12 July 2019
ANTIDUMPING METHODOLOGY FOR NON-MARKET ECONOMIES (NME): THE ABOLITION OF NME CONDITIONS AND POSSIBLE ALTERNATIVES
Master Thesis
Dao Trong Khoi
International Trade and Investment Law dr. J.H. (James) Mathis
ABSTRACT
Section 15(a)(ii) of China Accession Protocol, which is the explicit basis for the use of Non-Market Economy Methodology, was expired in 2016. To answer whether the methodology may remain, various interpretations of the non-terminated parts of Section 15, the negotiation history and other supplementary sources are hardly analyzed by the parties (the EU and China) in the case DS516. The thesis concludes that the interpretation of the EU based on the “shifting burden of proof” concept or the linkage with SCM Agreement and paragraph 150 of the Working Party Report are not sufficiently convincing as those neither find explicit textual basis in the Section 15(a) nor reflect the history of negotiation in the records. By contrast, the interpretation of China may more likely be favored by the Panel in the case, because it was strongly supported by inter alia the dictum of the AB in EC-Fastener, the statements of the authorities of the EU and the US, the negotiation history, and the textual content of the Section itself. Therefore, Section 15(a) may not continue to justify the use of the NME Methodology after the expiration of Section 15(a)(ii).
The abolition of such methodology leads to the need of other alternatives confronting the “special difficulties” in calculating the normal value due to NME state distortions. The “significant distortion” concept in EU Amended Regulation 2017/2321 still provides the authorities with a wide discretion to use non-Chinese prices and costs but is not formed as an “as such” violation of the WTO laws. However, in case the EU actually gets recourse to the surrogate costs, an “as applied” claim might be lodged similar to the case EC-Biodiesel (Argentina), which does not support the EU position. Another alternative is using countervailing measures (SCM). Although certain complications in applying SCM to the Chinese distorted market are mitigated by Section 15(b) of the China AP, the restricted scope and other technical difficulties of such measures may make it much less effective than the NME Methodology. Besides, the re-interpretation of Article VI of the GATT and Article 2 of the Antidumping Agreement providing room for using the surrogate prices and costs is the most convincing alternative; however, accepting such interpretation may render the Section 15(a) and 15(d) meaningless and grant the importing countries a wide discretion to discard the domestic prices and costs without concrete justifications in WTO antidumping laws.
LIST OF ABBREVIATIONS
Abbreviation Description
AB Appellate Body
AD Anti-Dumping
ADA Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
China AP Protocol on the Accession of the People's Republic of China
EC European Commission
EU European Union
GATT General Agreement on Tariffs and Trade 1994
ME Market Economy
NME Non-Market Economy
SCM Agreement on Subsidies and Countervailing Measures
SOE State-owned enterprise
SOCB State-owned commercial bank
Sunset Clause Section 15(a)(ii) of the Protocol on the Accession of the People's Republic of China
VCLT Vienna Convention on the Law of the Treaties
WTO World Trade Organization
TABLE OF CONTENTS
INTRODUCTION ... 5
1. THE IMPORTANCE OF NON-MARKET ECONOMIES METHODOLOGY ... 6
1.1. Description of the NME Methodology. ... 6
1.2. The importance of NME Methodology. ... 6
2. JUSTIFICATION OF NME METHODOLOGY AFTER THE EXPIRATION OF SECTION 15(a)(ii) OF THE CHINA ACCESSION PROTOCOL ... 8
2.1. Analyses of the consequences of the Sunset Clause expiration and the continuance of the NME Methodology ... 8
2.1.1. The meaning of subparagraph 15(a)(i) ... 9
2.1.2. The meaning of the chapeau of paragraph 15(a) ... 11
2.1.3. The particular effect of the second sentence of Section 15(d) ... 12
2.1.4. The “Shifting burden of proof” concept ... 14
2.1.5. Travaux Preparatoires: Paragraph 150 of the Working Party Report ... 15
2.1.6. Travaux preparatoires 2: The history of negotiation ... 18
2.2. Conclusion ... 21
3. ALTERNATIVES FOR THE NON-MARKET ECONOMIES METHODOLOGY. ... 25
3.1. “Significant Distortion” concept in the EU Amended Regulation 2017/2321. . 25
3.1.1. Description of the concept ... 25
3.1.2. Consistency of the “Significant Distortion” concept with WTO anti-dumping laws. ... 26
3.2. Article VI of the GATT, Ad Note of the Article VI of the GATT and Article 2 of the ADA ... 28
3.3. Subsidy and Countervailing Measures ... 30
3.3.1. Introduction ... 30
3.3.2. Advantages and disadvantages of using Subsidy and Countervailing Measures ... 31
INTRODUCTION
The expiry of Section 15(a)(ii) of China AP in 2016 results in a great controversial dispute between China and several Market Economy (ME) WTO Members. While China had waited for the “clock ticking” counting down to the end of the so-called “analogue country” dumping calculation methodology applied to Chinese exports, the US and EU repeatedly claims that there is no automatic graduation of the Non-Market Economy (NME) conditions for China after the deadline and such methodology could still be justified by the non-terminated parts of such Section 15(a). Various articles were introduced arguing for both sides, makes the conflict become “the most important live issue in WTO anti-dumping law”.1 China finally requested
the establishment of a Panel to decide the exact interpretation of such Section.2 In this regard,
this thesis is trying to act in the Panel’s position to consider which arguments should be favored. Ultimately, the thesis concludes that the justification for the NME Methodology could not anymore be based on the words of Section 15. This work also demonstrates that although the “significant distortion” concept in the EU Amended Regulation 2017/2321 might be flagged as an “as applied” violation of WTO laws, the Article VI of the GATT, Article 2 ADA and the SCM Agreement might be considered as certain alternatives to introduce NME-like measures confronting the distortions in the Chinese domestic market.
1 European Union, “European Union – Measures Related to Price Comparison Methodologies (DS516) First
Written Submission” (EU Submission, 14 November 2017) 1, (hereinafter “EU first submission”).
