Suggesting a Different Interpretation

In China – Raw Materials, the lack of an explicit reference clause in paragraph 11.3 of the AP makes it more difficult for interpreters to tackle the applicability issue because there is no ordinary meaning to rely on. It is always a difficult task to interpret the silence of a treaty.

Thus, it is even more important to conduct a holistic analysis pursuant to VCLT Art. 31 and Art. 32.⁵¹¹ In particular, it is essential to perform a contextual interpretation as this issue involves cross-agreement application. As confirmed by the Panel of China – Raw Materials, to correctly address the applicability issue, one needs to assess the legal and institutional relationship between obligations set forth in the AP and those of the WTO Agreements.⁵¹² Furthermore, the object and purpose of the treaty can provide valuable guidance, too.

Good faith principle:

508 Mitsuo Matsushita, Export Control of Natural Resources: WTO Panel Ruling on the Chinese Export Restrictions of Natural Resources, 3 TRADE LAW DEV. 267, 286–87 (2011).

509 Id. at 287; Baroncini, supra note 388, at 6.

510 GATT Schedule CLXV – The Russian Federation, Part V – Export Duties, Opening Statement.

511 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 242.

512 China – Raw Materials AB Report, ¶ 7.116

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To start with, scholars decipher the silence of treaty with the interpretative principle of good faith. Pursuant to VCLT Art. 31(1), which states that a treaty shall be interpreted in good faith, Baroncini states that good faith principle requires interpreters to interpret a treaty term in a reasonable manner and reach an honest and fair result.⁵¹³ Then, Baroncini considers that GATT Art. XX represents a policy exception in the GATT, and thus Art. XX should also have an important systemic role in the WTO regime.⁵¹⁴ Baroncini further finds support in the fact that WTO Members have expressly and constantly given priority to such exception over GATT obligations on trade facilitation.⁵¹⁵ Baroncini therefore argues that given the systemic importance of GATT Art. XX, the silence of paragraph 11.3 cannot be interpreted in good faith to mean a clear denial of GATT Art. XX.⁵¹⁶

Qin also holds the same view with Baroncini. Qin emphasizes GATT Art. XX, as a set of public policies, trumps GATT obligations on liberation of trade.⁵¹⁷ Although China’s export-duty commitments are not included in the GATT, they are stricter obligations than those in the GATT. Qin proposes that from a systemic viewpoint, China’s export-duty commitments should also enjoy the policy consideration.⁵¹⁸ Thus, the silence of paragraph 11.3 cannot infer that China intends to renounce its right to GATT Art. XX and that WTO Members in good faith expect China to agree to such renouncement.⁵¹⁹

Pursuant to the principle of good faith, interpreters should apply the test of reasonableness throughout the whole interpretation process and should not make an

513 Baroncini, supra note 388, at 20.

514 Id.

515 Id.

516 Id.

517 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 242.

518 Id.

519 Id.

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unreasonable interpretative result.⁵²⁰ China’s commitments on export tariffs under the AP are actually a part of GATT regulations on export restrictions.⁵²¹ It would be unfair and unreasonable that China can invoke GATT Art. XX for violation on export restrictions under the GATT, but not export tariffs commitments under the AP. Consequently, based on the principle of good faith, GATT Art. XX should be an available defense against violation of export tariffs commitments under the AP. This thesis also agrees with Baroncini and Qin that considering the fundamental importance of GATT Art. XX and the WTO-plus nature of paragraph 11.3, an interpretation that rejects the applicability of GATT Art. XX is inconsistent with the interpretative principle of good faith.

Context:

Moving on to contextual analysis, it is imperative to ascertain the legal status of the AP and its systemic position within the WTO legal system. The only provision that might shed light on the relationship between the AP and GATT Art. XX is paragraph 1.2 of China’s AP, which provides that the AP is an integral part of the WTO Agreement. Significantly, this provision denotes that the AP should be read together with the WTO Agreement, especially with the related provisions of the covered agreements. ⁵²² This systemic approach is particularly important for interpreting obligations under the AP because the AP contains various obligations across the WTO realm. To better understand the AP’s obligations and ascertain available defenses, it is essential to look into the relevant contexts of the WTO Agreements.

