China – measures related to the exportation
of rare earths, tungsten, and molybdenum
AB-2014-3
AB-2014-5
AB-2014-6
Reports
of the Appellate Body
The Appellate Body
is issuing these Reports in the form of a single document constituting three
separate Appellate Body Reports: WT/DS431/ABR; WT/DS432/AB/R; and
WT/DS433/AB/R. The cover page, preliminary pages, sections 1 through 5, and the
annexes are common to all three Reports. The page header throughout the
document bears the three document symbols WT/DS431/ABR; WT/DS432/AB/R; and
WT/DS433/AB/R, with the following exceptions: section 6 on pages US-154 to US-155,
which bears the document symbol for and contains the Appellate Body's
conclusions and recommendations in the Appellate Body Report WT/DS431/AB/R;
section 6 on pages EU-156 to EU-157, which bears the document symbol for and
contains the Appellate Body's conclusions and recommendations in the Appellate
Body Report WT/DS432/AB/R; and section 6 on pages JPN-158 to JPN-159, which bears
the document symbol for and contains the Appellate Body's conclusions and
recommendations in the Appellate Body Report WT/DS433/AB/R.
Table of Contents
1 Introduction.. 16
1.1 Panel
proceedings. 17
1.2 Appellate
proceedings. 22
1.3 Procedural
issues raised in these appeals. 24
1.3.1
Allocation of appeal numbers. 24
1.3.2 China's challenge to the United States'
Notice of Appeal and request for an extension of the time periods for filing
submissions. 24
1.3.3 Consolidation of the appellate proceedings
and Japan's request for an extension of the time period for filing third
participants' submissions. 25
1.3.4
Requests by the complainants for
separate reports. 26
2 arguments of the participants and third
participants. 26
2.1 Claims
of error by the United States – Appellant (DS431). 26
2.2 Arguments
of China – Appellee (DS431). 28
2.3 Claims
of error by China – Appellant (DS432 and DS433) and other appellant (DS431) 29
2.3.1 Article XII:1 of the Marrakesh Agreement and
Paragraph 1.2 of China's Accession Protocol 29
2.3.1.1 Paragraph 1.2 of China's Accession
Protocol 29
2.3.1.2 Article XII:1 of the Marrakesh
Agreement 31
2.3.1.3 The relationship between China's
Accession Protocol, on the one hand, and the Marrakesh Agreement and the Multilateral
Trade Agreements annexed thereto, on the other hand. 32
2.3.2
Article XX(g) of the GATT 1994. 33
2.3.2.1 Article XX(g) – "Relating
to" the conservation of exhaustible natural resources. 33
2.3.2.2 Article XX(g) – "Made effective
in conjunction with" restrictions on domestic production or consumption. 38
2.4 Arguments
of the United States – Appellee (DS431) and third participant (DS432 and DS433) 44
2.4.1 Article XII:1 of the Marrakesh Agreement and
Paragraph 1.2 of China's Accession Protocol 44
2.4.1.1 Paragraph 1.2 of China's Accession
Protocol 45
2.4.1.2 Article XII:1 of the Marrakesh
Agreement 46
2.4.1.3 The relationship of accession
protocol provisions with the Marrakesh Agreement and the Multilateral Trade
Agreements annexed thereto. 47
2.4.2
Article XX(g) of the GATT 1994. 48
2.4.2.1 Article XX(g) – "Relating
to" the conservation of exhaustible natural resources. 48
2.4.2.2
Article XX(g) – "Made effective in conjunction with" restrictions on
domestic production or consumption. 51
2.5 Arguments
of the European Union – Appellee (DS432) and third participant (DS431 and
DS433). 54
2.5.1 Article XII:1 of the Marrakesh Agreement and
Paragraph 1.2 of China's Accession Protocol 54
2.5.1.1 Paragraph 1.2 of China's Accession
Protocol 54
2.5.1.2 Article XII:1 of the Marrakesh
Agreement 56
2.5.1.3 The relationship of accession
protocol provisions with the Marrakesh Agreement and the Multilateral Trade
Agreements annexed thereto. 56
2.5.2
Article XX(g) of the GATT 1994. 57
2.5.2.1 Article XX(g) – "Relating
to" the conservation of exhaustible natural resources. 57
2.5.2.2 Article XX(g) – "Made effective
in conjunction with" restrictions on domestic production or consumption. 61
2.6 Arguments
of Japan – Appellee (DS433) and third participant (DS431 and DS432) 65
2.6.1 Article XII:1 of the Marrakesh Agreement and
Paragraph 1.2 of China's Accession Protocol 65
2.6.1.1 Paragraph 1.2 of China's Accession
Protocol 65
2.6.1.2 Article XII:1 of the Marrakesh
Agreement 66
2.6.1.3 The relationship of accession
protocol provisions with the Marrakesh Agreement and the Multilateral Trade
Agreements annexed thereto. 67
2.6.2
Article XX(g) of the GATT 1994. 68
2.6.2.1 Article XX(g) – "Relating
to" the conservation of exhaustible natural resources. 68
2.6.2.2 Article XX(g) – "Made effective in
conjunction with" restrictions on domestic production or consumption. 71
2.7 Arguments
of the third participants. 74
2.7.1
Argentina. 74
2.7.2
Australia. 75
2.7.3
Brazil 75
2.7.4
Canada. 77
2.7.5
Colombia. 79
2.7.6
European Union. 79
2.7.7
Korea. 79
2.7.8
Norway. 80
2.7.9
Russia. 80
2.7.10
Saudi Arabia. 80
2.7.11
Turkey. 81
3 issues raised in these appeals. 82
4
BACKGROUND AND OVERVIEW OF THE
MEASURES AT ISSUE. 83
5
analysis of the appellate body. 87
5.1 Article XII:1 of the Marrakesh Agreement
and Paragraph 1.2 of China's Accession Protocol 87
5.1.1 Introduction. 87
5.1.2 The Panel's findings. 88
5.1.2.1
The context in which the Panel findings subject to appeal were made. 88
5.1.2.2
The Panel findings appealed by China. 89
5.1.2.3
Overview of the claims and arguments by the participants. 91
5.1.3 Interpretation
of Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of China's
Accession Protocol 92
5.1.3.1 .................................................................................................................... Introduction. 92
5.1.3.2 ....................................................................... Article
XII:1 of the Marrakesh Agreement 93
5.1.3.3 ................................................................... Paragraph
1.2 of China's Accession Protocol 97
5.1.3.4 The relationship between China's Accession Protocol, on the
one hand, and the Marrakesh Agreement and the Multilateral Trade Agreements
annexed thereto, on the other hand. 102
5.1.3.5 ...................................................................................................................... Conclusion. 108
5.2 Article XX(g)
of the GATT 1994. 109
5.2.1
China's claims under Article XX(g)
of the GATT 1994. 109
5.2.2
The Panel's findings. 110
5.2.3
The Panel findings appealed by China. 111
5.2.4
Article XX(g) of the
GATT 1994 as a whole. 112
5.2.5
China's claim that the Panel erred in
its interpretation of the term "relating to". 116
5.2.6 China's claims that the Panel erred in its
interpretation of the phrase "made effective in conjunction with"
restrictions on domestic production or consumption. 121
5.2.7
Application of Article XX(g) of
the GATT 1994. 126
5.2.7.1 .................................................................................................................... Introduction. 126
5.2.7.2
..... China's claim that the Panel
erred in its application of the "relating to" requirement 126
5.2.7.3 China's
claims that the Panel erred in its application of the "made effective in
conjunction with" requirement 132
5.2.8
China's claims under Article 11 of
the DSU. 135
5.2.8.1 Claims
that the Panel failed to comply with Article 11 of the DSU in its analysis
of whether China's export quotas "relate to" conservation. 136
5.2.8.2
Claims that the Panel failed to
comply with Article 11 of the DSU in its analysis of whether China's export
quotas were "made effective in conjunction with" restrictions on
domestic production or consumption 144
5.2.9
Overall summary and conclusion on
Article XX(g) of the GATT 1994. 150
5.3 Exclusion
of Panel Exhibits JE-188 through JE-197 in DS431 (Appeal by the
United States) 152
6 findings and conclusions in the
appellate body report in ds431. US-154
6 findings and conclusions in the appellate body report in
ds432. EU-156
6 findings and conclusions in the appellate body report in
ds433. JPN-158
ANNEX 1 Notification of an Appeal by the United States, WT/DS431/9..................................... 160
ANNEX 2 Notification of an Other Appeal by China, WT/DS431/10............................................ 161
ANNEX 3 Notification of an Appeal by China, WT/DS432/9, WT/DS433/9.................................. 164
ANNEX 4 Appellate Body Procedural Ruling of 13 April 2014.................................................... 167
ANNEX 5 Appellate Body Procedural Ruling of 1 May 2014....................................................... 173
CASES
CITED IN THese REPORTs
|
Short Title
|
Full Case Title and Citation
|
|
Argentina – Footwear (EC)
|
Appellate Body Report, Argentina
– Safeguard Measures on Imports of Footwear, WT/DS121/AB/R,
adopted 12 January 2000, DSR 2000:I, p. 515
|
|
Argentina – Footwear (EC)
|
Panel Report, Argentina – Safeguard
Measures on Imports of Footwear, WT/DS121/R, adopted
12 January 2000, as modified by Appellate Body Report WT/DS121/AB/R,
DSR 2000:II, p. 575
|
|
Argentina – Textiles and
Apparel
|
Appellate Body Report, Argentina
– Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items,
WT/DS56/AB/R and Corr.1, adopted 22 April 1998, DSR 1998:III,
p. 1003
|
|
Australia – Salmon
|
Appellate Body Report, Australia
– Measures Affecting Importation of Salmon, WT/DS18/AB/R, adopted
6 November 1998, DSR 1998:VIII, p. 3327
|
|
Brazil – Retreaded Tyres
|
Appellate Body Report, Brazil –
Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R,
adopted 17 December 2007, DSR 2007:IV, p. 1527
|
|
Canada – Continued Suspension
|
Appellate Body Report, Canada –
Continued Suspension of Obligations in the EC – Hormones Dispute,
WT/DS321/AB/R, adopted 14 November 2008, DSR 2008:XIV, p. 5373
|
|
Canada – Herring and Salmon
|
GATT Panel
Report, Canada – Measures Affecting Exports of
Unprocessed Herring and Salmon, L/6268, adopted 22 March 1988,
BISD 35S, p. 98
|
|
Chile – Price Band System
|
Appellate Body Report, Chile –
Price Band System and Safeguard Measures Relating to Certain Agricultural
Products, WT/DS207/AB/R, adopted 23 October 2002,
DSR 2002:VIII, p. 3045 (Corr.1, DSR 2006:XII, p. 5473)
|
|
Chile – Price Band System
(Article 21.5 – Argentina)
|
Appellate Body Report, Chile –
Price Band System and Safeguard Measures Relating to Certain Agricultural
Products – Recourse to Article 21.5 of the DSU by Argentina,
WT/DS207/AB/RW, adopted 22 May 2007, DSR 2007:II, p. 513
|
|
China – GOES
|
Appellate Body Report, China –
Countervailing and Anti-Dumping Duties on Grain Oriented Flat-Rolled
Electrical Steel from the United States, WT/DS414/AB/R, adopted 16 November 2012
|
|
China – Publications and
Audiovisual Products
|
Appellate Body Report, China –
Measures Affecting Trading Rights and
Distribution Services for Certain Publications and Audiovisual Entertainment
Products, WT/DS363/AB/R, adopted 19 January 2010, DSR 2010:I,
p. 3
|
|
China – Publications and
Audiovisual Products
|
Panel Report, China – Measures Affecting Trading Rights and Distribution Services for
Certain Publications and Audiovisual Entertainment Products,
WT/DS363/R and Corr.1, adopted 19 January 2010, as modified by Appellate
Body Report WT/DS363/AB/R, DSR 2010:II, p. 261
|
|
China – Rare Earths
|
Panel Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten,
and Molybdenum, WT/DS431/R / WT/DS432/R / WT/DS433/R, circulated
to WTO Members 26 March 2014
|
|
China – Raw Materials
|
Appellate Body Reports, China –
Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R /
WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012
|
|
China – Raw Materials
|
Panel Reports, China –
Measures Related to the Exportation of Various Raw Materials, WT/DS394/R / WT/DS395/R /
WT/DS398/R / Add.1 and Corr.1, adopted 22 February 2012, as modified by
Appellate Body Reports WT/DS394/AB/R / WT/DS395/AB/R / WT/DS398/AB/R
|
|
EC – Asbestos
|
Appellate Body Report, European
Communities – Measures Affecting Asbestos and Asbestos‑Containing Products,
WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3243
|
|
EC –
Bananas III
(Article 21.5 – Ecuador II) /
EC – Bananas III
(Article 21.5 – US)
|
Appellate Body Reports, European
Communities – Regime for the Importation, Sale and Distribution of Bananas –
Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU, adopted 11 December 2008, and
Corr.1 / European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Recourse to Article 21.5
of the DSU by the United States, WT/DS27/AB/RW/USA and Corr.1,
adopted 22 December 2008, DSR 2008:XVIII, p. 7165
|
|
EC – Bed Linen
(Article 21.5 – India)
|
Appellate Body Report, European
Communities – Anti‑Dumping Duties on Imports of Cotton‑Type Bed Linen from
India – Recourse to Article 21.5 of the DSU by India, WT/DS141/AB/RW, adopted 24 April 2003,
DSR 2003:III, p. 965
|
|
EC –
Fasteners (China)
|
Appellate Body Report, European
Communities – Definitive Anti-Dumping Measures on Certain Iron or Steel
Fasteners from China, WT/DS397/AB/R, adopted 28 July 2011, DSR 2011:VII, p. 3995
|
|
EC – Hormones
|
Appellate Body Report, EC
Measures Concerning Meat and Meat Products (Hormones),
WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I,
p. 135
|
|
EC – Poultry
|
Appellate Body Report, European
Communities – Measures Affecting the Importation of Certain Poultry Products,
WT/DS69/AB/R, adopted 23 July 1998, DSR 1998:V, p. 2031
|
|
EC – Sardines
|
Appellate Body Report, European
Communities – Trade Description of Sardines, WT/DS231/AB/R,
adopted 23 October 2002, DSR 2002:VIII, p. 3359
|
|
EC – Seal
Products
|
Appellate Body Reports, European Communities – Measures Prohibiting the Importation and
Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted
18 June 2014
|
|
EC – Selected Customs Matters
|
Appellate Body Report, European
Communities – Selected Customs Matters, WT/DS315/AB/R, adopted
11 December 2006, DSR 2006:IX, p. 3791
|
|
EC – Tube or Pipe Fittings
|
Appellate Body Report, European
Communities – Anti‑Dumping Duties on Malleable Cast Iron Tube or Pipe
Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003,
DSR 2003:VI, p. 2613
|
|
EC and certain member States – Large Civil Aircraft
|
Appellate Body Report, European Communities and Certain Member States – Measures
Affecting Trade in Large Civil Aircraft, WT/DS316/AB/R,
adopted 1 June 2011, DSR 2011:I, p. 7
|
|
India – Patents (US)
|
Appellate Body Report, India –
Patent Protection for Pharmaceutical and Agricultural Chemical Products,
WT/DS50/AB/R, adopted 16 January 1998, DSR 1998:I, p. 9
|
|
Japan – Agricultural
Products II
|
Appellate Body Report, Japan –
Measures Affecting Agricultural Products, WT/DS76/AB/R, adopted
19 March 1999, DSR 1999:I, p. 277
|
|
Japan – Alcoholic
Beverages II
|
Appellate Body Report, Japan –
Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, p. 97
|
|
Japan – Apples
|
Appellate Body Report, Japan –
Measures Affecting the Importation of Apples, WT/DS245/AB/R, adopted
10 December 2003, DSR 2003:IX, p. 4391
|
|
Korea – Alcoholic Beverages
|
Appellate Body Report, Korea –
Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R, adopted
17 February 1999, DSR 1999:I, p. 3
|
|
Korea – Dairy
|
Appellate Body Report, Korea – Definitive
Safeguard Measure on Imports of Certain Dairy Products,
WT/DS98/AB/R, adopted 12 January 2000, DSR 2000:I, p. 3
|
|
Korea – Various Measures on
Beef
|
Appellate Body Report, Korea –
Measures Affecting Imports of Fresh, Chilled and Frozen Beef,
WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I,
p. 5
|
|
Thailand – Cigarettes
(Philippines)
|
Appellate Body Report, Thailand
– Customs and Fiscal Measures on Cigarettes from the Philippines,
WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV,
p. 2203
|
|
US – Canadian Tuna
|
GATT Panel
Report, United States – Prohibition of Imports of Tuna
and Tuna Products from Canada, L/5198, adopted 22 February 1982,
BISD 29S, p. 91
|
|
US – Carbon Steel
|
Appellate Body Report, United
States – Countervailing Duties on Certain Corrosion‑Resistant Carbon Steel
Flat Products from Germany, WT/DS213/AB/R and Corr.1, adopted 19
December 2002, DSR 2002:IX, p. 3779
|
|
US – Clove Cigarettes
|
Appellate Body Report, United
States – Measures Affecting the Production and Sale of Clove Cigarettes, WT/DS406/AB/R, adopted
24 April 2012, DSR 2012: XI, p. 5751
|
|
US – Continued Suspension
|
Appellate Body Report, United
States – Continued Suspension of Obligations in the EC – Hormones Dispute,
WT/DS320/AB/R, adopted 14 November 2008, DSR 2008:X, p. 3507
|
|
US – Countervailing and Anti‑Dumping
Measures (China)
|
Appellate Body Report, United
States – Countervailing and Anti-Dumping Measures on Certain Products from
China, WT/DS449/AB/R, adopted
22 July 2014
|
|
US – Gambling
|
Appellate Body Report, United
States – Measures Affecting the Cross‑Border Supply of Gambling and Betting
Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII,
p. 5663 (Corr.1, DSR 2006:XII, p. 5475)
|
|
US – Gasoline
|
Appellate Body Report, United
States – Standards for Reformulated and Conventional Gasoline,
WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3
|
|
US – Large Civil Aircraft (2nd
complaint)
|
Appellate Body Report, United
States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint), WT/DS353/AB/R, adopted 23
March 2012
|
|
US – Oil Country Tubular Goods
Sunset Reviews
|
Appellate Body Report, United
States – Sunset Reviews of Anti‑Dumping Measures on Oil Country Tubular Goods
from Argentina, WT/DS268/AB/R, adopted 17 December 2004,
DSR 2004:VII, p. 3257
|
|
US – Section 301 Trade Act
|
Panel Report, United States – Sections
301‑310 of the Trade Act of 1974, WT/DS152/R, adopted
27 January 2000, DSR 2000:II, p. 815
|
|
US – Shrimp
|
Appellate Body Report, United
States – Import Prohibition of Certain Shrimp and Shrimp Products,
WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, p. 2755
|
|
US – Shrimp
|
Panel Report, United States – Import
Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/R and
Corr.1, adopted 6 November 1998, as modified by Appellate Body Report
WT/DS58/AB/R, DSR 1998:VII, p. 2821
|
|
US – Shrimp (Thailand) /
US – Customs Bond Directive
|
Appellate Body Report, United
States – Measures Relating to Shrimp from Thailand / United States – Customs
Bond Directive for Merchandise Subject to Anti‑Dumping/Countervailing Duties,
WT/DS343/AB/R / WT/DS345/AB/R, adopted 1 August 2008, DSR 2008:VII,
p. 2385 / DSR 2008:VIII, p. 2773
|
|
US – Stainless Steel (Mexico)
|
Appellate Body Report, United
States – Final Anti‑Dumping Measures on Stainless Steel from Mexico,
WT/DS344/AB/R, adopted 20 May 2008, DSR 2008:II, p. 513
|
|
US – Steel Safeguards
|
Appellate Body Report, United
States – Definitive Safeguard Measures on Imports of Certain Steel Products,
WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R,
WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R, adopted 10 December 2003,
DSR 2003:VII, p. 3117
|
|
US – Tyres (China)
|
Appellate Body Report, United
States – Measures Affecting Imports of Certain Passenger Vehicle and Light
Truck Tyres from China,
WT/DS399/AB/R, adopted 5 October 2011, DSR 2011:IX, p. 4811
|
|
US – Upland Cotton
(Article 21.5 – Brazil)
|
Appellate Body Report, United
States – Subsidies on Upland Cotton – Recourse to Article 21.5 of the
DSU by Brazil, WT/DS267/AB/RW, adopted 20 June 2008,
DSR 2008:III, p. 809
|
|
US – Wheat Gluten
|
Appellate Body Report, United
States – Definitive Safeguard Measures on Imports of Wheat Gluten from the
European Communities, WT/DS166/AB/R, adopted 19 January 2001,
DSR 2001:II, p. 717
|
Panel exhibitS
CITED IN THese reports
|
Exhibit No.
|
Short title (if
any)
|
Full title
|
|
Submitted by China
|
|
CHN-1
|
|
Information Office of the State Council, The People's Republic of
China, "Situation and Policies of China's Rare Earth Industry"
(Beijing, June 2012)
|
|
CHN-4
|
|
S. Shaw and J. Chegwidden, "Global Drivers for Rare Earth
Demand", Roskill Information Services
(August 2012)
|
|
CHN-6
|
|
M. Humphries, "Rare Earth Elements: The Global Supply
Chain", Congressional Research Service
(6 September 2011)
|
|
CHN-8
|
2012 Export Licensing Catalogue
|
Notice on "2012 Export Licensing Management Commodities
List" (MOFCOM and General Administration of Customs, Notice (2011) No.
98, promulgated on 30 December 2011, effective on 1 January 2012)
|
|
CHN-11
|
Foreign Trade Law
|
Foreign Trade Law of the People's Republic of China (adopted at the
7th Session of the Standing Committee of the Eighth National People's
Congress on 12 May 1994, and amended at the 8th Session of the Standing
Committee of the Tenth National People's Congress on 6 April 2004, effective
on 1 July 2004)
|
|
CHN‑13
|
Several
Opinions of the State Council on Promoting the Sustainable and Sound
Development of the Rare Earth Industry
|
Several
Opinions of the State Council on Promoting the Sustainable and Sound
Development of the Rare Earth Industry (Guo Fa [2011] No. 12, 10 May
2011)
|
|
CHN-21
|
Administration
of Directive Production Plan of Rare Earths
|
Provisional
Measures on the Administration of the Directive Production Plan of Rare Earth
(Ministry of Industry and Information Technology, Gong Xin Bu Yuan [2012] No.
285, 13 June 2012)
|
|
CHN-24
|
|
Australian Atlas on Minerals and Mines: Rare Earths, available online
at: http://www.australiaminesatlas.gov.au, accessed on 11 November 2012
|
|
CHN-38
|
2012 Application Qualifications and Procedures for Rare Earth Export
Quotas
|
Public Notice on 2012 Application Qualifications and Application
Procedures for Rare Earth Export Quota, Notice (2011) No. 77, promulgated by
MOFCOM on 11 November 2011
|
|
CHN-39
|
|
Circular of the Ministry of Land and Resources on Carrying out the
Nationwide Special Rectification Campaign of the Exploitation Order of Rare
Earth and Other Minerals (Guo Tu Zi Fa [2010] No. 68, 10 May 2010)
|
|
CHN-54
|
Regulations on the Administration of the Import and Export of Goods
|
Regulations of the People's Republic of China on the Administration of
the Import and Export of Goods (Order of the State Council No. 332, adopted
at the 46th executive meeting of the State Council on
31 October 2001, effective on 1 January 2002)
|
|
CHN-55
|
2012 List of Enterprises for the Export of Rare Earths 2012
|
Notice Publishing Online the List of Enterprises Applying for the
Export Quota for Rare Earths and Coke in 2012 (MOFCOM, 14 December 2011)
|
|
CHN-56
|
2012 First Batch Rare Earth Export Quotas
|
2012 Notification on List of Rare Earth Exporting Enterprises and First
Batch Rare Earth Export Quota (MOFCOM, Shangmaohan [2011] No. 1133,
27 December 2011)
|
|
CHN-57
|
2012 First Batch Rare Earth Export Quotas (Supplement)
|
Notice Regarding the Supplement to the 2012 First Batch of Rare Earth
Export Quotas (MOFCOM, Shangmaopi [2012] No. 618, 16 May 2012)
|
|
CHN-58
|
2012 Second Batch Rare Earth Export Quotas
|
Notice on Distributing the 2012 Second Batch of Rare Earth Export
Quotas (MOFCOM, Shangmaohan [2012] No. 627, 16 August 2012)
|
|
CHN-63
|
Declaration
On the Setting Of 2012 Export Quotas on Rare Earth Products
|
Declaration
On the Setting Of 2012 Export Quotas on Rare Earth Products (Zhang Chenyang,
MOFCOM, 14 December 2012)
|
|
CHN-64
|
|
"Current
situation of China rare earth industry and outlook for '2011-2015'
period", China Rare Earths Information Journal,
Vol. 17, No. 12, December 2011, and Vol. 18, No. 1, January 2012
|
|
CHN‑85
|
Circular
on Establishing Team of Mining Zone Assistant Administrators for Ore
Districts of Rare Earths and Other Materials
|
Circular
on Establishing Team of Mining Zone Assistant Administrators for Ore
Districts of Rare Earths and Other Materials (General Office of Ministry of
Land and Resources, Guo Tu Zi Ting Han [2010] No. 52, 27 July 2010)
|
|
CHN-92
|
|
USGS Mineral Commodity Summaries 2012, "Tungsten"
|
|
CHN-96
|
Export Quota Administration Measures
|
Measures for the Administration of Export Commodities Quotas (Order of
the Ministry of Foreign Trade and Economic Cooperation (2011) No. 12, adopted
at the 9th ministerial office meeting of the Ministry of Foreign Trade and Economic
Cooperation of 2001, effective on 1 January 2002)
|
|
CHN-97
|
2012 Export Quota Amounts
|
Notice Regarding 2012 Export Quota Amounts for Agricultural and
Industrial Products (MOFCOM, Notice (2011) No. 71, promulgated on
31 October 2011, effective on 1 January 2012)
|
|
CHN-98
|
2012
List of Enterprises for the Export (or/and Supply) of Tungsten, and List of
Enterprises for the Export of Molybdenum
|
Notice Publishing the List of the State Trading Export Enterprises of
Tungsten, Antimony and Silver, the Enterprises Exporting and Supplying
Tungsten and Antimony, and the Enterprises Qualified to Apply for the Export
Quotas for Indium and Molybdenum in 2012 (MOFCOM, 14 December 2011)
|
|
CHN-99
|
2012 First Batch Export Quotas of Tungsten, Antimony and Other
Non-Ferrous Metals
|
2012 Notice on List of Export (Supply) Enterprises and First Batch
Export Quota of Tungsten, Antimony and Other Nonferrous Metals (MOFCOM, Shangmaohan, No. 1131, 26 December 2011)
|
|
CHN-100
|
2012 Application Qualifications and Application Procedures of Tungsten
Export (or Supply) Enterprises
|
Public Notice on 2012 Application Qualifications and Application
Procedures of the Tungsten, Antimony and Silver State Trading Export
Enterprises, and Tungsten and Antimony Export Supply Enterprises, Notice (2011)
No. 80, promulgated by MOFCOM on 11 November 2011
|
|
CHN-106
|
|
USGS Minerals Commodities Summaries 2012, "Molybdenum"
|
|
CHN-107
|
2012 Application Qualifications and Application Procedures for
Molybdenum Export Quota
|
Public Notice on 2012 Application Qualifications and Application
Procedures for Indium, Molybdenum and Tin Export Quota, Notice (2011) No. 79,
promulgated by MOFCOM on 11 November 2011
|
|
CHN-132
|
|
"Three
Concerns Behind the Prosperity of Rare Earth Listed Companies", 21st Century Business Herald, 2 August 2011
|
|
CHN-137
|
|
Rare
Earth Data (1999-2012)
|
|
CHN-139
|
|
Molybdenum Data (1999-2012) (this exhibit was updated by CHN-224)
|
|
CHN-157
|
Selected
Economic Issues Regarding Export Quotas and Production Quotas
|
Professor
Jaime de Melo, Expert Economic Report: "Selected Economic Issues
Regarding Export Quotas and Production Quotas" (April 2013)
|
|
CHN‑165
|
2012
Second Batch Export Quotas of Tungsten, Antimony and Other Non‑Ferrous Metals
|
Notice
on Distributing the 2012 Second Batch Export Quotas of Tungsten, Antimony and
Other Nonferrous Metals (MOFCOM, Shangmaohan (2012) No. 513, 19 July 2012)
|
|
CHN-186
|
|
Dr David Humphreys, "A response to expert evidence supplied with
their Second Written Submissions by the United States, the European Union and
Japan", Report prepared by Dr David Humphreys of DaiEcon Advisors (June
2013)
|
|
CHN-191
|
|
Updated Rare Earths Data (1999-2012)
|
|
CHN-192
|
|
"The impact of Chinese rare earth quotas on non-Chinese
exploration, development, demand and production", A review by J.R. Goode
(10 June 2013)
|
|
CHN-193
|
|
Rare Earths Recycling in China
|
|
CHN-196
|
|
Updated Rare Earths Prices, June 2013
|
|
CHN-200
|
|
Metal-Pages (http://www.metal-pages.com),
"Critical Minerals 2013: Rare earth prices to trade in bond of $50-70/kg
REO long term – Kingsnorth", 5 June 2013
|
|
CHN-206
|
Response by Professor Jaime de Melo to
Professor Grossman and Professor Winters' Expert Reports
|
Response to Expert Reports by Professor
Grossman (Panel Exhibit JE-164) and Professor Winters (Panel Exhibit JE-169),
Expert Economic Report prepared by Professor Jaime de Melo (July 2013)
|
|
CHN-214
|
|
"Introduction
of the Rare Earths Recycling in China", Association of China Rare Earth
Industry, 3 July 2012
|
|
CHN-224
|
|
Molybdenum Data (1999-2012) (Exhibit CHN-139 updated)
|
|
Submitted by the Complainants
|
|
(with corresponding Exhibit
Nos. submitted by China, if any)
|
Short title (if
applicable)
|
Full title
|
|
JE-23
|
|
Rare Earths, data produced by Daniel J. Cordier (US Geological Survey
(USGS), Mineral Commodity Summaries, January 2012)
|
|
JE-37
|
|
US Geological Survey (USGS) Mineral Commodity Summaries (2012):
Tungsten
|
|
JE-43
|
|
Roskill Consulting Group, Ltd., "Study of the market for
molybdenum" (November 2011)
|
|
JE-45
|
2012 Tariff Implementation Program
(Customs Tariff Commission)
|
Notice Regarding the 2012 Tariff
Implementation Program (State Council Customs Tariff Commission, Shuiweihui
(2011) No. 27, promulgated on 9 December 2011, effective on
1 January 2012)
|
|
JE-46
|
Regulations on Import and Export Duties
|
Regulations
of the People's Republic of China on Import and Export Duties (Order of the
State Council (2003) No. 392, adopted at the 26th executive meeting of the
State Council on 29 October 2003, effective on 1 January 2004)
|
|
JE-47
|
2012 Tariff Implementation Plan
(General Administration of Customs)
|
Circular
of the General Administration of Customs on the 2012 Tariff Implementation
Plan (2011) No. 79, promulgated on 23 December 2011, effective
on 1 January 2012
|
|
JE-48
(CHN-8)
|
2012 Export Licensing Catalogue
|
Notice
on "2012 Export Licensing Management Commodities List" (MOFCOM and
General Administration of Customs, Notice (2011) No. 98, promulgated on
30 December 2011, effective on 1 January
2012)
|
|
JE-49
(CHN-11)
|
Foreign Trade Law
|
Foreign
Trade Law of the People's Republic of China (adopted at the 7th Session of
the Standing Committee of the Eighth National People's Congress on 12 May
1994, and amended at the 8th Session of the Standing Committee of the Tenth
National People's Congress on 6 April 2004, effective on 1 July 2004)
|
|
JE-50
(CHN-54)
|
Regulations
on the Administration of the Import and Export of Goods
|
Regulation
of the People's Republic of China on the Administration of the Import and
Export of Goods (Order of the State Council No. 332, adopted at the 46th
executive meeting of the State Council on 31 October 2001, effective on
1 January 2002)
|
|
JE-51
|
2008 Export Licence Administration Measures
|
Measures
for the Administration of Licence for the Export of Goods (Order of the
Ministry of Commerce (2008) No. 11, promulgated on
7 June 2008, effective on 1 July 2008)
|
|
JE-52
(CHN-96)
|
Export Quota Administration Measures
|
Measures
for the Administration of Export Commodities Quotas (Order of the Ministry of
Foreign Trade and Economic Cooperation (2011) No. 12, adopted at the 9th
ministerial office meeting of the Ministry of Foreign Trade and Economic
Cooperation of 2001, effective on 1 January 2002)
|
|
JE-53
|
2010
Amendment of Measures for Administration of Licensing Entities
|
2010
Decision of the Ministry of Commerce on Amending the Measures for the
Administration of the Organs for Issuing the Licenses of Import and Export
Commodities (Order (2010) No.
3, promulgated by MOFCOM on 12 September 2010)
|
|
JE-54
|
Customs Law of the People's
Republic of China
|
Customs
Law of the People's Republic of China (adopted at the 19th Meeting of the Standing
Committee of the Sixth National People's Congress on 22 January 1987, amended
8 July 2000)
|
|
JE-55
(CHN-56)
|
2012 First Batch Rare Earth Export Quotas
|
Circular on the 2012 List of Rare
Earth Export Enterprises and First Batch of Rare Earth Export Quotas (MOFCOM, Shangmaohan,
No. 1133, 26 December 2011)
|
|
JE-56
(CHN-57)
|
2012 First Batch Rare Earth Export Quotas (Supplement)
|
Notice
Regarding the Supplement to the 2012 First Batch of Rare Earth Export Quotas
(MOFCOM, Shangmaopi [2012] No. 618, 16 May 2012)
|
|
JE-57
(CHN-58)
|
2012 Second Batch Rare Earth Export Quotas
|
Notice on Distributing the 2012 Second Batch of Rare Earth Export
Quotas (MOFCOM, Shangmaohan [2012] No. 627, 16 August 2012)
|
|
JE‑58
(CHN-97)
|
2012 Export Quota Amounts
|
Notice Regarding 2012 Export Quota Amounts for Agricultural and
Industrial Products (MOFCOM, Notice (2011) No. 71, promulgated on 31 October
2011, effective on 1 January 2012)
|
|
JE-59
(CHN-99)
|
2012
First Batch Export Quotas of Tungsten, Antimony and Other Non-Ferrous Metals
|
Notice
Regarding the 2012 List of Export (Supply) Enterprises and First Batch Export
Quotas of Tungsten, Antimony and Other Nonferrous Metals (MOFCOM, Shangmaohan
[2011] No. 1131, 26 December 2011)
|
|
JE‑60
(CHN-165)
|
2012
Second Batch Export Quotas of Tungsten, Antimony and Other Non-Ferrous Metals
|
Notice
on Distributing the 2012 Second Batch Export Quotas of Tungsten, Antimony and
Other Nonferrous Metals (MOFCOM, Shangmaohan [2012] No. 513, 19 July 2012)
|
|
JE-61
(CHN-38)
|
2012
Application Qualifications and Procedures for Rare Earth Export Quotas
|
Public
Notice on 2012 Application Qualifications and Application Procedures for Rare
Earth Export Quota, Notice (2011) No. 77, promulgated by MOFCOM on 11
November 2011
|
|
JE-62
(CHN-100)
|
2012
Application Qualifications and Application Procedures of Tungsten Export (or
Supply) Enterprises
|
Public
Notice on 2012 Application Qualifications and Application Procedures of the
Tungsten, Antimony and Silver State Trading Export Enterprises, and Tungsten
and Antimony Export Supply Enterprises, Notice (2011) No. 80, promulgated by
MOFCOM on 11 November 2011
|
|
JE-63
(CHN-107)
|
2012
Application Qualifications and Application Procedures for Molybdenum Export
Quota
|
Public
Notice on 2012 Application Qualifications and Application Procedures for Indium,
Molybdenum and Tin Export Quota, Notice (2011) No.
79, promulgated by MOFCOM on 11 November 2011
|
|
JE-65
(CHN-98)
|
2012
List of Enterprises for the Export (or/and Supply) of Tungsten, and List of
Enterprises for the Export of Molybdenum
|
Notice
Publishing the List of the State Trading Export Enterprises of Tungsten,
Antimony and Silver, the Enterprises Exporting and Supplying Tungsten and
Antimony, and the Enterprises Qualified to Apply for the Export Quotas for
Indium and Molybdenum in 2012 (MOFCOM, 14 December 2011)
|
|
JE-66
(CHN-55)
|
2012
List of Enterprises for the Export of Rare Earths
|
Notice
Publishing the List of Enterprises Applying for the Export Quota for the Rare
Earth and Coke in 2012 (MOFCOM, 14 December 2011)
|
|
JE-78
|
Rules on the Management of Import
and Export Licence Certificates
|
Rules on the Management of Import
and Export License Certificates (MOFCOM, Shangwubuling,
No. 1, issued 4 February 2012, effective 5 March 2012)
|
|
JE-79
|
|
Joseph Gambogi and Daniel J. Cordier, US Geological Survey (USGS) 2010
Minerals Yearbook: Rare Earths [advance release]
|
|
JE-102
|
|
"Cost of 'greener' lighting explodes as China dominates
rare-earth supply", Pittsburgh Tribune
Review, published 14 August 2011
|
|
JE-118
|
|
Xinhua Insight, "China tightens regulation of rare earth
industry", Xinhua General News Service (15 June 2011)
|
|
JE-129
|
Rare Earth Elements
|
Roderick G. Eggert, "Rare Earth Elements",
25 April 2013 (Rare Earth Report)
|
|
JE-130
|
|
PricewaterhouseCoopers, "Tungsten Study", September 2012
|
|
JE-141
|
|
Professor L. Alan Winters, "Under-filled export quotas do not
indicate that the quotas impose no costs on non-Chinese users", 25 April
2013
|
|
JE-145
|
|
"Establishment of Subsidiary", company release by HOYA
Corporation (16 June 2011)
|
|
JE-146
|
|
"Shin-Etsu Chemical to set up a base in China to manufacture
magnet alloys for rare earth magnets", company release by Shin-Etsu
Chemical Co., Ltd. (March 2012)
|
|
JE-147
|
|
"On addition of capital to Chinese joint venture for increased
optical glass production capacity", company release by Ohara Inc. (20
October 2011)
|
|
JE-152
|
Preferential
Policies Encouraging Investments for Fujian (Longyan) Rare Earth Industrial Park
|
Notice
Regarding the Preferential Policies Encouraging Investments for Fujian
(Longyan) Rare Earth Industrial Park, Longzhengzo (2010) No. 388, 27
September 2010
|
|
JE-164
|
|
Statement by Professor Gene M. Grossman, "Export Restrictions:
Possible Effects of Under Filled Quotas on Prices and Consumption"
|
|
JE-167
|
|
Xinhua news, "Baotou Steel Rare earth halts production to
stabilize prices" (24 October 2012)
|
|
JE-168
|
|
Company Halts Rare Earth Metals Production Amid Price Fall, Caixin
Online (19 October 2011)
|
|
JE-169
|
|
Paper by Professor L. Alan Winters, "The Effect of China's Rare
Earth Export Restrictions on Export Prices"
|
|
JE-182
|
|
Professor L. Alan Winters: Response to Paragraph 53 of China's Opening
Statement at the Second Hearing
|
|
JE-183
|
|
Professor L. Alan Winters: "Response to Professor Jaime de Melo
(CHN-157)"
|
|
JE-188
|
|
Web-Published Notice on the 2013 Initial Approval List of Enterprises
Qualified to Export Rare Earths in the Annual Review (MOFCOM, Department of Foreign Trade,
17 December 2012)
|
|
JE-189
|
|
Sina.com.cn, "Rare Earth Mining Controls said to 'might as well
not exist', real production remains over-quota every year" (1 April 2011)
|
|
JE-190
|
|
Yangcheng Evening News, "Rare Earth Industry Reorganizing,
Guandong Staking an Early Claim" (28 February 2012)
|
|
JE-191
|
|
Xinhuanet.com, "China Minmetals Proposes Production Freeze,
Revealing Unspoken Rules inside RE Industry"
|
|
JE-192
|
|
Quotes from "China's Export Quotas and Measures Promoting
Downstream Industries"
|
|
JE-193
|
|
Professor L. Alan Winters, "Comments on China's replies to Panel
Questions 76 and 87"
|
|
JE-194
|
|
Professor L. Alan Winters, "Comments on China's replies to Panel
Questions 78 and 86"
|
|
JE-195
|
|
Professor L. Alan Winters, "Response to Professor Jaime de Melo
(Panel Exhibit CHN-206) and certain points in China's answers of 8th July
2013"
|
|
JE-196
|
|
Dudley Kingsnorth, "Rare Earths: An Industry Undergoing
Rejuvenation", June 2013, published jointly by Curtin University and
IMCOA (figures on rare earths supply and demand, 2005-2016)
|
|
JE-197
|
|
Professor Gene Grossman, "Response to Professor Jaime de
Melo"
|
ABBREVIATIONS USED IN THese REPORTs
|
Abbreviation
|
Description
|
|
Agreement on Customs Valuation
|
Agreement
on Implementation of Article VII of the General Agreement on Tariffs and
Trade 1994
|
|
Anti-Dumping Agreement
|
Agreement
on Implementation of Article VI of the General Agreement on Tariffs and Trade
1994
|
|
China's Accession Protocol
|
Protocol on the Accession of the People's Republic of China to the
WTO, WT/L/432
|
|
China's
Accession Working Party Report
|
Report
of the Working Party on the Accession of China, WT/ACC/CHN/49 and Corr.1
|
|
complainants
|
United
States, European Union, and Japan
|
|
DSB
|
Dispute
Settlement Body
|
|
DSU
|
Understanding on Rules and Procedures
Governing the Settlement of Disputes
|
|
EU Panel Report
|
Panel
Report, China – Measures Related
to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS432/R
|
|
GATS
|
General
Agreement on Trade in Services
|
|
GATT 1994
|
General Agreement on Tariffs and Trade
1994
|
|
Japan Panel Report
|
Panel
Report, China – Measures Related
to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS433/R
|
|
Marrakesh Agreement*
|
Marrakesh Agreement Establishing the World Trade
Organization excluding the Multilateral
Trade Agreements annexed to it
|
|
MOFCOM
|
Ministry of Commerce of the People's Republic of China
|
|
Panel Reports
|
Panel Reports, China – Measures Related
to the Exportation of Rare Earths, Tungsten, and Molybdenum,
WT/DS431/R / WT/DS432/R / WT/DS433/R, circulated to WTO Members 26 March 2014
|
|
rare earths
|
The common name for a group of 15
chemical elements in the periodic table with the atomic numbers 57 to 71
(also known as Lanthanides). Two other rare earth elements, scandium (atomic
No. 21) and yttrium (atomic No. 39), are also within the scope of these
disputes.
|
|
SCM Agreement
|
Agreement on Subsidies and
Countervailing Measures
|
|
SPS Agreement
|
Agreement
on the Application of Sanitary and Phytosanitary Measures
|
|
TBT Agreement
|
Agreement
on Technical Barriers to Trade
|
|
TRIMs Agreement
|
Agreement
on Trade-Related Investment Measures
|
|
TRIPS
|
trade-related
aspects of intellectual property rights
|
|
US Panel Report
|
Panel
Report, China – Measures Related
to the Exportation of Rare Earths, Tungsten, and Molybdenum, WT/DS431/R
|
|
Vienna Convention
|
Vienna
Convention on the Law of Treaties, done
at Vienna, 23 May 1969, UN Treaty Series, Vol. 1155, p. 331
|
|
Working Procedures
|
Working Procedures for Appellate Review,
WT/AB/WP/6, 16 August 2010
|
|
WTO
|
World Trade Organization
|
* As explained infra, fns 56,
333,
376,
and 443,
these Reports follow the Panel Reports in using "Marrakesh Agreement"
to refer to the Marrakesh Agreement Establishing the World Trade Organization excluding its annexes. The use of such nomenclature is for
purposes of these appeals only, and without prejudice to the legal issues
raised by China on appeal.
World Trade Organization
Appellate Body
|
China
– Measures Related to the Exportation of Rare Earths, Tungsten, and
Molybdenum
United
States, Appellant[1]/Appellee[2]/
Third Participant[3]
China,
Appellant[4]/Other Appellant[5]/Appellee[6]
European
Union, Appellee[7]/Third Participant[8]
Japan, Appellee[9]/Third Participant[10]
Argentina,
Third Participant
Australia,
Third Participant
Brazil,
Third Participant
Canada,
Third Participant
Colombia,
Third Participant
India,
Third Participant
Indonesia,
Third Participant
Korea,
Third Participant
Norway,
Third Participant
Oman,
Third Participant
Peru,
Third Participant
Russia,
Third Participant
Saudi
Arabia, Third Participant
Separate
Customs Territory of Taiwan, Penghu, Kinmen
and Matsu, Third Participant
Turkey,
Third Participant
Viet
Nam, Third Participant
|
AB-2014-3
AB-2014-5
AB-2014-6
Division:
Seung Wha Chang,
Presiding Member
Ricardo
Ramírez-Hernández, Member
Yuejiao Zhang,
Member
|
1.1. The
United States and China each appeals certain issues of law and legal
interpretations developed in the Panel Report, China – Measures Related to the Exportation of Rare
Earths, Tungsten, and Molybdenum, WT/DS431/R (US Panel Report).[11]
China also appeals certain issues of law and legal interpretations developed in
the Panel Report, China – Measures Related to the Exportation of Rare Earths, Tungsten,
and Molybdenum, WT/DS432/R (EU Panel Report)[12]
and in the Panel Report, China – Measures Related to the Exportation of Rare Earths, Tungsten,
and Molybdenum, WT/DS433/R (Japan Panel Report).[13]
The Panel issued its findings in the form of a single document constituting
three separate Panel Reports, which we refer to, collectively, as the
"Panel Reports".[14]
The Panel was established[15]
to consider complaints by the United States[16], the
European Union[17],
and Japan[18]
(the complainants) with
respect to China's use of export duties and export quotas on various forms of
rare earths, tungsten, and molybdenum.
1.2. The complainants challenged China's
imposition of export duties on 58 rare earth[19] products, 15 tungsten[20] products, and 9 molybdenum[21] products.[22] The complainants' challenges regarding export quotas related to 75 rare
earth products, 14 tungsten products, and 9 molybdenum products.[23] Rare earths, tungsten, and molybdenum are naturally occurring minerals
found in various mined ores.[24] The products subject to the challenged measures consist of both the
naturally occurring minerals, as well as a number of intermediate products,
that is, materials that have undergone some initial processing, for example,
into concentrates, oxides, salts, and metals.[25] Generally speaking, the downstream products in which rare earths,
tungsten, and molybdenum are ultimately used are not covered by the measures at
issue in these disputes.[26] Further details about the products at issue in these disputes may be
found in paragraphs 2.2 to 2.7 of the Panel Reports and paragraphs 4.10 through 4.12 of these Reports.
1.3. The complainants identified a
number of legal instruments in connection with their claims, including Chinese
framework legislation, implementing regulations, other applicable laws, and
specific annual measures. The European Union and Japan also made claims in
respect of replacement measures and renewal measures, while the United States
made claims in respect of "implementing measures in force to date".[27]
1.4. Before
the Panel, the complainants claimed that[28]:
a.
in respect of export duties on rare earths, tungsten, and molybdenum,
the relevant measures at issue[29]
are inconsistent with China's obligations under Paragraph 11.3 of Part I
of the Protocol on the Accession of the People's Republic of China to the WTO[30]
(China's Accession Protocol);
b.
in respect of export quotas on rare earths, tungsten, and molybdenum,
the relevant measures at issue[31]
are inconsistent with Article XI:1 of the General Agreement on Tariffs and
Trade 1994 (GATT 1994) and China's obligations under Paragraph 1.2 of
Part I of China's Accession Protocol, which incorporates
Paragraphs 162 and 165 of the Report of the Working Party on the
Accession of China[32]
(China's Accession Working Party Report); and
c.
in respect of the administration and allocation of export quotas on rare
earths and molybdenum[33]
and, more specifically, restrictions – such as prior export performance and
minimum registered capital requirements – on the trading rights of enterprises
seeking to export those products, the relevant measures at issue[34]
are inconsistent with Paragraph 5.1 of Part I of China's Accession
Protocol, as well as with China's obligations under Paragraph 1.2 thereof,
which incorporates commitments in Paragraphs 83 and 84 of China's Accession
Working Party Report.[35]
1.5. In defending its measures, China contended[36]:
a.
that the general exceptions of Article XX of the GATT 1994 are
available to China to defend a potential violation of Paragraph 11.3 of
China's Accession Protocol, and that the export duties on rare earths,
tungsten, and molybdenum are justified under Article XX(b) of the
GATT 1994;
b.
that the export quotas on rare earths, tungsten, and molybdenum are
justified under Article XX(g) of the GATT 1994; and
c.
that the trading rights commitments in Paragraph 5.1 of China's
Accession Protocol and Paragraphs 83 and 84 of China's Accession Working
Party Report do not prevent the use of prior export performance and minimum
registered capital requirements as criteria to administer the rare earth and
molybdenum export quotas.
1.6. The factual aspects of this dispute
are set forth in greater detail in paragraphs 2.1 to 2.16 of the Panel Reports,
and in section 4 of these Reports.
1.7. On 9 October 2012, the Panel
received a request from Canada for enhanced third-party rights, including
third-party access to the entirety of both substantive meetings and all written
submissions, and the right to make an oral statement at the second Panel meeting. On
19 October 2012, after consulting the parties to these disputes on
the request, the Panel declined Canada's request.[37]
1.8. On 20 December 2012, in its first
written submission, China requested the Panel to issue, on an expedited basis,
a preliminary ruling on the issue of whether the obligation in
Paragraph 11.3 of China's Accession Protocol is subject to the general
exceptions contained in Article XX of the GATT 1994.[38] On 1
February 2013, following the submission of comments on this issue by all of the
parties to these disputes, the Panel informed the parties and third parties
that it had decided not to rule on this issue prior to the first Panel meeting
with the parties, which was to be held on 26-28 February 2013.[39]
On 6 February 2013, China requested the Panel to make a preliminary ruling on
this issue prior to the first meeting, and, on 8 February 2013, the Panel
reiterated its decision not to do so.[40]
Instead, the Panel informed China that, if it intended to present a substantive
defence under Article XX of the GATT 1994 with respect to
Paragraph 11.3 of its Accession Protocol, it should provide a written
submission presenting this defence no later than 15 February 2013 so
as to allow the parties and third parties a meaningful opportunity to respond
at the first Panel meeting.[41]
China subsequently submitted a written defence by the stated deadline[42]
and, at the first Panel meeting, the Panel informed the parties to these
disputes that it would not issue a preliminary ruling on this matter but would
instead address the issue in its Reports.[43]
1.9. On 18 July 2013, China filed an
objection with the Panel regarding certain exhibits submitted by the
complainants at the last stage of the Panel proceedings. China asked the Panel
to reject the exhibits in question, together with all arguments based on them.
The evidence to which China objected consisted of 10 exhibits, including four
expert reports, which had been submitted by the complainants to the Panel on
17 July 2013, together with their comments on China's responses to
the Panel's questions after the second Panel meeting.[44]
The Panel afforded the
complainants an opportunity to respond to China's request, and China an
opportunity to comment on such responses, while at the same time reserving its
right to decide whether the relevant exhibits should be considered as late
evidence.[45]
Subsequently, the Panel addressed the issue of the admissibility of the
disputed evidence in its Reports, and decided to accept China's request that
the exhibits be rejected[46],
ruling that:
… the relevant exhibits were submitted too late; they could have been
submitted earlier and in a manner consistent with due process. Additionally,
these exhibits do not supplement the evidence already accepted by the Panel.
They do not, as far as the Panel can see, say anything substantially new or
different from what is said in the exhibits that the complainants submitted
prior to 17 July 2013.[47]
1.10. The
Panel Reports were circulated to Members of the World Trade Organization (WTO)
on 26 March 2014.
1.11. In its Reports, the Panel explained
that it would make its findings and recommendations with respect to the series
of measures comprising the relevant framework legislation, the implementing
regulations, other applicable laws, and the specific annual measures imposing
the export duties and export quotas existing at the date of the Panel's
establishment.[48]
1.12. In each of the Panel Reports, in
respect of the claims concerning export duties, the Panel found that the export
duties that China applies to various
forms of rare earths, tungsten, and molybdenum by virtue of the series of
measures at issue are inconsistent with Paragraph 11.3 of China's
Accession Protocol.[49]
1.13. The Panel further found that China
may not seek to justify the export duties it applies to various forms of rare
earths, tungsten, and molybdenum pursuant to Article XX(b) of the
GATT 1994[50],
because the obligation in Paragraph 11.3 of China's Accession Protocol is
not subject to the general exceptions in Article XX of the GATT 1994[51],
and China had not presented any "cogent reason" for departing from
the same finding made by the Appellate Body in China – Raw
Materials on the same issue.[52]
In a separate opinion, one member of the Panel expressed the view that,
"unless China explicitly gave up its right to invoke Article XX of GATT
1994, which it did not, the general exception provisions of the GATT 1994 are
available to China to justify a violation of Paragraph 11.3 of its
Accession Protocol."[53]
1.14. The Panel further found, assuming arguendo[54]
that China could seek to justify the export duties under subparagraph (b)
of Article XX of the GATT 1994, that China had not demonstrated that
the export duties it applies to various forms of rare earths, tungsten, and
molybdenum are justified pursuant to that provision, or that the measures are
applied in a manner that satisfies the chapeau of Article XX.[55]
1.15. In the reasoning leading up to its
conclusion that China may not seek to justify its export duties under Article
XX(b) of the GATT 1994, the Panel considered, and rejected, an argument
made by China that, due to the legal effect of Paragraph 1.2 of China's
Accession Protocol and Article XII:1 of the Marrakesh Agreement
Establishing the World Trade Organization[56] (Marrakesh Agreement), "Paragraph 11.3 of China's Accession Protocol has to be treated as an integral part of
the GATT 1994".[57]
The Panel found, instead, that:
… the legal effect of the second sentence of Paragraph 1.2 is to
make China's Accession Protocol, in its entirety, an "integral part"
of the Marrakesh Agreement, and not that, in addition, the individual
provisions thereof are also integral parts of Multilateral Trade Agreements
annexed to the Marrakesh Agreement.[58]
1.16. In each of the Panel Reports, in
respect of the claims concerning export quotas, the Panel found that:
a.
the export quotas that China applies to various forms of rare earths,
tungsten, and molybdenum by virtue of the series of measures at issue are
inconsistent with Article XI:1 of the GATT 1994[59];
b.
the export quotas that China applies to
various forms of rare earths, tungsten, and molybdenum by virtue
of the series of measures at issue are inconsistent with Paragraphs 162
and 165 of China's Accession Working Party Report as incorporated into China's
Accession Protocol by virtue of Paragraph 1.2 of that Protocol[60];
and
c.
China had not demonstrated that the export quotas applied to various
forms of rare earths, tungsten, and molybdenum are justified pursuant to
subparagraph (g) of Article XX, or that the measures are applied in a
manner that satisfies the chapeau of Article XX of the GATT 1994.[61]
1.17. In each of the Panel Reports, in
respect of the claims concerning export quota administration and allocation,
the Panel found that:
a.
the restrictions on the trading rights of enterprises exporting rare
earths and molybdenum that China applies by virtue of the series of measures at
issue are inconsistent with Paragraphs 83(a), 83(b), 83(d), 84(a), and
84(b) of China's Accession Working Party Report, as incorporated into China's
Accession Protocol by virtue of Paragraph 1.2 of that Protocol, and with
Paragraph 5.1 of China's Accession Protocol[62];
and
b.
while China is entitled to seek to justify such restrictions on the
trading rights of enterprises exporting rare earths and molybdenum pursuant to
Article XX(g) of the GATT 1994, China had failed to make a prima facie case that the violations of its trading rights commitments
are justified pursuant to Article XX(g).[63]
1.18. In the EU Panel Report, the Panel
also found, in respect of the European Union's additional claim concerning
export quota administration and allocation, that the European Union had not
established that the prior export performance criterion in the 2012 Application
Qualifications and Application Procedures for Molybdenum Export Quota is
inconsistent with the commitment in Paragraph 84(b) of China's Accession
Working Party Report as incorporated into China's Accession Protocol by virtue
of Paragraph 1.2 of that Protocol.[64]
1.19. In each of the Panel Reports, the
Panel found, in accordance with Article 3.8 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU), that, by virtue of
infringing its obligations under Article XI:1 of the GATT 1994;
Paragraphs 1.2, 5.1, and 11.3 of China's Accession Protocol; and
Paragraphs 83, 84, 162, and 165 of China's Accession Working Party Report
as incorporated into its Accession Protocol by virtue of Paragraph 1.2 of
that Protocol, China has nullified or impaired benefits accruing to each
respective complainant.[65]
The Panel then made the following recommendation in each of the Panel
Reports:
Pursuant to Article 19.1 of the DSU, having found that China has
acted inconsistently with Article XI:1 of the GATT 1994;
Paragraphs 1.2, 5.1 and 11.3 of China's Accession Protocol; and
Paragraphs 83, 84, 162 and 165 of China's [Accession] Working Party
Report, the Panel recommends that the Dispute Settlement Body requests China to
bring the existing measures at issue into conformity with its obligations under
the GATT 1994, China's Accession Protocol and China's [Accession] Working
Party Report. In respect of findings concerning export duties and export quotas
on various forms of rare earths, tungsten, and molybdenum, and restrictions on
the trading rights of enterprises exporting rare earths and molybdenum, the
Panel has found that the series of measures have operated to impose export
duties and export quotas on various forms of rare earths, tungsten, and
molybdenum, and restrictions on the trading rights of enterprises exporting
rare earths and molybdenum (i.e. the prior export experience requirement, the
export performance requirement, and the minimum registered capital
requirement), that are inconsistent with China's WTO obligations. The Panel,
therefore, recommends that the Dispute Settlement Body requests China to bring
its measures into conformity with its WTO obligations such that the series of
measures does not operate to bring about a WTO-inconsistent result.[66]
1.20. On 8 April 2014, the United States notified the Dispute Settlement Body (DSB), pursuant to
Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues
of law covered in the US Panel Report (WT/DS431/R) and certain legal
interpretations developed by the Panel, and filed a Notice of Appeal[67] and an appellant's submission with the Appellate Body Secretariat
pursuant to Rule 20 and Rule 21, respectively, of the Working Procedures
for Appellate Review[68] (Working Procedures). On 13 April 2014, the Director of the Appellate
Body Secretariat sent a letter to the participants and the third parties in
DS431, informing them of the composition of the Appellate Body Division that
would be hearing this appeal, and providing them with a Working Schedule
specifying the deadlines for the filing of written submissions, and indicating
that the date of the oral hearing in that appeal would be communicated on a
subsequent date.
1.21. On 17 April 2014, China notified the DSB, pursuant to
Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues
of law covered in the US Panel Report, and certain legal interpretations
developed by the Panel, and filed a Notice of Other Appeal[69] and an other appellant's
submission pursuant to Rule 23 of the Working
Procedures.
1.22. On 25 April 2014, China notified the DSB, pursuant to
Articles 16.4 and 17 of the DSU, of its intention to appeal certain issues
of law covered in the EU Panel Report (WT/DS432/R) and the Japan Panel Report (WT/DS433/R),
and certain legal interpretations developed by the Panel, and filed a Notice of
Appeal[70] and an appellant's submission with
the Appellate Body Secretariat pursuant to Rule 20 and Rule 21,
respectively, of the Working Procedures. On the same day, the Director of the
Appellate Body Secretariat sent a letter to the participants and the third parties
in DS432 and DS433 informing them that the Appellate Body Division selected to
hear these appeals was composed of the same three Appellate Body Members as the
Division in DS431, and providing them with a Working Schedule specifying the
deadlines for the filing of written submissions, and indicating that the date
of the oral hearing in these appeals would be communicated on a subsequent
date.
1.23. On 1 May 2014, China and the United
States each filed an appellee's submission in relation to the issues appealed
in DS431.[71] On 13 May 2014, the
European Union and Japan each filed an appellee's submission in relation to the
issues appealed in DS432 and DS433[72], respectively.
1.24. On 16 May 2014, seven third
participants (Argentina[73],
Australia, Brazil, Canada, Colombia, Saudi Arabia, and the United States[74]) each filed a third participant's submission.[75] On the same day, eight third
participants (India, Indonesia, Korea, Norway, Peru, Russia, the Separate
Customs Territory of Taiwan, Penghu, Kinmen and Matsu, and Turkey[76]) each notified its intention to appear at
the oral hearing.[77] On 2 June and 3 June 2014,
respectively, Oman and Viet Nam each notified its intention to appear at the
oral hearing.[78]
1.25. The oral
hearing in these appeals was held on 4-6 June 2014. The participants each made
an opening oral statement.[79] Eight of the third participants (Australia,
Brazil, Canada, Korea, Norway, Russia, Saudi Arabia, and Turkey) made opening
oral statements. The participants and third participants responded to questions
posed by the Members of the Appellate Body Division hearing these appeals.
1.26. By letters of 17 June 2014
(relating to DS431)[80] and 23 June 2014 (relating to DS432 and DS433)[81], the Chair of the Appellate Body notified the Chair of the DSB that the
Appellate Body would not be able to circulate its Reports in these three
disputes within their respective 60-day periods pursuant to Article 17.5
of the DSU, or within their respective 90-day periods provided for under the
same provision. The Chair of the Appellate Body explained that this was due to
several reasons, in particular: the
unfilled vacancy on the Appellate Body, the Appellate Body's significant
workload, the volume and complexity of the issues raised by the participants in
these disputes along with the large number of participants and third
participants, the time needed for translation of the Reports, and the
consolidation of the three appellate proceedings. In his letter of 23 June
2014, the Chair of the Appellate Body informed the Chair of the DSB that the
Reports in these appeals would be circulated no later than 7 August 2014.
1.27. The appeal filed by the United
States in DS431 on 8 April 2014 was filed simultaneously with the appeal by
China of the panel report in a different dispute, namely, United
States – Countervailing and Anti‑Dumping Measures on Certain Products from China
(US – Countervailing and Anti-Dumping Measures
(China)) (DS449).[82] On 9 April 2014, the Chair of the Appellate Body sent a letter to the
parties in China – Rare Earths (DS431; DS432;
DS433), as well as to the parties in US – Countervailing and
Anti‑Dumping Measures (China), explaining that, in the past, the
Appellate Body had attributed appeal numbers sequentially based on the date and
time of receipt of the Notice of Appeal. Given the unprecedented situation of
simultaneous filings of appeals, however, the Appellate Body Chair invited the
parties to these disputes to provide their views, by 10 April 2014, as to the
considerations relevant to the Appellate Body's determination of how to
allocate appeal numbers AB-2014-3 and AB-2014-4 to the two appeals in China – Rare Earths (DS431) and US – Countervailing and Anti-Dumping Measures (China)
(DS449).
1.28. On 10 April 2014, the Appellate
Body received comments in response to the Chair's letter of 9 April 2014 from
China, the European Union, Japan, and the United States. On the same day, the
Appellate Body Chair sent a letter to the parties to the disputes in China – Rare Earths (DS431; DS432; DS433) and to the
participants in US – Countervailing and
Anti-Dumping Measures (China) (DS449) informing them that, having
given careful consideration to their submissions, the Appellate Body had
determined that, in the face of the unprecedented situation of simultaneous
appeals, the Appellate Body's usual manner of assigning appeal numbers –
according to the sequence in which the Notices of Appeal were filed – was not available.
The Appellate Body underlined the necessity of assigning an appeal number to
each appeal before the Appellate Body Members constituting the respective
divisions could be selected. The Appellate Body recalled, in this connection,
that Rule 6(2) of the Working Procedures calls for the Members constituting a
division to be selected taking into account, inter alia,
"the principles of random selection [and] unpredictability". The
Appellate Body expressed the view that, in order to ensure respect for these
principles, in the specific circumstances of a simultaneous filing of two
appeals, the appeal numbers should be assigned to each dispute by means of a
random draw. To this end, the Chair of the Appellate Body invited the parties
to the China – Rare Earths (DS431; DS432;
DS433) and US – Countervailing
and Anti-Dumping Measures (China) (DS449) disputes to the Appellate
Body Secretariat on Friday, 11 April 2014, in order to witness the assignment
of appeal numbers to the appeals in DS431 and DS449 through a random draw. The Chair
of the Appellate Body also adverted, in his letter, to the Appellate Body's
regret at the unfortunate circumstances that had led to this situation, and to
the need for parties to WTO disputes to coordinate, communicate, and cooperate
amongst themselves, as well as with the Appellate Body and the Appellate Body
Secretariat, in the planning, filing, and conduct of their appeals.
1.29. On 11 April 2014, a random draw was
held at the Appellate Body Secretariat in the presence of the parties to the China – Rare Earths (DS431; DS432; DS433) and US – Countervailing and
Anti-Dumping Measures (China) (DS449) disputes. As a result of this
draw, the appeal initiated by the United States in China – Rare
Earths (DS431) was assigned appeal number AB-2014-3, and the appeal
by China in US – Countervailing and
Anti-Dumping Measures (China) (DS449) was assigned appeal number
AB-2014-4.
1.30. On 9 April 2014, China sent a
letter to the Appellate Body requesting the Appellate Body to reject the
United States' Notice of Appeal in DS431 on the grounds that, due to its
"conditional" nature, the Notice of Appeal did not constitute a
proper Notice of Appeal within the meaning of the Working Procedures.[83] In the event that the Appellate Body were not to reject the Notice of
Appeal, China requested the Appellate Body to extend the time-limits, pursuant
to Rule 16(2) of the Working Procedures, for filing relevant documents. By
letter of 10 April 2014, the Chair of the Appellate Body invited the
participants, parties, and third participants to provide their comments on
China's requests by 11 April 2014.
1.31. On 13 April 2014, having received
comments from Australia, Brazil, Canada, China, the European Union, Japan, and
the United States, the Appellate Body Division hearing the appeal in DS431
issued a Procedural Ruling in response to the 9 April 2014 request from China.
In its Procedural Ruling, which is attached as Annex 4 to these Reports, the
Division, first, declined China's request to reject the United States' Notice
of Appeal due to its "conditional" nature. The Division considered
that its jurisdiction to hear the United States' appeal was validly established
given that the United States' Notice of Appeal conformed to the
requirements of Rule 20 of the Working Procedures. Such jurisdiction was not,
in the opinion of the Division, affected by the possibility that it might not
need to rule on the issues raised by the United States in the event that the
scenarios identified by the United States in its Notice of Appeal were to
materialize. Second, the Division granted China's request for an extension of
the time period for China to file a Notice of
Other Appeal and other appellant's submission in
DS431. The Division decided that these documents should be filed by 17 April
2014 rather than by 14 April 2014. As a consequence of this decision, and in
order to preserve the sequence of and periods between the other deadlines
prescribed under the Working Procedures, the Appellate Body also modified the
dates for the filings of other submissions set out in the Working Schedule.
1.32. On 15 April 2014, the
Appellate Body Division hearing the appeal in DS431 received a letter from
Japan requesting the Appellate Body, pursuant to Rule 16 of the Working
Procedures, to extend the deadline for filing the third participants'
submissions from 5 May 2014 – the date set out in the Working Schedule for
this appeal that was communicated to the participants and third participants on
13 April 2014 – to 7 May 2014. On 16 April 2014, the Division sent a
letter to the participants and the third participants in DS431 stating that it
was considering the request by Japan and would revert to the matter in due
course.
1.33. On 25 April 2014, the Presiding
Member afforded the participants and third participants in DS431, DS432, and
DS433 an opportunity to comment on two issues. First, the Division referred to
the interests of "fairness and orderly procedure" in Rule 16(1) of
the Working Procedures, and invited comments on the consolidation of these appellate
proceedings, including by holding a single oral hearing in respect of the
proceedings in all three disputes. The Division noted the significant overlap
in the content of these disputes and appeals, and the fact that, at the Panel
stage, they were heard by a single Panel in accordance with Article 9.1 of the
DSU. Second, the Division recalled the letter that it had received from Japan
in DS431 on 15 April 2014 requesting, pursuant to Rule 16 of the Working
Procedures, an extension of the deadline for filing the third participants'
submissions from 5 May to 7 May 2014. The Division invited the participants and
third participants to comment on both issues by 28 April 2014.
1.34. On 1 May 2014, having received
comments from China, the United States, the European Union, Japan,
Australia, Brazil, Canada, and Saudi Arabia, the Division issued a Procedural
Ruling with respect to the consolidation of the appellate proceedings in the
three disputes and with respect to Japan's request for an extension of the
deadline for filing the third participants' submissions in DS431. In its
Procedural Ruling, which is attached as Annex 5 to these Reports, the
Division decided, pursuant to
Rule 16(1) of the Working Procedures, to consolidate the appeals of the
Panel Reports in China – Rare Earths (WT/DS431/R;
WT/DS432/R; WT/DS433/R). Given this consolidation, and taking account of
certain requests made by the participants and third participants, the Division
found it necessary to make certain additional modifications to the Working
Schedules in order to ensure fairness and orderly procedure in the conduct of
these appeals. More specifically, the Division decided as follows:
a. The single deadline for the third participants' submissions in
respect of all these disputes is set as Friday, 16 May 2014. To the
extent that the third participants are in a position to file their submissions
earlier than this deadline, we encourage such early filing as it would assist
the Division's preparation for the oral hearing;
b. The United States, the European Union, and Japan may
elect to have their submissions filed in the capacity of participant in their
respective disputes also serve as their third participants' submissions in the
disputes in which they are third participants. This is without prejudice to the
right of the European Union (as third participant in DS431 and DS433),
Japan (as third participant in DS431 and DS432), and the United States (as
third participant in DS432 and DS433), should they so wish, to file third
participants' submissions, separate from their appellees' submissions, by
Friday, 16 May 2014.
c. The Division will hold a single oral hearing for all these
appellate proceedings. It will take place on Wednesday, 4 June 2014 and Thursday,
5 June 2014.
If necessary, the oral hearing will continue on Friday, 6 June 2014.[84]
1.35. In its
Procedural Ruling, the Division further observed that, in the light of its
decision establishing a single deadline for the filing of all third
participants' submissions in respect of all these appeals, it was not necessary
to deal separately with Japan's request for an extension of the deadline for the filing of the third
participants' submissions in DS431 from 5 May 2014 to
7 May 2014.[85]
A revised, consolidated Working Schedule for the appellate proceedings in
DS431, DS432, and DS433 was attached to the Division's Procedural Ruling.
1.36. In its letter of 28 April 2014, the
European Union requested "an Appellate Body Report issued as a single
document, with separate pages for the findings and conclusions in each of the
three disputes". By joint letter of 28 May 2014, Japan and the United
States requested "that the Division issue a separate Appellate Body report
for each of the appeals, in the form of a single document with separate findings
and conclusions bearing the document symbol only relating to that appeal."
At the oral hearing in these appeals, the Division afforded all participants
and third participants an opportunity to comment on these requests. No comments
were made, and the Division acceded to these requests.
