Enforcement of WTO Commitments: The Sweet and The Sour

Participation in the WTO is not tantamount to submission to a supranational government. Accordingly, neither the WTO nor any member state can force China to fulfil its WTO agreement obligations or its Protocol of Accession (Protocol) market access commitments. The only recourse available to a WTO member state is the imposition of unilateral sanctions against China if authorization is formally granted by the WTO pursuant to comprehensive dispute settlement procedures. Aggrieved foreign companies have no right to raise a claim against China under the WTO rules.

Naturally, a number of trade and non-trade considerations would influence a member state's decision to initiate a claim against China, such as:

• the potential for aggravating bilateral political tensions;
• possible trade friction in the form of informal non-tariff barriers being raised against specific industries or companies of the complaining member state; and
• the risk that China would raise other claims against the complaining member state, particularly in cases where a member state uses trade to influence China's social policies.

The relatively limited role of the formal WTO dispute resolution regime is perhaps best evidenced by the fact that only 231 complaints have been filed since 1995, involving only 178 distinct matters.

Anatomy of a Dispute

While China is clearly motivated to aggressively reform its economic system, given the magnitude and structural nature of the overwhelming reforms required to bring China's economy into conformity with WTO mandated norms, foreign companies should be aware that China's market access and other WTO commitments may not be met within the time periods set forth in the Protocol. A foreign company adversely affected by China's non-compliance may seek redress through various means, including the following:

• negotiate directly with the Chinese government;
• lobby its home government to raise the non-compliance with China through bilateral government negotiations;
• lobby its home government to initiate a formal claim under the WTO rules; and
• if the Dispute Settlement Body (DSB) of the WTO determines that China is in violation of its obligations, assist its home government to determine adequate compensation, and if retaliation is authorized by the DSB, lobby its home government in respect of the type and severity of retaliation.

Even if a claim has been found valid and sanctions have been imposed against China by a member state, China can choose to ignore the adverse WTO ruling and simply accept the sanctions against it. There is therefore no guarantee that aggrieved foreign companies will enjoy all of the market access and WTO agreement benefits which they may have originally expected upon China's accession to the WTO.

Dispute Resolution

The Dispute Settlement Understanding (DSU) sets forth mandatory WTO dispute resolution procedures, which includes four primary stages following the initiation of a claim to the DSB: consultation, panel proceeding, appellate review and implementation of rulings. Although the DSU sets forth a fixed and relatively short time period for completion of the proceedings ¨C normally less than one year to reach the first level panel ruling or 15 months in case of an appeal ¨C protracted company-to-government and government-to-government negotiations may drag on for months and possibly years prior to the submission of a formal claim. The primary stages of a formal WTO dispute resolutionproceeding are as follows:

Consultation: Good faith consultation for a period of at least 60 days is a prerequisite for the aggrieved member state to launch a formal panel proceeding.

Panel Proceedings: If consultation fails to resolve the dispute, the complainant can request the DSB to convene a panel. Each side has the opportunity to present its case in written submissions to the panel and present oral arguments at the panel's two rounds of hearings.

Appellate Review: Either party has the right to appeal a panel's ruling, which must be based on legal interpretation developed by the panel; the Appellate Body can examine no evidentiary or factual findings. The Appellate Body can uphold, modify or reverse the panel's legal findings and conclusions.

Implementation of Rulings: Implementation of rulings may be effected through rectification, compensation or retaliation. If China cannot expeditiously rectify its non-compliant measures, it can request a reasonable grace period. If it fails to rectify the non-compliant measures within a stipulated period of time, the DSU requires China to enter into negotiations with the complainant in order to determine mutually acceptable compensation.

Upon failure to reach an agreement on satisfactory compensation, the complaining state may request authorization from the DSB to impose unilateral sanctions against China in various forms such as increased tariffs on certain types of Chinese products. If it is not practical or effective to impose sanctions in the same sector as the dispute, the sanctions could be imposed across different sectors or WTO agreements. China, in turn has the right to formally challenge the type and severity of the sanctions.

Sweet and Sour

China's accession to the WTO will open up a multilateral trade dispute resolution forum in which member states can raise claims and gain authorization to impose sanctions against China. The sweet ability to bring China before a global trade tribunal is tempered by the sour reality that while China's compliance with various aspects of its WTO commitments may still be many years away, aggrieved foreign companies have nowhere to go but home to seek redress.

By Mitch Dudek and Alex Wang
Jones, Day, Reavis & Pogue, Shanghai