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BUILDING A MARKET ECONOMY THROUGH WTO-INSPIRED REFORM OF STATE-OWNED ENTERPRISES IN CHINA

Published online by Cambridge University Press:  16 October 2019

Weihuan Zhou Open the ORCID record for Weihuan Zhou [Opens in a new window] ,
Henry Gao  and
Xue Bai
Weihuan Zhou
Affiliation:
Senior Lecturer and Member of the Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre, Faculty of Law, UNSW Sydney, weihuan.zhou@unsw.edu.au
Henry Gao
Affiliation:
Associate Professor, School of Law, Singapore Management University, gaohenry@gmail.com
Xue Bai
Affiliation:
PhD researcher, Faculty of Law, UNSW Sydney, sophia.bai1121@gmail.com.
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Abstract

This article challenges the widespread view that existing WTO rules are insufficient for dealing with State capitalism in China, which has been further emboldened by the latest rounds of State-owned enterprise (‘SOE’) reforms. Through a careful review of WTO agreements and jurisprudence, it is argued that new rules are not necessarily needed because the unique challenges created by China's State capitalism can be appropriately addressed by the WTO's existing rules on subsidies coupled with the China-specific obligations. A more realistic approach would be to encourage China to undertake market-oriented reforms through WTO litigation based on existing rules rather than trying to negotiate new rules.

Keywords

public international lawChinaState-owned enterprisemarket economyState capitalismWTOsubsidiesanti-dumpingpublic bodydispute settlement
Type
Articles
Information
International & Comparative Law Quarterly , Volume 68 , Issue 4 , October 2019 , pp. 977 - 1022
Copyright
Copyright © The Authors (2019). Published by Cambridge University Press for the British Institute of International and Comparative Law 

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References

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16 See Lardy, The Rise of Private Business in China (n 15) 48–58; Li and Brodsgaard (n 13) 57–8; Zhang, D and Freestone, O, ‘China's Unfinished State-Owned Enterprise Reforms’ (2013) 2 Economic Roundup 83–93Google Scholar; Geng et al. (n 13) 158–61; U.S.-China Economic and Security Review Commission, ‘2012 Report to Congress’ (November 2012) 48–51 <www.uscc.gov/sites/default/files/annual_reports/2012-Report-to-Congress.pdf>.

17 Naughton, B, ‘The Current Wave of State Enterprise Reform in China: A Preliminary Appraisal’ (2017) 12 Asian Economic Policy Review 282CrossRefGoogle Scholar.

18 For 2013 data, see Editorial Board of China's State-Owned Assets Supervision and Administration Yearbook, Zhongguo Guoyou Zichan Jiandu Guanli Nianjian (中国国有资产监督管理年鉴) [China's State-owned Assets Supervision and Administration Yearbook] (China Econ. Publishing House 2014) 687. For 2005 data, see Editorial Board of China's State-Owned Assets Supervision and Administration Yearbook, Zhongguo Guoyou Zichan Jiandu Guanli Nianjian (中国国有资产监督管理年鉴) [China's State-owned Assets Supervision and Administration Yearbook] (China Economic Publishing House 2006) 597. See also Naughton (n 17) 285–6.

19 See the full list of Fortune 500 companies 2003, <http://archive.fortune.com/magazines/fortune/fortune500_archive/full/2003/>. See the full list of 95 Chinese companies that made it to the Fortune 500 2013, <www.fortunechina.com/fortune500/c/2013-07/08/content_164367.htm>.

20 For a detailed discussion of SASAC's multiple roles, see B Naughton, ‘Top-Down Control: SASAC and the Persistence of State Ownership in China’ (China and the World Economy conference, Leverhulme Centre for Research on Globalisation and Economic Policy (GEP), University of Nottingham, 23 June 2006), 1–21 <www.nottingham.ac.uk/gep/documents/conferences/2006/june2006conf/naughton-june2006.pdf>.

21 See Lardy, The Rise of Private Business in China (n 15) 51.

22 See Zhang and Freestone (n 16) 93. World Bank, Development Research Center of the State Council, the People's Republic of China, ‘China 2030: Building a Modern, Harmonious, and Creative Society’ (World Bank 2013) 109–15.

23 Zhonggong Zhongyang Guanyu Quanmian Shenhua Gaige Ruogan Zhongda Wenti de Jueding (中共中央关于全面深化改革若干重大问题的决定) (12 November 2013) <www.gov.cn/jrzg/2013-11/15/content_2528179.htm>.

24 Zhonggong Zhongyang, Guowuyuan Guanyu Shenhua Guoyou Qiye Gaige de Zhidao Yijian (中共中央、国务院关于深化国有企业改革的指导意见) (promulgated by Cent. Comm. of CPC & St. Council, (Zhong Fa [2015] No. 22) 24 August 2015, effective 24 August 2015) (Chinalawinfo) [hereinafter Guiding Opinions].

25 QS Liu, ‘Guoqi Guozi Wunian Gaige Lueying (国企国资 5 年改革掠影) [A Glimpse of the Five years Reform of State-owned Enterprises]’ (2017) 9 Guozi Baogao (国资报告) [State-Owned Assets Report] 11.