520 DÈORR &SCHMALENBACH, supra note 191, at 548.

521 This argument will be closely discussed in the following part.

522 As discussed in Section 4, Chapter 2. Liu, supra note 47, at 155.

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In the present case, the provision at issue is paragraph 11.3 of the AP. This paragraph is under the title of “11 Taxes and Charges Levied on Imports and Exports” and sets out that 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. Annex 6 lists 84 products and the maximum export duty rates. A Note attached to Annex 6 reaffirms that China should not apply export tariffs in excess of the ceiling provided in Annex 6 and may increase the applied rates under exceptional circumstances.

GATT Art. VIII regulates fees and charges connected with importation and exportation, other than import and export duties, should be limited to the cost of approximate services rendered.

Thus, China is prohibited from imposing export duties on products not listed in Annex 6.

There is no rule directly regulating export duties in the WTO regime. GATT Art. II:1(b) regulates that import tariffs should not exceed the terms provided in the Schedule. However, there are not comparable disciplines under the WTO law restricting Members’ use of export tariffs.⁵²³ GATT Art. XXVIII bis recognizes export tariffs constitute serious obstacle to trade and calls for future negotiation to reduce export tariffs.⁵²⁴ However, no negotiation was conducted afterwards.⁵²⁵ Thus, WTO Members, except for China, may freely levy export duties.⁵²⁶

Although there is no rule directly regulating export tariffs in the GATT, China’s export duties commitments are intrinsically linked to the regulations on export restrictions in the

523 Baroncini, supra note 388, at 5.

524 GATT art. XXVIII bis.

525 Qin, The Challenge of Interpreting “WTO-PLUS” Provisions, supra note 14, at 156.

526 This practice creates serious trade-hindering effects because export duties will make it more difficult for products to leave the country and therefore create advantages for the domestic industry because it can obtain cheap products for manufacturing. On the contrary, importing manufacturing countries will pay more to obtain products and even encounter short supply. Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 239; Baroncini, supra note 388, at 5.

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GATT.⁵²⁷ It is not doubt that imposition of export duties is one form of the export restrictions.

Export restrictions might also take forms of export quotas and licenses, which are regulated under GATT Art. XI. GATT Art. XI stipulates that Members should not apply export quotas or licenses unless a. it is temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party or b. it is necessary to the application of standards or regulations for the classification, grading or marketing of commodities in international trade.⁵²⁸ Accordingly, with respect to export restrictions, WTO Members may freely employ export tariffs or apply export quotas and license under limited circumstances.⁵²⁹ On the contrary, China cannot levy export tariffs except for products listed in Annex 6. Thus, examining China’s export duties commitments under the context of the GATT, it is not hard to find that paragraph 11.3 of China’s AP is an applicant WTO-plus obligation, which imposes a more stringent obligation on China.⁵³⁰ The concerns in GATT Art.

XXVIII bis are addressed by paragraph 11.3 of the AP. Accordingly, although the linkage between paragraph 11.3 of the AP and the GATT is not as obvious as the linkage between paragraph 5.1 and the GATT, it is manifest that China’s export duties obligations are intrinsically related to export restrictions under the GATT.⁵³¹

If a violation of export quotas and export licenses under GATT Art. XI can be justified by GATT Art. XX, by the same token, a violation of export duties under paragraph 11.3 of China’s AP can be justified by Art. XX, too.⁵³² As stated above, China’s export duties commitments are intrinsically linked to and more stringent than export restrictions under

527 Gu, supra note 47, at 21.

528 GATT art. XI.

529 Consequently, WTO Members can easily circumvent its obligations under GATT Art. XI by resorting to the imposition of export duties. Baroncini, supra note 388, at 5.

530 Qin, The Challenge of Interpreting “WTO-PLUS” Provisions, supra note 14, at 156.

531 Gu, supra note 47, at 21.

532 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 244.

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GATT Art. XI and therefore China’s export duties commitments should be categorized in the same group as export quotas and export licenses.⁵³³ Contextually, if GATT Art. XX can justify a violation of export quotas and license under GATT Art. XI, Art. XX should be available to a violation of other kinds of export restrictions unless such defense will render the obligations moot. Otherwise, it would be unreasonable that GATT Art. XX can be an exception for one kind of violation of export restrictions but not the others. In sum, this thesis proposes that given there is no reasonable justification for different treatment between GATT Art. XI and China’s export duties commitments under the AP, when the obligations at issue are inherently linked to or built upon the GATT, GATT Art. XX should be an available exception.