2 WTO, “DS516: European Union — Measures Related to Price Comparison Methodologies” (WTO Website,
1. THE IMPORTANCE OF NON-MARKET ECONOMIES METHODOLOGY 1.1. Description of the NME Methodology.
After roughly eight years since the formation of the General Agreement on Tariffs and Trade, concerns were raised about the “special difficulties” in determining price comparability for the determination of the antidumping duties of exporters from “a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State”.3 When China, one of the largest-scale economies with a long history of state
intervention, proposed to accede to the WTO in the last years of the 20th century, this issue
again attracted serious consideration. As a “heavy price” for being a WTO member, China had to agree on extended WTO-plus obligations and WTO-minus rights, which were recorded in the China Accession Protocol, “an integral part of the WTO agreement”.4 The Protocol
includes “special rules governing determination of normal value in anti-dumping cases initiated by other WTO Members involving Chinese exports” formed at Section 15 of the Protocol.5
These rules introduced the so-called “NME Methodology”, which is “a methodology that is not based on a strict comparison with domestic prices or costs in China” and allows the use of the prices or costs in a third-party market economy country in calculating the normal value.6
The rationale for such replacement is that the Chinese domestic prices and costs are presumed as being distorted by the state intervention, and therefore could not serve as reliable sources for constructing the normal value and securing a “fair comparison” between such value and the export price for calculating the duty amount. Unless the Chinese exporters are able to clearly demonstrate that market economy conditions defined in the importing countries’ national laws prevail in their particular industry, such presumption might be rebutted and a “strict comparison” with the Chinese prices and costs shall be applied.7
1.2. The importance of NME Methodology.
However, Section 15(a)(ii), the explicit basis for the NME Methodology, was terminated in 2016 by the second sentence of paragraph 15(d) of the China AP, which provides that the former subparagraph will expire after 15 years after the date of the accession. Whether the
3 Interpretative Note Ad Article VI of the GATT, paragraph 1.2. 4 Article 1.2 of the China AP.
5 Zhang Xiangchen, “European Union – Measures Related to Price Comparison Methodologies (DS516),
Opening Statement by Ambassador Zhang Xiangchen” (Oral Statement of China, First Substantive Meeting of the Panel in the Dispute, 6 December 2017) 3, <
http://images.mofcom.gov.cn/wto2/201712/20171213174424357.pdf> accessed 6th June 2019. 6 Section 15(a)(ii) of the China AP (hereinafter “the Sunset Clause”).
NME Methodology might also be terminated or may have survived after such expiration has been a controversial issue, and therefore China did initiate the case European Union - Measures Related to Price Comparison Methodologies - DS516 in December 2016 to seek a final decision of the Panel. In the proceedings, the EU amended the alleged regulation by introducing the new regulation 2017/2321, and request the Panel to not make recommendation on the repealed measures.8 However, as China’s claim also covers “‘any modification, replacement
or amendment to the measures”, at least the Panel should provide the final interpretation of the Section 15, and it might also consider the new regulation in case its correlation with the previous version could be found.
NME Methodology has served an important role in the trade policies of ME WTO Members.9
Therefore, in case the Chinese claim is favored, the decision will be a strong legal basis for China to require other countries to de-activate the use of NME Methodology worldwide, especially the US - the respondent in a similar case (DS515) initiated by China.10 In response
to such threat, other alternatives for ME countries should be introduced in order to protect their domestic from imports and “unfair” competition from Chinese domestic market producers. Otherwise, China might de jure graduate the ME status or de facto be granted ME treatment while its market is still under the influence by the State in a “very significant manner” regarding the allocation and pricing of the various factors of production, of resources and on their prices.11
8 European Union, “European Union – Measures Related to Price Comparison Methodologies (DS516) Second
Written Submission” (EU Second Written Submission, 27 February 2018) 14, (hereinafter “EU second
submission”).
9 See Zhang Xiangchen (n 5) 4. “From 2001 to 2016, there have been more than one thousand anti-dumping
investigations initiated against Chinese imports, more than three times the number for the second most targeted country. Due to the use of the special methodology under Section 15(a) of the Protocol, Chinese imports often have been subject to skyrocketing anti-dumping duties. As estimated by the European Commission, the use of the “standard” methodology results in duties that are 30 % lower than when using the ‘analogue country’ methodology”.
10 United States — Measures Related to Price Comparison Methodologies (DS515) 12 December 2016. 11 European Commission, Commission Staff Working Document on Significant Distortions in the Economy of
the People’s Republic of China for the Purposes of Trade Defence Investigations (SWD (2017) 483 final/2, 20
2. JUSTIFICATION OF NME METHODOLOGY AFTER THE EXPIRATION OF SECTION 15(a)(ii) OF THE CHINA ACCESSION PROTOCOL
2.1. Analyses of the consequences of the Sunset Clause expiration and the continuance of the NME Methodology
The termination of the Sunset Clause in the China AP is the key issue which leads to strong arguments and widely separated legal analyses of trade law experts. Bhattacharya broadly divided the analyses into three “streams of thought”.12 The first extreme one called “the magic
deadline”, which claims that the termination of the Sunset Clause led to the abolition of NME methodology as a whole and recognized China as a ME. Another opposite extreme called “business as usual” claimed that such a termination does not affect the continuance of the NME methodology. The third one situated in the middle is the “shifting burden of proof” favoring the EU position, which states that the termination only shifts the burden of proof for compliance with NME conditions from Chinese exporters to the importing country authority and the NME methodology still survives after 2016. Zhou similarly shared such categories but added one more in the middle favoring the Chinese position, which considers that such termination results in the abolition of the NME methodology but not automatically grants ME status to China.13
“The magic deadline” “Abolition of the NME Methodology” “Shifting burden of proof” “Business as usual”
The Sunset Clause not only terminates the NME
Methodology but also grants China the ME status.
After 2016, Section 15 could not be the basis for the use of the NME
Methodology, while WTO Members are not obliged to recognize China as a ME.
The Sunset Clause only shifts burden of proving whether China satisfies the market economy conditions from Chinese producers to the
investigating authorities and the non-terminated parts of Section 15 continue to justify the NME Methodology.
The expiration of Article 15(a)(ii) does not recognize China as a ME; nor does it remove the flexibility for the use of NME Methodology.
To the present, two most recent and strongly supported ways of interpretation are the “shifting burden of proof” favoring the EU side and the termination of the whole NME Methodology
12 Ritwik Bhattacharya, “Three Viewpoints on China’s Non-Market Economy Status” (2017) 9(2) TRADE L. &
DEV., 305, 307.
13 Weihuan Zhou and Delei Peng, “EU – Price Comparison Methodologies (DS516): Challenging the Non-
Market Economy Methodology in Light of the Negotiating History of Article 15 of China's WTO Accession Protocol” (2018) 52(3) Journal of World Trade; UNSW Law Research Paper No. 18-3, January 1, 2018, 7.
interpreted by China proponents. Generally speaking, granting ME status to China is more likely not the most important in this case, while the majority consideration is concentrating on whether there is any basis left at Section 15 which could be invoked by the importing country to apply the NME Methodology to suspected Chinese exporters after the termination of the Sunset Clause? In order to answer that question, a number of interpretations, principles and sources have been analyzed by both the parties and their proponents, which would be categorized as below:
(i) The meaning of subparagraph 15(a)(i)
(ii) The meaning of the Chapeau of paragraph 15(a) (iii) The “shifting burden of proof” concept
(iv) Travaux Preparatoires: Paragraph 150 of the Working Party Report (v) Travaux preparatoires 2: The history of negotiation
Therefore, a comparative method will be applied to the arguments of both sides regarding each way of interpretation listed above in order to clarify which one is more convincing and might be accepted by the Panel.
