WTO antidumping and subsidies agreements: Did the United States achieve its objectives during the Uruguay round?, The
Rosenthal, Paul C
I. INTRODUCTION
The World Trade Organization (WTO) has radically changed the nature of international trade regulation in just five years. In scrapping the diplomatic model of the General Agreement on Tariffs and Trade1 (GATT 1947) for the rules-based binding dispute settlement regime of the WTO, the Members established an institution potentially capable of dismantling trade barriers in whatever shape they appear. The United States has been a strong proponent of a rules-based system accompanied by a dispute settlement mechanism that resembles its own transparent adjudicative process. The United States’ objectives concerning disputes over antidumping and countervailing duty cases were somewhat different than concerns in other substantive areas. The United States was a demandeur in many areas, such as agriculture and intellectual property, but the U.S. objectives in the dumping and countervailing duty negotiations were largely defensive. Hence, the U.S. objective for dispute settlement in the dumping and subsidy areas differed as well.
During the Uruguay Round negotiations on the Agreement on Implementation of Article 6 of the General Agreement on Tariffs and Trade 1994 2 (Antidumping Agreement) and the Agreement on Subsidies and Countervailing Measures3 (SCM Agreement), the parties had to balance three main considerations. First, a need exists for countries to counteract unfair trade practices. Second, measures aimed at unfair trade can be corrupted to block fair trade. And third, WTO review of measures could not completely trample the sovereignty of the Members-WTO panels would have to grant Members’ decisions some level of deference.
Both agreements succeeded in balancing these factors, but, as the WTO takes on an institutional life of its own, it is important to keep a close eye on the panel and Appellate Body decisions that affect this sensitive area of international trade law The entry into force of these two agreements gives Members the legal right to administer antidumping and countervailing duty laws as long as they comply with the terms of these agreements. While these agreements are among the most detailed of any under WTO auspices, there is an obvious need for interpretation. Therefore, panels and the Appellate Body can interpret and apply the agreements inconsistently, expanding the level of intrusion into the administration of a Member’s laws in one case and limiting that level in another. The legitimacy of the WTO, and continued U.S. participation in the organization, will be jeopardized if the WTO fails to achieve consistent and meaningful application of the agreements.
This Article provides a review of the United States’ negotiating objectives for the Antidumping and SCM Agreements and attempts to assess whether those objectives were attained. Part II describes how the blocking of several GATT panel decisions made in favor of the United States, and the lack of deference panels accorded U.S agencies in several decisions adverse to the United States, shaped the objectives of automatic adoption and a deferential standard of review. Part III analyzes the two WTO decisions that have directly challenged the U.S. administration of its antidumping and countervailing duty laws. Part IV addresses the question of whether the United States has maintained effective antidumping and countervailing duty laws and concludes that it has, though some weakening of the laws has occurred. Part V discusses the issue of renewing the non-actionable (green-light) subsidy categories, which permit otherwise violative subsidies, if they are for limited research activities, plant adaptation to environmental regulations, or aid to depressed regions.
While there are too few panel decisions to assess whether the United States has, in fact, realized its negotiating objectives, one thing is clear. Because of ambiguities throughout the covered agreements, a great deal of interpretation needs to be done. As panels and Appellate Body divisions attempt to decipher the meaning of these agreements, U.S trade practitioners must be vigilant to ensure that the limited gains made during the Uruguay Round are not interpreted away during the adolescence of WTO jurisprudence.
II. TO WHAT EXTENT DID THE U.S. NEGOTIATORS ACHIEVE THEIR OBJECTIVES DURING THE URUGUAY ROUND?
The U.S. trade negotiators’ defensive objectives during the Uruguay Round, vis-a-vis the antidumping and countervailing duty laws, were twofold. First, to prevent the WTO Agreements from weakening U.S. antidumping and countervailing duty laws; second, to ensure that the WTO panel and Appellate Body standard of review would give substantial deference to decisions of the Department of Commerce and International Trade Commission.4 The U.S. negotiators prevented a wholesale dismantling of the antidumping and countervailing duty laws, but the laws were weakened nonetheless. It is too early to tell whether the U.S. negotiators achieved their defensive objectives concerning the standard of review A third, less prominent objective was transparency in the application of the antidumping and countervailing duty laws applied by other countries. As more U.S. companies were respondents in dumping cases in other countries, the United States sought procedural protections for its exporters. It is also too early to tell whether this objective has been attained.
In addition to these objectives, all parties to the negotiations recog nized that consistent application of the rules is the prerequisite to a well functioning dispute resolution system. In this regard, all parties succeeded in establishing an institutional and procedural architecture, anchored to the Understanding on Rules and Procedures Governing the Settlement of Disputes,5 through which the substantive rules may be consistently applied.
