1 Nov 2019

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WTO Arbitrator issues Report in the China-US Dispute concerning Certain Methodologies Applied in US Anti-Dumping Proceedings concerning Goods from China

On 1 November 2019, the decision of the World Trade Organization (WTO) Arbitrator in United States – Certain Methodologies and their Application to Anti-Dumping Proceedings Involving China (DS471) was released. The purpose of the arbitration was to determine the exact amount of the countermeasures that China is authorized to take against the United States, further to the Appellate Body’s findings in May 2017 and the Panel’s findings in October 2016 that the use of certain methodologies by the United States in anti-dumping investigations concerning products imported from China were inconsistent with provisions of the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Anti-Dumping Agreement) and Article VI:2 of the General Agreement on Tariffs and Trade 1994 (GATT 1994).

The Arbitrator’s mandate, under Articles 22.4, 22.6 and 22.7 of the DSU, required it to determine the economic value of the “nullification or impairment” of the benefits accruing to China as a result of the United States’ failure to bring its WTO-inconsistent methodologies into compliance before the expiry of the “reasonable period of time” (which had been determined in a previous arbitration under Article 21.3(c)). The Arbitrator estimated this value by reference to a “counterfactual”, which is a hypothetical scenario that describes what would have happened in terms of trade flows between China and the United States if the United States had implemented the recommendations and rulings set out in the Appellate Body and panel reports. This is an important analytical tool that WTO arbitrators routinely employ, together with complex economic modelling, in arbitrations of this kind.

The Arbitrator considered that the US methodologies found to be inconsistent with WTO obligations fell into two categories: (a) the United States’ use of the weighted average-to-transaction (WA-T) methodology with zeroing in calculating dumping margins; and (b) the United States’ treatment of multiple exporters as a single, government-wide entity under the so-called Single Rate Presumption. For the purpose of determining the level of nullification or impairment, the Arbitrator based its analysis on twenty-five anti-dumping orders in which one or both of these methodologies had been applied. In each case, the Arbitrator examined a counterfactual in which the United States had ceased applying the WTO-inconsistent methodologies, but had otherwise continued to apply the anti-dumping measures to products imported from China.

While the level of countermeasures proposed by China was USD 7.043 billion, the Arbitrator determined that (i) the level of nullification or impairment of benefits accruing to China as a result of the WTO-inconsistent methodologies was USD 3.57 billion per year, and (ii) China may request authorization from the WTO Dispute Settlement Body (DSB) to suspend concessions or other obligations to the United States at a level not exceeding this amount.

An interesting aspect of this proceeding was the disagreement of one member of the Arbitrator with the two-member majority over the extent to which the Arbitrator should consider the consistency of the counterfactuals with WTO obligations. The three members of the Arbitrator agreed that a proposed counterfactual should be consistent with the covered agreements in order to represent a reasonable or plausible compliance scenario.

The majority, however, considered that the Arbitrator could examine the WTO consistency of a proposed counterfactual broadly, taking account of not only the WTO obligations that formed the basis of the original findings of violation, but also other WTO obligations that may be relevant. Applying this approach, the majority rejected certain arguments raised by the United States on the basis that it could not be assumed that the proposed counterfactual would be consistent with certain WTO obligations, even though there had been no findings of inconsistency with respect to those obligations in the original proceedings.

The dissenting member disagreed with this approach, taking the view that only the provisions forming the basis of the original panel’s findings of violations should be taken into account when assessing whether a proposed counterfactual reflects a reasonable or plausible compliance scenario. The dissenting member considered that the majority should have exercised “particular and extra restraint” when considering the possibility of taking into account potential inconsistencies with WTO obligations other than those that were found to have been violated in the original proceedings.

Tereposky & DeRose LLP regularly provides advice and acts as counsel in international trade disputes, including WTO dispute settlement proceedings.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com