Qin also proposes that since GATT Art. XX is an exception for export quotas and license obligations and China’s export duties commitments are inherently related to and built upon GATT Art. XI, GATT Art. XX is a relevant context for paragraph 11.3 and be examined as an important implication in the process of ascertaining the silence of treaty.⁵³⁴ Furthermore, Liu advanced that since China’s AP is an integral part of the WTO Agreement and paragraph 11.3 concerns “tariffs,” the GATT and its available exceptions should be read together when interpreting paragraph 11.3.⁵³⁵ Hence, they conclude that GATT Art. XX is an applicable defense.

Object and purpose:

This contextual reading does not contradict the object and purpose of China’s export duties commitments. Resorting to GATT Art. XX will not render the purpose of paragraph 11.3 moot as it is not indicated in the Working Party Report or the negotiation history that the

533 Gu, supra note 47, at 21.

534 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 242–43; Qin, The Challenge of Interpreting “WTO-PLUS” Provisions, supra note 14, at 160.

535 Liu, supra note 47, at 155.

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conclusion of paragraph 11.3 means to preclude China from protection of human life and health or conservation of exhaustible natural resources. Moreover, viewing from the object and purpose of the WTO Agreement, which is enshrined in its preamble, it is recognized that in pursuit of trade liberalization, WTO Members still preserve the right to promote non-trade interests, such as sustainable development, protection of environment and human health.

Accordingly, the object and purpose of China’s AP and the WTO Agreement support the contextual interpretation that GATT Art. XX is an applicable exception.⁵³⁶

Relevant rules of international law – the principle of permanent sovereignty over natural resources:

Scholars advance that pursuant to VCLT Art. 31(3)(c), the principle of permanent sovereignty over natural resources should be taken into account as a relevant rule of international law applicable in the relations between the parties. Relying on a case in International Court of Justice, Case Concerning Armed Activities on the Territory of the Congo, which recognizes the customary nature of the principle of permanent sovereignty over natural resources, Baroncini asserts that the principle obtains customary international law status and thus the principle applies to all WTO Members.⁵³⁷ Qin considers the principle a generally accepted principle of international law.⁵³⁸ Baroncini points out that the principle of permanent sovereignty over natural resources has been included in various Resolutions of the General Assembly of the United Nations. The General Assembly states that every State has the sovereign right to freely dispose of its natural resources wherever deemed desirable by them for their own progress and economic development.⁵³⁹ Moreover, General Assembly

536 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 243;

Baroncini, supra note 388, at 23–24.

537 Baroncini, supra note 388, at 24–25.

538 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 245.

539 Right to Exploit Freely Natural Wealth and Resources, G.A. Res. 626 (VII), U.N. Doc. A/RES/626 (VII) (Dec.

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declares that such right “must be exercised in the interest of the well-being of the people of tile State concerned.”⁵⁴⁰ Baroncini also refers to the Declaration on the Establishment of a New International Economic Order, which states that “in order to safeguard these resources, each State is entitled to exercise effective control over them and their exploitation and no State may be subjected to economic, political or any other type of coercion to prevent the free and full exercise of this inalienable right.”⁵⁴¹ Moreover, Baroncini and Qin indicate that the principle of permanent sovereignty over natural resources is considered a basic human right under International Covenant on Civil and Political Rights and International Covenant on Economic, Social and Cultural Rights.⁵⁴² Accordingly, Baroncini considers the principle of permanent sovereignty over natural resources an inalienable right that cannot be derogated without a specified and limited period of time and can only be partially restrained.⁵⁴³ Qin states that the exercise of such right might be limited by to the international obligations a nation undertakes voluntarily, and still the permanent nature of such right indicates that this right can always be regained.⁵⁴⁴

Scholars comment that the Panel’s and AB’s reasoning on paragraph 11.3 contradicts the customary law principle of permanent sovereignty over natural resources. In light of the principle of permanent sovereignty over natural resources, scholars oppose that the WTO

21, 1952).

540 Permanent Sovereignty over Natural Resources, G.A. Res. 1803 (XVII), U.N. Doc. A/5217 (1962). See generally, Karol N. Gess, Permanent Sovereignty over Natural Resources: An Analytical Review of the United Nations Declaration and Its Genesis, 13 INT.COMP.LAW Q. 398 (1964).

