dispute settlement

The WTO Dispute Settlement System — What Member Comments on the Recent Panel Decision in United States – Safeguard Measure on Import on Crystaline Silicon Photovoltaic Products Say about the Need for Reform

Last week, I wrote on the September 2 panel report pertaining to China’s challenge of the U.S. safeguard action on imports of crystaline silicon photovoltaic products. See September 20, 2021: The WTO panel report on the U.S. safeguard case on Crystalline Silicon Photovoltaic Products — a well reasoned report but exemplifying the challenges that China’s non-market economy and policies pose to global trade, https://currentthoughtsontrade.com/2021/09/20/the-wto-panel-report-on-the-u-s-safeguard-case-on-crystalline-silicon-photovoltaic-products-a-well-reasoned-report-but-exemplifying-the-challenges-that-chinas-non-market-economy-and-policies-pos/.

China filed an appeal on September 16, 2021 (WT/DS562/12), becoming the 21st “current notified appeal” (the fifth in 2021, following five in 2020, following eight in 2019 and three in 2018 that have not be heard or completed in light of the lack of a quorum for the Appellate Body). See WTO, Appellate Body, https://www.wto.org/english/tratop_e/dispu_e/appellate_body_e.htm (Current notified appeals).

Earlier this week, the WTO posted a note on the Dispute Settlement Body meeting held on September 27, 2021 in which the panel report and China’s appeal were on the agenda. See WTO News, Panels established to review steel duties in China, food import measures in Panama, 27 September 2021, https://www.wto.org/english/news_e/news21_e/dsb_27sep21_e.htm. The summary of the meeting on the panel report is copied below and shows sharp difference of opinion between China and the United States with some comments recorded by the EU and Canada.

“Statement by China regarding the panel report in the dispute “US — safeguard measure on imports of crystalline silicon photovoltaic products” (DS562)

“China sharply criticized the dispute panel ruling in DS562, which was circulated on 2 September and which China appealed on 16 September. China said it is deeply concerned with the systematically harmful findings made by the panel, the first time that a complainant’s case against a safeguard measure has been rejected in its entirety.  The panel report severely deviated from all these jurisprudences and substantially lowered the threshold of imposing safeguard measures, China said. It added that the dangerous signal sent by the panel will lead to the abuse of safeguard measures and thus seriously undermine the rules-based multilateral trading system.

“China went on to detail what it said were the serious legal errors contained in the ruling, including a gross misreading of legal requirements for imposing safeguard matters as well as a major misunderstanding of a panel’s proper role in examining trade remedy investigations.  China said safeguards are extraordinary measures for extraordinary situations and cannot be used as a convenient tool for rescuing a domestic industry in bad shape because of its own business decisions and injuries caused by other factors.

“The United States said China should focus on what matters.  First, it matters that the WTO panel found the US safeguard to be consistent with WTO rules.  The US welcomes those findings but said the win came at a very high cost, namely the crushing of a thriving US industry by China’s massive non-market excess capacity.  This dispute demonstrates that WTO rules do not effectively constrain China’s damaging non-market behaviour.  Second, it matters that China once again sought to use the WTO dispute settlement system as a vehicle to create new rules that would limit a member’s ability to defend itself from China’s non-market practices. The panel rightly rejected every single one of China’s arguments. 

“The US said it was disappointed that China has decided to appeal the panel report despite overwhelming evidence of the damaging effects of China’s non-market practices.  The safeguard measure serves to support the US domestic industry’s efforts to adjust to import competition after global excess solar cell and module capacity pushed the industry to the brink of extinction, mainly as a result of excess capacity fueled by China’s non-market practices which are in direct contradiction to its WTO commitments.

“China responded that its appeal was not intended to delay the adoption of the dispute report or create new rules but to ensure the interpretation of the WTO rules in a fair and reasonable manner and ensure respect for past jurisprudence.

“The EU said the case was yet another example of the grave consequences stemming from the continued blockage of Appellate Body appointments since 2017, which frustrates members’ ability to exercise their rights under WTO dispute settlement procedures.  Canada added that finding a solution to the Appellate Body impasse is of the highest importance.”

The full statements of China, the United States and the EU are available from their respective WTO Mission websites. See Statements by China at the DSB Meeting on 27 September 2021, http://wto.mofcom.gov.cn/article/meetingsandstatements/202109/20210903204327.shtml; Statements by the United States at the Meeting of the WTO Dispute Settlement Body, Geneva, September 27, 2021, https://uploads.mwp.mprod.getusinfo.com/uploads/sites/25/2021/09/Sept27.DSB_.Stmt_.as_.deliv_.fin_.public.pdf; EU Statements at Regular Dispute Settlement Body (DSB) meeting, 27 September 2021, https://eeas.europa.eu/delegations/world-trade-organization-wto/104751/eu-statements-regular-dispute-settlement-body-dsb-meeting-27-september-2021_en.

