• Pavan Kalyan

The Fog of War: United States- Tariff Measures on Certain Goods from China (DS543)

On 15 September 2020, a Panel Report was circulated as “United States — Tariff Measures on Certain Goods from China” (DS543). China had filed a complaint on the following grounds:

  1. Application of additional tariffs that apply only to products originating from China was in violation of Article I:1 of The General Agreement on Tariffs and Trade (GATT 1994); and

  2. Application of additional tariffs in excess of those contained in the USA’s Schedule was in violation of Articles II:1(a) and (b) of the GATT 1994.


Q. What is ‘Mutually Acceptable Solution' under Article 12.7 of the Dispute Settlement Understanding (DSU)?

United States claimed that a solution within the meaning of Art. 12.7 of the DSU can exist even if it does not yield any results and the issues between the parties remain unsolved. The Panel disagreed with the United States and held that the solution must be one that is acceptable to both parties and not a unilateral solution. Logically speaking, the problem does not persist when the solution has been found. In the present dispute, China stated that it never agreed with the United States that the dispute was resolved outside the WTO. The complainant China could have taken recourse to Art.12.12 of the DSU to seek suspension of proceedings or withdrawn its complaint if a solution had been found. However, no such right had been exercised by the complainant. A Mutually Agreed Solution is an additional mechanism of resolving the disputes and should not be accorded an interpretation that takes away the parties' entitlement to seek findings by the panel.



Q. Are the additional tariffs inconsistent with Article I:1 of the GATT 1994?

To establish an inconsistency with Article I:1 of the GATT 1994 the complaining party must satisfy four elements:

Q. Are the measures inconsistent with Article II:1(a) and (b) of the GATT 1994

An inconsistency with Article II:1(b) of the GATT 1994 will inevitably result in the finding of the inconsistency of Article II:1(a) of the GATT 1994. Additional duties are within the meaning of customs duties within the meaning of Article I:1 and they are “ordinary customs duties” within the meaning of Article II:1(b) of the GATT 1994, and the additional duties were in excess of the duties provided in Schedule 1. Therefore, the measures were inconsistent with Article II:1(b) of the GATT 1994. An increase in duties imposed over and above those provided for in the Schedule results in the violation of Article II:1(b) of the GATT 1994. Since this resulted in less favorable treatment than the one provided for in the Schedule, a violation of Article II:1(a) of the GATT 1994 was also made out.

Q. Are the measures are justified under Art. XX(a) of the GATT 1994?

Conclusion

  1. Parties have not reached a mutually satisfactory solution within the meaning of Art. 12.7 of the DSU and does not have the effect of relinquishment.

  2. The challenged measures are prima facie inconsistent with Articles I:1, II:1(a), and II:1(b) of the GATT 1994

  3. The United States has not met its burden of demonstrating that the measures are provisionally justified under Article XX(a) of the GATT 1994.

The United States, however, has appealed the Panel Report. The Panel Report has not been adopted, and is therefore, not binding on the United States.

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