WTO Upholds NME Discrimination against China in US Law

A WTO panel has granted a mixed victory to Washington in its dispute with Beijing over the use of trade remedies, finding that a 2012 law allowing the US to impose anti-subsidy tariffs on non-market economies was in line with international trade rules. (DS 449)

At issue in the case was a bill passed by the US Congress in March 2012 that essentially preserved the Commerce Department’s authority to impose anti-subsidy tariffs - known formally as countervailing duties (CVD) - on subsidised goods from non-market economies (NMEs), such as China and Vietnam.

The legislation, which was also designed to apply retroactively, overrode a 2011 federal court ruling which held that US law did not permit such a practice. Beijing filed a WTO challenge shortly thereafter, objecting to the lack of transparency and due process in the enactment of the law.

The dispute panel ultimately found that the 2012 law did not bring about an increase in rates of countervailing duties on imports from China as an NME country, or impose a new restriction on those imports.

Furthermore, recognising that the 2012 law - as the US states - “ensured” the 2011 court ruling would “never have any effect under US law,” the panel found that the WTO provision raised by China does not prohibit a member from taking such legislative action.

China’s classification as an NME has long been a source of frustration between Beijing and some of its major trading partners, particularly the US and EU. Under WTO rules, goods from non-market economies can be treated differently when calculating anti-dumping duties, which are meant to counter instances where products are sold overseas below cost.

Double Duty of Anti-dumping + Anti Subsidy CVD Not Allowed

In these calculations, the US uses a surrogate country to determine what constitutes a “normal” market price for the goods in question, on the grounds that Chinese prices are distorted by government involvement in the market.

In some instances, however, certain calculation methodologies can lead to the imposition of so-called double remedies, in which both anti-dumping and countervailing duties are being applied on the same product, if the subsidies being targeted by the latter duties are also responsible in part for the dumping.

The panel found that the US had failed to investigate whether such double remedies arose from 25 CVD and anti-dumping proceedings, initiated over the period 2006-2012, involving certain goods from China.

Citing a previous Appellate Body decision on anti-dumping duties and CVDs (DS379), the panel said that these double remedies can also refer to “double counting,” and may therefore contravene global trade rules.

The exports targeted in those specific trade investigations included Chinese exports of paper, steel, tyres, magnets, chemicals, kitchen appliances, wood flooring, and wind towers, which Beijing officials say were worth over US$7.2 billion annually.

Beijing welcomed the finding on double remedies, urging Washington to “correct the erroneous practice of abusing trade remedy measures as soon as possible.”

Washington officials, meanwhile, have said that the Department of Commerce will review any possible overlap of countervailing and anti-dumping duties, while noting that the panel’s concerns deal with past determinations that were made before the 2012 law came into effect.

The 2012 law included language aimed at resolving the double remedy problem, specifically by requiring that the price margins used for calculating anti-dumping duties be adjusted in instances where the import’s low price is due partly to a subsidy.