2.1.1. The meaning of subparagraph 15(a)(i)
Paragraph 15(a) provides that
[I]n 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 [emphasis added].
In the light of the “magic deadline” perspective, the Sunset Clause is the only true legal basis providing the importing country with a derogation from applying the normal methodology provided in Article VI:1 of the GATT and ADA.14 This is because, the Chapeau of paragraph
15(a) specifies two conditional options to apply either Chinese or non-Chinese prices or costs “based on” two “triggers” namely subparagraphs 15(a)(i), and subparagraph 15(a)(ii) (the Sunset Clause). However, while subparagraph 15(a)(i) imposes an obligation (formed with the word “shall”) on the importing country to use Chinese prices and costs for calculating duties of exporters from a Chinese industry in which the prevalence of ME conditions is successfully proven, there is only the Sunset Clause providing the importing country with a right (formed with the term “may”) to use NME Methodology if the exporters failed to prove as such. Therefore, in case paragraph 15(d) brings an end to the Sunset Clause, such right shall also be terminated, which means that no basis could be used to get recourse to the NME Methodology.15
However, such “only one trigger” interpretation was condemned by supporters of the “business as usual” thought, as the other “trigger” still exists at subparagraph 15(a)(i). Miranda argued that if the expiration of the “only trigger” terminates the use of NME Methodology, then the ME methodology will be applied to Chinese exporters in default, which will render the requirement in subparagraph 15(a)(i) non utile.16 Besides, Nedumpara formed an a contrario
argument to claim that subparagraph 15(a)(i) itself implicitly contains at least two alternatives namely (1) Chinese costs and prices and (2) non-Chinese costs and prices. Therefore, if ME conditions are not sufficiently proven by Chinese exporters, then the importing country is not obliged to use Chinese costs and prices and free to apply the surrogate methodology.17 This
way of practice was confirmed by the AB in EC-Fasteners.18
14 Weijia Rao, “China’s Market Economy Status Under WTO Anti-Dumping Law After 2016”, (2013) 5
Tsinghua China Law Review 151, 164.
15 Weihuan Zhou, “China’s Litigation on Non-Market Economy Treatment at the WTO: A Preliminary
Assessment” (2017) 5(2) Chinese Journal of Comparative Law, 345-364. Also see, Christian Tietje, Karsten Nowrot, ‘Myth or Reality? China’s Market Economy Status under WTO Anti-Dumping Law after 2016’ (2011) 34 Policy Papers on Transnational Economic Law 1, 7.
16 Jorge Miranda, “Implementation of the ‘Shift in Burden of Proof’ Approach to Interpreting Paragraph 15 of
China’s Protocol of Accession” (2016) Global Trade and Customs Law, Volume 11, Issue 10, Kluwer Law International BV, 447, 448.
17 James J. Nedumpara and Archana Subramanian, “China and the Non-Market Economy Treatment in
Anti-Dumping Cases: Can the Surrogate Price Methodology Continue Post-2016” (2017) 4, J. Int'l & Comp. L. 253, 262.
18 Appellate Body Report, European Communities - Definitive Anti-Dumping Measures on Certain Iron or Steel
In response, Vermulst claim that arguing a contrario on the subparagraph 15(a)(i) could not be accepted because such was not generally accepted in WTO disputes,19 and because such may
grant that subparagraph the same meaning as the Sunset Clause, which itself already and explicitly contains an a contrario situation. If Section 15(a)(i) could be interpreted as allowing the importing country to apply the surrogate prices and costs until the moment that China becomes a ME, such interpretation will create a new exception to the normal rules of price compatibility provided by Article VI of the GATT and ADA, which has no explicit legal basis either in the text itself or in any other legislations.20 Therefore, subparagraph 15(a)(i) could not
itself be read as a justification for the NME Methodology.
2.1.2. The meaning of the chapeau of paragraph 15(a)
The discussions were continued by reading subparagraph 15(a)(i) in combination with the Chapeau, which could suggest another basis for justification. This is due to two reasons: (1) the chapeau itself is sufficient to provide a right to use “a methodology that is not based on a strict comparison with domestic prices or costs in China”, and (2) the word “based on” is not the same as applying the rule “rigidly” as set out in the Sunset Clause and “allows for another application different from the rule in the subparagraph”.21 As a result, the expiration of the
Sunset Clause could not make a change in the use of such NME Methodology.
However, others considered that the Chapeau is no more than an outline for the rules to be applied and could not itself form any specific rule. This is demonstrated by the phrase “based on the following rules” in its own sentence, which leads to two “real” rules in the subparagraphs for the use of Chinese and non-Chinese prices and costs.22 Such phrase could not be interpreted
as a non-binding statement, which will violate a treaty interpretation rule requiring the interpreter to interpret the word used “as such”, not the word “should have been used”.23 In
addition, as each subparagraph forms a rule of methodology and subparagraph 15(a)(i) explicitly provides the use of Chinese prices and costs, the Sunset Clause shall be considered
19 See, for example, Panel Report, Korea – Commercial Vessels (WT/DS273/R, 2005) paras 7.222, 7.329. 20 Edwin Vermulst, Juhi Dion Sud & Simon J. Evenett, “Normal Value in Anti-Dumping Proceedings Against
China Post-2016: Are Some Animals Less Equal Than Others?” (2016) 11(5) Global Trade & Customs J., 217.
21 Bernard O'Connor,“The Myth of China and Market Economy Status in 2016” (2012) WorldTradeLaw.net
<https://worldtradelaw.typepad.com/files/oconnorresponse.pdf > accessed 7 June 2019.
22 Vermulst, Sud and Evenett (n 20) 216.
23 Appellate Body Report, EC – Measures Concerning Meat and Meat Products (Beef Hormones)
as the only base for the non-Chinese NME Methodology, which was expired due to paragraph 15(d) of the China AP.24
2.1.3. The particular effect of the second sentence of Section 15(d)
The second sentence of paragraph 15(d) provides that
[I]n any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.