In reading the summary of the proceeding and the full prepared statements of China, the U.S. and the EU, it is clear that the U.S. concern about how the WTO Members have let the dispute settlement system degenerate to the extent it has is a matter of significance and essentially ignored by most Members.

For example, GATT Articles VI, XVI and XIX and the Uruguay Round Agreements on those articles are not exceptions to WTO obligations but rather important WTO rights for all WTO Members. WTO Members are assumed to implement their rights and obligations according to their commitments. So how strange is it that the U.S. safeguard action on imports of crystalline silicon photovoltaic products is the first safeguard decision challenged that has been upheld.

Yet, China’s arguments and concerns with the panel report basically flow from the ability of any Member to pursue a safeguard action. Indeed, China’s desired interpretations of the agreements and Article XIX would ensure WTO Members would basically be unable to use safeguard actions. Consider China’s statement on Sept. 27, “In the past 26 years of the WTO, all of the safeguard measures challenged prior to this case had been found to violate the WTO rules. However, the panel report of DS562 has severely deviated from all these jurisprudences and substantially lowered the threshold of imposing safeguard measures. The erroneous and dangerous signal sent by this panel report to WTO members will lead to the abuse of safeguard measures and thus seriously undermine the rules-based multilateral trading system.” So the correct outcome is for all uses of the safeguard system to be found as violations of WTO obligations?

Equally interesting is the EU’s statement at the meeting. “The EU intervened as third party in this case and looks forward to commenting further at the appellate stage when the proceedings resume. In the meantime, as it is uncertain when appellate proceedings will resume, the EU notes with interest certain aspects of the approach which this panel has taken to the interpretation and application of the WTO disciplines on multilateral safeguards in this case.

“The present panel report would appear to be the first completely successful defence of a multilateral safeguard measure (subject to the pending appeal proceedings).

“Hence, the EU considers that the report of this panel and its approach to the WTO rules on multilateral safeguards deserve close attention.”

One can only respond to the EU, “Really?”

The Appellate Body has been viewed by many Members as having imposed obligations that Members had not agreed to, including in the interpretation of the Safeguard Agreement and GATT Article XIX. Yet safeguard actions are an integral part of WTO Member rights. It is not the role of panels or the Appellate to substitute their views for that of the administrators. Nor is it the role of the panels or the Appellate Body to adopt constructions of the agreements which render them nugatory in fact.

The panel, chaired by a former Chair of the Rules Negotiating Group, addressed the dispute as every panel should address trade remedy cases. Why would the outcome reached by the panel be surprising? The United States has had safeguard laws on the books for many years, has extensive experience in conducting such investigations by the U.S. International Trade Commission, and was active in the creation of the Safeguard Agreement and in Article XIX. Indeed, much of the language in the Agreement mirrors U.S. law.

So the focus of China and the implications of the statements by the EU are that dispute settlement reform for these important Members will not address the underlying concerns of the United States about overreach, about panel and AB reports not creating precedents or for the WTO membership to go back to the fundamental purpose of dispute settlement which is not for the panels or Appellate Body to create rights or obligations.

The U.S. statement also reveals the challenges the WTO is facing by having members like China whose economic systems are not market based and the urgent need for broader reforms or for countries like China to in fact become market economies.

“STATEMENT BY CHINA REGARDING THE PANEL REPORT IN THE DISPUTE: ‘UNITED STATES – SAFEGUARD MEASURE ON IMPORTS OF CRYSTALLINE SILICON PHOTOVOLTAIC PRODUCTS’ (DS562)

“• China as a WTO Member has the right to bring a matter to the attention of the DSB. Why China should want to highlight for Members that China is the first complaining party ever to lose a WTO challenge to a safeguard action – or the second, if we count China’s own previous loss in its challenge to the China-specific tires safeguard – is a matter for Beijing alone to consider.

“• But in bringing this matter forward, China should focus on what matters. First, it matters that the WTO panel found the U.S. safeguard to be consistent with WTO rules. We welcome those findings – but cannot pass without mentioning the very high cost of this victory. A thriving U.S. industry was essentially crushed by China’s massive non-market excess capacity – and this formed the factual basis for the U.S. safeguard action. So while we welcome the panel report findings, this dispute demonstrates, perversely, that WTO rules do not effectively constrain China’s damaging non-market behavior.