541 Declaration on the Establishment of a New International Economic Order, G.A. Res. S-6/3201, U.N. Doc.

A/RES/S-6/3201 (May 1, 1974).

542 Art. 1.2 of ICCPR and ICESCR: All peoples may, for their own ends, freely dispose of their natural wealth and resources without prejudice to any obligations arising out of international economic co-operation, based upon the principle of mutual benefit, and international law. In no case may a people be deprived of its own means of subsistence. Also, Art. 47 of ICCPR and Art. 25 of ICESCR: Nothing in the present Covenant shall be interpreted as impairing the inherent right of all peoples to enjoy and utilize fully and freely their natural wealth and resources.

543 Baroncini, supra note 388, at 26.

544 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 246.

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judiciary makes such rebuttable assumption that China has renounced its right over natural resources. Baroncini states that the silence in paragraph 11.3 should not be interpreted as an overall and eternal renouncement of China’s permanent sovereign right over its natural resources. Baroncini argues that China is entitled to exercise this permanent sovereign right by using export duties. Baroncini concludes that the Panel’s and AB’s ruling is in sharp contrast with the international customary law principle of permanent sovereignty over natural resources.⁵⁴⁵

Supplementary means of interpretation:

Lastly, scholars invoke VCLT Art. 32, supplementary means of interpretation, to confirm a proper interpretation in this case. VCLT Art. 32 provides that in order to confirm the meaning resulting from the application of VCLT Art. 31, or to determine the meaning when the interpretation according to Art. 31 leaves the meaning ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable, interpreters may resort to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion.⁵⁴⁶ Qin points put that the Panel’s and AB’s interpretation is manifestly unreasonable because their interpretation makes China’s special trade-liberalization obligations the most scared obligation in the WTO regime.⁵⁴⁷ Hence, scholars resort to supplementary means of interpretation in accordance with VCLT Art. 32.

According to VCLT Art. 32, supplementary interpretative materials include the preparatory work of the treaty and the circumstances of its conclusion. As rightly pointed out by Baroncini, the preparatory work of the AP is never publicly disclosed by the WTO.⁵⁴⁸ In

545 Baroncini, supra note 388, at 26.

546 VCLT art. 32.

547 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 243.

548 Baroncini, supra note 388, at 26–27.

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this way, interpreters can only rely on materials on the circumstances of AP’s conclusion.

Recourse to the circumstance of the conclusion of a treaty provision to discern what the common intentions of the parties were at the time of the conclusion is nothing new in the WTO judiciary. The Appellate Body in EC – Chicken Cuts explained that while examining the circumstances surrounding the conclusion of a treaty, interpreters should look into “the historical background against which the treaty was negotiated.”⁵⁴⁹ Also, “the economic, political and social conditions of the parties” ⁵⁵⁰ may be taken into account to ascertain the reality at the time the treaty was concluded.

In order to attribute a proper meaning to the silence in paragraph 11.3, scholars reconstruct the circumstances in which the AP was concluded. Qin and Baroncini note the political reality of China at the time of the negotiation. Baroncini observes that China does not have “sufficient knowledge, expertise and experience”⁵⁵¹ to negotiate a clear term with the incumbent Members, especially when China is the first Member that is requested with so many unprecedented WTO-plus obligations in its AP.⁵⁵² Likewise, Qin points out that China’s lack of legal capacity and negotiating experience leads China to accept loosely drafted terms in the AP.⁵⁵³ Moreover, Qin doubts that China would answer in the affirmative, if China was explicitly inquired whether it wishes to renounce its right to GATT Art. XX as a defense against violation of paragraph 11.3.⁵⁵⁴ Similarly, Qin finds it hard to imagine that if China requested the applicability of GATT Art. XX, the incumbent Members would deny such request because “there is absolutely no systemic or policy reason to deny the applicability” of

549 Appellate Body Report, European Communities – Customs Classification of Frozen Boneless Chicken Cuts, ¶ 293, WT/DS269/AB/R, WT/DS286/AB/R (Sept. 12, 2005).

550 DÈORR &SCHMALENBACH, supra note 191, at 579.

551 Baroncini, supra note 388, at 27.

552 Id.

553 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 244.

553 Qin, The Predicament of China’s “WTO-Plus” Obligation to Eliminate Export Duties, supra note 423, at 244.