)

8(33.3%)

8(30.8%)

20(32.3%)

Number of disputes involving China

5

9

8

10

4

3

9

5

15

6

22

25

106

Number of disputes

2017–2022 (97 disputes)

(continued)

3(60%)

2(22.2%)

4(50%)

4(40%)

2(50%)

1(33.3%)

1(11.1%)

0

3(20%)

1(16.7%)

4(18.2%)

4(16%)

17(16%)

Number of disputes involving China

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute … 53

0

/

TFA

2

Preshipment inspection

2

Rules of origin

0

1(50%)

0 0

2

3

Number of disputes

Number of disputes

Number of disputes involving China

2007–2011 (71 disputes)

2002–2006 (114 disputes)

Customs valuation

WTO agreements

Table 2.11 (continued)

0

0

0

Number of disputes involving China

5

0

2

Number of disputes

2012–2016 (91 disputes)

0

0

0

Number of disputes involving China

4

0

100

1

Number of disputes

2017–2022 (97 disputes)

2(50%)

0

0

0

Number of disputes involving China

54 2 China’s Practice in WTO Dispute Settlement

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

55

Table 2.12 Current status-China as complainant Time

Dispute no

Respondent

Current status

Adoption of DSB

2002

DS252

United States

Report adopted, not further action required on 10 December 2003

AB report

2007

DS368

United States

In consultations on 14 September 2007

/

2008

DS379

United States

Implementation notified by AB report respondent on 31 August 2012

2009

DS392

United States

Report adopted, not further action required on 25 October 2010

Panel report

DS397

European Communities

Report adopted, with recommendation to bring measure(s) into conformity on 12 February 2016

AB report/ Art.21.5 DSU AB report

DS399

United States

Report adopted, not further action required on 5 October 2011

AB report

2010

DS405

European Union

Implementation notified by Panel report respondent on December 2012

2011

DS422

United States

Implementation notified by respondent on 26 March 2013

Panel report

2012

DS437

United States

Authorization to retaliate requested on 28 October 2019

AB report/Art.21.5 DSU AB report/Art.22.6 DSU Arbitration decision

DS449

United States

Report adopted, with recommendation to bring measure(s) into conformity on July 2014

AB report

DS452

European Union/ Italy/Greece

In consultations on 5 November 2012

/

2013

DS471

United States

Authorization to retaliate requested on 21 September 2018

AB report/Art.21.3(c) DSU Arbitration award/ Art.22.6 DSU Arbitration decision

2015

DS492

European Union

Settled or terminated (withdrawn, mutually agreed solution) on 30 May 2019

/

2016

DS515

United States

In consultations on 12 December 2016

/

DS516

European Union

Authority for panel Lapsed on 15 June 2020

/

DS543

United States

Panel report under appeal on 26 October 2020

/

2018

(continued)

56

2 China’s Practice in WTO Dispute Settlement

Table 2.12 (continued) Time

Dispute no

Respondent

Current status

Adoption of DSB

DS544

United States

Panel report under appeal on 26 January 2023

/

DS562

United States

Panel report under appeal on 16 September 2021

/

DS563

United States

In consultations on 14 August 2018

/

DS565

United States

In consultations on 23 August 2018

/

2019

DS587

United States

In consultations on 2 September 2019

/

2021

DS603

Australia

In consultations on 5 September 2022

/

2022

DS615

United States

In consultations on 12 December 2022

/

The above status shows that, firstly, the proportion of the above disputes ruled by panels or the Appellate Body is about 47%, and the appeal rate is about 68%, which are roughly the same as the rate of adjudication and appeal in WTO dispute settlement.13 In contrast to non-adjudicative methods, adjudicative resolution of dispute and legal issues involved is of greater concern to members (including but not limited to parties to the disputes) and is the focus of theoretical and practical research in the WTO law and treaty law. Secondly, from the comparison of the disputes between China as a complainant and a respondent, the proportion of disputes in which rulings are effective is roughly equal, at around 43%. Thirdly, the key findings on unsuccessful matters focus on both factual findings and the application of law. As for factual findings,14 the problem lies in the lack of evidence, i.e. the inability to effectively justify the domestic law or trade policy measure at issue—whether the content is necessary to achieve a legitimate objective and whether the form is justifiable. As for application of law, the problem is the inappropriate interpretation of the law—the misinterpretation of the concepts in the relevant WTO agreements, the relationship between the agreements or the provisions of the agreements.

13

See DSB Annual Report 2018, WT/DSB/76, 30 November 2018, and https://www.wto.org/eng lish/tratop_e/dispu_e/dispustats_e.htm. 14 It falls within the scope of the DSB’s review of the domestic law of the respondent. For more details on the scope and criteria of the DSB’s domestic law review of China-related disputes, see Zhang Naigen, “Domestic Law Review of China’s WTO Dispute Settlement Cases and Study on Response to Them”, in World Trade Organisation Dynamics and Research, No. 1, 2013.

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

57

Table 2.13 Current status-China as respondent Time

Disputes no

Complainant

Current status

Adoption of DSB

2004

DS309

United States

Settled or terminated (withdrawn, mutually agreed solution) on 5 October 2005

/

2006

DS339

European Communities

DS340

United States

DS342

Canada

Implementation AB report notified by respondent on 31 August 2009

DS358

United States

Settled or terminated / (withdrawn, mutually agreed solution) on 19 December 2007

DS359

Mexico

Settled or terminated (withdrawn, mutually agreed solution) on 7 February 2008

DS362

United States

Implementation Panel report notified by respondent on 19 March 2010

DS363

United States

Implementation AB report notified by respondent on 24 May 2012

DS372

European Communities

DS373

United States

Settled or terminated (withdrawn, mutually agreed solution) on 4 December 2008

DS378

Canada

Settled or terminated / (withdrawn, mutually agreed solution) on 20 June 2008

DS387

United States

DS388

Mexico

In consultations on 19 / December 2008 /

DS390

Guatemala

In consultations on 19 Panel report January 2009

DS394

United States

DS395

European Communities

DS398

Mexico

Implementation AB report notified by respondent on 28 January 2013

DS407

European Union

In consultations on 7 May 2010

DS413

United States

Implementation Panel report notified by respondent on 23 July 2013

2007

2008

2009

2010

/

/ /

/

(continued)

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2 China’s Practice in WTO Dispute Settlement

Table 2.13 (continued) Time

Disputes no

Complainant

Current status

Adoption of DSB

DS414

United States

Report adopted, with recommendation to bring measure(s) into conformity on 31 August 2015

AB report/ Art.21.3(c) DSU Arbitration award/ Art.21.5 DSU Panel report

DS419

United States

In consultations on 22 / December 2010

DS425

European Union

Implementation Panel report notified by respondent on 26 February 2014

DS427

United States

Compliance Panel report/Art.21.5 proceedings DSU Panel report completed with finding(s) of non-compliance on 28 February 2018

DS431

United States

DS432

European Union

DS433

Japan

Implementation AB report notified by respondent on 20 May 2015

DS440

United States

Report adopted, not Panel report further action required on July 2014

DS450

United States

In consultations on 17 / September 2012

DS451

Mexico

In consultations on 15 / October 2012

DS454

Japan

2013

DS460

European Union

Report adopted, with recommendation to bring measure(s) into conformity on 28 October 2015

2014

DS483

Canada

Implementation Panel report notified by respondent on 11 January 2018

2015

DS489

United States

Panel established, but not yet composed on 22 April 2015

/

DS501

United States

In consultations on 8 December 2015

/

DS508

United States

Panel established, but / not yet composed on 8 November 2016

2011

2012

2016

AB report

(continued)

2.1 A Characteristic Inspection of China’s Involvement in WTO Dispute …

59

Table 2.13 (continued) Time

Disputes no

Complainant

Current status

Adoption of DSB

DS509

European Union

Panel established, but not yet composed on 23 November 2016

/

DS511

United States

Authorization to Panel report retaliate requested on 27 July 2020 Compliance proceedings ongoing on 28 September 2020

DS517

United States

Compliance proceedings ongoing on 30 August 2021

2017

DS519

United States

In consultations on 12 / January 2017

2018

DS542

United States

Authority for panel / lapsed on 9 June 2021

DS549

European Union

In consultations on 1 June 2018

DS558

United States

Panel composed on 25 / January 2019

DS568

Brazil

In consultations on 16 / October 2018

2019

DS589

Canada

In consultations on 10 / November 2021

2020

DS598

Australia

Panel composed on 3 September 2021

2021

DS601

Japan

Panel composed on 24 / January 2022

DS602

Australia

Panel composed on 4 March 2022

/

DS610

European Union

Panel established, but not yet composed on 27 January 2023

/

DS611

European Union

Panel established, but not yet composed on 27 January 2023

/

2022

Panel report

/

/

Fourthly, most of the effective rulings (recommendations) have been implemented by the losing party on its own initiative, with very few disputes, mainly with the U.S., proceeding to authorized retaliation.

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2 China’s Practice in WTO Dispute Settlement

2.2 A Unique Model of WTO Dispute Settlement Practice in China Dispute settlement of the WTO, as an intergovernmental international organization, falls undoubtedly in the scope of international dispute settlement mechanism. For a long time, China has adopted a passive and prudent attitude toward other similar international dispute settlement mechanisms, advocating the resolution through diplomatic methods, such as negotiation, rather than legal ones, whether it is an international political dispute or an international economic dispute. As mentioned earlier, after China joined the WTO, it soon became one of the most active and dynamic members of its DSM. The new model established by China’s participation in WTO dispute settlement not only forms a sharp contrast with the normative practice of China in international dispute settlement, but also forms a significant difference from the practice of other WTO members.

2.2.1 Role Orientation: Full Participation, Prevention-Oriented Since China formally became a member of the WTO, in terms of the number and mode of participation, it has now ranked second among the WTO members and ranked first as the third parties. From the perspective of participants, the WTO dispute settlement involving China has its own characteristics. As mentioned above, as a complainant, China’s main targets are the U.S. and the EU, but excluding any developing countries. Of these, there are 17 cases where the U.S. is the respondent and 5 cases where the EU is the respondent. This highly concentrated pattern of complaints stands in stark contrast to the practices of other major complainants. Specifically, among WTO members, China ranks 6th in the number of cases initiated as a complainant, behind the U.S., EU, Canada, Brazil and Japan, and tied with Mexico and India. Considering the fact that China did not access in the WTO until 11 December 2001, while the other 9 countries are all founding members of the WTO, China’s average annual ranking should be higher, ranking after Brazil and before Japan as one of the top 5 initiators of WTO disputes (Fig. 2.1). For the WTO complainants that rank higher than China on an average annual basis, the respondents have a decentralized characteristic in terms of both geographic location and economic development degree. In terms of regional distribution, the U.S. has brought cases against countries across Europe, Asia, North and South America, Oceania and Africa; the EU and Canada have brought cases against countries in Europe, Asia, North and South America, and Oceania; Brazil has brought cases against countries including Europe, North and South America, Asia and Africa. As for economic development, the top 4 complainants are targeting both developed and developing countries. Comparatively speaking, the U.S. and the EU, as respondents

2.2 A Unique Model of WTO Dispute Settlement Practice in China

61

Fig. 2.1 Disputes by WTO complainant

of cases brought by China, are respectively located in North America and Europe, both of which are developed economies. As a respondent, China is mainly facing complaints from the U.S and the EU, with other complainants such as Mexico, Canada, Japan, Brazil and Guatemala. In terms of the identity of the complainants, most of the cases are brought by developed countries. The developing countries mostly as “followers” rather than “leaders”. Ten years after China’s accession to the WTO, developing countries began raising claims independently against China, including the China—Measures Relating to the Production and Exportation of Apparel and Textile Products case (DS451) brought by Mexico in 2012, and the China—Certain Measures Concerning Imports of Sugar case (DS568) brought by Brazil in 2018. Among all WTO members, China has been the respondent 49 times, ranking second only to the U.S. and the EU, both in absolute number and in annual average, far ahead of India in 4th place and Canada in 5th place. Unlike the complainant and respondent, a third party to a WTO dispute has a “substantial interest” in the DSM. In the first 3 years (2001–2003) of its membership, China was only involved in 3 disputes as a third party, which is an apparently low percentage compared to the 26 disputes it brought during the same period. However, since August 2003, China’s attitude on the third party has changed significantly, shifting to remain as a third party in all panel proceedings (including the proceedings under Article 21.5 of the DSU). It was not until February 2007 that China began to selectively participate as a third party in panel proceedings.15 China’s participation in WTO as a third party is second only to Japan and the EU, and it ranks first in average annual participation among all WTO members.

15

See Ji and Huang (2011).

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2 China’s Practice in WTO Dispute Settlement

Fig. 2.2 Disputes by WTO respondent

As can be seen from the above data, China has become a vital participant in the DSM in terms of average annual participation since becoming a member of the WTO. China has brought the most disputes against the U.S. and the EU, which have much larger economic volume and more experience in international disputes. It should be emphasized that, in terms of the ratio of disputes brought against China and disputes brought by China, China ranks first with a ratio of 1.96:1, followed by the U.S. and India with a ratio around 1.28:1. This data reveals that, although the normative pattern of China’s participation in other international dispute settlement is more adequate and proactive compared to other WTO members, in its own case, its passive participation in WTO dispute settlement still dominates (Fig. 2.2).

2.2.2 Scope of Disputes: Wide Variety, Rules-Concentrated According to Article 3.2 of the DSU, DSB panels and the Appellate Body shall clarify the existing provisions of the WTO agreements in accordance with customary rules of interpretation of public international law, which provides, “recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements”. The ambiguity of the treaty text and the multiplicity of language increase the difficulty for the panel and the Appellate Body to clarify WTO rules in accordance with the practice of interpreting international law. For WTO members, if it doesn’t resolve a dispute under the consultation stage, once the case proceeded to the panel stage, it means that the interpretation of the provisions of the relevant agreements by the panels and the Appellate Body is of systemic importance. In this case, a WTO dispute is not only about the success or failure of a specific dispute, but also about the formation of a legal system.16 16

See Blackmore (2004).

2.2 A Unique Model of WTO Dispute Settlement Practice in China

63

According to Article 23.1 of GATT 1994, there are 3 kinds of WTO disputes, namely the violation complaint, the non-violation complaint and the situation complaint. So far, the vast majority of disputes are violation complaints. According to Article 7 of the DSU, the terms of reference of panels shall be limited “to examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the parties to the dispute), the matter referred to the DSB by (name of party) in document … and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s)”. Accordingly, the complainant should first identify which provisions have been violated in covered agreements. The type of disputes is generally divided by the agreement cited by the complainant, and the interpretation of the provisions in such agreement becomes a central point of contention between the parties to the dispute. At present, all the 25 disputes brought by China can be categorized as violation complaints. As mentioned earlier, among the 17 cases against the U.S., 13 cases involved trade remedies, including 4 cases of safeguard measures, 8 cases of antidumping and/or countervailing measures, and 1 case covering trade in certain goods, as well as their related services and technologies; the remaining 5 cases include 1 case of SPS measures and 3 cases of tariff measures. Among the 5 disputes against the EU, 3 of them involved anti-dumping measures, and one each involved countervailing measure and tariff concession. Thus, almost all disputes belong to the field of trade in goods, of which as many as 20 cases are related to trade remedies, accounting for 80%. Among the 49 disputes in which China is a respondent, all areas of trade in goods, trade in services and TRIPS protection were included. The 23 disputes brought by the U.S. involved 3 cases of trade in services and 2 cases of intellectual property rights; as for disputes concerning trade in goods, the subject of these disputes included measures covered by various agreements, such as tariffs, domestic taxes, agricultural products, export restrictions, anti-dumping and countervailing. It should be noted that about 50% of the U.S. v. China cases (12) involved additional obligations under the China’s Accession Protocol; 7 of the 11 complaints brought by the EU also involved similar cause of action as the U.S. complaints during the same period. Among the remaining 4 cases, 3 were on anti-dumping measures and 1 was on intellectual property rights. Most of the cause of action brought against China by other WTO members are similar to those brought by the U.S. or the EU during the same period. For example, in the Mexico’s 4 disputes filed against China, 3 has been mentioned in relevant disputes brought by the U.S. and EU.17 And only one dispute (DS451) was brought by Mexico alone, involving China’s export subsidies on apparel and textiles.18 In Canada’s 4 disputes brought by Canada against China, 2 of them are similar to those 17

DS359 with Mexico as the complainant corresponds to DS358 with the United States as the complainant; DS388 with Mexico as the complainant corresponds to DS387 with the United States as the complainant; and DS398 with Mexico as the complainant corresponds to DS394 with the United States as the complainant and DS395 with the European Union as the complainant. 18 DS342 with Canada as the complainant has a similar subject to DS339 with the EU as the complainant and DS340 with the US as the complainant; DS378 with Canada as the complainant

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2 China’s Practice in WTO Dispute Settlement

brought by the U.S. and the EU, another one dispute (DS483) involves anti-Dumping measures on imports of cellulose pulp from Canada, and the remaining one involves SPS measures. 2 of the 3 disputes brought by Japan and 1 filed by Guatemala against China have the same subject as the complaints filed by the U.S. and EU during the same period. The only exception is the complaint brought by Brazil concerning a safeguard measure imposed by China on imported sugar. In summary, although China is involved in a wide range of disputes, the rules involved are relatively concentrated.19 As a complainant, China is concerned about whether the domestic trade remedy measures of the US and EU are in compliance with WTO rules. As a respondent, whether China has fulfilled its obligations under the China’s Accession Protocol is of concern to other WTO members. In addition, China’s subsidy measures are one of the hot issues in WTO disputes.

2.2.3 The Practice Process: Evident Periodic Features, Gradually into the Center Stage In recent years, China has been an important participant in the DSM next only to the U.S. and the EU. Its status was gained gradually after the transition period. From its practice, China’s participation in WTO dispute settlement has evident periodic features. China has been a complainant for only one time between 2001 and 2006. In 2002, China, together with seven other WTO members as complainants, challenged the legality of the U.S.’s safeguard measures on imports of certain steel products under WTO rules. The panel and the Appellate Body found that the U.S. measures were inconsistent with the Agreement on Safeguards.20 Based on the ruling, the U.S. government promptly took measures to fulfill its international obligations. For China, which had just joined the WTO, the success of this first case helped to strengthen the Chinese government’s confidence and trust in the WTO and its dispute settlement system. It also helped to alleviate the general concerns of the Chinese public about has a similar subject to DS372 with the EU as the complainant and DS373 with the US as the complainant. 19 For example, on 4 February 2019, the United States Trade Representative (USTR) released its 2018 Report to Congress on China’s WTO Compliance. The report cites a number of examples of bilateral and multilateral commitments that the U.S. government believes China has not met, covering forced technology transfer, restrictions on electronic payment services, export subsidies and import substitution subsidies, agricultural biotechnology regulations, export restrictions, transparency and more (USTR, 2018 Report to Congress on China’s WTO Compliance, February 2010, https://ustr.gov/sites/default/files/2018-USTR-Report-to-Congress-on-China%27sWTO-Compliance.pdf). The rules and measures involved in these examples have also been the focus of trade disputes between the United States and China. 20 See Appellate Body Report, US-Steel Safeguards, WT/DS248/AB/R, WT/DS249/AB/R, WT/ DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/ DS259/AB/R, adopted 10 December 2003, DSR 2003: VII, 3117. DS254/AB/R, WT/DS258/AB/ R, WT/DS259/AB/R, adopted 10 December 2003, DSR 2003: VII, 3117.

2.2 A Unique Model of WTO Dispute Settlement Practice in China

65

Fig. 2.3 Annual distribution of China as complainant

the fairness, objectivity, effectiveness and efficiency of the WTO dispute settlement system.21 However, in the following five years, China has not been involved in any case as a complainant. Since the outbreak of the U.S. financial crisis in 2007, China began to file frequent complaints against the U.S. and the EU, as shown in the chart below (Fig. 2.3). Cases against China as the respondent did not come as early as some scholars had predicted,22 but rather, as John Jackson had predicted, many of the transitional provisions in the China’s Accession Protocol helped to ease the disputes in the WTO.23 Similar to China’s situation as a complainant, China has been the respondent only one time in the DSM between 2001 and 2005. In March 2004, the U.S. requested consultations with China concerning China’s refund policy of the value-added tax (“VAT”) on domestically-produced and domestically-designed but manufactured abroad integrated circuits (“IC”) where the U.S. claimed that China appears to be subjecting imported ICs to higher taxes than applied to domestic ICs and to be according less favorable treatment to imported ICs, and to be providing more favorable treatment of imports from one Member than another and discriminating against services and services suppliers of other Members.24 In July 2004, the U.S. and China notified the WTO that the two parties had reached a Memorandum of Understanding (MOU) and that China agreed to amend and revoke respectively measures at issue.25 Five years

21

See Ji and Huang (2011), p. 5. See Ostry (2003). 23 See Jackson (2003). 24 See China—Value-Added Tax on Integrated Circuits, Request for Consultations by the United States, WT/DS309/1, C/L/675, S/L/160, 23 March 2004. 25 See China—Value-Added Tax on Integrated Circuits, Joint Communication from China and the United States, WT/DS309/7, G/L/675/Add 1, S/L/160 China—Value-Added Tax on Integrated 22

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2 China’s Practice in WTO Dispute Settlement

Fig. 2.4 Annual distribution of China as respondent

after China’s accession to the WTO, disputes against China surged, as shown in the chart below (Fig. 2.4). Thus, trade disputes between China and other WTO members were rarely progressed to the DSM between 2001 and 2005, but this does not mean that China does not attach importance to WTO dispute settlement. On the contrary, before 30 March 2006, when the EU and the U.S. filed a request for consultations on China’s measures to import automobile parts of vehicles for sale in China which are subject to charges equal to the tariffs for complete vehicles, China had already participated as a third party in 56 cases and as a complainant in the case against the U.S. regarding its safeguard measures on steel products. To a large extent, an important reason why China and other WTO members have been able to coexist peacefully is that there was a transition period of about five years for many of China’s key WTO accession commitments, during which time the major trading partners of China, such as the U.S. and the EU, have not filed any claims against China.26

Circuits, Joint Communication from China and the United States, WT/DS309/7, G/L/675/Add 1, S/L/160. 26 During the same five-year period of China’s accession to the WTO, the United States and the European Union each filed an average of 3.5 complaints annually, and were each the respondents in an average of 7.2 complaints per annum. See Toothey (2011).

2.3 The Chinese Special Practice of WTO Dispute Settlement

67

2.3 The Chinese Special Practice of WTO Dispute Settlement 2.3.1 The Mechanism Analysis of Possibility Theoretical and practical studies have examined and attempted to analyze the influencing factors from different perspectives on the changing patterns and characteristics of China’s participation in WTO dispute settlement.

2.3.1.1

Non-litigation Culture: The Inherent Preference?

The Chinese civilization has been influenced by Confucianism inherently. Confucianism, which was represented by Confucius and Mencius, has been through 2500 years’ development and evolution, and for the moment, has become the most important part of the Chinese national spirit. “Benevolence”, as the core part of Confucianism, advocates a way of non-litigation in dealing with interpersonal relationships. In the Analects of Confucius, it is stated, “When I listen to lawsuits, I like to be a person who is neutral and encourages no lawsuit”. It is generally interpreted as the Confucian attitude toward litigation, which strives to prevent people from engaging in legal disputes, to achieve a state of “harmony” that is highly valued.27 Some scholars argue that under the influence of Confucianism, Chinese government would consider it is disgraced not to make a settlement agreement with a prosecutor in the negotiation stage, which would lead to a request by the relevant WTO member to establish a panel to resolve its conflict with China by means of litigation.28 Prior to the DSB’s establishment of a single panel under DSU Article 9.1 in October 2006, in response to requests from the U.S., EU and Canada, China’s practice regarding WTO dispute settlement was largely able to corroborate the above non-litigation culture. During this period, in order to refrain other WTO members from demanding the establishment of the panel, China generally reached a consensus with the complaint in a short period of time. Furthermore, in order to avoid bringing some disputes to the dispute settlement procedure of WTO, China would even make a consensus with other WTO member to eliminate the dispute before that member requests for consultations. In 2004, the disputes regarding integrated circuits between China and the U.S., to some extent, indicate that in the earlier time of China’s accession to WTO, China tended to resolve disputes through reconciliation rather than litigation when facing requests for consultations from other countries.29 On 18 March 2004, the U.S. has

27

See Wu (2007). See Zhang (2007). 29 See Peng (2007), Liu (2008). 28

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2 China’s Practice in WTO Dispute Settlement

formally filed a complaint with the WTO against China’s value-added tax on integrated circuits. The U.S. alleged that China’s tax policies on semiconductor production put the U.S. exporters’ on “an unfair position in competition”. This is the first case against China by the U.S. since China joined the WTO in 2001. The U.S. pointed out that although China imposed a 17 percent value-added tax on integrated circuits, enterprises in China enjoyed a partial refund of the value-added tax on the integrated circuits, resulting in a lower value-added tax in effect.30 Therefore, the tax burden of imported integrated products was higher than that of similar products in China. Moreover, the U.S. also pointed out that China’s tax policy also provided partial VAT refunds for integrated circuits designed in China and manufactured abroad, which provided preferential treatment for imported integrated circuits, discriminating against other countries’ services and service providers. In the view of the U.S., the measures taken by China were neither in conformity with Chinese obligation under the Article 1 and the Article 3 of GATT 1994, China’s Accession Protocol, nor under the Article 17 of GATS.31 After the U.S. formally requested consultations, the European Union on March 26, Japan on March 31, Mexico and Chinese Taipei on April 1 all requested to participate in the consultations. On 28 April 2004, China informed the DSB that it had accepted the accession requests of the EU, Japan and Mexico. On 14 July 2004, China and the U.S. informed the DSB that they had reached an agreement on the request for consultations initiated by the U.S. Thus, a trade dispute was settled at the consultation stage. In addition to the dispute over the VAT on integrated circuits, two other important Sino-foreign trade disputes were not referred to the DSB dispute settlement process between 2001 and 2005, but were resolved through bilateral negotiations.32 The first trade dispute is related to export quotas for China’s coke. On 1 January 2004, China implemented a licensing system for coke exports and at the same time cut its coke export quota from 12 million tons in 2003 to 9 million tons. On 9 May 2004, the European Union asked China to lift the export restrictions on coke within 5 days, or it would sue China at the WTO. The two sides failed to reach an agreement on May 14, but the EU did not take the case to the WTO. On May 17, the two sides agreed to continue negotiations in the next two weeks. On May 24, the Ministry of Finance and the State Taxation Administration in China issued an urgent notice which announced the immediate cessation of VAT refunds for the export of coke, semi-coke and coking coal. The action shows the Chinese government’s determination to cut coke exports. However, on 28 May 2004, the European Commission announced that the European Union had reached an agreement with China on the issue of coke trade. According to the agreement reached between the two sides, in 2004, China’s exports of coke to the European Union will not be less than the level of the previous year, 30

The relevant tax policy [Finance and Taxation 2000 (No. 25)] regulates that from 24 June 2000, to the end of 2010, after taxed at the statutory rate of 17%, for the part with the actual tax burden exceeds 6%, the VAT of the sales of integrated circuit products (including monocrystal silicon) produced by the company itself shall be levied and refunded immediately. 31 China—Value-Added Tax on Integrated Circuits, WT/DS309/1, G/L/675, S/L/160 (23 March 2004). 32 See generally Gao (2007).

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which is 4.5 million tons. At the same time, China can maintain the export license system, but abolish the license fee. In return, the European Union would drop its case against China in the DSM.33 The second dispute involves the Chinese Ministry of Commerce’s anti-dumping measures on kraft linerboard imported from the U.S.. On 30 September 2005, the Chinese Ministry of Commerce issued a notice, concluding that the producers of unbleached kraft linerboard from the U.S., Thailand, the Republic of Korea, Taiwan and other WTO members had committed dumping in China. The U.S. believed that China’s anti-dumping investigation and final decision violated its obligations under the Article 6 of WTO as well as the Anti-Dumping Agreement, and threatened to file a lawsuit in the WTO. Shortly after the U.S. explicitly stated that it would submit the relevant disputes to the WTO dispute settlement procedure, China and the U.S. reached a settlement agreement.34 Chinese scholars expressed different views on Chinese government’s decision to end its trade dispute with the European Union in such a short time. Relevant views point out that it is generally the best choice for the two parties to settle disputes through mutually agreed upon negotiation, but it is also reasonable to settle trade disputes under the multilateral dispute settlement framework of WTO. In this regard, the legal reasons mainly include: (1) settling a trade dispute in the DSM does not mean a worsening of trade relations between the parties to the dispute. “Currently, the European Union is the largest trading partner of China, China attaches great importance to a good trade relationship with the European Union. Based on that, China may not be willing to submit bilateral trade disputes to the DSM; This consideration is certainly reasonable. At the same time, we should have a comprehensive understanding of the DSM, that is, the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) clearly stipulates that complaints and responses should be considered as ‘good faith’ normal behavior”. (2) Whether China’s coke export quota measures conform to the WTO rules has some defensible points. Even if China is found to have violated WTO rules by the DSB, “such violation is based on the different understanding of WTO rules, rather than an obvious violation of WTO rules. Such losses is common in the WTO dispute settlement system and do not damage China’s image”. On the contrary, an immediate concession to the European Union’s demands would give the impression that the relevant measures are suspected of violating WTO rules. (3) The WTO dispute settlement system takes a long time and is relatively beneficial to the respondent. It takes almost three years for a trade dispute to go through the WTO dispute settlement process, from the consultation stage to the Panel stage, to the Appellate Body stage and finally to the Enforcement stage. This has won the defendant three precious years to protect the domestic industry.35 More importantly, the WTO remedy mechanism adopts the mode of letting bygones be bygones, so the cost of delaying tactics is relatively low. 33

See Fan (2004). See USTR, China Terminates Antidumping Duty Order on kraft linerboard Linerboard, China Terminates Antidumping Duty Order on kraft linerboard Linerboard. 35 See He (2004). 34

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The Chinese government can make reasonable use of this feature of the WTO dispute settlement system to safeguard its national interests. Obviously, these criticisms and suggestions are only reasonable if it is presupposed that the Chinese government is apt to use reconciliation to resolve international trade disputes based on a cultural preference for non-litigation.36 The criticisms to the aforementioned views lie in the fact that while cultural factors may help to explain China’s low participation in WTO dispute settlement procedures from 2001 to 2005, it cannot explain the following two relatively “abnormal” phenomena: (1) since 2006, China has become a frequent complainant and respondent in WTO. (2) In other areas of international disputes, China still resorts to the reservation mechanism to avoid participating in dispute settlement mechanisms led by the third party.

2.3.1.2

Historical Traditions: External Coercion?

Unlike cultural explanations, historical explanations place more emphasis on external facts than on internal preferences to explain China’s reluctance to engage in international disputes. As noted above, since nineteenth century, although China has consciously used the rules of international law to assert its rights since the beginning of its engagement with the international community, however, international law at that time was derived from European international law, and China was initially excluded from the ranks of civilized countries.37 It is difficult for China to participate in the formulation of international law as an equal sovereign state with the “civilized” Western countries. Even when it has coincidentally participated in some important international conferences that have shaped the structure and direction of international law, China’s role has been largely marginal. This historical mark has profoundly influenced the Chinese government’s overall view of international law, which is that it is generally a “foreign-made” import that does not represent or reflect China’s national interests. It is for this reason that China has a generally negative view of third-party dispute settlement mechanisms and believes that participating in such mechanisms may undermine China’s sovereignty. The DSM is regarded as the pearl on the crown of the WTO system, and its existence is considered to contribute to enhancing the legitimacy, stability and predictability of the WTO framework. However, for the Chinese government, which has yet to have experience with international dispute settlement, unless the mandatory provisions of the WTO multilateral agreement on the whole package are enforced, the Chinese government is likely to, whenever possible and without incident, make treaty reservations to the WTO dispute settlement system based on its past experience, so as to safeguard its sovereign over trade regulation to the maximum extent possible. It could be argued that China’s acceptance of the compulsory jurisdiction of the WTO 36 37

See Davey (2009). See Liu (2014).

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dispute settlement system is, to a large extent, a “costly ticket” to WTO membership, as are the additional commitments made in the China’s Accession Protocol or the Report of the Working Party (WPR) on the Accession of China (hereinafter referred to as “the WPR of China”). Even though China has made significant concessions and taken on additional obligations at the level of legal rules, some WTO members still question the credibility of China’s behavior.38 To some extent, this is just a twenty-first-century version of previous Western questions about China’s ability to participate in and meet its international obligations. The questioning of historical narration regarding China’s participation in WTO trade disputes is disputed on at least three levels by taking a historical approach: Firstly, the historicism view fails to take sufficient account of changes in the external environment of international law. Realism theories of international relations hold that international law, including its formulation, adjudication and enforcement, is merely a by-product of the struggle for power and profit by powerful states in defense of their own interests. A state will comply with international law only if the relevant international norms support its position or confer substantial benefits. According to this theory, international law can hardly constitute as “real law” because of the lack of effective sanction mechanism to ensure compliance with relevant norms. In other words, international law is a product of the power structure of international relations, rather than a normative framework that constrains the power of states.39 The origin, development and evolution of International Law are not the product of the evolution of “civilization”, but rather the symptom of the structure of national power in international community. In contrast to realism theories, historicism places greater emphasis on the consistency and continuity of patterns of state behavior, while ignoring the social facts that patterns of state behavior are ultimately determined by the comparative strengths of states. Even if the basic principles and rules of international law remain unchanged, an increase in a state’s international power can lead to a shift in its perception of International Law. For example, in the case of a weak state, the compulsory nature of international law poses a threat to national sovereignty, and the priority is to restrain the application of International Law and to preserve its sovereignty to the maximum extent possible. For stronger states, the enforcement of international law may affect the exercise of national sovereignty, and the priority is to find a balance between compliance with International Law and respect for national sovereignty. Moreover, the absence of compulsory enforcement mechanisms in International Law has led to the enforcement of the relevant international decisions being fundamentally dependent on the comparative strength of states. For weaker states, participation in international dispute settlement mechanisms is likely to result in a “lose-lose” situation. If they lose the case, the stronger state can legitimately demand that they fulfill their international obligations; if they win the case, it is difficult to force the losing stronger states to comply with their international obligations. Obviously, the historicism approach fails to take into account

38 39

See Mastel (2000). See Donnelly (2000).

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the external environment, such as China’s increasing national strength and changes in international power structure. Secondly, the historicism view fails to take into account the framework effect of international regimes. Institutionalism theories of international relations argue that relevant rules, norms, principles and decision-making procedures of International Law can mitigate the state of anarchy at the international level, allowing states to pursue their own interests and common goals within the framework of the system. The reason why international regimes are followed by states is primarily due to the significant reduction in the costs of international interaction. From the utilitarian perspective of the rules, by enduring the inconvenience brought about by individual cases, countries can obtain more long-term benefits. On this basis, liberal theory further argues that the current rules of International Law embody a range of ideologies to which liberal states adhere: democracy, human rights and market capitalism. Therefore, the rules of International Law can maintain harmony and consistency with the rules of liberal states in terms of ideology and values. International Law is a product of the “internationalization” of the foreign relations law of liberal states, which supports rather than limits the sovereignty of liberal states. Conversely, for non-liberal or authoritarian states, the rules of International Law constitute external constraints.40 Obviously, a historicism interpretation of the timing of China’s participation in international disputes is to some extent consistent with liberal theory. After all, judged by classical liberal standards, China can hardly be classified as a liberal state. The problem is that, unlike positivism theories such as realism and institutionalism, liberalism is strongly normative, and, to a large extent, promotes an ideal yet to be realized rather than aiming to describe a real system. Even if at one time in history, International Law was once the rule of the game among liberal states, this situation has changed significantly by the proliferation and diversity of contemporary international law subjects. Thus, although China paid a “costly ticket” to join the WTO, the “deal” is still generally beneficial to its national interests from a utilitarian perspective. On the basis of utilitarianism,41 China should not assess the value of the WTO to it on a case-by-case basis. Since the DSB Panel and the Appellate Body have done their job under the DSM system, which ultimately contributes to trade cooperation among WTO members, there is no need for China to adopt an avoidance strategy toward the WTO dispute settlement mechanism. Thirdly, the historicism perspective fails to take into account the transformation of the attitude of the states concerned toward International Law. The constructivism theory of international relations gives states dynamism and initiative. In this perspective, a state is no longer an entity with fixed preferences, and through its interaction with other states, international organizations and other subjects of International Law, the state changes its behavior and interest preferences as a result. Constructivism argues that international regimes can influence the choices of members by regulating international behavior and informing states about what is permitted and what 40

Slaughter (1995). About the general assessment of rule utilitarianism, please see Posner RA (1997) The problematics of moral and legal theory. Chinese edition: Posner (2001), p. 279.

41

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is restricted. Unlike constructivism, one of the theoretical premises of historicism is that the preferences and attitudes of the states concerned toward International Law do not change in response to changes in the international regimes. China’s long-standing general negative view of International Law is related to the direct and indirect influence of two theories. The first theoretical position adopts the perspective of Third World Approaches to International Law (TWAIL). The political identity of Third World states is often based on self-identification. Once a state identifies itself as a Third World state, it adopts a critical stance toward International Law dominated by hegemonic powers.42 The second theoretical position adopts a Marxist perspective. Based on Marx’s intellectual legacy of materialism, capitalism, ideology, imperialism, totality, etc., the Marxian Criticism School of International Law flays mainstream international law theory and focuses on the legitimacy of the TWAIL. It recognizes that International Law has its relative independence, but is constrained by the interests of the dominant states and classes. “The main characteristic of bourgeois imperialist international law is that it strives to limit the autonomy of states in a subordinate and dominant position, mainly by gradually transferring sovereign power from states to international institutions, which protects and facilitates the free flow of capital, especially international financial capital flows”.43 China’s modern encounter with international law confirms, to some extent, the TWAIL and the identification of the injustice and hypocrisy of mainstream international law by the Marxian Criticism School. But historicist interpretations do not give sufficient weight to the relative independence of International Law and the fact that, with economic globalization, traditional Third World states can participate in international economic rule-making as developing or emerging nations. It is not a play on words that the politically charged First and Third World concepts have been replaced by the neutral concept of developed and developing economies in the international economic system, reflecting the inclusiveness of the market economy and allowing states to trade on the basis of their relative comparative advantages and promoting deeper cooperation among them. In this context, China’s position on International Law has been transformed by promoting the vision of a community with a shared future of mankind. In summary, historicism is similar to legal positivism in that it emphasizes the consistency and continuity of behavior patterns. However, this consistency and continuity is neither supported by empirical data nor justified by normative reasons in contemporary society. In terms of China’s participation in WTO dispute settlement practice, the historical tradition cannot reasonably explain the paradigm shift and its distinctive features.

42

See Bianchi (2016). See Chimni BS (2004) An outline of Marxist course on public international law. Also see Marx S (2008) Left wing international law—rethinking the legacy of Marxists. Chinese edition: Marx (2013).

43

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Characterizing Interests: Trade-Off for Gain and Loss

If factors such as non-litigation culture and historical traditions make it difficult to explain the uniqueness of the recent pattern of China’s participation in WTO dispute settlement because they focus on the past, a qualitative analysis based on the interests of trade disputes can somewhat mitigate the weak explanatory power of non-litigation culture and historical tradition. Firstly, a qualitative analysis of national interests distinguishes between core interests and non-core interests. The rationale for the stratification of national interests lies in the fact that, like all interests, national interests have a distinct hierarchy. The different levels of national interests have different levels of importance for the state, which inevitably affects the relationship between national interests and the relevant international legal regime. In fact, the hierarchy and the change of hierarchy of national interests, as well as the complex relationship between different levels of national interests, will affect the attitude toward International Law and choice of action of states.44 According to the representative view of classical realism, national interests can be divided into at least two categories: (1) essential or core interests, including physical, political and cultural aspects of identity, for which the territorial integrity, political system and culture of a state are the minimum requirements for its survival as a state; and (2) variable or secondary interests, which are broadly defined as those interests whose connotation is constantly renewed by the state in response to changing circumstances.45 Given limited resources, a state must rationally allocate resources according to the importance of its national interests. As a country’s national interests are subject to historical, cultural, economic, political and social factors, the distinction between essential and variable interests is not necessarily the same across countries, and even when the interests are the same, their specific connotations may differ. Therefore, in the international community, it is normal for countries to have conflicts in defense of their national interests, but what is important is how such conflicts are resolved. Secondly, a country’s international economic interests have always been regarded as non-core interests in comparison with traditional political interests such as international sovereignty and territorial integrity. In the era of economic globalization, the international economic system has the characteristic of “keeping up with the times”. For example, before the U.S. Congress ratified the Uruguay Round agreement, there was a heated debate between the U.S. Congress on whether the WTO’s majority vote decision-making process, the trade policy review mechanism and the new dispute settlement mechanism would pose a threat to US sovereignty and national security.46 Despite the objective threat to US economic sovereignty posed by the WTO,

44

See Liu (2015). See Morgenthau (1952). 46 See Jackson (1997). 45

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the Congress ratified the Uruguay Round package agreement.47 Similarly, international economic interests do not necessarily constitute a core interest of China. For example, in the 2009 Sino-US Joint Statement, the two sides reaffirmed that “the fundamental principle of mutual respect for sovereignty and territorial integrity is at the core of the three China-US joint communiqués that guide China-US relation. Neither side supports any action by any force that undermines this principle. Both sides agreed that respect for each other’s core interests is extremely important to ensure the stable development of China-US relation”. As can be seen, through this joint statement, China expressed its concern for safeguarding national interests such as national sovereignty and territorial integrity. White Paper on “China’s Peaceful Development” on September 2011 systematized China’s core interests as “China’s core interests include: national sovereignty, national security, territorial integrity, national unity, the stability of national political system established by the Constitution of People’s Republic of China and overall society, as well as the basic guarantees for sustainable economic and social development”.48 In terms of the sequence, national sovereignty, national security, territorial integrity and national unity are given prominence, with the latter two core interests being both a long-term goal for China and a political and economic guarantee for the first four core interests.49 In the Chinese context, core interests are considered to be national interests that are crucial and indispensable for the survival of the state, with global, fundamental and long-term implications. The “life-and-death nature of the interests, the way they exist and the overall strategic context of China are the criteria for the concretization of China’s core interests”.50 In other words, if national core interests are “lost or fundamentally undermined, the international status and dignity of sovereign states will be greatly eroded, and they may even lose their basis of existence in International Law. In extraordinary times, national interests may be undermined to a certain extent, but as long as core interests are effectively safeguarded, the state is saved from failure and extinction”.51 Clearly, trade disputes between China and other WTO members have not yet risen to the level of core interests, either in nature or in impact. However, the interest positioning argument is still flawed. Even if the concept of core interests is used to distinguish China’s participation in the DSM from its nonparticipation in other international dispute settlement mechanisms, the qualitative analysis of relevant interests still cannot fully explain the characteristics of China’s participation in WTO dispute settlement in terms of role positioning, rule focus and phase-specification. Therefore, it is necessary to construct a more convincing theory that is both appropriate and forward-looking beyond cultural, historical and interest factors.52 47

The “security exception” in the Agreement establishing WTO has eased the sovereignty conflicts between international organizations and states to some extent. See Emmerson (2008). 48 See The Chinese State Council Information Office (2011). 49 See Wang (2011). 50 See Luo (2018). 51 See Zhao (2011). 52 At the rhetorical level, the phrase “core interests” can be used. See Long (2011).

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2.3.2 Empirical Analysis: Actuality On the significance of China’s accession to the WTO, Mike Moore, then WTO Director General, argued that this is a historic moment for the WTO, for China and for international economic cooperation. “As one of the world’s fastest growing economies, China has made tremendous gains in reducing poverty over the past decade by gradually opening its economy to trade and investment. The fact that this economy will now be subject to the rules-based WTO system will certainly help enhance international economic cooperation”. Shi Guangsheng, the Minister of MOFTEC, pointed out that “we need to invite all members to formulate the rules of international trade in the new century through equal participation and consultation, so that more developing countries can share the opportunities and benefits brought by economic globalization, while avoiding further widening of the gap between rich and poor countries and preventing certain countries from being marginalized”.53 A closer analysis of Moore’s and Shi Guangsheng’s comments on the relationship between the WTO and China reveals that from the beginning of China’s accession to the WTO, there were differences between the WTO and China on how to deal with the relationship between the two. From the perspective of international organizations (WTO), China’s accession to the WTO helped to subject China to WTO rules, enhance international cooperation and achieve equality within existing legal framework; from the perspective of the international organization member (China), China’s accession to the WTO helped to establish new trade rules and achieve an equal legal framework. To borrow Rawls’ terminology,54 China is concerned with the legitimacy of WTO rules per se and thus places more emphasis on the WTO’s function as a venue for trade negotiations, while the WTO is concerned with the legitimacy of particular activities under WTO rules and thus focuses more on the WTO’s dispute settlement and trade policy review functions.

2.3.2.1

Subjective Expectations of China’s Accession to the WTO

China’s attempt to actively participate in the formulation of international trade rules in the new century, at the beginning of its accession to the WTO, had a special historical background. China is not a founding member of the WTO and can only accede to the Marrakesh Agreement on the terms agreed with the WTO. Compared to existing WTO members, China has additional WTO obligations and limited WTO rights; therefore, it has the incentive to change this unfavorable situation through the formulation of new international trade rules.

53

See WTO Ministerial Conference Approves China’s Accession, WTO Press/252, dated 10 November 2001, available at http://www.wto.org/english/newse/Press01e/pr252e.htm. 54 See Rawls (1955), pp. 3–4.

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Fig. 2.5 WTO accession process

The WTO accession process is divided into four main stages (shown in Fig. 2.555 ), the difficulty level and duration of which vary according to the applicant’s circumstances.56 Stage 1 is application. The core task of which is to set up a dedicated working group to review the information submitted by the applicant for consistency with the WTO requirements. For this purpose, the applicant country or customs territory is required to submit a respondent or memorandum on its trade and economic policies. The WTO will establish a working group of all interested WTO members to review the applicant’s laws, regulations and administrative procedures for consistency with the WTO requirements on the basis of the report, memorandum or other information. Stage 2 is consultation. The core task of which is to reach an agreement between the applicant and the WTO members. Depending on the content, the relevant agreements are divided into two categories. One category is agreements to which all WTO members are subject. To this end, the applicant country or customs territory must take measures to bring its laws, regulations and administrative procedures into line with its obligations under the Marrakesh Agreement. Existing WTO members pay particular attention to certain WTO obligations and monitor the applicant’s effective implementation of those obligations. Another category is the special agreements with which the applicant must comply. When a new member joins the WTO, it is immediately entitled to the market access preferences granted by the existing WTO members. Based on the principle of mutual benefit, the new member must pay a “ticket of admission”. The “price” of the ticket is closely related to the applicant’s level of economic development and the subject of the negotiations.57 Since different members have different trade interests, special agreements can only be reached in a bilateral mode. The outcome of the negotiations is then multilateralized through the WTO’s Most-Favoured Nation (MFN) treatment clause. 55

https://www.wto.org/english/thewto_e/acc_e/acc_status_e.htm. For example, the accession negotiations of China and Russia lasted for 15 years and 18 years, respectively. Kyrgyzstan joined less than three years later. 57 See Bossche and Prevost (2016). 56

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Stage 3 is document drafting. The core task of which is to draft the membership provisions of the working group report, the Accession Protocol and the Schedule of Concessions for Goods and Services, including the applicant’s market access concessions and commitments, in response to the applicant’s commitments. In order to join the WTO, applicants often accept additional obligations (WTO-plus) or restricted rights (WTO-minus). The relevant elements will be reflected in the provisions of the Accession Protocol. The final stage is decision. The core task of which is the decision of the Ministerial Conference or the General Council on the applicant’s application for accession. If the application is approved, the applicant will become a full member of the WTO 30 days after the WTO receives the certificate of approval of the Protocol of Accession. The negotiation of China’s accession to the WTO was one of the most complex, difficult and far-reaching events that the WTO has had to deal with.58 In 1947, China was one of the initial parties to the GATT. However, after the establishment of the government of the People’s Republic of China in 1949, the Taiwan authorities withdrew from the GATT in 1950, thus breaking off China’s relationship with the GATT. After China’s legal seat in the United Nations was restored in October 1971, the GATT decided to terminate the “observer” status of the Taiwan authorities in November 1971, in accordance with the GATT’s principle of political subordination to UN resolutions. Since the Chinese government never recognized the Taiwan authorities’ decision to withdraw, in July 1986 China formally applied for the reinstatement of China’s seat in the GATT, the so-called “membership restoration of the GATT”. However, the negotiations on the “membership restoration of the GATT” referred to the negotiations on China’s “reinstatement as a party to the GATT”, not “reentry”.59 With the replacement of the GATT by the WTO in 1995, China’s “membership restoration of the GATT” became “accession to the WTO”. According to the WTO accession procedure, China’s accession to the WTO was divided into four steps: the first step was to review the trade regime of the applicant country—for China the results of the GATT review in February 1992 could be used; the second step was the negotiation of the protocol and market access—the protocol was the legal document for multilateral discussions on China’s accession to the WTO, and market access was the bilateral discussion of China’s market opening commitments, which was the most substantive stage; in the third step, the WTO Working Group of China summarized the conditions for China’s accession into three final documents and submitted them to the WTO Ministerial Conference or the General Council; in the fourth step, the 58

See Bossche and Zdouc (2017), p. 122. This has been China’s position since the beginning. From the perspective of politics, this is consistent with China’s restoration of its lawful seat in the United Nations. In other words, before 1949, the government of the Republic of China represented China and after that, the government of the People’s Republic of China represented China. This means that the government of the People’s Republic of China will inherit the status of “founding state” of the government of the Republic of China before 1949. This is also in line with the “one China” principle (China’s Status as A Contracting Party: Communication from the People’s Republic of China, GATT Document L/ 6017).

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Ministerial Conference or the General Council adopted them and China signed a Protocol of Accession, which was approved by the authorities, and then becomes a full member of the WTO.60 For a long time, China has played the role of a silent acceptor of rules in international law. Firstly, in terms of the formation of multilateral trade rules, although the Chinese government participated thoroughly in the Bretton Woods Conference and Uruguay Round negotiations, it has rarely played a decisive role in the construction of major institutions and the agreement of rules. Secondly, over the history of China’s “membership restoration of GATT” and “accession to the WTO”, from the very beginning, becoming a member of international organizations and obtaining the qualification to formulating international rules has been one of the objectives of China’s efforts to restore its status as a party to the GATT and to become a member of the WTO. According to Article 3.2 of the Marrakesh Agreement, the WTO “shall provide a venue for negotiations among its members on multilateral trade relations”, and thus China’s successful accession to the WTO has helped it to become a multilateral rule-maker, rather than just a rule-acceptor.61 Thirdly, in order to join the WTO, China made concessions and commitments on the important market access, taking on additional WTO obligations and enjoying restricted WTO rights. As a developing country, China has not only failed to enjoy the SDT granted to developing countries by the WTO, but even assumed obligations that are higher than those of developed countries. Under these circumstances, it is reasonable for China to seek “to formulate the rules of international trade for the new century at the outset of its accession to the WTO, so that more developing countries can share the opportunities and benefits of economic globalization”. Of course, the transformation of membership in rule-making into real capabilities, especially by changing existing rules and creating new ones to defend one’s interests, depends on the interaction of many factors.

2.3.2.2

The Objective Background of China’s Accession to the WTO

China’s accession to the WTO coincided with the official launch of the WTO Doha Round. Since the establishment of the WTO, China is the largest economy to have applied for WTO membership. Its possible impact on the WTO multilateral negotiation process has naturally become a focus of attention. Optimists argue that China’s accession to the WTO will help to strengthen the developing countries’ group power and make the WTO more balanced. The pessimists argue that China’s accession would undermine the existing WTO power structure and would not be conducive to achieving the desired results in multilateral trade negotiations.62 Having WTO membership means having the right to negotiate on an equal footing with other WTO members and the right to change existing rules and create new ones. 60

http://www.china.com.cn/international/txt/2009-07/28/content_18219762.htm. July 28, 2009. See Cao and He (1999). 62 See Fewsmith (2001). 61

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However, whether this legal power can be translated into real control depends not only on China’s will, but also on the changes of international situation. There are both risks and opportunities when China’s accession to the WTO coincides with the Doha Round: in terms of opportunities, China can actively participate in the Doha Round negotiations, change international rules that are unfavorable to China’s interests, introduce the ones that are favorable to China, and hinder the formation of international rules that may harm China’s interests. In terms of risks, at the beginning of becoming a member of the WTO, China need to participate in the Doha Round negotiations, which covers a wide range of areas and has serious differences, while at the same time, it will have to make its laws, regulations and administrative procedures conform to the provisions of the Marrakesh Agreement in the short term, which is bound to suffer great pressure and may delay the agenda of the Doha Round as a result. Doha Round under Political Impetus On 10 November 2001, shortly before the WTO Ministerial Council agreed by consensus on the text of China’s accession agreement to the WTO, the 9/11 attacks on U.S. soil shocked the world. This political event made the whole international community and WTO members feel the need and urgency to enhance international cooperation.63 The timely inclusion of China as a WTO member helped to make this position clear to the world. Coincidentally, by the time China became a member of the WTO, the Doha Round of the WTO had also been officially launched. For China, this is the perfect time to participate in the formulation of international trade rules and to defend its rights and interests. Prior to the establishment of the WTO, multilateral negotiations under the GATT were mainly conducted through specially organized, time-bound “Rounds” covering a wide range of issues, including the Geneva Round in 1947, the Annecy Round in 1949, the Torquay Round in 1950, the Geneva Round in 1956, the Dillon Round during 1960–1961, the Kennedy Round during 1962–1967, the Tokyo Round of 1973–1979 and the Uruguay Round of 1986–1994. In the early years of the Rounds, the theme was tariff reduction. With the gradual reduction of tariffs, non-tariff barriers gradually became the focus of negotiations. The main focus of the Tokyo and Uruguay Rounds was the reduction of non-tariff barriers. In particular, the Uruguay Round saw the creation of a body of international law on trade: the basic text of the Agreement Establishing the World Trade Organization exceeded 400 pages and the Final Act, signed in Marrakech, exceeded 26,000 pages.64 Although the GATT round negotiation model was a great success, with the establishment of the WTO, it was once considered by the WTO to be obsolete. However, as the Ministerial Conference and the General Council were repeatedly blocked from advancing trade issues, WTO members were finally forced to recognize that, in order to reach agreement on further trade liberalization at the multilateral level, the WTO 63

See Ministerial Conference, Doha Ministerial Declaration, WT/MIN(01)/DE/1, dated 20 November 2001, para. 4. 64 See Matsushita et al. (2017).

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needed political impetus, as well as the opportunity and format to package the issues. In this context, the traditional GATT model of round negotiations was once again introduced into the WTO system. Constrained by the external environment, attempts by WTO members to launch a new round of multilateral trade negotiations at the Seattle Ministerial Conference in 1999 ended in disastrous failure. In November 2001, in response to the impact of the 9/11 attack, the international community needed to act and express with full confidence in the long-delayed international cooperation and negotiations, and WTO members finally agreed to launch the Doha Round.65 The Doha Round was scheduled to be formally concluded no later than 1 January 2005. However, subsequent developments of the international situation and the highly antagonistic conflicts among WTO members far exceeded the expectations of WTO members, resulting in repeated delays and even the temporary suspension of the Doha Round. Impasse in Doha Round Negotiations The Doha Round has set an ambitious agenda for trade negotiations and liberalization. According to its content, the relevant agenda can be divided into two categories: one is the implementation of the matters in the Marrakesh Agreement that require continued negotiations, including negotiations on agricultural products,66 services trades, etc. Such negotiations had already started before the beginning of 2000.67 The other category is the further optimization of existing rules, including issues of developing countries’ implementation of the existing Marrakesh Agreement, non-agricultural market access (NAMA), TRIPS-related access to essential drugs for developing countries and protection of geographical standards, rules relating to dumping, subsidies and regional trade agreements, trade disputes, SDT for developing countries, especially LDCs, etc. While the issues involved are numerous, the Doha Ministerial Conference set a high bar for the success of the Doha Round, namely that “actions, conclusions and the entry into force of the negotiation outcome shall be considered as a single undertaking”.68 This means that the Doha Round will continue, unless WTO members agree on all these matters. In hindsight, it is clear that the Doha Ministerial Conference was overconfident that WTO members would be able to reach an agreement quickly. In fact, the first signs of disagreement among WTO members had already emerged at the Ministerial Conference. For example, the EU tried to include trade and investment, trade and competition law, and trade and core labor standards in the Doha Round, but this proposal, especially on trade and core labor standards, was strongly opposed by other WTO members, represented by developing countries.69 For the controversial 65

See Bossche and Zdouc (2017), p. 93. See Art. 20 of the Agreement of Agriculture. 67 See Article XIX of the GATS. 68 See Ministerial Conference, Doha Ministerial Declaration, WT/MIN(01)/DEC/1, dated 20 November 2001, para. 47. 69 In its announcement, the Doha Ministerial Conference explicitly declared that it would no longer consult on trade and core labor standards in the WTO context, noting that the International 66

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“Singapore Issues” among WTO members, namely trade and investment relations, trade and competition law relations, transparency in government procurement, trade facilitation and others, the Doha Ministerial Conference adopted a delaying tactic, i.e. the Doha agenda could be amended to include such issues if there was a clear consensus among WTO members. However, at the Cancun Ministerial Conference in September 2003, WTO members failed to reach consensus on the inclusion of the “Singapore Issues” as expected. Moreover, the Cancun Ministerial Conference failed to make progress on the Doha Issues, ending in a fiasco similar to the Seattle Ministerial Conference. To break the deadlock, the General Council adopted a new Doha Work Programme on 1 August 2004, calling on all members to “redouble their efforts to achieve a comprehensive and balanced outcome on the Doha Development Agenda (DDA)”.70 One of the core elements of the program was to discontinue seeking negotiations on the “Singapore Issues”, except for trade facilitation issues. The problem is that even with the exclusion of the highly controversial Singapore Issues, the “redoubling of efforts” has not yielded the desired results. At the relevant ministerial conferences in 2005, the WTO members only reached a significant agreement to eliminate agricultural export subsidies by 2013.71 However, as mentioned above, if WTO members fail to agree on other issues such as market access for agricultural products, domestic support for agricultural products, non-agricultural market access and liberalization of services trade, the Doha Round will remain unsuccessful. In July 2006, as WTO members failed to reach agreement on NAMA as scheduled, then WTO Director General Lamy decided to suspend the negotiations until the following February, when they resumed. After the resumption of the Doha negotiations, no significant results were achieved and the WTO negotiating mechanism was essentially at a long-term standstill. Regarding the frequent stalemate in the Doha Round negotiations and the stagnation of the WTO negotiating mechanism, scholars believe that the main reasons for this are as follows72 : First, the divergence of interests among WTO members was quite serious. As WTO membership increases and diversifies, and as developing country members begin to participate fully in the talks, the divergent interests of the negotiating parties have widened. Second, the Consensus Negotiation Approach was impractical. With the increase in WTO membership, the adoption of negotiations by consensus is increasingly becoming a burden. In the negotiation process, not only does the final outcome of the negotiations rely on the principle of consensus, but even all intermediate steps of the negotiations are achieved by means of a consensus mechanism. While this helps Labour Organization (ILO) works on the social dimension of internationalization (see Ministerial Conference, Doha Ministerial Declaration, WT/MIN(01)/DEC/1, dated 20 November 2001, para. 8). 70 See General Council, Doha Work Programme Decision adopted by the General Council on 1 August 2004, WT/L/579, dated 2 August 2004, para. 3. 71 See Ministerial Conference, Hong Kong Ministerial Declaration, WT/MIN(05)/DEC, dated 22 December 2005. 72 See Bossche and Zdouc (2017), p. 96.

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to increase the legitimacy and legality of the negotiation outcome, it significantly reduces the efficiency. Third, the launch of the Doha Round was somewhat fortuitous. The WTO launched the Doha Round in November 2001 largely as a political response to the 9/11 attacks in the U.S.73 When the Doha Round was launched, WTO members failed to take into account the fact that the conclusion of the relevant agreements would require WTO members to undertake deep economic reforms. Fourth, issues in the Doha Round were more liberalized. GATT 1947 and the Marrakesh Agreement were the results of collaboration between the negotiating parties to promote trade liberalization. They represented the highest level of consensus that countries could reach on the basis of free trade principles at the time. Thus the easier parts to agree on had already been resolved in the previous rounds, leaving the remaining issues, which involve many issues left over by history and important domestic interests and are understandably difficult to resolve. Fifth, the criteria for the ultimate success of the Doha Round were too high. The Doha Round had a wide range of issues and set very high standards to conclude the Round. The blanket commitment approach as a criterion for the success of the Doha Round means that the entire negotiations could be undone by the delay in reaching some single agreement. Sixth, WTO members are reluctant to adopt the “constructive ambiguity strategy” to reach an agreement. The so-called constructive ambiguity strategy means that WTO members first use ambiguous wording to determine the rights and obligations of new rights, and then use the WTO’s trade dispute mechanism to clarify the specific meaning of the relevant terms in individual cases.74 Seventh, the value of economic globalization has been questioned. After the global economic and financial crisis broke out in 2007, countries have become more concerned with domestic economic issues, particularly the social costs associated with trade,75 and WTO members have become less enthusiastic about trade liberalization. China’s Role in the Doha Round Relatively Negative Posture in the Earlier Time In the early days of the Doha Round, China did not participate as actively in the negotiations as researchers and observers had predicted. Given the issues covered in the Doha Round, including agriculture, tariff and non-tariff barriers, services and trade remedies, the active participation of many developed countries in the Doha Round,76 and the fact that the Doha Ministerial 73

For the political background to the Doha Round, see P. Lamy, Managing Global Security: The Strategic Importance of Global Trade, Speech to the International Institution for Strategic Studies, In Geneva on 8 September 2007, at www.wto.org/english/newse/spple/sppl66e.htm. 74 On the legislative technique of Constructive Ambiguity, see Peng (2016). 75 See Roderick D (2001) The globalisation paradox. Chinese edition: Roderick D (2001). 76 At the Seattle Ministerial Conference in 1999, developing countries strongly urged that they would boycott a new round of multilateral negotiations unless their interests were respected. In view of the significantly increased role of developing countries in the Doha Ministerial Conference, the Doha Round was also known as the Doha Development Agenda.

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Conference set a final deadline for the Doha Round,77 China’s relatively passive engagement in the negotiations is puzzling. After all, if China does not actively participate in multilateral trade negotiations under the auspices of the WTO, it is likely to be excluded from the regional trade negotiations led by the EU, the U.S. and Japan, which will seek to liberalize trade to a greater extent than the Doha Round has set out to do. The reasons for this are broadly twofold: For one thing, at the beginning of its accession, China focused on how to fulfill the additional commitments it had made during the accession process and lacked the will and leverage to bargain with other WTO members. In addition to fulfilling its uniform obligations under WTO rules, China has to take steps to meet the additional commitments it has made in the China’s Accession Protocol and the WPR of China. In the case of services trade, for example, China’s commitments on market access for services can be described as revolutionary in both their breadth and depth.78 As China, like other Recently-acceded Members (RAMs), had already made additional commitments before the Doha Round was launched, the primary strategy in the new round is not to make further concessions. At the very least, there should not be the same level of concessions as the founding members.79 As a negotiating strategy, if China does not make further concessions, but wants other Members to continue to make concession commitments, the best way to do so is to keep a low profile at the conference.80 The strategy of low-profile participation as RAMs has worked to some extent. As stated in the 2005 Hong Kong Ministerial Declaration, “We recognize the special circumstances in which RAMs have already made broad market access commitments on accession. Such circumstances will be taken into account in the negotiations”. 81 In practice, if the DDA proceeds smoothly, China could use the RAMs as a reason for making no or very few market access commitments in order to obtain a greater degree of market access commitments from other members, with a low-profile participation in the conference. Secondly, at the early stage of China’s accession to the WTO, the training of relevant professionals in terms of capacity and knowledge has yet to be strengthened, and there is a lack of human capital and knowledge accumulation for full participation in the Doha Round negotiations. The Doha Round negotiations are multilateral trade negotiations under the WTO framework, with topics covering agricultural products, non-agricultural market access, services, trade facilitation, WTO rules, environment, intellectual property rights, dispute settlement and other matters, which correspond to the more complex WTO rules. As a new member of the WTO, China is hardly familiar with these rules. 77

The Doha Ministerial Conference determined that the WTO would conclude the Round no later than 1 January 2005. 78 See Mattoo (2003). 79 World Trade Organization, Ministerial Conference, 5th Sess., Cancún, Statement by H.E. Mr. Lu Fuyuan, Minister of Commerce of China, at 2, WT/MIN(03)/ST/12, 10-14 September 2003. 80 See Gao (2012). 81 World Trade Organization, Ministerial Declaration of 18 December 2005, at 11, WT/MIN(05)/ DEC (2005).

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Moreover, the interpretation and application of the rules in the China’s Accession Protocol and the additional special commitments in the WPR of China also test the WTO and China. In addition to the substantive rules, the complexity of the WTO’s procedural rules also poses a challenge to new WTO members. This is particularly evident in the subtle “differences” between the text of the rules and the practice, which can only be felt by those who are involved, for example, Article 9 (Decision-making) and Article 10 (Amendment) of the Marrakesh Agreement both provide for more detailed voting rules.82 The problem is that this voting rule on paper is rarely applied in practice. In contrast, the WTO prefers to continue the practice of taking decisions by consensus, which is followed in GATT 1947. Consensus means that “if no member present at the time of the decision is formally opposed to the proposed decision, the body concerned shall be deemed to have taken a decision by consensus on the matter submitted for its consideration”.83 Consensus means that the informal bargaining mechanism will play an important role. Those members who are most familiar with the WTO’s informal negotiating mechanisms will have a comparative advantage, for example, mature WTO members will make effective use of the WTO’s “quasi-administrative bodies” (committees) to exchange information and clarify norms in order to develop prior consensus before matters are brought forward for consideration. Trans-governmental network (TGN) theory, global administrative law theory and managerialism theory all suggest that the use of informal negotiation mechanisms to achieve consensus requires contextual knowledge and skills.84 As a new member of the WTO, China will only be able to participate in the game rules of the WTO if it goes through the necessary “learning curve”. In this regard, China’s experience in other international institutions such as the United Nations, as well as its 15 years of experience in negotiation of “seat restoration in the GATT” and “accession to the WTO”, will rarely come in handy. After all, in the UN, China is one of the five permanent members and enjoys privileges and immunities, and most of the matters discussed in the UN are limited to “discussions”, in contrast to the “real” multilateral trade negotiations under the WTO. At the same time, the negotiations on China’s “seat restoration in the GATT” and “accession to the WTO are mainly concerned with one-way defense issues, i.e. how many concessions China can make. However, when China is involved in negotiating MTAs as a member of the WTO, it involves the identification of its national interests, as well as the assessment of its negotiating counterparts’ bids and how to bargain. These multi-directional processes require great problem insight and coordination skills. Thirdly, apart from its own reasons, China’s low-profile participation in the early years of the Doha Round was also closely related to the power structure among WTO members at the time, who were aware of China’s potential capabilities and wanted to build on them while not wanting China to use the capabilities to change the existing power structure. 82

See Ehlermann and Ehring (2005). Article 9.1 of the Agreement Establishing the World Trade Organization. 84 See Lang and Scott (2009). 83

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The Dilemma of Gradually Moving to the Centre The power structure among WTO members is not static and is mainly influenced by the economic strength of member states. It is the self-interested strategies of states in the negotiation process and China’s pragmatic policy choices that have led to China being gradually introduced into the center of the Doha Round negotiations. As early as the GATT period, this international trade power structure has reflected the characteristics of dynamic adjustment. For example, GATT was largely a product of transatlantic cooperation, with Europe and the United States primarily setting the rules and the rest of the world accepting them. Subsequently, the group of states leading rule-making expanded from the United States and the European Union to Canada and Japan, forming the famous Quadruple Alliance (Quad). In the 1980s, the situation in which the developed countries dominated the GATT Round negotiations began to change, mainly due to the collective voice of the developing countries. With the conclusion of the Uruguay Round and the establishment of the WTO, developing countries have become more proactive in their claims. Developing countries, led by Brazil and India, refused to launch another round of multilateral trade negotiations unless developed countries committed themselves to making important concessions.85 Eventually, when the Doha Round was launched, the WTO Ministerial Conference explicitly declared that development issues formed the core of the Round. As negotiations progressed and trade differences between developed and developing countries became more pronounced, the WTO power structure in terms of negotiations shifted from the original Group of Four model to the new Group of Four (G-4) model—the U.S., EU, Brazil and India—which transitioned to the Group of Six (G-6) model with the accession of Australia and Japan. In this context, as a new WTO member, China’s position in the WTO negotiating power structure is becoming increasingly awkward. The G-6 pretended to be “blind” to China at the negotiating table, at least until China took the initiative to speak out. The problem is that, despite the fact that some of the issues in the early negotiations were of little relevance to China86 and that China had already made a number of additional concessions for its accession to the WTO, as the Doha Round progressed, China’s passive participation strategy was increasingly perceived by WTO members as an ulterior motive for “free-riding” rather than a form of uncontested modesty. Specifically, in the early days of the Doha Round, for political reasons, China decided to join the developing countries’ camp, the Group of 20 (G-20), whose main objective was to force developed countries to reduce or even eliminate domestic support and export subsidies for agricultural products, which was contrary to China’s overall economic interests. As a result, from the Cancun Ministerial Conference in 2003 to the Hong Kong Ministerial Conference in 2005, China adopted a strategy of engagement but silence toward the interests of developing countries. After 2006, however, the situation began to change and industrial tariffs gradually became one 85

See Gao (2012), pp. 59–61. A typical example is the issue of agricultural products. China is a net importer of agricultural products, and most of its own agricultural products are domestically sold; there is little interest in the issue of market access for agricultural products or agricultural subsidies.

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of the focal points of the negotiations, as the EU and the U.S. relaxed their position on agricultural products. In 2007, at the G-4 meeting in Potsdam, the U.S. and EU demanded that India and Brazil reduce their tariffs on manufactured goods in return for the formers’ commitment to reduce or even eliminate agricultural subsidies. As China is the world’s most important exporter of manufactured goods and has substantial trade with the G4, this means that the tariff concessions made by Brazil and India in return for commitments to reduce agricultural subsidies in the U.S. and EU will be available to China through the MFN principle.87 Under these circumstances, the G4 cannot continue to ignore China’s presence. In order for China to make further concession commitments on the basis of the Protocol on the China’s Accession Protocol and the WPR of China, i.e. to “take on more responsibilities”, China was invited to join the G-6 as a member of the new G-7 during the Geneva Ministerial Conference in 2008. By the time other WTO members accepted China as a core negotiating member, after a transitional period of learning-by-doing,88 China had long since moved beyond the early stage of choosing to join the developing world on purely political grounds and had adopted different negotiating strategies depending on the issues.89 On the one hand, as an exporter of industrial products, China is in line with developed countries in advocating the inclusion of trade facilitation in the WTO framework to further reduce trade costs; on the other hand, as a large-population country with a low per capita income, China is in line with developing countries in advocating, for example, the imposition of special safeguard measures against import surges in agricultural products.90 China’s unique negotiating position places it in a dilemma. While China could and should theoretically play a more prominent role in the Doha Round negotiations, it is clearly too arbitrary to suggest that the Doha Round could thus enter the China Round phase.91 After all, given China’s unique political and economic system and its large economic size, any radical claims it makes in the Doha Round could be a trigger for other WTO members to demand further concessions.

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Blustein (2009). See Richardson (1990). 89 In fact, in multilateral trade negotiations, other developing countries have rarely been “lenient” with China because it is a developing country. For example, in order to block the expiry of the Agreement on Textiles and Clothing (ATC), 47 developing countries jointly issued the Istanbul Declaration in 2004, requesting a three-year extension of the agreement. 90 See Gao (2012), p. 63. 91 The three main reasons for China’s willingness to participate in the Doha Round include: (1) many of the Doha Round issues are of major interest to China; (2) China must deal with the “decline of the West” and prevent threats to the opening of the trading system; and (3) changes in China’s domestic political and economic situation could also affect its position in international trade negotiations. See also Mattoo and Subramanian (2011). 88

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Transformation of the Rule-Shaping Field: From Negotiation to Dispute Settlement

The Objective Effects of Stagnant Negotiations Due to the continuous delay of the Doha Round of negotiations,92 China’s persuasiveness based on RAMs has waned. In fact, the U.S. and the EU no longer allow China to “free-ride” with the additional commitments made more than a decade ago. Classical diplomatic negotiations are usually involved in a two level game. At the national level, domestic interest groups put pressure on the government to adopt policies that benefit them, while politicians seek power by building alliances among interest groups; at the international level, governments seek to maximize their ability to meet domestic needs while simultaneously minimizing adverse consequences of foreign developments.93 During the Doha Round of negotiations, negotiators from the European Union and the United States are under pressure from both internal and external sources. On the one hand, the negotiating partners they face will ask these developed economies to open their markets with various identities, while refusing to open their own markets; on the other hand, domestic groups with considerable power require their governments to take measures to open foreign markets while protecting domestic industries. According to the two level game theory, if the final entry into force of an international treaty still depends on the result of domestic ratification, relevant international negotiations can only be taken seriously when the relevant domestic political situation has “win-sets” in favor of the treaty. In other words, in international negotiations, the ultimate concern of negotiators is still how to respond to the voice of domestic interest groups, so as to stabilize their own political power. Under such circumstances, it is necessary for the EU and the U.S. to seek a “scapegoat” to transfer domestic attention. Given that China is considered to be the biggest beneficiary of the WTO multilateral trading system, the EU and the U.S. will naturally list it as the number one example of enjoying the dividends of the WTO system but unwilling to make contributions.94 In this case, China’s economic 92

The 2005 Hong Kong Ministerial Conference set the deadline for the Doha Round in 2006. Due to the delay in making progress in the negotiations, in July 2006, then WTO Director General Lamy announced the tentative negotiations. Until January 2007, the Doha Round restarted. In 2008, despite vows by WTO members to continue negotiations on a “make or break” basis, nothing came of it. In 2009, the Seventh WTO Ministerial Conference was held at the Geneva headquarters. Although the Doha Round was not considered as the core topic, the participants expressed their desire to conclude the Doha Round in 2010. In April 2011, for the first time, the Doha Round issued documents representing the outcomes of various negotiations. In December 2013, the 9th WTO Ministerial Conference ended in Bali, Indonesia, and reached a package of agreements aimed at simplifying trade. This marks a breakthrough in the 12-year Doha negotiations. In December 2015, WTO members reached a historic Nairobi package agreement at the 10th Ministerial Conference. Among them, WTO members promised to eliminate agricultural export subsidies, which is considered to be the most important agricultural negotiation outcome in the 20-year history of WTO. The 11th Ministerial Conference in Buenos Aires in 2017 basically failed to achieve significant results. 93 See Putman (1988). 94 See, e.g., Khor (2007) US Trade Representative Susan Schwab (2006).

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scale in international trade has determined that it is the elephant in the house, and avoidance will not help.95 At the same time, after the financial crisis in 2008, with the rise and prosperity of trade protectionism, not only the Doha Round has come to an impasse, but the WTO negotiation mechanism has also been stagnant for a long time, and the TPRM has become increasingly weak. The heavy responsibility of maintaining multilateral law and regulations as well as the law system of WTO began to rest entirely on the DSM. Functional Transformation of the WTO Legal System WTO is an international institution with many functions. On the one hand, WTO members formulate, revise and abolish “rules of the game” through multilateral trade negotiations to achieve equality of the law; on the other hand, WTO members use DSM to safeguard their own interests and realize equality under the law. 96 Both in theory and in practice, multilateral trade negotiations and trade dispute settlement constitute an interactive system. If a member ensures its interests through the WTO trade negotiation function, it is more inclined to maintain the DSM in general and achieve equality under the law; 97 on the contrary, if a member fails to ensure its interests through the WTO trade negotiation function, it tends to question the overall fairness of the mechanism for trade disputes settlement or to use DSM to eliminate “constructive ambiguity” clauses in trade negotiations to maximize the protection of their own interests. In other words, at the legal level, there is an inevitable rise-and-fall correlation between WTO negotiations, TPRM and DSM. Specifically for China, not only is the prospect of the negotiation mechanism bleak, as mentioned above, after 15 years of bargaining, WTO members have imposed obligations on China that exceed those of ordinary WTO members, which has resulted in China being in a disadvantaged position in the Doha Round98 ; the space for utilizing TPRM to protect its own rights and interests is also very limited. Paragraph 18 of the China’s Accession Protocol sets a very strict transition period clause—the relevant review will be carried out every year within 8 years after China’s accession, and thereafter, the final review will be carried out in the 10th year or an earlier date determined by the General Council. In comparison, China has not assumed additional obligations in the DSM, so in theory, China can make full use of this relatively ”favorable” situation to protect its own rights and interests. Multiple Demands for the Obligation Connotation and the Rule Classification Due to the slow progress of the Doha Round and the consideration of its own interests, it is unrealistic for China to try to optimize international trade rules by participating in multilateral negotiations. How to use the existing WTO mechanism to protect its own rights to the greatest extent and curb the trade protectionism of major trading partners 95

See Mattoo et al. (2011). On the two levels of rules, see Rawls (1955), p. 3. 97 This is consistent with the claims of rule utilitarianism. See Sen (1979). 98 See Gao (2011). 96

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has become one of the key points that China needs to face and solve. At the same time, other members, especially the United States and the European Union, actively use the DSM to push China to fulfill its WTO obligations, especially the special commitments in the China’s Accession Protocol. Therefore, it has become the common appeal of all parties to clarify the rules and clarify the connotation of obligations of all parties through DSM. In this regard, in addition to the interpretation and application of the WTO package of rules, the nature of the China’s Accession Protocol, the specific connotations and the specific provisions applicable to China in the China’s Accession Protocol and the WPR of China, and a series of new issues such as the relationship between such rules with “China-specific” rules and the WTO-covered agreements, more hope is placed upon the clarification of the DSM. Chinese publications and audiovisual products case that occurred in 2009 can illustrate, to a certain extent, that the rules reached by treaty negotiators with constructive ambiguity tactics will lead to huge uncertainties in the actual application process.99 In this case, the United States argued that China’s relevant measures violated its commitments in China’s Accession Protocol and the WPR of China; China argued that it could invoke the exception in Article 20 (a) of GATT 1994. Since the preamble of Article 20 (a) of GATT 1994 limits the application of Article 20 to the scope of “this Agreement”, the legal issue arising from this is: whether Article 20 (a) of “This Agreement” (i.e. GATT 1994) can be applied to the China’s Accession Protocol? In this regard, the panel avoided this legal difficulty by adopting a judicial technique of results-oriented pragmatism. The panel believes that even if Article 20 (a) can be applied in this case, China’s relevant measures will be illegal because they cannot meet the “necessary” elements in the sub-item. However, in the appeal procedure, the Appellate Body correctly pointed out that the applicability of Article 20 of GATT 1994 to China’s Accession Protocol is an unavoidable systemic issue, and the panel should not avoid this issue in a hypothetical manner.100 Finally, the Appellate Body held that the introduction to Paragraph 5.1 of the China’s Accession Protocol, which provides for trade rights, refers to the WTO Agreement, and the WTO Agreement includes GATT 1994. Therefore, Article 20 of the GATT 1994 can be applied to Paragraph 5.1 of the China’s Accession Protocol.101 Although in light of the final results, the Appellate Body did not overturn the conclusion of the panel, the analysis of the Appellate Body has created a “precedent” that is extremely unfavorable to China—not all the commitments in the China’s Accession Protocol and the WPR of China can invoke exceptions to the general rules of the WTO.102 In other words, the analysis process of the Appellate Body did not discuss the relationship between the China’s Accession Protocol and GATT 1994 as 99

See, e.g., Fischhendler (2008). Therefore, in some cases, legal doctrine is better than judicial pragmatism. For discussion and different opinions on this issue, please refer to Posner (2001), pp. 281–290. 101 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/ R, para. 206. 102 The “precedent” here refers to the de facto precedent. For the issue of precedent in the WTO system, see Chua (1998). 100

References

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a whole, but focused on the specific provisions of the China’s Accession Protocol. The overall structure and context of the Protocol should be used to judge whether China has the right to invoke Article 20 of GATT 1994 as a defense.103 In the view of Chinese scholars, the interpretation method of the Appellate Body relies too much on textual interpretation, which is obviously behind the times and deviates from the concept of the WTO system itself.

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See Huang (2010), Yin (2012).

