1. Developed-country Members shall exercise due restraint in cases against developing-country Members. For instance, developed-country Members shall not bring more than two cases to the WTO Dispute Settlement Body against a particular developing-country Member within a calendar year.

2. Where a developed-country Member brings a case against a developing-country Member, if the final rulings of a panel or the Appellate Body show that a developing-country Member does not violate its obligations under the WTO Agreements, the legal costs of the developing-country Member shall be borne by the developed-country Member initiating the dispute settlement proceedings.

3. • 8 Ibid. p. 1. The Doha Ministerial Declaration mandates negotiations on improvements and clarificatio (...)

   Developed-country Members shall help developing-country Members participate in the dispute settlement mechanism in a more effective way through providing technical assistance and capacity building programmes.8

5There are many ways of approaching an already vast body of decisions and related legal and economic literature. To better reflect the uniqueness of the Chinese trade regime and the impact of such a peculiar mix between economic liberalisation and maintenance of the state on other WTO members, I have chosen to focus on three singular aspects now emerging from the settled disputes: the transitional product specific safeguard measures adopted in reaction to a market disruption caused by Chinese imports, the antidumping and countervailing duties issue, and the restrictions on exports or imports imposed by China for economic, but also societal and political reasons.

Transitional product safeguard measures and China’s protocol of accession interpretation

WTO-plus and WTO-minus rights and obligations

The WTO-plus commitments include the following elements:

1. • 13 See our contribution to this special issue, Leïla Choukroune, “The Compromised Rule of Law by Inter (...)

   “Rule of Law” obligations related to the establishment of a more transparent trade regime as well as the judicial review and uniform administration of trade. Adopted in relation to article X of GATT 94 (Publication and Administration of Trade Regulations), these provisions remain a major obstacle to the genuine application of China’s WTO commitments.13

2. • 14 See China’s Protocol of Accession, paragraph 9.
   • 15 See China’s Protocol of Accession, paragraph 5 (1).
   • 16 On the intertwined relations between the state and the economy, see for instance The Economist rece (...)

   Obligation to progressively practice a market economy: While WTO rules assume a market economy, nothing in the Agreement prescribes the participation of non-market economies (NME). China’s Protocol of Accession, in contrast to what is (not) imposed on other members, establishes special market economy obligations for China. Beijing is indeed obliged to allow the market to determine prices for a number of domestic goods and is prohibited from using price controls except for specifically listed categories of products.14 Moreover, China should liberalise foreign trading rights and not influence the decisions of State Owned Enterprises (SOEs).15 This, of course, is particularly tricky to implement in a “socialist market economy” in which the role of the state is still very pervasive.16 As we will see below, a number of recent disputes are precisely related to this ambiguous obligation and the similarly ambiguous Chinese economic and political position.

3. • 17 See China’s Protocol of Accession, paragraph 11 (3).

   Obligations to eliminate export tariffs: In a departure from the WTO general rule allowing Members to levy taxes and charges on their exports, China is required to “eliminate(s) all taxes and charges applied to exports except for those specifically provided in the Annex 6 of the Protocol”.17

4. • 18 See China’s Protocol of Accession, paragraph 7 (3).

   Special obligations on foreign investment: Here again, the China Protocol departs from normal WTO disciplines. China, for instance – and this is very controversial today – may not make approval of foreign investment conditional upon the existence of domestic competitors or, more importantly, on any performance requirement including technology transfer or obligations to conduct research and development activities in China.18 Furthermore, foreign investors and foreign owned enterprises are entitled to National Treatment with respect to all their China activities.

5. • 19 See China’s Protocol of Accession, paragraph 18.

   Additional Transitional Review Mechanisms: A special transitional review mechanism19 was established by the Chinese Protocol to review China’s implementation every year during the first eight years after accession as well as on year ten. This special scrutiny regime was unique and additional to the usual trade policy reviews conducted for all WTO Members at regular intervals.

