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The Development of China under the Wing of the World
Trade Organisation: Legal and Adjudicative Views
Jielei Chen 10441808 LL.M. International Trade and Investment Law Supervised by Professor J. Mathis 18 November 2016 Words (including footnotes): 12.687
Abstract
As this year marks the fifteenth year since China’s accession to the WTO, this paper seeks to explore the development of the relationship between China and the WTO. It focuses on both the domestic and international impact of the WTO membership for China. The first part of the paper examines the domestic impact of the various legal reforms China had to undertake prior and during its accession. From the end of 1999 to the end of 2005, China revised, adopted and abolished more than 2000 laws, administrative regulations and department rules covering areas related to trade, the transparency and the uniform application of trade measures, et cetera. After its accession, many other reforms grew organically. Most importantly, WTO membership has led to previously unknown Western notions such as the separation of powers, the rule of law and judicial independence become widely accepted in China and the normative impact of China’s accession could be considered as most important.
The second part focuses on the WTO dispute settlement mechanism by discussing the outcome and implications of various cases. This selection of cases showcase China’s behavior in the international adjudication system as a defendant and its (non-)compliance with WTO rulings. Internationally, China has learned to step outside of its comfort zone and become more acquainted with the dispute settlement mechanism of the WTO. Although it has a high degree of compliance with the WTO rulings, the quality of the newly implemented domestic legal measures remains questionable. This paper elaborates on the criticism surrounding the Raw Materials and Rare Earths cases and the discussion surrounding the interpretation of the wording of Paragraph 11.3 of China’s Accession Protocol. With an economy as fast-paced as China’s, WTO-plus obligations could be viewed as too strict and rigid considering their permanent nature. China is well aware of this issue as well as it has attempted to amend certain Accession Protocol terms by challenging them and interpreting them creatively before the DSB.
This paper concludes that it is undeniable that the WTO membership has contributed to the sustainable economic development and growth of both China and the world as China’s accession to the WTO added certainty, predictability and stability to the trade relations between China and other WTO Members. China’s economy could only have grown and flourished as much as it did today due to its accession to the WTO.
Abbreviations
AB Appellate Body
DSB Dispute Settlement Body
GATT General Agreement on Tariffs and Trade
MFN Most-Favoured-Nation
MOFCOM Ministry of Commerce
MoU Memorandum of Understanding
NT National Treatment
TRIPS Agreement Agreement on Trade-Related Aspects of Intellectual Property Rights
VCLT Vienna Convention on the Law of Treaties
Table of content
Abstract 2
Abbreviations 3
Table of content 4
Introduction 5
Part I: Legal reforms 8
Part II: Dispute settlement system 13
The beginning 14
Turning point 15
Article XX and the Accession Protocol 19
Criticism and consequences following Raw Materials and Rare Earths 24
Concluding remarks 31
Conclusion 32
Bibliography 35
Introduction
The legal system of China has been strongly influenced by civil, socialist and recently also common law and cannot be categorized under either civil or common law. China’s earliest law appeared more than 4000 years ago during the first dynasty in Chinese history. Rather than a law system, 1
China’s long legal history has been called Chinese legal tradition - which is very different from the common and civil law systems that Western countries know. Until the early 1900s, the notion of rule of law has never been the main focus of Chinese society and even now, it is highly debatable whether the rule of law is sufficiently protected in its legal system. Confucianism was one of the dominant schools of thought in imperial China and it was used as a legitimisation of governmental structures and empirical authority. Many of its traditional values have survived the Western invasions of the 1800s and 1900s and the attempts of the communists to replace the Confucian values in the legal system.
China’s introduction to international law has been characterized by humiliation and injustice with the forceful intervention of Western powers and the signing of unequal treaties. The international law developed by the European society were deemed as unworthy for uncivilized non-European states such as China. The non-Europeans perceived it as their moral duty to civilize the barbarians through colonization and unequal treaties. As such, the Grotian idea that perceived 2
peace as the norm and war as a necessary evil that has to be minimized as far as possible was not applicable to China. This resulted in an extremely persistent suspicion towards international law as 3
China viewed the ‘neutral’ international doctrines as a tool for the strong to advance its self-interested agendas.4
Despite China’s suspicions towards international law, China had no other choice than become involved with international law as the importance of international law on the global platform started growing. China was one of the parties that had originally signed the GATT in 1947. However, in 1949, it was decided by the Chinese Nationalist government in Taipei that China would leave and, although the government in Beijing had never recognized this decision, it was decided that China had to negotiate its re-accession. The negotiations took a total of fifteen years before China acceded to the WTO in 2001.
Shin-yi Peng, ‘WTO Legalistic Approach and East Asia: From the Legal Culture Perspective’ (2000) 1(2) 1
Asian-Pacific Law & Policy Journal, p. 86-87.
Shogo Suzuki, ‘China's Perceptions of International Society in the Nineteenth Century: Learning More 2
About Power Politics?’ (2004) 28(3) Asian Perspective, p. 122. Suzuki 2004, p. 123.
3
Suzuki 2004, p. 131-132. 4
Prior to its accession to the WTO, China signed the China Accession Protocol. The commitments laid down in this Protocol can be divided into three categories. The first category concerns rules within the scope of the Multilateral Trade Agreements. These commitments concern the compliance of China with existing WTO rule. An example of one of these rules is that China cannot resort to recourse for certain WTO provisions that provide traditional periods for the developing Members under these Agreements.5
The Protocol also contains a large amount of ‘WTO-plus’ obligations. These obligations are more stringent disciplines which are imposed on acceding WTO members. They primarily address matters concerning market economy conditions, domestic governance and foreign investment. The major WTO-plus obligations concern uniform administration, transparency, national treatment, judicial review, transitional review, market economy and foreign investment. 6
On the other hand, the ‘WTO-minus’ provisions authorize the discriminatory treatment of Chinese exporters. Importing members are permitted to lower WTO standards in applying trade remedies against Chinese products. These rules mostly concern trade remedies, such as anti-7
subsidy, anti-dumping and safeguard measures. The WTO-plus obligations are permanent while 8
WTO-minus rules have an ‘expiry date’ - and in China’s case, most of its WTO-minus rules have already expired.
The rules laid down in the first category might elaborate or affect the interpretation of specific WTO rules but existing WTO rules of conduct are not changed by them. The WTO-plus 9
obligations, however, expand the WTO rules of conduct, while the WTO-minus provisions revise the rules of the WTO on trade remedies.10
As this year marks the fifteenth year of the accession of China into the WTO, this paper seeks to explore the development of the relationship between China and the WTO. It focuses on both the
Julia Ya Qin, ‘“WTO-Plus” Obligations and Their Implications for the World Trade Organization Legal 5
System: An Appraisal of the China Accession Protocol’ (2003) 37(3) Journal of the World Trade, p. 490. Francisco Urdinez & Gilmar Masiero, ‘China and the WTO: Will the Market Economy Status Make Any 6
Difference After 2016?’ (2015) 48(2) The Chinese Economy, p. 159.
