In the World Trade Organization CHINA MEASURES RELATED TO THE EXPORTATION OF RARE EARTHS, TUNGSTEN AND MOLYBDENUM (DS432) on China's comments to the European Union's reply to China's request for a preliminary ruling Geneva, 30 January 2013
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TABLE OF CONTENTS 1. INTRODUCTION... 2 2. CHINA'S ASSERTION THAT PARAGRAPH 11.3 OF ITS ACCESSION PROTOCOL HAS TO BE TREATED AS AN INTEGRAL PART OF THE GATT 1994... 3 3. THE MEANING OF THE PHRASE "NOTHING IN THIS AGREEMENT" IN THE CHAPEAU OF ARTICLE XX OF THE GATT 1994... 8 4. THE EUROPEAN UNION'S COMMENT ABOUT THE REASONING OF THE APPELLATE BODY IN CHINA-RAW MATERIALS... 9 5. CONCLUSION... 10 - iii -
TABLE OF CASES CITED Short Title Brazil Desiccated Coconut China Raw Materials China Raw Materials US Carbon Steel US Continued Zeroing Full Case Title and Citation Appellate Body Report, Brazil Measures Affecting Desiccated Coconut, WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167 Appellate Body Reports, China Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012 Panel Reports, China Measures Related to the Exportation of Various Raw Materials, WT/DS394/R / WT/DS395/R / WT/DS398/R / and Corr.1, adopted 22 February 2012, as modified by Appellate Body Reports WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R Appellate Body Report, United States Countervailing Duties on Certain Corrosion-Resistant Carbon Steel Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, 3779 Appellate Body Report, United States Continued Existence and Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19 February 2009, DSR 2009:III, 1291-1 -
1. INTRODUCTION 1. In accordance with the Panel s instructions dated 7 January 2013, the European Union submits its comments to China's rebuttal submission of 25 January 2013 regarding the preliminary ruling request on the availability, to China, of Article XX of the GATT 1994 to justify a breach of China's export duty commitments under paragraph 11.3 of the Accession Protocol. 2. Before commenting on the substantive arguments raised in China's rebuttal submission, the European Union notes that China misread the European Union's position concerning its preliminary ruling request. 1 Contrary to what China submits, the European Union maintains that the Panel can issue a preliminary ruling on the matter raised by China 2 and that in doing so it would be appropriate and expected 3 that the Panel resolved the dispute in the same way that the Appellate Body clarified the interpretation of the legal issues in China Raw Materials. 3. In its reply the European Union brought to the attention of the Panel the jurisprudence of the Appellate Body concerning the relevance of prior adopted Appellate Body and panel reports, the existence of which China finally acknowledged in its rebuttal submission. 4 The European Union, as well as Canada 5 and Australia 6 in their respective third party submissions, noted that in line with said jurisprudence in the absence of cogent reasons panels should resolve the same legal question in the same way in a subsequent dispute. China now submits that the Appellate Body erred in its interpretation of paragraph 11.3 of its Accession Protocol. 7 However, as the European Union already demonstrated in its reply to China's preliminary ruling request, the Appellate 1 China's rebuttal submission, para. 6. 2 European Union's reply to China's preliminary ruling request, paras 10 and 16. 3 Appellate Body report, US Continued Zeroing, para. 362. 4 China's rebuttal submission, para. 7 and footnote 2. 5 Canada's third party submission, paras 13-23. 6 Australia's third party submission, paras 29-32. 7 China's rebuttal submission, para. 8. - 2 -
Body and the panel in China Raw Materials took the correct approach in interpreting the relationship between Article XX of the GATT 1994 and China's Accession Protocol 8. In view of the absence of any other compelling reason, the Panel should follow adopted Appellate Body and panel reports on the same legal issue. 2. CHINA'S ASSERTION THAT PARAGRAPH 11.3 OF ITS ACCESSION PROTOCOL HAS TO BE TREATED AS AN INTEGRAL PART OF THE GATT 1994. 4. In the view of the European Union, China's assertions contained in Section III of its Submission of 25 January 2013 have already been made previously. It is important to note that at this point in the proceedings, China was supposed to provide its comments to the Panel on the comments which were submitted by the Complainants on the 21 January 2013, (which comments were in fact a response to China's request for a preliminary ruling contained in its first written submission of the 20 December 2012). 