26 See Guiding Opinions (n 24) Section 2. The implementing regulation for the SOE classification is the Guanyu Guoyou Qiye Gongneng Jieding yu Fenlei de Zhidao Yijian (关于国有企业功能界定与分类的指导意见) [Guiding Opinions on the Functional Definition and Classification of State-Owned Enterprises] (promulgated by State-Owned Assets Supervision Commission & Ministry of Fin. of the P.R.C & Nat'l Dev. Reform Commission, (Guozifayanjiu [2015] No. 170) 30 December 2015, effective 30 December 2015) (Chinalawinfo).

27 There are more than 300 local SASAC departments at the provincial, municipal, county, and town levels. See QS Liu, ‘Naxie Yijing Xiaoshi de Difang Guoziwei (那些已经’消失”的地方国资委) [The ‘Disappeared’ Local State-owned Assets Supervision and Administration Commission]’ (2016) 8 Guozi Baogao (国资报告) [State-Owned Assets Report] 44.

28 P Hubbard, ‘‘‘Fragmented Authoritarianism’’ and State Ownership’ (East Asia Forum Quarterly, 23 January 2017) <www.eastasiaforum.org/2017/01/23/fragmented-authoritarianism-and-state-ownership/>.

29 SM Yuan, ‘Difang Guoqi Fenlei Gaige Fenxi Baogao (地方国企分类改革分析报告) [An Analysis of the Classification of Local State-Owned Enterprises]’ (2016) 12 Guozi Baogao (国资报告) [State-Owned Assets Report] 71.

30 Guanyu Yinfa <Guanyu Shengshu Qiye Gongneng Jieding yu Feilei Jianguan de Zhidao Yijian (Shixing)> de Tongzhi ) (关于印发《关于省属企业功能界定与分类监管的指导意见(试行)》的通知) [Notice on the Printing and Distributing the Guiding Opinions on the Classifications of Provincial SOEs (Trial Implementation)], promulgated by Sichuan State-Owned Assets Supervision Commission (No. 115) 7 June 2016, effective 7 June 2016) <http://www.pkulaw.cn/fulltext_form.aspx?Db=lar&Gid=c704ca7727ab222bebed5ad6d155867bbdfb&keyword=&EncodingName=&Search_Mode=accurate&Search_IsTitle=0>.

31 See Guiding Opinions (n 24) Section 3.

32 See Guowuyuan Bangongting Guanyu Jinyibu Wanshan Guoyou Qiye Faren Zhili Jiegou de Zhidao Yijian (国务院办公厅关于进一步完善国有企业法人治理结构的指导意见) [Guiding Opinions on Further Improving the Corporate Governance Structure of State-owned Enterprises] (promulgated by Gen. Off. of the St. Council (Guo Ban Fa [2017] No. 36), 24 April 2017, effective 24 April 2017) at Section 1.3 (Lawinfochina).

33 See OECD, ‘OECD Economic Surveys: China 2017’ (2017) 44 <www.oecd-ilibrary.org/economics/oecd-economic-surveys-china-2017_eco_surveys-chn-2017-en>.

34 See Guiding Opinions (n 24) Section 7.

35 Lin, LW, ‘A Network Anatomy of Chinese State-Owned Enterprises’ (2017) 16 World Trade Review 588CrossRefGoogle Scholar.

36 J Hughes, ‘Communist Party Control Written into Law at China's Big Companies’ (Financial Times 15 August 2017) <www.ft.com/content/a4b28218-80db-11e7-94e2-c5b903247afd>; Naughton (n 17) 292.

37 QQ Wang, ‘Guowuyuan Guoziwei Dangwei Tuijin Zhongyang Qiye Dangjian Gongzuo Jishi (国务院国资委党委推进中央企业党建工作纪实) [SASAC Promotes the Establishment of Party Committee in Central SOEs]’ (10 October 2017) <www.sasac.gov.cn/n2588030/n2588919/c7979758/content.html>.

38 Hughes (n 36); Naughton (n 17) 292.

39 Datang International Power Generation Co., Ltd, ‘Proposed Amendments to Articles of Association and Notice of EGM’ (29 June 2017) <www.hkexnews.hk/listedco/listconews/SEHK/2017/0630/LTN201706301016.pdf>.

40 See Guiding Opinions (n 24) Section 5.

41 See OECD, ‘OECD Economic Surveys’ (n 33) 36.

42 Yunnan Baiyao Group Co Ltd, ‘Yunnan Baiyao: 2016 nian Niandu Baogao (云南白药: 2016 年年度报告) [Yunnan Baiyao Group Co Ltd Annual Report 2016]’ (April 2017) 56 <https://www.yunnanbaiyao.com.cn/uploadDir/oldweb/1540029233643.PDF>; Yunnan Baiyao Group Co Ltd, ‘Yunnan Baiyao: 2017 nian Niandu Baogao (云南白药: 2017年年度报告) [Yunnan Baiyao Group Co Ltd Annual Report 2017]’ (April 2018) 53–54 <https://www.yunnanbaiyao.com.cn/uploadDir/pdf/20181220/1545300647919.pdf>.