In order to understand the U.S. objectives for dispute settlement, it is important to remember some of the dispute settlement underpinnings that emerged from the Tokyo Round. Indeed, the Uruguay Round’s dispute settlement procedures were heralded as providing time limits and greater certainty; similar claims-later recognized as unfoundedwere made for the dispute settlement procedures negotiated in the Tokyo Round.
The Uruguay Round did not take place in a vacuum; several GATT panel reports shaped the U.S. trade negotiators’ objectives. In the 1980s, the United States won decisions that other Contracting Parties blocked from adoption. Frustrated with the other parties’ ability to block U.S. victories and confident in the belief that the United States “wins more than it loses,” an early U.S. negotiating objective was automatic adoption of dispute panel decisions. In the late 1980s, however, GATT panels began to issue decisions adverse to the United States, particularly in antidumping and countervailing duty cases. These decisions caused U.S. negotiators to reduce their enthusiasm for the automatic adoption goal in general, and to seek an acceptable level of deference to the decisions of national authorities administering antidumping and countervailing duty laws-the issue of standard of review.
The following summaries of GATT decisions illustrate how panels shaped the Uruguay Round.
A. Pasta and Canned-Fruit.- Setting the Automatic Adoption Goal
U.S. frustration over panel reports blocked by other contracting parties mounted during the 1980s and 1990s. In European Economic Community—Subsidies on Export of Pasta Products,6 the panel recommended that the European Economic Community (EEC) stop granting export subsidies to pasta, a product not within the primary product exception recognized under Article 26.4 of GATT 1947 and Article 9 of the Agreement on Interpretation and Application of Articles 6, 16, and 23 of the GATT.7 The panel decided against the interpretation the EEC had presented-that the subsidy had been granted to a part of pasta (durum wheat), and was therefore within the primary product exception.8
The panel’s findings of fact and reasoning were clear. The panel found that the production of pasta involves extensive processing and was therefore not a primary product, but a processed agricultural product.9 The panel found no accepted practice of permitting subsidies to processed agricultural products, and therefore the EEC’s subsidies to pasta were granted in a manner inconsistent with Article 26 of GATT 1947.10 The blocking of a case as clear cut as EEC-Pasta Subsidies focused U.S. interest on the automatic adoption goal.
In European Economic Community-Production Aids granted on Canned Peaches, Canned Pears, Canned Fruit Cocktail and Died Grapes,11 a panel decided in favor of the United States’ non-violation complaint over subsidies to European producers of canned fruit. This was a relatively more difficult case for a panel to decide, because the case was based on a non-violation complaint under Article 23.1 (c) . However, the blocking of the decision was particularly vexing, as under the original GATT, only three panel decisions raising non-violation claims were ever adopted.12
These panel decisions and others indicated a weakness in the GATT system that had to be resolved for it to function properly. Developments in GATT litigation in the early 1990s, however, focused U.S. negotiators’ attention on the issue of the level of deference panels were according national administering authorities.
B. Stainless Steel Hollows, Plate, and Pork: Defining the Deference Goal
In United States Imposition of Anti-dumping Duties on Imports of Seamless Stainless Steel Hollow Products from Sweden, the United States articulated its view of the appropriate standard of review, arguing that there should be a systemic review rather than a searching inquiry into each aspect of an authority’s investigation.13
The dispute settlement mechanism of the Agreement could be applied to accomplish a variety of objectives, ranging from the examination of each of the many administrative decisions or judgment calls . . . to a broader, systemic analysis of the consistency with the Agreement of determinations by investigating authorities . . . A review of anti-dumping duty determinations in the context of a dispute settlement procedure under the Agreement [is] most appropriately conducted in accordance with the second, systemic type of review.14
Sweden argued that the panel had to analyze certain facts to determine whether the U.S. authorities had acted in accordance with the provisions of the Agreement.15 Therefore, a broad review of the administration of U.S. antidumping law could not suffice. The United States was concerned by the fact that the factual and legal arguments Sweden submitted to the panel had not been submitted during the course of the antidumping investigation.16
The panel did not address the general issue of the level of deference GATT panels should accord national authorities. Instead of formulating a general standard of review, the panel decided “to examine and decide on these arguments and legal issues where they arose in relation to specific matters in dispute.”17 This amorphous standard permitted the panel to conclude that the initiation of the antidumping investigation did not comply with Article 5.1 of the GATT 1947.
