Overreach

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

Terence P. Stewart · September 30, 2021 · dispute settlement · Appellate Body, Canada, China, dispute settlement reform, European Union, imports of crystaline silicon photovoltaic products, Overreach, Safeguard, United States · No Comments

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.

U.S. Senate Finance Committee Hearing on WTO Reform: Making Global Rules Work for Global Challenges

Terence P. Stewart · August 4, 2020 · WTO Dispute Settlement, WTO reform · Appellate Body, Country of Origin Labeling, Overreach, Senate Finance Committee, trade remedies · No Comments

On July 29, 2020, the United States Senate Finance Committee held a hearing on WTO Reform: Making Global Rules Work for Global Challenges. The hearing had four witnesses, including two prior Appellate Body Members (Jennifer Hillman and Thomas Graham) and two others.

Senators generally agreed that the dispute settlement system was in need of reform to address long standing U.S. concerns about overreach and other matters. At the same time, Senators view the WTO as an important organization where U.S. leadership is important to address problems and changing needs.

While most U.S. agricultural interests were perceived to have been generally upheld well through dispute settlement, concern was expressed with the Country of Origin Labeling (“COOL”) decision affecting the labeling of meat from animals imported into the United States.

There was broad concern about the problems created by Appellate Body overreach in the areas of trade remedies. For some, there is a belief, confirmed by at least one of the former Appellate Body members, that there has been a bias against trade remedy use by the U.S.

The hearing lasted about two hours and can be seen here. https://www.finance.senate.gov/hearings/wto-reform-making-global-rules-work-for-global-challenges. The prepared statements of the Senate Finance Committee Chairman and Ranking Member and of the witnesses are available for download from the same link.

Written comments to the Committee are accepted for two weeks (til August 12). I am submitting written comments today and provide them in the embedded document below.

August-4-2020-statement-to-Senate-Finance-Committee

As I note in my comments, U.S. concerns center around overreach – the creation of rights and obligations not contained in the agreements themselves. Such concerns can be addressed through clarifying that DSU Art. 3.2 and 19.2 prevent panels and the Appellate Body from filling gaps, construing silence and construing ambiguous provisions. Any clarification of those articles must be accompanied by an ability to correct prior decisions. My prior blogs have provided one suggestion which would address not just U.S. but other Member concerns about overreach.

On the other issues of concern to the U.S., any resolution must provide a means for the DSU terms to be enforced by Members where panels or the Appellate Body wander afield.

Additional Meetings of the WTO Dispute Settlement Body and Budget, Finance and Administration Committee set for December 3 and 5 in search of Resolution of Outstanding Issues.

Terence P. Stewart · December 2, 2019 · Uncategorized · Appellate Body, Dispute Settlement, Dispute Settlement Body, Overreach, United States, WTO, WTO 2020 Budget · No Comments

The WTO’s last General Council meeting of 2019 is scheduled for next Monday-Wednesday (December 9-11). There are unresolved issues on what will happen with pending appeals before the Appellate Body and whether the modified 2020 budget that was introduced last week but received opposition from a number of Members will be approved. Not surprisingly, two additional meetings have been added to the WTO schedule for this week and can be seen in the section of the WTO webpage that shows pending meetings at the WTO.

The first is technically a resumption of the November 22 Dispute Settlement Body meeting to take up issue 7, “pending appeals”. The second is yet another Budget, Finance and Administration Committee meeting to seek approval of the proposed budget as modified by the Director-General in response to the issues raised by the United States on Appellate Body compensation and other matters.

As reviewed in earlier posts, the U.S. is seeking reductions in the budget within the WTO for Appellate Body [“AB”] matters in light of the reduced number of AB members and the likely inability to pursue appeals for some period of time after December 10. The U.S. also is opposed to former members of the AB continuing to hear most of the pending appeals after December 10. There are 13 reported pending appeals before the Appellate Body that will not be resolved prior to December 10. Resolution of how or if those appeals will proceed will presumably be relevant to the resolution of what funds are needed in 2020 for the AB in the proposed budget. Thus, the activities this week are important to providing clarification of what activity by the Appellate Body will occur prior to the resolution of the U.S. concerns on activities by the AB that are inconsistent with existing Dispute Settlement Understanding requirements.

The WTO General Council has had Ambassador David Walker of New Zealand (the current Chair of the Dispute Settlement Body) serving as a facilitator to see if solutions to the U.S. concerns could be found. At an informal General Council meeting of the Heads of Delegations held last Friday, November 29th, press reports indicate that modifications to the draft General Council Decision on the functioning of the Appellate Body that were contained in WT/GC/W/791 received the green light from Members. This indicates that the draft decision could be adopted at the upcoming General Council meeting.

It would be surprising if the modified draft Decision solves the impasse on filling AB vacancies. There are two additions to the draft General Council Decision from the version (JOB/GC/222 Annex) that the United States had dismissed as inadequate in the last General Council meeting on October 15. See my post of Nov. 4, 2019 on the Draft General Council Decision which quotes the U.S. position in full. https://currentthoughtsontrade.com/2019/11/04/wtos-appellate-body-reform-the-draft-general-council-decision-on-functioning-of-the-appellate-body/

First, a paragraph has been added acknowledging that the Appellate Body has not always functioned as intended. “Acknowledging that the Appellate Body has, in some respects, not been functioning as intended under the Understanding on Rules and Procedures Governing the Settlement of Disputes (the ‘DSU’)”. Such a paragraph is undoubtedly important to the U.S. as it reflects agreement that there have been problems – the U.S. position for many years that some other Members have not publicly acknowledged.

Second, paragraph 9 in WT/GC/W/791 has been added to a section previously titled “Municipal Law” but now renamed “Scope of Appeal”. The added paragraph reads, “9. Article 17.6 of the DSU restricts matters that can be raised on appeal to issues of law covered in the relevant panel report and legal interpretations developed by that panel.” The existing DSU limits the scope of appeal as reflected in this new paragraph. While the U.S. presumably supports the language, it is not clear that the concerns that the U.S. has raised about the Appellate Body opining on issues not raised by either party are fully addressed in this paragraph. Should the panel address issues not raised by the parties, the language would indicate the AB can address such issues in an appeal. The two documents are included below.

WTGCW791

JobsGC222

The press article indicates that it is not clear that the U.S. will approve the draft GC decision at the upcoming GC. Washington Trade Daily, December 2, 2019 at 1-2. Indeed, considering the October 15 statement of the U.S. at the General Council meeting, it would be surprising if the few modifications to the earlier draft would be viewed by the United States as adequate. For example on the longstanding problem of creating obligations or diminishing rights of Member, the draft Decision makes no changes to language which simply repeated part of DSU Articles 3.2 and 19.2. As reviewed in earlier notes, there is unlikely to be correction of the overreach problem if 3.2 and 19.2 aren’t clarified to identify situations where obligations are created (e.g., if gaps are filled, silence is construed or ambiguities clarified). Moreover, the U.S. concern reflects a more than 20 year problem of the balance of rights and obligations being altered. Nothing in the draft identifies how Members rights will be rebalanced.

if the U.S. joins other Members in approving the draft Decision at the upcoming General Council meeting on December 9-11, the U.S. could view the adoption of the decision as simply one step in the process needed before the U.S. will lift its hold on filling vacancies. Stay tuned.