In appealing a panel ruling from July 2011 (see Bridges Weekly, 6 July 2011), China had challenged the panel’s finding that Beijing’s export restrictions could not be justified as resource conservation or environmental protection measures, or as a way to manage critical supply shortages.

While a victory for the US, EU, and Mexico as co-complainants had largely been expected, the ruling provides some clarifications that could have landmark value in future cases.

Beijing has established a system of export duties and quotas for a number of raw materials, including coke, zinc, and bauxite, as well as some that are only available in China. The resulting high export prices and limited supply impact foreign steel, aluminium, and chemical industries, and their downstream clients.

The EU estimates Chinese export prices are between 50 and 100 percent higher than domestic prices, affecting four percent of the EU’s industrial activity and approximately 500,000 jobs.

“This final ruling is a great success in our efforts to ensure fair access to the much needed raw materials for EU industry,” EU Trade Commissioner Karel de Gucht said in a statement. “It sends a clear signal that such measures cannot be used as a protectionist tool to boost domestic industry at the expense of foreign competition,” he added.

US Trade Representative (USTR) Ron Kirk similarly welcomed the ruling as a “tremendous victory.”

“Today’s decision ensures that core manufacturing industries in this country can get the material they need to produce and compete on a level playing field,” he said.

Resource depletion is not critical; no justification

While the complainants portrayed the restrictions as protectionist measures, China had maintained that they were necessary to conserve the finite resources and to ensure domestic supply, as some of the resources face depletion in the near future. The Appellate Body confirmed the panel ruling when rejecting these justifications.

In times where resource-rich developing countries are increasingly eager to maintain their resources for domestic production, the EU, US, and other WTO members had anxiously sought clarification from the global trade arbiter on the issue.

In evaluating this concern, the WTO’s highest court, for the first time ever, addressed WTO rules on export restrictions taken with the aim of managing critical shortages of essential products.

Article XI 2(a) of the WTO’s General Agreement on Tariffs and Trade (GATT) provides that the general prohibition of quantitative restrictions, including bans and quotas, shall not apply where they are taken temporarily to prevent or relieve a critical shortage of foodstuff or other essential products.

This provision’s relationship with another section of the GATT, Article XX - which establishes a number of justifications for otherwise illegal measures, on the basis of greater public policy objectives, such as public health or resource conservation - was particularly controversial, as China argued that the foreseeable depletion of finite resources was indeed a critical shortage.

Unlike Article XX(g) on resource conservation measures, Article XI 2(a) does not require that external measures be linked with restrictions on domestic production and consumption.

During the proceedings, China had argued that the Article XI 2(a) exception should also apply to long-term preventive measures. The Appellate Body disagreed, however, deeming that Article XI 2(a) only “applies in the interim, to provide relief in extraordinary conditions in order to bridge a passing need.”

It further noted that “if a measure were imposed to address a limited reserve of an exhaustible natural resource, such measure would be imposed until the point when the resource is fully depleted.” This scenario would make it impossible for an export restriction to relieve or prevent a shortage, the judges explained.

The finding that general resource conservation efforts do not permit export restrictions through Article XI 2(a) is likely to shape global trading patterns in essential raw materials in the coming decade. This is particularly true for trade in the highly precious rare earths materials - another subject that has lately generated heated debate between China and its trading partners.

De Gucht has already called upon China “to bring its overall export regime - including for rare earths - in line with WTO rules.”

Article XX no fall-back option

Another matter before the Appellate Body was the applicability of Article XX to claims based on paragraph 11.3 of China’s accession protocol, which obliges China to eliminate all its export duties. The dispute panel had denied the article’s applicability, a ruling which the Appellate Body now confirmed.

The Appellate Body ruled that, since Article XX was not specifically addressed in the paragraph in question, there was no basis for the article to apply. “Had there been a common intention to provide access to Article XX, language to that effect would have been included in paragraph 11.3 or elsewhere in China’s accession protocol,” the judges noted.

Whether Article XX is available as a justification for claims brought under agreements other than GATT has long been a subject of debate among trade observers.

Many have argued in favour of using Article XX as a general “fall-back option” in order to resolve questions at the intersection of environment and trade on those grounds, rather than in a fragmented way under individual WTO law provisions. This is an issue of particular relevance to recently acceded countries that have agreed to “WTO+” commitments in their accession protocols.

While the Appellate Body was careful in limiting its analysis to the dispute in question, rather than generally ruling on the applicability of Article XX, the ruling is an important indication for future cases. This is particularly true for the ongoing dispute over the Canadian province of Ontario’s feed-in tariff for renewable energy and its consistency with the WTO subsidy agreement.

