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Appellate Body Report on EU−Biodiesel: The Future of China's State Capitalism under the WTO Anti-Dumping Agreement

  • WEIHUAN ZHOU (a1)
Abstract
Abstract

China's unique economic system poses increasing challenges to the world trading system and attracts growing academic and policy debate. WTO members have frequently resorted to antidumping measures in dealing with price distortions caused by the Chinese government's influence on the economy. The Appellate Body's decision in the recent EU–Biodiesel dispute starts to remove the flexibility of condemning state intervention and price distortions under the WTO Anti-Dumping Agreement through antidumping measures. This decision, read with the relevant WTO jurisprudence on the ‘ordinary course of trade’ test and subsidies, suggests that price distortions resulting from state intervention should be addressed under other WTO rules. Therefore, it is necessary for WTO members to shift their focus to, and explore the capacity of, the other rules to overcome the challenges arising from China's state capitalism.

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Corresponding author
*Email: weihuan.zhou@unsw.edu.au.
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The author thanks Mr Jan Bohanes, Professor Alan Winters, and two anonymous reviewers for insightful comments. All errors or oversights are my own. All websites cited are current as of 1 October 2017.

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References
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1 See, e.g., Aldo Musacchio and Sergio G. Lazzarini, ‘Leviathan in Business: Varieties of State Capitalism and their Implications for Economic Performance’, Harvard Business School Working Paper 12–108, 4 June 2012, 1–63 at 3–4.

2 Ibid. Also see The Organisation for Economic Co-operation and Development (OECD), ‘The Size and Sectoral Distribution of SOEs in OECD and Partner Countries’, 8 September 2014, www.oecd.org/daf/ca/size-sectoral-distribution-soes-oecd-partner-countries.htm; OECD, State-Owned Enterprises in the Development Process (Paris: OECD Publishing, 2015), www.oecd.org/corporate/state-owned-enterprises-in-the-development-process-9789264229617-en.htm.

3 See Du Ming, ‘China's State Capitalism and World Trade Law’ (2014) 63 International and Comparative Law Quarterly 409448 at 411.

4 See generally Wu Mark, ‘The ‘China, Inc.’ Challenge to Global Trade Governance’ (2016) 57(2) Harvard International Law Journal 261324 ; Wang Yuhua, ‘Beyond Local Protectionism: China's State – Business Relations in the Last Two Decades’ (2016) 226 The China Quarterly 319341 ; Lin Li-Wen, ‘A Network Anatomy of Chinese State-Owned Enterprises’ (2016) 16(4) World Trade Review 583600 .

5 See generally Andrew Szamosszegi and Cole Kyle, ‘An Analysis of State-Owned Enterprises and State Capitalism in China’, US–China Economic and Security Review Commission, 26 October 2011, www.uscc.gov/sites/default/files/Research/10_26_11_CapitalTradeSOEStudy.pdf; Che Luyao, ‘Legal Implications of the Deepened Reform of Chinese State-Owned Enterprises: What Can be Expected from Recent Reforms?’ (2016) 8 Tsinghua China Law Review 171190 .

6 See generally Willemyns Ines, ‘Disciplines on State-Owned Enterprises in International Economic Law: Are We Moving in the Right Direction?’ (2016) 19(3) Journal of International Economic Law 657680 .

7 General Agreement on Tariffs and Trade, opened for signature 30 October 1947, 61 Stat. A-11, T.I.A.S. 1700, 55 U.N.T.S. 194.

8 The European University Institute has recently produced a series of working papers on this issue, which are included in the October 2017 issue of the World Trade Review. See, e.g., Mavroidis Petros and Janow Merit, ‘Free Markets, State Involvement, and the WTO: Chinese State-Owned Enterprises in the Ring’ (2017) 16(4) World Trade Review 571581 ; Wolfe Robert, ‘Sunshine over Shanghai: Can the WTO Illuminate the Murkey World of Chinese SOEs?’ (2017) 16(4) World Trade Review 713732 . State trading and the capacity of the world trade law to deal with state trading was one of the first topics of the World Trade Forum established in 1997, see Cottier Thomas and Mavroidis Petros (eds.), State Trading in the Twenty-First Century (The University of Michigan Press, 1998).