2.1. The United States requests the
Appellate Body to find that the Panel's rejection of Exhibits JE-188 through
JE-197[86]
submitted together with the United States' comments on China's responses to the
Panel's questions after the second Panel meeting was inconsistent with Articles 11
and 12.4 of the DSU.[87]
The United States submits that, in rejecting the 10 exhibits in question, the
Panel erroneously concluded that acceptance of such evidence would have
presented "due process" concerns for China; that "the submission
of new expert reports" would have interfered with the prompt settlement of
the dispute; and that to be accepted as rebuttal evidence an exhibit must
"rise to the required level of necessity".[88]
2.2. The appeal raised by the United
States is subject to two conditions. In its Notice of Appeal, the United States
indicated that the Appellate Body would not need to reach the issues raised on
appeal in either of two scenarios: (i) if China were not to appeal the
Panel Report; or (ii) if the Appellate Body were not to modify or reverse
the legal findings or conclusions of the Panel pursuant to an appeal by China.[89]
2.3. The United States contends that, in
rejecting Exhibits JE-188 through JE-197, the Panel erroneously applied Article
3.3 of the DSU and failed to provide sufficient time to the United States to
prepare its submissions pursuant to Article 12.4 of the DSU. Moreover, according
to the United States, due process was satisfied because the Panel did
afford China an opportunity to respond to this evidence. To the extent that the
Panel considered that China did not have enough time to respond to this
evidence, then it was the Panel itself that created such due process concerns
by setting too short a deadline. In such circumstances, the Panel should have
given China more time to respond, and the Panel erred in considering that
Article 3.3 of the DSU and the need for the prompt settlement of disputes
prevented it from doing so. The United States maintains that a limited
extension would not undermine the value of "prompt settlement" in the
context of the overall length of a panel proceeding, and there was no evidence
in this dispute that accepting expert reports as part of a filing expressly
contemplated in the Panel's Working Procedures would have caused "a
never-ending cascade of competing expert reports".[90]
2.4. The United States characterizes as
"inherently flawed" the Panel's rejection of the exhibits on the
grounds that they were not "necessary" for purposes of rebuttal, even
if they may have been "confirmatory".[91]
The Panel's reasoning suggests that evidence that is more "necessary"
and, consequently, more likely to create due process concerns, would be
accepted, while confirmatory data, which presents less of a due process
concern, is more likely to be rejected. Moreover, in rejecting the evidence,
the Panel in effect suggested that the United States should have submitted the evidence
earlier in the proceedings. This, submits the United States, amounts to a
failure by the Panel to provide sufficient time to the United States to prepare
its submissions, and is inconsistent with Article 12.4 of the DSU.
2.5. The United States further alleges
that the Panel failed to make an objective assessment of the facts, as required
under Article 11 of the DSU, in finding that the evidence in question could and
should have been submitted at an earlier date, and that it was not submitted to
rebut arguments made by China at the second Panel meeting. The 10 exhibits in
question are all "evidence necessary for purposes of rebuttal, answers to
questions or comments on answers provided by the other party(ies)" within
the meaning of paragraph 7 of the Panel's Working Procedures. As such, they
constituted the type of evidence that the Working Procedures specifically
provided may be submitted by the parties, and the complainants submitted them
for the purposes of rebuttal in commenting on China's responses to the Panel's
questions following the second Panel meeting. The United States adds that the
Panel was wrong in stating that these exhibits could have been submitted much
earlier in the process. The United States explains, for each of the excluded exhibits,
why it could not have been submitted earlier in the Panel process. For example,
Exhibit JE-196 contained data published by an expert, whom China, in its
response to the Panel's second set of questions, had referred to as "the
world's leading rare earth market expert". Thus, the importance of this
particular expert's data to rebutting China's claims did not become apparent
until China's responses to the Panel's questions. Similarly, the report by
another expert submitted as Exhibit JE-197 was submitted to rebut Exhibit CHN‑206,
which consisted of a report by a third expert that China had submitted with its
responses to the Panel's second set of questions. Accordingly, suggests the
United States, it would have been impossible to submit Exhibit JE-197 at an earlier
date.
2.6. China requests the Appellate Body
to reject the United States' appeal regarding the exclusion, by the Panel, of
10 exhibits submitted jointly by the complainants on 17 July 2013.
For China, the Panel made no error in considering Article 3.3 of the DSU, or in
applying Articles 11 and 12.4 of the DSU. Rather, the Panel acted within
the bounds of its discretion in prioritizing considerations of due process,
including timeliness, and in deciding to exclude the relevant exhibits from its
consideration of the United States' complaint.
2.7. China begins by observing that, of
the 10 exhibits jointly submitted by the complainants and excluded by the
Panel, the United States referred to only two of those exhibits in its comments
on China's responses to the Panel's second set of questions. China highlights
that the United States made "no reference whatsoever" to the other eight contested exhibits, and, for this
reason, characterizes as "disingenuous" the United States' assertion
that the Panel failed to give the United States sufficient time to prepare
its submissions.[92]
Not only were these exhibits not necessary for purposes of rebuttal, they were
simply not used by the United States for any purpose whatsoever.
2.8. China argues that the Panel did not
err in referring to Article 3.3 of the DSU and did not fail to allow the United
States sufficient time to prepare its submissions pursuant to Article 12.4 of
the DSU. China refers to several statements that have been made by the Appellate
Body with respect to due process in panel proceedings, in particular in its
report in Thailand – Cigarettes (Philippines).
China expresses the view that the Panel properly applied the due process
principles that have been identified by the Appellate Body in reaching its
decision not to admit the contested Panel exhibits. While recognizing that late
submission of new evidence by complainants may be necessary in some cases,
China emphasizes that the comments made by the United States on China's
responses to the Panel's second set of questions were made at the very last
stage contemplated by the Panel's timetable.
For China, a strategy of "backloading" the submission of a
significant volume of evidence until the final possible moment is not
consistent with a fair and orderly procedure, and should be discouraged by
panels and the Appellate Body. Moreover, the Panel made no error in taking
account of the importance of the "prompt settlement" of disputes, as
set out in Article 3.3 of the DSU, together with the other factors relevant to
due process. China submits that the United States' argument that there was no
evidence that acceptance of the expert reports would have led to a
"never-ending cascade of competing expert reports" misses the point.
The Panel had to draw a line somewhere. It drew the line after having given the
United States eight opportunities to substantiate its case with its
various submissions and exhibits, and in a context where it observed that the
contested exhibits did not add "anything substantially new or different
from what is said in the exhibits that the complainants submitted prior to
17 July 2013".[93]
China adds that the logic of the United States' position regarding Article 12.4
of the DSU "is not readily apparent".[94]
From the date of issuance of the Panel's timetable, the United States had
eight months and eight separate occasions to make its case, which, in China's
view, is an ample period of time to prepare submissions.
2.9. China submits that the Panel acted
within the scope of its discretion under Article 11 of the DSU in excluding the
contested exhibits. With respect to the two exhibits that the
United States did refer to in its written comments of 17 July 2013, China
asserts that these were clearly not necessary to allow the United States to
rebut factual contentions by China that the United States had not previously
had an opportunity to address. More specifically, China explains that, although
Exhibit JE‑196 was submitted in order to call into question extraction and
production data submitted by China in Exhibit CHN-137 on 14 March 2013, other
evidence from the United States disputing China's production figures was
already on the record (in Exhibit JE-129). Even if the United States wished to
also introduce the material in Exhibit JE-196 to further challenge China's
data, it had the opportunity to do so prior to its comments on China's
responses to the Panel's questions following the second Panel meeting. As for
the expert report submitted as Exhibit JE‑197, this sought to address
China's response to the complainants' argument that even under‑filled export
quotas affect prices and consumption in foreign markets. However, China adds,
the United States had already had an opportunity to make its point regarding
the price effects in foreign markets of unfilled export quotas, in particular,
at the second Panel meeting, with the expert report that it submitted as
Exhibit JE-164. Since Exhibit JE-197 is, according to China, merely a
repetition of what had already been said in JE-164, the Panel made no error in
rejecting it as untimely filed. Article 11 of the DSU does not require a panel
to allow endless rounds of expert reports. For all of these reasons, China
submits, the Panel operated within the bounds of its discretion under
Article 11 of the DSU by prioritizing China's right to a fair process and
rejecting the late submission of these exhibits.
2.10. China
appeals the Panel's assessment of the relationship of specific provisions in
China's Accession Protocol with the Marrakesh Agreement[96] and the Multilateral Trade Agreements
annexed thereto. China requests the Appellate Body to reverse the Panel's
conclusion that the legal effect of the second
sentence of Paragraph 1.2 of China's Accession Protocol and Article XII:1
of the Marrakesh Agreement is to make China's Accession Protocol, in its
entirety, an "integral part" of the Marrakesh Agreement, and not
that, in addition, the individual provisions of the Protocol are also integral
parts of the Multilateral Trade Agreements annexed to the Marrakesh Agreement.[97] China contends that, in reaching this
conclusion, the Panel erred in its interpretation of Article XII:1 of the
Marrakesh Agreement read in conjunction with Paragraph 1.2, second sentence, of
China's Accession Protocol[98], and failed to conduct a holistic
interpretation of these provisions. China maintains that its appeals are intended
to seek "[c]oherent guidance on the precise legal nature"[99] of post-1994 accession protocols, and to
obtain clarification as to the systemic relationship between, on the one hand,
specific provisions of China's Accession Protocol and, on the other hand, the
Marrakesh Agreement and the Multilateral Trade Agreements annexed thereto.
2.11. China
alleges that, contrary to the Panel's conclusion, the reference to the
"WTO Agreement" in Paragraph 1.2 of China's Accession Protocol
cannot be read as a reference to the Marrakesh Agreement alone. China points
out that there are many provisions in China's Accession Protocol in which the
term "the WTO Agreement" refers to the WTO Agreement as a whole,
including the Multilateral Trade Agreements
annexed thereto. Read in its proper context, the
prescription in Paragraph 1.2, second sentence, that China's Accession Protocol
"shall be an integral part of the WTO Agreement" means that China's
Accession Protocol must be treated as an integral part of the WTO Agreement as
a whole, including its annexes. China contends that, in finding otherwise, the
Panel disregarded the context provided by other instances in China's Accession
Protocol where the term "the WTO Agreement" is used.
2.12. China asserts
that, except for a few instances where "the WTO Agreement" is used to
refer to one of the 16 articles of the Marrakesh Agreement, this term is used
in China's Accession Protocol to refer to the WTO Agreement as a whole, that
is, the Marrakesh Agreement including the Multilateral Trade Agreements annexed
thereto. China highlights, for example, Paragraph 1.1 of the Accession
Protocol, which provides that China accedes to "the
WTO Agreement" pursuant to Article XII of that Agreement. China
argues that this reference to "the WTO Agreement" necessarily
concerns the Marrakesh Agreement together with the Multilateral Trade
Agreements annexed thereto, because an acceding Member must accept the WTO
Agreement as a whole by virtue of Article II:2 of
the Marrakesh Agreement. Moreover, China highlights the first sentence of Paragraph
1.2, which defines the version of "the WTO Agreement" to which China
accedes as being "the WTO Agreement as rectified, amended or otherwise
modified by such legal instruments as may have entered into force before the
date of accession". To interpret the term "the WTO Agreement" in
this sentence as the Marrakesh Agreement alone would mean that new WTO Members
would not necessarily accede to the latest versions of the Multilateral Trade Agreements
in the annexes. China also refers to a number of paragraphs in the Accession
Protocol which, according to China, use the term "the WTO Agreement"
to mean the WTO Agreement as a whole. China notes, in particular, that the
same term in the introductory clause of Paragraph 5.1 was interpreted by the
Appellate Body in China – Publications and Audiovisual
Products as referring to the WTO Agreement as a whole.[100] Furthermore, in Annex 7 to China's Accession
Protocol, Poland reserved the right to continue to apply certain anti-dumping
measures and to bring these measures, by the end of 2002, into conformity with
"the WTO Agreement" as defined in Paragraph 1.2 of the Accession
Protocol.[101] China maintains that, because a Member's
obligations regarding the imposition of anti-dumping measures are set out in
the relevant Multilateral Trade Agreements (i.e. the GATT 1994 and the
Agreement on Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994 (Anti-Dumping Agreement)) rather than the Marrakesh Agreement,
Poland's reservation indicates that the term "the WTO Agreement" as
used in Paragraph 1.2 refers to the WTO Agreement including the Multilateral
Trade Agreements. China emphasizes that its understanding of the term "the
WTO Agreement" was endorsed by the dissenting Member of the Panel.[102]
2.13. In
China's view, the Panel's interpretation of Paragraph 1.2 would
"jeopardize the internal coherence" of the WTO legal framework, which
consists of an "overarching institution agreement" (i.e. the Marrakesh
Agreement) and several Multilateral Trade Agreements.[103] For China, the Panel's interpretation means
that a "WTO-plus" commitment regarding trade in goods would have to
be read as an integral part of the overarching institutional provisions of the
WTO – i.e. the Marrakesh Agreement – rather than as an integral part of a
substantive agreement, such as the GATT 1994. China maintains that it is the
Multilateral Trade Agreements, rather than the "overarching institutional
agreement", that stipulate each Member's substantive obligations, as well
as the applicable exceptions. Thus, China emphasizes that a treaty interpreter
assessing a provision in China's Accession Protocol must undertake the
additional analytical step of determining with which Multilateral Trade
Agreement that provision has an "intrinsic relationship". This
additional analytical step is required as it allows the interpreter to
determine the precise Multilateral Trade Agreement of which a particular
provision of the Protocol is an integral part, thereby giving effective meaning
to Paragraph 1.2, second sentence, of China's Accession Protocol.
2.14. China
submits that the following five reasons given by the Panel in rejecting China's
interpretation of Paragraph 1.2 are characterized by various flaws of law and
logic. First, China alleges that the Panel confounded the ordinary meaning with
the initial literal reading of the provision in finding that, because the
second sentence of Paragraph 1.2 refers to "[t]his Protocol" in the
singular, the Accession Protocol in its entirety is made an integral part of
the Marrakesh Agreement. In China's view, the Panel "jumped … to a
premature conclusion" on the basis of a "superficial, grammatical
analysis" of the provision.[104]
2.15. Second,
the Panel erroneously found China's position that Paragraph 11.3 of China's
Accession Protocol is an integral part of the GATT 1994 to be undermined
by the fact that paragraph 1(b)(ii) of the GATT 1994 incorporates only the
pre-1994 accession protocols into the GATT 1994. As China sees it, however, the
incorporation of pre-1994 accession protocols into the GATT 1994 is consistent
with the fact that post-1994 accession protocols cover areas that go beyond the
GATT 1994. This, in China's view, reinforces its position that the
drafters chose to let the incorporation of individual, intrinsically
GATT-related, post-1994 accession commitments be achieved through the operation
of Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of China's
Accession Protocol.
2.16. Third,
China maintains that, in rejecting China's interpretation, the Panel wrongly
relied on a superficial a contrario
reasoning regarding the first paragraph of Part II of China's Accession
Protocol and Article II:7 of the GATT 1994. According to the Panel, the joint
operation of these two provisions makes the Schedules of Concessions and
Commitments annexed to China's Accession Protocol an integral part of the
GATT 1994. Yet, as observed the Panel, this joint operation would be
redundant if all GATT-related provisions in the Accession Protocol were, as
China argued, implicitly made an integral part of the GATT 1994 by virtue of
Paragraph 1.2 of China's Accession Protocol. China contends that, in so
reasoning, the Panel disregarded "a relevant technical difference"
between Members' schedules of commitments and the substantive provisions set
forth in the GATT 1994 and the General Agreement on Trade in Services
(GATS), in that Members' goods and services schedules are separate instruments
from these Agreements and may change from time to time.[105]
2.17. Fourth,
China submits that, contrary to the Panel's statement that prior panel and
Appellate Body reports do not support China's position[106], this dispute presents the first occasion on
which a panel or the Appellate Body has been called upon to interpret the
meaning of the term "the WTO Agreement" as used in Paragraph 1.2
of China's Accession Protocol.
2.18. Fifth,
China contends that the Panel erroneously found that China's interpretation
would render redundant explicit references to the GATT 1994 throughout the
Accession Protocol and the Accession Working Party Report. In China's view,
explicit textual references to the GATT 1994 are necessary either to ensure
that the relevant provisions convey substantive meaning (such as in
Paragraphs 11.1 and 11.2 of China's Accession Protocol), or to confirm the
understanding of how China would implement the relevant covered agreements
(e.g. Paragraphs 160 and 162 of China's Accession Working Party Report confirm
that China would apply export restrictions and licensing consistently with
Articles XI and XX of the GATT 1994). Moreover, China submits that, as the
Appellate Body found in China – Publications and
Audiovisual Products, the introductory clause of Paragraph 5.1 of
China's Accession Protocol gives China access to the exceptions under
Article XX when and if the measure at issue has a clearly discernible,
objective link to the objective of
regulating trade in the goods at issue.[107]
2.19. China
recalls that Articles XII:1 and XII:2 of the Marrakesh Agreement explicitly
provide the authority for the Ministerial Conference, acting on behalf of the
WTO, to reach agreement with each acceding Member to create Member-specific WTO
law in the form of "terms of accession". Article XII of the Marrakesh
Agreement is, therefore, the legal basis under which the terms of accession set
forth in a post-1994 accession protocol may become a source of new, Member‑specific
WTO law. China emphasizes, however, that the authority of the Ministerial
Conference to approve the creation of Member-specific WTO law is not unbounded.
Rather, it is limited by the important requirement that specific terms of
accession must "intrinsically relate to" either the Marrakesh
Agreement or one of the Multilateral Trade Agreements annexed thereto. This
requirement flows directly from a proper interpretation of Article XII:1 of the
Marrakesh Agreement read in conjunction with Paragraph 1.2, second
sentence, of China's Accession Protocol.
2.20. China
submits that the Panel failed to give effective meaning to the second sentence
of Article XII:1 by finding that this sentence merely prescribes that a newly
acceding Member must accept the WTO legal framework as a single undertaking. In
China's view, the Panel's interpretation is superficial and contrary to the
rule of effective treaty interpretation. This is because a newly acceding
Member is in any event required to accept the WTO Agreement as a whole by
virtue of Article II:2 of the Marrakesh Agreement, which stipulates that
the Multilateral Trade Agreements contained in Annexes 1, 2, and 3 "are
integral parts of [the Marrakesh] Agreement, binding on all Members".
Thus, for China, the second sentence of Article XII:1 must have a different, or
additional, meaning, and not the "excessively narrow, and thus essentially
redundant, meaning which the Panel erroneously ascribed to it".[108] China further contends that the Panel erred
in stating that nothing in Article XII:1 supports China's positions that specific protocol provisions must be considered
an integral part of the specific covered agreement to which they intrinsically
relate, or that its Accession Protocol is not a self-contained agreement and
that it merely serves to specify, including by the means of
"WTO-plus" commitments, China's obligations under the Marrakesh
Agreement and the Multilateral Trade Agreements annexed thereto.[109] In China's view, Articles XII:1 and XII:2 of
the Marrakesh Agreement provide the key legal basis under which the terms of
accession set forth in a post-1994 accession protocol may effectively become a
source of Member-specific WTO law.
2.21. China
alleges that the Panel failed to interpret Article XII:1 of the Marrakesh
Agreement in its proper context, that is, Paragraph 1.2 of China's Accession
Protocol. China maintains that, read together, these provisions confirm that
accession commitments must relate to the subject matter covered by the
Marrakesh Agreement or one of the Multilateral Trade Agreements annexed
thereto. In China's view, this "overarching intrinsic link between
post-1994 accession protocols and the Marrakesh Agreement
and the multilateral trade agreements annexed thereto is a defining feature of
the WTO accession process."[110]
2.22. China
alleges that a proper interpretation of Article XII:1 of the Marrakesh
Agreement read in conjunction with Paragraph 1.2, second sentence, of China's
Accession Protocol means that, in interpreting a specific provision in China's
Accession Protocol, the treaty interpreter's initial task is to analyse to
which of the covered agreements listed in Appendix 1 to the DSU that Protocol
provision intrinsically relates. Once that is determined, the Protocol
provision is to be treated as an integral part of such covered agreement.
2.23. According
to China, the fact that post-1994 accession protocols do not figure among the
exhaustive list of covered agreements in Appendix 1 to the DSU, and do not
contain features that many of the Multilateral Trade Agreements possess
(including general or security exceptions, or a modification clause), confirms
that post-1994 accession protocols are not self-contained agreements. China
argues that there was no need for the drafters to equip post-1994 accession
protocols with such features, because it was their intention that specific
accession protocol provisions would be treated as integral parts of either the
Marrakesh Agreement or one of the Multilateral Trade Agreements, depending on
the subject matter to which they intrinsically relate. Thus, a post-1994
accession protocol serves to specify, including by means of
"WTO-plus" provisions, how the covered agreements will apply between
the acceding Member and the incumbent WTO Members.
2.24. China
contends that its interpretation of Paragraph 1.2 of its Accession Protocol and
Article XII:1 of the Marrakesh Agreement achieves a coherent
characterization of the legal nature of post-1994 accession protocols, as it
avoids problematic implications regarding Member-specific "WTO-plus"
provisions. Under China's interpretation, the treaty interpreter will first
determine whether the "WTO-plus" provision relates to the same
subject matter addressed by one of the covered agreements, and apply both the
"WTO-plus" provision and that covered agreement harmoniously. In
addition, China maintains that its interpretation provides a coherent
explanation for the enforceability of post‑1994 accession protocols under the
DSU. Highlighting that post-1994 accession protocols are not listed among the
covered agreements contained in Appendix 1 to the DSU, China explains that the
drafters opted to effectively link the enforceability under the rules of the
DSU to the establishment of an intrinsic relationship between the subject
matter of one of the covered agreements and the various provisions in a
post-1994 accession protocol.
2.25. China
uses the analogy of a house to illustrate the nature of the WTO single
undertaking, whereby the Marrakesh Agreement provides the foundation, outer
walls, and the roof of the "WTO House", and the Multilateral
Trade Agreements annexed thereto are rooms in this house. According to China, a
treaty interpreter analysing a provision of China's Accession Protocol must
identify the appropriate "room" or "rooms" in the "WTO
House" where each accession protocol provision will take up residence.
Thus, China argues, the proper way to consider post-1994 accession protocols is
to think of provisions contained therein as "new coats of paint or
furniture items in the individual agreement rooms of the WTO House".[111] A
Member's "terms" of accession may therefore rewrite, or add new
substantive provisions to, specific provisions of the Marrakesh Agreement and
its annexed agreements.
2.26. China
further submits that, "[i]rrespective of the interpretation of Article
XII:1 [of the Marrakesh Agreement] and Paragraph 1.2 of China's Accession
Protocol", its Accession Protocol is properly characterized as a
"subsequent agreement" relating to the same subject matter in the
sense of Article 30 of the Vienna Convention on the Law of Treaties[112] (Vienna Convention).[113] Moreover, China contends that it has used
the expression "intrinsic relationship" to describe the link between
the subject matter of a given accession commitment and the subject matter of
one or more provisions in the Marrakesh Agreement and its annexed agreements.
Yet, "the label used to describe this relationship", whether it be
"intrinsic relationship", "conceptual unity", or
"shared subject matter", is "of no consequence".[114] In all cases, panels faced with a specific
commitment of China's Accession Protocol must seek to link the subject matter
of that commitment with the subject matter of one or more provisions of the
Marrakesh Agreement and the Multilateral Trade Agreements annexed thereto. To
the extent that a given accession commitment stands in conflict with one or
more provisions in the Marrakesh Agreement or the Multilateral Trade Agreements
annexed thereto, such conflict is resolved according to the rule under Article
30(3) of the Vienna Convention.[115] Thus, for example, China argues that Article
XI:1 of the GATT 1994 has been modified by Paragraph 11.3 of China's
Accession Protocol and, as a result, China may not impose export duties.
2.27. Finally,
China reiterates that it is not seeking reversal of the Panel's finding that
Article XX of the GATT 1994 is not available to justify a breach of Paragraph
11.3 of China's Accession Protocol. Moreover, China is not requesting the
Appellate Body to depart from the same finding it made in China – Raw
Materials. China expresses the view that the Appellate Body
can, and should, find a way to endorse fully China's arguments in the present
disputes "in a manner that stands in harmony with" the Appellate
Body's decision in China – Raw Materials.[116]
2.28. China requests the Appellate Body to reverse the Panel's
finding that China's export quotas for rare
earths and tungsten send "perverse signals" to the domestic users
and, consequently, do not relate to conservation in the sense of
Article XX(g) of the GATT 1994.[117] Further, to the extent that the
Panel's errors in connection with its analysis of the "relating to"
requirement taint the Panel's conclusion that China's export quotas on rare
earths and tungsten cannot be provisionally justified under
subparagraph (g) of Article XX of the GATT 1994, China requests the Appellate Body
also to reverse this conclusion.
2.29. First, China contends that the
Panel erred in its interpretation of the term "relating to" in
Article XX(g) of the GATT 1994 by considering that, as a general
rule, in order to ascertain whether there is a relationship of ends and means
between a measure and its objective, it is appropriate for a panel to consider
"solely" the general structure and design of the measure at issue[118], to the exclusion of any evidence regarding the effects of the measure
in the marketplace. Second, China submits that the Panel erred in its
application of Article XX(g) in finding that China's export quotas cannot
relate to conservation because, as a matter purely of structure and design, the
quotas send a "perverse signal" to domestic users, while refusing to examine
evidence that there are no such "perverse signals" in practice.
Third, China alleges that the Panel contravened Article 11 of the DSU by
failing to conduct an objective assessment of the matter, including the facts,
and by providing incoherent reasoning.
2.30. China requests the
Appellate Body to reverse the Panel's interpretation of the term "relating to"
in Article XX(g) of the GATT 1994, "to the extent that this
interpretation required the Panel to examine solely the structure and design of
China's export quotas".[119]
2.31. In China's view, the Panel
considered that, as a general rule, in order to ascertain whether there is a
relationship of ends and means between a measure and its objective, it is
appropriate for a panel to consider "solely" the general structure
and design of the measure at issue. Thus, according to China, the Panel
determined that its assessment should proceed to the exclusion of any evidence
regarding the effects of the export quotas in the marketplace together with
other elements of China's conservation scheme. China contends that this
approach by the Panel was in error, because the enquiry into whether a measure
relates to conservation under Article XX(g) of the GATT 1994 cannot
properly be done if a panel constrains itself not to look at evidence of the
regulatory context in which the alleged conservation measure is implemented and
how it operates in the marketplace for relevant goods.
2.32. China acknowledges that, in order
to determine whether a measure is a genuine means to the realization of
conservation ends, a panel must have regard to the general structure and design
of the measure, and that sometimes, as in US – Shrimp,
consideration of such structure and design may be enough for a panel to
determine that a measure is related to conservation. However, China stresses
that consideration of an impugned measure's structure and design alone may not be enough to determine whether it is indeed a means
to the realization of a Member's conservation objectives. In China's view, the
Panel erred by insisting that the examination of a challenged measure's
relationship with conservation "must focus on the 'design and structure'
of the measure ... which, together with the measure's text, must demonstrate a
clear link with the conservation objective", and by finding that this
somehow required the Panel not to consider available evidence on how the
measure actually operates.[120] Thus, although the Panel correctly recognized that a measure cannot be
considered in isolation and without regard to the regulatory context, the Panel
did just that by asserting that it was legally bound to examine only the text,
structure, and design of the measure, and not how the measure actually works in
the context of China's comprehensive conservation programme. According to
China, this constitutes legal error.
2.33. China adds that, where evidence
sheds light on how a measure actually operates, a proper analysis under
Article XX(g) of the GATT 1994 cannot end with "abstract
conclusions" about the structure and design of the measure. Unless a
responding Member succeeds in showing that its measure relates to conservation,
based on its design and structure, or there is no evidence regarding the
operation of a regulatory scheme, a panel should also have regard to how the
regulatory scheme of trade and domestic measures operates in the market as a
means to the realization of conservation ends.[121] China underlines that the absence of a requirement for a defending
Member to prove empirically that its measure actually has conservation effects
does not mean that such evidence can be "legally rejected and ignored by a
panel" when it is put forward by the Member invoking Article XX.[122] China submits, therefore, that the Panel erred by "legally"
rejecting and ignoring such evidence.
2.34. Referring to a statement made by
the Appellate Body in US – Gasoline
recognizing that consideration of a measure's predictable effects may in
certain circumstances be relevant, China suggests that it would be strange if
the "predictable effects of a measure" could shed useful light on
whether the measure is related to conservation goals, but the actual effects
could not.[123] China highlights that, in the context of determining whether there is a
"contribution" (i.e. a "genuine relationship of ends and
means"[124]) under Article XX(b) of the GATT 1994, the
Appellate Body has emphasized that "[s]uch a demonstration can of
course be made by resorting to evidence or data, pertaining to the past or
present, that establishes" the contribution.[125] For China, just as under Article XX(b), the demonstration that a
measure relates to conservation under Article XX(g) can also be made by
resorting to evidence or data. China suggests that such evidence of actual
effects, particularly when proffered in conjunction with other elements of a
conservation programme, can be highly illuminating as to whether a measure
provides a genuine means for the realization of its regulatory conservation
ends.
2.35. China adds that a Member invoking Article XX(g) is not required to show actual effects
in the marketplace in order to provisionally justify a measure. Instead, it is
enough to show that a measure is apt to produce a contribution to the
achievement of its objective; or, put another way, that it genuinely provides a
means to realize the conservation of natural resources. According to China, the possibility to determine what a measure is
"apt" to achieve recognizes that, in the case of certain measures –
notably the kinds of environmental measures covered by subparagraphs (b)
and (g) – the results of regulatory actions might only be observable with
the benefit of time.[126] China indicates that a panel may therefore measure the
"aptness" of what a measure is capable of achieving through making
quantitative projections into the future, or by using qualitative reasoning
supported by tested hypotheses supported by evidence.
2.36. China alleges that, although the
Panel correctly stated that a measure cannot be considered in isolation and
without regard to the regulatory context, the Panel did just that. Having
erroneously asserted that it was legally bound to examine only the text,
structure, and design of the measure, the Panel proceeded to look solely at the
structure and design of China's export quotas, and failed to engage with
considerable evidence as to how these features work as part of China's
comprehensive conservation policy in the context of the reality of the Chinese
and world markets for Chinese rare earths. The Panel's failure to test whether
the theoretical "perverse signals" were actually present in the
marketplace for rare earths and tungsten stemmed from the Panel's incorrect
view that it must limit its consideration to the general design and structure,
since Article XX(g) does not require an evaluation of the actual effects
of the concerned measures. In China's view, the Panel erred in curtailing its
analysis in this way.
2.37. China considers the Panel's
"theoretical assertions and lack of any factual evidentiary findings"
to be "particularly troubling" given that China provided considerable
evidence relevant to the question of whether there actually was a
"perverse effect" from the export quotas.[127] First, China alleges that it: (i)
provided extensive evidence on the operation and the effects of domestic
extraction and production caps on rare earths; (ii) demonstrated that it has in
place mechanisms to enforce these caps and has taken regular enforcement
actions to combat illegal mining and production; and (iii) provided evidence
demonstrating the effects of these measures, including the decline of
extraction and production of rare earths. Second, China contends that it
provided evidence indicating that the 2012 rare earth export quotas did not
have any of the perverse effects alleged by the Panel, because they neither
decreased Chinese domestic rare earth prices nor encouraged relocation of rare
earth-consuming industry to China. Faced with all this evidence, the Panel was,
in China's view, required, at a minimum, to grapple with it before confirming
its presumption that the export quotas at issue result in perverse signals to
domestic consumers.
2.38. China further asserts that, even
assuming that the Panel could properly limit its analysis to the structure and
design of China's export quotas, the Panel still erred in two additional ways
in applying the "relating to" element of Article XX(g).
2.39. First, separate from its allegation
that the Panel failed to consider certain evidence, China submits that, given
the Panel's "two-step approach" to the distinct elements of
Article XX(g), questions about the relationship between the export quotas
and domestic restrictions should be the subject of the second element (namely,
"made effective in conjunction with").[128] Thus, the Panel should have considered the existence and import of
domestic restrictions as a distinct requirement under the second element,
rather than as part of the "relating to" element of
Article XX(g). For China, the Panel's approach of analysing domestic
measures as part of the "relating to" assessment essentially
duplicates consideration of an issue that explicitly must be considered when
assessing whether the measure is "made effective in conjunction with"
domestic restrictions. Since the Panel dealt with Article XX(g) as a sequence
of separate elements, in which consideration of "relating to" is an
initial step followed by separate consideration of whether the impugned measure
is "made effective in conjunction with" domestic restrictions, the
Panel should have found that the structure and design of China's export quotas
relate to conservation based on its finding that the quotas can send effective
conservation signals to foreign users.
2.40. Second, China avers that, even if
the Panel were right that the general effect of export quotas is to send domestic
users a perverse signal, the existence of a comprehensive conservation
programme, including limitations on domestic production and consumption is,
purely as a matter of structure and design, clearly capable of mitigating such
perverse effects. In this regard, China highlights that the Panel accepted that export quotas can, and
do, send a positive conservation signal to foreign users.[129] The Panel also found that China's export quotas
formed part of "a series of interconnected measures and programmes, including
extraction and production caps and enforcement actions, which are designed to
manage the extraction and supply of rare earth resources through a conservation
policy".[130] Although the Panel identified the possibility
of perverse signals to domestic users resulting from export quotas, the Panel
also found that "production caps could mitigate the perverse signals that,
in theory, are the general effect of export quotas."[131] According to China, the Panel further
recognized that there are measures in
place – part of a bona fide rare earth conservation
policy – that could limit domestic production. China therefore asserts that,
given that production caps could, in principle, mitigate the theoretical
perverse signals found by the Panel, the theoretical sum of the design and
structure of this regulatory scheme is one that is apt to make a positive
overall contribution to the realization of China's conservation objectives.
China acknowledges that the "degree of contribution" would – within
the architecture of this regulatory scheme – depend on how the regulatory
scheme actually operates.[132] However, China reiterates that the Panel denied
the opportunity for China to prove, through evidence of the operation of the
measure, how its comprehensive conservation programme actually mitigates the
theoretical perverse signals that the Panel had identified.
2.41. China raises a number of claims that the Panel erred under Article 11 of the
DSU in reaching its finding that China's export quotas on rare earths and tungsten
do not relate to conservation by virtue of their signalling function. China
asserts that the Panel's finding is merely a presumption and lacks an
evidentiary basis. China also identifies three instances where, according to
China, the Panel lacked an evidentiary basis for its findings or failed to
"reconcile its findings" with contrary evidence, and one instance in
which, in China's view, the Panel engaged in incoherent reasoning.
2.42. China asserts that the Panel's
finding that China's export quotas on rare earths and tungsten are liable to
send "perverse signals" to domestic consumers is merely a
presumption. The Panel cited no evidence or any other support in the record for
its finding that export quotas are likely to stimulate domestic consumption by
effectively reserving a supply of low-price raw materials for use by domestic
downstream industries and encourage relocation of rare earth‑consuming
industries to China. Nor did the Panel cite any evidence in support of its
suggestion that the "general effect of an export quota" is to
increase the cost of a raw material for foreign consumers but decrease its cost
for domestic users.[133] China considers the Panel's failure to explain
the basis for its presumption to be "all the more troubling" because
China submitted evidence showing that, in some circumstances, the export quota
would have no effect on prices or levels of consumption for either domestic or
foreign consumers[134], as well as evidence showing that any
difference between domestic and foreign prices could not have been caused by
the export quota.[135] This, according to China, required the Panel to
explain, based on economic evidence, how it reached the conclusion that export
quotas will "always", as a "general effect", reduce
domestic prices when compared to export prices.[136]
2.43. China also points to the
substantial evidence that it submitted demonstrating that the export quota on
rare earths does have the positive conservation effect that the Panel
recognized the export quotas could have. In China's view, it provided evidence
that the export quota signals were working by demonstrating the considerable
increase in the number of new rare earth mining projects starting up outside
China and securing investment since 2010. The export quotas were also linked to
the development, in China and abroad, of substitutes and the initiation of
recycling efforts. China submitted specific evidence of rare earth recycling
projects conducted by Chinese enterprises and of research and development and
recycling projects being prepared. According to China, such developments are linked
to the conservation signals produced by the export quotas.[137]
2.44. China further argues that the Panel
failed to reconcile its findings with evidence demonstrating that China's rare
earth export quota did not send "perverse incentives" that could have
cancelled out its positive contribution to
conservation. First, China refers
to evidence that suggests that domestic prices for rare earths increased, and
domestic consumption decreased, between January 2011 and January 2013,
and that there was a considerable narrowing of the gap between foreign and
domestic prices for several important rare earth metals.[138] Second, China refers to additional relevant evidence that it submitted
showing limited investment by foreign companies in downstream industries in
China, as well as to the lack of any evidence of such foreign downstream users of rare earths relocating to China after
2007 – i.e. the time when the export quota volumes were cut for the first time.
On this basis, China asserts that the Panel failed to reconcile its findings
with evidence demonstrating that China's rare earth export quotas did not send
"perverse incentives" that could have cancelled out their positive
contribution to conservation.[139]
2.45. China alleges that the pricing
evidence it submitted to the Panel, at a minimum, raises significant doubts
about the legitimacy of the presumption of perverse effects in the form of
domestic prices being driven down in correlation to the degree to which they
drive up export prices. In China's view, since this evidence "squarely
contradicts"[140] the proposition that the export quotas provide either a price advantage
or a perverse signal and incentive to the important Chinese users of these rare
earth elements, the Panel's failure to address this evidence calls into
question the objectivity of the Panel's assessment. Furthermore, in the light
of this evidence, the critical question for the Panel, in applying
Article XX(g) of the GATT 1994, should have been whether the presumed
"perverse signal" allegedly incentivizing domestic consumption was
actually present, given the characteristics and
operation of the Chinese domestic markets for rare earths and tungsten in 2012
and 2013. However, the Panel failed to reconcile the evidence that conflicted
with its conclusion. For China, the Panel failed to make an objective
assessment of the facts, because it did not address all of the above evidence
that calls into question the validity of the Panel's presumption that export
quotas send perverse signals to domestic Chinese users of rare earths by
guaranteeing a supply of low-priced rare earths.
2.46. China also contends that the
Panel's findings are based on incoherent reasoning. China requests the
Appellate Body to reverse the Panel's findings because, based on the
Panel's own view that domestic restrictions can mitigate any perverse signal
given to domestic users by export quotas, China's export quotas are capable of
providing a genuine means to China's conservation ends. In China's view, it is
"incoherent, improper, and remarkable"[141] for the Panel to have recognized that the key issue of its
"relating to" analysis depends on the level at which the production
quota is set and the way in which the export and production quotas interact,
but to then have refused to consider any evidence of these very alleged
effects.
2.47. China concludes by asserting that
the Panel's failure to conduct an objective examination of evidence contrary to
its presumption contravenes Article 11 of the DSU. For China, the Panel's
failure to consider material evidence had a "bearing on the objectivity of
the panel's factual assessment" and resulted in the Panel engaging in
incoherent reasoning.[142] China contends that, had the Panel made an objective assessment of
China's evidence that the export quotas did not create the price difference or
relocation effects that the Panel assumes export quotas always have, it would
have concluded that the export quotas relate to conservation.
2.48. China requests the Appellate Body
to reverse the Panel's finding that China's export quotas on various forms of
rare earths, tungsten, and molybdenum are not "made effective in
conjunction with" domestic restrictions.[143] Further, China requests that, "[t]o the extent the Panel's errors
in connection with the analysis of the 'made effective in conjunction with'
requirement taint the Panel's conclusions … that China's export quotas on rare
earths, tungsten, and molybdenum cannot be provisionally justified under
Article XX(g) of the GATT 1994", the Appellate Body also reverse this
conclusion.[144]
2.49. China alleges, first, that the
Panel erred in its interpretation of Article XX(g) by requiring a separate and
distinct enquiry into whether the burden of conservation-related measures is
imposed in a balanced way between domestic and foreign consumers and producers.
Second, China contends that the Panel erred in its interpretation of
Article XX(g) by finding that it must limit the analysis under its
additional "even-handedness" test to considering the structure and
design of the measures, to the exclusion of evidence regarding the actual
operation and impact of the measures. Third, China submits that the Panel erred
in its application of Article XX(g) by applying an "additional"
requirement of "even-handedness" that required a balance in the
conservation burden imposed on foreign and domestic consumers and producers;
and by focusing on the structure and design of the measures, to the exclusion
of their operation. Fourth, China asserts that, through its failure properly to
engage with evidence relating to the operation of China's domestic
restrictions, its incoherent reasoning, and its use of a "double
standard" in applying its "even-handedness" test, the Panel
failed to make an objective assessment of the matter, including an objective
assessment of the facts, under Article 11 of the DSU.[145]
2.50. First, China alleges that the Panel
erred in its interpretation of the phrase "made effective in conjunction
with" restrictions on domestic production or consumption by requiring a
separate and distinct enquiry into whether the regulatory system
"distributes the burden of conservation-related measures between domestic
and foreign consumers in a balanced way".[146] China takes issue with the Panel's introduction into subparagraph (g)
of Article XX of a requirement that there be a balance
between China's export quotas and domestic production restrictions. As found by
the Appellate Body in US – Gasoline,
where the Appellate Body used the term "even-handedness" for the
first time as a shorthand reference for the "made effective in conjunction
with" requirement, subparagraph (g) requires only that the export
restrictions work together with some domestic
restriction towards a conservation goal. There is no added requirement under
subparagraph (g) for a panel to investigate the relative burdens of
conservation borne by foreign and domestic consumers or producers to determine
that they are equally shared or "balanced". For China, such an
analysis of the relative "burdens" is relevant, instead, under the
chapeau of Article XX.
2.51. China maintains that under a
proper interpretation of the terms "made effective in conjunction
with", so long as genuine domestic restrictions are imposed by a Member,
it is not relevant to determine whether the intensity or magnitude of those
restrictions is in balance with the intensity or magnitude of trade
restrictions under the impugned measure. For China, the second clause of
Article XX(g), and a proper understanding of "even‑handedness"
deriving from that legal standard, require that there be some domestic
restrictions present that work together with the impugned measure, and that,
together, they relate to conservation. The Panel, however, found that the
second clause of Article XX(g) requires more than the
existence of a burden on both foreign and domestic users. The Panel considered
that this element requires, in addition, that the burden be evenly shared, as evidenced by its statements that "the
even-handedness criterion is satisfied where the regulating Member can show
that … it has … imposed real conservation restrictions on the domestic
production or consumption" so as to "distribute the burden of
conservation between foreign and domestic consumers in an even‑handed or
balanced manner".[147] In so finding, China asserts that the Panel departed from the Appellate
Body's case law and developed its own erroneous legal standard.
2.52. Referring further to the Appellate
Body report in US – Gasoline, China submits that
the essence of the obligation in subparagraph (g) lies in ensuring that, just
as an impugned measure may restrict trade as a means to conservation ends, so
too must there be some domestic restriction imposed that works together with
the trade measure.[148] For China, however, the Appellate Body did not suggest that there was a
requirement for a panel to investigate identity, substantive complementarity,
impartiality, or balance in the quantitative or qualitative scope of the
restrictions imposed by the trade measure and by the domestic measure. Rather,
the Appellate Body seemed to "eschew any such requirement".[149] Accordingly, China maintains that there is no requirement to examine
under subparagraph (g) the relative burdens borne, respectively, by foreign and
domestic interests.
2.53. China submits that, in US – Shrimp, the Appellate Body considered the existence of
a domestic restriction sufficient to find that the measure at issue in that
dispute was an "even‑handed" measure.[150] The restrictions at issue in that case operated differently for foreign
and for domestically caught shrimp. China emphasizes that this did not affect
the Appellate Body's conclusion that the restrictions were applied
"even-handedly", and notes that the Appellate Body did not assess
whether the degree of burden imposed by the trade measure and by the domestic
restrictions was qualitatively or quantitatively balanced.
2.54. China further contends that, in China – Raw Materials, the Appellate Body summarized and
consolidated the case law on the meaning of "made effective in conjunction
with".[151] For China, the Appellate Body has consistently found that there must be
a measure that works together with the impugned measure towards conservation,
but the Appellate Body has not required that the relative burden of the foreign
and domestic restrictions be balanced. Rather, the term
"even-handedness" has been used by the Appellate Body as a shorthand
reference for the requirement that there must be some domestic restriction that
works together with the impugned measure towards conservation. However, China
submits that this does not mean that a panel must assess, under subparagraph (g),
whether the relative burden of the foreign and domestic restrictions is
balanced, as the Panel in this case found.
2.55. China adds that the chapeau of
Article XX provides contextual support for its position. Under the chapeau of
Article XX, a panel must assess whether there is discriminatory treatment of
foreign and domestic users, and, moreover, whether such discrimination is
"arbitrary or unjustifiable". The test under the chapeau therefore
requires consideration of the respective conservation burdens borne by
different countries under the measure. China contends that it would deprive the
chapeau of its utility if the test under subparagraph (g) also required
substantive balancing, and that this would be contrary to the logical structure
of Article XX of the GATT 1994 and to the principle of effective treaty
interpretation.
2.56. Second, China alleges that the
Panel also erred in its interpretation of Article XX(g) by limiting its
analysis of the "even-handedness" criterion to an assessment of the
"structure and design" of the impugned measure and by declining to
examine evidence of the actual operation or effects of the measure.[152] China alleges that, in doing so, the Panel denied China the opportunity
to show, based on evidence of the actual operation or effects of the measure,
that its measures work together towards conservation.
2.57. China maintains that the analysis
of an impugned measure under subparagraph (g) must take into account the
"structure and design" of the measure. However, the analysis of such
structural elements cannot properly be undertaken in isolation from evidence
demonstrating the actual operation of the measures and their market impact.
China contends that the Appellate Body recognized in China – Raw
Materials that the analysis under Article XX(g) is not limited
to considerations of the "structure and design" of the measure, but
includes consideration of how a challenged measure and a domestic restriction
operate together as a means to conservation ends.[153] For China, consideration of the "operation" of a measure
generally requires an inquiry into how it functions in practice, in the
marketplace.
2.58. China further argues that the Panel
erred in relying on a statement by the Appellate Body in US –
Gasoline that subparagraph (g) does not require a respondent to meet
an "empirical 'effects test'" in order for a measure to be
provisionally justified under subparagraph (g).[154] While the Appellate Body in that case held that such an assessment was
not strictly necessary, it also recognized that "predictable effects"
could be relevant in the analysis of whether a measure is a means to
conservation ends. China submits that the Appellate Body report in US – Gasoline does not stand for the proposition that a
panel is precluded, under subparagraph (g), from considering evidence
concerning the operation of the impugned measure in its broader regulatory
context.
2.59. In addition, China takes issue with
the Panel's statement that consideration of the operation or effects of a
measure under subparagraph (g) would deprive the chapeau of its utility,
because the chapeau itself is concerned with the "application and
effects" of a measure.[155] The inquiry under the chapeau does not mandate a "simplistic,
bright-line distinction" between consideration of the
"application" of a measure, on the one hand, and of its
"structure and design", on the other.[156] China maintains that, although the chapeau of Article XX refers to the
"application" of a measure, this does not mean that consideration of
the operation of a measure is not relevant in considering the application of
subparagraph (g). In support of this argument, China points to case law
confirming that a proper understanding of the WTO-consistency of a measure
under the substantive provisions of the GATT 1994 is not determined solely on
the basis of its design and structure, but should also take into account the
manner in which the measure is expected to apply or actually applies (its
"expected operation").[157] China sees "nothing remarkable" in the fact that the same
evidence may be relevant for different legal elements under the covered
agreements.[158]
2.60. China alleges that the Panel also
erred in its application of the clause "made effective in conjunction with
restrictions on domestic production or consumption" for two reasons:
first, the Panel applied an "additional" requirement of
"even-handedness" requiring "balance" in the conservation
burden imposed on foreign and domestic consumers and producers; and, second,
the Panel erred by focusing on the structure and design of the domestic
restrictions, to the exclusion of its operation.[159]
2.61. With regard to the first point,
China contends that the Panel's error in applying subparagraph (g) flows
directly from its interpretative finding that there is an additional
requirement of "balance" under that provision. Accordingly, the Panel
required that there be equivalence or symmetry in the nature, kind, and
quantity of the restrictions imposed by China on domestic and foreign consumers
and producers. In particular, the Panel found
that, because there is no "domestic counterpart" to the export
restrictions on rare earths, tungsten, and molybdenum – such
as, limits on domestic consumption or a tax that applies exclusively to
domestic consumers – China's export quota system is not
"even-handed". China, however, contends that it was not required
to show, in addition, that its domestic and foreign restrictions are of the
same nature, in the sense that, just as export quotas apply exclusively to exports, domestic
restrictions apply exclusively to domestic users.
2.62. China also takes issue with the
Panel's finding that China had not proven that
its measures do not discriminate
in favour of domestic consumers because, for instance, there is a "consumption
assurance" for domestic users, and China had, therefore, not discharged
its burden of establishing "even-handedness".[160] China submits that it was not required to show that, through its domestic restrictions, it does
not discriminate in favour of domestic consumers.
2.63. With regard to the second point,
China alleges that, because of its erroneous "structure and design"
interpretation of subparagraph (g), the Panel adopted an "evidentiary
straightjacket"[161] that prevented it from considering substantial evidence relating to the
operation or impact of the measures in the domestic market. China contends that
this evidence would have shown that the domestic restrictions and the export
quotas indeed work jointly towards a conservation purpose.
2.64. China alleges three particular
errors of application with respect to its contention that the Panel erred in
focusing on the structure and design of the measures at issue. First, China
points out that the Panel acknowledged that China has adopted
a series of bona fide conservation measures
including extraction and enforcement actions, and that these measures were
designed to ensure that domestic Chinese consumers do not have unlimited access
to rare earth resources.[162] China explains that the export quotas work
in the same way to ensure that foreign users do not have unlimited access to
China's rare earth resources, and that it provided evidence demonstrating that
the domestic restrictions and export quotas work together to send signals to
domestic and foreign rare earth users, respectively, and thus positively
contribute to China's conservation objective.
2.65. Second,
China observes that, in finding that the export quotas were not "made effective in
conjunction with" domestic restrictions, the Panel referred to four
specific factors relating to the export, extraction, and production quotas that
it found to be probative, namely: (i) the different levels and timing of
the export, extraction, and production quotas; (ii) the different product
scopes of the export, extraction, and production quotas; (iii) the fact
that unused export quota shares are permitted to be resold into the domestic
market and no explicit consumption quota exists that applies solely to domestic
users; and (iv) in the case of rare earths, the fact that the export quotas have
existed since at least 2002, while the domestic restrictions have existed only
since 2006 (extraction quota) and 2007 (production quota). China alleges that,
in considering these four factors, the Panel failed to explain or demonstrate
why these four factors discounted the restrictive effect on domestic Chinese
consumers of enforced extraction and production quotas. China emphasizes that
it demonstrated that its extraction and production quotas are maintained at
levels that are enforced by a wide range of measures and thus place an
overarching limit on total extraction and production.
2.66. However, even assuming that these
four factors were relevant to the Panel's analysis, China asserts that the
Panel erred because it failed to explain or demonstrate how
they were relevant. With respect to the timing of the 2012 export, extraction, and production quotas, China alleges that the Panel failed to address evidence submitted by
China as to the manner in which allocation of the quotas is coordinated among
the competent ministries. Regarding the levels of the quotas, China asserts that the Panel focused on the fact that unfilled
export quota amounts are redirected to the domestic market, but that
it failed to grapple with arguments made by China that such unfilled export quota amounts need not necessarily be redirected.
2.67. With regard to the
"even-handedness" factor, China maintains that the Panel's
consideration of whether there are measures exclusively affecting domestic
users was irrelevant. China also alleges that the Panel did not address or
grapple with arguments and evidence submitted by China explaining why it has
not adopted an explicit domestic consumption quota.[163] With respect to the fourth factor, that
is, the temporal connection between the quotas, China alleges that the Panel also failed to address certain evidence
showing a temporal connection in the way
that the domestic and export quotas work together as part of China's
conservation policy. In that respect, China refers to "more detailed
arguments" set out in the context of its allegations of error under
Article 11 of the DSU.[164]
2.68. Third, China asserts that, even if there were a "balancing" requirement under
subparagraph (g), the Panel erred in the application of its own test by
failing to take account of evidence that domestic and foreign restrictions
operate to impose equivalent burdens on
domestic and foreign users. China submits that the Panel did not discuss or engage with relevant evidence that showed
either a similar restrictive effect, or a lack of any restrictive effect, on
both domestic and foreign users. In particular, China refers to evidence
submitted in support of its argument that, in 2011 and 2012, none of the rare earth export quotas were filled[165]; evidence suggesting that there were no significant differences in foreign and domestic prices for
rare earths by late 2012 and 2013 for the most important rare earth products[166]; evidence to establish that, since January 2007, domestic prices of
roasted molybdenum concentrate have been consistently higher than prices paid by
European purchasers[167]; and evidence demonstrating that the conservation signal sent by the export
quota and domestic restrictions is effective for both foreign and domestic rare
earth users.[168]
2.69. China further alleges that the
Panel failed to make an objective assessment of the matter as required by
Article 11 of the DSU. In particular, China alleges that the Panel failed
properly to address certain evidence relating to the operation of China's
domestic restrictions and export quotas, that the Panel engaged in incoherent
reasoning; and that the Panel applied a "double standard" in applying
its test of "even-handedness".
2.70. With regard to its allegation that
the Panel failed properly to address certain evidence relating to the operation
of China's domestic restrictions and export quotas, China takes issue, first,
with the Panel's analysis of the timing of the 2012 export, extraction, and
production quotas. China alleges that the Panel failed to address evidence
submitted by China as to the manner in which allocation of the quotas is
coordinated between the competent ministries, and contends that all quota
levels are set by the competent ministries at the same time, even if the dates
of the actual publication of the volumes may differ.[169]
2.71. Second, China
maintains that, with respect to the levels of the quotas, the Panel focused on the fact that export
quota shares not used by foreign users are redirected to the
domestic market, but in doing so failed to address arguments made by China that
the unfilled export quota amounts need not necessarily be redirected. China contends that, in any event, redirection
of quota shares was not a relevant factor in determining whether the export
quotas work in conjunction with the domestic restrictions.[170]
2.72. Third,
regarding "even-handedness", China contends that the Panel's
consideration of whether there are measures exclusively affecting domestic
users was irrelevant, and that the Panel failed to address arguments and
evidence submitted by China explaining why it has not adopted a domestic
consumption quota, or why there is no need for such a quota.[171]
2.73. Fourth, China
alleges that the Panel failed to address evidence submitted by
China showing a temporal connection in the way
that the domestic and export quotas work together. In particular, China
criticizes the Panel for taking into consideration the non-existence of
domestic extraction quotas between 2002 and 2006 and alleges that the Panel
failed to address evidence demonstrating that, between 2006 and 2012, China did
have an extraction quota in place and has significantly increased its
enforcement measures. China also points to evidence that it submitted
demonstrating that the extraction levels of rare earths in China have declined
significantly since 2006.[172]
2.74. With regard to its allegation that
the Panel engaged in incoherent reasoning, China takes issue with the Panel's
finding that China does not impose domestic restrictions. China refers to
statements by the Panel recognizing that China has a comprehensive and bona fide conservation policy, encompassing "a series
of interconnected measures and programmes, including extraction and production
caps and enforcement actions, which are designed to manage the extraction and
supply of rare earth resources through a conservation policy."[173] China contrasts the Panel's reasoning with its finding, elsewhere in
the Panel Reports, that none of the domestic measures imposed by China
constitute "restrictions".[174] China alleges that, in making these two statements, the Panel engaged
in incoherent reasoning.
2.75. China adds that the Panel ignored
certain evidence when it engaged in such incoherent reasoning. In particular,
first, with regard to the Panel's statement that "China has failed to
place before [the Panel] evidence or other demonstration sufficient to support
the conclusion that China set its domestic production quota below the expected
level of demand in 2012"[175], China submits that it provided testimony that the ministries, in
setting the 2012 extraction, production, and export quotas, "did rely on
market reports".[176] China further contends that it provided the Panel with a report in which a
rare earth industry expert predicted that, by the end of 2011, the expected
level of rare earth demand would increase.[177] China explains that the ministries thereafter
set the 2012 quota levels below that predicted level of rare earth demand.[178] China alleges that the Panel failed to
assess the relevance of this evidence.
2.76. Second, China alleges that the
Panel engaged in incoherent reasoning in finding, on the one hand, that it should only assess the design, structure,
and architecture, rather than the impact, of the resource tax and, on the other
hand, in acknowledging that, by design and structure, the increased costs
caused by the resource tax could lead to a reduction in demand and therefore
limit production of rare earth ores and work to reduce extraction of rare
earths.
2.77. Third, China alleges that the Panel
engaged in incoherent reasoning because it failed to assess objectively the trends in rare earth extraction and production data.
China alleges that the Panel failed to address China's arguments that the extraction, production, and consumption data suggest that the decreased production and consumption levels are
the result of China's overall conservation policy.
2.78. Finally, China alleges that the
Panel applied a "double standard" in its test of "even‑handedness".
China argues that, with respect to the export quotas, the Panel failed to
address the extent to which China's export quotas impose an actual and not
merely theoretical burden on foreign consumers and that, on the contrary, with
regard to domestic restrictions, the Panel focused on whether these
restrictions are actually enforced and thus have restrictive effects.
2.79. The United States submits that
China's appeal of the Panel's interpretation relating to Article XII:1 of
the Marrakesh Agreement and Paragraph 1.2 of China's Accession Protocol, and
its request for reversal of the related Panel findings, are without merit and
should be rejected.
2.80. The United States emphasizes that
China has not appealed the Panel's finding that Article XX of the GATT
1994 is not applicable to justify a breach of Paragraph 11.3 of China's
Accession Protocol. China also has not appealed the Panel's finding that
China's breach of Paragraph 11.3 in this dispute is not justified under Article
XX(b) of the GATT 1994. The intermediate Panel findings that China does appeal
are not specifically addressed to Paragraph 11.3 of China's Accession
Protocol, and their reversal would not lead to the conclusion that Article XX
of the GATT 1994 can be invoked to justify a breach of Paragraph 11.3. The
United States takes note of China's statement that it is seeking coherent
guidance on the systemic relationship between post‑1994 accession protocols and
the Marrakesh Agreement together with its annexes. The United States maintains
that the purpose of the dispute settlement system is not to provide
"guidance" in the abstract. Moreover, the established application of
the customary rules of treaty interpretation to interpret commitments in
China's Accession Protocol, as was done by the Panel in this case and by panels
and the Appellate Body in the China – Publications and
Audiovisual Products and China – Raw Materials
disputes, does not call for further guidance.
2.81. According to the United States, the
Panel rightly rejected China's interpretation of Paragraph 1.2 of China's
Accession Protocol on the basis of a sound analysis grounded in the text and
context of the relevant provisions. The Panel noted that the reference to "the
WTO Agreement" in Paragraph 1.2 means that China's Accession Protocol
"in its entirety is made an
integral part of one other
agreement".[179] Moreover, the Panel noted that the
preamble of China's Accession Protocol, the
Decision of the Ministerial Conference of 10 November 2001 regarding China's
accession to the WTO, and Paragraph 1.3 of China's Accession Protocol all
support a reading of the term "the WTO Agreement" in Paragraph 1.2 as
referring to the Marrakesh Agreement only. The Panel also noted the context provided
by Article II:2 of the Marrakesh Agreement, which indicates that each
of the Multilateral Trade Agreements, in its entirety, is made an integral part
of one other agreement, i.e. the Marrakesh Agreement. The Panel additionally
noted the relevance of paragraph 1 of the language incorporating the GATT
1994 into Annex 1A, which provides an exhaustive list of what the GATT 1994
consists of and does not refer to post-1994 accession protocols. Furthermore,
the Panel noted that Paragraph 1 of Part II of China's Accession Protocol,
which makes the schedules of concessions an integral part of the GATT 1994,
would be redundant if all provisions that are intrinsically related to the GATT
1994 were automatically an integral part of the GATT 1994.[180] In this respect, the
United States argues, China fails to explain why the fact that the
schedules of concessions may be subject to periodic negotiation and change from
time to time means that specific language incorporating the schedules into the
GATT 1994 would have been required.
2.82. Thus, the United States argues, the
Panel's analysis of Paragraph 1.2 of China's Accession Protocol is not, as
China asserts, "a superficial, grammatical analysis".[181] Rather, the Panel's interpretation
of Paragraph 1.2 reflects an interpretation that takes into account all
relevant elements and gives effective meaning to the terms used in that
provision and to Article XII of the Marrakesh Agreement. China's assertion that
the reference to "the WTO Agreement" in Paragraph 1.2 cannot be
read as the Marrakesh Agreement alone is therefore "baseless".[182] Moreover, under China's
interpretation, the term "[t]his Protocol" in Paragraph 1.2 refers to
provisions thereof, while the term "the WTO Agreement" refers to the
"WTO Agreement and the Multilateral Trade Agreements annexed
thereto". In the United States' view, such an approach contradicts the
words actually used in Paragraph 1.2 and is untenable.
2.83. The United States contends that the
Panel's interpretation does not, as China suggests, "jeopardize the internal
coherence of the WTO legal framework" by precluding a provision of the
Accession Protocol from being an integral part of a Multilateral Trade
Agreement.[183] The Panel expressly recognized
that a provision of the Accession Protocol could be an integral part of one or
more of the Multilateral Trade Agreements, including the GATT 1994, and properly recognized that this
would "not occur as a result of Paragraph 1.2" but, rather, would
occur "if and where such language is included in the individual
provision".[184] Moreover, China provides no
support for its assertion that the Panel's interpretation means that its
Accession Protocol must be read together with the Marrakesh Agreement, thereby
preventing it from being read harmoniously with the covered agreements. Rather,
China acknowledges that, pursuant to Article II:2 of the Marrakesh Agreement,
the Multilateral Trade Agreements annexed thereto are each an integral part of
the Marrakesh Agreement. Although these agreements also cover a range of
substantive obligations, China does not dispute that these agreements are
capable of harmonious interpretation. In addition, the United States contends,
China fails to address the fact that its reading of
"the WTO Agreement" in Paragraph 1.2 cannot be reconciled
with Article II:2 of the Marrakesh Agreement unless that provision were
similarly interpreted to make all of the Multilateral Trade Agreements an
integral part of one another.
2.84. The United States disagrees with
China's argument that the Panel erred in rejecting China's explanations as to
why China's interpretation of Paragraph 1.2 does not render redundant the
explicit references to the GATT 1994 in China's Accession Protocol and Accession
Working Party Report. The United States submits that the language in each of
the provisions containing such explicit references (Paragraphs 5.1, 11.1, and
11.2 of China's Accession Protocol and Paragraph 160 of China's Accession
Working Party Report) provides examples demonstrating that Members knew when
and how to include a reference to the GATT 1994 when they wanted to do so.
Moreover, China's argument that the language referring to the GATT 1994 was
necessary in Paragraphs 11.1 and 11.2 because the policy tools covered by these
paragraphs are subject to various obligations in the GATT 1994 is inconsistent
with its position that any provisions of its Accession Protocol that have an
"intrinsic relationship" to the GATT 1994 – which would presumably
include Paragraphs 11.1 and 11.2 – are automatically an integral part of
the GATT 1994. Similarly, it is unclear why the language "in a manner
consistent with the WTO Agreement" in the opening clause of Paragraph 5.1
of China's Accession Protocol is necessary given that, under China's
interpretation, Paragraph 5.1 is presumably also "intrinsically
related" to, and thus an integral part of, the GATT 1994.
2.85. The United States maintains that
the Panel correctly interpreted Article XII of the Marrakesh Agreement and
rejected China's argument that Article XII dictates that the provisions of
China's Accession Protocol are an integral part of the Marrakesh Agreement and
the Multilateral Trade Agreements annexed thereto. China's argument that the
Panel "superficially" interpreted Article XII:1 as "merely
serv[ing] to prescribe that newly acceding Members may not 'pick and choose'
amongst the covered agreements" is without basis.[185] Rather, in response to China's
argument that the second sentence of Article XII means that China's Accession
Protocol merely serves to specify China's obligations under those agreements,
the Panel correctly began its analysis by examining the text of Article XII.
The Panel's interpretation that, pursuant to Article XII, second sentence,
a new Member is not entitled to pick and choose to which particular agreements
it will accede, is evident from the text of the second sentence of Article XII.
In this regard, the United States contends that China's argument that the
Panel's interpretation renders Article XII:1, second sentence,
"excessively narrow, and thus essentially redundant", is also
baseless.[186] Rather, the United States argues,
Article XII:1 makes clear that the accession "applies" to both the
Marrakesh Agreement and the Multilateral Trade Agreements. Thus, through
accession, an acceding Member takes up the obligations of all of the
Multilateral Trade Agreements. In contrast, Article XII:3 stipulates that
accession to the Plurilateral Trade Agreements is governed by the provisions of
those agreements.
2.86. According to the United States,
China's argument that the Panel ignored the relevance of Article XII:1 of the
Marrakesh Agreement is "highly convoluted, and without apparent
logic".[187] China provides no basis for its
assertion that Article XII:1 of the Marrakesh Agreement indicates that China's
Accession Protocol is an integral part of the Marrakesh Agreement and the
agreements set out in the annexes thereto. Rather, China's arguments amount to
"an unexplained leap" from the word "terms" in Article
XII:1 to the proposition that the actual terms set out in an accession protocol
should be ignored and replaced with an unspecified "intrinsic
relationship" test.[188] In the United States' view, the
only way to interpret the terms upon which China acceded to the WTO is to
examine the language that China and all WTO Members agreed to in the Accession
Protocol.
2.87. Moreover, the United States argues,
China ignores the fact that the Panel agreed with China that "China's
Accession Protocol does indeed specify the obligations China undertook as well
as the rights it was accorded upon accession" to the WTO, and that
"it is to the Protocol that we must look to find how they are linked"
to the Marrakesh Agreement and the Multilateral Trade Agreements annexed
thereto.[189] However, as the Panel rightly
found, even if Article XII of the Marrakesh Agreement meant that China's
Accession Protocol "merely serves to specify" China's obligations,
"it would not follow, as a matter of logic or law, that the individual
provisions of an accession protocol would thereby, and for that reason, automatically
become an 'integral part' of the Multilateral Trade Agreements annexed to the
Marrakesh Agreement."[190] In this respect, the Panel noted
that various provisions of the Multilateral Trade Agreements might overlap in
subject matter with, and be said to specify obligations contained in, the GATT
1994. Yet, that does not mean that those different agreements all have an
"intrinsic relationship" to the GATT 1994 such that the exceptions
therein should be assumed to apply to the other covered agreements.
2.88. The United States contends that the
Panel's analysis contained in the paragraphs subject to China's appeal is
sound, and China has failed to show any legal error. On the contrary, China's
proposed "intrinsically related" test departs from the customary
rules of treaty interpretation and leads to uncertainty. Under this test, a
panel must engage in a "speculative exercise" in attempting to
determine to which covered agreement an accession commitment
"intrinsically relates".[191] In the United States' views, such
an approach renders the carefully negotiated language of accession commitments
meaningless. The United States further submits that the Panel's rejection of
China's assertion that Article XII of the Marrakesh Agreement and
Paragraph 1.2 of China's Accession Protocol support "its intrinsic
relationship" test is likewise consistent with the analysis of provisions
of China's Accession Protocol in past disputes. As the Panel found, and as
panels and the Appellate Body found in previous disputes, where the drafters of
China's Accession Protocol intended to incorporate a provision of a Multilateral
Trade Agreement, they made that intention clear.[192] In those disputes, the panel and
the Appellate Body analysed the provision at issue by applying the customary
rules of treaty interpretation, rather than an "intrinsic
relationship" test. Both the panel and the Appellate Body found in China – Raw Materials that the text and context of Paragraph
11.3 make clear that Article XX of the GATT 1994 is not available to justify a
breach of Paragraph 11.3. The United States emphasizes that, in these disputes,
China has neither addressed those findings nor shown any flaws in the thorough
and well-reasoned interpretive work conducted by both the panel and the
Appellate Body in China – Raw Materials in
examining the relationship between Paragraph 11.3 and the GATT 1994.
2.89. The United States emphasizes that
there is no obligation in the WTO covered agreements to eliminate export
duties. As the Panel rightly observed, it is unclear how the obligation in
Paragraph 11.3, "which by definition go[es] beyond the obligations
contained in the Multilateral Trade Agreements annexed to the Marrakesh
Agreement, 'merely serve[s] to specify' a Member's obligations under the
existing provisions of the Multilateral Trade Agreements annexed to the
Marrakesh Agreement".[193] Furthermore, the United States
highlights the Panel's finding that there is "no necessary logic" to
suggest that, to the extent that its Accession Protocol serves to specify
China's obligations under the covered agreements, the Protocol is automatically
an "integral part" of one or more of those agreements.[194] In the United States' view, the
fact that under Article XII an acceding Member takes up the obligations of all
of the Multilateral Trade Agreements does not by its terms or by implication
require a panel to examine to which agreement(s) the specific provisions of
China's Accession Protocol are intrinsically related. The United States
emphasizes that Article II of the Marrakesh Agreement further undermines
China's position in these appeals, because this provision makes the annexed
agreements integral parts of the Marrakesh Agreement by virtue of express
language, not by virtue of any "intrinsic relationship".
2.90. The United States maintains that
China's assertion that its Accession Protocol is not a "self‑contained"
agreement does not support its "intrinsic relationship" test. Neither
Article XII of the Marrakesh Agreement, nor any provision of the covered
agreements, uses the term or concept of "self-contained" agreements.
The United States also disagrees with China's assertion that its interpretation
is the only coherent explanation for the enforceability of China's Accession
Protocol under the DSU. Rather, as an integral part of the WTO Agreement,
China's Accession Protocol and all of the commitments set forth therein –
including but not limited to Paragraph 11.3 – are enforceable in WTO
dispute settlement pursuant to Article 1.1 of the DSU. Thus, as the Panel also
recognized, the justiciability of the commitments set forth in China's
Accession Protocol has been well accepted without recourse to China's interpretation.
2.91. The United States maintains
that the Panel correctly found that China's export quotas on rare earths and
tungsten do not "relate to" conservation within the meaning of
Article XX(g) of the GATT 1994. Accordingly, the United States
requests the Appellate Body to reject China's arguments and to uphold the
relevant Panel findings and conclusions.
2.92. The United States submits that
China's request for legal review of the Panel's conclusion that the rare earth
and tungsten export quotas do not relate to conservation is: (i) based on
a representation of a legal standard under Article XX(g) of the
GATT 1994 that is incorrect, internally contradictory, and liable to
produce an absurd result; and (ii) premised on either a
mischaracterization or simply a fundamental misunderstanding of the Panel's
analysis and reasoning, both of which are sound. In addition, the
United States contends that China's characterization of the Panel's
findings and conclusions as a failure by the Panel to carry out its mandate
under Article 11 of the DSU should also be dismissed because, as a careful
review of the Panel Reports shows, the Panel's assessment of this issue was objective
and the Panel's reasoning coherent.
2.93. The United States asserts
that, for a measure to "relate to" conservation, it must bear a
relationship to the goal of conservation. However, not just any relationship
between the measure and conservation is sufficient for purposes of
Article XX(g) of the GATT 1994; instead, a very particular relationship is
required. As the Appellate Body has found, the term "relating
to" requires a "substantial relationship" or a "close and
genuine relationship of ends and means".[195] A measure that is merely
incidentally or inadvertently aimed at conservation will not satisfy this test.
Hence, a Member's ability to maintain an otherwise non-conforming conservation
measure should not be accidental or determined by random factors outside its
control.
2.94. The United States submits
that, although a panel is not precluded from examining the effects of a measure
in its analysis under Article XX(g), contrary to the thrust of China's
arguments, Article XX(g) does not establish an empirical "effects
test". Rather, as noted by the panel in China – Raw
Materials, "[t]o determine whether a challenged export
restriction relates to conservation, a panel should examine the text of the
measure itself, its design and architecture, and its context".[196] The United States explains
that the Panel's focus on the design, structure, architecture, and text of the
export quotas was not only supported by guidance from the Appellate Body,
but was also appropriate given the nature of the Panel's inquiry.[197] A panel's task under
Article XX(g) of the GATT 1994 is to determine whether a measure has
as its genuine objective the goal of conservation. To make "actual
effects" in the marketplace a touchstone for making this determination
would render the task meaningless. The "vagaries of the market place"
would mean that measures that might at one point in time appear, based on
empirical effects, to "relate to" conservation might, at a different
point in time with different data, appear not to "relate to"
conservation, and would also raise difficult questions of causation.[198] Hence, according to the
United States, basing such a determination on empirical effects could
undermine a panel's ability to make any determination at all.