For acceding countries, the ruling means that they will have to carefully ensure that Article XX is referenced in all those provisions that they want covered by the article’s justifications for measures taken in the interest of the environment, resource conservation, human health, or public morality - a monumental task.

The alternative would be to incorporate Article XX as an umbrella clause in the accession protocols - an issue that could be very difficult to negotiate.

Referring to these difficulties, Beijing released the following statement on Monday: “China takes the view that the WTO rules, at the time of liberalising trade, allow a member to take necessary means to realise its policy objectives, such as protection of the exhaustible resources and the environment. A solution should be found by balancing different policy objectives.”

Next steps

The panel and Appellate Body reports will go before the Dispute Settlement Body for formal adoption within thirty days. China will then have to bring its measures into compliance within a reasonable period of time.

ICTSD reporting.

More Bridges Weekly headlines

More ICTSD highlights

“We need to do more” on China, Obama says

The US President, addressing a joint session of Congress in his speech on Tuesday 24 January, promised to “go anywhere in the world to open markets for American products,” adding that he would be sure to hold the US’ trading partners to international trade laws.

“I will not stand by when our competitors don’t play by the rules,” Obama said.

The US and China have seen trade tensions escalate over the past year, with Washington and Beijing engaging in a tit-for-tat row that has covered a broad range of issues, from China’s valuation of its currency, to antidumping claims at the WTO, to both countries’ support of their respective renewable energy sectors.

“Over a thousand Americans are working today because we stopped a surge in Chinese tyres,” Obama said, referring to a WTO dispute in which China had unsuccessfully challenged safeguard measures levelled by Washington on Chinese tyre imports (see Bridges Weekly, 7 September 2011).

“But we need to do more. It’s not right when another country lets our movies, music, and software be pirated. It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidised,” he added.

In his address, Obama confirmed earlier reports that he would be establishing a Trade Enforcement Unit that would be tasked with investigating “unfair trade practices in countries like China,” along with promising more border inspections to prevent imports of counterfeit or unsafe goods (see Bridges Weekly, 11 January 2012)

Russia also on the agenda

The US President also appeared to make a subtle call for Congress to move forward on restoring permanent normal trade relations with Moscow, stressing that “this Congress should make sure that no foreign company has an advantage over American manufacturing when it comes to accessing finance or new markets like Russia.”

Russia’s 18-year bid for WTO membership was approved at the WTO’s Eighth Ministerial Conference in December, with its full membership set to come into effect later this year once the Russian parliament ratifies its accession package (see Bridges Daily Update, 18 December 2011).

However, the US still lacks permanent normal trade relations with Russia, as the result of a Cold War-era provision that allows Washington to deny most-favoured nation (MFN) status to nations with limited freedom of emigration.

The legislation - known as the Jackson-Vanik amendment - would need to be repealed by the US Congress in order for permanent normal trade relations to be restored. Obama has stressed in recent months that taking Jackson-Vanik off the books in 2012 is a White House priority.

Just last week, Russian Foreign Minister Sergei Lavrov told a news conference that the US must repeal the law, or else Russia would “not abide by the commitments it undertook as a WTO member if the Jackson-Vanik amendment remains in force.”

White House promises to develop “every available source” of energy

In his speech, Obama also made a pitch for developing an energy strategy that would open more than 75 percent of the US’ potential offshore oil and gas resources, while also developing natural gas and increasing Washington’s backing of renewable energy.

“The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy,” the US President promised.

Obama also urged Congress that it was time to “double-down” on the clean energy industry. “I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.”

While the US recently retook the top position in investment in clean energy - surpassing China - US solar panel producers have struggled to keep up against cheap solar imports from China and sharp decreases in the price of solar panels (see Bridges Trade BioRes, 23 January 2012 and Bridges Weekly, 16 January 2012).

The buzz around finding new sources for the US’ energy needs reached new heights over the past week, after Obama’s 18 January announcement rejecting a plan for the building of a multi-billion dollar pipeline that would have carried crude oil from Canada to the US state of Texas, faulting Republicans for having imposed an “arbitrary” deadline for the project’s approval (see Bridges Weekly, 18 January 2012).

However, in last week’s announcement, Obama made clear that the decision was “not a judgement on the merits of the pipeline,” potentially leaving the door open for the project to move forward at a later date.

The proposed pipeline had been the subject of weeks of debate on its environmental and economic implications. Opponents had called the Keystone project environmentally irresponsible, citing concerns over the proposed pipeline’s carbon footprint, among others. Meanwhile, supporters - which include many Republicans - had argued that the project was key to creating US jobs and increasing the US’ energy resources.