Julia Ya Qin, ‘Trade, Investment and Beyond: The Impact of WTO Accession on China’s Legal 7
System’ (2007) 191 The China Quaterly, p. 723. Qin 2003, p. 490. 8 Qin 2003, p. 490. 9 Qin 2003, p. 490. 10
domestic and international impact of the WTO membership for China within the framework of China’s domestic legal system and the implementation of DSB rulings. The first part of this paper will focus on the domestic impact by examining the domestic legal reforms China had to make prior and during the time of its accession. The second part will focus on the WTO dispute settlement mechanism and its domestic and international impact on and implications for China both by showcasing various changes China had to make in its domestic legal system but also by its growth in international adjudication and the consequences of the outcomes of these cases for China. In the conclusion, I will discuss my findings.
Part I: Legal reforms
There had been some debate on whether treaty obligations could be directly incorporated in the domestic legal system. In meetings of the WTO Working Party, China emphasized that WTO commitments could only be incorporated in the domestic legal system ‘through revising its existing domestic laws and enacting new ones fully in compliance with the WTO Agreement’ . This was 11
contrarily to the previously prevalent view in China in which international law obligations were automatically incorporated in domestic law. This view was deemed to be outdated as it had been 12
taken in a time where international law in China was not as developed as it currently is and did not find any support in cases. The President of the Supreme People’s Court stated that:
In the course of adjudication, People’s Courts must be knowledgeable about both domestic law and WTO rules; they must both grasp the technique of application of international treaty through transformation into domestic law, and do a good job in making judicial interpretations in accordance with the provisions of domestic law; they must both ensure the correct implementation of international treaties in China, and pay attention to upholding state judicial sovereignty and the dignity of law.13
As a result, before the international treaty obligations of China can become part of its domestic law, they either have to be transformed into domestic legislation through authoritative sources of state norms in China or incorporated through domestic legislation .14
After Deng Xiaoping took over the power in China, he adopted a pragmatic and rationalistic approach in order to deal with the negative economic consequences of the Mao period. China initially pursued WTO membership because it was consistent with its pragmatic and rational domestic reform agenda. The government could use the WTO as an external pressure in order to 15
push reforms domestically.
World Trade Organization Ministerial Conference, Report of the Working Party on the Accession of China, 11
10 November 2001, WT/MIN(01)/3, p. xiii.
Donald C. Clarke, ‘China's Legal System and the WTO: Prospects for Compliance’ (2003) 2(97) Global 12
Studies Law Review, p. 100. Clarke 2003, p. 103.
13
Article 142 of the General Principles of Civil Law and Article 238 of the Law on Civil Procedure. 14
Colin B. Picker, ‘China's Legal Cultural Relationship to IEL’ in Lisa Toohey, Colin B. Picker & Jonathan 15
Greenacre (eds), China in the International Economic Order: New Directions and Changing Paradigms (CUP 2015), p. 73.
The WTO brought several benefits such as the MFN Treatment but, as has been argued by some scholars, also disadvantages such as the non-market economy status of China which made China more prone to antidumping measures. It has been argued by many that China’s accession commitments ‘far surpass those made by founding members of the WTO and, in some cases, go beyond those made by countries that have joined the organisation since its founding in 1995’. 16
However, China’s accession to the WTO has mostly influenced China’s economy in a good way as its foreign trade and investment regime have become more liberalized and transparent.
As China joined the WTO later, it not only had to amend its domestic regulations to the WTO Agreement but also to the other agreements the WTO had entered into since it was founded. In order to comply with its WTO commitments, China had to go through various legal and economic reforms. China’s legal and political system was characterized by problems in areas of transparency, due process, court independence, authority of law and effectiveness. The main focus of China’s foreign trade regime in the past decade has been on compliance with the rules laid down in the WTO agreements.
This already started prior to its accession when thousands of laws and regulations had to be amended in order to implement the Accession Protocol obligations. Prior to its accession, only 35,000 Chinese firms were authorised to engage in foreign trade and many restrictions remained despite authorisation. China had an ‘examination and approval’ system which examined whether 17
companies fulfilled the legal requirements to qualify as a foreign trade operator. As a result, the number of enterprises that were allowed to engage in foreign trade was limited and this effectively restricted the volume of imports. In order to gain WTO membership, China agreed to liberalise 18
trading rights and abolish the ‘examination and approval’ system so that there would be no more restrictions on who could import and export goods. The system was thus changed to a ‘registration’ system which automatically granted all entities trading rights upon registration. 19
After its accession, the interference of the government in the market economy has also decreased significantly. It was due to the WTO that China could finally get rid of its
Henry Gao, ‘Elephant in the Room: Challenges of Integrating China into the WTO System’ (2011) 6(1) 16
Asian Journal of WTO & International Health Law and Policy, p. 145.
Ross Buckley & Weihuan Zhou, ‘China's Negotiation of the International Legal Order’ in Lisa Toohey, 17
Colin B. Picker & Jonathan Greenacre (eds), China in the International Economic Order: New Directions
and Changing Paradigms (CUP 2015), p. 156.
Buckley & Zhou 2015, p. 156. 18
Buckley & Zhou 2015, p. 157. 19
planned economy: domestic legislation, including the Constitution, could easily be revised unilaterally by the Chinese government but this was not possible with the WTO market economy commitments. It has also liberalised its trading rights by requiring any importing or exporting firm or individual to go through certain registration procedures with the MOFCOM. Rather than the previous system where the government was directly controlling the foreign trade operations, the government takes a regulating role in the new system. 20
China has also significantly reduced its tariff and non-tariff barriers to fit its WTO commitments. It promised to significantly reduce quotas, licenses and other non-tariff barriers on industrial goods no later than 2005 and to bind all its tariff rates. In 2005, the average applied 21
MFN rate for imports was 9.7 percent while this rate was 39.5 percent in 1994.22
China’s system has since become more transparent as well. Transparency is one of the basic values of the WTO system and China had to undertake additional obligations to ensure the WTO threshold was met. Prior to its accession, legislation was often worded very vaguely, unknown to the public and subject to constant change. The WTO required China to translate all its laws and 23
regulations into one of the three official languages of the WTO and to provide a reasonable period 24
of time for public comment before implementation of the measures . China has since implemented 25
several laws to ensure the transparency by standardising the procedures for granting administrative permissions and opening the legislative process to more public participation. New legislation concerning trade in goods, services and intellectual property rights is being published in seven official journals and all laws, regulations and rulings are all accessible to the public on governmental websites. Other ordinances also provided more transparency by reforming the legislative and rule-making field of the Chinese legal system and importantly, the applicability of these ordinances extends to all areas rather than solely trade-related ones. Although lack of transparency is still one of the main concerns for foreign businesses operating in China, it has incredibly improved from what it used to be in China.
Qin 2007, p. 726. 20
Xiaohui Wu, ‘No Longer Outside, Not Yet Equal: Rethinking China’s Membership in the World Trade Or
21
-ganization’ (2011) 10 Chinese Journal of International Law, para. 28. Qin 2007, p. 726.
