Part I BACKGROUND
Chapter 5 An Analysis of China – Raw Materials
B. China’s and the Complainants’ Arguments
China contended that the violation can be justified by Art. XX(b) and (g) of the GATT.
For export duties on zinc, magnesium, manganese and coke, China asserted that such violation can be justified by GATT Art. XX(b) because the production process of those raw materials is highly-polluting and thus posts a threat to human, animal or plant life or health.255
249 Id. ¶ 7.71.
250 China’s AP, Note to Annex 6.
251 Id.
252 China – Raw Materials Panel Report, ¶ 7.63.
253 Id. ¶ 7.71
254 Id.
255 Id. ¶ 7.106; Executive Summary of the First Written Submission of China, China – Measures Related to the Exportation of Various Raw Materials, ¶ 15, WT/DS394/R/Add.1, WT/DS395/R/Add.1, WT/DS398/R/Add.1 (July 5, 2011) [hereinafter First Written Submission of China].
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Also, China argued that the imposition of export duties to fluorspar can be excused by GATT Art. XX(g), because fluorspar is an exhaustible non-renewable mineral resource.256
The complainants confronted this justification with the threshold question, i.e. the applicability of GATT general exceptions.257 The complainants asserted that GATT Art. XX cannot be an applicable defense because the text of Art. XX explicitly written that it can only be invoked to justify violation of the GATT.258 Additionally, the complainants contended that paragraph 11.3 does not make reference to or incorporate the GATT like paragraph 5.1 of the AP.259
Responding to complainants’ submissions, China advanced several arguments. Firstly, based on the AB report of China – Publications and Audiovisual Products, China asserted that it enjoys the inherent right to regulate trade in a manner consistent with the WTO Agreement and such right is not bestowed by any international treaties such as the WTO Agreement.260 China further argued that the text of paragraph 11.3 does not abandon the inherent right to regulate trade.261 Thus, China still retains the inherent right to regulate trade. In addition, China alleged that this is confirmed particularly by the Note to Annex 6, which authorizes China to depart from its commitments in paragraph 11.3 if there are exceptional circumstances. 262 In China’s view, the exceptional circumstances clause in the Note
256 China – Raw Materials Panel Report, ¶ 7.106; First Written Submission of China, ¶ 6
257 China – Raw Materials Panel Report, ¶ 7.108.
258 Id. ¶ 7.111.
259 Id.
260 Executive Summary of the Opening Oral Statement by China at the First Substantive Meeting, China – Measures Related to the Exportation of Various Raw Materials, ¶ 19, WT/DS394/R/Add.1, WT/DS395/R/Add.1, WT/DS398/R/Add.1 (July 5, 2011) [hereinafter Opening Oral Statement by China at the First Substantive Meeting].
261 Executive Summary of the Second Written Submission of China, China – Measures Related to the Exportation of Various Raw Materials, ¶ 12, WT/DS394/R/Add.1, WT/DS395/R/Add.1, WT/DS398/R/Add.1 (July 5, 2011) [hereinafter Second Written Submission of China].
262 Opening Oral Statement by China at the First Substantive Meeting ¶ 22.
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demonstrates that WTO Members recognize China still retains the inherent right to regulate trade via export duties to protect non-trade interests.263 Thus, China can exercise its inherent right embodied in GATT Art. XX.
Secondly, China contended that since the GATT, other covered agreements and the AP all form an integral part of the WTO Agreement, the policies enshrined in GATT Art. XX should apply to all goods-related obligations.264 China explained that with respect to trade in goods, the GATT, other covered agreements in Annex 1A and the relevant disciplines in the AP all from an inseparable package of rights and obligations and should be read in conjunction.265 China stated that Art. XX and XXI of the GATT, Art. XIV and XIV bis of the GATS and the entirety of the SPS Agreement and the TBT Agreement all reflect the basic principle in the WTO scheme that with respect to trade obligations, Members are not refrained from taking measures to promote fundamental societal interests recognized in the covered agreements.266 As a result, while assuming obligations under trade in goods, Members can exercise its inherent right to pursue non-trade interests as enshrined in GATT Art. XX.
