China Programme • Volume 11 • Number 6 • October 2007

Disputes Involving China on the Inrease at the WTO

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China has initiated dispute settlement proceedings on US trade remedy action targeting some of its paper exports. Panels have also been established on China’s industrial subsidies and the country’s enforcement of intellectual property rights.

The decision to pursue the trade remedy case marks the second time that China has sought to use the WTO dispute settlement mechanism. The first was in 2002, when it joined several countries in a complaint against US steel duties.

Last spring, the US started to impose provisional countervailing duties worth up to 20 percent on Chinese coated paper, along with anti-dumping levies of up to 99.6 percent. It claims that favourable loans and tax measures have inappropriately supported Chinese paper companies. The final duty determinations ares expected in October.

China’s 14 September request for consultations claimed that US authorities had failed to demonstrate that alleged countervailable subsidies were specific to an enterprise or industry, as required by Article 2.1 of the Agreement on Subsidies and Countervailing Measures (SCM). In addition, the US violated SCM Article 14 by not properly calculating the supposed benefits accruing to the paper sector, and failed to ensure that the countervailing duties corresponded to the actual level of subsidisation, as required by SCM Articles 17 and 19.

China also charged that the anti-dumping duties violated Articles 7 and 9 of the Antidumping Agreement since they were not based on the amount of dumping found to exist. While anti-dumping duties are meant to discourage foreign companies from exporting goods at below home market prices, the purpose of countervailing duties is to offset government subsidies provided to the imported product.

In introducing the countervailing duties, the US departed from a 23-year policy of not authorising the imposition of such measures on ‘non-market’ economies such as China. The rationale behind this policy was that in non-market economies, governments and enterprises were so interlinked that subsidies could not practicably be identified and isolated.

By the same token, non-market economies are easier targets for anti-dumping duties, since their home market price levels may not adequately reflect costs. Indeed, US companies have benefited from a lower burden of proof while pursuing the imposition of anti-dumping duties on a wide range of Chinese exports.

After a 60-day consultation period, China may seek a formal panel to rule on the dispute.

US Obtains IPR Panel

A dispute settlement panel was established on 25 September on US charges that China does not adequately pursue and punish those who infringe intellectual property rights, such as trademark and copyright protection. Specifically, the US asked the panel to investigate whether China’s threshold for initiating criminal proceedings against offenders is too high; whether the practice of releasing to the market seized counterfeit goods after fake logos have been removed (instead of destroying the products) is WTO-compliant, and; whether unauthorised reproduction of copyrighted works is illegal under Chinese law only if it is accompanied by distribution (Bridges Year 11 No.3 page 10). Argentina, the EU, Japan, Mexico and Taiwan requested third party rights in the dispute.

China asserted forcefully that its intellectual property laws were consistent with WTO rules. It also claimed that the US was attempting to impose on developing countries obligations beyond those required in the TRIPS Agreement.

That agreement requires Members to “ensure that enforcement procedures […] are available under their law so as to permit effective action against any act of infringement of intellectual property rights […] including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements.” However, it also explicitly states that the provisions on enforcement do “not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general.”

Another IPR-related dispute initiated by the US against Chinese restrictions on the importation and distribution of books, journals, films and music is still at the consultation stage, with the EU as a third party (Bridges Year 11 No.3 page 10).

Subsidy and Auto Part Disputes

On 31 August 2007, the Dispute Settlement Body established a single panel on US and Mexican complaints regarding China’s alleged subsidies to domestic industry, often through export-contingent tax breaks and loans provided by local and provincial authorities (Bridges Year 11 No.1 page 10). China has previously maintained that some of the incriminated programmes have ceased to exist and that others will be adjusted when the Income Tax Law of the People’s Republic of China for Enterprises enters into force on 1 January 2008 (Bridges Year 11 No.2 page 10). Australia, Canada, Chile, the EU, Japan, Taiwan and Turkey have requested third party rights in the dispute.

The panel report in the dispute concerning tariffs imposed by China on auto parts will be delayed until January 2008. Canada, the EU and the US charge that a 25-percent tariff levied on components that make up more than a certain percentage of a vehicle assembled in China exceeds the 10-percent tariff for automotive parts in China’s schedule of commitments. The US also alleges that the 25-percent duty violates the WTO Agreement on Traderelated Investment Measures because it gives manufacturers an incentive to favour domestic products over imported ones (Bridges Year 11 No.1 page 10).