2.95. The United States disagrees
with China's unsupported assertion that "it is enough to show that a
measure is apt to produce a contribution to the achievement of its objective;
or, put another way, that it genuinely provides a means to realize the
conservation of natural resources".[199] To the United States, China's
mixing of the concepts of "relating to" and "contribution",
and thus of the proper interpretations of Article XX(g) with those of
Articles XX(a) and XX(b) of the GATT 1994, results in an approach
that ignores important distinctions between the various subparagraphs of
Article XX. China's approach is incorrect under the customary rules of
treaty interpretation because each of those subparagraphs is meant to address a
different policy objective deemed important enough to justify deviations from
the disciplines of the GATT 1994. Interpretations of Article XX(g)
must remain sensitive to the fact that subparagraph (g) has unique
characteristics that the other subparagraphs, including (a) and (b), do not.
For the United States, these characteristics have a significant bearing on
the determination of whether a challenged measure can be provisionally
justified as one relating to conservation.
2.96. The United States
asserts that the Panel was correct when it considered that Article XX(g) of
the GATT 1994 required China to show that there is a mechanism to ensure that the export quotas and
extraction and/or production caps work together so as to counteract the perverse,
non‑conservation-serving signals that China's export quotas send to domestic
consumers of rare earths and tungsten, and contests China's assertion that the Panel
refused to take China's "real world" evidence into account. The
United States submits that China's argument must fail because: (i) the
Panel did not conclude, as China argues, that it was forbidden from reviewing
China's evidence; (ii) the Panel did, in fact, review the evidence provided by
China, but simply found that China had failed to show how the design,
structure, architecture, and text of the export quotas showed that the export
quotas "related to" conservation; and (iii) the Panel correctly found
that China's empirical evidence did not establish a "substantial relationship"
to the objective of conservation.
2.97. The United States points to
the actual reasoning found in the Panel Reports[200] to illustrate that China's
assertions that the Panel "somehow 'excluded'" evidence regarding the
effects of China's conservation regime, or that the Panel ignored how the
measures "actually work", are "simply wrong".[201] The United States asserts
that the Panel correctly focused its attention on the design, structure,
architecture, and text of the export quotas, and did not exclude other
evidence. Moreover, the Panel addressed China's argument that it had domestic
extraction and production targets and found that China had failed to establish
that the targets actually restricted Chinese production or, importantly for the
perverse signal issue, consumption.
2.98. The United States further
considers China's argument to be flawed because it asks the Panel as the trier
of fact to accept mere correlation as evidence of a substantial relationship
between the measures and conservation. By way of example, the
United States refers to China's assertion that, between January 2011
and January 2013, domestic prices for rare earths rose while domestic
demand for rare earths decreased, and that these two phenomena were the
"actual effects" of its production and extraction targets eliminating
the pro-consumption signals sent by the export quotas. The United States
contends that China's argument must fail because it does not take into account
the number of other factors that could have impacted the domestic prices of and
demand for Chinese rare earths between January 2011 and January 2013.
One prominent factor impacting demand for all raw materials, which was wholly
unrelated to the question of whether China had addressed the non-conservation
signals sent by the export quotas, was the lingering effects of the 2008 global
crises. The United States also recalls the Panel's finding that China had
failed to show that it had "any mechanism to ensure that the export quota
and the extraction and/or production caps will work together in such a way as
to counteract the perverse signals sent by its export quota to domestic
consumers".[202] As a result, China could not
establish that any "actual effects" in the domestic market were
caused by its conservation regime as opposed to something else, such as Chinese
measures to stimulate domestic consumption through subsidies to downstream
consuming industries, which would be contrary to conservation. The
United States therefore concludes that the flaw in China's argument lies
with the "well-known" problem of determining causation[203], which has led the
Appellate Body to focus its analysis under the "relating to"
prong of Article XX(g) to the design and structure of the measures at
issue. Thus, for the United States, the Panel correctly focused on the
design and structure of China's conservation regime, and found that the design
and structure did not address the perverse signals sent by the export quotas to
domestic consumers.
2.99. In response to China's assertion
that the Panel was required to segment its analysis of the different
requirements under Article XX(g), and should not have assessed the alleged
domestic restrictions as part of its analysis of whether the export quotas are
related to conservation, the United States emphasizes that China provides
no support for such assertion, and that no such support exists. The
United States adds that China's argument that the Panel should not have
examined the arguments and evidence submitted by the complainants establishing
the "perverse signals" sent by the export quotas to domestic
consumers, and should instead have relied exclusively on China's arguments and
evidence regarding the signals sent to foreign consumers, introduces an element
of discrimination into the "relating to" analysis, which is
inconsistent with the language of Article XX(g) of the GATT 1994, and, for
this reason, should be rejected.
2.100. The United States asserts that
the record of these disputes shows that there is no basis for China's claim
that the Panel committed the sort of "egregious error" that would
warrant a finding of a violation of Article 11 of the DSU. To the
contrary, the record shows that the Panel undertook a thorough examination of
the evidence before it and the arguments of the parties. Hence, the
United States considers China's assertions to be unfounded and requests
the Appellate Body to reject them.
2.101. The United States submits that
the Panel had ample support for its determination that the export quotas on
rare earths and tungsten send "perverse signals" to domestic
consumers. The evidence revealed drastic differences between domestic and
foreign prices for rare earths and tungsten, which showed that the export
quotas simply shifted consumption to the domestic market, as well as statements
and policy documents from Chinese local governments demonstrating that the
availability of cheaper or unrestricted rare earths is held out to attract new
foreign investment in the rare earth processing industry in China.[204] Hence, the Panel's qualitative
reasoning (that export quotas stimulate domestic consumption) was supported by
evidence, in particular of the two-tiered pricing structure.
2.102. The United States also points
out that, while China asserts that the Panel ignored its pricing data, the
Panel found that China's analysis suffered from significant methodological
failures related to China's downward revision to foreign prices based on fees
associated with export and the fact that China had deducted the export duties
on rare earth and tungsten exports. The United States observes
that China has not offered any explanation as to how the Panel erred
when it found that China's pricing data were unreliable "based on these
failures".
2.103. The United States avers that
the Panel addressed the evidence regarding China's domestic extraction and
production targets, and found that China had failed to establish that the
targets actually restricted Chinese production or, most importantly for the
perverse signal issue, consumption. Indeed, the Panel expressly found that,
contrary to China's argument, the combined effect of the extraction,
production, and export quotas does not establish a maximum level of domestic
consumption.
2.104. Concerning
China's argument on the limited relocation of rare earth industries to China,
the United States contends that there was ample support for the Panel's
finding that the export quotas encouraged relocation of downstream rare
earth-consuming industries to China. The Panel cited evidence supplied by the
complainants containing statements from Chinese officials, in which they
suggested that industries relocate to China in order to avoid the export
quotas.[205] The United States
also contests China's assertion that relocation of industries did not happen in
the rare earth sector (as a function of the export quotas) after 2008, when
China tightened the export quotas of rare earths, noting that the Panel fully
addressed China's argument and rightly rejected China's "unwarranted
cherry-picking of the data".[206]
2.105. The United States considers that China's argument
that the Panel engaged in incoherent reasoning fares no better. For the
United States, China's argument is flawed as it is easy to see how a
Member might have a bona fide
conservation regime that does not account for the stimulating effects that an
export quota has on domestic consumption. As is the case here, a Member may not
have a domestic consumption restriction, or may not set its domestic production
restriction at a level that actually restricts demand.
2.106. The United States
requests the Appellate Body to reject China's allegations that the Panel
failed to properly interpret and apply the clause "made effective in
conjunction with restrictions on domestic production or consumption" in
Article XX(g) of the GATT 1994 and to uphold the Panel's findings. The United
States further requests the Appellate Body to reject China's claim that the
Panel failed to make an objective assessment of the matter contrary to Article
11 of the DSU.
2.107. The United States maintains that the Panel's
interpretation and application of the phrase "made effective in
conjunction with" in Article XX(g) of the GATT 1994 are correct. The
Panel's interpretation of this phrase is in accordance with the ordinary
meaning of the terms of Article XX(g) in their context and in the light of
the object and purpose of the GATT 1994, and is also consistent with and supported
by the interpretation of the same phrase made by the Appellate Body.
2.108. The United States argues that, for
China, "working together with" means simply that a domestic
restriction is working and a trade restriction is working – i.e. that the two
restrictions do not need to bear any particular conjunctive relationship to
each other. Not only is this different from the Appellate Body's interpretation
of the phrase "made effective in conjunction with", but such an
approach renders these words superfluous. On China's approach, the second
clause of subparagraph (g) could simply state "if restrictions on domestic
production or consumption also exist". However, Article XX(g) was not so
drafted. The United States also points out that the mere fact that "even-handedness"
is not treaty text does not render it void as a mechanism to inquire whether
the non-conforming measure is "made effective in conjunction with"
domestic restrictions. If this particular phrase were not understood, as the
Panel used it, to summarize the conjunctive relationship required by the text
of Article XX(g), then the treaty interpreter would necessarily use similar
phrases and concepts in interpreting and applying Article XX(g). What is
important is that the second clause of Article XX(g) – which is unique to
subparagraph (g) of Article XX and its conservation purpose, without analogy in
other subparagraphs of Article XX – has been correctly and consistently
interpreted as a requirement ensuring that the protection afforded by the
Article XX exception applies only to legitimate conservation measures. For
the United States, Article XX(g) serves to ensure that the shared right to
trade in the world's limited resources is accompanied by the shared
responsibility to bear the burden of conserving those resources, and the
Panel's use of the term "balance" reflects the same concept as
expressed by the Appellate Body in US – Gasoline
and US – Shrimp.[207]
2.109. With
regard to China's allegation that the Panel erred in its interpretation in
finding that the analysis of "even-handedness" is limited to an
examination of the structure and design, to the exclusion of evidence regarding
the effects of, the measure, the United States refers to the Appellate
Body reports in US – Gasoline and US – Shrimp, arguing that the Appellate Body assessed the broad
structural correspondence between the non-conforming measure and the domestic
restriction to determine if the former operated "in conjunction with"
the latter.[208]
2.110. In response to China's argument
that the fact that the Appellate Body eschewed an inquiry into the relative
burdens borne by foreign and domestic interests in US –
Gasoline suggests that there is no requirement to balance the burden
of conservation under Article XX(g), the United States contends that the Appellate Body's
discussion of the "even-handedness" requirement in US – Gasoline only identified the logical
boundaries of that requirement.[209] The Appellate Body did not address
what relative treatment of domestic and foreign interests, within those logical
boundaries, was required in order to qualify as "even-handed". The
United States submits that the Appellate Body's reasoning in US – Gasoline does not stand for the proposition that
Article XX(g) permits Members to impose measures that advantage their own domestic
interests at the expense of the interests of other Members as long as some
level of restriction that is greater than nothing is imposed on domestic
supply, and adds that the panel in China – Raw Materials
explicitly rejected such a proposition.[210]
2.111. In response to China's argument
that the Panel's "even-handedness" analysis renders the chapeau of Article XX of the GATT
1994 superfluous, the United States argues that China improperly conflates the
structural correspondence inquiry under the "even-handedness"
criterion in Article XX(g) with the application inquiry under the chapeau.
2.112. The United States contends that the
Panel did not err in its
application of Article XX(g) of the GATT 1994 by focusing on the structure,
design, and architecture of the export quotas and domestic restrictions when
assessing whether they "work together". The Appellate Body in US – Gasoline specifically avoided
undertaking the type of "effects test" articulated by China. The
United States contends, moreover, that the alleged "actual effects"
proffered by China in its appeals were specifically addressed, and rejected, by
the Panel in the course of the proceedings.[211]
2.113. The United States maintains that
China's position would leave the determination of whether the "even-handedness"
requirement is met to the vagaries of the marketplace. Moreover, it avoids the
problem of causation and is based on a presumption that correlation (e.g. a
lack of quota fill for rare earths) is evidence of the export quota and the
domestic restriction working together to promote conservation. China's position
does not account for the numerous other factors that could have impacted the
rate at which the export quota on rare earths was used, or China's domestic
demand for rare earths, tungsten, and molybdenum. The United States points in
particular to the lingering effects of the 2008 global crisis as one prominent
factor impacting demand for all raw materials, which was wholly unrelated to
the question of whether the export quotas and domestic restrictions worked
together to promote conservation.
2.114. Furthermore, the United States
argues that China fails to address how its analysis under subparagraph (g)
would substantively differ from the subsequent analysis that must be conducted
pursuant to the chapeau of
Article XX, in which a panel focuses on the application of the non-conforming
measure. For the United States, China fails to provide a concrete analysis as
to what should be the practical differences under China's proposed approach in
the analysis under the chapeau
and in the subparagraphs of Article XX.
2.115. Moreover, the United States refers
to the Appellate Body's statement in China – Raw Materials
that Article XX(g) "permits trade measures relating to the conservation of
exhaustible natural resources when such trade measures work together with
restrictions on domestic production or consumption, which operate so as to
conserve an exhaustible natural resource", and submits that the best way
to determine how a measure operates is to focus on the measure's structure,
design, and architecture.[212]
2.116. With regard to China's reference to
the Appellate Body's finding in US –
Gasoline that "predictable effects" may be relevant to the
analysis under Article XX(g), the United States contends that China's argument
conflates the "predictable effects" of a measure, which are
discovered through a review of its structure, design, and architecture, with
the state of being of the market, which China mischaracterizes as the
"actual effects" of the measure.[213] However, this state of being of the
market may not be a logical result of the structure, design, and architecture
of the measure. In any event, the United States argues, the Panel addressed and
rejected arguments raised by China relating to the effects of its regulatory
scheme in various parts of its Reports.
2.117. The
United States recalls Appellate Body statements on what must be
established to prove an Article 11 of the DSU violation, including in EC – Fasteners (China).[214] In its
appeals, however, China misstates the Panel's reasoning and ignores that the
Panel expressly analysed certain evidence. The United States further
argues that China has failed to show that
the Panel's assignment of greater weight value to certain facts was in error.
In particular, the United States contests China's implication that the Panel
was inconsistent in assessing the facts at issue because, when it was
disadvantageous to China, the Panel ignored the structure and design of the
measures at issue in favour of the "actual effects". The United
States alleges that China misstates the Panel's reasoning and points to
statements by the Panel indicating that evidence submitted by China was
"insufficient to establish" China's position or "cast doubt
on" China's assertion.[215]
2.118. In
response to China's assertion that the Panel erred because it found that China
had developed a bona fide conservation regime for
rare earths, tungsten, and molybdenum, and yet did not find that the
conservation regime was sufficient to invoke Article XX(g) of the
GATT 1994, the United States contends that China's argument is baseless
because the standard under Article XX(g) is whether the Member maintains
"domestic restrictions on production or consumption", and not merely
whether it has a conservation regime. In response to China's allegation that
the Panel applied a double standard in its "even‑handedness"
analysis, the United States contends that, contrary to what China alleges,
the Panel assessed the design and structure of the measures at issue for both
the export measures and the domestic restrictions.[216]
2.119. The European Union submits that the
Appellate Body should reject China's appeal and affirm the Panel's finding, and
the Appellate Body's finding in China – Raw Materials,
that Article XX of the GATT 1994 is not available as a defence to a breach
of Paragraph 11.3 of China's Accession Protocol.
2.120. The European Union notes that China
has not appealed, either directly or consequentially, the Panel's conclusions
that: (i) the export duties at issue in these disputes are inconsistent with Paragraph
11.3 of China's Accession Protocol; (ii) Article XX of the GATT 1994 is not
available to justify such inconsistency; and (iii) in any event, the export
duties at issue are not justified under subparagraph (b) or the chapeau of
Article XX. Thus, in the European Union's view, "China's appeal is
incapable of resulting in the modification or reversal" of the Panel's
conclusions and "incapable of contributing … to securing a positive
solution" to these disputes.[217] The European Union submits
that the Appellate Body has the inherent power to issue summary judgment on an
accelerated basis and requests the Appellate Body to do so in the particular
circumstances of these appeals. Referring to China's statement that it has
filed these appeals to "seek clarification" of certain
"systemic" matters, the European Union further argues that
Article IX:2 of the Marrakesh Agreement provides the exclusive procedure
for raising interpretative issues.
2.121. The European Union
disagrees with China that the second sentence of Paragraph 1.2 of China's
Accession Protocol means that Paragraph 11.3 of the Protocol becomes an
integral part of the GATT 1994 by virtue of an "intrinsic
relationship" between Paragraph 11.3, on the one hand, and Articles II and
XI of the GATT 1994, on the other hand. According to the European Union, the
Panel's conclusion that the term "the WTO Agreement" in Paragraph
1.2, second sentence, of China's Accession Protocol means the Marrakesh
Agreement alone is strongly supported by the convention of definition reflected
in the first recital of the preamble of China's Accession Protocol. In that preamble,
and in accordance with convention, the term "the WTO Agreement" is
defined as the Marrakesh Agreement Establishing the World Trade Organization.
The European Union also draws attention to paragraph 1 of the Final Act
Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,
the General Interpretative Note to Annex 1A, and the preamble of the Decision
on the Acceptance of and Accession to the Agreement Establishing the World
Trade Organization, all of which adopt the same convention of definition.
2.122. The
European Union emphasizes that Part I of China's Accession Protocol, consisting
of Paragraphs 1.1, 1.2, and 1.3, consistently uses the term "the WTO
Agreement" to refer to the Marrakesh Agreement alone. In particular,
Paragraph 1.1 provides that "[u]pon accession, China
accedes to the WTO Agreement pursuant to Article XII of that
Agreement and thereby becomes a Member of the WTO."
Both the terms "the WTO Agreement" and "that Agreement" in
Paragraph 1.1 mean the Marrakesh Agreement alone. Moreover, the first
sentence of Paragraph 1.2, which refers to the WTO
Agreement "as rectified, amended or otherwise modified by such legal
instruments as may have entered into force before the date of accession",
is "boilerplate" language that is also found elsewhere in the covered
agreements, such as paragraph 1 of the language incorporating the GATT
1994 into Annex 1A.[218] Used in
Paragraph 1.2, first sentence, of China's Accession Protocol, this
language was to cover the eventuality that the Marrakesh Agreement might be
rectified, amended, or modified during the intervening period between the
Ministerial Conference decision regarding the accession and the ratification of
the accession protocol by China.
2.123. The
European Union argues that, contrary to China's claims, the Panel's assessment
of Paragraph 1.2 was not based on a "superficial grammatical
analysis" or a "serious misunderstanding" of the rules of treaty
interpretation under the Vienna Convention.[219] Rather,
in addition to its analysis of the relevant provisions of China's Accession
Protocol, the Panel also examined the context provided by the "integral
parts" language in Article II:2 of the Marrakesh Agreement. The
Panel found that, like the same language in Article II:2, the "integral
part" language of Paragraph 1.2 also concerns one agreement being an
integral part of another agreement (i.e. the Marrakesh Agreement), and not
specific provisions of one agreement being an integral part of another
agreement.
2.124. The
European Union further maintains that, like all other provisions of the
Marrakesh Agreement, Article II:2 uses the term "this Agreement" to
refer to the Marrakesh Agreement only. Otherwise, the provision would contain
"an infinite re-iteration" that the Marrakesh Agreement and the
Multilateral Trade Agreements annexed thereto are integral parts of themselves,
which would be "manifestly absurd".[220] The
European Union sees no room for China's theory that specific provisions that
are "intrinsically related" could be transported from one agreement
to another in such a way as to alter the express terms of the other agreement. The
European Union maintains that the same is true for exceptions, such as Article
XX of the GATT 1994, which are expressly limited by their own terms to the
particular agreements in which they are contained. Exceptions in one agreement
can be reiterated in another agreement if the latter specifically and expressly
refers to those exceptions. According to the European Union, the general
"integral part" language of Article II:2 of the Marrakesh Agreement,
combined with the improvised concept of "intrinsically related" that
China derives from the use of the same "integral part" language in
Paragraph 1.2 of its Accession Protocol, does not have this legal consequence.
Yet, accepting China's position would have the implication that exceptions in
one covered agreement can be read into another covered agreement even in the
absence of express language to that effect.
2.125. The
European Union submits that the Panel properly considered the relevance of Paragraph 1 of the language
incorporating the GATT 1994 into Annex 1A, which contains an
exhaustive list of what the GATT 1994 consists of, and does not refer to
post-1994 accession protocols. The European Union submits that it would have
been possible to include in this list the post-1994 accession protocols to the
extent they would contain provisions "intrinsically related" to the
GATT 1994, but no such provision exists. Furthermore, as the Panel rightly
found, explicit provisions incorporating schedules of concessions into the
GATT 1994 would have been unnecessary if this were achieved by
Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of China's
Accession Protocol. Noting China's argument that explicit provisions
incorporating schedules are necessary because schedules change from time to
time, the European Union contends that China identifies nothing in these provisions
that make them more apt to achieve dynamic (rather than static) incorporation
compared to Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of
China's Accession Protocol.
2.126. The
European Union submits that the Appellate Body's reasoning in China – Publications and Audiovisual Products does not
support China's position in the present disputes. In China –
Publications and Audiovisual Products, after a careful analysis of
Paragraph 5.1, including the phrase "[w]ithout prejudice to China's right to
regulate trade in a manner consistent with the WTO Agreement", the
Appellate Body discerned a reference to Article XX of the GATT 1994. Thus, the
exception in Article XX of the GATT 1994 is "pulled into" China's
Accession Protocol by Paragraph 5.1.[221] In contrast,
China is seeking to "push the obligation in Paragraph 11.3 of China's
Accession Protocol into the GATT 1994, using Paragraph 1.2".[222] The
European Union agrees with China that the Appellate Body read the term
"the WTO Agreement" in Paragraph 5.1 of China's Accession
Protocol as "referring to the WTO Agreement
as a whole, including its Annexes".[223]
However, "referring to" and being "an integral part of" do
not mean the same thing, because one agreement can refer to another agreement
without either becoming an integral part of the other. Thus, it does not follow
from the Appellate Body's reasoning that the reference to
"the WTO Agreement" in Paragraph 1.2 of China's Accession
Protocol makes the Protocol, or any part of it, an "integral part" of
one of the covered agreements.
2.127. Finally,
the European Union highlights that Paragraph 11.3 of China's Accession
Protocol, by its own specific and express terms, contains exceptions with
respect to Annex 6 and Article VIII of the GATT 1994, but not Article XX of the
GATT 1994. Thus, if the specific provisions of Paragraph 11.3 do not pull
the exception in Article XX of the GATT 1994 into Paragraph 11.3, it is
difficult to understand how the general provision of Paragraph 1.2 pushes the
obligation in Paragraph 11.3 into the GATT 1994.
2.128. The
European Union disagrees with China that the second sentence of Article XII:1
of the Marrakesh Agreement means that Paragraph 11.3 of China's Accession
Protocol is an integral part of the GATT 1994. The European Union submits that
the word "Such" at the beginning of the second sentence of Article
XII:1 refers to the term "accede" in the first sentence, which, in
turn, provides that the relevant state or customs territory may accede to the
Marrakesh Agreement. The second sentence of Article XII:1 thus refers to a
legal event whereby a state or customs territory becomes a Member of the WTO.
Therefore, the term "apply" in the second sentence is not referring
to the application of a legal instrument. Rather, it confirms that the act of
accession must be operative with respect to both the Marrakesh Agreement and
the Multilateral Trade Agreements annexed thereto. As a result, the acceding
Member cannot "pick and choose" to which agreement it accedes. In the
European Union's view, the above interpretation is not changed by the phrase
"on terms to be agreed" in the first sentence, because the words
"[s]uch accession" in the second sentence are not referring to the
legal instruments embodying the terms of accession.
2.129. The
European Union further contends that this interpretation does not render
Article II:2 of the Marrakesh Agreement redundant, because the general
principle of the single undertaking finds expression in diverse provisions of
the covered agreements, including the Marrakesh Agreement. These provisions
include Article II of the Marrakesh Agreement (scope of the WTO), Article XI
(original membership), Article XII (accession), Article XIII (non-application
of the Multilateral Trade Agreements between particular Members), Article XIV
(acceptance, entry into force, and deposit), and Article XV (withdrawal). In
addition to Article II, therefore, Article XII provides that, in the context of
accession, the principle of the single undertaking also applies. Article XII
thus does not have the different or additional meaning proposed by China
whereby Paragraph 11.3 of China's Accession Protocol becomes an integral part
of the GATT 1994.
2.130. The
European Union considers that China's arguments are not clear and could be
understood in at least three ways. First, China appears to introduce a
"double existence" theory by arguing that a provision of China's
Accession Protocol could exist both in the Protocol and in one of the covered
agreements to which the provision intrinsically relates.[224] Such a
theory, however, does not assist China's position, because China could still
breach Paragraph 11.3 of its Accession Protocol and not benefit from any
exception contained therein. Second, China seems to argue that all of the
provisions of its Accession Protocol are somehow transported by Paragraph 1.2
into the covered agreements to which they intrinsically relate, leaving China's
Accession Protocol an "empty shell".[225] Such a
theory is "implausible and contradicted" by the specific provisions
of China's Accession Protocol that import, by cross-reference, specific
provisions of the covered agreements.[226] Finally,
China appears to assert that specific provisions of its Accession Protocol must
be interpreted and applied as an integral package of rights and obligations
together with all of the provisions of the
covered agreements to which such Accession Protocol provisions intrinsically
relate. However, this is not generally understood to be the consequence of the
"integral parts" language of Article II:2 of the Marrakesh Agreement,
or any other provision giving expression to the principle of the single
undertaking. The European Union points out, in this regard, that Article XX of
the GATT 1994 is not generally understood to be available as an exception to a
breach of provisions in the other covered agreements.
2.131. Despite
such uncertainty, the European Union seeks to respond to China's arguments on
its own terms. In particular, the European Union emphasizes that China's
"intrinsically related" test is not treaty language and cannot be
implied from Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of
China's Accession Protocol. The European Union also stresses that China's
reference to "self-contained" agreements is equally without basis in
either the covered agreements or China's Accession Protocol. With regard to the
enforceability of China's Accession Protocol, the European Union reiterates
that, because China's Accession Protocol is an integral part of the Marrakesh
Agreement by virtue of Paragraph 1.2, and because the Marrakesh Agreement is
listed as a covered agreement in Appendix 1 to the DSU, China's Accession
Protocol is also covered by the DSU. Moreover, the enforceability of China's
Accession Protocol under the DSU, and China's consent to such enforceability,
is apparent from the mandatory language used throughout China's Accession
Protocol.
2.132. The European
Union underlines that Article II:2 of the Marrakesh Agreement provides relevant
context for understanding the term "integral part" in Paragraph 1.2
of China's Accession Protocol. Under Article II:2, each of the Multilateral
Trade Agreements, such as the GATT 1994, is an integral part of the Marrakesh
Agreement. This does not mean that the GATT 1994 is an integral part of another
covered agreement. The European Union employs, in this connection, an analogy
whereby the front and back wheels of a bicycle are each an integral part of the
bicycle, but neither wheel is an integral part of the other. Extending this
analogy to Article XII:1, the European Union argues that the second sentence of
Article XII:1 indicates that, to buy the bicycle, one must buy the whole and
does not have the option to buy select parts of it. Furthermore, by virtue of
Paragraph 1.2 of China's Accession Protocol, China brings with it its own saddle bag (its Accession Protocol) and
this is also an integral part of the bicycle (the WTO Agreement). The European
Union reiterates that neither the saddle bag nor any part of it is an integral
part of either wheel. As regards the "WTO House" analogy used by
China[227], the European Union contends that China's Accession Protocol is akin to
an additional room inside the House.[228]
2.133. The
European Union further argues that Article 30(3) of the Vienna Convention,
which states that "the earlier treaty applies only to the extent that its provisions
are compatible with those of the later treaty", is inapposite because
there is no question of "incompatibility" between the provision at
issue – that is, Paragraph 11.3 of China's Accession Protocol – and the GATT
1994. Even if there were a conflict, the European Union maintains that Article
30(3) of the Vienna Convention would indicate that the later provision – namely,
Paragraph 11.3 – should apply. Hence, as the exceptions contained in the GATT
1994 are not mentioned in Paragraph 11.3, such exceptions would not apply
pursuant to the rule under Article 30(3). The European Union therefore does not
understand how China's reference to Article 30(3) of the Vienna Convention
supports China's position.
2.134. Finally, the European Union recalls
that, in China – Raw Materials, the Appellate
Body concluded that a proper interpretation of Paragraph 11.3 of China's
Accession Protocol indicates that the exceptions under Article XX of the
GATT 1994 are not available to China to justify a breach of Paragraph
11.3. The European Union submits that it concurs with this conclusion and with the
Panel's analysis and findings in the present disputes. The European Union
stresses that it legitimately expects that, absent cogent reasons, the
Appellate Body would reach the same conclusion in the present disputes.
2.5.2 Article XX(g) of the GATT 1994
2.135. The European Union requests
the Appellate Body to reject China's request to find that the Panel erred
in its interpretation and application of the "relating to"
requirement in Article XX(g) of the GATT 1994, as well as China's
request for reversal of the Panel's findings in this regard. The
European Union further requests the Appellate Body to reject China's
allegations of error under Article 11 of the DSU.
2.136. The European Union considers that
China's claim that the Panel erred in its interpretation of the term "relating
to" is based on a "misreading" of the Panel's analysis, and is
without merit.[229]
2.137. The European Union submits that the
Panel was correct, in terms of its analytical approach, to focus the analysis
under Article XX(g) of the GATT 1994 on the design and structure of the
measures at issue. Indeed, the European Union observes, this is precisely what
China itself asked the Panel to do.[230] The European Union explains
that, in the context of an Article XX(g) defence, a panel should first
examine, in accordance with the conservation of natural resources objective of
Article XX(g), the consistency of the measure at issue in terms of its
design and structure. Only then, if necessary, should the focus of the
examination turn to the application of the measure in the context of the
chapeau analysis.
2.138. The European Union expresses
the view that, in conducting an analysis under Article XX(g), panels are
not precluded from looking at aspects other than the design and structure of
the measure at issue. Indeed, panels should always give full consideration to
all the relevant facts and all the relevant circumstances in any given case.
However, once a panel is satisfied that, due to a fundamental deficiency in the
design and structure of the measure, no genuine link between the measure and
the conservation objective can be established, other facts are no longer
relevant. According to the European Union, this is so because neither the
evidence of instances of the application of the measure, nor its potential
"aptness" to contribute to conservation in specific factual
circumstances, can affect the conclusion that the measure cannot be provisionally
justified, because the genuine link with the declared objective is broken at
the level of design and structure.[231]
2.139. For the European Union, even
China's own line of argument on appeal suggests that, when a clear conclusion
can be reached based on the design and structure, scrutiny of other elements
becomes redundant. China acknowledges that reliance on evidence of actual
operation "may not be necessary where a measure can be shown, on the basis
of its design and structure alone, to relate to conservation, or if there is a
complete lack of evidence regarding the operation of a regulatory scheme".[232] The European Union points out
that, in any event, contrary to what China alleges, in considering whether a
"close" and "substantial" relationship can be said to exist
between the measures at issue and the conservation objective, the Panel
considered not only the design and structure of China's export quota regime but
also the regulatory context in which its export quotas operate.
2.140. The European Union disagrees
with China's arguments regarding "contribution", which the
European Union views as an attempt by China to set forth a different, less
rigorous standard of "relating to". According to the European Union,
China's arguments suggest that, if a measure makes or is able to make a
contribution to conservation, "regardless of how insignificant that
contribution may be", the measure should be regarded as "related to"
conservation within the meaning of Article XX(g).[233] According to the
European Union, China's position is contrary to established jurisprudence
that measures must bear a "substantial, close, and real" relationship
to the conservation objective and that a merely "incidental" or "inadvertent"
connection will not suffice.
2.141. The European Union emphasizes that
the reasoning of the Panel with respect to the "signalling"[234] function of the export quotas has
to be taken into account as a whole, since what China in its appeal refers to
as "findings" are, in fact, only fragments of the Panel's reasoning
on "signalling".[235] The European Union explains
that the Panel considered that export quotas can send two signals: (i) on
the one hand, they can transmit a signal to foreign consumers, investors, and
innovators to explore and develop alternative sources of supply and thus reduce
demand for limited Chinese rare earth reserves; and (ii) on the other hand,
they can send a signal to domestic consumers to increase demand domestically.
The Panel correctly observed that these two signals are competing. The Panel
then examined whether China has put in place a mechanism that would, for the
specific case of China's export quotas, address the two competing signals in a
manner that would be conducive to the achievement of the declared conservation
goal. The Panel addressed China's arguments that various recycling projects,
efforts to modify industrial designs of downstream products so that they use
less rare earths, and the development of rare earth substitutes are underway,
but did not consider this to be sufficient. The Panel correctly concluded that
a connecting mechanism between the two signals at the level of design and
structure and not at the level of actual application at a given point in time
is needed in order to demonstrate the existence of a "close",
"real", "rational", and "substantial"
relationship with the conservation objective.[236]
2.142. The European Union understands
that, on appeal, China criticises the Panel for concluding that any potential
contribution by its export quotas in transmitting conservation-related signals
to foreign consumers is liable to be undone by the "perverse signals"
that the export quotas send to the Chinese domestic market, and contends that
the "perverse signals" are a "presumption" that is
irrelevant for the assessment of whether a measure is related to conservation.[237] Referring to the entirety of the
Panel's analysis, the European Union emphasizes that, when it is apparent, as
it was here, that there are competing signals transmitted to foreign users and
to domestic users, the Panel could not ignore this in assessing whether a link
to conservation exists.
2.143. The European Union also
contests China's argument that the existence of production and extraction caps
is capable, "as a matter purely of structure and design"[238], of mitigating the perverse
signals that export quotas may send to domestic users. Instead, the
European Union considers that whether or not there is a genuine link to
conservation (and thus access to a general exception under Article XX of the
GATT 1994) cannot depend on chance. If the measure is to be considered as
related to conservation by virtue of its structure and design, the link between
the measure and conservation cannot be potential and conditional.
2.144. The European Union adds that,
even if China were correct and the Panel was required to consider evidence
about the actual operation of the export quotas for rare earths and tungsten
pursuant to Article XX(g), the evidence on the record supports and
reinforces the conclusion reached by the Panel, based on the design and
structure of the export quotas – i.e. that the export quotas at issue cannot be
considered as related to conservation. The Panel considered not only the design
and structure of China's export quota regime, but also the regulatory context
in which its export quotas operate. For the European Union, consideration
of regulatory context is simply part of appreciating a particular measure, and is
distinct from a consideration of how it applies and what its effects are.
Hence, the European Union submits that the Panel was correct in concluding
that China did not establish the existence of a genuine link to conservation
and that China's arguments to the contrary should be rejected.
2.145. The European Union disagrees with China's assertion
that the Panel's examination of the domestic restrictions in its analysis under
"relating to" was in error. The European Union submits that even
if this were the case and the Panel had brought into the "relating
to" test considerations which are relevant in the context of "even-handedness",
this would not be fatal for the conclusion, since it is well-established that a
measure which is not even-handed also cannot be considered as related to
conservation within the meaning of Article XX(g).[239]
2.146. Furthermore, the
European Union stresses that the Panel did not make the finding that China
seeks to attribute to it – i.e. that China's export quotas do or at least can
contribute to conservation within the meaning of Article XX(g). According
to the European Union, what is clear from the Panel Reports is that the Panel
considered that export quotas can involve two signals: (i) on the one hand,
they can transmit a signal to foreign consumers, investors, and innovators to
explore and develop alternative sources of supply and thus reduce demand for
limited Chinese rare earth reserves; and (ii) on the other hand, they can send
a signal to domestic consumers to increase demand domestically. In the
European Union's view, the Panel correctly observed that these two signals
are competing, and the Panel could not ignore this in assessing the existence
of a link to conservation.
2.147. Finally, the European Union
notes that China does not even attempt to explain to what extent its request to
reverse the Panel's conclusions that the export quotas at issue are "not
related to" conservation could be considered as properly grounded, in view
of the other findings by the Panel, which China does not appeal, on the other
functions of the export quotas at issue. The European Union highlights that the
Panel rejected five other arguments advanced by China as to why the design and
architecture of the measure at issue demonstrate that the export quota for rare
earths "relates to" conservation.[240] Therefore, the European Union
considers that the contribution made by the signalling function alleged by
China would in any event be insufficient to show that there is a genuine link
between the export quotas at issue and the objective of conservation within the
meaning of Article XX(g).
2.148. The European Union notes that the
relevance of China's claims under Article 11 of the DSU rests on the
validity of its claims that the Panel erred in focusing on the design and
structure of the export quotas, and that the European Union has already
explained why these claims are without merit. The European Union adds
that, even if China were correct and the Panel was required to consider
evidence about the actual operation of the export quotas for rare earths and
tungsten pursuant to Article XX(g) of the GATT 1994, there is no basis for
a finding that the Panel failed to comply with its duties under Article 11
of the DSU. Contrary to what China alleges on appeal, the evidence on the
record supports and reinforces the conclusion reached by the Panel that the
export quotas cannot be considered as related to conservation.
2.149. In response to China's allegation
that there is no evidentiary basis for the transmission by the export quotas of
"perverse signals" to China's domestic market, the European Union
submits that, contrary to what China alleges, the Panel's analysis on the
existence of "perverse signals" of export quotas does not depend on a
mere presumption of the existence of a general effect of an export quota. The
complainants provided evidence that the existence of perverse signals is
confirmed by standard economic theory. The complainants also provided evidence
that, while the export quotas may be capable of transmitting signals to foreign
users that they should try to find alternative sources of supply (or consume
less if they cannot), at the same time, they stimulate consumption by domestic
users (which are already by far the largest consumers of these products).
Additionally, the complainants provided evidence of an express invitation to
foreign users to relocate to China.[241]
2.150. The European Union stresses that
most of the arguments and exhibits that China now claims were not considered or
given sufficient weight by the Panel in the context of the application of the
"related to" test, were in fact duly and expressly considered and
rejected in the context of the Panel's analysis elsewhere in the Reports. This
includes: (i) the pricing data submitted by China; (ii) China's arguments that
unfilled export quotas cannot cause any difference between domestic and foreign
prices; (iii) China's evidence on the narrowing of price gaps for certain rare
earth metals; (iv) evidence allegedly showing that domestic rare earth
consumers reduced their consumption of rare earth products due to an increase
in prices; and (v) China's allegation that it has put in place production and
consumption caps that impose effective restrictions.[242]
2.151. With respect to China's allegation that
the Panel disregarded evidence submitted by China confirming the existence of
positive conservation effects of export quotas, the European Union notes
that China bases its argument on the premise that "conservation"
within the meaning of Article XX can be pursued through market
segmentation. For the European Union, this is incorrect. In any event,
even if this were permissible, the European Union contends that the
complainants demonstrated that the potentially constraining effect on overseas
consumption is cancelled out by perverse effects stimulating domestic
consumption. They also showed that export quotas (and the manner in which China
sets and administers them) generate price volatility and uncertainty on the
world market, thus creating an environment that is unfavourable for long-term
investment in new mining projects, and thereby undermining the alleged reason
of their existence.
2.152. In the European Union's view,
contrary to China's allegations, the record shows that the Panel in no way
exceeded its authority as trier of fact. The Panel duly considered all the
arguments and evidence presented to it and the Panel Reports show that all factual
findings by the Panel have a proper basis in that evidence and are accompanied
by coherent and adequate reasoning by the Panel. Consequently, the
European Union submits that there is no basis for China's claim that the
Panel made an error that would justify a finding that the Panel failed to
comply with its duties under Article 11 of the DSU.
2.153. The
European Union requests the Appellate Body to reject China's allegations that the Panel
failed properly to interpret and apply the clause "made effective in
conjunction with restrictions on domestic production or consumption" in
Article XX(g) of the GATT 1994. The European Union further requests the
Appellate Body to reject China's claim that the Panel failed to make an
objective assessment of the matter contrary to Article 11 of the DSU.
2.154. The European Union contends that
the Panel's interpretation of the clause "made effective in conjunction
with restrictions on domestic production or consumption" in Article XX(g) of
the GATT 1994 is correct and should be upheld by the Appellate Body. The
European Union considers that China essentially argues that the
proper legal interpretation of the term "made effective in conjunction
with" in Article XX(g) does not require an inquiry into the respective
burdens borne by domestic and foreign interests under a scheme of conservation
measures. The European Union understands that, for China, all that subparagraph
(g) requires is "that there be genuine restrictions
on domestic production or consumption, working together with the challenged
measure, to contribute to conservation".[243] In other words, according to
China, as long as domestic restrictions with a conservation purpose coexist
with export quotas that are "relating to conservation", the
"made effective in conjunction with" requirement under subparagraph
(g) is satisfied. The European Union notes that the "interpretative
conundrum" presented by China "is somewhat artificially created
since, as the Panel correctly concluded, it
is clear on the face of the export quotas at issue
that they are not genuine conservation measures."[244] The European Union submits that
where one can – unlike for China's export quotas at issue – conclude on the
basis of a measure's design and structure that it is genuinely related to
"conservation", the issue of balancing the burden placed on domestic
users and foreign users – while still pursuing one and the same conservation
objective – will simply not arise.
2.155. The European Union disagrees with
China's allegation that the Panel "conjure[d] up" a novel test of
even-handedness without a solid base in the language of the treaty or in the
jurisprudence.[245] For the European Union, two sets
of restrictive measures are in principle permitted as long as, in their
structure and design, there is a mechanism ensuring that they both work
effectively or operate in pursuit of the same conservation objective.
2.156. The European Union submits that,
where measures pursuing conservation objectives differ for goods intended for
export and goods intended for domestic consumption, any substantial structural
incoherence between the ways in which each set of restrictions tries to achieve
the conservation goal raises doubts as to whether the measures are genuine
conservation measures. In cases of disparate restrictions, therefore, the issue
of balance and coherence between two sets of restrictions is a critical part of
the assessment to be made by a panel assessing measures under Article XX(g).
The European Union considers that, where the burden placed on foreign users is
disconnected from and disproportionate to the burden placed on domestic users,
measures cannot be said to work or operate together in the pursuit of the same
conservation objective.
2.157. The European Union disagrees with
China's contention that the Panel's interpretation of the clause "made
effective in conjunction with restrictions on domestic production or
consumption" departs from prior case law. The fact that the Appellate Body
did not, in US – Gasoline, engage in an assessment
of complementarity between the restrictions on imports, on the one hand, and the
restrictions on domestic production, on the other hand, does not suggest that
such complementarity is not required. For the European Union, the
Appellate Body's discussion of the even-handedness requirement in US – Gasoline only identified the logical
boundaries of the requirement, but it did not address what relative treatment
of domestic and foreign interests, within those logical boundaries, was
required in order to qualify as "even-handed".[246]
2.158. With regard to China's argument that the Appellate
Body report in US – Shrimp supports an
interpretation whereby coexistence of restrictions would be sufficient to
satisfy the requirements of Article XX(g), the European Union points out that
the measure in that case imposed the same restrictions on domestic and foreign
production or consumption.[247] In such circumstances, an inquiry
into the existence of a balance between such restrictions is not, as China
argues, incorrect, but simply redundant.
2.159. The European Union adds that the
Appellate Body reports in China – Raw Materials
confirm and develop what the Appellate Body set out in US –
Gasoline and in US – Shrimp. In
addition, the European Union contends that the Panel reports in China – Raw Materials stand for the proposition that the
mere existence of a production restriction does not automatically imply even‑handedness
between export restrictions and domestic restrictions.[248]
2.160. The European Union agrees with
China that the chapeau of Article XX is relevant context for the interpretation
of subparagraph (g), but disagrees that the chapeau supports China's view that
there is no requirement of structural balance in the imposition of restrictions
under Article XX(g). The European Union argues that the chapeau does not
support a reading of subparagraph (g) that would allow for a lack of equity in
the design and structure of restrictions. It would be untenable to interpret or
apply the tests under Article XX(g) in a manner that allows, in the design and
structure of a measure, what is expressly prohibited by the chapeau in the application
of the measure.
2.161. The European Union further
disagrees with China's allegation that the Panel also erred in its
interpretation of Article XX(g) by limiting its analysis of the
"even-handedness" criterion to an assessment of the "structure
and design" of the impugned measures and by declining to examine evidence
of the actual operation or effects of the measures. For the European Union, the
Panel correctly focused the analysis under Article XX(g) on the design and
structure of the measures at issue, while focusing on the application of the
measures in the second step of the two-tier test, that is, under the chapeau.
Thus, the European Union asserts that evidence on the application and actual
effects of the challenged measure in specific factual circumstances is not
relevant and cannot affect the conclusion once a panel is satisfied that, based
on the design and structure of the measure at issue, the "even-handedness"
test is not met.
2.162. For the European Union, both the "even-handedness"
test under subparagraph (g) and the chapeau required the Panel to look at
elements of equal treatment. The focus under Article XX(g) is on the design,
structure, and architecture of the measure(s) imposing restrictions on other
WTO Members. The chapeau serves as a safety net against abuse of the exceptions
through measures provisionally justified under a subparagraph by requiring that
also in their application such measures do not result in discriminatory
treatment or constitute a disguised restriction on international trade. The
European Union further contends that no facts are per se
excluded from the analysis under the even-handedness prong of the test under
Article XX(g) or under the chapeau, but that it is for the party relying upon
certain facts to explain why these facts are relevant for either analysis.
2.163. The European Union contends that
the Panel did not err in its application of the clause "made effective in
conjunction with restrictions on domestic production or consumption". For
the European Union, China's claims that the Panel erred in the application of
subparagraph (g) of Article XX of the GATT 1994 are consequential to China's
claims of error in the legal interpretation by the Panel. Accordingly, the
Appellate Body should reject China's claims relating to the Panel's application
of subparagraph (g) for the same reasons that it should reject China's
claims relating to the interpretation of that provision.
2.164. In addition, the European Union contends
that, even based on China's interpretation of Article XX(g), China's claims
that the Panel erred in the application of subparagraph (g) cannot stand. First, the European Union
highlights that China has not appealed the Panel's findings regarding the
absence of domestic restrictions. The Panel applied the "even‑handedness"
test on an arguendo basis. Therefore, even assuming
that the Panel erred in its interpretation and application of the phrase "made
effective in conjunction with", this would not affect the Panel's
conclusion that the export quotas cannot be provisionally justified under
subparagraph (g).
2.165. Second, with respect to China's
allegation that the Panel failed to explain
why and how certain evidence discounted the restrictive effect of extraction
and production caps on domestic consumers, the European Union contends that
this claim does not relate to an error of application of law, but to the
Panel's obligation to make an objective assessment of the facts. Referring to
the Appellate Body's statement in EC and
certain member States – Large Civil Aircraft that, in most
cases, "an issue will either be
one of application of the law to the facts or an issue of the objective
assessment of facts, and not both", the European Union expresses the view that
these arguments by China concern the determination of whether or not a certain
event occurred and the Panel's determination of the credibility and weight properly to be ascribed to a piece
of evidence.[249] To underline this point, the
European Union adds that China refers to its arguments in the context of its
claim under Article 11 of the DSU to support its allegation that the Panel
erred in the application of the law.[250] Thus, the European Union requests
the Appellate Body to decline to rule on this claim or reject it as an Article
11 of the DSU claim.
2.166. Third, the European Union argues
that, even if the actual effects of the alleged domestic restrictions and
export quotas were relevant for purposes of the analysis under
subparagraph (g) of Article XX, this would not affect the conclusion that
the export quotas at issue cannot be provisionally justified under subparagraph
(g). The European Union submits that the Panel properly considered and
rejected all arguments presented by China in support of its position that China's export quotas were
justified under subparagraph (g). In particular, the Panel considered and
rejected arguments by China relating to the
effects of unfilled export
quotas. The Panel also considered pricing data submitted by China and
rejected that data due to concerns about the reliability of the data. Moreover,
the European Union argues that the
Panel considered arguments and evidence submitted by the complainants and by
China when addressing the issue of whether "signalling" concerning recycling and research
and development of substitutes occurred.
2.167. The European Union maintains that,
as the initial trier of facts, a panel enjoys a certain margin of discretion in
its consideration of the facts. In order to comply with its duty under
Article 11, a panel must provide reasoned and adequate explanations and
coherent reasoning, it must not reveal a lack of "even-handedness" in
the treatment of evidence, and it must base its findings on a sufficient
evidentiary basis.
2.168. With respect to China's contention
that the Panel
failed to address evidence submitted by China as to the timing of and manner in
which the allocation of the export, extraction, and production quotas was
coordinated and that this demonstrated that all quota levels were set by the
competent ministries at the same time, the European Union maintains that the
Panel acknowledged, and rejected, the evidence and arguments submitted by
China.[251]
2.169. Second, the European Union
addresses China's contention that, with regard to the levels of the quotas, the Panel focused on the
fact that the unused export quota shares were redirected to the
domestic market, but failed to address China's argument that the unfilled export quota shares need not
necessarily be redirected to the domestic market.
The European Union argues that China first raised this argument in the interim
review, that it was not supported by evidence, that it has no merit, and that
it should be rejected.[252]
2.170. Third, the European Union addresses
China's allegation that the Panel failed to address arguments and evidence
submitted by China explaining why it has not adopted domestic consumption
quotas and submits that the Panel fully considered and rejected China's
arguments and evidence to that effect.[253] In
addition, the European Union contends that China fails to explain why, in the light of all other factual findings
made by the Panel regarding "even-handedness", the allegedly
disregarded evidence is so material to China's case that the Panel's failure to
address the evidence has a bearing on the objectivity of the Panel's factual
assessment.[254]
2.171. The European
Union also responds to China's allegation that the
Panel failed to address certain evidence showing
the existence of a temporal connection
in the
way that the domestic and
export quotas work together as part of China's conservation policy. For the
European Union, these arguments concern alleged
effects as opposed to the design and structure of the measures at issue, and the Panel was therefore correct in not
considering them as relevant in the context of its analysis under Article
XX(g). In addition, the European Union contends, these arguments were contested
by the complainants.
2.172. Furthermore, the European Union
disagrees with China that the Panel engaged in incoherent reasoning in finding,
on the one hand, that China had adopted a comprehensive conservation policy
and, on the other hand, that it had not imposed "restrictions" in the
sense of Article XX(g). For the European Union, the Panel's finding that China
had not imposed restrictions on domestic production or consumption demonstrates
that the conservation regime was not sufficient to comply with Article XX(g).
2.173. Finally, in response to China's
allegation that the Panel applied a "double standard" in its "even-handedness"
analysis, the European Union contends that this criticism is based on the
premise that the Panel was required to consider the effects of the export
quotas and of domestic restrictions. However, for the European Union, the Panel
was not required to do so, and correctly focused on the design and structure of
the measures at issue.
2.174. Japan requests the Appellate Body
to reject China's "opaque and unconvincing arguments" on appeal[255], and to uphold the Panel's findings as they are based on a proper
examination of the provisions at issue.
2.175. Japan notes that China's appeal is
limited to portions of the Panel's reasoning in addressing the issue of the
availability of Article XX of the GATT 1994 to justify a breach of Paragraph
11.3 of China's Accession Protocol. Japan highlights that China does not
appeal, and does not seek reversal of, the Panel's conclusions that the export
duties at issue in these disputes are inconsistent with Paragraph 11.3 of
China's Accession Protocol, and that China may not seek to justify the export
duties pursuant to Article XX(b) of the GATT 1994. Japan contends, therefore,
that China is seeking an "advisory opinion" from the Appellate Body
that would have no legal or practical effect on the outcome of these disputes.
In Japan's view, seeking advisory opinions is inconsistent with the DSU, in
particular Article 3.4 of the DSU, which requires the DSB's recommendations and
rulings to aim at settling the dispute at hand.
2.176. Japan maintains that the Panel
correctly assessed the meaning of the term "the WTO Agreement"
in Paragraph 1.2 of China's Accession Protocol in finding that China's
Accession Protocol is an integral part of the Marrakesh Agreement and not, in
addition, an integral part of the Multilateral Trade Agreements annexed
thereto. According to Japan, China's assertion that the Panel confounded the
ordinary meaning of Paragraph 1.2 with the initial literal reading of its terms
is without merit. Rather, the Panel viewed the
consistent use of singular words in the second sentence of Paragraph 1.2 to
describe China's Accession Protocol as supportive of the interpretation that
China's Accession Protocol is a single instrument to be treated as a unitary
part of "the WTO Agreement".
2.177. Moreover, Japan argues, the Panel
did not stop at the text of Paragraph 1.2 but went on to analyse, and find
confirmation for its interpretation in, the context provided by other
"integration" provisions in the covered agreements, such as Article
II:2 of the Marrakesh Agreement. The Panel's interpretation was also confirmed
by its examination of paragraph 1 of the language incorporating the GATT 1994
into Annex 1A, which contains the exhaustive list of what the GATT 1994
consists. According to Japan, this list, which does not refer to post‑1994
accession protocols, reflects Members' recognition that an explicit textual
basis is required to integrate any legal instrument into a specific
Multilateral Trade Agreement.
2.178. Japan further submits that, as the
Panel rightly found, China's interpretation would render redundant the explicit
language throughout China's Accession Protocol that makes cross‑references to
the Marrakesh Agreement and the Multilateral Trade Agreements annexed thereto.
Specifically, the Panel found that Paragraph 1 of Part II of China's Accession
Protocol, read together with Article II:7 of the GATT 1994, expressly makes the
schedules of concessions annexed to the Protocol an integral part of the GATT
1994. Such express language would have been unnecessary if "all
GATT-related provisions of the Accession Protocol were implicitly made an
'integral part' of the GATT 1994".[256] Japan notes that, in criticizing this Panel finding, China contends
that Members' goods and services schedules are "separate instruments"
and "change from time to time".[257] However, Japan argues, China ignores the fact that an accession
protocol is also a "separate instrument" and fails to explain why
possible modifications to schedules would sever the "intrinsic
relationship" between the GATT 1994 and the schedules. Moreover, as the
Panel rightly found, such explicit cross-references to the Marrakesh Agreement
and the Multilateral Trade Agreements can be found in, inter alia,
Paragraph 5.1 of China's Accession Protocol. Japan maintains that the explicit
cross-reference in Paragraph 5.1 was central to the Appellate Body's decision
in China – Publications and Audiovisual Products
that Article XX of the GATT 1994 was available to justify a breach of Paragraph
5.1. With respect to Paragraph 11.3, Japan further recalls the Appellate Body's
finding in China – Raw Materials that, "had
there been a common intention to provide access to Article XX of the GATT 1994
in this respect, language to that effect would have been included in
Paragraph 11.3 or elsewhere in China's Accession Protocol".[258] In Japan's view, China's arguments fail to engage with the fact that, in
both disputes, the Appellate Body properly grounded its decision on the
availability of Article XX of the GATT 1994 to breaches of China's Accession
Protocol in the express language in the Protocol.
2.179. Japan disagrees with China's
contention that the Panel's interpretation of Paragraph 1.2 "would
jeopardize the internal coherence of the WTO legal framework", because
"a far-reaching requirement regarding … China's 'WTO-plus'
commitments" would have to be "an integral part of" the
institutional agreement of the WTO – the Marrakesh Agreement.[259] In Japan's view, such a concern is unwarranted, because there is
nothing in the WTO legal framework that would preclude the substantive trade
obligations, in both the Multilateral Trade Agreements and China's Accession
Protocol, from being an integral part of the Marrakesh Agreement. Finally,
Japan agrees with the Panel that, as indicated in prior disputes involving
China's Accession Protocol, Paragraph 1.2 of the Protocol serves the function
of making the obligations in the Protocol enforceable under the DSU, and
ensuring that those obligations are interpreted in accordance with the
customary rules of interpretation of public international law within the
meaning of Article 3.2 of the DSU. Thus, Japan submits that the Panel correctly
found that China's interpretation of Paragraph 1.2 "appears to depart
significantly from the understanding of the legal effect of this provision,
as reflected in prior panel and Appellate Body reports".[260]
2.180. Japan submits that the Panel
carefully considered, and rightly rejected, China's arguments with respect to
Article XII:1 of the Marrakesh Agreement. Japan contends that China never
explained how Article XII:1, read together with the context provided by Paragraph
1.2 of China's Accession Protocol, confirms that China's Accession Protocol
serves to specify, including by means of "WTO-plus" commitments,
China's rights and obligations under the Marrakesh Agreement and the annexed
Multilateral Trade Agreements. Rather, China's reading of Article XII:1 is
contrary to a proper interpretation of the provision pursuant to the principle
of treaty interpretation under Article 31 of the Vienna Convention. Japan
maintains that the words "[s]uch accession" at the beginning of the
second sentence of Article XII:1 refer to the act of acceding to the Marrakesh
Agreement described in the preceding sentence. If the drafters had intended to
convey the meaning advocated by China, they would have used an entirely
different formulation by stating, for example, that "each of the relevant
terms of accession contained in an accession protocol shall be incorporated
into this Agreement or one of the Multilateral Trade Agreements, as
applicable".[261]
2.181. Japan maintains that the words
actually used in Article XII:1, second sentence, read in their context,
indicate that this provision serves to specify the scope of agreements to be
accepted by an acceding State or customs territory. China's argument that such
an interpretation makes Article II:2 of the Marrakesh Agreement redundant
fails to recognize the import of the different functions served by Articles
II:2 and XII:1, respectively. In Japan's view, Article II:2 defines the scope
of the application of the Multilateral Trade Agreements with respect to
existing Members, whereas Article XII:1 regulates the process of acceding
to the WTO by a prospective Member. Thus, Article XII:1 ensures that no
State or customs territory would become a WTO Member unless and until it
accepts to be bound by the WTO single undertaking, thereby giving effect to
Article II:2.
2.182. Moreover, Japan argues, to the
extent that China's position is that each "WTO-plus" obligation set
out in its Accession Protocol is to be added to one of the Multilateral Trade
Agreements as an integral part thereof, China is effectively arguing that each
provision of China's Accession Protocol is an amendment to the Multilateral
Trade Agreements. The procedures for amending the WTO Agreement, including
the Multilateral Trade Agreements, are set forth in Article X of the
Marrakesh Agreement. Japan submits that nothing in Article XII suggests that
the accession procedures set forth therein can replace, or dispense with, the
specific decision‑making procedures for amendments provided in Article X.
2.183. Japan further submits that Article
XII:1 of the Marrakesh Agreement does not specify what the "terms" of
accession should be, but leaves the task of defining such terms to the working
parties established for individual accession processes. In this respect, Japan
recalls the Appellate Body's findings in China – Raw
Materials and in China – Publications and
Audiovisual Products, which confirm that access to the exceptions of Article XX of the GATT 1994 for measures
inconsistent with China's commitments set out in its WTO
Accession Protocol are only available if specific language to that effect is incorporated
in the text of the provisions setting out such commitments.[262]
2.184. Japan submits that the Multilateral
Trade Agreements, including the GATT 1994, are integral parts of the Marrakesh
Agreement under its Article II:2. By virtue of Paragraph 1.2 of China's
Accession Protocol, that Protocol is also an integral part of the Marrakesh
Agreement. Accordingly, there is no hierarchy between China's Accession
Protocol and the Multilateral Trade Agreements, nor does the former belong to
the latter, and nothing in the Marrakesh Agreement provides otherwise.
Moreover, contrary to
China's argument, the drafters determined to specify the link, if any, between
the specific commitments set out in China's Accession
Protocol, on the one hand, and the Marrakesh Agreement and the Multilateral
Trade Agreements, on the other hand, through explicit text – i.e. "terms
of accession" – to be drafted by the Working Party and agreed upon by the
Members and China pursuant to Article XII:1 of the Marrakesh Agreement. The
drafters did not elect to rely, as China surmises, on the "opaque"
operation of Article XII:1 of the Marrakesh Agreement and Paragraph 1.2, second
sentence, of China's Accession Protocol.[263]
2.185. Japan maintains that China's
position, in particular its "intrinsic relationship" test, threatens
to create a host of unnecessary problems for panels and the Appellate Body in
interpreting post‑1994 accession protocols. Moreover, under China's approach,
until review by panels or the Appellate Body is complete, the particular
agreement of which a specific accession protocol commitment is an integral part
would remain undetermined. Japan further contends that the "intrinsic
relationship" test is "unworkable" where a provision of China's
Accession Protocol relates to more than one covered agreement.[264] Japan points, in this regard, to the commitments made by China in
Paragraph 2.2 of its Accession Protocol, which concerns the uniform
administration of China's trade regime and applies to measures "pertaining to or affecting trade in
goods, services, trade-related aspects of intellectual property rights
('TRIPS') or the control of foreign exchange".
2.186. In addition, Japan argues, the
"intrinsic relationship" test is likely to be particularly
problematic where a provision of China's Protocol contains "WTO-plus"
commitments, which go beyond what is required in the covered agreements. For
example, the obligation to eliminate export duties in Paragraph 11.3 of China's
Accession Protocol is a "WTO-plus" obligation and is subject to
specific exceptions set out in Annex 6 to China's Accession Protocol. However,
under China's interpretation, the Appellate Body would be required to
"shift" this WTO-plus obligation out of China's Accession Protocol
and into the GATT 1994, subjecting it to a host of exceptions contained
therein. In Japan's view, China is effectively asking the Appellate Body to
"rewrit[e] and transform[] a specific bargain struck by the WTO Members
when China joined the WTO".[265]
2.187. Furthermore, Japan contends that
China's characterization of post‑1994 accession protocols as not "self-contained"
is equally without basis. The term "self-contained" is absent from
the text of the covered agreements, and China does not explain what this term means
or what legal significance China ascribes to it. According to Japan, a post-1994 accession protocol is not divisible but
is a single instrument that must be treated as an integral and unitary part of
the Marrakesh Agreement. Japan further observes that there is "no
disagreement among the parties" that China's Accession Protocol is not listed
in Appendix 1 to the DSU, and yet its
terms are covered by the DSU.[266] Japan reiterates
that it is Paragraph 1.2 of China's Accession Protocol that incorporates its
provisions within the coverage of the DSU.
2.188. Japan observes that China has
modified its arguments several times throughout the course of these disputes.
For example, China initially contended that Paragraph 11.3 of its Accession
Protocol is "intrinsically related to" Article XI:1 of the GATT 1994.
Subsequently, China abandoned this position and instead argued that Article II:1(a)
of the GATT 1994 is the provision of the GATT 1994 to which Paragraph 11.3
intrinsically relates.[267] Moreover, China's emphasis on the importance of Article XII of the Marrakesh
Agreement evolved during the course of these disputes. Despite substantial
arguments in its first written submission to the Panel in support of its contention
that Article XX of the GATT 1994 is available to China to defend its WTO‑inconsistent
export duty measures[268], China never mentioned Article XII of the Marrakesh Agreement.
2.189. Finally, Japan observes that China
never addresses the panel and Appellate Body findings in China – Raw
Materials. As Article 3.2 of the DSU makes clear, the function
of panels and the Appellate Body is to "clarify
the existing provisions of [the covered] agreements in accordance with
customary rules of interpretation of public international law", not "add to or diminish the rights and obligations provided in the
covered agreements". In Japan's view, exceeding this limited function
would undermine the security and predictability that the DSU is designed to
guarantee, as well as the rules of interpretation of
public international law.
2.190. Japan urges the Appellate Body
to reject China's "misportrayal" of the Panel's analysis, as well as China's
effort to require panels and the Appellate Body to consider the
"actual effects" of China's export quota measures, contrary to the
previous interpretations of Article XX(g) of the GATT 1994 provided
by the Appellate Body.[269] According to Japan, the Panel conducted an exhaustive examination of
the design and structure of China's export quota measures and correctly
determined that they lack any meaningful relationship to the "conservation
of exhaustible natural resources" under Article XX(g) of the GATT
1994.
2.191. Japan observes that the Article XX(g) exception
is strictly limited to measures "relating to the conservation of
exhaustible natural resources". This requires what the Appellate Body
termed in US – Shrimp a "close and genuine
relationship of ends and means", and an examination of the relationship
between "the general structure and design of the measure … and the policy
goal it purports to serve".[270] Accordingly, Japan considers that it was
incumbent upon China to show a "substantial relationship" between the
export quota measures and China's ostensible conservation goals, such that China's
measures "cannot be regarded as merely incidentally or inadvertently aimed
at … the purposes of Article XX(g)".[271]
2.192. Japan notes
that, while a panel may take a WTO Member's characterization of its measure
into account, it should also find guidance in the structure and operation of
the measure and in contrary evidence proffered by the complaining party. Such
an inquiry into a measure's objective structure and design is vital, because it
allows a panel to "go beyond a responding Member's normal
protestations" that it has, of course, complied with its WTO obligations,
by examining the objective elements and design of the challenged measure and
its role in the overall conservation scheme to determine whether the
"protestations" match with objective reality.[272] For Japan, this case underscores the wisdom of
the Appellate Body's adoption of a "structure and design" test
for Article XX(g), as opposed to requiring that panels and the
Appellate Body delve into a "Pandora's box" of "effects",
"positive contributions", or a WTO Member's subjective intentions,
thereby leaving the security and predictability of WTO rules adrift.[273]
2.193. Japan highlights that, generally, panels under the
GATT 1947 were, and the Appellate Body has been, sceptical about incorporating "effects" tests,
as evidenced, for example, in the Appellate Body report in Japan –
Alcoholic Beverages II.[274] It is difficult to apply "effects"
tests in a way that is consistent with the goal set out in Article 3.2 of the
DSU, of promoting security and predictability to the multilateral trading
system. For Japan, one of the core weaknesses of China's efforts to insert an
"effects" test into the Article XX(g) review and analysis is
that, without a detailed examination of various causes, it is impossible to
determine whether the effects – positive or negative – result from the export quotas
or something else. In other words, such a methodology invites "false
positives" or "false negatives", because it depends on whether
there is a causal linkage between a measure and the positive (or negative)
"effect" or "contribution". Otherwise, it may be mere
coincidence. In contrast, Japan characterizes the "design and structure"
test as an objective tool for determining whether there is a genuine
relationship of means and ends.
2.194. Japan clarifies that the effect or
the contribution can be useful evidence to discern or analyse the design and
structure of the measure. However, it is not sufficient to show that there is
some causal link between the effect and the measure. In Japan's view, if
effects are to be taken into account, those effects need to be inherent in the
measure. Japan adds that the actual effects of a measure may be looked at in
confirming that the measure, in its design and structure, is related to
conservation, but these actual effects should not be the basis of the decision
of whether the required nexus exists between the challenged measure and the
conservation objective.
2.195. Japan contends that there is no
support in the text of Article XX(g) or in the jurisprudence for a
"positive contribution" test of whether a measure "relates
to" conservation. Japan asserts that China's legal rationale for this
"new-found" test improperly mixes and matches disparate elements of
Article XX(g) and Article XX(b) jurisprudence in a way that seriously
distorts both provisions.[275] Given the fundamental textual and contextual differences between these
two provisions, Japan submits that it is wholly inappropriate to borrow
concepts like "apt to" and "material contribution" from
Article XX(b) and insert them into an entirely different GATT 1994
exception, as China proposes.[276] Indeed, in US – Gasoline,
the Appellate Body warned against precisely this type of indiscriminate mixing
of different GATT exceptions. Japan therefore requests the Appellate Body
to reject China's claim that there is a basis in the text of the GATT 1994
or in Appellate Body precedents for adding a "positive
contribution" element to the "relating to" requirement.
2.196. Japan maintains that China has yet
to provide any plausible reasons, much less the "cogent reasons"
required by US – Stainless Steel (Mexico), for the
Appellate Body to "jettison two decades of its own
jurisprudence" under Article XX(g) and instead rely on an unknown
test involving "positive contributions", effects, and causal
linkages.[277]
2.197. Japan submits that, in seeking to
justify its claims of error to the Appellate Body, China has resorted to
"caricaturing, if not outright misrepresenting"[278], the Panel's factual findings and legal reasoning. Japan avers that,
far from grounding its decision solely on "perverse signals", as
China alleges, the Panel found multiple and manifest flaws in the overall
structure, design, and operation of China's export quotas, and properly found
that these measures having nothing to do with conservation.
2.198. Japan submits that it was entirely
appropriate for the Panel to consider such "perverse signals", which
are amply documented in economic literature and grounded in basic economic
principles, and were explicitly discussed by the panel in China – Raw
Materials.[279] For Japan, an objective review of the Panel Reports shows that the
Panel: (i) did not apply a presumption; (ii) carefully examined the
operational structure and design of the production, extraction, and export
quotas in China's rare earth regime; and (iii) ultimately was not convinced
that the design, structure, and architecture of China's export quotas on rare
earths, tungsten, and molybdenum could counter the "perverse signals"
being sent to Chinese users or ensure that domestic demand was not being
artificially stimulated by low prices and government assurances of an abundant
future supply arising.
2.199. Japan recalls the findings of the
Panel with respect to "signalling"[280], namely, that China's rare earth regime, like its
tungsten regime, lacks any structural mechanism to counter the "perverse
signals" being sent by the WTO-inconsistent export quotas to Chinese
downstream industrial users. Japan considers this finding by the Panel to be
critical because, in the absence of such mechanism in the structure and design
of China's rare earth regime, it follows that any positive effects that,
according to China, arose from the operation of its export quotas were
coincidental and lacked any "causal linkage" to China's rare earth
policies.[281] Japan points out that China has yet to explain
how, if no mechanisms exist in the quotas' structure and design, the operation
of China's rare earth regime can counter the "perverse signals" sent
to domestic consumers. Japan concludes, therefore, that the Panel's scepticism about the conservation-related
"signals" being sent by the Chinese export quotas was entirely
justified.
2.200. Japan adds that, contrary to
China's allegations, the Panel's "theoretical" observations regarding
the "perverse signals" sent by export quotas were fully borne out by
the undisputed facts of this case. In this regard, Japan contests China's claim
that there was a decline in domestic consumption as a result of alleged
domestic restrictions, maintaining that the reasons for this alleged decline
are "muddled"[282]: such decline could have been a result of the signals, or of an
unprecedented global recession, or of a massive spike in rare earth prices in
2010 after China sharply tightened the export quota levels. Japan therefore
maintains that, had the Panel chosen to weigh "actual effects", it
would have had no impact on the outcome of these disputes since the evidence
makes it clear that the "perverse signals" arising from the export
quotas were correctly understood and fully internalized by Chinese users and
downstream industries. In Japan's view, for the Appellate Body to reweigh the
facts, as China insists, would not only be clear legal error, it would also
"fly in the face" of clear, undisputed evidence of sharp increases in
Chinese production and consumption and call into question the effectiveness of
the DSU's fact-finding processes.[283]
2.201. Japan also highlights that China
put forth a half dozen "shifting justifications"[284] for how its export quotas relate to conservation, all of which were
challenged by the complainants and rejected by the Panel. China appeals but one
of those Panel findings. For Japan, "a fair-minded review" of the
Panel's detailed findings and legal reasoning demonstrates that China's
argument "incorrectly elevates a secondary aspect of the Panel's reasoning
to the apex of its legal rationale"[285], while ignoring multiple other Panel findings, including: (i) the
Panel's findings that the text, structure, and design of China's rare earth,
tungsten, and molybdenum export quotas were deficient in numerous respects
aside from the "perverse effect"; and (ii) the Panel's correct
finding that the evidence showed overwhelmingly that China's export quota
measures have nothing to do with conservation; instead, they relate directly to
China's policy of protecting and promoting downstream, value-added industries
that use rare earths, molybdenum, and tungsten in manufacturing advanced
materials and technologies. Japan further points to multiple other
structural and design oddities of China's rare earth regime, some of which were
discussed by the Panel, and which show that this regime appears to be tied not
to conservation, but rather to industrial policy.