5. However, China has decided to once again present what it purports to be substantive arguments and once again to re-assert its view that the "legal nature of China's Accession Protocol and of its relationship to the WTO Agreement confirms that paragraph 11.3 of China's Accession Protocol has to be treated as an integral part of the GATT 1994." 9 6. China claims that the Complainants have erred because they failed "to take properly into account the implications of the specific legal nature of post 1994- accession protocols, such as China's Accession Protocol, and of their relationship to the WTO Agreement and the multilateral trade agreements annexed thereto." 10 Indeed, according to China the Appellate Body in China-Raw Materials has produced a report which "reflects these same errors". 11 China also makes the claim that both the Appellate Body in China Raw Materials and the 8 European Union's reply to China's preliminary ruling request, paras 18 et seq. 9 China's rebuttal submission of 25 January 2013, Title of Section III. 10 China's rebuttal submission of 25 January 2013, paragraph 13. 11 Ibid. - 3 -
"Complainants appear to consider that each post-1994 accession protocol is a self-contained agreement, independent from the rest of the WTO Agreement." 12 7. It is important also to state at this point that the European Union has never described or referred to China's Accession Protocol as a "self-contained agreement, independent from the rest of the WTO Agreement," as China is claiming it did. The European Union would like to point out that it has always maintained the view that China's Accession Protocol is an integral part of the WTO Agreement, as is clearly expressed in paragraph 1.2 of China's Accession Protocol. However, it has always disagreed with China's oft-repeated argument that somehow, in some unclear and undefined manner, paragraph 11.3 of China's Accession Protocol has to be treated as an integral part of the GATT 1994 Agreement. 8. China is still trying, in a sense, to clutch at straws, as it is still trying to identify a textual link, in any of the WTO covered agreements in order to prove its premise that paragraph 11.3 of its Accession Protocol is an intrinsic or an integral part of GATT 1994. 9. It starts by referring to Article XII of the WTO Agreement which deals with the accession of Members to the WTO 13. It interprets Article XII: 1 as providing a "strong textual basis requiring panels dealing with a provision in a post 1994 accession protocol, including "WTO-plus" provisions, to examine which covered agreement a given provision intrinsically relates to". 14 China asserts that this is due to the fact that Article XII: 1 contains the words: "Such accession shall apply to this Agreement and Multilateral Trade Agreements annexed thereto." 10. The European Union disagrees with China's interpretation. In the opinion of the European Union this sentence is merely stating an obvious legal fact, i.e. that when a country joins the World Trade Organisation its accession shall apply to "this Agreement", (the WTO Agreement) and to all other multilateral trade 12 China's rebuttal submission of 25 January 2013, paragraph 14, emphasis added. 13 China's rebuttal submission of 25 January 2013, paragraphs 15-19 14 China's rebuttal submission of 25 January 2013, paragraph 18. - 4 -
agreements which are annexed to it. This article says nothing else, and it certainly does not refer in any way, shape or form to "WTO-Plus" obligations, as China is saying it does. In fact, WTO-Plus obligations" by their very nature, impose obligations which go beyond the WTO Agreements. 11. China then moves on to another line of argumentation. It repeats its assertion (already made in the China Raw Materials dispute), and also in its request for a preliminary ruling filed before this Panel, that it could expect to have recourse, in good faith, to the general exception clause of Article XX of the GATT 1994 "due to the fact that no language to the contrary was inserted into Paragraph 11.3 or elsewhere in China's Accession Protocol." 15 It states further that "interpreting the lack of this explicit textual link in the manner suggested by China in the present dispute is the only correct interpretation." 16 12. In order to re-enforce its argument, China recalls a quotation of the Appellate Body from US-Carbon Steel. 17 It quotes the latter part of paragraph 65 of the Report of the Appellate Body as follows: [The] task of ascertaining the meaning of a treaty provision with respect to a specific requirement does not end once it has been determined that the text is silent on that requirement. Such silence does not exclude the possibility that the requirement was intended to be included by implication. 13. In that dispute, the Appellate Body was examining the text of Article 21.3 of the SCM Agreement, and noted the fact that it did not refer to any de minimis standards which can be applied in sunset reviews. The Appellate Body also noted that Article 21.3 also did not make any reference to Article 11.9 of the same SCM Agreement, which dealt specifically with de minimis standards. What China did not say however, was what happened next - i.e. how did the Appellate Body in US-Carbon Steel decide on the issue, did it interpret the "silence" in 15 China's rebuttal submission of 25 January 2013, paragraph 24. 16 China's rebuttal submission of 25 January 2013, paragraph 25. 17 Appellate Body Report - US- Carbon Steel. Para. 65. - 5 -