US “on track” to double exports

In his speech, the US President also highlighted progress toward the goal he set at the 2010 State of the Union address, in which he promised to double US exports within five years - from US$1.57 trillion in 2009 to US$3.14 trillion by 2015 - in an effort to create new jobs.

“Two years ago, I set a goal of doubling US exports over five years. With the bipartisan trade agreements I signed into law, we are on track to meet that goal - ahead of schedule,” Obama said, referring to the US’ free trade agreements with Colombia, Panama, and South Korea.

The three trade pacts had been the subject of prolonged political debate between parties for years, having been signed into law by former US President George W. Bush in 2007.

The FTAs were ratified by the US Congress and signed into law this past autumn (see Bridges Weekly, 12 October 2011).

Republican presidential candidates respond

The State of the Union address drew harsh rebukes from Republican presidential candidates, who hit back at Obama’s economic and energy policies in their responses.

With the US presidential election scheduled for the first Tuesday in November, Republican candidates have spent the past several months jockeying for position in the contests for their party’s nomination. Last Friday’s primary in the US state of South Carolina saw former House Speaker Newt Gingrich beat out former Massachusetts Governor Mitt Romney - until then widely seen as the party’s frontrunner - by a wide margin in the polls, refocusing much of the national attention on the escalating rivalry between the two candidates.

“I will open up new markets for American goods, and open up our lands so that we can finally develop our energy resources,” former Massachusetts Governor Mitt Romney promised in his pre-rebuttal remarks.

“My administration will support the development of these resources, not find excuses to stand in the way,” the former governor added, pledging both to take advantage of a “revolution in drilling for natural gas” and to approve the Keystone oil pipeline should he win office.

Gingrich, in his response to Obama’s address, also took aim at the White House decision to reject TransCanada Corporation’s proposed pipeline.

“Only recently the president cancelled the Keystone XL Pipeline that would have created countless new jobs and helped America on the way to energy independence because he wanted to appease the far left of his party,” the former House speaker said. “And yet not a single word on the Keystone XL pipeline tonight.”

The four-man race for the Republican Party nomination next moves to the US state of Florida, with a primary scheduled for Tuesday 31 January.

ICTSD reporting; “Russia threatens to ignore WTO commitments in trade with US if Cold War law isn’t scrapped,” ASSOCIATED PRESS, 18 January 2012.

The US-China disagreement over the use of renewable energy support has also pitted solar companies within the US against one another. Last month, a coalition that claims to represent 97 percent of the US solar industry asked solar panel maker SolarWorld Industries America Inc. to withdraw its petition calling for punitive duties on China for unfair subsidies.

US-China trade row puts entire solar industry at risk, warns US solar energy coalition

The Coalition for Affordable Solar Energy (CASE), which counts 145 companies as members and was founded in November in response to the SolarWorld petition, sent a letter last month to SolarWorld America President Gordon Brinser in which it argued that the tariffs the company is pursuing against Beijing could “fundamentally undermine many years of effort by all of us who care about the future of solar power.”

CASE particularly decried the short-sightedness of the petition, which - they argue - only considers the needs of solar panel manufacturers. Instead, the coalition asserts that the majority of the existing jobs in the US solar industry are in sales, marketing, design, installation, and maintenance - all of which have benefitted from the lower costs of solar panels.

In a statement announcing CASE’s formation in November, Jigar Shan, co-founder and Chairman of CASE, similarly stressed that “placing protectionist barriers against more efficient and affordable solar cells - whatever their origin - discourages innovation and investment.”

Brinser was quick to rebuff such complaints, however, claiming that Case President Jigar Shah was just speaking on behalf of Chinese manufacturers.

CASE is attempting to persuade the Obama administration that a negotiated settlement with China would be the most effective means of solving the dispute, according to Reuters.

The SolarWorld America petition - which was filed in October along with six other US solar energy companies that requested anonymity - claims that Chinese solar panels have been illegally subsidised by the Chinese government and sold to the US at trade-distorting prices. The complaint further alleges that Beijing uses cash grants, raw materials discounts, preferential loans, tax incentives, and currency manipulation to boost its exports of solar panels.

The US Commerce Department is expected to make a preliminary decision by 13 February 2012 on whether to impose tariffs on imports of Chinese solar panels, after the US International Trade Commission voted unanimously on 2 December to allow the case to proceed (see Bridges Weekly, 7 December 2011).

Meanwhile, China’s Ministry of Commerce is conducting its own probe into Washington’s renewable energy support, specifically with regards to wind energy, solar, and hydro technology products (see Bridges Weekly, 30 November 2011). Depending on the findings of the investigation - which are expected in May - the agency could introduce duties as early as this year.

