China, EU and Anti-dumping – It’s showtime

[At Game of Trade, we are very happy to kick-start New Year 2017 with a guest post by Garima Prakash who is currently an LL.M. candidate at IELPO, University of Barcelona. In this post, Garima questions the WTO consistency of the recently proposed amendment to EU’s anti-dumping regulation. The post is both timely and relevant in the context of the controversy surrounding the expiry of paragraph 15 (a) (ii) of China’s Accession Protocol]

China recently filed a complaint in the WTO against the EU & the US over use of analogue country method in anti-dumping investigations. China’s complaint has come right after the expiry of paragraph 15 (a) (ii) in China’s Accession Protocol (hereinafter ‘Accession Protocol’) that allows China to be treated as a Non-Market Economy for antidumping investigations. While the implication which the expiry of paragraph 15 (a) (ii) would have on China’s market economy status is itself debatable, in another recent development the EU has proposed an amendment to its anti-dumping regulations which would allow Europe to continue using analogue country method to assess dumping irrespective of the market economy status of exporting countries. In this post, I argue that the proposed EU amendment regulation is inconsistent with WTO law.

The existing anti-dumping laws of EU in particular paragraph 7 (a) of Regulation (EU) 2016/1036 (hereinafter ‘basic EU AD law’) features China in the list of countries subject to analogous country method for calculating normal value in antidumping investigations. Meaning, China is treated as a non-market economy (hereinafter ‘NME’). The consequence of treating a particular country as an NME is that in conducting dumping investigations against NME countries, EU can disregard domestic prices in NMEs and use alternate methodologies such as analogue country method to construct the normal value of goods. Use of analogue country method leads to a higher constructed normal value (and consequently a higher dumping margin) which is why countries like China are disadvantaged in dumping investigations. In November 2016, the European Commission proposed an amendment to its anti-dumping law in response to over-capacity in industrial sectors due to NME practices and state intervention. EU’s proposed law, which amends inter alia paragraph 7 of the basic EU AD law and inserts a new paragraph 6a, is agnostic with respect to the market economy status of any country; in other words, EU’s proposed amendment regulation could potentially be applied to a country like China where significant distortions in domestic prices exist irrespective of the country’s market economy status. The proposed amendment will come into effect if and when it is passed by the European Council and European Parliament. However, the consistency of this proposed law (hereinafter ‘proposed amendment regulation’) with WTO law is questionable for the following reasons:

  1. Article 6a (a)

Article 6a (a) provides for the mechanism to construct normal value when it is not appropriate to use domestic costs and prices in the exporting country due to the existence of significant distortions. It says that, “the sources that may be used include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country, provided the relevant cost data are readily available” (emphasis supplied).

Article 6a (a) is inconsistent with WTO obligations arising under Article VI:1 (b) GATT 1994 and Article 2.2 Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement or ADA), to the extent that it allows for use of ‘undistorted international price’ and ‘costs of production and sale in an appropriate representative country’ for the construction of normal value.

Article VI:1 (b) GATT 1994 read with Article 2.2 ADA allow for two methods that can be employed if domestic price in the exporting country is not appropriate or available to use in determining normal value: firstly, comparable price of a like product when exported to an appropriate third country, secondly, cost of production in the country of origin plus reasonable selling, governance and administrative costs. It does not allow for cost of production in a third country or the international prices of the product.

As noted by the Panel in EU – Biodiesel (paras 7.255-7.260), it is established that the use of international price instead of the domestic price of the exporting country in order to remove perceived price distortion is inconsistent with the aforementioned WTO provisions. The Appellate Body further clarified,

“When relying on any out-of-country information to determine the “cost of production in the country of origin” under Article 2.2, an investigating authority has to ensure that such information is used to arrive at the “cost of production in the country of origin”” (paragraph 6.82 of the Appellate Body report, EC-Biodiesel).

It is hard (almost impossible) to comprehend how the use of international price as the basis for constructing normal value will amount to a ‘cost prevailing in the country of origin in the construction of the normal value’; this makes Article 6a (a) of the proposed amendment regulation  inconsistent with the relevant GATT and ADA provisions. Also, using cost of production in an appropriate third country (as opposed to export prices to a third country), does not amount to arriving at ‘cost of production in the country of origin’.

