2. The Disputes

Ahn and Orden analyze the dispute China‒Agricultural Producers in which the United States argued domestic support, particularly China's market price support from administered prices, exceeded its commitment under the Agreement on Agriculture. The panel found in favour of the United States, concluding that support for wheat and rice was excessive during 2012–2015. This ruling rested on determining that the relevant fixed external reference prices utilized in the support calculations were from 1996–1998 for China (as compared to 1986–1988 for original Members) and that eligible production was essentially the full output in provinces in which the support programs operated. The authors show that applying these decisions would have constrained the economic price support China had provided, but that this constraint is eased by allowing China to determine future eligible production by setting maximum purchases at support prices in its regulatory framework. China availed itself of this option to assert that its programs for 2020 comply with its commitment, while lowering support prices only modestly. The authors conclude that the measurement issues exacerbate the longstanding contention among Members over levels of agricultural support in China and elsewhere.

In China–Tariff Rate Quotas for Certain Agricultural Products, Glauber and Lester describe how the American complaint about Chinese tariff-rate quotas (TRQs) on certain grain products helps illustrate several key issues in US–China trade relations and the effectiveness of WTO disputes. This case involves international obligations based on transparency and fairness, but there are real questions about whether such obligations can work in relation to an authoritarian country not known for the rule of law domestically. In addition, there can be a disconnect between the legal aspects of a dispute and the underlying economic interests, with a ruling sometimes not leading to improved trade flows. And finally, with the bilateral trade war and ‘phase one’ trade deal between the United States and China, the WTO may have been superseded on the issues involved in this case. This paper summarizes the facts and law of the dispute, and examines each of these questions in that context.

In US–Washing Machines, Balistreri, Mavroidis, and Prusa focused on the manner in which the Arbitrator exercised discretion when constructing the counterfactual. Korea had prevailed when claiming that the US had violated its obligations by calculating the level of antidumping duties without factoring in ‘zeroed’ transactions. The question before the Arbitrator was whether to use as counterfactual a state of the world with no duties at all, or, alternatively, whether to use as a benchmark a lawful calculation of duties known as weighted-average to weighted-average. The Arbitrator opted for the latter. The authors criticize this report arguing that the Arbitrator disrespected the institutional mandate, which limits discretion to quantifying the damage without allowing engagement in speculation regarding the consistency of alternative facts.

The US–Canada Anti-Dumping in Softwood Lumber dispute marks a clear escalation of the long-standing series of disputes over softwood lumber that until now have focused on alleged subsidies and countervailing duties (CVDs). Beaulieu and Whittaker explain how this case is important as the US has expanded its scope in adding anti-dumping duties to its trade arsenal against the Canadian lumber industry. In separate actions, the United States expanded its focus from softwood lumber to include the expanding Canadian newsprint industry. This case is also crucial because the panel went against the Appellate Body and upheld the controversial US practice of zeroing in administering anti-dumping disputes in alleged dumping cases. The US Department of Commerce (USDOC) found dumping after applying the Differential Pricing Methodology (DPM) to softwood lumber from Canada. The panel found that the USDOC had erroneously aggregated export price differences when applying the DPM, but departed from the Appellate Body's previous ruling in US–Washing Machines regarding the use of zeroing and the inclusion of differential prices under Article 2.4.2 of the Anti-Dumping Agreement. It remains to be seen what happens in this specific dispute on appeal – if, and when, the Appellate Body starts to function again. It will also be interesting to see whether this panel decision encourages parties to argue for, and future panels to permit departures from, Appellate Body rulings with which they disagree.

In evaluating the arbitrator's ruling in EC and Certain Member States–Measures Affecting Trade in Large Civil Aircraft, Mavroidis and Saggi take issue with the amount adjudicated to the US, which, in their view, is a multiplier of the damage suffered in light of the manner in which the case was argued before the WTO. (The response could have been different, had the US claimed that, as a result of the subsidies to Airbus, Boeing had lost its monopoly position in the market.) In their view, this dispute raises quintessential issues regarding the objective function of countermeasures, and the objectives of the Dispute Settlement Understanding (DSU) in this respect. It also confirms that the current institutional framework can hardly do justice to the issues confronting the Arbitrator: economics and econometrics expertise is quintessential in this process. Nevertheless, it is counter-productive to involve experts late in the process, when knowledge about the dispute is necessary for them to properly calculate the damage suffered. The authors advance concrete proposals to address the observed shortcomings.

Hillman and Reynolds describe how United States–Measures Affecting Trade in Large Civil Aircraft (Second Complaint) has been before the WTO Dispute Settlement Body (DSB) for over 15 years. Although the dispute has had a significant impact on the case law associated with the Agreement on Subsidies and Countervailing Measures (ASCM), and has resulted in one of the largest countermeasures ever approved by the DSB, it did not answer the basic question as to whether US Department of Defense (DOD) R&D procurement contracts constituted a subsidy under the ASCM. They describe the differing views taken by WTO panels compared to the Appellate Body as to whether R&D contracts are purchases of research services or joint venture arrangements, and discuss to what extent these stem from the difficulty in demonstrating a financial contribution flowing from payments for R&D for military systems to Boeing's civil aircraft production. They further explore the role of Article 21.5 compliance proceedings, and how far the WTO has strayed from its goal of a timely resolution of disputes. They conclude that this case represents a failure of the WTO dispute settlement system to provide the security and predictability called for in the DSU.

