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ELEVENTH GNLU INTERNATIONAL MOOT COURT COMPETITION 2019

IN THE WORLD TRADE ORGANIZATION PANEL

OXYONIA: MEASURES CONCERNING IMPOSITION OF EXPORT DUTIES ON

BATTERY GRADE COBALT.

WT/DSxxx

CLIMATIA
(COMPLAINANT)

v.

OXYONIA
(RESPONDENT)

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1. THE EXPORT DUTIES IMPOSED ON EXPORTS OF, INTER ALIA,

BATTERY-GRADE COBALT EXPORTED FROM OXYONIA ARE A FORM OF
"INCOME OR PRICE SUPPORT IN THE SENSE OF ARTICLE XVI OF GATT 1994"

The Export Duty imposed by the government of Oxyonia is price support under the
provisions of Article XVI of GATT 1994 and has harmful effect on normal commercial
business of Climatia and hinders the achievement of the objectives of General
Agreement.
1.1 THE EXPORT DUTY IS A PRICE SUPPORT UNDER ARTICLE XVI

Article XVI of the GATT 1994 articulates that any form of income or price support by any
member of the WTO which directly or indirectly results in increase in exports of any product
from or reduction of import of any product into its territory shall be notified to other members
along with its extent, nature, effect and necessary circumstances leading to its implementation.
Further, in any case in which it is determined that serious prejudice to the interests of any other
member is caused or threatened by any such subsidization, the member granting the subsidy
shall, upon request, discuss with the other member(s) concerned, or with the members, the
possibility of limiting the subsidization.

In terms of Article XVI of the General Agreement on Tariffs and Trade 1 “income or price
support”, means that the income or price support measure introduced by the government must
operate to increase exports of the subsidized product or to decrease imports of similar products.
It is submitted that in the present matter, the 50% export duty imposed by Oxyonia on the
export of refined cobalt is a form of price support to Greeno. Due to the imposition of the export
duty, GRMM, the only manufacturer of refined cobalt in Oxoynia entered into a long-term
agreement to supply refined battery grade cobalt to Greeno pursuant to which Greeno would
source all of its cobalt requirements from GRMM. Greeno was able to buy cobalt from GRMM
at prices 30-40% lower than current world market prices. GRMM had to provide at low prices
as due to imposition of export duty, it would not be able to sell its product in the international
market at competitive prices.

Thus, the export duty constitutes a price support by the government as due to this levy,
Greeno was able to source its cobalt at significantly lower prices than before the levy.
This resulted in Greeno selling its cars at competitive prices in international market
thereby increasing its exports.

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1.2 THE PRICE SUPPORT RESULTS IN INCREASE OF EXPORTS

The price support in the form of export duty resulted in the increase in export of electric cars
manufactured by Greeno. In September,1948 a working party established by GATT members
determined that the term ‘increased export’ under Article XVI was intended to include the
concept of maintaining exports at a higher level than would otherwise exist in the absence of
the subsidy. A Panel on Subsidies2 established in 1958 concluded that it is not sufficient to
consider increased exports in a historical sense, but rather what would happen in the absence
of the subsidy. The Panel considered it fair to assume that a subsidy which provides an
incentive to increased production will, in the absence of offsetting measures, either increase
exports or reduce imports.

It is submitted that in the present matter, the export of electric cars manufactured by Greeno
have doubled in the period between 2039 and 2042, that is, the immediate period after
imposition of export duty. Greeno is buying cobalt from GRMM at a price 30-40% lower than
the prices it paid before the imposition of export duty. These prices are also 30-40% lower than
the world market prices. This is so because, GRMM is forced to sell refined cobalt to Greeno
at low prices due to the duty as proved above. Due to decrease in the production cost by way
of cheaper cobalt, Greeno is able to increase its exports in international market. Thus, it is fair
to conclude that in the absence of price support by way of export duty, Greeno would not get
cobalt at low prices and thus would not have been able to unduly increase its exports. Hence,
this price support led to increase in exports by Greeno.