  1. Article 6a (b)

Article 6a (b) provides the criteria for determining when ‘significant distortions’ will be said to exist. It says, “In considering whether or not significant distortions exist regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing public policy objectives” (emphasis supplied).

Second Ad note to GATT Article VI: 1 provides that a comparison with domestic prices for construction of normal value may not be appropriate in cases of imports from countries which have a complete or substantially complete monopoly over its trade and where all domestic prices are fixed by the state. The situation of distortions to the extent that domestic costs and prices cannot be considered in determining normal value, has been stipulated by this second supplementary provision to Article VI:1.

It is clear that a very high threshold has been set by the drafters in allowing any derogation to be made from using domestic prices for determination of normal value. The standard laid down in the proposed EU AD law for derogation (from using domestic prices) seems to be fairly lower than that laid down in second Ad Note to GATT Article VI: 1. ‘Interference with respect to prices and costs’ and ‘policy supervision or guidance of state’ do not confer the same level of government involvement as in ‘all domestic prices are fixed by the state’. Therefore, it is inconsistent with the relevant WTO provisions.

At best, the criterion for significant distortions may be relied upon to establish that a particular market situation (as envisaged in Article 2.2. ADA and Article 2 (3) of the basic EU AD law) exists and thus domestic sales prices cannot be considered as normal value. However, even in such a case, either a constructed normal value based on domestic cost of production or prices of export to appropriate third country should be used to determine the normal value. Establishing a particular market situation will still not give legal basis to construct normal value based on international prices or cost of production in third country.

EU’s proposed amendment regulation & Article 15 of the Accession Protocol:

Article 15 of the Accession Protocol, as it currently stands, allows for WTO members to presume NME status for China. Under Article 15 (a), it is for the producers of the Chinese goods under investigation to show that market economy conditions prevail, in order to make it mandatory for a WTO member to use Chinese costs or prices for determining normal value. Under the basic EU AD law, EU treats China as a Non-Market Economy. With the repealing of Article 2 (7) (b) of the basic EU AD law (as per the proposed amendment regulation), it has been made clear that EU will no longer presume China to be an NME.

The proposed EU AD laws will bring EU’s anti-dumping laws in line with what is expected to be the law regarding treatment of China in anti-dumping cases after the expiration of Article 15 (a) (ii) of the Accession Protocol for the following reasons:

  1. Expiry of Article 15 (a) (ii) does not imply granting of an automatic Market Economy Status to China. Article 15(d) only sets an expiry date for paragraph (a) (ii). This means that paragraph (a) (i) and the chapeau to (a) will still continue to apply. Chapeau to Article 15(a) states that, “…the importing WTO Member shall use…a methodology that is not based on a strict comparison with domestic prices or costs in China if…” This clearly establishes the possibility of not using Chinese domestic prices in some situations (even after the expiry of paragraph (a) (ii)).
  2. It may also be argued that the expiry of (a) (ii) will change the burden of proof. Before expiry, the burden was on the Chinese producers to prove that market economy conditions prevailed in China. After expiry, it is the importing country which must prove the Chinese firms still operate under non-market economy conditions. However, it is my submission that the burden of proof will not shift after expiry because of the presence of paragraph (a) (i), which puts the burden on the Chinese producers to prove that market conditions prevail, by stating, “If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product…”
  3. According to O’Connor, the expiry of paragraph a (ii) does not automatically confer on China a market economy status and should only be interpreted to mean that the specific comparison methodology listed in paragraph a (ii) would no longer apply. As noted by Laura Puccio, due to the presence of the phrase, ‘under the national law of the importing WTO Member’, in the first and third sentence of article 15(d), market conditions in China will need to be proved according to the domestic law of the importing country, i.e., article 6a (b) of the proposed EU amendment regulation to determine whether China should be treated as an NME in dumping investigations.

What remains to be seen is what will come out of the complaint by China (DS516) regarding the calculation methods used in anti-dumping proceedings. China had been waiting for just this moment to bring up this dispute, everything was prepared and thought of. Paragraph 15 (a) (ii) of the Accession Protocol expired on December 11, 2016. Notification for request for consultations with EU and US was sent right the next day. Some say that China had on many occasions signalled this upcoming dispute, and that the ‘consultations’ are a mere formality. This is going to be a landmark in the history of WTO dispute settlement as it involves the three most trade intensive countries of the world. Law, politics and tactics would each play their part. Is the WTO system designed to handle such intensity of pressure and politics?