9 Mastromatteo Andrea, ‘WTO and SOEs: Article XVII and Related Provisions of the GATT 1994’ (2017) 16(4) World Trade Review 601618 at 601–604.

10 See generally Davey William, ‘Article XVII GATT: An Overview’ in Cottier Thomas and Mavroidis Petros (eds.), State Trading in the Twenty-First Century (The University of Michigan Press, 1998) 1736 .

11 See above note 8, Mavroidis and Janow, ‘Chinese State Owned Enterprises in the Ring’, at 571.

12 Article XVII:1(a) states: ‘Each contracting party undertakes that if it establishes or maintains a State enterprise, wherever located, or grants to any enterprise, formally or in effect, exclusive or special privileges, such enterprise shall, in its purchases or sales involving either imports or exports, act in a manner consistent with the general principles of non-discriminatory treatment prescribed in this Agreement for governmental measures affecting imports or exports by private traders.’

13 The second Supplementary Provision to GATT Article VI:1 reads: ‘It is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate.’

14 For a review of the relevant case law, see above note 9, Mastromatteo, ‘WTO and SOEs: Article XVII and Related Provisions of the GATT 1994’.

15 GATT Analytical Index, Article VI Anti-Dumping and Countervailing Duties, at 228, www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf. Also see Palmeter David, ‘The WTO Antidumping Agreement and the Economies in Transition’ in Cottier Thomas and Mavroidis Petros (eds.), State Trading in the Twenty-First Century (The University of Michigan Press, 1998) 115119 at 117.

16 Agreement on Subsidies and Countervailing Measures, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 14. For a discussion of how state trading is dealt with under the SCM Agreement, see generally Horlick Gary and Mowry Kristin Heim, ‘The Treatment of Activities of State Trading Enterprises under the WTO Subsidies Rules’ in Cottier Thomas and Mavroidis Petros (eds.), State Trading in the Twenty-First Century (The University of Michigan Press, 1998) 97113 .

17 Two other major transitional economies which made WTO-plus commitments on NME matters are Vietnam and Russia. See Report of the Working Party on the Accession of Viet Nam, WT/ACC/VNM/48 (27 October 2006). Report of the Working Party on the Accession of the Russian Federation to the World Trade Organization, WT/ACC/RUS/70, WT/MIN(11)/2 (17 November 2011).

18 See Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001); above note 8, Mavroidis and Janow, ‘Chinese State Owned Enterprises in the Ring’, at 575.

19 Agreement on the Implementation of Article VI of GATT 1994, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1868 U.N.T.S. 201.

20 See above note 15, Palmeter, ‘The WTO Antidumping Agreement and the Economies in Transition’, at 115.

21 See, e.g., Vermulst Edwin, Sud Juhi Dion, and Evenett Simon, ‘Normal Value in Anti-Dumping Proceedings against China Post-2016: Are Some Animals Less Equal Than Others?’ (2016) 11(5) Global Trade and Customs Journal 212228 ; Miranda J., ‘Interpreting Paragraph 15 of China's Protocol of Accession’ (2014) 9(3) Global Trade and Customs Journal 94103 ; Stewart T.P., Fennell W.A., Bell S.M., and Birch N.J., ‘The Special Case of China: Why the Use of a Special Methodology Remains Applicable to China after 2016’ (2016) 9(6) Global Trade and Customs Journal 272279 ; David Kleimann, ‘The Vulnerability of EU Anti-Dumping Measures against China after December 11, 2016’, EUI Working Papers RSCAS 2016/37, July 2016, 1–10.

22 See, e.g., Kok Jochem de, ‘The Future of EU Trade Defence Investigations against Imports from China’ (2016) 19(2) Journal of International Economic Law 515547 ; Zhou Weihuan and Percival Andrew, ‘Debunking the Myth of “Particular Market Situation” in WTO Antidumping Law’ (2016) 19(4) Journal of International Economic Law 863892 .

23 See Zhou Weihuan, ‘Australia's Anti-Dumping and Countervailing Law and Practice: An Analysis of Current Issues Incompatible with Free Trade with China’ (2015) 49(6) Journal of World Trade 9751010 at 980–990.