2.202. Japan contends that China's
argument, that the Panel erred under Article 11 of the DSU in its
ascertainment of the facts relevant for the application of
subparagraph (g) of Article XX, and in its reasoning in support of
its "relating to" analysis, is without merit. In Japan's view, the
Panel conducted a thorough legal and factual analysis of the "relating
to" test, consistent with Article 11 of the DSU. Specifically, the
Panel carefully considered China's contentions with respect to the possible
"perverse effects" of China's export quotas. These "perverse
effects" played but a minor role in the Panel proceedings, and the Panel
arrived at the correct conclusions in respect thereof. In addition, Japan
submits that China mischaracterizes the legal standard under which panels
review and handle evidence pursuant to Article 11 of the DSU. Japan
emphasizes that both Article 11 of the DSU and prior Appellate Body
decisions provide substantial discretion to panels to handle evidence in a
manner tailored to the circumstances of a particular dispute, and set a high
threshold for appellate review of a panel's assessment of the facts under
Article 11.
2.203. Japan also asserts that, whereas
China's appellant's submission portrays the evidence with respect to the
pricing, recycling, and relocation "effects" of China's export quotas
as straightforward and uncontested, China is simply recycling its factual
arguments from the Panel proceedings. China is requesting the Appellate Body to
consider de novo several factual issues presented to the Panel, even though each of
these issues was "litigated vigorously" before the Panel.[286] Japan then provides examples of these already litigated issues, which
include: (i) China's allegation that export quotas
do not affect pricing of rare earths, and that, particularly where an export quota is not filled, the price
gaps cannot be caused by the export quota[287]; (ii) China's
claim that its pricing data illustrated how China's export quotas relate to
conservation[288]; (iii) China's
claim that its export measures "relate to" its efforts to promote
recycling of rare earths[289]; and
(iv) China's argument that there was no economic pressure on downstream
manufacturers to relocate to China.[290]
2.204. Further, Japan contends that,
contrary to China's claims on appeal, the Panel's findings in this regard were
reasonably predicated on the record evidence and are based neither on an
"assumption", nor on "incoherent reasoning".[291]
2.205. Japan
requests the Appellate Body to reject China's appeal in respect of the second clause of Article XX(g) and to
uphold all findings and conclusions set forth in the Panel Reports. Japan contends that the Panel correctly determined that China's export
quotas on rare earths, tungsten, and molybdenum were not "made effective
in conjunction with restrictions on domestic production or consumption"
and were not "even-handed".
2.206. Japan contends that the Panel correctly interpreted the
clause "made effective in conjunction with restrictions on domestic
production or consumption" in Article XX(g). The Panel properly focused on whether China's domestic and export
restrictions are structured "in a balanced way". Japan refers to the
Appellate Body reports in US – Gasoline, US – Shrimp,
and China – Raw Materials in support of its
argument that the relationship between domestic and trade-restrictive measures
cannot be merely coincidental, so that both merely happen to exist at the same
point in time.[292] Rather, such measures must have a genuine operational relationship as
well, so that they function together to advance the goals of the conservation
scheme. For Japan, this flows from the Appellate Body's choice of the word
"operate" to characterize the type of relationship required between
the two sets of measures, building on the use of the phrase "made
effective" in subparagraph (g). Japan contends that the word
"operate" connotes a functional or operative relationship such that
both sets of measures function together as part of a unitary scheme to support
conservation.
2.207. Moreover, Japan submits that the Panel's focus on whether the export and domestic production and
consumption restrictions were being applied "in a balanced way"
flowed naturally from the Panel's interpretation of the term
"conservation" in Article XX(g) as prohibiting the control of
allocation or distribution of a natural resource in order to advance an
economic purpose. Japan explains that the Panel's interpretation that Article XX(g) requires that the burden
of conservation must be distributed in a balanced manner between foreign and
domestic consumers is consistent with the definition of "even-handedness".[293] This "balance" also ensures that the export and domestic
measures work together to support conservation. If this balance is missing, it
is difficult to see how the trade measures can work together with restrictions
on domestic production or consumption. For Japan, even-handedness or balance is
particularly important when rapidly rising domestic consumption presents the
biggest threat of resource depletion. Japan adds that these considerations are
"somewhat theoretical", given that the Panel did not find that any of
China's measures qualified as "restrictions" for purposes of
subparagraph (g).[294]
2.208. Japan alleges that China takes an
extreme minimalist approach, criticizing the Appellate Body's "even-handedness"
test and arguing that the term "in conjunction with" requires only
that some restrictions, however minimal, must be applied to domestic production
or consumption. This means that any limits on production or consumption, however
meaningless and unbalanced, suffice for purposes of showing that a
trade-restrictive measure operates "in conjunction with restrictions on
domestic production or consumption". According to Japan, all that is
required, under China's view, is that domestic production is not unlimited.
2.209. Japan disagrees with China that the
Appellate Body specifically "eschewed"[295] any inquiry into "identity, substantive complementarity,
impartiality or balance" of the trade measure and the domestic
restrictions in US – Gasoline. For Japan, the
Appellate Body merely emphasized that "even-handedness" does not
require "identical treatment", and described two extreme situations
at the opposite ends of the spectrum; where there is strict identity of
treatment, and where no restrictions are imposed on domestic products at all.[296] Japan is of the view that the Appellate Body properly left it to
future cases to determine specific standards for "even-handedness"
based on review of specific factual situations.
2.210. Furthermore, Japan maintains that
China's interpretation would undermine the function of the "in conjunction
with" requirement as a proxy for ensuring the legitimacy of ostensibly
conservation-related trade restrictions, because, as soon as it can be shown
that domestic production or consumption is restricted in any way, there would
be "even‑handedness", even if there is no corresponding regulatory measure
applicable to domestic production or consumption. Japan adds that China's
interpretation of the "made effective in conjunction with" requirement
would be contrary to statements from the negotiating history of Article XX(g),
because it would render the requirement meaningless. According to Japan,
statements from the negotiating history of Article XX(g) suggest that this
requirement was meant to be an effective safeguard against abuse and a
structural proxy for the legitimacy of conservation-related trade restrictions.
2.211. In response to China's argument
that the Panel erred by focusing on the structure and design of the domestic
restrictions, to the exclusion of its operation, Japan submits that China is
suggesting a test of "adverse trade effects" despite the fact that
such a test has proven notoriously hard to apply and has been rejected in the
context of several obligations under the GATT 1994. In this regard, Japan
refers to the Appellate Body reports in US – Gasoline
and Korea – Alcoholic Beverages.[297] Japan highlights that the Appellate Body has adopted "effects"
tests only where the text of a provision expressly requires such a test, such
as Article VI of the GATT 1994 (material injury and threat thereof).
2.212. Japan maintains that, in applying
the second clause of Article XX(g), the Panel properly focused on the
structural correspondence of China's regulatory measures (or the lack thereof).
Japan explains that this approach tracks the methodology applied by the
Appellate Body in US – Gasoline and US – Shrimp. In those disputes, the Appellate Body
focused on whether the United States maintained regulatory measures
applicable to US producers that corresponded to its regulatory requirements for
foreign gasoline emissions and shrimp turtle-excluder devices (TEDs)
respectively, as opposed to evaluating whether the application of the measures
led to disparate burdens, which was taken up under the chapeau of Article XX.[298] The Panel correctly found that, in the present disputes, foreign users are
subject to rapidly shrinking export quotas, while, in the absence of
corresponding limitations on Chinese consumption, Chinese industrial users
enjoy virtually unlimited access to an expanding supply of rare earths,
tungsten, and molybdenum. For Japan, the main function of export quotas within
the overall regulatory scheme is to provide a guaranteed minimum supply to
Chinese industrial users. The Panel's analysis correctly showed that the
regulatory scheme is deliberately designed to support China's industrial
ambitions in the global production of value-added rare earth materials and
technologies.
2.213. Japan highlights that, in those
cases, the Appellate Body did not attempt to weigh quantitative "trade effects"
or evaluate comparative burdens, but focused on whether there was a
"systemic balance" in the key elements of the challenged regulatory
structure. An examination of effects would be particularly problematic in the
facts of the present case, because China's export quotas have been in effect
for years and have seriously distorted the marketplace. Furthermore, Japan
contends that an "effects" test would be unworkable, because it would
require panels and the Appellate Body to sort out the combined impact of a
number of factors, including export quotas on rare earths, export duties on
rare earths, extraction and production quotas on rare earths, substantial
tightening of export quota levels in recent years, China's pattern of non‑enforcement
of its rare earths, tungsten, and molybdenum extraction and production quotas,
the far-reaching impacts of a deep global recession and sudden price hikes, and
to identify an appropriate causation standard that isolates and calculates the
impacts of various factors. Limitations of the underlying economic data and
disagreements between economic experts as to the proper interpretation of such
data would add further complexities to the application of such a test.
2.214. Japan alleges that China improperly
seeks to have the Appellate Body reweigh conflicting evidentiary issues decided
by the Panel, contrary to Article 11 of the DSU. Japan requests the Appellate
Body to reject all of China's claims under Article 11 and highlights, in this
regard, the significant latitude accorded to panels under Article 11 and the
heavy burden faced by China in contesting the Panel's evidentiary findings.
2.215. First, with regard to China's
claims relating to the Panel's assessment of evidence of how export and
production quotas work together, Japan submits that the Panel correctly took
into account the evidence provided by China. However, the Panel explained that
China had failed to establish that the export restrictions and domestic
restrictions "work together".[299] In particular, in response to China's allegation that the Panel failed
to assess how the export and production quotas work together, Japan asserts
that the Panel correctly noted the evidence submitted by China, but nonetheless
found that China had failed to establish that there was coordination of the
export and domestic restrictions. Japan further argues that China failed to
explain why the Panel's conclusion about the different product scopes of export
and production quotas is inconsistent with Article 11 of the DSU. In response
to China's argument that the Panel failed to explain why the fact that unused
export quota shares are permitted to be redirected into the domestic market
discounted the restrictive effect on domestic Chinese consumers of extraction
and production quotas, Japan argues that China's argument relates to legal
rather than evidentiary issues and therefore falls outside the scope of Article
11 of the DSU. Regarding the time‑lag between the imposition of China's export
quotas and the imposition of extraction and production restrictions, Japan
asserts that this was not a central feature of the Panel's analysis. In any
event, the Panel correctly found that the temporal disconnect casts doubt on
whether the measures were made effective in conjunction with one another.
2.216. Second, with regard to China's
allegation that the Panel engaged in "incoherent reasoning", Japan
contends that, while the Panel recognized that China has adopted a conservation
policy, none of the bona fide
elements of that policy that the Panel identified relate to China's export
quotas or export duties. Moreover, Japan contends that China's further
allegations of "incoherent reasoning" are mere criticism of the
Panel's handling and weighing of specific evidence, and that China has offered
little to support them.
2.217. Third, in response to China's
allegation that the Panel applied a double standard in its "even-handedness"
test, Japan argues that this argument is a mere reiteration of China's position
that the analysis under Article XX(g) of the GATT 1994 should include an
"effects" test. However, Japan considers that the Panel was correct
in focusing, instead, on the structure and design of China's export
restrictions rather than on the actual effects of China's measures.
2.218. Argentina submits that, although
this is not the first time the Appellate Body is asked to consider whether
China can rely on Article XX of the GATT 1994 to justify a breach of the
commitments under its Accession Protocol, the question has still not been
definitively elucidated. Argentina argues that the circumstances in the present
disputes are comparable to those in China – Publications
and Audiovisual Products, because, like the measure in the earlier
dispute, the export duties at issue in these disputes also have "a clearly
discernable, objective link" to the GATT 1994.[300]
Argentina further submits that, pursuant to Article XII:1 of the Marrakesh Agreement,
a State seeking accession to the WTO understands that the accession process
simultaneously relates to the Marrakesh Agreement and the Multilateral Trade
Agreements annexed thereto, and that the rights and obligations contained in
these agreements would be available and applicable to it. Argentina further
contends that the novel arguments put forward by China in these disputes differ
from those analysed by the Appellate Body in China – Raw
Materials, and that a thorough examination of China's arguments
could lead to reasoning and findings different from those adopted in previous
disputes. In Argentina's view, resolving the issue raised by China regarding
the applicability of Article XX of the GATT 1994 to justify a breach of
commitments in China's Accession Protocol is crucial to establishing a proper
basis for China's defence regarding alleged breaches of its Accession Protocol.
2.219. With respect to the United States'
appeal in DS431, Australia underlines that the aim of prompt settlement of
disputes needs to be balanced against the right of the parties to present their
case fully, which includes the right to present rebuttal evidence. Australia
cautions against unduly restraining parties in respect of the rebuttal evidence
that may be submitted in panel proceedings. In accordance with due process,
parties should have a full opportunity to present rebuttal evidence in response
to the arguments of the opposing party or parties, provided that the other
party is equally accorded procedural fairness.
2.220. With respect to China's claim that
the Panel erred in its interpretation and application of the term "relating
to" in Article XX(g), although Australia agrees with the Panel that
the analysis under Article XX(g) does not require an evaluation of the
actual effects of the concerned measure (i.e. whether the challenged measure
has in fact improved the level of conservation of exhaustible natural
resources), Australia is of the view that the Appellate Body could
usefully consider whether or not there is a distinction between the
"operation" of a measure and the "actual effects" of the
measure. Australia further suggests that the Appellate Body consider
whether a focus on the "design and structure" of the written measure
still allows, in some cases, for a consideration of other information that may
possibly be useful in assessing whether there is a "genuine" or
"real" relationship between the measure and the conservation
objective.
2.221. Regarding the Panel's
interpretation of the second clause of Article XX(g) ("made effective in
conjunction with"), Australia refers to the Panel's statement that it
understood the "even‑handedness" test to be a synonym for that
clause.[301]
Australia agrees that this is what US – Gasoline established.
However, Australia notes that the term "even-handedness" seems to be
used in a variety of ways
in the Panel Reports. Australia points, on the one hand, to a statement by the
Panel that the "even‑handedness" criterion is satisfied where the
regulating Member can show that, in addition to its GATT-inconsistent measures,
it has also imposed real conservation restrictions on the domestic production
or consumption of the resource subject to its GATT‑inconsistent measures[302]
and, on the other hand, to a statement by the Panel that "[t]hese domestic
measures must distribute the burden of conservation between foreign and
domestic consumers in an even-handed or
balanced manner".[303]
Australia contends that, in the latter statement, "even-handed" seems
to describe the manner in which the burden of conservation must be distributed
between foreign and domestic consumers. Australia then refers to a third statement
by the Panel that the "even‑handedness requirement is to be read together
with the requirement that the challenged border restriction be made effective
in conjunction with domestic restrictions".[304]
Yet, if these concepts are synonymous, it is not clear to Australia why it is
necessary for them to be read together, as they would naturally mean the same
thing. Thus, the last statement seems to suggest two different requirements.
Australia suggests that the Appellate Body may find it useful to clarify the
role to be played by the concept of "even-handedness" in the
assessment of whether a measure meets the requirements of Article XX(g) of
the GATT 1994.
2.222. Brazil contends that the general
exceptions under Article XX of the GATT 1994 are fundamental provisions of the
multilateral trading system that strike a balance between WTO Members'
policy space to pursue legitimate objectives and their WTO obligations. In
Brazil's view, therefore, restrictions on a Member's right to promote its
legitimate objectives, such as sustainable development, cannot be presumed but
must be deemed to exist in the light of "compelling textual, contextual
and systemic evidence".[305]
Brazil submits that, in the absence of explicit textual references excluding
the applicability of provisions of the covered agreements, an acceding Member
should be presumed to be subject to the same rights and obligations applicable
to other WTO Members. With regard to export duties, Brazil argues that the MFN
obligation in Article I:1 of the GATT 1994 would apply in addition to the
obligation in Paragraph 11.3 of China's Accession Protocol, even without any
express reference in this regard. Similarly, the exceptions provided for under
the GATT 1994 should enable an acceding Member to rely on legitimate objectives
in connection with GATT-plus accession commitments. For Brazil, "[o]ne
cannot cherry pick the applicable principles."[306]
2.223. With respect to China's claim that
the Panel erred in its interpretation and application of the term "relating
to" in Article XX(g), Brazil puts forward its views concerning: (i)
the Panel's definition of "conservation"; (ii) the Panel's
application of the "relating to" test in the context of the
"perverse signals" broadcast by China's export quotas; and (iii)
China's arguments about the relevance of "contribution" in assessing
whether a measure relates to conservation for the purposes of
Article XX(g).
2.224. Brazil
disagrees with the Panel's statement that measures whose objective is to
"promote economic development are not 'measures relating to conservation'
but measures relating to industrial policy".[307]
Conservation cannot be read as being in opposition to or conflicting with
economic development. Accordingly, Brazil believes that the Panel did not
properly take into
account the concept of sustainable development in interpreting the relationship
between environmental concerns and economic development, and that the Panel's
reading of the "relating to" test is overly restrictive
vis-à-vis the objective of sustainable development enshrined in the preamble of
the Marrakesh Agreement. For Brazil, the appropriate test under Article XX(g) should
reflect an adequate relationship of means and ends between measures understood
in the broader context of sustainable development and the consequent conservation
of natural resources.
2.225. As regards
the Panel's assessment of "perverse signals", Brazil considers that a
measure can only be provisionally justified under Article XX(g) if it
meets three requirements. First, the measure must be concerned with "exhaustible
natural resources". Second, the measure must be "related to" the
conservation of the relevant exhaustible natural resources, implying that the
measure is "primarily aimed at conservation" and that there is a
"genuine relationship of ends and means" between the measure and its
objectives. Third, the measure must be "made effective in conjunction with
restrictions on domestic production or consumption".[308]
Brazil is of the view
that the Panel conflated the second and third requirements of Article XX(g)
and took an overly narrow approach to the "relating to" test with
regards to export quotas. The relationship between a measure and the
conservation of an exhaustible natural resource cannot be assessed by dividing
the domestic and foreign markets, as that would render the third element of the
test redundant. According to Brazil, the Panel seemed to affirm that the export
quotas are ineffective because there are no restrictions on the domestic
market, as they ultimately signal more internal consumption. This does not make, in and
of itself, the measure unrelated to the conservation objective for the purposes
of "a close and genuine relationship of ends and means".[309]
In Brazil's view, the comparison between domestic and the foreign markets
should not be a component of the analysis in the "related to" test,
as the effectiveness of the measures is to be addressed under the third
requirement of Article XX(g), and any discrimination is to be assessed
under the chapeau.
2.226. With regard to China's argument
that a "contribution" analysis is relevant to an examination of
whether a measure relates to conservation for the purposes of
Article XX(g), Brazil notes that the "necessity" test of
Article XX(a), (b), and (d) of the GATT 1994 is significantly
different from the "relating to" test of Article XX(g). In the
absence of the "alternative measure" analysis that accompanies the
"contribution" analysis in the "necessity" test, the role
of the "contribution" analysis, while possibly relevant for
Article XX(g), is diminished and does not carry the same weight that it
does under the "necessity" test.
2.227. Brazil
submits that the concept of "even-handedness" in Article XX(g) must
be read in a way that allows a country to exploit its resources pursuant to its
own environmental and development policies and in accordance with its level of
economic development. At the same time, Brazil emphasizes that domestic
restrictions considered under Article XX(g) must be actual restrictions, and
that they must be effective. Moreover, Brazil argues that the criterion of "even‑handedness" should
not overlap with the requirements in the chapeau. Rather, "even‑handedness"
under subparagraph (g) should be understood as being more flexible than
under the chapeau. The "even‑handedness" analysis under Article XX(g)
should therefore not be overly concerned with an equivalence of restrictions
between the domestic and the foreign consumption or production, but mainly with
fairness and impartiality, particularly if the environmental conditions in the
Member implementing the measures are different from those in other Members.
2.228. Canada maintains that China's
arguments concerning the relationship between China's Accession Protocol and
the GATT 1994 in these disputes are not "novel", but are merely
an attempt to recast its arguments in previous disputes in which the same issue
was addressed. In China – Publications and Audiovisual
Products, the Appellate Body found that China had the right to
invoke Article XX of the GATT 1994 to defend a breach of Paragraph 5.1 of
China's Accession Protocol due to the scope of the specific obligations assumed
under Paragraph 5.1, and not because of the general availability of Article XX
to justify violations of obligations in China's Accession Protocol. In China – Raw Materials, the Appellate Body concluded that
access to Article XX of the GATT 1994 can be granted for violations of a
non-GATT obligation insofar as language to that effect is present in the
paragraph of China's Accession Protocol creating the obligation. The Appellate
Body found that Paragraph 11.3 does not contain such language, and that mere
reference to a GATT provision (such as Article VIII in Paragraph 11.3) does not
in and of itself suffice to render Article XX of the GATT 1994 applicable.
Canada argues that China has not provided "cogent reasons" for
departing from the Appellate Body's findings in China – Raw
Materials, and its appeal should be rejected. Canada highlights the
finding of the panel in US – Countervailing and
Anti‑Dumping Measures (China) that cogent reasons for departing from
an Appellate Body finding could exist if the Appellate Body finding
"proved to be unworkable in a particular set of circumstances".[310]
Canada argues that there are no differences in the circumstances of these
disputes that would make the Appellate Body's findings in China – Raw
Materials unworkable.
2.229. Moreover, Canada submits that, even
if one accepts China's interpretation of the term "the WTO Agreement"
in Paragraph 1.2 of China's Accession Protocol as referring to the Marrakesh Agreement
together with its Annexes, "too many interpretative leaps are necessary
for China's conclusion as to the effect of that interpretation to be
correct".[311]
First, on its own, the answer to the question of whether an accession protocol
is an "integral part" of the Marrakesh Agreement alone, or of that
Agreement together with its annexed Multilateral Trade Agreements, "tells
us little about the relationship between the various parts of these
instruments".[312]
Moreover, China's interpretation suggests that provisions of different parts of
a Member's WTO obligations should modify each other simply on the grounds that
the relationship between them is "intrinsic". Such an interpretation,
Canada contends, would introduce considerable instability and unpredictability
and undermine the security on which the trading system depends.
2.230. With respect to China's claim that
the Panel erred in its interpretation and application of the term "relating
to" in Article XX(g), Canada addresses three issues: (i) the legal
standard for "relating to" and whether it is equivalent to
"contribution"; (ii) the Panel's examination of the "predictable
effects" of China's export quotas; and (iii) the relevance of evidence of
effects in the "relating to" analysis.
2.231. Canada recalls that the Panel noted
that the Appellate Body's Article XX(g) jurisprudence does not require
that the measure be "primarily aimed at" conservation to "relate
to" conservation.[313]
Nonetheless, while the measure may not be required to be primarily aimed at
conservation, the statements by the Appellate Body should not be construed
as lowering the standard to a marginal level of contribution, particularly
given the Appellate Body's clarification that a measure "merely
incidentally" aimed at conservation would not meet this threshold.[314]
Canada posits that, to be provisionally justified under Article XX(g), a
measure must have a close and genuine relationship of ends and means with the
goal of conservation.
2.232. Canada further refers to China's
argument that, when considering the design and structure of the measure, the
"predictable effects" of that measure can provide evidence of whether
it is genuinely "related to" conservation, and contends that this is
precisely what the Panel did: it found that the predictable effects of China's
export quotas are the sending of "perverse signals" to domestic
consumers, and that this is a part of the measures' design and structure. In US – Gasoline, the Appellate Body recognized that it
may be appropriate to take the wider regulatory context of a measure into
account, but it did not suggest that evidence of a wider programme of
conservation is sufficient to find that the measure itself relates to
conservation.[315]
For Canada, a measure may be enacted as part of a bona fide
comprehensive policy aimed at conservation and yet, in isolation, not relate to
conservation within the meaning of Article XX(g). This is because it is
the design and structure of the measure itself that must demonstrate its
relationship to conservation.
2.233. With respect to the relevance of
effects, Canada suggests that the evidence of effects should be considered, and
that they may be useful to the extent that they shed light on, and confirm,
the design and structure of a measure. Canada notes that there is no Appellate Body jurisprudence on
whether consideration of empirical evidence is precluded when determining
whether a measure relates to conservation, and emphasizes that this was not the
position taken by the Panel. However, evidence of effects cannot, on its own, be
determinative of whether a measure "relates to" conservation. The measure must be more than
indirectly or incidentally aimed at conservation. It is Canada's position that
considering evidence of effects to be determinative of this issue runs the risk
of capturing measures that may not have a substantial, "close and genuine
relationship" with conservation, and that giving equal weight to effects
would substitute correlation for causation.
2.234. Canada reads the Appellate Body
reports in US – Gasoline and China – Raw
Materials as suggesting that, under Article XX(g), evidence of the
effects of foreign and domestic restrictions can be taken into account in order
to determine if a domestic restriction is operative.[316]
However, such evidence cannot be determinative. For Canada, this approach to
Article XX(g) would not duplicate the analysis under the chapeau, because the
objective of each analysis is different. Under subparagraph (g), the objective
is to determine whether the measure is genuinely about conservation. In
contrast, the objective of the analysis under the chapeau is to determine
whether, even if the measure is genuinely about conservation, it is applied in
a manner that, inter alia, favours domestic
interests over foreign ones in an arbitrary or unjustifiable manner.
2.235. Further, Canada maintains that the term
"in conjunction with" requires the domestic restrictions to be in
force at relatively the same time as the foreign restrictions. While it seems
unreasonable to impose a requirement of strict simultaneity on governments
enacting domestic and foreign restrictions, a reasonably close timing can be
highly informative of whether the requirement is fulfilled. With regard to
"even-handedness", Canada agrees with the complainants that China's
interpretation ignores the actual text of Article XX(g). At the same time,
the distribution of the burden between foreign and domestic interests should
not need to be balanced in the same sense as under the chapeau, because
otherwise the chapeau would be rendered inutile. The correct threshold should
lie somewhere between merely proving that some burden on domestic interests
exists and a "chapeau-style balancing".[317]
2.236. Colombia agrees with the Panel that
the wording of Paragraph 1.2 of China's Accession Protocol makes an explicit
reference to "the WTO Agreement" and not to specific Multilateral
Trade Agreements. However, Colombia argues, this does not mean that China's
Accession Protocol is "a stand-alone text" that holds no
relation to the Multilateral Trade Agreements.[318]
Rather, an accession protocol contains commitments that are to be undertaken
together with obligations covered in the Multilateral Trade Agreements.
Colombia argues that Paragraph 11.3 of China's Accession Protocol "expands
… China's obligations regarding export duties encompassed in [A]rticle XI:1 of
[the] GATT 1994", and is therefore a "WTO-plus" obligation.[319]
In Colombia's view, determining whether a "WTO-plus" provision
becomes an integral part of one of the Multilateral Trade Agreements requires a
"holistic and systemic interpretation" of the relevant provisions[320]
and a cumulative reading of the relevant provisions.[321]
Paragraph 11.3 of China's Accession Protocol "modifies" and
"broadens" China's obligations under Article XI:1 of the GATT 1994
and, given that it regulates trade in goods, it is either an integral part of
the GATT 1994 or an independent obligation under Annex 1A to the Marrakesh
Agreement.[322]
To understand fully China's obligations, both provisions must be read in
conjunction and applied cumulatively. Colombia considers that China must abide
by its commitments under both provisions, and that the exceptions under Article
XX of the GATT 1994 are applicable to measures regarding China's commitments
under both Article XI:1 of the GATT 1994 and Paragraph 11.3 of China's Accession
Protocol.
2.237. With respect to the United States'
appeal in DS431, the European Union states that it "does not disagree with
the various statements of principle made by the Panel and the Parties".[323]
At the same time, the European Union registers its objection to the rejection
of the relevant Panel exhibits, recalling that it raised the same objection
before the Panel. In the view of the European Union, these exhibits could
and should have been accepted into the record by the Panel. Further, the
European Union expresses its expectation that the exhibits in question have in
any event been transmitted to the Appellate Body, and its belief that no party
should be precluded from referring to them, should it so wish.
2.238. Korea submits that the WTO
agreements do not prohibit a Member from pursuing its legitimate policy goals,
including sustainable economic development. These agreements strike a careful
balance in which exceptions under Article XX protect sovereign countries'
legitimate policy goals, provided that they comply with specified rights and
obligations. Faced with new challenges presented by technological development
and globalization, the WTO should provide Members with "correct treaty
interpretation and application" of the "20-year-old provisions of the
WTO agreements".[324]
In Korea's view, the interpretation pursuant to Article 31 of the Vienna
Convention "seems to leave the meaning of Paragraph 11.3 of China's
Accession Protocol still ambiguous or obscure".[325]
Therefore, Korea argues, in answering the question of whether Article XX
could be invoked as a defence to breaches of Paragraph 11.3, recourse to
preparatory work of the accession negotiations, pursuant to Article 32 of the
Vienna Convention, may assist in finding the "correct intention between
the negotiating parties".[326]
2.239. Norway agrees with the Panel that
China's arguments did not constitute "cogent reasons" for departing
from the Appellate Body's finding in China – Raw Materials
that Article XX of the GATT 1994 is not available to justify a breach of
Paragraph 11.3 of China's Accession Protocol. Norway shares the Panel's view
that nothing in Article XII:1 of the Marrakesh Agreement or Paragraph 1.2 of
China's Accession Protocol supports China's position that, faced with a specific
accession commitment, a treaty interpreter must determine to which of the
Multilateral Trade Agreement it intrinsically relates, and then treat such
commitment as an integral part of the related Multilateral Trade Agreement. In
Norway's view, the Panel undertook a thorough interpretation of both
provisions, consistently with the DSU. Norway concurs with the Panel that
individual provisions of an accession protocol could only be made an integral
part of one or more of the Multilateral Trade Agreements if and where specific
language to that effect is contained in the relevant individual provisions, and
not by virtue of interpretation of Paragraph 1.2.
2.240. Russia submits that the Panel's
finding that an explicit textual link between the GATT 1994 and Paragraph 11.3
of China's Accession Protocol is required for Article XX of the GATT to be
available to justify a breach of the Protocol is of serious concern. Russia
claims that, during its accession negotiations, upon assurance by the incumbent
WTO Members that defences under the WTO agreements are equally available to all
WTO Members, Russia agreed to delete the following statement from its Accession
Protocol: "nothing in these commitments shall be understood to derogate
from the rights of the Russian Federation under the WTO Agreement as applied
between the Members of the WTO by the date of accession of the Russian
Federation to the WTO."[327]
In Russia's view, the Panel's above finding means that the statement Russia
agreed to delete should have been included in the accession protocols of all
newly acceded WTO Members. Russia further maintains that the Panel's finding
would apply to all other defences, including the security exceptions in Article
XXI of the GATT 1994. For Russia, an acceding Member's intention to waive its
right to protect important values such as life and health must be clearly and
unambiguously explained. In this regard, Russia stresses its agreement with the
views of the dissenting member of the Panel.[328]
2.241. Saudi Arabia contends that the
issue of the relationship between accession commitments and the covered
agreements raised in China's appeal consists of two separate but related
matters. The first matter is whether accession commitments must be read in the
light of the relevant covered agreements to which they refer either expressly
or by necessary implication. The second matter is whether failure to comply
with an accession commitment that relates to a particular covered agreement
necessarily gives the newly acceded Member the right to invoke the exceptions
of the covered agreement that were not directly or indirectly incorporated in
the accession documents. With regard to the first matter, Saudi Arabia submits
that a Member's accession commitments contained in its accession protocol and accession
working party report "complement and supplement" its obligations
under the covered agreements.[329]
Where the accession commitments have such a close and obvious relationship with
provisions in one or more of the covered agreements, the relevant provisions of
the agreements must be read in the light of and in combination with the
accession commitment. This implies that compliance with the accession
commitment also means compliance with the relevant provision of the covered
agreements that the commitment sought to specify and clarify. However, this
interpretation does not necessarily lead to a particular resolution of the
second matter. In Saudi Arabia's view, the fact that a Member's accession
commitments must be read together with the covered agreements does not
necessarily mean that all of the defenses provided in the relevant covered
agreements are automatically available to justify also the violation of the
accession commitment. Rather, according to Saudi Arabia, absent direct or
indirect references to the availability of such exceptions, the Member has agreed
to abide by its accession commitment, without exception. Saudi Arabia further
argues that, where a dispute arises as to the consistency of a measure with a
Member's accession commitments, the interpretation must not "add to or
subtract" from the "carefully negotiated balance" of rights and
obligations contained in "the comprehensive accession package of
commitments and benefits, rights and obligations".[330]
2.242. With respect to China's claim that
the Panel erred in its interpretation and application of the words
"relating to" in Article XX(g) of the GATT 1994, Saudi Arabia
considers that the Panel correctly developed the legal standard of when a
measure "relates to" conservation. There needs to exist a close and
genuine relationship of means and ends between the measure and the conservation
policy, and this relationship is determined by analysing the general structure
and design of the measure at issue and the manner in which it is related to the
conservation objective. Saudi Arabia adds that, although China's appeal does not
specifically raise any claims about the Panel's analysis of the chapeau of
Article XX, it is important to note that the examination under the chapeau
concerns merely the way in which the conservation measure is applied, not its
genuine relationship with the conservation objective. Furthermore,
Saudi Arabia suggests that an important aspect of any dispute concerning
conservation and use of natural resources, such as the claims in these disputes
under Article XX(g), is the context provided by the principle of permanent
sovereignty over natural resources. For Saudi Arabia, this principle,
which allows Members endowed with natural resources to utilize those resources
to promote economic and social development, is in line with the objectives of
the WTO as recorded in the first recital of the preamble of the Marrakesh Agreement.
2.243. Saudi Arabia notes, with regard to
the second clause of subparagraph (g) of Article XX, that the
Appellate Body has in previous cases applied a test of general
"even-handedness" without inquiring into the effectiveness of
domestic measures. The Appellate Body has not discussed whether regulations on
foreign and domestic goods must be identical or even similar. Instead, the
Appellate Body has stated that the restrictions must be applied or imposed
jointly on foreign and domestic goods, and that this requirement is met when
the trade measure and the domestic restriction "work together".[331]
In Saudi Arabia's view, the Panel in the present case developed a very similar
legal analysis, and Saudi Arabia thus considers that the Panel's approach is in
line with prior Appellate Body jurisprudence.
2.244. With respect to China's claim that
the Panel erred in its interpretation and application of the term "relating
to" in Article XX(g), Turkey opines that the Panel's approach, to
give special attention to examining the relationship between the general
structure and design of the measures at issue and the policy goals sought by
China in regard to determining the "related to" criteria, is correct.
However, Turkey emphasizes that any relevant information submitted by the
parties should be considered in assessing whether there is a
"genuine" or "real" relationship between the measure and the
conservation objective.[332]
3.1. The following issues are raised in these appeals:
a.
with respect to
dispute DS431 only, whether the Panel erred, and acted inconsistently with its
duties under Articles 11 and 12.4 of the DSU, in deciding to reject Exhibits JE‑187
through JE-196 submitted by the United States on 17 July 2013
together with its comments on China's responses to the second set of questions
from the Panel;
b.
with respect to
the Panel's findings regarding the relationship between specific provisions of
China's Accession Protocol, on the one hand, and the Marrakesh Agreement[333] and the Multilateral Trade
Agreements annexed thereto, on the other hand:
i.
whether the Panel
erred in its interpretation of Article XII:1 of the Marrakesh Agreement
in finding that this provision does not support China's position that each
provision of its Accession Protocol must be considered an integral part of the
specific covered agreement to which it intrinsically relates; and
ii.
whether the Panel
erred in its interpretation of the second sentence of Paragraph 1.2 of
China's Accession Protocol in finding that the legal effect of the second sentence of
Paragraph 1.2 is to make China's Accession Protocol, in its entirety, an "integral
part" of the Marrakesh Agreement, and not that, in addition, the
individual provisions of China's Accession Protocol are also integral parts of
the Multilateral Trade Agreements annexed to the Marrakesh Agreement; and
c.
with respect to
the Panel's findings that China had not demonstrated that China's export quotas
for rare earths, tungsten, and molybdenum are justified under
Article XX(g) of the General Agreement on Tariffs and Trade 1994 (GATT 1994):
i.
whether the Panel
erred, in its reasoning regarding the signals sent by China's export quotas on
rare earths and tungsten to foreign and domestic consumers, in finding that those
export quotas are not measures "relating to" conservation, and, more
specifically:
-
whether the Panel erred in interpreting the term
"relating to" in Article XX(g) of the GATT 1994 as
requiring the Panel to limit its analysis to an examination of the design and
structure of the measures at issue, to
the exclusion of evidence regarding the effects of relevant measures in the
marketplace;
-
whether the Panel erred in applying Article XX(g)
to the facts of this case, in particular by limiting its analysis to an
examination of the design and structure of China's export quotas for rare
earths and tungsten, to the exclusion of evidence regarding the effects of such
export quotas and other elements of
China's conservation scheme in the marketplace; and
-
whether
the Panel failed to make an objective assessment of the matter as required
under Article 11 of the DSU; and
ii.
whether the Panel
erred in finding that China's export quotas for rare earths, tungsten, and
molybdenum are not "made effective in conjunction with" domestic
restrictions, and, more specifically:
-
whether
the Panel erred in interpreting Article XX(g) of the GATT 1994 as imposing a
separate requirement of "even-handedness" that must be fulfilled in
addition to the conditions expressly specified in subparagraph (g); and in
interpreting Article XX(g) as requiring Members seeking to invoke
Article XX(g) to prove that the burden of conservation is evenly distributed,
for example, between foreign consumers, on the one hand, and domestic producers
or consumers, on the other hand; and as requiring the Panel to limit its
analysis to an examination of the design and structure of the measures at issue, to the exclusion of evidence
regarding the effects of relevant measures in the marketplace;
-
whether the Panel erred in its application of
Article XX(g) by requiring that the burden of conservation be evenly
distributed between foreign consumers, on the one hand, and domestic producers
or consumers, on the other hand; and by limiting its analysis to an examination
of the design and structure of China's export quotas, to the exclusion of evidence regarding the effects of such
export quotas and other elements of
China's conservation scheme in the marketplace; and
-
whether the Panel failed to make an objective
assessment of the matter as required under Article 11 of the DSU.
4.1. Before commencing our analysis of the issues of law and legal interpretations
raised in these appeals, we provide a brief overview of the measures at issue
and the products covered by these measures. For additional details in this
regard, recourse should be had to the Panel Reports.[334]
4.2. As mentioned
in paragraph 1.2 above, before the Panel, the complainants
challenged three types of measures applied to three groups of products. More
specifically, the complainants challenged China's use of export duties[335] and export quotas[336] on a range of rare earth, tungsten, and
molybdenum products, as well as certain aspects of China's administration and
allocation of its export quota regimes on rare earths and molybdenum.
4.3. The complainants identified multiple
legal instruments in connection with each of their claims, including China's
framework legislation, implementing regulations, other applicable laws, and
specific annual measures. The European Union and Japan also made claims in
respect of replacement measures and renewal measures, while the United States
made claims in respect of "implementing measures in force to date".[337]
4.4. The Panel determined that, for each
type of measure, it would "make findings and recommendations with respect
to the series of measures comprising the relevant framework legislation, the
implementing regulation(s), other applicable laws and the specific annual
measures … existing at the date of the Panel's establishment".[338] The Panel
found that, through this "series of measures"[339], China subjected various forms of rare earths,
tungsten, and molybdenum to export duties[340] and export
quotas[341] in 2012.[342]
4.5. As explained
in the subsequent sections of these Reports, the appeals raised by the
United States and China are limited in scope, and do not call for
extensive consideration of the challenged measures on appeal. Since, however,
the issues appealed by China under Article XX(g) of the GATT 1994 require some
discussion of the quotas that China applies to rare earths, tungsten, and molybdenum, we consider it useful to outline briefly certain aspects of
those quotas and of China's export quota regime as applied to these three
product groups, in particular in 2012.
4.6. The Foreign
Trade Law[343] allows for
the imposition of restrictions or prohibitions, including through export quotas, on the exportation of goods in the pursuit of certain specific
objectives, such as protecting human life or health, or conserving exhaustible
natural resources. The Regulations on the Administration of the Import and
Export of Goods[344] prescribe
rules governing the administration of the export and import of goods, while the
Export Quota Administration Measures[345] specify
further aspects of the administration of export quotas. The Export Quota
Administration Measures applies in respect of tungsten and molybdenum, but not
in respect of exports of rare earths.[346]
4.7. The Ministry
of Commerce of the People's Republic of China (MOFCOM) has authority to
administer all Chinese export quotas[347] and, in
collaboration with China's customs authorities, is responsible for
"formulating, adjusting, and publishing"[348] catalogues
of those goods subject to import or export restrictions. In this regard, the
2012 Export Licensing Catalogue[349] issued by
MOFCOM identified, among the goods subject to export quotas and to export quota licensing administration, concentrates and a
variety of processed and alloyed products of rare earths, tungsten, and
molybdenum goods.[350] This means that quota shares are directly
assigned by MOFCOM and require MOFCOM's approval.[351]
Accordingly, any firm seeking to export any of these three categories of
products must apply for an export quota share and meet certain criteria in
order to be eligible.[352] Firms
approved to export these products receive a quota certificate. After obtaining
a quota certificate, exporters apply to MOFCOM for an export licence, which can
be presented to China's customs authorities.[353]
4.8. The Regulations on the Administration of
the Import and Export of Goods provides
that MOFCOM shall publish annual quota amounts for products listed in the
Export Licensing Catalogue by 31 October of the preceding year.[354] MOFCOM
published the 2012 Export Quota Amounts on 31 October 2011.[355] This
document indicates the total 2012 export quota for certain agricultural and
industrial products, including tungsten and molybdenum.[356] However,
there was no announcement in October 2011 of the total 2012 export quota for
rare earths.[357]
4.9. China also
maintains a series of criminal and administrative penalties for the exportation
of restricted goods in a manner inconsistent with the quota regime. The holder
of an export quota allocation is required to return any unused quota volume by
31 October of the year for which the export quotas have been issued. Exporting
enterprises may be subject to sanction if they fail to do so, or if they fail
fully to use their quota by the end of the year. Enterprises may also face
sanctions for exporting without permission, for exceeding the quantitative
limitations, or for buying or selling quota certificates or other documents
without approval. Sanctions include refusal to handle the offending
enterprise's customs inspection; revocation of the non-complying enterprise's
business licence for foreign trade; a reduction in the offending enterprise's
quota allocation; and possible criminal punishment. Quota-administering
authorities that distribute quotas exceeding their authority may also be
subject to sanction.[358]
4.10. As for the
products at issue, rare earths, tungsten, and molybdenum are naturally
occurring minerals found in various mined ores.[359] "Rare earths" is the term commonly
used to refer to a group of chemical elements in the periodic table of
elements, also known as lanthanides. In these disputes, "rare earths"
refers to the 15 elements that make up this lanthanide group, as well as to two
other elements, which are also considered to be rare earths.[360] These elements are found in a variety of
different ores. Tungsten is primarily found in two ores: wolframite and
scheelite.[361] Molybdenum is mined from ore containing
molybdenite, which is often recovered as a by-product of copper mining.[362]
4.11. The products
subject to the export measures at issue consist of both the naturally occurring
minerals, as well as a number of intermediate products, that is, materials that
have undergone some initial processing, for example into concentrates, oxides,
salts, metals, and chemicals. Generally speaking, the downstream products in
which rare earths, tungsten, and molybdenum are used are not covered by the
measures at issue in these disputes.[363] Examples of
such finished products include, for rare earths, magnets and phosphors[364]; for
tungsten, hardened alloys in the form of tungsten billet and cemented carbides[365]; and, for
molybdenum, stainless steel.[366] Further
details about the products at issue in these disputes may be found in
paragraphs 2.2 to 2.7 of the Panel Reports.
4.12. Worldwide,
China plays a central role in the production and consumption of rare earths,
tungsten, and, to a lesser extent, molybdenum. China also produces many of the
finished products that use rare earths, tungsten, and molybdenum as inputs.[367] Evidence submitted to the Panel suggests that
China accounted for at least 90% of global production of rare earths in 2011.[368] China is also the largest global consumer of
rare earths. The Panel noted that more than 80% of rare earths extracted in
China are consumed in China[369], and China itself submitted evidence that it
accounted for nearly 70% of global demand for rare earths in 2012.[370] Similarly, as regards tungsten, China is the
largest global producer, accounting for over 80% of such production.[371] Moreover, China consumes more than 60% of
tungsten extracted domestically, and accounts for more than half of global
consumption.[372] In relation to
molybdenum, the Panel
referred to evidence submitted by China indicating that China produced over 35%
of the world's molybdenum supply.[373] Additionally, the parties submitted evidence
indicating that China accounted for approximately 28% of global molybdenum
consumption.[374]
5.1. China
appeals the Panel's "erroneous assessment of the systemic
relationship" between, on the one hand, specific provisions in the
Protocol on the Accession of the People's Republic of China to the WTO[375] (China's Accession Protocol), and, on the other
hand, the Marrakesh Agreement[376] and the
Multilateral Trade Agreements annexed thereto.[377] China contends that the Panel erred in its
interpretation of Article XII:1 of the Marrakesh Agreement and Paragraph
1.2, second sentence, of China's Accession Protocol in finding that "the legal effect of the second sentence
of Paragraph 1.2 is to make China's Accession Protocol, in its entirety,
an 'integral part' of the Marrakesh Agreement, and not that, in addition, the
individual provisions thereof are also integral parts of Multilateral Trade
Agreements annexed to the Marrakesh Agreement."[378] China
requests reversal of the three paragraphs in which this finding is set out,
namely, paragraphs 7.80, 7.89, and 7.93 of the Panel Reports.
5.2. The Panel
findings challenged by China are part of the Panel's intermediate findings
leading to its conclusion that Article XX of the GATT 1994 is not available to
China as a defence to justify the export duties at issue in these disputes[379], which the
Panel had found to be inconsistent with Paragraph 11.3 of China's Accession
Protocol.[380] China's
appeal, therefore, is narrow in scope, and does not involve any challenge to
the ultimate findings and conclusions reached by the Panel regarding the
inconsistency of China's export duties with its WTO obligations. More
specifically, China has not appealed the Panel's finding that the export duties
are inconsistent with Paragraph 11.3 of China's Accession Protocol.[381] China has
also not appealed the Panel's conclusion that Article XX of the GATT 1994
is not available as a defence to justify these export duties[382], nor the
Panel's other intermediate findings leading to that conclusion.[383]
Furthermore, China has not appealed the Panel's finding, reached on an arguendo basis, that the export duties at issue are not
justified by either subparagraph (b) or the chapeau of Article XX of the GATT
1994.[384] In
addressing this part of China's appeal, we begin with a brief overview of the
context in which the Panel findings challenged by China were made, as well as a
brief summary of the Panel findings subject to appeal and the participants'
claims and arguments on appeal. We then analyse the interpretative issues
raised by China on appeal.
5.3. Before the
Panel, China did not contest that its export duties are inconsistent with its
obligations under Paragraph 11.3 of its Accession Protocol. China argued,
however, that its obligations under Paragraph 11.3 of its Accession Protocol
are subject to the general exceptions in Article XX of the GATT 1994.
Specifically, China argued that the export duties at issue are justified under
Article XX(b) of the GATT 1994 because they are necessary to protect human,
animal, or plant life or health.[385]
5.4. The Panel
recalled that, in China – Raw Materials, the panel
and the Appellate Body found that a proper interpretation of Paragraph 11.3 of
China's Accession Protocol does not make available to China the general
exceptions under Article XX of the GATT 1994.[386] The Panel
noted that, in the present disputes, China requested the Panel to examine the
issue of the availability of Article XX exceptions in the light of new
arguments that, according to China, had not been asserted or addressed
previously.[387] The Panel
referred to the Appellate Body's statement in US –
Stainless Steel (Mexico) that, "absent cogent reasons, an
adjudicatory body will resolve the same legal question in the same way in a
subsequent case."[388] The Panel
additionally considered that, when a party asks a panel to deviate from a prior
Appellate Body finding on a question of law on the basis of novel legal
arguments, a full exploration of those arguments may assist the Appellate Body
in the event of an appeal. The Panel expressed the view that "China's
argument regarding the systemic relationship between the provisions of its
Accession Protocol and those of the GATT 1994 is a new argument, and one
that raises complex legal issues."[389] The Panel
therefore re-examined the issue of whether the obligation in Paragraph 11.3 of
China's Accession Protocol is subject to the general exceptions in Article XX,
in order to determine whether the arguments raised by China in this case,
including its "new" argument, presented "cogent reasons"
for departing from the adopted panel and Appellate Body findings on the same
question of law.[390]
5.5. The Panel
addressed four arguments raised by China. Specifically, China argued that:
(i) although there is no explicit textual link between Paragraph 11.3
of China's Accession Protocol and Article XX of the GATT 1994, such
textual silence does not mean that it was the Members' common intention that no
such defence should be available to China; (ii) Paragraph 11.3 of China's Accession Protocol has to be treated as an
integral part of the GATT 1994; (iii) the phrase "nothing in this
Agreement" in the chapeau of Article XX of the GATT 1994 does
not exclude the availability of Article XX to defend a violation of
Paragraph 11.3 of China's Accession Protocol;
and (iv) an appropriate holistic interpretation, taking due account
of the object and purpose of the WTO Agreement,
confirms that China may justify export duties through recourse to
Article XX of the GATT 1994.[391]
5.6. The Panel
found that none of the four arguments put forward by China constituted a "cogent
reason" for departing from the Appellate Body's findings in China – Raw Materials.[392] On this
basis, the Panel concluded that the obligation in Paragraph 11.3 of China's
Accession Protocol is not subject to the general exceptions provided in Article
XX of the GATT 1994.[393] China has
not appealed this conclusion, nor the Panel's rejection of three of the four
arguments that China made in support of its claim that it had access to Article
XX of the GATT 1994 to justify a breach of Paragraph 11.3 of its Accession
Protocol.[394] China has
also not appealed the Panel's subsequent conclusion, reached on an arguendo basis, that China's measures are not justified by
Article XX(b) of the GATT 1994.[395]
5.7. One
panelist, while supporting the ultimate conclusion of the Panel that the export
duties were not justified under Article XX(b) of the GATT 1994, expressed a
separate opinion on the issue of the availability of Article XX to China to
justify a violation of Paragraph 11.3. The panelist considered that China's
obligation with respect to export duties under Paragraph 11.3 of its Accession
Protocol "expands" its obligations under Articles II and XI:1 of the
GATT 1994, which deal with, inter alia, the
overlapping subject matter of border tariff duties.[396] Given this
"close relationship", the panelist believed that Paragraph 11.3 of
China's Accession Protocol must be read "cumulatively and
simultaneously" with Articles II and XI of the GATT 1994.[397] Therefore,
in the panelist's view, Paragraph 11.3 of China's Accession Protocol became, upon accession, an integral part of the
GATT 1994 as that agreement applies between China and the WTO Members.
Furthermore, the panelist opined that "the defences provided in the GATT
1994 are automatically available to justify any GATT-related obligations,
including border tariff-related obligations – unless a contrary intention is
expressed by the acceding Member and the WTO Members."[398] The
panelist thus concluded that, "unless China explicitly gave up its right
to invoke Article XX of GATT 1994, which it did not, the general
exception provisions of the GATT 1994 are available to China to justify a
violation of Paragraph 11.3 of its Accession Protocol."[399]
5.8. China
appeals the Panel's rejection of the second of the four arguments that China
put forward in support of its position that the general exceptions in
Article XX of the GATT 1994 can be invoked to justify a breach of the
obligation in Paragraph 11.3 of its Accession Protocol. In addressing
China's second argument – i.e. that Paragraph 11.3
of China's Accession Protocol must be treated as an integral part of the
GATT 1994 – the Panel observed that this raised the question of the
relationship between Paragraph 11.3 of China's Accession Protocol and the
GATT 1994. According to the Panel, China relied upon the following two
premises in making its argument:
a. The legal effect of
Paragraph 1.2 of China's Accession Protocol and Article XII:1 of the
Marrakesh Agreement is to make China's Accession Protocol an "integral
part" of the Marrakesh Agreement, and also to make each of the Accession
Protocol-specific provisions an integral part of one of the Multilateral Trade
Agreements (e.g. GATT 1994) annexed to the Marrakesh Agreement.
b. The determination of which Multilateral Trade Agreement(s) (e.g. GATT 1994)
a particular provision of the Accession Protocol is an "integral
part" must be based on an evaluation of which Multilateral Trade
Agreement(s) the provision at issue is "intrinsically" related to.
Paragraph 11.3 of China's Accession Protocol contains an obligation
regarding trade in goods, and in particular regulating the use of export
duties. Therefore, it is "intrinsically related" to the
GATT 1994, and in particular the provisions of GATT 1994 regulating the
use of export duties – which, in China's view, are Articles II and XI of
the GATT 1994. Accordingly, Paragraph 11.3 must be treated as an
"integral part" of the GATT 1994. Paragraph 11.3 is
therefore subject to the general exceptions in Article XX of the GATT 1994
unless there is explicit treaty language to the contrary.[400]
The
Panel decided to address these two premises in analysing China's argument that
it was entitled to invoke Article XX to justify a breach of Paragraph 11.3 of
its Accession Protocol.[401] Only the
Panel's findings on the first premise are subject to China's appeal.
5.9. In
addressing the first premise, the Panel examined the context of Paragraph 1.2
of China's Accession Protocol, including the Decision of the Ministerial Conference of 10 November
2001 to which China's Accession Protocol is annexed[402], the preamble of China's
Accession Protocol, and Paragraph
1.3 of the Protocol. Having done so, the Panel disagreed with China that the
term "the WTO Agreement" in the second sentence of Paragraph 1.2
refers to the Marrakesh Agreement together with the Multilateral Trade
Agreements annexed to it. Instead, the Panel considered that the term "the
WTO Agreement" in the second sentence of Paragraph 1.2 refers to the
Marrakesh Agreement alone.[403]
5.10. The Panel further
noted that Article II:2 of the Marrakesh Agreement states that the annexed
Multilateral Trade Agreements are "integral parts of" the Marrakesh
Agreement. In the Panel's view, this does not mean that the Multilateral Trade
Agreements are integral parts of one another, or that individual provisions of
one Multilateral Trade Agreement are integral parts of another Multilateral
Trade Agreement. The Panel considered that individual provisions of China's
Accession Protocol could also be made an integral part of one or more of the
Multilateral Trade Agreements only if such language is contained in the
individual provision.[404] The Panel
provided six additional reasons supporting its interpretation of Paragraph 1.2
of China's Accession Protocol, based on the text of Paragraph 1.2, the context
provided by, inter alia, other provisions of
China's Accession Protocol and relevant provisions of the Report of the Working
Party on the Accession of China[405] (China's
Accession Working Party Report), provisions of the Marrakesh Agreement and the
GATT 1994, and findings in prior cases involving China's Accession Protocol.[406]
5.11. The Panel
next turned to review China's arguments relating to Article XII:1 of the
Marrakesh Agreement and its assertion that, by virtue of the accession process
prescribed in Article XII:1 of the Marrakesh Agreement, there is an intrinsic
link between the provisions contained in China's Accession Protocol and the provisions
of the Marrakesh Agreement and the Multilateral Trade Agreements annexed
thereto. The Panel observed that it saw "nothing in Article XII:1"
to support China's position.[407] Rather,
Article XII:1 provides for States and separate customs territories to accede to
"this Agreement" and stipulates that, when this occurs, such
accession must apply across the board and not just with respect to one or some
of the Multilateral Trade Agreements. Thus, in the Panel's view, Article XII:1
makes clear that an acceding Member is subject to all of the obligations under
all of the Multilateral Trade Agreements, and is not allowed "to pick and
choose" the agreements to which it will accede.[408]
5.12. On this
basis, the Panel concluded that "the legal effect of the second sentence
of Paragraph 1.2 is to make China's Accession Protocol, in its entirety,
an 'integral part' of the Marrakesh Agreement, and not that, in addition, the
individual provisions thereof are also integral parts of Multilateral Trade
Agreements annexed to the Marrakesh Agreement."[409] On appeal,
China requests us to reverse this finding of the Panel, together with two prior
iterations of essentially the same content.[410]
5.13. China
submits that the Panel erred in its interpretation of Article XII:1 of the
Marrakesh Agreement, read in conjunction with Paragraph 1.2 of China's
Accession Protocol, in finding that "the legal effect of the second sentence of
Paragraph 1.2 is to make China's Accession Protocol, in its entirety, an
'integral part' of the Marrakesh Agreement, and not that, in addition, the
individual provisions thereof are also integral parts of Multilateral Trade
Agreements annexed to the Marrakesh Agreement."[411] China argues that the
Panel should have conducted a "holistic" interpretation of these
provisions[412], which
would have led it to the conclusion that each provision of China's Accession
Protocol is an integral part of the Marrakesh Agreement or one of the
Multilateral Trade Agreements annexed thereto. According to China, this means
that, when faced with a specific obligation in China's Accession Protocol, the
treaty interpreter's initial task is to analyse to which of the covered
agreements listed in Appendix 1 to the DSU the relevant protocol provision
"intrinsically relates". Once this has been determined, that
provision is to be treated as an integral part of the related covered
agreement.[413]
5.14. To
illustrate China's interpretation, it may be useful to recall the Panel's
description of how China's interpretation applies to the commitment at issue in
these disputes, that is, Paragraph 11.3 of China's Accession. The Panel
noted that, according to China:
Paragraph 11.3 of China's Accession Protocol
contains an obligation regarding trade in goods, and in particular regulating
the use of export duties. Therefore, it is "intrinsically related" to
the GATT 1994, and in particular the provisions of GATT 1994
regulating the use of export duties – which, in China's view, are
Articles II and XI of the GATT 1994. Accordingly, Paragraph 11.3
must be treated as an "integral part" of the GATT 1994.
Paragraph 11.3 is therefore subject to the general exceptions in GATT
Article XX unless there is explicit treaty language to the contrary.[414]
5.15. We
emphasize, however, that China has not appealed the Panel's analysis of
Paragraph 11.3 or its findings thereunder, and, indeed, has not referred to
Paragraph 11.3 in its written submissions on appeal. Furthermore, we note that
China's argument has evolved during these appellate proceedings. At the oral
hearing, China argued that,
"[i]rrespective of the interpretation of Article XII:1 [of the
Marrakesh Agreement] and Paragraph 1.2 of China's Accession Protocol", its
Accession Protocol is properly characterized as a "successive treaty"
relating to the same subject matter in the sense of Article 30 of the Vienna
Convention on the Law of Treaties[415] (Vienna Convention).[416] Thus, to the extent that a given accession provision stands in conflict
with one or more provisions in the Marrakesh Agreement or the Multilateral
Trade Agreements annexed thereto, such conflict is to be resolved according to
the rule under Article 30(3) of the Vienna Convention.[417] For example, China argues that Article XI:1 of the GATT 1994 has been
modified by Paragraph 11.3 of China's Accession Protocol and, as a result,
China may not impose export duties.[418]
5.16. All three
complainants submit that the Panel's analysis of Article XII:1 of the Marrakesh
Agreement and Paragraph 1.2 of China's Accession Protocol is well supported by
the text and context of these provisions, as well as by relevant jurisprudence.
They maintain that China's proposed "intrinsically related" test
departs from the customary rules of treaty interpretation and leads to
uncertainty. The European Union
further argues that Article 30(3) of the Vienna Convention, which states
that "the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty", is
inapposite because there is no question of "incompatibility" between
the provision at issue, that is, Paragraph 11.3 of China's Accession Protocol,
and the provisions of the GATT 1994. Japan emphasizes that the drafters determined to
specify the link, if any, between the obligations set out in China's Accession
Protocol, on the one hand, and the Marrakesh Agreement and the Multilateral
Trade Agreements, on the other hand, through explicit text – i.e. "terms
of accession" – to be drafted by the Working Party and agreed upon by the
Members and China pursuant to Article XII:1 of the Marrakesh Agreement. All three
complainants highlight that the panel and the Appellate Body found in China – Raw Materials that the text and context of Paragraph
11.3 make clear that Article XX of the GATT 1994 is not available to
justify a breach of Paragraph 11.3. The complainants maintain that the Panel in
the present disputes correctly came to the same conclusion. The United States,
in particular, emphasizes that China has neither addressed those findings nor
shown any flaws in the interpretive work conducted by both the panel and the
Appellate Body in China – Raw Materials in
examining the relationship between Paragraph 11.3 and the GATT 1994.
5.17. Having
briefly summarized the Panel's relevant findings and the claims and arguments
on appeal, we turn now to address the specific interpretative issues raised in
China's appeal.
5.18. These
disputes relate, in part, to obligations undertaken by a WTO Member that
acceded to the WTO subsequent to the conclusion of the Uruguay Round of
multilateral trade negotiations. We recall that original Membership of the WTO
is governed by Article XI of the Marrakesh Agreement, whereas Article XII of
the Marrakesh Agreement concerns accession to the WTO. To date[419],
32 States or separate customs territories have acceded to the WTO pursuant
to Article XII of the Marrakesh Agreement. Each accession resulted from a
negotiation process specific to that State or separate customs territory, and
the result of such negotiation is contained in an "accession package"
consisting of the new Member's accession protocol and, to the extent
incorporated in such accession protocol, commitments made in its accession
working party report.
5.19. As a
preliminary matter, we observe that it is uncontested that provisions of
China's Accession Protocol should be interpreted in accordance with the
customary rules of treaty interpretation as codified in Articles 31 and 32
of the Vienna Convention. In China – Raw Materials,
for example, the Appellate Body noted that "Paragraph 1.2 of China's
Accession Protocol provides that the Protocol 'shall be an integral part' of
the WTO Agreement."[420] Thus, the
Appellate Body stated, "the customary rules of interpretation of public
international law, as codified in Articles 31 and 32 of the Vienna Convention … are, pursuant to
Article 3.2 of the DSU, applicable … in clarifying the meaning of
Paragraph 11.3 of the Protocol."[421] Although
China has developed its own explanation as to why the DSU, including the
interpretative rules set out in Article 3.2, is applicable to China's Accession
Protocol, it does not question the proposition itself. We further note that the
mandatory nature of much of the language used in China's Accession Protocol
supports the view that its drafters intended it to be enforceable under the DSU.
Indeed, it is uncontested that China's Accession Protocol is enforceable under
the DSU.[422]
5.20. In order to
evaluate whether the Panel erred in interpreting Article XII:1 of the Marrakesh Agreement
and Paragraph 1.2 of China's Accession Protocol in its disposition of China's
argument regarding the relationship between the provisions of its Accession
Protocol and the Marrakesh Agreement and its annexes, we begin with the
interpretation of Article XII:1 of the Marrakesh Agreement, followed by the
interpretation of Paragraph 1.2 of China's Accession Protocol.
5.21. In doing so,
we note that China has, to a large extent, structured its analysis and
arguments focusing on the meaning of specific terms in the second sentence of
Article XII:1 of the Marrakesh Agreement and the second sentence of Paragraph
1.2 of its Accession Protocol. It is for this reason that, tackling the issue
of the relationship between provisions of China's Accession Protocol, on the
one hand, and provisions of the Marrakesh Agreement and Multilateral Trade
Agreements, on the other hand, we begin with an initial assessment of
Article XII:1 of the Marrakesh Agreement and the second sentence of
Paragraph 1.2 of its Accession Protocol. Since, however, the question of the
relationship between provisions of China's Accession Protocol and provisions of
the Marrakesh Agreement and Multilateral Trade Agreements cannot be answered
without a more complete enquiry, we further proceed to an integrated assessment
of the relevant provisions and general architecture of the relevant instruments
as they bear on the issues raised on appeal.
5.22. Before the
Panel, China maintained that Article XII:1 of the Marrakesh Agreement
"provides a strong textual basis requiring panels dealing with a provision
in a post-1994 accession protocol, including 'WTO-plus' provisions, to examine
which covered agreement a given provision intrinsically relates to"[423], and argued that this language confirmed China's
view that its Accession Protocol "merely serves to specify,
including by means of 'WTO-plus' commitments, China's obligations under the WTO Agreement and the multilateral trade agreements
annexed thereto".[424] The Panel, in examining Article XII:1 of the
Marrakesh Agreement, found that:
[b]y its terms, Article XII:1 provides for States
and customs territories to accede to the WTO Agreement and stipulates that
when this occurs, such accession must apply across the board, and not just with
respect to one or some WTO Agreements. Thus, in acceding to the WTO, an
acceding Member is subject to all of the obligations of all the Multilateral
Trade Agreements – a new Member is not entitled to pick and choose which
particular Agreements it will accede to.
We see nothing in Article XII:1 to support China's position
that "respective protocol provision[s] must be
considered as an integral part of the specific covered agreement to which it
intrinsically relates." Nor do we find in Article XII:1 language
to support China's assertion that its Accession Protocol is not a
self-contained agreement and that it "merely serves to specify"
China's obligations under the WTO Agreement and the Multilateral Trade
Agreements annexed thereto.[425]
5.23. For China,
this finding by the Panel constitutes legal error. In China's view, "[b]y
essentially reducing Article XII:1 to prescribing that newly acceding Members
need to accept the Marrakesh Agreement
and the multilateral trade agreements annexed thereto as a single undertaking,
the Panel failed to give effective meaning to a vital element of the key
provision governing the WTO accession process."[426]
Specifically, "the Panel failed to appreciate that the precise nature of
the systemic relationship between specific provisions in China's Accession Protocol and the Marrakesh
Agreement and the multilateral trade agreements annexed thereto crucially hinges on the language contained in Article
XII:1."[427] According
to China, Article XII:1 of the Marrakesh Agreement indicates that specific
terms of accession must intrinsically relate to either the Marrakesh Agreement
or one of the Multilateral Trade Agreements annexed thereto.
5.24. The
complainants disagree with China that Article XII:1 of the Marrakesh Agreement
means that provisions of China's Accession Protocol must intrinsically relate
to the Marrakesh Agreement or one of the Multilateral Trade Agreements. In the
view of the European Union and Japan, the second sentence of Article XII:1 confirms that the act of accession must be operative with respect to
both the WTO Agreement and the Multilateral Trade Agreements annexed thereto,
and such an interpretation does not fail to give effective meaning to this
provision.[428] The United States maintains that China's
arguments amount to "an unexplained … leap" from the word
"terms" in Article XII:1 to the proposition that the actual
terms set out in an accession protocol should be ignored and replaced with an
unspecified "intrinsic relationship" test.[429]
5.25. Article
XII:1 of the Marrakesh Agreement is one of the two provisions China relies on
for its proposition that each provision of China's Accession Protocol is an
integral part of the Marrakesh Agreement or one of the Multilateral Trade
Agreements to which it intrinsically relates. In particular, China focuses on
the word "terms" referred to in the first sentence of Article XII:1,
as well as on the second sentence of Article XII:1, in support of its position.
China's arguments in this regard call for us to consider the import of Article
XII:1 of the Marrakesh Agreement and, in particular, its second sentence. We will examine the interpretation of, as well as
China's specific arguments relating to, this provision in this subsection. In
the next subsection, we will interpret, and address China's specific arguments
in respect of the other provision that China relies on, Paragraph 1.2 of
China's Accession Protocol. Subsequently, we will proceed with an integrated
assessment of the relevant provisions as well as China's relevant arguments, so
as to analyse the relationship between provisions of its Accession Protocol, on
the one hand, and those of the Marrakesh Agreement and the Multilateral Trade
Agreements annexed thereto, on the other hand.
5.26. Article
XII:1 provides:
Article XII
Accession
1. Any State or
separate customs territory possessing full autonomy in the conduct of its
external commercial relations and of the other matters provided for in this
Agreement and the Multilateral Trade Agreements may accede to this Agreement,
on terms to be agreed between it and the WTO. Such accession shall apply to
this Agreement and the Multilateral Trade Agreements annexed thereto.
5.27. Article
XII:1 of the Marrakesh Agreement thus sets out the general rule for a State or separate customs territory to become a
Member of the WTO. Specifically, under its first sentence, an applicant may
accede to "this Agreement", that is, the Marrakesh Agreement, on
"terms to be agreed" between the applicant and the WTO. The
"terms" of accession referred to in the first sentence of Article XII
are not defined. Thus, apart from the stipulation in the second sentence of
Article XII, discussed further below, this provision does not spell out the
content of, or impose limitations on, such "terms". Rather, such
terms are to be "agreed" upon by the WTO and the individual acceding
Member during a specific accession process.
5.28. Article
XII:1, second sentence, specifies that "[s]uch accession shall apply to
this Agreement and the Multilateral Trade Agreements annexed thereto".
According to this sentence, when an applicant accedes to the Marrakesh
Agreement pursuant to the first sentence, it necessarily also accedes to all Multilateral Trade Agreements under the WTO framework as
a single package of rights and obligations. The second sentence of Article
XII:1 therefore indicates that the accession must apply to the entirety of the
Marrakesh Agreement and the Multilateral Trade Agreements annexed thereto, and
not just some part(s) thereof.[430] Thus,
although specific terms of accession are to be agreed upon in individual accession
processes, the second sentence of Article XII:1 prescribes one feature that
such terms, taken as a whole, must reflect – namely, that an acceding Member is
subject to the rights and obligations in all of the
Multilateral Trade Agreements.
5.29. This understanding
is borne out by the language used in Article XII:1, second sentence.
Specifically, "[s]uch accession" in the second sentence refers to the
accession described in the first sentence, which stipulates that a State or separate customs territory "may
accede" to the Marrakesh Agreement. The term "[s]uch accession"
in the second sentence thus refers to the legal act of
acceding to the Marrakesh Agreement specified in the first sentence. Consistent
with this understanding, the word "apply" in the second sentence
"is not referring to the … application of a legal instrument or
document", such as the terms of accession.[431] Rather, it
is referring to the requirement that the legal act of becoming a WTO Member
must be accomplished with respect to the Marrakesh Agreement and all
Multilateral Trade Agreements under the WTO framework.
5.30. Our above
reading of Article XII:1 is confirmed by, and complements, Article II:2 of the
Marrakesh Agreement. Article II:2 provides that "[t]he agreements and associated legal instruments included in
Annexes 1, 2 and 3 (hereinafter referred to as 'Multilateral Trade Agreements')
are integral parts of this Agreement, binding on all Members." The
dictionary meaning of the word "integral" includes "[b]elonging
to or making up a whole", and "constituent, component;
necessary to the completeness or integrity of the whole, not merely attached".[432] The reference to "integral parts" in Article
II:2, therefore, indicates that the Multilateral Trade Agreements annexed to
the Marrakesh Agreement are necessary components of the single package of WTO
rights and obligations. Article II:2 thus
stipulates the requirement on existing WTO
Members to abide by the obligations under all of the agreements in this package.
Article XII:1, which concerns accession, extends the same requirement to acceding
Members. As Japan submits on appeal, "Article II:2 defines the
scope of the application of the Multilateral Trade Agreements on existing
Members, whereas Article XII regulates the process of
acceding to … the WTO Agreement by a prospective WTO
Member."[433] These two
provisions thus serve closely related, albeit distinct,
functions; they are not merely duplicative of each other. Read together, they
ensure that the fundamental principle of the single undertaking applies to both
existing and newly acceded Members of the WTO.