1.3 THE PRICE SUPPORT IS TO THE PREJUDICE OF CLIMATIA

In US- Upland Cotton3, the Panel agreed that it is not necessary to develop a fixed interpretation
of the outer parameters of what may constitute 'serious prejudice ' to the interests of another
Member within the meaning of Article 5(c) of the SCM Agreement. The Panel believed that in
reference to effect-based situations identified in sub-paragraphs of Article 6.3, and the
reference in the chapeau of Article 6.3 to serious prejudice 'in the sense of ' Article 5(c), 'serious
prejudice ' may involve the effects of subsidies on the complaining Member's trade in a given

1
General Agreement on Tariffs and Trade (1994), 15 April 1994, 1867 U.N.T.S 187, 33 I.L.M. 1153 (entered into
force 15 January 1995) [hereinafter GATT 1994].
2
Note by the Secretariat, AG/W/4, page 22
3
Panel Report, United States - Subsidies on Upland Cotton, WT/DS267/R, (September 8, 2004).

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product. That is, it addresses the volumes and prices and flows of such trade, which may, by
logical extension, affect a producing Member's domestic production of that product. The Panel
therefore considered that a detrimental impact on a complaining Member's production of,
and/or trade in, the product concerned may fall within the concept of 'prejudice ' in Article 5(c)
of the SCM Agreement. In the current situation, FuturZ, only electric car manufacturer in
Climatia, was not able to import battery-grade cobalt GRMM and due to rising international
prices, its cost of production rose, harming its production and market.

The Panel in Korea – Commercial Vessels 4acknowledged that serious prejudice is an entirely
different concept from injury and it explained that the former rather than having to do with the
condition of a particular domestic industry within the territory of a Member, has to do in the
first instance with negative effects on a Member's trade interests in respect of a product caused
by another Member's subsidization such as lost import or export volume or market share in
respect of a given product, adverse price effects, or some combination thereof, in variously
defined markets.

In the present matter, the Export duty imposed by Oxyonia seriously prejudiced the interest of
Climatia as per Article 6.3(b) of the SCM which talks about a subsidy having the effect of
displacing or impeding the export of a like product of another Member. Consequential to
imposition of duty, Greeno was able to source refined cobalt at prices 30-40% cheaper than
world prices and hence, was able to double its exports. At the same time, Futurz, the electric
car manufacturer headquartered in Climatia, was unable to source its cobalt at competitive
prices. Also, due to majority of cobalt concentrates being exported to Oxyonia, there has been
an increased demand and reduced supply of cobalt concentrates, there has been increase in the
price of refined cobalt in the world market. This seriously hampers Futurz’s export of electric
cars due to high prices. As per the Panel in US – Upland Cotton 5(Article 21.5 – Brazil) this is
sufficient to determine serious prejudice. It agreed that serious prejudice exists once the
conditions set forth in Article 6.3(a)-(d) are fulfilled: "Article 6.3(c) of the SCM Agreement
provides that 'serious prejudice in the sense of paragraph (c) of Article 5 may arise in any case
where one or several of the following apply '. (emphasis added). The Panel considers that this
phrase must be interpreted to mean that 'the situations listed in Article 6.3(a)-(d) in themselves
constitute serious prejudice '. As a consequence, a finding of significant price suppression

4
Panel Report, Korea - Measures Affecting Trade in Commercial Vessels, WT/DS273/R,( March 7, 2005).
5
Panel Report, United States - Subsidies on Upland Cotton - Recourse to Article 21.5 of the DSU by Brazil,
WT/DS267/RW, (December 18, 2007).

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under Article 6.3(c) of the SCM Agreement is a sufficient basis for a finding of serious prejudice
within the meaning of Article 5(c) of the SCM Agreement.”

The above submissions prove that the Export Duty imposed by Oxyonia is a form of ‘income
or price support’ as per provisions of Article XVI of GATT.

2. THE POLICY OF EXPORT DUTY IS INCONSISTENT WITH ARTICLE 3.1(b)

OF SCM AGREEMENT.

It is humbly submitted that the export duty of 50% on exports of refined cobalt imposed by
government of Oxyonia was in violation of article 3.1(b) of the SCM Agreement, where
subsidy contingent on, whether solely or as one of several other condition, upon the use of the
domestic over imported goods. The respondent provides for subsidy namely contingent upon
the use of refined cobalt produced the GRMM refinery over such cobalt being imported from
other countries. The Government of Oxyonia imposed a 50% export duty on prices of refined
cobalt which has an adverse effect on the Climatian economy.