However, the AB surprisingly widened the scope of such sentence by stating in EC – Fasteners: [P]aragraph 15(d) of China’s Accession Protocol establishes that the provisions of paragraph 15(a) expire 15 years after the date of China's accession. It also provides that other WTO Members shall grant before that date the early termination of paragraph 15(a) with respect to China's entire economy or specific sectors or industries if China demonstrates under the law of the importing WTO Member “that it is a market economy” or that “market economy conditions prevail in a particular industry or sector”. Since paragraph 15(d) provides for rules on the termination of paragraph 15(a), its scope of application cannot be wider than that of paragraph 15(a). Both paragraphs concern exclusively the determination of normal value. In other words, paragraph 15(a) contains special rules for the determination of normal value in antidumping investigations involving China. Paragraph 15(d) in turn establishes that these special rules will expire in 2016 and sets out certain conditions that may lead to the early termination of these special rules before 2016.25 [emphasis added]
This way of interpretation has been quoted as an expression of how the AB understand the effect of Section 15(d) second sentence. Regarding the “special rules for the determination of normal value in antidumping investigations involving China”, the AB stated that such rules was provided by “paragraph 15(a)”, and “these special rules will expire in 2016” due to paragraph 15(d). The reference to “paragraph 15(a)” as a whole and not “subparagraph 15(a)(ii)” affirmed that the AB considers the effect of Section 15(d) second sentence is to terminate not only subparagraph 15(a)(ii) but also all “special rules for determination of normal value in antidumping investigations involving China” in paragraph 15(a).26 This interpretation
24 Jochem de Kok, “The Future of EU Trade Defence Investigations against Imports from China” (2016) Journal
of International Economic Law 2016 (19), 515, 527.
25 EC-Fastener (n 18) para 289.
26 Weihuan Zhou, Delei Peng, “EU – Price Comparison Methodologies (DS516): Challenging the Non- Market
Economy Methodology In Light Of The Negotiating History Of Article 15 Of China’s WTO Accession Protocol” (2018) 52(3) Journal of World Trade [2018] UNSWLRS 3, 9.
also clarifies the meaning of the first and third sentences of Section 15(d) combined is no more than providing a chance for Chinese industries to seek an “early termination of these special rules before 2016”.27
By contrast, Miranda, followed by Bhattacharya, strongly challenged such decision as non-reliable because (1) the consideration is an obiter dictum but not ratio decidendi of the case, and (2) the AB failed to recognize a clear distinction between the effect of Section 15(a)(ii) and Section 15(a).28 The issue of the consequence of the paragraph 15(a)(ii) expiration was not
under issue in the AB in EC-Fasteners, as the claim in that case was the determination of individual and country-wide dumping margins and duties, not relevant to the determination of export price.29 Nor was it the subject of any exchange of arguments between the parties or
participants or involving the third parties or third participants.30 As paragraph 15(d) explicitly
terminates only the Sunset Clause, such general interpretation by the AB shall only be applied to the Sunset Clause itself.31 Lastly, even the AB explicitly affirmed that such reasoning in the
report was “tailored to the specific circumstances of that dispute”.32
Furthermore, other sentences in paragraph 15(d) and Section 16 were referred by both parties to strengthen the arguments. The third sentence paragraph 15(d) states that “should China establish … that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector” [Emphasis added]. Section 16(9) of the China AP explicitly clarifies that “application of this Section shall be terminated 12 years after the date of accession” [Emphasis added]. Comparing the third sentence of paragraph 15(d) or Section 16(9) with the wording of paragraph 15(d) second sentence, Posner and Soprano shared a similar idea that if the negotiators absolutely wanted to repeal the whole paragraph 15(a), there is no reason why the expiry date at paragraph 15(d) second sentence was clearly formed referring only to paragraph 15(a)(ii).33
27 Ibid.
28 Jorge Miranda, “Interpreting Paragraph 15 of China’s Protocol of Accession” (2014) 9(3) Global Trade and
Customs Journal 94, 101.
29 Appellate Body Report, European Communities – Definitive Anti-Dumping Measures on Certain Iron or
Steel Fasteners from China (WT/DS397/AB/R 15 July 2011) paras. 283-291.
30 EU First Submission, para 117.
31 Josephine Williams, “The Price of Tea in China: Analogue Price Methodology in Anti-Dumping
Investigations after the Expiry of Section 15a ii Of China's WTO Accession Protocol” (2018) 3 Cambridge L. Rev. 234, 240.
32 Appellate Body Report, European Union – Anti-Dumping Measures on Biodiesel from Argentina
(WT/DS473/AB/R 6 October 2016) para 6.87.
33 Roberto Soprano, ‘The Principle of Effectiveness in the Interpretation of the Protocol of Accession of China
to the World Trade Organization: Market Economy Considerations in Anti-Dumping Investigations’ (2019) Legal Issues of Economic Integration 46, No. 1, 29, 51. See also, Theodore R. Posner, ‘A Comment on
In return, Kok considered that by forming the arguments on that difference, the interpretation “condone the imputation into a treaty of words that are not there”, which was prohibited by the AB.34 Besides, the phrase “in any event” in section 15(d) second sentence was made
independently to ensure that such a derogation from the normal rules of dumping calculation provided by ADA shall not continue after 2016. Therefore, it would be no reason to add in such phrase if after 2016 the derogation could still be justified by other parts of paragraph 15(d), section 15(a)(i) and the Chapeau.35
2.1.4. The “Shifting burden of proof” concept
One of the most supported “stream of thought” is the “shifting burden of proof” concept initially argued by Miranda and then has been followed by other experts and the EU proponents.36 It claims that the Sunset Clause introduced a presumption for applying NME
Methodology by the importing country on Chinese exporters “without any further justification”37. This could only be reversed by invoking paragraph 15(d) first and third
sentence, and the Chinese bears the burden of proof at the stage of the preliminary and final determinations that the ME conditions prevail in their particular sectors, and request the investigators to treat them with normal ME conditions.38 After the expiration of the Sunset
Clause, such “burden of proof“ was shifted to the authorities of the importing country, and NME Methodology could still be applied if the investigators are able to show that NME conditions are prevailing in a particular Chinese industry.39
The EU further strengthened this interpretation in their submissions based on the relationship between the Section 15 and WTO antidumping laws namely Article VI of the GATT, the Ad Note of Article VI GATT, and Article 2 ADA. They claimed that there is no “conflict” between Article VI GATT, the ADA on the one hand and Section 15 on the other hand; therefore, Section 15 is not an “exception” or “derogation” to the general rules but rather is a “directly applicable law”, which has an additional value to the general antidumping rules. This is because, the “exception” reading finds no basis in the terms of the Section, while its wording
Interpreting Paragraph 15 of China’s Protocol of Accession by Jorge Miranda’ (2014) 9 (4) Kluwer Law International 146, 149.
34 Appellate Body Report, India – Patent Protection for Pharmaceutical and Agricultural Chemical Products
(WT/DS50/AB/R, 16 January 1998) para 45.
