China has initiated a WTO case against European tariffs. How does the procedure work?

  Articoli (Articles)
  Michele Bodei
  07 November 2024
  5 minutes, 34 seconds

Translated by Andrea Solazzo

China has filed a complaint with the World Trade Organisation (WTO) against new European duties on imported electric cars. Brussels recently introduced the measures after accusing Beijing of supporting Chinese manufacturers' exports with huge subsidies, to the detriment of European competition. The Chinese government's response was not long in coming and called the duties a form of protectionism that hampers the sustainable market and unfairly affects Chinese companies, such as BYD and Geely.

What is the WTO?

The World Trade Organisation (WTO) is a global international organisation that today represents the core of the international trading system, promoting economic cooperation and dispute settlement between states. Founded on 1 January 1995 with the entry into force of the Marrakech Declaration, the WTO replaced the General Agreement on Tariffs and Trade (GATT), an agreement that since 1948 had aimed to reduce tariff barriers to facilitate global trade.

Based in Geneva and consisting of 164 members, the WTO now covers 98% of global trade and works as a forum for negotiating agreements, overseeing national trade policies and resolving trade disputes between member countries. The fundamental principle of the organisation is non-discrimination, embodied in the "most favoured nation" and "national treatment" rule. This means that each member country must give the others the same treatment as its preferred trading partner and treat imported goods the same as domestic goods once they have passed through customs.

Anti-dumping: why did Brussels impose the duties?

The introduction of duties by the European Union (EU) on Chinese electric vehicles is part of a measure called "anti-dumping". According to Brussels, Beijing's subsidies allow Chinese companies to enter European markets at considerably low prices and under conditions that unfairly disadvantage European companies. The new duties, ranging from 17% to 35.3% depending on the producer, will remain in force for five years and are justified by the EU as a response to market distortion, in line with EU trade policy and international trade rules governing dumping.

However, an anti-dumping procedure is provided for by international agreements such as the WTO and allows countries to apply temporary duties on subsidised products that harm local industry. However, Brussels preferred to avoid bringing the issue directly to the WTO table. The reason is said to be the long time it takes to resolve disputes at this organisation.

What are Beijing's accusations?

China claims that the EU did not follow the impartial assessment procedure necessary to establish actual injury to the European automotive industry, a key requirement in the anti-dumping rules established by the WTO.

In its complaint, Beijing invokes the rules of the Agreements on Subsidies and Countervailing Measures (ASCM) - also of the WTO - which regulate the application of duties only when there is demonstrable injury caused by harmful subsidies. Added to this would be violations of the principles of non-discrimination and equal treatment, enshrined in the same agreements.

How does the procedure work?

The procedure follows a structured and timed path.

1. Request for Consultations. The procedure starts with a formal request for consultations, submitted by China, which is the first attempt at an amicable settlement of the dispute. At this stage, the parties involved (China and the EU) have a 60-day period to dialogue and seek a consensual solution that can avoid further escalation. Consultations are mandatory, and only if these do not lead to an agreement, China can proceed to the next step.

2. Establishment of a Panel. If the consultations fail, China can request the WTO to set up a ‘panel’ of independent experts to assess the case. This panel is usually formed within a period of 30 days after the request. The panel examines the case on the basis of the regulations of the WTO system and the agreements signed by members (such as the GATT and the Agreement on Subsidies and Countervailing Measures). The entire examination process can take between 6 and 9 months to reach a conclusion, but the timeframe can extend further for complex disputes.

3. Appeal (if necessary). If a party is not satisfied with the panel's decision, it may appeal to the WTO Appellate Division, which normally has 60-90 days to review the case.

However, the operation of the division is currently suspended due to a blockage in the appointment of judges by the United States, making it uncertain that this phase will be completed soon.

4. Implementation and Sanctions. If the WTO determines that the EU has violated the rules, the parties have an agreed deadline to modify the challenged measures in accordance with WTO rules. If the EU fails to comply, China may seek authorisation to impose sanctions or countervailing measures against the EU.

Mind you, the case can be dropped if the EU and China find a diplomatic solution. According to WTO rules, the parties in a trade dispute have the option to resolve their conflicts outside the formal system. This solution can take place through initial consultations or ongoing bilateral negotiations.

A well-known example is the case of China with Mexico on textiles and clothing, where the two nations reached a compromise without proceeding to the end of the process at the WTO.

Are there other cases pending at the WTO?

Among similar precedents, the case of the dispute between China and the US over the Inflation Reduction Act provides an example: the US has also recently been accused of market distortion through subsidies for electric vehicles, which - again according to Beijing - are discriminatory and against the Agreement on Investment Measures and the Agreement on Subsidies and Countervailing Measures - other international agreements concluded through the WTO.

Similarly, many countries have turned to this international organisation in recent decades to resolve disputes over subsidies and dumping in sectors ranging from steel to solar panels, although the outcomes of such disputes vary in complexity and timing of resolution. The dispute between China and the US over the Inflation Reduction Act (IRA) is still evolving: the WTO has yet to complete its analysis of the complaint filed by Beijing.

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Michele Bodei

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China Unione Europea Omc Dazi