43 Guowuyuan Guanyu Guoyou Qiye Fazhan Hunhe Suoyouzhi Jingji de Yijian (国务院关于国有企业发展混合所有制经济的意见) (promulgated by St. Council, (Guo Fa [2015] No. 54) 23 September 2015, effective 23 September 2015) (Lawinfochina).

44 Guojia Fazhan Gaigewei Zhaokai Guoyou Qiye Hunhe Suoyouzhi Gaige Shidian Zhuantihui SOEs (国家发展改革委召开国有企业混合所有制改革试点专题会) [National Development and Reform Commission Press Conference on Pilot Programs of Mixed-Ownership Reform] (28 September 2016) <www.ndrc.gov.cn/xwzx/xwfb/201609/t20160930_821881.html>.

45 See China Unicom (Hong Kong) Limited, ‘Annual report of China Unicom (HONG KONG) Limited’ (2016) 20 <www.chinaunicom.com.hk/en/ir/reports/2016_20f.pdf>.

46 B Naughton, ‘Restructuring and Reform: China 2016’ in Reserve Bank of Australia (eds), Structural Change in China: Implications for Australia and the World (Reserve Bank of Australia 2016) 69 <www.rba.gov.au/publications/confs/2016/pdf/rba-conference-volume-2016.pdf>.

47 Guowuyuan Bangongting Guanyu Tuidong Zhongyang Qiye Jiegou Tiaozheng yu Chongzhu de Zhidao Yijian (国务院办公厅关于推动中央企业结构调整与重组的指导意见) (promulgated by Gen. Off. of the St. Council (Guo Ban Fa [2016] No.56),17 July 2016, effective 17 July 2016) (Westlaw China).

48 For the full text of these policy instruments, see Guomin Jingji he Shehui Fazhan Di Shierge Wunian Guihua Gangyao (国民经济和社会发展第十二个五年规划纲要) [The 12th Five-Year Plan for Economic and Social Development of the People's Republic of China] (6 March 2011) <www.gov.cn/2011lh/content_1825838.htm>; Guomin Jingji he Shehui Fazhan Di Shisange Wunian Guihua Gangyao (国民经济和社会发展第十三个五年规划纲要) [The 13th Five-Year Plan for Economic and Social Development of the People's Republic of China] (17 March 2016) <www.gov.cn/xinwen/2016-03/17/content_5054992.htm>; St. Council of the P.R.C, Made in China 2025 (8 May 2015), <www.gov.cn/zhengce/content/2015-05/19/content_9784.htm>.

49 KX Huang et al., ‘China Combines Two State-Owned Nuclear Firms into Powerhouse’, (CaiXin News Agency, 1 February 2018) <www.caixinglobal.com/2018-02-01/china-combines-two-state-owned-nuclear-firms-into-powerhouse-101205786.html>.

50 ibid.

51 W Leutert, ‘State-Owned Enterprise Mergers: Will Less Be More?’ (European Council on Foreign Relations, 30 November 2016) <www.ecfr.eu/publications/summary/china_state_owned_enterprise_mergers_under_xi_jinping7196>.

52 F Godement, ‘Introduction’ (European Council on Foreign Relations, 30 November 2016) <www.ecfr.eu/publications/summary/china_state_owned_enterprise_mergers_under_xi_jinping7196>.

53 All mergers are reported and updated on the official website of the SASAC <www.sasac.gov.cn/n2588035/n2641579/n2641660/index.html>.

54 See Guiding Opinions (n 24) Section 4.

55 See Naughton (n 17) 291–2.

56 See LWang, ‘Guozi Touzi Yunying Gongsi Shidian Gengduo Kuowei zhi Chongfen Jingzheng Hangye (国资投资、运营公司试点 更多扩围至充分竞争行业) [The Pilots for State Capital Investment and Operations Companies Expanded to Fully Competitive Industries]’ (Economic Information Daily, 15 March 2018) <www.sasac.gov.cn/n2588025/n2588139/c8734772/content.html>.

57 L Chang, ‘Massive Fund to Help Reform Giant SOEs’ (China Daily, 27 September 2016 <www.chinadaily.com.cn/business/2016-09/27/content_26904633.htm>.

58 M Miller, ‘China to Reform SOEs Using Investment Firms, Asset Managers: Xinhua’ (Thomson Reuters, 25 February 2016) <www.reuters.com/article/us-china-soe-reform/china-to-reform-soes-using-investment-firms-asset-managers-xinhua-idUSKCN0VY15O>; E Tham and D Stanway, ‘China launches $30 bln state-controlled venture capital fund’ (Thomson Reuters, 18 August 2016) <www.reuters.com/article/china-funds/china-launches-30-bln-state-controlled-venture-capital-fund-idUSL3N1AZ1SX>.

59 State-Owned Assets Supervision and Administration Commission Research Bureau, Yanjiu yu Tansuo–Guoyou Zichan Jianguan he Guoyou Qiye Gaige Yanjiu Baogao (2014–2015) (探索与研究—国有资产监管和国有企业改革研究报告 (2014–2015)) [Reports on the Supervision of Stated-Owned Assets and The Reform of Stated-Owned Enterprises (2014–2015)] (China Economic Publishing House 2017) 65; Deloitte, ‘Key Points on the Reorganization/Establishment of State-owned Capital Investment Companies and State-owned Capital Operating Companies’ (2016) <www2.deloitte.com/cn/en/pages/operations/articles/soe-transformation-whitepaper-issue5.html>.