Thirdly, China asserted that paragraph 170 of the Working Party Report incorporates GATT Art. XX.267 Under the heading of “Taxes and Charges Levied on Imports and Exports,”
paragraph 170 provides that China “ensures that its laws and regulations relating to all fees, charges or taxes levied on imports and exports would be in full conformity with its WTO obligations, including Articles I, III:2 and 4, and XI:1 of the GATT 1994.”268 China asserted that its export duties clearly fall under the heading and thus are within purview of this
263 Id.
264 Second Written Submission of China ¶ 14.
265 Id.
266 Opening Oral Statement by China at the First Substantive Meeting ¶¶ 19, 21.
267 China – Raw Materials Panel Report, ¶ 7.137.
268 Working Party Report, ¶ 170.
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paragraph.269 Moreover, the list is not exhaustive but rather illustrative as it uses the word
“including.”270 Hence, with respect to export duties, China assumes all obligations under the GATT, including its general exceptions.271 China also considered paragraph 170 resembles the introductory clause of paragraph 5.1 and therefore GATT Art. XX is incorporated into paragraph 170.272
C. WTO Dispute Settlement Body Reports
i. The Panel Report
Before assessing the merits of the present issue, the Panel took note of relevant background knowledge. The Panel firstly pointed out that to examine the applicability of GATT Art. XX, the understanding of the legal status of the AP within the WTO Agreement and especially the legal relationship between paragraph 11.3 of the AP and the other provisions of the WTO Agreement is crucial.273 Then, the Panel made its observations of the AB report of China – Publications and Audiovisual Products and significantly, the Panel found that the AB of China – Publications and Audiovisual Products did not discuss the systemic relationship between the obligations in the AP and those in the GATT, within the WTO Agreement.274 Rather, the AB focused on the text of the provision of the AP, assessing the meaning of a particular term, together with the surrounding context and overall structure of the AP.275 Lastly, the Panel concluded from China – Publications and Audiovisual Products that GATT Art. XX is applicable provided that such defense is incorporated by way of
269 Second Written Submission of China, ¶ 13.
270 China – Raw Materials Panel Report, ¶ 7.132.
271 Second Written Submission of China, ¶ 13.
272 China – Raw Materials Panel Report, ¶¶ 7.133, 7.137.
273 Id. ¶ 7.116.
274 Id. ¶ 7.117.
275 Id.
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reference into the AP and thus forms a constituent part of the provision of the AP.276 Against this background knowledge, the Panel started with its assessment of the applicability of GATT Art. XX in justifying the breach of paragraph 11.3 of the AP.
The Panel firstly reviewed the ordinary meaning of paragraph 11.3 of China’s AP and concluded that GATT Art. XX is not incorporated into paragraph 11.3 of China’s AP.277 Guided by the AB report of China – Publications and Audiovisual Products, the Panel considered that GATT Art. XX is an available defense when it is incorporated in or referred to by the provision at issue, such as the introductory clause of paragraph 5.1 of China’s AP.278 The Panel noted that the text of paragraph 11.3 does not make reference to GATT Art. XX of the GATT or provisions of the GATT generally.279 Moreover, there is no introductory clause similar to the one in paragraph 5.1.280 The Panel found that the text of paragraph 11.3 provides its own set of exceptions, i.e. Annex 6 and GATT Art. VIII.281 The Panel believed that it is a deliberate choice of WTO Members and China to leave out GATT Art. XX because they could have mentioned or made reference to the WTO Agreement or the GATT in the AP.282 In the Panel’s view, this is especially true when paragraph 11.3 explicitly refers to GATT Art. VIII but leaves out GATT Art. XX.283 Thus, the Panel concluded that it is the common intent of the parties to exclude GATT Art. XX as a defense against violation of paragraph 11.3. For that reason, the Panel rejected China’s contention that paragraph 11.3 and the exceptional circumstances clause in the Note to Annex 6 can support the invocation of GATT Art. XX.