Solar industry’s troubles not limited to the US

Driving the petition is Solarworld AG, SolarWorld Industries’ German parent company, which reported larger than expected losses in 2011 and has seen its stock price steadily decline over the past three years.

Solarworld AG Chief Executive Officer Frank Asbeck confirmed on 8 January that the company hopes to partner with other European firms in launching their own anti-dumping proceedings at the European Commission’s competition agency, according to Bloomberg.

The economic downturn in the US and Europe, coupled with subsidy cuts imposed by government austerity measures, has hurt the demand for solar energy products. The market has also experienced a considerable surplus since 2010, when China’s two largest manufacturers of solar panels, Suntech Power Holdings Co and LDK Solar Co, doubled production.

The price of solar panels has dropped 40 percent between 2006 and 2011, which has partly been blamed to the high-profile collapse of three US-based solar companies, particularly Solyndra LLC.

Indian manufacturers could join the action

The spat between US and Chinese manufacturers of solar panels could also grow to involve India, with Indian manufacturers complaining about both Chinese and American exporters.

The Indian government is reportedly considering the launch of its own anti-dumping probe into Chinese solar panels; authorities in New Delhi have also been asked by some domestic manufacturers to levy a 15 percent tariff on imports of thin-film panels. Such a tariff, if implemented, would primarily affect US-based manufacturer First Solar Inc.

Currently American and Chinese solar panels can be imported into India tax-free under exemptions for thin-film products in the Indian government’s Solar Mission programme, which usually requires that developers utilise local equipment. Meanwhile, domestic Indian manufacturers must pay duties on raw materials. Furthermore, Indian projects, if they import American or Chinese equipment, are often eligible for cheap credit provided by US and Chinese state-backed lenders, thus lowering the overall cost of borrowing.

“I’m feeling a bit of anguish because we want solar to succeed but we need fair competition,” K. Subramanya, chief executive officer of Tata BP Solar, India’s third-largest cell and panel maker, said.

ICTSD reporting; “Chinese companies prefer dying to being bought, JinkoSolar says,” BLOOMBERG, 6 January 2012; “India may join US-China trade spat to prevent solar ‘disaster’,” BLOOMBERG BUSINESSWEEK, 24 December 2011; “Solarworld planning China anti-dumping case in Europe, CEO says,” BLOOMBERG, 9 January 2012; “US-China solar trade dispute may see India joining with probe,” BLOOMBERG, 20 December 2011; “US solar companies urge SolarWorld drop China case,” REUTERS, 20 December 2011.

It is in this context that the ICTSD China Initiative invited key policymakers and researchers to prepare think pieces on the implications of WTO membership for China and global trade governance. The authors participated in a dialogue entitled “A Decade in the WTO: Implications for China and Global Trade Governance” held on 29 June 2011 in Geneva, organized by the ICTSD in partnership with the Friedrich-Ebert-Stiftung Geneva Office and the China Society for WTO Studies.

This ebook is composed of four parts: an overview of the membership’s implications for China and global trade, impact on the WTO as an institution, evolution of China’s trade relations with other WTO members, and what comes next?

This publication is based on think pieces prepared by the authors for the Dialogue on 29th June, and launched on 16th December Launched on 16th December 2011 at the Eighth WTO Ministerial Conference.

Key authors of this book are: Ricardo Meléndez-Ortiz, Xiaozhun Yi, Harsha V. Singh, Paul Blustein, Zhenyu Sun, Henry Gao, Razeen Sally, Scott Kennedy, Gary Hufbauer, Faizel Ismail, Debapriya Bhattacharya, Roberto Carvalho de Azevedo, Xinkui Wang, Jean-Pierre Lehmann, Tao Hu, Xin Wang, Shuaihua Cheng.

EU announces compliance with Airbus subsidy ruling

On Thursday 1 December, the EU submitted a report outlining the measures taken by its member states to comply with a 2011 ruling by the WTO’s Appellate Body that had deemed the EU’s subsidies to aircraft manufacturer Airbus illegal.

The compliance report is the latest move in a long-standing dispute between Washington and Brussels over airplane subsidies. The ‘twin case’ brought by the EU over the US’ subsidies to Airbus competitor Boeing is currently at the appeals stage

In May 2011, the Appellate Body ruling had called upon the EU to withdraw its subsidies or to remove their adverse effects within six months (see Bridges Weekly, 25 May 2011). Brussels had until Thursday to implement the Appellate Body’s rulings and recommendations.

In an emailed statement to Bridges, EU Trade Spokesman John Clancy said that Brussels “[has] presented a comprehensive package of actions that achieves full compliance with the WTO recommendations and rulings in the Airbus case.”

The five-page document lists thirty-six measures of termination and amendments of agreements relating to the EU’s Airbus subsidies. The document further states that Brussels addresses “all models of Airbus covered by the WTO ruling.”