Eliason and Fiorini examine the WTO panel report in the Australia–Anti-Dumping Measures on A4 Copy Paper dispute. The case centers on the application of anti-dumping (AD) measures by Australia against Indonesian producers of A4 paper. Two distinct features of this case motivate their analysis. First, the Indonesian paper industry benefits from reduced-cost inputs because of the Indonesian government's influence and subsidies over the timber and pulp market. Second, Australia identified those subsidies as a ‘particular market situation’ under Article 2.2 of the WTO's Antidumping Agreement and, because of that, disregarded domestic quantities in the computations of the dumping margins. They combine legal and economic tools to investigate how the interpretation of the ‘particular market situation’ can shape the incentives to use AD in the presence of upstream subsidies in the exporting country and show that the panel's interpretation in this dispute increases the relative attractiveness of using anti-dumping duties. Finally, the authors make two key points on the implications of opening the door for more AD investigations. First, it might have negative welfare effects if AD is used as a tool by a monopolist to discipline foreign competitors. Second, it reduces the likelihood of challenging subsidies which might be the optimal solution from a welfare perspective where the subsidies in question have negative environmental effects.

Using the US–Renewable Energy dispute, Nelson and Puccio review WTO rules concerning the prohibition of local content requirements (LCRs). This is the latest in a series of WTO disputes where government subsidies, using LCRs for developing green energy industries, have been found in violation with GATT rules on non-discrimination, raising a series of questions about the coherence between WTO subsidy rules and the need to promote green energy. Moreover, the recent development of different disciplines for LCRs under the GATT and ASCM raises questions concerning the consistency of the LCR prohibition under WTO law. Indeed, depending on the features of the subsidy scheme, certain subsidies will be excused from the stricter prohibition of LCRs under GATT rules and will be given some leeway under the ASCM in order to define origin to give the subsidy only to domestic goods. This leads the authors to reconsider the modern welfare economics rational for the subsidy policy and its implications for the discussions on renewable energy subsidies and LCRs prohibition. Applying the modern welfare economics approach to better understand subsidy policy allows them to reconsider the various proposals raised to obtain a more consistent and coherent WTO subsidy policy.

Buzard and Claussen describe how Korea–Pneumatic Valves is the latest in three lines of cases. First, the dispute is one of eight between Japan and Korea in their longstanding political feud which has now many manifestations in trade law. Second, the dispute is the next to clarify – somewhat – the meaning of Article 6.2 of the DSU on the requirements surrounding a panel request. Third, the Appellate Body advanced its prior conclusions as to the factors relevant in a determination of injury in anti-dumping investigations. In so doing, the Appellate Body confronted a delicate compromise by members that undergirds the language of Articles 3.4 and 3.5 of the Antidumping Agreement. Through a reasonably small industry and smaller still instantiation of dumping, the dispute takes on these major political and legal challenges. Unfortunately, however, the Appellate Body's determinations create more questions than they answer. The authors examine these complexities and elucidate their impact for future disputes as well as for the politicized circumstances of the Appellate Body.

In Korea–Radionuclides, Brewster and Fischer address the ongoing dispute regarding Korea's sanitary and phytosanitary (SPS) measures on Japanese fishery products. After the 2011 Fukushima Dai-ichi nuclear plant meltdown, multiple WTO Members imposed restrictions on Japanese seafood. China, Taiwan, and Korea imposed import bans on fish from the Fukushima area. By 2015, the Japanese government declared that its fish were safe, as testing found almost none containing radioactive material above international action levels. Japan initiated a WTO dispute against Korea to test the legality of maintaining the import ban under the SPS Agreement. Korea was an attractive respondent, being a significant export market but less diplomatically costly to sue than China. Japan largely won at the panel level, but its initial victory was overturned by the Appellate Body based on a faulty legal analysis by the panel. However, the Appellate Body did not rule that Korea's SPS measures were legal, ultimately offering little new insight into reconciling precaution and scientific justification in WTO-compliant SPS measures. The loss may thus not materially affect Japan's bargaining with China and Taiwan over their seafood bans. More important to current state-to-state bargaining, however, is the possible recontamination of some Japanese waters from the final clean-up of the Fukushima Dai-ichi nuclear plant.

The Morocco–Hot Rolled Steel (Turkey) dispute revolved around the WTO compatibility of an antidumping investigation that had found material retardation of the establishment of a domestic industry as the relevant injury. Crowley and Ortino show that while the Panel found that Morocco had acted inconsistently with a number of WTO obligations in the Antidumping Agreement, it did not review the definition of an ‘unestablished’ industry given by the domestic investigating authority in its determination of injury. The authors argue that the panel ruling may represent a missed opportunity to clarify the scope of antidumping policy as a more flexible instrument to protect a newly developing industry. They offer, first, a few elements that may explain the Panel's unwillingness to take up the challenge and, second, an initial assessment of the criteria that would be relevant in evaluating the existence of an unestablished industry.

