Update on China Challenge to U.S. in WTO Countervailing Proceedings

On January 16, 2015, the World Trade Organization’s (WTO) adopted recent findings in the ongoing countervailing duty cases between China and the U.S.   The WTO’s Dispute Settlement Body (the highest appellate authority to decide WTO cases) confirmed the report initially created by the WTO Appellate Body in December 2014.  The findings approve a mixture of both China and U.S. assertions in certain countervailing duty cases.

In December 2014, the Appellate Body issued a determination in an action addressing several countervailing duty (CVD) cases between China and the U.S.  The countervailing cases included main areas of concern for U.S. and China industries:  solar panels, pressure pipes, line pipe and oil country tubular goods (OCTG).  OCTG includes either carbon or alloy tubular steel products used in oil and gas wells.

The December finding, which the Dispute Settlement Body recently confirmed, determined that the U.S. had not followed all rules of the WTO Agreement on Subsidies and Measures (SCM) when conducting its countervailing duty investigations of potential Chinese subsidies in the above industries.  One point that the Dispute Settlement Body determined is that the U.S. Department of Commerce’s analysis and explanation for rejecting prices stemming from private transactions in China as part of its benchmark analysis in the line pipe CVD investigation is inconsistent with the obligations under the SCM regarding calculation and framework of benefits conferred.

The Dispute Settlement Body also adopted the December decision, which had found that China was unable to prove the U.S. method of determining specificity (to determine existence of a subsidy in a specific industry and thus indicate CVD) violates Article 2 of the SCM.  There are various steps to follow in determining specificity under the SCM.  Issues also include whether an entity is a state owned enterprise and how benefits accrue to the targeted entity in the CVD investigation.  Rather, the current Appellate decision qualifies that the U.S. method of assessing in certain CVD cases whether a specific industry receives a subsidy met some aspects of the specificity requirement, while other aspects were not met.  The WTO then recommended that the U.S. bring its measures into full conformity.

Overall, the WTO issued a qualified ruling that upheld some U.S. CVD investigation procedures, while also affirming some of China’s contentions.  As this ruling was just issued, the implication to these CVD cases remains to be seen.  However, it is reasonable to expect updates in ongoing CVD cases from the U.S. regarding these issues.


By: Jennifer Horvath, Associate Attorney