60 Kurlantzick, J, State Capitalism: How the Return of Statism is Transforming the World (Oxford University Press 2016) 13–14Google Scholar; A Musacchio and SG Lazzarini, ‘Leviathan in Business: Varieties of State Capitalism and their Implications for Economic Performance’ (2012) Harvard Business School Working Paper No. 12-108, 3–4 <www.hbs.edu/faculty/Publication%20Files/12-108.pdf>.

61 See Kurlantzick (n 60) 29–47.

62 See full list of Fortune 500 company 2017 <http://fortune.com/fortune500/list/>; the list of all the Chinese companies that made it into Fortune 500 company 2017 <www.fortunechina.com/fortune500/c/2017-07/20/content_286799.htm>.

63 See full list of Fortune 500 company 2016 <http://fortune.com/global500/2016/>; List of all the Chinese companies that made it into Fortune 500 company 2016 <www.fortunechina.com/fortune500/c/2016-07/20/content_266975.htm>.

64 Liebman, B and Milhaupt, C, ‘Introduction: The Institutional Implications of China's Economic Development’ in Liebman, B and Milhaupt, C (eds), Regulating the Visible Hand? The Institutional Implications of Chinese State Capitalism (1st edn, Oxford University Press, 2015) xiii, xvCrossRefGoogle Scholar.

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66 ibid 28–30.

67 Kovacic, W, ‘Competition Policy and State-Owned Enterprises in China’ (2017) 16 World Trade Review 704CrossRefGoogle Scholar.

68 See Lin, A Network Anatomy of Chinese State-Owned Enterprises (n 35) 587.

69 See P Harrell et al., ‘China's Use of Coercive Economic Measures’ (Center for a New American Security, June 2018) 22 <https://s3.amazonaws.com/files.cnas.org/documents/China_Use_FINAL-1.pdf?mtime=20180604161240>.

70 See eg K Kapoor and H Setiaji, ‘Indonesia Favouring China over Japan in Railway Bid - Govt Sources’ (Thomson Reuters, 31 August 2015) <www.reuters.com/article/indonesia-infrastructure-idUSL4N1162WK20150831>. Also see Zhang, A, ‘The Antitrust Paradox of China, Inc.’ (2017) 50 New York University Journal of International Law and Politics 166Google Scholar.

71 See Kovacic, ‘Competition Policy and State-Owned Enterprises in China’ (n 67) 705.

72 The negotiation of the GATT was intertwined with the negotiation of a Charter for an International Trade Organization (ITO), which failed to eventuate. For the drafting history of the ITO Charter and the GATT, see Jackson, J, World Trade and the Law of the GATT (Bobbs-Merrill Company, 1969) 35–46Google Scholar.

73 ibid 329.

74 Jackson, J et al. , Legal Problems of International Economic Relations – Cases, Materials and Text (4th edn, West Group 2002) 402Google Scholar.

75 Jackson, World Trade and the Law of the GATT (n 72) 331.

76 ibid 365.

77 Agreement on Subsidies and Countervailing Measures, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 14.

78 Agreement on the Implementation of Article VI of GATT 1994, 15 April 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1868 U.N.T.S. 201.

79 See Jackson, J, ‘State Trading and Non-Market Economies’ (1989) 23 The International Lawyer 891–3Google Scholar.

80 See Patterson, E, ‘Improving GATT Rules for Nonmarket Economies’ (1986) 20 JWT 186Google Scholar; Davey, W, ‘Article XVII GATT: An Overview’ in Cottier, T and Mavroidis, P (eds), State Trading in the Twenty-First Century (University of Michigan Press 1998) 32Google Scholar.

81 GATT Analytical Index, ‘Article VI Anti-Dumping and Countervailing Duties’ 228 <www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf>.

82 Jackson, ‘State Trading and Non-Market Economies’ (n 79) 894.

83 See Lardy, N, Integrating China into the Global Economy (Brookings Institution Press 2002) 65–105Google Scholar.

84 This was acknowledged by the GATT Secretariat and the founding Director General of the WTO. See eg GATT Secretariat, ‘Working Party on China's Status as A Contracting Party: China's Foreign Trade Regime’ (7 September 1993) GATT Doc Spec(88)13/Add.13; GATT, ‘Global Multilateral Trading System: The Role of the PRC, Address by Peter D. Sutherland’ (10 May 1994) GATT Doc GATT/1633.

85 See eg GATT, ‘Working Party on China’ (11 March 1987) GATT Doc GATT/AIR/2392; GATT, ‘Working Party on China Status as a Contracting Party’ (25 February 1988) GATT Doc L/6191/Rev.1; GATT Secretariat, ‘Working Party on China's Status as A Contracting Party: Annotated Checklist of Issues’ (9 June 9 1989) GATT Doc Spec(88)13/Add.5; WTO, ‘Communication from China’ (13 July 1988) WTO Doc WT/ACC/CHN/15; WTO, ‘Communication from China’ (18 July 2000) WTO Doc WT/ACC/CHN/30.

