A. Early Engagement

The early years of China's WTO membership gave rise to very few disputes, due in part to transitional and phase-in periods of up to five years on many key Chinese commitments. In the five years following its accession, China became a co-complainant in only one matter and respondent in only two matters,Footnote ³ putting to rest some earlier concerns that China would cause a huge volume of litigation that could even threaten the efficacy of the WTO dispute settlement mechanism.Footnote ⁴ In contrast, in that same period the United States and the European Union each brought an average of 3.5 complaints annually, and were each the respondents in an average of 7.2 complaints per annum.

The 2002 Steel Safeguard Case, the first WTO case in which China was involved, was a challenge to United States steel safeguard measures by eight WTO Members – the European Communities,Footnote ⁵ Japan, Korea, China, Switzerland, Norway, New Zealand and Brazil – consolidated into a single matter for administrative purposes.Footnote ⁶ Chinese observers of this case have pointed out that the relatively quick outcome, its endorsement of the Chinese position, and the prompt implementation of the ruling by the United States, all contributed to the perception in China that the WTO dispute settlement mechanism was valuable.Footnote ⁷

China's first experience as a respondent in the WTO dispute settlement mechanism was the March 2004 complaint initiated by the United States in relation to the partial refund of value-added tax provided by the Chinese government to Chinese enterprises producing or designing integrated circuits.Footnote ⁸ The VAT Case was settled after an unusually short period of consultation, and a mutually agreed solution was notified to the WTO.Footnote ⁹ This prompted suggestions that this was done by China in order to save ‘face’ as an inexperienced defendant, was a means of avoiding a dispute with Taiwan, and was also reflective of a cultural, Confucian reluctance to engage in litigation.Footnote ¹⁰ China's second experience as a respondent was in a matter containing complaints brought in 2006 by Europe, the United States and Canada in relation to preferential treatment of Chinese automotive parts.Footnote ¹¹ The Auto Parts Case was initiated against China in this early period, but heard by the Panel in early 2007, with the Panel Report being circulated in July 2008. It was thereafter the subject of an appeal by China to the Appellate Body, which resulted in a final decision in December 2008. As discussed below, the context in which this appeal took place in 2008 is markedly different from the context of China's early engagement with the dispute settlement process, and can be seen as a sign of China's increasingly sophisticated legal strategy.

Even more striking than China's direct involvement in these three disputes was its extensive involvement in disputes as a third party. Articles 4(11) and 10 of the Dispute Settlement Understanding provide mechanisms for a WTO Member with a ‘substantial interest’ in a dispute to become involved as a third party at the consultation phase and the panel phase respectively, and article 17(4) gives third parties the right to be heard in Appellate Body proceedings. The very broad scope of China's trading interests, coupled with its systemic interest in the development of WTO jurisprudence, led China to become involved as a third party in nearly every case before the WTO in this early period. While the full extent of a third party's rights are themselves the subject of conjecture in various WTO cases,Footnote ¹² the Chinese government has suggested that involvement as a third party provided the opportunity for Chinese trade lawyers and officials to gain first-hand experience in the dispute settlement process, without the legal and diplomatic risks of direct involvement.Footnote ¹³

Thus, in the first five years of WTO membership, China was primarily concerned with acquiring knowledge of the system and implementing existing commitments, rather than challenging the status quo. In contrast, the later five years of China's membership demonstrated a much more active and assertive approach to trade disputes.

B. Escalating Involvement

China's participation in WTO disputes in 2007 and 2008 can be characterised as a period of escalation, in which China was challenged heavily as a respondent, and began in turn to challenge its major trading partners on critical issues as a complainant and by initiating appeals. In this period, a total of five matters (consolidated from nine complaints) were initiated against China, primarily by the United States, but also by the European Communities, Mexico, Canada and Guatemala.

These new complaints against China dealt with a range of subject matter, most notably the WTO's obligations with respect to intellectual property and trade in services, as well as continuing the challenge to China's extensive system of state support for enterprises and to China's unusually detailed accession commitments. Of the five matters initiated, only two reached the stage of a panel hearing: China–Measures Affecting the Protection and Enforcement of Intellectual Property Rights Footnote ¹⁴ and China–Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products. Footnote ¹⁵ Neither of the two cases,Footnote ¹⁶ both involving developing countries, progressed past the consultation stage: the Refunds Case was terminated before the establishment of a Panel, and the Grants Case, although never formally terminated, was also subject to a memorandum of understanding between the parties.Footnote ¹⁷ It is interesting to speculate why these cases settled and others were contested. In all likelihood it was a combination of factors – that China was more willing to negotiate because its legal position was not strong, that these cases occurred at a time where much more serious challenges to China's self-image had arisen (discussed below); and perhaps even a desire to show a particularly conciliatory attitude towards the developing country members involved.Footnote ¹⁸ The final case settled in this period—a challenge by the United States, the European Communities and Canada—concerned a very wide range of measures that were alleged to privilege the state-owned Xinhua news agency over foreign providers of financial information.Footnote ¹⁹ This case reiterated concerns raised in China's 2007 transitional reviewFootnote ²⁰ that Xinhua was acting both as a competitor and a regulator of the foreign service providers, impacting the market access of foreign providers and the protection of their confidential information, allegedly in violation of China's GATS and TRIPS commitments. While little is publicly available about the context in which this dispute was initiated, it appears that the complaint was a means to advance negotiations that were already taking place on the issue, and the proceedings were terminated in December 2008 prior to the formation of a panel—perhaps upon the completion of those negotiations.