“• Second, it matters that China, once again, sought to use the WTO dispute settlement system as a vehicle to create new rules that would limit a Member’s ability to defend itself from China’s non-market practices. The United States has expressed grave concerns with Appellate Body interpretations that go well beyond the terms of WTO safeguards rules. But in this dispute, China sought to go even beyond those erroneous interpretations. China encouraged the panel to read Article XIX of the GATT 1994 and the Agreement on Safeguards as creating a procedural minefield with no realistic path for Members seeking to use a safeguard measure for its intended purpose. The Panel rightly rejected every single one of China’s misplaced arguments.

“• China tries to depict the uniform failure of its arguments as evidence that the Panel must have been wrong or that the Panel committed certain missteps. But the Panel’s thorough evaluation demonstrates that it is China that committed fundamental errors in its approach to this case. In particular, China attempted to read the relevant WTO safeguard provisions in a way that is inconsistent with the text of the covered agreements, and in a way that no competent authorities or no Member could ever meet in practice. That, and not some malfeasance by the Panel, is why China lost this dispute.

“• It was China’s burden to establish a prima facie case that the U.S. solar safeguard measure is inconsistent with one of the enumerated provisions of the GATT 1994 or the Agreement on Safeguards. The Panel held China to that burden. It addressed each of China’s arguments, and explained why China failed to discharge that burden in each instance. We will focus on just a few of those rejected arguments in our statement today.

“• Before the panel, China conceded that the U.S. competent authorities correctly found that the domestic industry was suffering from serious injury. That is beyond dispute, as numerous U.S. producers exited the industry, and remaining producers suffered profitability losses and declining investment. China conceded that imports were increasing from multiple sources, or that import prices were decreasing over the course of the period covered by the investigation. This is exactly the situation that GATT 1994 Article XIX and the Safeguards Agreement were designed to address. And, after a massive investigation with multiple parties and thousands of pages of evidence and arguments, the U.S. International Trade Commission (USITC) found that increased imports caused serious injury.

“• In its challenge, China instead sought to avoid the logical implication of these facts by attacking the competent authorities. It asked the Panel to essentially conduct a new investigation and issue a new determination, uncritically accepting the views of Chinese producers and rejecting out of hand any contrary evidence and argument. The Panel correctly rejected this view of its role. In line with the terms of the Safeguards Agreement, it evaluated the report of the competent authorities and whether the report provided findings and reasoned conclusions in support of the ultimate determination. The Panel properly declined to make new findings or a new determination.

“• The Panel also correctly focused on the substance of the USITC’s findings, and rejected China’s efforts to portray Article XIX of GATT 1994 and the Safeguards Agreement as mandating formulaic cookie-cutter approaches to the analysis. You can see a good example of this correct approach in the Panel’s handling of whether the United States showed that increased imports were a result of U.S. tariff concessions. There was no dispute that the U.S. bound rate on CSPV solar products was zero, or that the binding prevented the United States from raising tariffs in response to the documented surge in imports. China nonetheless argued that the United States failed to satisfy the obligation because the USITC did not couch its findings in the exact words used in Article XIX. The Panel correctly focused on substance over form, finding that:
“he USITC identified the United States’ domestic tariff treatment of CSPV products when it observed that CSPV products covered by the safeguard measure “are provided for in subheading 8541.40.60 of the U.S. Harmonized Tariff Schedule [and] have been free of duty under the general duty rate since at least 1987”. Although we recognize that this statement does not explicitly establish that such tariff treatment was required under the United States’ WTO obligations, we consider that the supplemental report appropriately demonstrates that this was the implication of the USITC’s statement.1

“1 US – Safeguard Measure on PV Products, para. 7.53.

“• That is exactly what a Panel should do in evaluating a safeguard measure. It should examine the totality of the competent authorities’ findings, and not fasten on quibbles over phrasing as excuses to reject their conclusions.

“• The United States is disappointed that China has now decided to press onward by appealing the Panel report in spite of overwhelming evidence of the damaging effects of China’s non-market practices, instead of focusing its energy on changing those practices that are harming workers and businesses worldwide. Indeed, it is important to recall why the United States imposed the solar safeguard in the first place. The safeguard measure serves to support our domestic industry’s efforts to adjust to import competition, after global excess solar cell and module capacity pushed our industry to the brink of extinction. Chinese producers in China and around the world are largely responsible for this excess capacity, fueled by China’s non-market practices, which are in direct contradiction to the commitments China made when it joined this organization in 2001. Meanwhile, China’s solar industry has attempted to undercut U.S. antidumping and countervailing measures on imports from China for years by shifting operations to other countries.