In United States-Countervailing Duties on Fresh, Chilled and Frozen Pork from Canada,18 the panel analyzed the application by the United States of section ‘T71B of the Tariff Act of 1930, as amended.19 Section 771B states that subsidies granted to agricultural producers upstream from a processor are countervailable when the demand for the raw commodity depends on the demand for the product as processed, and the processing operation adds only limited value to the commodity.20 The U.S. Department of Commerce (Commerce) found that the demand for pork and live swine were inextricably linked and that processing added limited-approximately twenty percent value to live swine.21 In July 1989, Commerce determined that Canada had granted its pork processors a countervailable subsidy through Canadian swine farmers,22 and in August 1989, the International Trade Commission (ITC) determined that the domestic industry was threatened with material injury.23 The Department of Commerce levied a countervailing duty on imports of processed pork from Canada equal to the subsidy that was provided to live swine farmers.
The GATT panel held that the United States had levied countervailing duties inconsistently with Article 6.3 of the GATT 1947, which states, in pertinent part, that “[N]o countervailing duty shall be levied on any product . . . in excess of an amount equal to the estimated. . . subsidy determined to have been granted, directly or indirectly, on the . . . production of such product.”24 The panel reasoned that because Article 6.3 permits levying of countervailing duties only if a subsidy has been determined to have been bestowed to a particular product, the panel could determine for itself whether such a subsidy had been bestowed to Canada’s pork processors through the live swine farmers.25 The panel ignored the United States’ arguments that Article 6.3 does not prescribe a methodology to determine whether a subsidy has been bestowed and that Section 771B complies with Article 6.3.26 Instead, the panel determined that “the decision as to the existence of a subsidy must result from an examination of all the relevant facts.”27
Finding that the United States had not conducted a sufficient investigation of the facts, particularly with regard to the amount of the subsidy that passed from the farmers to the processors, the panel recommended that the United States investigate that issue or reimburse the countervailing duties in an amount equal to the subsidy given to the swine producers.28
In similar fashion, the panel in United State-Anti-dumping Duties on Imports of Stainless Steel Plate from Sweden29 went beyond the administrative record to determine that the United States had failed to comply with its obligations under Article 9 of the Agreement on Implements tion of Article 6 of the GATT. In that case, the panel considered information that had not been presented to the ITC, the Court of International Trade, the Court of Appeals for the Federal Circuit, or the Supreme Court (where certiorari was denied) . Relying on this new information, the panel held that the ITG had established insufficient facts and had provided inadequate explanation to support the ITC’s refusal to initiate a review of an antidumping order. The panel also held that the Commission had inadequately explained why changes in the Swedish stainless steel plate industry and free-trade agreements between Sweden and the European Community (EC) did not substantiate initiation of a review.30
C. The Automatic Adoption Goal
The Dispute Settlement Body (DSB) currently follows the “reverse consensus” rule for adoption of panel and Appellate Body reports.31 This disposes of the problem that arose during the pre-WTO era in cases like EEC-Pasta Subsidies,32 where the panel voted three to one in favor of the U.S. position, but the Committee failed to achieve consensus and the decision was never adopted.33 The current rule is that panel and Appellate Body reports are adopted unless consensus exists not to adopt the report.34 So the Uruguay Round did achieve the adoption goal.35
D. The Standard of Review Issue
Toward the end of the Uruguay Round negotiations the United States considered grafting on to the WTO Agreements the Chevron doctrine of deference to agency decision-making.36 In each antidumping and countervailing duty case the United States lost under a GATT panel, the panels had accorded the administering authorities very little deference, or had considered information that was not part of the administrative record.37 The standard of review problem was also a matter of great interest, however, for intellectual property holders.38 If the Agreement on Trade-Related Intellectual Property Rights39 (TRIPS Agreement) was to provide international protection of intellectual property rights, panels reviewing matters arising under TRIPS could not defer to national governments, many of which lacked rigorous administrative processes. The result of this dilemma was the establishment of two standards of review: one particular to the Antidumping and Subsidies Agreements, and another, less deferential standard in the DSU that applies to all other agreements.
Antidumping Agreement Article 17.6 is the standard of review WTO panels and the Appellate Body apply to the decisions of administering authorities in disputes arising under the Antidumping Agreement.40 The first prong of the standard requires administering authorities to establish facts properly and to evaluate them in an unbiased and objective manner-the fact prong.41 If the facts were established properly and the facts were evaluated in an unbiased and objective manner, the panel will not overturn the domestic administering authority’s findings of fact.
The second prong requires panels to interpret the provisions of the covered agreements in accordance with the customary rules of interpretation of international law, primarily the Vienna Convention on the Law of Treaties,42 and to derive a set of permissible interpretations.43 So long as the challenged authority’s interpretation falls within this set, the panel will find that interpretation to be in conformity with the Agreement.44 Much like a reasonableness standard, this provision gives panels an opportunity to defer to an administering authority’s interpretation of the Antidumping Agreement, but does not require deference.