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He XY (2004) The discussion of the legal issues of safeguarding resources measures under WTO system. Study Comp Law 2004(5):121 Huang ZX (2010) From “market access” to “resource acquisition”—thinking caused by China’s raw material export restriction measures case. Law Bus Res 27(3):35–44 Jackson JH (1997) The great 1994 sovereignty debate: United States acceptance and the implementation of the Uruguay Rules. Columbia J Transnational Law 36:160 Jackson J (2003) The impact of China’s accession on the WTO. In: Cass DZ, William BG, Barker G (eds) China and the world trading system—entering the new millennium. Cambridge University Press, Cambridge, pp 19–30 Ji WH, Huang C (2011) China’s experience in dealing with WTO dispute settlement: a Chinese perspective. J World Trade 45(1):25 Khor M (2007) Trade: China and EU clash over RAMs at NAMA meeting. SUNS, no. 6362, 9 Nov 2007. Available at www.twnside.org.sg/title2/wto.info/twninfo110719.htm. Accessed on 6 Mar 2012 Lang A, Scott J (2009) The hidden world of WTO governance. Eur J Int Law 20(3):575–601 Liu WM (2014) The “‘civilization”’ standard of international law in 19nineteenthth-century Europe. World Hist 2014(1):34 Liu Y (2008) The relationship between the SCM Agreement and China’s value-added refund measures—starting from The WTO cases against China. Published in Jurisprudence, pp 143–149 Liu ZY (2015) Analytic hierarchy of national interest and nation’s action selection on international law. Mod Jurisprudence 2015(1):139 Long YT (2011) The core interests of China’s entry into WTO and the problems of development. Int Econ Rev 2011(5):14–18 Luo X (2018) The South China Sea and China’s core interests: debate, review, transcend. AsiaPacific Stud 2018(1):122 Marx S (2013) Left-wing international law—rethinking the legacy of Marxists (trans: Pan JW). Law Press, Beijing, p 75 Mastel G (2000) China and the World Trade Organization: moving forward without sliding backward. Law Policy Int Bus 31:981–988 Matsushita M, Schoenbaum TJ, Mavroidis PC, Hahn M (2017) The World Trade Organization: law, practice, and policy, 3rd edn. Oxford University Press, Oxford, p 9 Mattoo A (2003) China’s accession to the WTO: the services dimension. J Int Econ Law 6(2):299– 300 Mattoo A, Subramanian A (2011) A China round of multilateral trade negotiations. Peterson Institute for International Economic, WP11-22, Dec 2011, pp 28–30. Available at https://piie.com/sites/ default/files/publications/wp/wp11-22.pdf Mattoo A, Francis N, Subramanian A (2011) The elephant in the “green room”: China and the Doha Round. Peterson Institute for International Economics, Policy Brief 11-3. Available at https:// piie.com/sites/default/files/publications/pb/pb11-03.pdf Morgenthau HJ (1952) Another “Great Debate”: the national interest of the United States. Am Polit Sci Rev 46(4):972–273 Ostry S (2003) WTO membership for China: to be or not to be? In: Cass DZ, William BG, Barker G (eds) China and the world trading system—entering the new millennium. Cambridge University Press, Cambridge, pp 31–40 Peng Y (2007) The legal regulation of trade subsidies. Law Press, Beijing, pp 79–101 Peng Y (2016) A forward look at the legal application of the Asian Infrastructure Investment Bank Loan Agreement. Stud Law Bus 1:139 Posner RA (2001) The problematics of moral and legal theory (trans: Su L). The Chinese University of Political Science and Law Press, Beijing Putman RD (1988) Diplomacy and domestic politics: the logic of two-level games. Int Organ 42(3):434 Rawls J (1955) Two concepts of rules. Philos Rev, pp 3–4 Richardson JD (1990) The political economy of strategic trade policy. Int Organ 44(1):114

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Roderick D (2001) The globalization paradox (trans: Liao LH). Renmin University of China Press, Beijing, p 55 Sen A (1979) Utilitarianism and welfarism. J Philos 76(9):463 Slaughter AM (1995) Liberal international relations theory and international economic law. Am Univ Int Law Rev 10(2):717–743 The Chinese State Council Information Office (2011) White paper on China’s peaceful development, 6 Sept 2011. Available at http://politics.people.com.cn/GB/1026/15598628.html Toothey L (2011) China and the World trade organization: the first decade. Int Comp Law Q 60(3):788–789 US Trade Representative Susan Schwab (2006) Remarks presented at the 40th anniversary gala dinner of the national committee on U.S.-China relations, 12 Oct 2006. Available at www.ncu scr.org/files/2006GalaSusanSchwab.pdf. Accessed on 6 Mar 2012 Wang GL (2011) Core national interests and their definition. J Shanghai Admin Inst 2011(6):77 Wu XM (2007) The idea of non-litigation in Confucian culture and its enlightenment. Published in People’s Court Daily, 7 edn Yin XP (2012) On the applicability of Article 20 of GATT 1994 in the “China raw material export restriction measures case.” World Trade Organ Dyn Res 19(2):16 Zhang Q (2007) Consultation within WTO dispute settlement: a Chinese perspective. Peter Lang AG, Lausanne, p 288 Zhao Y (2011) Defining China’s core Interests more clearly and accurately. World Knowl 2011(14):65

Chapter 3

China’s Member Status in WTO Dispute Settlement Practices

The legal subject is the bearer of rights and obligations. Different rights and obligations of the same legal system distinguish subjects with different legal statuses. Equal subject status is the main keynote of the WTO system. However, its main body settings are diversified and intricate, which are determined by a large number of member structures with huge differences in the level of economic development, the status of economic systems and the process of the construction of the rule of law. Therefore, whether for the WTO itself or for each member, the basic premise of the implementation of rules and protection of interests is to classify the subject categories and give accurate positioning. As the largest developing country in the world, China’s identity has been concerned and debated by all parties since the beginning of accession negotiations. China’s Accession Protocol and the WPR of China focus on this issue at considerable length, among which the special provisions are closely related to China’s special status as a WTO member. As mentioned above, most cases in which China is involved in WTO dispute settlement focus on such provisions with unique Chinese characteristics. Accordingly, China’s special member status constitutes one of the “Chinese characteristics” in WTO dispute settlement.

3.1 Basic Identification of WTO Members’ Status1 3.1.1 Structure of WTO Members The subject of WTO is generally called “Member”. By examining the contents and attributes of the rights and obligations of relevant members in the WTO legal system, it can be seen that, on one hand, there is no difference in the status of members on the 1

See Xiao (2010).

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 B. Xiao et al., The Practice of WTO Dispute Settlement, Modern China and International Economic Law, https://doi.org/10.1007/978-981-97-0185-8_3

95

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overall level. It is reflected in the fact that the vast majority of agreements covered by the WTO legal system framework and the vast majority of rules of each agreement provide equal rights and obligations for all members. Take the Agreement Establishing the WTO as an example. All members share equally the core powers and responsibilities related to the WTO and its legal system. The power includes decisionmaking and equal participation of various administrative bodies, equal voting rights, the right to amend rules and the right to withdraw from the organization. The obligations include the universal constraints under MTAs, recognition of the status of WTO in international law, ensuring the consistency of domestic laws and regulations with WTO rules, etc. At this level, the WTO legal documents do not discriminate the subject identities of each member, which can be called “general subject”. But on the other hand, in terms of the specific system, the same rule or system gives different rights and obligations standards to different members. Accordingly, the WTO gives specific titles to relevant members, such as “developing country member”, “least developed country member” and “developed country member”. In these categories, these specific members constitute the “special subjects”, which area different from the general subjects. Although the WTO has designed a variety of special subjects at different institutional levels, it turns out that these special subjects can be roughly divided into two categories, whether through simple statistics calculation on the frequency of their appearance in WTO legal documents, or through careful analysis of the target positioning and corresponding rights and obligations of each special subject: the recurring “normalized” subject and the occasional “individualized” subject. The so-called normalized special subjects indicate that they are not only repeatedly discussed and reflected in specific rules in the vast majority of WTO agreements, but also appeared a lot in the preamble of the Agreement Establishing the WTO and other covering agreements, so that their systematic arrangements rose to the level of the objectives and principles of the WTO legal system. Therefore, the special rights and obligations enjoyed by such subjects in the WTO have the characteristics of universality and normalization. In summary, there is only one such body in the WTO: “developing country members” (including but not limited to “least developed country members”). What forms a sharp contrast to the “normalized” special subject is the “individualized” special subject. First, they occur very rarely and are referred to only in individual specific articles of individual agreements. Second, its special rights and obligations (due to the limitation of the effectiveness of the specific clause, thus cannot produce the unique radiation and expansion effect of the principles) must be strictly limited to the scope of the specific article. In other words, the special content of its rights and obligations is an “individual phenomenon”. These WTO members mainly include: developed countries Members, economic transition members and some other specific members. Therefore, the basic structure of subjects of WTO members goes as follows (Fig. 3.1).

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Fig. 3.1 Basic structure of subjects of WTO members

3.1.2 “Normalized” Special Members Developing country Members are the only special subjects with normal and universal attributes under the WTO system. In the WTO legal system formed by the Uruguay Round, the status of developing country Members is of great concern: almost all legal documents contain special institutional arrangements in favor of “developing country Members”, and the long-term impact of the Uruguay Round on developing countries will be greater than anything achieved in previous multilateral trade negotiations.2 The content of rights and obligations, which is superior to other subjects in law, reflects the particularity of “developing country Members” as the subject of WTO— an actually inferior position. Of course, the real benefit of the privileged status and relevant treatments depends on multiple factual and legal factors.

3.1.2.1

Special Institutional Arrangements about Developing Country Members

The special legal status of such subject is embodied in the special rights and obligations of the developing country Members regulated in the WTO legal documents (Table 3.1). Specifically, regarding the special rights and obligations of developing countries, in addition to the existing measures from GATT 1947, many special provisions in favor of developing countries have been incorporated into the individual agreements and decisions of the Uruguay Round.3 Previous measures mainly refer to Article XVIII and Part IV of the GATT 1994, and the Enabling Clause of 1979. Among the mentioned articles, Article XVIII allows flexibility in the use of trade measures to protect infant industries and the use 2 3

See The WTO Secretariat (1999), p. 223. See The WTO Secretariat (1999), p. 223.

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Table 3.1 The provisions on the special rights and obligations of “developing country members/ contracting parties” in WTO legal texts WTO agreements

Provisions on the special rights and obligations of developing country members

Agreement establishing the world trade organization

Preamble para.2; Article IV.7; Article XI.2

Multilateral trade agreement

Article XVIII, Article XXVIII bis 3(b), Part IV (Article XXXVI, XXXVII, XXXVIII), Understanding on Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994 Article VIII, Article XII

Annex 1

A multilateral agreements on trade in goods

GATT 1994

GATT subsidiary agreements

Agreement on agricultural

Preamble para. 5 and 6, Article 6.2, Article 6.4(b), Article 9.2 (b)(iv), Article 9.4, Article 12.2, Article 15, Article 16, Article 20 (c), Annex 5B

SPS agreement

Preamble para. 7, Article 9, Article 10, Article 14, Annex B(9)

Agreement on textile and clothing

Preamble para. 3, Article 2, Article 6.6, Annex 3

TBT agreement

Preamble para. 8 and 9, Article 2.12, Article 5.9, Article 11, Article 12

TRIMs agreement

Preamble para. 2 and 3, Article 4, Article 5.2, Article 5.3

Agreement on anti-dumping

Article 15

Agreement on implementation of article VII of the GATT 1994

Preamble para. 2, Article 20, Annex 3 Article 1–5

Pre-shipment inspection agreement

Preamble para. 2 and 3

Agreement on Preamble para. 3, Article import licensing 2, Article 3.5(a) (iv) and procedures (j) (continued)

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Table 3.1 (continued) WTO agreements

Provisions on the special rights and obligations of developing country members Countervailing agreement

Article 27(15 provisions), Article 27 Annex 7

Agreement on safeguard measure agreements

Article 9

B

GATS

Preamble para. 4–6, Article III.4, Article IV, Article V.3, Article XV.1, Article XIX.2, Article XIX.3, Article XXV.2, Annex on Telecommunication Article 5(g) and Article 6

C

TRIPS agreement

Preamble para. 6, Article 65–67

Annex 2

DSU

Article 3.12, Article 8.10, Article 12.10, Article 12.11, Article 21.2, Article 21.7, Article 21.8, Article 24

Annex 3

TPRM

C(ii), D

Agreement on government procurement

Preamble para. 5, Article 5(15 rules), Notes

Plurilateral trade agreement

of quantitative import restrictions to alleviate balance-of-payments difficulties. Part IV covers the principles and objectives of the GATT regarding developing countries. Rules in this Part encourage developed countries to improve access to their markets and indicate that developing countries do not have to make reciprocal commitments in response to developed countries’ commitments to lower their trade barriers. The Enabling Clause, officially referred to as the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries of 28 November 1979, allows preferential treatment for developing countries and for developing countries to give preferential treatment to each other. The new regulations generally include the following contents. Recognition and Special Attention to the Overall Interests of Developing Countries This content is not only one of the main purposes of WTO but also the basic principle embodied in its specific systems. As a goal, the opening preamble of the Agreement Establishing the WTO stresses that “there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them,

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secure a share in the growth in international trade commensurate with the needs of their economic development”. As a principle, many WTO agreements reaffirm this foundation of the system. In procedures, for example, Article 4.10 of the DSU states: “during consultations, Members should give special attention to the particular problems and interests of developing country Members”. Substantively, almost all documents in the Multilateral Agreements on Trade in Goods (GATT 1994 and its 12 subsidiary agreements),4 GATS, and TRIPS Agreement have such regulations. Lower Requirements on Obligations In multiple specific systems, the WTO has set a lower standard of obligation for developing country Members than for ordinary members. These contents are centrally stipulated in the GATS and the Multilateral Agreements on Trade in Goods. In GATS, ordinary members are required to achieve economic integration agreements that liberalize trade and services. These agreements should cover a wide range of service sectors and make regulations for the substantive elimination of all discriminatory measures in the sectors concerned. For developing countries participating in such agreements, however, certain flexibility could be given according to the level of development of the members concerned. At the same time, in the process of liberalization, developing country Members are allowed to open up fewer sectors, liberalize fewer types of transactions, gradually expand market access according to their development status, and attach market access conditions for achieving greater participation in world trade.5 As for Multilateral Agreements on Trade in Goods, such provisions are included and more substantive in the Agreement on Agriculture, the Agreement on TBT, the Agreement on Textiles and Clothing, the Agreement on Subsidies and Countervailing Measures, the Agreement on Safeguard Measures, the Agreement on Customs Valuation and the Agreement on Import Licensing Procedures. For example, the Agreement on Agriculture regulates that “developing country Members shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures”, developing countries are allowed higher levels of trade-distorting trace levels of domestic support; “during the implementation period, developing country Members shall not be required to undertake commitments in respect of the export subsidies listed in subparagraphs (d): ‘reduce the costs of marketing exports of agricultural products’ and (e): ‘internal transport and freight charges on export shipments’”, developing country Members instituting the export prohibition or restriction has no need to give due consideration to the effects of such prohibition or restriction on importing Members’ food security.6 For another, the TBT Agreement provides that “members therefore recognize that developing country Members should not be expected to use international standards as a basis for their technical regulations or

4

11 of the 12 GATT 1994 subsidiary agreements contain provisions for recognition of general interests and special attention to developing countries, except in the Agreement on Rules of Origin. 5 See GATS Article V.3, Article XIX.2. 6 See Agreement on Agriculture Article 6, Article 9, Article 12.

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standards, including test methods, which are not appropriate to their development, financial and trade needs”.7 More Contents and Choices of Rights Compared to ordinary members, more favorable SDT, access to technical assistance and longer transitional periods or postponed implementation are the main legal rights enjoyed by developing country Members under the WTO system. In addition, a series of special institutional arrangements also give developing country Members more rights to choose. In the procedure, for example, “the complaining party (developing country Members) shall have the right to invoke, as an alternative to the provisions contained in Articles 4, 5, 6 and 12 of this Understanding, the corresponding provisions of the Decision of 5 April 1966 (BISD 14S/18)8 ”, “when a dispute is between a developing country Member and a developed country Member the panel shall, if the developing country Member so requests, include at least one panelist from a developing country Member”.9 Substantively, Annex 3 to the Customs Valuation Agreement specifically regulates that only developing country Member can make reservations.10

3.1.2.2

Other Expressions of “Developing Country Member”

Equal Expression: Less-Developed Country Members “Less developed country Members”/“less developed Contracting Parties” is a term used in GATT 1947 to refer to a group of subjects. According to the Explanatory Note (a) of GATT 1994, this title is equivalent to “developing country Member” in WTO legal documents. The GATT 1947 use of the term “less-developed” has a deep historical background. Influenced by ideology and other factors, some countries did not accept the term “developing country” before the end of the 1960s. Meanwhile, in the documents of the United Nations, the World Bank and other international organizations, or in the writings of scholars in development economics, development sociology and international political economy, there are many terms such as “backward countries”, “undeveloped countries” and “underdeveloped countries”, which are associated with the title of “developing countries”. Since the title “backward countries” contains derogatory meanings, which can easily cause antipathy from “laggards”, some international organizations with high political sensitivity and scholars with high linguistic caution gradually change to use the latter two titles, which are more neutral.11 7

See Agreement on TBT Article 12.4. The decision provides developing country Members with mediation by the Director General and a shortened panel process. 9 See DSU Article 3.12, 8.10. 10 See Agreement on Implementation of Article VII of the GATT 1994 Annex 3 provision 3 and 4. 11 See Chen (2007). 8

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Unequal Expression: Special Subjects Indicated in GATT 1994 Article XVIII Special subjects include the following types: those contracting parties, the economies of which can only support low standards of living and are in the early stages of development; those contracting parties, the economy of which is in the process of development, but which does not come within the scope of subparagraph (a) above; those contracting parties, the economies of which are of the type described in subparagraph (a) and (b) above and which depend on exports of a small number of primary commodities. It is generally believed that the definition in subparagraph (a) of this article refers to developing countries as defined by the GATT 1994, while subparagraph (b) refers to moderately developed countries beyond the initial stage of development such as Australia and New Zealand.12 However, in the author’s opinion, first of all, the subject referred to in subparagraph (a) is still a concept with unclear reference, though it is explained in Annex I “Notes and Supplementary Provisions” of the GATT 1994.13 But these interpretations are still too broad and vague to further define specific criteria for identifying developing countries.14 Secondly, unable to accurately define the connotation of the subjects, though the application of the clause itself will bring some negative effects, has no impact on its association with other special subjects of the WTO. It is because, in a strict interpretive sense, the special status of such subjects should be confined to the scope of Article XVIII of the GATT 1994. It indicates that in addition to the additional convenience stated in sections A and B of that article, the subject of subparagraph (a) has the right to deviate temporarily from the provisions of other provisions of the GATT 1994 according to sections A, B and C of that article. Subjects in subparagraph (b) may apply to all Contracting Parties under section D of that article. Subjects in subparagraph (c) may invoke the consultation provisions of Article XXII of the GATT 1994 when its exports of primary products are seriously affected by measures taken by another party. Again, the evidence for equating the members referred to in subparagraph (a) with “developing country members” does not seem very strong, particularly due to the absence of direct evidence such as the Explanatory Statement of the GATT 1994. From the perspective of its identification criteria and the degree of international recognition, the subject of subparagraph (a) should belong to one group of the categories of “developing country Members”, indicating that the two are not 12

See Huang (2000). The GATT 1994 interprets the two concepts referred to in Article (a). First, “the economies of which can only support low standards of living”, which is interpreted to mean that “the CONTRACTING PARTIES shall take into consideration the normal position of that economy and shall not base their determination on exceptional circumstances such as those which may result from the temporary existence of exceptionally favourable conditions for the staple export product or products of such contracting party”. The second is “in the early stages of development”, stating that “the phrase “in the early stages of development” is not meant to apply only to contracting parties which have just started their economic development, but also to contracting parties the economies of which are undergoing a process of industrialization to correct an excessive dependence on primary production”. 14 See Huang (2000). 13

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equivalent. The subject of subparagraph (c) is a subdivision of subparagraph (a) and subparagraph (b) respectively.

3.1.2.3

Identification of “Developing Country Member”

Identification is the premise of the application of different statuses. The classification of a developing country was not a problem because all parties were of equal status in the early days of the establishment of the GATT. The problem arose when the different treatments for developing countries became clear.15 For such subjects, there is no existing definition in the WTO, nor is there a clear and unified identification standard. As early as in the GATT period, the specially established Committee on the Legal and Institutional Framework of GATT in relation to Less-Developed Countries tried to form opinions on the definition and identification criteria of “less developed Contracting Countries” and “developed Contracting Countries”, but such an attempt was shelved due to different opinions among countries.16 Meanwhile, from various cases including 1970 Greece, 1983 Indonesia, 1984 Malaysia, 1989 South Korea, Brazil, Israel and India, and 1992 Israel, Egypt and, India, in which the mentioned countries provided protection for the development of domestic industries in the name of “developing country Contracting Parties”, it can be seen that the GATT adopted a pragmatic attitude. The GATT identifies a Contracting Party as a “developing country Contracting Party” in a specific article or situation on a “case-by-case” basis. It does not give unified conditions on what countries should be defined as developing countries.17 Due to the lack of sufficient attention to this issue in the GATT system, relevant international organizations have put forward some definition plans. For example, the “Gross National Product per capita” standard proposed by the OECD and the World Bank18 and the “self-election” principle under the framework of the GSP promoted by the Group of 77 and adopted by the United Nations Committee on Trade and Development. Among the mentioned plans, the “self-election” principle, which indicates that countries seeking “developing” status may proclaim themselves, has been embraced by many countries and their scholars. This is because, in theory, “The self-election principle presumes that no country will claim developing country status unless there are bona fide grounds for it to do so and that such a claim would be relinquished if those grounds ceased to exist”.19 In practice, quite a few countries have incorporated this principle into their domestic legislation or applied it in bilateral and multilateral communications, thus gradually unifying the list of developing 15

See Zhang (2000). See WTO Secretariat (1995), pp. 1041–1042. 17 See Zhang (2002). 18 Both the OECD and the World Bank advocate “gross national product per capita” as an indicator to distinguish countries and regions at different economic levels, but the exact amount they advocate varies. 19 Yusuf (1982). 16

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countries.20 But it is also undeniable that this “self-election” principle has greater arbitrariness.21 According to the understanding of the WTO Secretariat, the term “developing country”, so far in terms of international trade rules, still belongs to the selfproclaimed22 category. This explanation is in line with the “self-election” principle mentioned above. From the perspective of international law theory and practice, in the multilateral trading system, whether it is “self-proclaimed” or “self-elected” seems to have only the initial rather than the final significance in determining the identity of the subject. In other words, the member’s self-declaration of “developing country” status only constitutes a precondition for establishing this special status, which may be of no value if it is not recognized by other members. On the one hand, as a WTO standard, “self-proclaimed/selected” must be combined with “others’ recognition” to be complete and feasible, although “others’ recognition” is usually tacitly approved. On the other hand, both “self-proclaimed/selected” and “others’ recognition” inevitably have subjective features and thus generate the “fuzzy zone”. In theory, therefore, the status of a given member remains highly uncertain unless it is at the “poles” of economic development—the most or least developed. China’s developing country identity in the WTO has always been a controversial issue.

3.1.2.4

The Special Category of Developing Country Member: Least developed Country Members

Least developed country Members are a special category of developing country Members in the WTO system. Their unique characteristics differ from other developing country Members in the following two aspects: Better Content of Rights and Obligations As special subjects, least developed country Members are the most vulnerable members of the WTO and need special attention and preferential treatment. In addition to the provisions of the WTO covering the agreement, the Decision on Measures in Favour of the Least developed Countries is of great importance. This decision, in fact, affects all elements of the Uruguay Round series of agreements. Its core content is that those members in the category of least developed countries only need “to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs, or their administrative and institutional capabilities”. The rules and transitional periods in the agreement “should be applied in a flexible and supportive manner for the least-developed countries”. The decision not only grants the least developed countries an additional year to submit 20

See Onyejekwe (1993). See Zhang (1992). 22 See WTO Secretariat (1993), p. 310. 21

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schedules of concessions for trade in goods and services but also calls for periodic reviews to ensure the timely implementation of special and differential measures in favor of the least developed countries. The decision also encourages early action to reduce trade barriers to their favored products. It also requires that developed countries should pay attention to the impact of any import remedies or other measures taken against least developed country Members’ exports. In addition, the decision pledges a substantial increase in technical assistance to the least developed countries in the development, strengthening and diversification of production and exports, and continues consideration of their special needs.23 In fact, in all the Uruguay Round agreements, there is no general language, which relates to developing countries other than the least developed countries, that is comparable to the Decision on Measures in Favour of the Least Developed Countries.24 Identity Confirmed and Periodically Reviewed by the UN Linked to the United Nations classification system for least developed countries, the extension of “least developed Country Member” is rather clear, thus effectively avoiding the confusion caused by the unclear definition of other “developing Country Member”. According to the latest statistics of the United Nations, there are 49 least developed countries in the world, 32 of which are WTO members. They are Bangladesh, Cambodia, Maldives, Myanmar, Nepal, Angola, Benin, Burkina Faso, Burundi, Cape Verde, Central Africa, Chad, Democratic Republic of Congo, Djibouti, Gambia, Guinea, Guinea-Bissau, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mozambique, Rwanda, Senegal, Sierra Leone, Togo, Uganda, Tanzania, Zambia, Solomon Islands and Haiti.

3.1.2.5

Further Division of “Developing Country Members” in Relevant Agreements

SCM Agreement According to Article 27 of the SCM Agreement, the “developing Country Members” referred to can be subdivided into two categories according to different criteria. The first category is based on the gross national product per capita of specific countries defined in Article 27.2, which divides the “developing Country Members” into three categories: (1) WTO members designated by the United Nations as least developed countries; (2) the 20 States listed in subparagraph (b) of Annex VII; and (3) other developing countries, including those of the 20 countries listed in annex VII (b) with an annual per capita GNP of US $1000. The second category, based on the sector-specific level of export competition criteria established in Article 27.5, divides “developing Country Members” into two categories: (1) developing countries where

23 24

See Articles (i) and (ii) of the Decision on Measures in Favour of the Least Developed Countries. See WTO Secretariat (1993), pp. 10–11.

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any of its particular product has achieved export competitiveness25 ; (2) developing countries referred to in Annex VII where one or more of their products have achieved export competitiveness. Net Food-Importing Developing Countries Referred to in Agreement on Agriculture Provisions for such subjects are contained in the Agreement on Agriculture and the directly related Ministerial Decision on Measures concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food-Importing Developing Countries. Within these provisions, it can be found that the greatest particularity of this type of subject lies in that: from its name, this type of subject belongs to one of the developing countries. From the point of view of the content involved, this type of subject, within the special institutional arrangements, is always called a pure beneficiary entity, which is juxtaposed with the least developed countries. It means that all special provisions require other members to pay special attention to the interests and special needs of the least developed countries and net food-importing developing countries and to bear special obligations for this purpose. The list of net food-importing developing countries is reviewed annually at the March meeting of the WTO Committee on Agriculture. Net food-importing developing countries may submit statistical information material to the WTO Secretariat in support of their net food-importing status. The Committee on Agriculture will review the information and determine eligibility.

3.1.3 “Individualized” Special Subjects “Individualized” is as opposed to “normalized”. Compared with the special status of developing country members throughout the legal system of the WTO, the special institutional space granted by WTO to the following subjects is very narrow, basically limited to the scope of individual system of specific agreements.

3.1.3.1

Developed Country Members/Contracting Parties

As the special subject of the WTO, the developed country Members not only have the particularity different from the general members but also have attributes different from the developing country members. Range of Special Provisions of the WTO regarding “Developed Country Members” The main contents of the special provisions of WTO legal documents regarding “developed country Members” are included in the scope listed in the following Table 3.2. 25

Export competitiveness of a product of a developing country member if its exports have reached at least 3.25% share of world trade in that product for two consecutive calendar years.

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Table 3.2 The provisions concerning the special rights and obligations of “developed country members/contracting parties” in WTO legal texts WTO agreements

Provisions concerning the special rights and obligations of developed country members

Agreement establishing the WTO Multilateral trade agreement

Annex I

A multilateral agreements on trade in goods

/ GATT 1994 GATT subsidiary agreements

Article XXXVI.8, Article XXXVII Agreement on agriculture

Preamble para. 5, Article 16

SPS agreement

Annex B Article 8

TBT agreement

Preamble para. 8, Article 10.5, Article 12.9

TRIMs agreement

Article 5.2

Agreement on anti-dumping

Article 15

Agreement on implementation of Article VII of the GATT 1994

Article 20.3

B

GATS

Article IV.2, Annex on telecommunications Article 6

C

TRIPS agreement

Article 66.2, Article 67

Annex II

DSU

Article 3.12, Article 8.10

Annex III

TPRM

/

Agreement on government procurement

Article 5.3, Article 5.8, Article 5.9, Article 5.10, Article 5.11, Article 5.13

Plurilateral trade agreement

Particularity of “Developed Country Members” As can be seen from the scope of the above provisions, the particularity of the developed country Members, as special subjects of WTO, is concentrated in the following two aspects.

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Compared with the ordinary subject, in a specific scope, developed country Members have a higher level of obligations. These include the “best efforts” commitment,26 technical assistance and training,27 higher notification requirements,28 shorter transition periods,29 and so on. Compared with the wide and regular special institutional arrangements enjoyed by the developing country Members, the scope and extent of developed country Members’ special status are very limited. This is evidenced by the huge frequency difference between the two in WTO legal documents. As mentioned above, almost all WTO agreements involve “developing country Members”. In addition to most of the provisions in the preamble, there are also provisions of different numbers in the main body, from a few clauses to more than 10 clauses. In Part IV of the GATT 1994 alone, the term “developing country Member” is mentioned 28 times, more than the term “developed country Member” in the whole document. Accordingly, the special status of “developed country Member” is mainly limited to the mentioned system scope.30 It is in this sense that the author believes that this special subject is a kind of “individualized” rather than “normalized” under the WTO system.

26

Typical provisions, such as GATT 1994 Article XXXVII.1, which states: “the developed contracting parties shall to the fullest extent possible—that is, except when compelling reasons, which may include legal reasons, make it impossible—give effect to the following provisions: (a) accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties, including customs duties and other restrictions which differentiate unreasonably between such products in their primary and in their processed forms;* (b) refrain from introducing, or increasing the incidence of, customs duties or non-tariff import barriers on products currently or potentially of particular export interest to less-developed contracting parties; and (c)(i) refrain from imposing new fiscal measures, and (ii) in any adjustments of fiscal policy accord high priority to the reduction and elimination of fiscal measures, which would hamper, or which hamper, significantly the growth of consumption of primary products, in raw or processed form, wholly or mainly produced in the territories of less-developed contracting parties, and which are applied specifically to those products”. 27 See Article 20.3 of the Agreement on Implementation of Article VII of the GATT 1994, Articles 66, 67 of the TRIPS Agreement. 28 See Article 8 of Annex B to the SPS Agreement, Article 10.5 of the TBT Agreement. 29 As provided in Article 5.2 of TRIMs Agreement: “each Member shall eliminate all TRIMs which are notified under paragraph 1 within 2 years of the date of entry into force of the WTO Agreement in the case of a developed country Member, within 5 years in the case of a developing country Member, and within 7 years in the case of a least-developed country Member”. 30 Of course, the absence of reference does not mean the absolute exclusion of the special subject content. In the individual articles of WTO law, although the title of the special subject is omitted, the content contains provisions for a certain kind of special subject according to the meaning or context. For example, Article 6.4, subparagraph (a), of the Agreement on Agriculture indicates “product-specific domestic support which would otherwise be required to be included in a Member’s calculation of its Current AMS where such support does not exceed 5% of that Member’s total value of production”; and (b) provides that “For developing country Members, the de minimis percentage under this paragraph shall be 10%”. Thus, the term “members” in subparagraph (a) of the article clearly refers to the developed country members as opposed to the developing country members. The tabulation of the members of the developed countries in this article is therefore not exhaustive, but is so rare that it does not affect the overall analysis and conclusion here.

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Identification of “Developed Country Members” Just like developing countries, the WTO does not have a definition of developed countries, and the UN operating system also lacks standards for identification. While the theoretical and practical circles often discuss the connotation and extension of “developing country member”, there is almost no academic discussion on the scope of WTO developed country Members, and no similar case can be found in WTO practice. The only reasonable explanation for this is that there is an international consensus on it. According to various international organizations and practices, the current accepted criteria for identifying “developed countries” are high per capita GDP (the new standard in 2005: $10,000 per capita GDP at nominal exchange rate) and the level of social development. Accordingly, there are 32 developed countries in total, including 24 countries previously identified31 and 8 new countries in 2005.32 Of these countries, only the newly developed nation Bahamas is not a WTO member. An Incomplete Correspondence between “Developed Country Members” and “Developing Country Members” In modern international political and economic relations, “developed country” is always the opposite concept of “developing country”. Does this mean that one party must take the other party as the relative subject in the legal relations involved in WTO? By examining the specific rights and obligations in form and content of “developed country members” and “developing country members”, both of which are special subjects in WTO legal documents, it can be found that there is a special relationship of “one-direction correspondence and reverse-direction non-correspondence” between them. “One-direction correspondence and reverse-direction non-correspondence” means that whenever the wording of “developed country member” is involved, “developing country member” must also appear. It means that the WTO entrusts developed country Members with special obligations to meet the needs of “developing country Members”. In other words, the beneficiaries of the special obligations of developed country members are the developing country members or the least developed country members among them. On the contrary, in most special systems involving “developing country members”, “developed country members” are not the corresponding subjects in such legal relations. In the author’s opinion, the incomplete correspondence shows that, on the one hand, the WTO sets the developed country Members as the special subject to endow them with more obligations and meet the special needs of the developing countries. On the other hand, the establishment of the developing country Members as a special subject is intended to make up for the disadvantages that may arise from their low 31

Europe (18 countries): Luxembourg, Norway, Switzerland, Ireland, Denmark, Iceland, Sweden, Britain, Austria, Netherlands, Finland, Belgium, France, Germany, Italy, Spain, Greece, Portugal; America (2 countries): the United States, Canada; Asia (2 countries): Japan, Singapore; Oceania (2 countries): Australia, New Zealand. 32 Cyprus, Bahamas, Slovenia, Israel, South Korea, Malta, Hungary, Czech Republic.

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competitive status with more interest protection. However, it is doubtful whether the interests of vulnerable groups can be achieved in the absence of the corresponding special obligation subject.

3.1.3.2

Economic Transition Members

Division and Subdivision of “Economic Transition Members” The Economic Transition Member is a special category of the WTO. Different from the standard of distinguishing the developing country Member, developed country Members and least developed country Members based on the level of economic and social development, the basic symbol of this type of subject is its unique and changing economic system mode. Since the 1960s, with Poland, Hungary and Romania successively becoming contracting parties to the GATT, the pattern of the multilateral trading system dominated by the market economy was broken. After the establishment of the WTO, more and more transitioning economies were admitted. In WTO legal documents, there are three agreements directly referring to “economic transition Members”, namely, SCM Agreement, TRIPS Agreement and GATS. According to their different wordings, this type of subject can be roughly divided into two types: (1) Members in the process of transformation from a centrally -planned into a market and free-enterprise economy, as described in the SCM Agreement and the TRIPS Agreement; (2) Members in the process of economic development or economic transition, as GATS calls them. According to the semantics and context, the latter kind of member referred to by GATS—“member in the process of economic transition”—should belong to the same concept as the member in transition referred to in the above-mentioned Anti-Subsidy Agreement and the TRIPS Agreement. It is worth noticing that, in the context that the founding members of GATT/ WTO emphasized the market economy factor of the multilateral trade rules system, when admitting the so-called non-market economy members, they adopted a series of flexible rules to maintain the uniform implementation of their system objectives and rules. Therefore, the status of WTO members can be divided into “market economy members” and “non-market economy members” according to different economic system standards. The former is the normal subject that can be “treated equally”, while the latter is the special subject that needs to be “treated differently”, including the “economic transition Members” here and the “countries with a complete monopoly on foreign trade” referred to in the field of anti-dumping and other systems. Special Rights and Obligations of the WTO regarding “Economic Transition Members” Determined by the special status of “non-market economy members” including “transition economy members”, the relevant special provisions of WTO are reflected in two different aspects.

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On the one hand, as far as Articles 29 of the SCM Agreement, Article 65 of the TRIPS Agreement and Article XII of the GATS, all of which refer directly to “members of the economies in transition”, are concerned, the economic transition Members enjoy superior rights than the normal members. It can be seen from the following aspects: (1) exemption from the obligation of implementing rules for transformation. For example, Article 29 of the SCM Agreement provides that “members in the process of transformation from a centrally planned into a market, free-enterprise economy may apply programs and measures necessary for such a transformation”. “In exceptional circumstances Members referred to in Paragraph 1 may be given departures from their notified programmes and measures and their time-frame by the Committee if such departures are deemed necessary for the process of transformation”. The GATS also provides that: “In the event of serious balance-of-payments and external financial difficulties or threat thereof, a Member may adopt or maintain restrictions on trade in services on which it has undertaken specific commitments, including on payments or transfers for transactions related to such commitments. It is recognized that particular pressures on the balance of payments of a Member in the process of economic development or economic transition may necessitate the use of restrictions to ensure, inter alia, the maintenance of a level of financial reserves adequate for the implementation of its programme of economic development or economic transition”. (2) Economic transition Members have a longer transitional period than the normal members and may benefit from some longer-lasting special treatment. In the area of countervailing measures, for example, such members may retain notified export subsidies and import substitution subsidies prohibited by Article 3 for a period of 7 years, during which they are also exempt from dispute settlement measures taken under Article 4. During this period, to help with privatization and structural adjustment, these countries can be exempt from government-held debt and provide reparations to repay the debt without being subject to the “serious infringement” rule.33 In the area of TRIPS, they can enjoy the same transition period of 5 years as developing country members. On the other hand, as far as the special requirements applied to “non-market economy members” are concerned, in WTO legislation and related practices, economic transition Members are subject to more serious or discriminatory rules than ordinary members. First, in addition to the rule clearly established, Note 2 of the GATT, “Ad Article VI, paragraph 1” (hereinafter referred to as “Note 2”)34 and the surrogate country system in the field of anti-dumping based on Note 2 are a typical example. Second, even without the explicit basis of treaties, GATT and WTO practices have also generated some special requirements for non-market economy members. For example, in the 1960s, when Poland and Romania acceded to the 33

See WTO Secretariat (1993), p. 151. The article provides that: “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 comparability for the purposes 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”.

34

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GATT, their accession protocols adopted the provisions of the text for an annual increase in imports by a certain percentage.35 Another example is that in the area of the safeguard system, although the definition of Article XIX of the GATT 1947 itself and the legal structure and arrangement of the provisions of the GATT suggest the proper meaning of the system is that it should not be discriminatory, which means that there should not be selective application of its rules, yet both the “optional safeguard clause” explicitly written in the accession protocols of Poland, Romania and Hungary during the GATT period and the various WTO obligation articles including but not limited to the “special safeguard clause” applicable to China under the WTO system all contain obvious discrimination against non-market economy members.

3.1.3.3

Other “Individualized” Special Subjects

The specialized provisions of other WTO subjects are very limited and cannot be compared with the normalized special subjects. Moreover, they are also some more special arrangements compared with the aforementioned special subjects, which can be called “the individualized of the individualized”. There are mainly the following kinds. Original Members and Access Members According to the method of obtaining membership, WTO divides its members into original Members and access Members. An original Member is a nation who, following Articles XI and XIV of WTO Agreement, has become a contracting party to the GATT on the date the Agreement came into force or within a specified time, accepts the Agreement Establishing the WTO and attaches the schedule of concessions and commitments to the GATT 1994 and the GATS. In accordance with Article XII of WTO Agreement, countries accessed in accordance with the conditions agreed with the WTO and approved by the Ministerial Conference shall be considered access Members. In a strict sense, these two types of members do not have special statuses, since, according to Paragraph 7 of the preamble of the Decision on Acceptance of and Accession to the Agreement Establishing the WTO, once membership has been obtained, there is no difference whatsoever in terms of their membership status. However, due to the different conditions agreed upon between the access Members and the WTO, including being forced to accept the obligations that do not need to be borne, the statuses will therefore be individualized. Thus there will be a noncorresponding state of rights and obligations between the access Members and the original Members, RAMs, and the original joining members which should have no difference. For example, when Cambodia, one of the least developed countries, joined the WTO in 2003, it was required to promise to give up the use of non-proprietary medicines, while the transition period for the least developed members of the WTO is due in 2016. Many additional obligations and special commitments that China is

35

See Zhao (2000), p. 206.

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required to undertake when it joins the WTO are also obviously unfair and unreasonable, which gives “access Member” a new connotation as an individualized WTO special subject. Members Donors of International Food Aid To prevent members from circumventing export subsidies in the guise of food aid, the Agreement on Agriculture imposes a special obligation on Members donors of international food aid to ensure that food aid is authentic. Under Article 10.4 of the Agreement, members contributing to international food aid shall ensure: (a) that the provision of international food aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries; (b) that international food aid transactions, including bilateral food aid which is monetized, shall be carried out in accordance with the FAO “Principles of Surplus Disposal and Consultative Obligations”, including, where appropriate, the system of Usual Marketing Requirements (UMRs); and (c) that such aid shall be provided to the extent possible in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986. When any member conduct such donations, it becomes the special subject confined by the obligations of this article. Members which is undertaking structural reform of its intellectual property system and facing special problems in the preparation and implementation of intellectual property laws and regulations. It is a special subject specially set by TRIPS, taking into account the different levels of development of intellectual property rights and legal systems in different countries. The TRIPS Agreement grants such subjects the same delay period (5 years) as developing country Members and economic transition Members during the implementation period of the Agreement. They are also required to ensure, during the transition period, that any changes in their laws, regulations and practices do not lead to a reduction in their degree of consistency with the provisions of the Agreement.

3.1.4 China’s Status: Multiple Special Identities Concurrence As a subject of the WTO, China involves the concurrence of the following multiple special identity factors. First of all, as an access Member, according to the terms of accession agreed between China and the WTO, China undertakes special obligations different from those of original Members and other access Members. Secondly, as the world’s largest developing country, China’s membership in the WTO as a “developing country Member” has always been a controversial topic. Thirdly, as an emerging economy in transition, China’s market economy status has not been recognized by WTO members such as Europe, America and Japan for a long time, and they have repeatedly imposed obstacles in various trade policies such as anti-dumping and countervailing.

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Moreover, the disputes caused by China’s special commitments when it joined the party have become the main aspect of China’s involvement. And the controversy caused by China’s membership as a developing country and market economy status is the core issue of the U.S. provoking the WTO and causing its institutional crisis.

3.2 The Acceding Member Status of China In terms of China’s history with the WTO, China’s accession as a member is in itself an exception. China obtained its status as a founding Party as early as 30 October 1947 by accepting the Protocol of Provisional Application. However, the failure of the People’s Republic of China to fulfill its obligations as a Contracting Party in accordance with the GATT Protocol in a timely manner after its establishment, coupled with the unilateral withdrawal of the Taiwan authorities from the GATT in 1950,36 led to the loss of China’s status as a Contracting Party to the GATT. Since then, until the GATT was replaced by the WTO in 1995, despite the fact that China has successively resumed its status as a member of the United Nations, the World Bank, the IMF and other international organizations, and that it has formally submitted the application for reinstatement of GATT founding party status to the Director General of the GATT since 1986, and has gone through dozens of rounds of bilateral and multilateral negotiations over nearly a decade, its GATT founding party status was never reinstated before the establishment of the WTO, due to the overly harsh conditions put forward by some of the contracting parties in the negotiations on reinstatement. Therefore, although the preamble of China’s Accession Protocol clearly stipulates that “recalling that China was an original contracting party to the General Agreement on Tariffs and Trade 1947, taking note that China is a signatory to the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations”, China joined/rejoined the WTO, in the same way as the other acceding members, through negotiations with the WTO and in accordance with the terms reached thereafter, as stipulated under Article 12.1 of the WTO Agreement, and thereby became the only acceding member of the WTO that is also a founding party to the GATT. According to Article 12 of the WTO Agreement, the most important manifestation of the special status as an acceding member, as compared with that of a founding member, is the “conditions of accession” agreed with the WTO and determined by the differential rules in the legal texts such as the accession protocols. As aforementioned, legally, the special status of the member is expressed by its rights and obligations, and thus the special status of China as an acceding member must be revealed by comparing the different rights and obligations between China

36

On 6 March 1950, the Taiwan authorities, through their “Permanent Representative to the United Nations”, in the name of the “Republic of China”, notified the Secretary-General of the United Nations of their decision to withdraw from GATT.

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and other members. Of course, as a prerequisite, it is necessary to clarify the attributes of the “terms of accession” in Article 12 of the WTO Agreement.

3.2.1 Legal Connotations of “Terms of Accession”: Differential Obligations 3.2.1.1

Unlimited Possibilities in the Scope of “Terms of Accession”

Articles 12.1 and 12.2 of the WTO Agreement provide that: “Any State or separate customs territory possessing full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement and the Multilateral Trade Agreements 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. Decisions on accession shall be taken by the Ministerial Conference. The Ministerial Conference shall approve the agreement on the terms of accession by a two-thirds majority of the Members of the WTO…….”. Accordingly, on the one hand, “terms of accession” is an agreement reached between the acceding party and the WTO and approved by the Ministerial Conference by a two-thirds majority of the WTO members, and thus in essence the acceding party has reached a consensus with at least two-thirds of the members. On the other hand, the “terms of accession” set out in Article 12 implies its difference from the general obligations of the WTO that were assumed by the founding members only. At the same time, Article 12 does not further limit the scope of “terms to be agreed between” the acceding party and the WTO, thus opening a window of unlimited possibilities for negotiations between “more than two-thirds of the members” and the acceding party. Namely, the “terms of accession” are not only different from the general rules of the WTO, but can be anything that is agreed upon.

3.2.1.2

Criteria and Significance of the Classification

According to the general content of the WTO accession protocols, the more often referred by the academic community are the two types of classification, “Classification by Commitments” and “Classification by Obligations”. The common premise of these two classifications is that the rules under the WTO are divided into rules of conduct and accession rules: the former referring to the rules of conduct stipulated in the WTO agreements (legal rules); and the latter referring specifically to the obligations to reduce trade barriers (access rules) as in the Schedule of Concessions on Goods and Services annexed to GATT 1994 and GATS.37 The classification of “terms of accession” is limited to the legal rules therein. 37

See Qin (2003).

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Classification by Commitments This classification, represented by Professor Julia Ya Qin of the U.S., divides all the accession commitments contained in China’s Accession Protocol into “commitments on rules within the scope of the Multilateral Trade Agreements” (hereinafter referred to as “WTO Commitments”), “commitments on WTO-plus obligations” (hereinafter referred to as “WTO-plus Commitments”) and “commitments on rules that result in WTO-minus disciplines and rights” (hereinafter referred to as “WTOMinus Commitments”), according to how they compare with the existing WTO rules at the time38 : (1) “WTO Commitments” include affirmation that China shall comply with existing WTO rules on specific subjects and agreement that China shall not have recourse to certain WTO provisions that provide transitional periods for the developing country Members under the M”TAs. A large number of the Protocol provisions (including many incorporated from the Working Party Report) fall under this category. (2) “WTO-plus Commitments” impose more stringent disciplines on China than required by the MTAs and cover subjects ranging from transparency, judicial review, sub-national government, foreign investment, national treatment of foreign investors, economic reform, government procurement, and compliance review. (3) “WTO-Minus Commitments” result in “WTO-minus” disciplines and rights. These are the special rules of conduct that at once weaken the existing WTO disciplines and reduce the rights of China as a WTO Member and concern primarily trade remedies, i.e., anti-dumping, anti-subsidy and safeguard measures. These rules either modify, deviate from, or are without a clear basis in, the existing rules and principles of the MTAs. While the special rules on anti-dumping and safeguard measures have limited periods of application, the provisions on special subsidy rules are made a permanent part of China’s WTO membership. On this basis, such “trisection by commitments” further advocates that the “WTO Commitments” do not change the existing WTO rules of conduct, while “WTO-plus Commitments” expand WTO rules of conduct and “WTO-minus Commitments” revise the existing WTO rules on trade remedies when applied to China.39 Classification by Benchmark Obligations This division was proposed by Steve Charnovitz of the U.S. and endorsed by Tokio Yamaoka of Japan, who argued that there were two main problems with the above “trisection by commitments”. On the one hand, the introduction of the concept of “rights” in the classification of “terms of accession” is a result of improper understanding of the concept of “rights” under the WTO: firstly, the WTO Agreement only 38

Commitments on rules within the scope of the MTAs, Commitments on “WTO-plus” obligations, and Commitments on rules that result in “WTO-minus” disciplines and rights. See Qin (2006). 39 See Qin (2006).

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confers obligations on members with no rights;40 secondly, the so-called transition period for RAMs is only a temporary limitation on the extent of obligations rather than a right, and such limitation on the adoption of specific trade remedies by new members is not a derogation from the right of new members to trade remedies, but “a reduced obligation of incumbent members”;41 and lastly, “in any event, whatever the intellectual merits of this brief digression into the nature of ‘rights’ in WTO law, it is clear that an acceding WTO member does not yet have any ‘rights’ in WTO law”.42 On the other hand, the categorization of particular “terms of accession” shall be based on WTO law, not simply on the content categories of “rights and obligations”. Accordingly, the division argues that: the obligations of WTO members, i.e., the obligations that acceding parties should have assumed automatically upon joining the WTO in the absence of additional terms of accession under the Protocol of Accession, should serve as the benchmark; at the same time, the appropriate benchmark to be used as a frame of reference should be the obligations assumed by the founding members in the same development class (developed, developing and underdeveloped countries); and accordingly, the “terms of accession” in the Protocol of Accession are classified into “WTO-plus” obligations, i.e., obligations more stringent than the benchmark obligations or even beyond the scope of the already-existed obligations in the WTO, and “WTO-minus” obligations, i.e., fewer obligations than the benchmark obligations.43 On such basis, the division is further subdivided by different parties: scholar Steve Charnovitz divided it into three categories, namely, WTO (as an international organization) obligations, founding members’ obligations and acceding members’ obligations; and scholar Tokio Yamaoka divided it into two categories, namely, founding members’ obligations and acceding members’ obligations. With regard to these two types of classifications, it should be noted that classification is the logical premise of difference analysis and theory construction. Different classification results from different criteria, and the classification criteria adopted depend on the purpose of classification. Therefore, in terms of the classification of “terms of accession”, whether to distinguish between rights and obligations and the corresponding members depends on the purpose of the specific study: if the rights and obligations assumed by the acceding members under the WTO are the object of the study, it would not be inappropriate to take the content of the “commitments” made at the time of accession as the classification criterion. However, if the classification of “terms of accession” in the Protocol of Accession or the special rights and obligations of specific acceding members is the object of the study, then, as advocated by the “Classification by Benchmark Obligations”, the legal benchmark, also the reference, should be strictly defined in the first place, so as to scientifically categorize the particular rights and obligations in order to reveal their special characteristics. The purpose of this book, which is to study the special rights and obligations assumed by China as an acceding member, accordingly decides the adoption of the 40

See Charnovitz (2008a), pp. 14–15. www.ssrn.com/abstractid=957651. Charnovitz (2008a), p. 20. www.ssrn.com/abstractid=957651. 42 Charnovitz (2008a), p. 15. www.ssrn.com/abstractid=957651. 43 See Charnovitz (2008b, pp 16–18. www.ssrn.com/abstractid=957651). 41

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“Classification by Benchmark Obligations”: in terms of the legal benchmarks, the founding members of the WTO and the other acceding members shall be identified as reference in the first place; in terms of the member status, the rights and obligations of China as a member shall be analyzed, instead of those of the WTO, its founding members, or the other acceding members.

3.2.1.3

Attribute: Rights Versus Obligations?

Are the “terms of accession” set out in the Protocol of Accession a combination of rights and obligations or are they only obligations? Based on the natural linkage between the Protocol of Accession and the WTO Agreement, the answer to this question requires, first of all, a clarification of the concepts of rights and obligations under the WTO. Rights and obligations are a pair of symbiotic concepts in the field of philosophy of law: they are inextricably linked. This is corroborated by the expressions in the agreements under the WTO, such as “alter the rights and obligations of the Members” in Articles 10.3 and 10.4 of the WTO Agreement; “settlement of disputes between Members concerning their rights and obligations” in Article 1.1, “the rights and obligations of Members under the covered agreements” in Articles 3.2–3.4, and “the rights and obligations provided in the covered agreements” in Article 19.2 of the DSU.44 Therefore, under the framework of the WTO, since the parties to the agreements are members, the obligations undertaken by each member are matched by the corresponding rights of the other members, and vice versa. According, in the context of the WTO agreements, members have both rights and obligations as parties. However, the Protocol of Accession is different from the WTO agreements. Since the Protocol of Accession is an agreement between the acceding member and the WTO as an international organization, the obligations assumed by the acceding member under such agreement are corresponded by rights entitled by other WTO members; whereas, since the other WTO members are not parties to the Protocol of Accession and thus do not assume any obligations under the Protocol of Accession, the acceding member are entitled to no rights under the Protocol of Accession. Accordingly, the “terms of accession” set forth in the Protocol of Accession are obligations, instead of rights, of the acceding member. Taking the trade remedies defined as a right in the “Classification by Commitments” and derogated in China’s Accession Protocol as an example, the alleged “right to trade remedies” is a right arising from the general rules of the WTO, while in the Protocol of Accession, the commitment to the restriction of such right shall no doubt be an obligation assumed by the acceding member, rather than a right. For another example, the provisions on transitional periods in China’s Accession Protocol, which are also defined as

44

And others such as GATT ad. Art. XXVIII, para. 1(4); GATS Art. XIX:1; TRIPS Art. 7, etc.

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rights, are temporary restrictions on the specific obligations under China’s Accession Protocol, which are indeed limitations on the obligations and do not constitute substantive rights.

3.2.1.4

Parameter: Criteria for the Level of Economic Development?

As noted earlier, the “terms of accession” under the Protocol of Accession are in essence obligations, which can be further divided into “WTO-Plus” and “WTOMinus” obligations: obligations that are more stringent are “WTO-Plus” and those less stringent are “WTO-Minus”, taking the obligations of specific founding members of the WTO as a benchmark. The determination of a particular founding member in this context depends on its level of economic development, i.e., whether it is a developed, developing or underdeveloped economy. However, since the WTO rules system and the international community in general have not clearly defined the criteria for “developed countries” and “developing countries”, in current practice, the consensual mode of “self-declaration” + ”recognition” is adopted for the determination of the “developing countries” status. Specifically, under the WTO rules system, members can determine their own criteria for determining “developing countries” and self-identify themselves as “developing countries”; however, such “self-recognition” must be recognized by other members or international organizations under the specific legal framework—other members may deny their “developing country status” by challenging their invocation of provisions that apply only to developing countries. Thus, for an acceding member, on the one hand, under the WTO, the “developing country” status of an acceding member, unless explicitly agreed upon in the Protocol of Accession, can only be deduced from its specific provisions; on the other hand, the fragmentation of the Protocol of Accession and its specific provisions, namely the lack of systematic linkage with the WTO agreements and the lack of logical connection among its own provisions, will inevitably lead to the fragmented and limited application of the “developing country” status as inferred from the specific provisions of the Protocol of Accession: “developing country” status only under the specific provisions referring to “developing country” status/treatment. Therefore, in determining the criteria for categorizing the accession obligations of acceding members, the legal benchmarks will have to be specific, down to a particular article to be precise, in order to be accurately determined. Thus, it is clear that the “terms of accession” set out in the Protocol of Accession are, in essence, the differential obligations of acceding members, using as a frame of reference the obligations under the WTO of the founding members at the same level of development as the acceding member.

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3.2.2 China’s Differential Member Status—With Reference to the Founding Members 3.2.2.1

Reference: Founding Developed Members + Founding Developing Members

As far as China’s “terms of accession” are concerned, in order to analyze the characteristics of the rights and obligations, the prerequisite is to identify the proper reference. However, due to the specialty of China’s terms of accession, there are certain difficulties in determining the comparable objects of reference. The fundamental reason lies in the fact that, the identity of China as a member at the time of its accession to the WTO is ambiguous: there is no explicit reference to its status as a developing member in China’s Accession Protocol, and it is only mentioned in the WPR of China in the paragraphs 8, 9 and 39, which are not even introduced into China’s Accession Protocol, while in the meantime, the terms of accession listed in China’s Accession Protocol include a number of SDTs which are also different from those of other developing founding members. As a result, in terms of the choice of reference, the above criterion of “classification by obligation” will lead to the apparent dilemma of petitio principii: in order to identify the special rights and obligations China enjoys and undertakes as an acceding member, the frame of reference should be clarified first before comparison can be made, while when it is not clear whether China was a developing member at the time of its accession, it is necessary to compare the specific rights and obligations first in order to identify the proper reference. Thus, on the one hand, China’s status as a special acceding member is evident; on the other hand, the examination of China’s special rights and obligations as an acceding member must include two aspects: comparison with the developed founding members and with the developing founding members as respective reference. Since the difference between the obligations of developed and developing founding members under the WTO is limited to the SDT, which is entitled only by developing countries, the first reference for the comparison is the general obligations that are common to both developed and developing founding members under the WTO, and the second is the special and differential obligations of developing founding members under the WTO.

3.2.2.2

Comparative Analysis of Differential Obligations of China

Given the complexity of the special commitments/obligations and the large-scale system of rules under China’s Accession Protocol, the following is a selective introduction of the specific contents of China’s “differential obligations” based on the involvement of China as a party in the dispute settlement mechanism of WTO (as shown in Table 3.3). According to the matters revealed by Table 3.3, China’s accession commitments/ obligations can be categorized into roughly eight categories, i.e., domestic rule of law

3.2 The Acceding Member Status of China

121

Table 3.3 Invoked paragraphs of China’s accession protocol—China as party45 Paragraphs invoked

Disputes involved

General invocation Paragraph 1 general (1.2: This protocol, which shall include the commitments referred to in paragraph 342 of the WPR, shall be an integral part of the WTO agreement.)

Disputes

No

DS309

1

Paragraphs 83 and 84, trading rights

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

9

Paragraph 93, tariff treatment

DS339, DS340, DS342

3

Paragraph 116, tariff rate quota (general commitment)

DS451, DS517, DS568

3

Paragraph 120, tariff rate quota (state trading enterprises)

DS568

1

Paragraphs 122 and 127, quantitative import restrictions, including prohibitions and quotas

DS451, DS568

2

Paragraph 136, import licensing procedures

DS568

1

Paragraphs 162 and 165, export licensing and export restrictions

DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

8

Paragraph 167, export subsidies

DS358, DS359, DS451

3

Paragraph 203, trade-related investment measures

DS339, DS340, DS342, DS358, DS359

5

Paragraph 234, agricultural policies (export subsidies)

DS387, DS388, DS390, DS451

4

Paragraph 309, policies affecting trade in services (licensing)

DS372, DS373, DS378

3

Paragraph 334, transparency

DS419, DS450, DS451, DS501

4

(continued)

45

Unless otherwise stated, the data and information in this chapter on WTO disputes have been collated from data and information available on the official WTO website as of 31 December 2022. See https://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A30, last visited: 8 May 2022. It should be noted that in the EU—Footwear (China) (DS405), although paragraph 151 of the WPR was invoked by China, it is not included in this table because: (1) it is not incorporated by paragraph 342 and becomes an integral part of China’s Protocol, and (2) the issue of price comparability in determining subsidies and dumping is already covered in Paragraph 15 of China’s Protocol.

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3 China’s Member Status in WTO Dispute Settlement Practices

Table 3.3 (continued) Paragraphs invoked

Disputes involved Disputes

Paragraph 2 administration of the trade regime

Paragraph 5 right to trade

Paragraph 7 non-tariff measures

No

Paragraphs 18,19 and 22, DS451, DS610 non-discriminatory treatment; Paragraphs 46 and 47, state-owned and state-invested enterprises; Paragraphs 60, 62 and 64, price control; Paragraph 70, sub-national government authority; Paragraph 73, uniform application; Paragraph 107, internal taxes; Paragraph 115, tariff rate quotas; Paragraph 123, quantitative import restrictions; Paragraph 132, import licensing; Paragraph 157, list of entities for export licensing; Paragraph 168, export subsidies; Paragraph 170, taxes on exports; Paragraph 171–174, industrial policy (subsidies); Paragraph 210, state trading entities; Paragraph 222, 223, 225, 227 and 228, special economic areas; Paragraph 231–233, 235 and 238, agricultural policies; Paragraph 322, notification

2

Paragraph 2 (A) uniform administration

DS431, DS432, DS433, DS450, DS508, DS509, DS549, DS611

7

Paragraph 2 (C) transparency

DS431, DS432, DS433, DS450, DS501, DS568

6

Paragraph 5.1 all enterprises in China

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

9

Paragraph 5.2 all foreign individuals and enterprises

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS509

Paragraph 7.2 Articles III and XI of the GATT 1994 and the Agreement on Agriculture

DS358, DS359, DS431, DS432, DS433

8

(continued)

3.2 The Acceding Member Status of China

123

Table 3.3 (continued) Paragraphs invoked

Disputes involved Disputes

No

Paragraph 7.3 trade-related investment measures

DS339, DS340, DS342, DS358, DS359

Paragraph 8.1 measures to facilitate compliance

DS568

Paragraph 8.2 non-discrimination

DS394, DS395, DS398, DS431, DS432, DS433

Paragraph 10.3 eliminate all subsidies within the scope of Article 3 of the SCM

DS358, DS359

2

Paragraph 11 taxes and charges Paragraph 11.3 eliminate all taxes levied on imports and exports on exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994

DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

8

Paragraph 12 agriculture

DS387, DS388, DS390

3

Paragraph 15 price comparability in determining subsidies and dumping

DS379, DS397, DS405, DS437

4

Paragraph 16 transitional product-specific safeguard mechanism

DS399

1

Paragraph 8 import and export licensing

Paragraph 10 subsidies

Paragraph 12.1 not maintain or introduce any export subsidies on agricultural products

Paragraph 16.1 consultation, Paragraph 16.3 withdraw concessions or otherwise to limit import, Paragraph 16.4 market disruption, Paragraph 16.6 period of time

7

(judicial review, transparency), national treatment (including the investment regime), market economy commitments, agriculture, TBT, intellectual property protection, trade remedies and transitional arrangements. Such eight categories of commitments/ obligations, after a comparison with the counterpart of general obligations of the WTO founding members (the conventional obligations), are proved “differential obligations” (see Table 3.4 for details). Domestic Rule of Law Transparency and judicial review are the main concerns. As for transparency, China undertakes in Paragraph 2(C) of the Protocol of Accession that only those laws, regulations and other measures pertaining to or affecting trade in goods, services, TRIPS or the control of foreign exchange that is published and readily available to other WTO Members, individuals and enterprises, shall be enforced; that a reasonable period shall be provided for comment to the appropriate authorities before such

46

PAC refers to China’s Accession Protocol.

PCA paragraph 2(D)

PCA paragraph 2(C), 6.1; WPR paragraph 331–334, 336

Domestic rule Transparency of law

Judicial review

Provisions (Part I)

Matters

Provide judicial review that is impartial and independent of the agency entrusted with administrative enforcement; the opportunity for appeal, without penalty, by individuals or enterprises affected by any administrative action subject to review

Only those laws, regulations and other measures pertaining to the covered matters that are published and readily available shall be enforced; provide a reasonable period for comment and translations into the official languages

Obligations

GATT 1994 Article 10.3(b-d); GATS Article 6.2(a); TRIPS agreement Article 62.5

GATT 1994 Article 10; TRIPS agreement Article 63

Reference I: general obligations

/

√

(continued)

Reference II: Types of difference developing WTO-plus WTO-minus countries SDT √ /

Table 3.4 Comparison between accession obligations under China’s accession protocol and the WTO general obligations46

124 3 China’s Member Status in WTO Dispute Settlement Practices

Provisions (Part I)

PCA paragraph 3, 5.2, 7.3, 8.2, 11.4; WPR paragraph 18, 203–207

PCA paragraph 6, 9; WPR paragraph 47, 60, 62, 64, 210, 212, 213, 215, 217

PCA paragraph 12; WPR paragraph 235

Matters

National treatment (including the investment regime)

Market economy commitments

Agriculture

Table 3.4 (continued)

GATT 1994 Article 3, 11; GATS Article 17; TRIMs agreement Article 2

Reference I: general obligations

Have recourse to a de minimis exemption of Agriculture 8.5% of the value of China’s total agricultural agreement production during the relevant year Article 6.4

Ensure fully transparent import purchasing GATT 1994 and export pricing procedures of state trading Article 3.9, enterprises; allow prices determined by 17 market forces and eliminate multi-tier pricing; refrain from influencing state-owned and state-invested enterprises

According to foreign individuals and enterprises and foreign-funded enterprises national treatment in respect of sale, right to trade, distribution of import and export licenses and quotas, border tax adjustments and eliminate domestic performance requirements

Obligations

Agriculture agreement Article 6.2, 6.4

/

√

√

(continued)

Reference II: Types of difference developing WTO-plus WTO-minus countries SDT √ /

3.2 The Acceding Member Status of China 125

PCA paragraph 13; WPR paragraph 177–197

WPR paragraph 284

Undisclosed data protection

Subsidies

TBT

IP protection

Trade remedies

PCA paragraph 10.2, 10.3, 12.1, 15(b); WPR Paragraph 167, 170–174, 234

Provisions (Part I)

Matters

Table 3.4 (continued)

TRIPS agreement

Reference I: general obligations

View subsidies provided to state-owned enterprises as specific, and eliminate all subsidy programs falling within the scope of Article 3 of the SCM Agreement; eliminate export subsidies, industrial policies and all export subsidies on agricultural products; outside benchmarks for determining subsidies

SCM agreement Article 2.1, 3, 14 (outside benchmark)

Provide effective protection against unfair TRIPS commercial use of undisclosed test or other agreement data submitted to authorities in China as Article 39.3 required in support of applications for marketing approval of pharmaceutical or of agricultural chemical products which utilized new chemical entities

Obligations

SCM agreement Article 27.8, 27.9, 27.13; agriculture agreement Article 6.2

√

√

(continued)

Reference II: Types of difference developing WTO-plus WTO-minus countries SDT √

126 3 China’s Member Status in WTO Dispute Settlement Practices

Matters

PCA paragraph 15(a)ii

PCA paragraph 16; WPR paragraph 242

Product-specific safeguard

Provisions (Part I)

Dumping

Table 3.4 (continued)

Products of Chinese origin being imported into any WTO Member in such increased quantities or under such conditions as to cause or threaten to cause market disruption; safeguard measures for trade diversion; prior notification of the measures taken to the Committee on Safeguards; China has the right to suspend the application of substantially equivalent concessions or obligations if such measure remains in effect more than 2 years for relative increase and 3 years for absolute increase

Not based on 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

Obligations

GATT 1994 Article 19; textiles and clothing agreement Article 6

GATT 1994Article 3.1, 6; AD agreement Article 2.1

Reference I: general obligations

/

√

(continued)

Reference II: Types of difference developing WTO-plus WTO-minus countries SDT √ /

3.2 The Acceding Member Status of China 127

Provisions (Part I)

PCA paragraph 18

PCA paragraph 5.1, 15(d), 16.9, 18

Transitional review

Transition period

Matters

Transitional arrangements

Table 3.4 (continued) Reference I: general obligations

Right to trade after 3 years after accession; Paragraph15 (a)(ii) expires 15 years after accession; Paragraph 16 terminated 12 years after accession; Paragraph 18.1 and 18.2 completed in 8 years and year 10

Reviews implementation by China of the TPRMs WTO Agreement and the PCA take place in agreement each year of 8 years and a final review in year 10

Obligations

√

√

Reference II: Types of difference developing WTO-plus WTO-minus countries SDT √

128 3 China’s Member Status in WTO Dispute Settlement Practices

3.2 The Acceding Member Status of China

129

measures are implemented; and that an enquiry point shall be established or designated. China further undertakes in Paragraph 6.1 of the Protocol to ensure that import purchasing procedures of state trading enterprises are fully transparent and in Paragraph 334 of the WPR to make available to WTO Members translations into one or more of the official languages of the WTO. As for judicial review, China undertakes in Paragraph 2(D) of the Protocol of Accession to establish, or designate and maintain tribunals, for the judicial review, that is impartial and independent of the agency entrusted with administrative enforcement and the opportunity for appeal, without penalty, by individuals or enterprises affected by any administrative action subject to review. These two domestic rule of law obligations impose on China obligations that are higher than those general obligations assumed by the WTO founding members under Article 10 of the GATT 1994, Articles 62.5 and 63 of the TRIPS Agreement and Article 6.2(a) of the GATS, and thus are WTO-Plus obligations. National Treatment (Including the Investment Regime) China undertakes in Paragraph 3 of the Protocol to extend the scope of the national treatment to foreign individuals and enterprises and foreign-funded enterprises, and the procurement of inputs and goods and services necessary for production and the conditions under which their goods are produced, marketed or sold, in the domestic market and for export. As for the right to trade, in Paragraph 5.2 of the Protocol, all foreign individuals and enterprises, including those not invested or registered in China, are accorded treatment no less favorable than that accorded to enterprises in China with respect to the right to trade; in Paragraphs 7.3, 8.2 and 11.4 of the Protocol and Paragraphs 18 and 203–207, China ensures to comply with the TRIMs Agreement without recourse to the provisions of Article 5 of the TRIMs Agreement and that the distribution of import licenses, quotas, tariff rate quotas, or any other means of approval for importation, the right of importation or investment by national and subnational authorities, is not conditioned on whether competing domestic suppliers of such products exist, or performance requirements of any kind. Compared with the national treatment stipulated under Article 3 of GATT 1994, which applies only to imported products, and the national treatment stipulated under Article 17 of GATS, which is required only for specific service sectors listed in the Schedule of Concessions on Trade in Services, the national treatment that China has assumed to provide under its Protocol of Accession exceeds the WTO founding members’ general obligation in terms of the qualified individuals and entities, the scope of the products and the content. Market Economy Commitments China undertakes in Paragraph 6 of the Protocol to ensure that import purchasing procedures of state trading enterprises are fully transparent, and in compliance with the WTO Agreement, to refrain from taking any measure to influence or direct state trading enterprises as to the quantity, value, or country of origin of goods purchased or sold, and to provide full information on the pricing mechanisms of its state trading enterprises for exported goods. Paragraph 9 of the Protocol allows prices for traded

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3 China’s Member Status in WTO Dispute Settlement Practices

goods and services in every sector to be determined by market forces, eliminates multi-tier pricing practices for such goods and services, and provides that except in exceptional circumstances, and subject to notification to the WTO, price controls shall not be extended to goods or services beyond those listed in Annex 4, and China shall make best efforts to reduce and eliminate these controls. China also undertakes in Paragraphs 60, 62 and 64 to publish in the official journal the list of goods and services subject to state pricing and changes thereto, together with price-setting mechanisms and policies, and to guarantee that price controls would not limit or impair the market access commitments on goods and services and in Paragraphs 47, 210, 212–213, 215 and 217, to restrain the state trading in specific areas. In contrast to the WTO agreements, the Preamble, Article 3.9 and Article 17 of GATT 1994 stipulate the market economy commitments of the founding members. China’s market economy commitments seem to have duplicated Article 17 of GATT 1994 on State Trading Enterprises, but indeed they extend the scope of such commitments: “The first part of this undertaking closely follows the language of GATT Article XVII Paragraph 1(b), which imposes certain discipline on state trading enterprises. The Protocol now extends this GATT requirement to all state-owned and stateinvested enterprises regardless whether they are engaged in foreign trade activities. In addition, the Chinese government has taken a pledge not to influence commercial decisions of state enterprises, either directly or indirectly, which is an obligation not contained expressly in any of the WTO agreements”.47 Furthermore, Paragraph 6 of China’s Accession Protocol also makes a number of commitments with respect to goods that remain state-traded. It requires China to refrain from taking any measure to influence or direct state trading enterprises as to the quantity, value, or country of origin of goods purchased or sold, to ensure that import purchasing procedures of state trading enterprises are fully transparent, and to provide full information on the pricing mechanisms of its state trading enterprises for exported goods. Neither Article 17 of GATT 1994 on State Trading Enterprises nor Article 8 (of GATS) on Monopolies and Exclusive Service Suppliers impose such requirements.48 Agriculture China commits in Paragraph 12 of the Protocol not to maintain or introduce any export subsidies on agricultural products, and under the Transitional Review Mechanism, to notify fiscal and other transfers between or among state-owned enterprises in the agricultural sector (whether national or sub-national) and other enterprises that operate as state trading enterprises in the agricultural sector. Paragraph 235 of the WPR further confirms that China would have recourse to a de minimis exemption for non-product-specific support of 8.5% of the value of China’s total agricultural production during the relevant year. Compared to the Domestic Support Commitments under Article 6 of the Agreement on Agriculture, in particular the 5% de minimis exemption level for developed members and the 10% de minimis exemption level for developing members (Article 47 48

See Qin (2003). Liu (2015a).

3.2 The Acceding Member Status of China

131

6.4), China’s commitment highlights its special status in the WTO as a developing acceding members under specific provisions, with differential obligations that clearly go beyond both general WTO obligations and the differential and special obligations assumed by developing founding members. Trade Remedies Commitments on trade remedies cover the dumping, subsidies and product-specific safeguard mechanism. ➀ Paragraph 15(a)ii provides that 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 Compared to the inferred price set for market economies in Articles 3.1 and 6 of GATT 1994 and in Article 2.1 of ADA, the committed methodology that is not based on a strict comparison with domestic prices or costs in China often leads to the selection of substitutes that are moderately developed countries producing the same products, which are more different from the comparable price in the ordinary course of trade in China, and thus amount to a higher anti-dumping obligation. ➁ The “WTO-Plus obligations” are more evident in countervailing commitment: not only subsidies provided to state-owned enterprises be viewed as specific in Paragraph 10.2, eliminate all subsidy programs falling within the scope of Article 3 of the SCM Agreement in Paragraph 10.3, maintain or introduce no export subsidies on agricultural products in Paragraph 12.1, and use terms and conditions prevailing outside China in Paragraph 15(b) of the Protocol, but also eliminate all export subsidies in Paragraphs 167, 170–174 and 234, and not seek to invoke the SDT exceptions for developing members in Paragraph 171 of the WPR. Article 27 of the Countervailing Agreement, as an exception to Article 3, permits certain SDT for developing members (Articles 27.8–27.9 and 27.13 of the Countervailing Agreement) and thus reflects the special countervailing obligations of China. ➂ Safeguard measures commitments in Paragraph 16 of the Protocol provide for the WTO members affected by market disruption caused by the increased importation of products of Chinese origin or by significant diversions of trade. The introduction of the concepts of “market disruption” and “significant diversions of trade” as trigger for safeguard measures actually departs from the standard of “serious injury” set out in Article 19 of GATT 1994 and the Agreement on Safeguards, and obliges China to take on a higher obligation than the general WTO obligation.

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3 China’s Member Status in WTO Dispute Settlement Practices

Transitional Review China accepted in Paragraph 18 of the Protocol that subsidiary bodies of the WTO review the implementation by China of the WTO Agreement and of the related provisions of the Protocol after accession in each year for 8 years, with a final review in year 10 or at an earlier date decided by the General Council. Under the WTO, the TPRM is responsible for monitoring individual member’s compliance with WTO rules and is one of the WTO’s compliance mechanisms. The interval between reviews and the type and quantity of documentation required for the purpose of the review under Paragraph 18 of China’s Protocol exceed the general requirements of the TPRM.

3.2.2.3

The Substance of Differential Obligations: WTO-Plus Obligations of the Limited Developing Acceding Member

The above analysis reveals that the “terms of accession” under China’s Accession Protocol are all “WTO-Plus obligations”. Even the transitional provisions, which are normally recognized as less stringent than the general WTO obligations and thus “WTO-Minus obligations”, are overwhelmingly “WTO-Plus” in China’s case, due to its special accession status as a limited developing acceding member, which is obtained through the “developing country” self-recognition only recognized by other members under limited provisions. Taking the provisions on transition period as an example, the provisions on transition period in China’s Accession Protocol include the elimination of restrictions on trade rights 3 years after accession in Paragraph 5.1, the termination of using a methodology that is not based on a strict comparison with domestic prices or costs in China 15 years after the date of accession in Paragraph 15(d), and the termination of the special safeguard mechanism 12 years after the date of accession in Paragraph 16.9 and so on. Among them, using a methodology that is not based on a strict comparison with domestic prices or costs in China is itself a “WTO-Plus obligation”, and after the transition period, the determination of price comparability will follow the rules under GATT 1994 and the ADA, which will in no way result in a “WTO-Minus obligation”. The transitional arrangement for the Specific Safeguard Mechanism is the same. Even the transitional period of 3 years for phasing out limitation on the trade rights cannot ipso facto be categorized as a “WTO-Minus obligation” because the removal of limitations on the trade right, whether under the general WTO obligations or the SDT for developing members, is directed at the import and export of non-state trading goods, and does not involve the treatment of foreign individuals, enterprises and foreign-invested enterprises (with foreign share) selling within the territory. Therefore, although the 3-year transition period as a provision for the removal of restrictions on the right to trade is a reduction of the time limit for acceding members, due to the fact that the subject and scope of the right to trade have been expanded in comparison with the general obligations of the founding members under the WTO,

3.2 The Acceding Member Status of China

133

such deduction of time limit cannot be read alone and thus regarded as an easing of the obligation of the acceding members to remove the restrictions on the trade right, but rather more likely be recognized together with the entire provision as a “WTO obligation”. In sum, China’s “terms of accession” as set out in the China’s Protocol are in essence “WTO-Plus obligations” assumed by China as a limited developing acceding member.

3.2.3 Differential Accession of China: With Reference to Other Acceding Members Since 1995, a total of 36 countries and regions (see Table 3.5 for details) have applied for accession to the WTO and become new members of the WTO, and the relevant “terms of accession” have been recorded in the 36 Protocols of Accession, which also provide the best comparative reference among acceding members. A review of the 36 Protocols of Accession reveals that the practice of WTO accession through accession protocol is highly formalized in form and differentiated in substance. However, in terms of both textual form and substantive obligations, Table 3.5 Acceding members list (by membership date) No.

Acceding member

Membership date

No.

Acceding member

Membership date

1

Ecuador

21/01/1996

19

North Macedonia

04/04/2003

2

Bulgaria

01/12/1996

20

Nepal

23/04/2004

3

Mongolia

29/01/1997

21

Cambodia

13/10/2004

4

Panama

06/09/1997

22

Saudi Arabia

11/12/2005

5

Kyrgyzstan

20/12/1998

23

Vietnam

11/01/2007

6

Laos

20/12/1998

24

Tonga

27/07/2007

7

Latvia

20/12/1998

25

Ukraine

16/05/2008

8

Estonia

13/11/1999

26

Cape Verde

23/07/2008

9

Georgia

14/06/2000

27

Montenegro

29/04/2012

10

Jordan

11/04/2000

28

Samoa

10/05/2012

11

Albania

08/09/2000

29

Russia

22/08/2012

12

Oman

09/11/2000

30

Vanuatu

24/08/2012

13

Croatia

30/11/2000

31

Tajikistan

02/03/2013

14

Lithuania

31/05/2001

32

Yemen

26/06/2014

15

Moldova

26/07/2001

33

Seychelles

26/04/2015

16

China

11/12/2001

34

Kazakhstan

30/11/2015

17

Chinese Taipei

01/01/2002

35

Liberia

14/07/2016

18

Armenia

05/02/2003

36

Afghanistan

29/07/2016

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3 China’s Member Status in WTO Dispute Settlement Practices

China’s Accession Protocol is unique, which identifies China as a distinctive member in the already special category of WTO acceding members.

3.2.3.1

China’s Accession Protocol: Exceptional Text

Uniform Accession Practices—Standard Text of Protocol of Accession Although there were no requirements for the form of Protocols of Accession at the inception of the WTO, from the first Protocol of Accession onwards, the Protocols of Accession of all acceding countries followed a standardized format. In 2005, the WTO Secretariat issued the first edition of the Technical Note on the Accession Process, presenting the standard provisions of the Protocol of Accession, which were subsequently adopted by countries as the template for their Protocols of Accession. Protocol of Accession of [Name of Applicant] to the Marrakesh Agreement Establishing the World Trade Organization49 “The World Trade Organization (hereinafter referred to as the “WTO”), pursuant to the approval of the General Council of the WTO accorded under Article XII of the Marrakesh Agreement Establishing the World Trade Organization (hereinafter referred to as “WTO Agreement”), and the Republic of …[name of applicant]… (hereinafter referred to as “[short form of name]”), Taking Note of the Report of the Working Party on the Accession of …[Name of Applicant]… to the WTO in Document WT/ACC/[…] (Hereinafter Referred to as the “Working Party Report”), Having Regard to the Results of the Negotiations on the Accession of …[Name of Applicant]… to the WTO, Agree as follows: Part I—General 1. Upon entry into force of this Protocol, …[name of applicant]… accedes to the WTO Agreement pursuant to Article XII of that Agreement and thereby becomes a Member of the WTO. 2. The WTO Agreement to which …[name of applicant]… accedes shall be the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of entry into force of this Protocol. This Protocol, which shall comprise the commitments referred to in paragraph …[list of relevant commitment paragraph numbers]… of the Working Party Report, shall be an integral part of the WTO Agreement. 3. Except as otherwise provided for in the paragraphs referred to in paragraph …[list of relevant paragraphs numbers]… of the Working Party Report, those obligations in the Multilateral 49

WTO, Technical Note on the Accession Process, WT/ACC/10/Rev.3, 28 November 2005, pp. 42– 43.