24 Panel Report, European Union–Anti-Dumping Measures on Biodiesel from Argentina, WT/DS473/R, adopted 26 October 2016 (as modified by the Appellate Body Report); Appellate Body Report, Union–Anti-Dumping Measures on Biodiesel from Argentina, WT/DS473/AB/R, adopted 26 October 2016.

25 Article 15 of China's Accession Protocol is currently the subject of a separate WTO dispute, see European Union  Measures Related to Price Comparison Methodologies (DS516), www.wto.org/english/tratop_e/dispu_e/cases_e/ds516_e.htm.

26 This article will focus on the Appellate Body report. For a discussion of the panel report, see Zhou Weihuan and Percival Andrew, ‘Panel Report on EU–Biodiesel: A Glass Half Full? – Implications for the Rising Issue of “Particular Market Situation”’ (2016) 2(2) Chinese Journal of Global Governance 142163 .

27 For a detailed discussion of the issue of PMS, see above note 22, Zhou and Percival, ‘Debunking the Myth of “Particular Market Situation” in WTO Antidumping Law’.

28 Article 2.1 of the AD Agreement provides: ‘For the purpose of this Agreement, a product is to be considered as being dumped, i.e. introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.’

29 Panel Report, EU–Biodiesel, paras. 2.2–2.3, 7.179–7.184; Appellate Body Report, paras. 5.1–5.10. The EU authorities’ final decisions to impose the antidumping measures challenged in the dispute are .

30 Panel Report, EU–Biodiesel, para. 7.153; Appellate Body Report, paras. 6.198, 6.237.

31 Panel Report, EU–Biodiesel, para. 7.169.

32 Appellate Body Report, EU–Biodiesel, para. 6.242.

33 Appellate Body Report, EU–Biodiesel, para. 6.243.

34 Appellate Body Report, United States–Anti-Dumping Act of 1916, WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000, paras. 88–89.

35 Panel Report, EU–Biodiesel, para. 7.147.

36 Appellate Body Report, EU–Biodiesel, para. 6.37.

37 Appellate Body Report, EU–Biodiesel, para. 6.41.

38 Appellate Body Report, EU–Biodiesel, para. 6.56.

39 Panel Report, EU–Biodiesel, para. 7.248; Appellate Body Report, para. 6.55.

40 Appellate Body Report, EU–Biodiesel, para. 6.22.

41 Appellate Body Report, EU–Biodiesel, para. 6.30.

42 Prusa Thomas and Vermulst Edwin, ‘ United States  Definitive Anti-Dumping and Countervailing Duties on Certain Products from China: Passing the Buck on Pass-Through’ (2013) 12(2) World Trade Review 197234 at 217–219.

43 This observation can be drawn from the Appellate Body's interpretation of the ‘passing through’ issue in the context of assessing the application of countervailing duties to tackling ‘input subsidies’ under the SCM Agreement. See generally Appellate Body Report, United States–Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004. Also see Shadikhodjaev Sherzod, ‘How to Pass a Pass-Through Test: The Case of Input Subsidies’ (2012) 15(2) Journal of International Economic Law 621646 at 635–636.

44 Appellate Body Report, EU–Biodiesel, para. 6.73.

45 Appellate Body Report, EU–Biodiesel, FN 228.

46 Ibid.

47 Appellate Body Report, EU–Biodiesel, FN 230.

48 Appellate Body Report, EU–Biodiesel, para. 6.81.

49 Appellate Body Report, United States  Final Countervailing Duty Determination with respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004, para. 77.

50 Ibid., para. 90.

51 Ibid., paras. 93, 100–101.

52 Ibid., para. 106.

53 Ibid., para. 108.

54 Ibid., para. 109.

55 See supra pp. 2–3.

56 Appellate Body Report, United States  Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India, WT/DS436/AB/R, adopted 19 December 2014, para. 4.150.