E. The DSU Standard of Review
Article 11 of the DSU is the standard panels apply to all disputes arising under agreements other than the Antidumping Agreement.45 Pursuant to Article 11, a panel has the authority to determine for itself the facts and the law of the case, and is not required to defer to an administering authority’s assessment of the facts or its interpretation of the covered agreements.46 This less deferential standard satisfied the United States’ negotiating objectives vis-a-vis the TRIPS Agreement and other agreements not involving dumping and subsidies.
F. Strengthening the WTO Dispute Resolution System
Also important to the proper functioning of the dispute resolution system is its integrated nature. Procedurally consistent cases should create over time a more consistent and predictable pattern of substantive law.
In Guatemala Antidumping Investigation Regarding Portland Cement from Mexico,47 the Appellate Body confirmed that the DSU must be read in combination with dispute resolution provisions elsewhere in the covered agreements, unless the dispute resolution provisions conflict.48 The decision clarified the centrality of the DSU as the procedural anchor of all WTO disputes and the integrated nature of the WTO dispute resolution system.49 This is an important decision because it should ensure that disputes arising under different covered agreements will be resolved in a consistent manner through the DSU.
III. WTO REVIEW OF U.S. ANTIDUMPING AND COUNTERVAILING DUTY LAW: UNITED STATES–DRAMS
There have been few decisions interpreting the Antidumping and SCM Agreements since the creation of the WTO. The decisions to date, however, raise questions about the willingness of panels to adhere to the appropriate standard of review. The WTO panel in United StatesAnti-dumping Duty on Dynamic Random Access Memory Semiconductors (DRAMS) of One Megabit or Above from Korea (United States DRAMS) accorded Commerce a very limited level of deference. The panel found Commerce’s revocation standard for antidumping duty orders50 inconsistent with the test of whether dumping is “likely to recur,” set forth in Article 11.2 of the Antidumping Agreement.51 The “not likely” criterion of Commerce’s revocation standard instructed the agency to maintain an order unless it found, inter alia, that the respondent was not likely to dump the subject goods in the future.52 The panel found that Commerce’s “not likely” standard was not equivalent to the “likely to recur” standard of Antidumping Agreement Article 11.2.53
The panel instructed Commerce on the nuances of the common English usage of the relevant terms.54 Detecting an implicit difference between the concept of an event that is probable and one that is “not probable,”55 the panel ruled that Commerce’s revocation standard fell decisively short of “establishing that dumping is `likely to recur if the order is revoked'”56 In reaching this decision, the panel implicitly determined the extent to which it would defer to Commerce. The panel did not defer. Instead, the panel found that Commerce’s regulation was not a permissible interpretation, under the customary rules of interpretation of public international law, of the requirements of Article 11.2. In so doing, the panel supplanted its interpretation of Article 11.2 for Commerce’s interpretation, according no deference to the agency’s interpretation.
The United States did not appeal this decision because, in all likelihood, the difference between the “not likely” standard and a “likely to recur” standard is so slight as not to affect future revocation determinations. The primary lesson of United States DRAMS is that WTO panels have the power under Antidumping Agreement Article 17.6(ii) to determine the set of permissible interpretations of a provision of the WTO Agreements. With that power, panels are capable of overturning an authority’s decision simply by declaring that the Member’s interpretation of the WTO provision is not within the set of interpretations it declares permissible. With so few cases demonstrating the Article 17.6 (ii) mechanism, it is not clear whether other panels will follow the DRAM panel’s strict approach. However, the DRAM decision does raise the concern that panels will limit the level of deference due to administering authorities by unreasonably limiting the set of permissible interpretations.
In United States Imposition of Countervailing Duties on Certain Hot Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom57 (United States-Steel Privatization) the panel reviewed the issue of whether, under Article 10 of the SCM Agreement, Commerce had effectively demonstrated that subsidies that were granted to a firm that was later acquired in an arms-length transaction for fair market value were countervailable.58 Commerce is not required by statute to treat a change in ownership of a subsidized firm as extinguishing subsidies.59 Therefore, in a 1991 countervailing duty investigation and subsequent administrative reviews, Commerce treated subsidies granted by the United Kingdom to a joint venture owned by the United Kingdom and a private company as transferring with the assets of the joint venture that were later sold.60 This is called the “change-inownership” or “pass-through” methodology, whereby subsidies granted to a firm that is later sold or privatized are deemed to remain within the assets of the sold or privatized firm.61 The SCM Agreement is silent as to whether subsidies continue to be countervailable after a change in ownership.