WTO-minus provisions cover the following issues:

1. Special anti-subsidy rules: China’s Protocol permits an importing WTO Member to use non-market economy (NME) methodologies to calculate Chinese subsidies and possibly take measures against them. This is not subject to a time limit. There are also special rules for government subsidies to State Owned Enterprises (SOEs) that again departs from normal WTO rules. These include an additional ownership criterion when defining the specificity of government/public support. Under this criterion, subsidies granted to Chinese SOEs are considered to satisfy the requirement of specificity, thus making them actionable under WTO rules on subsidies. Curiously, China is not allowed to make use of a very interesting WTO provision allowing developing countries to provide subsidy to companies that are directly linked to a privatisation programme, even though one could imagine such a rule would promote the existing privatisation policy for Chinese SOEs. The lack of coherence in these measures makes application of China’s Protocol of Accession more difficult.

2. • 20 See China’s Protocol of Accession, paragraph 15.
   • 21 See Article VI of GATT 1994 and the Anti-dumping Agreement.

   Special anti-dumping rules. China’s Protocol allows WTO Members to treat China as a non-market economy (NME) for 15 years, that is until 2016.20 In WTO law, dumping is determined21 when a product is exported at less than its “normal value” and causes or threatens to cause material injury to an industry of the importing country. As long as China is considered a NME, importing WTO Members can argue that the Chinese domestic prices cannot be used to assess the dumping margin and that generally higher priced equivalents in a third country should be used. As we will see in the below developments, tensions over the NME status of China seem set to continue, as there is no clear definition of a non-market economy in WTO law, and WTO Members applying anti-dumping measures have the right to determine whether the exporting country is or is not a market economy. China is likely to see itself as a victim of unfair anti-dumping methodologies, while the EU and US, as well as other emerging players, will more often target China for anti-dumping measures. It is equally easy to understand why China is pushing the EU and the US to obtain a market economy status that could clarify its situation and so the methodologies used to determine and assess dumping.

3. Special safeguards regime: The China Protocol contains a special set of safeguard provisions in addition to the existing WTO safeguard regime that can be invoked until 2013. WTO members can apply safeguards selectively against products of Chinese origin if they can show “market disruption” and “causality” with increased imports, an easier test than the normal injury test for safeguards under the WTO. Furthermore, an importing country does not even have to prove the “injury” and “causal link” if it argues that there is “trade diversion” as a result of another member’s safeguards against China. One can clearly see the risks of this sort of spillover effects. There was also a special safeguard mechanism applicable to textile and clothing products of Chinese origin up to 2008. This allowed WTO members to impose quotas if they could show that imports of Chinese textile and clothing products caused “market disruption, threatening to impede the orderly development of trade in these products.” This safeguard provided the basis for bilateral textile agreements between China and the EU and US in 2005. Of course, these rules were accepted by China during the course of the WTO accession negotiations, but as illustrated by the below disputes, they are extremely difficult to implement for both technical and political reasons.

The Safeguards Battle

9The US Statute implementing the causation standard of Paragraph 16 in

10to US Law was inconsistent “as such” with Paragraphs 16.1 and 16.4 of the Protocol.

11- The US failed to evaluate properly whether imports from China were a “Significant Cause” as required by the paragraph 16.1 and 16.4 of the Protocol.

12- The US Statute implementing the causation standard of paragraph 16 into US law was inconsistent “as such” with paragraphs 16.1 and 16.4 of the Protocol.

13- The US failed to evaluate if imports from China were a significant cause as required by paragraph 16.1 and 16.4 of the Protocol.

14- The US imposed a transitional safeguard measure that went beyond the “extent necessary” and was thus inconsistent with paragraph 16.3 of the Protocol.

15- The US imposed a three-year safeguard period that went beyond the “necessary” period of time and was hence inconsistent with paragraph

1616.6 of the Protocol.

17- The transitional safeguard measure was inconsistent with Article I:1 (Most-Favoured-Nation Treatment) of the GATT 94, as the US did not accord the same treatment to Chinese imports as it does to other countries imports

18- The transitional safeguard measure is inconsistent with Article II:1 (b) (Schedules of Concessions) of the GATT 94 as the tariffs consist of unjustified modifications of US concessions on passenger vehicles and light truck tyres under the GATT 94.