Article 21.3 of the SCM Agreement as meaning that the de minimis requirement was intended to be included by implication? 14. In fact, in US-Carbon Steel, the Appellate Body observed in its reasoning that the technique of cross-referencing is frequently used in the SCM Agreement. The Appellate Body stated as follows: These cross-references suggest to us that, when the negotiators of the SCM Agreement intended that the disciplines set forth in one provision be applied in another context, they did so expressly. In the light of the many express cross-references made in the SCM Agreement, we attach significance to any textual link between Article 21.3 reviews and the de minimis standard set forth in Article 11.9 18 15. The Appellate Body was in fact unable to conclude that the de minimis standard in Article 11.9 was implied in Article 21.3 of the same Agreement, and in fact went on to reverse the panel's finding in that regard. 19 The Appellate Body had the view that if they were to make such a finding, this: [ ] would upset the delicate balance of rights and obligations attained by the parties to negotiations [ ] Such a finding would be contrary to the requirement of Article 3.2, repeated in Article 19.2 of the DSU, that our findings and recommendations "cannot add to or diminish the rights and obligations provided in the covered agreements. 20 16. The European Union is of the opinion that if the reasoning of the Appellate Body was made in the context of the analysis of two provisions within the same Agreement (i.e. Articles 21.3 and 11.9 of the SCM Agreement), it is equally applicable, perhaps a fortiori, in situations where we are dealing with separate provisions in different agreements. That is, on the one hand, paragraph 11.3 of 18 Appellate Body Report, US - Carbon Steel, para.69. 19 Ibid. para 92. 20 Ibid. para. 91. - 6 -
China's Accession Protocol, which is an integral part of the WTO Agreement, and on the other hand Article XX, which is part of the GATT 1994 Agreement, (whose exceptions can only applied to obligations emanating from provisions in that Agreement, unless they are incorporated by a specific reference in the text of another Agreement.) 17. China then makes some observations about the legal nature of the TBT Agreement and its relationship with the GATT 1994 Agreement, and states that "in a nutshell, the nature and function of the TBT Agreement and the SPS Agreement are to a large extent the same of that of Article XX of the GATT 1994". 21 While the European Union struggles to understand the relevance of this argument to the present case, it does not find anything basically erroneous in the above-mentioned statement made by China. 18. However, it completely disagrees with the conclusion that China reached on this premise, particularly when it states that: "As regards Paragraph 11.3 of China's Accession Protocol and Articles: II: 1(a) and XI: 1 of the GATT 1994, the intrinsic relationship does not involve an exception provision on the one side and a standard provision imposing an obligation on the other side, but two standard provisions stipulating obligations. Thus, Article XX of the GATT 1994 can indeed be invoked to justify violations of both Articles II: 1(a) and XI: 1 of the GATT 1994 and of the intrinsically related provision in China's Accession Protocol, i.e. its Paragraph 11.3." 22 19. The European Union would like to once again point out that the formulation of paragraph 11.3 of China's Accession Protocol, differs in one important aspect, as it is not merely an obligation, as China is suggesting, but is an obligation which has its own in-built exception as it states: unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994. Additionally the Note to Annex 6 of China's Accession Protocol, reads as follows: 21 China's rebuttal submission of 25 January 2013, para. 29. 22 China's rebuttal submission of 25 January 2013, para. 33. - 7 -