The panel, however, decided that Commerce’s change-in-ownership methodology does not satisfy the requirements of Articles 19.1, 19.4, and 21.2 of the SCM Agreement, Article 6.3 of the GATT 1994, and the object and purpose of countervailing duties as expressed in footnote 36 to Article 10 of the SCM Agreement.62 The panel concluded that Commerce had misinterpreted the term “benefit” in SCM Agreement Article 1.1 (b) when it found that benefits given to the predecessor parent company passed through to the privatized subsidiary.63 Its reasoning was based primarily on principles of corporate finance. In particular, the panel reasoned that principles of valuation dictate that subsidies would be subsumed within the market value of the asset, and in effect would be paid for by the purchaser of an asset. Therefore, subsidies could only transfer with the sale of an asset for less than its fair market value.64
The panel followed principles of finance, but ignored the purpose of antisubsidy laws, which is to offset trade-distorting subsidies. The panel’s ruling would permit companies to clear their books of subsidies merely through a formalistic change of ownership. More important, the panel’s decision demonstrates no deference to Commerce’s interpretation of the SCM Agreement. It suggests, once again, that U.S. objectives concerning dispute settlement are not being realized.
The panel applied the less deferential DSU Article 11 standard, rather than the Antidumping Agreement Article 17.6 standard, in deciding that a WTO Ministerial Declaration that recognized the “need for the consistent resolution of disputes arising from antidumping and countervailing duty measures”65 was not a sufficient basis for applying the Antidumping Agreement standard of review in a subsidy case. How the Antidumping and SCM Agreements will be applied in a consistent manner with different standards of review is a question that the Appellate Body must answer.
In applying the DSU standard of review, the panel was required to make an objective assessment of the facts and analyze whether or not Commerce’s interpretation of the term “benefit” conformed to the panel’s interpretation of the SCM Agreement.66 From the simple language of Article 1.1 (b), “a benefit is thereby conferred,” the panel implied numerous requirements that administering authorities must comply with to countervail a subsidy granted to assets that are later privatized. The panel determined that Article 1.1 (b) requires that the administering authority re-examine whether, post-privatization, the new owners of the assets continue to benefit from pre-privatization subsidies.
The panel decision is disturbing for two reasons. Substantively, it does not address the issues posed in U.S. submissions to the panel, that “$13 billion in subsidies do not simply vanish.”67 In addition, the decision creates a giant loophole in countervailing duty law. The only recourse the panel leaves to Commerce is to conduct a new analysis of how the subsidies benefit new owners of a firm-an analysis that would have to be repeated with each change in ownership. With respect to the dispute settlement process, the panel decision erodes confidence in the belief that reasonable decisions by national authorities that are consistent with the SCM Agreement will be allowed to stand. The panel’s decision to disregard a Ministerial Declaration calling for consistent application of the Antidumping and SCM Agreements and refusal to apply the Antidumping Agreement Article 17.6 standard of review permitted the panel to invent new obligations for which the United States never bargained. Indeed, the total lack of deference to Commerce’s decision suggests that the United States’ objectives for the DSU may not have been achieved after all.
IV. HAS THE UNITED STATES MAINTAINED EFFECTIVE ANTIDUMPING AND ANTiSUBSIDY REMEDIES To ADDRESS UNFAIR TRADE PRACTICES?
The primary goal of U.S. antidumping and countervailing duty law is to help U.S. industries that are injured or threatened with injury by imports sold in the U.S. market at less than normal or fair value.68 The Uruguay Round made antidumping and countervailing duty cases more difficult to bring, win, and maintain.69 They are more difficult to bring because of higher standing requirements70 and new negligibility provisions.71 They are more difficult to win because of several substantive changes in the law, including provisions dealing with averaging,72 levels of trade,73 below cost of production sales,74 constructed value,75 general selling and administrative expenses,76 and higher de minimis thresholds.77 Finally, the sunset provisions limit the duration of relief78 Thus, on a substantive level, the results of the Uruguay Round have weakened U.S. trade law Moreover, as the DRAMS and Steel Privatization cases show, gains won at the administrative level may be eviscerated by the WTO dispute settlement process.
Other factors also affect the utility of the U.S. trade laws: ( 1 ) whether litigation costs rise to a level at which injured domestic industries are unable to initiate investigations and maintain successful results, and (2) whether Commerce is able to conduct effective investigations to ensure that trade laws are not being violated.