19Naturally, China asked the WTO Panel to recommend that the US promptly comply with its WTO obligations and so withdraw the challenged measure, while the US asked the Panel to reject China’s claims in their entirety. After the panel rejected all of China claims under paragraph 16 of its Protocol of Accession and GATT 94 and concluded that the US did not fail to comply with its obligations, China appealed the decision. However, China did not appeal a number of findings by the Panel, specifically the following

20elements: the US measure did not exceed the extent and the period of time necessary to prevent or remedy the market disruption, and the US causation standard in Section 421 of the 1974 Trade Act was not inconsistent with the Section 16 of the Chinese Protocol of Accession.

22This apparently technical and somehow limited case provides a particu-

23larly clear illustration of the subtle, yet demanding, drafting of the Chinese Protocol. Well protected against market disruptions caused by Chinese imports until 2013, the WTO Members will have to adjust their strategies and legal defences to the rapidly evolving new commercial done that will develop in a less rigorous environment.

Non market economy, antidumping, and countervailing duties: The complicated equation

Unfair Trade

1. If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;

2. The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.

27(b) In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply; however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks. In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.

29Two recent cases provide a very detailed illustration of the difficulty WTO Members are now facing in the interpretation and implementation of the anti-dumping and subsidies provisions.

31Beyond the technical considerations on anti-dumping and subsidies investigations methodologies applicable to a non-market economy, the panels and Appellate Body have touched upon, and to a certain extend clarified, a crucial concept, that of a “Public Body,” hence further delimiting the contours of the state’s intervention in international trade.

Public Body

32In the US-Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (DS 379), China in fact appealed the Panel’s interpretation and application of Article 1.1(a)(1) of the SCM Agreement and challenged the Panel’s finding that the term “public body” means “any entity controlled by a government.” In the same perspective, China took issue with the Panel’s interpretative approach and acted inconsistently with the DSU in its interpretation techniques and reliance on municipal law. To this we should add that the Chinese Protocol gives a particularly precise definition of the subsidies provided to SOEs. Paragraph 10 of the Chinese Protocol states the following:

1. China shall notify the WTO of any subsidy within the meaning of Article 1 of the Agreement on Subsidies and Countervailing Measures (“SCM Agreement”), granted or maintained in its territory, organized by specific product, including those subsidies defined in Article 3 of the SCM Agreement. The information provided should be as specific as possible, following the requirements of the questionnaire on subsidies as noted in Article 25 of the SCM Agreement.

2. • 34 Highlighted in bold by the author.

   For purposes of applying Articles 1.2 and 2 of the SCM Agreement, subsidies provided to state-owned enterprises will be viewed as specific if, inter alia, state-owned enterprises are the predominant recipients of such subsidies or state-owned enterprises receive disproportionately large amounts of such subsidies.34

3. China shall eliminate all subsidy programmes falling within the scope of Article 3 of the SCM Agreement upon accession.

34Departing from the panel’s findings, the Appellate Body considered the meaning of the term “public body” in accordance with Article 31 (general rules if interpretation) of the Vienna Convention on the law of treaties, and while it found that the concept of “public body” shared a number of attributes with the concept of “government,” it found, as well, that the object and purpose of the SCM Agreement do not favour either a broad or a narrow interpretation of this term. Taking also into consideration the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts, the AB concluded that the concept of “public body” is an entity that possesses, exercises, or is vested with governmental authority. Yet, the AB made clear that this definition may vary from state to state and case to case. Based on its interpretation of the term “public body,” the AB reversed the Panel’s finding that the term public body means “any entity controlled by a government.” The AB was then able to complete its analysis with regard to the Chinese SOEs in the four companies at issue, which were producers of steel, rubber, and petrochemical components sold to the investigated companies or to trading companies. Indeed, the US administration had based its analysis of the “public body” concept on the majority state ownership of the companies. The AB considered in this regard that evidence of government ownership is not in itself evidence of control of an entity by the government and cannot as such serve as a proof for establishing that the entity is vested with the needed authority to perform a government function and so is a “public body.” On the contrary, the AB found that state-owned commercial banks (SOCBs) were public bodies under Article 1.1(a)(1) of the SCM Agreement as other evidences relating to the Chinese government role in the banking sector could be considered.