3.2 The Acceding Member Status of China

135

Trade Agreements annexed to the WTO Agreement that are to be implemented over a period of time starting with the entry into force of that Agreement shall be implemented by …[name of applicant]… as if it had accepted that Agreement on the date of its entry into force. Part II—Schedules 4. The Schedules annexed to this Protocol shall become the Schedule of Concessions and Commitments annexed to the General Agreement on Tariffs and Trade 1994 (hereinafter referred to as the “GATT 1994”) and the Schedule of Specific Commitments annexed to the General Agreement on Trade in Services (hereinafter referred to as “GATS”) relating to …[name of applicant]…. The staging of the concessions and commitments listed in the Schedules shall be implemented as specified in the relevant parts of the respective Schedules. 5. For the purpose of the reference in paragraph 6(a) of Article II of the GATT 1994 to the date of that Agreement, the applicable date in respect of the Schedules of Concessions and Commitments annexed to this Protocol shall be the date of entry into force of this Protocol. Part III—Final Provisions 6. This Protocol Shall Be Open for Acceptance, by Signature or Otherwise, by …[Name of Applicant]… Until …[Date]… 7. This Protocol Shall Enter into Force on the Thirtieth day Following the day of Its Acceptance. 8. This Protocol shall be deposited with the Director-General of the WTO. The Director-General of the WTO shall promptly furnish a certified copy of this Protocol and a notification of acceptance thereto pursuant to paragraph 7 to each Member of the WTO and to…[name of applicant]… 9. This Protocol Shall Be Registered in Accordance with the Provisions of Article 102 of the Charter of the United Nations. Done at Geneva this … day of …[date]…, in a single copy in the English, French and Spanish languages each text being authentic, except that a Schedule annexed hereto may specify that it is authentic in only one or more of these languages”. From the above template, the WTO Protocol of Accession usually consists of a main text and annexes. The text is divided into a preamble and three parts, namely Part I “General”, Part II “Schedules” and Part III “Final Provisions”. Part I consists of three provisions stipulating when the applicant/acceding Member becomes a member, what constitutes the text of the WTO Agreement (which is the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of entry into force of the protocol), and that the Protocol, which includes the provisions incorporated from the WPR, constitutes an integral part of the Agreement Establishing the WTO.

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Table 3.6 Non-standard provisions in the protocols of accession50 Acceding member (by order of accession)

Membership date

Non-standard provisions

Mongolia

29/01/1997

Paragraphs 3, 4, Part I

China

11/12/2001

Paragraphs 2–18, Part I

Chinese Taipei

01/01/2002

Paragraphs 4, 5, Part I

Part II “Schedules” specifies the Schedules annexed to the protocol become the Schedule of Concessions and Commitments annexed to the GATT 1994 and the Schedule of Specific Commitments annexed to GATS, and specifies their applicable date. Part III as “Final Provisions” provides for procedural matters such as signature, entry into force and deposition of the Protocol of Accession, and concludes with the annexes to the Protocol of Accession. Exceptional Text of China’s Accession Protocol The textual specialty of China’s Accession Protocol is manifested in two aspects. • Exceptional Text Compared with the Standard Text The text of China’s Accession Protocol is exceptional compared with the template of the WTO Protocol of Accession. In fact, with the exception of very few countries and territories whose Protocols of Accession provide for a varying number of directly stipulated commitments on the basis of the standard text, the Protocols of Accession of the 36 acceding member States and territories appear to be extremely “standard” in terms of the text: the number of provisions is identical to the standard text. Such “very few countries and territories” are Mongolia, China and Chinese Taipei. (See Table 3.6 for non-standard provisions in their Protocols of Accession). Mongolia’s Protocol of Accession requires in Paragraph 3 of Part I annual notification to the Secretariat of the implementation of the phased commitments with definitive dates referred to in paragraphs 10, 13, 20, 21, 23, 24, 29, 35, 42, 44, 45, 46, 48, 51, 54, 59 and 60 of the WPR, and of any delays in implementation together with the reasons, therefore. Paragraph 4(b) of Part I of the Protocol stipulates that except as otherwise provided for in the preceding paragraph or in the paragraphs referred to in Paragraph 61 of the WPR, those notifications that are to be made under the MTAs annexed to the WTO Agreement within a specified period of time starting with the date of entry into force of the WTO Agreement shall be made by Mongolia within that period of time starting with the date of entry into force of this Protocol. Chinese Taipei’s Protocol of Accession stipulates in Paragraph 4 of Part I that the Special Exchange Agreement between the WTO and Chinese Taipei reproduced in Annex II to this Protocol forms an integral part of this Protocol, and in Paragraph 5 50

See Protocol for the Accession of Mongolia to the Marrakesh Agreement Establishing the World Trade Organization, WT/ACC/MNG/11, 25 July 1996; Protocol on the Accession of the People’s Republic of China, WT/L/432, 23 November 2001; Protocol of Accession of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, WT/L/433, 23 November 2001.

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of Part I that Chinese Taipei shall at the time of its accession to the WTO Agreement accept the Plurilateral Trade Agreement on Trade in Civil Aircraft listed in Annex 4 of the WTO Agreement. China’s Accession Protocol directly stipulates 17 non-standard provisions right after the standard provisions in the Part I General Provisions, covering in detail the administration of the trade regime (Paragraph 2, including uniform administration, special economic areas, transparency and judicial review), non-discrimination (Paragraph 3), special trade arrangements (Paragraph 4), right to trade (Paragraph 5), state trading (Paragraph 6), non-tariff measures (Paragraph 7), import and export licensing (Paragraph 8), price controls (Paragraph 9), subsidies (Paragraph 10), taxes and charges levied on imports and exports (Paragraph 11), agriculture (Paragraph 12), technical barriers to trade (Paragraph 13), sanitary and phytosanitary measures (Paragraph 14), price comparability in determining subsidies and dumping (Paragraph 15), transitional product-specific safeguard mechanism (Paragraph 16), reservations by WTO members (Paragraph 17) and transitional review mechanism (Paragraph 18). • Exceptional Text Compared with Other Texts China’s Accession Protocol is further the most special of texts of the “very few countries and territories” mentioned above, in three main aspects: Firstly, in terms of quantity, the number of non-standard provisions in China’s Accession Protocol is far greater than the number of only two in each of the other two Protocols. Secondly, in terms of content, though the 17 non-standard provisions also cover procedural obligations such as notification and deadlines, the main part of the provisions deals with substantive obligations, which are not covered by the non-standard provisions of the two other Protocols. In addition, the nine annexes to China’s Protocol provide further stipulations on China’s obligations under the General Provisions, including information to be provided by China in the Context of the Transitional Review Mechanism (Annex 1A), Products Subject to State Trading (Import) (Annex 2A1), Products Subject to State Trading (Export) (Annex 2A2), Products Subject to Designated Trading (Annex 2B), Non-tariff Measures Subject to Phase Elimination (Annex 3), Products and Services Subject to Price Controls (Annex 4), Notification Pursuant to Article XXV of the Agreement on Subsidies and Countervailing Measures (Annex 5A), Subsidies Provided to Certain State-owned Enterprises Which are Running at a Loss (Annex 5B), Products Subject to Export Duty (Annex 6), Reservations by WTO Members (Annex 7), Schedule CLII-People’s Republic of China (Annex 8) and Schedule of Specific Commitments on Services List of Article II Exemptions (Annex 9).

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Thirdly, it is particularly noteworthy that, from the perspective of the stylistic arrangement, the content involving China’s commitments on substantive obligations can be divided into two parts according to whether they are directly stipulated in the Protocol: one consists of the Paragraphs 2–18 of Part I that are directly stipulated in the Protocol (hereinafter referred to as “directly stipulated non-standard provisions”); the other refers to the 145 paragraphs (between paragraphs 18–341) of the WPR of China, incorporated by Paragraph 2 of Part I of the Protocol and Paragraph 342 of the WPR of China (hereinafter referred to as “incorporated non-standard provisions”). These two substantive parts, as part of China’s Accession Protocol to the WTO Agreement and the WTO as an organization, are not, on the one hand, synergistically aligned with the stylistic arrangement of the substantive parts under the WTO, but rather are self-contained, covering six categories of rules, including economic policies, framework for making and enforcing policies, policies affecting trade in goods, trade-related intellectual property regime, policies affecting trade in services and other issues, such as transparency, government procurement and so on. On the other hand, the two parts of the Protocol do not correspond with each other either, let alone refer to or even mention each other, which proves no logical correspondence between the 17 substantive commitments directly stipulated in the Protocol and the incorporated paragraphs in the WPR of China through Paragraph 2 of Part I of the Protocol. However, rather than “not interfering with each other” as in the case of the other two Protocols there is a relationship of repetition, refinement and complementarity between the two parts. (For details of the correspondence between the non-standard provisions, see Table 3.7). Table 3.7 reveals that the “directly stipulated non-standard provisions” and the “incorporated non-standard provisions” in China’s Protocol are listed side by side. Although most of the content of the former is related to that of the latter in some way— only three articles do not correspond to related articles,51 there is no specific logical pattern as to the relationship of “Reiteration, refinement and supplement” between the two parts, with reiteration and refinement in some articles and further addition of new obligations in others. This absence of regularity in the drafting of accession texts of international organizations reflects, at least at the time of accession, the deep concerns of other WTO members and members of the Working Party with regard to the specific commitments to which the “directly stipulated non-standard provisions” refer: re-emphasize the existing commitments in the WPR of China (reaffirmation), make further elaborations on the procedures and subjects (refinement), raise the level of the obligations of the commitments (upgrading) and add new obligations (addition). This series of deeply concerned matters has also been verified by the WTO dispute settlement practice in which China has participated since its accession. As mentioned above, among the WTO disputes in which China has participated as a party, except for one case (DS309) in which the Protocol on the Accession of China was invoked only in general terms without referring to specific paragraphs, all the other disputes 51

PCA Part I Paragraph 4 (Special Trade Arrangements), Paragraph 17 (Reservations by WTO Members), and Paragraph 18 (Transitional Review Mechanism).

A. Trading rights

2. Designated trading

1. General

Paragraph 5 right to trade

(continued)

Reiteration: within 3 years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China Refinement: complete all necessary legislative procedures to implement these provisions during the transition period

Reiteration: impartiality and independence of the review tribunals Refinement: review procedures shall include the opportunity for appeal and the details of the appeal process

Paragraph 2(D) administration of the trade regime (judicial review)

4. Judicial review

Reiteration: price controls may be adopted only in accordance with WTO rules, and the list should be published in official journals Refinement: further restrict the scope of application of price controls Reiteration: applicable to entire customs territory of China Refinement: further clarification of the territorial scope of application, the scope of subjects and supporting mechanisms

Paragraph 9 Price controls

2. Pricing policies

Reiteration: re-emphasis on most-favoured-nation treatment; Refinement: scope of application of MFN treatment

Correspondence with the WPR paragraphs

3. Uniform administration of Paragraph the trade regime 2(A)administration of the trade regime (uniform administration)

Paragraph 3 non-discrimination

1. Non-discrimination (including national treatment)

Provisions (Part I)

Text of the Protocol (non-standard provisions)

It should be noted that this table lists the incorporated non-standard provisions through paragraph 1.2 of China’s Accession Protocol and Paragraph 342 of the WPR of China, which have direct correspondence with the non-standard provisions directly stipulated in the Protocol, not all of them.

52

III. Policies affecting trade in goods

II. Framework for making and enforcing policies

I. Economic policies

Incorporated WPR paragraphs

Table 3.7 Table of correspondence among non-standard provisions of China’s accession protocol52

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B. Import regulation

Incorporated WPR paragraphs

Table 3.7 (continued)

Paragraph 7 Non-tariff measures

Paragraph 8 Import and export licensing

8. Quantitative import restrictions, including prohibitions and quotas

9. Import licensing

Provisions (Part I)

(continued)

Refinement: details of the information that shall be published Supplement: notify the WTO of all licensing and quota requirements remaining in effect; import licences for a minimum duration of validity of six month, except for exceptional circumstances and with promptly notification to the Committee

Reiteration: implement the schedule for phased elimination of the measures contained in Annex 3; non-tariff measures in strict conformity with the provisions of the WTO Agreement, including GATT 1994 and Article XIII thereof, and the Agreement on Import Licensing Procedures; Import and export regulations only be imposed and enforced by the national authorities or by sub-national authorities with authorization Supplement: comply with the TRIMs Agreement, without recourse to the provisions of Article 5 of the TRIMs Agreement and eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements

Correspondence with the WPR paragraphs

Text of the Protocol (non-standard provisions)

140 3 China’s Member Status in WTO Dispute Settlement Practices

C. Export regulations

Incorporated WPR paragraphs

Table 3.7 (continued)

2. Export licensing and export restrictions

Paragraph 8 Import and export licensing

Paragraph 16 Transitional Product-Specific Safeguard Mechanism

14. Safeguards

(continued)

Refinement: details of the information that shall be published Supplement: notify the WTO of all licensing and quota requirements remaining in effect; import licences for a minimum duration of validity of six month, except for exceptional circumstances and with promptly notification to the Committee

Supplement: within 12 years after the date of accession of China, the safeguard mechanism available for the affected WTO member in cases where products of Chinese origin cause or threaten to cause market disruption, including consultations, definition of market disruption, time period of measures, procedures for notification and public notice, etc.

Paragraph 15 Price Supplement: rules and proceedings determining price comparability in comparability determining subsidies and dumping

Correspondence with the WPR paragraphs

13. Anti-dumping, countervailing duties

Provisions (Part I)

Text of the Protocol (non-standard provisions)

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D. Internal policies affecting foreign trade in goods

Incorporated WPR paragraphs

Table 3.7 (continued)

Paragraph 10 Subsidies

2. Industrial policy, including subsidies

(continued)

Reiteration: eliminate all subsidy programmes falling within the scope of Article 3 of the SCM Agreement Supplement: notify the WTO of any subsidy, subsidies provided to state-owned enterprises will be viewed as specific for the purpose of Article 1.2 and 2 of the SCM Agreement

Paragraph 11 Taxes Reiteration: taxes and charges shall be in conformity with and charges levied on the GATT 1994 imports and exports Refinement: taxes and charges include customs fees or charges, international taxes and charges, and all taxes and charges applied to exports Supplement: non-discriminative treatment in respect of border tax adjustments

Correspondence with the WPR paragraphs

1. Taxes and charges levied on imports and exports

Provisions (Part I)

Text of the Protocol (non-standard provisions)

142 3 China’s Member Status in WTO Dispute Settlement Practices

Incorporated WPR paragraphs

Table 3.7 (continued)

Reiteration: same technical regulations, standards and conformity assessment procedures are applied to both imported and domestic products Supplement: publish in the official journal all criteria; bring into conformity with the TBT Agreement all technical regulations, standards and conformity assessment procedures; only to determine compliance with technical regulations and standards that are consistent with the Protocol and the WTO Agreement Refinement: details of the conformity assessment procedures

Correspondence with the WPR paragraphs

5. Trade-Related investment measures

Paragraph 7 Non-tariff measures

(continued)

Reiteration: comply with the TRIMs Agreement, without recourse to the provisions of Article 5 of the TRIMs Agreement and eliminate and cease to enforce trade and foreign exchange balancing requirements, local content and export or performance requirements

4. Sanitary and phytosanitary Paragraph 14 Sanitary Supplement: notify all laws, regulations and other measures and phytosanitary measures related measures

3. Technical barriers to trade Paragraph 13 technical barriers to trade

Provisions (Part I)

Text of the Protocol (non-standard provisions)

3.2 The Acceding Member Status of China 143

IV. Other issues

Incorporated WPR paragraphs

Table 3.7 (continued)

Paragraph 12 agriculture

9. Agricultural policies

Paragraphs 2 (B, D), 6–10, 12–16

Paragraph 2 (B) administration of the trade regime (special economic areas)

7. Special economic areas

1. Notifications

Paragraph 6 State trading

6. State trading entities

Provisions (Part I)

(continued)

Refinement: detailed requirements for notifications

Reiteration: not maintain or introduce any export subsidies on agricultural products Supplement: under the Transitional Review Mechanism, notify fiscal and other transfers between or among state-owned or state trading enterprises in the agricultural sector

Reiteration: all taxes, charges and measures affecting imports are normally applied to imports into the other parts of China; in providing preferential arrangements for enterprises within special economic areas, WTO non-discrimination and national treatment shall be fully observed Supplement: notify to the WTO all the relevant laws, regulations and other measures relating to its special economic areas

Supplement: ensure that import purchasing procedures of state trading enterprises are fully transparent and refrain from taking any measure to influence or direct state trading enterprises; provide full information on the pricing mechanisms of its state trading enterprises for exported goods

Correspondence with the WPR paragraphs

Text of the Protocol (non-standard provisions)

144 3 China’s Member Status in WTO Dispute Settlement Practices

Incorporated WPR paragraphs

Table 3.7 (continued)

Paragraph 17 All prohibitions, quantitative restrictions and other reservations by WTO measures maintained by WTO Members against imports members from China in a manner inconsistent with the WTO Agreement are listed in Annex 7 and shall be phased out or dealt with Paragraph 18 transitional review mechanism

/

/

The subsidiary bodies of the WTO which have a mandate covering China’s commitments under the WTO Agreement or this Protocol shall review the implementation by China, and the details of the review process

Eliminate upon accession all special trade arrangements, including barter trade arrangements, with third countries and separate customs territories, which are non-conforming

Paragraph 4 special trade arrangements

/

Reiteration: establish or designate an enquiry point Refinement: establish or designate an official journal, process for replying the requests for information Supplement: only those published and readily available to other WTO Members, individuals and enterprises, shall be enforced

Paragraph 2 (C) administration of the trade regime (transparency)

Correspondence with the WPR paragraphs

3. Transparency

Provisions (Part I)

Text of the Protocol (non-standard provisions)

3.2 The Acceding Member Status of China 145

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invoked the “directly stipulated non-standard provisions” of the Protocol: 5 disputes in which China participated as a complainant invoked Paragraphs 15 and 16; 21 out of 26 disputes in which China participated as a respondent invoked Paragraphs 2 (2A, 2C), 5 (5.1, 5.2), 7 (7.2, 7.3), 8 (8.1, 8.2), 10.3, 11.3 and 12.1, representing 81% of the 26 disputes.

3.2.3.2

China’s Accession Protocol: Differentiated Obligations

Substantially Different Accession Obligation in Comparison with Other Protocols of Accession As noted earlier, despite the adoption of the standard text, each of the 36 Protocols of Accession introduces specific paragraphs of the WPR through its Paragraph 1.2 of Part I, making the accession commitments of each acceding member substantively different. In terms of China’s Protocol of Accession, compared with the accession obligations under the Protocols of Accession of the other acceding Members, differ significantly, not only in number, but also in substantive obligations, as noted above. Therefore, this Part will firstly take the accession obligations covered by China’s Accession Protocol as the coordinates, compare them with the accession obligations under the Protocols of Accession of other acceding members, so as to reflect the special accession obligations. Secondly, due to the huge accession obligation system of China’s Accession Protocol, it is not possible to cover all matters, coupled with the fact that, the “directly stipulated non-standard provisions” and the WTO dispute settlement practices in which China has participated after its accession together reflect the concerns of all members about China’s specific accession matters. Therefore, this part will also take the commitments referred to in the “directly stipulated nonstandard provisions” of China’s Protocol as the coordinates, and further compare them with the corresponding accession commitments of other acceding members, so as to reflect the special characteristics of China’s accession obligations. Accession Obligations of China: Co-existed Commonality and Individuality (1) Common Sectors of Concern Looking at the overall framework of the WPR, China’s accession obligations relate to six main sectors: economic policies, framework for making and enforcing policies, policies affecting trade in goods, the TRIPS regime, policies affecting trade in services and other issues. A comparison of the provisions in these six sectors, which are incorporated into China’s Protocol, with the provisions of the WPRs of the other 35 acceding members that form part of their Protocols of Accession, shows that the vast majority of the matters concerned do not reveal any particularity in terms of the sectors. Comparison shows that the WPR of China contains only three accession provisions that have no counterpart in the accession provisions of other acceding members, namely (i) “Designated Trading” under Trading Rights, (ii) “Application of National

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Treatment and Most Favoured Nation Treatment to Foreign Nationals” under Traderelated Intellectual Property Regime and (iii) Measures to Control Abuse of Intellectual Property Rights. None of these three issues constitutes a special sector of accession obligations of substantive significance. First, the “designated trading” obligation under the Trading Rights is China’s intended transitional arrangement during the 3-year transition period, meaning that China will gradually liberalize the trading rights in such goods by increasing the number of designated entities allowed to import such goods in each year of the 3year transition period set out in Annex 2B. Under this obligation, China will eliminate import and export volumes as a criterion for obtaining trade rights in these products, reduce minimum capital requirements, and extend the right to be registered as a designated importing or exporting enterprise to enterprises that use such goods in the production of final goods and to enterprises that distribute such goods in China. At the end of the 3-year period, all enterprises in China and all foreign enterprises and individuals would be allowed to import and export such goods within the entire tariff territory of China. The essence of such an arrangement is the gradual achievement of full liberalization of trade rights, which is not materially different from the arrangements for gradual liberalization of trade rights in other acceding commitments during a transition period, and thus cannot constitute a new area of obligation. Second, “national and MFN treatment to foreign nationals” and “measures to control abuse of intellectual property rights” under Trade-Related Intellectual Property Regime are even less substantive areas of obligation. On the one hand, the obligation of “application of national and MFN treatment to foreign nationals” derives from the TRIPS Agreement, which “ensure national and MFN treatment to foreign right-holders regarding all intellectual property rights across the board in compliance with the TRIPS Agreement”.53 Even if not explicitly agreed upon, this is an obligation for all members of the TRIPS Agreement, rather than a new area. On the other hand, the phrase “measures to control abuse of intellectual property rights” concerns “the compatibility of China’s rules on control of anti-competitive licensing practices or conditions with the corresponding obligations under Article 40 of the TRIPS Agreement”,54 which is not an entirely new area either, as Paragraph 305 of the WPR of China explicitly states that “upon accession China would fully apply the provisions of the TRIPS Agreement”. In short, among the matters covered by China’s accession obligations under the Protocol, there are no special accession matters for China that can be described as “unique”, and almost all of the accession matters, whether according to the six broad categories of the WPR of China or according to the many sub-matters under it, are not in essence covered only by China’s “accession obligations”. Instead, there are other acceding countries that have undertaken particular accession obligations in particular areas. For example, Cambodia’s commitment to the establishment of a dispute settlement mechanism within the Cambodian Customs Service,55 and “transit 53

The WPR of China, Paragraph 256. WPR of China, Paragraph 286. 55 WPR of Cambodia, Paragraph 99. 54

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trade arrangements”56 based on specific geographical conditions and trade traditions, etc. In the meantime, a comprehensive comparison of all 36 WPRs reveals a patterned characteristics in the overall framework, the contents and the terminology adopted in literally all of the WPRs, and that the differences in the obligations assumed by members upon accession lie only in the different provisions of the WPR that are introduced into the Protocol of Accession. A simple conclusion can thus be drawn that China’s “special accession obligations” are not reflected in the sectors of obligations in relation to other acceding members. (2) Individual Level of Constraint As mentioned above, taking the commitments referred to in the “directly stipulated non-standard provisions” of China’s Accession Protocol as the coordinates, and further comparing them with the corresponding accession commitments of other acceding members, although it is clear that, although there is nothing significantly special about the field of accession obligations of China as compared with other acceding members, some special characteristics are evident in terms of the extent of the obligations undertaken by China in specific matters. This is illustrated in the following two examples. ➀ Unique Benchmark for China A. Outside Benchmark for Determining Subsidies Article 14 of the SCM Agreement stipulates that any method used by the investigating authority to calculate the benefit to the recipient conferred pursuant to Paragraph 1 of Article 1 shall be provided for in the national legislation or implementing regulations of the Member concerned and its application to each particular case shall be transparent and adequately explained. This article doesn’t mention the use of terms and conditions prevailing outside the Member concerned as benchmark. However, Paragraph 15(b) of the China’s Accession Protocol provides that “In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply; however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks. In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.” Paragraph 15(b) of the China’s Accession Protocol in fact specifies the outside benchmark applicable for China and is obviously tailor-made for China according to the “prevailing terms and conditions in China”. However, there is no clear test set 56

WPRs of the 17 acceding members (Laos, Latvia, Estonia, Georgia, Croatia, Lithuania, Armenia, Cambodia, Saudi Arabia, Viet Nam, Ukraine, Cape Verde, Montenegro, Samoa, Russia, Vanuatu, Tajikistan) all provide for 均对 “过境贸易安排” 做了明确约定.

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up in the provision for determining the “prevailing terms and conditions in China”. The foreign agencies in charge of taking countervailing measures and the DSB have a great deal of discretion in this regard. This actually lowers the standard of determining China’s subsidy program to a large extent, and “creates the first and only WTO provision that explicitly authorizes members to use alternative benchmarks to measure subsidies of countries with economies in transition, and is regarded as an ‘unprecedented China-specific’ provision”.57 Compared with the substitute price in anti-dumping, which has a time limit, the provision is not only deterministically open-ended, but also leaves the judgment of the effect of China’s economic system reform to other countries, and even turns into a disguised means for other members to exclude China from its entitlement under the ordinary trade rules.58 B. Reservations by WTO Members Paragraph 17 of China’s Accession Protocol specifies a special obligation for the acceding party, which is not contained in any other Protocols of Accession, i.e., the special rights of the founding members and the earlier acceding members: “All prohibitions, quantitative restrictions and other measures maintained by WTO members against imports from China in a manner inconsistent with the WTO Agreement are listed in Annex 7. All such prohibitions, quantitative restrictions and other measures shall be phased out or dealt with in accordance with mutually agreed terms and timetables as specified in the said Annex”. According to Annex 7, the WTO members. According to Annex 7, WTO members enjoying this special right include Argentina, the European Union, Hungary, Mexico, Poland, the Slovak Republic and Turkey, a total of seven countries and regions, and it involves progressive phasing out of the quantitative restrictions on goods imported from China, anti-dumping and safeguard measures, and the quota for non-textile industrial goods. ➁ Common Obligations by Some Acceding Members A. Stringent Judicial Review Mechanism Paragraph 2(D) of Part I of China’s Accession Protocol (Judicial Review) and Paragraphs 78–79 provide for three progressive requirements for the process of judicial review of trade policies. The first regards the impartiality of the review body, namely “such tribunals shall be impartial and independent of the agency entrusted with administrative enforcement and shall not have any substantial interest in the outcome of the matter”.59 The second requires a broad scope of matters that are subject to judicial review, i.e., all administrative actions relating to the implementation of laws, regulations, judicial decisions and administrative rulings of general application referred to in Article X:1 of the GATT 1994, Article VI of the GATS and the relevant provisions of the TRIPS Agreement, which in detail covers those relating to the implementation of national treatment, conformity assessment, the regulation, 57

See Yu et al. (2015). Ibid. 59 PAC Part I Paragraph 2(D)1, the WPR of China Paragraph 78. 58

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control, supply or promotion of a service, including the grant or denial of a license to provide a service and other matters, and that such administrative actions would be subject to the procedures established for prompt review under Section 2(D)(2) of the Draft Protocol, and information on such procedures would be available through the enquiry point that China would establish upon accession.60 The third requires the right to appeal, namely “review procedures shall include the opportunity for appeal, without penalty, by individuals or enterprises affected by any administrative action subject to review. If the initial right of appeal is to an administrative body, there shall in all cases be the opportunity to choose to appeal the decision to a judicial body. Notice of the decision on appeal shall be given to the appellant and the reasons for such decision shall be provided in writing. The appellant shall also be informed of any right to further appeal”.61 On the one hand, the requirement of a judicial review process is not an obligation for all acceding members, and is only required for 21 of the 36 acceding members; on the other hand, these three progressive requirements make China’s obligation to establish a judicial review mechanism far more stringent than that of other acceding members who are also obliged to provide a judicial review process, for which only two of the three requirements are stipulated, and in some other cases, none. Thus, even with the “special accession obligations”, which are commonly undertaken by some acceding members, the degree of obligation assumed by China is the most stringent. B. Elimination of Export Taxes Paragraph 11.3 of China’s Accession Protocol commits that China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994. Of the Protocols of Accession of the 35 other acceding parties: 24 have no specific provision on export taxes; of the remaining 11,62 the export tax obligations under the Protocols of Accession can be categorized into five groups, ranging from the least to the most significant: a. only apply export control in conformity with the WTO Agreement (Panama,63 Croatia64 ); b. apply export taxes in conformity with the GATT 1994, with reducing export duties applied to specific goods (Viet Nam65 ), exempting specific products from export duties subject to specific terms, conditions, or qualifications (Russian

60

PAC Part I Paragraph 2(D)1, the WPR of China Paragraph 79. PAC Part I Paragraph 2(D)2, the WPR of China Paragraph 79. 62 The 11 countries are: Bulgaria, Panama, Latvia, Estonia, Georgia, Croatia, Saudi Arabia, Viet Nam, Ukraine, Montenegro, and Russia. 63 Protocol of Accession of Panama (WPR Paragraph 71). 64 Protocol of Accession of Croatia (WPR Paragraph 101). 65 Protocol of Accession of Viet Nam (WPR Paragraph 260), ferrous and non-ferrous scrap metal. 61

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151

Federation66 ), or not to imposing export duties on iron and steel scrap (Saudi Arabia67 ); c. minimize the use of export taxes (Bulgaria,68 Estonia,69 Georgia70 ); d. export tariff rates related only to the listed goods (Latvia71 ), or reduce export duties on specific table of products (Ukraine72 ); e. not apply or reintroduce any export duty (Montenegro73 ). It is worth noting that, according to paragraphs 130–132 of the WPR, Montenegro had already fully eliminated all export taxes prior to its accession in 2012, and thus the obligation in paragraph 132 is more directed at the non-introduction of new import taxes. Accordingly what is evident is that China has the most stringent accession obligations in terms of export taxes, even relative to other acceding members. To sum up, by the multiple special identity factors, under the “terms of accession” concluded between China and the WTO, the WTO obligations assumed by China not only exceed the general obligations of the founding members of the WTO, but also are more stringent than the obligations of the other acceding members, and thus become the most special acceding member which has been subjected to multiple differential treatments under the WTO and its dispute settlement mechanism.

3.3 China as a Developing Country Member 3.3.1 “Developing Country” in the Context of International Law The term “developing country” is frequently used in many international diplomatic and legal documents. They are often juxtaposed with developed countries, least developed countries, less developed countries, emerging economies, economies in transition, etc. Among them, developed countries are related to developing countries. The relationship between least developed countries, less developed countries and developing countries is generally understood to be an inclusive relationship in a broad sense. For example, SDT for developing countries, which is provided for in many 66

Protocol of Accession of Russian Federation (WPR Paragraph 638), products described Part V of the Schedule of Concessions and Commitments on Goods of the Russian Federation be exempt from export duties in excess of those set-forth and provided therein. 67 Protocol of Accession of Saudi Arabia (WPR Paragraph 184), no export duties on iron and steel scrap. 68 Protocol of Accession of Bulgaria (WPR Paragraph 39). 69 Protocol of Accession of Estonia (WPR Paragraph 80). 70 Protocol of Accession of Georgia (WPR Paragraph 82). 71 Protocol of Accession of Latvia (WPR Paragraph 69). 72 Protocol of Accession of Ukraine (WPR Paragraph 240). 73 Protocol of Accession of Montenegro (WPR Paragraph 132).

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treaties, is also granted to the least developed countries. On the contrary, however, many developing countries could not take for granted their developing country status if the rights which only the least developed countries could enjoy were clearly defined. The term “emerging economies” refers specifically to a group of members with a strong economic growth performance. This title is known through the creation and use of a number of important international organizations. For example, in its 2004 Working Paper, the IMF for the first time combined developing countries and countries in transition into one group called “developing and emerging economies”.74 It seems to indicate that emerging economies are associated with developing countries yet are still different from traditional developing countries. But in any case, they cannot be classified as a developed country. Thus, the traditional term “developing countries” can still be used to describe all types of members that are not developed countries. Based on the legal documents and usages of international organizations, the term “developing countries” is in fact divided into broad and narrow senses depending on the context in which it is used. As the three pillars of the current international economic order, the World Bank, WTO and IMF all use the term “developing country” in many of their texts, and incorporate the treatment of developing countries into their own responsibilities and functional norms, which is the most direct reflection of the importance of “developing countries” to the stability and development of the international economic order. In reality of international activities, “developing countries” are also a very important kind of subject in the international economic legal system and occupy the absolute majority. According to the UN Report on the World Economic Situation and Prospects 2018, in 2016, developing countries accounted for 85 percent of the world’s population.75 The reality of encompassing so many people and countries dictates that no matter how the great powers play and what the outcome of the game may be, developing countries are an indispensable part of the overall international political and economic order. Especially when the international political and economic order is faced with important adversities, their roles are of vital importance. In terms of the WTO, as mentioned above, while acknowledging the existence of “developing country Members” and “developed country Members”, there exists a unique phenomenon of “one-direction correspondence and reverse-direction noncorrespondence” in the content of rights and obligations between the two. Where the wording “developed country Member” is involved, “developing country Member” must appear simultaneously, indicating that the special obligation imposed on developed country Members is to meet the needs of developing members. However, the developed country Members are not the corresponding subjects under the special systems of the relevant developing members regulated by the WTO. This shows that, on the one hand, WTO sets developed country Members as a special subject, which is intended to give more obligations to meet the special needs of developing country Members. On the other hand, for universal developing country Members, only by 74 75

See Nielsen (2011), p. 19. United Nations (2008), p. 26.

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granting more interest protection can they make up for the imbalance caused by their low competitive status. However, due to the lack of corresponding obligation subjects, the interest goals of vulnerable groups will inevitably fail. Not only that, even for the concept of a “developing country” itself, there has been a great dispute between different members.

3.3.1.1

Legal Concept Divergence

At present, there is no universally recognized definition of “developing country” in the international community, including in the legal documents of the WTO system. On the one hand, as a phenomenon and fact, “developing countries” exist in large numbers in international diplomatic, political and economic activities because of their realistic and possible role and influence on the entire international order, even in the period when the international political and economic order is completely dominated by major powers. In the formulation and application of international law rules, it has to be taken into account (although it may be treated in a superficial or instrumental way) and reflect as a general and tendency expression in relevant legal documents and legal procedures for dealing with relevant affairs. On the other hand, although “developing country” is only an expression of generality and tendency on the whole, it is also one of the constitutive requirements for the subject of international law to obtain a certain legal status in some texts of legal norms, which makes it a legal concept in a certain sense. For example, the United Nations Framework Convention on Climate Change has 74 references to developing countries in its 2015 Paris text and 15 references to least developed countries.76 In Article 2, it is regulated that “this Agreement will be implemented to reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances”.77 Accordingly, under the Treaty, developed countries, developing countries and least developed countries, as different subjects, bear different responsibilities and obligations. For example, under the TRIPS system of the WTO, a compulsory licensing procedure is initiated under the amendment to Article 31 (f).78 “In the event that an eligible importing Member that is a developing country Member or a least developed country Member experiences difficulty in implementing this provision, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in order to facilitate its implementation”. The application of the article also requires first and foremost a distinction between developed, developing and least developed countries. 76

Framework Convention on Climate Change, Conference of the Parties Twenty-first session Paris, December 2015, FCCC/CP/2015/L.9/Rev.1. Available at https://unfccc.int/sites/default/files/ resource/docs/2015/cop21/chi/l09r01c.pdf. 77 Framework Convention on Climate Change, Conference of the Parties Twenty-first session Paris, December 2015, FCCC/CP/2015/L.9/Rev.1., para. 2 of article 2, Available at https://unfccc.int/ sites/default/files/resource/docs/2015/cop21/chi/l09r01c.pdf. 78 See article 31, 31bis of TRIPS Agreement and its Annex.

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However, it is almost impossible to evaluate the degree of “development” of countries with very different histories, cultures and development paths by absolutely uniform indicators. First of all, the selection, calculation and weighting of many statistical data cannot be strictly unified throughout the world, so the data and their conclusions can only be an overall generalized and trendy reflection of the object. Secondly, even if the conclusions formed by these general and trendy reflections are forcibly extended and applied to determine the rights and obligations of subjects of international law, new inequalities and contradictions will be created between developed and developing countries. Developed countries obviously have many unparalleled advantages and the mandatory application of some “development” standards may easily become a new tool for direct or indirect intervention and influence on the political, economic and social development of other countries, which is against the sovereign equality, equal legal status of states, non-interference and international cooperation established by the UN Charter and a series of important legal documents. All the mentioned principles are basic rules of the modern international law system in dealing with relations among states.79 In view of this, the international community currently adopts a de facto “selfdeclared” principle for “developing countries”, i.e., it does not generally recognize what qualifies as “developing”. Rather, it is up to the country to make its own judgment and to choose its own status and mode of participation in international activities. However, whether a developing country’s self-declaration can produce realistic legal effects often requires recognition by other subjects of international law or by the international community as a whole. For example, for developing countries to obtain special assistance or SDT under certain circumstances, it is up to the relevant organization or institution to examine whether the application meets the corresponding subject qualification. For example, in the case of WTO accession negotiations for new members, whether or not a country is granted the status of a developing country, what level of obligations it will assume, and whether or not it can enjoy the SDT granted to a developing country must be negotiated and agreed upon by the proposed member with the WTO before it can have legal effect. As mentioned earlier, according to Article 12 of the WTO Agreement, the decision of accession of the member concerned shall be voted by the Ministerial Meeting of WTO members with a two-thirds majority approval as a condition. However, in the actual negotiation process, whether or not to agree to certain exemptions from obligations and whether or not the proposed country insists on developing country membership upon accession, is often the result of a combination of factors and uncertainties. For example, Bulgaria, with a GDP per capita of only $983 in 1992, did not insist on developing country status and SDT for “full participation in the multilateral trading system” at the time of accession.80

79

See the texts of the 1945 UN Charter, the 1946 Draft Declaration on the Rights and Duties of States, and the 1970 Declaration on Principles of International Law concerning Friendly Relations and Cooperation among States in accordance with the Charter of the United Nations. 80 WPR of Bulgaria, Paragraph. 4.

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Korea also advocated SDT for developing countries during the GATT period,81 but it is difficult to do so today, and there is no clear timeline for the change. Since the concept of “developing countries” has not yet formed a stable and highly consensual connotation in international economic practice, its conceptual debate is still very intense today. 2018–2019 the United States, the European Union and others contested the self-declared mechanism, the meaning of distinction and criteria, etc., and claimed that it was the current self-declared mechanism and SDT, that constituted an obstacle to multilateral development and had led to multilateral dilemmas.82

3.3.1.2

Efforts to Legalize the Status of “Developing Countries”

Despite the above-mentioned difficulties, developing countries have been struggling in the construction and implementation of the international economic legal system. They demand that the imbalances in the development of the international community should be taken into account in the construction of the system and in the practice of individual cases. The international community should give special treatment to developing countries to ensure substantive fairness and equality. This process is, in fact, the process of legalization of developing countries’ status: from the individualized adjustment before the Second World War, to the small-scale adjustment of regional trade arrangements including developing countries, to the systematic adjustment of the multilateral system. It is actually the process of the legal status of developing countries in the international economic legal system from extreme marginalization and instability to normalization and institutionalization. Although the process was often tortuous and circuitous, it still showed a clear development trend in general over a long period: the frequency of “developing countries” in important legal documents increased significantly, and the SDT of developing countries was gradually recognized by the legal system. First, since the 1960s and 1970s, some important documents in the international economic and legal system have frequently referred to developing countries, and many specific institutional arrangements have come into being for developing countries. For example, the First and Second United Nations Conferences on Trade and Development were the results of group efforts of developing countries.83 Although its documents do not have the binding force of a treaty, they have contributed to the promotion of objective practice, the formation of legal certainty and even the interpretation of legal issues in certain fields and the evolution of customary rules. For example, the Declaration for the Establishment of a New International Economic Order and the Program of Action on the Establishment of a New International 81

See Bop/117, 1971, p. 7. See the U.S. proposal for a self-declared mechanism for developing countries dated January 16, 2019 (WT/GC/W/757), and the EU proposal for modernizing WTO reform. Available at http:// trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157331.pdf. 83 Final Act and Report of the United Nations Conference on Trade and Development, United Nations publication, Sales No. 64.II.B.11. 82

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Economic Order, adopted by the United Nations General Assembly in 1974, were specifically designed to address the problems faced by developing countries regarding trade and development of raw materials and primary commodities, the international monetary system, industrialization, transfer of technology, regulation and control of transnational corporations, economic rights and obligations, cooperation issues among developing countries and special statuses to be given. They also come up with special schemes for developing countries. From the 1990s to the present, the WTO package of documents that have had a significant impact on international economic legal practice has also referred to the issues of developing countries in several places and provided for SDT.84 Thus, at least in terms of the form of the legal text, the frequency of the term “developing countries” and the number of provisions involved have indeed increased significantly to date. The term “developing countries” no longer exists only in the preamble and the introduction, but also in many specific institutional arrangements. For example, the IBRD’s development assistance loan arrangements for developing countries in the World Bank system, and the SDT for developing countries in WTO documents, according to the WTO Secretariat, have 145 explicit provisions. Although many of these important documents or provisions are of a “soft law” nature and do not have an enforceable effect and some of them may have a certain degree of enforceability, their effectiveness has not been satisfactory over the years. But leaving aside the fact that they may be confined to the overall problems of international law, the aforementioned documents and institutional arrangements have clearly reflected that in the current international economic legal system, “developing countries” have in fact taken on the meaning of subjects of legal relations, which has achieved a certain consensus in the international community. The international assistance arrangements for developing countries, the support for developing countries’ claims in dispute settlement from GATT to WTO, and the supervision of their implementation all reflect that the legal status of developing countries has indeed been strengthened and enhanced to a greater extent. Second, the international community has not only reached a consensus but has also developed very definite and widely accepted criteria for the least developed countries (LDCs) among the developing countries. The discussion of the least developed country issue at the international level can be traced back to the First and Second United Nations Conferences on Trade and Development in the 1960s, where some participating members suggested that the policies and measures implemented by the international community for developing countries should give special consideration to the LDCs according to the problems of individual stages of development within the

84

The author searched the electronic versions of the texts of the WTO agreements in force since September 2017 (including the original texts of the agreements, amendments to the TRIPS Agreement, the Trade Facilitation Agreement that came into force in February 2017, amendments adopted in July 2017 to adjust the frequency of consideration by members under the TPRM from 2019, and the amended version of the Agreement on Government Procurement). The number of references to developed, developing, least developed, and less developed countries is 173, 308, 134, and 3, respectively.

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group of developing countries.85 In 1971, the United Nations General Assembly also formally proposed that special consideration should be given to the development of LDCs among developing countries. The United Nations General Assembly in 1971 formally proposed that special support measures should be provided for the development of LDCs among developing countries, and defined LDCs as “countries that have low levels of income and face severe structural impediments to sustainable development”.86 This led to the widespread official recognition of the concept of LDCs at the international level. Subsequently, a range of international organizations and their agencies began to increasingly refer to and implement measures of a multilateral nature in support of LDC development and developed a range of evaluation criteria. For example, the Committee for Development Policy of the United Nations Economic and Social Council (ECOSOC) and its predecessor, the Committee for Development Planning (CDP), have developed a series of evaluation criteria.87 In accordance with its duty, it proposes a whole set of indicators that include income (GNI), human assets (HAI) and economic vulnerability (EVI).88 The LDCs are reviewed every 3 years to determine which ones are ready for “graduation”, and both “graduated” and “non-graduated” are monitored on an ongoing basis to ensure a certain degree of sustainability of their development. According to the agency’s criteria, there are still 47 LDCs in the world in 2018, but at the same time, four countries have “graduated” from the list.89 Finally, for the developing country community as a whole, a number of important international organizations have also developed and are still promoting evaluation criteria that are more objective and have a higher degree of acceptance. Apart from the criteria of the aforementioned ECOSOC, other important international economic organizations have also proposed some criteria for judging the degree of development due to their concern for sustainable development and special support issues for developing countries. For example, in its World Development Indicators report, the World Bank classifies all countries and regions into four categories based on income level: low-income level, lower middle-income level, upper middle-income level and 85

Available at https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/2018CD Phandbook.pdf, p. 2. 86 Available at https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/2018CD Phandbook.pdf, p. 1. 87 The Committee for Development Policy, formerly known as the Committee for Development Planning (CDP), was established in 1965 and renamed in 1998 as a subsidiary body of the Economic and Social Council. The role of the Committee for Development Policy is to provide information and independent advice to the Economic and Social Council on emerging cross-sector development issues and international development cooperation, with a focus on medium- and long-term aspects. The Committee is responsible for reviewing LDC status and monitoring their progress after graduation. See Resolutions and Decisions of The Economic and Social Council, E/1998/98. Available at https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/PDFs/The_ Committee_for_Development_Policy/e_1998_46.pdf, pp. 74–76. 88 The criteria for graduation from the LDCs published by the agency in 2018 are: $1230 or more in national income per capita (GNI per capita) and $2460 or more in net income (Income-only) for income; 66 or more in human assets index for assets; and 32 or less in EVI. 89 See https://www.un.org/development/desa/dpad/least-developed-country-category for details.

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high-income level.90 In its World Economic Outlook report, the IMF classifies its members into two categories, advanced economies and emerging market and developing economies, based on a number of statistics.91 There is no doubt that the statistics and classifications of these international organizations, which form the backbone of the modern international economic legal system, have a wide impact. Thus, there is an international consensus on the basic meaning of the term “developing countries”. Moreover, regardless of the aforementioned classifications, the group of “developing countries” is the majority in terms of number and regional scope. With further globalization and the increasingly significant interconnection and interaction of national economies, it is clear that it has an important impact on the world’s political and economic landscape as a whole. Therefore, the term “developing countries” is also of great relevance and should be given a firm legal status.

3.3.1.3

Concept and Evaluation of Dynamic Evolution: “Graduated” or Not?

The meaning of “developing countries” is dynamically evolving. On the one hand, the criteria for evaluating “development” have been changing. From a vertical, chronological perspective, both the ECOSOC Committee on Development Policy and the World Bank have timely adjusted the relevant parameters of their criteria in line with the changes in the world economy. In the WTO system, these criteria are important bases when developing countries, including LDCs, negotiate with WTO members on SDT. From a horizontal, indicator-related perspective, along with the development of the international community, the understanding of “development” has long gone beyond one indicator of national income. A comprehensive system of investigation and evaluation has been formed and is still evolving.92 On the other hand, membership within the developing country group is dynamic and changing. The aforementioned criteria, while judging the state of development of a member, in fact also set out the conditions for the “graduation” of a developing country. The assessment of the status of “graduation” and the determination of the time of “graduation” are particularly important as they relate to the legal status of a particular subject as defined by the legal documents in force. As far as the assessment of the status is concerned, the relevant criteria and procedures are the focus of constant controversy in the international community. The relevant criteria described earlier are the main factual basis for the present. From a procedural perspective, the evaluation and declaration within the UN system have the strongest legal effect, but currently only for LDCs. “Graduation” of LDCs in the UN system is first recommended by the ECOSOC. In accordance with the procedures of the ECOSOC Committee on Development Policy, this facility monitors and evaluates the countries included in the list of LDCs in the 90

See The World by Income and Region, available at http://datatopics.worldbank.org/world-dev elopment-indicators/the-world-by-income-and-region.html. 91 Available at https://www.imf.org/external/pubs/ft/weo/2015/02/weodata/groups.htm#cc. 92 United Nations (2018), p. 6.

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long term and makes a recommendation to the UN General Assembly, through the ECOSOC to which the facility is attached, as to when they should “graduate”. Based on this recommendation, the UN General Assembly officially declares a member to be no longer an LDC. Based on the legal status of the UN and its General Assembly and General Assembly resolutions, the recommendation has a strong legal effect. For example, on 24 July 2018, the ECOSOC approved the graduation of Bhutan, Sao Tome and Principe, and Solomon Islands from the list of LDCs on the recommendation of the Committee for Development Policy. The UN General Assembly adopted a resolution at its 73rd session on 13 December 2018, granting them “a preparation period prior to graduation of 5 years for Bhutan and 6 years for the remaining three countries”.93 To ensure the objectivity and acceptability of its conclusions, the Committee for Development Policy’s assessment of “graduation” status also takes into account the issue of stability. For LDCs to be included in the list of potential “graduates”, the United Nations Conference on Trade and Development (UNCTAD), ECOSOC and the LDCs themselves and their trading partners are invited to provide data and monitor a number of indicators. In particular, ECOSOC assesses the impact of international assistance and treatment received after “graduation”. In principle, the effective date of “graduation” is 3 years after the date of the UN General Assembly resolution. During this period, the country is required to report on its transition plan and its implementation, based on which the ECOSOC Development Policy Committee issues annual reports. In practice, this period may also be extended for special reasons such as natural disasters, unrest events.94 For other developing countries, there is still no unanimous criterion within the UN system to judge their “graduation”. In fact, it also reflects the complexity of evaluating development status from another perspective. However, considering it from a new angle, it objectively leaves room for dealing with related issues among countries and maintains a certain degree of flexibility. To sum up, three aspects are particularly important in understanding the dynamic evolution of “developing countries”. First, the legal status of a specific “developing country” cannot be judged by a static mind. Second, whether a “developing country” graduation” should be based on the results of a comprehensive evaluation of the overall parameters, not limited to one or a few of them. Third, there is also a problem of stability in the change of development status.

93

United Nations (2018), p. 4. For example, the “graduation” period was extended in 2005 for Maldives and in 2009 for Samoa due to the tsunami. See General Assembly resolutions 60/33, 64/295 and 70/78.

94

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3.3.2 China as a Developing Country 3.3.2.1

The Dispute of China’s Status upon Accession: Is It a Developing Country or Not?

The “developing country status” was also one of the most contentious issues China had with its major trading partners, especially the United States, when it joined the negotiations. China’s three principles and two demands for “contracting party restoration” in the negotiations include the idea of accession to the WTO as a “developing country”.95 However, during the first informal consultations between China and its major trading partners, the United States, Canada, Japan and the European Community, in 1985, China and the four parties disagreed on the status of accession. The U.S., one of the main targets of the consultations, was either vague or proposed various qualifications. Canada suggested that the most important issue regarding China’s membership in the GATT was the substance rather than the manner. The EC also believed that the final key was how to resolve the substance, i.e., what kind and how many obligations China was prepared to undertake, and that the EC had no political difficulties with China’s status as a developing country. But it is a difficult issue in terms of substance. Japan, on the other hand, argued that it was difficult to express a clear position and view on the issue without knowing the memorandum on China’s foreign trade system and what price China was prepared to pay when it joined.96 From the responses of the US, Canada, Japan and Europe, it can be seen that the major WTO members also tend to believe that in the WTO legal framework system, “developing countries” are closely related to the corresponding rights and obligations, which is a very typical legal subject concept. There have several twists and turns during China’s accession to the WTO as a developing country before final negotiation and implementation in the relevant texts of the accession protocols and WPRs. Since the beginning of Sino-US negotiation in 1986, the U.S. expressed that the issue of China’s joining the WTO as a developing country could be resolved in the later rounds. However, before the 3rd round of consultations, the U.S. side, after visiting the Shenzhen and Xiamen Special Economic Zones, doubted that China really needs to seek the title of “developing country”.97 In the fifth round of consultations, the U.S. side also proposed that since 95

In its negotiations with the U.S., China proposed three principles for the “contracting party restoration” negotiations, namely, restoration of GATT contracting party status, tariff concessions as an “entry fee” to the GATT, and insistence on developing country status. At the same time, China made two requests to the U.S.: first, it requested the U.S. to grant China unconditional MFN treatment, and second, it requested the U.S. to grant China a Generalized System of Preferences (GSP) treatment. These three principles and two demands constitute China’s five-point position on the resumption of contracting relations. Of these, the three principles are universally applicable to all GATT contracting parties in negotiations, and the two demands are specific to the United States. See Shi (2011), p. 149. 96 See Shi (2011), pp. 34–36. 97 See Shi (2011), p. 149.

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developing country status was self-declared rather than designated, it was appropriate for China to mention this status in the preamble of the protocol. But the U.S. did not want China to remain a developing country forever and proposed the word “at this stage” before developing country status. However, in the subsequent 1993 consultations, the U.S. argued that it was not necessary to include such expressions in the protocol on the grounds that the developing country status was self-declared and that China should fully assume the obligations of the GATT. Later in the 1994 protocol negotiations, it was still proposed to find a compromise solution.98 It was not until March 1995 when U.S. Trade Representative Michael Kantor visited China that he promised that the U.S. and China would conduct China’s WTO accession negotiations on a flexible and pragmatic basis and agreed to address China’s developing country status pragmatically on the basis of the Uruguay Round agreement.99

3.3.2.2

Incoherent Results of “Pragmatism”: China Is and Isn’t a Developing Country Simultaneously

In the finalized text of China’s accession, descriptive statements were made in Paragraphs 8 and 9 of the WPR of China.100 In China’s Accession Protocol, on the other hand, there is no direct and explicit reference to the status of developing countries, but it is indirectly reflected, to some extent, through the content of specific commitments in relevant areas. Thus, although the final text mentions China’s status as a developing country, the specific commitments include many WTO-Plus obligations.101 These WTO-Plus obligations have in fact weakened, restricted or even nullified China’s rights and treatment as a developing member of the WTO. In addition, the members reaffirmed that all commitments made by China in the accession process were solely China’s commitments and would neither prejudice the 98

See Shi (2011), pp. 161, 170–183. See Shi (2011), p. 185. 100 Paragraphs 8 and 9 of the Report of the Working Party on China’s Accession: Para.8. The representative of China stated that although important achievements have been made in its economic development, China was still a developing country and therefore should have the right to enjoy all the differential and more favorable treatment accorded to developing country Members pursuant to the WTO Agreement. Para.9. Some members of the Working Party indicated that because of the significant size, rapid growth and transitional nature of the Chinese economy, a pragmatic approach should be taken in determining China’s need for recourse to transitional periods and other special provisions in the WTO Agreement available to developing country WTO members. Each agreement and China’s situation should be carefully considered and specifically addressed. In this regard, it was stressed that this pragmatic approach would be tailored to fit the specific cases of China’s accession in a few areas, which were reflected in the relevant provisions set forth in China’s Draft Protocol and Working Party Report. Noting the preceding statements, Members reiterated that all commitments taken by China in her accession process were solely those of China and would prejudice neither existing rights and obligations of Members under the WTO Agreement nor on-going and future WTO negotiations and any other process of accession. While noting the pragmatic approach taken in China’s case in a few areas, Members also recognized the importance of differential and more favorable treatment for developing countries embodied in the WTO Agreement. 101 See Qin (2006). 99

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existing rights and obligations of WTO members under the Agreement Establishing the WTO nor damage the ongoing and future WTO negotiations and any other accession process. Such an arrangement made China’s Accession Protocol a very unique legal document among all protocols of accession to date, although accession as a developing country actually imposed many onerous obligations beyond the existing WTO provisions and did not have universal, general legal effect in the strict sense. Thus, China’s position in the entire WTO legal rules system is very special and can be called a “special developing country”. That is, although it is a developing country in the general sense of the text, China has many special obligations at the legal and factual levels compared with other developing members. Meanwhile, there are several unresolved issues related to special treatment that are systemic and institutional for the multilateral system. On the one hand, this special status has led to frequent “special attention” to China throughout the DSM. But, on the other hand, if a positive constructionist perspective is adopted, the legal interpretation and treatment of some issues in cases involving China by panels and Appellate Bodies, as well as by arbitral tribunals in enforcement proceedings, can also promote and facilitate the development of the multilateral system development.

3.3.2.3

The Interactions Among China, Developed Members and Other Developing Members in WTO Dispute Settlements

Dispute settlement is a legal platform for WTO members to apply WTO rules to challenge trade protection policies and measures. The process from the origin of the dispute to its resolution can reflect the real status and problems of different members under the WTO system. Accordingly, the status of China’s involvement in the case can also reflect the status of the subject with Chinese characteristics and related issues. Dispute Regarding the “Developing Member” Status Disputes between members directly arising from “developing country” status have been rare, both during the GATT period and later in the WTO. Even if the cases do involve status issues, the dispute over the status itself has often not been the focus. For example, in terms of cases that have formally entered the dispute settlement process, two GATT-era cases, Income tax practices maintained by the Netherlands,102 EEC— Refunds on exports of sugar,103 and one WTO case, India—Quantitative Restrictions, DS90104 all based their substantive judgments on the “developing country Member” status of one of the parties (the Netherlands, Brazil and India, respectively). However, in the mentioned cases, either the parties did not have disputes, or the panel simply ruled that these members were developing countries, focusing its arguments on the other constituent elements of the enjoyment of rights and obligations. It is thus clear 102

BISD 23S/137. BISD 27S/69. 104 DS90, India—Quantitative Restrictions. 103

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that for the vast majority of “developing country Members”, even without a clear definition by the WTO, their status can be “recognized” by the international community as “self-explanatory”. It is also undeniable that the above-mentioned situation is absolute. In certain circumstances, ambiguity can still create confusion regarding identification. For example, in the United Kingdom—Dollar area quotas,105 the panel found that the continued implementation of quotas was justified for developing countries in those special circumstances. At the same time, the Panel listed 18 “dollar area” countries: Bolivia, Canada, Colombia, Costa Rica, Cuba, Dominica, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Liberia, Mexico, Nicaragua, Panama, the Philippines, the United States and Venezuela. However, the Panel neither identified which of these countries are developing countries nor gave a formal recommendation. Thus, members expressed anxiety about the difficulty of reaching a consensus on this issue.106 Another example is that, in the 1966 Australia Waiver,107 in order to determine which countries were “less developed countries”, the beneficiaries of tariff reductions, which were not clearly defined in GATT 1947 itself, and for which no official list of less developed countries had previously been drawn up for GATT purposes, informal negotiations were conducted to arrive at an unofficial list. This list included almost all countries except the 24 OECD member countries and the former Soviet Eastern Bloc. Portugal was excluded from the list because it was already a member of the OECD, while Spain was able to be included because it was not a member of the OECD at the time. In this regard, some scholars questioned: the level of development of Portugal and Spain are quite close to each other, and Spain is even considered slightly better than Portugal.108 The Developed Country-dominated Counter-parties in China-involved Disputes The data shows that the parties of disputes in which China is involved are mainly developed members, accounting for 91.7%, with the U.S. and the EU being the most prominent. The number of cases between China and the United States exceeds 50% of the total number of cases involving China as a party. The number of cases between China and the EU also reaches 22%. Both the U.S. and the EU have far more cases against China than those complained of by China, with the number of EU v. China cases more than twice the number of China v. EU cases (11:5), and the number of U.S. v. China cases about 1.4 times the number of China v. U.S. cases (23:17). In 2018, in response to U.S. trade control measures, China took the initiative to file five complaint cases. For the first time, the number of complaining cases exceeded the complained cases. This is related to the general background of the almost-stagnated multilateral mechanism and the intensification of trade frictions between China and the United States. Among developed countries, China’s main counterparts in disputes are also Canada, Japan and Australia (Table 3.8). 105

BISD 20S/236. Available at http://www.wto.org/english/tratop_e/dispu_e/72dolquo.pdf. Accessed on May 6, 2010. 107 BISD, 14th, p. 162. 108 See Huang (2000), p. 76. 106

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Table 3.8 2011–2022 the distribution of counter-parties in China-involved cases Number of China involved as a complaining/ defending party

Counter-parties and number cases (percentage)

Complaining 23

Developing members

Developed members

0

U.S. 17

EU 5

U.S. 23

EU 11

Defending 49

Mexico 4

Total 72

6 (8.3%)

Guatemala 1

Brazil 1

Australia 1 Canada 4

Japan 3

Australia 2

66 (91.7%)

Participation of Developing Members Just from the perspective of China’s involvement as a party, it can be seen that, compared with developed members, developing members in WTO dispute settlement have very limited overall participation and capacity. In the six cases of developing members v. China, except for the DS451 case of Mexico v. China, the developing nations all complained following developed members. Secondly, developing members including India, Brazil, Russia and other emerging economy members have a noteworthy performance. In this regard, despite the existence of regional trade arrangements between members or geo-politically induced synergies, the WTO is a multilateral mechanism available to all members, objectively providing a path for developing countries and developed countries to interact with each other. Thirdly, although developing members are a group category, their interests do not necessarily coincide. The Guatemala and Brazil v. China trade control measures case can show the difference in their interests. In fact, the differentiation of developing members’ interests objectively exists. The overall environment of the global economy and trade has inevitably changed over the past 20 years of WTO operation. The speed and status of development of each member have been different. The multilateral mechanism provides a transparent platform for different interests. The existence of rules avoids disorderly competition, which objectively helps to resolve conflicts.

3.3.3 Perspectives on China’s Status as a Developing Member in WTO Dispute Settlements The specific status of developing countries in the DSM depends on the specific rights and obligations granted to developing countries by the WTO treaty system as a whole. From the perspective of the specific content of China’s accession conditions, China belongs to the “other” category, which can be called a “special developing country member”. Such a reference contains two meanings: first, China joins as a developing country; second, based on the special commitments in the accession document and the

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uniqueness of social reality, China is a special developing country in the multilateral system. Therefore, China faces both common problems of developing members and its own individual problems under the multilateral system and its dispute settlement mechanism.

3.3.3.1

Common Problems of Developing Country Members

Significant Weaknesses in the Realization of the Self-regulation Right In theory, WTO rules set binding boundaries for all members’ trade control rights and the DSM achieves the corresponding regulatory effect through rule application. However, in reality, both the range of members’ self-regulatory rights and the application of the rules are related to the manipulation ability of the members concerned. There is no doubt that developed countries have a significant advantage in the realization of self-regulation right. For example, the exceptions in the treaty are regarded as the safety valve of the whole system and an important tool for balancing the coordination of system consistency and self-regulation rights. However, it is very difficult to successfully invoke exceptions in specific dispute resolution practices. Many of the exceptions in the treaty system contain strict restrictive conditions that require the party invoking the exception to provide evidence of the necessity of the relevant measures. One example is the requirement of “necessity” between the purpose and means in Article XX of GATT 1994. In many cases, the invocation of the Article and the shouldering of relevant responsibilities must be based on the relatively mature development of the industry and a sound social management system. For example, in Thailand—Restrictions on Importation of and Internal Taxes on Cigarettes,109 the panel believed that, regarding the issues including protecting the public from harmful ingredients of cigarettes and reducing consumption, they can be resolved through measures non-contradictory or less-contradictory with the GATT such as indiscriminate notification of harmful ingredients or notifying the public. After that, they can achieve the goal through a ban on advertising. However, from a practical point of view, the labeling of harmful ingredients and the prohibition of advertising require the existence of more efficient enforcement mechanisms. In other words, due to the unity of the subject of enforcement, tariffs can achieve significant results once they are implemented, despite their “straightforwardness”. The methods and measures recommended by the panel are inapplicable or too expensive to conduct under current conditions for developing countries. The “general exception” clause, which is supposed to provide a buffer zone for members, especially the relatively weak party, in fact, does not play a role in this regard but has become a means of disguised trade restrictions in some developed countries.

109

DS10: Thailand—Restrictions on Importation of and Internal Taxes on Cigarettes.

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Inadequate Ability and Means to Use Legal Mechanisms In fact, the basic system design of the entire WTO legal system and its operation is based on the assumption of an efficient market-oriented operation of the economic system. However, the majority of developing country members, including China, not only lack the ability to negotiate and apply the rules but also lack the necessary economic system support due to the level of economic development. On the one hand, many cases involving developing countries, including those involving China, relate to the relationship between the market and the government as means of regulating the economy. For example, a series of cases concerning government subsidies, loans and other incentives were brought in response to the Chinese government’s famous brand strategy and a series of measures designed to promote brand development and increase sales.110 The complainants argue that these measures by the Chinese government are based on “conditions of export performance” and constitute prohibited export subsidies under Article 3.1(a) of the SCM Agreement. In fact, the government-led model is related to the lack of maturity in the development of the services market, which is very different from the mature market force-driven model in developed countries. The real change also needs some supporting measures to strengthen the market forces to be effective. For example, a series of cases on measures affecting financial information services and foreign financial information providers have been brought against the specific ways in which the government regulates financial information services.111 In this series of cases, China was sued for violating the national treatment clause by requiring a foreign financial information service provider to provide information about financial information services and related customer information to an affiliate of Xinhua, which is also a competitor. In fact, because the services could not be provided without the subsidiary enterprises, the measure had the nature of administrative licensing. The such customary authorization has indeed been prevalent for some time.112 However, a complete change would also require a major change in the relevant administrative organization system. For developing countries, all of these reforms cannot be achieved overnight and require special consideration of the system, rather than a simple reference to the practices of developed economies, which would be unfair and ineffective. The fact that all these cases ended in negotiated settlements also reflects to some extent the complexity of such practical difficulties. 110

DS387, DS388, and DS390 cases were filed by the United States, Mexico, and Guatemala, respectively, and were all filed against China for subsidies, loans, and other incentives. 111 DS372, DS373, DS378 series of cases were filed by the EC, the U.S., and Canada, respectively, against China’s measures affecting financial information services and foreign financial information providers. 112 In fact, the measures involved in the series of cases also do not comply with the provisions of China’s administrative licensing law that only organizations with public affairs management functions can be authorized. Article 13 of the Administrative License Law, which came into force on 1 July 2004, provides that organizations authorized by law or regulation to manage public affairs may, within the scope of their statutory authorization, implement administrative licenses in their own name.

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167

On the other hand, in the specific procedures of dispute settlement, whether in the investigation and evidence collection in complaining or defending cases, in the counter-plea, or in the following implementation, developed countries also have significant advantages while developing countries have their own insurmountable difficulties. For example, in anti-dumping and countervailing cases, whether it is the determination of normal prices, the collection of information on dumping prices, or the investigation of substantial damage or threat of substantial damage or impediment, all require domestic statistical departments, enterprises in the industries involved, relevant associations and other social organizations to provide accurate information in a fast and timely manner. Developing countries often extremely lack information capacity. Meanwhile, associations and other social organizations are not sufficiently developed. Therefore, it is difficult to conduct a truly comprehensive investigation of the industry to obtain accurate and complete information to form strong evidence. For implementation, there might be great difficulty in the facilitation of relevant measures, due to the limitation of the transition period, the conditions of different stages of reform and other factors. Even for some measures that can be promoted, there are often huge differences between developed and developing countries in concepts and supporting conditions in terms of the choices of specific methods and the measurement of their effects. For the retaliatory measures allowed by the DSU, developing countries, including China, also have many realistic conditions that restrict their effective implementation to varying degrees. China has faced the same pressure since its accession. As early as January 2003, taking the opportunity of the special meeting of the DSB, the Chinese delegation submitted relevant opinions on improving the DSU SDT for developing countries, trying to turn the advocacy provision of DSU Article 4.10 “during consultations Members should give special attention to the particular problems and interests of developing country Members” into a binding rule.113 The main contents include (1) developed countries should be cautious in initiating litigation against developing countries. For example, developed countries should not initiate more than two lawsuits against particular developing countries during a 1-year period. (2) If a developed country initiates a lawsuit against a developing country and the panel or the Appellate Body ultimately finds that the consequences do not violate WTO rules, the costs of the lawsuits of the developing country should be borne by the developed country. (3) Developed countries should help developing countries participate in the trade dispute settlement mechanism by providing technical support and capacitybuilding programs.114 Although the proposal was unsuccessful, China’s concerns undoubtedly represent the common position of developing country members.

113

See Leïla (2012). See Communication of the permanent mission of the People’s Republic of China, improving the special and differential provisions in the dispute settlement understanding. TN/DS/W/29, 22 January 2003.

114

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A Serious Lack of SDT Effectiveness First of all, although the SDT for developing country members has become part of the WTO rules, and, to a certain extent, it has been elevated to a general principle of the WTO system, the language of the provisions as a whole is rather vague except for some clear provisions on the duration of the transition period. Regarding specific dispute settlement, for example, Article 21.2 of the DSU stipulates that “particular attention should be paid to matters affecting the interests of developing country Members with respect to measures which have been subject to dispute settlement”. The meaning of “particular attention” is very vague and does not make substantive requirements. Another example is Article 21.7 of the DSU, which states that “if the matter is one which has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances”. There is no clear definition or guidance on how to consider, whether it is a mandatory obligation, what are the consequences of not considering it, whether it is possible or impossible, and how to determine whether it is consistent or not, etc. A large number of similar provisions make the specific content of the rights and obligations of developing countries unclear in many agreements, resulting in the so-called SDT being negotiated by the members themselves. Such a mechanism arrangement can only achieve a fair result if the members are of equal strength. In reality, however, the disparity between developed and developing members in terms of economic power and political influence is often too great, so the probability of unilateral non-reciprocal treatment being negotiated is very low and its effectiveness is seriously lacking. Second, even with some explicit provisions, the frequency of invocation of SDT provisions in the dispute settlement mechanism is very low, and some provisions have never even been explicitly used during the nearly two decades of WTO operation.115 Regarding the DSU, its Articles 12.10, 12.11, 21.7, 21.8 and 24, respectively, address important legal systems such as the extension of consultation deadlines in dispute settlement, the formal description of SDT considerations for developing members in panel reports, special consideration for developing members in the implementing recommendations and adjudication monitoring, the restraint requirement for LDC complaints, and assistance in dispute settlement. These provisions are important safeguards to correct the real unequal strengths of WTO members and their ability to participate in the dispute settlement mechanism, but they have been “left unused” for a long time and have not been able to play their proper role.

115

See WTO website for a listing of cases applying the provisions of the DSU Agreement. Available at https://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm.

3.3 China as a Developing Country Member

3.3.3.2

169

Individual Issues of China

A “Special” Developing Country Member As mentioned above, China’s position in the overall multilateral system is very special, and it has a unique status as a developing country member of the WTO. The size of China’s economy and the uniqueness of its social development made it a subject of great concern to major trade members such as the United States at the time of its accession to the multilateral system, which led to a number of individualized features presented in China’s Accession Protocol and the WPR of China. Among the protocols, the collection of WTO-Plus obligations is not only unique among WTO members but also creates a special case of the rules of international organizations. According to the WPR of China, while making clear that China remains a developing country, Paragraph 9 states that “a pragmatic approach should be taken in determining China’s need for recourse to transitional periods and other special provisions in the WTO Agreement available to developing country WTO Members. Each agreement and China’s situation should be carefully considered and specifically addressed”. This guidance further develops institutional support for the implementation of China’s WTO-Plus obligations. At the micro-level, these special provisions point to each specific area of trade control, thus creating superb constraints on many aspects of China’s economic and trade management. Examining these constraints in detail, they can be divided into two main categories: one is for constraints that have not been implemented by all members before, i.e., China not only does not enjoy the SDT of developing countries but also does not even meet the general rights level of ordinary members such as the special requirements concerning trade policy deliberations. The other category is that it is not treated as a developing country member but based on the aforementioned so-called “pragmatic” considerations”, which seems to create another category of subjects between developing and developed countries, on which a third type of treatment is imposed. For example, in the Agreement on Agriculture, the de minimis exemption under Article 6.4 is limited to 5% for developed countries and 10% for developing countries, but for China, Paragraph 235 of the WPR of China states that the amount granted is only 8.5%. “Insoluble” Systematic Issues It is clear that there is a paradox between China’s special obligations and its status as a developing country. It raises important institutional questions about the relationship between China’s Accession Protocol and the WPR of China and the WTO Agreement, which has been highlighted by WTO dispute settlement cases involving China. As mentioned, the vast majority of cases in which the Protocol has been invoked in WTO dispute settlement are cases in which China is involved. See Table 3.9 for details of the areas and provisions of China’s Accession Protocol involved in the cases. Despite this large number of cases, however, the reports of the panel and the Appellate Body show that there is no unified and definitive view on the aforementioned institutional issues, which makes them remain “unresolved”. For example, in

Comparable prices in anti-dumping and countervailing

Para.15

DS379 DS437

2

Areas

Paragraphs

Case Number

Amount

1

DS399

Para. 16.1, 16.3, 16.4, 16.6

Safeguard measures

27

DS339 DS340 DS342 DS358 DS359 DS363 DS373 DS378 DS387 DS388 DS390 DS394 DS395 DS398 DS404 DS419 DS431 DS432 DS433 DS450 DS451 DS501 DS508 DS517 DS549 DS568 DS610

Part I, para. 1.2

Commitments in the WPR

Table 3.9 Cases involving China’s accession protocol Non-tariff measures

16

DS363 DS394 DS395 DS398 DS431 DS432 DS433 DS509 DS363 DS394 DS395 DS398 DS431 DS432 DS433 DS509

13

DS339 DS340 DS342 DS358 DS359 DS431 DS432 DS433 DS339 DS340 DS342 DS358 DS359

Part I, para. 5 Part I, para. 7.2, 7.3

Trade rights

6

DS394 DS395 DS398 DS431 DS432 DS433

Part I, para. 8.2

Import and export licensing procedures and quotas

2

DS358 DS359

Part I, para. 10.3

Subsidies

8

DS394 DS395 DS398 DS431 DS432 DS433 DS508 DS509

Part I, para. 11.3

Import and export taxes and charges

3

DS387 DS388 DS390

Part I, para. 12.1

Agriculture

2

DS549 DS611

Para 2(A)2

Unified implementation of the trade system

170 3 China’s Member Status in WTO Dispute Settlement Practices

3.3 China as a Developing Country Member

171

China—Publications and Audiovisual Products, the U.S. accused China of violating its commitments under the Protocol by not opening up the import rights of some cultural products. China, on the other hand, argued that it was “necessary for the maintenance of public morality” and that it complied with the exceptions stated in Article XX of GATT 1994. The United States argued that the exception in Article XX of GATT 1994 applied only to GATT and not to the Protocol. While the panel of this case noted that it was a “complex legal issue”,116 in its subsequent analysis, however, the Panel did not address the issue head-on but instead adopted a roundabout approach using the principle of “economic justice”. Based on the assumption that China was entitled to invoke Article XX of GATT 1994, they examined the question of whether the measures at issue meet the conditions set forth in Article 20 of the GATT 1994. Since the result of the analysis was no, there was no need to answer the aforementioned “complex legal issues”. In the subsequent appellate proceedings, the Appellate Body noted that the panel’s analysis “rests upon an uncertain foundation” due to the lack of argument on the applicability of Article XX.117 The Appellate Body found that this issue lies within the scope of revision according to Article 17.6 of the DSU. The Appellate Body further analyzed that the applicability of Article XX of GATT 1994 depended on the relationship between the defending party’s measure incompatible with the trading rights commitment and the trade control in individual cases. If an identifiable and objective link could be demonstrated, “then China may seek to show that because its measure complies with the conditions of a GATT 1994 exception, the measure represents an exercise of China’s power to regulate trade in a manner consistent with the WTO Agreement and, as such, may not be impaired by China’s trading rights commitments”.118 Regarding the relation between controversial measures and China’s trade regulations on certain products in this case, the Appellate Body found that China “may rely upon the introductory clause of Paragraph 5.1 of its Protocol of Accession and seek to justify these provisions as necessary to protect public morals in China, within the meaning of Article XX(a) of the GATT 1994”.119 However, in China—Raw Materials, the Panel found that the reference to the “WTO Agreement” at the beginning of Paragraph 5.1 of the Protocol in China—Publications and Audiovisual Products. Therefore, Article XX of GATT 1994 could be incorporated into the Protocol. But Paragraph 11.3 of the Protocol at current issue did not contain such wording. Therefore, the export tax commitments in China’s Accession Protocol cannot be defended by invoking the GATT 1994. In subsequent China—Rare Earths, based on China’s defense, the panel again analyzed the relationship between the Protocol and the WTO Agreement and 116

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, para. 7.743. 117 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/ R, adopted 21 December 2009, para. 214. 118 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/ R, adopted 21 December 2009, paras. 229–230. 119 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/ R, adopted 21 December 2009, paras. 233,415(a).

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concluded that the customary rules of treaty interpretation and the specific circumstances of the case should be considered in context, starting with the provisions of the Protocol. The contexts before and after specific provisions, the WPR and the WTO Agreements, the overall structure of the WTO Agreement package of agreements, and other relevant explanatory factors should all be considered. Ultimately, China’s claim was not upheld. China is also gradually trying to fight back appropriately on institutional issues by resorting to the DSM. For example, in several double counter cases of US v. China,120 the main controversial points concern the identification and evaluation criteria of the market economy of the whole WTO legal rules system, as well as the understanding of the specific connotation of China’s SDT in its Protocol of Accession. The same issue is involved in US—Anti-Dumping and Countervailing Duties (DS379), US— Anti-Dumping and Countervailing Duties (DS471), US—Measures Related to Price Comparison Methodologies, etc. In fact, considering the particularity of contents in China’s Accession Protocol, cases involving China reflect, in a more concentrated and in-depth way, the controversy and conflict in the multilateral system among developing countries, developed countries, emerging countries and traditional members. The DSB’s analysis of such key institutional issues in many cases involving China both reveals problems and constitutes an important source of motivation for new developments in the WTO system. Unfortunately, however, the DSB has not yet developed a coherent, strong and commonly accepted systemic interpretation of many institutional issues. In a certain sense, the failure to address or alleviate important institutional issues in China-involved cases is one of the main reasons why the multilateral system is in adversities at present. Contrast between “Self-declaration” and “Other-recognition” From China’s accession documents to the dispute over the application of WTO dispute settlement, it is clear that there is a huge gap between the overall understanding of China’s “special” status by the United States and other major economies and China’s own understanding. The core of the problem is the question of market economy status and the question of how developed Chinese society is, i.e., whether China is still a developing country. The two issues are not completely separated but closely linked. In the modern international economic and legal system pillared by the World Bank, IMF and WTO, the market economy has been defined as directly correlated with the degree of social development. The floating exchange rate system, conditional lending mechanism and gradual liberalization of trade are all embodiment of market mechanisms. Moreover, market economy countries have traditionally been developed countries in the international community. But the reality of China is that China considers itself a developing country with market economy status, while the United States and others still claim China’s status as a non-market economy and a non-developing country until now. Clearly, both sides’ claims differ significantly

120

For example, DS414, DS427, DS440.

3.3 China as a Developing Country Member

173

from traditional perceptions and both sides’ claims indicate that market economies and developing countries are not equivalent or contradictory. As for the issue of market economy status, it will be discussed in detail in the next section. As for the status of developing countries, the mentioned parts show that China’s status as a “developing country” basically remains in name only in the WPR of China, while at the substantive level, the provisions of China’s Accession Protocol and the WPR of China that are individually “customized” for China’s WTOPlus obligations are in fact at work. Instead of complementing the application of the SDT provisions, they place China at a level of special treatment beyond that of developing countries in general and all other members of the multilateral system, which clearly have great differences on paper and in practice. The huge gap between the perception of China’s subjective status and that of some developed members is not in itself a purely economic and legal issue when examined in the context of the international community as a whole. As mentioned above, the accession mechanism of the multilateral system has made the status of developing countries one of the many negotiating conditions. Some developing countries, such as Bulgaria, have even renounced their developing country status in their accession documents “in order to fully participate in the multilateral system”. Therefore, the final status and conditions of accession of WTO members are the result of a game of many factors. This is also the case with China’s special developing country status. In addition to the game of conditions within the economic and legal framework, noneconomic and non-legal factors also have a significant impact. For Western countries, whether the so-called Washington Consensus121 has really disintegrated or not, objectively, there are still various dissimilar and negative examinations of China’s particular economic development path. The questioning of the self-declaration mechanism of developing countries122 seems more or less aimed against developing countries.

121

Western economists made plans for command economies based on traditional neoclassical economic theories, hoping to establish a Western-style system of rules of the game on a large scale, rapidly and comprehensively, thus leading to the improvement of the market mechanism and economic prosperity of these countries. This strategy of rapid privatization, marketization, and liberalization, based on neoclassical theories, is known as the “Washington Consensus” of economic transformation. It emphasizes fiscal discipline and reform of public sector resource allocation, liberalization of the financial and trade sectors, government deregulation of exchange rates, interest rates, and foreign investment, and the privatization of state-owned industries and protection of private property rights. The thrust of the Washington Consensus is still liberalization, privatization and marketization, which is a typical economic liberalism consensus. See Hong (2016), p. 234. 122 WT/GC/W/757, 16 January 2019.

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3.3.4 Crisis and Reflection on “Self-Declared” Development Status 3.3.4.1

Will the “Self-Declaration” of “Developing Countries” Cause Multilateral Failures?