86 Protocol on the Accession of the People's Republic of China, WT/L/432 (23 November 2001). [hereinafter AP]

87 Report of the Working Party on the Accession of China, WT/ACC/CHN/49 (1 October 2001). [hereinafter WPR]

88 For a discussion of the adequacy of WTO rules on trade in services in dealing with State enterprises and monopolies, see Mattoo (n 11).

89 Jackson, World Trade and the Law of the GATT (n 72) 331.

90 See Petersmann, EU, ‘GATT Law on State Trading Enterprises: Critical Evaluation of Article XVII and Proposals for Reform’ in Cottier, T and Mavroidis, P (eds), State Trading in the Twenty-First Century (University of Michigan Press 1988) 72Google Scholar.

91 The only limits on the scope of ‘exclusive or special rights or privileges’ are set out in the interpretative note to Article XVII:1(a) which excludes governmental measures ‘imposed to insure standards of quality and efficiency in the operation of external trade, or privileges granted for the exploitation of national natural resources but which do not empower the government to exercise control over the trading activities of the enterprise in question’. These limits were compromises reached in the original negotiations of the GATT. See Jackson, World Trade and the Law of the GATT (n 72) 341–2.

92 WTO, ‘Working Party on State Trading Enterprises, Illustrative List of Relationships between Governments and State Trading Enterprises and the Kinds of Activities Engaged in by These Enterprises’ (30 July 1999) WTO Doc G/STR/4.

93 Mastromatteo, A, ‘WTO and SOEs: Article XVII and Related Provisions of the GATT 1994’ (2017) 16 World Trade Review 607CrossRefGoogle Scholar.

94 With respect to the activities of enterprises, while Article XVII:1(a) refers to ‘purchases or sales involving either imports or exports’, there is no requirement that the enterprises concerned undertake import or export activities; rather, it would suffice if their purchases or sales affect trade. Moreover, the Working Party on STEs provided a non-exhaustive list of activities ranging from direct involvement in importation or exportation (eg imports control, quota administration, licensing) to those relating to domestic sales or purchases (eg production, distribution, credit guarantees, storage, promotion, packaging, transportation). This suggests that the covered activities are not limited to ‘purchases or sales’ per se but include related activities. See GATT, ‘Panel on Subsidies and State Trading, Final Report on State Trading’ (11 March 1960) GATT Doc L/1146, 5; Working Party on State Trading Enterprises (n 92).

95 Jackson, World Trade and the Law of the GATT (n 72) 345–7.

96 For a review of the relevant GATT/WTO panels’ decisions, see Petersmann (n 90) 80–4; Mastromatteo (n 93) 608–9.

97 GATT Panel Report, Canada–Administration of the Foreign Investment Review Act (adopted 7 February 1984) GATT Doc L/5504–30s/140, para 5.16 [hereinafter Canada–FIRA]. Canada's submission relied on two major arguments: (1) the reason why the word ‘principle’ is used in the plural is that the GATT contains a number of MFN-type obligations; and (2) by referring to ‘imports or exports’, Article XVII:1(a) does not concern ‘the treatment by the state-trading enterprise of imported or domestic products in its domestic market’. The validity of these arguments has not been examined by WTO tribunals.

98 Panel Report, Korea–Measures Affecting Imports of Fresh, Chilled and Frozen Beef (adopted 10 January 2001) WTO Doc WT/DS161/R, WT/DS169/R, paras 753, 769 [hereinafter Korea – Beef]. Amongst others, the panel found that the practice of Korea's Livestock Products Marketing Organisation, in delaying ‘its sales of imported beef into the Korean market while having important stocks’, violated the non-discrimination principles contemplated in Article XVII:1(a). This finding suggests a NT-type violation whereby imported beef was treated less favourably than domestic beef in terms of distribution in the Korean market.

99 Appellate Body Report, Canada–Measures Relating to Exports of Wheat and Treatment of Imported Grain (adopted 27 September 2004) WTO Doc WT/DS276/AB/R, para 88 [hereinafter Canada–Wheat]

100 ibid, paras 82–3.

101 ibid, paras 89–91.

102 ibid, paras 97–8, 145.

103 ibid, para 152. CWB refers to Canadian Wheat Board; the monopoly and STE at issue conferred with a range of ‘exclusive and special privileges’ over the purchase and sale of wheat in certain areas.

104 ibid, para 157 (original emphasis).

105 Hoekman, B and Trachtman, J, ‘Canada – Wheat: Discrimination, Non-Commercial Considerations, and the Right to Regulate Through State Trading Enterprises’ (2008) 7 World Trade Review 58, 62, 64CrossRefGoogle Scholar.

106 Appellate Body Report, Canada–Wheat (n 99) para 98.

107 ibid, para 98 and fns 102–5.

108 See Mastromatteo (n 93) 609.

109 Jackson, World Trade and the Law of the GATT (n 72) 356–7.

110 GATT Analytical Index, ‘Article II Schedules of Concessions’ 91–2, <www.wto.org/english/res_e/publications_e/ai17_e/gatt1994_art2_gatt47.pdf>.

111 GATT Panel Report, Import, Distribution and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies (adopted 22 March 1988) GATT Doc L/6304-35S/37, paras 4.3–19 [hereinafter Canada–Provincial Liquor Boards (EEC)].