22
Wu 2011, para. 12. 23
World Trade Organization, Report of the Working Party on the Accession of China, 1 October 2001, WT/ 24
ACC/CHN/49, para. 334. Wu 2011, para. 33. 25
One of the areas that has been more difficult to regulate has been the uniform administration. In the Accession Protocol, China had promised to centralise its legislation in a uniform, reasonable and impartial manner and annul all the local legislation that were inconsistent with the WTO obligations. However, this was difficult to attain in the field of uniform administration due to a couple of reasons. Firstly, as mentioned before, Chinese legislation tended to be drafted in vague terms without a specific definition. As such, much discretion was left to 26
Chinese bureaucrats. Secondly, prior to China’s accession to the WTO, local governments had been given the freedom to adopt measures in order to boost local GDP growth. As a result, local governments were used to being directly involved in the investment of local enterprises. It would therefore not be strange to have contradictory or overlapping laws in all levels of government. Thirdly, local officials often had control over the local courts which made it more difficult to ensure the impartial judicial review. China has long been battling the local corruption. However, China established a mechanism in which private parties could bring complaints in case of local non-uniform administration. Other WTO Members also have the means to compel China to take action 27
through the WTO dispute settlement mechanism.
In case of judicial review, China has also amended its legislation so that WTO-related matters could be appealed in courts. Trade-related matters were previously excluded from judicial review. Initially, some of the factors pointed out that undermined the impartiality of the judges included the lower status of judges compared to administrators, political influence and the involvement of the CCP, corruption and bribery of the judges. However, China ensured the quality 28
and the impartiality of the judges by appointing courts at the intermediate or higher level as the first-instance trial courts for international trade cases. These judges are more experienced and less 29
likely to be influenced by corruption. In pushing these reforms domestically, China used the WTO to support the legitimacy of the reforms of the Chinese judiciary for freedom from local interferences. 30
In order to comply with the criteria set out in the TRIPS Agreement, China revised its intellectual property rights system. It has amended its legal system to include the possibility of
Karen Halverson, ‘China's WTO Accession: Economic, Legal, And Political Implications’ (2004) 27(2) 26
Boston College International and Comparative Law Review, p. 352. Qin 2007, p. 736. 27 Halverson 2004, p. 358. 28 Qin 2007, p. 736. 29 Qin 2007, p. 736. 30
judicial review of patent invalidation, stricter standards for the issuing of patent licenses, extending copyright protection to compilations, architectural works, public performances, databases, computer software and rental rights. Moreover, it agreed to notify the TRIPS Council not only with regards 31
to the implementation of and amendments to its Copyright, Trademark and Patent Law but also to enhance intellectual property rights enforcement efforts through the application of more effective administrative sanctions.32
Lastly, the normative impact of China’s accession to the WTO has been considered as most important. Prior and after China’s accession, the Chinese government and scholars published an unprecedented number of books and articles on WTO-related topics. This resulted in the wide acceptance of WTO principles such as equality, transparency, justiciability of government action and due process and procedural fairness. Although the notion of equality did exist prior to the 33
WTO accession, it was not enforceable. Through WTO principles such as non-discrimination and the implementation of enforceable laws, equality received better protection. The impartiality of the judicial and administrative organs in making decisions also serves as a foundation for judicial independence. Previously unknown Western notions such as the separation of powers, the rule of 34
law and judicial independence became more prominent in the Chinese legal system and have acquired a normative force in China. The impact of these WTO principles on the construction of rule of law may therefore be considered as more important than the other changes on institutional and legislative level.
Bryan Mercurio, ‘China, Intellectual Property Rights, and the WTO’ in Lisa Toohey, Colin B. Picker & 31
Jonathan Greenacre (eds), China in the International Economic Order: New Directions and Changing
Para-digms (CUP 2015), p. 298.
Mercurio 2015, p. 302. 32
Esther Lam, China and the WTO: A Long March Towards the Rule of Law (Kluwer Law International 33
2009), p. 151. Lam 2009, p. 109. 34
Part II: Dispute settlement system
As the WTO has compulsory jurisdiction over its members, the aforementioned WTO-plus and minus obligations are all enforceable through the dispute settlement mechanism of the WTO. One of the most challenging issues for China when it acceded the WTO was the expectation of its compliance with WTO law, given that its domestic legal and economic norms were so different from those embedded in the WTO system. The WTO system has been built on liberal market economy principles while the Chinese state continuously interfered with its economy. China’s Accession Protocol contained various strict rules that required transparency, the elimination of export duties and an annual review for the first ten years after China’s accession of its trade laws. No other member had to go through such special surveillance within the WTO.
In the beginning of its accession to early 2006, China took a cautious approach towards WTO litigation. Not only was China focused on learning the rules as a newcomer but China also had a negative attitude towards international dispute settlement. This attitude existed due to various factors, such as the suspicion of China towards the impartiality of the international judicial bodies, the conflict between international dispute settlement and the Confucian ideals that promote a state of harmony - which makes mediation rather than litigation the preferable dispute settlement mechanism - and the possible threat to China’s sovereignty. This also became very clear in its 35
approach in cases as China usually became party to a dispute as the respondent rather than the claimant.
However, China’s attitude has gone through a drastic change since its accession to the WTO. China has attempted to understand the WTO system by becoming more active as a litigant, engaging in various regional trade agreements and going to various cases brought before the DSB as a third party. Through attending these hearings as a third party, China was able to obtain 36
information that would be helpful in reforming its domestic trade laws and in training its officials and domestic lawyers. The following cases that will be discussed showcase this development. The cases majorly focus on the trade in goods and intellectual property rights. The reason why these cases will be discussed is because these cases illustrate not only the changing behaviour of China concerning international adjudication but also the influence of the WTO on China’s domestic legal system. In all these cases, China stands before the DSB as the responding party and has to make
Marcia Don Harpaz, ‘Sense and Sensibilities of China and WTO Dispute Settlement’ (2010) 44(6) Journal 35
of Trade Law, p. 25.
Matthieu Burnay & Jan Wouters, ‘The EU and China in the WTO: What Contribution to the International 36
Rule of Law? Reflections in Light of the Raw Materials and Rare Earths Disputes’ in Jianwei Wang and Weiqing Song (eds), China, the European Union, and International Politics of Global Governance (Palgrave Macmillan 2015), p. 4.
legal amendments to its domestic legal system as a result of losing the case or settling outside of court. The implications and consequences of every case will also be discussed afterwards.
The beginning China - Value-Added Tax
This is the first time China became a respondent since its accession to the WTO. The Chinese enterprises could claim a partial refund of the value-added tax (VAT) on integrated circuits which would essentially result in a lower VAT rate on domestic products. This refund was also provided for domestically-designed integrated circuits that were produced outside of China. The US therefore claimed that there was a violation of Articles I and III GATT.
Soon after the US brought the case before the DSB, China expressed its puzzlement as China and the US had already been conducting consultations on this issue and had made significant progress. Remarkably, before a panel had even been established, China had already reached a 37
MoU with the US. In the MoU, China agreed to revoke and amend the inconsistent measures. 38
The VAT refund policy was then discontinued.