Whereas China seemed willing to settle cases in which their legal obligations were fairly clear, the two complaints that it defended vigorously were less clear-cut, and provided a greater challenge to Chinese values. The IP Case raised three issues related to China's implementation of obligations under the TRIPS Agreement to uphold intellectual property rights: the alleged failure of China to provide adequate criminal procedures and penalties for intentional, commercial-scale trademark and copyright infringements, as required by Article 61 of the TRIPS Agreement; the alleged insufficiency of China's mechanisms for the destruction and disposal of infringing goods, as required by articles 46 and 59 of the TRIPS Agreement; and finally a claim against article 4 of China's Copyright Law, which excludes from its own protections works that are ‘not lawfully published or disseminated.’ It was this third claim that was most controversial, as it cut to the heart of China's culture of auditing the flow of content to its citizens. From the Chinese perspective, the US complaints about intellectual property enforcement were an illegitimate attempt to expand the scope of the existing TRIPS.

Despite ultimately not prevailing in its article 4 arguments, China saw itself as having defended its greater interest—its system of oversight and its flexibility in implementing the TRIPS Agreement—prompting China's comment that the case offered ‘profound lessons for developing countries on how to take advantage of legitimate flexibilities and to formulate an independent exit strategy as appropriate.’Footnote ²¹ In upholding the US claim against Article 4, the WTO was cautious to avoid controversial issues of culture and human rights, finding in essence that the denial of copyright was inconsistent with the TRIPS Agreement; not questioning the legitimacy of China's practice of restricting certain content.Footnote ²²

Not unexpectedly, China's amendment to its domestic laws required to comply with the decision was as minimal as possible, and similarly avoided the censorship issue, with the amended Article 4 stating that ‘copyright holders, when exercising their copyright, may not violate the Constitution and laws, and may not damage the public interest. The State implements supervision and management over publishing and dissemination according to the law.’Footnote ²³ China's submissions had argued repeatedly that ‘the sovereign right of governments to regulate and even prohibit the content of works clearly authorizes China's content review mechanisms’ and ‘the power to protect the public well being is inherent and incidental to sovereignty.’Footnote ²⁴ China did not challenge any aspect of the Panel decision when it was released in January 2009,Footnote ²⁵ perhaps content that compliance could be secured by a minor textual change rather than a reconfiguring of its system of censorship.

The Publications Case arose essentially out of the same issues of control by the Chinese government of the dissemination of foreign media products. The United States argued that state-controlled distribution of print media and audiovisual products (both finished and unfinished) for private use, and of films for distribution to cinemas, was inconsistent with trading rights granted under China's Protocol of Accession, under the GATT and under the GATS. The reports at the Panel and Appellate Body level raise many technical issues.Footnote ²⁶ However, of more general interest is China's defensive argument by way of the exceptions permitted by article XX(a) of the GATT 1994. This provision allows a Member the possibility of adopting measures to protect public morals.Footnote ²⁷ The Appellate Body upheld the conclusion (but not the reasoning) of the Panel that the public moral exception could be used to defend the measures, although China could not benefit from the application of Article XX in this case as it had failed to establish the necessity of the measures as a means of protection. This statement supported China's deeply held belief, stated in its submissions, that ‘cultural goods are unique in that they may have a potentially serious impact on societal and individual morals. … [I]mported cultural goods, because they are vectors of different cultural values, may collide with standards of right and wrong conduct which are specific to China.’Footnote ²⁸ Even though China failed at first instance and on appeal on its public morals argument, there was important support in principle for some discretion in this type of matter, if the ‘necessity’ test of the chapeau could be met. Thus, both the Publications Case and the IP Case may be viewed as providing examples of the fundamentally different attitudes of China and the United States towards the regulation of different forms of expression, and touch upon one of the many sensitive areas of disagreement in the human rights field—freedom of expression.Footnote ²⁹ They illustrate the potential for a clash of ideology, but also the careful line trodden to date in WTO decisions. In both these cases, China attempted to justify its measures on the basis of sovereign rights to protect its population from moral harm, and at the end of the day was able to find some vindication of its values (at least in principle) while being required to comply with adverse rulings.