However, one EU expert commented to Reuters that this failed to include aid for the Airbus A350, as the original WTO panel had also excluded such measures from its ruling. Some trade observers have cautioned that this exclusion could open the EU to a challenge from Washington.

Washington limited its comments to a brief initial statement last Thursday acknowledging receipt of the report. “We have received the EU’s compliance notice today and will review it carefully before announcing our next step,” said US Trade Representative (USTR) Ron Kirk.

“We will base our next steps on a careful evaluation of that announcement, and whether it demonstrates that the EU has in fact taken the steps necessary to bring itself into full compliance with the WTO decision,” Kirk added.

Meanwhile, representatives from the US aircraft industry were less guarded in their comments. Speaking prior to the submission of the compliance document, Boeing officials stressed that the EU was obligated to show that it has already taken steps to comply with the WTO ruling.

“If the Europeans have not done anything to comply, other than to say what they plan to do, that is noncompliance,” Boeing lawyer Robert Novick told Reuters. “The US could under WTO rules immediately seek authorisation to suspend concessions.”

According to WTO rules on dispute settlement, Washington could indeed request the original panel to review the EU’s status of compliance and the possibility of countermeasures. But experts say that the key to resolving this seven-year battle would be for the two parties to sit at a table and negotiate.

A separate panel ruled in March that the US had been providing illegal subsidies to aircraft manufacturer Boeing (see Bridges Weekly, 6 April 2011). Both sides appealed that judgment.

“What is now important is for everyone to realise that the United States will be in the same position as we are today after the WTO Appellate Body will rule on subsidies to Boeing next year. At that point the EU expects to receive an equally solid set of compliance actions from the United States,” Clancy added in his statement.

The Appellate Body is expected to circulate its report on the Boeing case at the beginning of next year.

US proceedings against Chinese solar panels continue; Beijing denies harm for US manufacturers

Cheap solar panel imports from China have substantially hurt US manufacturers, the US International Trade Commission (ITC) preliminarily found on 2 December. Following this early assessment, six ITC members unanimously decided to continue investigating the alleged subsidisation and dumping of imports of crystalline silicon photovoltaic (CSPV) cells and modules from China.

The assessment and vote follows the ITC’s decision on 9 November to react to a petition to curb unfair imports submitted by SolarWorld Industries America Inc. and the Coalition for American Solar Manufacturing (CASM) (see Bridges Weekly, 9 November 2011).

Washington’s decision to continue proceedings comes only days after Beijing confirmed that it was conducting its own investigation on Washington’s renewable energy support (see Bridges Weekly 30 November 2011). Beijing’s probe will cover wind energy, solar, and hydro technology products. The investigation is expected to end by 25 May 2012.

SolarWorld President Gordon Brinser welcomed the preliminary decision. “Today’s unanimous vote is another step toward restoring the healthy global competition in the solar industry that has reliably driven down production costs and prices by 10 percent or so a year for many years,” he said.

The complainants argue that “massive state subsidies and sponsorship have enabled Chinese manufacturers to illegally dump their products into a wide-open US market [despite the lack of] a production cost advantage.”

However, Beijing has expressed doubts over the grounds on which ITC determined the economic harm of Chinese imports.

“The US has made a preliminary ruling that is inconsistent with the facts [and it proceeded] regardless of defence opinions from Chinese firms, as well as opposition from the US domestic industries and other interested parties,” China’s Ministry of Commerce (MOFCOM) protested in a statement.

Chinese CSPV panel imports to the US have almost quadrupled during 2008 and 2010. According to ITC numbers, China is currently the largest source of US CSPV imports.

In 2010, CSPV imports from the South Asian trading giant amounted to US$ 1.2 billion. Another US$1.5 billion worth of CPSV panels was imported from Germany, Japan, Malaysia, Mexico and Taiwan.

The 2 December decision marks the first step in countervailing and anti-dumping duty investigations. The ITC will now continue its probes on the alleged subsidisation and dumping, the outcomes of which are expected on 12 January 2012 and 22 March 2012, respectively.

ICTSD reporting. “EU says complies with WTO ruling in Airbus spat with US,” REUTERS, 1 December 2011; “UPDATE 2-EU’s Airbus compliance omits A350,” REUTERS, 2 December 2011.

Beijing’s probe would cover wind energy, solar, and hydro technology products. The investigation is expected to end by 25 May 2012.

The investigation was sparked by a filing from businesses in the renewable energy industry in China. The Ministry of Commerce also stated that if violations of WTO laws were found, the government could potentially file a case at the WTO dispute settlement body.