112 ibid, paras 4.16, 4.19. The panel ruled that ‘‘‘a reasonable margin of profit’’ was a margin of profit that would be obtained under normal conditions of competition (in the absence of the monopoly). The margin of profit would have on the average to be the same on both domestic and the like imported products so as not to undermine the value of tariff concessions under Article II.’ With respect to costs associated with importation, the panel held that ‘the mark-ups which were higher on imported than on like domestic alcoholic beverages (differential mark-ups) could only be justified under Article II:4, to the extent that they represented additional costs necessarily associated with marketing of the imported products, and that calculations could be made on the basis of average costs over recent periods’.

113 This finding was confirmed by the GATT panel in Korea–Beef (Australia). See GATT Panel Report, Republic of Korea – Restrictions on Imports of Beef – Complaint by Australia (adopted 7 November 1989) GATT Doc L/6504 – 36S/202, para 106.

114 GATT Panel Report, Canada–Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies (adopted 18 February 1992) GATT Doc DS17/R-39S/27, paras 5.19 [hereinafter Canada–Provincial Liquor Boards (US)].

115 ibid, paras 5.18, 5.21.

116 Mavroidis, P, The Regulation of International Trade: GATT (MIT Press 2016) vol 1, 172Google Scholar.

117 WTO, ‘Six Decades of Multilateral Trade Cooperation: What Have We Learnt?’ in World Trade Organization (eds), World Trade Report 2007 Sixty Years of the Multilateral Trading System: Achievements and Challenges (World Trade Organization 2007) 221Google Scholar.

118 While Articles XII, XIV and XVIII provide for certain exceptions to the general principle above for balance of payments and economic development reasons, Article XIII requires that any permitted import or export quotas are allocated on a non-discriminatory basis. The latter means that the administration of quotas through STEs in a discriminatory manner is also prohibited.

119 GATT Panel Report, Canada–Provincial Liquor Boards (EEC) (n 111) para 4.25.

120 ibid, para 4.24.

121 WTO Panel Report, Korea–Beef (n 98) para 751. The panel also observed that ‘when dealing with measures relating to agricultural products’ (ie, beef, in this case), a violation of the Ad Note ‘would necessarily constitute a violation of’ Article 4.2 of the WTO Agreement on Agriculture and Footnote 1 to that provision, which prevent Members from maintaining quantitative import restrictions through STEs (paras 759–62).

122 ibid, paras 767–8.

123 WTO Panel Report, India–Quantitative Restrictions on Imports of Agricultural Textile and Industrial Products (adopted on 22 September 1999) WTO Doc WT/DS90/R, para 5.134.

124 ibid, para 5.135.

125 R Wolfe, ‘Letting the Sunshine in at the WTO: How Transparency Brings the Trading System to Life’ (2013) WTO Staff Working Paper ERSD-2013-03, 5. Also see generally Mavroidis, P and Wolfe, R, ‘From Sunshine to a Common Agent: The Evolving Understanding of Transparency in the WTO’ (2015) 21 Brown Journal of World Affairs 118Google Scholar.

126 See Wolfe, ‘Letting the Sunshine in at the WTO’ (n 125) 16–19.

127 See Patterson (n 80) 199–200.

128 Jackson, World Trade and the Law of the GATT (n 72) 349–50.

129 See GATT Analytical Index, Article VI Anti-Dumping and Countervailing Duties (n 81) 481–2; Jackson, World Trade and the Law of the GATT (n 72) 350–4.

130 WTO Working Party on State Trading Enterprises, ‘Questionnaire on State Trading’ (14 November 2013) WTO Doc G/STR/3/Rev.1.

131 WTO Working Party on State Trading Enterprises, ‘Status of Notifications Submitted by WTO Members under Article XVII:4(A) of the GATT 1994 and Paragraph 1 of the Understanding on the Interpretation of Article XVII of the GATT 1994’ (6 November 2017), WTO Doc G/STR/17.

132 WTO, ‘Report (2017) of the Working Party on State Trading Enterprises’ (9 November 2017) WTO Doc G/L/1196, G/STR/18, 2.

133 WTO Trade Policy Review Body, ‘Trade Policy Review Report by China’ (15 June 2016). WTO Doc WT/TRP/G/342, 12–3.

134 WTO Trade Policy Review Body, ‘Trade Policy Review Report by the Secretariat’ (15 June 2016) WTO Doc WT/TRP/S/342.

135 WTO Trade Policy Review Body, ‘Trade Policy Review – China, Minutes of the Meeting’ (26 September 2016) WTO Doc WT/TRP/M/342, paras 3.19, 4.211, 4.348. See also Wolfe, R, ‘Sunshine over Shanghai: Can the WTO Illuminate the Murky World of Chinese SOEs?’ (2017) 16 World Trade Review 721–4CrossRefGoogle Scholar.

136 WTO Trade Policy Review Body, ‘Trade Policy Review Report by China’ (6 June 2018) WTO Doc WT/TRP/G/375.

137 WTO Trade Policy Review Body, ‘Trade Policy Review Report by the Secretariat’ (6 June 2018) WTO Doc WT/TRP/S/375.

138 Wolfe, ‘Sunshine over Shanghai’ (n 135) 720.

139 ibid 720, 724.