China confirmed that the tariff levels included in this Annex are maximum levels which will not be exceeded. China confirmed furthermore that it would not increase the presently applied rates, except under exceptional circumstances. If such circumstances occurred, China would consult with affected members prior to increasing applied tariffs with a view to finding a mutually acceptable solution. 20. The European Union has made this argument before, both before the panel and the Appellate Body in China - Raw-Materials, but it deems it important to repeat it here. The drafters of China's Accession Protocol did foresee a situation for a potential need that China would need an exception clause for the "WTO-Plus" commitments it had taken as regards export duties. That is precisely why the Note to Annex 6 came into being. The European Union believes that if the drafters of China's Accession Protocol would have wanted the general exceptions of Article XX of the GATT 1994 to apply to paragraph 11.3, they would have stated it specifically in this Note, or at least somewhere else in China's Accession Protocol. 3. THE MEANING OF THE PHRASE "NOTHING IN THIS AGREEMENT" IN THE CHAPEAU OF ARTICLE XX OF THE GATT 1994. 21. China continues to argue that the phrase "nothing in this Agreement" contained in the chapeau of Article XX of the GATT 1994, "does not narrowly limit the availability of the exceptions under Article XX to defending violations of obligations listed in the GATT 1994". 23 22. In this context it recalls the Appellate Body Report in Brazil-Desiccated Coconut 24, which, according to China, had stated that "the term "this Agreement" in Article 32.3 of the SCM Agreement refers to both the SCM Agreement and Article VI of the GATT 1994. 25 " 23 China's rebuttal submission of 25 January 2013, para.39. 24 Appellate Body Report, Brazil-Desiccated Coconut 25 China's rebuttal submission of 25 January 2013, para. 40. - 8 -
23. The European Union believes that the above-mentioned statement is actually a misrepresentation of what the Appellate Body had actually said in Brazil- Desiccated Coconut. In fact the Appellate Body was reading Article 32.3 of the SCM Agreement in conjunction with Articles 10 and 32.1 of the SCM Agreement. It is important to note that both Article 10 and Article 32.1 of the SCM Agreement contain specific references to the GATT 1994 Agreement, while Article 32.3 does not. In fact Article 10 of the SCM Agreement directly refers to the "provisions of Article VI of the GATT 1994", and Article 32.1 states that: "No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement." In Brazil-Desiccated Coconut what the Appellate Body had actually stated was the following: If Article 32.3 is read in conjunction with Articles 10 and 32.1 of the SCM Agreement, it becomes clear that the term "this Agreement" in Article 32.3 means "this Agreement and Article VI of the GATT 1994. 26 4. THE EUROPEAN UNION'S COMMENT ABOUT THE REASONING OF THE APPELLATE BODY IN CHINA-RAW MATERIALS 24. The European Union would like to respond to China's allegation that "the EU errs in suggesting China improperly understood the Appellate Body's finding regarding object and purpose in the China-Raw Materials dispute." 27 25. The argument made by the EU that China is referring to 28 was made in the context of what China had originally said about the Appellate Body's reasoning in China-Raw Materials. In fact, China had stated as follows: This summary dismissal of the interpretative value of the WTO`s fundamental objectives without any further explanation does not rise to the level of a proper objective assessment of legal issues before it. 29 26 Appellate Body Report, Brazil-Desiccated Coconut, Page 17, emphasis added. 27 China's rebuttal submission of 25 January 2013, para. 50. 28 Response to China's Request for a Preliminary Ruling, para.36. 29 China's first written submission, 20 December 2012, para. 448. - 9 -
26. The European Union disagrees with China in this regard, i.e. it is not of the opinion that the Appellate Body "summarily dismissed" the EU's fundamental objectives. So, the European Union deemed it useful to quote in full the Appellate Body's reasoning in China-Raw Materials, as reflected in paragraph 306 of its Report. 30 27. Indeed China still holds that same view, as it has again stated that it believes that "the Appellate Body in China-Raw Materials effectively dismissed, in summary fashion, the interpretative value of the WTO's fundamental objectives without any further explanation." 31 The European Union continues to disagree with China in this regard. 5. CONCLUSION 28. For the reasons stated above, the European Union asks the Panel to confirm, in line with previous reports of the Appellate Body in China-Raw Materials, that the provisions of Article XX of the GATT 1994 Agreement are not applicable to paragraph 11.3 of China's Accession Protocol. 30 Response to China's Request for a Preliminary Ruling, para.35. 31 China's rebuttal submission of 25 January 2013, para 54. - 10 -