One of the worst outcomes of the Uruguay Round amendments for U.S. trade law has been the increased cost to U.S. producers of bringing a case and then defending an affirmative decision through administrative and judicial reviews and potential WTO litigation.79 Future trade negotiators should be cognizant of the practical effect that adding dispute resolution procedures has on a domestic industry’s decision to litigate a valid claim. A litigant’s decision to invest in an antidumping case turns on whether it will see some benefit from that investment. That benefit necessarily diminishes as the cost of initiating, winning, and maintaining a favorable decision increases. And, with the invention of the sunset review, giving respondents more opportunity to extinguish an order, the investment is potentially shortened to five years.80
Despite increased litigation costs and pressure on Commerce to do more with less, U.S. antidumping and countervailing duty law can still be an effective means of combating unfair trade. The continued filing of cases provides some measure of the confidence that industry and the trade bar have in the laws’ effectiveness. Nevertheless, as the costs of these cases grow, they become less available to smaller and infant industries that are unable to marshal sufficient resources to defend their market share. Concerns about the cost of litigation extend to foreign companies who are respondents in U.S. antidumping and countervailing duty cases as well. Many respondents are not large multinationals that can afford expensive defenses. To the extent they are unable to defend themselves because they lack the resources, rather than a factual basis, to do so, it reflects poorly on the laws involved. Looking beyond the United States, the litigation cost factor is an issue that will also have adverse effects on less developed countries.
Nevertheless, the downside risk of a system that lacks a binding dispute settlement process has so far outweighed the weakening that has occurred to U.S. antidumping and countervailing duty law. Without a binding dispute settlement process to check the excesses of other Member states’ administration of their laws, attaining transparent laws with consistent results would be hindered. Absent binding international agreements, domestic pressures that surround international trade disputes would more likely lead to abuses of antidumping and countervailing duty laws. With binding dispute resolution in the WTO, antidumping and countervailing duty legal regimes outside the United States can develop as effective tools to combat unfair trade practices.
Still, the approach taken by panels in United States DRAMS and United States-Steel Privatization are cause for considerable concern. WTO panels are currently reviewing several allegations of U.S. violations of the Antidumping and SCM Agreements,81 and several consultations are ongoing.82 To the extent that the WTO dispute resolution system finds fault with the U.S. authorities’ administration of antidumping and countervailing duty law, these panel decisions and consulta tions may weaken the effectiveness of the law and undermine the confidence U.S. industries have in the WTO process. This is not an irrelevant concern, because many industries that support the free trade initiatives of the WTO do so with the understanding that the WTO will maintain effective remedies against unfair trade.
A. Has the United States Been Able to Ensure that Foreign AD/CVD Remedies Are Not Misused Against U.S. Exporters?
As more countries, particularly those in emerging markets, open their markets to imports by lowering tariffs and dismantling non-tariff barriers, these countries have increasingly used antidumping laws.83 Foreign countries brought 135 cases against the United States between 1987 and 1997.84 Thus far, the United States has not been able to ensure that antidumping and antisubsidy remedies are not misused against U.S. exporters. The decision by The Mexican Ministry of Commerce and Industrial Development (SECOFI) to impose antidumping duties on imports of U.S. high fructose corn syrup demonstrates this fact.85
To a certain extent, the rise in the use of antidumping laws is an indication that markets are liberalized-if domestic industry were content in a closed market, why would it ever bring an antidumping case? The downside for U.S. exporters, of course, is that foreign governments may not accord the procedural safeguards and transparency that the U.S. system accords respondents. The WTO dispute resolution mechanism offers a means for U.S. companies to rectify wrongly decided or non-transparent decisions by foreign governments. The United States must continue to challenge misinterpretations of the Antidumping and SCM Agreements against U.S. exporters, if the WTO is to be viewed as effective.
B. Has the United States Been Able, Through the WTO, to Diminish the Use of Industrial Subsidies By Its Trading Partners?
Industrial subsidies are government contributions in the form of grants, below market interest rate loans, or tax laws and policies that forego revenue that the government would otherwise collect. Although it is difficult to say whether the United States has diminished the use of industrial subsidies overall, the United States has won or participated as a third party in several WTO decisions against violative industrial subsidies. The panel in Australia-Subsidies Provided to Producers and Exporters of Automotive Leather found the Government of Australia’s grants to Howe Leather, an automotive leather producer, were linked to sales performance targets that could only be reached through increased exports.86 This finding satisfied the panel that Australia had subsidized Howe and violated SCM Article 3.1 (a) because the subsidy was contingent in fact on export performance.87
This decision bodes well for the reduction of industrial subsidies through the WTO. WTO dispute settlement places a brighter spotlight on a Member that has violated its international obligation than a domestic dispute settlement would, which may dissuade that Member from implementing similar policies in the future. In this case, the results for the United States were initially frustrated by Australia’s refusal to implement the panel’s recommendations.88 Australia, by transparently restructuring the subsidy to avoid the violation, forced the United States to request that the WTO revisit the case. The United States and Australia agreed to abide by a reconvened panel’s decision on the matter of the newly structured subsidy, and to waive the right to appeal the decision. Finally, several months after the initial panel decision was made, the reconvened panel held that Australia had, in restructuring the loans, failed to abide by the initial panel’s recommendation.89
The United States participated as a third party in two cases involving export subsidies to aircraft manufacturers. These cases were of great interest to both the United States and the European Communities. In Canada Measures Affecting the Export of Civilian Aircraft (CanadaAircraft), the United States argued that the term “benefit” in Article 1.1 (b) of the SCM Agreement should not be interpreted to require a net cost to the government providing the benefit.90 It seems clear from Canada-Aircraft that the definition of “benefit” was hotly debated in Geneva.91
If the SCM Agreement required a showing of net cost to a government to prove that the government had conferred a subsidy, the complaining Member would bear an enormous evidentiary burden. Not only would the complaining Member have to prove that a company had received an illegal benefit, it would have to prove that the government program would result in a net loss to the government. As a first step, such an analysis would require a time frame within which the government outlay must be recouped-something the SCM Agreement does not provide. Clearly, a fifty million dollar grant to an aircraft manufacturer may not, in the long run, be a net cost to the government (assuming the government taxes the recipient).