140 According to China's Ministry of Commerce, China has been the primary target in AD actions worldwide for the past 20 plus years. SH Sun, ‘Shangwubu: Woguo Lianxu Shiernian Chengwei Fanqingxiao Zuida Mubiaoguo (商务部:我国连续 21 年成为反倾销最大目标国) [MOFCOM: China Has Been the Primary Target of Anti-Dumping for 21 years]’ (Economic Information Daily, 6 July 2016) <http://finance.people.com.cn/n1/2016/0706/c1004-28527586.html>. For a comprehensive volume on the evolvement of the so-called NME anti-dumping methodology under the WTO rules and the laws and practices in various major jurisdictions using China as a case study, see Nedumpara, J and Zhou, WH (eds), Non-Market Economies in the Global Trading System: The Special Case of China (Springer 2018)CrossRefGoogle Scholar.

141 See eg Zhou, WH, ‘Appellate Body Report on EU–Biodiesel: The Future of China's State Capitalism under the WTO Anti-Dumping Agreement’ (2018) 17 World Trade Review 609CrossRefGoogle Scholar; Kok, J, ‘The Future of EU Trade Defence Investigations against Imports from China’ (2016) 19 JIEL 515CrossRefGoogle Scholar; Espa, I and Levy, P, ‘The Analogue Method Comes Unfastened – The Awkward Space between Market and Non-Market Economies in EC-Fasteners (Article 21.5)’ (2018) 17 World Trade Review 313CrossRefGoogle Scholar.

142 As shown earlier, this special AD rule was added to the GATT during the Review Session of 1954–1955 to deal with certain NMEs. Art 2.7 of the AD Agreement provides that art 2 of the agreement is ‘without prejudice to’ this Ad Note. The wording ‘without prejudice to’ suggests that the interpretation of the other provisions of art 2 must not ‘detrimentally affect, encroach upon, or impair’ the right of WTO Members under the Ad Note. See Appellate Body Report, China–Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products (adopted 19 January 2010) WTO Doc WT/DS363/AB/R, para 219.

143 Appellate Body Report, European Communities–Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China (adopted 28 July 2011) WTO Doc WT/DS397/AB/R, para 285 [hereinafter EC–Fasteners].

144 ibid, fn 460.

145 ibid.

146 See eg Palmeter, D, ‘The WTO Antidumping Agreement and the Economies in Transition’ in Cottier, T and Mavroidis, P (eds), State Trading in the Twenty-First Century (University of Michigan Press 1998) 117Google Scholar.

147 See eg W Watson, ‘Will Nonmarket Economy Methodology Go Quietly into the Night?’ (2014) Cato Institute Policy Analysis No. 763, 8; Nicely, M, ‘Time to Eliminate Outdated Non-Market Economy Methodologies’ (2014) 9 Global Trade and Customs Journal 160–1Google Scholar; Toohey, L and Crowe, J, ‘The Illusory Reference of the Transitional State and Non-Market Economy Status’ (2014) 2 Chinese Journal of Comparative Law 333–4CrossRefGoogle Scholar (arguing that the distinction between market economy and NME is fundamentally flawed given ‘the diversity of regulatory regimes and market mechanisms around the world’).

148 Appellate Body Report, United States–Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan (23 August 2001) WTO Doc WT/DS184/AB/R, paras 141–148. For an analysis of this ruling, see Zhou (n 141) 19–21.

149 It should be noted that the scope of the OCT test has not been settled, and the WTO tribunals have not ruled out the application of the test to address imports sold at distorted prices. WTO Members such as the EU have relied on the test for that purpose. See eg Noel, S and Zhou, WH, ‘Replacing the Non-Market Economy Methodology: Is the European Union's Alternative Approach Justified under the World Trade Organization Anti-Dumping Agreement?’ (2016) 11 Global Trade and Customs Journal 559Google Scholar.

150 See Zhou, WH and Percival, A, ‘Debunking the Myth of “Particular Market Situation” in WTO Antidumping Law’ (2016) 19 JIEL 863CrossRefGoogle Scholar; GATT Panel, EC–Imposition of Anti-Dumping Duties on Imports of Cotton Yarn from Brazil (adopted 30 October 1995) GATT Doc ADP/137, para 478.

151 Appellate Body Report, European Union–Anti-Dumping Measures on Biodiesel from Argentina (adopted 26 October 2016) WTO Doc WT/DS473/AB/R [hereinafter EU–Biodiesel]. For a detailed analysis of the Appellate Body Report, see Zhou (n 141).

152 Appellate Body Report, EU–Biodiesel (n 151) paras 6.24, 6.33. For further observations on the flexibility to use surrogate costs, see Crowley, M and Hillman, J, ‘Slamming the Door on Trade Policy Discretion? The WTO Appellate Body's Ruling on Market Distortions and Production Costs in EU–Biodiesel (Argentina)’ (2018) 17 World Trade Review 208CrossRefGoogle Scholar.

153 Panel Report, United States–Anti-Dumping Measures on Certain Oil Country Tubular Goods from Korea (adopted 12 January 2018) WTO Doc WT/DS488/R, para 7.184–200.