The prompt settlement may be explained by the aforementioned Confucian values that have been embedded in China’s legal system. It has been suggested that China had settled this quickly due to the embarrassment that it had felt: not only is litigation considered as a last resort in China as it causes irreparable damage to normal relationships but Taiwan had also requested to join the consultations. Taiwan’s legal status in the WTO has been shrouded in ambiguity as Article XII of 39
the WTO Agreement allows states and separate customs territories possessing full autonomy to apply for WTO Membership. Although Taiwan claims to be a state, China has consistently claimed it to be one of its separate customs territories. Considering their difficult history, the act was regarded to imply that Taiwan was equal to China. In the Acceptance of the Requests to Join 40
‘China puzzled over US tax complaint at WTO’ China Daily (19 March 2004). 37
World Trade Organization, China - Value-Added Tax On Integrated Circuits: Joint Communication from 38
China and the United States, 16 July 2004, WT/DS309/7. See also World Trade Organization, Notification of Mutually Agreed Solution, China - Value-Added Tax on Integrated Circuits (6 October 2005) WT/DS309//8, G/L/675/Add.2, S/L/160/Add.2.
Don Harpaz 2010, p. 25. 39
‘The Master said, 'In hearing litigations, I am like any other body. What is necessary, however, is to causethe people to have no litigations.’’
James Legge, The Chinese Classics, Volume One: Confucian Analects (Gutenberg eBook 2009), Book XII, Yan Yuan, Chapter XIII.
Gao 2007, p. 379. 40
Consultations, China accepted the requests of the EC, Japan and Mexico to join the consultations but rejected Taiwan’s. As Taiwan could have brought a separate complaint under Article XXII GATT as a response, it has been argued that China settled promptly in order to prevent the public humiliation that a separate complaint would bring.41
In the disputes following China - Value-Added Tax, China’s preference to settle out of court remained the same. It only took up a more active approach after China - Auto Parts.
Turning point
After gaining sufficient knowledge and understanding on how the WTO dispute settlement system worked, China started participating more in the system as a main party. China’s behaviour in the following cases is commonly characterized by bending the existing rules and making extensive legal arguments, not only on the substantive nature but also on procedural grounds .42
China - Auto Parts43
This dispute may be regarded as the turning point in China’s behaviour before the DSB. It concerned various customs tariff measures regarding the characterisation of auto parts as complete vehicles. Imported auto parts were in general subject to an average tariff rate of 10% but if the parts were used in either the assembly or the production of complete vehicles for domestic sales and were categorized as complete vehicles, the imported auto parts were subject to a 25% charge instead. This extra charge was equivalent to the import tariff which was applicable to complete vehicles. There were two key thresholds for determining whether imported auto parts should be characterized as complete vehicles. The volume threshold depended on whether the importation of major auto parts for the making of the vehicle constituted 60% or more of the content of the vehicle while the value threshold depended on whether the value of the imported parts in a complete vehicle
Gao 2007, p. 380. 41
For example, in WTO, Panel Report, China - Measures Affecting the Protection and Enforcement of Intel
42
-lectual Property Rights (26 January 2009) WT/DS362/R, China attacked the scope of the measures (paras.
7.1-7.19) while in WTO, Panel Report, China - Measures Affecting Trading Rights and Distribution Services
for Certain Publications and Audiovisual Entertainment Products (12 August 2009) WT/DS363/R, it
provid-ed arguments on the evidence (para. 7.620-7.632), the failure of the US to establish a prima facie case (paras. 7.458-460) and the scope of the Panel’s terms of reference (para. 7.63).
WTO, Panel Report, China - Measures Affecting Imports of Automobile Parts (18 July 2008) WT/
43
DS339R, WT/DS340/R, WT/DS342/R and WTO, Appellate Body Report, China - Measures Affecting
Im-ports of Automobile Parts (15 December 2008) WT/DS339R, WT/DS340/R, WT/DS342/R.
accounted for 60% or more of the total price of that vehicle. China was accused of violating the 44
commitments laid down in the China Accession Protocol and its Schedule of Concessions.
The measure was an internal charge under Article III:2 GATT. It was ruled by both the Panel and the AB that the internal charge was breaching the NT principle as it made a distinction between domestic and imported auto parts based on their origin and subjected the imported parts to a 25% charge. Additionally, the thresholds also breached Article III:4 GATT as auto manufacturers would 45
be incited to use the less expensive domestic auto parts. China invoked Article XX(d) GATT as a 46
defense but the Panel rejected this as China failed to provide sufficient supportive evidence to prove that the measures were designed to prevent circumvention of the higher customs duty applicable to complete vehicles as opposed to the lower rate applicable to auto parts. 47
As a result, China amended one of its inconsistent measures and annulled the other two. Several factors could explain the fast and full compliance of China. Firstly, Auto Parts was the first WTO dispute in which China was the respondent and which required China to implement the rulings. As a recently acceded state, it was important for China to prove that it would follow the WTO rulings even when these were negative for China since many states doubted that China would do that. Secondly, the measures were no longer necessary by the time they had to be removed as 48
the auto industry of China had been developing rapidly nor were they appropriate for the further growth and development of the Chinese auto industry. Thirdly, China wanted to focus on the 49
improvement of its international competitiveness and the increasing demands for motor vehicles.
WTO, Panel Report, China - Measures Affecting Imports of Automobile Parts (18 July 2008) WT/ 44
DS339R, WT/DS340/R, WT/DS342/R, para. 7.32 and WTO, Appellate Body Report, China - Measures
Af-fecting Imports of Automobile Parts (15 December 2008) WT/DS339R, WT/DS340/R, WT/DS342/R para.
114.
WTO, Panel Report, China - Measures Affecting Imports of Automobile Parts (18 July 2008) WT/ 45
DS339R, WT/DS340/R, WT/DS342/R, paras. 7.214-7.223 and WTO, Appellate Body Report, China -
Mea-sures Affecting Imports of Automobile Parts (15 December 2008) WT/DS339R, WT/DS340/R, WT/DS342/R
paras. 183-186.
WTO, Panel Report, China - Measures Affecting Imports of Automobile Parts (18 July 2008) WT/ 46
DS339R, WT/DS340/R, WT/DS342/R, paras. 7.234-7.272 and WTO, Appellate Body Report, China -
Mea-sures Affecting Imports of Automobile Parts (15 December 2008) WT/DS339R, WT/DS340/R, WT/DS342/R
paras. 187-195.
WTO, Panel Report, China - Measures Affecting Imports of Automobile Parts (18 July 2008) WT/ 47
DS339R, WT/DS340/R, WT/DS342/R, paras. 7.301-7.365.
Weihuan Zhou, ‘Fifteen Years On: Has China Implemented WTO Rulings? - A Perspective on Trade in 48
Goods’ (2016) 63 UNSW Law Research Pape, p. 164 Zhou 2016, p. 164.
