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China loses third WTO case

16 August 2009

China’s WTO honeymoon, which began with its accession in 2001, is now over.  For the first six years, China was not the object of any adverse WTO decisions.  However, with the release of a new Panel report on 12 August 2009, China has now been found in breach of WTO rules for the third time since 2008.  All three cases have been brought by the United States, either alone or with other member states.   

In January 2009, the WTO Dispute Settlement Body adopted the reports of a Panel and the Appellate Body, which ruled (among other things) that China was in breach of the national treatment obligation in the GATT for applying an internal charge on imported parts used in the manufacture and assembly of certain models of motor vehicles.  China had argued at both the Panel and Appellate Body stage that its charge was not a protectionist tactic, but an anti-avoidance mechanism – without it, foreign manufacturers would be incentivised to import cars in pieces and assemble them within China, thus avoiding the higher tariff on the importation of entire cars.  China’s measure would have been easier to defend had it been imposed on importers at the border, rather than on manufacturers within the country.  Even so, there were some features of the way in which China pursued its WTO arguments which probably did not increase its prospects of success. 

Since then, two Panel reports have been issued in cases essentially challenging China’s intellectual property protection.  In the first, a Panel in January 2009 found that China’s Copyright Law was inconsistent with the WTO TRIPS Agreement, incorporating Article 5 of the Berne Convention, although it dismissed the United States’ complaint that China did not impose sufficient criminal penalties for copyright infringement.  In the second, a Panel on 12 August 2009 found that China’s policy restricting the right to import foreign newspapers and periodicals to Chinese state-owned enterprises breached the national treatment obligation in the GATT; and that China’s similar restrictions on the importation of electronic and sound recordings, including foreign DVDs, breached the equivalent provision in the GATS.  This ruling is being heralded as commercially significant for foreign distributors who have long sought such access to China’s market. China has now announced that it intends to appeal the Panel's decision. 

Recently, China’s exports have also been the subject of anti-dumping investigations in the US (relating to tyre exports to the US, which were the subject of a hearing on 7 August 2007 before the US’s International Trade Commission) and the EU (with separate investigations into screws and bolts and industrial chemical exports to the EU).  If anti-dumping duties are imposed as a result of these investigations, China will likely find itself back before a WTO panel, this time as a complainant.  Much will then turn on the resources, skill and application China is able to bring to bear in making its case.