Trade
The end of the WTO and the last case?
Authors: Henry Gao, SMU, and Weihuan Zhou, UNSW
On 14 June 2019 the WTO issued a communication announcing that the panel proceedings in case DS516 (European Union — Measures Related to Price Comparison Methodologies) initiated by China against the European Union had been suspended at the request of China. Called by US Trade Representative Robert Lighthizer as the ‘most serious litigation matter that we have at the WTO right now’, the case could affect billions of dollars of Chinese products. But its significance rises beyond commercial interests.
This case concerns Section 15 of China’s WTO Accession Protocol, which allows other WTO Members to treat China as a non-market economy (NME) in anti-dumping investigations. Anti-dumping, typically in the form of import tariffs, addresses the practice of ‘dumping’ where an exporter sells goods to another country at a lower price than its normal value in its home country.
When calculating normal values, Section 15 allows investigating authorities to disregard domestic prices in China and use surrogate prices from a third country instead — known as the NME methodology. This methodology can greatly increase the likelihood of positive findings of dumping, leading to exaggerated dumping margins sometimes as high as 1731 per cent.
Section 15(d) states that the NME provision ‘shall expire 15 years after the date of accession’. China took this to mean that the NME methodology would not be continued beyond 10 December 2016. Come 11 December 2016, however, neither the United States nor the European Union (EU) was willing to give up such a convenient tool. Therefore, the day after, in an unprecedented move, China filed separate WTO cases against the United States and the EU for allegedly breaking promises.
One may argue that regardless of whether Section 15 allows the continuation of the NME methodology beyond 2016, WTO Members have other ways to inflate anti-dumping duties. For example, Australia has been using the so-called particular market situation method after it granted full market economy status to China in 2005. Amid the NME dispute, the EU amended its anti-dumping regulation to replace its discriminatory NME list with a country-neutral methodology which mirrors the NME methodology in every way but name.
Why did China quit? There are several possible explanations.
One explanation is that it was to avoid the public humiliation associated with their potential defeat. This is understandable, given how much importance China has attached to the case. Indeed, in his opening statement at the first panel hearing, Chinese Ambassador to the WTO Zhang Xiangchen warned that the case ‘concerns the credibility of the dispute settlement mechanism, the integrity of the WTO and the membership’s faith in the multilateral trading system’.
But there is one problem with this theory: no matter how bad the panel ruling is, China could have always appealed it. So, couldn’t China have just waited for the panel report to come out and then, if necessary, filed an appeal?
The answer is that they couldn’t. The Appellate Body is barely surviving on its last breath after two years of ‘slow killing’ by the United States through blockage of appointment of new judges. In fact, since a year ago the Appellate Body has not held hearings on new appeals, citing heavy backlog of cases and dwindling capacity. Thus, even if China files a notice of appeal, the case might never get heard by the Appellate Body, which means the United States and the EU could just continue what they have been doing.
Another possible explanation is that the panel supported the EU’s position that the 15-year deadline merely shifts the burden of proof and does not terminate the substantive right to apply the NME methodology. This would raise serious political and systemic implications.
Politically, such a ruling may well be interpreted by the public as the WTO court confirming that China remains an NME. This, however, would be a complete misunderstanding of the nature of this dispute as the WTO has no definition of what an NME is and the panel was not requested to decide whether China is an NME. This misinterpretation would reflect badly on China’s progressive achievements in opening up and economic reform. Coupled with calls for WTO reform to deal with China such a ruling could further weaken China’s negotiating position.
At a systemic level, such a ruling would also call into question the legitimacy of the WTO. On the one hand, China views a decision supporting the EU’s position as…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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