Beijing’s investigation comes quickly on the heels of Washington’s own announcement in early November that it would be launching an investigation into Chinese solar subsidies and trade practices, in response to a petition filed by seven US solar manufacturers in October.

Announcement regarding US-launched solar investigation expected Friday

On 9 November, the US Department of Commerce had announced that it would be moving forward with its investigation into whether China’s solar subsidy practices have allowed Beijing to dump solar panels into the US market. The case is now awaiting the approval of the US International Trade Commission (ITC) in order to continue; a vote from the ITC investigation panel is expected this Friday, 2 December (see Bridges Weekly, 9 November 2011).

The Commerce Department’s action has already prompted a strong response from Chinese government officials; the Chinese Ministry of Commerce said in statements earlier this month that it is “greatly concerned” by the case, cautioning that it could hurt US-China energy co-operation and lead to a “lose-lose” situation.

Criticism over Beijing’s extensive support to its clean energy producers has ramped up in recent years, with Washington critics alleging that the subsidies put foreign competitors at a disadvantage.

In October, US Trade Representative (USTR) Ron Kirk took aim at many of China’s clean energy subsidies in a submission to the WTO. In the submission, Kirk identified nearly 200 subsidy programmes that Beijing has not notified to the global trade body, including Chinese policies and practices that Washington claims affected trade and investment in green technologies.

Whether Kirk’s action would be followed by a dispute filing at the WTO was not made clear at the time.

Earlier this year, Beijing ended a controversial public fund for wind power manufacturing that had been the subject of a formal WTO dispute between the two countries. The US had alleged that the subsidies were prohibited for being contingent on the use of local input. While Washington hailed the Beijing decision as a victory, China argued that the subsidies had been removed because they were no longer necessary (see Bridges Weekly, 8 June 2011).

Chinese solar producers push back

On Tuesday 29 November, Chinese solar panel makers took a strong public stance against Washington’s pursuit of the solar case, cautioning that it risked “seriously hindering the development of green energy.”

Wang Guiqing, vice president of the China Chamber of Commerce, told reporters on behalf of Chinese companies that the “photovoltaic industry based in China has formed a united front to counter the US investigation.”

He argued that Beijing subsidy practices were not the reason for the Chinese solar industry’s success - adding that China’s government support for the solar industry is lower than the support that the US and EU provide their own industries. Rather, “the competitive advantages of Chinese photovoltaic companies are due primarily to the concentration of the industrial chain inside China.”

Wang’s arguments were supported by the chairmen of some of China’s largest solar companies; Shi Zhengrong of Suntech Power Holdings Co. told reporters yesterday that, “if you ask whether the solar industry in China has received special treatment or special support, the answer is no.”

The US solar industry has struggled in recent months, with the high-profile collapse of US solar panel maker Solyndra in September dominating news headlines. Until filing for bankruptcy earlier this fall, the California-based company had been lauded in the US as an example of clean energy’s potential, receiving over US$500 million in a government guarantee that it may now be unable to repay.

Quickly falling prices as a result of Chinese solar panel imports have been blamed for Solyndra’s bankruptcy filing, along with the similar collapses of US companies Evergreen Solar and SpectraWatt.

The solar issue has particularly captured the attention of some US lawmakers, a few of which have already called upon the administration of US President Barack Obama to protect the solar industry and take a strong stance against so-called “unfair trade,” especially in the wake of the Solyndra incident (see Bridges Weekly, 19 October 2011).

Sino-US talks see progress on another clean energy front

Meanwhile, the US-China Joint Commission on Commerce and Trade (JCCT), which closed talks on 21 November in Chengdu, China, saw officials from both countries make headway on another clean energy front.

The US Commerce Department, in a statement after the joint event, outlined a plan by Chinese officials to invest US$1.5 trillion over the next five years in energy-saving, alternative energy, and other emerging technologies.

After the meeting of the joint commission, which was established in 1983 as an arena for discussing Sino-US trade and investment issues, US Commerce Secretary John Bryson noted that Beijing has pledged a “level playing field” for US and other suppliers in these industries.

Beijing would be providing foreign technology suppliers with equal access to the Chinese clean energy industry, Bryson added.

After the China-US high-level meeting, the Office of the US Trade Representative (USTR) also announced that China intends to manufacture one million new energy vehicles annually by 2015 and five million annually by 2020. Furthermore, the USTR noted, Beijing has pledged that it will not - nor does it currently - maintain measures mandating the transfer of technology for these vehicles.

Foreign producers of new energy vehicles will also be “eligible on an equal basis for subsidies or other preferential policies for [new energy vehicles] with Chinese enterprises, and that these subsidies and preference programmes will be implemented in a manner consistent with WTO rules,” the USTR’s office explained.