276 Id. ¶ 7.119.
277 Id. ¶¶ 7.121, 7.122.
278 Id. ¶ 7.124.
279 Id. ¶¶ 7.124, 7.129.
280 Id.
281 Id. ¶¶ 7.126, 7.129.
282 Id. ¶ 7.129.
283 Id.
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Next, the Panel turned to review the context provided by other provisions of China’s Working Party Report and rejected China’s interpretation of paragraph 170 of the Working Party Report to mean that GATT Art. XX is an available defense. The Panel first took note of paragraph 11.1 and 11.2 of the Working Party Report and observed that both paragraphs contain the wording “in conformity with the GATT 1994.”284 In contrast, paragraph 11.3 includes neither such phase, nor phrases like the introductory clause of paragraph 5.1.285 Also, if GATT Art. XX had been an intended defense, China and WTO Members could have made China’s export duties commitments an integral part of China’s commitments under the GATT.286 Yet, they did not choose to do so.287 Thus, the Panel concluded that this is a deliberate omission to exclude the applicability of GATT Art. XX.288 To further support this reading of paragraph 11.3, the Panel reinforced that GATT Art. XX would not apply because
“China’s export duties commitments arouse exclusively from China’s Accession Protocol.”289
The Panel further observed that paragraph 170 of the Working Party Report and paragraph 11.3 actually refer to two different obligations.290 On one hand, paragraph 170 regulates domestic taxes and charges levied on imports and exports and specifies specific GATT rules for such practices.291 On the other hand, paragraph 11.3 concerns taxes and charges only on exports and such obligations do not exist in the GATT.292 Rather, obligations under paragraph 11.3 relate to paragraph 155 and 156 of the Working Party Report under a
284 Id. ¶¶ 7.136-7.138.
285 Id. ¶ 7.138.
286 Id. ¶ 7.140.
287 Id.
288 Id. ¶ 7.138.
289 Id.
290 Id. ¶ 7.141.
291 Id.
292 Id. ¶¶ 7.141-7.142.
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different section because paragraph 155 and 156 have the same content as paragraph 11.3.293 Importantly, those paragraphs do not make reference to GATT Art. XX but they actually could have.294 Thus, the Panel refuted China’s argument that paragraph 170 of the Working Party Report enables GATT Art. XX as a defense.295
Lastly, the Panel looked into the context provided by other provisions of the WTO Agreements and concluded that GATT Art. XX is not an available defense. The Panel first noted that there is no general umbrella exception to all WTO agreements.296 For example, GATS provides its own set of general exceptions.297 Also, TRIPS, TBT and SPS contain their own exceptions and flexibilities.298 Thus, the Panel rejected China’s arguments that GATT Art.
XX can apply to all obligations concerning trade in goods. Then, the Panel observed that GATT Art. XX can be invoked only to justify a breach of GATT provisions as the text of Art.
XX sets out that nothing in “this agreement” should be construed to prevent the adoption or enforcement of a certain measure.299 In addressing the issue that whether GATT Art. XX can be invoked to justify a violation falling outside the scope of the GATT, the Panel mentioned that on occasion, GATT Art. XX can be invoked to justify a breach out of GATT violation provided the GATT or GATT Art. XX is incorporated, by cross-reference, into the other covered agreements.300 For example, GATT Art. XX is explicitly incorporated into the Agreement on Trade-Related Investment Measures (TRIMs Agreement).301 Thus, if GATT Art.