Restrictions on imports and exports

38In the Raw Materials dispute, cases were brought against China in relation to the four types of export restraint it imposed on the exports of various raw materials (bauxite, coke, fluorspar, magnesium, manganese, silicon metal, yellow phosphorus, and zinc). Having in mind the unquenched thirst of China for commodities and natural resources, this dispute resounds in a peculiar way. The Complainants argued that the use of export restraints creates scarcity and causes higher prices of raw materials in global markets as well as providing China’s domestic industry with an unfair advantage by way of sufficient supply and thus cheaper prices. Upon accession to the WTO, China agreed, as we have seen, to eliminate all exports taxes and charges and all export quotas. But here again, China tried to use the general trade exceptions contained in GATT 94 Article XX (b) (exception “necessary to protect human, animal or plant life or health”) and (g) (exception “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”) to support its restrictive measures. The Appellate Body nevertheless upheld the Panel’s finding that there is no basis in China’s Accession Protocol to allow the application of Article XX of the GATT 1994 to China’s obligations under Paragraph 11.3 of the Accession Protocol (Taxes and Charges levied on Exports and Imports) and found that China cannot have recourse to Article XX to justify a breach of its obligation to eliminate export duties.

39While similar cases are likely to appear in the near future, these disputes are quite revealing of China’s internal needs and struggles between the imperative of export-oriented growth and the political strategic choices Beijing’s leaders have made to build up and consolidate their vision of a developed yet not autonomous society.

Conclusion

40Ten years ago, a dispute between China and Japan over Japanese safeguard measures against three agricultural products from China gave an early indication of Beijing’s determination to put its new legal arsenal to good use. China was not yet a member of WTO, but both parties frequently referred to the WTO agreements in their legal arguments. A few months later, in 2002, China grabbed the attention of trade lawyers with its provisional safeguard measures with respect to certain American steel products. These came less than six months after China adopted legislation on safeguards, causing some experts to qualify Beijing’s attitude as “aggressive legalism.”

41A wise observer and fast learner in global trade, China is now able to put its recently acquired knowledge into practice and will undoubtedly bring new claims against its main trading partners while these same partners will follow the pace of global trade and more often target China. Interestingly, these novel trade disputes may not be fought by the EU or the US, but rather by emerging economies such as Brazil or India. With the recent imposition of a 30 percentage point tax increase on cars with less than 65 percent local content, the Brazilian government firmly reacted to the significant imports of Chinese cars and the risk of seeing the country “de-industrialise.” Following Tata Motors’ announcements, other foreign cars companies may decide to build up car factories in Brazil, hence avoiding high taxes, but this may also result in a major WTO dispute as Brazilian – as well as Indian – Industrialists seem to distinguish between Chinese and other trade competitors. Having emerging or developing countries fighting against each other at the WTO is not something new. India, for instance, has brought a number of complaints against Brazil, Argentina, and South Africa, but something else is at stake today. Many of these emerging trade champions are, to a very large (China) or much smaller extent (Brazil),“State Capitalists.” Ambiguous market economies or economies in transition, they play with different rules than those ideally imagined for a free trade world, and skilfully select legal tools available in the WTO Agreement that could better protect their syncretic economic model, hence contributing to the creation of an hybrid system and a possible redefinition of the WTO’s values and role.

42Is this something to worry about or, rather an opportunity for clarification of the rules of the game? One can indeed wonder wether free trade has ever existed when the EU or the US keep fighting over the unacceptable character of their respective highly subsidised industries or agricultures. This eruption of new players on the commercial scene may lift the veil of hypocrisy that reigns over an idealised model of international trade that is not always respected by its main proponents.