5.31. China argues
that Article XII:1 indicates that the authority of the Ministerial Conference
to adopt Member-specific WTO law "is not unbounded",
but is "limited by the important requirement that specific terms of
accession must intrinsically relate to either the Marrakesh
Agreement or one of the Multilateral Trade Agreements annexed
thereto".[434] According
to China, its position "follows … from the requirement in the second
sentence of Article XII:1 that '[s]uch accession shall apply to the [Marrakesh Agreement] and the Multilateral Trade Agreements
annexed thereto', read together with the important context provided by
Paragraph 1.2, second sentence, of China's Accession Protocol."[435] Thus,
argues China, a proper reading of Article XII:1, second sentence,
"confirm[s] that China's Accession Protocol
serves to specify, including by means of 'WTO-plus' commitments, China's rights
and obligations under the Marrakesh Agreement
and the multilateral trade agreements annexed thereto."[436] China
raised the same arguments before the Panel.[437] The Panel,
however, considered that China "misconstrue[d] the import of Article
XII:1".[438]
5.32. We do not
see a textual basis in Article XII:1 for China's proposition. As discussed
above, the term "[s]uch accession" in the second sentence of Article
XII:1 refers to the legal act of acceding to the
Marrakesh Agreement specified in the first sentence. Thus, the second sentence
indicates that the legal act of accession must be operative with respect to the
entire package of WTO rights and obligations as set out in the Marrakesh
Agreement and the Multilateral Trade Agreements annexed thereto. It does not
mean, as China's argument seems to suggest, that the legal
instrument embodying the "terms" of accession, or specific
provisions thereof, must "apply" to, or somehow be directly
incorporated into, these Agreements.[439]
5.33. Moreover,
our interpretation of Article XII:1, set out above, accords with the Panel's
view that the second sentence of Article XII:1 requires acceding Members not to
"pick and choose" among the various agreements, but to accept the Marrakesh
Agreement and the Multilateral Trade Agreements annexed thereto as a single
undertaking.[440] As already
discussed, Article XII:1 reinforces the principle of the single undertaking set
out in Article II of the Marrakesh Agreement by ensuring that an applicant
seeking accession adheres to the same principle.[441] In our
view, it follows that the Panel rightly rejected China's arguments concerning
the import of Article XII:1. As discussed above, Articles II and XII each
serve a distinct function, with the former setting out the principle of the WTO
single undertaking with regard to existing WTO Members, and the latter
extending the same principle to newly acceded Members. We therefore do not see
the Panel's interpretation of Article XII:1 as either "excessively
narrow" or "essentially redundant".[442]
5.34. In sum,
Article XII:1 of the Marrakesh Agreement provides the general rule
for acceding to the WTO. Its first sentence stipulates that accession is to be
accomplished on "terms" to be agreed between the acceding Member and
the WTO, and its second sentence makes clear that such accession applies to the
entire package of WTO rights and obligations, consisting of the Marrakesh Agreement
and the Multilateral Trade Agreements annexed thereto. Pursuant to
Article XII:1, while the substantive content of the "terms" of
accession is to be determined in individual accessions, acquiring Membership in the WTO cannot be accomplished where
an applicant accepts to be bound by only some, but not all, of the Multilateral
Trade Agreements in the WTO framework. Article XII:1, however, does
not define the nature of the substantive relationship between the
"terms" of accession, on the one hand, and the Marrakesh Agreement
and the Multilateral Trade Agreements annexed thereto, on the other hand.
Rather, beyond the general rule governing accession set out in its two
sentences, Article XII:1 itself does not speak to the question of the specific relationship between individual provisions of an
accession protocol and individual provisions of the Marrakesh Agreement and the
Multilateral Trade Agreements. In particular, Article XII:1, alone, does
not create a substantive relationship, "intrinsic" or otherwise,
between provisions of China's Accession Protocol (such as Paragraph 11.3) and
provisions of the covered agreements (such as Article II or XI of the
GATT 1994). In this regard, we note that the Marrakesh Agreement is
the overarching institutional agreement of the WTO, and Article XII thereof
does not directly address the question of the substantive relationship between individual provisions of a protocol of accession, on the
one hand, and the provisions of the Marrakesh Agreement and the Multilateral
Trade Agreements, on the other hand. We turn now to examine the other provision
concerned by China's appeal – i.e. Paragraph 1.2 of China's Accession
Protocol – to see whether that provision provides further guidance on this
relationship.
5.35. According to
Paragraph 1.2 of China's Accession Protocol, "[t]his Protocol, which shall include the commitments
referred to in paragraph 342 of the Working Party Report, shall be an
integral part of the WTO Agreement." Before the Panel,
China argued that the reference to
"the WTO Agreement" in Paragraph 1.2 encompasses the
Marrakesh Agreement and the Multilateral Trade Agreements annexed thereto. In
contrast, the complainants argued that the reference to "the WTO Agreement"
means the Marrakesh Agreement.[443] The Panel began its analysis of
Paragraph 1.2 by noting that the preamble of China's Accession Protocol refers to the
"WTO Agreement" as "the Marrakesh Agreement Establishing
the World Trade Organization". The Panel further noted that the Decision
of the Ministerial Conference of 10 November 2001 provides that China "may
accede to the Marrakesh Agreement Establishing the World Trade Organization on
the terms and conditions set out in the Protocol annexed to this decision".[444] The Panel contrasted this with Paragraph 1.3 of
China's Accession Protocol, which refers explicitly to "the Multilateral
Trade Agreements annexed to the WTO Agreement". The Panel
provided several additional reasons for its interpretation of Paragraph 1.2 of
China's Accession Protocol. These reasons relate to the Panel's examination of
the text of Paragraph 1.2, the context provided by provisions of, inter alia, China's Accession Protocol, China's Accession
Working Party Report, the Marrakesh Agreement, and the GATT 1994, and findings
in prior cases involving China's Accession Protocol.[445] On this
basis, the Panel agreed with the complainants that the term "the
WTO Agreement", in the second sentence of Paragraph 1.2, is a
reference to the Marrakesh Agreement rather than, as China had argued, a
reference to the Marrakesh Agreement together with the Multilateral Trade
Agreements annexed thereto.[446]
5.36. After examining, and dismissing, China's
arguments relating to Article XII:1 of the Marrakesh Agreement, the Panel
confirmed its above conclusion by stating that:
… the legal effect of the second sentence of
Paragraph 1.2 is to make China's Accession Protocol, in its entirety, an
"integral part" of the Marrakesh Agreement, and not that, in
addition, the individual provisions thereof are also integral parts of
Multilateral Trade Agreements annexed to the Marrakesh Agreement.[447]
5.37. On appeal, China seeks reversal of the Panel's finding
quoted above, as well as two earlier iterations of essentially the same
content.[448] In China's view, the Panel erred in its
interpretation of Paragraph 1.2, second sentence, of China's Accession
Protocol, because it failed properly to interpret the meaning of
"the WTO Agreement" as used in that sentence.[449] In
particular, China maintains that the Panel's analysis of the term "the WTO
Agreement" in Paragraph 1.2 "disregards" its context[450], and that
the reasons provided by the Panel for its finding are characterized by various
flaws of law and logic.
5.38. The
complainants submit that China's assertions regarding the Panel's errors in
interpreting Paragraph 1.2 of China's Accession Protocol are without merit. In their view, the Panel correctly assessed the meaning of the
second sentence of Paragraph 1.2 of China's Accession Protocol, and its
analysis was sound and grounded in the text and context of that provision.[451] In
particular, the European Union and Japan maintain that the Panel properly
analysed the context provided by other "integration" provisions in
the covered agreements, such as Article II:2 of the Marrakesh Agreement.[452] The United
States emphasizes that the Panel's interpretation does not, as China suggests,
preclude a specific provision of the Accession Protocol from being an integral
part of a Multilateral Trade Agreement, but expressly recognizes that, where
this occurs, it is a result of the language of such provision, rather than as a
result of Paragraph 1.2.[453]
5.39. Paragraph
1.2 of China's Accession Protocol is the other provision China relies upon in
support of the proposition that each provision of China's Accession Protocol is
an integral part of the Marrakesh Agreement or one of the Multilateral Trade
Agreements to which it intrinsically relates. China focuses on the phrase "an
integral part of the WTO Agreement", and in particular the term "the
WTO Agreement", in support of its position. We address the interpretation of
Paragraph 1.2 of China's Accession Protocol, and China's specific arguments
relating thereto, in this subsection. In the next subsection, we conduct an
integrated analysis of the relevant provisions, as well as China's arguments,
in order to assess the relationship between provisions of its Accession
Protocol, on the one hand, and those of the Marrakesh Agreement and the
Multilateral Trade Agreements annexed thereto, on the other hand.
5.40. The first
three paragraphs of Part I of China's Accession Protocol provide:
Part
I – General Provisions
1. General
1. Upon
accession, China accedes to the WTO Agreement pursuant to Article XII
of that Agreement and thereby becomes a Member of the WTO.
2. The WTO
Agreement to which China accedes shall be the WTO Agreement as rectified,
amended or otherwise modified by such legal instruments as may have entered
into force before the date of accession. This Protocol, which shall include the
commitments referred to in paragraph 342 of the Working Party Report,
shall be an integral part of the WTO Agreement.
3. Except as
otherwise provided for in this Protocol, those obligations in the Multilateral
Trade Agreements annexed to the WTO Agreement that are to be implemented
over a period of time starting with entry into force of that Agreement shall be
implemented by China as if it had accepted that Agreement on the date of its
entry into force.
5.41. On appeal,
China seeks to have us ascertain the meaning of the term "the WTO
Agreement" in the second sentence of Paragraph 1.2 of China's Accession
Protocol. We first note that Paragraph 1.2, second sentence, does not, itself,
define this term. The immediate context of the term "the WTO
Agreement" is found in the remaining words of the same sentence. That sentence states that the Protocol shall be "an integral part of the
WTO Agreement". As noted above, the dictionary meanings of the word "integral"
include "[b]elonging to or making up a whole", and "constituent,
component; necessary to the completeness or integrity of the whole, not merely
attached".[454] The term
"integral part" is used frequently in the covered agreements in order
to integrate one or more agreements (or legal
instruments) into another agreement. An example is Article II:2 of the
Marrakesh Agreement, which, as noted above, stipulates that the Multilateral
Trade Agreements included in Annexes 1, 2, and 3 "are integral parts
of" the Marrakesh Agreement, binding on all Members.[455]
5.42. We turn now
to the context provided by the first sentence of Paragraph 1.2, as well as
Paragraphs 1 and 3 of Part I of China's Accession Protocol, all of which
contain references to "the WTO Agreement". The first sentence of
Paragraph 1.2 stipulates that: "[t]he WTO Agreement to which China accedes shall be the WTO
Agreement as rectified, amended or otherwise modified by such legal instruments
as may have entered into force before the date of accession." We note that
the reference to an agreement as "rectified, amended, or
modified" is standard language also found elsewhere in the WTO legal
framework, including Article II:4 of the Marrakesh Agreement and paragraph
1(a) of the language incorporating the GATT 1994 into Annex 1A.[456] In the
context of the first sentence of Paragraph 1.2 of China's Accession Protocol,
the language makes clear that "the WTO Agreement", to which China
accedes, is the most recent version of that "Agreement", including
any rectification, amendment, or modification thereto. As we see it, by
referring to rectification, amendment, or modification that "may have entered into force"[457], the first
sentence of Paragraph 1.2 may properly be understood to cover the possibility that the Marrakesh Agreement may have been rectified,
amended, or modified during the period between 1995 and up to the ratification
of the accession protocol by the acceding Member. In this
respect, we are not persuaded by China's argument that the reference to
"the WTO Agreement" in Paragraph 1.2, first sentence, "must
include the annexed multilateral trade agreements", because "[t]o
interpret it otherwise would mean that new Members would not necessarily accede
to the latest versions of those agreements".[458] We recall
that Article II:2 of the Marrakesh Agreement makes all Multilateral Trade
Agreements annexed thereto its "integral parts". Thus, by acceding to
the WTO, a new Member necessarily becomes bound by the Marrakesh Agreement and all
Multilateral Trade Agreements, as rectified, amended, or modified at the time of such accession. This analysis of the provision, in our view, does not compel a
conclusion that "the WTO Agreement" must be read to include, or
exclude, references to the Multilateral Trade Agreements.
5.43. Turning to
Paragraph 1.1 of China's Accession Protocol, we note that this provision states
that: "[u]pon accession, China accedes to the WTO Agreement pursuant
to Article XII of that Agreement and thereby becomes a Member of the
WTO." Article XII of "that Agreement" refers to Article XII of
the Marrakesh Agreement, which, as discussed above, provides that any State or
separate customs territory possessing the requisite authority "may accede
to" the Marrakesh Agreement. Hence, "the WTO Agreement" in
Paragraph 1.1, to which "China accedes … pursuant to
Article XII"[459], also
refers to the Marrakesh Agreement. To us, moreover, the syntax of
Paragraph 1.1 confirms that "the WTO Agreement" and "that
Agreement" necessarily refer to the same thing. China agrees that the term
"that Agreement" in Paragraph 1.1 refers to the Marrakesh Agreement.[460] China
nonetheless argues that "the WTO Agreement" in the same
sentence refers to the Marrakesh Agreement together with its
annexed Multilateral Trade Agreements.[461] Our above
analysis of Paragraph 1.1, however, does not support such a reading. We are
therefore not persuaded by China's argument that "the WTO Agreement"
in Paragraph 1.1 refers to the Marrakesh Agreement together with the
Multilateral Trade Agreements annexed thereto.
5.44. In addition,
Paragraph 1.3 of Part I of China's Accession Protocol states that,
"[e]xcept as otherwise provided for in this Protocol, those obligations in
the Multilateral Trade Agreements annexed to the WTO Agreement that are to
be implemented over a period of time starting with entry into force of that
Agreement shall be implemented by China as if it had accepted that Agreement on
the date of its entry into force."[462] This provision thus concerns the timing of the entry into force of those obligations in "the
Multilateral Trade Agreements annexed to the WTO Agreement" to which
a transition period is attached. The juxtaposition of the
"Multilateral Trade Agreements" with "the WTO Agreement" in
Paragraph 1.3 makes clear that the latter term refers to the Marrakesh
Agreement alone. We note that China does not dispute this reading of
Paragraph 1.3 of its Accession Protocol.
5.45. We also note
that the Decision of the Ministerial Conference of 10 November 2001, which
appears on the first page of the document containing China's Accession
Protocol, provides that China "may accede to the Marrakesh Agreement
Establishing the World Trade Organization on the terms and conditions set out
in the Protocol annexed to this decision".[463] The first
recital of the preamble of China's Accession Protocol, in turn, identifies the
term "WTO Agreement" as the abbreviation of "the Marrakesh
Agreement Establishing the World Trade Organization".[464] This is
consistent with the editorial convention used throughout the legal texts
embodying the results of the Uruguay Round of Multilateral Trade Negotiations.
For example, the "General Interpretative Note to Annex 1A" makes
clear that the Marrakesh Agreement Establishing the World Trade Organization is
referred to as "the WTO Agreement" in the agreements contained in its
Annex 1A.[465]
5.46. Thus, read
in the immediate context of the remainder of the text of Paragraph 1.2, the
context provided by other provisions of Part I of China's Accession Protocol,
as well as the context provided by the Decision of the Ministerial Conference
of 10 November 2001 to which China's
Accession Protocol is annexed and the preamble of
China's Accession Protocol, it appears that the term "the WTO
Agreement" in the second sentence of Paragraph 1.2 may refer to the
Marrakesh Agreement, that is, to "the WTO Agreement" excluding the
Multilateral Trade Agreements. At the same time, an examination of the term
"the WTO Agreement", as used throughout China's Accession Protocol,
indicates that the definition of "the WTO Agreement" contained in the
preamble does not necessarily preclude the annexed Multilateral Trade
Agreements from also falling within the scope of the term "the WTO
Agreement" in some instances. This term may, depending on the specific
context, include a reference to the annexed Multilateral Trade Agreements, or
it may refer to the Marrakesh Agreement alone. For example, as the Appellate Body found in China –
Publications and Audiovisual Products, the phrase "in
a manner consistent with the WTO Agreement" in the introductory clause of Paragraph 5.1 of China's
Accession Protocol refers to "the WTO Agreement
as a whole, including its Annexes".[466] In contrast, where a specific provision of "the
WTO Agreement" is referred to, such as in the last sentence of Paragraph
18.1 (referring to "paragraph 5 of Article IV of the WTO
Agreement"), the term is properly understood in its narrow sense as the
Marrakesh Agreement. Therefore, the term
"the WTO Agreement", as used in China's Accession Protocol, may have either
a broad or a narrow connotation depending on the context in which it is used.
5.47. In our view,
the fact that the term "the WTO Agreement", as used throughout
China's Accession Protocol, may have both narrow and broad connotations is
consistent with the principle of the single undertaking reflected in both
Articles II:2 and XII:1 of the Marrakesh Agreement. Under Article II:2 of
the Marrakesh Agreement, the Multilateral Trade Agreements contained in the
annexes are all necessary components of the "same treaty"[467], and they,
together, form a single package of WTO rights and obligations. Furthermore,
pursuant to Article XII:1, second sentence, China must accede to this single package
to become a Member of the WTO. In other words, the Marrakesh Agreement is the
umbrella under which all of the annexed Multilateral Trade Agreements are
united in a single package of rights and obligations. Bearing in mind this
fundamental architecture of the WTO system, whether the term "the WTO
Agreement" is, in any given instance and in particular in the context of
the second sentence of Paragraph 1.2, understood in the broad sense (as the Marrakesh
Agreement and the Multilateral Trade Agreements annexed thereto), or in the
narrow sense (as the Marrakesh Agreement alone), will often be of limited
consequence.
5.48. We recall
that, in examining the second sentence of Paragraph 1.2, the Panel found that
"the term[] 'the WTO Agreement' … means that China's Accession
Protocol is made an integral part of the Marrakesh Agreement."[468] We note that this statement of the Panel is one
intermediate step leading to the Panel's finding that "the legal effect of the second sentence of
Paragraph 1.2 is to make China's Accession Protocol, in its entirety, an
'integral part' of the Marrakesh Agreement, and not that,
in addition, the individual provisions
thereof are also integral parts of Multilateral
Trade Agreements annexed to the Marrakesh Agreement."[469] Our above analysis
suggests that the key to understanding the legal effect of Paragraph 1.2 of
China's Accession Protocol does not hinge on whether the term "the WTO Agreement"
in the second sentence of Paragraph 1.2 refers, in the narrow sense, to the
Marrakesh Agreement alone, or whether it refers in the broader sense to the
entire WTO legal framework, consisting of the Marrakesh Agreement and its
"integral parts", the Multilateral Trade Agreements.
5.49. In other
words, and importantly, we do not
consider that determining the scope of the term "the WTO Agreement"
in Paragraph 1.2 was dispositive of the key legal question before the Panel,
that is, the specific relationship
between individual provisions
of China's Accession Protocol and the individual provisions of the Marrakesh Agreement and the Multilateral Trade
Agreements. The operative term of
Paragraph 1.2 – i.e. "an integral part", together with
Article XII:1 of the Marrakesh Agreement – serves the function of integrating China's
Accession Protocol into the single package of WTO rights and obligations, just
as Article II:2 of the Marrakesh Agreement serves the same function with regard
to the Multilateral Trade Agreements. As a result of Paragraph 1.2 of China's Accession Protocol therefore,
the Marrakesh Agreement, the Multilateral Trade Agreements, and China's
Accession Protocol together form one package of rights and obligations that
must be read in conjunction.
5.50. Paragraph 1.2 of
China's Accession Protocol, and in particular its stipulation that the Protocol
is to be an "integral part" of "the WTO Agreement",
essentially serves to build a bridge between the package of protocol provisions
and the existing package of WTO rights and obligations under the Marrakesh
Agreement and the Multilateral Trade Agreements. The bridge created by
Paragraph 1.2 between the protocol provisions and the existing package of rights
and obligations under the WTO legal framework, however, is of a general nature.
The fact that such a bridge exists does not in itself answer the question as to
how individual provisions
in China's Accession Protocol are related or linked to individual provisions of
the other WTO agreements. More specifically, this bridge does not dispense with
the need to analyse, on a case-by-case basis, the specific relationship between
an individual provision in the Protocol, on the one hand, and provisions of the
Marrakesh Agreement and the Multilateral Trade Agreements, on the other hand.
5.51. As further
discussed in the next subsection, the question as to whether a provision in
China's Accession Protocol has an objective link to China's obligations under
the GATT 1994, or whether the exceptions under the GATT 1994 may be
invoked to justify a breach of such provision, cannot be answered on the basis
of Paragraph 1.2 of China's
Accession Protocol alone, which is a general provision. Rather,
to answer such specific and substantive questions, a thorough analysis is
required regarding the relevant provisions, starting with the text of the
relevant provision in China's Accession Protocol and taking into account its
context, including that provided by the Protocol itself, and by relevant provisions of the Accession Working Party Report, and by the
agreements within the WTO legal framework. The analysis must also take into
account the overall architecture of the WTO system as a single package of
rights and obligations and any other relevant interpretative elements, and must
be applied to the circumstances of each dispute, including the measure at issue
and the nature of the alleged violation.
5.52. As discussed
in the previous subsection, Paragraph 1.2 of China's Accession Protocol serves
to build a bridge between the package of protocol provisions and the existing
package of rights and obligations under the WTO legal framework. As a result, the Marrakesh Agreement, the
Multilateral Trade Agreements, and China's Accession Protocol together form one
package of rights and obligations that must be read in conjunction. In
order to understand how specific provisions within this package relate to one
another, we consider it useful first to examine the relationship among specific
provisions within this package created by Article II:2 of the Marrakesh
Agreement.
5.53. As has been
established in a number of disputes to date, the mere fact that each of the
Multilateral Trade Agreements is an integral part of the Marrakesh Agreement by
virtue of Article II:2 of the Marrakesh Agreement does not, in and of
itself, answer the question as to how specific rights and obligations contained
in those Multilateral Trade Agreements relate to each other, particularly when
they are contained in different instruments that nevertheless relate to the
same subject matter. For example, in Argentina – Footwear (EC),
the Appellate Body noted that, pursuant to Article II:2 of the Marrakesh
Agreement, "[t]he GATT 1994 and the Agreement on
Safeguards … are both 'integral
parts' of the same treaty, the WTO Agreement".[470] Therefore,
"the provisions of Article XIX of the GATT 1994 and the provisions of the Agreement on
Safeguards are all provisions
of" that treaty.[471] Noting that
they "relate to the same thing", namely, the application of safeguard
measures, the Appellate Body endorsed the panel's view that "Article XIX
of GATT and the Agreement on Safeguards must a fortiori be read as representing an inseparable
package of rights and disciplines which have to be considered in
conjunction".[472] The
Appellate Body went on to review the panel's finding regarding the relationship
between Article XIX of the GATT 1994 and the Agreement on Safeguards, including
arguments that "all the requirements of Article XIX (including the
criterion of 'unforeseen developments') are subsumed by the provisions of the
Safeguards Agreement".[473] The panel
concluded "that safeguard investigations conducted and safeguard measures
imposed after the entry into force of the WTO agreements which meet the
requirements of the new Safeguards Agreement satisfy the requirements of
Article XIX of GATT".[474]
5.54. The Appellate Body examined relevant provisions of both agreements, including Articles 1 and
11.1(a) of the Agreement on Safeguards, which describe "the precise nature
of the relationship" between Article XIX of the GATT 1994 and
the Agreement on Safeguards within the WTO legal framework, as well as Article
2 of the Agreement on Safeguards, and Article XIX of the GATT 1994.[475] The Appellate Body found nothing in the language of the Agreement
on Safeguards suggesting that the negotiators intended to "subsume"
the requirements of Article XIX of the GATT 1994 within the Agreement on
Safeguards.[476] Rather, the Appellate Body found that "the ordinary meaning of
Articles 1 and 11.1(a) of the Agreement on Safeguards
confirms that the intention of the negotiators was that the provisions of
Article XIX of the GATT 1994 and of the Agreement on
Safeguards would apply cumulatively."[477] The Appellate Body considered that this understanding was supported
by the relevant context of these provisions, the object and purpose of Article
XIX of the GATT 1994 and of the Agreement on Safeguards, and the General
Interpretative Note to Annex 1A. On this basis, the Appellate Body reversed the
panel's finding that safeguard measures that are consistent with the Agreement
on Safeguards necessarily satisfy all of the requirements of
Article XIX of the GATT 1994, including the "unforeseen developments"
requirement that is not mentioned in the Agreement on Safeguards.[478]
5.55. This
jurisprudence indicates that the specific relationship among individual terms
and provisions of the Multilateral Trade Agreements, and between such
provisions and the Marrakesh Agreement, must be determined on a case-by-case
basis through a proper interpretation of the relevant provisions of these
agreements. In other words, this specific relationship must be ascertained
through scrutiny of the provisions concerned, read in the light of their
context and object and purpose, with due account being taken of the overall
architecture of the WTO system as a single package of rights and obligations,
and any specific provisions that govern or shed light on the relationship
between the provisions of different instruments (such as the General
Interpretative Note to Annex 1A).
5.56. In some
instances, such examination will lead to the conclusion that exceptions in one
covered agreement, such as Article XX of the GATT 1994, may be invoked to
justify a breach of an obligation set forth elsewhere than in the GATT 1994. In
principle, different types of provisions and circumstances may lead to such a
conclusion. One clear example is found in Article 3 of the Agreement on
Trade-Related Investment Measures (TRIMs Agreement), the express terms of which
provide that "[a]ll exceptions under GATT 1994 shall apply, as
appropriate, to the provisions of this Agreement." In other instances,
such examination may lead to the opposite conclusion. For example, Article XX
of the GATT 1994 has been found by the Appellate Body not to be available
to justify a breach of the Agreement on Technical Barriers to Trade (TBT
Agreement).[479] In many
instances, no express language identifying the relationship between specific
terms and provisions of a Multilateral Trade Agreement with those of another
Multilateral Trade Agreement or the Marrakesh Agreement is found in the
agreements at issue. Where this is so, recourse to other interpretative elements
will be necessary to determine the specific relationship among individual terms
and provisions of the Multilateral Trade Agreements, and between such
provisions and the Marrakesh Agreement.
5.57. Just as the
Multilateral Trade Agreements are an integral part of the Marrakesh Agreement, and,
thereby, of the single package of WTO rights and obligations, so too is China's
Accession Protocol an integral part of the same package. Thus, like the
approach to ascertaining the relationship among provisions of the Multilateral
Trade Agreements, the specific relationship between the provisions of China's
Accession Protocol, on the one hand, and the provisions of the Marrakesh
Agreement and the Multilateral Trade Agreements, on the other hand, must also be determined on a case‑by‑case basis
through a proper interpretation of all relevant provisions. Neither obligations
nor rights may be automatically transposed from one part of the legal framework
into another. Rather, the questions of whether a particular protocol provision at
issue has an objective link to specific obligations under the Marrakesh
Agreement and the Multilateral Trade Agreements, and whether the exceptions
under those agreements may be invoked to justify a breach of such protocol
provision, must be answered on a case-by-case basis. They must be ascertained
through a thorough analysis of the relevant provisions on the basis of the
customary rules of treaty interpretation, as well as the circumstances of each
dispute.
5.58. In some
circumstances, this examination will lead to the conclusion that Article XX may
be invoked to justify a breach of a provision of China's Accession Protocol.
For example, in China – Publications and Audiovisual
Products[480], the
Appellate Body scrutinized the meaning and effect of Paragraph 5.1 of China's
Accession Protocol and the rights and obligations specified therein. The
Appellate Body reasoned that the phrase "right to regulate trade in a
manner consistent with the WTO Agreement" in the introductory clause of
Paragraph 5.1 encompasses not only rights that the covered agreements
affirmatively recognize as accruing to WTO Members, but also certain rights to
take regulatory action pursuant to relevant exceptions, such as Article XX
of the GATT 1994. In this respect, the Appellate Body observed that
"the obligations assumed by China in respect of trading rights, which
relate to traders, and the obligations imposed on all WTO Members in respect of
their regulation of trade in goods, [are] closely intertwined".[481] The
Appellate Body found that this close relationship is confirmed by the text of
Paragraph 5.1 itself, by the context of Paragraph 5.1 (including
China's Accession Working Party Report), and by past panel and Appellate Body
reports in which measures that did not directly regulate goods, or the
importation of goods, were nonetheless found to contravene GATT obligations.[482] The
Appellate Body considered that "the
introductory clause of paragraph 5.1 cannot be interpreted in a way that
would allow a complainant to deny China access to a
defence merely by asserting a claim under paragraph 5.1 and by refraining from asserting a claim under other provisions of the
covered agreements relating to trade in goods that apply to the same or closely
linked measures, and which set out obligations that are closely
linked to China's trading rights commitments."[483]
5.59. In these circumstances, the Appellate Body found that,
"whether China may, in the absence of a specific
claim of inconsistency with the GATT 1994, justify its measure under
Article XX of the GATT 1994 must in each case depend on the
relationship between the measure found to be inconsistent with China's trading
rights commitments, on the one hand, and China's regulation of trade in goods,
on the other hand."[484] The
Appellate Body found, furthermore, that "[w]hether a measure regulating
those who may engage in the import and export of goods falls within the scope
of China's right to regulate trade may also depend on whether the measure has a
clearly discernable, objective link to the regulation of trade in the goods at
issue."[485]
5.60. Based on its
reading of the
introductory clause of Paragraph 5.1 of China's Accession Protocol in its context, and having found the specific measures at issue
to have "a clearly discernable, objective link" to China's regulation
of trade in the relevant products[486], the
Appellate Body found that China may seek to justify a breach of its
trading rights obligations under Paragraph 5.1 as necessary to protect public
morals in China, within the meaning of Article XX(a) of the
GATT 1994.[487] The
Appellate Body reached this finding even though Article XX of the
GATT 1994 was not expressly referenced in the first sentence of Paragraph
5.1. In so finding, the Appellate Body was particularly wary of, and refrained
from adopting, an interpretation that "would allow a complainant to deny China access to a defence merely by
asserting a claim under paragraph 5.1 and by refraining from asserting a claim
under other provisions of the covered agreements relating to trade in goods
that apply to the same or closely linked measures, and which set out
obligations that are closely linked to China's trading rights
commitments."[488] The Appellate Body's
finding was thus based on a thorough analysis of the text and context of
Paragraph 5.1, as well as the circumstances in that dispute, including the
specific measure subject to China's commitment under Paragraph 5.1, and how
this commitment related to China's right to regulate trade.
5.61. The
Appellate Body's findings in China – Publications and
Audiovisual Products comport with our understanding that a
case-by-case analysis is required to determine the specific relationship
between an individual provision in China's Accession Protocol, on the one hand,
and provisions of the Marrakesh Agreement and the Multilateral Trade Agreements,
on the other hand, including whether Article XX of the GATT 1994 can be invoked
to justify a breach of a Protocol provision. As discussed in the previous
subsection, Paragraph 1.2 of China's Accession Protocol essentially serves to
build a bridge between the package of Protocol provisions and the package of
existing rights and obligations under the Marrakesh Agreement and the
Multilateral Trade Agreements. This bridge, however, is only the starting point
when examining the question as to whether an objective link exists between the specific obligations under China's Accession Protocol and
the relevant covered agreement, or whether a breach of the former may be
justified under an exception contained in the latter. Notably, under the
approach adopted by the Appellate Body, express textual references, or the lack
thereof, to a covered agreement (such as the GATT 1994), a provision
thereof (such as Article VIII or Article XX of the GATT 1994), or
"the WTO Agreement" in general, are not
dispositive in and of themselves.
5.62. In our view,
therefore, questions of whether a particular protocol provision at issue has an
objective link to specific obligations under the Marrakesh Agreement and the
Multilateral Trade Agreements, and of whether the exceptions under those
agreements may be invoked to justify a breach of such protocol provision, must
be answered through a thorough analysis of the relevant provisions on the basis
of the customary rules of treaty interpretation and the circumstances of the
dispute. The analysis must start with the text of the relevant provision in
China's Accession Protocol and take into account its context, including that
provided by the Protocol itself and by relevant provisions of the Accession
Working Party Report, and by the agreements in the WTO legal framework. The
analysis must also take into account the overall architecture of the WTO system
as a single package of rights and obligations and any other relevant
interpretative elements, and must be applied to the circumstances of each dispute,
including the measure at issue and the nature of the alleged violation.
5.63. As the
findings in China – Raw Materials also indicate,
the existence of an express reference to a GATT provision (Article VIII of the
GATT 1994) in a protocol provision does not compel the conclusion that Article
XX of the GATT 1994 is available to justify a breach of the protocol provision.
Nor was the Appellate Body's conclusion based solely on the absence of textual
references to Article XX of the GATT 1994. In those disputes, the Appellate
Body applied the same analytical approach as in China –
Publications and Audiovisual Products[489], but
reached a different conclusion following its assessment of the specific
provision of China's Accession Protocol at issue, read in its context and
within the structure of the Protocol and the GATT 1994. The Appellate Body
observed that Paragraph 11.3 of China's Accession Protocol requires China to
"eliminate all taxes and charges applied to exports" unless one of
the following conditions is satisfied: (i) such taxes and charges are
"specifically provided for in Annex 6 of this Protocol"; or
(ii) such taxes and charges are "applied in conformity with the
provisions of Article VIII of the GATT 1994". The Appellate Body
examined a number of textual and contextual elements and reached its conclusion
on the basis of a holistic analysis of all elements. First, the Appellate Body
noted that Annex 6 specifically provides for maximum export duty levels on
84 listed products, which did not include the products at issue in that
appeal. Annex 6 clarifies that the maximum rates set out therein "will not
be exceeded" and that China will "not increase the presently applied
rates, except under exceptional circumstances".[490] In the
light of the rule and exception clearly prescribed in Paragraph 11.3 and
Annex 6, in particular the reference to "exceptional circumstances",
the Appellate Body had difficulty reading Paragraph 11.3 and Annex 6 as
allowing, in addition, recourse to Article XX of the GATT 1994 either to justify
the imposition of export duties on products that are not
listed in Annex 6 or to justify the imposition of export duties on listed
products in excess of the maximum levels set forth in Annex 6.[491]
5.64. In addition,
the Appellate Body considered the relevance of the reference to Article VIII of
the GATT 1994 in Paragraph 11.3. The Appellate Body noted that Article
VIII of the GATT 1994 excludes export
duties from its scope of application. Consequently, the Appellate Body found
that "the fact that Article XX may be invoked to justify those fees and
charges regulated under Article VIII does not mean that it can also be
invoked to justify export duties, which are not regulated under Article
VIII."[492] The
Appellate Body also contrasted the narrow and specific language of
Paragraph 11.3, which refers to Article VIII of the GATT 1994 alone, with
the broader references in Paragraphs 11.1 and 11.2, which require China to
ensure that certain fees, taxes, or charges are "in conformity with the
GATT 1994". Furthermore, the Appellate Body rejected China's argument
that, unless China expressly "abandons" such right, China has an
inherent right to regulate trade either by complying with affirmative
obligations or by complying with exceptions.[493] For the
Appellate Body, China's arguments could not be reconciled with the Appellate
Body's approach in China – Publications and
Audiovisual Products, confirming that such right must be established
on the basis of a careful analysis of the relevant provisions at issue, their
proper context, as well as the nature of the measure at issue.[494]
5.65. Thus, the
Appellate Body's analysis in China – Raw Materials
was not limited to the text of Paragraph 11.3 alone. Rather, the Appellate Body
also relied on the context provided by Annex 6 of China's Accession Protocol,
Article VIII of the GATT 1994, and the relevant structure of the Accession
Protocol, including the specific exceptions to China's obligations to eliminate
export duties. On this basis, the Appellate Body concluded that "a proper
interpretation of Paragraph 11.3 of China's Accession Protocol does not make
available to China the exceptions under Article XX of the GATT 1994".[495] In the
present appeals, no participant has challenged the Appellate Body's ruling in China – Raw Materials or the same conclusion reached by the
Panel in these disputes.[496] We also see
no reason to revisit the ruling of the Appellate Body in China – Raw
Materials.
5.66. Having
conducted the above analysis regarding the relationship between, on the one
hand, provisions of China's Accession Protocol and, on the other hand,
provisions of the Marrakesh Agreement and the Multilateral Trade Agreements
annexed thereto, we turn to examine specific arguments of China in this
respect. We recall that, according to China's interpretation, Article XII:1 of the Marrakesh Agreement and Paragraph 1.2 of
China's Accession Protocol, read together, indicate that specific Protocol
provisions are to be treated as integral parts of either the Marrakesh
Agreement or one of the Multilateral Trade Agreements, depending on the subject
matter to which they "intrinsically relate".[497] The
complainants maintain that China's "intrinsic relationship" test is
devoid of any textual support in China's Accession Protocol, the Marrakesh
Agreement, or the Multilateral Trade Agreements.[498] Japan and
the United States emphasize the speculative nature of this proposed test, and
the uncertainty that it would generate regarding the meaning and scope of
accession commitments.[499]
5.67. In these
disputes, China has not precisely defined the meaning and scope of its
"intrinsic relationship" test, and its arguments in this respect have evolved during the Panel
and appellate proceedings. For example, in its first written submission to the
Panel, China identified only Article XI of the GATT 1994 as the provision
to which Paragraph 11.3 of its Accession Protocol intrinsically relates.[500] China
subsequently added Article II of the GATT 1994 as another provision to which
Paragraph 11.3 intrinsically relates.[501] In its
written submissions on appeal, China's arguments suggest that its
"intrinsic" relationship test is based on the "subject
matter" of the respective provisions in China's Accession Protocol and the
Marrakesh Agreement or one of the Multilateral Trade Agreements[502], although
those written submissions contain no reference to either Paragraph 11.3 or
Articles II and XI of the GATT 1994. At the oral hearing, China added that
"the label used to describe this relationship – whether one talks of
'intrinsic relationship', 'conceptual unity', or
'shared subject matter' – is of no consequence."[503]
5.68. Thus, China has not provided a clear definition of the
"intrinsic relationship" test that it proposes, and the various permutations of its arguments make the precise contour of
this test unclear. In any event, our interpretation set
out above does not support the view that an inquiry into the relationship between
an individual provision of China's Accession Protocol and provisions of the
Marrakesh Agreement and the Multilateral Trade Agreements must start from the premise
that such provision is "intrinsically related" to some other
provision(s). As discussed above, the general provision of Paragraph 1.2,
while building a bridge between the package of Protocol provisions and the
package of existing rights and obligations under the WTO legal framework, does
not resolve the question as to how an individual provision of China's Accession
Protocol relates to those under the other agreements. Rather, the specific
relationship between the two must be ascertained through a thorough analysis of
the relevant provisions, on the basis of the customary rules of treaty
interpretation and the circumstances of each dispute. Therefore, China's
position that a provision in its Accession Protocol is necessarily an integral
part of either the Marrakesh Agreement or one of the Multilateral Trade
Agreements by virtue of an "intrinsic relationship", and in
particular its position that the applicability of Article XX of the GATT 1994
arises from the "intrinsic relationship" alone, sits uncomfortably
with our interpretation set out above that rights and obligations cannot be automatically transposed from one part of the WTO
legal framework to another.[504]
5.69. China has submitted several additional arguments in support of its
understanding of the relationship between China's Accession Protocol, on the
one hand, and the Marrakesh Agreement and the annexed Multilateral Trade
Agreements, on the other hand. For example, China has
sought to differentiate its Accession Protocol from the Multilateral Trade Agreements
by arguing that, unlike those agreements, its Protocol is not a
"self-contained agreement".[505] China
emphasizes, in this regard, that its Accession Protocol does not "include
most of the important features that many of the Multilateral Trade Agreements
possess, such as proper general exceptions, security exceptions, or a
modification clause".[506] Furthermore, at the oral hearing, China contended for the first time
that, where a given accession provision "stands in conflict" with one
or more provisions in the Marrakesh Agreement or the Multilateral Trade
Agreements annexed thereto, such conflict is resolved according to the
"later-in-time" rule under Article 30(3) of the Vienna Convention.[507] This means that, to the extent that specific provisions under post-1994
accession protocols conflict with pre-existing provisions of the Marrakesh
Agreement or the Multilateral Trade Agreements annexed thereto, the provisions
of the accession protocol must prevail to the extent of the conflict. To
illustrate, China points to Paragraph 11.3 of its Accession Protocol and
Article XI:1 of the GATT 1994. China explains that, pursuant to Article
30(3) of the Vienna Convention, Article XI:1 of the GATT 1994 "has been
modified by Paragraph 11.3 of China's Accession Protocol", such that
"China, unlike other Members, cannot freely impose export duties under
Article XI:1 of the GATT 1994".[508]
5.70. These
arguments, and the concepts on which they are based, were not elaborated by
China and do not, in our view, comport well with the analysis that we have set
out above. We do not, for example, see the term "self-contained
agreements" as an apt descriptor of the integrated WTO framework, or of
any of the agreements contained therein.[509] In any
event, as discussed above, Paragraph
1.2 of China's Accession Protocol, together with Article XII:1 of the Marrakesh
Agreement, means that the Marrakesh Agreement, the Multilateral Trade
Agreements, and China's Accession Protocol together form a single package of
rights and obligations.[510] Within this single package, whether an instrument can
be characterized as a "self-contained agreement", or not, seems to us
to be of limited relevance for the question before us (that is, the specific relationship between a Protocol provision and
provisions of a covered agreement). In the same vein, we do not consider
Article 30(3) of the Vienna Convention to be apposite for understanding the
relationship between the different components of this single package of rights
and obligations, all of which form part of "the same treaty"[511] to which China acceded in 2001.
5.71. We have
found that the first sentence of Article XII:1 of the Marrakesh Agreement sets
out the general rule for acceding to the WTO, whereby an applicant may accede
to the Marrakesh Agreement on "terms to be agreed" by the applicant
and the WTO. The second sentence of Article XII:1 further provides that
the act of acceding to the WTO must apply to both the Marrakesh Agreement and
the Multilateral Trade Agreements annexed thereto. Article XII:1, second
sentence, thus reflects the fundamental principle of the single undertaking
established under Article II:2 of the Marrakesh Agreement, whereby the
Multilateral Trade Agreements are all "integral parts" of the
Marrakesh Agreement. Article XII:1 does not contain any further elaboration on
what the "terms" of accession should be, and does not provide
specific guidance on how these terms relate to the rights and obligations under
the Marrakesh Agreement and the Multilateral Trade Agreements. To understand how
they relate to each other, further inquiry is needed.
5.72. The
"terms" of China's accession are spelt out in China's Accession
Protocol and those specific commitments of China's Accession Working Party
Report that are incorporated into its Accession Protocol. Pursuant to Paragraph
1.2 of China's Accession Protocol, the Protocol, in its entirety, is made
"an integral part of the WTO Agreement". When used in different
contexts in China's Accession Protocol, the term "the WTO Agreement"
may refer narrowly to the Marrakesh Agreement alone, or it may refer broadly to
the Marrakesh Agreement together with the Multilateral Trade Agreements annexed
thereto. We consider this to be consistent with the fact that, pursuant to
Article II:2 of the Marrakesh Agreement, all the Multilateral Trade Agreements
constitute integral parts of the Marrakesh Agreement. They together make up the
same treaty, representing a single package of rights and obligations. In our
view, whether the term "the WTO Agreement", as used in
Paragraph 1.2, second sentence, of China's Accession Protocol, is referring to
the narrow or broad connotation of the term is not dispositive of our
understanding of the legal effect of Paragraph 1.2. Rather, the operative
term of Paragraph 1.2 is "an integral part". Thus, just as Article
II:2 of the Marrakesh Agreement makes the Multilateral Trade Agreements
integral parts of the single package of WTO rights and obligations, Paragraph
1.2 of China's Accession Protocol makes China's Accession Protocol, in its
entirety, an integral part of the same package. Together, China's Accession
Protocol and the other agreements that make up the same undertaking form a
single package of rights and obligations with respect to China as a WTO Member.
5.73. For these
reasons, we decline to accept China's interpretation of Paragraph 1.2 of
China's Accession Protocol and Article XII:1 of the Marrakesh Agreement as
meaning that a specific provision in China's Accession Protocol is an integral
part of the Marrakesh Agreement or one of the Multilateral Trade Agreements to
which it intrinsically relates. Instead, we find that the Panel did not err in
concluding that the legal effect of the second sentence of Paragraph 1.2 and
Article XII:1 of the Marrakesh Agreement is not
that the individual provisions of China's Accession Protocol are integral parts
of Multilateral Trade Agreements annexed to the Marrakesh Agreement.[512] We recall
that the Panel also expressed the view that the term "the WTO Agreement"
in Paragraph 1.2 refers to the Marrakesh Agreement.[513] However, as
discussed above, whether the term "the WTO Agreement" in
Paragraph 1.2 is understood in its narrow or broad sense is not dispositive of
the issue regarding the relationship between a specific provision of China's
Accession Protocol and provisions of the Marrakesh Agreement and the
Multilateral Trade Agreements annexed thereto. We therefore find it unnecessary
to opine on the scope of the term "the WTO Agreement" in the second
sentence of Paragraph 1.2 of China's Accession Protocol.
5.74. In our view,
Paragraph 1.2 of China's Accession Protocol serves to build a bridge between
the package of Protocol provisions and the package of existing rights and
obligations under the WTO legal framework. Nonetheless, neither obligations nor
rights may be automatically transposed from one part of this legal framework
into another. The fact that Paragraph 1.2 builds such a bridge is only the
starting point, and does not in itself answer the questions of whether there is
an objective link between an individual provision in China's Accession Protocol and
existing obligations under the Marrakesh Agreements and the Multilateral Trade
Agreements, and whether China may rely on an exception provided for in those
agreements to justify a breach of such Protocol provision. Such questions must be answered
through a thorough analysis of the relevant provisions on the basis of the
customary rules of treaty interpretation and the circumstances of the dispute.
The analysis must start with the text of the relevant provision in China's
Accession Protocol and take into account its context, including that provided
by the Protocol itself and by relevant provisions of the Accession Working
Party Report, and by the agreements in the WTO legal framework. The analysis
must also take into account the overall architecture of the WTO system as a single
package of rights and obligations and any other relevant interpretative
elements, and must be applied to the circumstances of each dispute, including
the measure at issue and the nature of the alleged violation.
5.75. China appeals two sets of
intermediate findings in the Panel's analysis of whether China's export quotas
on rare earths, tungsten, and molybdenum are justified pursuant to
Article XX(g) of the GATT 1994. First, China contends that the Panel
erred in its interpretation and application of Article XX(g) of the
GATT 1994, and acted inconsistently with Article 11 of the DSU, in
finding that China's export quotas on rare earths and tungsten do not
"relate to" conservation within the meaning of Article XX(g).
Second, China claims that the Panel erred in its interpretation and application
of Article XX(g) of the GATT 1994, and acted inconsistently with Article 11
of the DSU, in finding that China's export quotas on rare earths, tungsten, and
molybdenum are not "made effective in conjunction with" domestic
restrictions under Article XX(g) of the GATT 1994. Thus, China
requests us to reverse the Panel's intermediate findings that China's export
quotas on rare earths and tungsten do not "relate to" conservation
within the meaning of Article XX(g) of the GATT 1994[514],
and that China's export quotas on rare earths, tungsten, and molybdenum are not
"made effective in conjunction with" domestic restrictions pursuant
to Article XX(g) of the GATT 1994.[515]
Furthermore, to the extent that the Panel's errors, made in its analyses of the
"relating to" and "made effective in conjunction with"
requirements of Article XX(g), taint the Panel's conclusions that China's
export quotas on rare earths, tungsten, and molybdenum cannot be provisionally
justified under Article XX(g) of the GATT 1994, China also requests
us to reverse these findings of the Panel.[516]
5.76. Before the Panel, China conceded
that its export quotas on rare earths, tungsten, and molybdenum are
inconsistent with Article XI:1 of the GATT 1994. China asserted, however,
that these quotas are justified under Article XX(g) of the GATT 1994. In
this regard, China contended that its sovereignty over its exhaustible natural
resources entitles it to manage the supply of such resources and, more
specifically, to use export quotas to allocate, as between foreign and domestic
consumers, the supply of Chinese exhaustible natural resources. In order to
establish its defence under Article XX(g), China submitted various
measures to the Panel in order to demonstrate that China had in place: (i) a
comprehensive conservation policy for each of the product groups at issue[517];
and (ii) restrictions on domestic production or consumption of rare earths,
tungsten, and molybdenum, including through the imposition of extraction and
production quotas.[518]
As the sections below explain, China's appeal takes issue only with limited
aspects of the Panel's findings under Article XX(g) of the GATT 1994.
5.77. In addressing China's defence, the
Panel began by setting out its interpretation of Article XX(g) of the
GATT 1994. The Panel noted that, for a measure to be justified under
Article XX(g), such measure must: (i) "relate to" the
"conservation" of an "exhaustible natural resource"; and
(ii) be "made effective" "in conjunction" with
"restrictions" on "domestic production or consumption". The
Panel stressed that, while a measure must comply with each of these elements, Article XX(g)
ultimately lays down a single test, the entirety of which must be satisfied if
a measure is to be justified pursuant to that provision. Therefore, a measure's
compliance with Article XX(g) can be determined only on the basis of a holistic
assessment. The Panel further considered that, given the unitary nature of the
test, facts and arguments submitted by the parties could be relevant in more
than one part of the Panel's analysis.[519]
5.78. With regard to the term
"exhaustible natural resources", the Panel concluded that it did not
need to decide the precise meaning or scope of the term to resolve these
disputes, because the parties agreed that measures may "'relate to the
conservation of exhaustible natural resources' even if they are not imposed directly
upon those resources".[520]
For the specific product categories at issue in these disputes, the Panel found
that rare earth, tungsten, and molybdenum ores are "exhaustible natural
resources", but did not determine more generally the extent to which semi‑processed
or processed products fall within the scope of that concept.[521]
In respect of "conservation", the Panel noted that, for the purposes
of Article XX(g), this word has a "broad meaning" that strikes an
appropriate balance between trade-liberalization, sovereignty over natural
resources, and the right to sustainable development.[522]
The Panel found that China had demonstrated that it has in place a
comprehensive conservation policy for rare earths[523],
tungsten[524],
and molybdenum[525],
respectively.
5.79. In applying its interpretation of
Article XX(g) to the facts of the case, the Panel separately analysed the
export quota imposed on each of the three product groups. The Panel then made
three sets of intermediate findings for each of the export quotas:
(i) that China had not established that the relevant export quota
"relates to" the conservation of the respective exhaustible natural
resource for the purposes of Article XX(g) of the GATT 1994[526]; (ii) that China had not established that the relevant export
quota is "made effective in conjunction with" restrictions on
domestic production or consumption for the purposes of Article XX(g) of
the GATT 1994[527]; and (iii) that China had not established that the relevant export
quota is not applied in a manner that constitutes arbitrary or unjustifiable
discrimination or a disguised restriction on international trade within the
meaning of the chapeau of Article XX of the GATT 1994.[528] The Panel concluded overall that China had not demonstrated that its
export quotas on rare earths, tungsten, and molybdenum are provisionally
justified pursuant to subparagraph (g).[529] In addition, the Panel found that China had not demonstrated that these
measures are applied in a manner that satisfies the chapeau of Article XX
of the GATT 1994.[530]
5.80. On appeal, China contends that the
Panel erred in its interpretation and application of Article XX(g) of the
GATT 1994, and acted inconsistently with Article 11 of the DSU, in
finding that China's export quotas on rare earths and tungsten do not
"relate to" conservation within the meaning of Article XX(g) of
the GATT 1994. China also claims that the Panel erred in its
interpretation and application of Article XX(g) of the GATT 1994, and
acted inconsistently with Article 11 of the DSU, in finding that China's
export quotas on rare earths, tungsten, and molybdenum are not "made
effective in conjunction with" domestic restrictions under
Article XX(g) of the GATT 1994.
5.81. Before addressing China's claims of
error, and in order to situate China's appeal in its proper context, we note
the limited scope and segmented nature of China's appeal of the Panel's
findings under Article XX(g) of the GATT 1994. China does not appeal
the Panel's findings with respect to "conservation" or
"exhaustible natural resources". Moreover, China's claim that the
Panel erred in its interpretation and application of "relating to"
concerns only the Panel's findings regarding China's export quotas on rare
earths and tungsten, and does not involve any challenge to the Panel's findings
regarding China's export quota on molybdenum. With respect to the Panel's
analysis of whether China's export quotas on rare earths and tungsten
"relate to" conservation, China's appeal is directed at only a short
segment of the Panel's overall analysis, namely, the Panel's findings in
respect of the "signalling function" of China's export quotas. In
considering whether China's measures "relate to" the conservation of
exhaustible rare earth ore resources, the Panel addressed two sets of arguments
made by China concerning: (i) the text of the measure; and (ii) the design,
structure, and architecture of the measure. The Panel found the various
references to conservation in the text of China's export quota for rare earths
and related documents to be inconclusive.[531] In examining the design, structure, and architecture of China's export
quota on rare earths, the Panel addressed six distinct arguments by China that
its export quota "relates to" the conservation of rare earth ores.
The Panel rejected all six arguments.[532] The third of these six arguments was China's contention that its export
quota on rare earths sends a signal to foreign consumers of rare earth products
to diversify their sources of supply and/or find substitutes for the rare earth
products that they import from China. As regards the export quota on tungsten,
the Panel addressed two arguments by China supporting its claim that its export
quota on tungsten bears a "close", "real", and
"substantial" connection to the goal of conserving exhaustible
tungsten ores[533], one of which was based on the conservation-related signals sent by the
export quota to foreign consumers of tungsten.[534] As stated above, China's appeal is limited to the Panel's intermediate
findings rejecting China's arguments with respect to the "signalling
function" of the export quotas on rare earths and tungsten.
5.82. China's appeal regarding the
Panel's findings that China's export quotas on rare earths, tungsten, and
molybdenum are not made effective in conjunction with restrictions on domestic
production or consumption is also limited in its scope. China's appeal focuses
on the Panel's articulation and application of the "even‑handedness"
requirement. China does not appeal the Panel's interpretation of
"restrictions" or its findings that China's domestic extraction and
production caps on rare earths, tungsten, and molybdenum do not constitute
"restrictions on domestic production or consumption" for the purposes
of Article XX(g) of the GATT 1994.[535]
5.83. Finally, China does not appeal the
Panel's findings that China had not established that its export quotas on these
three groups of products meet the requirements of the chapeau of
Article XX of the GATT 1994.[536]
5.84. China's appeal calls for us to
consider certain issues relating to the interpretation of discrete elements of
Article XX(g) of the GATT 1994. In order properly to situate these
elements within Article XX(g), we begin by setting out our understanding
of Article XX(g), as a whole, as explained in previous Appellate Body
reports.
5.85. Article XX(g) of the GATT 1994
states:
Article XX
General Exceptions
Subject to the requirement that such measures are not applied in a
manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall
be construed to prevent the adoption or enforcement by any Member of measures:
…
(g) relating to the conservation
of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption;
5.86. Members can resort to
Article XX of the GATT 1994 as an exception to justify measures that
would otherwise be inconsistent with their GATT obligations.[537]
The assessment of a defence under Article XX involves a two-tiered
analysis in which a measure must first be provisionally justified under one of
the subparagraphs of Article XX, and then shown to be consistent with the
conditions of the chapeau of Article XX.[538]
As the Appellate Body has noted, this "sequence of steps" in the
analysis of a claim of justification under Article XX reflects "not
inadvertence or random choice", but rather the fundamental structure and
logic of Article XX of the GATT 1994.[539]
5.87. We further recall that provisional
justification under one of the subparagraphs of Article XX requires that a
challenged measure "address the particular interest specified in that
paragraph" and that "there be a sufficient nexus between the measure
and the interest protected".[540]
We also bear in mind that Article XX uses different terms in its different
subparagraphs: "necessary" – in subparagraphs (a), (b), and (d);
"essential" – in subparagraph (j); "relating to" – in
subparagraphs (c), (e), and (g); "for the protection of" – in
subparagraph (f); "in pursuance of" – in subparagraph (h); and
"involving" – in subparagraph (i). As the Appellate Body has
found, these different terms suggest that the negotiators of the GATT did not
intend to require, in respect of each and every category, "the same kind
or degree of connection or relationship between the measure under appraisal and
the state interest or policy sought to be promoted or realized".[541]
5.88. A Member seeking to justify its
measure pursuant to Article XX(g) must demonstrate that its
GATT-inconsistent measure has the requisite nexus ("relates to") with
the legitimate policy goal (the conservation of exhaustible natural resources).
The Member must also show that its measure is "made effective in
conjunction with restrictions on domestic production or consumption".
5.89. With respect to the first clause of
Article XX(g), "relating to the conservation of exhaustible natural
resources", the Appellate Body has remarked, with reference to the
preamble of the Marrakesh Agreement, that the generic term "natural
resources" in Article XX(g) is not "static" in its content
or reference, but is rather, "by definition, evolutionary".[542] The word "conservation", in turn, means "the
preservation of the environment, especially of natural resources".[543] It seems to us that, for the purposes of Article XX(g), the precise
contours of the word "conservation" can only be fully understood in
the context of the exhaustible natural resource at issue in a given dispute.
For example, "conservation" in the context of an exhaustible mineral
resource may entail preservation through a reduction in the pace of its
extraction, or by stopping its extraction altogether. In respect of the
"conservation" of a living natural resource, such as a species facing
the threat of extinction, the word may encompass not only limiting or halting
the activities creating the danger of extinction, but also facilitating the
replenishment of that endangered species.[544]
5.90. Turning to the term "relating
to", we recall that, for a measure to "relate to" conservation
in the sense of Article XX(g), there must be "a close and genuine
relationship of ends and means" between that measure and the conservation
objective of the Member maintaining the measure.[545] Hence, a GATT-inconsistent measure
that is merely incidentally or inadvertently aimed at a conservation objective
would not satisfy the "relating to" requirement of
Article XX(g).[546] Furthermore, the absence of a
domestic restriction, or the way in which a challenged measure applies to
domestic production or consumption, may be relevant to an assessment of whether
the challenged measure "relates to" conservation.[547]
5.91. The second clause of
Article XX(g) requires that the GATT-inconsistent conservation measure be
"made effective in conjunction with restrictions on domestic production or
consumption". Accordingly, Article XX(g) requires that, when
international trade is restricted, restrictions be imposed also on domestic
production or consumption. The Appellate Body has described a
"restriction" as "[a] thing which restricts someone or
something, a limitation on action, a limiting condition or regulation".[548]
5.92. In addition, the words "made
effective", when used in connection with a governmental measure, refer to
a measure being "operative", "in force", or having
"come into effect".[549]
It must be "in operation at a given time" in the sense of being
"brought into operation, adopted, or applied".[550]
The phrase "in conjunction with" signifies "together with"
or "jointly with".[551]
Taking both of these elements together, the second clause of Article XX(g)
refers to governmental measures that are promulgated or brought into effect, and
that operate together with restrictions on domestic production or consumption
of exhaustible natural resources. Thus, the requirement that restrictions be
made effective "in conjunction" suggests that, in their joint
operation towards a conservation objective, such restrictions limit not only
international trade, but must also limit domestic production or consumption.
Moreover, in order to comply with the "made effective" element of the
second clause of Article XX(g), it would not be sufficient for domestic
production or consumption to be subject to a possible limitation at some undefined
point in the future. Rather, a Member must impose a "real"
restriction on domestic production or consumption that reinforces and
complements the restriction on international trade.
5.93. Accordingly, the second clause of
Article XX(g) is appropriately read as a requirement that a Member seeking
to rely upon Article XX(g) in its pursuit of a conservation objective must
demonstrate that it imposes restrictions, not only in respect of international
trade, but also in respect of domestic production or consumption. In other
words, the trade restrictions must operate jointly with the restrictions on
domestic production or consumption.[552]
Such restrictions must place effective limitations on domestic production or
consumption and thus operate so as to reinforce and complement the restrictions
imposed on international trade. In that sense, subparagraph (g) "is a
requirement of even-handedness in the imposition
of restrictions, in the pursuit of conservation, upon the production or
consumption of exhaustible natural resources".[553]
5.94. In sum, Article XX(g) permits
the adoption or enforcement of trade measures that have "a close and
genuine relationship of ends and means"[554] to the conservation of exhaustible natural resources, when such trade
measures are brought into operation, adopted, or applied and "work together
with restrictions on domestic production or consumption, which operate so as to
conserve an exhaustible natural resource".[555] In order to justify a measure pursuant to Article XX(g), a WTO
Member must show that it satisfies all the requirements set out in that
provision. Indeed, the text of Article XX(g), particularly its use of the
conjunctive "if", suggests a holistic assessment of its component
elements, as the Panel rightly recognized.[556]
5.95. While Article XX(g) calls for
a holistic assessment, the provision itself must be applied on a case-by-case
basis, through careful scrutiny of the factual and legal context in a given
dispute, including the exhaustible natural resource concerned and the specific
conservation objectives of the Member seeking to rely upon Article XX(g). Due
regard must be paid to the words used by the WTO Members to express their
intent and purpose[557], but a panel cannot limit its analysis to the text of the measure at
issue, or simply accept, without question, a Member's characterization of its
measure.[558]
5.96. The text of Article XX(g) does
not prescribe a specific analytical framework for assessing whether a measure
satisfies the component requirements of that provision. All the same, we
observe that, in past disputes, the Appellate Body has emphasized the
importance of the design and structure of the challenged measure to a proper
assessment of whether a measure satisfies the requirements of
Article XX(g).[559] Assessing a measure based on its design and structure is an objective
methodology that also helps to determine whether or not a measure does what it
purports to do.[560] For instance, a measure declared to serve the purpose of conservation
may, through an examination of its design and structure, be found not to
genuinely serve that purpose. The analysis of a measure's design and structure
allows a panel or the Appellate Body to go beyond the text of the measure and
either confirm that the measure is indeed related to conservation, or determine
that, despite the text of the measure, its design and structure reveals that it
is not genuinely related to conservation. This is so because the design and
structure of a measure do not vary, and are not contingent on the occurrence of
subsequent events. In sum, we consider that, by focusing on the design and structure
of the measure, particularly where a measure is challenged "as such",
a panel or the Appellate Body has the benefit of an objective methodology for
assessing whether a measure satisfies the requirements of Article XX(g).
5.97. At the same time, the analysis of
the design and structure of the measure cannot be undertaken in isolation from
the conditions of the market in which the measure operates. Due regard should
also be given to key features of the relevant market. Since the characteristics
and structure of the market would normally influence a Member's choice and
design of a measure, such market features may also shed light on whether a
given measure, in its design and structure, satisfies the requirements of
Article XX(g). Relevant market features could include not only the
exhaustible natural resource to be conserved, but also the market structure,
the product and geographical scope of the market, and the significance of the
role that foreign and domestic market participants play.
5.98. Furthermore, the Appellate Body
has clarified that there is no requirement to apply an "empirical effects
test" under Article XX(g).[561] In US – Gasoline, the
Appellate Body identified two primary challenges that a panel, as trier of
fact, would face if it were required to evaluate "effects":
In the first place, the problem of determining causation, well-known in
both domestic and international law, is always a difficult one. In the second
place, in the field of conservation of exhaustible natural resources, a
substantial period of time, perhaps years, may have to elapse before the
effects attributable to implementation of a given measure may be observable.[562]
5.99. We also observe that the measures
that may be justified pursuant to Article XX(g) are those already found to
be inconsistent with obligations contained in the GATT 1994.[563]
Such measures may themselves have had a distorting effect in the marketplace.
This, to our minds, compounds the problems of determining causation, and
reinforces the need for caution in relying on an "empirical effects
test" in the context of Article XX(g).
5.100. The Appellate Body has
nevertheless acknowledged that consideration of the predictable effects of a
measure may be relevant for the analysis under Article XX(g).[564]
In referring to "predictable effects" in US –
Gasoline, the Appellate Body was denoting effects that careful
evaluation of the design and structure of the measure reveals are likely to or
will occur in the future. Although "predictable effects" might be
understood also to encompass future effects projected on the basis of empirical
data of actual effects, reliance upon such effects in assessing a measure's
compliance with Article XX(g) would also be fraught with the causation
difficulties identified by the Appellate Body in US – Gasoline.
5.101. Having explained our understanding
of Article XX(g), including our view that Article XX(g) always calls
for a holistic assessment of all of its constituent elements, we now turn to
China's claims that the Panel erred in its interpretation of certain terms in
Article XX(g). First, we address China's claim that the Panel erred in its
interpretation of the term "relating to", to the extent that this
interpretation required the Panel to limit its analysis to an examination of
the design and structure of China's export quotas.[565]
Second, we address China's claims that the Panel erred in its interpretation of
the phrase "made effective in conjunction with", by requiring a
separate and distinct inquiry into "even-handedness" and whether the
burden of conservation-related measures is distributed in a balanced way
between domestic and foreign consumers or producers, and by finding that it
must limit the analysis under its "even-handedness" test to
considering the design and structure of the measures.
5.102. China requests us to reverse the
Panel's interpretation of the term "relating to" in
Article XX(g) of the GATT 1994, "to the extent that this
interpretation required the Panel to examine solely
the structure and design of China's export quotas".[566]
5.103. We begin by observing that the
Panel's interpretation of the words "relating to" is set out in
paragraphs 7.279 to 7.293 of its Reports. China's appeal, however,
challenges only the Panel's articulation of its analytical framework for
assessing whether a challenged measure "relates to" conservation.
According to China, the errors in the Panel's approach are found in two
paragraphs of the Panel Reports. The first is the Panel's explanation
that:
… in assessing the existence and nature of the challenged measure's
relationship with conservation, the Panel must focus on
the "design and structure" of the measure. It is these
which, taken together with the measure's text, must demonstrate a clear link
with the conservation objective.[567]
5.104. The second example of the Panel's
erroneous approach is, according to China, found in the following explanation
by the Panel as to how it intended to apply Article XX(g) to China's
export quota on rare earths in order to ascertain whether that quota is a
measure "relating to" conservation:
The Panel recalls, however, that according to the Appellate Body, the
test for whether a challenged measure "relates to" conservation turns
on an examination of its "general design and structure", and in
particular on whether the measure is "disproportionately wide in its scope
and reach in relation to the policy objective of protection and
conservation" or whether, conversely, it is "reasonably related"
to the conservation objective, such that its relationship with conservation is
"close and real" and "substantial". As the Panel explained
in its discussion of the legal test, the test in
Article XX(g) focuses on the written measure, on the design and
architecture of the challenged export quota, and its operation,
while under the chapeau of Article XX the Panel will review the manner in
which the quota system is applied. As the Panel noted, the analysis
under subparagraph (g) does not require an evaluation of the actual
effects of the concerned measures. The Panel is thus not required to
examine whether a challenged measure has in fact improved the level of
conservation of exhaustible natural resources. There is therefore no need for
the Panel to decide, in quantitative or qualitative terms, precisely what level
of contribution a challenged measure has made to the conservation objective.
Instead, the Panel looks at the nature of the challenged
measures to determine whether, as a matter of design and architecture, they
assist, support or further the goal of conservation.[568]
5.105. As we have explained above, for a
measure to relate to conservation in the sense of Article XX(g), there
must be "a close and genuine relationship of ends and means".[569]
China accepts that this is the nexus required to satisfy the "relating
to" test of Article XX(g). However, according to China, the Panel's
statements quoted above illustrate the Panel's view that, as a general rule, in
order to ascertain whether there is a close and genuine relationship of ends
and means between a measure and its objective, it is appropriate for a panel
"to consider solely the 'general structure and
design' of the measure at issue".[570]
China also contends that the Panel considered that it was legally compelled to
disregard evidence regarding the effects of China's export quotas, as well as
the operation of the other elements of China's conservation scheme in the
marketplace. Thus, according to China, although the Panel correctly recognized
that a measure cannot be considered in isolation and without regard to its wider
regulatory context, the Panel did just that by asserting that it was legally
bound to examine only the text, structure, and design of the measure, and not
how the measure actually works in the context of China's comprehensive
conservation policy. According to China, this constitutes legal error. For
China, where evidence sheds light on how a measure actually operates, a proper
analysis under Article XX(g) of the GATT 1994 cannot end with
"abstract conclusions" about the design and structure of the measure.[571]
Unless a responding Member succeeds in showing that its measure relates to
conservation, based on its design and structure, or there is no evidence
regarding the operation of a regulatory scheme, a panel should also have regard
to how the regulatory scheme of trade and domestic measures operates in the
market as a means to the realization of conservation ends. In its arguments
supporting this allegation of Panel error, China adds that an analysis of the
"contribution" of a measure to the conservation of exhaustible
natural resources may also be used as a method of assessing whether there is a
close and genuine relationship of ends and means between the measure at issue
and the conservation objective.
5.106. The complainants assert that
China's claim that the Panel erred in its interpretation of the term
"relating to" is based on a misreading of the Panel's analysis.[572]
The complainants agree that a panel is not precluded from examining the effects
of a measure in an analysis under Article XX(g). However, once a panel is
satisfied that, due to a fundamental deficiency in the design and structure of
the measure, no genuine link between the measure and the conservation objective
can be established, other factors, such as the effects of the measure, are no
longer relevant. The complainants emphasize that Article XX(g) does not
establish an "effects" test. A panel's task under Article XX(g)
is to determine whether a measure has as its genuine objective the goal of
conservation. According to the United States, to make actual effects in
the marketplace a touchstone for making this determination would render the
task meaningless. The "vagaries of the market place" would mean that
measures that might at one point in time appear, based on empirical effects, to
"relate to" conservation might, at a different point in time, with
different data, appear not to "relate to" conservation, and would
also raise difficult questions of causation.[573]
The complainants also disagree with China's assertion that, to satisfy the
"relating to" requirement of Article XX(g), "it is enough
to show that a measure is apt to produce a contribution to the achievement of
its objective".[574]
The complainants consider it inappropriate to mix the concepts of
"relating to" and "contribution", and thus the proper interpretation
of Article XX(g) with that of Article XX(a), (b), and (d) of the
GATT 1994, because such mixing would result in an approach that ignores
important distinctions between the various subparagraphs of Article XX.[575]
5.107. In our view, two issues arise from
China's claim of error: (i) whether the Panel made the findings attributed
to it by China, i.e. that the assessment of whether a measure "relates
to" conservation must be limited to an examination of the design and
structure of the measure at issue; and (ii) whether it was proper for the
Panel to place an analytical emphasis on the design and structure of the
measures at issue. We address each of these issues in turn.
5.108. Concerning the first issue, we
observe that China is correct that the Panel indicated that an assessment of
whether a measure "relates to" conservation must focus on the design
and structure of that measure.[576]
The Panel additionally focused on the text of the challenged measure.[577]
However, the Panel did not state, as China contends[578],
that the assessment of whether a measure "relates to" conservation
must be limited to an examination of the design and structure of the measure at
issue. Nor do we read the Panel's reasoning as suggesting that it considered
itself legally compelled to disregard evidence of the effects of China's export
quotas, as well as of the operation of the other elements of China's
conservation scheme in the marketplace. Instead, in its interpretation of the
term "relating to", the Panel emphasized the need to make the
determination of whether a GATT-inconsistent measure "relates to"
conservation on a case‑by‑case basis. For example, the Panel remarked that the
"relating to" criterion must be considered by looking at the
challenged measures "in their policy and regulatory context, and not only
in isolation".[579]
The Panel added that the question of whether a given export quota relates to
the conservation of an exhaustible natural resource could only be answered on a
case-by-case basis, "by careful scrutiny of the factual and legal context
in a given dispute".[580]
The Panel also expressed the view that "a measure's compliance with
Article XX(g) can be determined only on the basis of a holistic assessment
of whether the challenged measure relates to the conservation of rare earths
and is made effective in conjunction with restrictions on domestic production
or consumption".[581]
5.109. Hence, based on our reading of the
Panel Reports, we consider it inaccurate to characterize the Panel's reasoning
as suggesting that it was required to limit its analysis to an examination of
the general design and structure of the measures at issue. We also do not read
the Panel's reasoning as suggesting that it considered itself precluded from
considering any evidence of the effects of the export quotas or other elements
of China's conservation scheme in the marketplace.
5.110. This brings us to the second issue
– whether the Panel's focus on the design and structure of the measure was
proper and, particularly, whether the Panel was correct in stating that
"the analysis under subparagraph (g) does not require an evaluation
of the actual effects of the concerned measures."[582]
5.111. As we have explained above, the
text of Article XX(g) does not prescribe a specific analytical framework
for assessing whether a measure satisfies the component requirements of that
provision. Nonetheless, we recall that the Appellate Body has consistently
emphasized the primacy of the design and structure of the measure at issue in
the assessment of whether that measure is related to the conservation of exhaustible
natural resources.[583]
In US – Shrimp, the Appellate Body
explained that it had to examine the relationship "between the general structure
and design of the measure here at stake … and the policy goal it purports to
serve".[584]
The Appellate Body has relied on its assessment of the design and
structure to determine that "[t]he means and ends relationship between
[the challenged measure] and the legitimate policy of conserving an
exhaustible, and, in fact, endangered species, is observably a close and real one".[585]
Similarly, in US – Gasoline, the
Appellate Body examined the design of the challenged measure.[586]
Moreover, the Appellate Body has also clarified that the legal characterization
of a measure cannot be contingent upon the occurrence of subsequent events.[587]
5.112. As we have stated above, by
focusing on the design and structure of the measure, particularly where a
measure is challenged "as such", a panel or the Appellate Body has
the benefit of an objective methodology for assessing whether a measure satisfies
the requirements of Article XX(g), thus diminishing the uncertainty that
would arise in basing such assessment on actual effects or the occurrence of
subsequent events. Furthermore, as explained above, Article XX(g) does not
prescribe an empirical effects test[588],
in particular, given the well-known problems associated with determining
causation.[589]
In any event, where the design and structure of a challenged measure clearly
illustrate the absence of a nexus between that measure and the conservation
objective, it would be difficult to attribute the evidence of positive effects
on conservation to that measure. As the Appellate Body has remarked, a
challenged measure that is merely incidentally or inadvertently aimed at a
conservation objective would not satisfy the "relating to"
requirement of Article XX(g) of the GATT 1994.[590]
5.113. Nevertheless, consideration of the
predictable effects of a measure, being those effects inherent in, and
discernible from, the design and structure of a measure, may be relevant for
the analysis under Article XX(g). Moreover, while panels are not required to examine empirical or actual effects in their assessment
of whether a measure "relates to" conservation within the meaning of
Article XX(g), panels are not precluded from doing so. For example, when
causation can be shown, actual effects may be used to confirm the predictable
effects of a challenged measure. Simply put, the question of whether a measure
"relates to" conservation must be answered on a case-by-case basis,
through careful scrutiny of the factual and legal context in a given dispute.