2.1 The “use” of “domestic goods” over “imported goods”.

Since the word “use” hasn’t been defined in the SCM agreement, the Appellate Body
interpreted its meaning in US-Carbon Steel6 as an act of consuming a good in the process of
manufacturing. Further in US-Tax incentives7, the Appellate Body defined “domestic goods”
as goods originating within the relevant Member's territory and “imported goods” as goods that
cross the border into that Member's territory. In the instant case, refined cobalt produced by
GRMM, is the domestic good and the imported goods are refined cobalt from other countries.
The term use applies as the refined cobalt is a good being used in the process of manufacturing
of the lithium-ion batteries.

2.2 De facto contingency.

It is humbly submitted that the Appellate Body interpreted Article 3.1(b) of the SCM
Agreement to cover contingency both in law and in fact. 8 Further, the Appellate Body in US-

6
Appellate Body Report, United States - Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat
Products from India, ¶ 4.374, WT/DS436/AB/R, (December 08, 2014).
7
Appellate Body Report, United States - Conditional Tax Incentives for Large Civil Aircraft, ¶ 5.10,
WT/DS487/AB/R, (September 04, 2017).
8
Appellate Body Report, Canada - Certain Measures Affecting the Automotive Industry, ¶ 143, WT/DS139/AB/R;
WT/DS142/AB/R, (May 31, 2000).

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Tax incentives 9stated that a subsidy would be contingent upon the use of domestic over
imported goods "if the use of those goods were a condition, in the sense of a requirement, for
receiving the subsidy". The Appellate Body has found "contingent" to mean "conditional" or
"dependent for its existence on something else".10 Further, the Appellate Body in EC and
certain other member- Large Civil Aircraft explained that “de facto” contingency under Article
3.1(b) should be objectively assessed with respect to the total configuration of facts constituting
and surrounding the granting of the subsidy which include (i) the design and structure of the
measure granting the subsidy; (ii) the modalities of operation set out in such a measure; and
(iii) the relevant factual circumstances surrounding the granting of the subsidy.11
In the instant case, in 2038, the Government of Oxyonia proposed to impose a 50% export duty
on exports of refined cobalt, including battery grade cobalt. In a subsequent public hearing, the
Finance Minister of Oxyonia clearly mentioned that the imposition was merely a proposal and
that it would not take any action against the interests of GreenO. With the government
facilitating the agreement, GreenO entered into a long-term supply agreement with GRMM for
supply of refined cobalt at prices 30-40% lower than the world prices after the imposition of
export duty. Due to the imposition of the export duty, GreenO sourced its entire requirement
of battery grade cobalt from GRMM for its current need and future expansion plans. The action
resulted in it replacing imported refined cobalt with domestically-produced refined cobalt
supplied by GRMM at lower rates. This was contingent on the fact that if GreenO had not
entered into the agreement with GRMM, export duties wouldn’t have been imposed and
consequently GreenO would not have received refined cobalt at such lower prices. Therefore,
the Government of Oxyonia had taken economic measures that resulted in providing a subsidy
to GreenO by the way of a contract with GRMM which was de facto contingent on the use of
domestic over imported goods/

2.3 The subsidy is “specific” under Article 2.3 of the SCM Agreement.
Article 1.2 of the SCM Agreement states that: "a subsidy as defined in Paragraph 1 shall be
subject to the provisions of Part II or shall be subject to the provisions of Part III or V only if
such a subsidy is specific in accordance with the provisions of Article 2". 12The subsidy is

9
Supra Note.2.
10
Appellate Body Report, Canada – Measures Affecting the Export of Civilian Aircraft, ¶ 139, 166,
WT/DS70/AB/R (August 20, 1999); Appellate Body Report, United States – Tax Treatment for Foreign Sales
Corporations (Article 21.5 – EC), ¶ 111, WT/DS108/AB/RW (January 14, 2002).
11
Panel Report, European Communities and Certain Member States - Measures Affecting Trade in Large Civil,
¶ 6.778, WT/DS316/AB/R, (May 18, 2011).
12
SCM Agreement, Article 1.2.

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specific as Article 2.3 of SCM Agreement states that any subsidy falling under the provisions
of Article 3 shall be deemed to be specific.13 The subsidies provided by the Government of
Oxyonia are prohibited subsidies under Article 3.1(b) of the SCM Agreement and, therefore,
are deemed to be specific pursuant to Article 2.3 of the SCM Agreement.

13
SCM Agreement, Article 2.3.

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