“• The United States will not stand idly by while China continues trying to undermine the solar safeguard measure and to continue harming U.S. solar producers and indeed market-oriented solar producers worldwide.”

Conclusion

If one needed an example of the challenges to forward movement at the WTO on dispute settlement reform, one need only look at the responses by three major players to the recent panel report on the U.S. safeguard action on imports of crystaline silicon photovoltaic products. Despite a well reasoned panel report upholding the U.S. action on surging imports that clearly devastated a domestic industry, one major Member cries foul for the panel not accepting extreme interpretations that would effectively eliminate the practical ability of Members to use safeguard actions. A second Member seems to focus on consistency with past decisions and interpretations regardless of concerns about overreach or the lack of precedents in the WTO dispute settlement system or the reasonableness of the panel report. The third Member takes the opposite position and reviews concerns about overreach, the failure of one Member to bring its economic system into conformity with market economy requirements of WTO membership, and notes the fundamental correctness of the panel’s upholding of the U.S. action.

It is hard to imagine the United States agreeing to removing its blockage of Appellate Body appointments in an environment in which major Members continue to pursue a path to undermine the purpose of dispute settlement, to ignore the need to correct the overreach problems of the past, and fail to recognize the role of dispute settlement which is not to create rights and obligations.

The WTO panel report on the U.S. safeguard case on Crystalline Silicon Photovoltaic Products — a well reasoned report but exemplifying the challenges that China’s non-market economy and policies pose to global trade

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.

WTO Panel report on UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE should be appealed by the United States

On January 21, 2021, the WTO panel that had been composed back on 5 December 2018 issued its report in UNITED STATES – ANTI-DUMPING AND COUNTERVAILING DUTIES ON CERTAIN PRODUCTS AND THE USE OF FACTS AVAILABLE, WT/DS539/R. Korea had requested consultations on a series of antidumping and countervailing investigations and reviews on February 14, 2018 and a panel had been established on May 28, 2018. See WT/DS539/R at para. 1.1, 1.3 and 1.5.

Korea mounted a broad attack on the U.S. Department of Commerce’s use of facts available in a number of antidumping and countervailing duty proceedings largely pertaining to the same major Korean company with a long record of participation in various U.S. trade remedy cases.

For investigating authorities working under a statutory timeline and time limits existing within the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (“ADA”) and the Agreement on Subsidies and Countervailing Measures (“ASCM”), it is important that parties provide complete information in a timely manner. While WTO obligations require administering authorities to flag deficiencies and provide an opportunity to respondents to correct such deficiencies, administering authorities need the ability to cut off submissions and move to decision at a reasonably early period to permit all work to be done in verifying information (investigations), providing other parties a chance to comment and challenge information provided.

Where a party fails to provide information requested, the administering authority is authorized to use facts available. As stated in Article 6.8 of the ADA and Article 12.7 of the ASCM, “In cases in which any interested party refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation, preliminary and final determinations, affirmative or negative, may be made on the basis of the facts available.” Art. 6.8 of the ADA then adds, “The provisions of Annex II shall be observed in the application of this paragraph.” Similar language is not in Art. 12.7 of the ASCM (changes to the ADA during the Uruguay Round of negotiations were typically adopted in the ASCM as they related to trade remedy proceedings, although changes made at the end of the negotiations to the ADA were not brought into the ASCM due to timing limitations).

Annex II of the ADA consists of seven paragraphs and is copied below.

“Annex II: Best Information Available in Terms of Paragraph 8 of Article 6

“1.   As soon as possible after the initiation of the investigation, the investigating authorities should specify in detail the information required from any interested party, and the manner in which that information should be structured by the interested party in its response. The authorities should also ensure that the party is aware that if information is not supplied within a reasonable time, the authorities will be free to make determinations on the basis of the facts available, including those contained in the application for the initiation of the investigation by the domestic industry.

“2.   The authorities may also request that an interested party provide its response in a particular medium (e.g. computer tape) or computer language. Where such a request is made, the authorities should consider the reasonable ability of the interested party to respond in the preferred medium or computer language, and should not request the party to use for its response a computer system other than that used by the party. The authority should not maintain a request for a computerized response if the interested party does not maintain computerized accounts and if presenting the response as requested would result in an unreasonable extra burden on the interested party, e.g. it would entail unreasonable additional cost and trouble. The authorities should not maintain a request for a response in a particular medium or computer language if the interested party does not maintain its computerized accounts in such medium or computer language and if presenting the response as requested would result in an unreasonable extra burden on the interested party, e.g. it would entail unreasonable additional cost and trouble.

