Course Assignment

Date: 2021.06.24

Case analysis
China - Measures Related to the Exportation of Various Raw Materials
WT/DS394/395/398

Summary of facts:
States including US, EU, Canada, Mexico and etc. started proceedings in the
WTO dispute resolution body, claiming against China’s 32 export restrictions on
certain raw materials in 2009.

Articles concerned:
China’s accession protocol 11.3:
China shall eliminate all taxes and charges applied to exports unless specifically
provided for in Annex 6 of this Protocol or applied in conformity with the provisions
of Article VIII of the GATT 1994.

GATT Article XI*

General Elimination of Quantitative Restrictions
1. No prohibitions or restrictions other than duties, taxes or other charges,
whether made effective through quotas, import or export licences or other measures,
shall be instituted or maintained by any contracting party on the importation of any
product of the territory of any other contracting party or on the exportation or sale for
export of any product destined for the territory of any other contracting party.

GATT Article XX
General Exceptions:
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on international
trade, nothing in this Agreement shall be construed to prevent the adoption or
enforcement by any contracting party of measures:
(g) relating to the conservation of exhaustible natural resources if such measures
are made effective in conjunction with restrictions on domestic production or
consumption
Two legal issues to be focused on here:
1. Is China entitled to resort to Article XX of the GATT to justify export duties that
are inconsistent with Paragraph 11.3 of China's Accession Protocol?

Panel:
1) WTO Members' accession protocols are integral parts of the WTO
Agreement.
2) There is no general exceptions in the WTO Agreement, and that each of the
covered agreements provides its own "set of exceptions or flexibilities" applicable to
the specific commitments in each agreement

3) In China – Publications and Audiovisual Products, the availability is confirmed

through interpreting the language contained in the introductory clause of Paragraph
5.1 of China's Accession Protocol – "without prejudice to China's right to regulate
trade in a manner consistent with the WTO Agreement" – to mean that the
justifications of Article XX of the GATT 1994 were incorporated.

4) By comparison, paragraph 11.3 of China's Accession Protocol does not include

any
express reference to Article XX of the GATT 1994, or to provisions of the GATT
1994 more
generally.

5) In conclusion, the deliberate choice of language providing for exceptions in

Paragraph 11.3, together with the omission of general references to the WTO
Agreement or to the GATT 1994, suggest to us that the WTO Members and China did
not intend to incorporate into Paragraph 11.3 the defences set out in Article XX of the
GATT 1994.

6) China is in a position unlike that of most other WTO Members who are not
prohibited from using export duties, either via the terms of their respective accession
protocols or their membership to the WTO at the time of its inception.

AB:
A proper interpretation of Paragraph 11.3 of China's Accession Protocol does not
make available to China the exceptions under Article XX of the GATT 1994.

2. Were Article XX to be invoked as a defense, can China’s application of duties to

these raw materials be justified pursuant to Article XX(g)?

Panel:
1) US – Gasoline and confirmed in Brazil – Retreaded Tyres, in order to be
justified under Article XX, "… the measure at issue must not only come under one or
another of the particular exceptions – paragraphs (a) to (j) – listed under Article XX;
it must also satisfy the requirements imposed by the opening clauses of Article XX.

2) US – Gasoline ruled that a measure was "relate[d] to" conservation if there was
a substantial relationship between the export measures and conservation, and "that a
measure must be 'primarily aimed at' the conservation of exhaustible natural resources
in order to fall within the scope of Article XX(g)".

3) China's right to economic development and its sovereignty over its natural
resources are not in conflict with China's rights and obligations as a WTO Member.
PCIJ's consideration of the principle in the case on Jurisdiction of the European
Danube Commission between Galatz and Braila (1927): "restrictions on the exercise
of sovereign rights accepted by treaty by the State concerned cannot be considered as
an infringement of sovereignty".

4) Restrictions on domestic production or consumption must not only be applied

jointly with the challenged export restrictions but, in addition, the purpose of those
export restrictions must be to ensure the effectiveness of those domestic restrictions. It
requires both the export restrictions and the related domestic restrictions operate at the
same time.

5) In order for a measure to be justified under Article XX(g), the measure must
satisfy two conditions: (i) it must relate to the conservation of an exhaustible natural
resource; and (ii) it must be made effective in conjunction with restrictions on
domestic production or consumption.

AB:
China requests the Appellate Body to reverse the erroneous second element of the
Panel's interpretation:
We find that the Panel erred in interpreting the phrase "made effective in
conjunction with" in Article XX(g) of the GATT 1994 to require a separate showing
that the purpose of the challenged measure must be to make effective restrictions on
domestic production or consumption.

Reflection on the analysis：

1.The DSB’s application of the interpretating rules under the VCLT deserves
attention.