49
The discriminatory and protectionist measures could be detrimental to these goals. Lastly, the 50
elimination of import quotas and the reduction of its import tariff on cars and auto parts resulted in more foreign competition. In turn, this prompted local car producers to improve their own 51
products and turn China into one of the leading auto producers. It could thus be argued that the rulings were rather welcome for China.
Although the border measures were overhauled, other protectionist measures could also easily be implemented through, for example, anti-dumping and countervailing duties. China introduced other forms of internal measures in order to restrict the impact of the foreign competition which favoured domestic auto products over imported auto products. Tariff circumvention could 52
thus also be combatted through other means.
As a result of China’s fast and full compliance, it was able to take the moral high ground in the WTO dispute settlement mechanism and it became easier for China to comment on and criticize other WTO Members when they did not comply with adverse rulings.53
China - Intellectual Property Rights54
This dispute concerned three sets of Chinese measures; the first set of measures mainly concerned Article 4 Copyright Law which, the US argued, did not provide copyright protection to works that have not been authorized for publication or distribution within China. The second set related to the threshold that China had set up for criminal procedures regarding willful trademark counterfeiting or copyright piracy on a commercial scale which, according to the US, did not fulfill the obligations laid down in Article 61 TRIPS Agreement. The last measures concerned the border measures of China which allowed customs authorities to sell, auction or donate confiscated counterfeit goods to
Zhou 2016, p. 164. 50
Buckley & Zhou 2015, p. 155. 51
Buckley & Zhou 2015, p. 155. 52
Wenhua Ji & Cui Huang, ‘China's Experience in Dealing with WTO Dispute Settlement: A Chinese Per
53
-spective’ (2011) 45(1) Journal of World Trade, p. 16
WTO, Panel Report, China - Measures Affecting the Protection and Enforcement of Intellectual Property
54
Rights (26 January 2009) WT/DS362/R.
the rights holder. These claims did not come as a surprise as the US had long blamed China for its lax enforcement of intellectual property rights laws.55
As consultations did not provide a solution, the Panel had to decide on this matter. Although the Panel upheld the first claim of the US, it rejected the latter two. It agreed with the US that copyright protection should be provided to all works, irrespective of whether the works contain ‘unconstitutional or immoral’ content. Regarding the second set of measures, the Panel held that the US had not provided sufficient evidence. Finally, the Panel upheld all the different measures of the last set except the removal of trademark from counterfeit trademark goods. The Panel noted that the border measures provided a higher level of protection than the minimum standard that the TRIPS Agreement required.56
Neither China nor the US appealed the findings of the Panel and as such, China had to amend certain measures. The revised Copyright Law removed the provision that denied copyright protection of prohibited or censored works. A new set of customs regulations was later 57
implemented to address the concerns about reintroducing counterfeit goods into the stream of commerce but these regulations only apply to imported goods that were produced outside China. However, this amendment failed to address one of the key reasons the case was brought before the DSB in the first place and as such, the quality of the implementation remains questionable.
The refusal to appeal may be explained because both parties viewed the case as their victory. The US claimed before the press that this case was an ‘important victory’. China, in turn, pointed 58
out that the majority of the arguments laid down by the US were rejected by the Panel and that the contested Chinese measures had not been applied in a WTO-inconsistent manner. It was claimed 59
The main problems of China’s intellectual property enforcement concern local protectionism and corrup
55
-tion, the lack of co-ordination among the large number of government agencies responsible for IP enforce-ment, insufficient training of government personnel and the inadequate deterrence provided by the legal sys-tem.
Qin 2007, p. 734.
WTO, Panel Report, China - Measures Affecting the Protection and Enforcement of Intellectual Property
56
Rights (26 January 2009) WT/DS362/R, para. 7.228
Timothy Webster, ‘China's Implementation of WTO Decisions’ in Lisa Toohey, Colin B. Picker & 57
Jonathan Greenacre (eds), China in the International Economic Order: New Directions and Changing
Para-digms (CUP 2015), p. 106.
United States Trade Representative Press Release, ‘United States Wins WTO Dispute over Deficiencies in
58
China’s Intellectual Property Rights Law’, 26 January 2009 <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2009/january/united-states-wins-wto-dispute-over-deficiencies-c> accessed 14 May 2016.
World Trade Organization, Dispute Settlement Body, Minutes of Meeting, 11 February 2009, WT/DSB/M/
59
266, paras. 19-20.
by other experts that, rather than a victory for the US, it was China who appeared victorious out of the case as its intellectual property rights were upheld in the most important areas.
Article XX and the Accession Protocol
In the following cases, China invoked Article XX to justify certain laws. However, the wording of certain WTO-plus obligations laid down in the China Accession Protocol seemed to limit China’s rights in certain areas in unexpected ways. The rulings of the AB in the latter two cases have been subject to much discussion and unease, as will be elaborated on and discussed later.
China - Publications and Audiovisual Products60
This dispute concerned a number of Chinese measures which may be divided into two sets. The first set restricted the trading rights of imported films for audiovisual home entertainment products, theatrical release and sound recordings and publications while the second set restricted market access for foreign suppliers of audiovisual services for audiovisual home entertainment products and foreign suppliers of distribution services for publications.
China defended itself by invoking Article XX(a) GATT. According to China, the measures were necessary in order to maintain an efficient and effective review mechanism which ensured that the content of the imports did not have a negative impact on public morals. However, China could 61
not provide sufficient evidence to fulfill the ‘necessary’-requirement. According to both the Panel and the AB, some measures did not make any contributions to the protection of public morals and there were also less-trade-restrictive alternatives available.62
Due to the involvement of complex and sensitive issues, the new measures were implemented after the period given by the DSB had already passed. As a temporary solution, 63
WTO, Panel Report, China - Measures Affecting Trading Rights and Distribution Services for Certain
60
Publications and Audiovisual Entertainment Products (12 August 2009) WT/DS363/R and WTO, Appellate
Body Report, China - Measures Affecting Trading Rights and Distribution Services for Certain Publications
and Audiovisual Entertainment Products (21 December 2009) WT/DS363/AB/R.
WTO, Panel Report, China - Measures Affecting Trading Rights and Distribution Services for Certain
61
Publications and Audiovisual Entertainment Products (12 August 2009) WT/DS363/R, para. 7.713.
WTO, Panel Report, China - Measures Affecting Trading Rights and Distribution Services for Certain
62
Publications and Audiovisual Entertainment Products (12 August 2009) WT/DS363/R, paras. 7.824-7.911
and WTO, Appellate Body Report, China - Measures Affecting Trading Rights and Distribution Services for
Certain Publications and Audiovisual Entertainment Products (21 December 2009) WT/DS363/AB/R, paras.
269-337.
Zhou 2016, p. 172.