“3.   All information which is verifiable, which is appropriately submitted so that it can be used in the investigation without undue difficulties, which is supplied in a timely fashion, and, where applicable, which is supplied in a medium or computer language requested by the authorities, should be taken into account when determinations are made. If a party does not respond in the preferred medium or computer language but the authorities find that the circumstances set out in paragraph 2 have been satisfied, the failure to respond in the preferred medium or computer language should not be considered to significantly impede the investigation.

“4.   Where the authorities do not have the ability to process information if provided in a particular medium (e.g. computer tape), the information should be supplied in the form of written material or any other form acceptable to the authorities.

“5.   Even though the information provided may not be ideal in all respects, this should not justify the authorities from disregarding it, provided the interested party has acted to the best of its ability.

“6.   If evidence or information is not accepted, the supplying party should be informed forthwith of the reasons therefor, and should have an opportunity to provide further explanations within a reasonable period, due account being taken of the time-limits of the investigation. If the explanations are considered by the authorities as not being satisfactory, the reasons for the rejection of such evidence or information should be given in any published determinations.

“7.   If the authorities have to base their findings, including those with respect to normal value, on information from a secondary source, including the information supplied in the application for the initiation of the investigation, they should do so with special circumspection. In such cases, the authorities should, where practicable, check the information from other independent sources at their disposal, such as published price lists, official import statistics and customs returns, and from the information obtained from other interested parties during the investigation. It is clear, however, that if an interested party does not cooperate and thus relevant information is being withheld from the authorities, this situation could lead to a result which is less favourable to the party than if the party did cooperate.” (emphasis added).

Antidumping and countervailing duty proceedings in the United States are very transparent with full access to information on the record available to parties under administrative protective order and with many opportunities to submit comments, raise questions, seek clarification or respond to additional inquiries flowing from earlier responses. It is quite common for Commerce to receive requests for more time to respond to the initial questionnaire and to any supplemental requests flowing from developments. Responding parties can determine whether or not to submit all information, partial information or no information. Questionnaire responses are often incomplete or adopt interpretations of what has been requested to provide less than complete information. In antidumping investigations, it is not uncommon for respondent data bases to change during the course of the investigation, sometimes markedly. Briefing after the preliminary determination permits challenges to the preliminary determination by all parties, including challenges to use of facts available. While there are always legal issues that are briefed, facts available issues are fact-based issues flowing from whether parties cooperated, withheld information, failed to supply requested information, etc., and if so, what alternative information is available that can be used.

The ADA provides special provisions on dispute settlement in Article 17.6. The approach on review of facts is laid out in Article 17.6(i) of the ADA (there is no counterpart in the ASCM for the reason that Art. 17.6 of the ADA was added at the end of the Uruguay Round without chance to consider adopting a parallel provision in the ASCM). Art. 17.6(i) states:

“17.6  In examining the matter referred to in paragraph 5:

“(i)   in its assessment of the facts of the matter, the panel shall determine whether the authorities’ establishment of the facts was proper and whether their evaluation of those facts was unbiased and objective. If the establishment of the facts was proper and the evaluation was unbiased and objective, even though the panel might have reached a different conclusion, the evaluation shall not be overturned;”

Article 17.6 was added to the ADA at the end of the Uruguay Round at the insistence of the United States which was interested in seeing that very complicated and detailed administrative proceedings were not second guessed by panels or the Appellate Body which would not have been involved in the proceeding or have access to all materials. Art. 17.6(i) deals with providing deference to administering authorities on facts. Art. 17.6(ii) does the same for legal interpretations for provisions subject to more than one meaning.

The panel report, following other panel and Appellate Body reports that have been problematic from the U.S. perspective, doesn’t view Art. 17.6(i) as being deferential to an investigating authority as long as the authority hasn’t conducted the investigation in a biased or non-objective manner or somehow established facts improperly. See WT/DS539/R at para. 7.23 – 7.36 (after a review of the meaning of ADA Art. 6.8 and Annex II, the panel sums its view of the panel’s task to be the following: “In sum, we consider that the terms of Article 6.8, interpreted in light of their context and object and purpose, require investigating authorities to select – in an unbiased and objective manner – those facts available that constitute reasonable replacements for the missing “necessary” information in the specific facts and circumstances of a given case. In doing so, investigating authorities must take into account all facts that are properly available to them. In selecting the replacement facts, Article 6.8 does not require investigating authorities to select those facts that are most ‘favourable’ to the non-cooperating party. Investigating authorities may take into account the procedural circumstances in which information is missing, but Article 6.8 does not condone the selection of replacement facts for the purpose of punishing interested parties.”).