293 Id. ¶¶ 7.143, 7.145.
294 Id. ¶¶ 7.145-7.146.
295 Id. ¶ 7.148.
296 Id. ¶ 7.150.
297 Id. ¶ 7.153.
298 Id.
299 Id.
300 Id.
301 Id.
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XX had been intended to apply to paragraph 11.3, the incorporation would have been made.302 The Panel further specified that the legal basis for GATT Art. XX defense lies in the provision that incorporates GATT Art. XX, not in the Art. XX itself.303 In consequence, since China’s export duties obligations do not refer to GATT and there is no similar disciplines in the GATT, either, GATT Art. XX cannot find its way to justify violation of paragraph 11.3.304
Furthermore, the Panel rejected China’s assertion that it enjoys the inherent right to regulate trade.305 In the Panel’s view, the Panel recognizes Members’ inherent right to regulate trade and China has exercised its inherent right in negotiating the terms of accession and agreeing the export duties obligations in paragraph 11.3.306 Thus, China’s WTO obligations, including those in the AP, are the result of its sovereignty.307
In conclusion, the Panel stated that there is no legal basis for China to invoke GATT Art. XX considering the wording and the context of paragraph 11.3 of the AP.308 The Panel recognized that the export duties commitments assumed by China do not apply to any other WTO Members and the prohibition on the use of GATT Art. XX might create imbalance.309 Yet, based on the text and the relevant context, the Panel assumed that this is the common intention of China and WTO Members to preclude the application of GATT Art. XX.310
ii. The AB Report
302 Id. ¶ 7.154.
303 Id. ¶ 7.153.
304 Id. ¶ 7.154.
305 Id. ¶¶ 7.156-7.157.
306 Id. ¶ 7.156.
307 Id. ¶ 7.157.
308 Id. ¶¶ 7.158-7.159.
309 Id. ¶ 7.160.
310 Id. ¶ 7.160.
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On appeal, China submitted several arguments and requested the AB to find that GATT Art. XX is an available defense.311 Firstly, China argued that the exceptional circumstances clause in the Note to Annex 6 applies both to products listed in Annex 6 and those not listed.312 Also, the scope of the exceptional circumstances clause substantively overlaps that of GATT Art. XX.313 From this, China read that there is a shared intent of China and WTO Members that violation of export duties commitments can be justified by exceptional circumstances in GATT Art. XX.314 However, this assertion was disapproved by the AB. The AB stated that the Note to Annex 6 applies only to products listed in Annex 6.315 The Note sets out that “China confirmed that the tariff levels included in this Annex are maximum levels which will not be exceeded. China confirmed furthermore that it would not increase the presently applied rates, except under exceptional circumstances.”316 The AB interpreted the Note to mean that China may increase the presently applied rates on the products listed in Annex 6 provided that there is an exceptional circumstance.317 Also, the term “furthermore” in the second sentence of the Note suggests that the exceptional circumstances clause is a commitment that adds to the previous sentence, which provides that the tariff levels included in Annex 6 are maximum levels.318 In the present case, except for
311 Appellate Body Report, China – Measures Related to the Exportation of Various Raw Materials, ¶¶ 273-75, WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R (Jan. 30, 2012) [hereinafter China – Raw Materials AB Report].
312 Id. ¶ 282.
313 Id. ¶¶ 30, 282.
314 Id. ¶ 282.
315 Id. ¶ 284.
316 China’s AP, Note to Annex 6.
317 China – Raw Materials AB Report, ¶ 284.
318 Id. ¶ 287.
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yellow phosphorus, none of the materials fall under Annex 6.319 Accordingly, the AB denied China’s assertion that the Note to Annex 6 enables GATT Art. XX’s application.320
Secondly, China argued that GATT Art. XX is an available defense due to the reference to GATT Art. VIII in paragraph 11.3 of the AP.321 China explained that violation of export duties commitments indicates a breach of paragraph 11.3 and GATT Art. VIII and violation of GATT Art. VIII can surely resort to GATT Art. XX.322 Thus, China argued that the violation at issue can also be justified by GATT Art. XX. Relied on China – Publications and Audiovisual Products, China asserted that its right to resort to GATT Art. XX to justify violation of Art. VIII cannot be deprived because the complainants decide to raise this claim under paragraph 11.3. Also, China alleged that although Art. VIII does not directly regulate export duties, the reference to Art. VIII demonstrates that obligations under paragraph 11.3 is not absolute and unqualified.323 Yet, this claim was repudiated by the AB. Pointing to the text of GATT Art. VIII, the AB underlined that Art. VIII applies to all fees and charges other than export duties.324 Thus, export duties commitments fall outside the scope of GATT Art. VIII and violation of export duties commitments will not bring about any inconsistency with Art.