ICTSD reporting; “China solar industry rejects US anti-dumping probe,” AFP, 29 November 2011; “Chinese solar companies reject US trade complaint,” ASSOCIATED PRESS, 29 November 2011; “US envoy: China promises clean energy access,” ASSOCIATED PRESS, 22 November 2011; “China to probe US clean energy subsidies,” FINANCIAL TIMES, 25 November 2011; “Now China to probe US renewable energy support,” REUTERS, 25 November 2011.

The past two weeks have seen the US and China spar openly over Washington’s push for a standalone deal on environmental goods and services (see Bridges Weekly, 2 November 2011), with the US’ attempts to get its Asia-Pacific Economic Cooperation (APEC) partners on board for such a deal drawing scepticism from China.

On Monday, Chinese Assistant Foreign Minister Wu Hailong told reporters that, while the US’ other APEC partners are taking a “fundamentally supportive” attitude to Washington’s green growth proposals, the “expectations for outcomes are too high and beyond the reach of members from developing countries.”

The US is proposing that countries lower tariffs on environmental goods to five percent by the end of 2012 and cut their energy intensity, or energy consumption per unit of gross domestic product (GDP), to 50 percent of 2005 levels by 2035.

China Assistant Commerce Minister Yu Jianhua told reporters that the list of 153 green goods and services that Washington has tabled already face tariffs of only 1.4 percent in the US, versus the nearly seven percent seen in China. The US’ proposal would thus require Beijing to make a greater-sized tariff cut than Washington to meet the five percent goal.

In response, US Trade Representative (USTR) Ron Kirk told reporters in Washington on Monday that, while he understood China’s concerns, the US is “always going to try to push the envelope and encourage our partners to be more assertive, more forward thinking.”

The US proposal also drew support from Asia-Pacific business executives on Tuesday 8 November. Deb Henrietta, the chair of the 63-person APEC Business Advisory Council (ABAC) urged that such a pact is “something that’s going to be needed for the planet and every economy is going to have start looking at how we all work together to produce goods and services that are a little bit more environmentally friendly.”

The group will be meeting with US President Barack Obama, Chinese President Hu Jintao, and other leaders on Sunday to discuss the proposed green trade pact and other issues pertaining to business in the APEC economies.

Sino-US trade tensions have been running high in recent months, whether in the form of disagreements on China’s valuation of its currency, allegations that China has not sufficiently notified the WTO of its clean energy subsidy programmes, or disputes at the global trade body.

Charles Collyns, assistant US Treasury secretary for international finance told reporters on Monday 7 November that the US intends to push China at the APEC gathering to allow its currency to strengthen more rapidly, following a commitment Beijing made on the subject at last week’s G-20 summit in Cannes, France (see related article in this issue).

Another potential trigger for disagreements between Washington and Beijing at the summit could be the US Commerce Department’s decision today to launch an investigation into allegations that Chinese solar panels are undercutting US prices and hurting businesses (see related article in this issue).

Proposed Trans-Pacific accord expected to take centre stage

The nine countries currently involved in the Trans-Pacific Partnership (TPP) negotiations are also expected to meet on the sidelines of the APEC summit. The countries currently involved in the TPP talks are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the US, and Vietnam - all members of APEC.

TPP negotiators completed their ninth round of negotiations in Lima, Peru last month, and reportedly made progress in the areas of small and medium-sized enterprises, regulatory coherence, competitiveness, and development (see Bridges Weekly, 2 November 2011). However, areas such as intellectual property rights and market access still needed more work.

The pact, which US President Barack Obama has termed a “21st century agreement,” has long been the subject of criticism from NGOs, which have questioned whether the deal’s potential IP provisions might not be relaxed enough to improve access to medicines. Pro-labour activists have also spoken out over the TPP negotiations in the past, calling for the agreement to include pro-labour safeguards.

Kirk told Bloomberg on Monday that the subjects of labour rights and environmental standards are likely to be the toughest to sort through.

Many will be watching closely to see whether Japan will join the nine-country talks at the APEC summit. Prime Minister Yoshihiko Noda has indicated in recent weeks an interest in joining the negotiations, despite facing opposition from the Japanese farming industry. Critics worry that farmers may struggle to remain competitive should Japan join the pact, as doing so would require losing the country’s high import tariffs on such products.

Recent reports suggest that Noda will try to make the case for Japan joining the trade negotiations at a press conference tomorrow. While Japan’s business sector and manufacturing industry have expressed support for the move, the country’s ruling party remains divided on the issue.

