WTO CASE REVIEW 2011 # Raj Bhala & David A. Gantz **

WTO CASE REVIEW 2011 # Raj Bhala & David A. Gantz ** # This WTO Case Review is the twelfth in our annual series on substantive international trade adjudications issued by the Appellate Body of the World Trade Organization. Each Review explains and comments on Appellate Body reports adopted by the WTO Dispute Settlement Body during the preceding calendar year (January 1 through December 31), excluding decisions on compliance with recommendations contained in previously adopted reports. Our preceding Reviews are: WTO Case Review 2010, 28 ARIZ. J. INT L & COMP. L. 239 360 (2011). WTO Case Review 2009, 27 ARIZ. J. INT L & COMP. L. 83 190 (2010). WTO Case Review 2008, 26 ARIZ. J. INT L & COMP. L. 113 228 (2009). WTO Case Review 2007, 25 ARIZ. J. INT L & COMP. L. 75 155 (2008). WTO Case Review 2006, 24 ARIZ. J. INT L & COMP. L. 299 387 (2007). WTO Case Review 2005, 23 ARIZ. J. INT L & COMP. L. 107 345 (2006). WTO Case Review 2004, 22 ARIZ. J. INT L & COMP. L. 99 249 (2005). WTO Case Review 2003, 21 ARIZ. J. INT L & COMP. L. 317 439 (2004). WTO Case Review 2002, 20 ARIZ. J. INT L & COMP. L. 143 289 (2003). WTO Case Review 2001, 19 ARIZ. J. INT L & COMP. L. 457 642 (2002). WTO Case Review 2000, 18 ARIZ. J. INT L & COMP. L. 1 101 (2001). We are grateful to the editors and staff of the Arizona Journal of International and Comparative Law for their excellent editorial assistance and continuing support of our work over this lengthy period. The WTO reports we discuss are available on the WTO website, at www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm. The texts of the WTO agreements we discuss also are available on the WTO website (www.wto.org/english/ docs_e/legal_e/legal_e.htm) and are published in a variety of sources, including RAJ BHALA, INTERNATIONAL TRADE LAW: INTERDISCIPLINARY THEORY AND PRACTICE DOCUMENTS SUPPLEMENT (3d ed. 2008). Rice Distinguished Professor, University of Kansas School of Law (www.law.ku.edu), and Foreign Legal Consultant, Heenan Blaikie, L.L.P., Canada. J.D., Harvard (1989); M.Sc., Oxford (1986); M.Sc., London School of Economics (1985); A.B., Duke (1984). Postal address: Green Hall, 1535 West 15th Street, Lawrence, KS 66045-7577 U.S.A. Tel. 785-864-9224. Fax. 785-864-5054. Marshall Scholar (1984 86). Member, Council on Foreign Relations, Royal Society for Asian Affairs, and Fellowship of Catholic Scholars. Author of the monograph TRADE, DEVELOPMENT, AND SOCIAL JUSTICE (2003), treatise MODERN GATT LAW (2005), textbook INTERNATIONAL TRADE LAW: INTERDISCIPLINARY THEORY AND PRACTICE (3d ed. 2008), reference book DICTIONARY OF INTERNATIONAL TRADE LAW (2008), and textbook UNDERSTANDING ISLAMIC LAW (SHARĪ A) (2011). The author expresses his gratitude to Shannon B. Keating, of Apple Valley, Minn., J.D. candidate 2013, for her indispensable research and drafting assistance, particularly on the Cigarettes, Fasteners, and Tyres cases reviewed herein. ** Samuel M. Fegtly Professor of Law and Director of the International Trade Law Program, University of Arizona, James E. Rogers College of Law (www.law.arizona.edu). J.D., J.S.M., Stanford Law School (1967, 1970); A.B., Harvard College (1964). Tel. 520-621-1801. Fax. 520-621-9140; gantz@law.arizona.edu. Publications: NAFTA AND FREE TRADE IN THE AMERICAS (with Ralph Folsom & Michael Gordon) (2d ed. 2005); REGIONAL

TRADE AGREEMENTS: LAW, POLICY AND PRACTICE (2009); TRADE REMEDIES IN NORTH AMERICA (with Greg Bowman, Nick Covelli & Ihn Uhm) (2010); and WORLD TRADE LIBERALIZATION AFTER DOHA: MULTILATERAL, REGIONAL AND NATIONAL APPROACHES (forthcoming 2013).

Table of Contents I. INTRODUCTION... 295 II. DISCUSSION OF THE 2011 CASE LAW FROM THE APPELLATE BODY... 297 A. GATT Obligations... 297 1. Citation... 297 Appellate Body Report, Thailand Customs and Fiscal Measures on Cigarettes from the Philippines, WT/DS371/AB/R (June 17, 2011) (adopted July 15, 2011) (complaint by the Philippines). 2. Facts... 298 a. Thai VAT Regime Generally... 298 b. Cigarettes Under the VAT Regime: Reference Pricing... 300 c. Cigarettes Under the VAT Regime: Exemption... 301 d. VAT-Related Administrative Requirements... 303 3. GATT Article III:2, First Sentence, and Its Scope in Relation to Article III:4: Issue and Holding on Appeal... 304 4. GATT Article III:4: Potential Distortion of Conditions of Competition... 308 5. Commentary... 312 a. Unfortunate Language... 312 b. Reference Pricing and Government Revenues... 312 c. Unsurprising Results... 313