35 Vermulst, Sud and Evenett (n 20) 215. 36 EU First Submission, paras 95-118. 37 Tietje, Nowrot (n 15) 8.
38 Miranda (n 16) 449. 39 Miranda (n 16) 448.
expressly provides that the general rules shall apply “in proceedings … consistent with” the rules in four following paragraphs listed in such Section.40 In addition, given Article 2.4 ADA
imposes an obligation on the importing country to not “impose an unreasonable burden of proof on those parties” who have interests in the investigations, the EU authorities shall normally bear the “burden of proof” that the exporters’ records were “distorted” and “unreliable”, through the “dialogue” process asking for evidences from all related parties and make objective determinations on such.41 This is when the Section 15(a)(ii) comes into effect: it moves such
“burden of proof” that the NME conditions do not prevail from the importing country authorities to the Chinese exporters in order to be treated with the ME normal calculation rules. However, after the 2016 termination of the Sunset Clause, the “burden of proof” shall be returned to the importing country authorities in consistent with the requirement of Article 2.4 ADA. This practice is not “conflict” but “permissible” under the general antidumping laws.42
Although the above interpretation smoothly integrates into the context and practice of the Section, this stream of thought was criticized because first and foremost it was formed without a direct textual basis anywhere in the China AP. Second, while Miranda tried to argue that this interpretation does not require a “gap filling” as it grants “full effect” to every parts of Section 15 after the expiration,43 Kok pointed out that the introduction of “burden of proof” will result
in many other detailed issues about the criteria of proof, how the criteria are assessed and its consequences, which all then need to be answered by the Panel. However, by filling in such gaps, the Panel may “add to or diminish the rights and obligations provided in the covered agreements” and then violates Article 3.2 of the DSU.44
2.1.5. Travaux Preparatoires: Paragraph 150 of the Working Party Report
When the interpretation of the agreement based on texts, object and purpose might be perceived as leaving the meaning ambiguous or obscure; or leads to absurd or unreasonable result, Article 32 of the VCLT is always invoked to get recourse to supplementary means of interpretation, including “the preparatory work of the treaty” and “the circumstances of its conclusion”, which are called the travaux preparatoires. Given the parties have conflicts regarding the continuance of NME Methodology and the specific interpretation of certain paragraphs in the China AP, a “supplementary means of interpretation” should be considered by the Panel in order to settle
40 Section 15 of China AP. EU First Submission, paras 77-79. 41 EU First Submission, para 67.
42 EU First Submission, para 97-100. 43 Miranda (n 16) 449.
the issues in a decent manner. In this regard, the "Report of the Working Party on the Accession of China” (hereinafter WP Report), which noted the Working Party discussions in the examining process for such accession and included roughly 143 paragraphs of specific commitments having direct reference to the China AP,45 may be at least categorized as “the
circumstances” existing at the time of the China AP formation and should be considered by the Panel.46
The EU claimed that Section 15 shall be interpreted regarding the correlation between antidumping and countervailing duty law, considering the possibility of "the same situation" of dumping and subsidization.47 This is confirmed not only by the fact that the title of Section
15 expressly concerning "Price Comparability in Determining Subsidies and Dumping", but also by the AB in US-AD and CVD (China) as below:
[A]ny interpretation of "the appropriate amounts" of countervailing duties within the meaning of Article 19.3 of the SCM Agreement must not be based on a refusal to take account of the context offered both by Article VI of the GATT 1994 and by the provisions of the Anti-Dumping Agreement” [emphasis added]
and
[T]he provisions in the WTO covered agreements [SCM Agreement, GATT 1994 and ADA] should be interpreted in a coherent and consistent manner, giving meaning to all applicable provisions harmoniously [emphasis added].48
Reading paragraph 15(b) of the China AP in the light of such consideration, the reference to “special difficulties” in applying SCM provided by this paragraph shall be seen as at the same time a reference to the use of AD measures in paragraph 15(a)(i) and 15(a)(ii) of the China AP. This is because, the “special difficulties” concept in subsidies law also covers both NME conditions and burden of proof issues, similar to that of AD law. The concept also deals with the difficulty to identify a “benchmark” in using SCM, which is also similar to the difficulty in calculating “normal value” within AD law. Furthermore, this practice of referencing to both
45 Julia Ya Qin, "The Conundrum of WTO Accession Protocols: In Search of Legality and Legitimacy" (2015)
55(2) Virginia Journal of International Law 369, 392.
46 Nedumpara (n 17) 268.
47 EU First Submission, paras 119, 120.
48 Appellate Body Report, United States – Definitive Anti-Dumping and Countervailing Duties on Certain
the determination of antidumping and countervailing duty investigations is also confirmed by the paragraph 150 of the WP Report, which states as below:
[S]everal members of the Working Party noted that China was continuing the process of transition towards a full market economy. Those members noted that under those circumstances, in the case of imports of Chinese origin into a WTO Member, special difficulties could exist in determining cost and price comparability in the context of anti-dumping investigations and countervailing duty investigations. Those members stated that in such cases, the importing WTO Member might find it necessary to take into account the possibility that a strict comparison with domestic costs and prices in China might not always be appropriate. [emphasis added]
Therefore, given paragraph 15(b) China AP providing “special difficulties” concept for SCM still exists after the expiration of the Sunset Clause, EU claimed that the similar treatment should be applied to the rest of Section 15 namely the paragraph 15(d) first and third sentence, the Chapeau and subparagraph 15(a)(i) China AP, to the extent that in case there are “special difficulties” in applying AD measures, “a strict comparison with domestic costs and prices in China might not always be appropriate” and the use of non-Chinese prices and costs shall continue to be allowed.49
However, from the perspective of China, there are three main reasons why such interpretation could not be accepted.50 The first and foremost is that, the reference to the “special difficulties”
concept is not supported by the explicit wording of either paragraph 15(d) or paragraph 15(a). Therefore, the adoption of such interpretation should be flagged as creating extra obligations on China and violating Article 3.2 of the DSU. Second, China did not agree to undertake any commitment relating to paragraph 150 of the WP Report. This is because such paragraph is not listed in paragraph 342 of the WP Report, which is referenced in Section 1(2) of China AP as containing the list of the Chinese commitments. The EU also did affirm this at footnote 125 of their first written submission but still tried to ask for a relevance of paragraph 150 to the dispute. However, given the paragraph is not “an integral part of the WTO agreement” like the China AP and was not adopted by China, it could not be considered as a “supplementary means of interpretation”. Third, the use of surrogate prices regarding Section 15(a) and the ADA on the one hand could not be the same as the use of benchmark prices regarding paragraph 15(b)
49 EU First Submission, paras 95-128. 50 Zhou, Peng (n 13) 10.
of China AP and the SCM Agreement on the other hand. This is because, the AB allowed in US — Softwood Lumber IV that:
[I]nvestigating authorities may use a benchmark other than private prices in the country of provision under Article 14(d), if it is first established that private prices in that country are distorted because of the government’s predominant role in providing those goods.
