While the WTO’s Appellate Body (“AB”) is not presently functioning because of a lack of AB members, the panel process continues to function with reports being issued, albeit long after the intended time frame of the Dispute Settlement Understanding and complicated by the COVID-19 pandemic’s restrictions on in-person meetings.
On September 2, 2021, a WTO panel released its report in United States — Safeguard Measure on Imports of Crystalline Silicon Photovoltaic Products. See WT/DS562/R. The dispute was one brought by China against the U.S. safeguard action on the solar products in question. See USITC, Inv. No. TA-201-75, Crystalline Silicon Photovoltaic Cells
(Whether or not Partially or Fully Assembled into Other Products), Publ. 4739 (Nov. 2017); Proclamation 9693 of
January 23, 2018 – To Facilitate Positive Adjustment to Competition from Imports of Certain Crystalline Silicon Photovoltaic Cells (Whether or Not Partially or Fully Assembled Into Other Products) and for Other Purposes” (83 Fed. Reg. 3541 (25 January 2018).
The safeguard action similarly followed a series of antidumping and countervailing duty actions against China and then China and Taiwan and reflected a huge influx of imports from multiple countries after these multiple trade remedy actions resulted in import relief, with many producers in these other countries being affiliated with operations of Chinese producers or being companies with Chinese operations.
China did not challenge the product definition or the existence of serious injury to the domestic industry but raised a series of challenges based on its views of what is required to demonstrate increased imports from unforeseen developments and WTO obligations/concessions, what is required for the requisite causal link between imports and the serious injury, what obligations the U.S. had to review all raised possible other causes of injury and demonstrate that such causes were not attributable to increased imports and what obligations investigating countries had to supply public summaries of information gathered in a timely manner. The panel laid out the findings requested by China in paragraph 3.1 of its report (WT/DS562/R at 14-15) :
“3.1. China requests the Panel to find that the safeguard measure imposed by the United States is inconsistent with the United States’ obligations under Article XIX:1(a) of the GATT 1994 and Articles 2.1, 3, and 4.2(b) of the Agreement on Safeguards.14 Specifically, China contends that the United States acted inconsistently with:
“a. Article XIX:1(a) of the GATT 1994 and Article 3.1 of the Agreement on Safeguards because the United States failed to establish, prior to the application of the measures, that the increases in imports were the result of “unforeseen developments” and were the “effect of obligations incurred” under the GATT 1994 by the United States15;
“b. Articles 2.1, 3.1, and 4.2(b) of the Agreement on Safeguards because the United States failed to establish the required “causal link” between the increased imports and the serious injury found to exist16;
“c. Articles 2.1, 3.1, and 4.2(b) of the Agreement on Safeguards because the United States failed to ensure that injury caused by other factors was not attributed to increased imports17; and
“d. Articles 3.1 and 3.2 of the Agreement on Safeguards because the United States provided non-confidential summaries to interested parties with such delay that the parties were not provided with an adequate opportunity to exercise their right to present a defence, and because the actual public summaries were not sufficient so as to permit interested parties to reasonably present a defence.18
“14 China’s first written submission, para. 318; second written submission, para. 324.
“15 China’s panel request, pp. 2-3; first written submission, para. 293.
“16 China’s panel request, p. 2; first written submission, heading to section III(A).
“17 China’s panel request, p. 2; first written submission, heading to section III(B)(2).
“18 China’s panel request, p. 2; first written submission, para. 302.”
The panel report rejected each of the findings requested by the China.
Significance of the panel report
The WTO dispute settlement system has historically been a complainant’s forum with violations or non-compliance action found in roughly ninety percent of cases. A disproportionate number of cases have been brought against trade remedy cases. With the exception of a China-specific safeguard action by the U.S. on passenger vehicle and light truck tires, the Appellate Body had found problems with every safeguard case that was brought before it with a variety of constructions or interpretations that make use of the safeguard agreement extremely difficult if the AB’s views on requirements are correct.
While the panel in the recent report, followed the interpretations of Article XIX and the Safeguard Agreement articulated by the Appellate Body in some other cases, the panel limited its role to that envisioned in the DSU and did not substitute its views for those of the investigators where the record supported the findings made. This is as it should be and, some would argue, is a reason to leave the Appellate Body dormant until there has been major reform such that the Appellate Body has the limited role envisioned by the DSB and doesn’t routinely overturn panel findings as it has in the past.
China, just as it did in the China-specific safeguard case, raised arguments that exceeded the bounds of the text involved as the panel found in various areas including on public summaries. China also pushed for a focus on selected record information despite the voluminous information collected by the Commission. Such efforts by China were rejected by the panel.
Novel issues in the case included whether safeguard action could be taken where demand is growing rapidly and where the domestic industry has experienced some increases in capacity, production, shipments and employment. Because the U.S. industry incurred massive losses throughout the period and saw many companies go out of business or declare bankruptcy , lost substantial market share to imports and had falling prices led by falling import prices for products that producers, importers and purchasers all viewed as highly interchangeable, the U.S. International Trade Commission had found the industry seriously injured and that increased imports were a substantial cause of that injury. The panel rejected China’s arguments that some increases in the factual situation investigated meant that there was no causal link. China did not challenge that the U.S. industry was not seriously injured, and so any positive trends were not considered on the issue of whether the domestic industry was seriously injured.
The panel also looked at whether any supplemental report requested by USTR on the issue of unforeseen developments is part of the report that can be referred to understand if findings are supported by the record. The panel found that the supplemental report was part of the materials to be considered by the panel.
Larger reform issues that the panel report reveal
The United States, European Union, Japan and others have articulated reform needs at the WTO including the need to update industrial subsidy disciplines, address meaningfully state-owned and invested enterprises, reaffirm the centrality to the WTO of having all Members operate on market economy principles, and the need to stop the creation of massive global excess capacity through government policies and subsidies. While much of the focus has been on established industries — e.g., steel, aluminum, glass, cement — major problems obviously also exist in high growth sectors like solar and wind energy and are likely in many of the growth sectors of the future.
What the history of cases in the United States on Crystalline Silicon Photovoltaic Cells (Whether or not Partially or Fully Assembled into Other Products) shows is that not only do rules need to be urgently updated to prohibit a range of subsidies and actions by governments and state-owned enterprises, but trade remedies need to be made more effective to give domestic industries the relief envisioned without the need for multiple rounds of cases under different agreements. In rapidly growing demand situations, losing five or six years of effective relief will mean the destruction of the domestic industry as it is unable to invest in expansion and R&D to remain competitive and, as a result rapidly declines in market relevance. This is what happened to the U.S. industry examined. If that destruction is from a range of actions that should be disciplined, the system is not functioning properly.
For all involved representing domestic industries and their workers in the U.S., EU and other markets, it is clear that way too often the system is not functioning properly. Despite the urgent need to improve the system, there is virtually no likelihood of the WTO system being made more effective this decade. Indeed, it will be surprising if there is any agreement at the 12th Ministerial to have work programs on any of the issues of importance reviewed above. Such failure to act will likely result in increased pressure to act unilaterally for those who are able or to simply abandon entire manufacturing sectors based on distortions that can’t be effectively addressed. The WTO and its Members must do better.