Due regard must also be paid to the words used by the WTO Members themselves to
express their intent and purpose.[591]
5.114. Based on the foregoing, we find
that the Panel did not err by considering that it should
focus on the design and structure of the measures at issue in its assessment of
whether those measures relate to the conservation of exhaustible natural
resources within the meaning of Article XX(g) of the GATT 1994.
Nor do we consider that the Panel erred in stating that "the analysis
under subparagraph (g) does not require an
evaluation of the actual effects of the concerned measures."[592]
However, we also wish to clarify that panels are not precluded from considering
evidence relating to the actual operation or the impact of the measure at issue
in an assessment under subparagraph (g).
5.115. Before concluding this part of our
analysis, we recall that China also expresses the view that a measure relates
to conservation whenever the measure "contributes" to the realization
of a Member's conservation goals. China further suggests that a measure's
contribution to such goals might be demonstrated through a showing of that
measure's aptness to contribute to conservation, since the results of
regulatory actions aimed at conservation may not be immediately observable.[593]
China avers that, owing to the similarities between the language that the
Appellate Body has used in discussing the "contribution" element
of the "necessity" test in Article XX(b), on the one hand, and that used in the context
of the "relating to" test in Article XX(g) of the
GATT 1994, on the other hand, the concepts of "relating to" and
"contribution" are closely linked.[594]
5.116. Article XX(b) of the
GATT 1994 is concerned with measures that are "necessary" to protect
human, animal, or plant life or health, whereas Article XX(g) of the
GATT 1994 is concerned with measures "relating to" the
conservation of exhaustible natural resources. In the light of the different
connecting words used, we consider that a mixing of the different tests under
Article XX(b) and Article XX(g), absent of context, would result in
an approach that ignores the important distinctions between the various
subparagraphs of Article XX.[595]
Furthermore, we note that "contribution" is only one aspect of the
"weighing and balancing" analysis called for in an assessment of
"necessity" under Article XX(b).[596]
Hence, even if one were to contemplate applying the analytical framework for
the "necessity" test to determine whether a measure "relates
to" conservation, China has not persuaded us that a piece-meal application
of a single element of the "necessity" test, absent of context,
suffices.
5.117. We stress that our statements above
are not intended to suggest that an examination of the "contribution"
that a challenged measure makes to a conservation objective could never be
useful in assessing whether a "close and genuine relationship of ends and
means" exists between that measure and the conservation objective for the
purposes of Article XX(g). Nevertheless, in our view, using a
"contribution" test for the "relating to" analysis, is not,
by itself, an appropriate substitute for a holistic assessment of whether a
measure has a close, genuine, and substantial relationship to conservation for
the purposes of Article XX(g).
5.118. For the reasons set out above, we
reach the following conclusions regarding the Panel's interpretation of the
term "relating to" in Article XX(g) of the GATT 1994. We
find it inaccurate to characterize the Panel's reasoning as suggesting that it
considered itself required to limit its analysis to an examination of the
general design and structure of the measures at issue. Nor do we read the
Panel's reasoning as suggesting that the Panel considered itself precluded from
examining evidence of the effects of China's export quotas as well as of the
operation of the other elements of China's conservation scheme in the
marketplace. Accordingly, we find that the Panel did not err by considering
that it should focus on the design and structure of the export quotas in its
assessment of whether those measures relate to the conservation of exhaustible
natural resources within the meaning of Article XX(g) of the
GATT 1994. In addition, we find that the Panel did not err in stating that
"the analysis under subparagraph (g) does not require an evaluation
of the actual effects of the concerned measures."[597]
5.119. China alleges that the Panel erred
in its interpretation of the second clause of Article XX(g) of the GATT
1994 for two reasons. First, China alleges that the Panel erred in finding an
"additional" requirement of "even-handedness", and
requiring that the burden of conservation-related measures be distributed in a
balanced way between domestic and foreign consumers or producers.[598]
Second, China asserts that the Panel erred in limiting its analysis to an
examination of the general design and structure of China's export quotas, to
the exclusion of evidence regarding the effects of such quotas in the
marketplace.[599]
5.120. In support of its first allegation
of error, China contends that, in interpreting the clause "made effective
in conjunction with restrictions on domestic production or consumption" in
subparagraph (g), the Panel identified three separate requirements that a
respondent must demonstrate: (i) that the inconsistent border restriction
"relates to the conservation of exhaustible natural resources"; (ii)
that the inconsistent border restriction is "made effective in conjunction
with restrictions on domestic production or consumption"; and (iii) that
there is "even-handedness", that is, proof that the burden of
conservation is evenly distributed. For China, the Panel's approach is
erroneous because there is no such third requirement. "Even‑handedness"
is a relevant part of an Article XX(g) defence, but not in the way that
the Panel defined it. For China, "even-handedness" is simply a
shorthand way of referring to the fact that the restrictions on imports or
exports must work "in conjunction with" domestic restrictions. In
China's view, there is no additional requirement to show that the respective
burdens imposed on foreign consumption, on the one hand, and domestic
production or consumption, on the other hand, are equivalent or balanced.
5.121. The complainants consider the
Panel's approach to be correct and consistent with previous jurisprudence on
Article XX(g). The United States contends that subparagraph (g) requires broad
structural correspondence between the non-conforming measure and the domestic
restriction to determine if the former operated "in conjunction with"
the latter.[600]
Japan argues that the burden of conservation must be distributed in a balanced
manner between foreign and domestic consumers, and that it would be difficult
to see how a trade measure can work together with restrictions on domestic
production or consumption if this balance is missing.[601]
The European Union submits that, where measures pursuing conservation
objectives differ for goods intended for export and goods intended for domestic
consumption, any substantial structural incoherence between the ways in which
each set of restrictions tries to achieve the conservation goal raises doubts
as to whether the measures are genuine conservation measures, and that,
therefore, the issue of balance or coherence between the two sets of
restrictions is a critical part of the assessment to be made under subparagraph
(g).[602]
5.122. In our view, China's appeal
requires us to consider three distinct questions. First, the question of
whether the Panel erred in considering the "even-handedness"
requirement to be a separate requirement that had to be fulfilled in addition
to the conditions expressly set out in Article XX(g). Second, the substantive
question of whether the Panel correctly understood the nature of the balance
that Article XX(g) requires. Third, whether the Panel erred in finding that it
must limit its analysis under the second clause of Article XX(g) to an examination
of the general design and structure of China's export quotas, to the exclusion
of evidence regarding the effects of these quotas in the marketplace.
5.123. We begin with the first question,
that is, whether the Panel considered the "even-handedness requirement"
to be a separate requirement that must be fulfilled in addition to the
conditions expressly set out in Article XX(g). We recall that
"even-handedness", in the context of Article XX(g), was first
referred to by the Appellate Body in US – Gasoline.
At the end of its interpretation of Article XX(g), the Appellate Body concluded
by stating:
[T]he clause "if such measures are made effective in conjunction
with restrictions on domestic product or consumption" is appropriately
read as a requirement that the measures concerned impose restrictions, not just
in respect of imported gasoline but also with respect to domestic gasoline. The
clause is a requirement of even-handedness
in the imposition of restrictions, in the name of conservation, upon the
production or consumption of exhaustible natural resources.[603]
5.124. The term "even-handedness" was used in US –
Gasoline as a synonym
or shorthand reference for the requirement in Article XX(g) that restrictions
be imposed not only on international trade but also on domestic consumption or
production. As we see it, "even-handedness" is not a separate
requirement to be fulfilled in addition to the conditions expressly set out in
subparagraph (g).
Rather, and in keeping with the Appellate Body report in US –
Gasoline, the terms of Article XX(g) themselves embody a requirement
of even-handedness in the imposition of restrictions.
5.125. We note that the Panel explained
its understanding of the "even-handedness" requirement in the context
of its interpretation of Article XX(g). That section of the Panel Reports
contains three subsections: first, a subsection entitled "Meaning of
'relating to the conservation of exhaustible natural resources'"; second,
a subsection entitled "Meaning of 'made effective in conjunction with
restrictions on domestic production or consumption'"; and, third, a
subsection entitled "The 'even‑handedness' requirement". Further, we
note the Panel's statement that "the even‑handedness requirement is to be
read together with the requirement that the challenged border restriction be
made effective in conjunction with domestic restrictions."[604]
These aspects of the Panel's analysis seem to suggest that the Panel regarded
the "even-handedness" requirement as a separate and additional
requirement to be fulfilled for a defence under subparagraph (g) to succeed. In
contrast, the Panel also stated that it understood the "'even-handedness'
test to be a synonym for the second part of subparagraph (g)".[605]
This statement seems to indicate that the Panel understood the second clause of
Article XX(g), itself, to be the "even-handedness" requirement.
5.126. It is therefore not clear from the
structure of the Panel Reports and the Panel statements identified above
whether the Panel considered the "even-handedness" requirement to be
a separate requirement that had to be fulfilled in addition to the conditions
expressly set out in subparagraph (g) as China alleges, or whether it
considered the second clause of subparagraph (g), itself, to be the
"even‑handedness" requirement. The Panel's reasoning seems
inconsistent in this regard.
5.127. In any event, we emphasize that we do not see the notion of "even-handedness" as imposing a
separate requirement that must be fulfilled in addition to the condition that a
measure be "made effective in conjunction with restrictions on domestic
production or consumption". Rather, and in keeping with the Appellate Body
report in US – Gasoline, the terms of Article
XX(g) themselves reflect the notion of even-handedness in the imposition of
restrictions. Accordingly, we find that the Panel erred to the extent that it
found that "even-handedness" is a separate requirement that must be
fulfilled in addition to the condition that a measure be "made effective
in conjunction with restrictions on domestic production or consumption".
5.128. Turning to the second question, we
consider whether the Panel correctly understood the balance that Article XX(g)
requires, and in particular whether such balance requires a Member seeking to
justify its GATT-inconsistent measure under Article XX(g) to demonstrate that
the burden of conservation is evenly distributed. China alleges that the Panel
erred in so finding. China emphasizes that, in discussing the balance required
under Article XX(g), the Appellate Body has consistently found that there must be
a measure that works together with the impugned measure towards conservation,
but has not required, in addition, a balancing of the relative burdens imposed
through the foreign and domestic restrictions.[606]
5.129. We begin by noting that, in its
analysis of the phrase "made effective in conjunction with", the
Panel used a number of different expressions to describe the way in which the
GATT-inconsistent measure and the domestic restriction must work together in
order to meet the conditions laid down in the second clause of Article XX(g).
However, the Panel did not define these various different expressions and it is
not clear from the Panel's analysis whether or how the various concepts listed
differ, or whether the Panel envisaged that the conditions of the various
concepts must be met alternatively or cumulatively. For instance, the Panel
stated that the phrase "made effective in conjunction with" requires
"cooperation between the two measures", and it found that
restrictions on international trade and domestic restrictions must
"somehow help or reinforce one another", or "cooperate
with" each other.[607]
The Panel also found that "working together" requires some
"positive interaction, mutual reinforcement, complementarity, and coherent
cooperation".[608]
These statements appear to be in keeping with the Appellate Body's
interpretation of Article XX(g) in previous disputes. In any event, China has
not appealed this part of the Panel's analysis.
5.130. Subsequently, in its analysis of
the "even-handedness" requirement, the Panel stated that China needed
to demonstrate that the export quota was "somehow balanced" with one
or more measures imposing restrictions on domestic users.[609]
The Panel considered that this required an investigation into the
"regulatory" or "structural" balance.[610]
The Panel added that subparagraph (g) also requires a Member seeking to
justify its measures to:
… show that, in addition to its GATT-inconsistent measures, it has also
imposed real conservation restrictions on the domestic production or
consumption of the resource subject to its GATT-inconsistent measures. These
domestic measures must distribute the burden of conservation between foreign
and domestic consumers in an even‑handed or balanced manner.[611]
In addition, in its
assessment of the measures at issue, the Panel found with respect to all three
groups of products that, "[f]rom a structural perspective, China's [extraction
and] production restrictions … do not counterbalance its export
restrictions"[612],
and referred, in a general sense, to subparagraph (g) as seeking to ensure that
the "burden is distributed in an even‑handed manner between foreign and
domestic users".[613]
The Panel also referred to an "uneven burden … without any equivalent,
counterbalancing burden".[614]
5.131. The meaning of these statements of
the Panel is not entirely clear, and they may be read as expressing different
concepts. Accordingly, it is difficult to judge whether and to what extent
these statements are consistent with the Appellate Body's interpretation of
Article XX(g). If understood as meaning that, in the absence of domestic
restrictions, a GATT-inconsistent measure cannot satisfy the second clause of
subparagraph (g), the Panel's statement that, "[f]rom a structural
perspective, China's extraction and production restrictions do not counterbalance
its export restrictions" does not seem problematic. However, when read
jointly with the Panel's statement that Article XX(g) seeks to ensure that the
"conservation burden is distributed in an even-handed manner between
foreign and domestic users", the same statement may be read to imply that
the export restrictions and domestic measures must evenly distribute the burden
of conservation, for instance, between foreign consumers, on the one hand, and
domestic producers or consumers, on the other hand. Read in that way, the
Panel's statements would raise concerns.
5.132. We recall our interpretation of the
clause "made effective in conjunction with restrictions on domestic
production or consumption" in Article XX(g). We consider that the phrase
"made effective in conjunction with" requires that, when
international trade is restricted, effective restrictions are also imposed on
domestic production or consumption. Just as GATT‑inconsistent measures impose
limitations on international trade, domestic restrictions must impose
limitations on domestic production or consumption. In other words, to comply
with the "made effective" element of the second clause of
Article XX(g), a Member must impose "real" restrictions on
domestic production or consumption that reinforce and complement the
restriction on international trade[615],
and particularly so in circumstances where domestic consumption accounts for a
major part of the exhaustible natural resource to be conserved.
5.133. In previous appeals, in which
Members sought to justify measures imposing restrictions on imported goods
under Article XX(g), the Appellate Body has examined in some detail the
restrictive nature of the measures imposed on domestic producers. In US – Gasoline and US – Shrimp,
for example, consideration of the restrictive nature of the measures imposed on
domestic producers was relevant to the Appellate Body's analysis of whether the
measures affecting domestic producers were restrictions, as well as to the
Appellate Body's analysis under the chapeau of Article XX. However, the
Appellate Body neither assessed whether the burden of conservation was evenly
distributed between foreign producers, on the one hand, and domestic producers
or consumers, on the other hand, nor suggested that such an assessment was
required.
5.134. In other words, the Appellate
Body's reasoning does not suggest that Article XX(g) contains a requirement
that the burden of conservation be evenly distributed, for instance, in the
case of export quotas, between foreign consumers, on the one hand, and domestic
producers or consumers, on the other hand. Having said that, we note that it
would be difficult to conceive of a measure that would impose a significantly
more onerous burden on foreign consumers or producers and that could still be
shown to satisfy all of the requirements of Article XX(g).
5.135. This understanding of subparagraph
(g) is also confirmed by the context provided by the chapeau of Article XX.[616]
The chapeau of Article XX requires that measures falling within the ambit of
Article XX of the GATT 1994 are not applied in a manner that would constitute
either a means of arbitrary and unjustifiable discrimination between countries
where the same conditions prevail, or a disguised restriction on international
trade. In order to comply with Article XX, a measure needs to fulfil
cumulatively the conditions specified both in subparagraph (g) and in the
chapeau. If, however, subparagraph (g) itself required an analysis of
whether the burden of conservation is evenly distributed, this could entail
duplication of the analysis to be conducted under the chapeau, in particular in
cases involving discriminatory measures. This would not comport with the
principle of effective treaty interpretation.
5.136. Accordingly, we consider that the
clause "made effective in conjunction with restrictions on domestic
production or consumption" requires that, when GATT-inconsistent measures
are in place, effective restrictions must also be imposed on domestic
production or consumption. Just as GATT-inconsistent measures impose limitations
on international trade, domestic restrictions must impose limitations on
domestic production or consumption. Such restrictions must be "real"
rather than existing merely "on the books", particularly in
circumstances where domestic consumption accounts for a major part of the
exhaustible natural resources to be conserved. Moreover, such restrictions on
domestic production or consumption must reinforce and complement the
restriction on international trade. However, we have also clarified that
Article XX(g) does not require a Member seeking to justify its measure to
establish that its regulatory regime achieves an even distribution of the
burden of conservation. Accordingly, we find that the Panel erred to the extent
that it found that the burden of conservation must be evenly distributed, for
example, between foreign consumers, on the one hand, and domestic producers or
consumers, on the other hand.
5.137. Finally, we address China's
allegation that the Panel erred in its interpretation in finding that it must
limit its analysis under the second clause of subparagraph (g) of Article XX of
the GATT 1994 to an examination of the general design and structure of
China's export quotas, to the exclusion of evidence regarding the effects of
such quotas in the marketplace.[617]
China takes issue with, inter alia, the
following statements made by the Panel:
The Panel's task under subparagraph (g) is limited to determining
whether China's regulatory system balances conservation-related regulatory
burdens between foreign and domestic users; the Panel is not required under
subparagraph (g) to consider the actual effects which a regulatory
structure has in the marketplace. Such effects are properly examined under the
chapeau of Article XX.[618]
These domestic measures must distribute the burden of conservation
between foreign and domestic consumers in an even-handed or balanced manner.
However, "even‑handedness" under subparagraph (g) does not
require the Panel to assess the effects of the concerned restrictions. Instead,
the relevant "balance" or "even-handedness" under
subparagraph (g) is structural or regulatory. The balanced or even-handed
nature of the domestic and foreign restrictions should be evident from the
design, structure, and architecture of the challenged measure. Therefore, the
Panel believes that issues relating to the effects of China's challenged export
quotas on prices, as well as the question why the challenged export quotas were
not filled and what effect if any an unfilled export quota has on foreign
consumers, are concerned with the application and effects of the challenged
export quotas, which are properly assessed under the chapeau of
Article XX.[619]
5.138. We begin by noting the similarities
between this claim of error by China and its claim that the Panel erred in its
interpretation of the "relating to" requirement of Article XX(g). We
recall that, in addressing China's claim regarding the interpretation of the term
"relating to" above, we have found that, although the assessment
under Article XX(g) of the GATT 1994 does not require an examination
of the actual effects of the challenged measure, a panel is not precluded from
examining evidence of such effects.[620]
We also explained that, while the legal characterization of a measure cannot be
contingent upon the occurrence of subsequent events, the predictable effects of
a measure – those that are discernible from its design and structure – may
still be relevant to an assessment of whether a measure satisfies the
conditions prescribed in Article XX(g). These considerations apply equally to
the assessment of whether the measure at issue "relates to" the
conservation of exhaustible natural resources and to the assessment of whether
the responding Member imposes real restrictions on domestic producers or
consumers that are "made effective in conjunction with" the measure
at issue.
5.139. We note that the Panel repeatedly
emphasized that it had to focus its analysis on the "structure, design,
and architecture" of the measure.[621]
The Panel also emphasized that such analysis "does not entail any form of
'effects test'".[622]
In addition, the Panel stated that it is "not required under
subparagraph (g) to consider the actual effects which a regulatory
structure has in the marketplace" and that "[s]uch effects are
properly examined under the chapeau of Article XX."[623]
5.140. Contrary to what China suggests,
however, the Panel did not state that "a panel is precluded from examining
the market 'effects' of domestic and export restrictions under the second
clause of Article XX(g)."[624]
We read the Panel's explanations of its approach as revealing that, while the
Panel considered that evidence relating to the actual operation and impact of
the measure at issue was primarily relevant to the analysis under the chapeau
of Article XX, it did not consider itself precluded from considering such
evidence in the context of the analysis under subparagraph (g). Moreover, we do
not read the Panel's statement that effects are properly examined under the
chapeau of Article XX as suggesting that effects could only
be examined under the chapeau.[625]
Accordingly, we find that the Panel did not err in focusing on the design and
structure of the measures at issue in its analysis under subparagraph (g).
5.141. In sum, we find that the Panel
erred to the extent that it found that "even-handedness" is a separate
requirement that must be fulfilled in addition to the condition that a measure
be "made effective in conjunction with" restrictions on domestic
production or consumption, and to the extent that it found that Article XX(g)
requires the burden of conservation to be evenly distributed, for instance,
between foreign consumers, on the one hand, and domestic producers or
consumers, on the other hand. However, other elements of the Panel's
interpretation of the phrase "made effective in conjunction with" appear
to be in keeping with the Appellate Body's interpretation of Article XX(g). We
consider that, to the extent that the Panel erred, such error does not taint
the remaining elements of the Panel's interpretation of the second clause of subparagraph
(g). In any event, we note that China's appeal does not concern those other elements.
Furthermore, we find that the Panel did not err in focusing on the design and
structure of the measures at issue in its analysis of Article XX(g) of the
GATT 1994.
5.142. Having addressed China's claims
that the Panel erred in its interpretation of the terms "relating to"
and "made effective in conjunction with" in Article XX(g) of the GATT
1994, we now direct our attention to China's claims that the Panel erred in its
application of the legal standard under Article XX(g) to the facts of this
case. First, we examine China's claim that the Panel erred in its application
of the legal standard of "relating to" with particular respect to the
"signalling function" of China's export quotas on rare earths and
tungsten. Second, we address China's claim that the Panel erred in its
application of the legal standard for "made effective in conjunction
with" to China's export quotas on rare earths, tungsten, and molybdenum.
5.2.7.2 China's claim that the Panel erred in its application
of the "relating to" requirement
5.143. China requests us to reverse the
Panel's findings that China's export quotas on rare earths and tungsten do not
"relate to" conservation within the meaning of Article XX(g) of
the GATT 1994 by virtue of their signalling function.[626]
In particular, China challenges the following intermediate finding by the
Panel:
The Panel agrees with China that its export quota may signal to the
world its limited resources and its conservation policy, but China has not been
able to demonstrate how it manages to tackle the perverse signals that export
quotas usually send to domestic consumers. The Panel therefore does not accept
China's argument that its export quota relates to conservation by virtue of its
signalling function.[627]
5.144. China raises two sets of issues in
its claim. First, China submits that, because of the Panel's incorrect
interpretation that "subparagraph (g) does not require an evaluation
of the actual effects of the concerned measures"[628],
the Panel did not move beyond an examination of the design and structure of
China's export quotas by testing to see whether: (i) the theoretical
"perverse signals" were actually present in the marketplace for rare
earths and tungsten; and (ii) there was in fact a risk that "perverse
signals" sent by export quotas to domestic users might offset the positive
effect of conservation signals to foreign users. Second, China contends that,
even limiting the analysis to the elements of design and structure of the
export quotas, the Panel erred because: (i) the Panel's own factual findings
based on the design and structure were sufficient for it to conclude that
China's export quotas relate to conservation based on the finding that the
quotas can send effective conservation signals to foreign users; and (ii) even
if the Panel were right that the general effect of export quotas is to send a
"perverse signal" to domestic users, the Panel also found that China
maintains a comprehensive conservation programme and such conservation
programme is clearly capable of mitigating such perverse effects.
5.145. The complainants request us to
reject China's arguments and to uphold the relevant Panel findings and
conclusions. The complainants stress that the reasoning of the Panel with
respect to "signalling" is only part of the Panel's analysis of the
"relating to" requirement, and that China's appeal focuses on
isolated fragments of the Panel's reasoning. The complainants also point out
that, contrary to China's assertion, the Panel did not conclude that it was
precluded from reviewing China's evidence. Moreover, the Panel did, in fact,
review the evidence provided by China, but still found that China had failed to
show how its export quotas, in their design and structure, relate to
conservation. The complainants also contest China's assertion that the Panel
found that China's export quotas on rare earths and tungsten can send effective
conservation signals to foreign users.
5.146. Before turning to the two sets of
issues raised by China, we consider it useful to underline once again the
limited scope of China's appeal in this regard. Although China requests a
reversal of the Panel's findings that China's export quotas on rare earths and
tungsten do not satisfy the "relating to" requirement of
Article XX(g), China's appeal takes issue with only limited aspects of the
reasoning underlying these findings.[629]
Furthermore, in response to questioning at the oral hearing, China acknowledged
that even the requested reversal of the Panel's findings would, if accepted,
not affect the ultimate conclusion of the Panel under Article XX(g) of the
GATT 1994. According to China, its main concern in challenging these Panel
findings is that they suggest that export quotas are per se
incapable of justification under Article XX of the GATT 1994.
5.147. We start by recalling our finding,
in paragraph 5.118 above, that it is inaccurate to characterize the Panel's
reasoning as suggesting that the Panel considered itself required to limit its
analysis to an examination of the general design and structure of the measures
at issue. Nor do we read the Panel's reasoning as suggesting that the Panel
considered itself legally compelled to disregard evidence of the effects of
China's export quotas as well as of the operation of the other elements of
China's conservation scheme in the marketplace. We have also found that the
Panel did not err by considering that it should focus on the design and structure
of the export quotas in an assessment of whether those measures relate to the
conservation of exhaustible natural resources within the meaning of
Article XX(g) of the GATT 1994. In addition, we have found that the Panel
did not err in stating that "the analysis under subparagraph (g) does
not require an evaluation of the actual effects of the concerned
measures".[630]
We have clarified, however, that a panel is not precluded from examining
evidence of such effects.
5.148. Bearing these findings in mind, we
observe that China argued before the Panel that its export quotas on rare
earths and tungsten relate to conservation because they send a conservation
"signal" to foreign consumers. China explained that the export quotas
contributed to the effectiveness of China's overall conservation policy by
signalling to foreign users the need to explore other sources of supply,
including substitutes and recycling.[631]
The complainants, on their part, argued before the Panel that, while an export
quota may send a conservation-related signal to foreign users, it
simultaneously signals to domestic consumers that they should increase their
consumption of the product concerned. According to the complainants, such
"perverse signals" contradicted China's claim that its export quotas
relate to conservation[632],
particularly given that most rare earths and tungsten produced in China are
consumed in China.
5.149. In respect of China's export quota
on rare earths, the Panel found that:
… China has not demonstrated that, in the design of its export quota and
its conservation programme more generally, there is any mechanism to ensure
that the export quota and the extraction and/or production caps will work
together in such a way as to counteract the perverse signals sent by its export
quota to domestic consumers. As such, the Panel considers that the risk of
perverse signals is real, and this casts doubt on China's claim that the export
quota "relates to" conservation.
The Panel takes note of China's indication that various rare earth
recycling projects, efforts to modify industrial designs of downstream products
so that they use less rare earths, and developments of rare earth substitutes
are under way. The Panel acknowledges that these efforts may go a long way
towards furthering what all involved in this dispute recognize is China's bona fide conservation policy. Nevertheless, our
consideration of the design and architecture of China's export quota on rare
earths does not convince us that the export quota is designed in such a way as
to ensure that domestic demand is not stimulated by low prices. There does not
appear to be any mechanism to ensure that the export quota is set at such a
level that, in combination with the extraction and/or production caps, no
perverse incentives will be sent to domestic consumers.[633]
5.150. With respect to China's export
quota on tungsten, the Panel found:
The Panel has dealt with the argument that export quotas send a
"signal" to foreign users above in its analysis of the export quota
on rare earths, and considers that what was said there applies with equal force
here. While the Panel accepts that export quotas do or at least can send
conservation-related signals to foreign users, the Panel is concerned that such
quotas can also send perverse signals to domestic consumers, and can even
stimulate domestic demand, contrary to China's stated conservation goals.
Moreover, the Panel has explained above why the imposition of an extraction
and/or a production quota may not suffice to counteract or offset such perverse
incentives. As was the case in the context of rare earths, the Panel is not
convinced that the design and architecture of China's export quotas, even taken
together with the extraction and production caps, is such as to counteract the
perverse signals which are generally sent by export quotas. As such, the Panel
has difficulty concluding that the export quota on tungsten, which risks
encouraging or stimulating domestic demand and even leading, in the
medium-long-term, to more, rather than less, illegal extraction and production,
can be said to "relate to" conservation for the purposes of
Article XX(g).[634]
5.151. On appeal, it is China's contention
that, due to the Panel's error of interpretation in holding that
"subparagraph (g) does not require an evaluation of the actual
effects of the concerned measures"[635],
the Panel failed to go beyond an examination of the design and structure of
China's export quotas on rare earths and tungsten to test whether the
theoretical "perverse signals" sent by the export quotas were
actually present in the marketplace for those products.[636]
For China, this error of interpretation also led the Panel to fail to engage
with considerable evidence on how China's measures work as part of China's
comprehensive conservation policy in the context of the reality of the Chinese
and world markets for rare earths and tungsten. As part of this context, China alleges that it: (i) provided extensive evidence on
the operation and the effects of domestic extraction and production caps on
rare earths; (ii) demonstrated that it has in place mechanisms to enforce these
caps and has taken regular enforcement actions to combat illegal mining and
production; and (iii) provided evidence demonstrating the effects of these
measures, including of a decline in the extraction and production of rare
earths.[637]
5.152. Our review of the Panel's analysis
reveals that the Panel indeed focused on the design and structure of the export
quotas on rare earths and tungsten in arriving at its conclusion that China had
not demonstrated that these export quotas do not "relate to"
conservation by virtue of their "signalling" function. For the same
reasons as set out above in our consideration of the Panel's alleged error of
interpretation, this focus, in and of itself, does not constitute an error by
the Panel in its application of the "relating to" requirement of
Article XX(g). More importantly, we do not agree with China's contention
that the Panel's focus on the design and structure of China's export quotas
meant that it failed to engage with the evidence submitted by China. Indeed, we
note that the Panel in fact considered evidence submitted by China regarding
the operation of China's export quotas and its interaction with China's
extraction and production quotas. We address this issue in more detail in our
analysis of China's claims under Article 11 of the DSU below.
5.153. In sum, we do not agree with
China's contention that the Panel applied an incorrect legal standard that
limited its analysis to an examination of the design and structure of China's
export quotas only, or that this prevented the Panel from engaging with
evidence of the broader operation of China's conservation regime.
5.154. We turn to China's second
contention that, even limiting the analysis to the elements of design and
structure, the Panel erred because: (i) the Panel's own factual findings based
on the design and structure of China's export quotas on rare earths and
tungsten were sufficient for it to conclude that these export quotas relate to
conservation based on the finding that the quotas can send effective
conservation signals to foreign users; and (ii) even if the Panel were right
that a general effect of export quotas is to send a "perverse signal"
to domestic users, the existence of China's comprehensive conservation
programme is capable of mitigating such perverse effects.
5.155. China points to paragraphs 7.443
and 7.725 of the Panel Reports in making its allegation that the Panel should
have found that the design and structure of China's export quotas "relate
to" conservation "based on its finding that the quotas can send
effective conservation signals to foreign users".[638] These paragraphs read, in relevant
part:
The Panel accepts China's
argument that encouraging foreign users and investors to explore alternative
sources of supply could relate to the goal of conserving China's exhaustible
natural resources, since the development of alternative supply sources would
"relieve the pressure on" China's own rare earth supplies.[639]
The Panel has dealt with
the argument that export quotas send a "signal" to foreign users
above in its analysis of the export quota on rare earths, and considers that
what was said there applies with equal force here. While the Panel accepts that
export quotas do or at least can send conservation-related signals to foreign
users, the Panel is concerned that such quotas can also send perverse signals
to domestic consumers, and can even stimulate domestic demand, contrary to
China's stated conservation goals. Moreover, the Panel has explained above why
the imposition of an extraction and/or a production quota may not suffice to
counteract or offset such perverse incentives. … As such, the Panel has
difficulty concluding that the export quota on tungsten, … can be said to
"relate to" conservation for the purposes of Article XX(g).[640]
5.156. We consider China's representation
of the Panel's findings to be inaccurate. The Panel did not find that export quotas
can send "effective conservation signals to
foreign users".[641] Rather, while the Panel acknowledged that "export quotas do or at
least can send conservation-related signals to foreign users", the Panel
also noted that this was undermined by the "perverse signals" that
export quotas are liable to send to domestic consumers. The Panel considered
that export quotas also "stimulate
domestic consumption by effectively reserving a supply of low-price raw
materials for use by domestic downstream industries".[642] The Panel further found that the export quotas "may also encourage
relocation of rare earth-consuming industries to China".[643] China's contention that the Panel's finding that "export quotas do
or at least can send conservation-related signals to foreign users" should
have been sufficient for the Panel to find that China's export quotas relate to
conservation fails to acknowledge important elements of the Panel's reasoning
in this regard. In particular, while it is accepted that, in principle,
encouraging foreign users to explore alternative sources of supply
"could" relate to a conservation objective, and that export quotas
"can" send such a signal, the Panel did not find that China's export
quotas do send such signals, much less that
such signals are "effective".[644] Furthermore, these Panel findings were coupled with its additional
determination that any conservation-related signals sent by the export quotas were,
in any event, undermined by the "perverse signals" that the export
quotas are liable to send to domestic users.[645] Accordingly, we do not consider that China has demonstrated that the
Panel erred in its application of the law to the facts on this point.
5.157. We turn now to China's additional
argument that, even if the Panel were right that the general effect of export
quotas is to send "perverse signals" to domestic users, the existence
of China's comprehensive conservation programme is capable of mitigating such "perverse
signals". China's
position is that, even if it were relevant to consider the relationship between
the "perverse signals" of the export quotas, on the one hand, and
domestic conditions that might mitigate such signals to domestic users, on the
other hand, the Panel should have found – purely as a matter of design and
structure – that China's regime "relates to" conservation, because
there are domestic production caps that could mitigate any "perverse
signals". Based on this argument that production caps could, in principle,
mitigate the "perverse signals" found by the Panel to exist, China
contends that the theoretical "sum" of the design and structure of
this regulatory regime is that it is one "apt" to make a positive
overall contribution to the realization of China's conservation ends.[646]
5.158. In connection with this argument,
China challenges the reasoning of the Panel as set out at paragraphs 7.446 and
7.725 of its Reports. These paragraphs read, in relevant part:
… While it may be true that extraction and/or production quotas could, in theory, counteract the perverse
signals sent by export quotas to domestic consumers, it seems to us that
whether or not a production quota coupled with an export quota cuts domestic
consumption depends entirely on the level at which the production quota is set
and the way in which the export and production quotas interact. According to
[the expert report submitted by the complainants as Panel] Exhibit JE‑183,
if the production quota is very tight, it will reduce domestic consumption. At
more generous levels, however, it may not reduce consumption at all, or it may
reduce it while still leaving it above the level it would be in the absence of
export restrictions.[647]
The Panel has dealt with the argument that export quotas send a
"signal" to foreign users above in its analysis of the export quota
on rare earths, and considers that what was said there applies with equal force
here. While the Panel accepts that export quotas do or at least can send
conservation-related signals to foreign users, the Panel is concerned that such
quotas can also send perverse signals to domestic consumers, and can even
stimulate domestic demand, contrary to China's stated conservation goals.
Moreover, the Panel has explained above why the imposition of an extraction
and/or a production quota may not suffice to counteract or offset such perverse
incentives. As was the case in the context of rare earths, the Panel is not
convinced that the design and architecture of China's export quotas, even taken
together with the extraction and production caps, is such as to counteract the
perverse signals which are generally sent by export quotas. As such, the Panel
has difficulty concluding that the export quota on tungsten, which risks
encouraging or stimulating domestic demand and even leading, in the
medium-long-term, to more, rather than less, illegal extraction and production,
can be said to "relate to" conservation for the purposes of
Article XX(g).[648]
5.159. The Panel thus found that whether
or not the production quotas could counteract the "perverse signals"
generated by export quotas to domestic consumers depended on: (i) the level at
which each production quota was set; and (ii) the way in which the export and
production quotas interact. This shows that, contrary to what China suggests,
the Panel considered that the mere existence of China's domestic production
caps, alone, would not necessarily mitigate any "perverse signals"
that flow from China's export quotas. Indeed, this uncertainty regarding the
levels of the export and production quotas led the Panel to highlight its
concern about the absence of "any mechanism to ensure that the export
quota is set at such a level that, in combination with the extraction and/or
production caps, no perverse incentives will be sent to domestic
consumers".[649]
Hence, following our review of the Panel's analysis, we are not persuaded by
China's argument that the Panel should have found – purely as a matter of
design and structure – that China's regime relates to conservation because
there are domestic production caps that could mitigate any "perverse
signals" that exist.
5.160. For all of the reasons discussed
above, we do not share China's view that the Panel erred in its application of
the "relating to" requirement in Article XX(g) of the
GATT 1994. In particular, we do not agree with China's contention that the
Panel applied an incorrect legal standard that limited its analysis to an
examination of the design and structure of China's export quotas only, and that
this prevented the Panel from engaging with evidence of the broader operation
of China's conservation regime. We also consider that the Panel did not, as suggested by China, find that export quotas can send
effective conservation signals to
foreign users. Additionally, we are not persuaded by China's argument that the
Panel should have found – purely as a matter of design and structure – that
China's regime relates to conservation because the existence of domestic
production caps mitigate any "perverse signals" sent to domestic
consumers by the export quotas.
5.161. Before concluding our analysis, we
briefly address China's concern that the Panel's findings suggest that export
quotas are per se incompatible with Article XX
of the GATT 1994, and that this prevents China from having any "realistic
implementation options".[650]
We take note of the following remarks by the Panel:
[I]n principle, Article XX is available as a defence to any and
every kind of GATT‑inconsistent trade measure, including export quotas. The
Panel's analysis in this case – or, indeed, the analyses of other panels and
the Appellate Body in prior cases – should not be understood as suggesting that
export quotas can never relate to conservation.[651]
5.162. We concur with these remarks by the
Panel. Article XX(g) of the GATT 1994 does not exclude, a priori, export quotas or any other type of measure
from being justified by a WTO Member pursuing the conservation of an
exhaustible natural resource. Instead, Article XX(g) simply prescribes the
multiple conditions that must all be satisfied for a WTO Member to justify its
GATT-inconsistent measure.
5.163. China requests us to reverse the
Panel's findings concerning the application of the phrase "made effective
in conjunction with" in subparagraph (g) of Article XX of the GATT 1994.[652]
China alleges that the Panel erred, first, in applying an additional and
separate requirement of "even‑handedness", in understanding the
balancing that Article XX(g) requires as meaning that the burden of
conservation must be evenly distributed between foreign consumers, on the one
hand, and domestic producers or consumers, on the other hand; and, second, by
focusing on the design and structure of the domestic restrictions, to the
exclusion of evidence relating to their operation.[653]
5.164. With regard to its first
allegation, China challenges the Panel's reasoning set out at
paragraphs 7.594 and 7.595 of its Reports discussing
"even-handedness" in the context of the export quota on rare earths;
in paragraphs 7.808 and 7.809 discussing "even-handedness" in the
context of the export quota on tungsten; and paragraphs 7.934 and 7.935
discussing "even-handedness" in the context of the export quota on
molybdenum. For China, the Panel's application of even-handedness as requiring
that the burden of conservation be evenly distributed is an error flowing
directly from the Panel's flawed interpretative finding that there is such a
requirement of an even distribution of the burden of conservation in
subparagraph (g).
5.165. We recall our analysis of the
Panel's interpretation of the clause "made effective in conjunction with
restrictions on domestic production or consumption". We have concluded
that Article XX(g) requires the imposition of real limitations on domestic
production or consumption that operate so as to reinforce and complement the
restriction imposed on international trade. Subparagraph (g) thus requires that
the trade measure and the domestic restriction in their joint operation impose
effective limitations, both on international trade and on domestic production
or consumption. However, we have also found above that Article XX(g) contains
no requirement that the burden of conservation be evenly distributed, for
example, in the case of the export quotas at issue, between foreign consumers,
on the one hand, and domestic producers or consumers, on the other hand, and
that the Panel erred to the extent that it stated that the burden of
conservation must be distributed in that manner.
5.166. Turning back to the Panel's
application of the clause "made effective in conjunction with", we
note that the Panel addressed the question of "even-handedness" in
its separate analyses with regard to the export quotas on rare earths, tungsten,
and molybdenum, respectively. The Panel found with respect to all three groups
of products that, "[f]rom a structural perspective", China's
extraction and production restrictions "do not counterbalance its export
restrictions"[654],
and referred, in a general sense, to subparagraph (g) as seeking to ensure that
the conservation burden is "distributed in an even-handed manner between
foreign and domestic users".[655]
5.167. While the Panel made the above
general statements in the course of its analysis that can be read as suggesting
that subparagraph (g) requires a Member to establish an even distribution of
the burden of conservation, the Panel did not in fact engage in any such
assessment in applying Article XX(g). Contrary to what China alleges, the
Panel did not apply a requirement that China's measures must evenly distribute
the burden of conservation between foreign consumers, on the one hand, and
domestic producers or consumers, on the other hand. Rather, the Panel relied
primarily on the fact that the challenged export quota had no domestic
counterpart[656],
and therefore the Panel's specific findings in this regard were based on the absence of restrictions imposed on domestic producers or
consumers. Moreover, with respect to each product, the Panel correctly referred
to the requirement that the export quota must "work together" with
domestic restrictions.[657]
5.168. For these reasons, the Panel's
application of Article XX(g) to China's export quotas, which does not contain
an inquiry into whether the relative conservation burdens imposed by China on
domestic and foreign producers or consumers were evenly distributed, is
consistent with our interpretation of the clause "made effective in
conjunction with restrictions on domestic production or consumption" set
out above. We have found that Article XX(g) requires an effective limitation on
domestic production or consumption that operates together with, and so as to
reinforce and complement, the restriction imposed on international trade. While
subparagraph (g) requires that the trade measure and the domestic restriction
in their joint operation impose limitations, not only on international trade
but also on domestic production or consumption, subparagraph (g) does not
require an inquiry into whether the burden of conservation is evenly distributed
between foreign and domestic consumers. In the present disputes, the Panel
found, without undertaking an assessment of whether the burden of conservation
was evenly distributed between foreign and domestic consumers, that China's
export quotas on rare earths, tungsten, and molybdenum are not "made
effective in conjunction with restrictions on domestic production or
consumption", based primarily on the absence of specific restrictions on
domestic production or consumption.[658]
5.169. Accordingly, we consider that, despite
certain flaws in the Panel's interpretation, the Panel did not commit legal
error in its application of Article XX(g) to the export quotas. We therefore do
not disturb the Panel's findings concerning the application of Article XX(g) of
the GATT 1994.
5.170. Finally, China alleges that
the Panel erred in its application of subparagraph (g) because it failed to explain or demonstrate
why evidence submitted by China relating to the export, extraction, and
production quotas discounted the restrictive effect on domestic consumers of
enforced extraction and production quotas. China emphasizes that its evidence
demonstrated that its extraction and production quotas were enforced by a wide
range of measures and maintained at levels that placed an overarching limit on
total extraction and production.
5.171. We note that
China makes essentially the same allegations in relation to its claim that the Panel failed to make an
objective assessment of the matter as required by Article 11 of the DSU. In
both its appellant's and other appellant's submissions, China refers to
arguments set out in relation to its claims under Article 11 for a
"detailed discussion" and "more detailed arguments" in
support of its claim that the Panel erred in its application of the clause
"made effective in conjunction with restrictions on domestic production or
consumption" in Article XX(g).[659]
In doing so, China itself acknowledges that its claims relating to the Panel's
application of Article XX(g) overlap with its claims under Article 11 of
the DSU.
5.172. Similarly, with regard to China's
claims that the Panel erred in its application of the legal standard for the
term "relating to", China has put forward arguments that mirror those
presented in support of its claims under Article 11 of the DSU. In
particular, China suggests that the Panel's findings that China's export quotas
send "perverse signals" to domestic consumers are "theoretical
assertions" that lack
"any factual evidentiary" basis.[660]
In the same vein, China alleges that the Panel arrived at its "'perverse
effects' presumption without citing a single piece of evidence".[661]
China considers this Panel finding "particularly troubling", given
that China provided considerable evidence relevant to the question of whether
there actually was a perverse effect from the export quotas.[662]
In this regard, China alleges that it provided "extensive evidence"
on the operation of the domestic extraction and production caps on rare earths,
as well as evidence demonstrating the effects of these measures, including the
decline of extraction and production of rare earths.[663]
Additionally, China contends that it provided evidence indicating that the 2012
rare earth export quotas did not have any of the perverse effects alleged by
the Panel because they neither decreased Chinese domestic rare earth prices nor
encouraged relocation of rare earth-consuming industry to China.[664]
These arguments and evidence are identical to those that China has put forward
in support of its claim that, by failing to consider such evidence, the Panel
acted inconsistently with Article 11 of the DSU. Indeed, we note that the
footnotes to China's arguments relating to the Panel's application findings
reference the corresponding arguments relating to China's claims under
Article 11 of the DSU, and vice versa.[665]
5.173. Distinguishing a claim that a panel
erred in applying a legal provision to the facts of the case from a claim that a panel failed to make an
objective assessment of the matter as required by Article 11 of the DSU may, at
times, prove a difficult task. However, as the Appellate Body has previously
stated, "[i]n most cases … an issue will either
be one of application of the law to the facts or
an issue of the objective assessment of facts, and not both."[666]
Allegations implicating a panel's appreciation of facts and evidence fall under
Article 11 of the DSU. By contrast, the consistency or inconsistency of a
given fact or set of facts with the requirements of a given treaty provision
involves a legal characterization and is therefore a legal question.[667]
Importantly, a claim that a panel failed to comply with its duties under
Article 11 of the DSU "must stand by itself" and should not be
made merely as a subsidiary argument or claim in support of a claim that the
panel failed to apply correctly a provision of the covered agreements.[668]
In our view, the opposite is also true.
5.174. We note that, when the
Appellate Body was faced with similarly overlapping claims of error in the
application of a legal provision to the facts and under Article 11 of the
DSU in China – GOES, it determined that, as the
claims related to the panel's application of the legal standard, there was no
basis to have an additional examination of whether the panel had conducted an
objective assessment of the facts under Article 11 of the DSU.[669]
More recently, the Appellate Body in EC – Seal Products
noted that, where claims relate to a panel's weighing and appreciation of the
evidence, they are primarily factual in nature, and such claims are properly
addressed under Article 11 of the DSU as challenges to the objectivity of
the panel's assessment of the facts.[670]
5.175. Based on the language used by China
in substantiating its claims that the Panel erred in its application of
subparagraph (g) of Article XX, we consider that these allegations implicate
the Panel's assessment of the facts and evidence and thus should properly be
considered under Article 11 of the DSU. For example, we note that China
asserts a "lack of any factual
evidentiary findings" by the Panel[671], and that the Panel "failed to explain"[672], "failed to address evidence"[673], "failed to grapple with arguments"[674], "did not address or grapple with arguments and evidence"[675], and that "did not discuss or engage with evidence".[676] All of these statements suggest that the alleged errors concern the
Panel's assessment of the facts and evidence rather than the characterization
of the consistency or inconsistency of the measures at issue with the
requirements of Article XX(g). We therefore address China's allegations in this
respect under Article 11 of the DSU in the context of the claims raised by
China under that provision.
5.176. China requests us to find that the
Panel failed to make an objective assessment of the matter as required under
Article 11 of the DSU. China alleges multiple failures by the Panel to
comply with its duties under Article 11 of the DSU. Due to these alleged
failures, China requests us to reverse the Panel's findings that the rare earth and tungsten export
quotas send "perverse signals" to domestic consumers and, consequently,
do not "relate to" conservation within the meaning of Article XX(g) of the GATT 1994.[677]
China further requests that we reverse the Panel's findings that China's export
quotas on rare earths, tungsten, and molybdenum are not "made effective in
conjunction with" domestic restrictions.[678]
5.177. Article 11 of the DSU provides, in
relevant part:
Function
of Panels
The function of panels is to assist the DSB in discharging its
responsibilities under this Understanding and the covered agreements.
Accordingly, a panel should make an objective assessment of the matter before
it, including an objective assessment of the facts of the case and the
applicability of and conformity with the relevant covered agreements, and make
such other findings as will assist the DSB in making the recommendations or in
giving the rulings provided for in the covered agreements.
5.178. We begin by recalling the standard articulated by the
Appellate Body for establishing a violation of Article 11 of the DSU.
In accordance with Article 11, a panel is required to "consider all
the evidence presented to it, assess its credibility, determine its weight, and
ensure that its factual findings have a proper basis in that evidence".[679] Panels may not "make
affirmative findings that lack a basis in the evidence contained in the panel
record".[680] Within these parameters, "it
is generally within the discretion of the Panel to decide which evidence it
chooses to utilize in making findings"[681], and the mere fact that a panel
did not explicitly refer to each and every piece of evidence in its reasoning
is insufficient to establish a claim of violation under Article 11.[682] Rather, an appellant must explain
why such evidence is so material to its case that the panel's failure to
explicitly address and rely upon the evidence has a bearing on the objectivity
of the panel's factual assessment.[683] The Appellate Body has also
considered it unacceptable for an appellant to simply recast factual arguments
that it made before the panel in the guise of an Article 11 claim.[684] Instead, an appellant must
identify specific errors regarding the objectivity of the panel's assessment[685], and "it is incumbent on a
participant raising a claim under Article 11 on appeal to explain why the alleged error meets the
standard of review under that provision".[686]
5.179. The Appellate Body has also
held that it will not "interfere lightly" with a panel's fact-finding
authority.[687] Rather, for a claim under Article 11 to succeed, the
Appellate Body "must be satisfied that the panel has exceeded the
bounds of its discretion, as the trier of facts".[688] In other words, "not every error allegedly committed by a panel
amounts to a violation of Article 11 of the DSU"[689], but only those that are so material that, "taken together or
singly"[690], they undermine the objectivity of the panel's assessment of the matter
before it.
5.180. Before turning to China's claims
under Article 11 of the DSU, we reiterate that China, in elaborating its
claims that the Panel erred in its application of Article XX(g) of the
GATT 1994, made arguments identical to those in its claims under
Article 11 of the DSU, and utilized the following phrases: "lack of
any factual evidentiary findings"[691],
"failed to explain"[692],
"failed to address evidence"[693],
"failed to grapple with arguments"[694],
"did not address or grapple with arguments and evidence"[695],
and "did not discuss or engage with evidence".[696]
As we stated in paragraph 5.175 above, we consider that these types of
arguments by China implicate the Panel's assessment of the facts and evidence,
rather than its characterization of the consistency or inconsistency of the
export quotas with the requirements of Article XX(g). We therefore address
China's allegations in this respect as part of its claims under Article 11
of the DSU, bearing in mind, however, that a claim that a panel failed to
comply with its duties under Article 11 of the DSU "must stand by
itself".[697]
5.181. China submits that the Panel acted
inconsistently with Article 11 of the DSU in two main ways. First, China
contends that the Panel's findings lacked a sufficient evidentiary basis and
that the Panel failed to "reconcile its findings" with contrary
evidence.[698]
Second, China argues that the Panel's reasoning was incoherent insofar as the
Panel considered that the relevant question was whether the "perverse
signals" sent by China's export quotas were offset by domestic
restrictions, but then declined to examine evidence relevant to precisely that
issue. For these reasons, China requests us to reverse the Panel's findings
that China's export quotas on rare earths and tungsten do not "relate
to" conservation within the meaning of Article XX(g) of the GATT 1994
by virtue of their signalling function.[699]
5.182. The complainants request us to
reject China's claims. The complainants assert that the record of these
disputes shows that there is no basis for China's claims that the Panel acted
inconsistently with Article 11 of the DSU. To the contrary, the Panel
Reports illustrate that the Panel undertook a thorough legal and factual
analysis of the "relating to" test of Article XX(g), in
compliance with its duties under Article 11 of the DSU.
5.183. We discuss China's two sets of
arguments in turn.
5.184. China asserts that the Panel's
finding that China's export quotas on rare earths and tungsten are liable to
send "perverse signals" to domestic consumers is merely a
"presumption" and lacks an evidentiary basis.[700]
In addition to this assertion, China identifies three instances in which the
Panel allegedly failed to "reconcile its finding" of "perverse
signals" with contrary evidence submitted by China.
5.185. The complainants disagree with
China's assertions. They indicate that the Panel's "perverse signals"
finding is not a mere presumption, but is rather based on evidence provided by
the complainants establishing the existence of such "perverse
signals" not only as a function of economic theory, but also specifically
in China. The complainants point, in particular, to evidence that China
expressly invited foreign users to relocate to China in order to gain access to
unlimited supplies of rare earths at a cheaper price.[701]
5.186. In making its assertion that the
Panel's finding lacks an evidentiary basis, China specifically challenges the
following statements by the Panel:
Having said that, the
Panel considers that export quotas are liable to send a perverse signal to domestic consumers. Whereas export quotas
may reduce foreign demand for Chinese rare earths, it seems likely to the Panel
that they will also stimulate
domestic consumption by effectively reserving a supply of low-price raw
materials for use by domestic downstream industries. They may also encourage
relocation of rare earth-consuming industries to China.[702]
…
The Panel has dealt with
the argument that export quotas send a "signal" to foreign users above
in its analysis of the export quota on rare earths, and considers that what was
said there applies with equal force here. While the Panel accepts that export
quotas do or at least can send conservation-related signals to foreign users,
the Panel is concerned that such quotas can also send perverse signals to
domestic consumers, and can even stimulate domestic demand, contrary to China's
stated conservation goals. Moreover, the Panel has explained above why the
imposition of an extraction and/or a production quota may not suffice to
counteract or offset such perverse incentives. As was the case in the context
of rare earths, the Panel is not convinced that the design and architecture of
China's export quotas, even taken together with the extraction and production
caps, is such as to counteract the perverse signals which are generally sent by
export quotas. As such, the Panel has difficulty concluding that the export
quota on tungsten, which risks encouraging or stimulating domestic demand and
even leading, in the medium-long-term, to more, rather than less, illegal
extraction and production, can be said to "relate to" conservation
for the purposes of Article XX(g).[703]
5.187. We first observe that China is
correct in asserting that these paragraphs contain no express references to
evidence on the Panel record. However, to properly situate these findings in
their context, we look at the structure of the Panel's analysis in the section
dealing with the "signalling" arguments presented by China with
regard to its export quota on rare earths.
5.188. The Panel started by noting China's
arguments to the effect that "the export quota system contributes to the
effectiveness of [China's] overall conservation policy by signalling to foreign
users of rare earths the need to explore other sources of supply, including
substitutes and recycling."[704] The Panel then referred to the
complainants' counter-arguments that, "while the export quota may send a
conservation-related signal to foreign users, it simultaneously signals to
domestic consumers that they should increase their rare earth consumption,
contrary to China's claim that the export quota relates to conservation."[705] The Panel also took note of the
complainants' arguments that this availability of cheaper domestic rare earths
was held out to attract foreign companies to relocate to China.[706] In its summary of the parties'
arguments, the Panel referred to evidence submitted by the parties in support
of their respective arguments. This included Exhibits JE-118 and JE-152.[707]
5.189. The Panel then made, in the
subsequent paragraphs, statements relating to the potential signals that may be
broadcast through the price that a commodity commands on the market, as well as
through the export, extraction, and production quotas.[708] The Panel did not expressly refer to Exhibits JE-118 and JE-152 in its
analysis at paragraphs 7.442-7.444 and 7.447-7.448 of its Reports. Nonetheless
we consider that, from a plain reading of the Panel's reasoning in these
paragraphs, it is clear that the arguments and evidence proffered by the
parties, which the Panel summarized at the beginning of this section of its
analysis, informed the Panel's statements and conclusions in these subsequent
paragraphs.
5.190. Moreover, the Panel referred
expressly to the following reasoning of the panel in China – Raw
Materials:
The difficulty with
China's contention is that export restrictions generally do not internalize the
social environmental costs[*] of EPRs' [Energy-intensive, highly polluting,
resource-based products] production in the domestic economy. This is because
export restrictions reduce the domestic price of EPRs and therefore they
stimulate, instead of reducing, further consumption of polluting EPR products.
Indeed, the Panel understands that all parties agree that, in general, export
restrictions are not an efficient policy to address environmental externalities
when these derive from domestic production rather than exports or imports. This
is because generally the pollution generated by the production of the goods
consumed domestically is not less than that of the goods consumed abroad. So
the issue is the production itself and not the fact that it is traded.[709]
[*fn original] 931
The social environmental costs are the costs of polluting the environment while
producing EPRs.
5.191. These statements by the panel in China – Raw Materials enunciate what that panel found to be
a generally accepted principle of economic theory: that export restrictions
reduce the domestic price of energy-intensive, highly polluting, resource-based
products (EPRs), thereby stimulating, instead of reducing further consumption
of these EPRs.[710] As such, export restrictions generally do not internalize the social environmental
costs of EPR production in the domestic economy, and are therefore not an
efficient policy to address environmental externalities when these derive from
domestic production rather than exports or imports.[711] This lends additional credence to this Panel's assertion that export
quotas send "perverse signals" to domestic consumers.
5.192. Furthermore, the Panel stated:
China responds that other
measures in its comprehensive conservation plan counteract or counterbalance
the perverse signal sent to domestic consumers by the export quota. According
to China, the export quota is a "balancing tool", since without it
the extraction and production quotas would only provide a signal to domestic
users, while foreign consumers would have no incentive to explore and develop
alternative sources of supply.[712]
The Panel has difficulty
accepting this argument. While it may be true that extraction and/or production
quotas could, in theory,
counteract the perverse signals sent by export quotas to domestic consumers, it
seems to us that whether or not a production quota coupled with an export quota
cuts domestic consumption depends entirely on the level at which the production
quota is set and the way in which the export and production quotas interact.
According to [the expert report submitted by the complainants as Panel]
Exhibit JE‑183, if the production quota is very tight[*], it will reduce
domestic consumption. At more generous levels, however, it may not reduce
consumption at all, or it may reduce it while still leaving it above the level
it would be in the absence of export restrictions.[713]
[*fn original] 691 In economics, this means
an amount set significantly below demand.
5.193. We understand the above paragraphs
as follows. The Panel took note of China's argument that the export quota is a
"balancing tool" that provides a conservation signal to foreign
consumers, without which the extraction and production quotas would provide a
conservation signal only to domestic consumers. The Panel, in addressing this
argument, referred to Exhibit JE‑183. This exhibit is a response from the
complainants' economic expert (Professor L. Alan Winters) to the statement
provided by China's economic expert (Professor Jaime de Melo).[714] Both experts agreed that a binding
production quota introduced in isolation is likely to reduce both exports and
domestic consumption relative to the unrestricted trade situation as both
export and domestic prices would be driven up.[715] However, the experts disagreed on
the nature of the interaction between production quotas and export quotas that
would be necessary to ensure that no "perverse signals" are sent by
the export quotas. The Panel was persuaded by the position taken by Professor
L. Alan Winters, which we note is also supported by the opinion of Professor
Grossman, also submitted by the complainants.[716]
5.194. In our view, the summary of the
parties' arguments above, the reference to the economic rationale discussed by
the panel in China – Raw Materials, and the
Panel's discussion of economic evidence in this dispute show basis for the
Panel's determination that export quotas are liable to send "perverse
signals" to domestic consumers. Hence, we are not persuaded by China's
assertion that the Panel's finding that China's export quotas on rare earths
and tungsten are liable to send "perverse signals" to domestic
consumers is merely a "presumption" and lacks an evidentiary basis.
Nor do we agree that the Panel failed to undertake an objective assessment of
the facts, in breach of Article 11 of the DSU.
5.195. We turn now to the three instances
in which, according to China, the Panel failed to "reconcile its
finding" of "perverse signals" with contrary evidence submitted
by China.
5.196. In the first instance, China
considers the Panel's failure to explain the basis for its presumption to be
"troubling" because China submitted evidence showing that, in some
circumstances, the export quota would have no effect on prices or levels of
consumption for either domestic or foreign consumers[717],
as well as evidence showing that any difference between domestic and foreign
prices could not have been caused by the export quota. Additionally, China argues that the Panel
failed to reconcile its findings with evidence suggesting that domestic prices
for rare earths increased, and domestic consumption decreased, between
January 2011 and January 2013, and that there was a considerable
narrowing of the gap between foreign and domestic prices for several important
rare earth metals.[718]
The complainants disagree with China's views on the import of the evidence as
well as its characterization of the Panel's treatment of that evidence.
5.197. In respect of China's evidence
that, in some circumstances, the export quota would
have no effect on prices or levels of consumption for either domestic or
foreign consumers, we observe that this evidence is contained in the statement
of Professor Jaime de Melo.[719] Recalling
our discussion in paragraph 5.193 above, we note that the Panel did not ignore this
evidence. The Panel was simply more persuaded by the evidence provided by the
complainants rebutting Professor de Melo's opinion. With respect to the price
differences, we note that, contrary to what China alleges, the Panel explicitly
addressed the pricing data contained in Exhibits CHN-196 and CHN‑197.[720] In addressing the pricing data,
the Panel expressed "concerns about the reliability of the data and the
methodology used in China's analysis of the price gap".[721] We find it noteworthy that, in its
arguments on appeal, China makes no mention of the Panel's reasoning and
questioning of China's data. As we explained above, the Appellate Body
will not interfere lightly with a panel's discretion as the trier of facts and
will not permit a participant to recast its arguments made before the panel in
the guise of an Article 11 claim.[722] Thus, as regards this first issue,
we consider that China has not demonstrated that the Panel failed to comply
with its duty under Article 11 of the DSU.
5.198. Second, China points to the
"substantial evidence" that its export quota signals have a positive
conservation effect by demonstrating the considerable increase in the number of
new rare earth mining projects starting up outside China and securing
investment since 2010.[723]
For China, this evidence shows that the export quotas were also linked to the
development, in China and abroad, of substitutes and the initiation of
recycling efforts. China also highlights that it submitted specific evidence of
rare earth recycling projects conducted by Chinese enterprises and research and
development and recycling projects being prepared which, according to China,
are linked to the conservation signals produced by the export quotas.
5.199. We observe that, contrary to
China's allegations, the Panel did in fact take note of "China's
indication that various rare earth recycling projects, efforts to modify
industrial designs of downstream products so that they use less rare earths,
and developments of rare earth substitutes are under way".[724]
The Panel acknowledged that "these efforts may go a long way towards
furthering what all involved in this dispute recognize is China's bona fide conservation policy".[725]
Nonetheless, for the Panel, these efforts did not resolve what the Panel found
to be the main problem inherent in the design and structure of China's export
quotas: the absence of "any mechanism to ensure that the export quota is
set at such a level that, in combination with the extraction and/or production
caps, no perverse incentives will be sent to domestic consumers".[726]
Once again, we are not convinced that the Panel, by assessing the facts
differently from China, breached its duty to conduct an objective assessment of
the facts of the case.
5.200. As its third example, China refers
to additional relevant evidence that it submitted showing limited investment by
foreign companies in downstream industries in China. China repeats arguments
that it made to the Panel emphasizing that there is no evidence of such foreign downstream users of rare earths relocating to China after
2007 – i.e. the time when the export quota volumes were cut for the first time.[727]
The complainants emphasize that they contested China's evidence before the
Panel, and that they disagree with China's views on the import of Exhibits
CHN-186 and CHN-191. They point instead to the exhibits that they submitted to
rebut China's evidence.[728]
5.201. We observe that the Panel addressed
the parties' arguments on whether China's export quotas encouraged the
relocation of foreign companies in the rare earths industry to China. The Panel
did so in the context of addressing China's contention that the unfilled 2011
and 2012 export quotas showed that there was no discriminatory treatment of
foreign consumers as a consequence of the 2012 export quota.[729] In addressing these arguments, the Panel did not specifically refer to
Exhibits CHN‑186 and CHN‑191. Nevertheless, the Panel's reasoning reflects that
it took into account the content of these exhibits. For example, the Panel
accepted China's argument that relocations to China may not necessarily be
wholly attributable to the imposition of export quotas.[730] However, the Panel rejected China's argument, contained in Exhibit
CHN-163, and restated in Exhibit CHN-186, that, "since FDI flows did not
increase following the tightening of the quota, the quota is not a possible
cause of relocation".[731] The Panel eventually concluded as follows:
[T]he Panel is not convinced that industrial relocation is unrelated to
China's export quotas. The Panel is of the view that one cannot simply compare
the flow of FDI before 2008 to the situation after 2008, and conclude that
since FDI flows did not increase following the tightening of the quota, the
quota is not a possible cause of relocation, without taking into account the
global fall in FDI activity that followed the 2008 economic downturn.
Therefore, in the view of the Panel, the evidence provided by China is not
sufficient to exclude the possibility that export quotas (and duties) were a
significant reason for industrial relocation. As China itself acknowledges, if
foreign demand shifts inward, the export quota can cease to be
"binding", that is, it can remain unfilled, but this is not necessarily
an indication that the export quota does not have any discriminatory effect on
foreign users. Rather, this could be an indication that the export restriction,
which China has applied for over a decade, has distorted international trade
and investment. In other words, the effects of the export quota are not being
compared to the appropriate counterfactual (China's exports had the quota not
been in place).[732]
5.202. We recall that the
Appellate Body will not interfere lightly with a panel's discretion as the
trier of facts and will not permit a participant to recast its arguments made
before the panel in the guise of an Article 11 claim.[733]
We note, as we did earlier, that in its arguments on appeal, China does not
acknowledge this reasoning by the Panel. China's restatement of its argument
before the Panel to the effect that there was limited investment by foreign
companies in downstream industries in China, and no evidence of such foreign downstream users of rare earths relocating to China after
2007, cannot suffice to impugn the Panel's reasoning set out above. Thus, we
are not persuaded that the Panel fell short of its duty as articulated in
Article 11 of the DSU.
5.203. In sum, it appears that China's
arguments that the Panel's finding of "perverse signals" was a mere "presumption"
and that the Panel failed to reconcile its findings with contrary evidence, are
premised primarily on China's disagreement with the Panel's reasoning and
weighing of the evidence. However, as set out above, the Appellate Body has
consistently held that this does not suffice to establish that a panel acted
inconsistently with Article 11 of the DSU. Therefore, we conclude that
China has not demonstrated that the Panel failed to conduct an objective
assessment of the facts of the case, or otherwise acted inconsistently with
Article 11 of the DSU.
5.204. China further contends that the
Panel's findings breach Article 11 of the DSU because they are based on
incoherent reasoning. On that basis too, China requests us to reverse the
Panel's findings. First, China argues that the Panel's reasoning that the
export quotas are not capable of making a positive contribution to conservation
by virtue of the perverse signals is incoherent with its reasoning that
domestic restrictions were capable of mitigating these "perverse
signals". Second, China
considers it improper for the Panel to have recognized that the key issue of
its "relating to" analysis depended on the level at which the
production quota is set and the way in which the export and production quotas
interact, but to have then refused to consider any evidence of these very
alleged effects.
5.205. The complainants disagree and
submit that the Panel Reports show that all the Panel's factual findings had a
proper basis in the evidence and were accompanied by coherent and adequate
reasoning.
5.206. In our view, China's first
allegation conflates several of the Panel's statements in its "relating
to" analysis of China's export quota on rare earths. To situate these
statements in their proper context, we reproduce them in relevant part below.
5.207. The Panel found that China had in
place a conservation policy for rare earths and tungsten.[734]
The Panel then addressed China's argument that the export quota system
contributes to the effectiveness of its overall conservation policy by
signalling to foreign users of rare earths the need to explore other sources of
supply, including substitutes and recycling.[735]
The Panel stated:
The Panel accepts China's argument that encouraging foreign users and
investors to explore alternative sources of supply could relate to the goal of
conserving China's exhaustible natural resources, since the development of
alternative supply sources would "relieve the pressure on" China's
own rare earth supplies. To the extent that the export quota communicates to
foreign rare earth consumers that China will no longer supply all the rare
earth products needed, it is logical to assume that it will provide a stimulus
to consumers, investors, and innovators to explore and develop alternative
sources of supply and thus reduce demand for limited Chinese rare earth
reserves.[736]
5.208. The Panel, however, tempered these
remarks by acknowledging the perverse signal that export quotas are liable to
send, as follows:
[T]he Panel considers that export quotas are liable to send a perverse signal to domestic consumers. Whereas export quotas
may reduce foreign demand for Chinese rare earths, it seems likely to the Panel
that they will also stimulate
domestic consumption by effectively reserving a supply of low-price raw
materials for use by domestic downstream industries. They may also encourage
relocation of rare earth-consuming industries to China.[737]
5.209. The Panel then acknowledged China's
argument that "other measures in its comprehensive conservation plan counteract
or counterbalance the perverse signal sent to domestic consumers by the export
quota".[738]
China argued that the export quota is a "balancing tool", since
without it the extraction and production quotas would provide a signal only to
domestic users, while foreign consumers would have no incentive to explore and
develop alternative sources of supply.[739]
However, contrary to what China suggests, the Panel did not accept China's
argument in its entirety. Rather, the Panel observed as follows:
The Panel has difficulty accepting this argument. While it may be true
that extraction and/or production quotas could,
in theory, counteract the perverse signals sent by export quotas to domestic
consumers, it seems to us that whether or not a production quota coupled with
an export quota cuts domestic consumption depends entirely on the level at
which the production quota is set and the way in which the export and
production quotas interact. According to Exhibit JE‑183, if the production
quota is very tight, it will reduce domestic consumption. At more generous
levels, however, it may not reduce consumption at all, or it may reduce it
while still leaving it above the level it would be in the absence of export
restrictions.[740]
5.210. Based on the reasons provided
above, the Panel concluded as follows:
The Panel takes note of China's indication that various rare earth
recycling projects, efforts to modify industrial designs of downstream products
so that they use less rare earths and developments of rare earth substitutes
are under way. The Panel acknowledges that these efforts may go a
long way towards furthering what all involved in this dispute recognize is
China's bona fide conservation policy.
Nevertheless, our consideration of the design and architecture of China's
export quota on rare earths does not convince us that the export quota is
designed in such a way as to ensure that domestic demand is not stimulated by
low prices. There does not appear to be any mechanism to ensure that the export
quota is set at such a level that, in combination with the extraction and/or
production caps, no perverse incentives will be sent to domestic consumers.[741]
5.211. Thereafter, the Panel, in the
context of its analysis of whether China had in place restrictions on domestic
production or consumption within the meaning of Article XX(g) of the GATT
1994, found that China had not
demonstrated that its "production quota" was capable of counteracting
the perverse signal broadcast by China's rare earth export quota.[742]
We therefore do not agree with China's assertion that the Panel reasoned that
China's domestic restrictions are capable of mitigating the perverse signal of
China's export quotas. In the light of the foregoing, we are not persuaded by
China's first allegation and find that China has not demonstrated that the
Panel engaged in incoherent reasoning.
5.212. Second, we address China's
assertion that, while the Panel correctly recognized that it was
essential to examine the level at which the production quota was set and the
way in which the production quota and the export quota interact, the Panel then
failed to do so.[743]
We note that in support of this argument China points to evidence in the Panel
record that allegedly demonstrates how the quotas interact. This is the same
evidence relating to pricing that was the subject of our discussion at
paragraph 5.197 above, and our analysis in that paragraph applies
equally here. The Panel considered the evidence relating to alleged differences
in foreign and domestic prices. Such evidence was submitted, in part, to
demonstrate the effects of the export and production quotas. The Panel
expressed concerns about the reliability of the evidence submitted by China. It
follows that we see no "incoherence" in the reasoning employed by the
Panel in dealing with these issues and evidence.