In reading the panel report, the Commerce Department is not given deference for its decisions of what facts available should be used. Thus, that violations were found for how Commerce determined facts available in each of the six proceedings reflect the panel reaching a different conclusion than Commerce. But while the panel may have reached a different result than Commerce, that by itself does not constitute a basis under Art. 17.6(i) to find a violation.

Conclusion

The constant limiting by panel and Appellate Body reports of the ability to utilize trade remedy agreements is, of course, the main substantive concern that the United States has with the operation of the WTO’s Dispute Settlement system, although there are examples of the same problem in other areas covered by panel or AB reports as well. Last week’s panel report on Korea’s challenge to U.S. antidumping and countervailing duty proceedings on the use of facts available continues to undermine the legitimacy of WTO dispute settlement.

Accordingly, the Biden Administration should file an appeal from last week’s panel decision and ensure that any eventual resolution of the Appellate Body impasse includes a restoration of rights that have narrowed or eliminated under the trade remedy or trade defense agreements (ADA, ASCM and safeguard).

Malaysia files request for consultations with the European Union and Certain Member States on certain measures concerning palm oil and oil palm crop-based biofuels at the WTO on January 15

Malaysia filed the second request for consultations of 2021 on January 15, 2021. The request for consultations addresses the European Union, France and Lithuania and certain enumerated measures pertaining to palm oil and oil palm crop-based biofuels. See WT/DS600/1 (15 January 2021). France and Lithuania have already adopted laws and regulations implementing and EU provision which Malaysia views as violating a wide range of WTO obligations. As other EU members are working on possible implementing laws and regulations, Malaysia is keeping open the possibility of raising issues with additional EU members.

Because the dispute involves the interface of EU efforts to reduce greenhouse gases and trade restricting effects on certain biofuels that the EU views as not sufficiently promoting the reduction greenhouse gases, it will likely draw a lot of attention. The background part of the request for consultations lays out the Malaysian concerns.

A. Background

“1. Malaysia is the world’s second largest producer of palm oil. In 2019, Malaysia produced around 19.86 million metric tonnes of crude palm oil, accounting for 28% of world palm oil production and 33% of world palm oil exports.1 In 2019, Malaysia exported around 1.9 million metric tonnes of palm oil to the EU. The palm oil industry directly employs more than one million Malaysians and 40% of all palm oil plantations in Malaysia are owned or farmed by smallholder farmers, who have benefited from oil palm cultivation.2 Palm oil production and export has been a major factor in Malaysia reducing poverty from 50% in the 1960s, down to less than 5% today.

“2. As one of the biggest producers and exporters of palm oil and palm oil products, Malaysia recognises that it has an important role to play in fulfilling the growing global need for oils and fats in a sustainable manner. Malaysia is a responsible producer of palm oil and has long taken the lead in the continuous process of making palm oil production more sustainable and environmentally friendly. As of December 2020, nearly 90% of Malaysia’s total oil palm cultivation has obtained Malaysian Sustainable Palm Oil (MSPO) certification. Additionally, as at that date, 428 of Malaysia’s 452 oil palm mills, corresponding to around 95% of total milling capacity, received the MSPO certification. Most recently, on 1 January 2020, Malaysia made the MSPO certification mandatory.

“3. It is important to recall Malaysia’s commitment at the 1992 Rio Earth Summit, where it pledged to maintain at least 50% of the country’s landmass under forest cover. On the basis of data from 2018, about 55.3% of Malaysia’s 33 million hectares (ha) land areas are under forest cover, exceeding the country’s pledge made at the Rio Earth Summit.

“4. In the context of addressing the environmental risks posed by the extensive use of fossil fuels, the EU and its Member States have, since 2009, adopted a policy of promoting the use of biofuels by setting national targets for the use of renewable energy in various sectors, including the transport sector. This policy led to a rapid increase in the EU consumption of biofuels, produced mainly from food crops.

“5. While the measures taken by the EU and EU Member States under this policy pursue the reduction of greenhouse gas (‘GHG’) emissions and the achievement of commitments under international climate agreements, some of these measures contravene their WTO obligations. In 2018 and 2019, the EU adopted legislative measures that, in simple terms, define palm oil as an unsustainable feedstock for the production of biofuel. The EU further argues that only palm oil production entails a high risk of indirect land-use change (‘ILUC’). On that basis, oil palm crop-based biofuels cannot be counted towards EU renewable energy targets.3

“6. Generally speaking, the measures adopted by the EU, as well as the related measures adopted by EU Member States, confer unfair benefits to EU domestic producers of certain biofuel feedstocks, such as rapeseed oil and soy, and the biofuels produced therefrom, at the expense of palm oil and oil palm crop-based biofuels from Malaysia. These measures may also discriminate against Malaysian palm oil and oil palm crop-based biofuels in favour of ‘like products’ from third countries.

