China-US lock horns at the WTO, yet again

Tit for tat season at the WTO dispute settlement? September 17th saw two cases for request for consultations:

1.The United States notified the WTO Secretariat of a request for consultations with China on “China’s measures providing subsidies such as grants, loans, forgone government revenue, the provision of goods and services and other incentives contingent upon export performance to automobile and automobile-parts enterprises in China”.The details of the nascent dispute are found here. 

2.China notified the WTO Secretariat of a request for consultations with the United States on countervailing and anti-dumping measures applied to a wide range of products exported by China to the US. Among the products cited by China, affected by the measures, are paper, steel, tyres, magnets, chemicals, kitchen appliances, wood flooring, and wind towers. Further information will be available within the next few days in document WT/DS449.

The United States and China continue to play out their trade wars at the WTO. After the China Electronic Payments case, Mineral export restrictions case, the U.S. has taken on the alleged subsidies in the automobile sector. China is likely to request for consultations against alleged US subsidies to renewable energy programs.

Stewart and Stewart has done this study on the Chinese automobile sector that outlines the support given by the Chinese State to its automobile sector. How much of it violates the WTO Agreements, especially the ASCM, requires a thorough legal analysis. The study concludes:

"Many nations view their automotive sectors as economically and politically important, and support those industries through an array of government policies. In the case of China, however, these policies appear to be preying on other countries’ industries and violating China’s international trade obligations. When China joined the WTO, it committed to eliminate domestic content requirements and other programs that discriminate against imports, cease forced technology transfers, terminate export subsidies, and limit export restrictions. This report reveals that such practices continue to be routine in China’s automotive sector. Not only are such requirements still on the books and implemented in practice, China has recently proposed expanding such policies to cover new-energy vehicles and parts. These policies have fueled a massive increase in China’s vehicle and parts production and its rising exports to the rest of the world. If these policies intensify under the 12th Five-Year Plan, the effects will be felt not only in China, but in the United States and other automotive markets around the world."

Surcharged times at the WTO dispute settlement mechanism.  

Will Russia be challenged at the WTO? Recycling fee, automobiles and discrimination

In what could be the first WTO dispute against Russia since its recent entry into the multilateral trading body, the Russian legislation imposing a "recycling fee" on automobiles is causing considerable disquiet with its trading partners. The move has irked Ukraine and the EU and the possibility of a trade dispute has been reported here and here.Russia's entry into the WTO led to the reduction of import tariffs on automobiles considerably. This, critics say, has led to the imposition of this "recycling fee" in an apparent bid to "protect" domestic production of automobiles. An analysis of the impact WTO entry would have on Russia is found here.

What does the Russian measure entail? Though I could not lay my hands on the actual legislation, a newsletter provided me with sufficient details. The Russian law in question is the Federal Law of the Russian Federation No. 128-FZ “On Amending the Federal Law “On Production and Consumption Wastes” and the "Recycling Duties Regulation" that essentially came into effect on September 1st, 2012. This law provides for establishing recycling duties which are payable in respect of cars "imported" into or "manufactured" in Russia.

As the newsletter explains:

"Scope 

According to the Draft the duty shall be payable for wheeled vehicles of categories “M” and “N” in respect of which vehicle registration certificates are issued. 

The following persons shall be recognized as payers of the duty:

• the persons importing vehicles to Russia;
• the persons manufacturing (producing) vehicles in Russia;
• the persons acquired vehicles in Russia from those persons who did not pay the recycling duties on the grounds specified in the law or the persons failed to pay such duties in breach of the established procedure."

Thus, the recycling duty is applicable to both "imported" goods as well as "locally manufactured" goods. However the draft rules also provide that the duty would not be need to be paid in cases, inter alia, where it is "manufactured (produced) by the organizations voluntarily undertook to ensure safe recycling of the manufactured vehicles". The duties shall also not be paid in cases where the automobiles are "imported to Russia from the territories of the Customs Union member states and enjoying status of goods manufactured in the Customs Union: (i) released in the Republic of Belarus (further, the “RB”) or in the Republic of Kazakhstan (further, the “RK”) for domestic consumption with duties payable at the rates that differ from those established by the Common Customs Tariff, or (ii) manufactured in the RB or RK if manufacturing organizations assume obligations similar to those recycling obligations that were assumed by Russian manufacturers".

Do these exceptions bring into play the national treatment and Most favored Nation principles of the GATT? Are they violated? Are domestic manufacturers of automobiles favored here? Are imported vehicles treated "less favorably" than locally produced automobiles? If local manufacturers voluntarily undertake to recycle as per the regulations they are exempt from paying the recycling duty. Does this discriminate against imported products? WIll the measure be protected under the general exception clause of Article XX GATT as it has the objective of protecting the environment?

Whether this would erupt into Russia's first full blown WTO dispute is anybody's guess. It signifies that entry into the multilateral trading system has a cost - one's domestic legislation is open to scrutiny for being discriminatory and protectionist. What Russia could do a few months back in terms of protecting its local manufacturers with higher import tariffs or additional duties is no longer existent if it violates the principles and commitments under GATT. One would have to wait and see how Ukraine and EU proceed on this matter.