The final complaint filed in this period, the initial panel report of which is still pending, is a matter consolidating complaints by the United States, the European Union and Mexico concerning China's export restrictions on a range of raw materials, including bauxite, coke, fluorspar, magnesium, manganese, silicon metal and zinc. The export restrictions take various forms – export duties, quantitative restrictions, export permit requirements, minimum export prices, and a system requiring the approval of export contracts—and are challenged as being inconsistent with Paragraph 11.3 of China's Protocol of Accession and article XI:1 of the GATT.Footnote ³⁰ China's response is twofold—firstly that it can, as of right, restrict exports, and, secondly, it has again invoked the exceptions provided by article XX as its justification for the measures if they are found to be in violation of its commitments, this time citing the environmental protection provision contained in article XX(b) and, in relation to a smaller range of products, the exception in article XX(g) for measures necessary to conserve exhaustible natural resources. At the time of writing, a decision of the Panel is still pending, although it seems unlikely that the article XX justifications will be endorsed. This case is of immense importance as it appears to be a litmus test for the even more controversial restrictions placed by China on the export of rare earth metals, discussed below. Rapid changes in the global economic situation, particularly the global financial crisis and the entry into force of the Kyoto Protocol, have now meant that export rights and restrictions have assumed far greater importance than could possibly have been imagined at the time China's accession was negotiated. Had they been contemplated, China's Protocol of Accession would certainly have contained far more comprehensive treatment of export restrictions than the rather piecemeal approach that was taken in 2001.

It was also within this period of escalating confrontation that China initiated its first appeal, in the Auto Parts Case that had commenced in 2006.Footnote ³¹ This was the first case that China had contested, and the WTO Panel had found the higher tariffs on certain types of cars to be inconsistent with China's tariff bindings. While China's appeal was ultimately unsuccessful, it demonstrated its willingness to engage fully in the legal avenues offered by the WTO, and to engage in technical legal argument, as the appeal was brought on a narrow legal point.

A further sign of China's level of comfort with the dispute settlement system was in its behaviour as complainant. China initiated two complaints in this period, both against the United States in relation to anti-dumping and countervailing duty determinations. The first, relating primarily to preliminary duties applied by the US to coated paper, did not proceed beyond the consultation phase, as in October 2007 the US Department of Commerce issued a final determination on the products in question that found no injury had occurred.Footnote ³² The second complaint issued in this period is by far the more significant, and concerned definitive anti-dumping and countervailing duties applied by the United States to a range of products.Footnote ³³ The AD/CVD Case is the first in a series of challenges made by China against the United States and European Union, dealing with US and EU treatment of the state management practices that are at the heart of China's socialist market economy. It also represents China's entry into a more assertive role in WTO disputes, in which it is willing to challenge trade measures using the full range of available legal arguments. While the facts of the case are particularly complex and technical, the most significant contention in the AD/CVD Case was the simultaneous application of anti-dumping and countervailing duties on goods from economies that are deemed to be ‘nonmarket’. The United States Department of Commerce had found in its investigations that the role of the Chinese state – through its state-owned enterprises providing production inputs, state-owned commercial banks providing capital, and its system of land use allocations—meant that market prices in China could not be used to form benchmarks from which countervailing duties could be calculated. In addition to significantly developing the jurisprudence in the field of subsidies and countervailing measures, this case is significant as it shows China asserting its contention that its ‘socialist market economy with Chinese characteristics’ is equivalent to a capitalist market economy, and advocating for the phasing out of the ‘nonmarket economy’ provisions contained in Article 15 of China's Protocol of Accession.

At the end of this period in China's WTO advocacy, the picture that emerges is of a WTO Member well socialised in the conduct of WTO disputes and the pragmatic legalism with which they are associated. China has cultivated a stable of legal counsel, both foreign and Chinese, who have experience with both WTO disputes and the domestic laws of China's major trading partners. Also, as Hsieh notes, the sophistication of Chinese trade lawyers and diplomats has begun to be complemented by a growing awareness amongst commercial stakeholders and provincial government of the importance of the WTO process. Hsieh documents the important role played by an expanding network of Chinese WTO ‘think-tanks’. These centres have acted as educators of the corporate sector and of provincial governments, disseminating information about WTO rules, and assisting companies to transmit their trade concerns to the national Ministry of Commerce for further investigation, and on occasion assisting in foreign legal proceedings.Footnote ³⁴

C. China as a Key Litigant Asserting Influence

In this third, and current, period of China's engagement with the WTO, the emphasis remains on China asserting its influence through the dispute settlement process. Given the painfully slow progress of the Doha Round, and the repeated stalling of negotiations, it is only through the dispute settlement mechanism that the rules continue to be refined. This makes China's involvement in disputes all the more important as a way of exerting influence on the interpretation of existing rules.