In early 2019, the U.S. formally presented an analysis of “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Irrelevance” to the WTO Council, stating that an economy should not be considered a developing country if it meets one of the following criteria: it is classified as a high-income economy by the World Bank; it is a member of the OECD; it is in the G20; it accounts for more than 0.5% of global trade. According to this argument, insisting on the mechanism of “self-declaration” of “developing countries” and its affirmative effects contradicts the goal of liberalization of the multilateral trading system and fails to make proper distinctions among members, causing multilateral negotiations to fail.123 The European Commission’s WTO Modernization Proposal, published in 2018, also argues that the current gap between developing and developed countries is becoming increasingly minor. Although equally identified as developing countries, there are large differences in the level of economic development of different developing countries. Developing country Members also include the world’s most important trading countries, whose economic development level is far ahead of developing country members and even surpasses that of many developed countries, and this is the main reason for the gridlock in the progress of WTO negotiations.124 On 26 July 2019, Trump further stated in his statement that the classification of developed and developing countries was “outdated” and that if the WTO did not make substantial reforms to the “dichotomy” within 90 days, the United States would no longer recognize the special status of any developing country and take unilateral action.125 On 10 February 2020, the United States Trade Representative (USTR) issued a notice of re-designation of least developed countries (“LDCs”) and developing countries (“DCs”) in countervailing duty laws. The USTR would consider gross national income, the share of world trade and other factors in the designation of developing countries. Under the new designation criteria, China, Brazil, India, Indonesia, Malaysia, Thailand, Bulgaria, Romania, Colombia, Costa Rica, Argentina and South Africa would no longer be considered developing countries in

123

See An undifferentiated WTO: self-declared development status risks institutional irrelevance, communication from the United States, document of the General Council, WTO, WT/GC General Council, WTO, WT/GC/W/757, 16 January 2019; WTO Modernization Introduction to Future EU Proposals, 18 September 2018. Available at http://trade.ec.europa.eu/doclib/docs/2018/september/ tradoc_157331.pdf. 124 European Commission, WTO-EU’s Proposals on WTO Modernisation, Brussels, 5 July 2018, WK 8329/2018 INIT. 125 Presidential Memoranda: Memorandum on Reforming Developing Country Status in the WTO.

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175

U.S. countervailing duty laws.126 These U.S. arguments undoubtedly deprive developing countries of the principle of most-favored-nation treatment in the WTO, the principle of non-discrimination, the multilateral framework for rule-making, SDT, etc. Naturally, they are jointly opposed by developing country Members, such as China, India, South Africa, Venezuela, etc.127 In any case, the U.S. has elevated the issue of self-identification of member development status to the level of the survival of the WTO system.

3.3.4.2

Clarification on the Validity of “Self-Declaration”

A Combination of Principle and Flexibility As mentioned, when the WTO was established and negotiated, there were theoretical and practical considerations in choosing the “self-declared” model for the recognition of developing countries. If the comprehensiveness of “development” and the fact that “other-recognition” could be easily abused were not recognized, conflicts would inevitably arise between developing and developed countries. But this is obviously due to the difference in the understanding of the concept of “development” and the current situation of the international community. Individual members cannot impose their “own views” on other multilateral members, especially views that do not stand up to theoretical and practical tests. In fact, the gridlocks in multilateral negotiations are caused precisely by individual members’ narrow and one-sided understanding of the concept of “developing” based on a perspective isolated from the reality of disparities and uneven development in the international community as a whole. Moreover, the current “self-declaration” is not a baseless self-declaration, but is based on the fact that the aforementioned important international organizations and institutions have formed at least a certain consensus standard based on some factual evaluations. Although the World Bank, the ECOSOC Committee on Development Policy and others emphasize that the classification is only for convenience in statistical analysis when they publish their own classification criteria,128 avoiding influence on any policies. However, based on their international influence and importance, these organizations are objectively bound to have an impact on many supportive policies 126

Federal Register (2020) Designations of Developing and Least-Developed Countries Under the Countervailing Duty Law. https://www.federalregister.gov/documents/2020/02/10/2020-02524/ designations-of-developing-and-least-developed-countries-under-the-countervailing-duty-law. Accessed 10 April 2020. 127 Of course, some developing countries chose to compromise. In March 2019, Brazil pledged to give up its SDT as a developing country Member of the WTO in order to successfully join the OECD; in September 2019, Singapore pledged not to seek SDT from the WTO in the ongoing and future negotiations of the agreement after the USTR issued a memorandum; in October 2019, the South Korean government decided to “relinquish” its “developing country status” in the WTO and would no longer insist on “preferential” treatments under WTO rules in future trade negotiations. 128 Available at http://datatopics.worldbank.org/world-development-indicators/stories/the-classific ation-of-countries-by-income.html.

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aimed specifically at developing countries. In practice, “self-declaration” needs to be negotiated and confirmed by members before it can have legal effect. In other words, such a “self-declaration” mechanism is an institutional arrangement formed among principle, stability and flexibility, affirming some factual states that can form a consensus, but leaving room for comprehensive consideration by members of the international community. Seeking Common Ground while Preserving Minor Differences The practices of GATT and WTO have proved that the above self-declared institutional arrangement can appropriately avoid or dispel the current controversies and concerns about the evaluation of “development” status, thus providing a practical negotiation path for multilateral members. If, as individual countries advocate, very specific criteria must be defined for “developing” status other than the least developed, it will make the negotiations stagnate in the debate over statistical calculation and selection of indicators, which will make the rich diversity and differences of different nations’ societies seriously ignored. It will make it difficult to reach a truly effective negotiation result. From this perspective, it is not “self-declaration” that hinders negotiations. On the contrary, self-declaration softens the systemic difficulties in negotiations and lays the foundation for their advancement. At the same time, the “self-declaration” negotiation among many members often involves comprehensive consideration of various factors including the subject, content and consequences of SDT, which in fact also enables the SDT system to be developed to a certain extent. For example, Article 15 and Article 20 of the WTO Agreement on Agriculture are related to the SDT for developing countries. Article 15 provides that “developing country Members shall have the flexibility to implement reduction commitments over a period of up to 10 years”. Article 20 indicates that “recognizing that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process” and should consider the SDT for developing members. The agreement does not further specify through what measures can the flexibility be reflected, the extent to which they will be implemented, and how SDT for developing country members will be appropriately considered. The relevant details are reflected in the accession protocols of several developing country members and the specific commitments in the WPRs. In a certain sense, it is due to the negotiating channel of Article 15 and Article 20 under the concept of “developing countries” and similar arrangements in other agreements that the interests of different members can be comprehensively coordinated and the whole Agreement on Agriculture can be reached. They also make it possible that, through the complex game, the substantive fairness of the WTO system is developed to a certain degree. A Consensual Agreement The status of developing countries is one of the critical core issues in the current negotiations on the multilateral system. As a term widely used in international politics, diplomacy and legal documents, the term “developing countries” has in fact already acquired a special representative meaning based on precedents. It is an important

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concept of subjects of international law, which is indispensable in the current international economic and legal system. This concept provides the international community with an important tool for classifying membership structures. It cuts across the many differences between politics and law, public and private law, as well as between specific areas of law, and creates consistency regarding subjects. Thus, its role is very special. The multilateral system and various Regional Trade Agreements (hereinafter “RTAs”) should be given a special legal status and form operable SDT provisions to ensure the substantive fairness and sustainability of the international trade. Under the realistic background of international political and economic situations full of uncertainties, this fundamental, basic and consistent legal concept and its related system should still be maintained.

3.4 The Status of China’s Market Economy 3.4.1 The Trouble of Integration with the Expansion of WTO Members 3.4.1.1

Membership Structural Changes and Related Problems

From the original 23 contracting parties of GATT to the current 164 members of WTO, the structure of the “rich club” and the single market economy model of the post-war multilateral trading system has changed dramatically. First of all, although the founding parties of GATT include developing countries such as India and Brazil, their influence on the negotiation issues is quite limited, and thus the focus of the GATT is the needs of developed countries. However, with the accession of more and more developing countries, during the WTO period, especially in the twenty-first century, while the number of WTO members is increasing, most of the members are developing countries, among which there are both large and small countries. There are both emerging economies with rising economic trends and many LDCs. Accordingly, the demand for paying attention to the interests of developing countries and enhancing the “substantive fairness” of the GATT has become increasingly high. Secondly, all the founding parties of GATT basically followed the market economy system and their institutional assumptions were also based on this economic model. Such assumptions were not only reflected in Article XVII of GATT 1994 but also in its system as a whole. However, with the accession or accession application of a series of countries with different economic models, the membership structure has become increasingly complicated and the traditional market economy has begun to interact with “state monopoly trade”, “government-led industry”, “non-market economy” and “transition economy”. As a result, all the special subjects involving different economic factors are bound to face many special problems, both for themselves and the GATT/WTO system.

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Moreover, the most prominent problems brought by the change of membership structure to WTO are, firstly, identification and, secondly, institutional integration. First, as mentioned above, “economic transition members” can benefit from certain special rules stipulated in the relevant agreements. Many of the special benefits must be based on the condition that they were “necessary for the transition”. Therefore, identification becomes an inevitable issue. Although the WTO uses the qualifier “transitioning from a centrally planned economic system to a market and free-enterprise economy” for such countries, as some scholars have pointed out, there are no clear graduation criteria by which the transition from centrally planned economy to a full-fledged market economy is considered to come to completion. Instead economists only depend on a long list of preconditions, which they demand to be in place. The clear graduation from the state trading or non-market economy label is important, however, because the practice of using state trading methodologies in safeguard and anti-dumping legislation depends on it. In the absence of such clear criteria by which these countries can demonstrate their graduation, the risk exists that WTO members will continue these methodologies unnecessarily”.129 Secondly, the WTO admits non-market economy members, which means the crossover and integration between different economic and legal systems. For these countries, having WTO membership will help them integrate into the global economic system and free them from the economic isolation formed among themselves and their historical rivals. The integration of transition economies in the WTO represents nonetheless challenges, but one of the more complex issues is the relationship between the WTO system of multilateral rules and the domestic regulatory and economic systems of its members?130 It encompasses both the multifaceted and complex relationships between different economic systems, between different modes of transition of the same economic system, and between domestic and international legal systems. It also contains the cooperative methods and reconciliation techniques that underlie the handling of these complex relationships. In fact, along with the expanding scope of WTO members with different levels of economic development and different institutional models, especially with emerging economy members, of which China is a representative, being more deeply integrated into the multilateral trading system and playing an increasingly important role, the United States, as the creator and leader of the multilateral system of the WTO, is reflecting more and more problems. The frequent accusations and even threats of withdrawal, as well as the increasing number of disputes over institutional issues in the DSM, indicate that promoting institutional integration and continuously enhancing the inclusiveness of the WTO system has become a fundamental and difficult task for the WTO to resolve the current crisis and promote future development.

129 130

Hoogmartens (2004), p. 16. See Van Dijck and Faber (1996). Cited from Hoogmartens (2004), p. 15.

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Confusion of Institutional Integration

For the WTO and its dominant powers, there has been much conflicts and concerns about the integration of non-market economies. In this regard, the following discussion by Professor Jackson is quite representative.131 On the one hand, the dominant powers recognize that including non-market economies in the membership and binding their trade measures by multilateral rules will not only bring greater benefits of free trade but also help to stabilize the established international economic and political order. It will be against the interest of world economic relations if exclude countries such as China and Russia from the WTO for a long time since they both have an increasingly large impact on world trade. On the other hand, the concern is that non-market factors pose some conceptual difficulties for the GATT trading system, and therefore a series of institutional issues concerning the WTO are necessarily involved such as whether the system can continue to exist and improve if it accommodates economies and institutions that do not have a free market economic structure. Should the system be composed primarily of economies that are relatively “market-oriented”? If so, under what conditions? Can such a system be integrated, without increasing antagonism and resentment, with a situation in which the dominant members can retain significant portions of their economies free from normal GATT rules because they are owned or operated by policies? Professor Jackson argues that GATT rules cannot be integrated with national trade or non-market statuses. Most activities of a “non-market economy” that bases its entire economy on national trade principles would undermine the effective responsibilities of GATT and GATT policies, even though such an economy may be fully compliant with the technical rules of GATT. Thus, the most serious problem facing GATT is how to incorporate a system in which the major economic components are not markets. While some try to use WTO membership as bait to force changes in different national economic systems, others argue that the WTO has the responsibility to change and to point out some appropriate ways for different economic systems. This might involve a buffer mechanism, as was adopted in the case of China. The buffer mechanism may then involve a series of mechanisms that are not very “pure” in their operation, as measured by market-oriented economic policies. The important thing is that these mechanisms are sufficient to protect the market-oriented economy from non-market economies and national trade agencies that may easily weaken GATT rules and policies. This is a somewhat demanding order, but it is not impossible to achieve. In this regard, Professor Jackson suggests that if the WTO chooses to include economic systems that are not particularly market-oriented, it should consider how to create a world in which the various economic systems are “compatible” and fall within the general structure of the WTO. A possible way to create a “compatible mechanism” for non-market economies in the WTO will be to create such a mechanism while also offering the possibility of moving these “non-market economies” toward market 131

See John (2001), pp. 355–369.

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orientation, thus creating a “dual-track” system of guarantees. While a second track of measures specifically for “non-market economies” or national trading systems may not be fully consistent with the economic theory of free trade, it may be a quite practical way for the WTO and GATT to provide a way for national trading states to minimize the potential suspicion and tension. Moreover, the “dual-track system” has the advantage of providing an opportunity for state trading countries to evolve so that the second track will no longer be necessary when they become truly “marketoriented”. In the transition between the two, if some aspects of the national trade economy have achieved sufficient “market orientation”, they should be eligible for full GATT normal treatment.132 Looking at the GATT and WTO accession practice, it can be seen that the existing system is guided by such a theory to deal with the integration of “non-market economy” or “transition economy” members, that is, to create a second track in the “accession conditions” that is different from the general WTO members, so that the non-market economy or transition economy members will enjoy lower rights and assume higher obligations in the relevant areas.

3.4.1.3

The Explicit Dilemma of Institutional Integration: The Question of China’s Market Economy Status

China’s accession as a “non-market economy” member and its more than 10 years of interactions with leading powers such as the US and Europe in the WTO system seems to confirm the long-standing fears of some Western scholars. At the beginning of the GATT, as mentioned earlier, the United States drafted a text in the ITO entitled “All-State Monopoly of Foreign Trade” specifically for the application of the socialist Soviet Union, which provided that such countries would undertake to purchase from each Member State, without discrimination, a specified annual amount of not less than the total value of the agreement. Although this provision was not adopted by the GATT, in the 1960s when Poland and Romania joined the GATT, they adopted this kind of approach of a certain amount of annual increase in imports. Hungary and Yugoslavia adopted a selective safeguard clause. After the collapse of the Soviet Union, these models seem to have lost their meaning to Eastern European countries as they all switched to market economies.133 But even so, some commentators still point out that non-market economies, which were parties during the GATT, had relatively little influence on trade. Moreover, the relationship between the GATT and non-market economies was always troublesome. In other words, trade relations were not so good, but other GATT parties tolerated the situation because not only did they have special arrangements with all these countries concerned but

132 133

See John (2001), pp. 362–363. See Zhao (2000), pp. 206–207.

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also the trade volume of these countries was relatively small. However, these situations do not apply to China and Russia, as both countries are very large and have an incalculable potential trade impact on GATT/WTO.134 Along with the process of China’s “restoration of the contracting party in the GATT” and “accession” to the WTO, the special problems of China have emerged prominently, not only because of the importance of China but also because the rules for resolving China’s “accession” to the WTO will set a precedent for dealing with similar issues in the future, including the possible accession of Russia and other former Soviet republics.135 Moreover, in the view of Western countries, represented by the U.S. and Europe, China’s unique political and economic structure, the scale of economic power and strategic military position, which are different from those of other members, are factors that trigger tensions between it and the multilateral trading system. First, China’s economy is larger than that of any other WTO member. Second, in terms of its political and economic structure, on the one hand, certain features of the Chinese-style market economy can lead to imbalances or complications in the structure of the WTO’s basic commitments, including the continued large share of state-owned enterprises in the economy; the lack of transparency in certain domestic rules and rule-making procedures; the absence of a diverse competition policy; the weakness of the domestic regulatory system, particularly with respect to environmental policy; and the lack of democratic safeguards. On the other hand, there are other features of the Chinese economic system that raise doubts about China’s ability to keep its promises such as the fact that the Chinese judicial system is still somewhat nascent in dealing with commercial disputes and is often subject to political pressure, the fact that there is still a significant degree of corruption in some areas of the country, and the fact that the central government’s control over commercial transactions is rather weak. In contrast, although Russia’s accession to the WTO raises similar questions about its legal and administrative ability to comply with WTO rules, there is no concern about Russia’s centralized economic system because, although some domestic state-owned enterprises also occupy a very important position, it already has a high degree of the market economy. Third, this raises additional concerns in the context of certain key WTO members’ perceptions of China as a military hypothetical enemy.136 In fact, a significant part of the rules featured in China’s Accession Protocol and the WPR of China were set by the U.S., Europe and other members specifically to address the “Chinese non-market economy” and should be considered as a consensus to solve the problem. China has made great achievements in the development of a market economy over 40 years of Reform and Opening-up, and more than 80 economies around the world, including Russia, Brazil, New Zealand, Switzerland and Australia, have recognized China’s market economy status. However, on the one 134

See Patterson (1986). Kennedy KC (1987) Soviet accession to GATT. World Trade Law 21; and Dixon E, Why the Soviet Union applied for GATT membership. World Economy 10:228. All cited in Jackson (2001), p. 358. 135 See Jackson (2001), p. 358. 136 See Barton et al. (2013), pp. 163–167.

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hand, China is unable to prove its market economy status because the WTO does not have criteria to judge market economy status and the successful/unsuccessful results of “transformation”. Members such as the US and Europe have been denying China’s market economy status based on their domestic laws, which have vast discretion, as the standard of measurement. On the other hand, even after the expiration of the automatic termination period stipulated in Paragraph 15 of China’s Accession Protocol, they refuse to treat China equally in the dumping price comparison method for various reasons and continue to apply the discriminatory “surrogate country method”. The problem of institutional integration of GATT/WTO has gradually changed from a potential problem to an explicit conflict, which has become one of the important causes of the current WTO institutional crisis.

3.4.2 Identification of China’s Market Economy Status: Ideal and Realistic Before China’s accession to the GATT/WTO multilateral system, the identification of China’s market economy status was clearly the domain of the domestic law of the importing country alone.137 After China’s accession to the WTO, the identification of its market economy status, among WTO members, should be measured by international law under ideal conditions. However, due to the lack of a uniform definition and clear criteria for judging “market economy” in the WTO, in reality, some still rely on the domestic laws of relevant members to judge while some rely on individual cases through the DSB. Whatever the choice may be, it will inevitably bring about new controversies and uncertainties.

3.4.2.1

Major WTO Articles Concerning Disputes over China’s Market Economy Status

Among WTO’s general rules in the covering agreements, there are many rules that include market economy issues. Apart from the unified commitments of the WTO rules, there are also special rules specifically applied due to China’s “non-market economy” status. One is the treatment or rights secondary to those of other members in terms of trade remedies and quantitative restrictions; the other is the obligations higher than those of other members in terms of transparency, judicial review, local government administration, foreign investment, national treatment of foreign

137

For example, in the 1980 U.S. anti-dumping case against China, the USITC found that China’s menthol production price was not determined by the market and used the price of menthol exported from Paraguay to the U.S. as the normal value of Chinese products. In this regard, Chinese exporters can only remedy exports through domestic law. See Bureau of Import and Export Fair Trade, Ministry of Foreign Trade and Economic Cooperation (2002), p. 4.

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investors, economic reform and trade policy review.138 As far as the current heated controversy concerning China’s market economy status is concerned, the main focus is on the provisions of Article VI of GATT 1994 (including “Note 2”) and Article 2 of the Anti-Dumping Agreement regarding the dumping price comparison method. In this regard, although it does not involve the conflicts or application of the domestic laws of the members, the interpretation of the meaning of these general rules is very controversial. For example, in EU—Price Comparison Methodologies, the different interpretations of China, the United States and the EU have reached diametrically opposed conclusions. In Paragraph 15 of China’s Accession Protocol, since paragraph (d) of the Protocol conditionally invokes the domestic law of the WTO importing member as the basis for determining the market economy statuses of China or its industries or sectors, it effectively recognizes the market economy standard in the sense of the domestic law of the importing member. Of course, the domestic law applies provided that, as of the date of China’s accession, the domestic law of the WTO importing member contains the relevant market economy criterion.

3.4.2.2

The Domestic Law Standards of the US and the EU

The United States and the European Union are the most prominent representatives who insist on applying their domestic law standards and oppose the recognition of China’s market economy status. The Classification of Market Economies in US Domestic Laws In 1988, The United States Congress passed the Omnibus Trade and Competitiveness Act of 1988, and for the first time defined a “non-market economy country” in Section 771.18 as follows: “a nonmarket economy country is any foreign country that does not operate on market principles of cost or pricing structures, leading to sales that do not reflect a product’s fair value”, and listed in subparagraph (B) six criteria for a market economy country, including (1) the extent to which the currency of the foreign country is convertible into the currency of other countries; (2) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management; (3) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country; (4) the extent of government ownership or control of the means of production; (5) the extent of government control over the allocation of resources and over the price and output decisions of enterprises; and (6) such other factors the administering authority considers appropriate.139 In addition, in subparagraphs (C) and (D) of Section 771.18, the Act also 138

Some scholars refer to the rules under which acceding members are treated less favorably than ordinary members as “weak rules” and the rules under which they are obligated more than ordinary members as “super rules”. See Zhang (2011), p. 292. 139 Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100 to 418, 102 st at.1107 (codified as amendments throughout Title 19 of the United States Code).

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emphasizes that any decision to designate another country as a non-market economy shall remain in effect until revoked by the administrative authority, and that any decision by the Department of Commerce to designate another country as a nonmarket economy under subparagraph (A) shall not be subject to judicial review in any investigation conducted. U.S. Methods for Determining the Normal Value of Exports from “Non-market Economy” Countries Surrogate Approach During the 1954–1955 GATT Review Conference, Czechoslovakia submitted a proposal to the Second Review Working Group on “Tariffs, Schedules of Concessions, and Customs Administration” to amend Article VI.1 of GATT 1947, arguing that when the domestic price of the exporting country is not based on fair competition in the market but is set by the state, it is impossible to compare the export price with the domestic price of the exporting country. Therefore, it proposed that the dumping margins for non-market economies be calculated by using: (i) the “average comparable price for the like product for export by third countries to the importing country in question in the ordinary course of trade”, or (ii) in the absence of such price, “the average comparable price for the like product for export by the exporting country to third countries”, or (iii) “the cost of production plus a reasonable addition for selling cost and profit”. Ultimately, the GATT parties did not accept the proposal, but agreed to include an explanatory note, “Note 2”, in Article 6. Subsequently, in 1960, the U.S. Treasury Department adopted for the first time the “prevailing domestic or export prices of similar products manufactured in substitute countries” to determine the normal value of bicycles imported from Czechoslovakia.140 Subsequently, the surrogate country approach was first clearly defined in Section 153.5(b) of the U.S. Customs Regulations of 1973—”Ordinarily, if the information available indicates that the economy of the country from which the merchandise is exported is controlled to an extent that sales or offers of sales of such or similar merchandise in that country or countries other than the United States does not permit a determination of fair value under Section 153.3 or Section 153.4, the Secretary will determine fair value on the basis of the constructed value of the merchandise determined under normal costs, expenses and profits as reflected by the prices at which such or similar merchandise is sold by a non-state-controlled economy country either (1) for consumption in its own markets; or (2) to other countries, including the United States”.141 Factors of Production Approach In the case of electric golf cars in Poland, the US established the Factors of Production Approach to calculate normal value. In the early 1970s, Pezetal, a Polish manufacturer of aerospace products and electric golf cars, began exporting its Melex golf cars to the United States. By 1974, Pezetal had 140

See Bicycles From Czechoslovakia, 25 FR 6657 (1960). Customs Regulation Section 153.5 (b). 19 C.F.R. § 153.5(b) (1973). See Gary N. Horlick and Shannon S. Shuman, Non-market Economy Trade and U.S. Antidumping/Countervailing Duty Laws, 18 The International Lawyer 807, 808. 809 (1984). See also Chen (2006).

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19 percent of the U.S. golf car market share, and U.S. companies, including Harley Davidson, claimed that Polish golf cars were being “dumped” into the U.S. and sold at below-cost prices. According to the U.S. domestic industry, the prices of golf cars from Polish manufacturers are significantly lower than comparably priced golf cars from domestic manufacturers. Such complaints led the U.S. to initiate an antidumping investigation against Pezetal. However, there were no domestic golf courses in Poland, and therefore no golf cars were sold there. According to the investigation, the golf cars were manufactured exclusively in Poland and exported exclusively to the U.S. market and not to other countries. As a result, the U.S. Treasury Department, which was responsible for conducting the dumping investigation at the time, was faced with some difficult questions: How to determine the cost of production of goods in a state-controlled economy and in an economy where there was no free market to determine fair prices? Was it possible to use prices from other jurisdictions? The U.S. Treasury initially had to rely on Canadian manufacturers’ prices to determine the foreign market value of golf cars. And in the subsequent anti-dumping investigation of golf cars, since the only Canadian golf car manufacturer had gone bankrupt and was no longer producing golf carts, the U.S. Treasury Department had to choose production factors from Spain, a country they considered similar and comparable to Poland in terms of economic development, for reference. The structural price of the product was calculated through adjustments to previous results based on actual inputs from Polish state enterprises (verified by the Treasury Department through surveys conducted at Polish enterprises).142 Subsequently, the Omnibus Trade and Competitiveness Act of 1988 also provides in Section 1316 a method for calculating the normal value of the product of a “nonmarket economy” country, that is, “the administering authority shall determine the foreign market value of the merchandise on the basis of the value of the factors of production utilized in producing the merchandise and to which shall be added an amount for general expenses and profit plus the cost of containers, coverings, and other expenses”. And “the factors of production utilized in producing merchandise include, but are not limited to—(A) hours of labor required, (B) quantities of raw materials employed, (C) amounts of energy and other utilities consumed, and (D) representative capital cost, including depreciation”.143 The Act is not fundamentally different from the Trade Agreements Act of 1979, except that the factor of production test is a more preferred method of calculating normal value than the surrogate country method. This is a reflection of the dilemma faced by the Ministry of Commerce in determining the normal value of exports from transition economies.144 However, since the Uruguay Round Agreements Act of 1994 does not address the calculation of normal market prices for “non-market economies”, the factors-of-production method developed in the Omnibus Trade and Competition

142

See Wang (2010), pp. 21–22. Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 st at.1107 (codified as amendment s throughout Tit le 19 of the United States Code). 144 Lant z, op. cit. pp. 1006–1007. 143

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Act of 1988 remains the important evidence for the Department of Commerce to determine the normal market value of exports from non-market economies.145 Market-Oriented Industry Approach: The U.S. Department of Commerce took a different approach in the 1992 Sulfanilic Acid case, holding that a producer in a “non-market economy” that believed it was operating in a market economy must demonstrate that “all prices and costs of its products are determined by the market”. The specific criteria are that (i) there is no meaningful government intervention or involvement in the pricing or production of the product in question; (ii) the enterprise should be privately or collectively owned; and (iii) all significant production inputs, both physical and non-physical, must be purchased at market prices. This determination is known as the market-oriented industry approach, and the U.S. Department of Commerce will consider the enterprise to be operating in accordance with a market economy only if all three of these factors are met simultaneously. EU Classification of Non-Market Economy The three major legislative bodies of the EU are divided on the policy orientation of non-market economy status.146 The definition of “non-market economy” was first used in Regulation (EC) No. 1681/79 of 1 August 1979, issued by the European Economic Community, the predecessor of the EU, which stated in Article 1(C) that “in the case of imports from non-market economy countries and, in particular, those to which regulations (EEC) no 2532/78 (1) and (EEC) no 925/79 (2) apply, normal value shall be determined in an appropriate and not unreasonable manner on the basis of one of the following criteria: (aa) the price at which the like product of a market economy third country is actually sold: (i) for consumption on the domestic market of that country, or (ii) to other countries, including the community; or (bb) the constructed value of the like product in a market economy third country; or (cc) if neither price nor constructed value as established under (aa) or (bb) above provides an adequate basis, the price actually paid or payable in the community for the like product, duly adjusted, if necessary, to include a reasonable profit margin”.147 The Act, by clarifying that this paragraph applies to the countries to which Regulation (EEC) No. 2532/78 and Regulation (EEC) No. 925/79 apply, effectively designates 12 state-owned trading countries, including China, as non-market economies. Subsequently, in a footnote to Article 2.7(a) of Regulation (EC) No. 905/98, the EU gave a list of non-market economy countries to which the Article applies, 15 countries in total, excluding China. However, Article 2.7(b) provides that “In antidumping investigations concerning imports from the Russian Federation and the People’s Republic of China, normal value will be determined in accordance with paragraphs 1–6, if it is shown, on the basis of properly substantiated claims by one or more producers subject to the investigation and in accordance with the criteria and procedures set out in subparagraph (c) that market economy conditions prevail for 145

See Chen (2006). Jia (2017). 147 See Article 3(2)(c) of Council Regulation (EEC) No. 459/68, as amended by Article 1 of Council Regulation (EEC) No. 1681/79. 146

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this producer or producers in respect of the manufacture and sale of the like product concerned. When this is not the case, the rules set out under subparagraph (a) shall apply”.148 (c) sets out five criteria for market economy conditions, “(1) decisions of firms regarding prices, costs and inputs, including for instance raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand, and without significant State interference in this regard, and costs of major inputs substantially reflect market values; (2) firms have one clear set of basic accounting records which are independently audited in line with international accounting standards and are applied for all purposes; (3) the production costs and financial situation of firms are not subject to significant distortions carried over from the former non-market economy system, in particular in relation to depreciation of assets, other write-offs, barter trade and payment via compensation of debts; (4) the firms concerned are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of firms, and (5) exchange rate conversions are carried out at the market rate”.149 EU “Significant Distortions” Principle150 EU Regulation 2017/2312, adopted by the European Parliament and the Council on 12 December 2017, amended the EU’s anti-dumping and countervailing regulations and specifies “significant distortions”. Article 1.1(b) of the Amendment regulates that “significant distortions are those distortions which occur when reported prices or costs, including the costs of raw materials and energy, are not the result of free market forces because they are affected by substantial government intervention. In assessing the existence of significant distortions regard shall be had, inter alia, to the potential impact of one or more of the following elements: (1) the market in question being served to a significant extent by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; (2) state presence in firms allowing the state to interfere with respect to prices or costs; (3) public policies or measures discriminating in favor of domestic suppliers or otherwise influencing free market forces; (4) the lack, discriminatory application or inadequate enforcement of bankruptcy, corporate or property laws; (5) wage costs being distorted; and (6) access to finance granted by institutions which implement public policy objectives or otherwise not acting independently of the state”. Article 1.2 of the Amendment also makes changes to the original Article 2.7, regulating that “normal value shall 148

Council Regulation (EC) No 905/98 of 27 April 1998 amending Regulation (EC) No 384/96 on protection against dumped imports from countries not members of The European Community. 149 Council Regulation (EC) No 905/98 of 27 April 1998 amending Regulation (EC) No 384/96 on protection against dumped imports from countries not members of the European Community. The European Community. Also see Council Regulation (EC) No. 1225/2009. 150 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 subsidized imports from countries not members of the European Union, OJ L338, 19 December 2017, pp. 1–2.

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be determined on the basis of the price or constructed value in an appropriate representative country, or the price from such a third country to other countries, including the Union, or where those are not possible, on any other reasonable basis, including the price actually paid or payable in the Union for the like product, duly adjusted if necessary to include a reasonable profit margin”.

3.4.2.3

The Intensifying Disputes Over China’s Market Economy Status

Although the issue of China’s market economy status has been controversial, due to China’s over-level commitments and transitional arrangements at the time of its accession, disagreements over obligations related to specific provisions were largely dealt with through the DSM during the 15 years up to 2016. In the cases complained by China, for example, China challenged the subsidy specificity, external benchmarks for subsidy calculation and double anti-remedy in the US anti-dumping and countervailing measures. China also challenged the “non-market economy” treatment directly in the EU’s basic law on anti-dumping. When it comes to cases complaining about China, for example, in the case of financial information services measures, China’s management of facilities involving information services or the margin of management rights was challenged. In China—Electronic Payment Services (DS413), others China was challenged regarding the scope of commitment of financial services and the way it was managed, and so on. Whether winning or losing, the parties to the dispute have generally maintained a restrained posture, focusing mainly on specific issues. With the expiration of the transition period of the special method of dumping price comparison promised in Paragraph 15 of China’s Accession Protocol approaching, WTO members such as the EU and Japan have announced one after another that they “continue to maintain China’s non-market economy status” or “do not recognize China’s market economy status”. On 12 December 2016, the day after the expiration of the aforementioned 15-year transition period, China filed a complaint to the DSM (DS515, DS516) against the U.S. and Europe for continuing to apply the discriminatory dumping price comparison method to China. On 26 October 2017, the U.S. Department of Commerce issued the “Report on China’s Non-Market Economy Status”, which, in accordance with Section 771.18 of the Omnibus Trade Competition Act, put forward six points of evidence that China is a non-market economy, namely “(1) The extent to which the currency of the foreign country is convertible into the currency of other countries; (2) The extent to which wage rates in the foreign country are determined by free bargaining between labor and management; (3) The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country; (4) The extent of government ownership or control of the means of production; (5) The extent of government control over the allocation of resources and over the price and output decisions of enterprises; and (6) Such other factors the administering authority considers appropriate”. The core is that the government’s role in economic activity and its relationship with the

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market and private sector has led to fundamental distortions in China’s economy. On 26 July 2018, at the WTO General Council, the US representative again accused China of having non-market-oriented practices and practices in a number of areas, including the control of state-owned enterprises by the Chinese Communist Party and government, government control of the market, industrial policy, exchange rate system, wage system, foreign investment environment and government influence on resource allocation. Ambassador Zhang Xiangchen, China’s Permanent Representative to the WTO, refuted these accusations. He pointed out that no country could use its own economic model as a model for a “market economy” and demanded other countries.151 As a result, China’s market economy status has once again become a hot spot and focus of attention for relevant parties of the WTO. Relevant theoretical and practical debates have reached an unprecedented state of intensity.152 From late 2017 to January 2020, the United States, the European Union and Japan issued seven joint statements in succession addressing China’s market economy status, thus continuing to expand and elevate the debate on the issue to new heights (Table 3.10). Based on the above statement and its work progress, it is reasonable to believe that the U.S., Europe and Japan are taking China as the main target, relying on WTO negotiations, TPRM and DSM, the three major mechanisms, to launch allround cooperation in the areas of rule-making, enforcement and judicial application against what they consider to be the so-called non-market-oriented policies and practices, so as to continuously enhance Western nations’ unilateral impact under the international legal system while promoting the constraining scope and level of international laws. Some scholars point out that the right to set market economy standards and to judge other economies based on them is in the hands of market economy countries, especially large market economy countries. The “non-market economy” treatment based on these criteria and the discriminatory rules reflecting these treatments are not only the economic means for the market economy powers to contain and restrict the “non-market economy” powers but also the political tools for the market economy powers to export their basic economic systems and ideologies to the “non-market economy” countries and force the “non-market economy” countries to converge with them. It is also a political tool for market powers to export their basic economic systems and ideologies to “non-market” countries and force “non-market” countries to converge with them. Therefore, as long as the market economy powers have the political and economic motivation to continue to use their market economy standards to impose “non-market economy” treatment on China, it is impossible for China to meet their standards.153 When the “market economy” and “non-market economy” have no consensus standard but are only tools for fighting over interests,

151

He (2018), p. 8. For example, Barbara Barone, for example, argues that China is still a non-market economy, while many Chinese scholars argue that China has basically become a market economy. See Barone (2015), Pei (2015). 153 See Zhang (2011), p. 417. 152

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Table 3.10 December 2017–January 2020 seven joint statements of the tripartite meeting of U.S., European and Japanese trade ministers Time and place

Main contents

2017.12.12 Buenos Aires

“We, to address this critical concern, agreed to enhance trilateral cooperation in the WTO and in other forums, as appropriate, to eliminate these and other unfair market distorting and protectionist practices by third countries” Such practices are, inter alia, “severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, unfair competitive conditions caused by large market-distorting subsidies and state-owned enterprises, forced technology transfer, and local content requirements and preferences, etc.”

2018.3.10 Brussels

Common goal: “to address non market-oriented policies and practices” Joint actions: “To define the basis for the development of stronger rules on industrial subsidies, and collaborate on maintaining existing disciplines, to tackle the issues of market distortion or overcapacity”

2018.5.31 Paris

“Reiterated their concern with the non-market-oriented policies of third countries and discussed actions being taken and possible measures that could be undertaken in the near future”. In detail, the three annexed statements: 1. “EU-JAPAN-US SCOPING PAPER to define the basis for the development of stronger rules on industrial subsidies”: “The three partners share the view that the existing WTO rulebook on industrial subsidies should be clarified and improved to ensure that certain emerging developing Members do not escape its application”. The future objectives were: (1) Need to improve transparency; (2) Need to better address public bodies and SOEs; (3) Need to have more effective subsidy rules 2. Joint Statement on Technology Transfer Policies and Practices: “(1) no country should require or pressure technology transfer from foreign companies to domestic companies; (2) to establish and share best practices, coordinating where useful, on mechanisms to stop the practices by governments that direct and unfairly facilitate the systematic investment in, and acquisition of, foreign companies and assets to obtain technologies and intellectual property and generate the transfer of technology to domestic companies; (3) condemned government actions that support the unauthorized intrusion into, and theft from, the computer networks of foreign companies to access their sensitive commercial information and trade secrets and use that information for commercial gain” 3. “The Ministers noted the following elements or indications that signal that market conditions exist for businesses and industries: decisions of enterprises on prices, costs, inputs, purchases, and sales are freely determined and made in response to market signals; decisions of enterprises on investments are freely determined and made in response to market signals; prices of capital, labor, technology, and other factors are market-determined; capital allocation decisions for or affecting enterprises are freely determined and made in response to market signals; enterprises are subject to internationally recognized accounting standards, including independent accounting; enterprises are subject to corporation law, bankruptcy law, and private property law; and there is no significant government interference in enterprise business decisions described above” (continued)

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Table 3.10 (continued) Time and place

Main contents

2018.9.25 New York

1. “Statement on Concerns with Non-Market-Oriented Policies and Practices of Third Countries: to further their discussion on various elements or indications that signal that non-market oriented policies and practices exist for businesses and industries; to enhance information sharing on non-market-oriented policies and practices of third countries; and o deepen discussions on enforcement and rule-making as tools to address these problems” 2. “Statement on Industrial Subsidies and State Owned Enterprise: reviewed and confirmed progress regarding possible new rules; to develop effective rules to address market-distorting behavior of state enterprises and confront particularly harmful subsidy practices; to advance their respective internal steps before the end of 2018; emphasized the need to ensure the participation of key trading partners in these future negotiations” 3. “Statement on Concerns with Forced Technology Transfer Policies and Practices of Third Countries: the Ministers will reach out to and build consensus with other like-minded partners; to deepen their investigation and analysis of the full range of harmful technology transfer policies and practices and their effects; the Ministers affirmed their commitment to effective means to stop harmful forced technology transfer policies and practices, and to this end, deepen discussions on enforcement and rule-making as tools to address these problems” 4. “Statement on Discussions on WTO Reform: The Ministers shared a common view on the need for the reform of the WTO, and, with respect to its monitoring and surveillance function, agreed as a first step to co-sponsor a transparency and notification proposal. They also agreed to promote the strengthening of the regular committees’ activities. Overly broad classifications of development, combined with self-designation of development status, inhibits the WTO’s ability to negotiate new, trade-expanding agreements and undermines their effectiveness” 5. “Statement on Digital Trade and E-Commerce: The Ministers shared growing concerns about proliferation of digital protectionism and agreed to cooperate in facilitating digital trade and the growth of the digital economy and to enhance business environments through the promotion of data security. The Ministers welcome the progress of exploratory work under the WTO Joint Statement Initiative on Electronic Commerce” 6. “Statement on Cooperation on Other Issues:” The Ministers confirmed the importance of coordination among themselves to mitigate risks to their national security from trade and foreign investment”

2019.1.9 Washington

“They reiterated their concerns, reviewed ongoing work, and agreed to deepen their cooperation in all areas covered by the Ministerial Statements issued in New York and Paris” (continued)

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Table 3.10 (continued) Time and place

Main contents

2019.5.23 Paris

“They reiterated their concerns, reviewed ongoing work, and agreed to deepen their cooperation in all areas covered by the Ministerial Statements issued in Washington DC, New York, and Paris. The Ministers call on the International Working Group on Export Credits to accelerate its work with a view to reach consensus on the new international export finance disciplines by 2020 in order to level the playing field for export credits”

2020.1.14 Washington

The main focus is on industrial subsidies rules, briefly reiterating consultation and cooperation in areas such as forced technology transfer, WTO reform, e-commerce, and overcapacity. This is the first time that the three parties have issued a very detailed position of principle on industrial subsidies since the fifth statement in January 2019. Specifically, they include: 1. “New types of unconditionally prohibited subsidies need to be added to the ASCM. These are: unlimited guarantees; subsidies to an insolvent or ailing enterprise in the absence of a credible restructuring plan; subsidies to enterprises unable to obtain long-term financing or investment from independent commercial sources operating in sectors or industries in overcapacity; certain direct forgiveness of debt” 2. “Certain other types of subsidies have such a harmful effect so as to justify a reversal of the burden of proof so that the subsidizing Member must demonstrate that there are no serious negative trade or capacity effects and that there is effective transparency about the subsidy in question”. The parties asking for consultations do not have to prove Article 7.2(b) of the SCM Agreement 3. The current rules of the ASCM identify in Article 6.3 instances of serious prejudice to the interests of another Member. An additional type of serious prejudice linked to capacity should be therefore added to Article 6.3 ASCM 4. A new strong incentive to notify subsidies properly should be added to Article 25 ASCM, rendering prohibited any non-notified subsidies that were counter-notified by another Member, unless the subsidizing Member provides the required information in writing within set timeframes 5. Denied relevant adjudication concerning “outside benchmark” and “public body”

the institutional assumption of institutional integration among different members in WTO becomes a real paradox.

3.4.3 Disputes Over Rules in DS516: The Legal Effect of the Automatic Terminating Clause in Paragraph 15 of China’s Accession Protocol154 As mentioned earlier, the 15-year period under Paragraph 15 of China’s Accession Protocol is one of the most important triggers for the escalation of China’s market 154

See Zhang and Xiao (2016).

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economy status issue. In other words, the controversy first revolves around whether China automatically acquires market economy status after the expiration of the 15year period, i.e., 2016, and whether the non-market economy method of dumping price comparison should be abolished.

3.4.3.1

Disputes Over Relevant Theories and Practices

Does China Automatically Acquire Market Economy Status after 2016? The majority of Chinese scholars hold a positive view, mainly believing that recognizing China’s market economy status after the expiration of the paragraph is the rightful meaning of Paragraph 15 and the obligation of WTO members.155 Henry Gao, while not fully advocating automaticity, says that “while I agree with O’Connor that the expiry of this provision doesn’t mandate the granting of MES to China by the EU, I do not agree that this means that China shall not be treated as a ME post 2016”. He further points out that “because para (a) only lists 2 scenarios, i.e., (i) and (ii). Furthermore, para (a) starts by stating that the importing WTO Member shall use ‘either Chinese prices OR [the NME] methodology’”. Once subparagraph (ii) is repealed through subparagraph (d), although the importing country can still continue to use non-market economy measurement methods in anti-dumping investigations under Article 6 of GATT 1994, China has long been a non-planned economy and it is difficult for the importing country to invoke this provision in practice, resulting in China effectively acquiring market economy status.156 Derek Peng, on the other hand, argues that after 15 years, China should be given the same status of legal application as other members, without being given specialization.157 Folkert Graafsma and Elena Kwrnashova, on the other hand, analyze from the perspective of China’s market economy reform achievements and WTO consistency principles, arguing that the discriminatory approach to China’s anti-dumping should be abolished after 2016 and China should be granted market economy status accordingly, which is the responsibility of WTO members.158 Mathew R. Nicely also points out that non-market economy status derives from special provisions in GATT for full market economies or near full monopolies, but China is no longer a centrally planned economy and still follows the is not a centrally planned economy and still follows this provision ignoring the fact that China has entered a market economy. Such a policy is nothing more than an emotional catharsis based on past economics.159 The reasons for the negative view vary and are mainly as follows: (1) Bernard O’Conner, an EU lawyer, first suggested that China could not automatically obtain 155

See Yang (2005); Liu (2007); Li and Liu (2012); Li (2011). Gao H, If you don’t believe in the 2012 myth, do you believe in the 2016 myth? http://wtoand china.Blogspot.com. Accessed 19 July 2012. 157 Peng (2015). 158 Graafsma and Kwrnashova (2014). 159 Nicely (2014). 156

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market economy status after expiration and triggered the debate. He argued that after the 15-year transition period, the importing country has the right to rule on whether China has market economy status, only that the burden of proof to prove the existence of a non-market economy situation shifts to the investigating party, and that China and its enterprises still need to ensure good accounting standards, protection of property rights, currency convert at market rates and reduction of public ownership and government subsidies.160 (2) Theodore R. Poser argues that, on the one hand, the expiration of Paragraph 15(a)(ii) does not mean that China will automatically acquire market economy status because it is the third sentence of Paragraph 15(d) that is the condition for terminating China’s non-market economy status; but, on the other hand, “the burden of proof shifts to the importing party” clearly conflicts with Paragraph 15(a)(i)’s provision that “if the person nation investigation can prove ……”, i.e., China bears the burden of proof.161 (3) According to Yu Yanning, some of the provisions of the protocol have actually recognized the market economy status in the sense of the domestic law of WTO importing members. This means that after the transition period, Chinese enterprises still need to meet the market economy standards in the sense of the domestic laws of WTO importing members.162 Regarding Whether the Surrogate Country Approach of Dumping Price Comparison should be Abolished Scholars who support the abolish argue that special comparative methods such as the “surrogate country approach” are unfair treatment in a Cold War mindset,163 and should be repealed based on the responsibilities and obligations of WTO members, not because China has demonstrated that it meets certain global or country-specific market economy standards.164 In addition, both the WTO SCM and Anti-Dumping Agreements have laid a relatively complete legal foundation for effective responses to unfair competition. Zuo, Haicong and Lin, S. argue that non-market economy status is not relevant to the surrogate country approach and there is no legitimacy in continuing to invoke the surrogate country approach after the expiration of the period.165 Scholars objecting the abolish mostly conduct analysis from the perspective of common international law and WTO interpretation regulation customs. According to Bernard O’Conner, the termination of only Paragraph 15(a)(ii), but not the entire paragraph a, does not mean that the special comparative method for non-market economies has been abolished. Given that Section 15(a)(i) has not been terminated, the importing member could, theoretically, continue to use the surrogate country

160

See O’Connor B Market-economy status for China is not automatic. http://www.Voxeu.Org/art icle/china-market-economy. 161 See Poser (2014). 162 Yu (2013). 163 Nicely (2014). 164 Graafsma and Kwrnashova (2014). 165 Zuo and Lin (2017).

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approach, at least in terms of the text.166 Jorge Miranda argues that the second sentence of Paragraph 15(d), despite its explicit time limit requirement, negates only this presumption of a non-market economy, not the non-market economy comparison methodology itself.167 Yu Yanning and Henry Gao, on the other hand, argue that the basis for the continued use of non-market economy comparisons by WTO importing countries after 2016 is Article VI of the GATT 1994, but question the operability of that Article.168 Scholars with opposing views also disagree on the bearer of the responsibility of proof. One view is that the responsibility should be on the Chinese government, which should prove that the Chinese economy as a whole has market economy conditions under the domestic law of the importing country.169 Other arguments suggest that it should be borne by the importing country.170 A third view advocates self-certification by enterprises, arguing that after 2016, WTO importing members can not only continue to follow the non-market economy comparison approach when the corresponding conditions are met but also be free from the burden of proof as advocated by scholars such as Miranda. The only adjustment needed is to grant market economy treatment to Chinese producers who can effectively self-prove, even if the industry or industries they are in as a whole still do not meet the market economy criteria of WTO importing members.171 One Unique Argument There is a separate set of arguments for both of these issues, arguing that the abolish of Paragraph 15(a)(ii) cannot be interpreted as either an automatic grant of market economy status to China or a right for WTO importing members to continue to follow the non-market economy comparison approach based on Paragraph 15(a). This is because market economy status is not fundamentally an issue within the scope of WTO law. The relevant standards proposed by the U.S. and Europe are only their respective domestic standards and are not explicitly provided for in China’s Accession Protocol. Denying China’s market economy status after 2016 is a violation of WTO legal norms. At the same time, market economy status and the special comparative approach in anti-dumping are different issues but are deliberately linked in the context of domestic law. If the two are separated, WTO importing countries such as the US and Europe can actually retain non-market economy treatment for China indefinitely as well.172

166

O’Connor B Market-economy status for China is not automatic. http://www.Voxeu.Org/article/ china-market-economy. 167 Miranda (2014a). 168 Yu (2013). 169 Bhattacharya (2017); Nedumpara and Subramanian (2018). 170 Miranda (2014a). 171 Ruessmann and Beck (2014). 172 Gatta (2014).

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The Special Context and Scope of Effect of “Automatic Terminating Clause”

The Context of “Automatic Terminating Clause” The “automatic terminating clause” is regulated in Paragraph 15(d) of China’s Accession Protocol, “Price Comparability in Determining of Subsidies and Dumping”, which specifies the circumstances under which subparagraph (a) of this Paragraph can be terminated. Paragraph 15(a) deals with special rules on the application of antidumping price comparability, which is one of a series of “WTO-Plus obligations” that China has accepted in the area of anti-dumping, countervailing and safeguard measures. Paragraph 15(a): The Paragraph regulates that “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”. Compared to the general rules for determining comparable dumping prices with the WTO (hereinafter referred to as “general anti-dumping rules”)—with the “domestic sales price method” as the basic method, the “third country export price method” and the “product factor method” as the complementary methods, and with the “surrogate country method” (the “general surrogate country method”), which is generally applicable to members of “non-market economies”, as an exception—the special feature of Paragraph 15(a) is that the “Chinese price or cost “ is an exceptional method that can be applied only if the Chinese producer proves that the relevant industry has a market economy, while the “surrogate country method” becomes a basic method that can be applied without any obligation of proof by the importing member (“special surrogate country method”). It is clear that the special arrangement of Paragraph 15(a) is a special rule tailored to China for application in a non-market economy. Paragraph 15(d): Paragraph 15(d) is all about the termination of Paragraph 15(a), and there are three termination situations: the first and third sentences: if “China has established, under the national law of the importing WTO Member, that it is a market economy” or “should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector”, then subparagraph (a) shall cease to apply to China or a particular industry or sector. Since both cases are complete terminations on the basis of market economy,

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these clauses can be called “full terminating clauses”. The second sentence, “in any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession”, is an “automatic terminating clause” which is conditioned on the arrival of a certain point in time. The Scope of Effect of “Automatic Terminating Clause” Termination of “Automatic Terminating Clause”: According to the provisions of the “automatic terminating clause”, the “automatic terminating clause” ceases to apply after 11 December 2016. In this regard, there is no dispute in the academic and practical circles. In other words, regardless of whether China is recognized as a market economy country, WTO importing members are obliged to terminate the application of the “surrogate country approach” to China under (ii), i.e., they are not entitled to automatically apply the “surrogate country approach” when Chinese producers cannot prove that the relevant industry has reached market economy conditions. Given that more than 80 economies around the world have recognized China’s market economy status, all special rules applicable to non-market economies, including Paragraph 15(a), cease to apply to China for these countries because the “full terminating clause” is met. There is no need to discuss the effect of the “automatic terminating clause” separately. However, for countries or regions that do not recognize China’s market economy status after 11 December 2016 (including the European Union, the United States, Japan, Canada and other major trading partners of China), the scope of the “automatic terminating clause” with respect to Paragraph 15(a) is significant. Therefore the following discussion of the effect of the “automatic terminating clause” is limited to the mentioned WTO members. Is the Terminating Effect limited to Paragraph 15(a)(i)? Some scholars believe that the termination of Paragraph 15(a)(ii) will lead to the termination of Paragraph 15(a)(i) at the same time. There are two representative opinions. One is that the “Chinese price” in Paragraph 15(a)(i) should be interpreted broadly to include both the “domestic sales price” and the “third country export price” from the perspective of the content and attributes of the provision so that Paragraph 15(a)(i) and Paragraph 15(a)(ii) will cover all four comparable prices. Thus, Section 15(a)(i) and Section 15(a)(ii) constitute two sides of the coin, and the termination of one the side necessarily follows the simultaneous termination of the other side. Conversely, if Paragraph 15(a)(i) remains in effect after 2016, the paradox of having no comparable prices available will arise when Chinese producers cannot prove their market economy conditions.173 Second, from the perspective of the burden of proof, it is argued that after the termination of Paragraph 15(a)(ii), the domestic price or cost of the product should be used directly. The second is that, once Paragraph 15(a)(ii) ends, the domestic price or cost of the product should be used directly, so that the Chinese exporter no longer has to “clearly prove” China’s market economy status. As far as the exemption of the burden of proof is concerned, China can be said to have

173

See Ren (2014a). See also Tietje and Nowrot (2011).

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“automatically acquired” the market economy status, thus terminating Paragraph 15(a)(i).174 The author takes the negative view, believing that Paragraph 15(a)(i) is still valid after 11 December 2016, and that the “Chinese price or cost” is still conditionally applicable and not automatically applicable. First, according to the “principle of effectiveness”, Paragraph 15(a)(i) is still effective. The “principle of effectiveness” is the interpretation of Articles 31 and 32 of the VCLT by the United Nations International Law Commission (ILC), that is when there are two interpretations of a treaty, one of which gives effect to the treaty and the other does not, the honesty, objective and purpose of the treaty would require the former interpretation.175 This method of interpretation is also consistent with the principles of “purposive interpretation” and “good faith interpretation”. Since the “automatic terminating clause” is explicitly covered by Paragraph 15(a)(ii) only, Paragraph 15(a)(i) should be interpreted as still valid according to the “principle of effectiveness”. Second, according to the theoretical interpretation of “Chinese price”, Paragraph 15(a)(i) still applies. In the author’s opinion, the broad understanding of “Chinese price” in the “coin metaphor” seems to be inappropriate, and a narrower interpretation of “domestic sales price” is more appropriate. For one thing, Paragraph 15(a)(i) changes the “domestic price method” from the basic method under the WTO’s general anti-dumping rules to an exceptional method, which is excluded when the Chinese producer is unable to meet the burden of proof. Such a special arrangement for the exclusion of “Chinese prices” is a unilateral obligation that China has undertaken. Under the “in dubio mitius” rule of unilateral obligations,176 the scope of exclusion should be interpreted restrictively, i.e., “Chinese prices” should be limited to the meaning of “Chinese domestic sales prices”. Second, the practice of equating “domestic prices” with “domestic sales prices” has precedents in WTO covering agreements. The “domestic price” in Article VI.1(b) of the GATT 1994 refers to “the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country” in Article 6.1(a). Third, if “Chinese price” is understood as “domestic price” in a broad sense, it should include “Chinese cost”, which is different from Paragraph 15(a)(i), which combines “Chinese price” and “domestic price”. It contradicts Paragraph 15(a)(i) which refers to “Chinese prices” and “Chinese costs” together. In the case that “Chinese price” is narrowly interpreted as “domestic sales price”, when the Chinese producers cannot prove the market economy condition, the claim that all four comparable prices are covered by (i) and (ii) of the “coin metaphor”

174

Zhang et al. (2013). Zhao and Liu (2006), p. 6. 176 Adopted by the UN International Law Commission in 2006. When the scope of a unilateral obligation is in doubt, the obligation must be strictly interpreted. See Jennings and Watts (2010). 175

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is not valid because the “third country export price” still exists, and the two-sided structure of the “coin” is thus broken. At the same time, because the termination of the “automatic terminating clause” does not extend to Paragraph 15(a)(i), the “Chinese price or cost” is still subject to the Chinese producer’s demonstration of market economy conditions in the relevant industry and does not become automatically applicable as a result of the termination of Paragraph 15(a)(ii). The termination of Paragraph 15(a)(ii) does not result in the automatic application of comparable prices. Therefore, the application of “Chinese price or cost” is still excluded when the Chinese producers are unable to meet its burden of proof.

3.4.3.3

The Relationship Between “Automatic Terminating Clause” and China’s Market Economy Status: Not a “Graduation Clause”

As mentioned, some believe that the application of the “automatic terminating clause” after 11 December 2016, will lead to China’s automatic or effective acquisition of market economy status, and accordingly, all “WTO-Plus obligations” in China’s Accession Protocol should be terminated. On 14 September 2011, Premier Wen Jiabao, while attending the Davos Forum, noted in particular that according to WTO rules, China’s full market economy status will be recognized worldwide by 2016.177 This point of view seeks to resolve the controversy once and for all. Once the “automatic termination clause” applies, China automatically “graduates” from the nonmarket economy and thus ends all special concession obligations under China’s Accession Protocol, i.e., the so-called automatic graduation to economic market status.178 Regarding the mentioned contents, the author holds different opinions according to the “treaty interpretation principle”. The reasons are as follows. Textual Interpretation of “In Any Event” in “Automatic Terminating Clause” From the perspective of the textual meaning of the “automatic terminating clause”, “in any event” itself means “not subject to any conditions”, and here the opposite of “in any event is the first sentence of subparagraph d, “Once China has established, under the national law of the importing WTO Member, that it is a market economy”. Thus, it can be interpreted as “no condition is required at that time (the clause shall apply)” or “at that time, whether or not China confirms that it is a market economy in accordance with the domestic law of that WTO importing member (the clause shall apply)”. In essence, the application of the “automatic terminating clause” is not intended to establish a link with China’s market economy status. Comparison between Two Types of Terminating Clauses 177

Wen JB “I hope the EU will recognize China’s full market economy status”. http://finance.sina. com.cn/roll/20110914/122410477712.shtml. Accessed 21 Dec 2015. 178 See Li (2014); see also Price et al. (2015).

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As noted earlier, in addition to the “automatic terminating provision”, Paragraph 15(d) includes two “full termination clauses”, which are not sequential but differ in two aspects. First, the conditions attached to them differ: the latter applies if “China becomes a market economy” or “a particular industry or sector becomes eligible for the market economy”, which can be achieved either before 11 December 2016, or at any time thereafter. The former has the feature of automatic application, and its application condition is “15 years after the date of accession”. Second, the scope of effect is different, as the termination effect of the former extends to all of Paragraph 15(a), while the termination effect of the latter extends only to Paragraph 15(a)(ii). Both Paragraph 15(a)(i) and (ii) are special rules for China’s non-market economy status. If the “automatic terminating clause” is understood as a “graduation clause” for China’s market economy status, then it should be consistent with the “full terminating clause” in terms of its scope of effect. The conditions for their application should be related to each other or mutually dependent. Unfortunately, Paragraph 15(d) is not so arranged. Instead, the “automatic terminating clause” is not related to China’s market economy status, thus leaving room for importing member countries not to recognize China’s market economy status when its 15-year limit expires, allowing Paragraph 15(a)(i) to survive through the close connection between the “full terminating clause” and China’s market economy status. Paragraph 15(b), Paragraph 15(c) and Other Special Rules Still Apply In addition to the special comparable prices rule in Paragraph 15(a), Paragraph 15(b) and Paragraph 15(c) also provide for special concession obligations for China’s nonmarket economy status involving special rules on countervailing and notification procedures when special anti-dumping countervailing procedures are implemented. Although both types of terminating clauses in Paragraph 15(d) are only for antidumping comparable prices in Paragraph (a), if China obtains market economy status under the domestic law of WTO member countries, then both Paragraph 15(b) and Paragraph 15(c) may be terminated in addition to the termination of Paragraph 15(a) measures. However, the current “automatic terminating clause” expressly refers only to Paragraph 15(a)(ii) and does not have any semantic implications for both (b) and (c). The fact that (b) and (c) are still applicable per se proves, in turn, that the “automatic terminating clause” is objectively unable to automatically make China graduate from a non-market economy. Since the “automatic terminating clause” does not have the legal effect of automatically granting China market economy status, there will still be room for the application of the special concession obligations for China in China’s Accession Protocol and the special rules for non-market economy countries in the WTO covering agreements after 2016. At the same time, the conditions for the application of the “full terminating clause” indicate that the market economy is confirmed based on the domestic law of the importing member state and it is difficult to define the EU’s or other countries’ determination of China’s market economy status based on their domestic law standards as a violation of WTO obligations.

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The Possibility of Applying the “Surrogate Country Approach” to China After Dec. 11, 2016

There was once a most optimistic tendency to believe that when the “automatic terminating clause” was applied, China had fully obtained the recognition of full market economy status by all WTO members. If that was so, Paragraph 15(a), and even all other “WTO-Plus obligations” related to China’s status as a non-market economy subject, could be exempted. Thus the general WTO rules could be equally applied to China like the majority of WTO members. Yet, on the contrary, as noted earlier, major trading members such as the United States, the European Union and Japan not only continued to refuse to recognize but were enhancing China’s “nonmarket economy” status. Since the “automatic terminating clause” cannot have the effect of automatically recognizing China’s market economy status, can it lead to the consequence of completely ending the application of the “surrogate country approach” to China? In other words, can it have the effect of “in any event, WTO members are obliged to end the practice of substitution” as stated by Minister Wang Yi?179 In this regard, we believe that it is necessary to examine the provisions of the WTO anti-dumping rules regarding the “surrogate country approach” and the dumping comparable price rules applicable to China after 11 December 2016, distinguishing different situations for specific analysis. Special Rules and General Rules on “Surrogate Country Methods” and Their Differences As mentioned earlier, Paragraph 15(a)(ii) of China’s Accession Protocol provides for special rules involving “surrogate country methods” applicable specifically to China. WTO anti-dumping rules also have ordinary rules of “surrogate country methods” generally applicable to non-market economy countries. On the one hand, the application of both rules is linked to the non-market economy status of the member. On the other hand, in addition to the different targets of application, there are also differences in the allocation of the burden of proof between the two types of special rules. “Surrogate Country Methods” Rules linked to Market Economy Status: The general rule of “surrogate country methods” in WTO anti-dumping rules originates from Ad Article VI.1 of GATT. Note 2 lists the specific manifestations of nonmarket economy countries. Expressions such as “a country which has a complete or substantially complete monopoly of its trade” and “all domestic prices are fixed by the State” are used to indicate that the State controls the economy. The rules differentiate member countries according to different national trade systems, which opens a precedent for the differentiated application of anti-dumping rules.180 Since the United States first used the “surrogate country method” in the Czechoslovak Bicycle case in 1960, it has been implanted in the WTO accession protocols of Poland, Romania, Hungary and other Eastern European countries the concept of 179 180

Ministry of Foreign Affairs (2016). Liu (2015b).

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“surrogate country method”, confirming that importing contracting parties can use the “surrogate country method” to determine the comparable price of dumping for the products of the aforementioned countries. Like Note 2, the application of the “surrogate country method” under Paragraph 15(a)(ii) of China’s Accession Protocol is premised on the application of China’s non-market economy status. Differences between “Surrogate Country Methods” Applicable to China and “Surrogate Country Methods” Applicable to Other Non-Market Economy Members: Compared to the general rules applicable to members with market economy status, Note 2 and the resulting “surrogate country approach” applicable to non-market economy members is clearly a differentiated and high threshold method of determining comparable prices. However, the level of obligation is relatively low compared to the “surrogate country method” applicable only to China as set out in Paragraph 15(a)(ii) of the Protocol. For one thing, Note 2 allocates the burden of proof for applying the “surrogate country method” to the importing country to prove that the exporting country meets the criteria of a non-market economy. Second, “Note 2” unifies the criteria of a so-called non-market economy, that is, “a country which has a complete or substantially complete monopoly of its trade” and “all domestic prices are fixed by the State”, rather than leaving the issue to the domestic law of the member. Dumping Price Comparison Rule Applicable to China after 11 December 2016 It is generally believed that the “lex specialis” principle, which is widely used in domestic law, can also be invoked in the application of China’s Accession Protocol and WTO MTAs. In principle, if the Protocol has special provisions on a certain matter, the Protocol should be applied first, and then the MTAs that have provisions on the same matter should be applied as a whole, instead of being limited to the specific provisions of the MTAs mentioned in the provisions of the Protocol.181 The reasonable approach should be: for those matters which are not provided for in the WTO Agreement and its Annexes but are provided for in the Protocol of Accession, the nature of the matter should be determined first, i.e., whether it falls under trade in goods or services, intellectual property rights or investment measures, etc., and then the provisions of the matter provided for in the Protocol of Accession should be read together with the provisions of the agreement to which the WTO matter belongs. If the provisions of the Protocol of Accession are ambiguous, the provisions of the agreement to which they belong will also be given priority of application.182 As far as the anti-dumping rules are concerned, the special rule of Paragraph 15(a) of China’s Accession Protocol shall prevail, but when there is no room for the application of Paragraph 15(a) or when the agreement is unclear, the general anti-dumping rules of WTO shall apply. Specifically, after 11 December 2016, the application of its rules is divided into the following two cases.

181 182

Liu and Du (2015). Liu (2014).

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First, Paragraph 15(a) is fully terminated when the conditions for the application of the “full terminating clause” are met, and the “domestic sales price method” or the “third country export price method” and the “product factors method” shall be applied in accordance with the WTO general anti-dumping rules. At this point, the “surrogate country method” does not have any possibility of application. Second, when the Member does not recognize China’s market economy status and the situation does not meet the conditions for the application of the “full terminating clause”, the following rules shall be applied to determine the comparable dumping price: Paragraph 15(a)(i) shall take precedence as a “lex specialis”, i.e., the “Chinese price or cost” shall be applied when the Chinese producer clearly proves its market economy condition; when the conditions for the application of Paragraph 15(a) cannot be met, the general rules of WTO anti-dumping shall be applied, i.e., the “third country export price method” shall take precedence, and the “surrogate country method” as stipulated in “Note 2” shall be applied under special circumstances. The Possibility of Applying the General Rules of “Surrogate Country Method” to China Paragraph 15(a)(i) Applies First and Effectively Excludes “Surrogate Country Methods” As noted above, Paragraph 15(a)(i) has priority in the system of comparable price rules. Chinese producers can use a reasonable interpretation of the conditions for the application of “Chinese prices or costs” to prove that the relevant industry has a market economy when China is not recognized as a market economy and to exclude the application of the “surrogate country method” when the conditions for the application of “Chinese prices or costs” are met. Scope of Application of Note 2 “Surrogate Country Approach” when Paragraph 15(a)(i) After 11 December 2016, given that the application of Paragraph 15(a)(i) is subject to the prerequisite that “producers under investigation can clearly show that market economy conditions”, and also given that the “cannot clearly show” situation of Paragraph 15(a)(ii) has been terminated, this provision cannot be applied when Chinese producers cannot meet the requirements of proof in (i). Therefore, the general anti-dumping rules of the WTO will be applied. In the event that China is not recognized as a market economy by the importing Member, the “surrogate country law” provided for in Note 2 may be invoked by the importing Member. Of course, the “surrogate country method” can only be applied if the importing member proves that the Chinese products do not meet the market economy conditions according to the criteria established in “Note 2”.

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3.4.4 The DS516 Principle Debate: Rejecting “Non-market Price” Comparisons—A General Legal Principle of WTO Anti-dumping?183 In the panel proceeding in EU—Measures Related to Price Comparison Methodologies, the United States issued a third-party opinion specifically interpreting WTO dumping price comparability methodology (hereinafter referred to as the “U.S. interpretation”).184 It shifted the dispute between the parties, which had previously focused on the interpretation of the rules on the scope and effect of the termination of Paragraph 15(a) of China’s Accession Protocol, to the level of the WTO general legal principles on anti-dumping. They argued that the rejection of the “non-market economy” Chinese prices was based on the GATT 1994 itself rather than the general authorization of Paragraph 15(a). Paragraph 15(a) was only one of the open examples. In other words, if the core argument of the “U.S. interpretation” is supported, then the dispute over the termination of Paragraph 15(a) is meaningless. As long as China’s market economy status is not recognized, even without Paragraph 15(a), the general rules of the GATT 1994 can continue to apply the “surrogate country method” against China. In view of this, the following parts will focus on the arguments and argumentation of the “U.S. interpretation” to reveal its misunderstanding and misinterpretation of the WTO rules on comparable dumping prices, and thus clarify the logic of the WTO anti-dumping rules and their proper application.

3.4.4.1

China’s Appeal and the “U.S. Interpretation” of DS516

China’s Appeal and Rule Basis185 On 12 December 2016, China submitted to the DSB for consultations with the EU regarding the EU’s regulations on determining the normal value for “non-market economy” countries in anti-dumping investigations against Chinese products (hereinafter referred to as the “EU price comparison methodology”). China claimed that the EU measures violated Articles II.1 and II.2 of the WTO Anti-Dumping Agreement and Articles I.1 and VI.1 of the GATT 1994. China advocated that during 183

See Xiao (2020). See EU—Measures Related to Price Comparison Methodologies (DS516), Legal Interpretation—Article VI:1 of the General Agreement on Tariffs and Trade 1994, the Second Note ADA GATT 1994 Comparison Methodologies (DS516), Legal Interpretation—Article VI:1 of the General Agreement on Tariffs and Trade 1994, the Second Note ADA GATT 1994 Article VI:1, the Practice of the GATT Contracting Parties in the Application of GATT 1994 Article VI:1, the Accessions of Poland, Romania, and Hungary to Article VI:1, the Accessions of Poland, Romania, and Hungary to the GATT, Article 2 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, and Section 15 of China’s Accession Protocol to the WTO. Accession of China to the WTO. 185 See EU—Measures Related to Price Comparison Methodologies Request Consultations by China, WT/DS516/1, G/L/1170, G/ADAP/D116/1, 15 December 2016. 184

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the 15-year transition period after China’s accession to the WTO, China-specific treaties should be applied when other members conduct anti-dumping investigations on Chinese imports and determine price comparability factors. In particular, according to Paragraph 15(a)(ii) of China’s Accession Protocol, WTO importing members should be allowed to use methods that were not strictly comparable based on domestic prices or costs in China under certain conditions. At the same time, Paragraph 15(d) provided that, in any event, Paragraph 15(a)(ii) terminated 15 years after China’s accession. As a result, from 11 December 2016, the general WTO rules should be applied to Chinese products. However, the EU adopted, through legislation the practice of continuing to determine normal value according to special calculation methods unless the producer proved that it met the specific criteria set by the EU. It was a violation of the international obligations of the EU. Following the appeal of China, the EU Parliament published new methodological amendments to the Anti-Dumping Law on 19 December 2017. While the new amendment removed the “list of non-market economy countries” and the legal presumption that China was a “non-market economy country”, it introduced the concept and criterion of “serious market distortion”. In the case of so-called serious market distortion, the price or cost of the exporting country could be abandoned, and the price or cost of a third country or international market could be used to determine whether there was dumping. China believed that WTO rules did not exist the concept of “serious distortion” of the market and that the new method of EU anti-dumping investigation lacked the basis of WTO rules. The EU continued to use the “surrogate country method” in violation of WTO rules and used the EU’s unilateral criteria to measure the existence of “serious market distortion” in other countries, which would weaken the authority of the WTO anti-dumping legal system.186 Core Arguments and Major Bases of the “U.S. Interpretation”187 Key Points: The comparison between export prices and normal value is the core of determining the existence and margin of dumping. “Determining price comparability” is the principle and consensus of WTO anti-dumping rules. Normal value as the benchmark of comparison is the premise of ensuring “comparability”. Only marketdetermined prices can determine normal value. Non-market-determined prices must cause distortion or unreliable results, and therefore cannot be applied to determine normal value. In the case that domestic prices or costs are incomparable, importing 186

See “Ministry of Commerce spokesman on the European Parliament’s adoption of amendments to the new methodology for anti-Dumping investigations”, http://www.mofcom.gov.cn/article/ae/ ag/201711/20171102671544.shtml. Accessed on March 5, 2018. Given that the new EU law is not fundamentally different from the original “alternative country approach” under “non-market economy” conditions, and given that the DS516 Chinese petition already contains similar measures after the EU, the new EU law does not change the content of the parties’ disputes. Moreover, for the purpose of this paper, the “U.S. interpretation” is not only for the specific measures in this case, but also for the general legal principle of WTO anti-dumping price comparability method, so the introduction of the new EU law does not affect the argument of this paper. 187 See https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds516_e.htm. Accessed 21 December 2018.

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members have the right to seek alternatives. According to all legal texts of WTO antidumping rules188 and the consistent practice of GATT for decades, GATT parties and WTO members have always recognized that non-market prices or costs are inappropriate for determining “price comparability”. Core Arguments: The rejection of “non-market economy” price comparability is a general legal principle established by Articles VI.1 and VI.2 of the GATT 1994 and Article 2 of the Anti-Dumping Agreement, which gives importing Members a general authorization to use the surrogate country method. Major Bases: The first type is Article VI of the GATT 1994 and Article 2 of Anti-Dumping Agreements Establishing General Rules. Article VI.1 of GATT 1994 establishes the principle of comparability, where “comparable prices” refer to market-determined prices. The terms “ordinary” and “commercial”, and the assumption of “in the absence of such domestic price” are examples. Article 2 of the Anti-Dumping Agreement, while retaining the principle of price comparability in Article VI of the GATT 1994, provides that in the absence of market economy conditions, comparison by domestic prices or costs is inappropriate and alternative methods may be sought. The second type includes the exemplary “Note 2” of Ad Article VI.1 and Paragraph 15(a) of China’s Accession Protocol. GATT Ad Article VI.1 “Note 2” provides for a situation in which “all domestic prices are fixed by the State, special difficulties may exist in determining price comparability”. This note, however, as an “explanatory note”, is not an exception to Article VI of the GATT 1994 and does not exclude the existence of other cases of “special difficulties in determining price comparability”. Paragraph 15(a) of China’s Accession Protocol is a concrete expression of the price comparability principle of Article VI of the GATT 1994, according to which China’s domestic prices and costs can be rejected for comparability as long as the conditions for a market economy are not in place. However, at the same time, this paragraph does not cover all “non-comparable” cases. The expiration of Paragraph 15(a)(ii) does not mean that the importing Member cannot ensure price comparability in accordance with Article VI and the general legal principles of the Anti-Dumping Agreement. Thus, if market economy conditions do not exist, then comparable prices or costs do not exist and Members can still compare without strictly relying on domestic prices or costs in China. In other words, the expiration of the clause does not mean that WTO members no longer have the right to reject non-market domestic price comparability in China. The third type is subsequent practices of GATT as Corroborations, including history of amendment and consideration of Article VI.1 of the GATT and accession practice of non-market economy Members such as Poland, Romania and Hungary. The rejection of non-market economy price comparability is a common practice of GATT Parties and WTO members, which constitutes “subsequent practice” in the 188

Including Article VI of GATT 1994, Paragraph 15 of the Protocol on China’s Accession, Note 2 to Ad Article 6.1 of GATT, documents on the accession of members to GATT, and texts of other relevant documents.

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interpretation of the rules. Thus, it can be demonstrated that the Parties recognize that the anti-dumping rules have a core content: the lack of comparable prices and costs in a non-market economy fails to ensure the requirement of “comparability”, and therefore the importing Member can reject using its domestic prices for comparison and use the surrogate country method based on the statutory authorization of the GATT 1994. The Logical Interpretation of WTO Rules in the “U.S. Interpretation” The “U.S. interpretation” is the legal interpretation of WTO dumping price comparable rules. The author believes that the purpose of its interpretation not only lies in the self-interested interpretation of the rules’ content but also lies in an expansive intention to break the boundaries of the existing WTO system through the construction of a new logic of the rules. The interpretive arguments of the “U.S. interpretation” include two major categories: the text of the rule and the practice of implementation. Article VI.1 of the GATT 1994 and its Note 2, Article 2 of the Anti-Dumping Agreement, Paragraph 15 of China’s Accession Protocol, and the Protocols of Poland, Romania and Hungary fall into the former category; the general practice of Parties in applying Article VI.1 of the GATT, the negotiation history of “Note 2”, and the accession practices of Poland, Romania and Hungary are the latter. Although both are included in the “U.S. Interpretation”, it is clear that what needs to be interpreted is the nature and content of the provisions, and thus determine the boundaries of the rights and obligations of the members. The practice functions serve as a reference or corroboration of the interpretation. The basic interpretation pattern and structure of the “U.S. interpretation” are as follows (Fig. 3.2). In relation to the disputes over rules involved in the EU price comparison method measures case, according to WTO dispute settlement and anti-dumping rules system, the author believes that the logic, the text and interpretations of practices of the “U.S.

Fig. 3.2 The basic interpretation pattern and structure of the “U.S. interpretation”

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interpretation” of the legal arguments are wrong. The claim that “the rejection of nonmarket price comparability is a general principle of WTO law”, on which the U.S. bases its arguments, is also no argument.

3.4.4.2

Deductive Logic of DS516: Propositional Choice and Value Pursuit

The “U.S. interpretation” serves the specific dispute of EU—Measures Related to Price Comparison Methodologies Status, but the logical starting point of its argument is the basic principles of the anti-dumping law. The Logic of the “U.S. Interpretation”: the Jurisprudence of the “Dumping Price Comparison Method The overall logical structure of the “U.S. interpretation” is the deduction of “general jurisprudence → basic principles → specific rules”, rather than the opposite idea of moving from the specific to the general. The “U.S. Interpretation” begins with “Reading the text of”, but does not summarize or reflect, respectively, the direct meanings of the rules. Instead, it starts with the general principles on which the rules are formed and implemented.189 The general conclusion that “non-market prices are not comparable” is confirmed as the premise of all the following interpretative arguments. In fact, from the “U.S. Interpretation” throughout the elaboration of the WTO rules on the method of dumping price comparability, in addition to the argument or definition of the attributes of each article,190 it always avoids the rules themselves. The meanings, contexts and purposes are often left out of the interpretation and are directly used as arguments to prove their jurisprudence interpretation of “non-market price incomparability”. Thus, even if the content of the rules is quoted, only a few of them are chosen to reflect this principle such as “normal course of trade” of Article 2 of the Anti-Dumping Agreement, “Note 2”, and “special difficulties may exist in determining price comparability”, etc. Choice of Propositions: Conformity of Rules or Jurisprudence? Examining the whole deductive process of the “U.S. interpretation”, it can be seen that its argument is based on the interpretation of the basic principles of the dumping price comparability method rules rather than the WTO rules on dumping price comparability method themselves. Although it involves the interpretation of the elements or 189

The first paragraph of the “U.S. Interpretation” argues that the WTO rules are formed and operate from the perception of members that “‘non-market prices or costs’ may be distorted or unreasonable and therefore not suitable for price comparability. In this short argument, it is emphasized twice that “GATT Contracting Parties and WTO Members have always recognized ......”. See EU—Measures Related to Price Comparison Methodologies (DS516), Legal Interpretation, paragraph 1.1. 190 Article attributes, referring to the nature of the positioning of these provisions. For example, the authorizing nature of Article VI.1 of the GATT 1994; the exceptionality and exclusivity of Note 2; the nature of subsequent practice of Poland and other accessions to the GATT Agreement, etc. The discussion of the attributes of each provision will be developed in turn below.

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connotations of the relevant WTO rules, logically, it serves to prove that it is consistent with the anti-dumping “non-market price incomparable” jurisprudence. It does not serve the purpose of understanding the connotations of the “non-market price incomparable” rule. Since the “U.S. Interpretation” takes the jurisprudence rather than the WTO rules as the premise of the argument, it has switched the focus of the litigation in EU—Measures Related to Price Comparison Methodologies Status from “whether the disputed measures are consistent with WTO rules” to “whether the WTO rules and the disputed measures are consistent with anti-dumping jurisprudence”. If the focus is changed, on the one hand, the conclusion that the disputed measures are consistent with WTO rules can be reached even if the argument is valid. On the other hand, as is known, the proposition of whether WTO rules and disputed measures are consistent with anti-dumping jurisprudence is not relevant to this case, nor does it fall within the scope of WTO dispute settlement jurisdiction (Table 3.11). The Value Pursuit: A Legislative Basis or Judicial Application? The substitution of propositions in dispute settlement not only falls into the error of logic of forms but also confuses the value objectives of two different activities: legislative argumentation and judicial adjudication. In legislation, when seeking the institutional basis for justification, it should first establish its jurisprudence basis, then the principal basis of the higher law, and finally be implemented in specific individual rules. In jurisdiction, including but not limited to EU—Measures Related to Price Comparison Methodologies Status, when seeking the rule basis for adjudicating right and wrong, it should follow the opposite path from “specific rules → legal principles → basic jurisprudence”. In other words, in order to pursue the value of the judicial decision, the principle of the application is “from individual to general”, which is embodied in the rules of application such as “special first, then general”; the higher law has a higher level of effect than the lower law, but in the absence of the lower Table 3.11 Comparison of differences in deduction Syllogistic deduction Ideal deduction of DS516

“U.S. interpretation”

Topic

Whether the disputed measures are Whether WTO rules and the in compliance with WTO rules disputed measures are consistent with anti-dumping jurisprudence

Major premise

Normative elements of WTO rules Anti-dumping jurisprudence: non-market prices are not comparable

Minor premise

Conformity degree of the disputed WTO rules and disputed measures measures with the WTO normative have provisions of in-comparability elements

Conclusion

Elements met: match Element not satisfied: does not match

Available conclusion: WTO rules and measures at issue are consistent with anti-dumping jurisprudence Unavailable conclusion: The disputed measures are consistent with WTO rules

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law contradicting the higher law, the lower law has a higher level of effect than the higher law. In fact, according to the application of rules and their interpretation for adjudicative purposes, the application of a law, whether domestic or international law, is primarily based on the search for formal sources of law in the form of substantive law.191 It should follow the path of “legal rules → legal principles”. Moreover, legal principles are mostly used as explanatory arguments for the content of specific rules while jurisprudence has never been recognized as a formal source of law.192

3.4.4.3

The Question of the Connotation of the Principal Clause of the WTO’s “Dumping Price Comparability Methodology”: Authorization Versus Restriction?