The result that both the panel and the Appellate Body rejected China’s claim that
Art.20 of the GATT can be invoked for justifying the imposition of import duties on
those concerned raw materials is astonishing, especially when viewed under the
background of the case “Chinese Publications and Audiovisual Products Case”. In
that case, some words in Article 5, paragraph 1 of the Protocol enabled the Appellate
Body to confirm the “indirect relationship” between the Protocol and GATT, which
is, however, not the case in the present instance. As can be observed, the
interpretation of Art.11.3 here given by the DSB demonstrated strict observance to the
VCLT rules.
When determining whether Art.11.3 contained implicit reference to the general
exceptions under GATT, the DSB followed the primary rule of interpretating
provided by Art.31 of the VCLT, that is, to explain in accordance with the treaty’s
ordinary meaning with context. By looking close at its wording, the DSB found that
there is no explicit reference to GATT in Art.11.3 as that appeares in the first two
paragraphs under Art.11, thereby drawing the conclusion that it is an intentional
arrangement of the contracting parties to make such differentiation.
Although it seems that such interpretation has considered the “context” of the
protocol, this contextual examination is somewhat formalistic, with insufficient
attention paid to the substantial context of WTO agreements holistically. Pursuant to
the VCLT, the preamble and annexes of the treaty, and even all other relevant rules of
international law applicable to the parties shall be considered. Besides, export tax, as
an export restriction measure, is actually even more transparent than quantitative
restrictions. If WTO members are allowed to invoke Article 20 of GATT to defend on
export quotas and licenses, then it is unreasonable not to not allow members to invoke
Article 20 of GATT to justify on export tariffs issue. Therefore, if Art.11.3 is
construed to be posing China an absolute obligation to stop export duties of any form
without “general exceptions”, then it would definitely exert great harm to the inherent
spirit of the WTO, that is, to seek balance between free trade and the regulatory rights
of sovereign states on trade.
For China, it is unexpected that the Panel would confirm that “China is in a
position unlike that of most other WTO Members who are not prohibited from using
export duties.” It is undeniable that China has taken on more undertakings than other
member by its accession protocol, but even so it is unreasonable to make such
conservative interpretations to deprive China’s right of invoking general exceptions.
By contrast, for the complaints, strict adherence to the text of the protocol and the
recognition of a stricter obligation tallied with their taste. It reminds me of one of the
main attacks the US launched to the AB in its repeated denouncement ---- its
overmuch use of judicial initiative. Indeed, such an interpretation can get the DSB rid
of accusations of being too proactive, but it surely broke the balance reached by
negotiating parties and damaged the overall predictability and security of international
trade system.

2. The wording of treaties, declarations or domestic documents shall be rigorously

phrased to show real intention and avoid ambiguity.
 Although we may disagree with the narrow interpretation implemented by the
panel and the appellate body in this case, we shall still pay great attention that it is the
ambiguity and inconsistency in the texts of China’s protocol that lead to the failure.
Though it is understandable that too much emphasis on the authorization of
exceptions may make the accessing negotiations harder at the very beginning, to
enhance the clarity of expressions is still of great importance.
From the comparison of this case and the “Chinese Publications and Audiovisual
Products Case” case, a lesson could be learned that absolute expressions in the
description of obligations can be dangerous, and it can be really risky to count on the
DSB for making up for the ambiguity by making progressive interpretations. In other
words, it is difficult to make remedy for the content that is clearly missing in the text
through subsequent treaty interpretation. Therefore, firstly, and technically, we need
to consider the consistency between similar articles under the same title when drafting
treaties, thereby the DSB will not be misled by the divergence in wording and regards
it as a special arrangement. Secondly, and more profoundly, the capability of
predicting legal risks under the WTO system needs to be improved. More irregular
situations are predicted, the higher the quality of the drafts will be.

3. The unbalanced obligations taken between states with special commitment in

accession protocol and other states shall be moderated.

The concerning issue here is not simply on treaty interpretating, but it is also on
an institutional disadvantage of the WTO system.
As a matter of fact, the special character of China’s market had introduced those
so called “WTO plus” obligations, which are seen as the “admission fee” especially
designed for China. And practice has shown that China's "WTO obligations"
committed in the "Protocol" has become one of the main areas of complaints received
by China in the WTO.
Shortly after this case, with great courage, dominant countries started their
complaints on China’s rare earth before the DSB. The practices of countries as the US
and EU showed that on the one hand, they often adopt anti-dumping and
countervailing measures against export products in which China is competitive, while
on the other hand, they require China to increase exports of non-renewable resources,
implementing their “raw material imperialism”. With the worsening situation of crisis
on resource and energy, conflicts in this realm will certainly proliferate. The protocol
being effective, here then comes the problem to us: how can we bridge the gap
between our heavy undertakings and basic principles of the WTO system, and what
endeavor can we pay to further alleviate the negative impacts resulted from such a
gap.