63
China also reached a MoU with the US where it agreed to provide an increased share of revenue 64
for US film producers, to relax its film quotas for enhanced format films (3D and IMAX films) and to liberalize the distribution rights for local enterprises. In return, the US is not able to challenge 65
China’s implementation of the WTO rulings until 2017. The current situation may as a matter of fact be more profitable for the US since the US now gets exclusive market access, which it would not have gotten if China were to liberalize its trading rights.66
China has since successfully reformed its restrictive trade laws regarding cultural goods. The most significant amendments were made to the Regulations on the Management of Audiovisual Products, the Regulations on the Management of Publications and the Catalogue for Guidance of Foreign Investment Industries. For the establishment of a publication import entity, the business 67
license of the entity has to be checked and the license must be issued by the competent publication department under the State Council. The conditions for the establishment of a publication import 68
entity were also changed. Originally, this entity had to be wholly State-owned and specifically designated by the government but this was abolished and the requirement that the importer had to have the ability to examine the contents of imported publications was added. Despite these new 69
requirements, it has been noted that the government may still not grant this status to private and foreign entities.70
The revision also prohibited the exercise of discretion from Chinese agencies when granting trading rights. However, it did not address the discretion of agencies in licensing nor was it
World Trade Organization, China - Measures Affecting Trading Rights and Distribution Services for Cer
64
-tain Publications and Audiovisual Enter-tainment Products: Joint Communication from China and the United States, 11 May 2012, WT/DS363/19.
World Trade Organization, China - Measures Affecting Trading Rights and Distribution Services for Cer
65
-tain Publications and Audiovisual Enter-tainment Products: Joint Communication from China and the United States, 11 May 2012, WT/DS363/19
Zhou 2016, p. 179.
66
Zhijie Chen, ‘Development of WTO Rules and Case Implications for China: Insights from China - Publi
67
-cations and Audiovisual Products’ (2013) 4(1) City University of Hong Kong Law Review, p. 79. Chen 2013, p. 79.
68
Chen 2013, p. 79.
69
Julia Ya Qin, ‘Pushing the Limits of Global Governance: Trading Rights, Censorship, and WTO
70
Jurisprudence - A Commentary on the China-Publications Case’ (2011) 10 Chinese Journal of International Law, p. 13.
inclusive of an application process - all observations that the Panel had specifically considered to be inconsistent. As a result, trading rights can still be granted in a discretionary manner.71
The import of books, newspapers, magazines, audio, video products and electronic publications is also no longer prohibited. There were no changes made regarding imported films 72
as China reached the aforementioned MoU with the US.73
The culture industry has always been a sensitive sector of China since it conveys fundamental social values and political interests and it thus comes not as a surprise that China has chosen not to 74
liberalise this market, irrespective of the possible violations of WTO obligations. The implementation of the WTO rulings may therefore not lead to the full liberalisation of the trading rights regarding cultural goods. The rulings have been flexible about the possibility of an approval system for the cultural goods imported to China. This approval system, however, is likely not to grant trading rights automatically. These trading rights have long only been granted to certain state-owned enterprises and due to the flexibilities provided by the rulings, this practice may not change.
In the long run, the reforms may dismantle the monopoly of trading rights that state-owned enterprises have. The sensitivity and significance of this sector, however, may point towards a slow change since China will most likely continue enforcing the censorship of cultural imports. The 75
WTO rulings may increase the number of imported cultural goods but these must satisfy the content reviews of the Chinese government and, as such, China’s strict censorship policy may continue to limit the volume of cultural imports.76
WTO, Panel Report, China - Measures Affecting Trading Rights and Distribution Services for Certain 71
Publications and Audiovisual Entertainment Products (12 August 2009) WT/DS363/R, para. 7.656.
Catalogue of Prohibited Foreign Investment Industries Section X <http://english.mofcom.gov.cn/article/
72
policyrelease/aaa/201203/20120308027837.shtml>
World Trade Organization, China - Measures Affecting Trading Rights and Distribution Services for Cer
73
-tain Publications and Audiovisual Enter-tainment Products: Joint Communication from China and the United States, 11 May 2012, WT/DS363/19
It was noted in Elanor A. Mangin, ‘Market Access in China - Publications and Audiovisual Materials: A
74
Moral Victory with a Silver Lining’ (2010) 25(1) Berkeley Technology Law Journal that China’s restrictions on trading rights served to ‘regulate the cultural content its population consumes’ and ‘combat perceived cul-tural colonialism’ (p. 302-303). Zhou 2016, p. 180. 75 Zhou 2016, p. 180-181. 76
China - Raw Materials77
This case concerned the export restriction on certain raw materials by China. These materials are very limited in the world and China is the main producer for these materials. The EU, Mexico and the US brought China before the Dispute Settlement Body. China defended itself by invoking Article XX of the GATT: it claimed that the restrictions were aimed at protecting human, animal or plant life or health (Article XX(b) GATT) and conserving exhaustible natural resources (Article XX(g) GATT).
China’s defense was unsuccessful. This was due to Paragraph 11.3 of the China Accession Protocol which stated 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.
The Panel ruled that China could not invoke the general exceptions laid down in Articles XX(b) and (g) GATT because the wording and the context of Paragraph 11.3 did not give China the possibility to justify its duties based on Article XX. The export quotas were also prohibited by Article XI:1 78
GATT and China had not been able to prove that the quotas were temporarily applied in order to prevent or relieve a critical shortage.
The AB agreed with the Panel in its judgment. Notably, China had been able to invoke Article XX as a defence in China - Publications and Audiovisual Products. However, this has been explained by the wording and rationale of Paragraph 5.1 of the Protocol which allowed this. 79
According to the AB, however, Paragraph 11.3 did not mention China’s ‘right to regulate’ and there was therefore no indication in the way Paragraph 11.3 was worded that Article XX GATT could be invoked by China. As a consequence, China implemented the WTO rulings through the 2013 80
Tariff Implementation Program and the 2013 Catalogue of Goods subject to Export Licensing Administration. These two measures took effect on 1 January 2013 and removed the export duties
WTO, Panel Report, China - Measures Related to the Exportation of Various Raw Materials (5 July 2011)
77
WT/DS394/R, WT/DS395/R, WT/DS398/R and WTO, Appellate Body Report, China - Measures Related to
the Exportation of Various Raw Materials (30 January 2012) WT/DS394/AB/R, WT/DS395/AB/R, WT/
DS398/AB/R.
WTO, Panel Report, China - Measures Related to the Exportation of Various Raw Materials (5 July 2011) 78
WT/DS394/R, WT/DS395/R, WT/DS398/R, para. 7.158.
WTO, Appellate Body Report, China - Measures Affecting Trading Rights and Distribution Services for 79
Certain Publications and Audiovisual Entertainment Products (21 December 2009) WT/DS363/AB/R, paras.
229-233.
WTO, Appellate Body Report, China - Measures Related to the Exportation of Various Raw Materials (30 80
January 2012) WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, paras. 284, 293, 306.
and quotas on raw materials. This was a satisfying solution for the complaining parties, although there was still some concern about China’s regulation of exports in general and the export restrictions that remained on the export of rare earths. China only had to revise two of its forty 81
measures. These measures were of a temporary nature which means they can be amended annually.