McDaniel and Vermulst present a legal-economic analysis of the Article 22.6 arbitration report in the US–Anti-Dumping Methodologies (China) dispute. With 25 antidumping duty determinations, three methodologies to consider (weighted average-to-transaction; single rate presumption; and zeroing), across various products and firms, quantifying the extent to which subject trade flows were hindered from only the inconsistent duties was nearly an impossible task. A further complication was that only certain elements of the orders had been found to be WTO-inconsistent. The authors argue that the Arbitrator's counterfactual design was extreme and opens the door for re-litigating a case by including violations in the context of arguing a reasonable counterfactual that were never claimed in the original investigation and therefore never properly litigated. While the US Department of Commerce may have incorrectly calculated the separate rate duty in some investigations, it seems unlikely that it would have done so in each and every one of the 25 investigations that formed the basis for the Arbitrator's decision.

US–Countervailing Measures (China) (21.5) involves the question of whether the United States has complied with an earlier AB decision on methodologies used by the US Department of Commerce in deciding countervailing duty cases against imports from China. Nelson examines the central issue of whether state-owned enterprises are agents of the Chinese government (i.e. are ‘public bodies’), and whether their presence in the market is sufficient to distort the relevant market away from the undistorted case to justify use of data from third markets to determine subsidy margins and duties. The AB's determination in the original dispute satisfied neither party. This paper seeks to understand the political and economic fundamental of this disagreement and the potential for a new rules-based subsidy regime that would be satisfactory for all parties.

In Ukraine–Ammonium Nitrate, Russia's dual pricing in the natural gas market was under examination. Herghelegiu and Rubini start with how the Appellate Body did not allow Ukraine to consider the Russian government's domestic price controls on natural gas, the main input in the production of ammonium nitrate, in its dumping determinations. More precisely, the Appellate Body rejected Ukraine's decision to disregard the recorded costs and rely instead on the export price of Russian natural gas at the German border, adjusted for transport expenses, as a surrogate price. After analyzing the characteristics of the natural gas market and its implications for the ammonium nitrate market in Russia, the authors provide an economic assessment of whether the benchmark price used by Ukraine is appropriate given the characteristics of the Russian natural gas market and potential alternatives. They then review the Anti-Dumping Agreement and concur with the interpretation of the Appellate Body for systemic reasons: the Anti-Dumping Agreement should only regulate private pricing behavior and not state price controls and subsidies. The economic analysis shows that Russian dual pricing indeed operated as a subsidy, as evolution of ammonium nitrate prices follows closely the evolution of prices in the natural gas market. Thus, the dual pricing strategy of Russia regarding natural gas seems to have conferred a financial benefit to the Russian producers of ammonium nitrate, similar to an export subsidy, giving them a competitive edge with respect to their Ukrainian counterparts. However, their analysis also shows that dual pricing cannot be easily regulated under current WTO subsidy disciplines, leading them to conclude that there is a gap in the law.

The Russia–Measures Concerning Traffic in Transit Panel report offers the first formal analysis of the national security exceptions arising from a dispute between Russia and Ukraine. Crivelli and Pinchis-Paulsen assess how, in the particular circumstances of this case, the Panel found that, counter to Russia's assertions, GATT Article XXI:b(iii) was not totally self-judging and that it had jurisdiction to assess Russia's invocation of the exceptions. But satisfaction of its mandate would not be easy, as Russia refused to submit any legal arguments or factual evidence to indicate it met the Article XXI:b(iii) requirements. The authors suggest competing lessons from this case. On one hand, the Panel delivered an analytical framework for future panels to assess essential security interests in the sense of Article XXI:b(iii). However, its evaluation of Russia's invocation of the security exceptions carried on despite the complainant's protestation that Russia failed to meet its burden of proof and persuasion. Moreover, economic analysis directly questions the plausibility of Russia's measures and their application. Is it politically feasible to conclude that national security measures must be in fact justifiable? It remains an open question whether such a high standard is possible considering the reality of such highly sensitive disputes.

In India–Export Measures, the United States successfully challenged a range of Indian subsidies as export-contingent, which were thus prohibited under the ASCM. Dhingra and Meyer start by describing how the US challenge was brought shortly after India obtained enough wealth so that it graduated from the ASCM's protections for developing countries’ export contingent-subsidies. But while the US challenge was partially about enforcing a level playing field between large, fast-growing developing economies and developed countries, the authors show that the challenge was also motivated by import competition concerns, especially in the politically influential metals and pharmaceutical sectors. Indeed, just as the Trump administration was supposedly trying to bring down prescription drug prices, it pursued a WTO challenge that would have the effect of reducing subsidies for imported generic drugs. The authors reflect on what such challenges mean for future trade rules governing industrial policy. In particular, they highlight the need for greater transparency in trade enforcement policy, in order to ensure transparency in how governments make tradeoffs among trade and other domestic policies.