“7. Malaysia submits that the measures adopted by the EU and its Member States currently already limit and will increasingly limit the volume of Malaysian palm oil and oil palm crop-based biofuels that can be counted towards reaching EU renewable energy targets and, consequently, that will be sold in the EU market.

“fn1 Malaysian Palm Oil Council (MPOC), Malaysian Palm Oil Industry. Available at:
http://mpoc.org.my/malaysian-palm-oil-industry/. Malaysian Palm Oil Board, Production 2019. Available at
http://bepi.mpob.gov.my/index.php/en/production/production-2019/production-of-oil-palm-products-
2019.html.

“fn 2 Malaysian Palm Oil Council (MPOC). Available at http://theoilpalm.org/about/http://theoilpalm.org/about/.

“fn 3 See European Commission, Factsheet, Indirect Land Use Change, 17 October 2012, available at https://ec.europa.eu/commission/presscorner/detail/de/MEMO_12_787 (accessed 13 January 2021). See also Recitals 80 and 81 of the RED II.”

The full request for consultations is embedded below.

600-1

The Malaysian request for consultations raises similar allegations of WTO violations by the EU and member states as a case filed by Indonesia in late 2019 where a panel was finally composed on November 12, 2020. See European Union — Certain measures concerning palm oil and oil palm crop-based biofuels, WT/DS593/10 (composition of panel). Malaysia and many other countries are third parties in that dispute.

The WTO alleged violations in Malaysia’s request for consultations are the following for the EU, France, Lithuania and other EU members.

C. Legal basis for the complaint in respect of the EU measures

“31. With regard to the EU measures, as embodied and developed in the respective legal instruments as specified in para. 22 herein and as applied by the relevant authorities, Malaysia considers that these measures are inconsistent with the EU’s obligations under the GATT 1994 and the TBT Agreement. In particular, the measures are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, discriminate among ‘like’ feedstocks and derived biofuels originating in third countries;

“ii. Article III:4 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, accord less favourable treatment to imported palm oil and oil palm crop-based biofuels than they do to ‘like’ domestic feedstocks and derived biofuels, thereby modifying the conditions of competition to the detriment of the imported palm oil and oil palm crop-based biofuels, in particular from Malaysia;

“iii. Article X:3(a) of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets and which provide criteria for certifying low ILUC-risk biofuels, are administered in a manner that is not uniform, impartial and/or reasonable; and

“iv. Article XI:1 of the GATT 1994, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, and which provide criteria for certifying low ILUC-risk biofuels, restrict the importation of palm oil and oil palm crop-based biofuels.

TBT Agreement

“v. Article 2.1 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, have a detrimental impact on the competitive conditions in the EU market of Malaysia’s imports of oil palm crop-based biofuels compared with ‘like products’ imported into the EU from other countries and compared with ‘like’ domestic products;
vi. Article 2.2 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are more trade-restrictive than necessary to achieve the objectives pursued by the measures;

“vii. Article 2.4 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are not based on the relevant international standards;

“viii. Article 2.5 of the TBT Agreement, because the EU, in preparing, adopting or applying the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, has failed, upon the request of Malaysia, to explain the justification for those measures in terms of Articles 2.2 to 2.4 of the TBT Agreement;

“ix. Article 2.8 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, are based on an abstract and unsubstantiated high-ILUC risk concept instead of the performance of such biofuels;

“x. Article 2.9 of the TBT Agreement, because the measures at issue, which limit and will progressively phase out oil palm crop-based biofuels from being counted towards reaching EU renewable energy targets, being technical regulations within the meaning of Annex 1.1 of the TBT Agreement, were adopted without the required timely publication and notification of these measures and organising an adequate process for commenting;

“xi. Article 5.1.1 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, treats suppliers of oil palm crop-based biofuels from Malaysia less favourably than domestic suppliers of ‘like’ biofuels or suppliers from other WTO Members in a comparable situation;

“xii. Article 5.1.2 of the TBT Agreement, because the EU, by preparing, adopting or applying the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, creates unnecessary obstacles to international trade;
xiii. Article 5.2 of the TBT Agreement, because the EU failed to make available the conformity assessment procedures to certify low ILUC-risk;

“xiv. Article 5.6 of the TBT Agreement, because the EU, with regards to the measures at issue, which provide criteria for certifying low ILUC-risk, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement, neither notified nor enter into meaningful consultations, or allowed for comments on such conformity assessment procedures;

“xv. Article 5.8 of the TBT Agreement, because the EU neither promptly published nor otherwise made available the measures at issue, which provide criteria for certifying low ILUC-risk biofuels, being conformity assessment procedures within the meaning of Annex 1.3 of the TBT Agreement; and

“xvi. Articles 12.1 and 12.3 of the TBT Agreement, because the EU, in the preparation and application of the measures at issue referred to above, failed to take into account the circumstances specific to developing countries, in particular Malaysia, where palm oil and oil palm crop-based biofuels are produced.