China - Rare Earths82
This case concerned almost the same issues as Raw Materials. It concerned the restrictions that China had imposed on the export of rare earth elements. These elements are needed for the development of green technologies and China is the by far the biggest exporter of rare earths. It produces 95% of the global demand while it has only 30% of the world’s known reserves - a rapid decrease from the 1980s, when China had almost 90% of the world’s rare earth reserves. China, 83
again, attempted to protect its natural resources and put export restrictions on its rare earths. The measures at issue were the 2012 Tariff Implementation Plan and the 2012 Tariff Implementation Program. The EU, again, stated that the export duties of China were against Paragraph 11.3 of the China Accession Protocol. China defended itself by invoking Article XX(b) GATT but the Panel and the AB, once again, held that China could not invoke this exception to justify its export duties. 84
However, both the Panel and the AB stated that both Article XX(g) and (b) do not ‘exclude, a priori, export quotas or any other type of measure from being justified by a WTO Member pursuing the conservation of an exhaustible natural resource’. The import ban in Brazil - Retreaded Tyres 85
was one of the key elements in the reduction of waste tyres and, although there were alternatives 86
available, the AB found that the alternative measures were not able to provide the same level of
World Trade Organization, Dispute Settlement Body, Minutes of Meeting, 28 January 2013, WT/DSB/M/ 81
328 (22 March 2013), p. 9-12.
WTO, Panel Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, and Molybde
82
-num (26 March 2014) WT/DS431/R, WT/DS432/R, WT/DS433/R and WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum (7 August 2014) WT/
DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R
Marian Paschke & Shi Cheng, ‘The Applicability of Environmental Exceptions of the GATT to China’s
83
WTO-Plus Obligations - WTO Panel and Appellate Body Rulings on the Chinese Export Restrictions of Rare Earths, Tungsten and Molybdenum’ (2015) 10(2) Frontiers of Law in China, p. 213.
WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, and
84
Molybdenum (7 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, paras. 5.4-5.7
WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, and
85
Molybdenum (7 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, para. 5.162.
WTO, Appellate Body Report, Brazil - Measures Affecting Imports of Retreaded Tyres (3 December 2007)
86
WT/DS332/AB/R, paras. 153-154.
protection as pursued by the ban . This also applies to China; it would thus be possible for the 87
export quotas to be reintroduced in China if China could establish that the quotas are essential or indispensable to a regulatory scheme which aims at the reduction of the extraction of rare earths and pollution.88
China agreed, once again, to implement the rulings through the 2015 Catalogue of Goods Subject to Export Licensing Administration and the Notice on Adjusting Export Tariffs of Some Products. The export duties on 84 tariff items were abolished in the Notice but it may be worth pointing out that this notice may be changed at any moment. The Catalogue also removed rare earths from the list of products that were subject to export quotas and placed under a general export licensing system. The general export licensing system grants export licenses automatically based 89
on export contracts rather than based on MOFCOM approval documents.
Criticism and consequences following Raw Materials and Rare Earths
Remarkably, several third parties and a dissenting Panelist disagreed with the AB’s findings in 90
Rare Earths. This does not happen very often because these rulings are de facto binding. Russia stated that:
In accordance with well-established customary practices of the WTO and the understanding shared by the Members, this additional language is redundant as all Members have equal availability of defences under the WTO Agreement in the context of the whole integrity of all parts of the WTO Agreement, in particular Multilateral Trade Agreements and Protocols
WTO, Appellate Body Report, Brazil - Measures Affecting Imports of Retreaded Tyres (3 December 2007)
87 WT/DS332/AB/R, paras. 172-174. Zhou 2016, p. 195-196. 88 Zhou 2016, p. 192. 89
See WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten,
90
and Molybdenum (7 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, paras.
2.2.18-2.243.
There were sixteen third parties participating in Rare Earths. While eight of them (Australia, India, Indone-sia, Oman, Peru, Taiwan, Turkey and Vietnam) did not express their views on the issue, four parties (Ar-gentina, Brazil, Columbia and Russia) sided with China and one dissenting Panelist and South Korea argued that China’s accession negotiations had to be examined in order to answer the question properly. The oppos-ing countries were Canada, Norway and Saudi Arabia.
of accession, with or without specific reference to such defences in the Protocol of accession.91
Many concerns and criticisms have been raised after these judgments, especially from other developing and emerging states. The response within China itself has also been overwhelmingly negative. It has been stated that ‘the rest of the world has to realize that China cannot go on sacrificing its environment for the benefit of other countries’ and that China must fight the battle 92
to protect its resources from the greed of Western powers . As a response to the Raw Materials 93
case, the MOFCOM has stressed that ‘the WTO should not only uphold free trade but also allow members to take necessary steps to protect the environment and natural resources’. The Chinese 94
Representative at the DSB meeting has also stated that the rulings are susceptible of ‘creating an unsustainable two-tiered system where new Members do not have the same right to promote fundamental societal interests as established Members’.95
The dissenting opinion from the Panel Report in Rare Earths concluded that the general 96
exceptions of the GATT should be available to China as it had not explicitly given up the right to invoke Article XX. However, since the wording of Paragraph 11.3 - contrarily to Paragraph 11.1, 11.2 and other Accession Protocols - did not explicitly refer to Article XX, the AB concluded that Article XX could not be invoked by China.
It has been pointed out by legal scholars that an omission does not necessarily have to be interpreted as the denial of the applicability of Article XX GATT. This has already been shown in previous cases, such as Canada - Autos where it was stated that ‘omissions in different contexts may have different meanings, and omission, in and of itself, is not necessarily dispositive’ . 97
However, the AB has also stated that ‘sometimes the absence of something means simply that it is
WTO, Panel Report Addendum, China - Measures Related to the Exportation of Rare Earths, Tungsten,
91
and Molybdenum (26 March 2014) WT/DS431/R/Add.1, WT/DS432/R/Add.1, WT/DS433/R/Add.1, Annex
C-9, para. 5.
Xinyu Mei, ‘WTO ruling not end of road for China’ China Daily (20 July 2011).
92
Julia Ya Qin, ‘Reforming WTO Discipline on Export Duties: Sovereignty over Natural Resources, Eco
93
-nomic Development and Environmental Protection’ (2012) 46(5) Journal of World Trade, p. 28.
Tom Barkley, ’China loses trade appeal over its curbs on exports’ The Wall Street Journal (Washington, 31 94
January 2012). Qin 2012, p. 28. 95
WTO, Panel Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, and Molybde
96
-num (26 March 2014) WT/DS431/R, WT/DS432/R, WT/DS433/R, paras. 7.118-7.138.