5.213. For the reasons set out above, and
having reviewed the Panel's findings identified by China in its claims under
Article 11 in their proper context, we do not agree that the Panel engaged
in incoherent reasoning. Consequently, we are not persuaded that China has
demonstrated that the Panel breached its duty under Article 11 of the DSU
to conduct an objective assessment of the facts.
5.214. With regard to the Panel's analysis
of the second clause of subparagraph (g) of Article XX of the GATT 1994,
China raises numerous allegations under Article 11 of the DSU, which it groups
into the following three categories: (i) allegations relating to the Panel's
treatment of the evidence; (ii) allegations of incoherent reasoning; and
(iii) allegations of a "double standard" in the Panel's application of
Article XX(g) to the facts of the case.
5.215. The complainants request the
Appellate Body to reject China's claims under Article 11 of the DSU
relating to the Panel's treatment of the evidence, to allegations of incoherent
reasoning, as well as China's allegation that the Panel employed a "double
standard" in applying Article XX(g) of the GATT 1994 to the facts of the
case. For the complainants, the Panel undertook a thorough legal and factual
analysis and thus complied with its duty under Article 11 of the DSU.
5.216. Below, we address each of the three
categories of allegations raised by China in turn.
5.217. China alleges, first, that the
Panel lacked objectivity in its treatment of the evidence it considered
relevant to determine how domestic restrictions and export quotas work
together. China asserts, in particular, that the Panel ignored evidence
submitted by China, failed to reflect arguments made by China, and failed to
explain how, in the light of evidence submitted by China, the conclusions of
the Panel were nonetheless valid.[744]
China refers specifically to evidence regarding the timing of the quotas, suggesting that there was indeed coordination
among export quotas, production quotas, and extraction quotas.[745]
Second, with regard to the levels of quotas, China refers to its argument that
unfilled export quotas need not necessarily be redirected for domestic
consumption, and that this was not a relevant factor in determining whether the
export quota worked in conjunction with the domestic restrictions.[746]
Third, China contends that the Panel
failed to address arguments and evidence submitted by China explaining why
China did not adopt a domestic consumption quota or why there was no need for
such a quota.[747]
Fourth, China alleges that the Panel failed to address certain evidence
submitted by China showing a temporal connection in
the way that the domestic caps and export quotas work together.[748]
5.218. First, with regard to the manner in
which the Panel analysed the timing of the 2012 export, extraction, and
production quotas, China alleges that the Panel failed to address evidence
submitted by China as to the manner in which allocation of the quotas is
coordinated between the competent Ministries, and contends that all quota
levels are set by the competent Ministries at the same time, even if the actual
publication of the respective amounts may differ in time.[749]
5.219. We note that the Panel considered
the timing of the quota setting relevant because it "could affect the
certainty of the rare earths market and enterprises' capacity to make business
plans for 2012".[750]
The Panel considered relevant the fact that the total export quota for 2012 was
not set at the end of 2011 or at the beginning of 2012, but that it was set
only in late 2012.[751]
The Panel also observed that the export, extraction, and production quotas for
2012 were set in several batches at different times between the end of 2011 and
August 2012.[752]
The Panel considered that setting the export quota for 2012 only late in the
year led to uncertainty for market participants, and that such uncertainty cast
doubt on China's contention that its domestic and foreign restrictions
"work together". The Panel further found that "uncertainty and
unpredictability caused by determining the level of the export quota only late
in the year do not help rare earth users to rationally utilize the available
amounts of rare earths."[753]
Moreover, the Panel observed that each batch of the production
quota was announced after the export quota was set. The Panel found that this
contributed to the unfilled export quota and the unpredictability of the export
market for rare earths, and the Panel considered it illogical to determine a
level for the export quota before the extraction and production quotas are
determined.[754]
5.220. In our view, evidence presented by
China indicating that there was coordination in the legislative process leading
up to the setting of the three categories of quotas does not detract from the
Panel's analysis described above. The Panel was concerned with uncertainty in
the marketplace created by the fact that quota levels were made known only late
in the year and by the sequence in which the export and production quotas were
published. Also, contrary to what China alleges, the Panel did not simply find
that "there was no coordination among the three categories of
quotas".[755]
Rather, "[t]he Panel fail[ed] to see any coordination among the three
categories of quotas that would suggest that they work together, be it for
conservation of rare earths or for other reasons".[756]
Significantly, the Panel's statement about the apparent lack of coordination is
qualified by the clause "that would suggest that".
5.221. For the Panel, this lack of
coordination was also evidenced by the fact that each batch of the production
quota was announced only after the export quota was set. The Panel considered
this sequence of setting the quotas illogical and saw in this sequence a reason
for the unpredictability of the export market for rare earths.[757]
It is not clear to us that the evidence identified by China on appeal was
relevant to these considerations of the Panel. The fact that the Panel did not
refer to this evidence therefore is no indication of a failure by the Panel to
undertake an objective assessment of the evidence. Rather, the fact that the
Panel did not specifically refer to this evidence simply indicates that the
Panel did not consider it relevant to the specific issue before it, or did not
attribute to it the weight or significance that China considers it should have.
5.222. Second, with respect to the levels of the quotas, China maintains
that the Panel erred in focusing on the fact that export quota shares not used
by foreign users were redirected to the domestic
market, and that it failed to address arguments made by China that the unfilled
export quota amounts need not necessarily be redirected
and that, in any event, redirection of quota shares was not a relevant factor
in determining whether the export quotas worked in conjunction with the
domestic restrictions.[758]
5.223. We note that, in the context of its
analysis of the levels and timing of the 2012 export, extraction, and
production quotas, the Panel also observed that an important quantity of rare
earths that was initially designated for export was redirected to the domestic
market, even though it had not been destined for the domestic market under
China's original comprehensive conservation plan. On this issue, the Panel
considered that the redirection of unfilled export quota shares of one batch of
a quota to the domestic market upon issuance of a new batch of the same quota
effectively lowered the overall export quota amount, and increased the amounts
available for domestic consumption.
5.224. Regarding China's allegation that the Panel failed to
address arguments made by China that the unfilled export quota amount need not
necessarily be redirected to the domestic
market, we note, first, that China does not allege that the Panel failed to
consider the evidence. Rather, China maintains that the Panel did not address
an argument made by China. In this respect, we note that a panel has no
obligation under Article 11 of the DSU to address in its report every argument
raised by a party.[759]
5.225. Furthermore, the Panel noted that, in 2012, an important quantity of rare earths that was initially
designated for export was redirected to the domestic market, and that this
raised doubts about the usefulness and effectiveness of export quotas, and also
suggested that export restrictions and domestic restrictions do not "work
together" for the goal of conserving exhaustible natural resources. The
Panel stated:
The Panel understands that the total legal
supply of rare earths is determined by the extraction quota, which, as we have
noted, was determined in April 2012. However, the Panel notes that an important
quantity of rare earths that was initially designated for export was redirected
to the domestic market (for which it was not destined under China's original
comprehensive conservation plan). To the Panel, this reinforces the fundamental
fact that the vast majority of rare earths produced in China is consumed
domestically, further raising doubts about the usefulness and effectiveness of
export quotas. It also suggests that, if the
export and domestic restrictions "work together" at all, they tend to
do so to secure the supply of rare earths to downstream domestic users, rather
than for the goal of conserving exhaustible natural resources.[760]
5.226. Contrary
to what China alleges, this reasoning by the Panel does address China's argument
that the redirecting of quota shares to the domestic market was not a relevant
factor in determining whether the export quotas worked in
conjunction with the domestic restrictions. Indeed, the Panel rejected this
argument by stating the opposite. The Panel considered that redirection of
quota shares to the domestic market was not irrelevant,
but that it was a factor suggesting export restrictions and domestic
restrictions did not "work together" for
the goal of conserving exhaustible natural resources. The fact that the Panel
disagreed with China's argument does not establish that it committed an error
under Article
11 of the DSU.
5.227. Third, China contends that the Panel failed to address arguments and evidence
submitted by China explaining why China did not adopt a domestic consumption
quota or why there was no need for such a quota.[761]
China's submissions in this regard are extremely brief. China does not identify
a particular section or specific paragraphs of the Panel Reports with which it
takes issue, and China does not develop its arguments beyond the mere
allegation that the Panel failed to grapple with China's evidence. We recall
that the Appellate Body has found that a challenge under Article 11 of the DSU
cannot be made out simply by asserting that a panel did not agree with
arguments or evidence[762],
in particular given that a simple error of judgement in the appreciation of
evidence does not, alone, suffice to establish panel error under this
provision.[763]
Rather, an allegation that a panel has failed to conduct the "objective
assessment of the matter before it" required by Article 11 is "a
very serious allegation".[764] As
such, an Article 11 claim must be clearly
articulated and substantiated with specific arguments[765],
including an explanation of why the alleged error has a bearing on the
objectivity of the panel's assessment.[766]
This Article 11 claim raised by China does not meet these requirements and we
therefore reject it.
5.228. We emphasize
that, in so finding, we do not wish to suggest that participants should simply
present more extensive argumentation in support of claims under Article 11 of
the DSU. Rather, we wish to encourage appellants to consider carefully when and
to what extent to challenge a panel's assessment of a matter pursuant to
Article 11, bearing in mind that an allegation of violation of Article 11 is a
very serious allegation. This is in keeping with the objective of the prompt
settlement of disputes, and the requirement in Article 3.7 of the DSU that Members
exercise judgement in deciding whether action under the WTO dispute settlement
procedures would be fruitful.
5.229. Fourth, China alleges that the Panel failed to address evidence submitted by China showing a temporal
connection in the way that the domestic and export
quotas work together. In particular, China criticizes the Panel for taking into
consideration the "non-existence of domestic extraction quotas between
2002 and 2006" and alleges that the Panel failed to address evidence
demonstrating that between 2006 and 2012, China did have an extraction quota in
place and has significantly increased its enforcement measures.[767] China has included three different graphs in
its other appellant's submission to demonstrate that extraction levels of
rare earths in China declined significantly since 2006.[768]
5.230. This
allegation relates to the Panel's reasoning under the subheading "Temporal
disconnect between the export quota and the domestic restrictions referred to
by China".[769]
This is one factor considered by the Panel in its assessment of whether the
2012 export quota on rare earths was "made effective in conjunction
with" restrictions on domestic production or consumption. In this
subsection, the Panel discussed the fact that China has imposed quotas on the export of rare earth products since
at least 2002, but
has, according to its own arguments, only maintained restrictions on domestic
extraction since 2006 and on domestic production since 2007.[770]
The Panel recalled China's argument that one of the goals of its export quota
on rare earths is to enforce its domestic extraction and production quotas. The
Panel considered that China's argument that the export quota is aimed at enforcing domestic quotas is
difficult to reconcile with the fact that, between 2002 and 2007, China did not
impose any domestic restrictions.
5.231. The Panel then stated that:
[t]his raises doubts in the Panel's mind about the nature and, indeed,
the existence of any coordination and interaction between the export quota and any domestic restrictions between at least 2002 and 2006.[771]
5.232. The Panel further considered that:
… the mere fact that a restriction on foreign trade was enacted prior to
domestic restrictions does not, without more, preclude a regulating Member from arguing that such measure
began 'working together' with domestic restrictions at a later date (in this dispute,
in 2012) and so from relying on the exception in Article XX(g) as of that
date.[772]
Nevertheless, the fact that China's export restrictions pre-date its
extraction and production restrictions by 4 and 5 years respectively raises
doubts as to whether these two sets of restrictions are designed to work
together for conservation.[773]
5.233. It is apparent from the above quoted statements that the
Panel was concerned with a "temporal disconnect" of four and five
years between the introduction of the export quota and the introduction of the
measures alleged to constitute domestic restrictions, that is, prior to 2006.
Arguments and evidence submitted by China as to the "temporal connection
between the domestic restriction and export quotas since China
introduced its extraction quota in 2006"[774] related to a subsequent period of time and,
as such, were not relevant to the issue the Panel was considering in that part
of its analysis. Accordingly, the fact that the Panel did not
explicitly address these arguments in its Reports does not cast doubt on the
objectivity of the Panel's assessment. We therefore do not see that the Panel
failed objectively to assess evidence submitted by China.
5.234. China further alleges that the
Panel breached its duties under Article 11 of the DSU because its finding that
China did not impose domestic restrictions is based on incoherent reasoning.
China refers to statements by the Panel that "China has demonstrated that it
has a comprehensive conservation policy" by developing "a series of
interconnected measures and programmes, including extraction and production
caps and enforcement actions, which are designed to manage the extraction and
supply of rare earth resources through a conservation policy."[775]
Elsewhere in its Reports, however, the Panel found that none of the domestic
measures imposed by China constituted "restrictions".[776]
China alleges that, in making these two statements, the Panel engaged in incoherent reasoning.
5.235. China takes issue, first, with the Panel's statement
that "China has failed to place before [the Panel] evidence or other
demonstration sufficient to support the conclusion that China set its domestic
production quota below the expected level of demand in 2012."[777]
China submits that it provided testimony that the Ministries, in setting the
2012 extraction, production, and export quotas "did rely on market
reports".[778]
Furthermore, China contends that it provided the Panel with a report in which a
rare earth industry expert predicted that, by the end of 2011, the expected
level of demand for rare earths would increase.[779]
China explains that the Ministries thereafter set the 2012 quota levels
below that predicted level of rare earth demand.[780]
China alleges that the Panel failed to assess the relevance of this evidence.
5.236. This
allegation relates to the Panel's analysis of whether China has imposed
restrictions on domestic production or consumption of rare earths and, in
particular, whether the production quota applicable to rare earths imposes a
restriction on domestic production or consumption. China argued before the
Panel that its production quota is a domestic restriction imposed in
conjunction with its export quota and therefore consistent with Article XX(g)
of the GATT 1994. The Panel referred to Paragraph 24 of the Declaration on the Setting of 2012 Export Quotas on Rare
Earth Products.[781]
The Panel observed that this
document states that "in setting the production quota, the relevant
Ministries 'considered that the overall domestic and foreign demand for the
rare earths would continue to be significant', in particular because 'prices
for rare earths were falling from the levels that they had rapidly achieved in
late 2010 and early 2011'."[782]
Nevertheless, the Panel explained that:
… it is very difficult to assess whether a measure such as China's
constitutes a "restriction" without evidence showing how China's
reasoning, which appears to run contrary to the trend towards reduced domestic
demand, is justified. Accordingly, the Panel's view is that China has not
provided sufficient evidence as to the expected level of demand for 2012 on the
basis of which the Panel would be able to assess whether the 2012 production
plan constituted a "restriction" for the purposes of Article XX(g).
In this dispute such evidence is especially important, since in 2012 all
consumption levels (both domestic and foreign) for ores and smelted and
separated products declined significantly from the 2010 and 2011 levels. This
suggests to the Panel that demand for such
products was especially low in 2012 independently of China's restrictions.[783]
5.237. We note that
the Declaration on the Setting of 2012 Export Quotas on Rare Earth Products,
from which the Panel quoted in the above paragraph, is Exhibit CHN-63, with
which China alleges the Panel did not engage. Moreover, contrary to what China
alleges, it is clear from paragraph 7.526 that the Panel did engage with
this Panel Exhibit and evidence relating to demand for rare earths in 2012 in
general. The
Panel considered the statement that demand for rare earths would continue to be
significant. However, the Panel also noted an overall trend of significantly
declining consumption levels in 2012 for rare earths as compared to the 2010
and 2011 levels. On this basis, the Panel concluded that China had not provided
sufficient evidence regarding the expected level of demand for 2012, on the
basis of which the
Panel would have been able to assess whether the 2012 production plan
constituted a "restriction" for the purposes of Article XX(g).
Accordingly, we do not see that this reasoning by the Panel can be
characterized as "incoherent".
5.238. Second, China alleges that the Panel engaged in
incoherent reasoning in, on the one hand, finding that it should assess
only the design, structure, and architecture and not the impact of China's
resource tax, and, on the other hand, acknowledging that by design and
structure the increased costs caused by the tax could lead to a reduction in
demand and therefore limit production of rare earth ores and work to reduce
extraction of rare earths.[784]
Paragraph 7.554 of the Panel Reports sets out the following reasoning by
the Panel:
Nevertheless, the Panel acknowledges that increased costs caused by the
tax could, in the long run, lead to a reduction in demand and therefore limit
production of rare earth ores. Thus, resources taxes could work to reduce
extraction of rare earths. However, in the Panel's opinion, China has not
adduced sufficient evidence to persuade the Panel that the tax at issue here
would be capable of having a limiting effect.
5.239. In our
reading of paragraph 7.554 of the Panel Reports, the first sentence of the
paragraph, which uses the conditional mode "could, in the long run, lead
to …", sets out a hypothetical. The third sentence contrasts that to the
concrete measure at issue in this case with the words "However, … the tax
at issue here …". As we see it, these are not two conflicting statements
relating to one and the same measure. Rather, the Panel contrasts a hypothetical
with the specific measure invoked by China in support of its defence. In
addition, the Panel specifically explains, why, in its view, China had not
established "that
the resource tax was designed in such a way as to increase the costs, and thus
decrease demand for, rare earth products." The Panel explained that the
increase in costs might also have been caused by enlargement of production. The
Panel also explained what evidence China would have had to provide in order to
properly support its argument. In addition, the Panel emphasized in the
subsequent paragraph that it was not assessing the impact
of China's resource tax, but rather its design and structure. Accordingly, we
do not see that the Panel engaged in incoherent reasoning in paragraphs 7.554
and 7.555.
5.240. Third, China alleges that the Panel
engaged in incoherent reasoning because it failed to assess the trends in rare earth
extraction and production data objectively. China alleges that the Panel failed
to address China's arguments that the extraction, production and consumption data suggest that the decreased
production and consumption levels are the result of China's overall
conservation policy.
5.241. In connection with this claim,
China refers to arguments set out in connection with its claim that the Panel
lacked objectivity in its treatment of the evidence in determining how domestic
restrictions and export quotas work together. We have addressed these arguments
at paragraphs 5.229 through 5.233 above in the context of the claim concerning the
temporal connection between domestic restrictions and export quotas. China does
not advance any additional argumentation in regard to its further claim that
the Panel failed to assess the trends in rare earth extraction and production data objectively,
and China does not explain whether or how this claim is distinct from its claim
concerning the Panel's error in considering the temporal connection between
domestic restrictions and export quotas. Accordingly, we do not see that China
has established that the Panel was incoherent in its reasoning or acted
inconsistently with Article 11 of the DSU.
5.242. Finally, China alleges that the
Panel acted inconsistently with Article 11 of the DSU because it employed a
"double standard" in its analysis of even-handedness. China argues
that, with respect to the export quotas, the Panel failed to address the extent
to which China's export quotas impose an actual and not merely a theoretical
burden on foreign consumers. In contrast, with regard to domestic restrictions,
the Panel focused on whether these restrictions are actually enforced and have
actual restrictive effects. In particular, China alleges that Panel erred in
failing to assess the question of why the challenged export quotas were not
filled but according significant weight to the effects of the domestic
restrictions.
5.243. We have already explained, in the
context of another claim under Article 11 of the DSU, that the Panel did
address the effects of under-filled export quotas when addressing China's
contention that the unfilled 2011 and 2012 export quotas showed that there was
no discriminatory treatment of foreign consumers as a consequence of these
quotas.[785]
The Panel rejected that contention and was not convinced that, in this case,
unfilled quota shares were evidence of non-discrimination.[786]
Accordingly, for the same reasons as set out above, we do not see that the
Panel failed to address the question of the effects of the unfilled export
quotas, or employed a "double standard" in its analysis of
"even-handedness".
5.244. We recall that, with respect to the
"relating to" requirement in Article XX(g) of the
GATT 1994, China requests us to find that the Panel erred in its
interpretation and application of this requirement, and acted inconsistently
with Article 11 of the DSU, in finding that China's export quotas on rare
earths and tungsten do not "relate to" conservation. China therefore requests
us to reverse the Panel's intermediate findings that China's export quotas on
rare earths and tungsten are not measures "relating to" conservation
within the meaning of Article XX(g) of the GATT 1994 by virtue of
their "signalling" function.[787]
5.245. As
explained above, we have found that the Panel did not
interpret the "relating to" requirement in Article XX(g) as obliging
it to limit its analysis to an examination of the design and structure of the
measures at issue. Nor did the Panel, either in its interpretation or its
application of the "relating to" requirement, consider itself
precluded from taking account of evidence of the effects of China's export
quotas and other elements of China's conservation regime in the marketplace. We
have also found that the Panel did not fail to comply with its duty to make an
objective assessment of the matter. Accordingly, we do not accept China's
request for reversal of the relevant Panel findings setting out its
interpretation and application of Article XX(g). Instead, we find that the
Panel did not err in its reasoning regarding the
signals sent to foreign and domestic consumers by China's export quotas on rare
earths and tungsten, or in rejecting China's argument that, by virtue of their
signalling function, China's export quotas on rare earths and tungsten relate
to conservation.
5.246. With respect to the "made
effective in conjunction with" requirement under Article XX(g) of the
GATT 1994, China also requests us to find that the Panel erred in its
interpretation and application of this requirement, and that it failed to make
an objective assessment of the matter in accordance with Article 11 of the
DSU. China requests us, in consequence, to reverse the relevant findings of the
Panel.[788]
5.247. As explained above, we have found that the Panel did not
interpret Article XX(g) as requiring it to limit its analysis to an
examination of the design and structure of the measures and did not, either in
its interpretation or its application of Article XX(g), consider itself
precluded from taking account of evidence of the effects of the export quotas
and domestic measures in the marketplace. However, we further determined that
the Panel erred to the extent that it interpreted Article XX(g) as
imposing a separate requirement of "even-handedness" that must be
fulfilled in addition to the condition that a measure must be "made
effective in conjunction with restrictions on domestic production or
consumption". We also found that the Panel erred to the extent it found
that Article XX(g) requires a showing that the burden of conservation is evenly
distributed. Nevertheless we have found that this error of the Panel does not
taint the remainder of its interpretation of Article XX(g), which also contains
elements that China has not appealed.
5.248. In addition, we found that, despite
certain flaws in the Panel's interpretation, the Panel did not commit legal
error in its application of the "made effective in conjunction with"
requirement of Article XX(g) to the export quotas, because it did not engage in
an assessment of whether China's export quotas on rare earths, tungsten, and
molybdenum evenly distribute the burden of conservation. Further, we found that
the Panel did not fail to make an objective assessment of the matter in this
regard. Accordingly, we do not accept China's request for reversal of the
relevant Panel findings setting out its interpretation and application of
Article XX(g). Instead, we find that the Panel did not err in rejecting China's argument that the export quotas on
rare earths, tungsten, and molybdenum are "made effective in conjunction
with" restrictions on domestic production or consumption.
5.249. China further requests reversal of
the Panel's overall conclusions regarding Article XX(g) of the GATT 1994
"[t]o the extent that the Panel's errors" in connection with its
analysis of the "relating to" element and/or the "made effective
in conjunction with" requirement of subparagraph (g) of Article XX
"taint" the Panel's conclusions, in such paragraphs, that China's
export quotas on rare earths, tungsten and molybdenum cannot be provisionally
justified under subparagraph (g) of Article XX of the GATT 1994.[789]
5.250. The paragraph ranges cited by China
set out the Panel's summary of the entirety of its Article XX(g) analysis
with respect to the export quotas on rare earths[790],
tungsten[791],
and molybdenum.[792]
China also refers to the Panel's ultimate conclusion that China had not
established that these export quotas are justified under Article XX(g) of
the GATT 1994.[793]
We recall that we have rejected China's requests for reversal of the
intermediate findings made by the Panel with respect to the "relating
to" and the "made effective in conjunction with" elements of
Article XX(g).
5.251. For a GATT-inconsistent measure to
be justified under Article XX(g), the Member maintaining such a measure
must demonstrate compliance with all the different elements prescribed in
Article XX(g). China has not, in its arguments on appeal, elaborated how or to
what extent it considers the Panel's ultimate conclusions to be
"tainted" by its alleged errors. In any event, we have found that the
Panel did not err in its analysis and findings with respect to the
"relating to" element. We have also found that the Panel did not
commit reversible legal error in its analysis and findings with respect to the
"made effective in conjunction with" requirement. Moreover, the Panel
found that China had not established an additional key element of its asserted
defence under Article XX(g), namely, that China's extraction and
production caps for rare earths, tungsten, and molybdenum constitute
"restrictions" within the meaning of Article XX(g) of the
GATT 1994[794],
and China has not appealed this finding. Finally, the Panel's ultimate finding
that China had not demonstrated that its export quotas are justified under
Article XX(g) also rested on its finding that China had not demonstrated
that its 2012 export quotas on rare earths, tungsten, and molybdenum were
applied in a manner consistent with the chapeau of Article XX.[795]
This finding is also not challenged on appeal. Accordingly, there is no basis
for disturbing the Panel's ultimate conclusions under Article XX(g) of the
GATT 1994.
5.252. For all of the above reasons, we uphold
the Panel's conclusion that "China has not demonstrated that the export
quotas that China applies to various forms of rare earths, tungsten, and
molybdenum are justified pursuant to subparagraph (g) of Article XX
of the GATT 1994."[796]
5.253. In its Reports, the Panel decided
to reject 10 exhibits that had been jointly submitted by the complainants at a
late stage of the Panel proceedings, on 17 July 2013. The Panel did so in
response to a request made by China immediately after the exhibits in question
were submitted. The Panel summarized the reasons for its decision as follows:
… the relevant exhibits were submitted too late; they could have been
submitted earlier and in a manner consistent with due process. Additionally,
these exhibits do not supplement the evidence already accepted by the Panel.
They do not, as far as the Panel can see, say anything substantially new or
different from what is said in the exhibits that the complainants submitted
prior to 17 July 2013.[797]
5.254. On appeal, the United States
requests us to find that the Panel's decision to reject this evidence was
inconsistent with Articles 11 and 12.4 of the DSU.[798]
Although the 10 exhibits at issue were jointly submitted to the Panel by all
three complainants, neither the European Union nor Japan has appealed the
Panel's decision to exclude them.[799]
Accordingly this issue on appeal pertains only to DS431 (complaint by the
United States), and not to DS432 (complaint by the European Union) or DS433
(complaint by Japan).
5.255. This appeal by the United States is
made on a conditional basis. In its Notice of Appeal, the United States
indicates that we need not rule on its appeal if either of two scenarios were
to arise, that is, if "China were not to appeal the Panel Report" or
if "the Appellate Body were not to modify or reverse the legal findings or
conclusions of the Panel pursuant to an appeal by China".[800]
The first of these scenarios did not arise because China filed an other appeal
in DS431 on 13 April 2014.
5.256. We have not, in our above findings,
reversed or modified any of the ultimate findings and conclusions made by the
Panel. Indeed, with respect to the "Conclusions and Recommendations"
set out by the Panel in Section 8 of its Reports, China's appeal related to
only one legal conclusion – that "China has not demonstrated
that the export quotas that China applies to various forms of rare earths,
tungsten, and molybdenum are justified pursuant to subparagraph (g) of
Article XX of the GATT 1994" – and we have upheld that
conclusion.[801]
5.257. At the same time, the United States
also clarified, in response to questioning at the oral hearing, that the second
condition on which its appeal is premised does not relate solely to the Panel's
ultimate findings and conclusions, expressed in Section 8 of its Reports, but
also to "intermediate findings" made by the Panel. We recall, in this
regard, that although we have not, in our reasoning above, reversed any
intermediate findings of the Panel, we have, in considering the Panel's interpretation
of the phrase "made effective in conjunction with" in Article XX(g)
of the GATT 1994, identified certain erroneous statements made by the Panel in
the course of its interpretation and application of "made effective in
conjunction with", and expressed the view that the Panel erred to the
extent that such statements could be read as suggesting that Article XX(g)
imposes a requirement of even-handedness that is separate and additional to the
conditions expressly prescribed in that provision, or as suggesting that
Article XX(g) requires an assessment of whether the burden of conservation is
evenly distributed. We found, however, that, notwithstanding such erroneous
statements, the Panel did not commit reversible legal error in its analysis and
findings with respect to the "made effective in conjunction with"
requirement. Moreover, several other elements of the Panel's Article XX(g)
analysis are in any event not appealed. Therefore, we have not identified any legal
findings or conclusions of the Panel that must be reversed or modified.
5.258. In these circumstances, we consider
that one of the conditions on which the United States' appeal is made is not
satisfied. Accordingly, we do not rule on whether the Panel erred and acted
inconsistently with Articles 11 and/or 12.4 of the DSU in excluding Panel
Exhibits JE-188 through JE-197.
[11] WT/DS431/R, 26 March 2014.
[12] WT/DS432/R, 26 March 2014.
[13] WT/DS433/R, 26 March 2014.
[14] WT/DS431/R, WT/DS432/R, WT/DS433/R, 26
March 2014. The Panel
issued its findings in the form of a single document constituting three
separate Panel Reports, with a common cover page, preliminary pages, and
sections 1 through 7. In section 8 of its Reports, the Panel set out separate
conclusions and recommendations in respect of each dispute: pages USA-252
and USA-253 bear the document symbol for and contain the Panel's conclusions
and recommendations in the Panel Report WT/DS431/R (US Panel Report), the
dispute initiated by the United States; pages EU-254 and EU-255 bear the
document symbol for and contain the Panel's conclusions and recommendations in
the Panel Report WT/DS432/R (EU Panel Report), the dispute initiated by the
European Union; and pages JPN‑256 and JPN-257 bear the document symbol for
and contain the Panel's conclusions and recommendations in the Panel Report
WT/DS433/R (Japan Panel Report), the dispute initiated by Japan.
[15] At its meeting on
23 July 2012, the Dispute Settlement Body (DSB) established a single
panel, in accordance with Articles 6 and 9.1 of the Understanding on
Rules and Procedures Governing the Settlement of Disputes (DSU) pursuant to requests
by the United States, the European Union, and Japan. (Panel Reports,
para. 1.3)
[16] Request for the Establishment of a
Panel by the United States, WT/DS431/6.
[17] Request for the Establishment of a
Panel by the European Union, WT/DS432/6.
[18] Request for the Establishment of a
Panel by Japan, WT/DS433/6.
[19] "Rare earths" is the
common name for a group of 15 chemical elements in the periodic table with
atomic numbers 57 to 71. Two other rare earth elements, scandium (atomic No.
21) and yttrium (atomic No. 39), are also within the scope of these
disputes. (Panel Reports, para. 2.3)
[20] Tungsten is the name given to the
element with atomic No. 74. (Panel Reports, para. 2.6)
[21] Molybdenum is a silvery metallic
element with atomic No. 42. (Panel Reports, para. 2.7)
[22] Panel Reports, para. 7.30. The
products subject to export duties are listed in paragraph 7.46 of the Panel Reports. See also
ibid., para. 2.16.
[23] The products subject to export
quotas are listed in paragraph 2.16 of the Panel Reports.
[24] Panel Reports, paras. 2.5-2.7.
[25] Panel Reports, paras. 2.2,
2.5-2.7, and 2.16.
[26] Panel Reports, paras. 7.169,
7.170, and 7.588. Downstream products include, e.g. rare earth magnets. (Ibid.,
paras. 7.582 and 7.588)
[27] Panel Reports,
paras. 2.8-2.16, and fn 19 to para. 2.9.
[28] Panel Reports, para. 3.1.
[29] The measures identified by the
complainants as those through which China subjects various forms of rare
earths, tungsten, and molybdenum to export duties that are not listed in Annex
6 to China's Accession Protocol are listed in paragraphs 2.9 and 2.10 of the
Panel Reports, and in fn 340
to para. 4.4of these Reports.
[31] The measures identified by the
complainants as those through which China subjects various forms of rare
earths, tungsten, and molybdenum to export quotas are listed in paragraphs 2.11
and 2.12 of the Panel Reports, and in fn 341
to para. 4.4, and paras. 4.3-4.9 of these Reports.
[32] WT/ACC/CHN/49 and Corr.1.
[33] These claims were not raised with
respect to tungsten, because it is a product listed in Annex 2A to China's
Accession Protocol. China's obligation to grant the right to trade does not
apply to the goods listed in Annex 2A, which are reserved for importation
and exportation by state trading enterprises.
[34] The measures identified by the
complainants as those through which China imposes restrictions – such as prior
export performance and minimum registered capital requirements – on the trading
rights of enterprises seeking to export various forms of rare earths and molybdenum
are listed in paragraphs 2.14 and 2.15 of the Panel Reports, and in fn 342 to
para. 4.4 of these Reports. The Panel also noted that,
although each of the complainants had, in its request for establishment of a
panel, raised claims relating to an alleged lack of uniform, impartial, or
reasonable administration of the export quotas, all of the complainants
confirmed to the Panel during the course of the proceedings that they were no
longer pursuing these claims. (Panel Reports, para. 2.13)
[35] All three complainants raised
claims that, with respect to rare earths and molybdenum, the measures at issue
were inconsistent with China's commitments under Paragraphs 83(a), 83(b),
83(d), 84(a), and 84(b) of China's Accession Working Party Report. (Panel
Reports, para. 7.983) In addition, the European Union claimed, with respect to
molybdenum, that, by virtue of the 2012 Application Qualifications and
Application Procedures for Molybdenum Export Quota (Panel Exhibits CHN-107 and
JE-63), China had acted inconsistently with its commitment under Paragraph
84(b) of its Accession Working Party Report to grant trading rights to foreign
enterprises in a non‑discretionary way. (Panel Reports, paras. 7.973 and
7.1047)
[36] Panel Reports, para. 3.2.
[37] Panel Reports, paras. 1.10 and
7.1-7.10.
[38] Panel Reports, para. 1.11.
[39] Panel Reports, paras. 1.8 and
1.11.
[40] Panel Reports, para. 1.12.
[41] Panel Reports, paras. 1.11 and
1.12.
[42] Panel Reports, para. 1.13.
[43] Panel Reports, para. 1.14.
[44] Panel Reports, paras. 7.11 and
7.12. Further details regarding the Panel exhibits and expert reports to which
China objected are set out in paragraph 7.15 of the Panel Reports.
[45] Panel Reports, para. 7.12.
[46] Panel Reports, para. 7.28.
[47] Panel Reports, para. 7.27.
[48] Panel Reports, paras. 7.41 and
7.235. See also fns 96, 318, 1005, 1174, 1300, 1367, and 1374. The Panel
recalled, in this respect, the approach followed by the panel and the Appellate
Body in China – Raw Materials. (Panel Reports,
para. 7.41 and fn 84 thereto (referring to Panel Reports, China – Raw
Materials, para. 7.33; and Appellate Body Reports, China – Raw Materials, para. 266))
[49] US Panel Report, para. 8.1.a; EU Panel
Report, para. 8.6.a; Japan Panel Report, para. 8.11.a.
[50] US Panel Report,
para. 8.1.b; EU Panel Report, para. 8.6.b; Japan Panel Report, para. 8.11.b.
[51] Panel Reports,
para. 7.115.
[52] Panel Reports,
paras. 7.99, 7.104,
and 7.114.
[53] Panel Reports, para. 7.138. See
also ibid., para. 7.119.
[54] All three panelists agreed that
China had not demonstrated that its export duties are justified under
Article XX(b) of the GATT 1994, or that they are applied consistently
with the chapeau of Article XX. However, for the panelist who expressed a
separate opinion, this part of the reasoning was not undertaken on an arguendo basis. (Panel Reports, para. 7.140)
[55] US Panel Report, para. 8.1.b; EU Panel
Report, para. 8.6.b; Japan Panel Report, para. 8.11.b.
[56] Before the Panel, China drew a
distinction between the Marrakesh Agreement Establishing the World Trade
Organization excluding the Multilateral Trade
Agreements annexed to it, on the one hand, and that Agreement together with its annexes, on the other hand. China used
"the Marrakesh Agreement" to refer to the former, and "the WTO
Agreement" to refer to the latter. On appeal, China draws the same
distinction. In its findings regarding the availability of Article XX of
the GATT 1994 to justify a breach of Paragraph 11.3 of China's Accession Protocol,
the Panel also used "the Marrakesh Agreement" to refer to the
Marrakesh Agreement Establishing the World Trade Organization excluding its annexes. For purposes of consistency, we, like
the Panel, use "the Marrakesh Agreement" to refer to the Marrakesh
Agreement Establishing the World Trade Organization excluding its annexes, even
in instances where the complainants and third participants themselves have not,
in their submissions, used the nomenclature "the Marrakesh
Agreement". We underline that our use of such nomenclature is for purposes
of these appeals only, and without prejudice to the legal issues raised by
China on appeal.
[57] Panel Reports, para. 7.76 and fn
162 thereto (referring to China's first written submission to the Panel,
section V.C, paras. 422-435; and China's responses to the complainants'
comments on China's request for a preliminary ruling on the availability of
Article XX of the GATT 1994, section III, paras. 13-34). The
Panel further expressed its understanding that this argument by China rested on
the following two premises:
a. The legal effect of Paragraph 1.2 of China's
Accession Protocol and Article XII:1 of the Marrakesh Agreement is to make
China's Accession Protocol an "integral part" of the Marrakesh
Agreement, and also to make each of the Accession Protocol-specific provisions
an integral part of one of the Multilateral Trade Agreements (e.g. GATT 1994)
annexed to the Marrakesh Agreement.
b. The determination of which
Multilateral Trade Agreement(s) (e.g. GATT 1994) a particular provision of the
Accession Protocol is an "integral part" must be based on an
evaluation of which Multilateral Trade Agreement(s) the provision at issue is
"intrinsically" related to. Paragraph 11.3 of China's Accession
Protocol contains an obligation regarding trade in goods, and in particular
regulating the use of export duties. Therefore, it is "intrinsically
related" to the GATT 1994, and in particular the provisions of [the] GATT
1994 regulating the use of export duties – which, in China's view, are Articles
II and XI of the GATT 1994. Accordingly, Paragraph 11.3 must be treated as an
"integral part" of the GATT 1994. Paragraph 11.3 is therefore subject
to the general exceptions in GATT Article XX unless there is explicit treaty
language to the contrary.
(Ibid., para. 7.76 (fn omitted; emphasis original))
[58] Panel Reports, para. 7.93. See
also ibid., paras. 7.80 and 7.89.
[59] US Panel Report, para. 8.2.a; EU Panel
Report, para. 8.7.a; Japan Panel Report, para. 8.12.a.
[60] US Panel Report,
para. 8.2.b; EU Panel Report, para. 8.7.b; Japan Panel Report, para. 8.12.b.
[61] US Panel Report,
para. 8.2.c; EU Panel Report, para. 8.7.c; Japan Panel Report, para. 8.12.c.
[62] US Panel Report,
para. 8.3.a and b; EU
Panel Report, para. 8.8.a and b; Japan Panel Report, para. 8.13.a and b.
[63] US Panel Report, para. 8.3.c and
d; EU Panel Report, para. 8.8.c and d; Japan Panel Report, para. 8.13.c
and d.
[64] EU Panel Report,
para. 8.8.e.
[65] US Panel Report,
para. 8.4; EU Panel Report, para. 8.9; Japan Panel Report, para. 8.14.
[66] US Panel Report,
para. 8.5; EU Panel Report, para. 8.10; Japan Panel Report, para. 8.15.
[67] WT/DS431/9 (attached as Annex 1 to
these Reports).
[68] WT/AB/WP/6, 16 August 2010.
[69] WT/DS431/10 (attached as Annex 2
to these Reports).
[70] WT/DS432/9, WT/DS433/9 (attached
as Annex 3 to these Reports).
[71] Pursuant to Rules 22 and 23(4) of
the Working Procedures.
[72] Pursuant to Rule 22 of the Working
Procedures. In accordance with the Procedural Ruling issued by the Division
hearing these appeals on 1 May 2014 (see paragraph 1.34 and
Annex 5 of these Reports), the European Union elected to have its appellee's
submission also serve as its third participant's submission in DS431 and DS433,
and Japan elected to have its appellee's submission also serve as its third
participant's submission in DS431 and DS432.
[73] Argentina filed its third
participant's submission in Spanish. A courtesy English translation prepared by
the WTO Secretariat was provided to all participants and third participants on
23 May 2014.
[74] The United States submitted a
third participant's submission in respect of the disputes initiated by the
European Union (DS432) and Japan (DS433).
[75] Pursuant to Rule 24(1) of the
Working Procedures.
[76] As Turkey's notification was not
received before the 17:00 deadline specified in Rule 18(1) of the Working
Procedures, the Division treated it as a notification to attend the oral
hearing and request to make an oral statement made pursuant to Rule 24(4) of
the Working Procedures.
[77] Pursuant to Rule 24(2) of the
Working Procedures (except where noted otherwise).
[78] Pursuant to Rule 24(4) of the
Working Procedures.
[79] The United States made a single
opening oral statement as appellant and appellee in DS431 and as a third
participant in DS432 and DS433. China made a single opening oral statement as
other appellant and appellee in DS431 and as appellant in DS432 and DS433. The
European Union made a single opening oral statement as appellee in DS432 and as
a third participant in DS431 and DS433. Japan made a single opening oral
statement as appellee in DS433 and as a third participant in DS431 and DS432.
[81] WT/DS431/12; WT/DS432/10;
WT/DS433/10.
[82] WT/DS449/R, 27 March 2014.
[83] As explained in paragraphs 5.253-5.258 of these Reports and in the Procedural Ruling
attached as Annex 4 to these Reports, in its Notice of Appeal, the United
States indicated that, "[i]f China were not to appeal the Panel Report, or
if the Appellate Body were not to modify or reverse the legal findings or
conclusions of the Panel pursuant to an appeal by China, then the Appellate
Body would not need to reach" the issues raised by the United States in
its appeal.
[84] Appellate Body Procedural Ruling
of 1 May 2014 (attached as Annex 5 to these Reports), para. 1.24.
(emphasis omitted)
[85] Appellate Body Procedural Ruling
of 1 May 2014 (attached as Annex 5 to these Reports), para. 1.20.
[86] Although each of the three
complainants in the three disputes prepared its written submissions to the
Panel separately, the complainants together submitted a single, joint set of
exhibits to the Panel, numbered from Joint Exhibit JE-1 to JE-197.
[87] United States' appellant's
submission, para. 12.
[88] United States' appellant's submission,
para. 1 (quoting Panel Reports, paras. 7.23, 7.24, and 7.26, respectively).
[89] As explained in paragraphs 1.30 and 1.31 above, and in Annex 4 to these Reports, China
requested the Appellate Body to reject the United States' Notice of Appeal on
the grounds that, due to its "conditional" nature, the Notice of
Appeal did not constitute a proper Notice of Appeal. However, the Appellate
Body declined this request, finding instead that "[t]he possibility that
we may not need to rule on the issues due to the occurrence of the scenarios
identified by the United States does not provide a valid legal basis for us to
reject the United States' appeal". (Annex 4, para. 2.10)
[90] United States' appellant's
submission, para. 4.
[91] United States' appellant's
submission, para. 5.
[92] China's
appellee's submission, para. 14 (referring to Panel Exhibits JE-188, JE-189,
JE-190, JE-191, JE-192, JE-193, JE-194, and JE-195).
[93] Panel Reports, para. 7.27.
[94] China's appellee's submission,
para. 20.
[95] China submitted its other
appellant's submission in DS431 on 17 April 2014, and its appellant's
submission in DS432 and DS433 on 25 April 2014. (See paragraphs 1.21 and 1.22 of these Reports) China's appellant's
submission contains all of the claims and arguments raised in its other
appellant's submission. In its appellant's submission, China provides further
arguments regarding the legal nature of post‑1994 accession protocols, and
elaborates in greater detail on the reasons why the Panel's interpretation
constituted legal error.
[96] Before the Panel, China drew a
distinction between the Marrakesh Agreement Establishing the World Trade
Organization excluding the Multilateral Trade Agreements annexed to it, on the
one hand, and that Agreement together with its annexes, on the other hand. On
appeal, China draws the same distinction. See supra,
fn 56
and infra, fns 333 and 376.
[97] China's appellant's submission,
para. 46; other appellant's submission, para. 46 (referring to Panel Reports,
paras. 7.80, 7.89, and 7.93).
[98] China's appellant's submission,
para. 46; other appellant's submission, para. 46 (referring to Panel Reports,
paras. 7.73‑7.93).
[99] China's appellant's submission,
para. 55; other appellant's submission, para. 52.
[100] China's appellant's submission,
para. 106; other appellant's submission, fn 15 to para. 6.3 (referring to
Appellate Body Report, China – Publications and
Audiovisual Products, para. 222).
[101] China's appellant's submission,
para. 107 (referring to China's Accession Protocol, fn 5 to Annex 7).
[102] China identified the following
provisions of its Accession Protocol as ones in which, in China's view, the
drafters used the term "the WTO Agreement" to refer to the Marrakesh
Agreement including its annexes: Paragraphs 1.2, 2.A.1, 2.A.3, 4, 5.1, 6.1,
7.1, 8.1, 13.3, 17, 18.1 (first sentence), 18.2, 18.3, and Annex 7.
[103] China's appellant's submission,
para. 112; other appellant's submission, para. 65.
[104] China's appellant's submission,
para. 120.
[105] China's appellant's submission,
para. 126.
[106] China's appellant's submission,
para. 127 (referring to Panel Reports, para. 7.85).
[107] China's appellant's submission,
para. 135 (referring to Appellate Body Report, China –
Publications and Audiovisual Products, para. 30).
[108] China's other appellant's submission,
para. 61. See also China's appellant's submission, para. 86.
[109] China's appellant's submission,
para. 77 (referring to Panel Reports, para. 7.91).
[110] China's appellant's submission,
para. 84.
[111] China's opening statement at the
oral hearing. At the oral hearing, China characterized the bicycle analogy
provided by the European Union (see paragraph 2.132 of these Reports) as "inapt", and
argued that China's Accession Protocol is neither a "wheel" nor a
"saddle bag" of the bicycle of the WTO single undertaking, but
"is akin to an extra layer of paint over parts or the whole of the
bicycle".
[112] Done at Vienna, 23 May 1969, UN
Treaty Series, Vol. 1155, p. 331.
[113] Article 30 of the Vienna
Convention concerns the "[a]pplication of successive treaties relating to
the same subject-matter".
[114] China's opening statement at the
oral hearing.
[115] Article 30(3) of the Vienna
Convention states: "When all the parties to the earlier treaty are
parties also to the later treaty but the earlier treaty is not terminated or
suspended in operation under article 59, the earlier treaty applies only to the
extent that its provisions are compatible with those of the later treaty."
[116] China's opening statement at the
oral hearing.
[117] China's appellant's submission,
para. 207; other appellant's submission, para. 138. In particular,
China requests the Appellate Body to reverse the Panel's findings in paragraphs
7.279-7.293, 7.444, 7.446‑7.448, 7.541-7.542, 7.604, 7.725, and 7.731 of the
Panel Reports.
[118] China's appellant's submission,
para. 155; other appellant's submission, para. 86.
[119] China's appellant's submission,
para. 208; other appellant's submission, para. 139 (referring to Panel Reports,
paras. 7.279-7.293).
[120] China's appellant's submission,
para. 159; other appellant's submission, para. 90 (referring to Panel Reports,
para. 7.290).
[121] China's appellant's submission,
para. 166; other appellant's submission, para. 97 (referring to Panel Reports,
para. 7.446).
[122] China's appellant's submission,
para. 154; other appellant's submission, para. 85.
[123] China's appellant's submission,
para. 153; other appellant's submission, para. 84 (referring to Appellate Body
Report, US – Gasoline, p. 21, DSR 1996:I, p.
20).
[124] China's appellant's submission,
para. 150; other appellant's submission, para. 81 (referring to Appellate Body
Report, Brazil – Retreaded Tyres, paras. 145 and
210).
[125] China's appellant's submission,
para. 150; other appellant's submission, para. 81 (quoting Appellate Body
Report, Brazil – Retreaded Tyres, para. 151; and
referring to Appellate Body Report, China – Publications and
Audiovisual Products, para. 252).
[126] China's appellant's submission,
para. 152; other appellant's submission, para. 83 (referring to Appellate Body
Reports, Brazil – Retreaded Tyres, para. 151 and
fn 243 thereto; and US – Gasoline,
p. 21, DSR 1996:I, p. 20).
[127] China's appellant's submission,
para. 168; other appellant's submission, para. 99.
[128] China's appellant's submission,
para. 176; other appellant's submission, para. 107. China's reference to the
"two-step" approach relates to the Panel's separate analyses of: (i)
whether China's quotas relate to conservation; and (ii) whether China's export
quotas were made effective "in conjunction with domestic restrictions".
[129] China's appellant's submission,
para. 178; other appellant's submission, para. 109 (referring to Panel Reports,
paras. 7.443 and 7.725).
[130] China's appellant's submission,
para. 178; other appellant's submission, para. 109 (quoting Panel Reports,
para. 7.375).
[131] China's appellant's submission,
para. 178; other appellant's submission, para. 109 (referring to Panel Reports,
paras. 7.446 and 7.725).
[132] China's appellant's submission,
para. 180; other appellant's submission, para. 111.
[133] China's appellant's submission,
para. 188; other appellant's submission, para. 119 (referring to Panel Reports,
para. 7.541).
[134] China's appellant's submission,
para. 189; other appellant's submission, para. 120 (referring to Panel Exhibit
CHN-157).
[135] China's appellant's submission,
para. 189; other appellant's submission, para. 120 (referring to China's second
written submission to the Panel, para. 122; and Panel Exhibit CHN-157).
[136] China's appellant's submission,
para. 190; other appellant's submission, para. 121.
[137] China's appellant's submission,
para. 192; other appellant's submission, para. 123 (referring to China's
response to Panel question No. 91, paras. 107 and 108; and Panel Exhibits
CHN-192, CHN-193, and CHN‑214).
[138] China's appellant's submission,
paras. 194 and 195; other appellant's submission, paras. 125 and 126
(referring to China's opening statement at the first Panel meeting, Table 1,
and paras. 41 and 42; and Panel Exhibit CHN-132).
[139] China's appellant's submission,
para. 200; other appellant's submission, para. 131 (referring to China's
opening statement at the second Panel meeting, para. 57; and Panel Exhibits CHN-186
and CHN-191).
[140] China's appellant's submission,
paras. 198 and 199; other appellant's submission, paras. 129 and 130.
[141] China's appellant's submission,
para. 206; other appellant's submission, para. 137.
[142] China's appellant's submission,
para. 207; other appellant's submission, para. 138 (referring to
Appellate Body Report, EC – Fasteners (China), para. 442).
[143] In particular, China requests the
Appellate Body to reverse the Panel's findings in paragraphs 7.301, 7.314‑7.337,
7.568-7.599, 7.792-7.809, and 7.919-7.935 of its Reports.
[144] In this regard, China refers to
paragraphs 7.600-7.614, 7.810-7.820, 7.936-7.944, 8.2.c, 8.7.c, and 8.12.c
of the Panel Reports. (China's appellant's submission, para. 324; other
appellant's submission, para. 255)
[145] China's appellant's submission,
para. 291; other appellant's submission, para. 222.
[146] China's appellant's submission,
para. 213; other appellant's submission, para. 144 (referring to Panel
Reports, para. 7.332).
[147] China's appellant's submission,
para. 227; other appellant's submission, para. 158 (quoting Panel Reports,
para. 7.337).
[148] China's appellant's submission,
para. 232; other appellant's submission, para. 163 (referring to Appellate Body
Report, US – Gasoline, p. 21, DSR 1996:I, p. 19).
[149] China's appellant's submission,
para. 233; other appellant's submission, para. 164 (referring to Appellate Body
Report, US – Gasoline, pp. 20-21, DSR 1996:I, p.
19).
[150] China's appellant's submission,
para. 236; other appellant's submission, para. 167 (referring to Appellate Body
Report, US – Shrimp, para. 121).
[151] China's appellant's submission,
para. 237; other appellant's submission, para. 168 (referring to Appellate Body
Reports, China – Raw Materials, para. 356).
[152] China's appellant's submission,
para. 246; other appellant's submission, para. 177 (referring to Panel
Reports, paras. 7.332, 7.336, and 7.337).
[153] China's appellant's submission,
para. 252; other appellant's submission, para. 183 (quoting Appellate Body
Reports, China – Raw Materials, para. 356).
[154] China's appellant's submission,
paras. 254 and 255; other appellant's submission, paras. 185 and 186
(referring to Appellate Body Report, US – Gasoline,
p. 21, DSR 1996:I, p. 20).
[155] China's appellant's submission,
para. 260; other appellant's submission, para. 191 (referring to Panel Reports,
para. 7.337).
[156] China's appellant's submission,
para. 261; other appellant's submission, para. 192.
[157] China's appellant's submission,
para. 261; other appellant's submission, para. 192 (referring to Appellate Body
Reports, Thailand – Cigarettes (Philippines),
para. 130; EC
– Selected Customs Matters, para. 200; Brazil – Retreaded Tyres,
para. 151; and China – Publications and Audiovisual Products,
para. 252).
[158] China's appellant's submission,
para. 262; other appellant's submission, para. 193.
[159] China's appellant's submission,
para. 267; other appellant's submission, para. 198.
[160] China's appellant's submission,
para. 273; other appellant's submission, para. 204 (referring to Panel Reports,
paras. 7.594, 7.809, and 7.935).
[161] China's appellant's submission,
para. 278; other appellant's submission, para. 209.
[162] China's appellant's submission,
para. 279; other appellant's submission, para. 210 (referring to Panel Reports,
para. 7.375).
[163] China's appellant's submission,
para. 284; other appellant's submission, para. 215 (referring to China's second
written submission to the Panel, paras. 84 and 86-100; opening statement at the
second Panel meeting, paras. 40-45; and response to Panel question No. 123,
paras. 262-265).
[164] China's appellant's submission, fn
232 to para. 281; other appellant's submission, fn 194 to para. 216.
[165] China's appellant's submission,
para. 286; other appellant's submission, para. 217 (referring to Panel Exhibit
CHN-191).
[166] China's appellant's submission,
para. 286; other appellant's submission, para. 217 (referring to China's second written submission to the Panel, paras. 138-141, and Table 1; and opening
statement at the second Panel meeting, paras. 53 and 54, and Figure 7).
[167] China's appellant's submission,
para. 286; other appellant's submission, para. 217 (referring to
China's second written submission to the Panel, paras. 191 and 199-201).
[168] China's appellant's submission,
para. 286; other appellant's submission, para. 217 (referring to Panel Exhibit CHN‑192).
[169] China's appellant's submission,
para. 282 and 293; other appellant's submission, paras. 213 and 224
(referring to Panel Reports, para. 7.577; and Panel Exhibits CHN-13, CHN-21,
and CHN-63).
[170] China's appellant's submission,
paras. 283 and 293; other appellant's submission, paras. 214 and 224
(referring to Panel Reports, para. 7.579; and China's response to Panel question No. 123(b), paras. 258-261).
[171] China's appellant's submission,
paras. 284 and 293; other appellant's submission, paras. 215 and 224
(referring to China's second written submission to the Panel, paras. 84
and 86‑100; opening statement at the second Panel meeting, paras. 40-45;
and response to Panel question No. 123, paras. 262‑265).
[172] China's appellant's submission,
paras. 294-297; other appellant's submission, paras. 225‑228 (referring to
China's second written submission to the Panel, para. 39; and China's
opening statement at the second Panel meeting).
[173] China's appellant's submission,
para. 299; other appellant's submission, para. 230 (referring to Panel
Reports, para. 7.375).
[174] China's appellant's submission,
para. 302; other appellant's submission, para. 233 (referring to Panel
Reports, paras. 7.526 and 7.528).
[175] China's appellant's submission,
para. 302; other appellant's submission, para. 233 (referring to Panel
Reports, para. 7.526).
[176] China's appellant's submission,
para. 302; other appellant's submission, para. 233 (referring to Panel Exhibit CHN‑63).
[177] China's appellant's submission,
para. 302; other appellant's submission, para. 233 (referring to Panel
Exhibit CHN‑64, p. 4).
[178] China's appellant's submission,
para. 302; other appellant's submission, para. 233 (referring to Panel Exhibit CHN‑64, p. 4).
[179] United States' appellee's
submission, para. 63 (quoting Panel Reports, para. 7.82 (emphasis original)).
[180] United States' appellee's
submission, paras. 61-64.
[181] United States' third participant's
submission, para. 22 (quoting China's appellant's submission, para. 120).
[182] United States' appellee's
submission, para. 65 (referring to China's other appellant's submission, para.
63).
[183] United States' appellee's
submission, para. 67 (referring to China's other appellant's submission, para.
65).
[184] United States' appellee's
submission, para. 67 (quoting Panel Reports, para. 7.80).
[185] United States' appellee's
submission, para. 57 (quoting China's other appellant's submission,
para. 60).
[186] United States' appellee's
submission, fn 50 to para. 58 (quoting China's other appellant's submission,
para. 61).
[187] United States' third participant's
submission, para. 8 (referring to China's appellant's submission, paras.
79-84).
[188] United States' third participant's
submission, para. 10.
[189] United States' appellee's
submission, para. 66 (quoting Panel Reports, para. 7.91).
[190] United States' appellee's
submission, para. 67 (quoting Panel Reports, para. 7.92). (emphasis added by
the United States)
[191] United States' appellee's
submission, para. 75.
[192] United States' appellee's
submission, para. 68 (referring to Panel Reports, paras. 7.80 and 7.86; Panel
Reports, China – Raw Materials, para. 7.124; and
Appellate Body Reports, China – Raw Materials,
paras. 291, 293, and 303).
[193] United States' appellee's
submission, para. 73 (quoting Panel Reports, para. 7.91).
[194] United States' appellee's
submission, para. 74 (referring to Panel Reports, para. 7.92).
[195] United States' appellee's
submission, paras. 85 and 99 (referring to Appellate Body Reports, US – Gasoline, p. 19, DSR 1996:I, p. 18; US – Shrimp, para. 136; and China – Raw
Materials, para. 355).
[196] United States' appellee's
submission, para. 96 (quoting Panel Reports, China – Raw
Materials, para. 7.418).
[197] United States' appellee's
submission, para. 97 (referring to Appellate Body Report, US –
Gasoline, p. 21, DSR 1996:I, p. 20).
[198] United States' appellee's
submission, para. 97.
[199] United States' appellee's
submission, para. 88 (referring to China's appellant's submission,
para. 152; and other appellant's submission, para. 83).
[200] United States' appellee's
submission, para. 102 (referring to Panel Reports, paras. 7.290 and 7.379).
[201] United States' appellee's
submission, para. 102 (referring to China's appellant's submission,
paras. 155 and 159; and other appellant's submission, paras. 86 and 90).
[202] United States' appellee's
submission, para. 117 (referring to Panel Reports, para. 7.447).
[203] United States' appellee's
submission, para. 118 (referring to Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20).
[204] United States' appellee's
submission, para. 122 (referring to Panel Reports, paras. 7.441 and 7.723, in
turn quoting Panel Exhibits JE-118 and JE-152).
[205] United States' appellee's
submission, para. 126 (referring to Panel Exhibits JE-118 and JE-152).
[206] United States' appellee's
submission, paras. 127 and 128 (referring to Panel Reports, para. 7.633).
[207] United States appellee's
submission, para. 149 (quoting Appellate Body Reports, US –
Gasoline, p. 18, DSR 1996:I, p. 18; and US – Shrimp, para. 143).
[208] United States appellee's
submission, paras. 151-155 (quoting Appellate Body Reports, US – Gasoline, p. 21, DSR 1996:I, p. 20; and US – Shrimp, paras. 121 and 144).
[209] United States appellee's
submission, paras. 158 and 159 (referring to Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20).
[210] United States' appellee's
submission, para. 160 (referring to Panel Reports, China – Raw
Materials, para. 7.464).
[211] United States' appellee's
submission, para. 163.
[212] United States' appellee's
submission, para. 169 (quoting Appellate Body Reports, China – Raw Materials, para. 356).
[213] United States' appellee's
submission, paras. 170 and 172 (referring to China's other appellant's
submission, paras. 186 and 189; and Appellate Body Report, US –
Gasoline, pp. 21-22, DSR 1996:I, p. 20).
[214] United States' appellee's
submission, para. 177 (quoting Appellate Body Report, EC –
Fasteners (China), para. 442).
[215] United States' appellee's
submission, paras. 179 and 180 (referring to Panel Reports, paras. 7.554 and
7.509).
[216] The United States referred to, inter alia, paragraphs 7.447, 7.509, and 7.554 of
the Panel Reports.
[217] European Union's appellee's
submission, para. 4.
[218] European Union's response to
questioning at the oral hearing.
[219] European Union's appellee's
submission, para. 91 (quoting China's appellant's submission, paras. 119
and 121).
[220] European Union's appellee's
submission, para. 84.
[221] European Union's appellee's
submission, para. 97. (emphasis omitted)
[222] European Union's appellee's
submission, para. 97. (emphasis omitted)
[223] European Union's appellee's
submission, para. 98 (quoting Appellate Body Report, China –
Publications and Audiovisual Products, para. 222).
[224] European Union's appellee's
submission, para. 71.
[225] European Union's appellee's
submission, para. 71.
[226] European Union's appellee's
submission, para. 71.
[227] See paragraph 2.25 of these Reports.
[228] European Union's response to
questioning at the oral hearing.
[229] European Union's appellee's
submission, paras. 17 and 140.
[230] European Union's appellee's
submission, para. 151 (referring to China's first written submission to the
Panel, paras. 44-46; and second written submission to the Panel, para. 52).
[231] European Union's appellee's
submission, paras. 153 and 154.
[232] European Union's appellee's
submission, para. 157 (referring to China's appellant's submission,
paras. 142 and 151; and other appellant's submission, paras. 73 and 82).
[233] European Union's appellee's
submission, para. 164.
[234] European Union's appellee's
submission, paras. 141-144 (referring to Panel Reports, paras. 7.443‑7.448
and 7.725).
[235] European Union's appellee's
submission, para. 141.
[236] European Union's appellee's
submission, para. 144.
[237] European Union's appellee's
submission, paras. 161 and 162 (referring to China's appellant's submission,
para. 164; and other appellant's submission, para. 95).
[238] European Union's appellee's
submission, para. 174.
[239] European Union's appellee's
submission, para. 173 (referring to Panel Reports, paras. 7.240, 7.327, and
7.328; Appellate Body Report, US – Gasoline,
pp. 20-21, DSR 1996:I, pp. 19-20; and Panel Reports, China – Raw Materials, paras. 7.406 and 7.465).
[240] European Union's appellee's
submission, paras. 179-185 (referring to Panel Reports, paras. 7.426,
7.429-7.430, 7.436, 7.439, 7.447, 7.451, 7.452, 7.462-7.471, and 7.478-7.485).
At paragraph 179 of its appellee's submission, the European Union lists
the five additional arguments as follows:
(a) the export quota prevents smuggling and/or the export of illegally
extracted rare earth products; (b) the export quota reduces domestic demand for
illegally extracted and/or produced rare earth products, and thus enforces and
strengthens the extraction and production quotas; (c) …; (d) the export
quota works as a "safeguard" against "speculative surges"
in demand, which would undermine sustainable development; (e) the export quota
enables China to "allocate" the limited supply of rare earth
resources; and (f) the way in which the export quota is established
"relates to" conservation.
[241] European Union's appellee's
submission, paras. 205 and 206 (referring to Panel Reports, paras. 7.441,
7.632, 7.633, 7.723, and 7.824; and Panel Exhibits CHN-157, JE-152, JE-183, and
JE-196).
[242] European Union's appellee's
submission, paras. 207-212 (referring to Panel Reports, paras. 7.510, 7.525,
7.527, 7.544, 7.550, 7.609, 7.632, 7.633, 7.638-7.640, 7.647-7.649, and 7.831;
and Panel Exhibits CHN‑196, CHN-200, JE-152, JE-167, JE-168, JE-169, and
JE-183).
[243] European Union's appellee's
submission, para. 252 (quoting China's appellant's submission, para. 229).
(emphasis original)
[244] European Union's appellee's
submission, para. 254. (emphasis original)
[245] European Union's appellee's
submission, para. 256.
[246] European Union's appellee's
submission, paras. 270-275 (referring to Panel Reports, para. 7.318; and
Appellate Body Report, US – Gasoline,
pp. 20-21, DSR 1996:I, pp. 19-20).
[247] European Union's appellee's
submission, para. 278 (referring to Appellate Body Report, US – Shrimp,
para. 145).
[248] European Union's appellee's
submission, para. 283 (quoting Panel Reports, China – Raw
Materials, para. 7.464).
[249] European Union's appellee's
submission, para. 320 (quoting Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 872).
[250] European Union's appellee's
submission, para. 321 (referring to China's appellant's submission, fn 239
to para. 285).
[251] European Union's appellee's
submission, para. 343 (referring to Panel Reports, paras. 7.466-7.478
and 7.572).
[252] European Union's appellee's
submission, paras. 348 and 349 (referring to Panel Reports, paras. 6.20 and
7.628).
[253] European Union's appellee's
submission, para. 351 (quoting Panel Reports, paras. 7.547-7.550).
[254] European Union's appellee's
submission, para. 352 (referring to Appellate Body Report, EC –
Fasteners (China), para. 442).
[255] Japan's appellee's submission,
para. 160.
[256] Japan's appellee's submission,
para. 188 (quoting Panel Reports, para. 7.84).
[257] Japan's appellee's submission,
para. 188 (quoting China's appellant's submission, para. 126).
[258] Japan's appellee's submission, para.
195 (quoting Appellate Body Reports, China – Raw Materials,
para. 293).
[259] Japan's appellee's submission,
para. 183 (quoting China's appellant's submission, para. 112).
[260] Japan's appellee's submission,
para. 190 (quoting Panel Reports, para. 7.85). (emphasis original)
[261] Japan's appellee's submission,
para. 211.
[262] Japan's appellee's submission,
para. 214 (referring to Appellate Body Reports, China – Raw
Materials, para. 306; and China –
Publications and Audiovisual Products,
para. 221).
[263] Japan's appellee's submission,
para. 187 (referring to China's appellant's submission, para. 123).
[264] Japan's appellee's submission,
para. 216.
[265] Japan's appellee's submission,
para. 219.
[266] Japan's appellee's submission,
para. 174.
[267] Japan's appellee's submission,
para. 200 (referring to China's first written submission to the Panel, para.
422; and China's responses to the
complainants' comments on China's request for a preliminary ruling on the
availability of Article XX of the GATT 1994, paras. 21-23).
[268] Japan's appellee's submission,
para. 202 (referring to China's first written submission to the Panel, paras.
408-461).
[269] Japan's appellee's submission,
para. 26.
[270] Japan's appellee's submission,
para. 28 (referring to Appellate Body Report, US – Shrimp,
paras. 136‑138).
[271] Japan's appellee's submission,
para. 28 (referring to Appellate Body Report, US –
Gasoline, p. 19, DSR 1996:I, p. 18).
[272] Japan's appellee's submission,
para. 30.
[273] Japan's appellee's submission,
para. 30.
[274] Japan's appellee's submission,
para. 37 (referring to Appellate Body Report, Japan –
Alcoholic Beverages II, pp. 23 and 29, DSR 1996:I, pp. 115 and 120).
[275] Japan's appellee's submission,
paras. 32 and 33.
[276] Japan's appellee's submission,
para. 35.
[277] Japan's appellee's submission,
para. 39 (referring to Appellate Body Report, US –
Stainless Steel (Mexico), para. 160).
[278] Japan's appellee's submission,
para. 40.
[279] Japan's appellee's submission,
para. 42 (referring to Panel Reports, China – Raw Materials,
para. 7.586).
[280] Japan's appellee's submission,
para. 43 (referring to Panel Reports, paras. 7.447 and 7.448).
[281] Japan's appellee's submission,
para. 45.
[282] Japan's appellee's submission,
para. 47.
[283] Japan's appellee's submission,
para. 48.
[284] Japan's appellee's submission,
para. 50 (referring to Panel Reports, para. 7.408).
[285] Japan's appellee's submission,
para. 57.
[286] Japan's appellee's submission,
para. 79.
[287] Japan's appellee's submission,
para. 82. Japan takes particular issue with China's statement at paragraph 189
of its appellant's submission that "the evidence provided by the
complainants does not disagree with Professor de Melo's understanding".
Japan indicates that China's "representation is plainly inaccurate",
highlighting the complainants' arguments that "the medium- and long-term
trade-distorting effects of these export restrictions are substantially more
complicated and difficult to evaluate". (See ibid. (referring to China's
appellant's submission, para. 189; and other appellant's submission, para. 120,
in turn referring to Panel Exhibit CHN-157); Japan's second written submission
to the Panel, paras. 159 and 186 (referring to Panel Exhibit JE-141);
opening statement at the second Panel meeting, paras. 43 and 44; response to
Panel question No. 79, para. 45; and comments on China's responses to the Panel's
second set of questions, paras. 25, 26, and 33-34 (referring to Panel Exhibit
JE‑182))
[288] Japan's appellee's submission,
para. 82 (referring to Japan's opening statement at the second Panel meeting,
paras. 43 and 44; and response to Panel question No. 78, paras. 34 and 35).
[289] Japan's appellee's submission,
para. 83 (referring to Panel Reports, para. 7.448).
[290] Japan's appellee's submission,
para. 84 (referring to Japan's second written submission to the Panel,
para. 184, in turn referring to Panel Exhibits JE-146 and JE-147); opening
statement at the second Panel meeting, para. 42; response to Panel question
Nos. 76 and 82, paras. 29-31, and 52; comments on China's responses to the
Panel's second set of questions, paras. 31-33; and United States' second
written submission to the Panel, paras. 130 and 131 (referring to Panel
Exhibits JE-102, JE-118, JE‑145, and JE-147); opening statement at the second
Panel meeting, para. 50.
[291] Japan's appellee's submission,
para. 70.
[292] Japan's appellee's submission, paras.
94-100 (referring to Appellate Body Report, US – Shrimp;
and quoting Appellate Body Reports, US – Gasoline,
p. 20, DSR 1996:I, p. 19; and China – Raw Materials,
para. 356).
[293] Japan's appellee's submission,
para. 98 (quoting Oxford Dictionaries online, definition of
"even-handedness", available at:
,
accessed 9 May 2014).
[294] Japan's appellee's submission,
para. 105.
[295] Japan's appellee's submission,
para. 107 (quoting China's appellant's submission, para. 233; and other
appellant's submission, para. 164).
[296] Japan's appellee's submission,
para. 107 (referring to Appellate Body Report, US –
Gasoline, p. 19, DSR 1996:I, p. 18).
[297] Japan's appellee's submission,
paras. 121 and 122 (quoting Appellate Body Reports, US –
Gasoline, p. 21, DSR 1996:I, p. 20; and Korea –
Alcoholic Beverages, para. 120).
[298] Japan's appellee's submission,
paras. 115 and 116 (referring to Appellate Body Report, US – Shrimp,
para. 144).
[299] Japan's appellee's submission,
para. 143 (referring to Panel Reports, paras. 7.577-7.581).
[300] Argentina's third participant's
submission, para. 16 (quoting Appellate Body Report, China –
Publications and Audiovisual Products, para. 230).
[301] Australia's third participant's
submission, para. 21 (referring to Panel Reports, para. 7.331).
[302] Australia's third participant's
submission, para. 23 (referring to Panel Reports, para. 7.337).
[303] Australia's third participant's
submission, para. 24 (quoting Panel Reports, para. 7.337). (emphasis added
by Australia)
[304] Australia's third participant's
submission, para. 25 (quoting Panel Reports, para. 7.333).
[305] Brazil's third participant's
submission, para. 4.
[306] Brazil's third participant's
submission, para. 7.
[307] Brazil's third participant's
submission, para. 13 (referring to Panel Reports, para. 7.460).
[308] Brazil's third participant's
submission, para. 11 (referring to Appellate Body Report, US – Shrimp,
paras. 127, 136, and 143).