[The author can be contacted at garima.prakash93@gmail.com]

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Dolby v. GDN Enterprises & Oppo

On 23rd November, a Single Judge Bench of the Delhi HC passed orders in Dolby International v. GDN Enterprises[1] altering its earlier order dated 27th October, 2016 on the rate of royalties payable by Oppo. The Delhi HC order in the instant case is significant because it reduced the earlier rate fixed by the Court on the ground that the earlier rate was being charged on Dolby’s entire portfolio of patents, many of which were not the subject-matter of the present dispute.

Background of the case:

Dolby (US company specialising in audio technology) recently filed a patent infringement suit in India for unauthorised use of Dolby’s patents by Chinese smartphone manufacturers, Oppo & Vivo (defendants).[2] In 20th October 2016, the Court passed an ex-parte interim injunction against the defendants restraining them from manufacturing/selling/importing devices which infringed Dolby’s SEPs. On 27th October, the Court ordered Oppo & Vivo to deposit interim royalties to the Court at the rate of INR 34 per handset sold/manufactured/imported in India by the defendants[3]; the amount for each month was to be deposited by the 8th of the succeeding month by the defendants. Indian entities, GDN Enterprises & Das Telecom (through which Oppo & Vivo did business in India) were impleaded as defendants in the suit; the order also stated that the defendants would enter into negotiations with the plaintiff, Dolby, over FRAND licensing terms. Subsequently, GDN filed an interim application (IA No.14417/2016) in the Court challenging the Court’s order for payment of interim royalties on the ground that GDN was no longer manufacturing for Oppo.[4] The other defendants (collectively ‘Oppo’) also filed an interim application (IA No.14492/2016) against the Delhi HC order challenging the royalty rate fixed by the Court. The Court heard arguments in both the interim applications on 23rd November.

Parties’ arguments & Court’s order in the instant case:

IA No.14417/2016-

The applicant/defendant, GDN inter alia argued that it was not liable to make payments to Dolby because Dolby in its suit had pleaded cause of action only against Oppo and not GDN. Therefore, GDN argued that finding cause of action against it would be wrong on the part of the Court since this was an adversarial proceeding as opposed to an ‘inquisitorial proceeding’.[5] The Court refused to hear the matter in the instant proceedings because GDN had failed to file the requisite affidavit.

IA No.14492/2016-

Oppo argued that Dolby had brought a case against the makers of Blackberry in the US involving the same patents/inventions that were the subject matter of the present suit. In the US case, Dolby in its pleadings had admitted that its patents were algorithms. Based on this, GDN argued that Dolby could not hold patents over those inventions in India since section 3(k) of the Patents Act, 1970 prohibits patentability of inventions which are algorithms. The Court was of the opinion that the section 3(k) argument could not be decided without allowing Dolby to file a reply as to whether Dolby had patented the algorithm in India or Dolby’s patent was in fact over the technology which incorporated the algorithm (permissible under Indian law).

Oppo next argued that the patent infringement suit filed by Dolby involved only 4 of Dolby’s patents whereas the royalty rates fixed by the Courts in its October order related to some 600 patents owned by Dolby. Oppo further stated that Dolby held only 8 registered patents in India and therefore, Oppo could not be made to pay royalty rates on Dolby’s entire portfolio of 600 patents. In response to this, Dolby argued that it was charging “similar FRAND rates from other manufacturers similarly placed” as Oppo; therefore, Dolby contended that this was an international practice and cited a judgment of the District Court of Germany to support its contention. Dolby further relied on the Ericsson case where interim royalties had been ordered on the entire portfolio of patents. Dolby also stated that in Ericsson the Court had (prior to its order) determined whether for use of a patent, the rates prescribed for the entire family can be directed to be paid” and decided in the affirmative.[6]

