At the September 27 DSB meeting, China and the United States discussed the U.S. - Photovoltaic Safeguards (DS562) panel report. The case involves Chinese claims against a 2018 U.S. safeguard measure on crystalline silicon photovoltaic products. The WTO panel rejected various claims that the U.S. safeguard measure violates WTO obligations. China has now appealed the panel report. We reproduce here the official statements made by each country at the DSB meeting.

China statement:

China appreciates the opportunity to express its deep concern with the systemically harmful findings made by the panel report in “United States – Safeguard Measure on Imports of Crystalline Silicon Photovoltaic Products” (DS562). In the past 26 years of the WTO, all of the safeguard measures challenged prior to this case had been found to violate the WTO rules. However, the panel report of DS562 has severely deviated from all these jurisprudences and substantially lowered the threshold of imposing safeguard measures. The erroneous and dangerous signal sent by this panel report to WTO members will lead to the abuse of safeguard measures and thus seriously undermine the rules-based multilateral trading system.

In China’s view, the panel report contains serious legal errors, including a gross misreading of legal requirements for imposing safeguard measures, as well as a major misunderstanding of a panel’s proper role in examining trade remedy investigations. China wishes to take this opportunity to address some of the obvious errors of the panel report because of the systematically harmful implications to the WTO safeguard disciplines.

China initiated this dispute because the United States imposed safeguard measures on CSPV products in violation of the disciplines set forth in Article XIX of GATT 1994 and the Agreement on Safeguards. Under these agreements, it has long been recognized that safeguard measures are exceptional remedies for extraordinary situations only. In particular, because safeguard measures are adopted to restrict trade in the absence of any unfair trade practices, and applied globally to imports from all sources, their imposition must meet very high thresholds. This includes demonstrating an unforeseen development that led to the surge in imports, establishing a causal relationship between increased imports and serious injury, and ensuring that the injuries caused by other factors are not attributed to the increased imports through a non-attribution analysis.

The USITC met none of these requirements in its CSPV safeguard investigation challenged by China in DS562. During its investigation, the USITC failed to demonstrate an “unforeseen” development leading to the increase in CSPV imports, failed to establish a causal link between increased imports and serious injury, and failed to separate and distinguish other factors’ injurious impact on its domestic industry. These factors include failure of domestic producers to focus on the utility sector of the market, quality and service problems of domestic producers, and wider market trends leading to a decline in the market price. Essentially, the United States was using the safeguard measure to save a domestic industry, not from imports, but from its own bad performance and poor business decisions.

Regrettably, the Panel failed to address these issues as raised by China and many third parties in its panel report. Instead, the panel report suffered from three most severe legal errors.

First, the Panel’s decision impermissibly lowered the legal standards for safeguard measures under the established WTO disciplines. For example, the Panel dismissed the argument that when an overall coincidence in trends does not exist, the competent authority’s explanation for the existence of a causal link must be “compelling”, contrary to the decisions made on this same issue in many prior WTO cases. This mistaken reading of the applicable legal standards has allowed the Panel to uphold the USITC’s causation finding, even though the domestic industry showed a number of positive developments in fundamental injury factors during the period of investigation.

As another example, despite the fact that Agreement on Safeguards requires and prior cases emphasize the importance of examining conditions of competition in a causation analysis, the Panel refused to take into account evidence that CSPV market in the US is highly segmented, and that the domestic industry did not focus on the utility market segment which experienced the highest growth. As a result, the Panel’s finding failed to consider how domestic industry’s lack of participation in the utility segment affected its performance. Instead, the Panel’s erroneous application of the legal standard has made imports the scapegoat for the domestic industry’s poor business decisions.

Second, the Panel failed to observe its duty under Article 11 of the DSU to conduct an objective assessment of the matter before it. The Panel simply failed to make an objective assessment of China’s claim on causation, including any factual issues underlying China’s claim. In many places, the Panel deferred to the findings of the USITC as valid without any further inquiry of its own. A typical example is on the Panel’s treatment of the issue of unforeseen development. The USITC asserted that, somehow, the industrial policies in China created a global increase in CSPV production. It did not demonstrate what these alleged industrial policies were, nor establish any linkage between industrial policies in China and the increase in imports, which predominately comes from the rest of the world. While acknowledging these factual and logical deficiencies, the Panel nevertheless upheld the USITC’s findings without further inquiry.