57 Ibid., para. 4.151.

58 Ibid., para. 4.211.

59 Ibid., paras. 4.246–4.249.

60 Panel Report, EU–Biodiesel, paras. 7.294–7.296.

61 Panel Report, EU–Biodiesel, paras. 7.299–7.302.

62 Appellate Body Report, EU–Biodiesel, para. 6.87.

63 Appellate Body Report, EU–Biodiesel, para. 6.89.

64 See above note 26, Zhou and Percival, ‘Panel Report on EU–Biodiesel’, at 154–155.

65 Appellate Body Report, European Communities–Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (Recourse to Article 21.5 of the DSU by China), WT/DS397/AB/RW, adopted 12 February 2016, para. 5.207.

66 Appellate Body Report, EU–Biodiesel, FN 270.

67 Appellate Body Report, EU–Biodiesel, para. 6.48.

68 Appellate Body Report, EU–Biodiesel, para. 6.33.

69 Appellate Body Report, EU–Biodiesel, para. 6.24.

70 See Noël Stéphanie and Zhou Weihuan, ‘Replacing the Non-Market Economy Methodology: Is the European Union's Alternative Approach Justified Under the World Trade Organization Anti-Dumping Agreement?’ (2016)11(11/12) Global Trade and Customs Journal 559567 at 563–565; Noël Stéphanie, ‘Why the European Union Must Dump So-Called ‘Non-Market Economy’ Methodologies and Adjustments in Its Anti-Dumping Investigations’ (2016)11(7/8) Global Trade and Customs Journal 296305 at 302–304.

71 Appellate Body Report, United States–Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, para. 140.

72 Ibid., paras. 141, 143.

73 Ibid., para. 142.

74 Appellate Body Report, EU–Biodiesel, para. 6.39 & FN 172.

75 See European Union  Anti-Dumping Measures on Biodiesel from Argentina, Agreement under Article 21.3(B) of the DSU, WT/DS473/16 (15 December 2016); European Union  Anti-Dumping Measures on Biodiesel from Argentina, Agreement under Article 21.3(B) of the DSU, WT/DS473/18 (14 August 2017).

76 See European Union  Anti-Dumping Measures on Biodiesel from Argentina, Status Report by the European Union, WT/DS473/17/Add.3 (19 September 2017).

77 See Commission Implementing Regulation (EU) 2017/1578 of 18 September 2017, amending Implementing Regulation (EU) No 1194/2013 imposing a definitive anti-dumping duty and collecting definitively the provisional duty imposed on imports of biodiesel originating in Argentina and Indonesia, para. 55.

78 Ibid., para. 86.

79 Ibid., paras. 52–53.

80 Ibid., para. 51.

81 European Commission, ‘Commission Proposes Changes to the EU's Anti-Dumping and Anti-Subsidy Legislation’, Press Release (9 November 2016), .

82 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2016/1036 on protection against dumped imports from countries not members of the European Union and Regulation (EU) 2016/1037 on protection against subsidised imports from countries not members of the European Union’, COM(2016)721 final, 9 November 2016, . For a more detailed analysis of the new proposal, see Andrei Suse, ‘Old Wine in A New Bottle: The EU's Response to the Expiry of Section 15(A)(II) of China's WTO Protocol of Accession’, Leuven Centre for Global Governance Studies Working Paper No. 186, May 2017, 1–31 at 16–21.

83 See European Council, ‘Anti-Dumping Methodology: Council Agrees Negotiating Position’, Press Release (3 May 2017), www.consilium.europa.eu/en/press/press-releases/2017/05/03-anti-dumping/.

84 See European Commission, ‘Joint Press Conference by Jyrki Katainen, Vice-President of the EC, and Cecilia Malmström, Member of the EC, on the Treatment of China in Anti-Dumping Investigations’, 20 July 2016, .

85 See European Parliament, ‘Anti-Dumping: More Robust Rules to Defend EU Industry and Jobs’, 5 July 2017, .

86 For a discussion of a potential ‘as such’ violation based on the proposed text, see above note 82, Suse, ‘The EU's Response to the Expiry of Section 15(A)(II) of China's WTO Protocol of Accession’, at 26–29.

The author thanks Mr Jan Bohanes, Professor Alan Winters, and two anonymous reviewers for insightful comments. All errors or oversights are my own. All websites cited are current as of 1 October 2017.

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