The Court agreed with Oppo’s arguments that royalties should be payable on the patents involved in the case and not on the entire portfolio of Dolby’s patents. The Court stated, “It indeed troubles me that the defendants, even by way of an interim arrangement, should be made to pay the rates which the plaintiffs have prescribed for a family of as many as 600 patents when this suit has admittedly been filed for enforcing rights in four patents only”. Accordingly, the Court modified its earlier order and directed that royalties be payable at INR 20 per unit instead of INR 34 per unit by Oppo; the Court clarified that the order would not apply retrospectively and would be subject to the filing of an affidavit of undertaking by Oppo.[7]

[1] CS (COMM) 1425 of 2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=229348&yr=2016

[2] It is not clear when exactly the suit was filed in the Delhi HC. The first order relating to the dispute available on the court website is dated 27.10.2016. http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=208102&yr=2016

[3] The amount offered by the defendants was INR 32 per unit and that proposed by Dolby was INR 38 per unit.

[4] http://delhihighcourt.nic.in/dhcqrydisp_o.asp?pn=226461&yr=2016

[5] India has an adversarial legal system where the judge plays the role of an “impartial referee” rather than playing an active role in seeking out the truth (a feature of the civil law system).

[6] Oppo opposed the Ericsson argument made by Dolby (further details of this are not provided in the HC order).

[7] The Court also clarified that since the other defendants were not present during the proceedings, the earlier order (dated 20th October) would continue to operate against all defendants except Oppo.

SSRN Paper:Compulsory Licences on Pharmaceutical Patents in India

Mr. Sandeep Rathod (patent lawyer and Head of Litigation at Mylan Laboratories) recently uploaded a paper on SSRN titled, ‘Compulsory Licences on Pharmaceutical Patents in India’. The paper which argues against the notion that the Bayer case opened the floodgates for compulsory licensing in India (discussed on GoT here) is based on empirical evidence and an excellent repository of the compulsory licence applications which have been filed in India so far.

While reading the paper, I realised the gaps in my own research on compulsory licensing in the Indian context. My article (which has now finally been published by the JIPLP) missed many of the lesser known compulsory licence applications documented by Mr. Rathod in his paper.

I would encourage you to read the paper and share your thoughts. The working draft of the article is available open access at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2838204

 

 

Volunteer as Judges for the FDI Moot 2016 (Memorial Round)

Dear GoT Readers,

This is to alert you to a fantastic opportunity to judge the memorial round for the Foreign Direct Investment International Arbitration Moot 2016. I recently judged the skeleton briefs for the FDI Moot 2016 and loved the experience!

About the Moot:

The FDI Moot is an international moot on international investment law; it is the initiative of the Center for International Legal Studies (CILS)-a non-profit law research, training, and teaching institute, established and operating as a public interest society under Austrian law. Its international headquarters have been in Salzburg, Austria since 1976. Its essential purpose is to promote and disseminate knowledge among members of the international legal community.

Initiated in 2006 by CILS, five institutions came together to establish the FDI Moot as a new international moot court competition focusing on investor-State disputes. As co-founder and organiser,  CILS manages the FDI Moot. The venue for Global Finals rotates among the four other co-founders. Mr Campbell and Prof. Gibson act as co-directors.

Increasing international investment, the proliferation of international investment treaties, domestic legislation, and international investment contracts have contributed to the development of a new field of international law that defines obligations between host States and foreign investors and refers to internationalised procedures (e.g. ICSID) for resolving related disputes. These disputes involve not only vast sums, but also a panoply of rights, duties, and shifting objectives at the juncture of national and international law and policy. The FDI Moot helps future lawyers attain a practical understanding of these issues. The case and hearings offer a unique forum for academics and practitioners from around the world to discuss developments – and assess emerging talents. The FDI Moot spans approximately six months each year in two phases, written memorials for claimant and respondent and the hearing of oral argument. Regional rounds are conducted in the Asia Pacific (Seoul), South Asia (New Delhi), and Africa (Nairobi).

This year, the South Asia regional round of the moot was hosted by Kachwaha & Partners at the Indian Society of International Law in New Delhi in August which culminated in a victory for National Law School of India University, followed by NALSAR University School of Law and ex aquo National Law University Jodhpur and National Law Institute University.