In Canada Aircraft, the Appellate Body ruled that a “cost to government” is not an element of the term “benefit.”92 The Appellate Body upheld the panel’s factual analysis, which led that body to find that Canada had given assistance to its regional aircraft industry in a form that was contingent in fact upon export performance, and that Canada had violated Article 3.1 (a) of the SCM Agreement. The United States should benefit from this interpretation in future export subsidy and countervailing duty cases, as the United States Trade Representative will not have to rebut net cost to government arguments.
In Brazil Export Financing Programme for Aircraft, the Appellate Body held that a Member that accuses a developing country Member of violating Article 3.1 (a) of the SCM Agreement bears the burden of proving first that the developing country Member failed to comply with Article 27.4 of the same agreement.93 Article 27.4, inter alia, grants developing country Members an eight year subsidy phase-out period on the condition that the country does not increase the level of its export subsidies.94 The panel below found, and the Appellate Body upheld, that Brazil had failed to comply with its obligations under Article 27.4, and therefore Article 3.1 (a) applied to Brazil. The Appellate Body upheld the panel’s recommendation that Brazil had to withdraw its export subsidies to regional aircraft manufacturers.95
Canada (the complaining Member) and the United States argued that the burden of proof under Article 27 is on the developing country Member to show that it complied with the provisions of Article 27.4.96 In rejecting this argument, the panel and Appellate Body agreed with Brazil that Article 27 grants developing country Members special and differential treatment.97 Article 27 is not an affirmative defense or exception and does not require that a developing country Member demonstrate that it has complied with its provisions.98
Overall, these cases indicate that the dispute settlement mechanism can be used effectively to reduce industrial subsidies that violate WTO rules. Problems with the SCM Agreement, however, have arisen over the workability of the green-light subsidy categories.
V. RENEWAL OF THE GREEN-LIGHT SUBSIDY CATEGORIES
One of the great challenges of countervailing duty law is the problem of distinguishing between subsidies “granted by governments in pursuit of valid economic and social policies, and those which . . . have the effect of distorting world trade and depriving other countries of legitimate trade opportunities.”99 The non-actionable subsidies, also referred to as “green light subsidies” and listed in Article 8 of the SCM Agreement,100 offer countries a method for structuring subsidies to avoid attack under countervailing duty laws. SCM Article 8 identifies non-actionable subsidies as those that are not specific within the meaning of SCM Article 2, and subsidies that are specific and meet the conditions provided in SCM Article 8.2(a)-(c). SCM Article 8.2 lists as non-actionable subsidies, with some limitations: assistance for research activities,101 assistance to disadvantaged regions,102 and assistance to promote adaptation of existing facilities to new environmental requirements.103
The United States provisionally accepted the non-actionable subsidies provisions of the SCM Agreement. Section 771 (5B) (G) (i) of the Tariff Act of 1930, as amended,104 states that subparagraphs (B), (C), (D), and (E) of section 771 (5B) shall cease to apply after June 1, 2000, unless the WTO Subsidies Committee105 agrees to extend Articles 6.1, 8, and 9 of the SCM Agreement,106 the president of the United States consults with Congress, and an implementing bill is submitted and enacted into law.107 Article 6.1 carves out an exception for subsidies to civil aircraft manufacturers, permitting certain debt relief, and thus a trade-off exists between U.S. interest in the aircraft industry and other Members’ interests in continuing the Article 8 green-light subsidies.108 Also noteworthy, this statutory prod of the President and Congress is bound to create a stir in this election year-Congress and the President will be forced either to extend the law, at the risk of upsetting key manufacturing and labor constituencies, or violate WTO rules.109
Problems have already arisen regarding the non-actionable subsidy provisions of Article 8. If a government intends to use a subsidy to promote one of the goals Article 8 addresses, the least it can do is provide notice to its trading partners that that is its course of action, rather than leaving it up to administering authorities to determine whether the subsidy is non-actionable. Unfortunately, the notification procedure that Article 8.3 requires has not been used.110 Further, the verification that is necessary to prevent abuses of this loophole is probably too costly to properly conduct. Commerce has adopted a narrow interpretation of the green-light subsidies, and rightly so. Without notification or the means to verify green-light status, a narrow interpretation of the exception remains the best course.111