B. Trade Remedies: Anti-Dumping... 314 1. Citation... 314 Appellate Body Report, European Communities Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China, WT/DS397/AB/R (July 15, 2011) (adopted July 28, 2011). 2. Facts and Legal Background... 314 3. Key Issues on Appeal... 319 4. Principal Holdings and Rationale... 324 a. Appellate Body Holding on As Such Violation of Basic AD Regulation Article 9(5)... 324 b. Interpretation of Article 6:10 of the AD Agreement... 324 c. Interpretation of Article 9:2 of the AD Agreement... 326 d. Application of Articles 6:10 and 9:2 of the AD Agreement... 329 e. Appellate Body Holding on As Applied Violation of Basic AD Regulation Article 9(5)... 332 f. Definition of Domestic Industry Under Articles 3.1 and 4.1, AD Agreement... 333 g. The Principal Holding on Individualized Calculation of Export Price... 335 5. Commentary... 335 a. Increasing the Burden on the Investigating Authority... 335 b. Similar Questions in U.S. NME Anti-dumping Practice: Separate Rates... 336 c. Compliance... 337

C. Trade Remedies: Countervailing Duties... 338 1. Citation... 338 Appellate Body Report, European Communities and Certain Member States Measures Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R (May 18, 2011) (adopted June 1, 2011) (complaint by the United States). 2. Background... 338 a. Lengthy, Tortuous Reading... 338 b. Who Is the Worst Offender?... 339 c. History of Airbus... 340 3. Synopsis of Key Facts and Conclusions... 342 a. Launch Aid Measures (Member State Financing)... 343 b. Preferential Lending Measures... 349 c. Corporate Restructuring Measures... 349 d. Infrastructure Measures... 350 e. Research and Technological Development Measures... 352 4. Five Key Appellate Issues and Holdings... 354 a. Extinction or Withdrawal of Benefit... 356 b. Conferral of Benefit and Market Interest Rate Benchmark... 364 c. Specificity of and Benefit from Subsidies (SCM Agreement Articles 1 and 2)... 374 d. Yellow Light Subsidies and Adverse Effects in the Form of Serious Prejudice (GATT Article XVI:1 and SCM Agreement Articles 5 and 6)... 382 1) Two-Step Versus Unitary Approach... 382

2) Serious Prejudice... 384 3) Causation and Launch Aid Subsidies... 391 4) Causation and Subsidies Other Than Launch Aid... 394 e. Red Light (Prohibited) Export Subsidies (SCM Agreement Article 3)... 396 1) Overview of Appellate Body Findings... 396 2) Panel Mistakes... 398 3) Correct Test for De Facto Export Contingency: Distorting Market Supply and Demand Incentives... 402 4) Applying the Correct Test to the Facts of Launch Aid... 407 5) Emphasizing the Distinction Between Granting a Subsidy in Anticipation of Exportation (Footnote 4) and De Facto Contingency on Exportation Based on Market Demand and Supply Distortions (Article 3:1(a))... 411 5. Commentary... 413 a. The Obvious Comment... 413 b. Inconsistent Standards?... 414 c. Shades of Marxism?... 415 d. Lowering the Legal Standard on Countervailing Pre-Privatization Subsidies?... 416 D. Trade Remedies: Anti-Dumping, Countervailing Duties, and Non-Market Economies... 417 1. Citation... 417 Appellate Body Report, United States Definitive Anti- Dumping and Countervailing Duties on Certain Products from

China, WT/DS379/AB/R (March 11, 2011) (adopted March 25, 2011). 2. Introduction and Background... 417 3. Principal Issues on Appeal... 421 4. Holdings and Rationale... 422 a. Demonstrating That SOEs and SOCBs Are Public Bodies... 422 b. Specificity Requirements Under the SCM Agreement... 427 c. Calculation of Benefit Through the Use of Out-of-Country Benchmarks... 431 1) Out-of-Country Benchmarks for Hot Rolled Steel... 432 2) Use of External Proxy Interest Benchmarks: SCM Agreement Article 14(b)... 436 3) Rejection of Chinese Interest Rates as Benchmarks... 438 4) Proxy Benchmarks Used by the DOC... 439 d. Double Counting of Anti-Dumping and CVDs... 440 5. Commentary... 448 a. More Work for the Investigating Authority in Demonstrating That SOEs and SOCBS Are Public Bodies... 448 b. The Appellate Body Reaches the Obvious Conclusion on Double Counting... 450 c. U.S. Court of Appeals for Federal Circuit Voids the DOC s NME CVD Practice on Other Grounds... 450 d. Implementation by the United States... 453

E. Trade Remedies: Special Safeguards Against China... 453 1. Citation... 453 Appellate Body Report, United States Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tyres from China, WT/DS399/AB/R (September 5, 2011) (adopted October 5, 2011) (complaint by China). 2. Background... 453 3. Appellate Issue One and Holdings... 455 a. Standard for Imports Increasing Rapidly?... 456 b. Applying the Increasing Rapidly Standard... 459 c. Argument About Most Recent Period... 459 d. Argument About Rate of Increase in Subject Tires... 460 e. Argument About Comparison of Rates of Increase in Subject Tires... 461 4. Appellate Issue Two and Holdings... 462 a. Standard for Significant Cause?... 462 b. Applying the Causation Standard... 466 c. Argument About Conditions of Competition... 467 d. Argument About Correlation Between Increases in Subject Merchandise and Injury... 470 e. Argument About Other Causes of Injury... 472 5. Commentary... 475 a. Extending Existing Trade Remedy Jurisprudence to Protocol-Based Remedies... 475 b. Safeguards, Politics, and Consolation for China... 476