The best advocates were Mehra, Parul (Final) of National Law School of India University and Sriram, Varsha (preliminary rounds) of National Law Institute University. (Full results for the South Asia Regional are available  here: http://www.fdimoot.org/KAP/2016SAResults.pdf)

4 winning teams from South Asia will join 6 from the Asia-Pacific Regional and 2 from Africa along with 48 others participating directly in the Global Finals at the University of Buenos Aires on 3-6 November 2016.

The 2016 edition of the problem involves a potpourri of international investment claims and can be accessed here.

Call for Moot Memorial Judges:

Given that close to 60 teams would be participating in the FDI moot this year, the organizers are looking for volunteers to judge the memorial round of the moot. Although the volunteer position is unpaid, this is a great learning experience for international investment law enthusiasts and a valuable experience to add to one’s résumé. My personal experience of judging the skeleton briefs was that I gained an understanding of the emerging issues in investor-state dispute jurisprudence.

Those available to judge the moot memos between 19th September & 19th October, 2016, should contact the organizers ASAP with a copy of their Curriculum Vitae:

Manuela Ines Wedam at admin@fdimoot.org; Christian Campbell at christian.campbell@cils.org

Call for Papers: Indian Journal of International Economic Law [Deadline: 10th Feb, 2017]

The Board of Editors of the Indian Journal of International Economic Law (IJIEL) is pleased to invite original and unpublished manuscripts for publication in Volume 9.

About the Journal

The IJIEL is a student-edited and peer-reviewed law journal published annually by National Law School of India University, Bangalore (NLSIU). The previous volume of the journal featured contributions by Prof. Raj Bhala (Rice Distinguished Professor, Associate Dean for International and Comparative Law, Kansas School of Law) and Rodrigo Polanco (Researcher, Lecturer and SNIS/SECO Project Coordinator at World Trade Institute) among several others. We have also published articles by luminaries in the field such as Faizel Ismail, Enrico Baffi, Lotta Viikari, Rafiqul Islam, G.R. Bhatia, Michelle Sanson, Jason R. Bonin Dr. Rafael Arcas & Colin Picker; and forewords by Prof. Jagdish Bhagwati and Prof. Stephen Hobe in the past. Further information may be obtained here.

Mandate

The Journal is an endeavour to encourage scholarship in the field of international economic law. This includes (but is not necessarily limited to) research concerning the WTO, financial institutions, regulatory subjects such as taxation and competition policy, services sectors such as banking and brokerage and international commercial arbitration. Further, the Journal is oriented towards publishing academic work that considers the aforementioned issues from a comparative perspective and/or the perspective of the developing world.

Submission Categories

  1. Articles (5000 to 10000 words, exclusive of footnotes)- Papers that comprehensively analyse  a theme and engage with all the existing literature on it.
  2. Essays (3000 to 5000 words, exclusive of footnotes)- Papers that concisely analyse specific contemporary issues in international economic law.
  3. Case notes and/or Legislative Commentaries (2000 to 7000 words, exclusive of footnotes).

Guidelines for Submissions

  1. The Journal reviews submissions on a rolling basis. The deadline for sending submissions for the forthcoming volume is February 10, 2017.
  2. Submissions must be made in electronic form to ijiel.nls@gmail.com under the subject heading ‘IJIEL Vol. 9 Submission: .
  3. All submissions must be in MS Word format (.doc) or (.docx), with Times New Roman font (Main text: 12, footnotes: 10) and double-spaced.
  4. All manuscripts must be accompanied by:

(a) A covering letter with the name(s) of the author(s), institution/affiliation, the title of the manuscript and contact information should be provided.

(b) An abstract of not more than 200 words should be provided.

  1. Co-authorship (upto 3 authors) is permitted.
  2. No biographical information or references, including the name(s) of the author (s), affiliation(s) and acknowledgements should be included in the text of the manuscript, file name or document properties. All such information may be incorporated in the covering letter accompanying the manuscripts.
  3. The IJIEL uses only footnotes (and not end-notes) as a method of citation. Submissions must conform to the Bluebook.

For any clarifications, please contact us at ijiel@nls.ac.in.

Source: http://indiacorplaw.blogspot.in/2016/08/call-for-papers-indian-journal-of.html

To know more about the journal, visit this link.