The “U.S. Interpretation”: Rejection of General Authorization at Non-market Domestic Prices According to the “U.S. interpretation”, the right of importing Members to reject non-market domestic prices or costs for dumping comparisons stems directly from the principal provisions of the WTO anti-dumping rules—Article VI.1 of the GATT 1994 and Article 2 of the Anti-Dumping Agreement. The former establishes the basic principle of “market price comparability” while the latter is the specific embodiment of this principle. From the perspective of Article VI.1 of the GATT 1994, price comparison presupposes that there is a comparable “normal value” or domestic price “in the ordinary course of trade”; and the so-called normal and “comparable” refer to market-determined circumstances reflecting fair trade transactions between buyers and sellers. Non-market-determined prices are not comparable, and there are a series of situations such as Article 2 of the Anti-Dumping Agreement, “Note 2”, Paragraph 15 of China’s Accession Protocol, etc., which directly regulate that non-market-determined prices are not allowed for proper comparison. In the case of Article 2 of the Anti-Dumping Agreement, the wording “in the ordinary course of trade” (Article 2.1), “particular market situations …… do permit a proper comparison” (Article 2.2), and “the export price is unreliable because of 191

For example, Article 38 of the Statute of the International Court of Justice identifies the “rules expressly recognized by the contesting states” as the primary source of international law to be applied in adjudication. According to its provisions: “The Court, whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply: (a) international conventions, whether general or particular, establishing rules expressly recognized by the contesting states”. 192 The formal sources of the law are the opposite of the nonformal sources of the law. The former are those sources that can be derived from explicit textual forms embodied in authoritative legal documents; the latter are those sources of legal significance and materials worthy of consideration that have not yet been authoritatively or at least explicitly articulated and embodied in formal legal documents. See Bodenheimer E (1940) Jurisprudence: legal philosophy and legal method. Chinese Edition: Bodenheimer (2004), pp. 429–430.

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association or a compensatory arrangement between the exporter and the importer or a third party” indicate that the determination of “normal value” requires a marketdetermined comparable price in the ordinary course of trade. That is, a comparable price is a market-determined price that will allow for proper comparison—one that reflects business behavior, the independence of buyers and sellers, and the relationship between mutual supply and demand. In industries that do not have market economy conditions, their prices or costs are comparable prices that cannot be considered as normal values. Thus, this article further supports the right granted by Article VI.1 of GATT 1994 to reject non-market domestic prices or costs for dumping comparisons. To put it simply, the “U.S. interpretation” of the WTO principles on the methodology of dumping price comparability is based on selective identification of certain pieces or wording from Article VI of the GATT 1994 and Article 2 of the AntiDumping Agreement, which are used to justify its conclusion that, in principle, the rejection of “non-market price” comparability is a basic authority based on antidumping jurisprudence. At the same time, the authority is open-ended and general because of the broadness of the “non-market conditions” situation and the flexibility of importers to seek “substitute prices”. Ideal Interpretation: Limited Authorization under the Rule of Restriction The author believes that the “U.S. interpretation” is contrary to the basic norms and methods of treaty interpretation. It arbitrarily misinterprets the meaning of WTO rules on comparable dumping prices. Thus, its conclusion is inevitably contrary to the purpose and principles of the WTO anti-dumping rules system. In contrast, a comprehensive and objective reading of Article VI of the GATT 1994 and Article 2 of the Anti-Dumping Agreement, whether in accordance with the text and objectives of the rules of static interpretation or in the examination of the dynamic development of the evolution of its rules, cannot come to the result that “rejection of non-market price comparability” is a general legal principle of the WTO, which grants universal authorization to importing members. In fact, Article VI of the GATT 1994 is the most important provision. In fact, Article 6 of GATT 1994 and Article 2 of the AntiDumping Agreement do not distinguish between “market prices” and “non-market prices”, let alone direct expression that “non-market prices are not comparable” or clear authorization to deny the mentioned expression. Meaning of the Rule: Restriction > Authorization: The first subject is Article VI of the GATT 1994. There are seven paragraphs in this article, among which, except for Article VI.3, which is a special provision for countervailing, all the other six articles contain anti-dumping norms. In terms of its complete semantics, first, the first sentence of Article VI.1 states that “the contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products, is to be condemned”. However, the second sentence immediately gives two strict identification methods of the socalled low price (price comparison): the price “(a) is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country, or, (b) in the absence of such domestic price, is less than

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either”. Second, Article VI.2, while authorizing members to impose anti-dumping duties, specifically emphasizes that the “the margin of dumping is the price difference determined in accordance with the provisions of paragraph 1”. Third, Article VI.4– Article VI.7 are restrictive provisions for the exercise of the right to anti-dumping measures by importing Members. Fourth, all the provisions of Article VI itself neither have the concept of “market price” or “non-market price”, nor can the readers find any implied language authorizing importing Members to flexibly use the “price comparison” method. The second subject is Article 2 of the Anti-Dumping Agreements. This article has a total of seven paragraphs, of which, except for the definition of “dumping” in Article 2.1, which is basically the same as Article VI of the GATT 1994, all other paragraphs are provided from the perspective of restriction—to prevent abuse of anti-dumping measures by importing Members. First, in general, the determination of comparable prices is based on the principle of domestic prices or costs in the exporting country, with limited alternative options as exceptions in specific cases. The U.S. equates “specific market conditions” in Article 2.2 directly with “non-market economy conditions”—using the presence of “market economy conditions” as the criterion for determining “specific” or not. This is groundless. The provision itself does not define or explain the “specific market situation”, let alone the so-called market economy and “non-market economy” boundary. In fact, in both Article 2 of the Anti-Dumping Agreement and Article VI of the GATT 1994, “comparability” is based on “normal” (“normal value”, “ordinary course of trade”) or not. “Normal” or “abnormal” are used as a criterion. At the same time, the articles set various specific cases of “abnormality”. Second, Article 2.2 sets three “abnormal” and cannot use the domestic price or cost of the exporting country as a comparable price of the situation: “no sales of the like product, the particular market situation or the low volume of the sales in the domestic market”. Among them, the first and the third situations are very certain and therefore not open to interpretation, only “particular market conditions” has room for interpretation. However, first, the alternative choice are, firstly, the price of export to a third country; and secondly, the presumed price based on the cost in the country of origin. Second, Article 2.2.1 sets conditions for the interpretation of these “abnormal” circumstances such as time, quantity. But in the “U.S. interpretation” of the “ordinary course of trade”, the term “ordinary” is given unlimited interpretation. It even makes groundless association with the so-called non-market economy conditions. Third, Article 2.2.1.1 does contain the words “normally”, “proper”, “in accordance with ……” and so on. Apparently, these wordings aim to: first, limit the choices instead of expanding them; second, determine that reasonable costs are a prerequisite for the investigating authority to review the relevant evidence before making any adjustment or alternative choices, rather than authorizing the investigating authority to determine the choice before weighing the evidence, much less to pre-determine the choice in the legislation for the so-called non-market economy countries, as in the case of the EU legislation. Fourth, Article 2.2.2 still uses the actual data of normal sales or production of the exporter or producer as the benchmark for price determination,

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with presumptions as exceptions. Moreover, the presumptions under the exceptions are limited to three preconditions at the same time.193 Moreover, Article 2.3 relates to the cases “where there is no export price or where it appears to the authorities concerned that the export price is unreliable because of association or a compensatory arrangement between the exporter and the importer or a third party”, which the United States regards as an example of “non-marketdetermined” prices. In the author’s opinion, the associated or compensatory prices are precisely “market-determined” and can hardly be classified as the so-called nonmarket economy. The reason why it is excluded by the WTO anti-dumping rules of “comparability” is its “abnormal” trading elements. Fourth, Article 2.5 mentions “the case where products are not imported directly from the country of origin but are exported to the importing Member from an intermediate country”. In this case, the domestic price of the exporting country or the country of origin is still the comparable price. In addition, Articles 2.4 and 2.6 further strengthen the importing Member’s price comparison obligations. Among them, “fair comparison” in Article 2.4 includes both the substantive obligation to limit the same level of trade and to consider the differences in the circumstances of each case for comparison; and the procedural obligation to disclose information to its competent authorities and to allocate the burden of proof, etc. Article 2.6, by defining “like products”, prevents importing Members from making broad interpretations in price comparisons and the determination of dumping and its margin. By combining the meaning of Article VI of the GATT 1994 and Article 2 of the Anti-Dumping Agreement, it can be seen that the principle of regulation of the WTO dumping price comparison method has a double connotation: recognizing the right of each member to anti-dumping and prohibiting the abuse of such right. At the same time, from the length of the paragraphs of the article and its wording, its restrictive (no shall be……) attributes and functions, including but not limited to the prohibition of abuse of the dumping price comparison method, are far better than the authorization. In other words, its “authorization” is strictly limited to the scope and extent of the express provisions, and is therefore clearly restrictive rather than open or general authorization. Target of Regulation: the Principle of Restriction: The Anti-Dumping Agreement, one of the subsidiary agreements to GATT 1994, is, as its name indicates, an agreement to implement and specify Article VI of the GATT 1994, and its Article 1 “Principles”194 not only constitutes the context of Article VI of GATT 1994 and Article 2 of the Anti-Dumping Agreement but also clearly establishes the main objective of the WTO anti-dumping rule system. In accordance with the general rule of treaty interpretation that “a treaty shall be interpreted in good faith in accordance 193

See Article 2.2 of the Anti-Dumping Agreement for details. Article 1 is entitled “Principles”, specifies that: “An anti-dumping measure shall be applied only under the circumstances provided for in Article VI of GATT 1994 and pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement. The following provisions govern the application of Article VI of GATT 1994 in so far as action is taken under anti-dumping legislation or regulations”.

194

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with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”.195 In any event, this provision cannot be ignored. The series of qualifying words used in the “principles” clause “shall be applied only”, “in accordance with”, and “in so far as” clearly expresses the strong intent of the Anti-Dumping Agreement to restrict rather than derestrict anti-dumping measures. Anti-dumping measures should not only be authorized by the Member’s domestic legislation but also strictly subject to Article VI of the GATT 1994 and the AntiDumping Agreement law. In other words, while respecting the existing anti-dumping rights of countries, the main purpose of WTO rules is to strictly restrain anti-dumping measures to prevent their abuse and evolution into trade protection tools. This rule orientation is consistent with the WTO’s value orientation to promote trade freedom, substantial reduction of tariffs and other trade barriers and with WTO’s strict regulation of national trade measures rules positioning. It is also consistent with the many doubts and reflections from the legal and economic circles regarding the effectiveness and legitimacy of anti-dumping measures. On the one hand, the restriction is more in line with the GATT/WTO institutional principle and organizational function—to regulate the anti-dumping measures taken by governments rather than private enterprises’ business strategies. On the other hand, “dumping (differential sales) harmful theory” is the premise of the legitimacy of anti-dumping policy and legislation. But for “differential sales”, economists, after careful analysis and scientific arguments, believe that the so-called dumping harmful has not been thought from the perspective of economic theory. Antidumping legislation as a response is only out of a fearful mindset, a hasty response almost entirely based on intuition and self-protection consciousness. On the contrary, differential sales, as a business strategy, is still in the scope of “comparative advantage” allowed in the market competition, which should not be regarded as “unfair”. In the case of dumping affecting market of the importing country through low prices, it will naturally cause a decline in sales to the (importing) country in related industries. It will also cause business strategy setbacks and poor labor employment and other damage, but it is beneficial to consumers and intermediate producers. Most importantly, the shock or impact is no different than that of a foreign non-dumping low-priced product.196 By the 1980s and 1990s, the above perceptions were increasingly accepted and agreed upon by the economics and legal (including the judiciary) communities. As Professor Jackson described, dumping, as a form of “differential sales” is actually beneficial to the prosperity of the world and the country and to competition and import restrictions and increased tariffs are anti-competitive and harmful to world welfare.197 The principles clause of the Anti-Dumping Agreement is related to such a theoretical and practical consensus, intending to impose strict restrictions on the authorization of domestic anti-dumping legislation of each member. As a result, it is 195

See Article 31.1 of the VCLT. See Trebilcock and Howse (1996), p. 112, Bierwagen (1990). Quoted from Zhao (2000), pp. 272– 273. 197 See Jackson (1997), p. 274. See Zhao (2000), pp. 274–276. 196

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decided that an interpretation of either Article VI of the GATT 1994 or any of the provisions of the Anti-Dumping Agreement that is contrary to its main purpose will not only violate the “purposive” norm of treaty interpretation but will also fall into self-contradiction. Evolution of the System: The Establishment of Strict Restriction: In line with the development of the multilateral trading system from GATT to WTO, the WTO antidumping rules system has also undergone an evolutionary process from the initial formulation of Article VI of the GATT 1947 to the final establishment and formal implementation of the WTO rules system including the Anti-Dumping Agreement in 1995. As mentioned above, the target orientation of the “Principles” clause of the Anti-Dumping Agreement and the specific content of Article 2 “Determination of Dumping” indicate that the WTO system of comparable dumping prices has completed the transformation from the GATT “authorized + limited” to “strict restriction”, which is the institutional mode of implementation. It cannot be denied that although Article VI of the GATT 1994 focuses on restriction, objectively speaking, when the anti-dumping provisions were formulated and finally incorporated into the Havana Charter and GATT in 1946–1947, there was still a large degree of confusion and wavering between authorization and restriction of rights among members. Since its provisions were copied from the U.S. Anti-Dumping Act while being restricted by the opposite views of the exporting countries, thus the ambiguity of the wording was inevitable and left a lot of room for flexibility in the divergent interpretations of different standpoints afterward. During the Uruguay Round negotiations, anti-dumping policies and rules have always been the subject of intense debate and criticism among international economics and legal communities. Along with more negative assessment of the aforementioned economic theories, the criticisms that “Article VI of the GATT 1947 is an anti-dumping law tilted towards protectionism” and “anti-dumping measures are a superior instrument of protection”198 have been rising. The debate is not only about the rationality of the rules but also about the larger question of whether the whole set of policies or systems should be abolished.199 Although the governments’ view of retaining Article VI of the GATT 1947 prevailed in the negotiations, at the same time, however, the parties reached a consensus that the anti-dumping rules should strive to make amendments consistent with and conducive to market competition, and a new, clearer and more detailed rule was formulated for this purpose—the Anti-Dumping Agreement. This rule not only corrects the ambiguous position of Article VI of the GATT 1994 in the “principle clause” and emphasizes its restrictive orientation but also, in terms of the content of the rule, makes significant changes to the original Anti-Dumping Code.200 The rules on costing and price comparison, particularly the

198

See Report by the secretariat of the United Nations Conference on Trade and Development, Trade and Development Report, 1994, UNCTAD/TDR/14, p. 135. 199 Zhao (2000), p. 269. 200 Including the Antidumping Code reached in the Kennedy Round and the Tokyo Round respectively.

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exclusion of arbitrariness or favoritism in the calculation of price differentials, are one of the most important elements.201 Thus, the “U.S. interpretation” does not fully present the dual connotation of “authorization + restriction” of the WTO dumping price comparison method rule principle. It makes a one-sided emphasis on “authorization” and ignores many restrictions, and further expands, without bases, the interpretation of the authorization into a general authorization. It is obviously biased. Moreover, it ignores the WTO rules and their implementation objectives and the development of the connotation. The rule of the dumping price comparison that “to the exporting country’s domestic prices or costs as a principle, in the abnormal trade process subject to strict limits of alternative prices as an exception “ is interpreted in the exact opposite way. It views the refusal of comparable exceptions as the principle of universal authorization. Besides, it uses the fragmented statements in the limitation clause as an example of authorization and thus causes confusion between the nature of the two different normative elements and their effectiveness. In other words, the main conclusions of the “U.S. interpretation” are drawn through selective and misleading quotations of the text.

3.4.4.4

Attributes of the WTO “Dumping Price Comparability” Specific Rules: Typical Representatives Versus Exclusive Exceptions?

In this case, another focus of the dispute over the WTO’s “dumping price comparability” rule is the elements of the two specific rules in Ad Article VI.1 “Note 2” of the GATT 1994 and Paragraph 15(a) of China’s Accession Protocol, which also echoes the aforementioned connotations. China views that “Note 2” and Paragraph 15(a) of China’s Accession Protocol are exceptions to the dumping price comparison method, compared to Article VI of the GATT 1994 and the rules of the Anti-Dumping Agreement, which are generally applicable to all WTO members and can be applied to China. However, “Note 2” is the only applicable exception since Paragraph 15(a) cannot continue to apply after its 15-year period. The “U.S. interpretation” denies the “exception” altogether and argues that both are typical examples of non-exclusivity that reflect the principle of “non-market price incomparability” and the importing member’s “statutory right to refuse comparability”. “U.S. Interpretation”: Typical Representatives Regarding “Note 2”: “Note 2” is an example reflecting the particular difficulties with the strict comparison approach of the GATT 1994 Article VI.1 and the consequent exclusion of its application. Thus, the statutory right to reject non-market price comparability is conferred by the GATT 1994 Article VI.1 and not by the Note.

201

See United Nations Conference on Trade and Development (1994), p. 73; See Zhao (2000), pp. 282–285.

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“Note 2”, the regulation 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 comparability” is only one example of a situation where special difficulties exist. The term “it is recognized that ……” is describing the situation and the term “in such case” does not mean that the existence of other cases of “price incomparability” is excluded. That is, the situation is not unique. “Note 2” is affiliated to Annex I “Notes and Supplementary Provisions” of the GATT 1994 as an explanatory note to Article VI.1 of the GATT 1994 and does not contain any wording limiting the rights of Article VI.1, nor does it prohibit Importing Members from exercising the right of refusal in other possible circumstances. Therefore, it does not fall within the exceptions to Article VI.1 of the GATT 1994. Regarding Paragraph 15(a) of China’s Accession Protocol: This paragraph explicitly grants other members the right to reject comparable non-market prices in China. Specifically, other members have two options under provisions (i)(ii). Moreover, the investigating agency does not have to actively determine whether market economy conditions exist but rather has the right to reject China’s domestic market price comparability as long as it determines that Chinese producers have failed to demonstrate that market economy conditions exist. The preamble to Paragraph 15(a) has the term “based on the following rules”, indicating that the following rules are adopted as bases instead of requirements of obeying. That is, “based on” means “basis” or “starting point”. For one thing, because the meaning of the word is broader than “consistent with”. It indicates that parties shall start from the requirements of the following rules and there is no need to meet all the other requirements.202 For another, it indicates non-exclusivity. If it’s exclusive, the words only, solely, or exclusively are usually added. So these rules do not cover all situations and need not be the same as those provided for in Article VI.1 of the GATT 1994 and the Anti-Dumping Agreement (e.g., home market sales, connected transactions, etc.). Paragraph 15(d) provides three circumstances affecting the operation of the rules in Paragraphs 15(a)(i) and (ii), thus confirming the high relevance of market economy conditions to “price comparability”. At the same time, when the circumstances of the first sentence are satisfied, all provisions of paragraph a terminate but are still subject to Article VI.1 of the GATT 1994 and the provisions of the Anti-Dumping Agreement. The second sentence only points to the termination of paragraph a (ii) and not the whole paragraph a. The circumstances of the third sentence still apply after the expiration of paragraph (ii), so paragraph (ii) is not the only non-market economy provision of paragraph a. 202

The United States cites the Oxford English Dictionary for this argument and the Appellate Body decision in EC Hormones as an argument, in addition to the word meaning. In interpreting Article 3 of the SPS Agreement, the Appellate Body in EC Holmes distinguished between “based on” international standards and “conform to” international standards: conform to international standards is a requirement that See Appellate Body Report, EC—Hormones, WT/DS26/AB/R, paras. 163–166.

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Paragraph 15 is not an exception clause. Its preamble states that the GATT 1994 and the Anti-Dumping Agreement should be applied in a manner consistent with the rules of Paragraph 15, indicating that they are compatible or consistent with each other. Ideal Connotations between “Note 2” and Paragraph 15(a): “Special Cases” rather than “Exceptions” or “Examples” In the author’s view, the attributes of the rules of “Note 2” and Paragraph 15(a) must be placed in the specific context and level of the WTO rules system in order to make an accurate identification. “Special Cases” rather than “Exceptions”: In the sense of legal norms and their application, “exceptions” are the opposite of “principles”. “Exceptions” are also known as “exempt clauses “or “escape clauses”. According to Black’s Law Dictionary, an “exception” is something that is excluded from a rule’s operation; a statutory exception is a provision in a statute exempting certain persons or conduct from the statute’s operation.203 Here, the “principle” is the standing statute or provision, which has a universal character. The “exception” is a situation in which, although it is inconsistent with the statute, that can be exempted from its application and recognized as legitimate. In other words, there is a conflict and mutual exclusion between “exceptions” and “principles”, following the principle of either/or application. Under the WTO system, an “exception” can be an affirmative defense to a violation of a “principle”: when an obligation is violated, the exception justifies the violation.204 For example, the GATT 1994 Article XX “General Exceptions” and the SPS Agreement are statutory exceptions that allow members to be exempt from GATT 1994 obligations.205 The existence of statutory exceptions is a way for WTO rules to prioritize the interests and values embodied in the exceptions for protection in the event of a conflict between the multiple interests and values to be protected. A “special case” is a specific example of the same kind. As an everyday term, “special case” does not have a strict legal meaning, but in this context of legal norms, it refers specifically to “general laws” including “general provisions” and “general regulations” that reflect specificity and individuality, which form a contrast to “general laws” including “general provisions” and “general regulations” that reflect common normative features. In this regard, the so-called special case is the opposite of the “general case”. The two are both compatible and conflicting in terms of objectives and norms, and thus follow the principle of “special first, then general”—in the case of the same issue or matter being provided for, in the level of compatibility, 203

See Garner (2009), p. 708. See Condon (2014). 205 Article XX of GATT 1994 explicitly provides for the legality of nine sub-measures under the condition that the preamble is satisfied; the SPS Agreement, as an interpretative rule to Article XX(b) of GATT 1994, is similarly legally authorized to be exempted from the relevant GATT rules, and its Article 2.4 provides that “Sanitary or phytosanitary measures which conform to the relevant provisions of this Agreement shall be presumed to be in accordance with the obligations of the Members under the provisions of GATT 1994 which relate to the use of sanitary or phytosanitary measures, in particular the provisions of Article XX(b)”. 204

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superimposed or selected for the application. In the level of conflict, the special law applies first. The legal system reflects both the normative goal of compatibility and consistency, as well as the individual measurement in specific situations. At the same time, under the same normative system, “special cases” may be either one or more cases. Multiple “special cases” are both juxtaposed and intersected with each other. Juxtaposed rules are applied separately while intersected rules are applied superimposed. The such a normative relationship and systematic structure can be seen everywhere in the WTO rules system. For example, under the Multilateral Agreement on Trade in Goods, the GATT 1994 serves as “general law” and the other 12 subsidiary agreements serve as “special law”.206 Such relationship also appears in Article XX of the GATT 1994 “General Exceptions”, in which its “Preamble” serves as the “general law” and the ten subparagraphs (a)-(j) serve as the “special law”.207 Among them, the “special law” in their respective areas of regulation and the scope of regulatory instruments serves the common value goal of “general law” and shows the individuality and the distinction between each other. In contrast, “exception” and “special case” have different connotations and nature. The former is located outside the law—”break the principle norms”, which is an extralegal example; while the latter is located inside the law—”subject to the general norms”, which is an example inside the law. Accordingly, “Note 2” of China’s Accession Protocol and Paragraph 15 (a) clearly belong to the WTO “dumping price comparable method” under the common norms of “special cases” rather than the “exception”. Because, as far as “Note 2” is concerned, whether it is formed as an “explanatory note” at the beginning or formally incorporated into the GATT rules as a “supplementary provision” afterward, it is subordinate to and included in the context of Article VI.1 of the GATT 1994. In the case of Paragraph 15(a), according to the preamble to Paragraph 15, “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…” and paragraph a “In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement ……”, it can be seen that Article VI of the GATT 1994 and the Anti-Dumping Agreement constitute the common limiting premise, to which all subordinate paragraphs under them are subject. From this perspective alone, the author agrees with the point that the “U.S. interpretation” denies its “exceptional” attributes. “Special Cases” /= ”Exemplification”: It is clear that the “U.S. interpretation” of “Note 2” and Paragraph 15(a) does not stop at denying the “exception” itself, let alone identifying its “special case” features, but directly changes the context and equates 206

“General Explanatory Note on Annex 1A Explanatory Note” to GATT 1994: In the event of conflict between a provision of the General Agreement on Tariffs and Trade 1994 and a provision of another agreement in Annex 1A to the Agreement Establishing the World Trade Organization (referred to in the agreements in Annex 1A as the “WTO Agreement”), the provision of the other agreement shall prevail to the extent of the conflict. 207 In the WTO dispute settlement, the application of Article XX of GATT 1994 is based on the test of a particular subparagraph followed by the preamble.

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“special case” with “exemplification”, ignoring the essential difference between the two in the context of semantics and legal norms. As mentioned above, the “special law” referred to in the “special case” is a normative concept corresponding to the “general law”, and the two belong to the category of the relationship between the special and the general. The “special” reflects the “general”, but the “general” cannot cover the “special”. The “special law” is compatible with the “general law” in terms of normative objectives and contents for the same issue or matter regulated by law. Despite that, when it comes to semantic distinction and the value of its application order for a special subject, time, or region, they are represented by the mutual conflicts between the two types of law, which cannot be covered by “general law”. It is not the same with “exemplification”. Whether in the daily expression or the context of legal norms, exemplification refers to the way to explain or illustrate an abstract thing by borrowing or citing specific and easy-to-understand examples. “Exemplification” belongs to the “concrete” deduction of “abstract”. Therefore, “abstract” as a whole can cover all parts of the “concrete”. In contrast, “Note 2” aims at specific situations while the regulation and application of Paragraph 15(a) aim at China as a specific subject. The “non-application of the strict comparative approach” is precisely in conflict with Article VI.1 of the GATT 1994 and the “strict comparative approach” principle of the Anti-Dumping Agreement rules. The “strict comparative approach” principle of the GATT 1994 Article 6.1 and the Anti-Dumping Agreement rules conflict. How can it be an example of the interpretation of this principle? In fact, the “U.S. interpretation” draws an equal sign between “exemplification” and “special case”, which aims to infinitely enlarge the compatibility relationship between general and specific and change it to the consistent relationship between abstract and specific. The Ideal Application of “Note 2”: Similar Situation /= Open Application One of the arguments used by the “U.S. interpretation” to justify the rejection of “nonmarket price comparability” as an open authorization in Article VI.1 of the GATT 1994 is that it combines “a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State(hereinafter referred to as the ‘State monopoly situation’)” set forth in Note 2 with the “hidden dumping” provided for in Note 1 to Article VI.1208 as well as the “abnormal trade” in Article 2.3 of the Anti-Dumping Agreement, into one category. They are collectively classified under the category of “non-market conditions” and are given an open reading, which can become the basis for the rule of the importing Member to exercise the right to refuse comparability. The essence of this open interpretation is to bring all cases of so-called non-market conditions into the scope of application of Note 2 and thus exclude the strict comparison method of Article VI.1. 208

Note 1 provides that: “Hidden dumping by associated houses (that is, the sale by an importer at a price below that corresponding to the price invoiced by an exporter with whom the importer is associated, and also below the price in the exporting country) constitutes a form of price dumping with respect to which the margin of dumping may be calculated on the basis of the price at which the goods are resold by the importer”.

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The author believes that the open interpretation of “Note 2” mixes different norms with similar situations under the WTO rules system, which will inevitably lead to misapplication. First, from the perspective of the application of the rules, the “state monopoly situation” of Note 2 is not open and limited to the situation where “a complete or substantially complete monopoly of its trade” and “all domestic prices are fixed by the state” are present at the same time. On the one hand, the two conditions themselves are not open-ended, and “incomplete” cannot be substituted for “complete”, nor can “all” be expanded to “some”, as some American scholars have done.209 On the other hand, in the context of the “state monopoly situation” already specified in Note 2, even if the situation is a manifestation of a “non-market economy” and has similarities with other “abnormal trade” situations, each specific situation and its corresponding rules are closed and self-contained cases, juxtaposed but not intersecting so that their application can only be limited to the specific situation specified in each clause. The situation can neither be further extended to other situations nor can they be combined. Second, from the perspective of “Note 2” recognizing the special difficulties faced by price comparability, its statement that “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” is undeniably open-ended. It leaves room for importing members to seek alternative solutions to the difficulties of comparable prices in the future. In fact, after “Note 2” was incorporated into GATT, some Access Members set special provisions to address the concerns of other members on the issue of “price comparability”, which is precisely the effect of the open routes of “Note 2”.210 At the same time, however, it is important to emphasize that the “Note 2” itself is still concerned with the “possible needs” of importing members, and has not completed the transformation from “possible needs” to “realistic actions” authorization. It is fundamentally different from the “covert dumping” and other “abnormal trade” examples that the “U.S. interpretation” intends to equalize. The latter is expressly authorized, and thus can directly apply alternative actions such as “the price at which the goods are resold by the importer” in Note 1 and the “presumed price” in Article 2.3 of the Anti-Dumping Agreement. The former provides only a possible way to obtain authorization in the future to overcome the problem of comparability. In summary, the author believes that “Note 2” has dual attributes: the conditions of application are exclusive and limited to the special case of “state monopoly”; the solution path is open. But the possibility of choosing the path is not the same as the reality of legal authorization.

209

See Miranda (2014b). This accession practice is also explained differently in the U.S. Commentary, which is discussed in detail below.

210

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Features Ideal Application of Paragraph 15(a) and Relevant Issues Features: Exclusive, Prioritized: China’s Accession Protocol is a negotiated rule between the WTO and China that is “tailored” to China, as a specific subject, and applies only to China. As far as the “price comparability” in Paragraph 15(a) is concerned, it is not to be confused or substituted with Article VI.1 of the GATT 1994 and the Anti-Dumping Agreement, which are “general laws”, because they have both commonality and differences. It is also different from other “special cases” including “Note 2”. First, Paragraph 15 is entitled “Price Comparability in Determining Subsidies and Dumping”; the preamble specifies that “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”, indicating that it has common connotations with the “general law”. In this scope, they not only have the same value objective and consistent normative requirements but also should be applied superimposed. Second, the four paragraphs a–d of Paragraph 15 are different from the “otherwise provided” of Article 6 of GATT 1994 and the Anti-Dumping Agreement, which is the value of its existence as a “special law”. Among them, paragraph a (i) (ii) regulates the attribution of the burden of proof and the direct authorization of other members to use alternative methods. Arrangements such as the automatic termination arrangement in paragraph d are unprecedented and therefore have the status of exclusive and prioritized application of norms. Moreover, Paragraph 15 is different from other examples in Article VI of the GATT 1994 and Anti-Dumping Agreement listed in the “U.S. Interpretation”, such as Note 1, Note 2 and Article 2.3 of the Anti-Dumping Agreement. All rules of the latter are attached to the GATT, while China’s Accession Protocol (including but not limited to Paragraph 15(a)) is not considered as a necessary part of the GATT 1994.211 In summary, to the extent of “provided otherwise” in Paragraph 15, “general law”, including Article VI of the GATT 1994, the Anti-Dumping Agreement and other similar “special laws have no room for application. They are exclusive as they are not incompatible with each other but cannot be applied by analogy or superimposed.

211

Such claims were made by the United States as one of the complaining parties in China—Raw Materials and China—Rare Earths, and was supported by the panel and Appellate Body decisions. See Panel Reports, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R. Adopted 5 July 2011, paras. 7.115–7.160; Appellate Body Reports, China—Raw Materials, WT/DS394/AB/ R, WT/DS395/AB/R, WT/DS398/AB/R. Adopted 30 January 2012, paras. 27.5; Appellate Body Reports, China—Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R. adopted 30 January 2012, paras. 279–307; Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, adopted 26 March 2014. paras. 7.81–7.89; Appellate Body Reports, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, adopted 7 August 2014. paras. 5.52–5.74.

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Application Scope: Strict or Lenient? The “U.S. Interpretation” interprets “based on” in the preamble to Paragraph 15(a) as a more lenient requirement than “consistent with”. Only one or several of the factors on which the “U.S. interpretation” is based are required, without the need for strict consistency or complete adoption of all factors. Based on the formulation of the Appellate Body’s decision in EC—Hormones, it re-emphasized the open-ended connotation of paragraph a. In the author’s opinion, this is a groundless and expanded interpretation. First, although “based on” is directly connected to “the following rules”, in the context, here the “rules “ refers to the methods to be used to determine price comparability, whether it is the preamble of paragraph a or the attaching two subparagraphs (i) and (ii). When it comes to methods, it is more appropriate to use “based on” rather than “consistent with”. Second, the use of “based on” does not imply a lower standard of obligation when the WTO-covered agreement requires members to base on a particular methodology or rationale. For example, “based on scientific principles” as stipulated in Article 2.2 of the SPS Agreement is not only the basic obligation of each member to implement SPS measures but also a rigid standard to measure the legality of an SPS measure. All cases in which Article 2.2 of the SPS Agreement is invoked are the process by which the DSB determines whether the SPS measure at issue is strictly consistent with the scientific principles of evidence. Its meaning differs from “need not be strictly consistent” as interpreted by the United States in accordance with the literal meaning of “based on”. The “based on” in Paragraph 15(a) of China’s Accession Protocol also belongs to this category. Third, the adjudication of the Appellate Body in EC—Hormones made a distinction between the semantics of the phrase “based on” and “conform to”. But the Appellate Body’s interpretation of this distinction is specifically limited to the specific interpretation of Article 3 of the SPS Agreement, “harmonization”. To the extent that the Article is framed in terms of the purpose of “harmonizing” national SPS measures with international standards, guidelines, or recommendations, the international standards, guidelines, or recommendations that are the basis for harmonization are not unique or uniform. Article 3.1 and Article 3.2 use different phrases “based on” and “conform to” for two different situations to show emphasis. The two connecting phrases refer to figurative rule—international standard, guideline, or recommendation—rather than to a method. The Appellate Body contrasted and distinguished between these two meanings.212 Clearly, this is a context-specific interpretation and does not have efficacy and further applicability to WTO rules. In summary, even the SPS Agreement itself differs in its use of “based on”. Fourth, focusing on Paragraph 15 of China’s Accession Protocol, even if only according to the semantics, paragraph c has the wording “in accordance with paragraph a”—“the importing Member… …methodologies used in accordance with subparagraph a……” , with “in accordance with” as a conjunction, which means the same as “consistent with”, “in conformity to” and obey. This also further confirms 212

See Appellate Body Report, EC—Hormones, WT/DS26/AB/R, WT/DS48/AB/R, adopted 16 January 1998, paras. 160–168.

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that the “based on” in paragraph a does not have the meaning of a “more lenient” standard. Expiration Effect of Paragraph 15(a): Termination of Authorization, Return of Obligations: “The U.S. interpretation” asserts that the 15-year limit can only be interpreted as the termination of paragraph a(ii) under the meaning of Paragraph 15(d), while the preamble of paragraph a and (i) do not terminate. In this regard, there have been a lot of debates or questioning from the theoretical and practical circles.213 This paragraph only examines the normative structure of paragraph a. In terms of formal structure, paragraph a consists of a preamble and two clauses (i) and (ii). On the one hand, both (i) and (ii) have the same structure: they consist of two elements: the first half of the sentence “assumes” and the second half of the sentence “deals with”.214 The “assumptions” of the two—”can prove” and “cannot prove”— are interlocked and inseparable, which is similar to the “coin theory” advocated by some scholars.215 On the other hand, the second half of the preamble of paragraph a points to the plural “following rules”, indicating the inclusion of subparagraphs (i) and (ii). It can be seen that subparagraphs (i) and (ii) are the whole of the “the following rules” and at the same time have an inseparable relationship with the preamble.216 In terms of the content structure, especially the conducting mode that is the core of the norm, the two elements of paragraph a (i) (ii) are different. In subparagraph (ii), the term “may use a methodology that is not based on a strict comparison with domestic prices or costs in China” is an authorizing norm, while the term in (i) “shall use Chinese prices or costs for the industry under investigation in determining price comparability” is an obligatory norm. Therefore, even if only (ii) is terminated, if the obligatory requirements or conditions of application of (i) are not changed, its effect is equivalent to a return to the general principle of WTO dumping price comparability methodology. If the interpretation is arbitrarily expanded as in the “U.S. interpretation”, taking the opportunity to change the obligatory requirements or conditions of application of (i), it will undoubtedly fall back into the scope of (ii). If so, the effect is indefinitely continued, which is undoubtedly contrary to the automatic termination of paragraph d.

213

See Hu (2017), Zhang (2017), Liu and Zhang (2017), Yu and Guan (2016), Zhang and Xiao (2016). 214 According to the predominant “three-element theory” of jurisprudence “assumptions” and “deals” are the basic elements of legal norms. The former refers to the part of the premise, condition, or situation to which the norm applies; the latter explains what people are specifically required to do or prohibited from doing. See Zhang (2018), p. 116. 215 See Ren (2014b). 216 See Zhang (2017).

3.4 The Status of China’s Market Economy

3.4.4.5

225

Application Practices of the WTO “Dumping Price Comparability” Rules: Subsequent Practice or Common Practice?

“U.S. Interpretation”: Subsequent Practice The “U.S. Interpretation” lists the history of the Parties’ practice in applying Article VI of the GATT: the 1954–1955 period proposed changes to Article VI.1 of the GATT and the inclusion of “Note 2” and “state monopoly situations”; the 1957 Secretariat legal review discussed “the widespread rejection of non-market price determination of normal value by the Parties based on market prices”. In the 1960s and 1970s, when Poland, Romania, Hungary and other non-market economies joined, no exceptions to Article VI.1 were made. But their understanding of the possibility of rejecting non-market prices and costs was recorded in the form of working group reports. The Anti-Dumping Agreement implemented in 1995 was no different from Article VI.1 of the GATT 1994. Through terms such as “appropriate comparison”, it emphasizes that only market prices and costs are comparable under Article VI.1. Paragraph 15(a) of China’s Accession Protocol made clear that domestic prices or costs are to be used only when market economy conditions exist. The United States believes that these practices constitute Article 31.3(b) of the VCLT: “any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation”,217 which is used to demonstrate that the “comparable prices” of Article VI of the GATT 1994 refer to market-determined prices, giving the parties the right to refuse to adopt non-market prices. Subsequent Practice as a “Plausible Interpretation” of Treaties and WTO Rules First, according to a comprehensive understanding of Article 31 of the VCLT shows, it can be seen that, except for Paragraph 3(b), the elements of interpretation of the other paragraphs have an “explicit expression” effect. The “practice” term in Paragraph 3 (b) is an “implicit expression”. According to the authoritative opinion of the International Law Commission, on the one hand, “subsequent practice”, as a distinct element of a general norm of treaty interpretation, has the effect of making “subsequent practice” a credible interpretation and can be comparable to an interpretative agreement. On the other hand, however, it is clear that in order to meet the criterion 217

Article 31 of the VCLT “General rule of interpretation “1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. There shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; and (c) any relevant rules of international law applicable in the relations between the parties.

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of “plausible interpretation”, the practice must demonstrate that the interpretation has received the tacit consent of the parties in general.218 Second, the Appellate Body has defined “subsequent practice” in relation to the interpretation of the rules covered by the WTO-covered agreements as “concordant, common and consistent sequence of acts or pronouncements which is sufficient to establish a discernible pattern implying the agreement of the parties regarding its interpretation”.219 Only the existence of a “coordinated, common and consistent” practice makes it possible to obtain the effect of “implied consent”, i.e., only such a practice has a level of “credibility” that can be interpreted. Moreover, in WTO dispute settlements, although one party in many cases uses certain “customary practice” as “subsequent practice” to support its own interpretation, its “coordination, common, consistent” features is often not recognized by the other party. In Japan—Alcoholic Beverages II, the EC has argued about the limited role of “subsequent practice” and the strict limits of the WTO legal regime on relevant amendments. The EC argued that “subsequent practice” is to be considered together with the “context”. Regarding WTO agreements, such contexts included, in particular, the general provisions on the interpretation and development of WTO law covered by the Agreement Establishing the WTO. Article IX.2 of the Agreement Establishing the WTO granted the Ministerial Conference the exclusive right to make authoritative interpretations, and Article X provided a special procedure for amendments. Given that Article 3.2 of the DSU established the principle that the Panel could not add to or subtract from the rights and obligations of the Members, it was clear that the Members had a strictly controlled attitude toward rule amendments and that they did not wish to change the meaning of the provisions on which they have agreed in any other way. Thus, the role of “subsequent practice” in the interpretation of WTO agreements is very limited. In fact, meeting the conditions for “subsequent practice” can be difficult and is not necessarily relevant to each other. It is clear from the wording of subparagraph 31.3(b) of the VCLT that “subsequent practice” must be capable of establishing an implied agreement between the parties, i.e., what some scholars have expressed as “coordinated, common and consistent subsequent practice”. This practice must be common to all parties and is particularly difficult to establish in the context of multilateral agreements.220 In this regard, the DSB also has a tendency to interpret strictly and cautiously. The Appellate Body in Chile—Price Band System, for example, held that “this alleged practice of some Members does not amount to “subsequent practice” within the meaning of Article 31(3)(b) of the Vienna Convention”.221 218

See Waldock (1966), pp. 98–99. See Appellate Body Report, Japan—Alcoholic Beverages II, WT/DS8/AB/R, WT/DS10/AB/ R, WT/DS11/AB/R, adopted 4 October 1996, at 13. 220 See Panel Report, Canada—Patent Protection of Pharmaceutical Products—Complaint by the European Communities and their Member States. WT/DS114/R, adopted 17 March 2000, para. 4.31. 221 See Appellate Body Report, Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products, WT/DS207/AB/R. adopted 23 September 2002, para. 214. 219

3.4 The Status of China’s Market Economy

227

Differences and Disagreements in the Practice of Applying Article VI of the GATT Difference > Consistency: The history of practice cited in the “U.S. interpretation” shows that, although there is domestic legislation and the related practice of member states refusing to adopt non-market domestic prices, at the international law level, on the one hand, it is clearly not comparable to the “the application of the treaty which establishes the agreement of the parties regarding its interpretation” required by Article 31.3(b) of the VCLT. On the other hand, these practices are always accompanied by a great deal of disagreement and controversy. In the WTO “dumping price comparable method” rule implementations, during the decades of the implementation of the GATT 1947, the GATT 1994 and the Anti-Dumping Agreement, although there have been repeated negotiations involving GATT Article VI.1, there is no further expansion of the article except the abovementioned explanatory notes added in 1955. On the contrary, the Anti-Dumping Agreement, as a brand new rule specifically for the implementation of GATT 1994, as mentioned above, not only did not change a single word of Article VI.1 and its notes but also emphasized in its Article 2.7 that “this Article is without prejudice to the second Supplementary Provision to Paragraph 1 of Article VI in Annex I to GATT 1994’ more restrictive”. More provisions on anti-dumping measures for importing members have been added. At the same time, when it comes to special or specific issues, whether it is about “Note 2” or some newly joined members, the treaties always adhere to the case-by-case approach of “special cases”. Moreover, all these “special cases” are distinct from and irreplaceable to the prevailing “general law”. There are various differences among the “special cases”. The “coordinated, common, consistent, and identifiable pattern” necessary for “subsequent practice” is far from being established. The Proposal of “Note 2” and Its Incorporation: Each Expresses Opinion /= Effective Consensus: “Note 2” has been controversial from the proposal to the incorporation process, and the “U.S. interpretation” amplifies one of the voices to support its own view. In fact, the “Note 2” proposal was made in the context of an attempt to amend Article VI.1 of the GATT. It shows that there is a divergence of views among the parties on Article VI.1 itself. There is no clear mandate that the U.S. wishes, thus expressing such a strong desire for clarification and trying to incorporate its own views. In other words, the parties concerned have raised confusion and difficulties in the application of Article VI.1, expressing a subjective desire for amendment or supplementation. However, subjective motives do not equal objective results, and in the end, on the one hand, Article VI.1 was not amended; on the other hand, Note 2 was included as an explanatory note, but, as already mentioned, its content was limited to the category of “special cases”. Accession Practices: Limited Individual Cases /= Common Rules: The “U.S. interpretation” uses the practice of four so-called non-market economies, including China, joining the GATT as an important argument for “subsequent practice”, thus proving the general authorization of Article VI of the GATT 1994 is a general authorization. However, its argument is an incomplete generalization based on selective examples and its conclusion is not credible and reliable. The “selectivity” of the “U.S.

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interpretation” of the arguments is mainly manifested in two aspects: first, it deliberately ignores the accession of other such countries; second, it ignores the relatively independent and individual differences between different accession protocols, both of which constitute evidence to the contrary of its conclusion. In the former case, for Yugoslavia (1966), which acceded during the GATT period, and for more than a dozen countries, such as Bulgaria and Vietnam, which acceded successively after the establishment of the WTO,222 although most of them are regarded as non-market economy countries in the domestic legislation of Europe and the United States, the inclusion of special provisions in their Protocols of Accession is rather rare.223 There is no precedent for a WTO dispute between Europe and the United States and these countries and a uniform application of “Note 2”. The “U.S. interpretation” chooses to ignore and avoid this difference. In the latter case, where the Protocol of Accession adopts special provisions, it follows an individualized approach—individual consideration for each acceding party: negotiated and earmarked on a case-by-case basis. In the case of the four countries discussed in the “U.S. interpretation”, the factors considered and the language used vary from protocol to protocol. In fact, to date, only Paragraph 255 of the Vietnam WPR, which is incorporated into the Protocol of Accession of Vietnam, is highly similar to Paragraph 15 of China’s Accession Protocol.224 But even so, there is no cross-application between the two. This shows that while the concerns of the members are somewhat general in nature, they are individual and varied in their implementation to the specific normative level. In other words, although “special cases” are not unique, each one exists as a unique case and should be interpreted and applied strictly within the scope of its provisions. They can neither be inverted for the general rules nor be substituted for each other by analogy. As far as China’s Accession Protocol is concerned, the special binding effect of Paragraph 15(a) on China stems from its explicit authorization to the importing member as a “special case”. However, at the same time, since Paragraph 15(d) sets up an automatic terminating mechanism, at the end of the 15-year period, China should apply the general rules of the WTO “dumping price comparability method” as other members. For the interpretation of this provision, even if the “general rule of interpretation” according to Article 31 of the VCLT is still unclear, then, according

222

After the establishment of the WTO and before China’s accession, similar countries include Bulgaria (1996), Mongolia (1997), Kyrgyzstan (1998), Latvia (1999), Estonia (1999) Albania (2000), Croatia (2000), Georgia (2000), Lithuania (2001) and Moldova (2001) ten countries joined successively; after China’s accession, Vietnam (2007) and Russia (2012) joined. 223 For example, regarding the ten countries that acceded to the WTO before China’s accession, none of their Protocols of Accession made special provisions on the comparability of dumping prices, and among them, only Latvia was recognized by the domestic legislation of the United States as market economy status, There were only five countries such as Bulgaria that were recognized by the EU legislation. After China’s accession to the WTO, Russia’s Protocol of Accession also had no such special provisions. 224 The main difference in content between the two is the number of years for which the “surrogate country approach” applies, 15 years for China and 12 years for Vietnam.

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to Article 32 of the Convention “supplementary means of interpretation”225 —the history of China’s accession negotiations and related treaty-making materials can also be a strong argument against the “U.S. interpretation”.226 The history of the application of Article VI of the GATT shows that none of the elements of “coordination, commonality, and consistency” required for “subsequent practice” are met by the “U.S. interpretation”. A series of evidence can reflect the fallacy within its argumentation and conclusions. To sum up, the legal interpretation of the WTO dumping price comparability method in EU—Price Comparison Methodologies is against the basic rules of treaty interpretation and the WTO’s unique normative structure and its application logic, so its argument of rejecting “non-market economy” price comparability as a general WTO anti-dumping legal principle is not valid.

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Chapter 4

Application of China’s Accession Protocol in WTO Dispute Settlement Practice

4.1 The Invocation of China’s Accession Protocol in the Disputes After China’s accession to the WTO, disputes over its Protocol of Accession have arisen frequently. Echoing the fact of China’s status as a special acceding party to the WTO and the special accession obligations it undertakes accordingly, the disputes arising from China’s Accession Protocol also demonstrate the Chinese characteristics in the WTO dispute settlement practice.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 B. Xiao et al., The Practice of WTO Dispute Settlement, Modern China and International Economic Law, https://doi.org/10.1007/978-981-97-0185-8_4

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4.1.1 Basic Figures of Invocation of China’s Accession Protocol As of 31st December 2022, a total of 615 disputes have been received by the DSB, of which the number of disputes invoking Protocols of Accession is 42 (see Table 4.1 for details),1 accounting for 6.8% of the total number of disputes.2 Since its accession to the WTO on 11 December 2001, China’s Accession Protocol has increasingly become the ground for WTO disputes in which China is involved.

4.1.1.1

Predominant Involvement as a Participant

On the one hand, out of the 42 disputes invoking the Protocols of Accession in WTO disputes, China has involved in almost all of them: 35 disputes as a party, and 4 disputes as a third party, totaling 39 disputes.3 On the other hand, of the 265 disputes in which China participates, the Protocols of Accession are invoked in 4 out of the 193 disputes in which China participates as a third party, and in 35 out of the 72 disputes in which China participates as a party. (See Table 4.2 for details.)

4.1.1.2

High Invocation Rate

In the WTO disputes in which China participates as a party, 12 WTO agreements have been invoked in varying proportions, including GATT 1994, China’s Accession Protocol, the Countervailing Agreement, the Anti-Dumping Agreement, the TRIMs Agreement and the Agreement on Agriculture, etc. Among them, the rate of invocation of China’s Accession Protocol is second only to GATT 1994, and far exceeds that

1

According to the statistics on the official website of the WTO, the number of disputes involving the Protocol of Accession is 40. This table does not adopt this data, but rather adopts the test of whether the “request for consultations” formally submitted by the complainant explicitly invokes the Protocol of Accession and/or its specific provisions for the purpose of deciding whether the dispute is “involving the Protocol” or not. Accordingly, two disputes should be included in the total number of disputes involved: (1) China—Value-Added Tax on Integrated Circuits (DS309): invokes China’s Accession Protocol generally with no reference to specific provisions as the ground for consultations; (2) China—Measures Affecting Financial Information Services and Foreign Financial Information suppliers (DS372): although no specific provisions of China’s Accession Protocol are invoked in the request for consultations, on the one hand, this dispute, together with DS373 and DS378, point to the same regulatory measures of China, and thus are in fact same disputes only with different parties; on the other hand, the request for consultations in this dispute explicitly points out that the dispute involves China’s obligations under Paragraph 309 of the WPR of China, which constitutes an integral part of China’s Accession Protocol. Therefore both disputes should be counted in the total number of disputes involved. 2 See https://www.wto.org/english/tratop_e/dispu_e/dispu_agreements_index_e.htm?id=A30, at 31st December 2022. 3 3 disputes left are DS525, DS532 and DS608, in which China did not participate.

11

10

DS379

DS372 DS373 DS378

8

9

DS363

7

2008

DS358 DS359

2007

5

6

DS342

DS339

4

2006

2

DS309

DS340

2004

1

Case no.

3

Year

No.

United States—definitive anti-dumping and countervailing duties on certain products from China

China—measures affecting financial information services and foreign financial information suppliers

China—measures affecting trading rights and distribution services for certain publications and audiovisual entertainment products

China—certain measures granting refunds, reductions or exemptions from taxes and other payments

China—measures affecting imports of automobile parts

China—value-added tax on integrated circuits

Measure

China

Canada

US

EC

US

Mexico

US

Canada

US

EC

US

Complainant

Participants

EU

China

China

China

China

China

Respondent

Table 4.1 WTO disputes with protocols of accession invoked—with a focus on China

14

0

0

0

5

9

7

0

Third party

(continued)

Implementation notified (Panel and AB reports adopted)

Withdrawn, mutually agreed solution

Implementation notified (Panel and AB reports adopted)

Withdrawn, mutually agreed solution

Implementation notified (Panel and AB reports adopted)

Withdrawn, mutually agreed solution

Status/ruling

4.1 The Invocation of China’s Accession Protocol in the Disputes 235

DS399

DS404

19

20

2010

DS397

18

17

16

DS394 DS395 DS398

DS390

14

2009

DS388

15

DS387

Case no.

13

Year

12

No.

Table 4.1 (continued)

Mexico

EU

US

Guatemala

Mexico

US

Complainant

Participants

United States—anti-dumping measures on certain shrimp from Viet Nam

United States—measures affecting imports of certain passenger vehicle and light truck tyres from China Viet Nam

China

European China Communities—definitive anti-dumping measures on certain iron or steel fasteners from China

China—measures related to the exportation of various raw materials

China—grants, loans and other incentives

Measure

US

US

EU

China

China

Respondent

7 (including China)

5

11

15

0

0

0

Third party

(continued)

Withdrawn, mutually agreed solution (panel report adopted)

Panel and AB reports adopted (no further action required)

Article 21.5 panel and AB reports adopted (Panel and AB reports adopted)

Implementation notified (Panel and AB reports adopted)

In consultations

Status/ruling

236 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

DS432

DS433

DS437

DS450

DS451

25

26

27

28

DS431

2012

23

24

DS419

22

Case no.

DS405

Year

21

No.

Table 4.1 (continued)

China

Japan

EU

US

US

China

Complainant

Participants

China—measures relating to Mexico the production and exportation of apparel and textile products

China—certain measures US affecting the automobile and automobile-parts industries

United States—countervailing duty measures on certain products from China

China—measures related to the exportation of rare earths, tungsten, and molybdenum

China—measures concerning wind power equipment

European Union—anti-dumping measures on certain footwear from China

Measure

China

China

US

China

China

EU

Respondent

0

0

12

18

0

7

Third party

In consultations

In consultations

(continued)

Panel and AB reports adopted

Panel and AB reports adopted

In consultations

Implementation notified (panel report adopted)

Status/ruling

4.1 The Invocation of China’s Accession Protocol in the Disputes 237

DS536

36

2018

DS532

DS525

34

35

DS517

33

2017

DS512

DS508

32

2016

30

DS501

DS509

2015

29

Case no.

31

Year

No.

Table 4.1 (continued)

Ukraine

EU

US

US

Complainant

Participants

Ukraine

Russian Federation

United Viet Nam States—anti-dumping measures on fish fillets from Vietnam

Russia—measures concerning the importation and transit of certain Ukrainian products

Ukraine—measures relating to trade in goods and services

China—tariff rate quotas for US certain agricultural products

Russia—measures concerning traffic in transit

China—duties and other measures concerning the exportation of certain raw materials

China—export duties on certain raw materials

China—tax measures concerning certain domestically produced aircraft

Measure

US

Russian Federation

Ukraine

China

Russian Federation

China

China

China

Respondent

10 (including China)

0

0

17

17 (including China)

17

16

0

Third party

Panel composed

In consultations

In consultations

(continued)

Panel report adopted (no further action required)

Panel report adopted (no further action required)

Panel established, but not yet composed

Panel established, but not yet composed

In consultations

Status/ruling

238 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

DS604

2021

2022

39

40

DS610

DS611

41

42

DS608

DS568

38

Case no.

DS549

Year

37

No.

Table 4.1 (continued) Complainant

Participants

Brazil

China—enforcement of intellectual property rights

China—measures concerning trade in goods

Russian Federation—measures concerning the exportation of wood products

EU

EU

EU

Russian Federation—certain EU measures concerning domestic and foreign products and services

China—certain measures concerning imports of sugar

China—certain measures on EU the transfer of technology

Measure

China

China

Russian Federation

Russian Federation

China

China

Respondent

19

18

0

13 (including China)

0

0

Third party

Panel composed

Panel composed

In consultations

Authority for panel lapsed

In consultations

In consultations

Status/ruling

4.1 The Invocation of China’s Accession Protocol in the Disputes 239

240

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Table 4.2 Invocation of protocols of accession in WTO disputes in which China participates China as participant

Party

Number of disputes Number of disputes in invoking protocol of which China accession participates

Percentage (%)

Complainant

5

23

21.7

Respondent

30

49

61.2

Total

35

72

48.6

4

193

2.07

Third party

of the Countervailing Agreement and the Anti-Dumping Agreement (see Table 4.3 for details).

4.1.1.3

High Decision Rate

In the meantime, of the 39 disputes in which China participates and the Accession Protocols are invoked, 46% are concluded by decisions of the panels and/or Appellate Body, and 15% were concluded through Withdrawn or Mutually Agreed Solution, leaving 39% of the disputes pending. (See Table 4.4 for details.) The above data reveals that not only has China participated in almost all of the WTO disputes in which the Accession Protocols are invoked—the rate of participation as a party is as high as 83.3%, the Accession Protocols are also invoked in a very high proportion of disputes in which China participates as a party—at the invocation rate of 48.6%, and the 62.9% conclusion rate of disputes in which the Protocol is invoked and China is a party that exceeds the average WTO dispute conclusion rate of approximately 43.5%.4 The Accession Protocol stands out as a typical Chinese phenomenon in WTO dispute settlement.

4.1.2 Issues-Involved/Provisions-Invoked Under China’s Accession Protocol According to Table 3.3 Invoked Paragraphs of Protocol of the Accession of China—China as Party, disputes invoking China’s Accession Protocol can be divided, by matters involved, into the following 11 categories.

4.1.2.1

Subsidies

4 disputes with China as complainant (DS379, DS397, DS405, DS437) and 6 disputes with China as respondent (DS358, DS359, DS387, DS388, DS390, DS451), invoking 4

See https://www.wto.org/english/tratop_e/dispu_e/dispustats_e.htm, at 31st December 2022.

Party Complainant 23 23(100%) 5(21.7%) 7(30.4%) 10(43.5%) 3(13%) 1(4.3%) 1(4.3%) 1(4.3%) 4(17.4%) 3(13%) 3(13%) 1(4.3%) 0(0%) 0(0%) 0(0%)

GATT1994 China’s accession protocol Countervailing agreement Antidumping agreement TRIMs agreement GATS Agreement on agriculture TRIPS agreement Safeguard agreement DSU The WTO agreement SPS agreement Trade facilitation agreement Rules of origin agreement Import licensing procedures agreement

Status

Number of disputes

Disputes in which China participates as a party

Agreements invoked in disputes in which China participates as a party (ratio)

Table 4.3 Invocation of WTO agreements in disputes in which China participates as a party

1(2%)

1(2%)

2(4.1%)

2(4.1%)

0(0%)

1(2%)

1(10.2%)

5(9.1%)

6(12.2%)

7(14.3%)

5(10.2%)

11(22.4%)

17(34.7%)

30(61.2%)

40(81.6%)

49

Respondent

1(1.4%)

1(1.4%)

2(2.8%)

3(4.2%)

3(4.2%)

4(5.6%)

5(6.9%)

6(8.3%)

7(9.7%)

8(11.1%)

8(11.1%)

21(29.2%)

24(33.3%)

35(48.6%)

63(87.5%)

72

Total

14

14

13

11

11

10

9

8

7

5

5

4

3

2

1

/

Order

4.1 The Invocation of China’s Accession Protocol in the Disputes 241

242

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Table 4.4 Decisions in China-participated disputes invoking the protocol of accession Status

Number Pending

Concluded

In Panel Withdrawn, Concluded by DSB Rate consultations composed/ mutually decisions (%) lapsed agreed Panel AB Total solution report report Party Complainant 5

/

/

/

1

4

5

100

Respondent

30

9

4

6

1

10

11

56.7

Total

35

9

4

6

2

14

16

62.9

4

/

2

/

2

/

Third party

2

50

Article 10.3 (Elimination of All Subsidies Within the Scope of Article 3 of the SCM Agreement), Article 12.1 (No Export Subsidies on Agricultural Products), Paragraph 15 (Prices Comparability in Determining Subsidies and Dumping) of China’s Accession Protocol, and Paragraphs 167 (Export Subsidies) and 234 (No Export Subsidies on Agricultural Products) of the WPR of China.

4.1.2.2

Transparency

8 disputes with China as respondent (DS419, DS431, DS432, DS433, DS450, DS451, DS501, DS568), invoking Paragraph 2(C) (Transparency), Paragraph 8.1 (Transparency in Import and Export Licensing) of China’s Protocol, and Paragraph 334 (Transparency) of the WPR of China.

4.1.2.3

Safeguard Measures

1 dispute with China as complainant (DS399), invoking Paragraph 16 (Transitional Product-Specific Safeguard Mechanism) of China’s Protocol, including four subparagraphs, Paragraph 16.1 (Consultations), Paragraph 16.3 (Withdraw Concessions or Limit Imports), Paragraph 16.4 (Market Disruption), Paragraph 16.6 (Period of Time).

4.1.2.4

Right to Trade

9 disputes with China as respondent (DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509), invoking Paragraph 5 (Right to Trade), including Paragraph 5.1 (All Enterprises in China) and Paragraph 5.2 (Foreign Individuals and Enterprises) of China’s Protocol, and Paragraphs 83 and 84 (Trading Rights) of the WPR of China.

4.1 The Invocation of China’s Accession Protocol in the Disputes

4.1.2.5

243

Import and Export Licensing

9 disputes with China as respondent (DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509, DS568), invoking Paragraph 8 (Import and Export Licensing), in particular Paragraph 8.2 (Non-Discriminatory Treatment) of China’s Protocol, Paragraphs 136 (Import Licensing), 162 and 165 (Export Licensing and Export Restrictions) of the WPR of China.

4.1.2.6

Tariff

6 disputes with China as respondent (DS339, DS340, DS342, DS451, DS517, DS568), invoking Paragraph 93 (Ordinary Customs Duties), Paragraph 116 (General Tariff Rate Quotas) and Paragraph 120 (Non-state Trading Enterprises Tariff Rate Quotas) of the WPR of China.

4.1.2.7

Taxes and Charges Levied on Imports and Exports

8 disputes with China as respondent (DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509), invoking Paragraph 11 (Taxes and Charges Levied on Imports and Exports), in particular Paragraph 11.3 (Eliminate All Taxes and Charges in Accordance with Annex 6 of Protocol or Article VIII of the GATT 1994) of China’s Protocol.

4.1.2.8

Non-tariff Measures

10 disputes with China as respondent (DS339, DS340, DS342, DS358, DS359, DS431, DS432, DS433, DS451, DS568), invoking Paragraph 7 (Non-Tariff Measures) of China’s Protocol, including Paragraph 7.2 (National Treatment, Elimination of Quantitative Restrictions) and Paragraph 7.3 (Investment Measures), and Paragraphs 122 and 127 (Quantitative Import Restrictions, including Prohibitions and Quotas) of the WPR of China.

4.1.2.9

Uniform Administration of the Trade Regime

8 disputes with China as respondent (DS431, DS432, DS433, DS450, DS508, DS509, DS549, DS611), invoking Paragraph 2(A) (Uniform Administration of the Trade Regime) of China’s Protocol.

244

4.1.2.10

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Trade-Related Investment Measures

5 disputes (DS339, DS340, DS342, DS358, DS359), invoking paragraph 203 (comply fully with the TRIMs Agreement) of the WPR of China.

4.1.2.11

Policies Affecting Trade in Services

3 disputes (DS372, DS373, DS378), invoking Paragraph 309 (independence of regulators) of the WPR of China.

4.1.3 Special Phenomena in the Application of China’s Accession Protocol Taking the provisions of China’s Protocol as an example and analyzing the circumstances under which the Protocol is invoked and decisions are made in specific cases (for details, see Table 4.5), it can be seen that there is a certain imbalance between the complaints filed and the decisions made in the application of China’s Protocol in the different phases of the dispute settlement process where China participates as a party. In summary, the special phenomenon in the application of China’s Accession Protocol in WTO dispute settlement is highlighted in the following three aspects.

4.1.3.1

Imbalanced Claims

In the DSM, the dispute settlement procedure is a two-step process: consultations, followed by panels and Appellate Body appeals if consultations are unsuccessful. A total of 13 substantive provisions of the Protocol of Accession are invoked to varying extent at the consultation stage.5 However, further to the panel stage, only five provisions had been ruled upon. Of the eight provisions that are not ruled on, apart from Paragraph 10.3, which is not ruled on simply because the dispute is settled by consultation/settlement, and Paragraph 12.1, which is not ruled on because the dispute is still in consultation, Paragraphs 7.2 and 8.2 are not ruled on because the parties do not invoke the provisions when they request for composition of the panel. Even among the five provisions that are ruled upon, there are disputes in which Paragraphs 15 and 5.2 are not ruled on because the parties do not invoke them when they request for composition of the panel. Therefore, in the disputes invoking China’s Protocol, only part of the provisions invoked in the consultations have been relied upon as ground for claims at the panel 5

Not inclusive of general invocation of the Accession Protocol and the invocation of Paragraph 1.2 only as reference to incorporate paragraph of the WPR.

DS451, DS610 DS363, DS394, DS395, 9 DS398, DS431, DS432, DS433, DS508, DS509 DS339, DS340, DS342 DS451, DS517, DS568 DS568 DS451, DS568

DS568 DS394, DS395, DS398, 8 DS431, DS432, DS433, DS508, DS509 DS358, DS359, DS451

DS339, DS340, DS342, 5 DS358, DS359

Paras 83 and 84 trading rights

Para 93 ordinary customs duties

Para 116 tariff rate quotas (general)

Para 120 tariff rate quotas (non-state trading enterprises)

Paras 122 and 127 quantitative import restrictions, including prohibitions and quotas

Para 136 import licensing

Paras 162 and 165 export licensing and export restrictions

Para 167 export subsidies

Para 203 TRIMs

Paragraph 1.2, incorporating Para 342 of WPR

Para 234 agricultural policies (export DS387, DS388, DS390, 4 subsidies) DS451

3

1

2

1

3

3

2

DS309

Para 46 state-owned and state-invested enterprises

General invocation

1

Consultation

Provisions invoked

Table 4.5 Decisions made in disputes invoking China’s accession protocol

/

/

Appellate body report

/

/

/

/

DS339, DS340, DS342

/

DS339, DS340, DS342

/

/ (continued)

DS339, DS340, DS342

/

DS394, DS395, DS398, DS394, DS395, DS398, DS431, DS432, DS433 DS431, DS432, DS433

/

/

/

DS517

DS339, DS340, DS342

DS363, DS394, DS395, DS363, DS394, DS395, DS398, DS431, DS432, DS398, DS431, DS432, DS433 DS433

/

/

Panel report

Decision made

4.1 The Invocation of China’s Accession Protocol in the Disputes 245

Provisions invoked

Table 4.5 (continued)

Paras 18, 19, 22, DS451 Non-discrimination; 47, State-owned and state-invested enterprises; 60, 62, 64, Pricing policies; 70, Authority of sub-national governments; 73, Uniform administration of the trade regime; 107, Application of internal taxes to imports; 115, Tariff rate quotas; 123, Quantitative import restrictions, including prohibitions and quotas; 132, Import licensing; 157, Export licensing and export restrictions; 168, Export subsidies; 170, Taxes and charges levied on imports and exports; 171–174, Industrial policy, including subsidies; 210, State trading entities; 222, 223, 225, 227, 228, Special economic areas; 231–233, 235, 238, Agricultural policies; 322 Notification

1

DS419, DS450, DS451, 4 DS501

Para 334 transparency

3

DS372, DS373, DS378

Para 309 policies affecting trade in services (licensing)

Consultation

/

/

/

Panel report

Decision made

/

/

/

(continued)

Appellate body report

246 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Art. 10 Subsidies

Art. 8 Import and export licensing DS358, DS359

DS394, DS395, DS398, DS431, DS432, DS433

Art. 10.3 Eliminate all subsidies within the scope of article 3 of the SCM agreement

DS568

Art. 8.2 Non-discriminatory treatment

DS339, DS340, DS342, DS358, DS359

Art. 8.1 Transparency

Art. 7.3 Investment measures

2

7

DS339, DS340, DS342, 8 DS358, DS359, DS431, DS432, DS433

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS509

Art. 5.2 Foreign individuals and enterprises

Art. 7 Non-Tariff measures Art. 7.2 National treatment, elimination of quantitative restrictions

DS363, DS394, DS395, 9 DS398, DS431, DS432, DS433, DS508, DS509

DS431, DS432, DS433, 6 DS450, DS501, DS568

Art. 2(C) transparency

Art. 5.1 All enterprises in China

DS431, DS432, DS433, 8 DS450, DS508, DS509, DS549, DS611

Art. 2(A) uniform administration

Art. 2 Administration of the trade regime

Art. 5 Right to trade

Consultation

Provisions invoked

Table 4.5 (continued)

DS431, DS432, DS433

DS431, DS432, DS433

Appellate body report

/

DS339, DS340, DS342

/

/

(continued)

DS394, DS395, DS398, DS394, DS395, DS398, DS431, DS432, DS433 DS431, DS432, DS433

/

DS339, DS340, DS342

DS339, DS340, DS342, DS339, DS340, DS342, DS431, DS432, DS433 DS431, DS432, DS433

DS363, DS394, DS395, DS363, DS394, DS395, DS398, DS431, DS432, DS398, DS431, DS432, DS433 DS433

DS363, DS394, DS395, DS363, DS394, DS395, DS398, DS431, DS432, DS398, DS431, DS432, DS433 DS433

DS431, DS432, DS433

DS431, DS432, DS433

Panel report

Decision made

4.1 The Invocation of China’s Accession Protocol in the Disputes 247

Art. 12.1 No export subsidies on agricultural products

Art. 12 Agriculture

Appellate body report

1

DS399

DS399

Art. 16.1 Consultation; Art. 16.3 DS399 Withdraw concessions or limit imports; Art. 16.4 Market disruption; Art. 16.6 Period of time

Art. 16 Transitional product-specific safeguard mechanism

/

DS379, DS397, DS405, DS379, DS397, DS437 DS437

/

DS394, DS395, DS398, DS394, DS395, DS398, DS431, DS432, DS433 DS431, DS432, DS433

Panel report

Decision made

Art. 15 Price comparability in determining subsidies and dumping DS379, DS397, DS405, 4 DS437

3

DS394, DS395, DS398, 8 DS431, DS432, DS433, DS508, DS509

Art. 11.3 Eliminate all taxes and charges in accordance with Annex 6 of protocol or article VIII of the GATT 1994

Art. 11 Taxes and charges levied on imports and exports DS387, DS388, DS390

Consultation

Provisions invoked

Table 4.5 (continued)

248 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

4.1 The Invocation of China’s Accession Protocol in the Disputes

249

stage. The reasons for this are twofold: either the parties have reached a settlement by compromising on the relevant provisions in the consultation process and thus obviating the need to raise the relevant claims in the subsequent process, or the parties have failed to reach a settlement but have decided to waive the relevant claims when they enter the panel process. In the latter case, waivers can be further divided into two situations. One is the complete waiver, i.e., no further claims invoking the provision as ground, such as, China—Raw Materials (DS394, DS395, DS398), China—Rare Earths (DS431, DS432, DS433) and US—Countervailing Measures (China) (DS437). The second is the reserved waiver, that is to retain the right to rebut invoking the provisions as ground, although not to invoke the provisions as ground for claims. For example, in the US—Anti-Dumping and Countervailing Duties (China) (DS379), China, as complainant, filed a claim under Paragraph 15(b) and (c) of the Protocol when requesting the establishment of the panel, and, although China subsequently waived the claim, in the meantime, it “reserved its right to present arguments under Sections 15(b) and (c) of its Protocol in the event that the U.S. invoked the disciplines contained therein”.6 The above illustrates that in WTO dispute settlement practice, some of the claims invoking the provisions of the Protocol during the consultation stage, as the first stage of the dispute settlement procedure, do not “last” to the panel stage. The claims are imbalanced.

4.1.3.2

Misaligned Rulings

Under normal circumstances, when a party asserts a claim under a specific provision of the Protocol at the consultation and the panel stage, the pane report issued after the deliberation will make corresponding rulings on each of the party’s claims; if the party does not assert a claim under a specific provision, there will be no corresponding rulings in the panel report. It is worth noting, however, that in disputes where China is a party, there are ones in which a decision is made without a claim under a particular provision, or no decision is made though there is a claim invoking a particular provision, as opposed to the normal circumstances. Invoked but not Ruled In the disputes in which China is a respondent, there are instances where the parties raise claims on specific provisions that are not decided by the panel. In China— Measures Affecting Imports of Automobile Parts, the parties as well as third parties filed claims under Paragraph 1.2 of China’s Accession Protocol and Paragraphs 93 and 342 of the WPR, which it introduced, and Paragraphs 7.2 and 7.3, respectively, but the Panel exercised judicial economy and did not rule on any of these provisions.7

6

See for details US—Anti-Dumping and Countervailing Duties (China) (DS379), WT/DS379/R, para. 10.10. 7 See for details China—Measures Affecting Imports of Automobile Parts, WT/DS339/R, paras. 7.760, 7.762, and 7.763.

250

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Not Invoked but Ruled In the disputes in which China is a complainant, there are also instances where the parties do not claim a particular provision but the panel applies it in its decision. This situation first arises in US—Anti-Dumping and Countervailing Duties (China) (DS379): although, as noted before, China, as complainant, claims under Paragraph 15(b) and (c) of the Protocol of Accession when requests for the composition of a panel and later makes the “reserved waiver”, and the U.S., as respondent, does not invoke this provision, the Panel, still invokes Paragraph 15 of the Protocol in analyzing whether the United States Department of Commerce’s imposition of both anti-dumping and countervailing duties on imports from China constitutes “double remedies” and whether such “double remedies” are in violation of the SCM Agreement.8 In European Communities—Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, China, as complainant, did not invoke any provision of the Accession Protocol with respect to the violation of obligations under the Anti-Dumping Agreement, GATT 1994 and the WTO Agreement by the provisions of the EC’s Basic Anti-Dumping Regulation. However, after the EU as a respondent and Brazil, India and Japan as third parties all invoked Paragraph 15 of China’s Accession Protocol as a defense, the Panel also applied the Paragraph in its decision—albeit only in a footnote—in order to hold that different treatment is allowed with respect to the determination of normal value in anti-dumping investigations against Members that have a complete or substantially complete monopoly of their trade.9

4.1.3.3

Blurred Consent

Paragraph 1.2 of the Protocol of Accession states: “This Protocol, which shall include the commitments referred to in paragraph 342 of the Working Party Report, shall be an integral part of the WTO Agreement”. Pursuant to this Paragraph, a total of 146 provisions of the WPR are incorporated into the Protocol of Accession as an integral part of the Agreement Establishing the WTO. It serves, in dispute settlement practice, as a bridge clause, to incorporate the Protocol of Accession and part of the provisions of the WPR contained therein into the WTO Agreement which then become directly applicable. However, in dispute settlement practice, there are also indirect applications of provisions of the WPR of China, which can be divided into two scenarios: first, the provisions of the WPR that are incorporated into China’s Protocol, also incorporate other provisions of the WPR, such as Paragraph 40 incorporates Paragraph 38, and

8

See Panel Report, US—Anti-Dumping and Countervailing Duties (China), WT/DS379/R, paras. 14.121, 14.178. 9 See Panel Report, European Communities—Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/R, p. 74, footnote 306.

4.1 The Invocation of China’s Accession Protocol in the Disputes

251

Paragraph 210 incorporates Paragraph 333.10 Secondly, in dispute settlement practice, WTO panels and the Appellate Body, when apply a particular provision of the WPR, invoke other provisions as contextual references and basis for interpretation by applying the rules of treaty interpretation so that such other provisions are to some extent applied. This latter scenario, coupled with the fact that there are possible correlation or even overlap between/among paragraphs regarding different issues under the WPR, for example, the paragraphs on state-owned/state-invested enterprises (SOEs) also provide for transparency requirements in relation to privatization projects of SOEs, thus becoming an integral part of the provisions on transparency issue, in effect render the originally clear scope of the “accession” text, China’s Accession Protocol and the paragraphs of WPR incorporated through Paragraph 342, blurred.

4.1.4 Discrepancies in Perceptions of China’s Accession Protocol 4.1.4.1

Origins and Unfolding of the Problem

The different legal perceptions of China’s Accession Protocol stemmed from a series of WTO disputes on whether Article XX General Exceptions of the GATT 1994 can be invoked as a defense to a breach of the obligations under China’s Accession Protocol, in particular China—Publications and Audiovisual Products (DS363), China—Raw Materials (DS394) and China—Rare Earths (DS431). These three disputes raise an initial question, namely, whether a party may invoke Article XX of GATT 1994 as a defense when there is a breach of the obligations under the provisions of China’s Accession Protocol. In this regard, the panels and the Appellate Body disagree with one another, and raise concerns and interpretations over a series of issues such as the relationship between China’s Accession Protocol and GATT 1994, as well as the relationship between China’s Accession Protocol and the WTO Multilateral Trade Agreements (MTAs). China—Publications and Audiovisual Products: rule or not to rule The dispute involves a heated debate between the parties over the applicability of Article XX of GATT 1994 to China’s Accession Protocol. The U.S. claims that China’s measures unjustifiably restrict the right of enterprises in China and foreign enterprises and individuals to import into China reading materials, AVHE products, sound recordings and films for theatrical release by limiting trading rights to Chinese state-owned enterprises and accordingly violate Paragraph 5 (Right to Trade) of 10

WPR, Paragraph 40: … The representative of China also confirmed that measures taken for BOPs reasons would only be applied to control the general level of imports and not to protect specific sectors, industries or products, except as noted in Paragraph 38; Paragraph 210: … He also confirmed that information on state trading enterprises, as required by the Draft Protocol, would be supplied, consistent with the requirements of Paragraph 333 of this Report.

252

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

China’s Accession Protocol, which provides that within three years after accession, all enterprises in China shall have the right to trade in all goods throughout the customs territory of China, except for those goods listed in Annex 2A. One of China’s defenses is Article XX(a) exception (public morals) under the GATT 1994, i.e., provided that GATT 1994, as an Annex to the WTO Agreement, applies through the self-limiting condition of Paragraph 5.1 of China’s Accession Protocol—“Without prejudice to China’s right to regulate trade in a manner consistent with the WTO Agreement”, Article XX(a) applies ipso facto, which consequently precludes the unlawfulness of China’s measures under Paragraph 5.1 of China’s Accession Protocol. The Panel in this case exerts the discretion provided by the “judicial economy” to skip the issue whether Article XX(a) is in fact applicable as a direct defense to breaches of China’s trading rights commitments and directly examines whether China has established that the measures at issue satisfy the requirements of Article XX(a), but with failure. Hence, the Panel takes no position on this issue.11 However, the Appellate Body first relies on Articles 3.2 and 11 of the DSU to find that the Panel’s reliance upon an assumption arguendo may not provide a solid foundation upon which to rest legal conclusions.12 The phrase “in a manner consistent with the WTO Agreement” in the introductory clause of Paragraph 5.1 of China’s Accession Protocol, refers “to the WTO Agreement as a whole, including its Annexes”.13 Accordingly, China’s measures to regulate trade rights are subject to GATT 1994, and China is entitled to invoke the Article XX exceptions of GATT 1994 as a defense. A close reading of the reasoning of the Panel and the Appellate Body reveals a set of rulings on the issue whether Article XX of GATT 1994 is applicable as a direct defense to breaches of China’s commitments under China’s Accession Protocol, as follows: a. Article XX of GATT 1994 is applicable when GATT 1994 is expressly referred to in specific provisions of China’s Accession Protocol; b. The phrase “in a manner consistent with the WTO Agreement” in Paragraph 5.1 of China’s Accession Protocol, refers “to the WTO Agreement as a whole, including its Annexes”.14 c. China’s trading rights commitments under Paragraph 5.1 of China’s Accession Protocol and the obligations imposed on all WTO Members under Articles III 11

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, para. 7.914. It is worth noting that applying the rule of “judicial economy” by the Panel in this dispute to avoid the issue of applicability of Article XX of GATT 1994 to other agreements under the WTO is not unique to disputes which China participates. The Appellate Body adopted this approach as early as in US—Shrimp (Thailand)/US—Customs Bond Directive, see WT/ DS343/AB/R. 12 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, adopted 21 December 2009, para. 213. 13 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, adopted 21 December 2009, para. 222: “We read the phrase ‘in a manner consistent with the WTO Agreement’ as referring to the WTO Agreement as a whole, including its Annexes”. 14 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, adopted 21 December 2009, para. 222.