According to such decision, “benchmark prices” are permitted to be used for determining the difference between subsidized and unsubsidized prices because a price affected by a government subsidy could not be considered as the base for a calculation of that subsidy’s benefit. Due to the specificity of such interpretation, it shall be limited to the use of SCM regarding Article 14 of the SCM Agreement and paragraph 15(b) of the China AP and could not be extended to further justify the NME Methodology in other paragraphs.51
2.1.6. Travaux preparatoires 2: The history of negotiation
Rao and Zhou provided other interpretation based on the draft versions of the Section collected in the negotiation process of the China AP.52 According to the record, the first draft for this
Section proposed by China on 26 March 1999 had paragraph (1) and (2), which show similarities to subparagraph 15(a)(i) and 15(a)(ii) in the final version, but without the Chapeau of paragraph 15(a). The Chapeau then was added by the US on 7 April 1999 providing the term “may use either” Chinese or non-Chinese prices or costs, and the term “based on the following rules”. Such evolution indicates that the Chapeau could not individually form the rule but just to introduce the “real” rules at the following subparagraphs, which were firstly formed. Second, given the term “may use either” (implicates “rights”) then was changed into “shall use either” (implicates “obligations”) in the final version, it demonstrates a great support to the interpretation that the importing country is obliged to use the Chinese prices or costs as a default. Only in case there are “difficulties” in “determining fair price comparability”, the importing country “may” active the exclusive right at subparagraph 15(a)(ii) to use the NME Methodology.53 Zhou further argued that these historical details will negate the Panel from
adopting an a contrario reading (analyzed at 2.1.1 on the above) of subparagraph 15(a)(i).54
51 Zhou, Peng (n 13) 11.
52 Rao (n 14) 163. See also, Zhou, Peng (n 25) 18. 53 Rao (n 14) 164.
Therefore, the expired Sunset Clause shall be seen as “the exclusive and true legal basis” for derogation from the default applying Chinese prices or costs.55
However, one may argue that by adding the Chapeau with the original terms “may use either”, the US successfully changed paragraph (1) and (2) of the first Chinese draft to just “expressional” conditions, and granted the importing country with the rights explicitly worded in the Chapeau to use either Chinese or non-Chinese prices or costs. The Chinese negotiators should have known that change; however, the Chapeau was still kept and remains in the final version.
Another important argument finds a basis on the evolution of the second sentence of paragraph 15(d), which was originally formed by China as below:
(5) This Paragraph shall be terminated on the first day of the 5th years upon entry into force of the Protocol on China [emphasis added]
then was revised by the US on 29 March 1999:
[T]he importing WTO Member shall review, within five years of the entry into force of the Protocol, whether it continues to be appropriate to use the methodologies described in subparagraph (1).56
Lengthy discussions summarized by Zhou indicate that at the first time, China unequivocally refused to accept the NME Methodology formed in the Sunset Clause because it did not recognize the achievements of China in economic reform and placed all Chinese exporters in a great unfair and disadvantage position.57 However, after that China and US jointly reached a
compromise on this issue with an introduction of the right to use surrogate prices and costs but that shall accompany with a clear date of termination, originally formed with a 5-year period. Afterwards, the period was extended to 20 years and later narrowed down to 15 years, which then appeared in the final version.58 One day after the bilateral negotiation phase US-China (on
16 November 1999), the White House website states that:
55 Rao (n 14) 164.
56 Department of WTO Affairs of the Ministry of Commerce of the People’s Republic of China (eds), Basic
Instruments and Selected Documents on the Multilateral Negotiations for China’s Accession to the World Trade Organization (中国加入世界贸易组织谈判文件资料选编) (Beijing: China Commerce and Trade Press, 2012). See further, Zhou, Peng (n 25) 17.
57 Zhou, Peng (n 25) 18. 58 Ibid, 21.
[T]he U.S. and China have agreed that we will be able to maintain our current antidumping methodology (treating China as a non-market economy) in future anti-dumping cases without risk of legal challenge. This provision will remain in force for 15 years after China’s accession to the WTO.59
Such record of evolution and the statement of the White House support the interpretation that not only the appliance of the NME Methodology was carefully debated by both parties in negotiation phase from the beginning, but also it was accepted by China after lengthy negotiations only if the whole use of such methodology is over after the expiry date.60
Therefore, granting the live of the NME Methodology based on the rest namely the Chapeau and subparagraph 15(a)(i) after the Sunset Clause termination will render such Clause non-sense and should not be accepted in the light of the negotiation history. Even the EC in their 2004 press release affirmed such understanding by stating that:
[t]he possibility to treat China as an economy in transition in trade defence investigations for up to 15 years was agreed and enshrined in the Chinese WTO accession protocol signed in 2001.61
There was also no indication and evidence of the discussion about the “burden of proof” issue in the record of negotiation.62 As a result, in combination with the fact that no word in the
Section explicitly addresses such issue, one may easily consider that the hardly proposed interpretation of “shifting burden of proof” by the EU is not reliable.
However, such interpretation by the Chinese was formally condemned by the EU, as first, the EU “does not accept any documents or statements pertaining to a bilateral negotiation between the United States and China somehow bind the European Union”.63 As all the above
interpretation is based on the such bilateral negotiation record, and not the record of discussions in multilateral negotiation of the China AP, such cannot be considered as the “supplementary means of interpretation” of the Section 15 of China AP. Second, China has failed to answer the Panel’s question about why, even such bilateral discussions between China and the US could
59 White House, “Summary of U.S. – China Bilateral WTO Agreement, 16 November 1999”, available at:
<https://clintonwhitehouse4.archives.gov/WH/New/WTO-Conf-1999/factsheets/fs-006.html> accessed 7 June 2019.
60 Zhou, Peng (n 25) 22.
61 European Commission, CHINA – Market economy status in trade defence investigations (Press Release,
MEMO/04/163, 28 June 2004) <http://europa.eu/rapid/press-release_MEMO-04-163_en.htm?locale=en> accessed 7 June 2019.
62 Zhou, Peng (n 25) 22
be considered, China accepted the second sentence of paragraph 15(d) to refer to just the Sunset Clause instead of the whole paragraph 15(a). The answer of China for such question, that this “precision” was for isolating that the Sunset Clause deviated from the generally applicable rules of price comparability, is not convinced and could make such change “pointless”.64 Even
in Exhibit EU-39, the proposal put forward by China on 19 June 2000 during the multilateral negotiations of the China AP, affirmed that “China understood that the first sentence of Section 15(d) referred to Section 15(a) and the second sentence of Section 15(d) referred to Section 15(a)(ii).”65 Therefore, the argument by China that the whole paragraph 15(a) was terminated
due to the expiration of only the Sunset Clause should not be adopted by the Panel.
2.2. Conclusion
Amongst the aforementioned arguments by both the parties and proponents, several points should be clarified by the Panel in order to introduce a reasonable decision.