A. Certain Pasta from Italy and Turkey
In the first U.S. case to test the green-light provisions, Certain Pasta from Italy and Turkey,112 the Government of Italy (GOI) and the EC argued that some of its subsidies to pasta producers were nonactionable.113 Commerce held that the EC’s European Redevelopment Fund did not meet the criteria of section 771 (5B) or the SCM Agreement because that subsidy required unemployment to exceed only the Community average, not 110% of the national average, as is required by section 771 (5B) and the SCM Agreement.114
The GOI made similar claims to shield its subsidies to pasta producers from countervailing duties. Commerce found that because the GOI had failed to perform any analysis using neutral and objective criteria to select the regions that would be eligible for assistance, the GOI subsidies were not within the requirements of section 771 (5B) or the SCM Agreement.115
The upshot of Commerce’s treatment of the non-actionable argument in Certain Pasta from Italy and Turkey is that the non-actionable subsidy exceptions will be narrowly construed and respondent firms and governments must carefully design and document their subsidy programs to conform to the SCM Agreement requirements. The question remains whether, post-Uruguay Round, otherwise actionable subsidy programs have been cloaked in the trappings of SCM Agreement Article 8. More importantly, how will Commerce detect these wolves in sheep’s clothing?
B. Certain Wolves in Sheep’s Clothing… Or Why Some Facially Non-actionable Subsidies Ought to be Countervailed
The learning curve for governments to redraft and dress-up subsidies into non-actionable forms is not steep; therefore, a greater emphasis must be placed on verification and on the notification requirement of SCM Agreement Article 8.3. In particular, the notification procedure of Article 8.3 would better serve the international trading system if it were a bright line rule: report or non-actionable status will not be available. Unless Commerce is able to gain a level of confidence that so-called non-actionable subsidies are, in fact, devoted to solving the problems that SCM Agreement Article 8 addresses, then the subsidy should be found countervailable.
VI. CONCLUSION
In the field of antidumping and countervailing duty law, the U.S. negotiators thought they had succeeded in establishing a more deferential standard of review and automatic adoption. Whether the level of deference WTO panels accord Commerce and the ITC is sufficient to maintain the effectiveness of a weaker U.S. legal regime depends on how broadly future panels, applying the mechanism of Antidumping Agreement Article 17.6(ii), set the range of permissible interpretations of the Antidumping Agreement, and whether the 17.6 standard is extended to cases arising under the SCM Agreement. The early cases are not promising; to the contrary, they are cause for real concern. Furthermore, although the automatic adoption goal was reached, U.S. victories before the WTO are repeatedly frustrated by hesitant implementation efforts by losing members.
Whether the dispute settlement process will be a sufficient sword to strike down antidumping and subsidization findings against U.S. exporters remains to be seen. A great deal will depend on how aggressively the United States seeks review of foreign government actions under Antidumping Agreement Article 17.6(i).
As for industrial subsidies, whether overall subsidization has decreased is impossible to determine. The idea of allowing Members to cloak their subsidies in the trappings of the non-actionable subsidies categories of SCM Agreement Article 8, however, should not be expanded unless the Members agree to a bright line notification rule-a “use it or lose it” provision. This makes sense in terms of policy-avoid trade distortion of subsidies-as well as the administration of law at the domestic and the international level-transparency. The trade-off between exceptions for subsidies to civil aircraft producers and the green-light subsidies may not have been as good a deal as the U.S. negotiators anticipated, especially given the lack of reporting of subsidies programs under the notification provisions of Article 8.3.
In sum, while the current dispute settlement process has made great strides in establishing its legitimacy, it is still too early to declare the mechanism a success. Indeed, recent cases raise significant concerns about the willingness of_ panels to interpret the dispute settlement provisions in a way that does not undercut U.S. application of its antidumping and countervailing duty laws. The United States must continue to press for strict adherence to the WTO dispute settlement standards for both its domestic petitioners and U.S. exporters.
PAUL C. ROSENTHAL* & ROBERT T.C. VERMYLEN**
* Partner, Collier Shannon Scott, PLLC, Washington, D.G.
** Associate, Collier Shannon Scott, PLLC, Washington, D.C.
Copyright Georgetown University Law Center Spring 2000
Provided by ProQuest Information and Learning Company. All rights Reserved