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and XI of the GATT 1994 are “closely intertwined”,15 and such “intertwines” makes Article XX exception of GATT 1994 that is applicable to all obligations under GATT 1994, also applies to Paragraph 5.1 of China’s Accession Protocol. Thus, the “technical avoidance” of the Panel and the “rising to the occasion” of the Appellate Body in this case reveals the first superficial disagreement within the DSB. China—Raw Materials: applicable or not applicable The dispute focuses on the issue whether Article XX is applicable as a defense to the application of export duties in excess of commitments undertaken in Paragraph 11.3 of China’s Accession Protocol. The Panel expressly ruled that Article XX of GATT 1994 has a clear scope of application, i.e., it applies only to obligations under GATT 1994. This is because, firstly, there are no general umbrella exception in the Marrakesh Agreement and each WTO agreement provides its own set of exceptions or flexibilities applicable to the specific obligations found in each covered agreement16 ; secondly, Article XX provides that “nothing in this Agreement should be construed to…” suggests that the exceptions therein relate only to the GATT 1994, and not to other agreements17 ; thirdly, unless incorporated by cross-reference in China’s Accession Protocol, Article XX of GATT 1994 cannot be invoked as a defense18 ; and, finally, because it is not referred to in Paragraph 11.3 of China’s Accession Protocol, Article XX of GATT 1994 cannot be applied. The members of the Appellate Body in this dispute serve also as the members of the Appellate Body in China— Publications and Audiovisual Products, but reached the opposite conclusion as to the applicability of Article XX of GATT 1994, simply because Paragraph 11.3 of China’s Accession Protocol does not explicitly invoke any provision of GATT 1994 other than Article VIII, Article XX of GATT 1994 is inapplicable as a defense to a violation of Paragraph 11.3 of China’s Accession Protocol. Although contrary to the conclusion of the Appellate Body in China—Publications and Audiovisual Products, the Panel and the Appellate Body in this dispute still follow, to certain extent, the “de facto precedent” system of the WTO mechanism, and hold the following:

15

See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, adopted 21 December 2009, para. 226: “We see the obligations assumed by China in respect of trading rights, which relate to traders, and the obligations imposed on all WTO Members in respect of their regulation of trade in goods, as closely intertwined. This is particularly true of China’s trading rights commitments, on the one hand, and the obligations imposed on all WTO Members under Articles III and XI of the GATT 1994, on the other hand, as certain WTO Members expressly recognized during the negotiations on China’s accession to the WTO”. 16 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.150. 17 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.153. 18 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, paras. 7.153, 7.154.

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4 Application of China’s Accession Protocol in WTO Dispute Settlement …

(1) Following the decision in China—Publications and Audiovisual Products, Article XX of GATT 1994 is applicable only when GATT 1994 is expressly invoked in specific provisions of China’s Accession Protocol; (2) “silence” = “not intend to invoke”, i.e., Paragraph 11.3 of China’s Accession Protocol contains neither a general reference to the WTO Agreement or GATT 1994 as in Paragraph 5.1,19 nor “in a manner consistent with the WTO Agreement” as in Paragraphs 11.1 and 11.2,20 plus the fact that Paragraph 11.3 expressly refers to Article VIII other exceptions but leaves out reference to other provisions, such as Article XX,21 Article XX of GATT 1994 is inapplicable; (3) There is no general umbrella exception in the Marrakesh Agreement, and that each WTO agreement provides its own set of exceptions or flexibilities applicable to the specific obligations found in each covered agreement.22 Accordingly, Article XX of GATT 1994 is not applicable to other covered agreements unless it is incorporated by cross-reference.23 Thus, the Appellate Body’s decision in this dispute forms a second prima facie discrepancy with its conclusion in China—Publications and Audiovisual Products on the applicability of Article XX of GATT 1994 to China’s Accession Protocol. China—Rare Earths : Scope of “WTO Agreement” and “Systemic Relationship” In this dispute, China again claims that Article XX is applicable as a defense for the violation of Paragraph 11.3 of China’s Accession Protocol. But in light of DSM’s “de facto precedent” system and the previous decisions of the Panel and the Appellate Body in China—Raw Materials, China has put forward four arguments: First, quoting from the Appellate Body report in US—Carbon Steel (DS213) that “Such silence does not exclude the possibility that the requirement was intended to be included by implication”,24 textual silence does not mean that it was the Members’ common intention that no such defense should be available to China25 ; Second, China’s Accession Protocol has a “systemic relationship” with the GATT 1994 so Paragraph 11.3 of the Protocol is an integral part of the GATT 1994, because: (1) Paragraph 1.2 of China’s Accession Protocol, which states that “[t]his Protocol, which shall include the commitments referred to in paragraph 342 of the Working 19

See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.129. 20 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.138. 21 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.129. 22 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011, para. 7.150. 23 See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011 para. 7.153. 24 See Appellate Body Report, US—Carbon Steel, WT/DS213/AB/R, para. 65. 25 See China’s First Written Submission, China—Rare Earths, para. 411.

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Party Report, shall be an integral part of the WTO Agreement”; (2) Article XII:1 of the Marrakesh Agreement, which provides that a State or separate customs territory possessing full autonomy in the conduct of its external commercial relations “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”.26 Third, the terms “nothing in this Agreement” in the chapeau of Article XX of the GATT 1994 do not exclude the availability of Article XX to defend a violation of Paragraph 11.3 of China’s Accession Protocol.27 Fourth, an appropriate holistic interpretation, taking due account of the object and purpose of the WTO Agreement, confirms that China may justify export duties through recourse to Article XX of the GATT 1994.28 It’s worth noting that many of the third parties in this dispute also took different approaches to the applicability of Article XX of the GATT 1994 to Paragraph 11.3 of China’s Accession Protocol: Argentina and Russia took the position that it was applicable; Australia, Canada, Norway and Turkey agreed with the complainants’ position; Korea and Saudi Arabia submitted that the Panel should be guided by the relevant findings of the Appellate Body in China—Raw Materials; Brazil and Colombia took no definite position on the issue.29 (1) Divergent Opinions by Panel Members on the relationship between China’s Accession Protocol and the WTO agreements Before reviewing the specific arguments, the Panel first considers the prior adopted finding by the Appellate Body (in China—Raw Materials) on the same question of law, and stress on the “de facto precedent” rule that the panel, only with “cogent reasons”, can depart from the prior adopted finding by the Appellate Body, on the same question of law; and such “cogent reasons” may be understood as referring generally to a high threshold.30 Thereafter, the Panel ruled on each of the four arguments raised by China: First, as for the interpretation of omissions in the covered agreements, the Panel finds compatibility between the Appellate Body’s analysis in China—Raw Materials and its earlier analysis in US—Carbon Steel, and accordingly, finds that China’s reliance on US—Carbon Steel is misplaced and its argument that “textual silence in a treaty provision is not, in and of itself, dispositive” cannot be regarded as a "cogent reason" for departing from the Appellate Body’s finding that the obligation in Paragraph 11.3 of China’s Accession Protocol is not subject to the general exceptions in Article XX of the GATT 1994.31 26

See China’s First Written Submission, China—Rare Earths, Section V.C, paras. 422–435. See also China’s Rebuttal Submission on the Availability of Article XX of the GATT 1994, Section III, paras. 13–34. 27 See China’s First Written Submission, China—Rare Earths, Section V.D, paras. 436–444. 28 See China’s First Written Submission, China—Rare Earths, Section V.E, paras. 445–458. 29 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, para. 7.52. 30 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, para. 7.61. 31 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.72.

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4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Second, as for the relationship between China’s Accession Protocol and the GATT 1994, the Panel first does not support China’s argument that the “WTO Agreement” under Paragraph 1.2 of China’s Accession Protocol refers to the WTO rules system in the broad sense, and rejected, on the basis of textual interpretation, China’s argument that Paragraph 1.2 of the Protocol of Accession makes itself an integral part of the annexed MTAs to the WTO Agreement. The Panel finds that: ➀ “the WTO Agreement” refers only to the WTO Agreement, which leads to the Accession Protocol as an integral part of the Marrakesh Agreement only; ➁ Article I of GATT 1994 specifies what the GATT 1994 shall consist of, which is an exhaustive, closed list, and accordingly post-1994 accession protocols that cover services and intellectual property issues are not covered by the GATT 1994, including China’s Accession Protocol. ➂ Given the fact that Paragraph 1 of Part II of China’s Accession Protocol provides for the Schedules annexed the Protocol to become the Schedule of Concessions and Commitments annexed to the GATT 1994, and that Article II:7 of the GATT 1994 provides for the Schedules annexed to this Agreement to become an integral part of the Agreement, there would have been no need to state this explicitly if all GATT-related provisions of the Accession Protocol were implicitly made an “integral part” of the GATT 1994; ➃ prior panel and Appellate Body reports do not support the interpretation that the term “the WTO Agreement” in Paragraph 1.2 of China’s Accession Protocol refers to something other than the Marrakesh Agreement; ➄ accepting the term “the WTO Agreement” as used in Paragraph 1.2 of China’s Accession Protocol would render redundant the explicit language throughout the Accession Protocol and WPR specifically making Article XX exceptions applicable in the case of certain WTO commitments. For these reasons, the Panel holds that Paragraph 1.2 of China’s Accession Protocol, does not provide for the Paragraph 11.3 to become an integral part of the GATT 1994.32 Third, as for Article XII:1 of the WTO Agreement, the Panel finds that Article XII:1 provides for accession to the WTO Agreement and stipulates such accession must apply across the board, rather than just with respect to some WTO Agreements, and therefore, an acceding Member is subject to all of the obligations of all the MTAs—a new Member is not entitled to pick and choose which particular Agreements it will accede to.33 The Panel also takes the relationship between other MTAs and the GATT 1994 as examples to establish the relationship among the MTAs: the MTAs serve to specify the obligations under the GATT 1994, but this does not mean that the individual provisions of these agreements are automatically integral parts of the GATT 1994.34 It is worth noting that there are significant disagreements among the members of the Panel in this dispute, and the Panel Report clearly lists the dissenting opinion

32

See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.82– 7.89. 33 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.91. 34 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.92.

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of the dissenting panelist35 : Firstly, as for the applicability of Article XX of the GATT 1994 to China’s Accession Protocol, a proper determination must begin with an understanding of the components and functioning of the WTO Agreement as a Single Undertaking.36 Secondly, as an accession package, each term of the accession protocol, working party report, different schedules and the decision of the Ministerial Conference/General Council, calls for a distinct interpretation and determination of each term’s relationship with provisions of the WTO Agreement, among which, Paragraph 11.3 sets out China’s WTO-Plus obligations with respect to export duties, which works in conjunction with other existing WTO obligations applicable to trade in goods, including provisions of the GATT 1994, and in particular those related to border tariff measures.37 Thirdly, Paragraph 11.3 of China’s Accession Protocol modifies the general obligations of China under GATT Article II and Article XI:1, all three of which deal with the border tariff duties and must be read together.38 At last, in light of the object and purpose of the WTO, the defenses provided in the GATT 1994 are automatically available to justify any GATT-related obligations, unless a contrary intention is expressed by the acceding Member and WTO Members.39 If China and WTO Members had wanted to exclude a benefit generally provided with respect to all GATT obligations, they could and should have done so explicitly. Given that no such exclusion is made in Paragraph 11.3, GATT Article XX is available.40 (2) Divergent Opinion by the Appellate Body: the WTO Agreement = WTO Agreements? on the relationship between China’s Accession Protocol and the WTO Agreements In response to China’s claims on appeal, regarding the Panel’s interpretation of Article XII:1 of the WTO Agreement and Paragraph 1.2 of China’s Accession Protocol that the legal effect of the second sentence of Paragraph 1.2 of the Protocol is to make the Protocol an integral part of the WTO Agreement, rather than its specific provisions also become an integral part of the WTO Agreement and its MTAs, the Appellate Body, after analyzing Article XII:1 of the WTO Agreement, Paragraph 1.2 of the Protocol, and the relationship between the Protocol and the WTO Agreement and its MTAs, reached the following conclusions: Firstly, Article XII:1 of the Marrakesh Agreement does not directly address the question of the substantive relationship between individual provisions of a protocol of accession, and the provisions of the 35

See Panel 7.118–7.138. 36 See Panel 7.121. 37 See Panel 7.128–7.131. 38 See Panel 7.136. 39 See Panel 7.137. 40 See Panel 7.137–7.138.

Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras.

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Marrakesh Agreement and its MTAs.41 Secondly, the “WTO Agreement” in the narrow sense or the broader sense is not dispositive of the legal question of the specific relationship between individual provisions of China’s Accession Protocol and the Marrakesh Agreement and the MTAs.42 At last, the specific relationship among individual terms and provisions of the MTAs, and between such provisions and the Marrakesh Agreement, must be determined on a case-by-case basis through a proper interpretation of the relevant provisions of these agreements.43 The divergence lies both within the members of the Panel and between the Panel and the Appellate Body in this dispute. In summary, the DSB has not yet reached convincing conclusions on many issues relating to the legal nature of China’s Accession Protocol, maintaining either fundamental differences or ambiguity in its conclusions or reasoning. Whether Article XX of GATT 1994 is applicable, whether it is applicable only when the specific provisions of China’s Accession Protocol explicitly refer to, what is the legal effect of textual silence as “no explicit textual link”, what is the scope of the “WTO Agreement” and how is the relationship between China’s Accession Protocol and the GATT 1994 and other WTO agreements, all these issues ultimately lead to an essential issue: the legal nature of China’s Accession Protocol.

4.1.4.2

Divergence: Differential Interpretations of WTO-Plus Obligations and Their Approaches

As shown in Table 4.4, of the 35 WTO disputes involving China’s Accession Protocol, only 16 disputes resulted in a panel report, of which 14 resulted in an Appellate Body report. As the application of all other WTO Agreements in WTO dispute settlement, the application of China’s Accession Protocol in the vast majority of disputes involves interpretation issue. In the 16 disputes, except for one dispute, in which no provision of the Protocol is applied and thus no interpretation issue involved, the remaining 15 disputes all involve legal interpretation of the applicable provisions.44 (See Table 4.6 for details.) As indicated by the above table, except for the provisions that were not reviewed by the panel or the Appellate Body due to the exertion of judicial economy, all the provisions of China’s Accession Protocol are interpreted, and then applied, by the panel or

41 See Appellate Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/ AB/R, para. 5.34. 42 See Appellate Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/ AB/R, para. 5.48–5.50. 43 See Appellate Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/ AB/R, para. 5.55, 5.62. 44 In United States—Countervailing Measures (China) (DS437), although China invoked Paragraph 15 of China’s Accession Protocol as the legal basis for its complaint during the consultation, the Paragraph is not included in the basis of China’s claims at the panel phase, and therefore is not applied and/or interpreted in either the Panel Report or the Appellate Body Report.

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Table 4.6 Interpreted provisions of China’s accession protocol45 No. Disputes Provisions interpreted

Interpretations

1 2 3

DS339 DS340 DS342

Paragraph 93 of the WPR 1. Rules of interpretation for the Accession Protocol established46 2. Whether “creation” of a tariff line includes de facto creation47 of China

4

DS363

Paragraphs 5.1 and 5.2 of China’s accession protocol Paragraphs 83(d) and 84(a)(b) of the WPR of China

1. Whether “all enterprises in China” under Paragraph 5.1 encompass Chinese enterprises registered in China, foreign enterprises invested and registered in China, state-owned and privately owned enterprises in China, and foreign-invested enterprises in China48 2. Whether the “without prejudice” phrase under Article 5.1 implies that China’s right to regulate trade in a WTO-consistent manner takes precedence over China’s obligation to ensure that all enterprises in China have the right to trade49 3. Whether China’s “right to regulate trade” includes, by implication, a consequent right to regulate importers or exporters of the relevant good(s)50 4. Whether the “all goods” under Paragraph 5.1 cover hard-copy cinematographic film51 5. Whether the “all foreign … enterprises, including those not invested or registered in China” under Paragraph 5.2 include foreign-registered enterprises which have no commercial presence in China and which maintain a commercial presence in China52 6. Whether the “without prejudice” of Paragraph 5.1 “provides otherwise” within the meaning of Paragraph 5.253 7. Whether the obligation stipulated in Paragraphs 83(d), 84(a) and 84(b), should be understood as being without prejudice to China’s right to regulate trade in a WTO-consistent manner54 8. Whether the “non-discriminatory” under Paragraph 84(b) apply to cases involving discrimination between foreign enterprises and individuals, on the one hand, and enterprises in China, on the other hand55 9. Whether Article XX of GATT 1994 can be invoked as a defense to a breach of Paragraph 5.1 under the Accession Protocol56 (continued)

45

Note: As some of the disputes involving China’s Accession Protocol are resolved through consultations or settlements and do not result in a panel report, in which scenario there is no application/interpretation of provisions at all, only the interpretations of the specific provisions of China’s Accession Protocol in the panel and Appellate Body reports are set out in this table.

46 See Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, adopted 18 July 2008, para. 7.652, 7.740–7.741. 47

See Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, adopted 18 July 2008, para. 7.756.

48

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.246– 7.252.

49

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.253– 7.255.

50

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.256– 7.281.

51

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.551– 7.555; see Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, paras. 196–198.

52

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.286– 7.299.

53

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.300– 7.306.

54

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.310, 7.313–7.315, 7.318–7.319.

55

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.320– 7.324.

56

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, adopted 12 August 2009, paras. 7.743– 7.745; see Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/R, paras. 205, 213–230.

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Table 4.6 (continued) No. Disputes Provisions interpreted

Interpretations

5

DS379

Paragraph 15 of China’s accession protocol

Whether the absence of any provision addressing the question of “double remedy” in Article 15 of the Accession Protocol suggests that the drafters of Article 19.4 of the SCM Agreement did not intend this provision to address the issue of double remedies57

6 7 8

DS394 DS395 DS398

Paragraph 11.3 (+Paragraphs 11.1 and 11.2)_of China’s accession protocol Paragraph 170 of the WPR of China

1. Whether Article XX of the GATT 1994 is available as a defense to a claim under Paragraph 11.3 of the Accession Protocol58 2. Whether “taxes and charges applied to exports” under Paragraph 11.3 include “bid-winning price”59

9

DS397

Paragraph 15 of China’s accession protocol

1. Paragraph 15 of the accession protocol permits different treatment with respect to the determination of normal value in investigations conducted against Chinese producers provided certain conditions are met60 2. Whether Paragraph 15 of the Accession Protocol allows the European Union to treat China as an NME for the purpose of applying anti-dumping rules61

10

DS399

Paragraph 16 of China’s Accession Protocol

1. Whether Paragraph 16.1 and Paragraph 16.4 are interrelated (one provides important context for interpreting the other)62 2. How to interpret the phrase “increasing rapidly” under Paragraph 16.463 3. For the purpose of the causation standard set forth in Paragraph 16.4, whether the imports need to be the sole cause of the market disruption, and whether “significant cause” standard of market disruption equals to “contributes significantly” standard64 4. How to limit the scope of the remedy under Paragraph 16.365

11

DS405

Paragraph 15 of China’s Accession Protocol

1. Whether Paragraph 15(a)(ii) authorizes/prohibits the use of sampling for purposes of determining whether “market economy conditions prevail” in the industry66 2. Whether Paragraph 15(a)(i) provides legal basis for the claim that a 15-day deadline to respond deprives Chinese exporting producers of a full opportunity to defend their interests67 (continued)

57

See Panel Report, US—Anti-Dumping and Countervailing Duties (China), WT/DS379/R, paras. 14.121, 14.129; see Appellate Body Report, US—Anti-Dumping and Countervailing Duties (China), WT/DS379/AB/R, footnote 559, at p. 217.

58

See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, paras. 7.110–7.160; see Appellate Body Report, China—Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, paras. 279–307.

59

See Panel Report, China—Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, paras. 7.854–7.861.

60

See Panel Body Report, EC—Fasteners (China), WT/DS397/R, footnote 306.

61

See Appellate Body Report, EC—Fasteners (China), WT/DS397/AB/R, paras. 283–291.

62

See Panel Report, US—Tyres (China), WT/DS399/R, paras. 7.33–7.37.

63

See Panel Report, US—Tyres (China), WT/DS399/R, paras. 7.82–7.110; Appellate Body Report, US—Tyres (China), WT/ DS399/AB/R, paras. 127–140.

64

See Panel Report, US—Tyres (China), WT/DS399/R, paras. 7.136–7.153, 7.158–7.160, 7.169–7.170, 7.174–7.178; Appellate Body Report, US—Tyres (China), WT/DS399/AB/R, paras. 173–201.

65

See Panel Report, US—Tyres (China), WT/DS399/R, paras. 7.390–7.399, 7.412–7.415.

66

See Panel Report, EU—Footwear (China), WT/DS405/R, paras. 7.194–7.205.

67

See Panel Report, EU—Footwear (China), WT/DS405/R, paras. 7.557–7.560.

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Table 4.6 (continued) No. Disputes Provisions interpreted

Interpretations

12 13 14

DS431 DS432 DS433

Paragraphs 11.3 and 5.1 1. Whether Article XX of GATT 1994 can be invoked as a defense to the of China’s Accession obligation under Paragraph 11.3 of the Accession Protocol (the legal effect Protocol, Paragraphs 162, of textual silence as “no explicit textual link”,68 systemic relationship between the provisions of Accession Protocols and the GATT 199469 ) 165, 83, and 84 of the 2. Whether Paragraph 5.1 provides for “all enterprises in China” to have the WPR of China right to export rare earths and molybdenum70 3. Whether Article XX of GATT 1994 can be invoked as a defense to the obligation under Paragraphs 83 and 84 of the WPR71

15

DS437

/

/

16

DS517

Paragraph 116 of the WPR of China

Paragraph 116 of the WPR sets forth six obligations that are legally independent: transparency, predictability, fairness, clearly specified administrative procedures and requirements, time frames72

the Appellate Body in the corresponding disputes. Even in United States—Countervailing Measures (China) (DS437), Paragraph 15 of China’s Accession Protocol is applied without any interpretative issue because the ambiguous terms of Paragraph 15 have already been interpreted in previous disputes, namely US—Anti-Dumping and Countervailing Duties (China) (DS379), EC—Fasteners (China) (DS397) and EU—Footwear (China) (DS405). Although the content of the provisions of China’s Accession Protocol as interpreted in these disputes varies, there are two common features: firstly, they all involve China’s WTO-Plus obligations; and secondly, they all focus on legal interpretation. The former has been introduced in the foregoing, while the latter includes both the dispute over the legal nature of China’s Accession Protocol and the dispute over the method of legal interpretation of the WTO rules, which will be discussed in detail below.

68

See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.63– 7.72. 69 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.73– 7.99; Appellate Body Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/ DS433/AB/R, paras. 5.18–5.74. 70 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.1006–7.1012. 71 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.1016–7.1033. 72 See Panel Report, China—TRQs, WT/DS517/R. paras. 7.3–7.9.

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4.2 Controversies Over the Nature of China’s Accession Protocol As mentioned earlier, along with the reviews by the panels and Appellate Body in the series of WTO disputes on whether Article XX of GATT 1994 is applicable as a defense to the violation of obligations under China’s Accession Protocol, academics also intensely explore the issues raised in the dispute settlement practice as to whether GATT 1994 is applicable to China’s Accession Protocol, the relationship between China’s Accession Protocol and the GATT 1994, and ultimately the essential question of the legal nature of China’s Accession Protocol. Contrary to the DSB’s cautious attempts to deal with the applicability issue of GATT 1994 on the premise of maintaining the consistency of decisions and to avoid the difficult issue of the legal nature of China’s Accession Protocol, by exercising jurisprudence and judicial economy, the academics have been trying to unravel the series of issues, and have hotly debated on the essential issue of the legal nature of China’s Accession Protocol which results in considerable discrepancies.

4.2.1 Theoretical Opinions and the Paradoxes Thereof The academic research on the legal nature of China’s Accession Protocol ultimately falls into three categories: the first category is the “reservation of treaty between states” theory, which can be further divided into “de jure reservation” theory and “de facto reservation” theory; the second category is the “theory of incorporation and amendment of treaties between states”, which also includes the “subsequent agreement” theory or “subsequent practice” theory; the third category is the “treaties between state and international organization” theory.

4.2.1.1

“Reservation of Treaty Between States” and Its Refutation

Basic viewpoints: “De Jure Reservation” Theory The “reservation to treaty between states” (hereinafter referred to as the “treaty reservation”) theory is based on the differential provisions in the Accession Protocol, and the definition of reservation in the Vienna Convention, and believes that the Accession Protocol in its nature is a “de jure reservation” to treaties between states. In particular, Article 2.1 of the Vienna Convention provides that “reservation” means a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State. Upon such definition, the Special Rapporteur of the ILC

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pointed out the three elements of a reservation73 : a unilateral statement, the moment when the State or international organization expressed its consent to be bound by the treaty, and its wording or designation, which must also contain a substantive element, namely, that the reservation was intended to exclude or to modify the legal effect of certain provisions of the treaty. Accordingly, it states that, firstly, although the different provisions in the Accession Protocol are the result of bilateral (multilateral)74 negotiations between the acceding Member and the WTO, the nature of the obligations to which the provisions refer is unilateral—because they are special obligations of the acceding party that go beyond what is required by the WTO Agreement, and are commitments that the acceding party unilaterally makes. Secondly, the Accession Protocol is signed by the acceding party at the time of accession. And finally, the purpose of the different provisions in the Accession Protocol, whether they are the obligations that conflict with, or parallel to (and differ from), conventional WTO obligations, or those that relate to matters not provided for in the conventional WTO obligations, is clearly for the purpose of exclusion or modification of the application of the established WTO rules. Therefore, the Accession Protocol should be considered as a reservation made by an existing WTO Member in the process of accession of a new Member to the WTO.75 Refutation: “De Facto Reservation” Theory This theory believes that there are “procedural and substantive obstacles in characterizing the differential provisions as ‘reservations’ to the WTO Agreement”.76 On the one hand, from the text, the WTO Agreement explicitly prohibits reservations be made in respect of any of its provisions and specifically permits reservations in respect of MTAs only be made to the extent provided for in those agreements. Hence to characterize the differential provisions as “reservation” is inconsistent with the WTO Agreement. On the other hand, as far as the three elements of reservation are concerned, the Accession Protocol and the differential provisions it contains are the result of bilateral or multilateral consultations between the acceding party, and the WTO and its Members, and are not unilateral declarations by the acceding party.77 On this basis, some scholars have put forward the “de facto reservation” theory, which argues that, since the differential provisions are consistent with the definition of reservation in the Vienna Convention, the limitation of an impermissible reservation

73

Report of the International Law Commission on the work of its fiftieth session (1998) Official Records of the General Assembly, Fifty-third session, Supplement No. 10 (A/53/ 10) (“ILC Report 1998”), para. 495. 74 There is also disagreement in the academic community as to whether the Accession Protocol is a bilateral or multilateral treaty. 75 See Wang (2015). 76 See Qin (2015), See Han (2014). 77 See Han (2014), p. 23.

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in the WTO Agreement cannot deny the fact that, in practice, “de facto reservation” are constituted as a result of the collective acceptance by the WTO.78 Refutation’s Refutation: Legal Effect of Invalid Accession The “de facto reservation” theory also has its own defects, which is, after being recognized as an “impermissible reservation”, there is uncertainty in the actual acceptance by the WTO Members. Although the differential provisions shall be approved by the Ministerial Conference, by a two-thirds majority of the Members of the WTO, and usually be accepted by the founding Members and previous acceding Members, any Member, according to Article XIII:1 of the WTO Agreement,79 may choose not to accept such reservation by not agreeing to apply the WTO Agreement and its MTAs in annexes 1 and 2. Therefore, the de facto acceptance by each Member is not necessary. In such circumstance, once the de facto reservation is not accepted, it cannot compensate for the legal defect of being “not accepted”, making the legal effect of an accession defected. By far it can be seen that both the “legal reservation” theory and the “de facto reservation” theory have defects in their demonstrations that make it difficult to convince each other, and thus fail to be widely accepted by the academic community.

4.2.1.2

“Amendment/Modification” Theory and Its Problems

“Amendment/Modification” theory can be further divided into: “de jure amendment” theory, which argues that China’s Accession Protocol by virtue of its Paragraph 1.2 is incorporated into the WTO Agreement and constitutes an amendment; and “de facto amendment” theory, which argues that China’s Accession Protocol is “de facto modification” that is inconsistent with the WTO Agreement. The key difference between the two theories lies in the fact that the former considers it legal as a “de jure amendment”, while the latter considers it as an illegal “de facto modification”. Basic Viewpoint: “De Jure Amendment” and “De Facto Amendment” (1) “Incorporation and Amendment of Treaties between States” Theory: “De Jure Amendment” This theory, relying on the treaty law theory, advocates that accession protocol has the legal effect of incorporating and amending the WTO Agreement. Paragraph 1.2 of China’s Accession Protocol states: “The WTO Agreement to which China accedes shall be the WTO Agreement as rectified, amended or otherwise modified by such legal instruments as may have entered into force before the date of accession. This Protocol, which shall include the commitments referred to in paragraph 342 of the 78

Tyagi (2012). Article XIII:1, This Agreement and the Multilateral Trade Agreements in Annexes 1 and 2 shall not apply as between any Member and any other Member if either of the Members, at the time either becomes a Member, does not consent to such application.

79

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Working Party Report, shall be an integral part of the WTO Agreement”. Accordingly, the Accession Protocol is directly incorporated into the WTO Agreement, and the designated paragraphs in the WPR are indirectly made part of the WTO Agreement through such incorporation into the Accession Protocol. In the meantime, it also argues that, the provisions providing for the WTO-plus obligations, WTO-minors obligations and sub-WTO obligations in China’s Accession Protocol, have the legal effect of modifying the WTO Agreement, and that instead of accepting the WTO Agreement in the form of one package of “single undertaking”, as the founding Members did, the acceding Member relies on the Accession Protocol which modifies the WTO Agreement, and the rights and obligations among the founding Members and other acceding Members.80 (2) “Amendment of Multilateral Treaty” Theory: “De Facto Amendment” This theory is based on the basic concept of “Treaty Contract Theory”, which argues that China’s Accession Protocol is in the nature of a “commercial contract”, and that the accession of each new Member implies a new “commercial contract” with the existing Members of the WTO, which, together with the MTAs, are parts of the “commercial contract”. Although the participants in the accession negotiations declared that they did not intend to “amend” the WTO Agreement, the accession instrument did create special norms applicable to the new Members and the existing Members, and its legal effect amounts to a “de facto amendment” of WTO law.81 Antonio Parenti expressly argues: “Those of a general nature would have to be considered tantamount to an amendment of the WTO Agreement, and as such, governed by the provisions and procedures foreseen in Article X WTO. An alteration occurring in case of an accession would therefore not be consistent with the WTO rules. This could not be rectified by even the eventual unanimous voting on the terms of accession, because such an alteration would have occurred without the respect of the rules of the WTO”.82 After that, scholars such as Claus-Dieter Ehlermann and Lothar Ehring, also agree to define the Accession Protocol as modification to the WTO Agreement.83 However, this theory also recognizes that Article X of the WTO Agreement contains clear conditions on the body, procedure and effects of “amendments”, and China’s Accession Protocol does not satisfy these conditions, and is therefore not a result of application of the WTO rules, but rather a choice made by Members taking account of reality and interest, therefore constitutes only a “de facto amendment”.

80

See Han (2014), pp. 21–29, Liu (2016). See Liu (2014). 82 Parenti (2000). 83 Janow et al. (2008). 81

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Inherent Defects of “Amendment/Modification” Theory: Logical Defect in SelfDemonstration These two theories have a common defect that the premise of the arguments is vaguely conceived. (1) Vienna Convention: “Amendment” or “Modification”? Neither theory defines and distinguishes between the terms “amendment” and “modification” in strict conformity with the provisions of Part IV of the Vienna Convention. According to Articles 40 and 41 of the Vienna Convention, the terms “amendment” and “modification” in the law of treaties refer to different acts of revision of treaties and their corresponding legal effects: “Amendment means that the parties amend the original treaty intending to apply the amended treaty to all the parties to the original treaty, although in fact it may be the case that, because only some parties to the original treaty have ratified the amended treaty, the treaty applies only to such parties. A modification is one in which two or more of the parties to a treaty conclude an agreement to modify the treaty as between themselves alone, intending that the revised treaty applies only to themselves”.84 The key distinction between the two lies in the intention of the amendment, i.e., whether it is intended to apply to all parties or only to the parties participating in the amendment. “Incorporation and amendment of treaties between states” theory does not use the term “amendment” according to the definition provided by the Vienna Convention, and asserts, without identifying the intent of such amendment, that the Accession Protocol “amends the WTO Agreement not only between the acceding Members and the founding Members, but also between the acceding Members”. Such conclusion actually equips such amendments with the legal effect of changing the rights and obligations of all Members and therefore lacks legal ground and blurs the boundary between “amendment” and “modification”. (2) “Amendment” of the WTO Agreement? The “amendment” theory makes it clear that the participants in the negotiations declared that they did not intend to “amend” the WTO Agreement, and thus the “amendment” in question is not an “amendment” within the meaning of the Vienna Convention. Even if leave aside the distinction between “amendment” and “modification” in the Vienna Convention for the time being, the logic of the “amendment/ modification” theory suffers from a lack of legal ground. No matter “de jure” or “de facto” “amendment” or “modification”, these two theories are not consistent with the rules of “amendment” under the WTO Agreement. Under Article 39 of the Vienna Convention, a treaty may be amended by agreement between the parties. Accordingly, amendment to the WTO Agreement and to the MTAs thereunder shall be made in accordance with Article X (Amendments) of the WTO Agreement, which sets out in detail the procedure for, and the effect of, amendments to the provisions of the WTO Agreement or the MTAs. Since the contents of China’s Accession Protocol 84

Li (2003).

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and all other Accession Protocols relate only to the corresponding contents of the WTO Agreement and the MTAs in Annex 1, the determination of an “amendment” under the WTO Agreement should be based on its Article X:1 to X:7. In addition to the apparent reason provided by the text Article X Amendments and Article XII Accession of the WTO Agreement provide for different sets of rules, the China’s Accession Protocol does not constitute an “amendment” of a treaty under the WTO Agreement for the following reasons: First, ineligible body. According to Article X of the WTO Agreement, only WTO Members and the Councils listed in Paragraph 5 of Article IV, i.e., Council for Trade in Goods, Council for Trade in Services and Council for TRIPS, may initiate a proposal to amend the provisions of the WTO Agreement or the MTAs in Annex 1. Thus, the contracting parties to the Accession Protocol, acceding parties who have not become Member of the WTO and WTO are not eligible bodies in this regard. Second, non-conforming procedure. Article X of the WTO Agreement provides different procedures for different matters: ➀ Amendments to the provisions of this Article and to the provisions of the following Articles shall take effect only upon acceptance by all Members: Article IX of this Agreement (decision-making); Articles I and II of GATT 1994 (MFN Treatment and National Treatment); Article II:1 of GATS (MFN Treatment); Article 4 of the Agreement on TRIPS (MFN Treatment).85 ➁ Amendments to the Agreement on TRIPS meeting the requirements of Paragraph 2 of Article 71 thereof may be adopted by the Ministerial Conference without further formal acceptance process.86 ➂ Amendments to provisions of the WTO Agreement, or of the MTAs in Annexes 1A and 1C, other than those listed in Paragraphs 2 and 6, of a nature that would alter the rights and obligations of the Members, shall take effect for the Members that have accepted them upon acceptance by two-thirds of the Members and thereafter for each other Member upon acceptance by it.87 Article XII of the WTO Agreement further provides that decisions on accession shall be taken by the Ministerial Conference and the Ministerial Conference shall approve the agreement on the terms of accession by a two-thirds majority of the Members of the WTO. The “agreement on the terms of accession” actually refers to the Accession Protocol. Accordingly, although the Accession Protocol requires only approval by the Ministerial Conference by a two-thirds majority of the Members of the WTO, given that part of the provisions, particularly in China’s Accession Protocol, involves MFN treatment referred in Article X:2, it takes effect also upon acceptance by all Members. Therefore, the decision-making procedures regarding the approval of the Accession Protocol differs from the amendment procedures as in Article X the WTO Agreement.

85

Article X:2, the WTO Agreement. Article X:6, the WTO Agreement. 87 Article X:3, the WTO Agreement. 86

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Third, Different Legal Effect. Article X of the WTO Agreement distinguishes between the legal effects of f acceptance by two-thirds of the Members, according to whether or not they are of such a nature as to alter the rights and obligations of the Members: ➀for amendments of a nature that would not alter the rights and obligations of the Members, shall take effect for the Members that have accepted them upon acceptance by two-thirds of the Members; ➁for amendments of a nature that would alter the rights and obligations of the Members, shall take effect for the Members that have accepted them upon acceptance by two-thirds of the Members and thereafter for each other Member upon acceptance by it.88 The text and actual legal effect of Accession Protocols do not conform with such stipulations. In terms of the text, Paragraph 1.2 specifies that it, including the commitments referred to in Paragraph 342 of the WPR, shall be an integral part of the WTO Agreement. To correspond, Article XII also stipulates that such accession shall apply to the WTO Agreement and the MTAs annexed thereto. Accordingly, all Members of the WTO Agreement are subject to the provisions of the Accession Protocol, i.e., the Accession Protocol is binding upon all WTO members. This legal effect, coupled with the unquestionable nature of the Accession Protocol as altering the rights and obligations of the Members, is clearly contrary to the circumstances in category ➁ as set out in Article X of the WTO Agreement. In view of the above, neither the “de jure amendment” nor the “de facto amendment” theory has been able to make a scientific determination on the legal nature of the Accession in accordance with the logic based on the clear rules of international law already in place.

4.2.1.3

“Treaties Between State and International Organization” Theory and Its Doubts

Basic Viewpoint: Clarification of the Parties to the Treaty Starting from the text of the Accession Protocol, this theory89 firstly considers that the WTO Agreement and the MTAs thereunder are treaties as defined in the Articles 2.1 and 3 of the Vienna Convention, while China’s Accession Protocol a “quasi-treaty” concluded between the Chinese Government and the WTO as an international organization. It then argues that according to Article 5 of the Vienna Convention that “the present Convention applies to any treaty which is the constituent instrument of an international organization and to any treaty adopted within an international organization without prejudice to any relevant rules of the organization”, the WTO Agreement and its MTAs are “constituent instruments of an international organization”, but the legal nature of Accession Protocol depends on the rules of the WTO Agreement as a constituent instrument. At last, it argues that “according to Article XII of the WTO Agreement, that any State or separate customs territory possessing full autonomy in 88 89

Article X:3–X:4, the WTO Agreement. Hu (2014).

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the conduct of its external commercial relations and of the other matters provided for in this Agreement and the Multilateral Trade Agreements may accede to this Agreement, on terms to be agreed between it and the WTO”, Accession Protocol constitutes “treaty adopted within an international organization” that falls into the scope of international treaty and that is established upon the WTO Agreement, with a binding effect not only on the contracting Members and the WTO, but also all other Members. In addition, it states, inter alia, that the WPR is not an international treaty in nature, that it is not a specific condition for a Member’s accession to the WTO, but rather a record of the content of the accession negotiations, and that its nature corresponds to that of “supplementary material” within the meaning of Article 32 of the Vienna Convention. When the content of the Protocol is unclear or difficult to interpret, or manifestly absurd or unreasonable, the WPR serves as an additional clarification, including “the preparatory work of the treaty and the circumstances of its conclusion”. Paragraph 1.2 of China’s Accession Protocol incorporates Paragraph 342 of the WPR, which in turn explicitly lists 143 paragraphs of WPR as China’s specific commitments to be incorporated by Paragraph 1.2 of the Protocol, thus turning these 143 paragraphs part of an international treaty. Doubts: Veil of the Bodies to the Treaty There are three logical questions arising out of the argumentation of this theory. Question 1: Is China’s Accession Protocol, as an agreement between China and the WTO, a “quasi-treaty” or a “treaty”? Question 2: If it is the former, is China’s Accession Protocol qualified as “any treaty agreed upon within an international organization” within the meaning of Article 5 of the Vienna Convention? Question 3: If the latter, is China’s Accession Protocol a “treaty” between China and the WTO? (1) Question 1: Is China’s Accession Protocol a “quasi-treaty” or a “treaty”? From the examination of text/wording, the contracting parties of China’s Accession Protocol seem to be China and WTO as an international organization, which then becomes a typical agreement between a State and an international organization, and thus does not fall within the scope of the Vienna Convention, which defines in Article 2 a treaty be concluded between States. Therefore, coupled with the fact that Article 3 of the Vienna Convention explicitly states that “the fact that the present Convention does not apply to international agreements concluded between States and other subjects of international law or between such other subjects of international law, or to international agreements not in written form, shall not affect: (a) The legal force of such agreements; (b) The application to them of any of the rules set forth in the present Convention to which they would be subject under international law independently of the Convention…”. There seems to be no problem in characterizing China’s Accession Protocol as treaty, rather than quasi-treaty. (2) Question 2: Is China’s Accession Protocol qualified as “any treaty agreed upon within an international organization” within the meaning of Article 5 of the Vienna Convention?

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With regard to Article 5 of the Vienna Convention, the term “treaty” in this context as defined by Article 2, refers only to treaties between States within the legal framework of the international organization in question, and is not intended to refer to “quasi-treaties” between States and international organizations, and even more so to “treaties” between non-member or acceding party and the international organization. (3) Question 3: Is China’s Accession Protocol a “treaty” between China and the WTO? This question, in turn, concerns the identity of the parties to an international treaty. Textually, China’s Accession Protocol is an agreement between a State and an international organization. As mentioned earlier, the Vienna Convention defines the term “treaty” only for the purpose of clarifying the scope of application of the Convention, and does not exclude the effect of agreements between States and international organizations. According to the general definition of a treaty, by the “contract theory of treaties”, “a treaty is an agreement between at least two parties of international law intended in principle to create, modify or abrogate rights and obligations between them in accordance with international law”.90 Accordingly, with regard to the element of “consent”, in accession proceedings, the consent is from the Members that participate in the negotiation, “while the approval of the Ministerial Conference or the General Council represents the will of the WTO, the content of the accession instrument is in essence the result of a complex negotiation process between all the Members—in the form of the ad hoc working group—and the applicant. Members—represented by the AWG—and the applicant through complex negotiations. In other words, the accession document only has the appearance of a bilateral treaty, but in essence it is still the result of multilateral negotiations. Since all Members can join the Working Group and request bilateral negotiations with the acceding party, and since the outcome of such bilateral negotiations is given multilateral effect by the MFN principle, the accession document of a new Member essentially reflects the common will of all Members and is the result of the ’autonomy’ of all Members, and is still tantamount in nature to a multilateral treaty. In this regard, the approval of the instrument of accession by the Ministerial Conference or the General Council is more of a formal value”.91 Thus, according to the principle of relativity of effects, a treaty is in principle binding only on the contracting parties. In the case of China’s Accession Protocol, under this theory, there is a situation where the parties to the treaty do not correspond to the ones that assume substantive rights and obligations. Although the WTO is a contracting party, the main substantive rights and obligations referred to in China’s Accession Protocol are not enjoyed and undertaken by the WTO as international organization, but rather by its Members. It is thus clear that defining the legal nature of China’s Accession Protocol as a treaty between a State and an international organization simply on the basis of the apparent information in the text, “is clearly contrary to the basic principle that ‘a treaty 90 91

Li (2003), p. 3. Liu (2014), p. 13.

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is of no benefit or detriment to third parties’—after all, the WTO and its Members have independent legal personality, and there is no logical way to establish a reasonable connection between the Protocol and the MTAs under the WTO Agreement”.92 To sum up, the aforementioned theories of “reservation of treaty between states”, “incorporation and amendment of treaties between states”, and “treaties between state and international organization” have all failed to provide a logical and accurate definition of the legal nature of China’s Accession Protocol because of the inherent defects in their argumentation.

4.2.2 Nature of China’s Accession Protocol: A Multilateral Reservation Treaty Within an International Organization To determine the legal nature of an international legal document, the premise needs to be determined first is the baseline and criteria, that is, the logical starting point and legal basis. For the starting point, the text of the document serves the best— whether or not there is a clear definition of the legal nature in the Accession Protocol (which is also applicable to China’s Accession Protocol). As for legal basis, the determination of the legal nature of an international legal document should be based on the applicable norms. China’s Accession Protocol, as its title suggests, is a protocol on China’s accession to the WTO, an international organization based on multilateral treaties. “A protocol is often used as a subsidiary document to a main treaty to supplement, clarify, interpret or modify the provisions of the main treaty. Such a subsidiary document is a type of treaty in the broad sense and is also an integral part of the main treaty”.93 From the content of its text, China’s Accession Protocol is a classic protocol of such kind. Therefore, the baseline question for any further analysis of the legal nature of China’s Accession Protocol is whether it is a treaty, after which advanced issues, such as the identity of the parties and purpose for specific legal effect can be analyzed properly.

4.2.2.1

Baseline: Treaty

According to the “contract theory of treaties”, there are three elements of a treaty: qualified parties, consent and creating rights and obligations. China’s Accession Protocol fulfills all three elements of a treaty. Qualified Parties As aforementioned, on the one hand, although the term “treaty” under the Vienna Convention is limited to agreements between States, the legal effect of agreements 92 93

Liu (2014), p. 11. Li (2003), p. 23.

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concluded between States and other subjects of international law is not denied by the Vienna Convention.94 On the other hand, although the Vienna Convention on the Law of Treaties between States and International Organizations or between International Organizations has not yet entered into force, since it is the result of codification by the ILC of the United Nations on the basis of customary international law, and is also in line with the fact that the status of international organizations as the parties to treaties in practice has been widely recognized by the international community, its definition of the parties to treaties as being extended to include international organizations has a certain degree of effect. Therefore, the parties of China’s Accession Protocol satisfy as parties to treaties in the broader sense. Consent “The unanimous intention of the parties to a treaty is necessary for its establishment”.95 Article XII of the WTO Agreement specifies that State may “accede to this Agreement, on terms to be agreed between it and the WTO”. No matter by the phrase in the text, as “agree as follows”, or by the accession conditions negotiated by China and the Working Party which is open to all WTO Members, parties’ consent/ unanimous intention is evident. Creating Rights and Obligations A treaty in the sense of international law should point to the creation of specific rights and obligations of the contracting parties. Where the parties to an agreement do not intend to create legal relations or binding obligations or rights thereby under international law, the agreement will not be a treaty.96 China’s Accession Protocol not only clearly sets out the rights and obligations of China and the WTO as parties in the formal sense of the text, but also the rights and obligations of each WTO Member. First, China’s Accession Protocol enables China to become a Member of the WTO Agreement, which points to China’s comprehensive rights and obligations; second, the WTO, whether as an international organization to which China is a Member or a party to the Protocol, directly enjoys the rights and undertakes the obligations, such as those under Paragraph 18 Transitional Review Mechanism; and last, WTO Members, as other members of the international organizations to which China is a party, are also bound to enjoy the corresponding rights and assume the corresponding obligations. Therefore, China’s Accession Protocol also meets the constitutive element of creating rights and obligations.

94

Article 3, the Vienna Convention. Li (2003), p. 13. 96 Shaw (2017). 95

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Advanced Nature: Reservation to Multilateral and Multi-parties Treaty

Upon the established baseline as a treaty, the legal nature of China’s Accession Protocol should be further judged on the basis of the established and applicable rules of international law. Multilateral and Multi-parties Treaty: Dual Nature as Treaty between States and between States and International Organizations With regard to determining the parties to a treaty, scholars have identified the standard as according to the number of parties, in the discussion of the classification of treaties. “A bilateral treaty is one in which the participants are limited to two parties. However, each party may include several subjects of international law. For example, in the Peace Treaty with Italy, one party includes twenty states, including the Soviet Union, while the other party includes only one subject of international law, Italy. This treaty is still a bilateral treaty”.97 This statement in essence implies the criterion by which the subject of a treaty is to be determined: the parties, i.e., the subjects of international law which have rights and obligations under the treaty in question. As for China’s Accession Protocol, the rights and obligations provided thereunder, not only include both rights and obligations for China and the WTO, including the rights and obligations of both parties with regard to the matter of China’s accession itself and the rights and obligations of both parties with regard to the conditions of accession, but also include rights and obligations for both China and the WTO Members, with China enjoying rights and assuming obligations after its accession in accordance with the WTO Agreement and its MTAs and the “WTO-plus provisions” in China’s Accession Protocol. It is worth noting that even under China’s Accession Protocol, WTO Members enjoy the right to maintain all prohibitions, quantitative restrictions and other measures against imports from China in a manner inconsistent with the WTO Agreement as listed in Annex 7, and all such prohibitions, quantitative restrictions and other measures shall be phased out or dealt with in accordance with the said Annex.98 The outcome of the distribution of substantive rights and obligations under China’s Accession Protocol as described above also echoes the multilateral negotiation process represented by the Working Party during the accession process, with the direct participation of WTO Members, reflecting the complexity of accession to multilateral treaties within the framework of an international organization. The Working Party on Accession and the Ministerial Conference led and approved the “accession” negotiations and conditions based on Article XII of the WTO Agreement, which not only does not limit the parties to the agreement (negotiation) between the acceding party and the WTO on the terms of accession, but also requires the terms of accession approved by the Ministerial Conference by a two-thirds majority of the WTO Members. In fact, China’s Accession Protocol was approved by the WTO Members 97 98

Li (2003), p. 31. Paragraph 17, Part I, China’s Accession Protocol.

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by consensus at the Doha Ministerial Conference. As a result, WTO Members were involved in the accession process from start to finish. Therefore, by procedures and the distribution of substantive rights and obligations, China’s Accession Protocol is a multilateral, dual international treaty between States, and between State and international organization, concluded by China, the WTO and other WTO Members. Reservation to treaties: Return to the Text The title of “Accession Protocol”, seemed to be the initial reason that led the aforementioned scholars to examine, in the first place, whether the legal nature of the difference clauses under the Vienna Convention constituted a reservation. As has also been noted, the “treaty reservation” theory is defected in a number of ways and is not self-contained. This is mainly due to the fact that neither the “de jure reservation” nor the “de facto reservation” theory fails to go back to the text in order to provide an accurate reading of the WTO Agreement as the charter of the international organization. (1) The WTO Agreement: Reservation Prohibited or Permitted? Whether or not China’s Accession Protocol constitutes a reservation should first be examined in light of the formulation of reservations set out in the Vienna Convention. Article 19 Formulation of Reservations: A State may, when signing, ratifying, accepting, approving or acceding to a treaty, formulate a reservation unless: (a) The reservation is prohibited by the treaty; (b) The treaty provides that only specified reservations, which do not include the reservation in question, may be made; or (c) In cases not falling under sub-paragraphs (a) and (b), the reservation is incompatible with the object and purpose of the treaty. Accordingly, the provision that explicitly refers to “reservations” is Article XVI:5 of the WTO Agreement: “No reservations may be made in respect of any provision of this Agreement. Reservations in respect of any of the provisions of the Multilateral Trade Agreements may only be made to the extent provided for in those Agreements”. This article is also the main basis for the aforementioned refutation of the “de jure reservation” theory that Article XVI:5 of the WTO Agreement does not allow for reservations to be made by Members, and that therefore China’s Accession Protocol cannot constitute a reservation. This is indeed a misinterpretation of that article. Article XVI:5 of the WTO Agreement, which provides that “no reservations may be made with respect to any of the provisions of this Agreement”, is not the same as “no reservations may be made under this Agreement”. In fact, the WTO Agreement not only does not prohibit reservations, but also specifies the circumstances in which reservations are permitted. For example, Article XIII of the WTO Agreement (NonApplication of Multilateral Trade Agreements between Particular Members) provides that “this Agreement and the Multilateral Trade Agreements in Annexes 1 and 2 shall not apply as between any Members and any other Member if either the Members, at

4.2 Controversies Over the Nature of China’s Accession Protocol

275

the time either becomes a Member, does not consent to such application”. This is a typical example of permissible reservations. What is more, Article XII (Accession) of the WTO Agreement provides space for reservations by acceding parties where any State may accede to the WTO Agreement “on such terms and conditions as may be agreed upon between it and the WTO”. Such open provision as to the conditions for accession here in effect allows for non-acceptance or amendment/modification of the established WTO rules by the acceding party, i.e., allows for reservations. Thus, as far as the WTO Agreement Establishing is concerned, not only does it not prohibit reservations, but it expressly provides that the acceding party may make reservations, thus not constituting an institutional obstacle to identifying China’s Accession Protocol as a “de jure reservation”. (2) Formal Elements of Reservations: Unilateral Declarations vs. Bilateral and Multilateral Agreements With regard to the second legal obstacle to identify China’s Accession Protocol as a reservation, namely, the fact that the Accession Protocol and the differential provisions it contains are the result of bilateral or multilateral negotiations between the acceding Member and the WTO and its existing Members, and are not unilateral declarations by the acceding Member, and thus do not fulfill the conditions for a reservation set out in Article 2.1 of the Vienna Convention. This argument, which confuses not only the practice of raising a “reservation” with formulating a “reservations programme”, but also the constituent elements of a reservation and those of its validity, also stems from the misinterpretation of the definition of “reservation” in Article 2.1 of the Vienna Convention. Firstly, Article 2.1 of the Vienna Conventions defines that “reservation” means a unilateral statement made by a State, however phrased or named. Such stipulation refers to the unilateral act of the acceding State in making the reservation at the time of accession, as distinct from the question of whether the process of formation of the specific content of the reservation is unilateral or bilateral or plurilateral. Secondly, a unilateral statement, as soon as it is made, fulfills the constituent element of a unilateral statement and does not require the consent of the contracting parties, including WTO and the WTO Member parties, which is an element for the entry into force of a reservation under a specific treaty. Lastly, although according to the accession procedure, the terms of accession are negotiated by the parties and submitted by the Working Party to the Ministerial Conference for approval before being made available to the acceding party for acceptance, it cannot be denied that the acceding party’s reservation is a unilateral act—after all, the accession procedure is initiated by the acceding party’s unilateral application, except that, according to the WTO Agreement, as the charter of the international organization, the terms of the reservation (accession) are to be determined by a specific procedure in the WTO. (3) Effect of Reservations: Reservations vs. Accessions As for the “de facto reservation” theory, its central defect is not, as the aforementioned “refutation of the refutation” asserts, that being identified as an “impermissible

276

4 Application of China’s Accession Protocol in WTO Dispute Settlement …

reservation” would have a negative effect on the accession of the acceding party (the reserving State), but rather that it stems from the same confusion as to the constituent elements of a reservation and those of its validity, which leads to a fundamental logical paradox that makes the theory impossible to reconcile. It is argued that, since the differential provisions fulfill the three elements of a reservation under the Vienna Convention, the impermissibility of reservations stipulated in the WTO Agreement does not negate the fact that, in practice, they constitute “de facto reservations” as a result of the “collective and uniform” acceptance of reservations by the WTO. In fact, on the one hand, a reservation is constituted once the three elements are met, as defined in Article 2.1 of the Vienna Convention, and the question of whether it’s legally formulated (whether it complies with the limitations set out in Article XVI, i.e., whether there are any restrictions on reservations in the WTO Agreement), and of Whether a reservation has been accepted and thus produces binding effects (whether it is accepted ipso facto by the WTO Members), falls into the scope of validity issue, which would result only in an “invalid reservation” and not in a socalled “accepted” “de facto (valid) reservation”. On the other hand, there would be no adverse effect on the accession of the acceding State because, if the reservation is not accepted under the WTO Agreement, the condition of approving the Accession Protocol by Ministerial Conference by a two-thirds majority of the Members of the WTO would not be fulfilled and there would be no question of the validity of an acceding State’s accession being flawed by the non-acceptance of its reservation by individual or a small number of acceding parties.

4.2.3 Relationship Between China’s Accession Protocol and WTO Multilateral Trade Agreements Based upon the legal nature of China’s Accession Protocol as a “reservation to a multilateral treaty”, the many questions arising therefrom concerning the application of China’s Protocol can be resolved accordingly step by step. The key to resolving the applicability issue of the exception provisions of GATT 1994 to China’s Accession Protocol and the jurisdiction of the DSB over disputes relating to China’s Accession Protocol lies in accurately clarifying the relationship between China’s Accession Protocol and the WTO Multilateral Trade Agreements, which is also an issue that has arisen, recurred and triggered greater divergence of views in the WTO’s dispute settlement practice as mentioned above. Ultimately, in the China—Rare Earths, regarding China’s claim that China’s Accession Protocol is “intrinsically related” to the WTO Agreement and the Multilateral Trade Agreements thereunder, AB holds that “the general provision of Paragraph 1.2, while building a bridge between the package of Protocol provisions and the package of existing rights and obligations under the WTO legal framework, does not resolve the question as to how an individual provision of China’s Accession

4.2 Controversies Over the Nature of China’s Accession Protocol

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Protocol relates to those under the other agreements”; instead, “the specific relationship between the two must be ascertained through a thorough analysis of the relevant provisions, on the basis of the customary rules of treaty interpretation and the circumstances of each dispute”.99 Therefore, the examination of the intrinsic connection between China’s Accession Protocol and the WTO Multilateral Trade Agreements can be carried out sequentially at two levels: the first is to examine the treaty comprehensively in accordance with the customary rules of treaty interpretation, so as to ascertain the purpose of the contracting parties; and the second is to analyze the relevant provisions specifically in individual disputes. The focus of this part will be on the examination of the first level.

4.2.3.1

Parties’ Consent in Texts

In China’s Accession Protocol, the vast majority of provisions providing for substantive rights and obligations, whether they are directly stipulated in non-standard provisions or introduced from the WPR, are explicitly directed to the Multilateral Trade Agreements under the WTO, including the GATT 1994, GATS, the TRIPS Agreement, the TRIMs Agreement, etc. (see for details in Table 4.7), and clearly states that the commitments thereof are to comply with/conform to the Agreement Establishing the WTO and its agreements. Such arrangements reveals the one-on-one correspondence between the specific provisions of two sets of legal instruments for the contracting parties, in particular for the WTO Members participating in the actual negotiations. Furthermore, in addition to the correspondence between the provisions as shown in the table above, the Schedule of Concessions annexed to China’s Accession Protocol, in accordance with Paragraph 1 of Part II of China’s Accession Protocol, is also incorporated and becomes China’s Schedule of Concessions and Commitments annexed to GATT 1994 and the Schedule of Specific Commitments annexed to GATS. Hence, even in the absence of an express provision, the link between China’s Accession Protocol and the WTO Multilateral Trade Agreements and the respective provisions is an objective reality that naturally emerges from the texts.

4.2.3.2

Parties’ Consent in Invocations

In the vast majority of disputes in which the parties invoke China’s Accession Protocol, they also invoke the corresponding WTO Multilateral Trade Agreements and their provisions that regulate the same type of matter. (See Table 4.8 for details.) Hence, through their dispute settlement practice, the WTO Members actually demonstrate there “consent” on the close connection between the provisions of China’s 99

See AB Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, para 5.68.

II. Framework for making and enforcing policies

The WTO Agreement, agreement on government procurement, TRIPS agreement, TRIMs agreement Article III:9, GATT 1994

6. State-owned and state-invested enterprises

7. Pricing policies

The WTO agreement

The WTO agreement

5. Investment regime

1. Structure and powers of the government

GATT 1994; understanding on the balance-of-payments provisions of the GATT 1994

4. Balance-of-payments measures

3. Foreign exchange and The WTO agreement payments

Paragraph 3 non-discrimination

Provisions of the accession protocol

(continued)

The WTO agreement; Paragraph 9 price Article III, GATT 1994; controls Articles 3 and 4, Annex 2, agreement on agriculture

The WTO agreement

I. Economic policies

1. Non-discrimination (including national treatment)

Referred provisions of the WTO agreements

References made in the directly stipulated provisions of China’s accession protocol

Incorporated provisions of the WPR

References made in the incorporated provisions of China’s accession protocol

Table 4.7 References made in China’s accession protocol to the WTO multilateral trade agreements

278 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

III. Policies affecting trade in goods

B. Import regulation

A. Trading rights

Incorporated provisions of the WPR

Article II:1(b), GATT 1994 Rules of origin agreement Article VIII, GATT 1994

3. Rules of origin 4. Fees and charges for services rendered

/

2. Other duties and charges

/

The WTO agreement; Article X:1, GATT 1994; Article 6, GATS; TRIPS Agreement

4. Judicial review

2. Designated trading

The WTO agreement

3. Uniform administration of the trade regime

1. General

The WTO agreement

The WTO Agreement; Article III (in particular Article III:4), GATT 1994

Article X:I, GATT 1994; Article 6, GATS; TRIPS Agreement

The WTO agreement

(continued)

Paragraph 5 Right to Trade

Paragraph 2(D) Judicial Review (of the Trade Regime)

Paragraph 2(A) Uniform Administration (of the Trade Regime)

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

2. Authority of sub-national governments

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

4.2 Controversies Over the Nature of China’s Accession Protocol 279

Incorporated provisions of the WPR /

/ / The WTO Agreement; Article XIII, GATT 1994; ILP Agreement; Customs valuation agreement

ILP agreement

6. Tariff exemptions 7. Tariff rate quotas 8. Quantitative import restrictions, including prohibitions and quotas

9. Import licensing

The WTO agreement; ILP agreement

(continued)

Paragraph 8 import and export licensing

The WTO agreement; Paragraph 7 Articles 3, 11, and 13, Non-tariff measures GATT 1994; Agriculture agreement; ILP agreement; TRIMs agreement (exclusive of Article 5)

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

5. Application of internal taxes to imports

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

280 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Incorporated provisions of the WPR

Pre-shipment inspection agreement; Customs valuation agreement; Article VIII:I, GATT 1994

12. Pre-shipment inspection

13. Anti-dumping, Anti-dumping countervailing duties agreement: SCM agreement

Custom valuation agreement (+Decision on the treatment of interest charges in customs value of imported goods, and the decision on the valuation of carrier media bearing software for data processing equipment) (G/VAL/5)

Article 6, GATT 1994; anti-dumping agreement: SCM agreement

(continued)

Paragraph 15 price comparability in determining subsidies and dumping

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

10. Customs valuation

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

4.2 Controversies Over the Nature of China’s Accession Protocol 281

D. Internal policies affecting foreign trade in goods

C. Export regulations

Incorporated provisions of the WPR

Articles 1 and 3, SCM agreement

SCM agreement (exclusive of Articles 27.8, 27.9 and 27.13)

GATT 1994; TBT TBT agreement; the agreement; Article 15.2, WTO agreement TBT agreement SPS agreement

2. Industrial policy, including subsidies 3. Technical barriers to trade 4. Sanitary and phytosanitary measures

/

GATT 1994: Article 8, GATT 1994

SCM agreement

3. Export subsidies

The WTO agreement; ILP agreement

Safeguards agreement; GATT 1994

1. Taxes and charges Articles I, III:2, III:4 levied on imports and and XI:1, GATT 1994 exports

The WTO agreement

Safeguards agreement

(continued)

Paragraph 14 sanitary and phytosanitary measures

Paragraph 13 technical barriers to trade

Paragraph 10 subsidies

Paragraph 11 taxes and charges levied on imports and exports

Paragraph 8 import and export licensing

Paragraph 16 transitional product-specific safeguard mechanism

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

2. Export licensing and export restrictions

14. Safeguards

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

282 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Incorporated provisions of the WPR

The WTO agreement

/

Agreement on agriculture

6. State trading entities

7. Special economic areas 9. Agricultural policies

11. Textiles

Articles 2 and 3, textiles and clothing agreement; the WTO agreement

10. Trade in civil aircraft /

The WTO agreement

Paragraph 7 Non-tariff measures

Agreement on agriculture

/

(continued)

Paragraph 12 agriculture

Paragraph 2(B) special economic areas

The WTO Agreement; Paragraph 6 state GATT 1994; trading Understanding on the Interpretation of Article XVII of the GATT 1994

The WTO agreement; Articles 3 and 11, GATT 1994; Agriculture agreement; ILP agreement; TRIMs agreement

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

5. Trade-related investment measures

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

4.2 Controversies Over the Nature of China’s Accession Protocol 283

TRIPS agreement

4. Application of national and MFN treatment to foreign nationals

TRIPS Agreement TRIPS agreement

8. Requirements on undisclosed information, including trade secrets and test data

TRIPS agreement and its Articles 22–24

TRIPS agreement

5. Patents

B. Substantive standards 1. Copyright protection of protection, 2. Trademarks, including procedures including service for acquisition and marks maintenance of 3. Geographical intellectual property indications, including rights appellations of origin

TRIPS agreement

The WTO agreement, TRIPS agreement

1. Overview

IV. Trade-related intellectual property regime

A. General

Referred provisions of the WTO agreements

(continued)

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol

Incorporated provisions of the WPR

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

284 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

/

TRIPS agreement

6. Criminal procedures

3. Modification of the equity interest

TRIPS agreement

5. Special border measures

/

/

4. Administrative procedures and remedies

2. Choice of partner

Articles 50.1–50.4, TRIPS agreement

3. Provisional measures

The WTO agreement, Articles 16 and 17, GATS

Articles 42 and 43, TRIPS agreement

2. Civil judicial procedures and remedies

1. Licensing

TRIPS agreement

1. General

D. Enforcement

V. Policies affecting trade in services

Article 40, TRIPS agreement

(continued)

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

C. Measures to control abuse of intellectual property rights

Incorporated provisions of the WPR

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

4.2 Controversies Over the Nature of China’s Accession Protocol 285

vi. Other issues

Incorporated provisions of the WPR

The WTO agreement Government procurement agreement

3. Transparency 4. Government procurement

/

8. Minority shareholder rights /

/

5. Inspection services

1. Notifications

/

Paragraph 4 special trade arrangements Paragraph 17 reservations by WTO Members Paragraph 18 transitional review mechanism

The WTO agreement

The WTO agreement

Paragraph 1(C) transparency

The WTO agreement

/

/

Provisions of the accession protocol

References made in the directly stipulated provisions of China’s accession protocol Referred provisions of the WTO agreements

4. Prior experience requirement for establishment in insurance sector

References made in the incorporated provisions of China’s accession protocol

Table 4.7 (continued)

286 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations”

287

Accession Protocol and the specific provisions of the Multilateral Trade Agreements annexed to the WTO Agreement. The above collation shows that, even among the parties to the dispute, it is the agreed fact that there is a necessary and logical connection between the applicable provisions of China’s Accession Protocol and the corresponding WTO Multilateral Trade Agreements. This linkage, together with the fact that China’s Accession Protocol constitutes an “integral part” of the WTO Agreement, creates a systemic linkage between China’s Accession Protocol and the entire system of WTO rules. As Mathew Kennedy observes, “every accession protocol provides, in effect, that it is an integral part of the WTO Agreement as a whole, including GATT 1994 and the other Multilateral Trade Agreements. Different provisions in the accession protocols integrate with different WTO agreements”, and “the pivotal clause that an accession protocol is ‘an integral part of the WTO Agreement’ expressly addresses the relationship between the two and provides an interpretative framework. A contextual analysis of the reference to the ‘WTO Agreement’ in accession protocols shows that it refers to the WTO Agreement as a whole including GATT 1994 and the other Multilateral Trade Agreements. As an integral part of those agreements, the accession protocol should be read together with them as one instrument”.100 In summary, the textual correspondence between the specific provisions of China’s Accession Protocol and the WTO Agreement and its Annexed Multilateral Trade Agreements, and the “consent” of WTO members over the organic connection between the specific provisions of the two in dispute settlement practice, verify that China’s Accession Protocol and the WTO Agreement and its Annexed Multilateral Trade Agreements are inextricably interconnected, and the substantive obligations of the former form an integral part of the corresponding later and accordingly lead to the modification of the corresponding substantive obligations under the Multilateral Trade Agreements between China and the other WTO Members.

4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations” As mentioned above, the vast majority of disputes on China’s Accession Protocol involves issues of treaty interpretation. All challenges to the interpretation of specific provisions are inseparable from challenges to the method of interpretation adopted by the DSB in individual disputes. Eventually, when it comes to the interpretation of law, the focus will ultimately be on the method of interpretation, which is, under the WTO in particular, the method of interpretation of the WTO rules as a treaty. A further analysis reveals that the issue of method of interpretation in the WTO dispute settlement process is in essence an institutional one. The rules of treaty interpretation are clearly set out in the WTO Agreement, including the rules of legislative interpretation—“The Ministerial Conference and 100

Kennedy (2013).

Articles 2.1, 3.1–3.5, 11 and 13.1, GATT 1994 Article 3, SCM agreement Articles 2.1 and 2.2, TRIMs Agreement

DS339, DS340, DS342

(continued)

Articles 16 and 17, GATS; Articles 3.4, 7, 8, 8.1, 8.4, 10, 10.1, 10.3, 11, 11.1 and 10.3 (a), GATT 1994

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

Paragraph 1.2: This Paragraphs 83 and 84 trading rights Protocol, which shall include the commitments referred to in Paragraph 93, tariff treatment Paragraph 342 of the Working Party Report, shall be an integral part of the WTO Agreement

Article 17, GATS Articles 1 and 3, GATT 1994

Corresponding provisions of multilateral agreements

DS309

Case no

Disputes involved

General invocation

Provisions

Table 4.8 Provisions of China’s accession protocol invoked

288 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Provisions

Table 4.8 (continued)

DS451, DS517, DS568

DS568

Paragraph 116, tariff rate quota (general commitment)

Paragraph 120, tariff rate quota (state trading enterprises)

Case no

Disputes involved

(continued)

Article 4.2, Agriculture Agreement Articles 2.1(a)-(b), 10.1, 10.2, 10.3(a), 11.1, 13.2, 13.3(b) and 19.1, GATT 1994 Articles 1.2, 1.3, 2.2(a) and 3.3, ILP Agreement Articles 2.1, 3.1, 4.1(a), 4.1(c), 4.2(a) (c), 5.1 and 7.1, Safeguard Agreement

Articles 3, 4.2, 9 and 10, agriculture agreement Articles 1, 1.1(a)–(b), 2, 2.1–2.3, 3.1(a)–(b), 4.2, 5(c), 6.3(b)–(c), 6.4, 6.5 and 7, SCM Agreement Articles 2.1(a), 2.1(b), 3.4, 10.1, 10.2, 10.3(a), 11.1, 13.2, 13.3(b), 16 and 19.1, GATT 1994 Articles 1.2, 1.3, 2.2(a), 3.2 and 3.3, ILP Agreement Articles 2.1, 3.1, 4.1(a), 4.1(c), 4.2(a)-4.2(c), 5.1 and 7.1, Safeguard Agreement

Corresponding provisions of multilateral agreements

4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations” 289

Provisions

Table 4.8 (continued)

DS451, DS568

DS568

Paragraphs 122 and 127, quantitative import restrictions, including prohibitions and quotas

Paragraph 136, import licensing procedures

Case no

Disputes involved

(continued)

Article 4.2, agriculture agreement Articles 2.1(a), 2.1(b), 10.1, 10.2, 10.3(a), 11.1, 13.2, 13.3(b) and 19.1, GATT 1994 Articles 1.2, 1.3, 2.2(a), 3.2 and 3.3, ILP agreement Articles 2.1, 3.1, 4.1(a), 4.1(c), 4.2(a)–(c), 5.1 and 7.1, safeguard agreement

Articles 3, 9 and 10, Agriculture Agreement Articles 1, 1.1(a), 1.1(b), 2, 2.1–2.3, 3.1(a), 3.1(b), 3.2, 4.2, 5(c), 6.3(b), 6.3(c), 6.4, 6.5 and 7, SCM Agreement Articles 2.1(a), 2.1(b), 3.4, 10.1, 10.2, 10.3(a), 11.1, 13.2, 13.3(b), 19.1 and 26, GATT 1994 Articles 1.2, 1.3, 2.2(a), 3.2 and 3.3, ILP agreement Articles 2.1, 3.1, 4.1(a), 4.1(c), 4.2(a)–(c), 5.1 and 7.1, Safeguard agreement

Corresponding provisions of multilateral agreements

290 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Provisions

Table 4.8 (continued)

DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509 DS358, DS359, DS451

DS339, DS340, DS342, DS358, DS359

Paragraphs 162 and 165, export licensing and export restrictions

Paragraph 167, export subsidies

Paragraph 203, trade related investment measures

Case no

Disputes involved

(continued)

Articles 2.1, 3.1–3.5, 11 and 13.1, GATT 1994 Articles 3, 3.1(b) and 3.2, SCM Agreement Articles 2, 2.1, 2.2 and Annex 1, TRIMs Agreement

Articles 3.4 and 16, GATT 1994 Articles 1, 1.1(a), 1.1(b), 2, 2.1–2.3, 3.1(a), 3.1(b), 3.2, 4.2, 5(c), 6.3(b), 6.3(c), 6.4, 6.5 and 7, SCM Agreement Articles 2, 2.1 and Annex 1, TRIMs Agreement Articles 3, 9 and 10, Agriculture agreement

Articles 7, 8, 8.1, 8.4, 10, 10.1, 10.3, 10.3(a), 11 and 11.1, GATT 1994

Corresponding provisions of multilateral agreements

4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations” 291

Provisions

Table 4.8 (continued)

DS387, DS388, DS390, DS451

DS372, DS373, DS378

DS419, DS450, DS451, DS501

Paragraph 234, agricultural policies (export subsidies)

Paragraph 309, policies affecting trade in services (licensing)

Paragraph 334, transparency

Case no

Disputes involved

(continued)

Articles 3.2, 3.4, 10.1, 16, And 16.1, GATT 1994 Articles 1, 1.1(A), 1.1(B), 2, 2.1–2.3, 3, 3.1(A), 3.1(B), 4.2, 5(C), 6.3(B), 6.3(C), 6.4, 6.5, 7.2 And 25.1–25.4, SCM agreement Articles 3, 9 and 10, agriculture agreement

Articles 16.2(a), 16.2(e), 17 and 18, GATS Article 39.2, TRIPS Agreement

Articles 3, 9 and 10, Agriculture agreement Articles 3.4 and 16, GATT 1994 Articles 1, 1.1(a), 1.1(b), 2, 2.1–2.3, 3.1(a), 3.1(b), 4.2, 5(c), 6.3(b), 6.3(c), 6.4, 6.5 and 7, SCM Agreement

Corresponding provisions of multilateral agreements

292 4 Application of China’s Accession Protocol in WTO Dispute Settlement …

Paragraphs 18,19, and 22, non-discriminatory treatment; Paragraphs 46 and 47, state-owned and state-invested enterprises; Paragraphs 60, 62, and 64, price control; Paragraph 70, sub-national government authority; Paragraph 73, uniform application; Paragraph 107, internal taxes; Paragraph 115, tariff rate quotas; Paragraph 123, quantitative import restrictions; Paragraph 132, import licensing; Paragraph 157, list of entities for export licensing; Paragraph 168, export subsidies; Paragraph 170, taxes on exports; Paragraph 171–174, industrial policy (subsidies); Paragraph 210, state trading entities; Paragraph 222, 223, 225, 227 and 228, special economic areas; Paragraph 231–233, 235 and 238, agricultural policies; Paragraph 322, notification

Paragraph 2 (C) transparency

Paragraph 2 Paragraph 2 (A) Uniform Administration administration of the trade regime

Provisions

Table 4.8 (continued)

DS431, DS432, DS433, DS450, DS501, DS568

DS431, DS432, DS433, DS450, DS508, DS509, DS549

DS451, DS610

Case no

Disputes involved

(continued)

Articles 3.2, 3.4, 7, 8, 10, 10.1, 10.3(a), 11 and 16.1, GATT 1994; Articles 25.1–25.4, SCM Agreement

Articles 7, 8, 10, 10.3, 11 and 11.1, GATT 1994; Article 3, 28.1(a), 28.1(b), 28.2, 33, 39.1 and 39.2, TRIPS Agreement

Articles 3, 9 and 10, Agriculture agreement; Articles 3.4 and 16, GATT 1994; Articles 1, 1.1(a), 1.1(b), 2, 2.1–2.3, 3.1(a), 3.1(b), 4.2, 5(c), 6.3(b), 6.3(c), 6.4, 6.5 and 7.2, SCM agreement

Corresponding provisions of multilateral agreements

4.3 Controversy Over the Interpretation of China’s “WTO-Plus Obligations” 293

Paragraph 11.3 eliminate all taxes on exports unless specifically provided DS394, DS395, DS398, for in Annex 6 of this Protocol or applied in conformity with the DS431, DS432, DS433, provisions of Article VIII of the GATT 1994 DS508, DS509

Paragraph 11 taxes and charges levied on imports and exports

DS394, DS395, DS398, DS431, DS432, DS433

Paragraph 10.3 eliminate all subsidies within the scope of Article 3 of the DS358, DS359 SCM

DS568

Paragraph 8.2 non-discrimination

DS339, DS340, DS342, DS358, DS359

Paragraph 7.3 trade related investment measures

Paragraph 8.1 measures to facilitate compliance

DS358, DS359, DS431, DS432, DS433

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS509

Paragraph 5.2 all foreign individuals and enterprises

Paragraph 7.2 Articles III and XI of the GATT 1994 and the Agreement on Agriculture

DS363, DS394, DS395, DS398, DS431, DS432, DS433, DS508, DS509

Paragraph 5.1 all enterprises in China

Case no

Disputes involved

Paragraph 10 subsidies

Paragraph 8 import and export licensing

Paragraph 7 non-tariff measures

Paragraph 5 right to trade

Provisions

Table 4.8 (continued)

(continued)

Articles 7, 8, 8.1, 8.4, 10, 10.1, 10.3, 10.3(a), 11 and 11.1, GATT 1994

Article 3.4, GATT 1994; Articles 3, 3.1(b) and 3.2, SCM Agreement; Articles 2, 2.1 and Annex 1, TRIMs Agreement

Articles 7, 8, 8.1, 8.4, 10, 10.1, 10.3, 10.3(a), 11 and 11.1, GATT 1994

Articles 2.1, 3.1–3.5, 7, 8, 10, 10.3(a), 11, 11.1 and 13.1,GATT 1994; Articles 3, 3.1(b) and 3.2, SCM Agreement; Articles 2, 2.1–2.2 and Annex 1, TRIMs Agreement

Articles 16 and 17, GATS; Articles 3.4, 7, 8, 8.1, 10, 10.1, 10.3, 10.3(a), 11 and 11.1, GATT 1994

Corresponding provisions of multilateral agreements

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In DS 379, the United States, in its response to China’s claims under Articles 1.1(a)(1) and 14(d) of the SCM Agreement at the panel stage, invokes Paragraph 15(b) of China’s Accession Protocol and Paragraph 150 of the WPR as the ground for its argument that there is a correspondence between Article 14(d) of the SCM Agreement and Paragraph 150 of the WPR as to whether external benchmark could be applied. See Panel Report, US—Anti-Dumping and Countervailing Duties (China), WT/DS379/R, paras. 8.23, 1026, 1070, 10.97, 14.58, 14.87, 14.89, 14.94, 14.161. The same understanding is reflected in the third-party submissions of the European Union, Turkey and other third parties in this dispute.

101

Articles 1.1, 2 and 19, GATT 1994

DS399

Paragraph 16 Transitional product-specific safeguard mechanism

Paragraph 16.1 consultation, Paragraph 16.3 withdraw concessions or otherwise to limit import, Paragraph 16.4 market disruption, Paragraph 16.6 period of time

Articles 1, 2, 2.1, 2.2, 2.4, 2.6, 3, 3.1–3.5, 4.1, 5, 5.3, 5.4, 6, 6.1, 6.2, 6.4, 6.5, 6.8–6.10, 9, 9.1–9.4, 11.3, 12.2.2, 17.6, 18, 18.4 and Annex 2; Articles 1, 1.1, 6, 6.1, 10.3(a) and 23, GATT 1994; Articles 1, 2, 6, 9–14, 19, 30, and 32, SCM Agreement; Article 16.4, The WTO Agreement

DS379,101 DS397, DS405, DS437

Paragraph 15 price comparability in determining subsidies and dumping

Corresponding provisions of multilateral agreements Articles 3, 9 and 10, Agriculture Agreement; Article 3.4, GATT 1994; Article 3, SCM Agreement

Paragraph 12.1 not maintain or introduce any export subsidies on agricultural products

Case no

Disputes involved

DS387, DS388, DS390

Paragraph 12 agriculture

Provisions

Table 4.8 (continued)

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the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements”102 —and the rules of judicial interpretation—“The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law”.103 Accordingly, Article 31 of the Vienna Convention on the Law of Treaties has been the rule of interpretation adopted by the DSB in interpreting the WTO Agreement and the annexed Multilateral Trade Agreements thereunder since the first panel decision of the DSB.104 Although neither the WTO Agreement nor China’s Accession Protocol contains an explicit provision on the rules of interpretation of the Protocol, Paragraph 1.2 of the Protocol explicitly provides that “This Protocol, which shall include the commitments referred to in paragraph 342 of the Working Party Report, shall be an integral part of the WTO Agreement”, and therefore, the rules of interpretation set forth in the WTO Agreement and the DSU are also applicable to China’s Protocol and the paragraphs of the WPR, which are an integral part thereof. Such understanding has also been recognized by the DSB and Members involved in relevant dispute settlement practice since the China—Measures Affecting Imports of Automobile Parts, in which the Panel holds that Paragraph 1.2 of China’s Protocol makes it an integral part of the WTO Agreement and that China’s commitment is accordingly interpreted in accordance with the interpretative rules of the Vienna Convention on the Law of Treaties105 (hereinafter referred to as Vienna Convention). Neither party to the dispute disputed this decision. And in all subsequent disputes invoking China’s Accession Protocol, there are no objections to the application of the rules of interpretation of the Vienna Convention to the interpretation of China’s Protocol.