The Panel’s failure to observe Article 11 of the DSU is also apparent from its findings on non-attribution. During the CSPV safeguard investigation, the respondents explicitly argued that the domestic industry suffered injury from a number of other factors, including lack of participation in the utility sector, the falling raw material price, the pressure to attain grid parity, quality and service issues, and changes in government incentive programs. Despite evidence on the record which was overlooked by the USITC, the Panel simply upheld the findings of the USITC. The panel report is replete with other examples where the findings of the USITC were confirmed, without any concrete assessment into the alternative views presented by the respondents during the investigation. Instead of evaluating whether the USITC provided reasoned and adequate explanation in its report, the Panel has turned itself into a rubber stamp for the USITC’s determinations.

Third, the panel report completely disregarded the proper standard of review of trade remedy measures. In all trade remedy cases, the report of the investigating authority must be examined as it was published at the time. A Member cannot offer additional rationalization for the conclusions and determinations set forth in the report. However, in the present dispute, the Panel allowed the United States to remedy omissions or deficiencies in the USITC’s report during the proceedings, refurbishing the USITC report through impermissible post-hoc justifications. The Panel’s approach created a harmful practice: it allows an investigating authority to make an unsound determination and impose WTO in-consistent trade remedy measures, and the Member of that investigating authority to rescue that decision during the dispute settlement proceedings.

Lowering the applicable standards for safeguard measures, deferring to the investigating authority’s determination without objective assessment, allowing a Member to rescue a deficient decision through post-hoc rationalization – through each of these steps, the Panel normalized the safeguard measure from an exceptional remedy to a convenient tool for trade protectionism, which can be put to use whenever a domestic industry wishes to complain about imports even when imports are not to blame for its own failures. The systematically harmful impact of these findings and the troubling logic behind it must be pointed out, not just for safeguard cases, but also for all trade remedy disputes.

As provided in Article 3.2 of the DSU, security and predictability are core values of the dispute settlement system. It is of systemic importance that the principle of security and predictability shall be upheld through ensuring the quality of panel reports, especially under the severe situation of paralysis of the Appellate Body since the end of 2019. By sharply deviating from the WTO disciplines and the established jurisprudence, the Panel has not only upset this fundamental objective, but also undermined the trust of all Members in the dispute settlement mechanism and created irreversible damage to the multilateral trading system.

Once again, China wishes to remind the Members that safeguard measures are extraordinary measures for extraordinary situations. Safeguard measures cannot be used as a convenient tool to rescue a domestic industry in bad shape because of its own business decisions and injuries caused by other factors not attributed to the increased imports. Any other characterization of the safeguard measure than a measure subject to stringent legal threshold could open the door to the dangerous use of safeguard measures for protectionist purposes. However, this panel report amounted to an approval of doing just that which in consequence will seriously undermine the rules-based multilateral trading system.

In closing, China recalls that in WTO’s 26 years of existence, this is the first time in a dispute when all challenges against a global safeguard measure have been rejected. In a step that sharply deviates from existing WTO jurisprudence, the Panel issued a report that not only misunderstood the proper role served by safeguards in the WTO system, but also misconstrued the duties of an investigating authority and the proper role of a WTO panel in trade remedy cases. China reminds all Members of the dangerous situation this might create if future investigating authorities are allowed to impose trade restriction measures without satisfying the stringent requirements.

China has already notified its appeal decision to the DSB, and China will await further instructions from the division of the Appellate Body, when it may eventually be composed, regarding any further steps to be taken by China in this appeal.

U.S. Statement:

• China as a WTO Member has the right to bring a matter to the attention of the DSB. Why China should want to highlight for Members that China is the first complaining party ever to lose a WTO challenge to a safeguard action – or the second, if we count China’s own previous loss in its challenge to the China-specific tires safeguard – is a matter for Beijing alone to consider.

• But in bringing this matter forward, China should focus on what matters. First, it matters that the WTO panel found the U.S. safeguard to be consistent with WTO rules. We welcome those findings – but cannot pass without mentioning the very high cost of this victory. A thriving U.S. industry was essentially crushed by China’s massive non-market excess capacity – and this formed the factual basis for the U.S. safeguard action. So while we welcome the panel report findings, this dispute demonstrates, perversely, that WTO rules do not effectively constrain China’s damaging non-market behavior.