First, although the principle of effectiveness (effet utile) could be based to form the arguments, such cannot act as the decisive source for a decision. The principle originated in Roman Law was accepted by scholars as a fundamental principle of international law,66 and recognized by
the AB in US-Gasoline case as “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” and must give meaning and effect to all the terms of the treaty.67 Therefore, both sides are allowed to use this
principle for a basis as long as it ensure no treaty provision is “deprived of meaning” and the treaty object and purpose are all secured.68 The supporters of the EU might invoke such
principle to claim that adopting an interpretation that the expiration of Sunset Clause also terminates the whole paragraph 15(a) will make the Chapeau and paragraph 15(a)(i) meaningless. However, in return, as Nedumpara pointed out, if the rest of the paragraph 15(a) might be granted the same effect as the Sunset Clause, both such Clause and the second sentence of paragraph 15(d) will be rendered meaningless also. Therefore, in order to ‘read all
64 Ibid, 325. 65 Ibid, 328.
66 Soprano (n33) footnote 63.
67 Appellate Body Report, United States - Standards for Reformulated and Conventional Gasoline (WTO Doc.
WT/D52/AB/R, 22 April 1996), p. 21.
68 Robert Phillimore, Commentaries upon International Law vol. II, 77 (T& J W Johnson, Law Booksellers
applicable provisions of a treaty in a way that gives meaning to all of them, harmoniously’,69
such principle could not be a decisive point for decision-making.
Second, the interpretation based on the dictum of the AB in EC- Fasteners, which expressly read paragraph 15(a) as containing “special rules for the determination of normal value" and “these special rules will expire in 2016” might not be favored by the Panel. This is because, in order to challenge such dictum, which illustrates the opinion of the AB “in a clear-cut manner”, EU shall propose with “cogent reasons”.70 However, the requirement for “cogent
reasons” shall be read in the circumstances that “an adjudicatory body will resolve the same legal question in the same way in a subsequent case”.71 Given the issue of the normal value
determination is not what the AB was called for in such case, and even the AB confirmed that the scope of application of that dictum was limited for using in only such dispute,72 the EU
might have some good points to argue for their position. Nevertheless, given “adopted panel reports are an important part of the GATT acquis, and are often considered by subsequent panels”,73 and even the statements of EU and other third party (the US) authorities indicate a
certain support for the interpretation that the whole NME Methodology might not be used after 2016 due to the expiration of the Sunset Clause,74 it would not be easy for the EU to challenge
that, which in fact, they have not tried to do so in both of their recent written submissions regarding this argument.
Third, the “shifting burden of proof” interpretation by the EU has not been fully supported, as no expressed word in the China AP could be based for such reading. In addition, several further questions might arise out of that adoption of such “burden of proof” understanding, for instance, what are the conditions for the producers, who is covered by the rule, and the consequences of such application if neither the domestic producers nor Chinese ones can meet their burden?75 Besides, in case the record of negotiation provided by China might be accepted
by the Panel as “supplementary means of interpretation”, it illustrates that the “burden of proof” is not what the Members were concerned with in the negotiation,76 and in order to challenge
69 Appellate Body Report, Korea — Definitive Safeguard Measure on Imports of Certain Dairy Products
(WT/DS98/AB/R 14 December 1999), para 81.
70 Zhou, Peng (n 13) 10. See also, Appellate Body Report, United States – Final Anti-Dumping Measures on
Stainless Steel from Mexico, WT/DS344/AB/R, adopted 20 May 2008, para. 160.
71 Ibid.
72 See 2.1.3 on the above.
73 Appellate Body Report, Japan - Taxes on Alcoholic Beverages (WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, 4 October 1996) p. 14.
74 White House (n 59). EC Press Release (n 61) see point 2.1.6 on the above. 75 Kok (n 24) footnote 58.
that, the EU now might have another “burden of proof” to extract some record documents demonstrating the opposition, which should have been done and formed as parts of the written submissions.
Fourth, although the interpretation claiming that the expiration of the Sunset Clause terminates the whole paragraph 15(a) might be flagged as an expansion of such Clause effect, accepting the opposite interpretation that the NME Methodology is justified by the rest of the paragraph 15(a) might be more implausible. This is not only because the former interpretation is supported by the dictum in EC-Fastener. But also, reading a contrario of subparagraph 15(a)(i) is denied as subparagraph 15(a)(ii) expressively provides the exact effect. The EU also affirmed that they did not argue on the a contrario reading of paragraph 15(a)(i) but did not strengthen their basis of the NME Methodology on the rest of paragraph 15(a) with further points of argument.77 Furthermore, the record of negotiation by China favored the interpretation that
subparagraph 15(a)(i) and 15(a)(ii) were originally formed as the main rules before the addition of the Chapeau, which serves as the “introduction”. Again, the objectivity and reliability of the record might be questioned, and the EU could deny being bound by such bilateral negotiation between the US and China. Nevertheless, because the Revised Outline of the Draft WP Report78 expressed that certain difficulties in anti-dumping calculation of China was initially
and hardly concerned by one member, and given the great intensity of the US-China negotiation on Article 15, it might be concluded that such member is the US,79 which means
the record of such bilateral negotiation should be considered as a useful source for interpretation, or at least, “the circumstances” in the sense of Article 32 VLCT which existed at the time of the China AP formation.
Fifth, regarding the concept of “special difficulties”, the interpretation of the EU is well supported by the fact that concern about such in both antidumping and countervailing duty calculations was raised in both the Revised Outline of the Draft WP Report80 and the WP
Report at paragraph 150. However, without any supporting textual content in the paragraph 15(a) itself, even the provisions of SCM Agreement, GATT 1994 and ADA shall be read in a harmonious way, arguing that the right to use the NME Methodology in paragraph 15(a) still
77 EU Second Submission, paras 337-339.
78 Working Party on the Accession of China, Revised Outline of the Draft Report of the Working Party on the
Accession of China (WT/ACC/SPEC/CHN/1 14 June 2000).
79 Zhou, Peng (n 13) 16.
80 Working Party on the Accession of China, Revised Outline of the Draft Report of the Working Party on the
remains because of the continuance of using the “benchmark” outside China for SCM in paragraph 15(b) is not sufficiently convincing. Furthermore, given paragraph 150 of the WP Report is not listed in the list of China commitments and not agreed by the China as a part of the China AP, the paragraph 150 might not be a concrete basis contributing to the continuance of using NME Methodology after the expiration of the Sunset Clause.
In conclusion, the writer anticipates that the interpretations of China proponents might be more favored by the Panel, due to inter alia the great supports in (1) the dictum of the AB in EC-Fasteners, (2) the explicit wording of the paragraph 15(a); and (3) more detailed records and statements, including the bilateral negotiation between the US-China and the statements by the US and EU authorities illustrating their understanding about the expiration of NME Methodology after 2016. However, although the “shifting burden of proof” thought might not be convincing and even the EU are more likely seeking for the recognition of the Panel that the rest of the Section 15 is just either (1) a “direct applicable law” consistent with the general rules of anti-dumping calculation; or (2) an “contextual confirmation” for such appliance,81
those might be sufficient for the EU to win the on-going case. In other words, while China might successfully prove that paragraph 15(a) itself could not be used as a direct basis for the NME Methodology, the EU may still justify their use of the surrogate methodology based on the general rules combined with the “confirmation” in the rest of Section 15. Such will be further analyzed in the following parts of the thesis.