D. Legal basis for the complaint in respect of the EU Member States’ measures

a. France

“32. The set of advantages granted by France for oil crop-based biofuels, as embodied and developed in the respective legal instruments, as specified in paragraphs 24 to 27 herein, and as applied by the relevant authorities, are inconsistent with the obligations of France under the GATT 1994 and the SCM Agreement. In particular, the set of advantages described above, as contained in the mentioned legal instruments, are inconsistent with:

GATT 1994

“i. Article I:1 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, discriminates against ‘like’ biofuels by granting an advantage, in the form of a tax reduction, to biofuels of some countries, that is not granted to all WTO Members, and in particular not to Malaysia, and

“ii. Article III:2 of the GATT 1994, because the measures at issue, under which the tax on petrol and diesel is only reduced when they contain biofuels other than oil palm crop-based biofuels, indirectly applies a tax on imported oil palm crop-based biofuels: (1) in excess to ‘like’ domestic biofuels; or (2) which is not similar to the tax on ‘directly competitive and substitutable’ domestic biofuels, and affords protection to the production of these domestic biofuels.

SCM Agreement

“iii. Articles 3 and 5 of the SCM Agreement, because the measures at issue, under which the French Government reduces the tax on petrol and diesel containing crop-based biofuel other than oil palm crop-based biofuels and excludes petrol and diesel containing oil palm crop-based biofuels from this tax reduction, amount to a subsidy within the meaning of Article 1 of the SCM Agreement which is: (1) a prohibited import substitution subsidy within the meaning of Article 3.1(b); and/or (2) an actionable subsidy causing an adverse effect on the interests of Malaysia within the meaning of Article 5(c) of the SCM Agreement.

b. Lithuania

“33. Concerning Lithuania’s measures (including any annexes thereto, amendments, supplements, replacements, renewals, extensions, implementing measures or any other related measures, and any exemptions applied), as implemented and/or applied by the latter in line with its obligations as a EU Member State regarding the transposition of the RED II, Malaysia claims that those measures are inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.

c. Other EU Member States

“34. Malaysia contends that to the extent that any other EU Member State transposes the RED II and further implement and/or apply any measure(s) according to its obligations as regards the limitation and/or phasing out of oil palm crop-based biofuels from being counted towards reaching renewable energy targets, regardless of whether the said measures are explicit or implicit in their treatment of oil palm crop-based biofuels, such measure(s) shall be inconsistent with the same WTO obligations as provided for in paragraph 31 and/or 32 herein.”

With the Indonesian case now in the briefing stage, a panel report could be available in late 2021 or in the front half of 2022 depending on delays flowing from the continued limitations imposed by the pandemic. The Malaysian case will likely trail the Indonesian case by six months or more.

Neither Indonesia nor Malaysia are signatories to the Multi-Party Interim Appeal Arbitration Arrangement Pursuant To Article 25 Of The DSU. The EU has in at least one case where the party challenging EU actions was not a signatory opted to file an appeal into the void when it was dissatisfied with the panel report. See 28 August 2020:  Notification of Appeal  by the European Union in  DS494: European Union — Cost Adjustment Methodologies and Certain Anti-Dumping Measures on Imports from Russia (Second Complaint) (WT/DS494/7). Thus, whether reform of the Appellate Body moves forward in the next year to address U.S. concerns may be important to a final resolution of the two cases. The WTO is a long distance from resolving the current impasse on the Appellate Body, but perhaps there will be reengagement during the second half of 2021.

Comments

It is surprising that with the pressing importance of working to address climate change and the EU efforts at leadership that the EU appears not to have found a way to work with trading partners like Malaysia or achieve a common science-based understanding as to which biofuels help reduce greenhouse gases. For trade and environment issues to gain a greater role within the WTO (as Members need them to do), all Members working to achieve sustainable development objectives have to feel that the rules of trade will support their effort, provide guidance as to what more is needed and not close those Members out of the market of a trading partner.