Since 2009, nearly half of the matters commenced in the DSB have involved China as either complainant or respondent. China challenged US import restrictions on poultry, successfully arguing their inconsistency with the Sanitary and Phytosanitary Agreement. Footnote ³⁵ This was a largely symbolic victory, however, as the measure in dispute had expired by the time the panel issued its report. In late 2009, China initiated a complaint against the United States in relation to its use of a transitional product-specific safeguard mechanism, authorised in China's Protocol of Accession, and applied to passenger and light commercial tyres. The facts giving rise to this case are interesting as it was the first application of the China-specific safeguard mechanism, one of China's accession conditions. The investigation by the United States International Trade Commission was not at the request of its domestic tyre producers, but instead at the request of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, a response to the increasing outsourcing to China from the sector.

China has initiated two complaints against the European Union, again concerning treatment arising from China's designation as a nonmarket economy.Footnote ³⁶ The practice being challenged is the European Union's refusal to designate the otherwise usual individualized anti-dumping duties for suppliers from nonmarket economies, and is the key issue in both cases. The Panel Report in the Fasteners Case was issued in December 2010 and upheld China's complaint regarding the country-level duty, but rejected other aspects of China's claim. The decision has been appealed by both China and the European Communities, and at the time of writing, the report of the Appellate Body is pending. China has subsequently brought a second complaint, on similar facts but in relation to footwear, for which the Panel report is also pending. Retaliatory anti-dumping measures applied by China to fasteners from the European Union have also become the subject of a complaint against China by the European Union, with a request for consultations made in May 2010, challenging the retaliatory anti-dumping provisions contained in Article 56 of China's Anti-dumping Regulations.Footnote ³⁷ This is the first case in which Chinese anti-dumping duties on imports into China have been challenged at the WTO.

In 2011, China has once again engaged in consultations with the United States on anti-dumping matters, joining the long list of complainants taking issue with US zeroing practices and the use of sunset reviews, with respect to shrimp exports to the United States.Footnote ³⁸ China had been a third party in the zeroing case brought by the European Communities in 2003, and in 2010 the European Union sought authorisation to suspend concessions against the United States for its failure to bring its measures into conformity with the WTO Agreements. For this reason, the issues raised by China in the Shrimp Case are well-traversed, but bringing the case as a complainant will allow China access to the suspension mechanism, a powerful economic and political incentive that could be used to encourage compliance by the United States.

China has also retaliated against the actions of the United States by applying both anti-dumping and countervailing duties on certain types of steel, on the basis that its production was subsidised under the ‘Buy America’ response to the global financial crisis pursuant to the American Recovery and Investment Act of 2009. In response, the United States issued a request for consultations in September 2010, bringing its own case against China alleging that China had improperly dealt with the evidence before it.Footnote ³⁹

On the same day, the United States filed an additional, but unrelated, request for consultations with China over the monopoly retained by China UnionPay over certain electronic transactions denominated and paid in renminbi, and associated requirements such as machine compatibility and use of logos. Consultations did not lead to a resolution, and the United States requested that a Panel be established. As of May 2011, the Panel had not yet been composed.

The ratification of the Kyoto Protocol has had a dramatic impact upon strategic decisions taken by China and its trading partners. In particular, increased demand for solar panels, hybrid cars and wind turbines has created a massive demand for rare earth minerals, nearly all of which are located in China. There seems little doubt that China's export restrictions on rare earth minerals will be the subject of a challenge, the precise formulation of which will depend on the final result in the Export Case referred to above. In a similar vein, the United States has sought consultations with China in response to a complaint by the United Steelworkers Union that Chinese subsidies of wind power equipment and parts are inconsistent with the Subsidies and Countervailing Measures Agreement. At the time of writing, the case has remained at the consultation stage.

These mutually retaliatory, anti-dumping and countervailing duty ‘wars’ can be interpreted as a clear sign that China has adopted a strategy similar to that of the other major users of the dispute settlement mechanism—the United States and the European Union. While it is difficult to see the benefit to the WTO system as a whole of these tit-for-tat disputes, it is a clear sign that China has been assimilated into the disputing culture of the WTO, in which a highly legalistic approach to disputes is the norm. China is clearly sending a message to the WTO community that it, too, can engage in the same types of tactical manoeuvres used by the United States and the European Union for many years. Similarly, its challenge of its trading partners' subsidies is an offensive rather than defensive step that implies confidence in the system.