[309] Brazil's third participant's
submission, para. 21 (referring to Appellate Body Reports, China – Raw
Materials, para. 355).
[310] Canada's third participant's
submission, para. 12 (quoting Panel Report, US – Countervailing and
Anti‑Dumping Measures (China), para. 7.317).
[311] Canada's opening statement at the
oral hearing.
[312] Canada's opening statement at the
oral hearing.
[313] Canada's third participant's
submission, para. 17 (referring to Panel Reports, para. 7.285; and Appellate
Body Report, US – Gasoline, p. 19, DSR 1996:I,
p. 18).
[314] Canada's third participant's
submission, para. 17 (referring to Appellate Body Report, US –
Gasoline, p. 19, DSR 1996:I, p. 18).
[315] Canada's third participant's
submission, para. 22 (referring to Appellate Body Report, US –
Gasoline, p. 19, DSR 1996:I, p. 18).
[316] Canada's third participant's
submission, para. 27 (referring to Appellate Body Reports, US –
Gasoline, p. 20, DSR 1996:I, p. 19; and China – Raw
Materials, paras. 356 and 360).
[317] Canada's third participant's
submission, para. 35.
[318] Colombia's third participant's
submission, para. 14.
[319] Colombia's third participant's
submission, para. 10.
[320] Colombia's third participant's
submission, para. 11 (referring to Appellate Body Reports, Japan –
Alcoholic Beverages II, p. 12, DSR 1996:I, p. 106; and US – Gasoline, p. 23, DSR 1996:I, p. 21; and quoting Panel
Report, US – Section 301 Trade Act,
para. 7.22).
[321] Colombia's third participant's
submission, para. 12 (referring to Appellate Body Report, Argentina –
Footwear (EC), paras. 87-90).
[322] Colombia's third participant's
submission, para. 13.
[323] European Union's third
participant's submission in DS431 (contained in its appellee's submission in
DS432 and DS433), para. 369.
[324] Korea's opening statement at the
oral hearing.
[325] Korea's opening statement at the
oral hearing.
[326] Korea's opening statement at the
oral hearing.
[327] Russia's opening statement at the
oral hearing (quoting document WT/ACCSPEC/RUS/25/Rev.3, p. 243).
[328] Russia's opening statement at the
oral hearing. Russia refers, in particular, to paragraphs 7.124, 7.135,
and 7.137 of the Panel Reports. The dissenting member of the Panel stated,
inter alia, that "the defences
provided in the GATT 1994 are automatically available to justify any
GATT-related obligations, including border tariff-related obligations – unless
a contrary intention is expressed by the acceding Member and WTO Members."
(Panel Reports, para. 7.137 (fn omitted))
[329] Saudi Arabia's third participant's
submission, para. 13.
[330] Saudi Arabia's third participant's
submission, para. 16.
[331] Saudi Arabia's third participant's
submission, para. 25 (referring to Appellate Body Reports, US –
Gasoline, p. 20, DSR 1996:I, p. 19; and China – Raw
Materials, paras. 356-358).
[332] Turkey's opening statement at the
oral hearing.
[333] Before the Panel, China drew a
distinction between the Marrakesh Agreement Establishing the World Trade
Organization excluding the Multilateral Trade
Agreements annexed to it, on the one hand, and that Agreement together with its annexes, on the other hand. China used
"the Marrakesh Agreement" to refer to the former, and "the WTO
Agreement" to refer to the latter. On appeal, China draws the same
distinction. In its findings regarding the availability of Article XX of
the GATT 1994 to justify a breach of Paragraph 11.3 of China's Accession
Protocol, the Panel also used "the Marrakesh Agreement" to refer to
the Marrakesh Agreement Establishing the World Trade Organization excluding its annexes. For purposes of consistency, we, like
the Panel, use "the Marrakesh Agreement" to refer to the Marrakesh
Agreement Establishing the World Trade Organization excluding its annexes, even
in instances where the complainants and third participants themselves have not,
in their submissions, used the nomenclature "the Marrakesh
Agreement". We underline that our use of such nomenclature is for purposes
of these appeals only, and without prejudice to the legal issues raised by
China on appeal.
[334] Panel Reports,
paras. 2.2-2.16, 7.41-7.47, 7.204-7.235, and 7.985-7.990.
[335] The complainants challenged
China's imposition of export duties on 58 rare earth products, 15 tungsten
products, and nine molybdenum products that are not identified in Annex 6 to
the Protocol on the Accession of the People's Republic of China to the WTO,
WT/L/432 (China's Accession Protocol). (See Panel Reports,
paras. 7.30 and 7.46)
[336] The complainants challenged
China's imposition of export quotas on 75 rare earth products, 14 tungsten
products, and nine molybdenum products. (See Panel Reports,
para. 2.16 (referring to Panel Exhibits CHN-8 and JE‑48))
[337] Panel Reports, paras. 2.10, 2.12,
and 2.15, and fn 19 to para. 2.9, fn 20 to para. 2.11, and fn 22 to para. 2.14.
[338] Panel Reports, paras. 7.41 and
7.235. In adopting this approach, the Panel explained that it was taking the
same approach as in the China – Raw Materials disputes
and referred, in this regard, to paragraph 7.33 of the panel reports, and
paragraph 266 of the Appellate Body reports in those disputes.
[339] Panel Reports, paras. 7.41 and
7.235.
[340] In their requests for the
establishment of a panel, the complainants identified four instruments through
which China subjects various forms of rare earths, tungsten, and molybdenum to
export duties. The Panel expressly referred to these four instruments as the
"series of measures" that were the subject of its findings. These
instruments are: Customs Law of the People's
Republic of China (Panel Exhibit JE-54); Regulations on Import and Export
Duties (Panel Exhibit JE-46); 2012 Tariff Implementation
Program (Customs Tariff Commission) (Panel Exhibit JE‑45); and 2012 Tariff Implementation Plan (General
Administration of Customs) (Panel Exhibit JE-47).
[341] In their requests for the
establishment of a panel, the complainants identified 18 instruments through
which China subjected the various forms of rare earths, tungsten, and
molybdenum to quantitative restrictions in the form of export quotas. The Panel
expressly referred to 15 of those measures in the course of its analysis. These
measures are contained in Panel Exhibits JE-51; JE‑53; CHN-8 and JE-48; CHN-11
and JE‑49; CHN-38 and JE-61; CHN-54 and JE-50; CHN-55 and JE‑66; CHN-56 and JE‑55;
CHN-57 and JE‑56; CHN-96 and JE-52; CHN-97 and JE‑58; CHN-98 and JE-65; CHN-99
and JE-59; CHN-100 and JE-62; and CHN‑107 and JE-63 (see Table of Exhibits on
page 8 of these Reports). The Panel also included the following two instruments,
not expressly identified in the complainants' panel requests, in its
description of the "series of measures" comprising China's export
quota regime: 2012 Second Batch Rare Earth Export Quotas (Panel Exhibits CHN-58
and JE-57); and 2012 Second Batch Export Quotas of Tungsten, Antimony and Other
Non‑Ferrous Metals (Panel Exhibits CHN-165 and JE-60). In response to
questioning at the oral hearing, all the participants agreed that these two
instruments are included in the "series of measures" that were the
subject of the Panel's findings.
[342] With respect to China's
administration and allocation of its export quota regime, the complainants, in
their requests for the establishment of a panel, identified 17 instruments
through which China imposes restrictions on the trading rights of enterprises
seeking to export various forms of rare earths and molybdenum. However, in the
course of its analysis, the Panel emphasized that, according to the
complainants, only five of those 17 measures contain eligibility criteria
with which export quota applicants must comply so as to be eligible to apply
for part of the rare earth, tungsten, and molybdenum quota allocation. (Panel
Reports, para. 7.985) The Panel therefore expressly referred to the following
five measures in the course of its analysis: Export
Quota Administration Measures (Panel Exhibits CHN‑96 and JE‑52); 2012 Application Qualifications and Procedures for Rare Earth Export
Quotas (Panel Exhibits CHN‑38
and JE‑61); 2012 Application Qualifications and
Application Procedures for Molybdenum Export Quota (Panel Exhibits CHN‑107 and JE‑63);
2012 First Batch Rare Earth Export Quotas
(Supplement) (Panel Exhibits CHN‑57
and JE‑56); and 2012 First Batch Export
Quotas of Tungsten, Antimony and Other Non‑Ferrous Metals (Panel Exhibits CHN‑99
and JE‑59).
[343] Panel Exhibits CHN-11 and JE‑49.
[344] Panel Exhibits CHN-54 and JE-50.
[345] Panel Exhibits CHN-96 and JE-52.
[346] Panel Reports, para. 7.204
(referring to Foreign Trade Law, Article 19; Regulations
on the Administration of the Import and Export of Goods, Articles 4 and 36; and Export Quota
Administration Measures, Article 1).
[347] Panel Reports, para. 7.205
(referring to Foreign Trade Law, Article 20).
[348] Panel Reports, para. 7.206 (referring to Foreign
Trade Law, Article 18; Regulations
on the Administration of the Import and Export of Goods,
Article 35; and 2008 Export Licence
Administration Measures (Panel Exhibit JE‑51),
Article 3, para. 2).
[349] Panel
Exhibits CHN-8 and JE-48.
[350] Panel Reports, paras. 7.207 and
7.209 (referring to 2012 Export Licensing Catalogue).
[351] Panel Reports, para. 7.209
(referring to 2012 Export Licensing Catalogue).
[352] Panel Reports, para. 7.212
(referring to 2012 Application Qualifications and
Procedures for Rare Earth Export Quotas (Panel Exhibits CHN‑38
and JE‑61)). See also
2012 Application Qualifications and Additional Application Procedures of Tungsten Export (or
Supply) Enterprises (Panel Exhibits CHN-100 and JE‑62), Article IV(iv); 2012
Export Quota Amounts (Panel Exhibits CHN-97 and JE-58); and 2012 Application
Qualifications and Application Procedures for Molybdenum Export Quota (Panel
Exhibits CHN-107 and JE-63).
[353] Panel Reports, para. 7.212
(referring to Regulations on the Administration of
the Import and Export of Goods, Articles 41 and 43).
[354] Panel Reports, para. 7.207
(referring to Regulations on the Administration of
the Import and Export of Goods, Article 38).
[355] Panel Reports, para. 7.208
(referring to 2012 Export Quota Amounts).
[356] Panel Reports, para. 7.208.
[357] The amounts of the rare earth,
tungsten, and molybdenum export quotas were further specified in separate
announcements issued by MOFCOM related to each product, with the amounts
divided among different "batches". With respect to rare earths, China
announced the specific amounts allocated for the 2012 export quotas in three
separate instruments published in December 2011, May 2012, and August 2012.
(Panel Reports, paras. 7.213-7.215 (referring to Panel Exhibits CHN-56 and
JE-55, CHN-57 and JE-56, and CHN-58 and JE-57)) In respect of tungsten and molybdenum,
China announced the specific amounts allocated for the 2012 export quotas in
two separate instruments published in December 2011 and July 2012. (Panel
Reports, paras. 7.228 and 7.229 (referring to 2012 First Batch Export Quotas of
Tungsten, Antimony and Other Non‑Ferrous Metals; and 2012 Second Batch Export
Quotas of Tungsten, Antimony and Other Non-Ferrous Metals) See also Panel
Reports, paras. 7.222‑7.224 and 7.227-7.230)
[358] Panel Reports, para. 7.210.
[359] Panel Reports, paras. 2.5-2.7.
[360] Panel Reports,
para. 2.3. Thus, the 17 "rare
earths" included in the scope of these disputes comprise: lanthanum (La),
cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm),
europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium
(Ho), erbium (Er), thulium (Tm), ytterbium (Yb), lutetium (Lu) (the lanthanide
group), as well as scandium (Sc) and yttrium (Y).
[361] Panel Reports, para. 2.6.
[362] Panel Reports, para. 2.7.
[363] Panel Reports, paras. 7.169,
7.170, and 7.588.
[364] Panel Reports, paras. 7.552,
7.582, and 7.588.
[365] Panel Reports, paras. 2.6, 7.746,
7.786, and 7.800.
[366] Panel Reports, paras. 7.921,
7.932, and 7.958.
[367] With respect to rare earths, for
example, China identified "three important rare earth-using industries in
China (NiMH batteries, rare earth catalyst and permanent magnets)", and
explained that there are "about 130 permanent magnet producers, 86 rare
earths catalysts producers and dozens of major NiMH battery producers" in
China. (China's appellant's submission, paras. 200 and 201; other appellant's
submission, paras. 131 and 132)
[368] China submitted evidence showing
that it accounted for 90% of the world's total production of
rare earths in 2011. (Panel Exhibit CHN-01, p. 5) The complainants submitted
evidence suggesting that China produced close to 97% of the world's supply of
rare earths in 2011. (Panel Exhibits JE-23 and JE‑79) The Panel also took note
of evidence submitted by China illustrating that China accounted for 90-97% of
global rare earth production in 2011. (Panel Exhibit CHN-6, p. 10; Panel
Exhibit CHN-24, p. 4)
[369] Panel Reports, paras. 7.464 and
7.660.
[370] China's second written submission
to the Panel, para. 111 (referring to Panel Exhibit CHN‑4).
[371] The complainants and China
submitted evidence to the Panel indicating that China produced 90.8% of
worldwide tungsten supply in 2010 and 83% in 2011. (Panel Reports, para. 7.825.
See also China's first written submission to the Panel, para. 285; Panel
Exhibit JE‑130, p. 26; and Panel Exhibits JE‑37 and CHN‑92, p. 177)
[372] Panel Reports, paras. 7.825 and
7.835. See also Panel Exhibit JE-130, pp. 36-37.
[373] China submitted evidence
indicating that, in 2010, China produced 38% of the world's molybdenum supply,
while, in 2011, China accounted for 37% of such production. The complainants
submitted similar data estimating that China accounted for 36% of global
molybdenum production in 2010. (See Panel Reports, para. 7.850; China's first written submission
to the Panel, para. 344; Panel Exhibit CHN-106, p. 107; and Panel Exhibit
JE-43, p. 4)
[374] See Panel Exhibits CHN-224, CHN-139 (updated), and
JE-43, p. 14.
[376] Before the Panel, China drew a
distinction between the Marrakesh Agreement Establishing the World Trade
Organization excluding the Multilateral Trade
Agreements annexed to it, on the one hand, and that Agreement together with its annexes, on the other hand. China used
"the Marrakesh Agreement" to refer to the former, and "the WTO
Agreement" to refer to the latter. On appeal, China draws the same
distinction. In its findings regarding the availability of Article XX of
the GATT 1994 to justify a breach of Paragraph 11.3 of China's Accession
Protocol, the Panel also used "the Marrakesh Agreement" to refer to
the Marrakesh Agreement Establishing the World Trade Organization excluding its annexes. For purposes of consistency, we, like
the Panel, use "the Marrakesh Agreement" to refer to the Marrakesh
Agreement Establishing the World Trade Organization excluding its annexes, even
in instances where the complainants and third participants themselves have not,
in their submissions, used the nomenclature "the Marrakesh
Agreement". We underline that our use of such nomenclature is for purposes
of these appeals only, and without prejudice to the legal issues raised by China
on appeal.
[377] China's appellant's submission,
paras. 4 and 46; other appellant's submission, paras. 4 and 46.
[378] Panel Reports, para. 7.93.
[379] Panel Reports, para. 7.115.
[380] Panel Reports, para. 7.48.
Paragraph 11.3 requires China to eliminate export duties on all products except
for those listed in Annex 6 to its Protocol or permitted under Article VIII of
the GATT 1994. In the present disputes, it is uncontested that, with the
exception of tungsten ores and concentrates (HS No. 2611.00), none of
the products at issue are listed in Annex 6. (Ibid., fn 77 to para. 7.30)
[381] Panel Reports, para. 7.48.
[382] Panel Reports, para. 7.115. As
further described below, one panelist expressed a separate opinion, stating
that "unless China explicitly gave up its right to invoke Article XX
of the GATT 1994, which it did not, the general exception provisions of
the GATT 1994 are available to China to justify a violation of
Paragraph 11.3 of its Accession Protocol." (Ibid., para. 7.138)
[383] Panel Reports, paras. 7.72, 7.104,
and 7.114.
[384] Panel Reports, para. 7.196.
[385] Panel Reports, para. 7.49.
[386] Panel Reports, para. 7.53
(referring to Panel Reports, China – Raw Materials,
para. 7.159; and Appellate Body Reports, China – Raw Materials,
para. 307).
[387] Panel Reports, para. 7.54.
[388] Panel Reports, para. 7.55 (quoting
Appellate Body Report, US – Stainless Steel
(Mexico), para. 160 (fn omitted)).
[389] Panel Reports, para. 7.59. In
addition, the Panel took into account "the following particular
circumstances of this dispute: (i) no party or third party has argued that the
Panel is legally precluded from re‑examining this issue; (ii) the parties to
this dispute are not identical to the parties in China – Raw
Materials (which did not include Japan but did include another
Member); [and] (iii) this legal issue is 'a central aspect of this dispute'
that is 'of fundamental systemic importance', as evidenced by the extensive
argumentation of the issue by the parties as well as many of the third parties
in this dispute". (Ibid. (fn omitted))
[390] Panel Reports, para. 7.61.
[391] Panel Reports, para. 7.62
(referring to China's first written submission to the Panel, paras. 411,
422‑435, 436-444, and 445-458, respectively).
[392] Panel Reports, para. 7.115.
[393] Panel Reports, para. 7.115.
[394] The Panel's findings rejecting
these arguments are found in paragraphs 7.72, 7.104, and 7.114 of the Panel
Reports.
[395] Panel Reports, paras. 7.139-7.196.
[396] Panel Reports, para. 7.136.
[397] Panel Reports, para. 7.138.
[398] Panel Reports, para. 7.137. (fn
omitted)
[399] Panel Reports, para. 7.138.
[400] Panel Reports, para. 7.76.a and b.
[401] Panel Reports, para. 7.77.
[402] Accession of the People's Republic
of China, Decision of the Ministerial Conference of 10 November 2001,
WT/L/432, p. 1.
[403] Panel Reports, paras. 7.79 and
7.80.
[404] Panel Reports, para. 7.80.
[405] Report of the Working Party on the
Accession of China, WT/ACC/CHN/49 and Corr.1.
[406] Panel Reports, paras. 7.82-7.88.
[407] Panel Reports, para. 7.91
(referring to China's responses to the complainants' comments on China's
request for a preliminary ruling on the availability of Article XX of the GATT
1994, para. 18).
[408] Panel Reports, para. 7.91.
[409] Panel Reports, para. 7.93. The
Panel went on to make findings on the second premise of China's arguments,
i.e., those concerning Paragraph
11.3 of China's Accession Protocol, and these findings are not subject
to China's appeal. The Panel noted that, in the light of its disagreement with
China's interpretation, it was "not strictly necessary" for the Panel
to address China's arguments that Paragraph 11.3 of China's
Accession Protocol must be treated as an "integral part" of the
GATT 1994 and subject to the general exceptions in Article XX of the
GATT 1994 due to its intrinsic relationship with Articles II and XI of the
GATT 1994. (Ibid., para. 7.94) Nonetheless, the Panel considered it useful
to offer its observations "in the interest of providing a full exploration
of the issues raised by China's specific arguments". (Ibid.) The Panel observed that there is no
provision in the GATT 1994 that requires Members to eliminate export duties.
Moreover, the Panel found that China and WTO Members could have included
commitments regarding the use of export duties in China's goods schedule, which
in turn would be an integral part of the GATT 1994, but China and WTO Members
did not do so. Finally, the Panel found that Paragraph 11.3 contains
explicit treaty language precisely identifying exceptions that apply to the
obligation contained therein. In conclusion, the Panel found that China's
argument was not a "cogent reason" for departing from the Appellate
Body's finding that the obligation in Paragraph 11.3 of China's Accession
Protocol is not subject to the general exceptions in Article XX of the GATT
1994. (Ibid., paras. 7.95-7.99)
[410] Panel Reports, paras. 7.80 and
7.89.
[411] Panel Reports, para. 7.93.
[412] China's appellant's submission,
para. 72; other appellant's submission, para. 59.
[413] China's appellant's submission,
para. 11; other appellant's submission, para. 11.
[414] Panel Reports, para. 7.76.b.
[415] Done at Vienna, 23 May 1969, UN
Treaty Series, Vol. 1155, p. 331.
[416] Article 30 of the Vienna
Convention concerns the "[a]pplication of successive treaties relating to
the same subject-matter".
[417] Article 30(3) of the Vienna
Convention states: "When all the parties to the earlier treaty are
parties also to the later treaty but the earlier treaty is not terminated or
suspended in operation under article 59, the earlier treaty applies only to the
extent that its provisions are compatible with those of the later treaty."
[418] China's opening statement at the
oral hearing.
[419] As at 7 August 2014.
[420] Appellate Body Reports, China – Raw Materials, para. 278.
[421] Appellate Body Reports, China – Raw Materials, para. 278. (fn omitted)
[422] We note that this proposition has
not been contested either in the present disputes or in any prior dispute
involving China's Accession Protocol. In addition, we take note of the Panel's
statement that, in all prior cases involving China's Accession Protocol, panels
and the Appellate Body "have proceeded on the assumption" that Paragraph
1.2 serves, inter alia, the function of making the
obligations in China's Accession Protocol enforceable under the DSU. According
to the Panel, this is because the Marrakesh Agreement is a covered agreement
listed in Appendix 1 to the DSU and, as such, the provisions of that Agreement,
together with the provisions of China's Accession Protocol, which is "an
integral part" of that agreement, are subject to the WTO dispute
settlement mechanism set out in the DSU. (Panel Reports, para. 7.85) We also take
note of the fact that the DSU is one of the Multilateral Trade Agreements
annexed to the Marrakesh Agreement. The Marrakesh Agreement is enforceable
under the DSU pursuant to its Appendix 1.
[423] Panel Reports, para. 7.90 (quoting
China's response to the complainants' comments on China's request for a
preliminary ruling on the availability of Article XX of the GATT 1994,
para. 18).
[424] Panel Reports, para. 7.90 (quoting
China's response to the complainants' comments on China's request for a
preliminary ruling on the availability of Article XX of the GATT 1994,
para. 17). (emphasis added by the Panel)
[425] Panel Reports, para. 7.91. (fn
omitted)
[426] China's appellant's submission,
para. 78.
[427] China's appellant's submission,
para. 79. (emphasis added)
[428] European Union's appellee's
submission, paras. 74-79; Japan's appellee's submission, paras. 210‑213.
[429] United States' third participant's
submission, para. 10.
[430] In contrast, pursuant to Article
XII:3 of the Marrakesh Agreement, accession to the Plurilateral Trade
Agreements is not required for an applicant to become a WTO Member, but is
governed by the provisions of those agreements.
[431] European Union's appellee's
submission, para. 75.
[432] Shorter
Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford
University Press, 2007), Vol. 1, p. 1402.
[433] Japan's appellee's submission,
para. 213. (emphasis original)
[434] China's appellant's submission,
paras. 9, 66, and 83; other appellant's submission, paras. 9 and 57. (emphases
original)
[435] China's appellant's submission,
para. 84.
[436] China's appellant's submission,
para. 84.
[437] See paragraph 5.22 of these Reports.
[438] Panel Reports,
para. 7.91.
[439] See China's appellant's
submission, paras. 83 and 84.
[440] Panel Reports, para. 7.91.
[441] As the European Union contends on
appeal, "the general principle of the single undertaking finds expression
in diverse provisions of the covered agreements, including the WTO Agreement,
in different contexts, and … these various subsequent references are not simply
duplicative, redundant and ineffective." (European Union's appellee's
submission, para. 77) According to the European Union, such expression can also
be found in, inter alia, Article XIV
(concerning acceptance, entry into force, and deposit) and Article XV
(concerning withdrawal). (Ibid., para. 78)
[442] China's appellant's submission,
para. 86; other appellant's submission, para. 61.
[443] In its submissions on appeal, the
European Union uses the term "the WTO Agreement" to refer to the
Marrakesh Agreement Establishing the World Trade Organization, excluding its
annexes. (See European Union's appellee's submission, para. 46) Japan and the
United States have largely used "the WTO Agreement" to refer to the
Marrakesh Agreement Establishing the World Trade Organization, excluding its
annexes, although on occasion they have also used "the Marrakesh
Agreement" to refer to the same. (See e.g. Japan's appellee's submission,
para. 175; and United States' appellee's submission, fn 43 to para. 52) As
explained supra, fns 56, 333, and 376,
for purposes of these appeals and without prejudice to the legal issues raised
by China on appeal, we, like the Panel, use "the Marrakesh Agreement"
to refer to the Marrakesh Agreement Establishing the World Trade Organization
excluding its annexes.
[444] Panel Reports, para. 7.79 (quoting
Accession of the People's Republic of China, Decision of the Ministerial
Conference of 10 November 2001, WT/L/432, p. 1).
[445] Panel Reports, paras. 7.80-7.88.
[446] Panel Reports, paras. 7.78 and
7.89.
[447] Panel Reports, para. 7.93.
[448] Panel Reports, paras. 7.80 and
7.89.
[449] China's appellant's submission,
para. 93.
[450] China's appellant's submission,
para. 98.
[451] European Union's appellee's
submission, paras. 89-101; Japan's appellee's submission, paras. 176‑197;
United States' appellee's submission, paras. 57-65.
[452] European Union's appellee's
submission, para. 91; Japan's appellee's submission, para. 181.
[453] United States' appellee's
submission, para. 67.
[454] Shorter
Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford
University Press, 2007), Vol. 1, p. 1402.
[455] The term "integral part"
is also used in numerous other instances throughout the covered agreements in
which the relevant legal instruments are
"made an integral part of" another covered agreement or the
agreements to which they are annexed. For example, Article 3.1 of the Agreement on Agriculture provides that
the domestic support and export subsidy commitments in Part IV of each Member's
Schedule "are hereby made an integral part of GATT 1994". In most other instances, references are made to
annexes being an "integral part" of the agreement to which they are
annexed, similar to the reference to "integral parts" in Article II:2
of the Marrakesh Agreement. For example, Article II:7 of the GATT 1994 states that:
"[t]he Schedules annexed to this Agreement are hereby made an integral
part of Part I of this Agreement." Other examples include Agreement on Agriculture, Article 21.2 (with
respect to its annexes); Agreement on the Application of Sanitary and
Phytosanitary Measures (SPS Agreement), Article 1.3 (with respect to its
annexes); TBT Agreement, Article 15.5 (with respect to its annexes); Anti‑Dumping
Agreement, Article 18.7 (with respect to its annexes); the Agreement on
Subsidies and Countervailing Measures (SCM Agreement), Article 32.8 (with
respect to its annexes); Agreement on Implementation of Article VII of the
General Agreement on Tariffs and Trade 1994 (Agreement on Customs Valuation),
Article 14 (with respect to its interpretative notes and annexes); Agreement on
Rules of Origin, Article 9.4 (with respect to the results of the harmonization
work programme to be established by the Ministerial Conference as an annex);
and GATS, Article XX:3 (with respect to the schedules of specific commitments)
and Article XXIX (with respect to its annexes).
[456] In both instances, the relevant
agreement that may have been "rectified, amended or modified" is the
GATT 1947.
[458] China's appellant's submission,
para. 103.
[460] China's response to questioning at
the oral hearing.
[461] China's appellant's submission,
paras. 101 and 102.
[462] This provision mirrors the
language of Article XIV:2 of the Marrakesh Agreement, which provides that:
A Member which accepts this Agreement after its entry into force shall
implement those concessions and obligations in the Multilateral Trade
Agreements that are to be implemented over a period of time starting with the
entry into force of this Agreement as if it had accepted this Agreement on the
date of its entry into force.
[463] Accession of the People's Republic
of China, Decision of the Ministerial Conference of 10 November 2001,
WT/L/432, p. 1.
[464] The preamble states, in relevant
part, that: "[t]he World Trade Organization ('WTO'), pursuant to the
approval of the Ministerial Conference of the WTO accorded under
Article XII of the Marrakesh Agreement Establishing the World Trade
Organization ('WTO Agreement'), and the People's Republic of China ('China'), …
[a]gree as follows".
[465] Other examples include paragraph 1
of the Final Act Embodying the Results of the Uruguay Round of Multilateral
Trade Negotiations ("… the Agreement Establishing the World Trade
Organization (referred to in this Final Act as the 'WTO Agreement') …"),
and the first recital to the preamble of the Decision on the Acceptance of and
Accession to the Agreement Establishing the World Trade Organization ("Noting that Articles XI and XIV of the Agreement
Establishing the World Trade Organization (hereinafter referred to as 'WTO
Agreement') …").
[466] Appellate Body Report, China – Publications and Audiovisual Products, para. 222.
China provided the following list of provisions of its Accession Protocol in
which "the WTO Agreement" refers to one or more of the Multilateral
Trade Agreements: 1.2, 2.A.1, 2.A.3, 4, 5.1, 6.1, 7.1, 8.1, 13.3,
17, 18.1 (first sentence), 18.2, and 18.3, and Annex 7. (China's opening
statement at the oral hearing; China's appellant's submission, para. 105)
[467] Appellate Body Report, Argentina – Footwear (EC), para. 81.
[468] See Panel Reports, para. 7.80.
[469] Panel Reports, para. 7.93.
(emphasis added)
[470] Appellate Body Report, Argentina – Footwear (EC), para. 81. (emphasis original)
[471] Appellate Body Report, Argentina – Footwear (EC), para. 81. (emphasis original)
[472] Appellate Body Report, Argentina – Footwear (EC), para. 81 (quoting Panel Report, Argentina – Footwear (EC), para. 8.58 (emphasis
original)).
[473] Panel Report, Argentina –
Footwear (EC), para. 8.51. The panel attached significant
interpretative weight to the fact that the Uruguay Round negotiators
"expressly omitted" the "unforeseen developments" clause in
Article XIX of the GATT 1994 from
Article 2 of the Agreement on Safeguards. (Appellate Body Report, Argentina – Footwear (EC), para. 97 (referring to Panel
Report, Argentina – Footwear (EC), para. 8.58))
[474] Panel Report, Argentina –
Footwear (EC), para. 8.69. In that dispute, the panel reasoned that,
since it "must give meaning to the fact that the new Safeguards Agreement
does not in so many words make a single reference to the unforeseen
developments condition [in Article XIX of the GATT 1994], conformity with the
explicit requirements and conditions embodied in the Safeguards Agreement must
be sufficient for the application of safeguard measures within the meaning of
Article XIX of GATT."
(Panel Report, Argentina – Footwear (EC),
para. 8.67)
[475] Appellate Body Report, Argentina – Footwear (EC), para. 82.
[476] Appellate Body Report, Argentina – Footwear (EC), para. 83. (emphasis omitted)
[477] Appellate Body Report, Argentina – Footwear (EC), para. 89. (emphasis original)
[478] Appellate Body Report, Argentina – Footwear (EC), para. 97. The Appellate Body
reached a similar finding in Korea – Dairy.
(See Appellate Body Report, Korea – Dairy,
paras. 76-90)
[479] See Appellate Body Report, US – Clove Cigarettes, paras. 96 and 101.
[480] In that dispute, China claimed
that the introductory clause of Paragraph 5.1 of its Accession Protocol allowed
it to justify provisions of its measures found to be inconsistent with its
trading rights commitments as necessary to protect public morals in China
within the meaning of Article XX(a) of the GATT 1994. The first three
sentences of Paragraph 5.1 read:
Without prejudice to China's right to regulate trade in a manner
consistent with the WTO Agreement, China shall progressively liberalize the
availability and scope of the right to trade, so that, within three years after
accession, all enterprises in China shall have the right to trade in all goods
throughout the customs territory of China, except for those goods listed in
Annex 2A which continue to be subject to state trading in accordance with this
Protocol. Such right to trade shall be the right to import and export goods. All such goods shall be accorded
national treatment under Article III of the GATT 1994, especially
paragraph 4 thereof, in respect of their internal sale, offering for sale,
purchase, transportation, distribution or use, including their direct access to
end-users.
[481] Appellate Body Report, China – Publications and Audiovisual Products, para. 226.
[482] Appellate Body Report, China – Publications and Audiovisual Products, paras. 226
and 227.
[483] Appellate Body Report, China – Publications and Audiovisual Products, para. 229. (fn omitted; emphasis added)
[484] Appellate Body Report, China – Publications and Audiovisual Products, para. 229.
[485] Appellate Body Report, China – Publications and Audiovisual Products, para. 230.
[486] Appellate Body Report, China – Publications and Audiovisual Products, para. 230.
[487] Appellate Body Report, China – Publications and Audiovisual Products, para. 233.
After reviewing the merits of China's claims under Article XX(a) of the GATT
1994, the Appellate Body ultimately found that China's measures were not
justified under this provision. (Ibid., paras. 336 and 337)
[488] Appellate Body Report, China – Publications and Audiovisual Products, para. 229. (fn omitted)
[489] Appellate Body Reports, China – Raw Materials, para. 291.
[490] Appellate Body Reports, China – Raw Materials, para. 284. (emphasis added)
[491] Appellate Body Reports, China – Raw Materials, paras. 284 and 285.
[492] Appellate Body Reports, China – Raw Materials, para. 290.
[493] Appellate Body Reports, China – Raw Materials, paras. 300-306.
[494] Appellate Body Reports, China – Raw Materials, paras. 300-304.
[495] Appellate Body Reports, China – Raw Materials, para. 307.
[496] Panel Reports, para. 7.115.
[497] See China's appellant's
submission, para. 114; and other appellant's submission, para. 67.
[498] European Union's appellee's
submission, para. 100; Japan's appellee's submission, para. 171;
United States' appellee's submission, para. 43.
[499] Japan's appellee's submission,
paras. 171, 172, 216, and 220; United States' appellee's submission, paras. 32
and 75.
[500] See China's first written
submission to the Panel, para. 432.
[501] See China's response to the
complainants' comments on its request for a preliminary ruling on the
availability of Article XX of the GATT 1994, para. 21.
[502] China's appellant's submission,
para. 9.
[503] China's opening statement at the
oral hearing.
[504] For these reasons, we also see no
basis for the opinion of the dissenting panelist in these disputes that
"the defences provided in the GATT 1994 are automatically available
to justify any GATT-related obligations, including border tariff-related
obligations – unless a contrary intention is expressed by the acceding Member
and WTO Members". (Panel Reports, para. 7.137) Indeed, the Appellate Body
rejected arguments by China to this effect in China – Raw
Materials. (Appellate Body Reports, China – Raw
Materials, paras. 300 and 303-306)
[505] China's appellant's submission,
paras. 6, 10, 61, 63, and 111; other appellant's submission, paras. 6, 10, 54,
and 64.
[506] China's appellant's submission,
para. 62; other appellant's submission, fn 16 to para. 64.
[507] Article 30(3) of the Vienna
Convention states: "When all the parties to the earlier treaty are
parties also to the later treaty but the earlier treaty is not terminated or
suspended in operation under article 59, the earlier treaty applies only to the
extent that its provisions are compatible with those of the later treaty."
[508] China's opening statement at the
oral hearing.
[509] As all three complainants point
out, the concept of "self-contained agreements" introduced by China is
not found anywhere in the covered agreements. (See European Union's appellee's
submission, para. 86; Japan's appellee's submission, para. 175; and United
States' appellee's submission, para. 71)
[510] See paragraph 5.49 of these Reports.
[511] Appellate Body Report, Argentina – Footwear (EC), para. 81.
[512] Panel Reports, para. 7.93. See
also ibid., paras. 7.80 and 7.89.
[513] Panel Reports, paras. 7.80, 7.89,
and 7.93.
[514] China's appellant's submission,
paras. 30, 208, 209, 319, and 320; other appellant's submission, paras. 30,
139, 140, 250, and 251 (referring to Panel Reports, paras. 7.279‑7.293, 7.444,
7.446‑7.448, 7.541, 7.542, 7.604, 7.725, and 7.731).
[515] China seeks reversal of paragraphs
7.301, 7.314-7.337, 7.568-7.599, 7.792-7.809,
and 7.919‑7.935. (China's appellant's submission, paras. 44, 313,
314, 315, 322, and 323; other appellant's submission, paras. 44, 244, 245, 246,
253, and 254)
[516] China seeks reversal of paragraphs
7.600-7.614, 7.810-7.820, and 7.936-7.944 of the Panel Reports; and US Panel
Report, para. 8.2.c; EU Panel Report, para. 8.7.c; and Japan Panel Report,
para. 8.12.c. (China's appellant's submission, paras. 31, 45, 210, 288, 316,
321, and 324; other appellant's submission, paras. 31, 45, 141, 219, 247,
252, and 255)
[517] See e.g. Panel Reports, paras.
7.368, 7.399, 7.407 (rare earths); 7.690-7.706 (tungsten); and 7.863-7.874
(molybdenum).
[518] See e.g. Panel Reports, paras.
7.493-7.495 (rare earths); 7.738-7.740 (tungsten); and 7.881-7.883
(molybdenum).
[519] Panel Reports, para. 7.240
(referring to Appellate Body Report, US – Gasoline,
p. 21, DSR 1996:I, p. 19).
[520] Panel Reports, para. 7.250.
[521] Panel Reports, paras. 7.364,
7.365, 7.689, and 7.854 (referring to Appellate Body Report, US – Shrimp, para. 128; and Panel Reports, China – Raw Materials, para. 7.369).
[522] Panel Reports, para. 7.277.
[523] Panel Reports, para. 7.375.
[524] Panel Reports, para. 7.697.
[525] Panel Reports, para. 7.860.
[526] Panel Reports, paras. 7.601 (rare
earths); 7.811 (tungsten); and 7.937 (molybdenum). The Panel found that, rather
than "relating to the conservation of exhaustible natural resources",
China's export quotas seem designed to reserve amounts of rare earth products
for domestic consumption. See e.g. Panel Reports, para. 7.601.
[527] Panel Reports, paras. 7.609-7.611
(rare earths); 7.813 (tungsten); and 7.939 (molybdenum).
[528] Panel Reports, paras. 7.679 (rare
earths); 7.844 (tungsten); and 7.969 (molybdenum).
[529] Panel Reports, paras. 7.614 (rare
earths); 7.820 (tungsten); and 7.939 (molybdenum).
[530] Panel Reports, paras. 7.679 (rare
earths); 7.844 (tungsten); and 7.969 (molybdenum). US Panel Report, para.
8.2.c; EU Panel Report, para. 8.7.c; Japan Panel Report, para. 8.12.c.
[531] Panel Reports, para. 7.407.
[532] Panel Reports, para. 7.415. The
Panel first considered China's argument that the export quota on rare earths
prevents smuggling and/or the export of illegally extracted rare earth
products. The Panel found that China's measures are "overbroad"
because they prevent the export of legally produced rare earth products (above
a certain absolute numerical limit), rather than just illegally produced
products. (Ibid., para. 7.430 (referring to Appellate Body Report, US – Shrimp, para. 141)) Second, although China argued
that the export quota reduces domestic demand for illegally extracted and/or
produced rare earth products, the Panel was not convinced that an export quota
could discourage illegal extraction and production intended for the domestic
market. (Ibid., para. 7.434) Third, China argued that the export quota
"signals" to rare earth consumers that additional sources of supply
must be found. The Panel determined that China had not demonstrated that, in
the design of its export quota and its conservation programme more generally,
there is any mechanism to ensure that the export quota and the extraction
and/or production caps will work together in such a way as to counteract the
"perverse signals" sent by its export quota to domestic consumers. As
such, the Panel considered that the risk of "perverse signals" is real,
and this cast doubt on China's claim that the export quota "relates
to" conservation. (Ibid., para. 7.447) China's fourth argument was that
its export quota works as a "safeguard" against "speculative
surges" in demand. The Panel considered that China's desire to moderate
"speculative demand surges that could upset the market balance and
certainty sought by China" is not a conservation‑related objective, but an
aspect of China's industrial policy. (Ibid., para. 7.452) In respect of China's
fifth submission that the export quota enables China to "allocate"
the limited supply of rare earth resources, the Panel failed to see how China's
allocation of quantities between foreign and domestic users could relate to
conservation. (Ibid., para. 7.462) China's sixth argument was that the way in
which the export quota is established shows that China's export quota "relates
to" conservation. The Panel found that China had failed to explain the
significance of the establishment procedures or their connection to the conservation
objective. (Ibid., paras. 7.473 and 7.483)
[533] China's other argument was based
on the text of the measures at issue. However, the Panel found that China could
not discharge its burden of proof simply by citing a number of references to
conservation in the text of a challenged measure without explaining how the
challenged measure "relates to", supports, or furthers the goal of
conserving exhaustible tungsten ores. (Panel Reports, para. 7.720)
[534] Panel Reports, para. 7.700.
[535] Panel Reports, paras. 7.609 (rare
earths); 7.814 (tungsten); and 7.940 (molybdenum).
[536] Panel Reports, paras. 7.679 (rare
earths); 7.844 (tungsten); and 7.969 (molybdenum).
[537] Appellate Body Reports, US – Gasoline, p. 24, DSR 1996:I, p. 22; China – Raw Materials, para. 334.
[538] Appellate Body Reports, US – Gasoline, p. 22, DSR 1996:I, p. 20; US – Shrimp, paras. 119 and 120; EC – Seal Products, para. 5.169. See also Appellate Body
Report, US – Gambling, para. 292.
[539] Appellate Body Report, US – Shrimp, para. 119.
[540] Appellate Body Reports, EC – Seal Products, para. 5.169 (quoting Appellate Body
Report, US – Gambling, para. 292, in turn
referring to Article XIV(a) of the GATS).
[541] Appellate Body Report, US – Gasoline, pp. 18, DSR 1996:I, p. 16.
[542] Appellate Body Report, US – Shrimp, para. 130.
[543]
Appellate Body Reports, China – Raw
Materials, para. 355 (quoting Shorter Oxford English Dictionary, 6th
edn, A. Stevenson (ed.) (Oxford University Press, 2007), Vol. 1, p. 496).
[544] We note that the Panel engaged in
an extensive discussion of the scope of the word "conservation" in
Article XX(g), ultimately finding that this word has a "rather broad
meaning". We also note that the Panel's interpretation of the word
"conservation" in Article XX(g) is not appealed. Consequently,
we neither endorse nor reject the Panel's statements in this regard. (See Panel
Reports, paras. 7.252-7.277)
[545] Appellate Body Reports, US – Shrimp, para. 136; China – Raw Materials, para. 355.
[546] Appellate Body Report, US – Gasoline, p. 19, DSR 1996:I, p.
18.
[547] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p.
19 (referring to GATT Panel Reports, Canada – Herring and
Salmon, para. 5.1; and US – Canadian
Tuna, paras. 4.10‑4.12).
[548] Appellate Body Reports, China – Raw Materials, para. 319 (referring to Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford
University Press, 2007), Vol. 2,
p. 2553). The Appellate Body made this observation with respect to the word
"restrictions" in Article XI:1 of the GATT 1994, and added that the
word "restriction" "refers generally to something that has a
limiting effect". (Ibid.)
[549] Appellate Body Report, US – Gasoline, p. 20, DSR 1996:I, p. 19 (quoting The New Shorter Oxford English Dictionary on Historical Principles,
L. Brown (ed.) (Clarendon Press, 1993), Vol. I, p. 786).
[550] Appellate Body Reports, China – Raw
Materials, para. 356.
[551] Appellate Body Report, US – Gasoline, p. 20, DSR 1996:I, p. 19 (quoting The New Shorter Oxford English Dictionary on Historical Principles,
L. Brown (ed.) (Clarendon Press, 1993), Vol. I, p. 481).
[552] Appellate Body Reports, China – Raw Materials, para. 356.
[553] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 19. (emphasis original)
On appeal, China challenges the Panel's understanding of the term
"even-handedness". We discuss China's claims on this issue in detail
below.
[554] Appellate Body Reports, US – Shrimp, para. 136; China – Raw Materials,
para. 355.
[555] Appellate Body Reports, China – Raw Materials, para. 356.
[556] Panel Reports, para. 7.240.
[557] Appellate Body Report, US – Gasoline, p. 18, DSR 1996:I, p.
17.
[558] In a similar vein, in US – Gambling, in its examination of an appeal under
Article XIV(a) of the GATS, the Appellate Body stated:
To be sure, a Member's characterization of a measure's objectives and of
the effectiveness of its regulatory approach – as evidenced, for example, by
texts of statutes, legislative history, and pronouncements of government
agencies or officials – will be relevant in determining whether the measure is,
objectively, "necessary". A panel is not bound by these characterizations,
however, and may also find guidance in the structure and operation of the
measure and in contrary evidence proffered by the complaining party.
(Appellate Body Report, US – Gambling,
para. 304 (referring to Appellate Body Report, India – Patents
(US), para. 66) (fn omitted))
[559] Appellate Body Reports, US – Shrimp, paras. 135-137; China – Raw
Materials, para. 355 (referring to Appellate Body Report, US – Shrimp, para. 136).
[560] Appellate Body Report, Japan – Alcoholic Beverages II, p. 29, DSR 1996:I, p. 120.
[561] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20.
[562] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20.
[563] Appellate Body Reports, US – Gasoline, p. 24, DSR 1996:I, p. 22; China – Raw Materials, para. 334.
[564] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20.
[565] China's appellant's submission,
para. 208; other appellant's submission, para. 139.
[566] China's appellant's submission,
para. 208; other appellant's submission, para. 139 (referring to Panel Reports,
paras. 7.279-7.293). (emphasis added)
[567] Panel Reports, para. 7.290
(referring to Panel Reports, China – Raw Materials,
para. 7.418). (fn omitted; emphasis added)
[568] Panel Reports, para. 7.379
(referring to Appellate Body Report, US – Shrimp,
para. 141). (fn omitted; emphasis added)
[569] Appellate Body Reports, US – Shrimp, para. 136; China – Raw Materials, para. 355.
[570] China's appellant's submission,
para. 155; other appellant's submission, para. 86 (referring to Panel Reports,
para. 7.290). (emphasis added by China) In response to questioning at the oral
hearing, China identified paragraph 7.379 of the Panel Reports as containing
the statement that Article XX(g) does not require
an evaluation of actual effects. China did not identify any specific statement
by the Panel reflecting that the Panel considered itself precluded
from examining such effects.
[571] China's appellant's submission,
para. 166; other appellant's submission, para. 97 (referring to Panel Reports,
para. 7.446).
[572] European Union's appellee's
submission, paras. 17 and 140; Japan's appellee's submission, paras. 26 and 40;
United States' appellee's submission, para. 102.
[573] United States' appellee's
submission, para. 97.
[574] China's appellant's submission,
para. 152; other appellant's submission, para. 83.
[575] European Union's appellee's
submission, paras. 164-167; Japan's appellee's submission, paras. 32‑36;
United States' appellee's submission, para. 88.
[576] Panel Reports, paras. 7.290 and
7.379.
[577] Panel Reports, para. 7.290.
[578] China's appellant's submission,
para. 155; other appellant's submission, para. 86.
[579] Panel Reports, para. 7.289.
[580] Panel Reports, para. 7.292
(referring to Appellate Body Report, US – Gasoline,
pp. 16‑17, DSR 1996:I, p. 17).
[581] Panel Reports, para. 7.363. See
also ibid., para. 7.240.
[582] Panel Reports, para. 7.379.
[583] Appellate Body Reports, US – Shrimp, paras. 135-137; China – Raw
Materials, para. 355 (referring to Appellate Body Report, US – Shrimp, para. 136).
[584] Appellate Body Report, US – Shrimp, para. 137.
[585] Appellate Body Report, US – Shrimp, para. 141.
[586] Appellate Body Report, US – Gasoline, p. 19, DSR 1996:I, p.
17.
[587] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20.
[588] Appellate Body Report, US – Gasoline, p. 21, DSR 1996:I, p. 20.
[589] United States' appellee's
submission, para. 97. As the United States explains, the "vagaries of the
market place" would mean that measures that might at one point in time
appear, based on empirical effects, to "relate to" conservation
might, at a different point in time, with different data, appear not to
"relate to" conservation.
[590] Appellate Body Report, US – Gasoline, p. 19, DSR 1996:I, p.
18.
[591] Appellate Body Report, US – Gasoline, p. 18, DSR 1996:I, p.
17.
[592] Panel Reports, para. 7.379.
(emphasis added)
[593] China's appellant's submission, paras.
15 and 150-152; other appellant's submission, paras. 15 and 81-83.
[594] China's appellant's submission,
para. 147; other appellant's submission, para. 78 (referring to
Appellate Body Reports, China – Raw Materials,
para. 355; and Brazil – Retreaded Tyres, paras.
145 and 210). We note that these arguments by China, while falling under its
general claim that the Panel erred in its interpretation of "relating
to", do not seem to challenge or take issue with any specific Panel
finding or statement in the Panel Reports. Moreover, according to Japan,
China's arguments on "contribution" were introduced for the first
time at the appellate review stage. (Japan's appellee's submission, paras. 31
and 32)
[595] Appellate Body Report, Korea – Various Measures on Beef, para. 161 and fn 104
thereto (referring to Appellate Body Reports, US –
Gasoline, p. 19, DSR 1996:I, p. 18; and US – Shrimp,
para. 141). See also United States' appellee's submission, para. 91.
We also note that the Panel made a similar observation in reaction to arguments
made by the complainants to the effect that the availability of alternative
measures for conserving rare earths "demonstrates that China's export
quotas on downstream products … are not 'related to' … conservation".
(See Panel Reports, para. 7.417) This, in our view, is yet another illustration
that there are key distinctions in the various subparagraphs of Article XX
of the GATT 1994 that render inappropriate the mixing of their respective
analyses.
[596] See Appellate Body Reports, EC – Seal Products, para. 5.169 (referring to Appellate Body
Reports, Korea – Various Measures on Beef,
para. 164; US – Gambling, paras. 306 and 307; and Brazil – Retreaded Tyres, para. 182).
[597] Panel Reports, para. 7.379.
[598] China's appellant's submission,
paras. 217-245; other appellant's submission, paras. 148‑176.
[599] China's appellant's submission,
paras. 246-265; other appellant's submission, paras. 177‑196.
[600] United States' appellee's
submission, paras. 150-160.
[601] Japan's appellee's submission,
paras. 101-108.
[602] European Union's appellee's
submission, paras. 256-269.
[603] Appellate Body Report, US – Gasoline, p. 20, DSR 1996:I, p. 19. (emphasis original)
[604] Panel Reports, para. 7.333. (fn
omitted)
[605] Panel Reports, para. 7.331.
[606] China's appellant's submission,
para. 239; other appellant's submission, para. 170.
[607] Panel Reports, para. 7.301.
[608] Panel Reports, para. 7.302.
[609] Panel Reports, para. 7.331.
[610] Panel Reports, para. 7.332.
[611] Panel Reports, para. 7.337.
[612] Panel Reports, paras. 7.595 (rare
earths); 7.808 (tungsten); and 7.934 (molybdenum).
[613] Panel Reports, paras. 7.600 (rare
earths); 7.810 (tungsten); and 7.936 (molybdenum).
[614] Panel Reports, para. 7.595.
[615] Panel Reports, paras. 7.310,
7.312, and 7.330.
[616] The chapeau of Article XX
stipulates:
Subject to the requirement that such measures are not applied in a
manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall
be construed to prevent the adoption or enforcement by any contracting party of
measures[.]
[617] China's appellant's submission,
paras. 247-265; other appellant's submission, paras. 177‑196.
[618] Panel Reports, para. 7.332.
[619] Panel Reports, para. 7.337.
[620] See paragraph 5.113 of these Reports.
[621] Panel Reports, para. 7.332. See
also ibid., paras. 7.328 and 7.337.
[622] Panel Reports, para. 7.332. See
also ibid., paras. 7.328 and 7.337.
[623] Panel Reports, para. 7.332. See
also ibid., para. 7.337.
[624] China's appellant's submission,
para. 322; other appellant's submission, para. 253.
[625] In this vein, we note that, with
respect to the chapeau, the Appellate Body has held that:
Although … the focus of the inquiry is on the manner in which the
measure is applied, the Appellate Body has noted
that whether a measure is applied in a
particular manner "can most often be discerned from the design, the
architecture, and the revealing structure of a measure". It is thus
relevant to consider the design, architecture, and revealing structure of a
measure in order to establish whether the measure, in its actual or expected
application, constitutes a means of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail.
(Appellate Body Reports, EC – Seal Products,
para. 5.302 (quoting Appellate Body Report, Japan – Alcoholic
Beverages II, p. 29, DSR 1996:I, p. 120) (fn omitted))
[626] China's appellant's submission,
paras. 30, 208, 209, 319, and 320; other appellant's submission,
paras. 30, 139, 140, 250, and 251. China's request refers to paragraphs
7.444, 7.446-7.448, 7.541, 7.542, 7.604, 7.725, and 7.731 of the Panel Reports.
The Panel's analysis of the "signalling function" of China's export
quota on rare earths is set out at paragraphs 7.440-7.448 of its Reports. The
Panel's analysis of the "signalling function" of China's export quota
on tungsten is set out at paragraphs 7.721-7.731 of its Reports.
[627] Panel Reports, para. 7.604. This
finding is specific to China's export quota on rare earths. The Panel made a
similar finding in respect of China's export quota on tungsten. (Panel Reports,
para. 7.725)
[628] China's appellant's submission,
paras. 17 and 141; other appellant's submission, paras. 17 and 72 (quoting
Panel Reports, para. 7.379).
[629] See paragraph 5.81 of these Reports.
[630] Panel Reports, para. 7.379.
[631] Panel Reports, paras. 7.440 and
7.721.
[632] Panel Reports, paras. 7.441,
7.723, and 7.724.
[633] Panel Reports, paras. 7.447 and
7.448 (referring to China's first written submission to the Panel, paras. 143
and 144 (fn omitted)).
[634] Panel Reports, para. 7.725
(referring to Panel Reports, China – Raw Materials,
para. 7.586).
[635] China's appellant's submission,
paras. 17 and 141; other appellant's submission, paras. 17 and 72 (quoting
Panel Reports, para. 7.379).
[636] China's appellant's submission,
para. 143; other appellant's submission, para. 74.
[637] China's appellant's submission,
paras. 168-171; other appellant's submission, paras. 99-102 (referring to Panel
Exhibits CHN-39 and CHN-85).
[638] China's appellant's submission,
para. 175; other appellant's submission, para. 106 (referring to Panel
Reports, paras. 7.443 and 7.725).
[639] Panel Reports, para. 7.443. (fn
omitted)
[640] Panel Reports, para. 7.725 (referring
to Panel Reports, China – Raw Materials,
para. 7.586) (fn omitted).
[641] China's appellant's submission,
para. 175; other appellant's submission, para. 106. (emphasis added)
[642] Panel Reports, para. 7.444
(referring to Panel Reports, China – Raw Materials,
para. 7.586). (emphasis omitted)
[643] Panel Reports, para. 7.444.
[644] Panel Reports, paras. 7.443 and
7.725.
[645] In a similar vein, we note that,
in the context of its analysis of whether China's export quota on rare earths
is "made effective in conjunction with" domestic restrictions, the
Panel also addressed the significantly large quantity of rare earths consumed
in China's domestic market, and the doubts that this raised regarding China's
conservation objective. The Panel considered that, if domestic users of a
resource are exempted from the domestic restriction, it would be difficult to
conclude that a GATT-inconsistent measure supposedly justified under
Article XX(g) properly "relates to" conservation, since
unregulated domestic exploitation could undermine such conservation – and this
would be especially the case when the majority of what is to be conserved is
consumed only domestically. The Panel observed that China's domestic consumers
represent an important share of world consumption of rare earths. The Panel
further noted that an important quantity of rare earths that was initially
designated for export was redirected to the domestic market (for which it was
not destined under China's original comprehensive conservation policy). To the
Panel, this reinforced the fundamental fact that the vast majority of rare
earths produced in China are consumed domestically, further raising doubts
about the usefulness and effectiveness of export quotas. (See Panel Reports,
paras. 7.328 and 7.579)
[646] China's appellant's submission,
para. 179; other appellant's submission, para. 110.
[647] Panel Reports, para. 7.446
(referring to Panel Exhibit JE‑183, p. 5). (emphasis original; fn
omitted)
[648] Panel Reports, para. 7.725
(referring to Panel Reports, China – Raw Materials,
para. 7.586). (fn omitted)
[649] Panel Reports, para. 7.448.
[650] China's response to questioning at
the oral hearing.
[651] Panel Reports, para. 7.293. (fn
omitted)
[652] China's appellant's submission,
para. 322; other appellant's submission, para. 253. China refers specifically
to paragraphs 7.301, 7.314-7.337, 7.568-7.599, 7.792-7.809, and 7.919-7.935 of
the Panel Reports.
[653] China's appellant's submission,
para. 267; other appellant's submission, para. 198.
[654] Panel Reports, paras. 7.595 (rare
earths); 7.808 (tungsten); and 7.934 (molybdenum).
[655] Panel Reports, paras. 7.600 (rare
earths); 7.810 (tungsten); and 7.936 (molybdenum).
[656] Panel Reports, para. 7.610. See
also ibid., paras. 7.808 (tungsten) and 7.934 (molybdenum).
[657] Panel Reports, paras. 7.597 (rare
earths); 7.808 (tungsten); and 7.934 (molybdenum).
[658] Panel Reports, paras. 7.595 (rare
earths); 7.808 (tungsten); and 7.934 (molybdenum).
[659] China's appellant's submission, fn
232 to para. 281, and fn 239 to para. 285; other appellant's submission, fn 187
to para. 212, and fn 194 to para. 216.
[660] China's appellant's submission,
para. 168; other appellant's submission, para. 99. (emphasis omitted)
[661] China's appellant's submission,
para. 183; other appellant's submission, para. 114.
[662] China's appellant's submission,
para. 168; other appellant's submission, para. 99.
[663] China's appellant's submission,
para. 169; other appellant's submission, para. 100 (referring to China's
opening statement at the second Panel meeting, paras. 24 and 39,
and Figures 2, 3, and 4).
[664] China's appellant's submission,
para. 170; other appellant's submission, para. 101.
[665] China's appellant's submission,
fns 95, 109, 110, and 139; other appellant's submission, fns 49, 63, 64, and
93.
[666] Appellate Body Report, EC and certain member States – Large Civil Aircraft, para.
872. (emphasis original)
[667] Appellate Body Report, China – GOES, para. 183. (fns omitted)
[668] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to
Appellate Body Reports, US – Steel Safeguards,
para. 498; and Chile – Price Band System (Article 21.5 –
Argentina), para. 238).
[669] Appellate Body Report, China – GOES, para. 184.
[670] Appellate Body Reports, EC – Seal Products, para. 5.243.
[671] China's appellant's submission,
para. 168; other appellant's submission, para. 99. (emphasis original)
[672] China's appellant's submission,
para. 281; other appellant's submission, para. 212.
[673] China's appellant's submission,
para. 282; other appellant's submission, para. 213.
[674] China's appellant's submission,
para. 283; other appellant's submission, para. 214. See also China's
appellant's submission, para. 172; and other appellant's submission,
para. 103.
[675] China's appellant's submission,
para. 284; other appellant's submission, para. 215.
[676] China's appellant's submission,
para. 286; other appellant's submission, para. 217.
[677] Panel Reports, paras. 7.444,
7.446-7.448, 7.541, 7.542, 7.604, 7.725, and 7.731.
[678] Panel Reports, paras. 7.568-7.599,
7.792-7.809, and 7.919-7.935.
[679] Appellate Body Report, Brazil – Retreaded Tyres, para. 185
(referring to Appellate Body Report, EC –
Hormones, paras. 132 and 133). See also Appellate Body
Reports, Australia – Salmon,
para. 266; EC – Asbestos,
para. 161; EC – Bed Linen
(Article 21.5 – India), paras. 170, 177, and 181; EC – Sardines, para. 299; EC – Tube or Pipe Fittings,
para. 125; Japan – Apples,
para. 221; Japan – Agricultural
Products II, paras. 141 and 142; Korea – Alcoholic Beverages,
paras. 161 and 162; Korea – Dairy,
para. 138; US – Carbon Steel,
para. 142; US – Gambling,
para. 363; US – Oil Country Tubular
Goods Sunset Reviews, para. 313; and EC – Selected Customs Matters, para. 258.
[680] Appellate Body Report, US – Carbon Steel, para. 142 (referring to Appellate
Body Report, US – Wheat Gluten, paras. 161 and
162).
[681] Appellate Body Report, EC – Hormones, para. 135. The
Appellate Body has also stated that a panel "must base its
findings on a sufficient evidentiary
basis on the record" (Appellate Body Report, EC – Fasteners (China),
para. 441 (emphasis added; fn omitted)); "may not … appl[y] a double
standard of proof" (Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil),
para. 293 (fn omitted)); and its treatment of the evidence must not lack
"even-handedness" (ibid., para. 292).
[682] Appellate Body Reports, EC – Fasteners (China), paras. 441 and 442; Brazil – Retreaded Tyres, para. 202.
[683] Appellate Body Report, EC – Fasteners (China), para. 442.
[684] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to
Appellate Body Reports, US – Steel Safeguards,
para. 498; and Chile – Price Band System (Article 21.5 –
Argentina), para. 238).
[685] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to
Appellate Body Reports, US – Steel Safeguards,
para. 498; and Chile – Price Band System (Article 21.5 –
Argentina), para. 238).
[686] Appellate Body Report, EC – Fasteners (China), para. 442. (emphasis original)
[687] Appellate Body Report, EC – Sardines, para. 299;
Appellate Body Report, US – Carbon
Steel, para. 142; Appellate Body Report, US – Wheat Gluten, para. 151.
[688] Appellate Body Report, US – Wheat Gluten, para. 151.
[689] Appellate Body Report, EC – Fasteners (China), para. 442.
[690] Appellate Body Report, EC and certain member States – Large Civil Aircraft,
para. 1318. See also Appellate Body Report, EC –
Fasteners (China), para. 499.
[691] China's appellant's submission,
para. 168; other appellant's submission, para. 99. (emphasis original)
[692] China's appellant's submission,
paras. 164, 281, and 282; other appellant's submission, paras. 95, 212,
and 213.
[693] China's appellant's submission,
paras. 164 and 282; other appellant's submission, paras. 95 and 213.
[694] China's appellant's submission,
para. 283; other appellant's submission, para. 214. See also China's
appellant's submission, para. 172; and other appellant's submission,
para. 103.
[695] China's appellant's submission,
para. 284; other appellant's submission, para. 215.
[696] China's appellant's submission,
para. 286; other appellant's submission, para. 217.
[697] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to
Appellate Body Reports, US – Steel Safeguards,
para. 498; and Chile – Price Band System (Article 21.5 –
Argentina), para. 238).
[698] China's appellant's submission,
paras. 201 and 203; other appellant's submission, paras. 132 and 134.
[699] China's request refers to the
following paragraphs of the Panel Reports, paras. 7.444, 7.446-7.448,
7.541-7.542, 7.604, 7.725, and 7.731.
[700] China's appellant's submission,
paras. 25 and 201; other appellant's submission, paras. 25 and 132.
[701] Panel
Exhibits CHN-157, JE-112, JE-118, JE-152, JE-183, and JE-196.
[702] Panel Reports. para. 7.444
(referring to Panel Reports, China – Raw Materials,
para. 7.586). (emphasis original)
[703] Panel Reports, para. 7.725
(referring to Panel Reports, China – Raw Materials,
para. 7.586).
[704] Panel Reports, para. 7.440.
[705] Panel Reports, para. 7.441
(referring to United States' second written submission to the Panel,
paras. 129 and 130; and European Union's second written submission to the
Panel, paras. 128 and 129).
[706] Panel Reports, para. 7.441
(referring to United States' second written submission to the Panel,
paras. 129 and 130; and European Union's second written submission to the
Panel, paras. 128 and 129).
[707] Panel Exhibit JE-118 contains an
article from Xinhua Insight, entitled
"China Tightens Regulation of Rare Earth Industry" (15 June 2011).
According to this article, Chen Guiyuan, the Deputy Director of the Hohhot
Customs Bureau in North China's Inner Mongolian Autonomous Region, is quoted as
saying that "[t]o get past the government regulations, some foreign
companies are investing in their own rare earth metal processing centers in
China, aiming to obtain more of the metals at a cheaper price." (Ibid., p.
3)
Panel Exhibit JE-152 contains an English translation of the
"Preferential Policies Encouraging Investments for Fujian (Longyan) Rare
Earth Industrial Park", adopted in
2010 by the Longyan Municipal People's Government. This document, which
contains a guarantee of the supply of rare earth raw materials, states its
purpose as follows:
In order to encourage businessmen home and abroad to make investments in
Fujian (Longyan) Rare Earth Industrial Park, promote rare earth industrial
development in Longyan and build Longyan into a first rate fine and further
processing industrial base for rare earth as well as a characteristic
"West Coast Rare Earth Center of China" as soon as possible,
preferential policies have been developed as follows based on related
regulations and actual situations of our city.
(Preferential
Policies Encouraging Investments for Fujian (Longyan) Rare Earth Industrial Park (Panel Exhibit JE-152), p. 1)
[708] Panel Reports, paras. 7.442-7.444,
7.447, and 7.448.
[709] Panel Reports, China – Raw Materials, para. 7.586 and fn 931 thereto.
(other fns omitted)
[710] Panel Reports, China – Raw Materials, para. 7.586.
[711] Panel Reports, China – Raw Materials, para. 7.586.
[712] Panel Reports, para. 7.445
(referring to China's comments on the complainants' responses to Panel question
Nos. 71 and 123; and China's second written submission, paras. 51 and 52
("export quotas are a balancing tool")).
[713] Panel Reports, para. 7.446
(referring to Panel Exhibit JE‑183, p. 5).
[714] Panel Exhibit CHN-157.
[715] Panel Exhibit CHN-157, para. 33;
Panel Exhibit JE-183, p. 1.
[716] Panel Exhibit JE-183, p. 1
(referring to Panel Exhibits JE-141 and JE-164).
[717] China's appellant's submission,
para. 189; other appellant's submission, para. 120 (referring to Panel Exhibit
CHN-157).
[718] China's appellant's submission,
paras. 194-196; other appellant's submission, paras. 125-127 (referring to
China's opening statement at the first Panel meeting, Table 1, and paras. 41
and 42; and Panel Exhibits
CHN-132, CHN-196, and CHN-197).
[719] Panel Exhibit CHN-157.
[720] Panel Reports, paras. 7.636-7.642.
[721] Panel Reports, para. 7.640.
[722] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to Appellate Body
Reports, US – Steel Safeguards, para. 498; and Chile – Price Band System (Article 21.5 – Argentina), para.
238).
[723] China's appellant's submission,
paras. 191 and 192; other appellant's submission, paras. 122 and 123
(referring to China's response to Panel question No. 91, paras. 107 and 108;
and Panel Exhibits CHN‑192, CHN-193, and CHN‑214).
[724] Panel Reports, para. 7.448.
[725] Panel Reports, para. 7.448.
[726] Panel Reports, para. 7.448.
[727] China's appellant's submission,
para. 200; other appellant's submission, para. 131 (referring to China's
opening statement at the second Panel meeting, para. 57; and Panel Exhibits CHN-186
and CHN-191).
[728] United States' appellee's
submission, paras. 125-128; European Union's appellee's submission,
para. 211; Japan appellee's submission, para. 84. The exhibits referred to
are Panel Exhibits JE-102,
JE-118, JE-145, JE-146, and JE-147.
[729] Panel Reports, para. 7.622.
[730] Panel Reports, para. 7.633 and fn
951 thereto (referring to Panel Exhibit CHN-163).
[731] Panel Reports, paras. 7.632 and
7.633 (referring to Dr David Humphreys, "Developments in rare earth-using
industries" (Panel Exhibit CHN-163); and Prof. Jaime de Melo,
"Selected Economic Issues Regarding Export Quotas and Production
Quotas" (Panel Exhibit CHN‑157)). In Panel Exhibit CHN-163, p. 15,
Dr Humphreys states: "Consistent … also with the data provided on the
relocation of operations of foreign investors in rare earth-consuming
facilities, the shift in the pattern of exports for rare earth-containing products
came before the lowering of the extraction,
production and export quotas in 2008 and 2010, making it difficult to sustain
the argument that the tightening of quotas was the cause of the observed
industrial and trade trends". Dr Humphreys reiterates this statement in
Panel Exhibit CHN-186, p. 2.
[732] Panel Reports, para. 7.633
(referring to Panel Exhibits CHN-157 and CHN-163). See also ibid., para. 7.632.
[733] Appellate Body Report, EC – Fasteners (China), para. 442 (referring to
Appellate Body Reports, US – Steel Safeguards,
para. 498; and Chile – Price Band System (Article 21.5 –
Argentina), para. 238).
[734] Panel Reports, paras. 7.375-7.377
(tungsten) and 7.696-7.698 (molybdenum).
[735] Panel Reports, para. 7.440.
[736] Panel Reports, para. 7.443. (fn
omitted)
[737] Panel Reports, para. 7.444.
(emphasis original; fn omitted)
[738] Panel Reports, para. 7.445
(referring to China's comments on the complainants' responses to Panel question
Nos. 71 and 123; and China's second written submission to the Panel,
para. 52).
[739] Panel Reports, para. 7.445
(referring to China's second written submission to the Panel, paras. 51
and 52).
[740] Panel Reports, para. 7.446
(referring to Professor L. Alan Winters, "Response to Professor de
Melo" (Panel Exhibit JE-183), p. 5). (emphasis original; fn omitted)
[741] Panel Reports, para. 7.448. (fn
omitted)
[742] Panel Reports, para. 7.542. In
this regard, we take note of the Panel's statement casting doubt on whether
China's 2012 production plan imposed a "real restriction".
[743] China's appellant's submission,
para. 205; other appellant's submission, para. 136.
[744] China's appellant's submission,
para. 293; other appellant's submission, para. 224.
[745] China's appellant's submission,
para. 293; other appellant's submission, para. 224 (referring to Panel
Reports, para. 7.577).
[746] China's appellant's submission,
paras. 283 and 293; other appellant's submission, paras. 214 and 224
(referring to China's response to Panel question No. 123(b), paras. 258‑261).
[747] China's appellant's submission,
paras. 284 and 293; other appellant's submission, paras. 215 and 224
(referring to China's second written submission to the Panel, paras. 84
and 86‑100; opening statement at the second Panel meeting, paras. 40-45;
and response to Panel question No. 123, paras. 262‑265).
[748] China's appellant's submission,
para. 294; other appellant's submission, para. 225.
[749] China's appellant's submission,
para. 282; other appellant's submission, para. 213 (referring to Panel
Exhibits CHN-13, CHN-21, and CHN-63).
[750] Panel Reports, para. 7.575.
[751] Panel Reports, para. 7.574.
[752] Panel Reports, para. 7.576.
[753] Panel Reports, para. 7.578.
[754] Panel Reports, para. 7.580.
[755] China's appellant's submission,
para. 282; other appellant's submission, para. 213 (referring to Panel
Reports, para. 7.577).
[756] Panel Reports, para. 7.577.
[757] Panel Reports, para. 7.580.
[758] China's appellant's submission,
paras. 283 and 293; other appellant's submission, paras. 214 and 224
(referring to Panel Reports, para. 7.579; and China's response to Panel question No. 123(b), paras. 258-261).
[759] Appellate Body Report, EC – Fasteners (China), para. 511.
[760] Panel Reports, para. 7.579.
[761] China's appellant's submission,
paras. 284 and 293; other appellant's submission, paras. 215 and 224
(referring to China's second written submission to the Panel, paras. 84
and 86‑100; opening statement at the second Panel meeting, paras. 40-45;
and response to Panel question No. 123, paras. 262‑265).
[762] Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para.
238.
[763] Appellate Body Report, EC
– Hormones, para. 133.
[764] Appellate Body Report, EC – Poultry, para. 133.
[765] Appellate Body Reports, US – Steel Safeguards, para. 498; US – Tyres
(China), para. 321.
[766] Appellate Body Report, EC – Fasteners (China), paras. 499 and
500.
[767] China's appellant's submission,
para. 294; other appellant's submission, para. 225.
[768] China's appellant's submission,
paras. 295-297; other appellant's submission, paras. 226-228.