4.3.1 Normal “Textualism” Interpretation As observed by scholars, the Appellate Body takes a very “textual” approach to its interpretations, motivated by the language of the Vienna Convention.106 On the one hand, Article 31 of the Vienna Convention has been generally recognized as adopting an eclectic textual interpretation: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. The “ordinary meaning” in this context points to the text of the treaty, the ordinary meaning of which 102

Article 9.2, The WTO Agreement. Article 3.2, DSU. 104 See Panel Report, US—Gasoline, WT/DS2/R, para. 6.7. 105 See Panel Report, China—Auto Parts, WT/DS339/R, Paras 7.740 and 7.741. 106 See Jackson (2009). 103

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is ultimately sought in accordance with its “terms”, in its “context” and in the light of its “object and purpose”. Accordingly, this is also considered to be an objective approach to treaty interpretation, aiming at finding the meaning of the text rather than the intention of the contracting parties at the conclusion of the treaty. The choice of WTO panels and the Appellate Body to adopt the rules of treaty interpretation set out in the Vienna Convention is in itself indicative of a preference for the textual interpretation, because “there are several treaty interpretation concepts, however, that do not necessarily square completely with the VCLT traditional approach”.107 On the other hand, Draft Articles on the Law of Treaties with Commentaries (1966) specifies: “the article, when read as a whole, cannot properly be regarded as laying down a legal hierarchy of norms for the interpretation of treaties. The elements of interpretation in the article have in the nature of things to be arranged in some order. But it was considerations of logic, not any obligatory legal hierarchy…the starting point of interpretation is the meaning of the text, logic indicates that ‘the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’ should be the first element to be mentioned. Similarly, logic suggests that the elements comprised in the ‘context’ should be the next to be mentioned since they form part of or are intimately related to the text. Again, it is only logic which suggests that the elements in paragraph 3—a subsequent agreement regarding the interpretation, subsequent practice establishing the understanding of the parties regarding the interpretation and relevant rules of international law applicable in the relations between the parties—should follow and not precede the elements in the previous paragraphs”.108 Hence, although it is only “in the light of its object and purpose”, the examination of this element does not ipso facto take precedence over the examination of “terms” and “context”, which indicates that the rules of treaty interpretation in the Vienna Convention, although based on textual interpretation, retain the element of “purpose” in order to reconcile it with the teleological interpretation. However, the intentional or unintentional omission of the “purpose” element in individual disputes in the WTO dispute settlement practice reveals its preference for the text. “In contrast to this adherence to the ‘text’, the Appellate Body has largely rejected and disregarded the subjective ‘intentions’ of the parties, in particular, of a single party, as a possible element in the interpretation of the treaty”.109 This also explains why panels and the Appellate Body have always referred to the “semantics” of the Oxford Dictionary when it comes to the interpretation of treaties: the dictionary is the best basis for determining the “ordinary meaning” of a text.

107

Jackson (2009), p. 188. Draft Articles on the Law of Treaties with Commentaries (1966), Yearbook of the International Law Commission, 1966, Vol. II, p. 219–220. 109 Fang (2011). 108

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4.3.2 Incorporation of Effective Interpretation and Evolutionary Interpretation As observed by scholars, the “Appellate Body was initially hesitant in formally recognizing its use of non-codified principles of treaty interpretation, but is gradually opting for a more balanced and less formal approach”.110 Such non-codified, less formal approach refers to the effective interpretation and evolutionary interpretation.

4.3.2.1

Effective Interpretation: Reconciliation of Subjectivism with Objectivism

The Vienna Convention does not specify the rule of effective interpretation of treaties. However, before the drafting of the Vienna Convention, the effective interpretation of treaties had already been established by the judicial practice of the International Court of Justice (ICJ) and the academic theories. As Lauterpacht observed, the consistent practice of the PCIJ and the ICJ places great emphasis on the principle of effectiveness, particularly in the case of treaties conferring jurisdiction on it, those establishing the competence of international tribunals, and treaties protecting minorities (the precursors of human rights treaties).111 “The notion of effectiveness is twofold: first, a general sense of realizing the objectives of the treaty and, second, a narrower function of preferring an interpretation which gives meaning to every term rather than depriving one or more words of any role at all. The latter function is commonly denoted in Latin ut res magis valeat quam pereat”.112 The International Law Commission’s commentary on the Draft Vienna Convention on the Law of Treaties explains why this rule of interpretation is not explicitly singled out: although it confirms that the principle of effective interpretation is a generally recognized principle of treaty interpretation, there is no need for it to be singled out as a rule of interpretation, as it is already incorporated by the elements of “good faith” and “object and purpose”. “The Commission did not consider… that the principle expressed in the maxim ut res magis valeat quam pereat should not be included as one of the general rules. It recognized that in certain circumstances recourse to the principle may be appropriate and that it has sometimes been invoked by the International Court…. The Commission, however, took the view that, in so far as the maxim ut res magis valeat quam pereat reflects a true general rule of interpretation, it is embodied in article 27, paragraph 1, which requires that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to its terms in the context of the treaty and in the light of its object and purpose…. Accordingly, it did not seem to the Commission that there was any need to include a separate provision on this point. Moreover, to do so might encourage attempts to 110

See Isabelle Van Damme, Treaty Interpretation by the WTO Appellate Body, 21(3) The European Journal of International Law, 621. 111 See Lauterpacht (1949). 112 Richard K. Gardiner, Treaty Interpretation (Second Edition), Oxford University Press, p. 90.

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extend the meaning of treaties illegitimately on the basis of the so-called principle of “effective interpretation”.113 Therefore, “when a treaty is open to two interpretations one of which does and the other does not enable the treaty to have appropriate effects, good faith and the objects and purposes of the treaty demand that the former interpretation should be adopted”.114 This principle of interpretation has also been expressly recognized by the Appellate Body in WTO dispute settlement practice. In its first case, US—Gasoline, the Appellate Body stated that “one of the corollaries of the ‘general rule of interpretation’ of the Vienna Convention is that the interpretation must give meaning and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility”.115 In Japan—Alcoholic Beverages II, the Appellate Body clearly sets out the role of the principle of effective interpretation in the interpretation of the WTO Agreements: “a fundamental tenet of treaty interpretation flowing from the general rule of interpretation set out in Article 31 is the principle of effectiveness (ut res magis valeat quam pereat)”.116 The Appellate Body has repeatedly reaffirmed and applied the principle of effective interpretation in interpreting WTO Agreements in subsequent disputes such as Canada—Dairy,117 EC—Bananas III,118 Korea— Dairy119 and Argentina—Footwear (EC).120 In these disputes, the Appellate Body either directly applies the principle of effective interpretation with or without indicating that it applies the “principle of effective interpretation”, or refers to it with the maxim ut res magis valeat quam pereat, thus making the application of this rule of interpretation in WTO dispute settlement practice a flickering phenomenon.

4.3.2.2

Evolutionary Interpretation: Rebound of the Purpose?

The evolutionary interpretation refers to “where the parties have used generic terms in a treaty, the parties necessarily having been aware that the meaning of the terms was likely to evolve over time, and where the treaty has been entered into for a very long period or is ‘of continuing duration’, the parties must be presumed, as a general rule,

113

Draft Articles on the Law of Treaties with Commentaries, Yearbook of the International Law Commission, 1966, Vol. II, p. 219, para. 6. 114 Draft Articles on the Law of Treaties with Commentaries, Yearbook of the International Law Commission, 1966, vol. II, p. 219, para. 6. For detail, see Bjorge (2014). 115 See Appellate Body Report, US—Gasoline, WT/DS2/AB/R, p. 23. 116 See Appellate Body Report, Japan—Alcoholic Beverages II, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, p. 12. 117 See Appellate Body Report, Canada—Dairy, WT/DS103/AB/R, WT/DS113/AB/R, para. 133. 118 See Appellate Body Report, EC—Bananas III, DS27/AB/RW2/ECU, DS27/AB/RWR/USA, para. 422. 119 See Appellate Body Report, Korea—Dairy, WT/DS98/AB/ R, paras. 80–81. 120 See Appellate Body Report, Argentina—Footwear (EC), WT/DS121/AB/R, para. 81.

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to have intended those terms to have an evolving meaning”.121 “‘Evolutionary interpretation’ and its cognate ‘evolutive interpretation’ are terms which have been put into circulation mainly through case law and, in particular, through analysis of pronouncements of courts and tribunals, most notably of the ICJ and the ECtHR”.122 The ICJ first adopted the evolutionary interpretation in its Namibia advisory opinion123 in 1971, and developed it through a series of cases, such as Aegean Sea Continental Shelf 124 in 1978, Gabcikovo—Nagymaros Project 125 in 1997 and Dispute regarding Navigational, etc. (Costa Rica v Nicaragua)126 in 2009, specifying the elements for its application as “generic” terms, long or indefinite duration of the treaty, etc. Issues of legal interpretation arise for two reasons: the flow of time and porosity of terms (Porositat der Begriffe). The former points to the inability of legislators to accurately foresee the future; the latter points to the inability of linguistic concepts to precisely define everything. The evolutionary approach to interpretation is based on the recognition of these two facts, and provides a solution to the situation in which the meaning of the terms of a treaty change with the times, and thus the meaning of the treaty may be out of touch and difficult to adapt to the development of the international community. After all, international law itself is an evolving legal system, and treaties, as its main source of law, should also evolve along with the development of the international community, and the method of treaty interpretation should necessarily reflect this feature of international law. US—Shrimp: Evolutionary Interpreation Emerged The Appellate Body in the US—Shrimp adopts, for the first time, an evolutionary approach to the interpretation issue of the term “exhaustible natural resources” in Article XX(g) of the GATT 1994, i.e., whether the term should be interpreted as it was at the time of conclusion of the GATT in 1947, which is limited to the minerals and other non-living natural resources, or as it was interpreted by the U.S., a party to the dispute in 1996, which also includes living animals (endangered sea turtles).127 On this issue, the Appellate Body does follow the usual textualism approach to interpret the text of GATT, but rather adopts an evolutionary approach. The Appellate Body clarifies that the treaties concluded more than fifty years ago and their language should be read “in the light of contemporary concerns of the community of nations about the protection and conservation of the environment”128 and examines the meaning of 121

Dispute regarding Navigational, etc. (Costa Rica v Nicaragua) [2009] ICJ Reports 214, at 243, para 66. 122 Richard K. Gardiner, Treaty Interpretation (Second Edition), Oxford University Press, p. 413. 123 See Legal consequences for States of the continued presence of South Africa in Namibia (South West Africa), notwithstanding Security Council resolution 276 (1970) [1971] ICJ Reports 16, at 31, para 53. 124 Aegean Sea Continental Shelf , ICJ Reports 1978, p. 3, para. 77. 125 Gabcikovo—Nagymaros Project (Hungary v Slovakia), Judgement of 25 September 1997, ICJ Report (1997) at 78, para. 140. 126 Dispute regarding Navigational, etc. (Costa Rica v Nicaragua) [2009] ICJ Reports 214. 127 See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, paras. 128–130. 128 Appellate Body Report, US—Shrimp, WT/DS58/AB/R, paras. 129.

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the term “natural resources” in the Preamble to the WTO Agreement and in current international conventions. The “objective of sustainable development” embodied in Preamble of the WTO Agreement makes the generic term “natural resources” in Article XX(g) of the GATT 1994 evolutionary.129 Modern international conventions, such as the 1982 United Nations Convention on the Law of the Sea (UNCLOS), the 1992 Convention on Biological Diversity, the 1992 Resolution on Assistance to Developing Countries and the 1979 Convention on the Conservation of Migratory Species of Wild Animals, make frequent references to natural resources as embracing both living and non-living resources.130 The Appellate Body holds accordingly that the “natural resources” in Article XX(g) of the GATT 1994 shall be interpreted in line with the modern meaning of the term and that living species, though in principle, capable of reproduction and, in that sense, “renewable”, are in certain circumstances indeed susceptible of depletion, exhaustion and extinction.131 In this dispute, the Appellate Body examines the elements as indicators for adopting the evolutionary interpretation which are developed by the ICJ: the term “exhaustible natural resources” is a generic term, the GATT has had continuous validity, and the Parties’ general awareness of the evolvement of the term.132 Such evolutionary interpretation by the Appellate Body in individual dispute follows a clear deductive logic, which in essence replaces the contracting parties’ intention at the conclusion of the treaty with a presumed intention, thus serving to determine the “object and purpose” element. China—Publications and Audiovisual Products: Evolutionary Interpretation in the Disputes in Which China Participates? One of the interpretative issues in this dispute is that whether the commitments under the inscription “sound recording distribution services” in Sector 2.D. of China’s Services Schedule cover distribution of sound recordings as a physical product only, or also as a non-physical product. China contends that its commitment under “sound recording distribution services” covers the distribution of sound recordings only as a physical product, because the “Services Schedule has to be interpreted in light of the circumstances of its conclusion”, and at “the time of negotiations on China’s accession to the WTO, network music services did not, according to China, constitute an established business operating within a legal framework”.133 Hence, at the time of accession, the commitments made by China are certainly not intended to include such products. The Panel first reviews the ordinary meaning of “sound recording” “distribution services” based on dictionary definition and holds that the “sound recording distribution services” covers the distribution of sound recordings through an electronic medium, and not just the distribution of sound recordings embedded on a 129

See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, para. 130. See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, para. 130. 131 See Appellate Body Report, US—Shrimp, WT/DS58/AB/R, para. 128. 132 Dispute regarding Navigational, etc. (Costa Rica v Nicaragua) [2009] ICJ Reports 214. 133 Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, paras. 7. 1164. 130

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physical medium.134 As for China’s argument, the Panel finds in terms of fact, that electronic distribution of sound recordings is a commercial reality in many markets before China’s accession to the WTO, and in terms of intent, that a member’s service commitments need not reflect its existing legal framework.135 China then asserts on appeal that the Panel’s analysis of object and purpose was flawed and failed to apply properly the customary rules of treaty interpretation codified in Article 31 of the Vienna Convention, namely, that a proper examination of the object and purpose of the GATS suggests that the meaning to be ascribed to its entry on “sound recording distribution services” should be based on definitions contemporaneous to the conclusion of the treaty.136 Such argument is not agreed by the Appellate Body, which after recalling its decision in US—Gambling, that “the task of ascertaining the meaning of a concession in a Schedule, like the task of interpreting any other treaty text, involves identifying the common intention of Members”,137 holds that the purpose of treaty interpretation under Articles 31 and 32 of the Vienna Convention is to ascertain the “common intention” of the parties, not China’s intention alone.138 It further considers that the terms “sound recording” and “distribution” in China’s GATS Schedule are sufficiently generic that what they apply to may change over time, and that GATS Schedules, like the GATS itself and all WTO agreements, constitute multilateral treaties with continuing obligations that WTO Members entered into for an indefinite period of time.139 Hence the terms should be interpreted in accordance with contemporary meanings. The problem with this interpretation by the Appellate Body arose from the flaws in the evolutionary interpretation itself. “The problems with the evolutionary approach to interpretation in practice can be summarised in three areas: arbitrary, mechanical and incomprehensive. Arbitrary means that the method is applied without due consideration of the relevant evidence that can truly reflect the intention of the parties, such as the travaux préparatoires or subsequent practice at the time of the conclusion of the treaty; mechanical means that it is mechanically presumed that the parties have the intention of evolving their interpretation by relying mainly on criteria such as the generic terms and the indefinite duration of the treaty; and incomprehensive means that the conclusions reached by the method are necessarily incomprehensive

134

See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, paras. 7. 1172–7.1181. 135 See Panel Report, China—Publications and Audiovisual Products, WT/DS363/R, paras. 7.1235, 7.1245–7.1247. 136 See Appellate Body Report, China—Publications and Audiovisual Products, WT/RDS363/AB/ R, para. 47. 137 Appellate Body Report, US—Gambling, WT/DS285/AB/R, para. 159. 138 See Appellate Body Report, China—Publications and Audiovisual Products, WT/DS363/AB/ R, para. 405. 139 See Appellate Body Report, China—Publications and Audiovisual Products, WT/RDS363/AB/ R, para. 396.

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and not supported by sufficient evidence”.140 The adoption of the evolutionary interpretation in this dispute leads to the Appellate Body’s ignorance of the purpose of China’s GATS Schedules, not to mention China’s original intent at the time of making such commitments, and to interpret them primarily on the basis of the contemporary contextual meaning of the words, which ostensibly follows the textualist principle of interpretation that the Appellate Body has consistently upheld, but which, by virtue of the adoption of the evolutionary approach, results in the contractual intention of the contracting party being presumed to be the one that the Appellate Body deems appropriate. Therefore, the purposive interpretation often results in the true contracting intentions of the parties to a treaty being ignored by the DSB, which precisely explains why the interpretation rule set forth in the Vienna Convention ultimately adopts the objective interpretation.

4.3.3 Tendency of Conservative Interpretation of China’s “WTO-Plus Obligations” The legal interpretation of the provisions of China’s Accession Protocol in WTO dispute settlement practice is based on the interpretation rules of the Vienna Convention, and is characterized by strict textualism. Although there is also “effective interpretation” and “evolutionary interpretation”, as far as the textualism character is concerned, the DSB has demonstrated an extremely conservative textualist interpretative stance, and even the effective and evolutionary interpretations that have emerged in individual cases are merely for the purpose of enhancing the textual interpretations. Consistent with the WTO dispute settlement practice, the DSB usually strictly applies the rules of treaty interpretation of the Vienna Convention when interpreting the China’s Accession Protocol, especially the “extra” obligations contained therein. In particular, Article 31 of the Vienna Convention is quoted in all decisions, and each of the elements for determining the “ordinary meaning” of a provision is analyzed one by one with the meaning provided in the Oxford English Dictionary as the logical starting point for the interpretation of each article/word. Although this is to maximize fidelity to the text of the treaty so as to be “as objective as possible and to avoiding circumstances and activities that would allow nation-state governments (members of the WTO or otherwise) to accuse the Appellate Body of tilting one way or another for bias reasons”,141 to restrictively limit Article 31 interpretation rule to textual interpretation and apply accordingly, would inevitably constitute an undue disregard of the other elements specified in Article 31, as well as the examination of the elements in Article 32, and would thus constitute a deviation from the actual textual interpretation set forth in the Vienna Convention, which “is ultimately a holistic exercise that should not be mechanically subdivided into rigid components”. 140 141

Wu (2012). See Jackson (2009).

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In WTO dispute settlement practice involving the interpretation of the provisions of the China’s Accession Protocol, the application of ultra-conservative textual interpretations by panels and the Appellate Body has been much criticized. The textual interpretations of the systemic relationship between China’s Accession Protocol and the WTO Multilateral Trade Agreements in China—Raw Materials and China—Rare Earths, illustrate the ultra-conservative textual interpretation of the Protocol adopted by the panels and/or the Appellate Body.

4.3.3.1

China—Raw Materials: Restrictive Textual Interpretation

The Appellate Body in this dispute adopted a strict textual interpretation of Paragraph 11.3 of China’s Accession Protocol regarding the applicability of Article XX of GATT 1994: After first examining the meaning of the term, it considers that the term “shall eliminate all” and the clarification that only the products listed in Annex 6 can be exempted indicate that such “eliminate all” is an absolute exclusion and that no other exceptions apply.142 Then it moves on to find that “silence” means no intention to invoke: “Paragraph 11.3 of China’s Accession Protocol expressly refers to Article VIII of the GATT 1994, but does not contain any reference to other provisions of the GATT 1994, including Article XX…. In the light of China’s explicit commitment contained in Paragraph 11.3 to eliminate export duties and the lack of any textual reference to Article XX of the GATT 1994 in that provision, we see no basis to find that Article XX of the GATT 1994 is applicable to export duties found to be inconsistent with Paragraph 11.3”.143 This presumption one-sidedly and arbitrarily negates other meanings of “silence”, such as “silence” due to the fact that it is explicitly stated elsewhere in the text and need not be repeated here. Further, with respect to textual links, although Paragraph 170 of the WPR could be used as a bridge, because it: ➀ is referred in Paragraph 342 of the WPR and is therefore, by virtue of Paragraph 1.2 of China’s Accession Protocol, incorporated into the Protocol, ➁ stipulates also the obligations of China under the title of “Taxes and Charges Levied on Imports and Exports”, ➂ stipulates clearly “in conformity with the GATT 1994” which provides a clear link between Paragraph 11.3 of China’s Accession Protocol and Article XX of the GATT 1994, the Appellate Body upholds the Panel’s finding that there is no link between Paragraph 11.3 of China’s Accession Protocol and Article XX of the GATT 1994 by finding that Paragraph 170 is “of limited relevance” in interpreting Paragraph 11.3 because it “does not shed

142

See Appellate Body Report, China—Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/ DS398/AB/R, para. 284. 143 See Appellate Body Report, China—Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/ DS398/AB/R, para. 303–306.

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much light on China’s commitment to eliminate export duties”.144 Such interpretation reveals the “subject matter” standard adopted by the Appellate Body to determine the “link” between provisions of the WPR and China’s Accession Protocol, which is different from the “clear reference” standard it adopted to determine the “link” between provisions of China’s Accession Protocol and GATT 1994. It can be seen from the above that such strictly textual interpretation, not only deviates from the interpretative rule of Article 31 of the Vienna Convention, which is also based on the elements of context and purpose, but also narrowly severs the text of the treaty from the rights and obligations contained therein, which leads to a superficial and self-contradictory interpretation.

4.3.3.2

China—Rare Earths: “Textualism” Conservative Interpretation

In order to clarify the relationship between China’s Accession Protocol and the WTO Multilateral Trade Agreement, the Panel and the Appellate Body interpret the issue of the relationship between Article 12.1 of the WTO Agreement and Paragraph 1.2 of the Protocol. First, the Panel interpreted the provisions of Paragraph 1.2 of China’s Accession Protocol in an extremely restrictive manner, holding that Paragraph 1.2 of China’s Accession Protocol only provides that it shall form an integral part of the WTO Agreement, and that its legal effect is therefore to make China’s Accession Protocol, in its entirety, an “integral part” of the Marrakesh Agreement, and not that, in addition, the individual provisions thereof are also integral parts of Multilateral Trade Agreements annexed to the Marrakesh Agreement.145 This conclusion has two meanings: first, the provisions of China’s Accession Protocol do not constitute an integral part of the WTO Agreement and the MTAs; second, there is a hierarchical relationship between China’s Accession Protocol, the WTO Agreement and the annexed MTAs, i.e., China’s Accession Protocol is parallel with the MTAs annexed to the WTO Agreement. Although under Article II:2 of the WTO Agreement, the MTAs are integral parts of the WTO Agreement, and Paragraph 1.2 of China’s Accession Protocol provides that the China’s Accession Protocol is an integral part of the WTO Agreement, China’s Accession Protocol does not constitute an integral part of the MTAs. These two meanings are not strictly consistent with the provisions that the MTAs are integral parts of the WTO Agreement, as set forth in Paragraph II:2 of China’s Accession Protocol and that the Protocol “shall be an integral part of the WTO Agreement”, as set forth in Paragraph 1.2 of China’s Accession Protocol: Firstly, an agreement consists of the specific provisions, the two of which cannot be separated, and it is purely a word game to consider that one agreement constitutes an integral part of the other while its provisions do not constitute an integral part of the other. 144

See Appellate Body Report, China—Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/ DS398/AB/R, para. 299. 145 See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, para. 7.93.

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Secondly, the Accession Protocol, as a State’s accession instrument, contains rules that are different from those of the legal system to which it has acceded, which, as has already been argued, constitutes a reservation to the multilateral treaty and, once it has been accepted, has the effect of “modifying” the rules of the multilateral treaty to which it has acceded. The interaction between the Accession Protocol and the WTO Agreement is therefore unavoidable and is clearly not parallel and non-interfering. Thirdly, there is a certain hierarchical relationship between the WTO Agreement and its MTAs. As stipulated in Article XVI:3 of the WTO Agreement, in the event of a conflict between a provision of the WTO Agreement and a provision of any of the MTAs, the provision of the WTO Agreement shall prevail to the extent of the conflict. Thus, there is a systemic linkage between the WTO Agreement and the MTAs, and since the provisions of the Accession Protocol form an integral part of the WTO Agreement, its provisions are necessarily systemically linked to the MTAs as well. Therefore, the “Panel’s categorical severance of the relationship between the ‘specific provisions’ of the Accession Protocol and the WTO Agreement, and of the interaction between the Accession Protocol (either as specific provisions or in its entirety) and the multilateral sub-agreements (either as specific provisions or in their entirety) under the WTO Agreement, is inappropriate due to the imposition of a textual meaning and the lack of a legal basis”.146 Then, the Panel interpreted the provisions of Article XII:1 of the WTO Agreement also in an extremely restrictive manner, holding that in acceding to the WTO, an acceding Member is subject to all of the obligations of all the Multilateral Trade Agreements—a new Member is not entitled to pick and choose which particular Agreements it will accede to. Therefore, it does neither support China’s position that respective protocol provisions must be considered as an integral part of the specific covered agreement to which it intrinsically relates, nor does it find in Article XII:1 language to support China’s assertion that its Accession Protocol is not a selfcontained agreement and that it merely serves to specify China’s obligations under the WTO Agreement and the MTAs annexed thereto.147 The Panel’s interpretation follows closely the title “Accession” of Article XII:1, by limiting the reading of the whole Article to the purpose of accession only, and by refusing to read further into the effect of “one package” acceptance of, and accession to, the WTO Agreement and its MTAs by acceding Members, i.e., the status and effect of the accession instrument. The Appellate Body upholds the Panel’s view that Article XII:1 of the WTO Agreement does not refer to the Accession Protocol, let alone its relationship with the WTO Agreement.148 The interpretations by both the Panel and the Appellate Body are biased. On the one hand, the words in the text, such as “integral part”, “accession”, “apply”, “terms”, etc., are closely followed, but the meaning of the words is only superficially interpreted. Nouns have at least two uses, one focusing on their meaning and the other 146

Gu (2015). See Panel Report, China—Rare Earths, WT/DS431/R, WT/DS432/R, WT/DS433/R, para. 7.91. 148 See Appellate Body Report, China—Rare Earths, WT/DS431/AB/R, WT/DS432/AB/R, WT/ DS433/AB/R, paras. 5.71, 5.28–5.29, 5.32. 147

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on specific things within their scope.149 As it has been argued, “the second sentence of Article XII.1, ‘accession’ (noun), follows on from the first sentence, ‘accede’ (verb), and refers to both the process of accession and the textual form or result of accession, i.e. the Accession Protocol ……the first sentence of Article XII:1, specifies that the condition for accession is the agreement signed between the WTO and the acceding Member, i.e. the Accession Protocol, further confirming that the term ‘accession’ refers also to the Accession Protocol. Thus, Article XII:1 does provide for a systematic relationship between the Accession Protocol and the WTO Agreement (i.e., the ‘Marrakesh Agreement and its sub-agreements’)”.150 In analyzing the ordinary meanings of the relevant terms, the Panel and the Appellate Body did not make a comprehensive sorting and selection of all possible meanings of these terms, but went directly into a customized, self-referential logic of argumentation, which is suspicious of imposing a textual meaning.

4.3.3.3

China—Auto Parts: Supplementary Effective Interpretation

The China—Auto Parts is the first dispute involving China’s Accession Protocol which is decided by a Panel Report. In this dispute, three legal instruments151 enacted by China impose a 25% charge on imported auto parts “characterized as complete motor vehicles” based on specified criteria and prescribe administrative procedures associated with the imposition of that charge. In interpreting the terms “ordinary customs duties” and “like products”, the Panel followed the textual approach to interpretation based on the Vienna Convention. It is noteworthy, however, that in analyzing whether the tariffs at issue are covered by Articles 32 and 2.1(b) of GATT 1994, the Panel’s statement on the approach to treaty interpretation in the India—Autos is referred to: “The customary rules provide sufficient mechanisms to ensure an appropriate outcome that should deal with such concerns, as they require consideration of ordinary meaning in context and in the light of object and purpose of the treaty. In this regard, context includes a reading of each Article in relation to other potentially relevant provisions and an analysis, where necessary, of any differences in terminology. The principle of effectiveness would also apply to prevent reducing any provision to inutility”.152 The principle of effective interpretation of treaties is explicitly stated here. 149

Jin (2017), p. 5. Gu (2015), p. 86. 151 Policy on Development of Automotive Industry [Order of the National Development and Reform Commission (No. 8)] (“Policy Order 8”), which entered into force on 21 May 2004; Administrative Rules on Importation of Automobile Parts Characterized as Complete Vehicles (Decree of the People’s Republic of China, No. 125) (“Decree 125”), which entered into force on 1 April 2005; and Rules on Verification of Imported Automobile Parts Characterized as Complete Vehicles (Public Announcement of the Customs General Administration of the People’s Republic of China, No. 4 of 2005) (“Announcement 4”), which entered into force on 1 April 2005. 152 See Panel Report, India—Autos, WT/DS146/R, WT/DS175/R, para. 7.222. At Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, para. 7.121. 150

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In analyzing whether China has breached its obligations under Paragraph 93 of the WPR, the Panel again applies the principle of effective interpretation. In Paragraph 93 of the WPR, China confirmed that China had no tariff lines for completely knockeddown kits for motor vehicles or semi-knocked-down kits for motor vehicles, and if China created such tariff lines, the tariff rates would be no more than 10%. In the present case, the issue at stake is whether the term “create such tariff lines” under this paragraph includes only creating through amending the Schedule, or also the de facto creation, i.e., the measure has the effect of creating separate tariff lines? The Panel finds that “once China has decided to initiate an action by enacting the measures at issue in 2004 and 2005 (3–4 years later from its accession to the WTO in 2001), through which it systematically gives CKD and SKD kits imports certain tariff lines, that very action, in our view, effectively creates tariff lines for CKD and SKD kits. Interpreting otherwise would render meaningless China’s commitment contained in paragraph 93 of China’s Working Party Report since China will always be able to resort to its domestic legal system to argue that it has never amended its Schedule and thus no tariff lines have been created”.153 The analysis in this paragraph clearly adopts an effective interpretation. Although effective interpretation is a well-established rule of treaty interpretation in international judicial practice, particularly in WTO dispute settlement practice, the fact that it is not expressly provided for in the “General Rule of Interpretation” of the Vienna Convention reflects, to some extent, the inherent defects of effective interpretation. The logical destination of the reasoning of effective interpretation is the purpose of the parties—if it were to be interpreted in a particular way, it would render the provision meaningless, therefore it is the object and purpose of the treaty that is being explored more closely. This on the one hand might lead to the result of the interpretation of purpose and purpose actually overturning the interpretation of the text when there are two possible interpretations, and on the other hand, it may even lead to skipping the interpretation of the text, which actually abandons the objective interpretation of the Vienna Convention. Hence, the principle of effective interpretation has its conditions to apply: Ut res magis valeat quam pereat, the rule of effectiveness, cannot justify the Court in attributing to the provisions a meaning which would be contrary to their letter and spirit.154 In this dispute, the Panel believes that the key issue is China’s commitment under the WTO Agreement, not whether China has satisfied its domestic procedures for creating new tariff lines.155 From the reasoning of the Panel, it can be seen that when adopting the effective interpretation, it did not examine and analyze the contracting purpose of Paragraph 93 of the WPR, but directly skipped the examination of the common intention of the contracting parties and drew the conclusion of effective interpretation, thus not satisfying the conditions for the application of effective interpretation.

153

Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, para. 7.756. See Interpretation of Peace Treaties with Bulgaria, Hungary and Romania, para. 2, Advisory Opinion, I.C.J. Reports 1950, p. 229. 155 See Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, para. 7.756. 154

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Of course, it’s worth noting that, in this dispute, the application of effective interpretation is to reinforce the conclusion of the previous textual interpretation of the term “create”. Before adopting an effective interpretation, the Panel has already defined the term “create” as including both “formally” create, that is to create a separate tax line through domestic legislative procedures, and “de facto” create, which means the effect of creating a separate tax line has been achieved by enacting other measures. This also to some extent explains the aforementioned hasty application of the effective interpretation—textual interpretation has achieved the purpose of interpretation, and effective interpretation is only for reinforcing the conclusion of textual interpretation.

4.3.4 Interpretation Conundrum of China’s Accession Protocol The above analysis proves that different from the interpretation method in the general WTO dispute settlement practice, which is in principle textual interpretation, balanced with effective interpretation and evolutionary interpretation, the interpretation of China’s Accession Protocol always adheres to the principle of textual interpretation. Especially in the situation where there is sufficient room for interpretation in the text, the panels and Appellate Body have not actively applied subjective interpretation methods such as effective interpretation and evolutionary interpretation, which seems to deviate from the general interpretation practice. The reasons for this, some scholars believe that it mainly stems from the intrinsic institutional factors of the WTO mechanism and the external political factors, namely, the unclear WTO legislation and judicial restraint, and the “de facto precedent” and its variations in individual cases, as the internal defects of the WTO system and the international economic regulatory game outside the system.156 With regard to the interpretative conundrum of China’s Accession Protocol, considering that all treaty interpretation is inevitably affected by factors outside the system, and that the issues of “de facto precedent” and judicial restraint in the practice of WTO dispute settlement are not unique to the disputes involving China’s Accession Protocol, the focus lies in on the unique conundrum of the interpretation of China’s Accession Protocol, i.e., the particularities of the text and the substantive obligations of China’s Accession Protocol.

156

See Liu (2015).

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4.3.4.1

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Inherent Limitations: Textual Defects

Undefined Nature The Preamble and General Provisions of China’s Accession Protocol provides a clear stipulation of its textual attributes as an accession document, but the legal attributes of the substantive non-standard provisions it covers are not defined. Neither the basis for the formulation of these substantive provisions, nor their object and purpose are explained. This directly leads to many interpretive problems for the panels and Appellate Body in the subsequent disputes, regarding the relationship between China’s Accession Protocol and the WTO Agreement and its Multilateral Trade Agreements, and difficulty in making convincing interpretations. The Vienna Convention requires that the ordinary meaning of the treaty shall be interpreted “in light of its object and purpose”, which is exactly what China’s Accession Protocol does not stipulate. Unstructured Provisions As mentioned in the discussion of special structure of China’s Accession Protocol (as shown in Table 3.7), the content related to China’s substantive obligations in the Protocol is mainly stipulated in two types of substantive provisions: the “non-standard provisions directly stipulated” in Paragraphs 2 to 18 of Part One, and the “nonstandard provisions incorporated” through Paragraph 1.2 of Part One and Paragraph 342 of the WPR. The layout of these two parts is not only inconsistent with the substantive content of the WTO Agreement and its Multilateral Trade Agreements, but also lacks a consistent correspondence between them. In terms of the former, the substantive provisions of China’s Accession Protocol not only refer to, but also directly repeats the content of, the WTO Agreement and/ or its MTAs and provisions thereof, and such reference and reiteration sometimes coexist in a single provision; not only refine or supplement, but also reiterate and repeat, the WTO Agreement and/or its MTAs and provisions thereof. Such unstructured layout also corresponds to the undefined nature of China’s Accession Protocol. It is the lack of a clear definition of the object and purpose of China’s Accession Protocol that leads to the formulation of the text, which, while simply adopting a standard text on accession to reflect its textual nature as an instrument of accession, rigidly incorporated a number of substantive provisions, while leaving the nature of the content of such provisions undefined. In terms of the latter, the “directly stipulated non-standard provisions” appear to reiterate, refine and supplement the “incorporated non-standard text provisions”, but there are still difficulties in corresponding the two sets of provisions and logical inconsistencies in their structures. As for the structure, neither “directly stipulated non-standard provisions” are arranged in accordance with the order of the corresponding provisions in the WPR, nor are the headings of the provisions consistent with each other, leaving the correspondence between the provisions only approximately established by the substantive obligations thereunder. As for the substantive

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obligation, there are scenarios where the provisions from two sets are in similar but not identical phrases, and provide for different level of obligations. This reflects a lack of careful attention to the text during the negotiation process, both for the WPR and Accession Protocol of China. This problem has naturally led to the difficulty not only in accurately defining the corresponding “directly stipulated non-standard provisions” and “incorporated non-standard provisions” with regard to China’s specific obligations in dispute settlement practice, but also in identifying the context of the specific “directly stipulated non-standard provision” or “incorporated non-standard provision”. Unclear Phrases In contrast to the highly precise text of the WTO Agreement and the MTAs, the phrases, same as the aforementioned layout, of China’s Accession Protocol lack rigor. The mere fact that China’s Accession Protocol is involved in the many disputes is sufficient to illustrate this. The terms “All enterprises in China” in Paragraph 5.1 and “all foreign individuals and enterprises” in Paragraph 5.2 of China’s Protocol, and “Chinese and foreign-invested enterprises” “wholly Chinese-invested enterprises” in Paragraph 83 and “sole proprietorships of other WTO Members” in Paragraph 84 of WPR, lack rigorous definition of the covered types of enterprises and their interrelationships, which in turn causes the interpretation issues regarding the types of enterprises covered by such terms in China—Publications and Audiovisual Products. In addition, there are many other important concepts and their similar phrases used loosely in other provisions, such as “non-discrimination” in Paragraph 3 of China’s Accession Protocol and “non-discrimination (including national treatment)”, “same treatment” and “national treatment” in Paragraphs 18–19 and 22–23 of the WPR of China, which lack a rigorous explanation of how these terms are related to one another, whether they refer to different standards of treatment, and whether there is a limit to the scope of their specific application. Of course, the lack of rigor in the wording of these terms has its own reasons: the substantive provisions of China’s Accession Protocol cover almost all the subject matters of the WTO Agreement; for the first time in Accession Protocols, there are “directly stipulated non-standard provisions”, and there are also an unprecedented number of “incorporated non-standard provisions” at that time; and the ambiguities and mixing of terms among the provisions reflect the complexity of the matters and rules involved. Such loose wording naturally leads to the conundrum of adopting the textual interpretation provided for in the Vienna Convention at the dispute settlement stage: on the one hand, the meaning of the text is not logically self-evident and the interpretation is not self-contained; on the other hand, ambiguities and confusions in the text conceal the intentions of the contracting parties, which is difficult to serve as a reference for the “ordinary meaning” of the treaty text.

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Thus, it can be seen that the inherent textual defects in China’s Accession Protocol have led to the conundrum of adopting the conventional textual interpretation that is usually relied upon by the DSB. According to the interpretation practice of DSB in other disputes, relatively subjective effective interpretations or evolutionary interpretations will usually be adopted at this time to solve the conundrum of strict textual interpretation not being able to provide a legitimate conclusion. However, as mentioned earlier, in the disputes involving China’s Accession Protocol, other than the two disputes in which effective interpretation and evolutionary interpretation are adopted respectively as a supplement to the textual interpretation, no other disputes adopt such interpretation methods, fully reflecting the self-restraint of the panels and the Appellate Body in the interpretation issue of China’s Accession Protocol. Although varying degrees of judicial restraint have also been demonstrated in other WTO disputes, the self-restraint in the interpretation of China’s Accession Protocol by the panels and the Appellate Body roots from the institutional particularity of China’s accession obligations under the Protocol.

4.3.4.2

Intentional Restraint: Institutional Effects

In terms of institutional effect of the accession obligations, the special accession obligations contained in China’s Accession Protocol can be divided into two categories according to their purpose and utility: first, the accession obligations that complement China’s qualifications as a WTO Member (starting obligations); and second, the accession obligations that exceed the general obligations of WTO Members (spillover obligations). Both of them have certain institutional implications, which make the DSB always maintain rational self-restraint when interpreting the relevant accession provisions. Starting Obligations—Balance between Domestic Rule of Law and International Concerns Such obligations relate mainly to China’s market economy system, administration of trade regime and the domestic rule of law (e.g., uniform administration, transparency, judicial review, etc.). Although on the surface, such accession obligations far exceed the level of obligations assumed by the WTO founding Members and other acceding Members, the actual purpose and function of which are to complement the trade administration level of China, as a Member of the WTO to reach the starting line. Thus, for all WTO Members, such obligations are legal and legitimate, the fulfillment of which are consequently highly concerned by other WTO Members, both during the negotiation period and the post-accession period. Since such obligations concern all aspects of China’s domestic politics and economic system, especially the institutional adjustment of China’s domestic policies and social values, disputes involving such obligations are highly sensitive. Furthermore, the embedded concern in the WTO rules system, over the balance between trade liberalization and other social policy objectives of the Members requires that the DSB objectively and legitimately interpret the WTO rules, including China’s

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Accession Protocol, so as to not only efficiently and amicably resolve disputes, but also respect Members’ regulatory rights. Consequently, the DSB must endeavor to exercise self-restraint in interpreting such obligations, and to remain within the scope of textual interpretation, as it has adopted in its usual dispute settlement practice. Spillover Obligations—Institutional Crisis Caused by Lack of Legitimacy Typical examples of such obligations in disputes involving China’s Accession Protocol include the issue of the scope of the non-discrimination obligation raised in China—Publications and Audiovisual Products, and the issue of the export tax obligation in China—Raw Materials. These are all obligations that go beyond those undertaken by other WTO Members. Although these obligations fall within the scope allowed by Article XII:1 of the WTO Agreement, the legal effect of such obligations constitutes an integral part of the WTO Agreement has led to an institutional crisis in the WTO rule system. On the one hand, the spillover obligations assumed by China as an acceding Member will lead to the fragmentation of the WTO rule system founded upon the principle of non-discriminatory treatment, which will make the originally clearly structured multilateral trade rules system with equal status and uniform obligations of all Members lose its consistency, which in turn will lead to the legitimacy defect of the spillover obligations. On the other hand, due to the lack of clear definition of the legal nature of China’s Accession Protocol, all these scattered spillover obligations cannot be effectively incorporated into the existing WTO rule system and become detached obligations outside the system. According to Article XII:1 of the WTO Agreement, China’s Accession Protocol forms an integral part of the WTO Agreement, but most of the provisions can neither link to the relevant provisions in the WTO Agreement, because the provisions in the WTO Agreement do not involve trade administration matters, such as tariffs, trade rights, subsidies, etc., nor can they specifically link to the relevant provisions of the MTAs in the annex to the WTO Agreement, because they do not constitute an integral part of the MTAs. Thus, once a dispute arises in relation to such spillover obligations, the DSB would have to face an institutional conundrum as to the relationship between the spillover provisions and the provisions of a particular Multilateral Trade Agreement, such as the issue whether Article XX of the GATT 1994 can be applicable to the WTO-Plus obligations in China’s Accession Protocol, which in essence, is the issue of the legal nature of China’s Accession Protocol. Given the fact that such issues root in the loopholes in the WTO legislative process, and that according to the DSU, the DSB has no law-making power, so “even if the WTO adjudicator can exercise judicial activism, but in light of the fact that the applicability of the general exceptions of GATT 1994 directly touches on the legitimacy of the WTO, choose strict textualism and exercise ‘judicial economy’ would be a more subtle solution”.157

157

Liu (2015), p. 142.

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Interpretation is to some extent more of an art than a science. This is because there is no superiority or inferiority of methods of interpretation, nor is there a difference between right and wrong in terms of the outcome of interpretation. When examining the interpretation of a treaty, the usual criterion is whether it truly reflects the intention of the parties, but it should not be overlooked that whether it is through the examination of the meaning of the text in order to determine the contracting intention of the parties or the presumption of contracting intention and then inferring the meaning of the text, the ultimate goal is to serve the needs of dispute settlement. Therefore, when interpreting a treaty in the DSM, the method of interpretation adopted should take into account both the objectivity of the conclusion of the interpretation and the legitimacy of the result of the interpretation, which is precisely the boundary between treaty interpretation and judicial law-making, i.e., the critical point of the DSB as to whether it exerts judicial activism in interpreting the law. Therefore, on the issue of interpretation of China’s Accession Protocol, the panels and the Appellate Body have always upheld self-restraint, closely followed the textual interpretation and tried very hard to avoid the subjective interpretation of China’s accession obligations, which have an institutional effect.

References Bjorge E (2014) The evolutionary interpretation of treaties. Oxford University Press Fang D (2011) The abandonment of text: a correction of the interpretation of WTO treaty. Sci Law 2011(3):142 Gu B (2015) Obvious errors and necessary corrections in the report on the WTO rare earths dispute. J Int Econ Law 2015(3):95–96 Han XL (2014) Legal effect of the accession protocol: focusing on China’s accession protocol. Glob Law Rev 2014(2):22–23 Hu JX (2014) Legal nature of China’s accession protocol. Contemp Law Rev 28(2):151–152 Jackson JH (2009) Sovereignty, the WTO, and changing fundamentals of international law. Cambridge University Press, p 187 Janow ME, Donaldson V, Yanovich A (eds) (2008) The WTO: governance, dispute settlement & developing counties. Juris Publishing, New York Jin YL (2017) Logic. Beijing Institute of Technology Press, Beijing, p 5 Kennedy M (2013) The integration of accession protocols into the WTO agreement. J World Trade 47(1):66, 75 Lauterpacht H (1949) Restrictive interpretation and the principle of effectiveness in the interpretation of treaties. XXVI BYBIL 48:68 Li HP (2003) Introduction to the law of treaties. Law Press, Beijing, p 378 Liu Y (2014) Treaty conclusion procedure and the legal nature of accession protocol. Glob Law Rev 2014(2):15–16 Liu XH (2015) Applicability issue of article XX of GATT 1994 in China—Rare Earths. Wuhan Univ Int Law Rev 18(1):131–153 Liu Y (2016) Interpretation of China’s accession documents in the WTO dispute settlement. J Shanxi Univ (Philos Soc Sci Ed) 2016(5):113 Parenti A (2000) Accession to the world trade organization. Legal Issue Econ Integr 27(2):156 Qin JY (2015) The conundrum of WTO accession protocols: in search of legality and legitimacy. Va J Int’l L 55(2):402

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Chapter 5

Evaluation and Re-evaluation of the WTO Dispute Settlement Practices in China

5.1 Different Evaluation of Dispute Settlement Practices in China When it comes to the evaluation of unique pattern and problems in the dispute settlement practices in China, theorists and academicians developed two disparate opinions respectively.1

5.1.1 Negative Evaluation Those who basically hold a pessimistic standpoint and negative evaluation on China’s participation in the WTO dispute settlement believes that China’s promises to the WTO varied greatly from its following practices. To put it in detail, when China became an official member of the WTO on 11 Dec 2001, many leaders of intelligentsia and politics posed sufficient confidence in China’s active fulfillment of its international obligations. To a certain degree, this confidence was mainly built on two premises. The first premise was the superiority of the market mechanism. Joining the WTO indicated that China would be bound by a global competition mechanism, which was led by the market mechanism. It was expected that only the fittest could survive in the market mechanism, indicating that any actions and practices that did not fit it would be punished. If China persisted in a system that did not match the market mechanism, it would eventually fall behind in the global market. Under the pressure of market mechanisms, it was highly likely that China would eventually accept and practice the free market and trade liberalization of the Washington Consensus. The second premise was the superiority of the WTO mechanism. The major functions of the WTO included negotiation, policy monitoring 1

See Ezell and Atkinson (2023).

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2024 B. Xiao et al., The Practice of WTO Dispute Settlement, Modern China and International Economic Law, https://doi.org/10.1007/978-981-97-0185-8_5

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and dispute settlement. Through a multilateral negotiation mechanism, the WTO could further facilitate China’s promise of trade liberalization. Through an intensive trade monitoring mechanism (8 years before China joined the WTO, 1 monitoring annually), the WTO could further reveal the differences between China’s trade system and WTO rules, after which a peer review would be conducted to force China to proceed with reforms of its domestic system. Through DSM, the WTO could correct the specific trade policies that were by WTO rules, which would help protect the trade interests of other WTO members.2 However, despite revisions of several domestic laws, regulations and trade policies after joining the WTO, China did not eliminate the trading system with Chinese characteristics under the double pressure of market power and the WTO, which was different from what the optimists had been anticipating. For instance, the state-owned enterprises, which had always been criticized by developed liberal nations such as the U.S. and the EU, continued to operate steadily after the Reform and Openingup. Among the world’s top 500 enterprises, the number of Chinese enterprises was second only to the U.S., most of which were state-owned enterprises, becoming a core component of the so-called state capitalism.3 Another example was that, according to the regulation of Paragraph 3.3 of China’s Accession Protocol, “China shall eliminate all subsidy programme falling within the scope of Article 3 of the SCM Agreement upon accession”. But according to relative subsidy disputes, China did not actually fulfill such obligations. Based on the above consideration, some pointed out that China, by joining the WTO, merely wished to use the multilateral mechanism to protect itself from the attacks by unilateral protectionism of other countries, instead of being integrated into the WTO system as promised. Facts proved that China’s trade deficit with its major trade partners ascended. Moreover, China could greatly reduce its trade cost after joining the WTO, which would help upgrade its persistent mercantilist trade surplus policies, entering the so-called Innovation Mercantilism phase. In this period, China would seek to support domestic producers at the cost of foreign4 competitors, obtaining medium-end and high-end positions in the global value chain. Apart from the accusation above, people with negative evaluations further conclude that the current WTO system is not capable of preventing China from abusing WTO mechanisms for its own interests. Such is exceptionally the case when it comes to DSM since relevant adjudication seeks to push things forward instead of blocking them. In such cases, the worst outcome will be the revocation of illegal actions. Concerning compensation will also be calculated based on the interest loss of the complainant. It is almost certain that such regulation will encourage China to adopt the theory of efficient breach in its actions in order to protect national interests to the maximum.5 Apart from that, there might be serious time-lag problems 2

Panitchpakdi and Clifford (2012). Li and Milhaupt (2013). 4 See Atkinson et al. (2017). 5 Concerning the “efficient breach”, see Morrison (1994), Posner and Sykes (2011), Sykes (1991), Trachtman (1997). 3

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when solving trade disputes through DSM. It normally takes 2–3 years to finish the process from raising a dispute to solving it. Therefore, the current DSM is neither capable of eliminating the systematic inequality between the accuser and the accused caused by the theory of efficient breach, nor can it eliminate the free pass phenomena caused by time-lag problems. The current WTO system is powerless against China’s opportunist actions.6

5.1.2 Positive Evaluation People with positive evaluation takes a relatively optimistic stand and positive comment on China’s participation in the WTO dispute settlement. They tend to view China’s joining the WTO, especially participation in the WTO dispute settlement, as international socialization of China’s foreign trade system. International socialization refers to “process that is directed toward an state’s internalization of the constitutive beliefs and practices institutionalized in its international environment”.7 To put it simply, international socialization is not only a process but also a result. As a process, it can evaluate by comparing the instrumental rationality and motivation of China’s joining the WTO and China’s actual concession and cost during participation. As a result, it can make an evaluation based on China’s international actions and the execution of international regulations through domestic legislation and social practices.8 When China joined the WTO, academia and practitioners held different opinions on it, especially the international socialization function. On the one hand, the WTO ensured compulsory jurisdiction of the DSB. China’s rapid economic growth and traits of its economic system may bring about numerous trade disputes, which indicated a relatively high possibility for China to be regulated by DSM. Such cases provided an opportunity for the international socialization function of the WTO dispute settlement to take its role. On the other hand, China’s cultural tradition of non-litigation and historical opinions on international dispute settlement indicated that China would avoid DSM when solving trade disputes. It limited the facilitation of the international socialization function of the WTO dispute settlement. Regarding this controversy, optimistic commentators believed that even if China avoided DSM, contracting parties of the GATT or members of the WTO would also take the potential regulative effect of DSM into consideration based on previous experience.9 Apart from that, the evaluation criterion of international socialization included both the process and the result. Even if one of the original purposes and motivations of China joining the WTO was to counter American unilateralism and trade protectionism through the WTO system, such realpolitik consideration should still be based on 6

See Harvard Law Review (2011). See Schimmelfennig (2000). 8 See Kent (2002). 9 See Busch and Reinhardt (2000). 7

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China defending the existence of the WTO system and the effectiveness of its function. It meant that when China asked America to play by international rule, it must also shape its actions according to the international rule.10

5.2 Interpretation on Tactics of Practice Mode in China 5.2.1 A Conclusion of Tactics of the WTO Dispute Settlement Practice in China By observing China’s participation in the WTO dispute settlement practices, China posed a relatively negative skeptical attitude at an early phase. Yet with a growing understanding of DSM, China changed its attitude to protect its interest by actively questioning the interpretation of WTO rules of other members through DSM. Some scholars and officials in charge of China’s WTO litigation in Geneva realized that WTO members had innate inequality in the ability to use DSM. Nations such as members of the EU, America, Canada and Australia enjoyed advantages due to their original edges and rich experience. Brazil, India, Argentina and Japan were also gradually familiarizing themselves with the WTO litigation rules and methods. China, however, joined the WTO relatively late. The only way for China to quickly improve its litigation ability was to learn through practices. Research showed that with proper litigation strategies and skills, some complainants could greatly complicate the problems and expand contents, even though the legal and factual issues of these cases were relatively simple. Such measures could add to the competitiveness and thinking burdens of the relevant cases. As the complainant, one should try best to expand the range of accusation measures and protocols violated. As the defendant, one should try to come up with as many facts and legal reasons as possible. Despite potential sophistry within these reasons may increase investigation difficulty, win compassion and cause distraction or delay, it was still acceptable when it comes to protecting interests.11 Based on the instrumentalist interpretation of DSM, China is also learning and adopting similar litigation strategies and skills of other members in its practice. It can be divided into the following categories: First, China will delay litigation, if the legal and factual issues of the controversy are relatively easy, yet concerning the survival and development of crucial industries. One example was China-Auto Parts. Faced with the appeal conducted by Canada, the EU and the U.S., China did not resolve the problem through reconciliation. Instead, it went through the whole process of consultation, panel reports, appellate reports and implementation, which eventually ended on 31 August 2009.12

10

See Harpaz (2010). Ji and Huang (2006). 12 China—Auto Parts (DS339, DS340, DS342). 11

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Second, China will pay particular attention to the clarification and application of relevant rules, if the legal and factual issues of the controversy are relatively complex. One example was China-Intellectual Property Rights, which involved criminal law, administrative law and copyright law aspects of intellectual property rights protection. The panel, after examination, believed that Chinese criminal law, as well as the criminal procedure and punishment criterion regulated by judicial interpretation of the Supreme People’s Court, did not directly violate Article 61 of the TRIPS Agreement. In this case, the panel clarified the definition of commercial scale, indicating that one nation should abide by the criterion of “magnitude or extent of typical or usual commercial activity with respect to a given product in a given market” to determine whether a tort reached a commercial scale. Therefore, China successfully secured the power of regulating commercial scale based on the domestic situation. Moreover, the panel further adjudicated that Articles 51–60 of the TRIPS Agreement were not suitable to be applied to custom measures regarding export. Apart from the mentioned adjudication that favored China, the panel determined that China violated the TRIPS Agreement in the following two respects. First, despite Article 59 of the TRIPS Agreement did not prohibit auctions of imported infringing goods, permission to sell goods that merely removed their brands did not match the exceptions regulated by Article 46. Second, though Article 17 of the Berne Convention for the Protection of Literary and Artistic Works (hereafter the Berne Convention) admitted that China had the right to prohibit works from circulation or exhibition, it did not indicate that relevant works did not deserve to be protected by copyrights. China’s action of refusing to provide copyright protection to works with illegal content violated Article 5(1) of the Berne Convention (integrated into the TRIPS Agreement through Article 9.1 of the TRIPS Agreement) and Article 41.1 of the TRIPS Agreement.13 Compared to the China-Intellectual Property Rights case, China-Publications and Audiovisual Products case were more complicated. It involved not only common obligations of the GATT 1994 and the GATS but also special obligations of China’s Accession Protocol, as well as systematic issues concerning relationships between China’s Accession Protocol and the GATT, posing great influence on China. In this case, China set a restriction on the import and distribution of particular publications and audio-visual products. The U.S. believed that such measures violated obligations regulated by WTO rules (including China’s Accession Protocol). Panels and Appellate Body agreed that China violated the promise of trade rights regulated by China’s Accession Protocol. Yet panels were evasive on the question of whether China could quote exceptions in Article 20(a) of the GATT 1994 to justify the issue of non-fulfillment of obligations regulated by China’s Accession Protocol, as well as the issue concerning relationships between the GATT 1994 and China’s Accession Protocol. The Appellate Body, however, believed that it depended on the concrete regulations of concrete paragraphs of China’s Accession Protocol to determine whether it was valid to quote Article 20 of the GATT 1994. There should not be a generalized conclusion. In this case, China could quote Article 20(a), yet it would fail since relevant measures did not satisfy the necessary conditions listed in this 13

China—Intellectual Property Rights (DS362).

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article. The Appellate Body supported the opinions of the panels on the issue that China prohibited foreign investment enterprises to participate in the distribution of sound recordings. Since then China’s market access and national treatment promise about the distribution of sound recordings included electronic sound-recording products.14 In this case, the appellate introduced the technological neutrality principle, which had a long-lasting impact on the future international regulation of electronic commerce.15 In September 2008, China launched a WTO dispute settlement consultation on the anti-dumping and countervailing investigation, conducted by the U.S., on China’s imported goods. This case involved complicated legal issues and theoretical controversy including but not limited to public institutions, specificity, calculation of countervailing and double remedies.16 Even though DSB established a panel in January 2009, it was not until October 2010 did the panel distribute reports to the members. The interval far exceeded the maximum time limit of 9 months, regulated by Article 12.9 of DSU. Third, China largely relies on reconciliation, seeking to resolve problems through consultation and reconciliation, when it comes to sensitive cases. For instance, in February 2007, the U.S. and Mexico required to hold a consultation with China on the topic of China tax laws. Since this controversy involved newly issued the Law of the People’s Republic of China on Corporate Income Tax (hereafter Corporate Income Tax Law), it was of great sensitivity.17 In February 2008, an agreement was reached by China, the U.S. and Mexico, allowing the Corporate Income Tax Law to be carried out. There was also another example. In March and June 2008, the EU, the U.S. and Canada respectively requested consultations with China. They believed that China’s measures influenced the financial information services, as well as the interests of foreign financial information providers. Since this case involved a highly sensitive issue of financial regulation,18 it was not until 4 December 2008 did the four sides reached reconciliation.19 Fourth, the trade disputes are suspended after the heatedly-discussed controversy disappeared, mostly when it comes to affairs of specific prescriptions. China, as the complainant, raised a request for consultation of the WTO dispute settlement to the US in 2002. It requested another consultation in September 2007, believing that the anti-dumping and countervailing duty determination on imported Chinese coated free sheet paper conducted by the U.S. violated WTO regulations.20 The reason why China made a request was that the U.S. Department of Commerce changed its actions which had lasted for years. They initiated an anti-dumping and countervailing investigation on imported Chinese products, the later influence of which may cover a 14

China—Publications and Audiovisual Products (DS363). See Peng (2018). 16 See Peng (2013), Yi (2018). 17 See Peng (2008). 18 See Peng (2011). 19 China—Finance Service (DS372, DS373, DS378). 20 United States—Preliminary Anti-Dumping and Countervailing Duty Determinations on Coated Free Sheet Paper from China (DS368). 15

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wide range of different industries.21 As the defendant, nations including the U.S., Mexico and Guatemala made a request for consultation concerning China’s encouraging measures, including funding and loans to corporate.22 Yet all the mentioned cases did not proceed to the panel phase. They remain in consultation. It can be concluded that there are three obvious features in China’s tactic modes formulated in the WTO dispute settlements: first, a gradual transition from negative attitudes to positive attitudes; second, different choices of tactics are based on different kinds of cases; third, a preference to clarify or reshape rules with the help of DSM.

5.2.2 Interpreting Theoretical Approaches of the WTO Dispute Settlement Practice in China There are two different theoretical approaches on the interpretation on China’s participation in the WTO dispute settlement. One approach prefers abstract conclusion, believing that the unique phenomena and behavior pattern of China’s participation in the WTO dispute settlement originate from one universal abstract principle. The so-called uniqueness is nothing but one of the diverse expressions of the abstract principle. The core of such uniqueness remains unchanged. The previous cultural explanation, historicism explanation and core interests explanation all belong to this category. The other approach prefers objective elucidation, believing that it is the objective facts that formulate the unique phenomena and behavior pattern of China’s participation in the WTO dispute settlement. The so-called uniqueness is just an expression of the object situation of the society. If scholars describe the features of China’s participation in the WTO dispute settlement with wordings like objectivity, subjectivity, rule follower or rule makers, they belong to the second approach. Commonly speaking, the function of scientific theories is to provide order and meanings to a myriad of phenomena, making it simple to describe, understand and predict. Without such theory, concerning phenomena remain separated and clumsy.23 Therefore, the science of a theory is based on the following two negative conditions. First, it should not be so abstract that relevant theories can’t tell the differences between the phenomena to be explained and other phenomena with similar features. For instance, the non-litigation cultural originated from Confucian tradition, which was popular all across East Asia. It still has great influence in Japan and Korea. Though China, Japan and Korea are all modern states, the non-litigation cultural explanation cannot effectively tell the difference between the uniqueness of China’s

21

See Peng (2015). China—Grants, Loans and Other Incentives (DS387, DS388, DS390). 23 See Morgenthau (1952). 22

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participation in the WTO dispute settlement and that of Japan’s/Korea’s participation in the WTO dispute settlement.24 Second, it should not be so concrete that relevant theories are capable of describing phenomena to be explained but incapable of understanding phenomena and predicting changes. For instance, it is inspiring to describe China as the rule follower or the rule maker, depending on the different situations of China’s participation in the WTO dispute settlement. Yet that is all the description has to offer. Readers can hardly receive any beneficial theoretical insights from the identity label of a rule follower or rule maker, let alone conduct rational prediction.25 In view of that, after a compendious description and conclusion of the unique phenomena and behavior pattern of China’s participation in the WTO dispute settlement, it is necessary to conduct a deeper theoretical analysis to discuss the fundamental mechanism of such unique phenomena and behavior patterns. At the same time, we should avoid broad words like non-litigation culture, historicism and core interests to establish a middle-range theory.26

5.2.3 Three Perspectives of Interpretations of the WTO Dispute Settlement Practice in China 5.2.3.1

Aggressive Legalisms Perspective: A Tactical Dynamic Perspective

The word aggressive legalisms is usually contrasted with aggressive unilateralism.27 It was first adopted to analyze the origin of the uniqueness of Japan’s participation in the GATT and the WTO dispute settlement.28 To put it in detail, it referred to Japan’s transition from a long-term negative stand to a more active and conscious approach. Japan used substantive WTO regulations to counter inappropriate actions, requirements and practices of its major trade partners. To put it in another way, Japan transferred legal regulations of the WTO Agreements into instruments of power and persuasive means to counteract, in a justified way, others’ actions with the help of

24

An alternative interpretation is that China’s participation in the WTO dispute settlements has no uniqueness. 25 There are numerous concerning labels, yet most of which are merely descriptive. See Mercurio and Tyagi (2011). 26 “Middle-range theory” refers to a concept of Morton. See Merton K (1949) Social theory and social structure. Chinese edition: Merton (1949), p. 51 (claiming that middle-range theories are “theories that lie between the minor but necessary working hypotheses that evolve in abundance during day-to-day research and the all-inclusive systematic efforts to develop a unified theory that will explain all the observed uniformities of social behavior, social organization, and social change”). 27 Concerning the concept of aggressive unilateralism, see Bhagwati (1991), p. 48; concerning the concept of aggressive legalism, see Pekkanen (2001). 28 See Pekkanen (2001).

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DSM. Substantive regulations of International laws were used as shields and spears. These actions of the Japanese government were named aggressive legalisms. Typical Examples of Aggressive Legalisms: Japan, South Korea Interpretation on Japan’s Practices Over the 30 years from joining the GATT in 1955 to the beginning of the Uruguay Round in 1986, Japan had been avoiding adopting the GATT dispute settlement mechanism. Even if the GATT contracting parties raised relevant litigation to Japan, Japan sought to solve the issue through bilateral consultations.29 In 1988, after winning as the defendant in the case about tariff on imports of spruce-pine-fir dimension lumber, Japan changed opinions on the GATT dispute settlement mechanism. In this case, Canada, as the complainant, accused Japan of enforcing higher taxation on imported Canadian spruce-pine-fir compared than on same products from the US. This action violated regulations of most-favored-nation treatment in Article 1 of the GATT 1947.30 The panel of this case adjudicated that Canadian failed the lawsuit for not being able to provide sufficient evidences. It was the first time for Japan to win a lawsuit in the GATT, which brought about influences on two respects domestically. First, the fairness of the GATT dispute settlement mechanism was verified, which helped to change the negative opinions of Japanese protectionists on the GATT. Second, Japan could use the GATT dispute settlement mechanism to counteract foreign accusation and pressure. After the establishment of the WTO, Japan followed the guidance of aggressive legalisms. On the one hand, the Japanese government used substantive regulations as shields to protect its measures, regardless of what other trade partners categorize them. On the other hand, the Japanese government used substantive regulations as spears to accuse other WTO members of relevant affairs. The Japanese government gained a series of advantages with the establishment of aggressive legalisms. First, it could conduct legal refutation against unreasonable requirements or requirements that damaged Japanese interests from its major trade partners, counteracting pressure from foreign governments. Second, it adopted laws to solve trade disputes in order to separate micro trade dispute settlement from macro trade policies, political policies or military alliances. Third, clarification on relevant substantive regulations improved transparency and openness of trade between Japan and its major trade partners. Fourth, the Japanese government supported its trade proposition based on aggressive legalisms strategies and international substantive regulations, improving the legality and legitimacy of relevant appeals. The following explaining theories make complement the reason why Japan evaded the trade dispute settlement mechanism in the 30 years after becoming a GATT contracting party. Yet they also leave some new questions. The first theory is the non-litigation culture theory, which has been widely applied to East Asia society. The reliability of this theory must be verified based on a comprehensive analysis of China 29

For instance, before 1986, Japan participated in 11 cases as defendant. All but one of them were solved through bilateral consultations. 30 GATT (GA 1988, pp. 79–80); and GATT (BISD 36th Suppl. 1988–1989), pp. 186–93, 198–199).

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and South Korea’s participation in the WTO dispute settlement. As mentioned above, not long after China joined the WTO it participated in litigation against the U.S. This exception seemed inexplicable to the theory of non-litigation culture. The second one is the theory of invocation of Article XXXV against Japan at its accession. This theory said that some countries invoked Article XXXV of the GATT 1947(Non-application of the Agreement between particular Contracting Parties) when Japan joined the GATT. Because of that, Japan could not solve trade disputes with nations of this category through the dispute settlement mechanism. The problem with this theory was that there were other nations that did not invoke Article XXXV against Japan. Yet Japan did not raise any official dispute settlement with these nations either.31 The third theory is based on the trade surplus of Japanese current accounts. It said that “Japan’s permanent trade surplus puts the government in an awkward position in aggressively demanding access to foreign markets”.32 Yet it did not elucidate the reason why Japan did not raise any litigation against other nations in the 1960s when Japan was faced with trade deficits. The fourth one is the so-called glasshouse theory of revenge prevention. This theory was based on one fundamental principle that people living in a glasshouse should not throw rocks. To put it in another way, the trade management system of Japan violated the GATT 1947 in various aspects. If Japan raised legal controversy, it could bring about legal litigation from other nations.33 This theory, however, could only explain the reason why Japan was unwilling to become a complainant. It could not explain why Japan did not use existing laws and regulations to defend its interests even as the defendant. The fifth theory is about the language barrier and legal system barrier. This theory said that effective participation in trade dispute settlement institutions demanded a relatively high level of linguistic ability and legal abilities. The language and legal system adopted by the GATT favored the Common Law Systems. The problem with this theory was that a nation could enhance both linguistic and legal abilities with exterior resources. It is worth mentioning that all the influential factors mentioned in the theories above change as time goes by and changes in exterior environments. For instance, the influence of non-litigation culture will gradually decline as the rule of law progresses and the citizens’ awareness of regulations enhances. To put it in detail, the core of non-litigation culture is prioritized harmony. Under the influence of the rule of law, the relevant harmony should be based on regulations. If litigation lays emphasis on the process and the clarification of regulations, then conducting litigation helps society reach a level of harmony. Take Article XXXV of the GATT 1947 as an example. At present, no nations apply measures of non-application to Japan, leaving no impact on the way Japan seeks to resolve trade disputes with other WTO members. Take the trade surplus theory as an example. With the WTO absorbing service trade into the range of trade, the protection of TRIPS, and the formulation of the global value chain, the calculation of trade surplus based on final products can no longer reflect 31

Araki I Beyond aggressive legalism: Japan and the GATT/WTO dispute. In: Matsushita M, Ahn D (eds) WTO and East Asia: new perspectives. Cameron May, London, p. 150. 32 Yamane (1998). 33 Trebilcock and Howse (1999).

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the authentic trade surplus level. Therefore, the inference, merely based on existing trade surplus, that a nation can tolerate trade restrictions from another nation is not precise. It is more likely that a nation with a trade surplus obtain a relatively small part of the income of the global value chain so it must rely on advantageous trade condition to maintain its minimal income. Take the glasshouse theory as an example. The case of subsidies to aircraft indicates that one nation can still accuse another nation’s action as illegal, despite having similar problems itself, which can lead to possible retaliatory litigation.34 Lastly, take the theory of linguistic and legal ability as an example. It is possible to narrow the gap either through a combination of short-term utilization of exterior resources and long-term optimization of exterior and interior resources. Therefore, given that the factors that influence Japan’s adoption of aggressive legalisms may change as time and the exterior environment alter, aggressive legalism has vitality. One of the key reasons why Japan did not apply such a strategy for quite a long time to protect its interests through international substantive regulations and to accuse other trade partners of taking illegal measures was that the condition for adopting such a strategy was not sufficient. Japan would take aggressive legalism once the time was ripe. Interpretation on South Korean’s Practices South Korea became a GATT contracting party in 1967. For a long time, it adopted a utilitarian approach to avoid making trade disputes enter formal dispute settlement procedures, just like Japan. If a trade dispute entered the dispute settlement procedures, South Korea always sought to resolve controversy through bilateral measures.35 Even though Korean products had always been affected by trade restrictions issued by its major trade partners, including the U.S., the EU, Canada and Australia, few of those restrictions were solved through dispute settlement mechanisms.36 Some scholars listed the following reasons to explain the cause of South Korea’s negative stand at the early phase of the GATT accession. First, the lack of capability and resources. The Korean government lacked capable officials to handle technical problems in complicated GATT legal controversies. Second, the influence of nonlitigation culture. Traditionally, South Korea considered solving problems through international dispute settlement as a failure of diplomatic policies, which could bring about negative comments. Third, the existing trade surplus. For a long time, South Korea enjoyed a continuous trade surplus with its major trade partners. This situation led to a lack of political will to raise relevant international controversy and to eliminate relevant trade restrictions. With the establishment of the WTO, the South Korean government gradually changed its behavior mode, utilizing DSM to defend its rights. It was worth mentioning that the Korean government still preferred to solve litigation, which was 34

See Kienstra (2012). South Korea were defendants in merely two cases during that period: (Korea—Beef I case and the Korea—Polyacetal Resins case); one case as the complainant: (EC—Korean Television Sets case). 36 Ahn (2003). 35

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raised by other WTO members against South Korea, through consultations during such transition. Therefore, like Japan, South Korea took the aggressive legalism stand when the time was ripe. It utilized substantive international regulations as shields to protect the legality of its own actions, responding to accusations from other WTO members. At the same time, it also used substantive international regulations as spears to accuse other nations of violating WTO rules. Aggressive Legalism and Unique Practices of China Aggressive legalisms can explain the features of different stages during the gradual transition of behavior mode from negative to positive in China’s participation in the WTO dispute settlement. As an East Asian country, China, similar to South Korea, had problems such as a lack of ability and resources, the influence of non-litigation culture and the existence of a trade surplus. Theoretically, aggressive legalism could explain relevant practices of China, on condition that it could explain the uniqueness and behavior pattern of South Korea’s participation in DSM. One of the issues to be further explained is how should we view the fact that China, as a complainant, participated in and won a case of America’s protective measures at the initial phase of joining the WTO. China utilized international trade regulations to protect its interests and accused another of violating the WTO Agreement. It seemed that such actions matched aggressive legalism. The problem was that China did not raise any litigation against other WTO members for quite a long time. When faced with accusations from other members, China preferred to settle trade disputes through bilateral consultations instead of a multilateral dispute settlement mode. Therefore, there was one thing to be made clear, if one wished to analyze DSM practices, which China participated in, with aggressive legalisms. It must be explained why the US— Steel Safeguards case was different from later cases appealed by China. In other words, China’s participation in the US—Steel Safeguards case did not mean that China had adopted an aggressive legalisms trade strategy.37 US—Steel Safeguards originated from a request by the U.S. trade representative, after which the US International Trade Commission launched an investigation on the safeguard measures of steel products. In May 2005, the U.S. President signed proclamation 7529, conducting 11 different safeguard measures on 15 steel products. These measures caused widespread dissatisfaction among America’s major trade partners. The DSB set up panels respectively on 3 June 2002, 14 June, 24 June, 8 July, and 29 July, in response to the request from the EU, Japan, South Korea, China, Switzerland, Norway, New Zealand and Brazil. In July 2003, the panel released the reports, adjudicating that the US did not offer reasonable and sufficient explanations for its decisions. All the safeguard measures violated the WTO regulations. In November 2003, the Appellate Body upheld the adjudication of the panel.38 37

See Gao (2005), p. 324. See Appellate Body Reports, US—Steel Safeguards, WT/DS248/AB/R, WT/DS249/AB/R, WT/ DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/ DS259/AB/R, adopted 10 December 2003.

38

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Major regulations involved in this case were the GATT 1994 Article XIX.1 and Article 2, Article 3.1 and Article 4 of the Agreement on Safeguards. According to the GATT 1994 Article XIX.1, “if, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession”. Article 2 of the Agreement on Safeguards regulated that “safeguard measures shall be applied to a product being imported irrespective of its source”. Article 3.1 regulated that investigation should be open and transparent. Article 4 regulated the determination of serious injury or threat thereof. Article 4.2(b) pointed out particularly that, “the determination referred to in subparagraph (b) The determination referred to in subparagraph (a) shall not be made unless this investigation demonstrates, on the basis of objective evidence, the existence of the causal link between increased imports of the product concerned and serious injury or threat thereof. When factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports”. Concerning the issue of “unforeseen development” in the GATT 1994 Article XIX.1, the Appellate Body upheld the adjudication of the panel. It indicated that the investigation agency must provide conclusions after demonstrations on every particular safeguard measure. Since the relevant explanation of ITC did not undergo sufficient and abundant demonstrations, it violated the GATT 1994 Article XIX.1. Concerning the issue of “parallelism” in Article 2 and Article 4 of the Agreement on Safeguards, the Appellate Body still upheld the adjudication of the panel. It pointed out that the measures of the ITC did not meet “parallelism”. The first reason was that the ITC should view imported products excluded by the safeguard measures as nonrelevant factors. Apart from that, the ITC should provide a united confirmation instead of separate confirmations (or confirmations either without Canada and Mexico or without Israel and Jordan). Only through the mentioned procedures could the ITC determine whether the imported products, excluding those from free trade partners (Canada, Israel, Jordan, and Mexico), met the requirements for the application of safeguard measures. Despite the fact that China participated in the whole process of the US—Steel Safeguards case and won the lawsuit, the case could hardly be viewed as an iconic affair of China’s adoption of aggressive legalisms. The main reasons go as follows.39

39

See Gao (2005), p. 324.

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First, US—Steel Safeguards was a typical representative action, in which 8 WTO members accused the U.S. of violating WTO rules as defendants. Among the mentioned 8 members, the EU, Japan, South Korea and Brazil were relatively active since they were adept users of DSM. Before raising an appeal against America’s steel products safeguard measures, the EU had already participated in 56 cases as the complainant and 34 cases as the defendant. As for Japan, 10 cases as the complainant, 8 as the defendant. For South Korea, 6 cases as the complainant, 11 as the defendant. For Brazil, 17 cases as the complainant, 12 as the defendant. China, however, had just joined the WTO, lacking appeal experience on WTO settlement disputes. It was not until the EU, Japan, and South Korea raised litigation did China alone put forward a requirement for consultation with the U.S. Throughout the procedure, China largely took the same stand as other major complaining parties. Of course China was not the only WTO member to take a secondary position. Norway and Switzerland also showed a relatively low-decent manner. Therefore, in the US— Steel Safeguards case, China took up the role of complainant rather than a third party, which was a milestone of extensive involvement. Yet such a transition of identities did not make China actively participate in litigation. Instead, China mainly participated as followers, receiving outcomes of a successful lawsuit.40 Second, the concerning measures of the U.S. received widespread criticism from international society. China stood alongside the majority of the international community, which would not cause tensions between China and the U.S. Article 11 of DSU required that “a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements”. Article 13 regulated that “each panel shall have the right to seek information and technical advice from any individual or body which it deems appropriate”. Meanwhile, “panels may seek information from any relevant source and may consult experts to obtain their opinion on certain aspects of the matter”. Therefore, the widespread criticism of America’s steel products safeguards measures from the international society and the consensus reached under such circumstances were all useful information to the panel. With the majority of the international community condemning the measures by the U.S., China’s participation in relevant dispute settlements as a complainant would pose no negative impact on China-US relations. Third, the legal issues involved in US—Steel Safeguards were relatively simple, most of which had clear verdicts, indicating that it was highly likely for the U.S. to fail the lawsuit. There had been numerous safeguards cases before the US—Steel

40

See Toohey (2011).

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Safeguards case,41 eight of which entered the procedure of panel adjudication.42 Among all the 8 cases, the panel/Appellate Body unanimously believed that all the concerning safeguards measures violated the Anti-dumping Agreement and the GATT 1994 Article XIX. For instance, the Appellate body of Argentina—Footwear (EC), DS121 indicated that “the import restrictions that are imposed on products of exporting Members when a safeguard action is taken must be seen, as we have said, as extraordinary”. “And, when construing the prerequisites for taking such actions, their extraordinary nature must be taken into account”.43 Theoretically, the reason why Article XIX of the GATT and the Agreement on Safeguards allowed the existence of safeguards measures was that such measures could adjust the obligations of the contracting nations to a certain extent. It helped nations join the WTO and facilitate the liberalization of trade.44 Yet in reality, nations tend to adopt safeguard measures due to trade protectionism, instead of viewing them as extraordinary last resort. Since such measures based on protectionism could hardly meet the strict criteria of Article XIX of the GATT 1994 and the Agreement on Safeguards, it was reasonable for the panel/Appellate Body to adjudicate them as a violation of WTO rules. China was sure to win in such cases. Fourth, the U.S., as the defendant in US—Steel Safeguards, also wished other WTO members dissatisfied with America’s measures to settle trade disputes through DSM. This standpoint was related to the relevant regulations of Article XIX of the GATT 1994 and the Agreement on Safeguards. To put it in detail, Article XIX.3(a) regulated: If agreement among the interested contracting parties with respect to the action is not reached, the contracting party which proposes to take or continue the action shall, nevertheless, be free to do so, and if such action is taken or continued, the affected contracting parties shall then be free, not later than ninety days after such action is taken, to suspend, upon the expiration of thirty days from the day on which written notice of such suspension is received 41

United States—Safeguard Measure Against Imports of Broom Corn Brooms (DS78); Korea— Dairy (DS98); Argentina—Footwear(EC) (DS121); Argentina—Safeguard Measures on Imports of Footwear (Indonesia) (DS123); Argentina—Footwear (US) (DS164); United States—Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities (DS166); US— Lamb (DS177); United States—Safeguard Measure on Imports of Fresh, Chilled or Frozen Lamb from Australia (DS178); United States—Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea (DS202); Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products (DS207); US—Wire Rod and Line Pipe (DS214); Chile—Price Band System and Safeguard Measures Relating to Certain Agricultural Products (DS220); European Union (formerly EC)—Tariff-Rate Quota on Corn Gluten Feed from the United State (DS223); Chile—Provisional Safeguard Measure on Mixtures of Edible Oils (DS226); Chile—Safeguard Measures on Sugar (DS228); Chile—Safeguard Measures and Modification of Schedules Regarding Sugar (DS230); Slovak Republic—Safeguard Measure on Imports of Sugar (DS235); Argentina—Definitive Safeguard Measure on Imports of Preserved Peaches (DS238). 42 Chronologically Korea—Dairy, Argentina—Footwear Safeguards, US—Wheat Gluten Safeguards, US—Lamb Safeguards from New Zealand, US—Lamb, US—Line Pipe Safeguards, Chile—Agricultural Products (Price Band), Argentina—Peach Safeguards. 43 See Appellate Body Report, Argentina—Footwear (EC), WT/DS121/AB/R, adopted 12 January 2000, DSR 2000: I, 515, para 94. 44 See Sykes (2003).

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by the CONTRACTING PARTIES, the application to the trade of the contracting party taking such action, or, in the case envisaged in paragraph 1 (b) of this Article, to the trade of the contracting party requesting such action, of such substantially equivalent concessions or other obligations under this Agreement the suspension of which the CONTRACTING PARTIES do not disapprove.