• Second, it matters that China, once again, sought to use the WTO dispute settlement system as a vehicle to create new rules that would limit a Member’s ability to defend itself from China’s non-market practices. The United States has expressed grave concerns with Appellate Body interpretations that go well beyond the terms of WTO safeguards rules. But in this dispute, China sought to go even beyond those erroneous interpretations. China encouraged the panel to read Article XIX of the GATT 1994 and the Agreement on Safeguards as creating a procedural minefield with no realistic path for Members seeking to use a safeguard measure for its intended purpose. The Panel rightly rejected every single one of China’s misplaced arguments.

• China tries to depict the uniform failure of its arguments as evidence that the Panel must have been wrong or that the Panel committed certain missteps. But the Panel’s thorough evaluation demonstrates that it is China that committed fundamental errors in its approach to this case. In particular, China attempted to read the relevant WTO safeguard provisions in a way that is inconsistent with the text of the covered agreements, and in a way that no competent authorities or no Member could ever meet in practice. That, and not some malfeasance by the Panel, is why China lost this dispute.

• It was China’s burden to establish a prima facie case that the U.S. solar safeguard measure is inconsistent with one of the enumerated provisions of the GATT 1994 or the Agreement on Safeguards. The Panel held China to that burden. It addressed each of China’s arguments, and explained why China failed to discharge that burden in each instance. We will focus on just a few of those rejected arguments in our statement today.

• Before the panel, China conceded that the U.S. competent authorities correctly found that the domestic industry was suffering from serious injury. That is beyond dispute, as numerous U.S. producers exited the industry, and remaining producers suffered profitability losses and declining investment. China conceded that imports were increasing from multiple sources, or that import prices were decreasing over the course of the period covered by the investigation. This is exactly the situation that GATT 1994 Article XIX and the Safeguards Agreement were designed to address. And, after a massive investigation with multiple parties and thousands of pages of evidence and arguments, the U.S. International Trade Commission (USITC) found that increased imports caused serious injury.

• In its challenge, China instead sought to avoid the logical implication of these facts by attacking the competent authorities. It asked the Panel to essentially conduct a new investigation and issue a new determination, uncritically accepting the views of Chinese producers and rejecting out of hand any contrary evidence and argument. The Panel correctly rejected this view of its role. In line with the terms of the Safeguards Agreement, it evaluated the report of the competent authorities and whether the report provided findings and reasoned conclusions in support of the ultimate determination. The Panel properly declined to make new findings or a new determination.

• The Panel also correctly focused on the substance of the USITC’s findings, and rejected China’s efforts to portray Article XIX of GATT 1994 and the Safeguards Agreement as mandating formulaic cookie-cutter approaches to the analysis. You can see a good example of this correct approach in the Panel’s handling of whether the United States showed that increased imports were a result of U.S. tariff concessions. There was no dispute that the U.S. bound rate on CSPV solar products was zero, or that the binding prevented the United States from raising tariffs in response to the documented surge in imports. China nonetheless argued that the United States failed to satisfy the obligation because the USITC did not couch its findings in the exact words used in Article XIX. The Panel correctly focused on substance over form, finding that:

the USITC identified the United States’ domestic tariff treatment of CSPV products when it observed that CSPV products covered by the safeguard measure “are provided for in subheading 8541.40.60 of the U.S. Harmonized Tariff Schedule [and] have been free of duty under the general duty rate since at least 1987”. Although we recognize that this statement does not explicitly establish that such tariff treatment was required under the United States’ WTO obligations, we consider that the supplemental report appropriately demonstrates that this was the implication of the USITC's statement.1

1 US – Safeguard Measure on PV Products, para. 7.53

• That is exactly what a Panel should do in evaluating a safeguard measure. It should examine the totality of the competent authorities’ findings, and not fasten on quibbles over phrasing as excuses to reject their conclusions.

• The United States is disappointed that China has now decided to press onward by appealing the Panel report in spite of overwhelming evidence of the damaging effects of China’s non-market practices, instead of focusing its energy on changing those practices that are harming workers and businesses worldwide. Indeed, it is important to recall why the United States imposed the solar safeguard in the first place. The safeguard measure serves to support our domestic industry’s efforts to adjust to import competition, after global excess solar cell and module capacity pushed our industry to the brink of extinction. Chinese producers in China and around the world are largely responsible for this excess capacity, fueled by China’s non-market practices, which are in direct contradiction to the commitments China made when it joined this organization in 2001. Meanwhile, China’s solar industry has attempted to undercut U.S. antidumping and countervailing measures on imports from China for years by shifting operations to other countries.

• The United States will not stand idly by while China continues trying to undermine the solar safeguard measure and to continue harming U.S. solar producers and indeed market-oriented solar producers worldwide.