The subject of state-owned enterprises (SOEs) is also expected to feature at the TPP talks. The US tabled a draft text on SOEs last month that would impose stricter rules on such enterprises, specifically by ensuring that these firms do not benefit from subsidies that private firms are ineligible for. The move prompted a particularly strong reaction from Vietnam, which argued that there was no need for specific provisions for SOEs. The country’s top negotiator also stressed that Vietnam’s SOEs are already in line with WTO rules.

Alluding to Vietnam’s concerns over the US’ proposals, Ron Kirk told reporters in Washington that, despite possibly not reaching their highest goals, the “[US has] not been bashful about putting those issues, and why they are important to our economy, on the table.”

The SOE proposals have also made it seem less likely that China will seek to join the trade pact, seeing as many of its companies are state-owned or contracted.

Assistant Minister of Commerce Yu told reporters earlier this week that China had not been invited by any party to join TPP talks, while urging that the process be made more open and less exclusive.

More information

The 21 members of APEC are Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, South Korea, Chinese Taipei, Thailand, the US, and Vietnam.

ICTSD reporting; “Ahead of APEC, Japan debates Pacific trade bloc,” ASSOCIATED PRESS, 8 November 2011; “US to Push APEC Trade Agenda China Calls Overly Ambitious,” BLOOMBERG, 8 November 2011; “US To Urge China At APEC To Allow Yuan To Strengthen More Quickly-Official,” DOW JONES NEWSWIRES, 7 November 2011; “APEC business advisers urge push on green trade pact,” REUTERS, 9 November 2011; “China says US APEC goals too ambitious,” REUTERS, 7 November 2011; “China Criticizes US Agenda for APEC Summit,” WALL STREET JOURNAL, 7 November 2011.

Beijing had specifically challenged the EU’s anti-dumping calculation method for non-market economies. Brussels denies Sino-based producers individual treatment during anti-dumping investigations, instead defining and applying duties for the economy as a whole. This stands in stark contrast to common practice for market economies and can result in considerably higher identified dumping margins. The panel ruling backed China on this main claim, but dismissed others.

In an emailed statement to Bridges, China welcomed the ruling: “China is appreciative of the fact that the Panel has reinforced its prior findings that the EU’s practice of individual treatment is inconsistent with WTO law.”

“The decision is a contribution towards consolidating the rules-based system that all WTO members have pledged to foster,” China added.

Beijing had argued that the denial of individual treatment violated the WTO’s principle of non-discrimination, as market economies automatically receive this preferential treatment.

Beijing had further criticised the EU’s methods for original investigations and expiry reviews - two other regular stages of anti-dumping investigations - as well as the application of WTO transparency rules. The report, however, rejected these secondary claims.

“The panel rejected almost all of the claims advanced by China,” EU Trade Spokesman John Clancy commented.  The three experts considered such investigations “to be legal under WTO law, with the exception of a few issues.”

In the eyes of the EU, the case does not have any direct implications. “Even with respect to individual treatment claims, the EU faces no implementation obligations, as the anti-dumping duties on Chinese footwear expired on 31 March 2011,” Clancy said.

Nonetheless, Beijing sees merit in the partial victory. “We expect that the European Union will not repeat the violations of the Anti-Dumping Agreement and will fully comply with regard to the individual treatment practice,” China said.

Shoe duties controversial even within EU

The duties had created substantial discomfort both with China and among some of the EU’s own member states. Brussels’ actions had been supported by footwear producing nations such as France, Italy, Poland, Portugal, and Spain, but were rejected by nearly half of the 27-member bloc’s states.

Domestic footwear producers had complained that they could no longer compete with cheap imports from China. But internationally producing companies, footwear importers, and European retailers saw the measures as adversely affecting their businesses. The European Footwear Alliance (EFA), representing several big shoe manufacturers including Adidas, Clarks, and Timberland, openly supported China’s case.

“Ironically, the measure hurts European business and consumers the most,” EFA had stated in 2010 when China initiated the dispute. “The EU’s decision [...] was based on a very questionable investigation and a flawed analysis of the economic facts,” the group explained at the time (see Bridges Weekly, 10 February 2010).

The EFA is now demanding compensation payments from the EU for the anti-dumping duties that have been collected impermissibly over the last five years. The direct applicability of WTO rulings for EU businesses and consumers, however, has been previously denied by the European Court of Justice. Also, WTO law does not provide for compensation payments.

This is the second case brought by China against the EU at the WTO. Last July, the Appellate Body ruled in favour of China in a similar case concerning anti-dumping measures on iron and steel fasteners from China. Both countries now have 60 days to appeal to the Appellate Body.

ICTSD reporting; “China and EU set for WTO clash over shoes,” EU OBSERVER, 4 February 2010; “WTO largely backs China over EU in shoe dumping case,” REUTERS, 28 October 2011.