There was a similar regulation in Article 8.2 of the Agreement on Safeguards, which empowered exporting members influenced by safeguard measures to suspend the application of substantially equivalent concessions or other obligations under the GATT 1994 to the trade members applying safeguard measures. Legally speaking, these compensatory articles aimed to balance the interest relationships between the members applying safeguard measures and the members influenced by those measures. To put it into practice, the importing members applying safeguard measures protected the interest of the industries safeguarded at the cost of industries retaliated by other members. If the exporting members influenced by safeguard measures made wise decisions, they could choose high-sensitivity industries as the target of retaliation, which could impose enormous pressure on importing members taking safeguard measures. In such situations, America preferred to transform a bilateral trade retaliation into a multilateral trade dispute settlement. Through the adjudication of a multilateral trade dispute settlement, America could revoke relevant safeguard measures, at the same settling disputes among domestic interest groups. Therefore, China’s joining the group of exporting nations, including the EU, Japan, South Korea and Brazil, helped the U.S. government to relieve domestic political stress. In conclusion, a myriad of mutually-influencing factors led to China’s successfully raising WTO dispute settlement consultation on US—Steel Safeguards, entering panel procedures and winning the lawsuit. Though it seemed China won the lawsuit easily, such success did not effectively encourage China to adopt aggressive legalism in the following 5 years. China did not raise WTO litigation against other WTO members frequently, nor did it utilize substantive WTO rules to protect its interest when faced with requests from other nations. As was mentioned, before 2006 or 2007, China had always intended to settle trade disputes with other WTO members through bilateral consultations. It avoided putting disputes into the WTO dispute settlement mechanism. The core of aggressive legalisms was an active utilization of substantive international regulations. It meant to either adopt them as shields to defend measures of one nation being accused of violating WTO regulations by other WTO members or as spears to accuse other WTO members of violating WTO regulations to protect its national interest to the maximum. Therefore, China’s participation in US—Steel Safeguards did not mark the beginning of adopting aggressive legalisms. Like Japan and South Korea, it was not after ripe conditions that China adopted aggressive legalisms. Aggressive legalisms were a dynamic theory about the process of the WTO dispute settlements, which were actively participated by WTO members based on WTO regulations. This theory helped to elucidate that the standpoint of aggressive legalisms was technically irreversible when a WTO member adopted such standpoint. It also elucidated that, with growing numbers of WTO members adopting aggressive legalisms,

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the regulations clarified, expressed or completed by DSM would have solid impact on trade regulations of WTO members.

5.2.3.2

Differentiation by Systems Perspective: A Utilitarian Choice

The Core Contents of Differentiation by Systems Theory Aggressive legalisms can explain why China gradually took the standpoint of aggressive legalisms similar to that of Japan, South Korea and other WTO members after joining the WTO. Despite that, the theory cannot elucidate the reason why China still took an evasive strategy in some cases, even though China preferred active utilization of WTO regulations to protect its interests. For instance, among all the cases in which China participated as the complainant, 21% of the controversies did not enter the panel procedure. Among all the cases in which China participated as the defendant, 35% of the controversies did not enter the panel procedure.45 Guided by extreme aggressive legalisms, even though a case might have weak legal bases, one WTO member should carry out the whole process of the WTO dispute settlement, taking full advantage of the superiority given by relevant substantive regulation.46 In light of the drawbacks of aggressive legalisms, some scholars come up with the system differentiation theory. It aims to find out what factors may influence a nation’s official participation in the dispute settlement mechanism.47 At the same time, the theory can set forth the reasons why one WTO member may take different settlement measures in different disputes. The system differentiation theory is based on the basic fact that the fundamental rules and procedures are the same in all trade dispute settlements for all WTO members. Yet only a limited number of WTO members will actively participate in them. This theory believes that the following three factors lead to few nations adopting aggressive legalisms. First, DSM demands the self-representation of WTO members. One WTO member must possess enough resources to monitor and confirm the existence of a violation of WTO rules. At the same time, the member must be capable of conducting WTO litigation to protect damaged rights. DSB is a WTO-member-driven dispute settlement agency. Only WTO members can become the complainant, defendant or third party. The major motivation for a nation to raise WTO litigation comes from companies or industry organizations.48 Some countries provide domestic communication mechanisms or even encourage companies/industry associations to convey 45

Four cases did not enter the Panel procedure: United States—Preliminary Anti-Dumping and Countervailing Duty Determinations on Coated Free Sheet Paper from China (DS 368); European Union and certain Member States—Certain Measures Affecting the Renewable Energy Generation Sector (DS 452); European Union—Measures Affecting Tariff Concessions on Certain Poultry Meat Products (DS 492); United States—Measures Related to Price Comparison Methodologies (DS 515). 46 See Harvard Law Review (2011), pp. 602–603. 47 See Bown (2005). 48 See Bossche and Zdouc (2017), p. 184.

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their appeal to the government.49 Yet it is still up to the government to decide whether to submit relevant controversies to the WTO dispute settlement procedures.50 Companies, industry associations or international organizations could neither become complainant/defendant, nor could it participate in consultations,51 become a third party or participate in the reviewing process of the panel/Appellate Body.52 Second, DSM eventually relies on the self-enforcing mechanism of WTO members to execute adjudication. It indicates that the winning complainant must have the relevant capability to take retaliatory measures to impose threats to add relevant economic cost on the failed defendant which did not carry out the WTO adjudication. According to Article 3.7 of DSU, “the first objective of the dispute settlement mechanism is usually to secure the withdrawal of the measures concerned if these are found to be inconsistent with the provisions of any of the covered agreements”. “The last resort which this Understanding provides to the Member invoking the dispute settlement procedures is the possibility of suspending the application of concessions or other obligations under the covered agreements on a discriminatory basis vis-à-vis the other Member, subject to authorization by the DSB of such measures”. Article 22 of the DSU emphasized that “the level of the suspension of concessions or other obligations authorized by the DSB shall be equivalent to the level of the nullification or impairment”.53 Under the theory of free trade, if retaliatory measures damage trade, they will also backfire on the conductors. For instance, in the case of EC—Banana III, DS27, Ecuador was granted to conduct retaliation. Yet it found out that relevant measures may cause enormous damage to its economy. For developing nations, the exact effectiveness of retaliation was doubtful. However, in the case of EC—Banana III, DS27 and the case of US—FSC, DS108, the mutual retaliation by the U.S. and the EC achieved anticipated goals. In the end, both sides revoked measures inconsistent with WTO regulations.54 49

For instance, the EU has Trade Barrier Regulation (Council Regulation (EC) No. 3286/94 on Community Procedures for the exercise of rights under international trade rules, in particular those established under the WTO, OJ 1994, L349, 71, as amended by Council Regulation (EC) No. 356/ 95. OJ 1995, L41, 3); the US has Section 301(a)(1) of the Trade Act 1974, 19 USC 2411(a)(1). China has Rules on Investigation of Foreign Trade Barriers [Decree of the Ministry of Commerce of the People’s Republic of China (2005, No. 4)]. 50 For instance, Article 33 of Rules on Investigation of Foreign Trade Barriers regulates that measures or actions investigated are considered to be trade barriers according to Article 3 of this regulation, the Ministry of Commerce shall take the following measures based on different situations: (1) bilateral consultations; (2) multilateral dispute settlement mechanisms; (3) other proper measures. 51 Article 4.6 of the DSU regulates that “consultations shall be confidential”. 52 Article 11 of the DSU regulated that “panels should consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution;” Article 18.2 regulated that “written submissions to the panel or the Appellate Body shall be treated as confidential, but shall be made available to the parties to the dispute”. 53 In EC—Banana III, the Appellate Body believed that Article 22 of the DSU could not be interpreted as a permission to retaliatory measures. See Decision by the Arbitration, EC—Banana III (US) (Article 22.6—EC) (1999), paragraph 6.3. 54 See Bossche and Zdouc (2017), p. 207.

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Third, when a trade dispute happens between two WTO members with special political relationships, relevant WTO members may take action to avoid official dispute settlement mechanisms. The special political and economic relationship may take the form of one member receiving or having received development subsidies. Another possible situation is that members with disputes happen to be contracting parties of a preferential trade policy. If there are trade disputes among the mentioned WTO members, those who receive development subsidies or those who are inferior economically, politically or culturally tend not to submit the disputes to the WTO, even though they may receive short-term benefits by doing so.55 For the Chinese government, there is a sensitive political and economic relationship between itself and Taiwan region, Hong Kong and Macao. This relationship influences the Chinese government’s willingness to solve trade disputes through DSM. Such willingness will decide to what extent can Taiwan region, Hong Kong and Macao apply DSM.56 In conclusion, despite the application of DSM regulations to all WTO members without any discrimination, the self-representation mechanism, the self-enforcing mechanism and special political relationships pose systematic discrimination against economically disadvantaged countries or weak countries. These countries do not have enough resources to facilitate DSM, nor do they have the capability to conduct solid retaliations on the defaulting party. Some of them also rely on a more powerful WTO member politically. Income Analysis Under Differentiation by Systems Theory Due to the existence of differentiation by systems in DSM, a seemingly objective justice system may lead to different costs and incomes for different WTO members. It means that the decision of whether to participate in the WTO dispute settlements or choices of other settlements made by a WTO member is a rational choice after a comprehensive consideration of the costs and incomes of differentiation by systems. In other words, only when the anticipated incomes exceed the costs will a member consider using DSM. The member will select the defendant based on political relationships with that potential target. Similarly, when a member receives a request for consultation from another nation, it will also analyze the costs and incomes to decide whether to enter the panel procedure. There is one aspect that deserves special attention. The member must decide whether a concession at the consultation phase is enough to protect its interests, considering the possibility of proceeding to the panel procedure.57 Anticipated Benefits Taking the analysis of the costs and benefits of the complaining party as an example, its anticipated benefits of official anticipation in DSM are influenced by three factors. First, the export interests from winning the appeal. Such export incomes include not only direct short-term economic income but also indirect long-term income. 55

See Hoekman and Mavroidis (2000). See Charnovitz (2006). 57 It is worth noticing that solving issues at the consultation phase is bilateral. Therefore it is still biased in its quintessence. 56

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For instance, in United States—Measures Related to Price Comparison Methodologies and European Union—Measures Related to Price Comparison Methodologies, China’s controversy with the U.S. and the EU regarding the definition and the legal results after suspending the non-market provisions Paragraph 15 of China’s Accession Protocol involved two economic interests.58 If China won the appeal, it would greatly increase the possibility of preventing discriminating treatment by major trade partners like the U.S. and the EU conducted on imported products from China. It would help further increase the competitiveness of Chinese products in the international market. From the perspective of exporting interests, in normal conditions, the more important the defendant’s market is, the more likely the complainant will participate in relevant dispute procedures. One typical example was United States— Measures Affecting the Cross-Border Supply of Gambling and Betting Services.59 The complainant was Antigua and Barbuda, one of the smallest nations in the world, while the complainant was the U.S., one of the biggest nations. The scales of the economy of the two parties were disparate. One crucial reason Antigua sought to settle trade disputes with the U.S. through DSM was that gambling and tourism facilitated by gambling were key branches of its economy. Most online gamblers were from the U.S. Therefore, when the U.S. took measures to stop Antigua from providing online gambling services in the U.S., Antigua received catastrophic damage to its economy. Under such circumstances, Antigua could only choose WTO dispute settlement to defend its rights.60 For China, since the major export markets of relevant products were in the U.S. and the EU, raising a WTO dispute, in which the U.S. and the EU were defendants, could ensure the exporting interests of China. Second, the possibility of winning the appeal in relevant controversies. Article XXIII of the GATT 1994 regulates three situations in which benefit is nullified or impaired, to which three different complaints are related. First, the violation complaints are caused by “the failure of another contracting party to carry out its obligations under this Agreement”. Second, the non-violation complaints are caused by “the application by another contracting party of any measure, whether or not it conflicts with the provisions of this Agreement”. Third, the situation complaints are caused by “the existence of any other situation”. The mentioned regulations were adopted by the TRIPS Agreement.61 Article XXIII of the GATS regulates two complaints. First, the violation complaints that “if any Member should consider that any other Member fails to carry out its obligations or specific commitments under this Agreement, it may with a view to reaching a mutually satisfactory resolution of the matter have recourse to the DSU”. Second, the non-violation complaints that “if any Member considers that any benefit it could reasonably have expected to accrue to 58

See Thorstensen et al. (2013). See US—Gambling I (DS285). 60 In fact, US—Gambling I is also the only case raised by Antigua in the WTO. 61 The TRIPS Agreement Article 64.1 regulates that “the provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding shall apply to consultations and the settlement of disputes under this Agreement except as otherwise specifically provided herein”. 59

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it under a specific commitment of another Member under Part III of this Agreement is being nullified or impaired as a result of the application of any measure which does not conflict with the provisions of this Agreement, it may have recourse to the DSU.” When it comes to the violation complaints, Article 3.8 of the DSU regulated: In cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the complaint has been brought to rebut the charge.

When it comes to non-violation and situation complaints, there are relevant regulations in Article 26 of the DSU. According to Article 26.2 of the DSU, “a panel may only make rulings and recommendations where a party considers that any benefit accruing to it directly or indirectly under the relevant covered agreement is being nullified or impaired or the attainment of any objective of that Agreement is being impeded”. Therefore, a member has a greater chance of winning the non-violation complaints, compared to violation complaints and situation complaints.62 All the 20 complaints raised by China were non-violation complaints, which greatly increased the possibility of winning. Third, the possibility of forcing the defendant to revoke measures inconsistent with WTO obligations. Article 23 of the DSU regulates that, “when Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding”. This regulation aims to enhance the multilateral system. WTO members should follow the procedure of compensation and the suspension of concessions in Article 22 of the DSU, no matter what kind of complaints (violation, non-violation, or situation) they are facing. WTO members should “follow the procedures outlined in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations under the covered agreements in response to the failure of the Member concerned to implement the recommendations and rulings within that reasonable period of time”. In a violation complaint, if the defendant does not execute the adjudication in time, the winning complainant can apply suspension of concession authorized by the DSB until the failed defendant revokes relevant measures.63 Yet, in a non-violation or situation complaint, Article 26 of the DSU makes a special regulation. According to Article 26.1(b), “where a measure has been found to nullify or impair benefits under, or impede the attainment of objectives, of the relevant covered agreement without violation thereof, there is 62

See Cho (1998), Frankel (2009), Jackson et al. (2002), pp. 287–288. DSU Article 22.8 regulates that “the suspension of concessions or other obligations shall be temporary and shall only be applied until such time as the measure found to be inconsistent with a covered agreement has been removed, or the Member that must implement recommendations or rulings provides a solution to the nullification or impairment of benefits, or a mutually satisfactory solution is reached”.

63

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no obligation to withdraw the measure”. It means that relevant panel reports cannot be submitted to the Appellate Body. The complainant cannot seek compensation or suspension of concession authorized by the DSB. For China, since all the complaints were violation complaints, it could require the failing defendant to revoke relevant measures. Anticipated Costs Apart from the anticipated benefits from participating in the DSM, a complete analysis of costs and benefits should also investigate the anticipated costs of WTO members participating in the DSM. Relevant costs can be divided into the following two categories. First, the ability of the complainant to pay for the litigation. In normal cases, more attention is given to the cost of the third party participating in the DSM. However, both the complaining party and the defending party should bear the litigation cost. If the complainant chooses to set up a panel after failing to settle disputes through consultation, all the parties of the controversy shall make a formal request in written form with the help of legal experts. The request should “indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly.” Moreover, “in case the applicant requests the establishment of a panel with other than standard terms of reference,64 the written request shall include the proposed text of special terms of reference”.65 If all the parties of the dispute decide to appeal, then the “appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel”.66 Clearly, relevant parties must rely on legal experts to accomplish this difficult mission. For the complaining party, litigation costs include time. In normal cases, it may take 15–18 months to finish the process of consultation, panel establishment, panel review, panel mid-term report, panel reports adopted, the Appellate Body, recommendation on implementation and adjudication.67 Since the relevant measures of the defendant are presumed to be consistent with the WTO regulations during the litigation, those measures will remain functional. Apart from that, even if the complainant wins the appeal, the defendant only needs to revoke relevant measures according to the DSB adjudication and advice. It does not need to pay retrospective compensations, which will encourage it to prolong the appeal process to maximize its interests.

64

According to DSU Article 7.1, the duties of the Panel are “to examine, in the light of the relevant provisions in [name of the covered agreement(s) cited by the parties to the dispute], the matter referred to the DSB by (name of party) in document ... and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s)”. 65 DSU Article 6.2. 66 DSU Article 17.6. 67 See DSU Article 21.5.

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Second, the consideration of political and economic relationships between the complainant and the defendant. DSM can facilitate the transition of the international trade system from power-oriented to regulation-oriented. For those countries influenced by litigation culture, participating in few international adjudications historically, and tending to settle trade disputes through bilateral negotiation systems, solving trade disputes with trade partners through international trade dispute settlements can cause diplomatic confusion and tension. For instance, how China settles trade disputes with WTO members involved in its geopolitics (for instance the Taiwan region, Hong Kong, Macao, Japan, South Korea, ASEAN nations, countries of the Belt-and-Road Initiatives, BRICS, Russia etc.) and how China settle trade disputes with developing nations all deserve consideration on relevant political and economic factors. In theory, legal controversies can be divided from diplomatic policies under a mature system of international laws. Yet from a diplomatic perspective, raising an appeal in WTO is in itself a diplomatic action.68 Over-aggressive legalisms are not beneficial to deepening trade ties among nations. So far, China only raised appeals against the U.S. and the EU, which to a certain extent explains that the political and economic relations among WTO members can affect China’s decisions. If a scholar combines differentiation based on systems with aggressive legalisms, one can discover a pattern within the uniqueness and behavior modes of China’s participation in the WTO dispute settlements. With the establishment of the aggressive legalism standpoint in China, China will fully utilize its resources, as predicted by the differentiation based on system theory, to decide which cases to be appealed to the WTO and which cases to be settled through bilateral approaches at the consultation phase. Meanwhile, the great economic volume of China and the attractive domestic market enhances the reliability of China’s effective measures against the failed party. With the legitimacy authorized by the DSB and powerful retaliatory capability, the possibility of implementing relevant adjudications increases greatly. For any WTO members who win the appeal, real implementation of retaliation may cause internecine consequences. The best approach is to successfully urge the failed defendant to revoke measures inconsistent with the WTO regulations through threats of possible retaliations. The effectiveness of the threats to retaliate under the DSB authorization proves merit. It explains why China raises appeals frequently against Europe and America, after which the defendants will revoke illegal measures under the threats of retaliation.69 It is predictable that, as long as the DSM does not undergo fundamental changes, China will hold aggressive legalisms for a long period. It will effectively utilize substantive international regulations to defend its trade measures or to question the trade measures of other WTO members. It is only through active participation in the DSM that China is gradually integrated into the WTO system.

68 69

See Busch and Reinhardt (2000). See Webster (2014).

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Precedents Shaped by the Minorities Perspective: A Reshape of Rules with Preferences

Precedents Shaped by the Minorities: The Reality of the DSM Similar to most adjudications by international arbitration institutions,70 the WTO Appellate Body reports do not have precedent effectiveness legally.71 Article IX.2 of the WTO Agreement, “the Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements”. While all the parties of the controversy should accept the Appellate Body report approved by the DSB unconditionally,72 according to Article 3.2 of the DSU, “recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements”.73 It is because the Appellate Body is not restricted by constitutions, which are commonly observed in legal systems similar to China’s. Out of democracy or sovereignty concerns, WTO members will not empower the Appellate Body, or to say the unelected judges, with important jurisdiction and legislation. Despite that the Appellate Body does not have precedent effectiveness technically, the panel and Appellate Body are empowered with precedent effectiveness by the approaches of investigation. In US—Stainless Steel(Mexico), the Appellate Body mentioned that “absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case”.74 This adjudication enhances the precedent effectiveness of the relevant explanations of the Appellate Body reports. An online-analysis-based technology analyzed mutual quotations among all the WTO Appellate Body reports (108 in total) before 2013. The results of all the quoting and quoted went as follows. First, the second report always quoted the first report ever since the establishment of the Appellate Body. It showed a strong preference for following precedents. There were altogether 2957 quotations from previous reports among the 108 Appellate Body reports. Second, the factual precedent effectiveness of the Appellate Body reports enhanced as time went by. There was an increase in the number of later reports quoting from previous ones. Third, based on a network of mutual quotations of the Appellate Body reports, all the previous Appellate Body reports were quoted in later ones.75 There were 83 Appellate Body reports quoted more than 10 times among all the 108 reports. 70

Caribbean Court of Justice regulated that adjudications of international arbitration institutes had precedent effectiveness. 71 Concerning the reason why “precedent effectiveness” rather than “doctrine of precedent”, see Bhala (1999). 72 DSU Article 17.14. 73 DSU Article 19.2. 74 See Pauwelyn (2016), pp. 141–172. 75 Due to limitation of the database, the last two cases were not quoted.

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Fourth, the times of one report being quoted by other reports were mostly even. Yet some cases were quoted much more times than other cases. For instance, US-Zeroing (EC) report was quoted more than 232 times.76 Counting the number of Appellate Body reports quoted in one report, no matter how many times they were quoted, the report quoted most by other reports was the one about European Communities— Measures Concerning Meat and Meat Products (Hormones), which was quoted 70 times by other reports. The Japan—Alcoholic Beverages II case was quoted 57 times, second only to the previous case. Fifth, the times of one report quoting other reports were mostly even.77 Yet some reports quoted way more reports than others. For instance, the US—Zeroing(EC) case report quoted other reports 294 times. US—Zeroing(Japan) report quoted other reports 161 times. Counting the number of reports quoted by one report, no matter how many times they are quoted, the most-quoting report was United States—Countervailing and Anti-dumping Measures on Certain Products from China report, in which 76 different reports were quoted. United States—Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China report quoted 66 different Appellate Body reports, falling behind the previous one. Given the examples of quoting and being quoted mentioned, the current Appellate Body reports may be of great importance to future WTO litigation. Without thorough interpretation and understanding of the Appellate Body reports, WTO members can never properly apply certain protocols to certain applicable situations. The mentioned Appellate Body reports were made on specific cases, aiming “at achieving a satisfactory settlement of the matter in accordance with the rights and obligations under this Understanding and under the covered agreements”.78 Therefore, the report “cannot add to or diminish the rights and obligations provided in the covered agreements” due to different participants.79 Yet the key arguments of the Appellate Body reports will emphasize the interpretation and application of the terms, to which different parties pay close attention. Even though articles 31, 32 and 33 of the Vienna Convention of the Law of Treaties, which included general rules for interpreting international treaties, made clear regulations, such instructive regulations do not guarantee a unified conclusion on the interpretation of the treaties applied. More importantly, once the quotation networks of Appellate Body reports are formed, relevant views will be self-reinforced, making it extremely difficult to change any conventional views within those networks. It means that the interpretation of regulations achieved by WTO complaints will influence the settlement of future similar cases. Therefore, analyses of WTO members’ participation in the DSB litigation are helpful to understand which members shape the interpretation and application of WTO rules. 76

Other two cases quoted over 100 times are EC—Banana III and US—Zeroing(Japan), respectively 147 times and 132 times. 77 The number of reports available for quoting was relatively limited for early Appellate reports. Therefore, the number of reports quoted was relatively small. 78 DSU Article 3.4. 79 DSU Article 3.2 and Article 19.2.

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Therefore, a relevant research report concluded WTO members’ participation in the DSM.80 First, only a minority of WTO members participated in the DSM as the complainant, which shaped the case analysis method of the Appellate Body. By the end of 2013, 29 out of 131 members participated in cases investigated by the Appellate Body as the complainant and defendant, or the appellant and respondent.81 Second, among the few members participating in dispute settlements, only a small part of them were at the core. For instance, among the 29 WTO members who participated in the Appellate Body procedures as the complainant,82 ten participated in only one case, while four only participated in two cases. Only 10 out of 29 members participated in the procedures in more than 10 cases. Finally, the components (participants) of the network were few, and most of them centered around two major participants, the U.S. and the EU. Despite that “a panel may invoke “cogent reasons” in order to depart from previous panel findings, but only the Appellate Body can invoke “cogent reasons” in order to depart from previous Appellate Body findings”, as well as controversies between the U.S. and the EU,83 the action of the Appellate Body granting itself the right to adjudicate precedents also became an excuse for the U.S. to accuse and diminish the composition of the Appellate Body. Yet it was undeniable that the importance of the Appellate Body reports to the dispute settlements would not fade in a mutual quotation network. Since the U.S. and the EU actively participated in the appeal procedure as repeat players, they had a huge influence on how the Appellate Body interpreted and applied WTO regulations, compared to one-shotters.84 It is reasonable that the minority of members will keep on shaping the precedents. The Application of the Precedents Shaped by the Minorities Theory in China After China joined the WTO and gradually established aggressive legalisms, China quickly became one of the major participants of the DSM, especially in the Appellate Body procedures. Concerning the effects of the precedents shaped by minorities, China had a vivid interpretation. As mentioned above, in the China—Measures Related to the Exportation of Various Raw Materials case, the panel and Appellate Body both adjudicated that China could not invoke the exceptions in Article XX of the GATT 1994 as the legal reason for violating Paragraph 11.3 of China’s Accession Protocol. Based on the opinions in the US—Stainless Steel(Mexico) case, once the panel points were accepted by the Appellate Body, without cogent reasons, the panels or Appellate Body hereafter shall adopt the same measures in previous cases to solve legal issues,

80

See Pauwelyn (2016), pp. 141–172. 28 nations of the EU are counted as one WTO member. 82 The complaining party did not include the third party. 72 out 131 WTO members participated in the Appellate procedure as the third party. 83 See Appellate Body Report, US—Continued Zeroing, WT/DS350/AB/R, paras. 362–365. 84 See Galanter (1974). 81

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according to the principle of “like cases should be treated alike”.85 For China, as mentioned previously, this explanation, however, seemed too strict. To change China’s disadvantaged position and to further clarify the systemic issues between China’s Accession Protocol and the WTO Agreements, China tried to put forward new reasons in later China—Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum in order to reverse the relevant positions of the panel and Appellate Body in China—Measures Related to the Exportation of Various Raw Materials. The legal controversy in China—Raw Materials was similar to that in China—Rare Earths. China still sought exceptions according to Article XX of the GATT 1994. Despite that one of the panel members believed that the reasons provided by China were sufficient to overthrow opinions in the previous case, such belief was not universally recognized by the majority of the panel and Appellate Body. Eventually, they adjudicated that China could not invoke Article XX of the GATT 1994 to justify its violation of paragraphs in China’s Accession Protocol.86 China continuously failed in China—Raw Materials and China—Rare Earths, making most of the paragraphs in China’s Accession Protocol unable to invoke exceptions in articles under the GATT 1994, GATS or the TRIPS Agreement for not mentioning the WTO Agreements.87 It did not indicate that China would therefore deny the positive effects of the DSM. It was actually the U.S. who strongly opposed the “cogent reasons” and denied the precedent effectiveness of the Appellate Body reports.88 According to the U.S., it should not support the “cogent reasons” approach in US—Stainless Steel (Mexico) at least from the following six perspectives. The Appellate Body did not properly understand the functions of the panels and the Appellate Body in the WTO system.89 America believed that according to Article 11 of the DSU, a panel “should make an objective assessment of the matter”, which should include an interpretation of the applied articles. No definition of the term “cogent reasons” proposed by the Appellate Body could be quoted from either Article 11, Article 3.2, Article 3.9 of the DSU or Article 9.2 of the WTO Agreement. The Appellate Body misinterpreted DSU Article 3.2. In US—Stainless Steel(Mexico), the Appellate Body believed that “ensuring “security and predictability” in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case”.90 The U.S. believed that there was no similar implication in DSU Article 3.2. Apart from that, America’s standpoint 85

Concerning whether the Panels could quote “cogent reasons” approach to deviate from the interpretation of the Appellate Body, or the Appellate Body could quote “cogent reasons” approach to deviate from its interpretation, there had been theoretical controversy. See Beshkar and Chilton (2016). 86 See Qin (2014). 87 See Qin (2014). 88 One opinion said that the WTO dispute settlement mechanism resembled that of US courts. See Bhala (1999). 89 See U.S. Statement at the December 18, 2018, DSB Meeting. 90 See Appellate Body Report, US—Stainless Steel (Mexico), WT/DS344/AB/R, adopted 30 April 2008, para.160.

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was different from that of Japan—Alcoholic Beverage II. According to DSU Article 3.9 and the WTO Agreement, the panels of Japan—Alcoholic Beverage II believed that “such an “exclusive authority” in interpreting the treaty has been established so specifically in the WTO Agreement is reason enough to conclude that such authority does not exist by implication or by inadvertence elsewhere”.91 The prior Appellate Body reports relied on by the Appellate Body did not support the approach of “cogent reasons”. The U.S. pointed out that the Appellate Body invoked relevant standpoints from Japan—Alcoholic Beverage II, United States— Shrimp(Article 21.5) and US—Oil Country Tubular Goods Sunset Review before reaching the “cogent reason” approach. Yet these cases referred to the invoked reports of the panels and the Appellate Body as acquis of WTO, instead of having precedent effectiveness. The Appellate Body misunderstood why parties cited prior reports. America believed that the parties cited prior reports based on persuasion instead of precedent effectiveness. The Appellate Body made inappropriate and incomplete analogies to other international adjudicative fora. In US—Stainless Steel(Mexico), the Appellate Body cited adjudications of the ICTY and ICSID to support its “cogent reason” approach. The U.S. believed that it was questionable whether the DSB could be compared with the two fora. It was not convincing to infer the existence of relevant customary international laws based on individual cases of the mentioned fora. The Appellate Body incorrectly assumed the existence of a hierarchical structure that did not reflect the limited task assigned to the Appellate Body in the DSM. According to the U.S. standpoints in US—Stainless Steel(Mexico), “the Panel’s failure to follow previously adopted Appellate Body reports addressing the same issues undermines the development of a coherent and predictable body of jurisprudence”.92 The U.S. believed that Article 17.6 and Article 17.13 did not empower the Appellate Body with broad powers to develop a coherent and predictable boy of jurisprudence. Most WTO members, including China, treated America’s criticism of the precedents established by the Appellate Body with reserves. China, the EU, Canada and India did not directly deny the “cogent reasons” approach of the Appellate Body. Instead, they believed adopting a mechanism to ensure fluent information below between the Appellate Body and WTO members. When communicating, relevant members should not relate their opinions directly to specific cases.93 Under the same logic, almost all other WTO members opposed and criticized directly on the affair of the U.S. preventing chosen Appellate Body members from taking office by the principle of consensus in Article 9.1 of the WTO Agreements.94 Despite China being confined by the “cogent reasons” approach of the Appellate Body in China—Raw 91

See Appellate Body Report, Japan—Alcoholic Beverage II, WT/DS11/AB.R, p. 13. See Appellate Body Report, US—Stainless Steel (Mexico), WT/DS344/AB/R, adopted 30 April 2008, para.161. 93 See Communication from the European Union, China, Canada, India, Norway, New Zewzland, Switzerland, Austrial, 26 November 2018, WT/GC/W/752. 94 See Dunoff and Pollack (2017), Steinberg (2004). 92

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Materials and China—Rare Earths, it did not take a destructive position as the U.S. Instead, it chose to defend the authority of the Appellate Body. I think that this action is of great enlightening and positive meaning. Based on China’s participation in the DSM, on the one hand, China still preferred to utilize the differentiation by systems to defend the DSM under aggressive legalisms. Through protecting the DSM and actively participating in relevant complaints, China shaped rules that were beneficial to itself. On the other hand, strategies beneficial to WTO members were not necessarily beneficial to the WTO system.95 From the perspective of preserving the DSM, China’s constructive approach to solving legal controversies through careful adjustment of constitutional laws within the current frame was superior to America’s destructive approach of restricting jurisdiction and legislation of the Appellate Body through political strategies.96

5.3 Classification of WTO Subjects and Possible Ways to Solve China’s Membership Status Issue 5.3.1 Pros and Cons of WTO Subject Classification The core function of the legal system is to adjust the interest relations between subjects through the allocation of rights and obligations. According to the values of equality and justice, the same people and the same situations must receive the same or at least similar treatment, provided that these people and these situations are de facto the same or similar according to the universal standards of justice. In other words, when confronted with de facto disparities in status resulting from a disconnect between formal and actual opportunities, equality and justice should be read as complementing equality of basic rights with equality in ensuring basic requirements, i.e., privileging those who are not in a position of power or are underprivileged in society to deal with situations of urgent need in life.97 Therefore, when it comes to the subject structure of WTO members, on the one hand, the differential configuration of rights and obligations based on the subjective division has the bases of legitimacy and rationality reflecting the concept of fairness and justice of substantive equality; but on the other hand, the institutional arrangement reflecting the difference is inadequate in terms of both the general level and the content of the system and its implementation.

95

See Bhala (2001). Concerning relevant theoretical controversies, see Steinberg (2004), Smith (2003). 97 See Bodenheimer E (1940) Jurisprudence: legal philosophy and legal method. Chinese Edition: Bodenheimr (2004), pp. 286–287. 96

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Rationality

It should be acknowledged that the current WTO system has made great progress compared to the “non-discriminatory” system at the beginning of the GATT. As is known, when the GATT was established, nearly half of the 23 founding members were considered developing countries, despite their disparate de facto status.98 However, there was no formal identification of developing countries as a group, nor were there any special provisions or exceptions to their rights and obligations. After a long and difficult effort and game of different interest subjects, as mentioned earlier, when WTO was formally established, not only the special subject status of developing countries was established from nothing and the scope was expanded from small to large but also the special subject status of more different levels and categories was confirmed in the specific system. Among them, there were both divisions reflecting different levels of economic levels—developed members, less developed members and least developed members; and distinctions reflecting different economic system models—market economy members, transition economy members and non-market economy members. There are also some more detailed dynamic distinctions or ad hoc arrangements—such as the distinction between standing special subjects and individualized special subjects and the distinction between progressive subjects in the Countervailing Agreement. Such multi-level and differentiated subject settings reflect, to a certain extent, the factual status of its 164 members in the international community. The legal recognition and the differentiated treatment in the allocation of rights and obligations based on the status of different subjects also express the different interests and needs of different subjects, thus laying the foundation of justification and rationality for compensating for the injustice caused by formal equality.

5.3.1.2

Defects

Examining the logical starting point of WTO’s subject separation, its institutional content and its implementation dynamics, it can be seen that there are many obvious defects in the allocation of interests under its subject separation, which are mainly manifested in the following three levels: Keynote Deviation At the overall level of the WTO system, “equality” is the keynote of its membership status and constitutes the logical starting point for its subject differentiation. That is, all members are “general members” without distinction, except in special provisions. As mentioned earlier, according to the Agreement Establishing the WTO, the rights and responsibilities related to the core aspects of the organization and its legal system, such as decision-making, management and implementation, are equally applicable 98

Referring to 11 countries: Brazil, Myanmar, Sri Lanka, Chile, China, Cuba, India, Lebanon, Pakistan, Zimbabwe and Syria.

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to all members. This means not only that the WTO is essentially a member-driven international organization but it means that all members themselves are responsible for participating and expressing their interests in all aspects and bear the consequences, beneficial or unfavorable, arising therefrom. The direct result of formal equality is the marginalization of de facto disadvantaged members. For a significant number of developing country members, especially least developed members, they lack the mechanisms to fulfill their responsibilities, participate effectively in WTO affairs and represent their interests under the WTO. They do not even have a delegation or only a symbolic representation in Geneva; meanwhile, the WTO does not provide them with any safeguard mechanism to compensate for such deficiencies. It is clear that this note of “equality”, which ignores the fact that there is a serious disconnect between formal and real opportunities, is biased and may constitute the greatest danger of shaking the very foundation of the system. The difficult progress of the Doha Development Round seems to be a sign. Inadequate System Contents There are also various obvious shortcomings in the content of the current WTO regime on special subjects, which can be seen in the following aspects. First, for developing country Members as vulnerable groups, especially the least developed country Members among them, the privileges available to them with the most substantial value are concentrated in the so-called SDT provisions. However, except for longer transition periods and lower obligation requirements in certain areas with explicit contents,99 most of the remaining “specials” are granted “greater flexibility”. In fact, in the WTO system, flexibility emerges as the most widespread tool of the SDT. And flexibility, as it is used in the WTO, is not a denial of reciprocity. Commitments are reached on the basis of reciprocity and flexibility applies to the differential application of those commitments. However, by placing flexibility in the context of reciprocity, the Uruguay Round agreements marked a major departure from the concept of non-reciprocity (one-way give and take) in dealing with development in the multilateral trading system.100 Second, compared to the de facto disparity in status, the allocation of rights and obligations in the WTO among developed country Members, developing country Members, and least developed country Members, and among market economy Members, transition economy Members and non-market economy Members is clearly asymmetrical and disproportionate. In terms of the special obligations given to developed country members to ensure the needs of developing country members, since they exist only in individual articles of the agreement, and part of these provisions are general in nature, expressed as a rough reference like “best efforts”, they not only cover a small scope but also obviously lack solid constraints. Therefore, even the original intention of the system design within the scope of its provisions 99

Only Article XXXVI and enabling provisions of the GATT 1994, the Agreement on Agriculture, GATS, and the Countervailing Agreement. 100 See Michalopoulos C (2001) Developing countries in the WTO. Chinese edition: Michalopoulos (2004), p. 35.

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cannot be fully realized. From the perspective of the special treatment enjoyed by developing country Members and economy transition Members, on the one hand, the aforementioned “reverse-direction non-correspondence” between developing country Members and developed country Members already shows that the special treatment lacks proper implementation guarantees. On the other hand, the scope and extent of special treatment are far from adequate to compensate for the low level of their economies and the difficulties of institutional transition. Take the transition period as an example, the extended transition period of 1–2 years or 7– 10 years is indeed one of the most genuine preferential treatments available, but it becomes so insignificant when considering the decades-long or even longer gap with the economic development level of developed country members. As the Chinese Minister of Commerce Lv Fuyuan pointed out in his speech at the Fifth WTO Ministerial Conference that the rights of developed and developing Members in the WTO are not symmetrical, the obligations are not balanced and the benefits are not equal.101 Moreover, although the WTO recognizes the legal status of developing country Members as standing special subjects and raises such recognition to the level of institutional objectives and principles through the Agreement Establishing the WTO and the preamble of each specific covered agreement, it should not be overlooked that, in the absence of comprehensive and sufficient specific provisions or rule contents, the objectives and principles can easily be neglected. Moreover, even with specific provisions such as Article 15 of the Anti-Dumping Agreement (“Developing Country Members” clause), it is also not substantive due to the lack of detailed content. Therefore, in the Doha anti-dumping rules negotiations, developing countries proposed that the following aspects should be modified to provide practical “benefits” for developing countries: the “lesser duty rule” should be forcibly applied in anti-dumping by developed countries against products from developing countries. The “margin of dumping and the proportion of “negligible imports” for developing countries should be increased (for example, the “margin of dumping” for developing country enterprises identified in the investigation or review should be increased from 2 to 5%)”. The maximum time limit for anti-dumping measures taken by developed countries against developing countries should not exceed 5 years, and so on. However, the final Chairman’s text did not adopt these proposals.102 Finally, compared with the complex and changing factual subject pattern in international trade relations, the existing subject system and division criteria of WTO are a bit too simple. As a matter of fact, both developing countries and developed countries are members of the WTO, and there are great differences among the members. The diversification of interests is inevitable. With the emergence of concepts or group

101 102

Lv FY—Minister of Commerce of China (2010). See Yu (2010).

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forms such as the “BRICS”, “E11”,103 “Next-11”,104 “Middle Power”,105 “LikeMinded Group(LMG)”,106 “Friends of Anti-Dumping”107 and “RAMs”,108 there is already a strong tendency for different interest groups to demand refinement and recognition in the multilateral legal system including but not limited to the WTO. Lack of Implementation Guarantees The practice of the WTO in more than 20 years of operation has shown that there is also a danger of loss of the gains that have been made when the treatment or responsibilities conferred on various special subjects by the existing rules have not been fully implemented. As early as the beginning of the Doha negotiations, developing countries have raised extensive questions about whether developed country Members have fulfilled their commitments at the Uruguay Round in general, and in particular with regard to the SDT provisions. The status of the implementation of Article 15 of the Anti-Dumping Agreement is a case in point. This provision 103

The “E11” refers to Argentina, Brazil, Indonesia, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, and China. The E11 concept was first published in the Boao Forum for Asia Emerging Economies Development 2009 Annual Report. The “E11” shares 6 similarities: relatively high economic growth rates, comparable economic size and population, moderate or lower middle income on average, high level of economic openness, relatively broad representation, less controversies. Available at http://www.forex.com.cn/html/c203/2010-04/1478795.htm. Accessed 10 May 2010. 104 This refers to the 11 emerging markets with growth potential second only to the BRICS, including Pakistan, Egypt, Indonesia, Iran, South Korea, the Philippines, Mexico, Bangladesh, Nigeria, Turkey, and Vietnam. The “New Diamond 11” countries generally have large populations and are rich in labor and energy resources. See Cheng (2008). 105 Refers to countries such as Canada, Sweden, Norway, Australia, New Zealand and Italy. Emphasis is placed on their status among large countries in terms of population, size, economic or military capacity, and political geography. They have a practice and tradition of policy coordination and cooperation with each other in the areas of human rights, environmental protection, social development, and other issues. See Wu (2010). 106 Patel (2007). 107 The group formed by WTO members who have long suffered from anti-dumping measures by other countries including developed countries including Japan, Switzerland, Singapore and, Korea, as well as developing countries such as Brazil, Chile and Colombia. 108 This is a concept proposed by China in the WTO Doha Round negotiations, referring to the fact that newly acceded WTO members have made extensive commitments and great contributions in the accession process and that these commitments are in many cases still in the transition period of concessions, and therefore require flexible treatment in the negotiations in four areas including no concessions for some products, less concessions for other products, longer implementation periods, and longer grace periods. The issue of the treatment of new members has been widely recognized by WTO members. Paragraph 12 of the July 2004 Framework Agreement adopted by the WTO General Council requires members to negotiate the treatment of new members. Paragraph 58 of the 2005 Hong Kong Ministerial Declaration states that “We recognize the special situation of recently-acceded Members who have undertaken extensive market access commitments at the time of accession. This situation will be taken into account in the negotiations”. As the Doha negotiations move deeper, WTO members are further negotiating the criteria for new membership, the scope of new membership, and the treatment of new members. Available at http://gss.mof.gov.cn/zhuant ilanmu/shijiemaoyizuzhixiangguanyiti/200806/P020080624539196395031.doc. Accessed 12 May 2010.

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requires that developed country Members, before imposing anti-dumping duties that would affect the fundamental interests of developing country Members, should seek the possibility of using constructive compensation. However, established practice shows no factual evidence of the implementation of this provision. On the contrary, there is an increasing number and frequency of anti-dumping measures imposed by developed countries against developing country Members and economy transition Members. The 2008 financial crisis and the resulting prolonged downturn in the world economy have further stimulated countries’ motive of “self-preservation”. After the Trump administration took office, the “anti-globalization” trend and trade protectionism have risen and become mainstream, and the U.S. has ignored WTO rules and launched trade wars worldwide. It not only raised the level of trade barriers to a new height but also caused the DSM to face a serious crisis by blocking the election of members of the Appellate Body. As a result, it is not yet known whether various interest groups can make substantial progress in future negotiations, but the results of the changes and regressions of existing interests under the current WTO system have become a reality. In short, the WTO’s division of subjects formed through the differentiated allocation of rights and obligations within a certain scope cannot fully and adequately reflect the disparate factual status and complex interests of its 164 members. If it succumbs to the “U.S. first” and reverts to the “power-oriented” international system, the WTO will inevitably face a survival crisis. After all, a more realistic and fair reflection of the pluralistic and complex subject pattern of today’s international society and its interests and needs, together with a more reasonable and effective allocation of rights and obligations among members, is the key to the sustainable development and longevity of the WTO.

5.3.2 Solving the Problem of China’s “Developing Country” Status China’s status as a special developing country in the multilateral system has been established by China’s Accession Protocol and the WPR of China for almost two decades. Some of the most onerous obligations have also been largely fulfilled. The aforementioned issue of market economy status has been seriously questioned, at least on a temporal level. At this point, as far as the text is concerned, the only provision in the multilateral system that continues to have a comprehensive impact on China’s trade policy is the SDT provision for developing countries. Thus, the current extreme opposition to China’s market economy status by the United States and others, as well as the challenge to the self-declaration mechanism for developing countries in the multilateral system as a whole, have their roots. In China’s case, the possible paths to overcome the dilemma are as follows:

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Sticking to the Position of Fighting for the Interests of Developing Countries

Given that China currently ranks among the world’s leaders in terms of trade volume and total economic development, and that it has prominent representation among developing groups, China should maintain its position of fighting for the interests of developing countries. This is the basis for safeguarding China’s own legitimate rights and interests in the multilateral system. Developing countries and the related SDT is one of the few flexible arrangements that can further adjust the imbalance of Members’ power under the current multilateral system. The SDT, despite its limited application in the past, has not been without progress, and at least at the textual level, it has increased. Indeed, the issue of SDT for developing countries has been closely linked to the issue of development in the multilateral system. Starting with the inclusion of Part IV “Trade and Development” during the GATT era, to the conclusion of the Tokyo Round Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries,109 the subsequent development issues of the Doha Round and more recently the Bali Package, all of them have SDT elements. At the tenth meeting of the Committee on Trade and Development in early 2019, the participants discussed the SDT Monitoring Mechanism (“Monitor Management”, MM).110 This mechanism aimed to analyze and review the application of SDT provisions within the WTO system to help least developed countries and developing countries to further integrate into the multilateral system. However, to date, no written application has been filed.111 It is clear that this does not lead to the conclusion that there is no problem with the application of the SDT provisions as described by the U.S. delegate.112 It is more likely to reach the conclusion that there is collective disappointment and silence. It has taken more than a decade since the Council proposed the mechanism in 2002 for it to be established with the consent of multilateral members. During this time, only the African group has invoked it in its proposals and plans.113 As a large developing country, China should actively participate in the discussion, construction and review of such mechanisms, make full use of the negotiation platform within the system and mobilize as many forces as possible to activate the SDT-related provisions and institutions. For example, some new developing countries and groups have also expressed their views on the issue of developing countries in WTO.114 The African Union, for example, has proposed that development should be at the core of all items in the multilateral system, which has been decided by the Ministerial Conference and the Council since Doha in 2001, and it should be reaffirmed and emphasized. The importance of granting SDT to developing countries in the fisheries subsidies negotiations to ensure the necessary 109

GATT documents, No. L/4903, 28 November 1979. Established at the Bali Ministerial Conference WT/MIN(13)/45, WT/L/920. 111 WT/COMTD/MMSDT/M/10, 10 January 2019, para.3. 112 WT/COMTD/MMSDT/M/10, 10 January 2019, para. 11. 113 TN/CTD/W/3/Rev.2. 114 WT/L/1054, WT/GC/199, TN/C/19, 8 January 2019. 110

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margin should be recognized. The SDT is an indispensable component of the existing rules and the future of the multilateral system. A rules-based WTO should be fair, equitable, inclusive and development-oriented.115 China should actively maintain and consolidate ties among developing members and strive to form synergies. Insist on the Combination of “Self-Declaration” Mechanism and Dynamic, Comprehensive Evaluation In determining its status as a “developing country”, China should still adhere to the self-declaration mechanism, the comprehensive development concept, and the comprehensive evaluation criteria, and at the same time, advocate some objective parameters and adhere to the GDP per capita criterion. In this regard, China needs to repeatedly express the specificity of its serious social development imbalance in an appropriate way in the discussion and negotiation of development issues. It is suggested to promote the concept of balanced development in the international community and strengthen the statistics and disclosure of domestic social development data, especially data on per capita resources and welfare. As mentioned at the beginning of this chapter, “self-declaration” provides a space for negotiation among members on a case-by-case basis and can effectively prevent it from becoming an instrument of intervention. This is particularly important as a mechanism for operating in the international community. If the independence of members in this regard is not guaranteed, the multilateral system will sink further into the mire and will not be able to achieve longevity. Moreover, “development” is a comprehensive and dynamic process. From the perspective of effective application of rules, it is normal for members to have different degrees of development in different areas and different regions and to show certain imbalances. So it is not reasonable to replace the whole picture with the parts and the general situation with the individual cases. In addition, there is not a very definite time point and a unified and uncontroversial status for changing from a developing member to a developed member. It is unrealistic to expect the international community, which is full of many interests that need to be coordinated, to reach a definite and unified standard that can adapt to the changes in the development of the members themselves and the international community in a timely manner. Therefore, if the self-declaration mechanism is changed and the status of developing countries is determined through the evaluation of other multilateral members or third-party organizations, it will lead to rigidity in the evaluation criteria and it will be more likely that the evaluation will not match the reality and will be too politicized. However, pure “self-declaration” is indeed not conducive to the stability of the international order. Therefore, the author believes that China should seriously study and actively learn from the experience and lessons of the past self-declaration mechanism, establishing a practical mechanism that is both independent and to a certain degree objective. For example, aspects such as the objective evidence in the “self-declaration” and the issue of probative force should be actively constructed. Some of the data and analyses of the UN, IMF and World Bank mentioned above can be recognized as having a certain degree of validity as evidence under the premise of 115

WT/L/1054, WT/GC/199, TN/C/19, 8 January 2019, pp. 2–3.

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adhering to the concept of comprehensive and integrated development. In terms of specific content, China, as a special developing country, is recommended to propose to uphold the position of the concept of comprehensive development and should still adhere to the alliance with developing countries. But at the same time, it should also recognize the changes in its own situation and undertake obligations in individual areas that are appropriately higher than those of developing countries in general, so as to gain room for maneuvering in relevant important areas. Committed to Raise the Effectiveness of SDT Provisions Asserting the Application of SDT provisions in the DSM in Appropriate Times In fact, the current multilateral dilemma ultimately boils down to the fact that developing groups have gained some development, and a part of the countries have grown in strength, which has changed the situation of power comparison in the international community. The interests and demands of traditional powers cannot be fully satisfied. As a result, the resolution also can’t get around the SDT issue. The multilateral system, from its conception to its birth, and its operation in the past 25 years, has shown that the rule-based approach is an important tool to effectively counteract unilateral hegemony in an unbalanced international community. Activating the existing provisions and mechanisms in the multilateral system, while difficult, is far easier than reaching a new consensus in a complex and volatile international environment. In order to further explore the application status of SDT provisions, the author searched the online document library on the official website of WTO and obtained six panel reports that explicitly mentioned SDT, involving seven cases.116 The cases cover the areas of subsidies, quantitative restrictions, TBT, etc. In these cases, the application of SDT provisions as a whole is very marginal, and even the complaining parties themselves can hardly assert the application of these provisions firmly. In US—Gasoline, for example, Venezuela argued that it was not seeking any special treatment but simply wanted its oil to be treated like U.S. oil products. It was not asking the panel to adjudicate under Article 12 of the TBT Agreement but was merely seeking to point out that the discriminatory treatment affecting Venezuelan oil was particularly inconsistent with that provision.117 Even the SDT provisions, which were more intensively debated by the disputing parties, were mostly discussed at the level of the relationship between the provisions with little reference to the substantive content of the treatment. For example, the debate on Article XVIII Section B of the GATT in India—Quantitative Restrictions,118 disputes over the relationship between

116

They are searched under the theme of “Special and Differential Treatment”. Six panel reports were obtained: WT/DS46/RW2, 26 July 2001; WT/DS46/RW, 5 September 2000; WT/DS46/R, 4 April 1999; WT/DS90/R, 4 June 1999; WT/DS54/R, WT/DS55/R, WT/DS59/R. WT/DS64/R, 7 February 1998; WT/DS2/R, 29 January 291996. 7 numbered cases involved, of which DS54/55/ 59/64/R is a single report. 117 See Panel Report, US—Gasoline, WT/DS2/R, adopted 29 January 1996, para. 3.84. 118 See Panel Report, India—Quantitative Restrictions, WT/DS90/R, adopted 6 April 1999, pp. 165– 185.

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Articles XXVII and III.1 in Indonesia—Autos (DS54, DS55, DS59, DS64), Brazil— Aircraft (DS46).119 In cases involving China, there have been no disputes focusing on these provisions. For example, in China—Auto Parts, which also involved subsidies, neither the parties nor the DSB mentioned the SDT issue in the Panel Report or the Appellate Body Report.120 Of course, perhaps because SDT claims in China cases are more difficult or would raise new and unnecessary controversies for individual cases, they are not included in the petition. This also reflects an overly utilitarian approach to the issue that has been in place for quite some time by all sides: the issue is taken seriously but not actively applied. As a mechanism, the transition from the paper to the reality of the implementation requires an adamant spirit to continuously facilitate. Actively Promote the Clarification and Refinement of SDT Provisions In addition to the legal application issues, the ambiguity of the rule itself is also an important reason for the inadequate application of SDT provisions. Many SDT provisions use expressions such as “pay special attention to”, “consider”, “recognize”, “endeavor” and so on. The meaning is very vague and it is not clear whether and what kind of mandatory obligations are included. In fact, China is indeed a special developing country in the multilateral system, both in terms of the text of the treaty and in terms of the realities of society. The negotiation process and the final textual arrangement of the developing status provisions in China’s Accession Protocol document show that even the inclusion of these ambiguous provisions is extremely difficult. China’s situation is in essence a reflection of the problems of developing countries in the multilateral system as a whole. Although the current plight of the multilateral system is due to new problems arising from the new international economic situation, it is still largely due to the dissatisfaction of both developed and developing country members with the old order. It remains a group problem. Therefore, the alleviation of the problem of China’s special treatment in the multilateral system still requires the joint efforts of developing countries. In terms of the development of trade and development issues in the multilateral system as a whole, the SDT negotiations have also been brought up and developed to a certain extent due to the growth of developing countries’ strength. Despite the current trend of division within this group, key members should still consolidate the possible links such as using the “Belt and Road” as a link to further strengthen the linkage between various parties; and supporting the development-related proposals of the African group in the WTO system.121 Of course, past experience and lessons also show that the incorporation, revision and effective application of SDT provisions ultimately depend on the combined efforts of international political and economic platforms. The WTO system’s accession negotiation mechanism makes it possible for developing country status may be affected 119

See Panel Report. Indonesia—Autos, WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R, 2 July 1998, paras. 5.154, 5.194; see Panel Report, Brazil—Aircraft, WT/DS46/R, paras. 5.1 and 5.3; see Panel Report, Brazil—Aircraft, WT/DS46/R, paras. 5.3 and 5.4. Aircraft, WT/DS46/RW, 9 May 2000, footprint 49, 60. 120 See Panel Report, China—Auto Parts, WT/DS339/R, WT/DS340/R, WT/DS342/R, adopted 18 July 2008. 121 WT/L/1054, WT/GC/199, TN/C/19, 8 January 2019.

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by many non-economic factors. This is in fact evident in the case of Bulgaria, as mentioned above. Therefore, in addition to the efforts within the WTO system, China needs to pay close attention and actively participate in other international activities to articulate its position and proposals for a comprehensive development perspective at multiple levels. It helps accumulate the theoretical and practical basis for the activation of the existing SDT provisions and seeks opportunities for substantive and fair treatment in the negotiations on new issues. Effectively Use the Complementary and Corrective Functions of RTAs Among the many international economic activities, negotiating through RTAs is currently an activity in which members of the multilateral system, especially influential powers, have relatively strong initiatives. In the design of the specific provisions of RTAs, China should consider how to make them more operational and include some clear content of rights and obligations in terms of differential treatment. To reduce resistance, different subjects should be treated according to their categories. In the RTAs negotiated with developed countries, China should analyze the impact on different industries and advocate whether to insist on differential treatment and what kind of differential treatment according to the different impacts. In the RTAs negotiated with developing countries and underdeveloped countries, some developing countries with relatively strong economies can make appropriate concessions and set some specific, especially procedural, differential treatment. In the RTAs negotiated with both developed and developing countries, China should consider how to use the various interlocking links to build a reasonable differential treatment system for developing countries that is highly operable. The current multilateral stagnation, from the other perspective, also provides an opportunity to reshape the rules. Realistically, the latter two categories, especially in the last category of RTAs with both developed and developing countries, are more likely to coordinate interests, leading to an eventual SDT arrangement. The first category of RTAs, especially for developing countries like China, which have special political and economic characteristics, will face more pressure in separate negotiations. The current status of the U.S.-China trade negotiations also illustrates this point. However, bilateral negotiations between China and the U.S. based on geopolitics and the reality of each other’s trade influence cannot be avoided, and their pressure can only be relieved by constructing other RTAs. RTAs can still play the role of stepping stones and testing grounds. For example, some operational WTO provisions in RTAs that are not applied due to too many non-economic factors can be introduced, trying to activate some SDT provisions and promoting the gradual application of relevant provisions under multilateral systems through the continuous practice of RTAs legislation and jurisdiction. For example, the DSU dispute settlement mechanism in fact contains a number of provisions involving special arrangements for developing countries. Article 8.10 of the DSU provides that if a dispute arises between a developing member and a developed member, at least one panel member shall be from a developing country if requested by a developing country member. Article 12.11 further provides that “where one or more of the parties is a developing country Member, the panel’s report shall explicitly indicate the form in which account has been taken of relevant provisions on differential and more-favourable treatment for developing country Members

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that form part of the covered agreements which have been raised by the developing country Member in the course of the dispute settlement procedures”. These can be taken into account by RTAs. This should also be taken into account in the design of the provisions of the bilateral or regional agreements of the Belt and Road, paying attention to their significance and role in international law. Drive the Simultaneous Development of SDT through Economic Globalization SDT should still be considered in the context of economic globalization. For developing countries themselves, it cannot be simply considered a demand for specialized treatments. Some industries and some emerging economies can be considered to take on obligations comparable to their level of development and appropriately higher than those of general developing countries. For developed countries, it should not be arbitrarily considered as unilaterally granting preferences to developing countries without gaining any benefits from the enhanced sustainability of global trade flows. Globalization is still the core path and method to fight against anti-globalization thoughts and measures and to guarantee SDT. On the one hand, developing countries, including China, should clarify their position: granting SDT to developing countries is not contradictory or conflicting with trade liberalization and economic globalization. For the sake of more equitable and sustainable economic globalization and trade liberalization, the international community should further improve the operability and frequency of application of SDT provisions in several mechanisms. The operation of the international economic multilateral system in the past has laid the foundation for further interconnections. Even the U.S., which has trade agreements with developing countries, needs to engage in trade cooperation with at least some developing countries. Developing countries such as China need to find as soon as possible ties that can further strengthen and deepen their ties in the rapidly changing reality of globalization. On the other hand, the various ties formed in the process of economic globalization also provide space and opportunities for trade diversion, which can objectively create certain counteracting power and help the implementation of SDT. For example, the U.S. imposed tariffs on steel and aluminum from China under the 232 investigation.122 However, Chinese steel and aluminum can still be appropriately circumvented through a portion of re-export trade. With much closer interconnections than in the past, such a single tariff measure could also easily have a “butterfly effect” that could lead to large-scale trade frictions on a global scale. And while large-scale trade frictions may fall into the old pattern of beggarthy-neighbor, they may also create opportunities and incentives to correct or reopen negotiations. Thus, in general, the development of economic globalization makes the establishment and implementation of SDT both challenging and opportunistic. Of course, the limitations of the current “developing country” SDT for a large emerging country like China should also be recognized. For one thing, like the limitations of international law, developing countries are certainly included in the legal provisions, but their legal interpretation will be difficult to ensure the effectiveness of

122

DS544, US—Steel and Aluminium Products (China).

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legalization without taking into account the institutional environment and the political processes that give content and guidance to the legal rules.123 The birth of WTO is also the result of the balance between politics and law.124 Thus, the self-declaration mechanism of developing countries should be adhered to, supplemented by objective criteria with high recognition such as GDP per capita, so that multilateral members can have some room for maneuvering, to ensure the normal operation of the WTO system, instead of being measured by many parameters that are rigid and difficult to agree on. Second, the generalized SDT is difficult to benefit many aspects due to China’s current special status. It is proposed that the SDT be further quantified and objectified conditionally in the new negotiations to enhance its operability.

5.3.3 The Rational Perception of Changing China’s “Non-market Economy” Status In view of the legal effect of the “automatic terminating clause”, the timely withdrawal of DS516 China’s authorization of the panel, and the realistic background that the case is still in consultations, the author believes that, for the future WTO dispute settlement in the application of the rules of prejudgment, both for “China’s Accession Protocol itself or for the general rules of the WTO, a more cautious and pragmatic attitude should be applied”. Any stubborn interpretation will not change the rights to interpret and practical application, nor will it help China to take a relatively pragmatic response. First of all, the most direct and feasible approach is to fully examine and explore the rules and try to obtain the most favorable conditions within the existing rules. The WTO is a rules-based multilateral trading system. For dispute cases between members, the DSB cannot refuse to adjudicate, and the adjudication must rely on the existing WTO rules. The disputing members must also seek to maximize their own interests in the WTO rules. Therefore, even if there are differences in the interests of the parties’ positions and values, the return to the interpretation and application of WTO rules is not only necessary for the dispute settlement itself but also a legitimate way to form the maximum convention on the basis of seeking common ground while reserving differences. The interpretation and application of WTO rules belong to the scope of the law—international treaty interpretation and application. At the same time, WTO rules, including anti-dumping rules, have their own unique rule system and institutional logic, so they should be the central axis of the study of the rules of such cases.

123

Narlikar A (2005) The World Trade Organization: a very short introduction. Chinese edition: Narlikar (2007), p. 234. 124 Narlikar A (2005) The World Trade Organization: a very short introduction. Chinese edition: Narlikar (2007), p. 234.

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According to the above analysis, the future discriminatory rules applicable to China will focus on Paragraph 15(a)(i) of China’s Accession Protocol and the “surrogate country approach” with “Note 2”. In this regard, an effective balance of gains and losses can be made to the extent and under the conditions possible, based on a full assessment of the differences in the application of the various rules and their advantages and disadvantages, depending on the circumstances of different products and industries. Because, the application of Paragraph 15 (a) (i), the “full terminating clause” of Paragraph 15 (d) to terminate (a), or “Note 2” all have a relatively large margin for interpretation. Specifically, (1) Paragraph 15(a)(i) does not explicitly provide for the criteria of market economy conditions, and in practice, both the EU and the U.S., which have taken the most anti-dumping measures against China, use their domestic laws as the basis for judging. However, the preamble of Paragraph 15 and the preamble of subparagraph (a) show that the application of this paragraph is based on Article VI of the GATT 1994 and the Anti-Dumping Agreement, and Chinese producers can fully claim the market economy condition standard in the general anti-dumping rules of WTO, rather than the more stringent domestic law standard of EU and U.S. (2) In terms of proof content, the proof standard of Paragraph 15(a) is obviously lower than that of paragraph d. Chinese producers can focus on (a) to prove “market economy conditions in the industry”, or even that the cost and price of a specific commodity are market prices. It is not necessary to prove China’s overall market economy (China has established … that it is a market economy) status according to the first sentence of (d) “full terminating clauses”. In other words, when China is not recognized as a market economy by a member, it is still possible for Chinese producers to meet the burden of proving market economy conditions and to apply “Chinese prices or costs” to a particular industry or product. (3) Although Paragraph 15(a) should take precedence as a special rule in terms of its application, the conditions of its application are subject to change, so that Chinese producers can also choose between it and the general WTO anti-dumping rules (including but not limited to “Note 2”). In addition, attention should be paid to the reasonable design of the “third country export price”, which is expected to be commonly used as a comparable price. In addition, there is considerable room for flexibility, both in terms of the relevant WTO regulations and operational practices, as well as in terms of the principles for determining market economy status by major economies such as the EU and the U.S. Second, obtaining recognition of China’s market economy status from other WTO members is certainly one of the effective ways to avoid discriminatory treatment under WTO rules, but it is not a once-and-for-all move. Even if many members recognize a country’s market economy status in principle, they may use discriminatory means against it in practice. Take the 2013 EU—Cost Adjustment Methodologies (Russia)125 for example, despite the fact that Russia’s market economy status has been recognized, the EU adopted a “cost adjustment” approach, refusing to use 125

European Union—Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (DS474). https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds474_e. htm. Accessed 23 May 2016.

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cost information provided by Russian producers and exporters and recorded under generally accepted accounting principles. The EU’s “special market circumstances” policy requires the subject of the investigation to reject the price of similar products as an element in the construction of normal value in certain circumstances, including when the competent authority considers that the price is “artificially low”, prices do not correspond to the conditions of the international market or other representative markets or other market-distorting conditions. Therefore, a pragmatic approach based on long-term development consideration should pay attention to the construction of one’s own market economy conditions, respect the laws of the market economy and reform the domestic price system and trade system. These measures not only make all kinds of discriminatory rules useless but also create a more solid foundation and good environment for China’s future economic development and China’s place in the international community. Moreover, it should be recognized that the issue of market economy status is as much an economic issue as it is a political and diplomatic one. This means that China’s quest for market economy treatment as a market economy power cannot focus merely on the issue itself. The fundamental way to expand the scope of cooperative issues is to continuously enhance cooperation with trade powers such as the U.S. and Europe. When the market economy powers become increasingly interdependent with China and need to seek China’s active cooperation on other issues, such as geopolitics, international financial system construction, energy and environment, market economy treatment is likely to become a bargaining chip for their interests.126 The situation of the U.S.—China trade war has already proved this point. In addition, bilateral treaties and regional multilateral treaties are also optional paths to seek more treaty rights.

5.4 Fair Evaluation on the Characteristics of WTO Dispute Settlement Practices in China For different commentators, even though they have a clear understanding of the characteristics and history of China’s participation in the DSM, it does not necessarily lead to a same comment. For one thing, it is due to the different statuses and standpoints of the commentators.127 For another, relevant comments may involve an in-depth understanding of the quintessence of the international law.

126

See Zhang (2011), pp. 417–418. For instance, few Chinese scholars have made negative comments on China’s participation in the WTO dispute settlements.

127

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5.4.1 Fair and Reasonable Criteria of Evaluation 5.4.1.1

The Flaws of Criteria Based on Foreign Legal System

All the standpoints, pessimistic, negative, optimistic and positive regardless, lay too much emphasis on the inviolability of the international system or the interaction between the international and domestic systems. To put it in other words, they focus too much on foreign legal systems, neglecting the core factor of China’s participation in the DSM. They neglect the rationality of China’s choices, which makes them biased to a certain extent. The standpoint focusing too much on foreign legal systems view international rules as unquestionable truths. It is based on the substantive contents of the systems that China’s measures are evaluated. Any differences between China’s participation in WTO practices (including but not limited to dispute settlements) and the WTO systems, including trade measures causing disputes and ineffective execution of DSB adjudications, are viewed as pieces of evidence of China’s failure to fulfill its promises to the WTO, on which others should criticize. The standpoint considering China’s domestic systems views whether the international legal system can interact positively with domestic systems as the criteria of evaluation. As long as China continued participating in the DSM, utilizing the system to protect its rights or accusing other WTO members of conducting illegal measures according to WTO regulations, all the mentioned measures should be considered as China’s playing by the WTO rules. They will have subtle influences on China’s violation of WTO rules until China regards WTO rules as its principle. In other words, both standpoints take an external perspective, from which they come up with the so-called objective criteria that China ought to fulfill. Such criteria may take the form of requesting China strictly abide by the WTO rules, especially the special promises in China’s Accession Protocol. Or it may also take the form of requesting China abide by the WTO systems through its measures, which should also be applied to the domestic laws. Considering the special aspects of international law that international legal regulations that regulate subjects of international law eventually rely on the subjects to be carried out,128 such foreign legal systems have enormous flaws. After all, in many cases, international law cannot function properly, since no law can act by itself. If justice, stability and sustainability can be influenced by how nations fulfill international legal obligations in an international legal system, then merely paying attention to the requirements of the system or surface issues like the interaction between the international and domestic legal systems is not enough to interpret and evaluate the rationality of China’s participation in the WTO dispute settlements.

128

See Goldsmith and Levinson (2009).

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5.4.1.2

361

The Rational Criteria of China’s Strategy Choice

To analyze from the inner perspectives of DSM participants, it can be concluded that the reason why China adopts aggressive legalisms and choose to be restricted by WTO differentiation by systems on choices in specific cases is that China seeks to defend its interests. This is a reasonable action based on utilitarianism.129 The selective adaptation mode based on the WTO systems is adopted by every rational WTO participant.130 Through the DSM, WTO members can discuss the legitimacy of their rational measures. The action of settling disputes through the DSM constitutes rational actions on a different level, which are no longer restricted by legitimacy. In other words, to protect trade interests, WTO members can take actions which it considers to be rational, such as raising market access standards, increasing subsidy and conducting trade remedy. When it comes to whether rational measures on national levels are consistent with rationality on an international level, there are two different economic theories, the law of comparative advantage and the law of industrial policies.131 In political theories, there are the law of free trade and the law of fair trade.132 The controversies among these theories have lasted for a long time, lacking an authority to judge their cons and flaws. In such conditions, the action of determining whether a trade measure without conclusions in political or economic theories is legal or not through the DSM is a suboptimal compromise to uncertain rationality. In reality, a trade measure beneficial to WTO members as participants and the globe might violate WTO rules. For instance, some nations subsidize green energy to reduce the emission of greenhouse gases. Yet the regulations on non-actionable subsidies in the SCM Agreement (Articles 8 and 9) failed on 1 January 2000.133 Relevant green energy subsidies have been classified as prohibited or actionable, which were strictly restricted by the SCM Agreement. Under such conditions, only a few policies subsidizing the development of green energy can be adopted. Therefore, a rational measure judged as legal before the SCM Agreement may eventually become illegal or vice versa.134 In practice, the panels and Appellate Body of the DSB do notice the relationship between rationality and legitimacy. They try to avoid classifying a measure promoting public interests as a subsidy.135 From a rational perspective, it 129

See Han (2018). See Potter (2007). 131 See Lester et al. (2012), pp. 20–28. 132 See Rodrick (2002). 133 Article 31 of the SCM Agreement(provisional application): “The provisions of paragraph 1 of Article 6 and the provisions of Article 8 and Article 9 shall apply for a period of 5 years, beginning with the date of entry into force of the WTO Agreement. Not later than 180 days before the end of this period, the Committee shall review the operation of those provisions, with a view to determining whether to extend their application, either as presently drafted or in a modified form, for a further period”. 134 See Cosbey and Mavroidis (2014). 135 See Appellate Body Report, Canada—Certain Measures Affecting the Renewable Energy Generation Sector, Canada—Measures Relating to the Feed-In Tariff Program (Canada—Renewable Energy), WT/DS412/AB/R, WT/DS426/AB/R, adopted 6 May 2013, para 5.10. 130

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is a rational recognition of a nation’s rational measures, despite that WTO members still cannot prevent the DSB adjudications if they failed.136 This measure, however, is highly likely to raise concerns over the legitimacy of the DSB judicial activism among WTO members. Therefore, it is anti-rational to require China to obey WTO rules unconditionally and absolutely merely because China has joined the WTO.

5.4.1.3

Legitimacy Standards on Different Legal Levels

All the regulations under WTO rules are agreed upon by sovereign nations. They eventually rely on the self-execution of the WTO members to be applied on a domestic legal level. Therefore, evaluations of China’s participation in dispute settlement practices should not be limited to the litigation phase. Investigation of whether China obeys the adjudication of relevant panels and the Appellate Body should also be taken into count. Furthermore, we should also differentiate between rationality and legitimacy and between international laws and domestic laws, which include issues on different levels. In theory, adjudications of the panels and Appellate Body have legitimacy on the international level. Yet they do not necessarily have legitimacy domestically. Similarly, a legal adjudication of the panels and Appellate Body may not be rational on the international and domestic levels. One typical example was the case of Zhejiang International Trade Enterprise.137 Between 2006 and 1009, there was a controversy over automobile parts between China and the U.S., the EU and Canada, which was later submitted to the WTO. China failed the appeal.138 In August 2009, China fulfilled the WTO adjudication by revoking the Measures for the Administration of Import of Automobile Components and Parts Featuring Complete Vehicles (hereafter the Automobile Measure). Automobile components imported by the complaining party matched the features of complete vehicles, on which the customs tacked a 25% tariff instead of 10%. The complaining party questioned the legitimacy of the custom measures in the following aspects. First, custom decree 488 of 1987 shared the same contents with the Automobile Measure. Second, the customs boundary did not a make clear classification of Complete Knocked Down (CKD). Third, China’s Accession Protocol made a clear regulation that China would not assign tariff codes to CKD or Semi-complete Knocked Down. If China did assign codes, the tariff should be no more than 10%. The court of first instance believed that the complainant could not make propositions based on China’s Accession Protocol, denying the direct application of WTO rules in the domestic jurisdiction. The court of second instance agreed with the prior opinion, believing that there were no regulations on whether WTO Agreements and rules could be directly applied in investigating administrative cases. Meanwhile, the court of second instance also pointed out that 136

See DSU Article 16.4 and Article 17.14. Appeal of Levy Controversy between Zhejiang International Trade Import and Export Co., Ltd. and the People’s Republic of China Waigaoqiao Port Customs in Shanghai [(2013) Shanghai High People’s Court Last Instance no.4]. Concerning detailed explanation of the case, see Peng (2019). 138 See China—Auto Parts (DS339, DS340, DS342). 137

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the complainant did not prove that the DSB had adjudicated that the tariff code and the 25% tariff had violated WTO regulations. Therefore, the proposition of the complainant was not legally proven. This statement seemed to elucidate that the court of second instance could approve its proposition, denying relevant interpretations of decree 48 through the consistency principle, based on solid DSB adjudications. In such a case, the court of second instance granted the DSB adjudications with higher legal status. Even if neglecting the case of Zhejiang International Trade Enterprise, the adjudication that WTO rules could not be applied in China manifested that China’s domestic legal system needed an effective institution to guarantee the carrying out of China’s promises on a domestic level. Courts in this case granted the DSB adjudication with higher legal status than WTO rules. It was a misinterpretation, which deserved correction.139 Under WTO regulations as international treaties and the self-enforcing of WTO members, driven by national interests,140 WTO members’ fulfillment of the DSB adjudication is more or less superficial. They merely revoke relevant controversial measures discussed in one particular case instead of making fundamental changes to their trade policies. The conclusion originates directly from a theory that it is largely due to the emphasis on national reputation (especially by obeying international laws) and potential punishment for violating international laws that international laws have impacts on nations. It means that when it comes to matters that require international cooperation to bring long-term stable benefits, one nation prefers obeying to violating international laws.141 When conducting superficial fulfillment as mentioned, WTO members normally take measures such as changing the law or management to be superficially consistent with DSB adjudications. In special cases, if the adjudication requires a stupendous change in the domestic system, relevant WTO members may refuse the adjudication. For instance, the U.S. and the EU have clearly refused to fulfill DSB adjudications. Instead, they chose to enter the procedure of compensation and suspension of concession, allowing the DSB to authorize one party to suspend concession or other obligations with the rule-breaking party.142 Typical examples include the Cuban embargo or domestic taxation of the U.S. and the banana-importing regime of the EU.143 Since the U.S. and the EU constantly adopting measures that can violate WTO rules to protect the interests of their domestic industries, sometimes even neglecting the enforcement of the DSB adjudications, China, as a WTO member, does not necessarily have to maintain too high an international reputation by strictly following WTO rules and DSB adjudications.144 If China can suffer the cost of the

139

See Peng (2019), pp. 193–199. Viewing a nation’s fulfillment of national obligations from the perspective of a “bad person” is closest to international reality. See Scott and Stephan (2004), Simmons (2000), Downs and Jones (2002). 141 See Guzman (2002). 142 DSU Article 22. 143 See Taylor (2007). 144 In such a case, reputation is relative instead of absolute. 140

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winning complainants’ suspension of concession or other obligations, it can maintain the trade measures from the perspective of rational fulfillment.

5.4.2 Objective and Justice Evaluation Methods Under the reasonable and fair criteria of evaluation, when it comes to evaluating China’s participation in WTO and dispute settlements, one should avoid viewing the issues in an isolated context and imposing abstract standards. If no WTO members can perfectly fulfill their international promises under such criteria, the problems lie within the evaluation methods instead of WTO members or WTO rules. In the world of imperfection, China maintains a relatively decent record of WTO dispute settlements, either compared with abstract rational national measures or compared to the actions of dominant members of the WTO like the U.S. and the EU. It also fulfills most of the DSB adjudications.145 In such a sense, China has become a normal nation of the DSM, with the help of aggressive legalisms. While China may participate in WTO dispute settlements as a normal WTO member, it does not mean that the disputes may also be normalized. As mentioned, China made numerous extra promises in China’s Accession Protocol. With the authorization of those promises, members like the U.S. and EU continuously add pressure on China, which caused great obstacles to the export of Chinese products. Since 2007, most of the complaints raised by China have focused on those extra promises. Relevant consultations and adjudications have formed a WTO rule system unique to China. The problem is, as China gradually becomes the defender of the DSM,146 how will China maintain the balance between protecting the legitimacy of the DSM and modifying the legal interpretation of the special promises. To answer the previous question, it must be made clear that the WTO Agreements did not clearly state free trade. In the preamble, the goal of the agreement is “raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services”.147 The approach to that goal is “entering into reciprocal and mutually advantageous arrangements directed to the substantial 145

See Bacchus et al. (2018). It was largely due to the US deviation from the DSB. See Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, 18 December 2018, pp. 9–35. 147 The preamble of the GATT 1947 classifies itself as “raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, developing the full use of the resources of the world and expanding the production and exchange of goods” The Agreement Establishing the World Trade Organization did not consider “the full use of the resources of the world” as a target. Instead it elucidated that “allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development”. If the target of “the full use of the resources of the world” of the GATT 1947 may contain the idea of free trade, this possibility was ruled out in the new WTO Agreement. 146

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reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations”. Therefore, WTO rules are the result of the facilitation of trade liberalization instead of a perfect contemporary presentation of free trade.148 Accusing China of violating WTO rules based on relevant measures against free trade is not only legally incorrect but also insufficiently supported by theories. Furthermore, despite extra legal obligations in China’s Accession Protocol or extra rights given to other WTO members, such technical adjustments do not fundamentally change the trade liberalization affirmed by the WTO rules system. It merely aims to deal with potential trade impacts after China joins the WTO. China’s Accession Protocol makes the Chinese trade system more liberalized, at the same time providing legal bases for other members to conduct trade protectionist measures. On the one hand, WTO does not lower its trade liberalization due to China’s participation, despite the mentioned consequence. On the other, as a WTO member, China takes up the responsibility to increase the liberalization level through China’s Accession Protocol. Taking the anti-dumping measure, which is given the most attention by China and other WTO members, as an example, the measure itself is a combination of free trade and trade protectionism. Numerous research papers have confirmed that the anti-dumping measure lacks reliable and proper economic bases.149 The so-called fair trade measures have no direct connection with fairness. It functions as a safety valve of protection measures.150 Paragraph 15(a) of China’s Accession Protocol allows other WTO members to take measures not based on strict comparisons of the price or cost between that of China and of the other nation, which can lead to trade protectionism. More importantly, this article does not make clear regulations of price comparison when allowing other members to take different price-comparing measures, which makes it difficult for China to raise violation complaints according to a solid article.151 For instance, in EU—Footwear(China), China criticized the analogue country system of the EU Committee and its choice of Brazil instead of more appropriate ones like Thailand, India or Indonesia as the analogue country of China, which violated WTO rules. However, due to a lack of pertinent articles, China could classify this measure according to Article 2.4 of the Anti-dumping Agreement. According to Article 2.4, “a fair comparison shall be made between the export price and the normal value”. The problem is that confirmation of the fair value and the comparison between the fair value and normal value are issues of different levels. The controversy in which China was involved belonged to the previous issue, not the latter. Therefore, the panel pointed out that Article 2.4 of the Anti-dumping Agreement only included comparison issues of the two prices instead of the confirmation issues of the price.152 China’s complaint was not supported. Not only that, 15 years after China joined the WTO, which indicated that Paragraph 15(a)(ii) should be terminated, price 148

See Zheng (2016). See Barceló (1972), Bhala (1995), Bolton (2011), Cho (2009). 150 Zheng (2012). 151 See Pauwelyn (2003). 152 See PanelReport, EU—Footwear (China), WT/DS405/R, adopted 28 October 2011, para. 7.263. 149

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comparison issues caused by China’s non-market economic status still existed. Both the U.S. and the EU believed that “product treatments” were terminated instead of “non-market economic status”. Therefore, the termination of paragraph 15(a)(ii) did not imply that the EU and the U.S. could not conduct price comparisons by analogue country systems.153 It is foreseeable that if the Appellate Body accepted the opinion of the EU and the U.S., China will, from different perspectives, hold its standpoint based on different legal bases, challenging the legitimacy of relevant trade measures. Apart from that, since the WTO allows the coexistence of free trade and trade protectionism, and China’s Accession Protocol prefers to impose the obligation of further liberalization on China while granting other WTO members with protectionist rights, one of the key points of China’s WTO complaints will be restricting other nations from abusing special regulations to take trade protectionist measures in the foreseeable future. From the perspective of promoting trade liberalization, every winning complaint of China concerning China’s Accession Protocol will be a blow to the trade protectionism of other WTO members. From the perspective of balancing free trade and trade protectionism in China’s Accession Protocol, every winning complaint indicates a step toward the balance between two dualistic principles. Therefore, China, as a normal participant of the DSM, should stick to aggressive legalisms, trying to eliminate damages to the national interests caused by other nations’ trade protectionism with the help of different settlements of individual DSM cases.

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