VIII.325 The AB further elucidated that under the context of paragraph 11.3 of the AP, GATT Art. XX can justify violation of GATT Art. VIII does not necessarily mean that GATT Art.
XX can justify violation unrelated to Art. VIII, such as export duties.326 Hence, looking into
319 Id. ¶ 282.
320 Id. ¶ 287.
321 Id. ¶ 289.
322 Id.
323 Id.
324 GATT art. III; China – Raw Materials AB Report, ¶ 290.
325 China – Raw Materials AB Report, ¶ 290.
326 Id.
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the reference of GATT Art. VIII in paragraph 11.3, the AB concluded that with respect to violation of export duties commitments, GATT Art. XX cannot be invoked.327
To further reinforce this conclusion, the AB examined the context of paragraph 11.3.328 As noted by the Panel, the AB made comparison between paragraph 11.1 and 11.2 and paragraph 11.3.329 The AB noted that paragraph 11.1 and 11.2 contain the phrase, in conformity with the GATT, and whereas paragraph 11.3 makes no such reference.330 In addition, the AB mentioned that the subject matters for paragraph 11.1, 11.2 and 11.3 are quite different.331 Paragraph 11.1 regulates “customs fees and or charges” in general and paragraph 11.2 refers to “internal taxes and charges.”332 In contrast, paragraph 11.3 regulates elimination of “all taxes and charges applied to exports” specifically.333 Given the different subject matters and nature of the obligations, the AB concluded that the absence of mentioning the GATT or GATT Art. XX in paragraph 11.3 leads to a reasonable assumption that GATT Art.
XX is not an intended defense.334 Moreover, considering the fact that export duties commitments arise exclusively from China’ AP, instead of the GATT, the AB found it reasonable to assume that China and WTO Members could have referenced to GATT Art. XX if such defense had been intended.335 Accordingly, the AB found support in the context of paragraph 11.3 for its conclusion that GATT Art. XX is not an applicable defense in the present case.
327 Id. ¶ 291.
328 Id. ¶ 292.
329 Id. ¶ 293.
330 Id.
331 Id.
332 China’s AP, ¶¶ 11.1, 11.2; China – Raw Materials AB Report, ¶ 293.
333 China’s AP, ¶¶ 11.3; China – Raw Materials AB Report, ¶ 293.
334 China – Raw Materials AB Report, ¶ 293.
335 Id. ¶ 293.
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Thirdly, China referred to paragraph 170 of the Working Party Report to show that it still retains the flexibilities contained in paragraph 170 in carrying out its obligations under export duties.336 Paragraph 170 stipulates that China would ensure its laws and regulations relating to all charges and taxes levied on imports and exports would be in conformity with its WTO obligations.337 In China’s view, paragraph 170 confirms the availability of GATT Art.
XX to justify violation of charges and taxes levied on imports and exports.338 On appeal, China highlighted that the measures covered by section 11 of the AP considerably overlap the measures under paragraph 170 of the Working Party Report because both are under the title of
“Taxes and Charges Levied on Imports and Exports.”339 Thus, China argued that the as GATT Art. XX can justify violation of obligations in paragraph 170, i.e. taxes and charges levied on imports and exports, such defense can also justify violation of export taxes and charges under paragraph 11.3 of the AP.340
However, the AB disagreed with China’s allegation. The AB started with assessing the context of paragraph 170.341 The AB examined the systemic position of paragraph 170 and found that it is situated under section IV “Policies Affecting Trade in Goods” and falls under a
However, the AB disagreed with China’s allegation. The AB started with assessing the context of paragraph 170.341 The AB examined the systemic position of paragraph 170 and found that it is situated under section IV “Policies Affecting Trade in Goods” and falls under a