WTO, Appellate Body Report, Canada - Certain Measures Affecting the Automotive Industry (31 May 97
2000) WT/DS139/AB/R, WT/DS142/AB/R para. 138.
not there’ . These situations have to be distinguished on basis of the object and purpose and the 98
context of the provision at issue. However, this was not done in Rare Earths as the conclusion was 99
formed on the basis of the opinion of the AB in Raw Materials. In Raw Materials, the AB considered that it was ‘reasonable to assume that, had there been a common intention to provide access to GATT Article XX in this respect, language to that effect would have been included in Paragraph 11.3 or elsewhere in China’s Accession Protocol’.100 However, it has been pointed out by Qin that this so-called reasonable assumption assumes that an accession protocol is carefully negotiated and drafted which does not match with the reality of accession negotiations. An acceding state has to negotiate its membership through both bilateral and multilateral procedures and the quality of a particular term often depends on the bargaining power and the competence of the negotiation team of the acceding state.101 As a result, it is not uncommon to see loosely drafted accession terms. However, it must also be noted that the other subparagraphs do contain an express textual reference to Article XX GAT. It is therefore questionable, as discussed later, whether China intentionally gave up its right to invoke Article XX or whether the lack of knowledge and competency of its negotiation team combined with its eagerness to accede the WTO resulted into unwanted consequences for China.
Rare Earths would have been a great opportunity for the AB to reexamine its Raw Materials findings but, as China did not directly challenge it, the AB did not see a reason to revisit the ruling.102 It, however, reaffirmed Raw Materials by stating that the decision was made on the basis of a holistic analysis of all elements.103
Various scholars have argued that the AB should have analyzed China’s accession negotiations instead. The context provided by Paragraph 170 of China’s Working Party Report would have supported the assertion that China did not give up its right to invoke Article XX GATT.
WTO, Appellate Body Report, Canada - Term of Patent Protection (18 September 2000) WT/DS170/AB/ 98
R, para. 78.
Paschke & Cheng 2015, p. 233. 99
WTO, Appellate Body Report, China - Measures Related to the Exportation of Various Raw Materials (30 100
January 2012) WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, para. 293. Qin 2012, p. 11.
101
WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, 102
and Molybdenum (7 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, para. 5.65.
WTO, Appellate Body Report, China - Measures Related to the Exportation of Rare Earths, Tungsten, 103
and Molybdenum (7 August 2014) WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, para. 5.63.
However, the AB did not use this text as it was of the opinion that Paragraph 170 was applicable only to internal policies and that the export duties were not a part of this. The AB opted to use a narrow textual interpretive approach104 instead.
This interpretation conflicts with other rules of international law. Based on Article 31(1) VCLT, an interpretation should be honest and fair in light of the principle of good faith. It is disputable whether it could be considered reasonable to conclude that China had the intention to give up its right to invoke Article XX. The AB had already stated in Argentina - Footwear that an omission does not necessarily imply the denial of any connection between agreements that are ‘integral parts of the same treaty, the WTO Agreement’.105 The accession protocols can be deemed as an integral part of the WTO Agreement but this was not taken into account in Raw Materials and Rare Earths as the China Accession Protocol was entirely disconnected from the other WTO Agreements and the opposite was inferred.106 As a result, the provided interpretation could be considered to be inconsistent with the customary rules laid down in Articles 31 and 32 VCLT as it does not take the broad contexts of the treaty into account nor is this approach consistent with the ‘holistic’ approach that has been advocated for the interpretation of WTO legislation107.
It would also have been possible to interpret the silence in light of its context. The text of the WTO-plus obligation and the customary rules of interpretation laid down in the VCLT would then have to be taken into account. When interpreted in light of the the object and purpose of the WTO system laid down in the Preamble, it could be argued that the newly given interpretation of Paragraph 11.3 conflicts with principles of sustainable development which is one of the key principles of the WTO. This could indicate that China did not relinquish its right to regulate trade in a way that promotes the environmental protection, conservation of natural resources and the public health through the adoption of export tariffs, if these had proven to be the most appropriate tool to
This has been argued by several scholars, such as Paschke & Cheng 2015 on p. 243 and Julia Ya Qin, 104
‘Judicial Authority in WTO Law: A Commentary on the Appellate Body’s Decision in China-Rare
Earths’ (2014) 13(4) Chinese Journal of International Law.
WTO, Appellate Body Report, Argentina - Safeguard Measures on Imports of Footwear (14 December 105
1999) WT/DS121/AB/R, para. 81.
‘As China's obligation to eliminate export duties arises exclusively from China's Accession Protocol, and 106
not from the GATT 1994, we consider it reasonable to assume that, had there been a common intention to provide access to Article XX of the GATT 1994 in this respect, language to that effect would have been in-cluded in Paragraph 11.3 or elsewhere in China's Accession Protocol.’
WTO, Appellate Body Report, China - Measures Related to the Exportation of Various Raw Materials (30 January 2012) WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, para. 293, emphasis added.
For example, in WTO, Appellate Body Report, European Communities - Customs Classification of 107
Frozen Boneless Chicken Cuts (12 September 2005) WT/DS269/AB/R, WT/DS286/AB/R, para. 176.
realize its legitimate public policy purposes.108 As the DSB did not touch on the various other interpretation possibilities, it has been argued that the interpretation methods of the DSB are inconsistent and may lead to situations that are not always acceptable.109
The consequences following these two judgments have mostly been negative. The rulings would imply that without an express textual reference, individual WTO-plus obligations will be able to trump important public policy and non-trade values under WTO law. This is peculiar, considering 110
that environmental protection and sustainable development are basic aims of the WTO and even 111
the pillars of trade liberalisation like the MFN clause and the NT principle are subject to these general exceptions in order to protect these aims. US - Shrimps was viewed as a turning point in 112
the way it interpreted the environmental provisions of the GATT, followed by EC - Asbestos in 113
which measures inconsistent with trade liberalisation obligations were justified under Article XX GATT. These cases imply that environmental and health interests of the member states are serious concerns of the WTO system. However, WTO-plus obligations have now apparently become ‘immune’ against any exception in the GATT.114
Although China did not qualify to invoke the exceptions laid down in Article XI:2 GATT in these particular cases, it could theoretically still invoke quantitative quotas and bans in order to pursue its national environmental, conservation and health policies. However, quotas are considered less transparent and more trade distorting than customs duties. As a result of the denial to invoke 115
Elisa Baroncini, ‘The applicability of GATT Article XX to China’s WTO Accession Protocol in the Ap
108
-pellate Body Report of the China-Raw Materials case: suggestions for a different interpretative approach’ (2013) 1(3) China-EU Law Journal, p. 24.
Liu Ying, ‘The Applicability of Environmental Protection Exceptions to WTO-Plus Obligations: In View 109
of the China - Raw Materials and China - Rare Earths Cases’ (2014) 27(1) Leiden Journal of International Law, p. 137.
Qin 2012, p. 10. 110
As laid down in the preamble of the GATT. 111
WTO, Panel Report, United States - Import Prohibition of Certain Shrimp and Shrimp Products (15 May
112
1998) WT/DS58/R and WTO, Appellate Body Report, United States - Import Prohibition of Certain Shrimp
and Shrimp Products (12 October 1998) WT/DS58/AB/R
WTO, Panel Report, European Communities - Measures Affecting Asbestos and Asbestos-Containing
113
Products (18 September 2000) WT/DS135/R and WTO, Appellate Body Report, European Communities - Measures Affecting Asbestos and Asbestos-Containing Products (12 March 2001) WT/DS135/AB/R.
Baroncini 2013, p. 20. 114
Baroncini 2013, p. 20. 115