3. ALTERNATIVES FOR THE NON-MARKET ECONOMIES METHODOLOGY. 3.1. “Significant Distortion” concept in the EU Amended Regulation 2017/2321.
3.1.1. Description of the concept
After the expiration of the Sunset Clause, the EU Basic Regulation82 was amended by the
Regulation 2017/2321.83 The most remarkable points made by such new regulation are that
there is no more existence of words relating to “China” and “NME” as what were formed in the previous Article 7, and a replacement by the new concept “Significant Distortion” provided at Article 2.6 of the New Regulation. According to subparagraph 6a.(a) of the latter article, [I]n case it is determined … that it is not appropriate to use domestic prices and costs in the exporting country due to the existence in that country of significant distortions …, the normal value shall be constructed exclusively on the basis of costs of production and sale reflecting undistorted prices or benchmarks …[emphasis added]
The sources may be used for calculation by the Commission include “corresponding costs of production and sale in an appropriate representative country with a similar level of economic development”, “undistorted international prices, costs, or benchmarks;” or non-distorted domestic costs. If there are “well-founded indications of the possible existence of significant distortions” the Commission shall “produce, make public and regularly update a report describing the market circumstances referred to in point (b) in that country or sector”.84
Unsurprisingly, the Commission introduced a report on China, and “distortions” were founded in many factors of production and selected sectors. 85 The meaning of “significant distortions”
is generally defined as “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”.86
82 Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016 on protection
against dumped imports from countries not members of the European Union (the EU Basic Regulation) [2016] L 176/21.
83 Regulation (EU) 2017/2321 of the European Parliament and of the Council of 12 December 2017 amending
Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union (The New Regulation) [2017] L 338/1.
84 Article 2.6a.(b) and 2.6a.(c) of the New Regulation.
85 European Commission, Commission Staff Working Document on Significant Distortions in the economy of the
People's Republic of China for the purposes of Trade Defence Investigations (SWD(2017) 483 final/2,
20.12.2017) <http://trade.ec.europa.eu/doclib/docs/2017/december/tradoc_156474.pdf> accessed 10 June 2019.
One might easily conclude that the “significant distortions” concept shows great similarities to the NME treatment which was claimed as being “repealed” by the EU. As a result, since the initial introduction of the draft of the amendment, eleven WTO members expressed their concern as such new concept might “clearly depart from standards set out under the WTO ADA” and “give EU authorities unlimited discretion to determine whether the criteria [of “significant distortions”] are being met”.87 The consistency of this regulation will be analyzed
in the next paragraphs.
3.1.2. Consistency of the “Significant Distortion” concept with WTO anti-dumping laws.
According to the AB Report in EU- Biodiesel, “the object of the comparison is to establish whether the records reasonably reflect the costs actually incurred”,88 relates to “whether the
records kept by the exporter or producer under investigation suitably and sufficiently correspond to or reproduce those costs incurred by the investigated exporter or producer that have a genuine relationship with the production and sale of the specific product under consideration”.89 Besides, “the determination is of the "cost of production [...] in the country
of origin", and “an investigating authority has to ensure that such information is used to arrive at the "cost of production in the country of origin". The phrase "cost of production [...] in the country of origin" is understood as “a reference to the price paid or to be paid to produce something within the country of origin” [emphasis added].90
Therefore, in case the normal value is constructed based on costs of production that is not “used to arrive” in the country of origin, such calculation might be inconsistent with the obligation to base the normal value on the “costs of production … in the country of origin” provided by Article 2.2 ADA and VI:1 of the GATT. However, the way in which the new methodology is formed seems to not automatically result in a violation “as such” of the WTO antidumping laws.91 This is because, first, by changing the phrase “shall be determined on” in the Article 7
87 WTO, “Members exchange views, concerns on recent anti-dumping actions” (WTO website, 25 October
2017) <https://www.wto.org/english/news_e/news17_e/anti_25oct17_e.htm> accessed 10 June 2019.
88 Appellate Body Report, European Union –– Anti-Dumping Measures on Biodiesel from Argentina
(WT/DS473/AB/R, 6 October 2016) para. 6.8.
89 Ibid, para. 7.2. 90 Ibid, para. 7.3.
91 Andrei Suse, “Old wine in a new bottle: the EU’s response to the expiry of section 15(a)(ii) of China’s WTO
Protocol of Accession” (2017) Working Paper No. 186, Leuven Centre for Global Governance Studies, page 26-27.
of the previous regulation to “may use”, the new methodology is worded less “mandatory” but still grants a great discretion to the Commission to get recourse to the costs of production in the third country. Second, its wording neither expressly discards the costs on the records of the producers nor requires the calculation to be based on the surrogate costs. Therefore, given that the practice indicates that only legislation which mandated GATT-inconsistent conduct might be flagged as a violation, the new regulation which allows for an inconsistent outcome might not necessary be caught.92 In order to establish the “as such” inconsistency of the regulation,
the condition will “vary, depending on the particular circumstances of each case, including the nature of the measure”, but relates to whether it “mandated the investigating authority to act inconsistently with the relevant provision of WTO law”.93
However, in order to deal with the “significant distortions" which affect the costs provided in the records of the producers, the undistorted costs in a surrogate country “with a similar level of economic development” should be used to replace the former recorded costs for a “fair comparison” between the export price and the normal value. The fact that China was investigated in the first report for the prevail of “significant distortions” in its market has illustrated the intention of the EU to apply such in “approximately the same levels” as what was the previous NME Methodology, said EU Trade Commissioner Cecilia Malmström.94
Therefore, in case the similar practice is applied, it is hard to anticipate how the EU might defend their position if their antidumping regulation is repeatedly brought before the Panels in an “as applied” case. Dr. Mathis also considered that, the use of a surrogate price shall be reverted back to “the accounting principles, standards and procedures that are generally accepted and apply to such records [of the country of origin] in the relevant jurisdiction”,95
suggesting that an “as applied” violation may occur if the EU starts to use a price which is not “within the country of origin”. In addition, the Request for Panel Establishment by China in DS516 includes ‘any modification, replacement or amendment to the measures . . . and any closely connected, subsequent measures’.96 This means that in case the Panel may consider
Article 2.6 of the new regulation is connected to Article 2.3 and 2.5 of the previous Basic
92 EC- Biodiesel (n 32) para. 6.227. 93 Ibid, para. 6.227-6.229.
94 Cecilia Malmström, “Reform to counter unfair trade” (EC Blog Post, 20 July 2016)
https://ec.europa.eu/commission/commissioners/2014-2019/malmstrom/blog/reform-counter-unfair-trade_en
accessed 10 June 2019.
95 EC- Biodiesel (n 32) para. 6.21.