154 See eg Zhou, WH and Zhang, S, ‘Anti-Dumping and China's Implementation of WTO Rulings’ (2017) 230 The China Quarterly 512CrossRefGoogle Scholar.

155 See eg AP (n 86) Sections 3(a), 5.2, 6.1, 9.2; WPR (n 87) paras 18–19, 62, 84(b).

156 See eg AP (n 86) Sections 2(A), 2(B), 11.1–4; WPR (n 87) paras 91–3, 107.

157 See eg AP (n 86) Annex 3; WPR (n 87) paras 127, 129–30.

158 See eg AP (n 86) Section 2(C); WPR (n 87) paras 324, 334.

159 See eg AP (n 86) Section 15; WPR (n 87) para 152.

160 Gao, H, ‘The WTO Transparency Obligations and China’ (2018) 12 Journal of Comparative Law 333–40Google Scholar.

161 Joint Report of the Office of the United States Trade Representative and the United States Department of Commerce, ‘Subsidies Enforcement Annual Report to the Congress’ (February 2018) 13–14 <https://esel.trade.gov/esel/groups/public/documents/web_resources/seo-annual-report-2018.pdf>.

162 See AP (n 86) Section 15(a) and (d). Zhou, WH, ‘China's Litigation on Non-Market Economy Treatment at the WTO: A Preliminary Assessment’ (2017) 5 Chinese Journal of Comparative Law 345CrossRefGoogle Scholar; Zhou, WH and Peng, DL, ‘EU – Price Comparison Methodologies (DS516): Challenging the Non-Market Economy Methodology in Light of the Negotiating History of Article 15 of China's WTO Accession Protocol’ (2018) 52 JWT 505Google Scholar.

163 Appellate Body Report, Canada–Wheat (n 99) paras 140, 144.

164 See Hoekman and Trachtman (n 105) 64.

165 See (n 94).

166 See Appellate Body Report, China–Measures Related to the Exportation of Various Raw Materials (adopted 22 February 2012) WTO Doc WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, paras 279–307.

167 See Hoekman and Trachtman (n 105) 64.

168 See WPR (n 87) paras 15–19.

169 These exemptions include four categories of goods (ie, tobacco, edible salt, natural gas, and certain pharmaceuticals) and four types of services (ie, public utilities, and postal and telecommunication services, entrance fee for tour sites, and education services) subject to government prices; and six categories of goods (ie, grain, vegetable oil, processed oil, fertilizer, silkworm cocoons, cotton) and six types of services (ie, transport services, professional services, commission agents’ services, certain banking services, certain prices of residential apartments, and health-related services) subject to government guidance pricing.

170 See AP (n 86) Section 9.2.

171 See WPR (n 87) para 51.

172 Between 1995 and 2014, WTO Members brought 1,050 AD actions against China but merely 90 CV actions. More than 90 per cent of the CV actions against China were brought by four WTO Members, ie, the US, Canada, Australia, and the EU. Among them, the US has been the largest user, bringing more than half of the CV cases during that period. Qiao, XY amd Li, YZ, ‘Shijie Zhuyao Guojia he Diqu Duihua Shishi Fanbutie Diaocha de Xingshi he Yingdui Jucuo (世界主要国家和地区对华实施反补贴调查的形势及应对举措) [Overview of the Countervailing Duty Investigations against China by Main Countries and Regions around the world and Possible Responses]’ (2017) 6 Guoji Shangwu Yanjiu [International Business Review] 26–9Google Scholar.

173 AP (n 86) Section 10.2.

174 See Qin, Y, ‘WTO Regulation of Subsidies to State-Owned Enterprises (SOEs) – A Critical Appraisal of the China Accession Protocol’ (2004) 7 JIEL 870–1, 903CrossRefGoogle Scholar.

175 Appellate Body Report, United States–Final Countervailing Duty Determination with respect to Certain Softwood Lumber from Canada (adopted 17 February 2004) WTO Doc WT/DS257/AB/R, para 77 [hereinafter US–Softwood Lumber IV].

176 ibid, para 90.

177 Appellate Body Report, United States–Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (adopted 25 March 2011) WTO Doc WT/DS379/AB/R, para 479 [hereinafter US–Anti-Dumping and Countervailing Duties (China)].

178 Appellate Body Report, US–Softwood Lumber IV (n 175) para 102.

179 ibid, para 106.

180 Appellate Body Report, United States–Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (adopted 19 December 2014) WTO Doc WT/DS436/AB/R, paras 4.151, 4.211.

181 Appellate Body Report, US–Anti-Dumping and Countervailing Duties (China) (n 177) para 487.

182 ibid, para 488.

183 Wu, M, ‘The “China, Inc.” Challenge to Global Trade Governance’ (2016) 57 HarvIntlLJ 301–5Google Scholar.

184 ibid. See also eg Ding, R, ‘Public Body’ or Not: Chinese State-Owned Enterprise’ (2014) 48 JWT 167Google Scholar; Cartland, M et al. , ‘Is Something Going Wrong in the WTO Dispute Settlement?’ (2012) 46 JWT 1001–14Google Scholar.

185 Appellate Body Report, US–Anti-Dumping and Countervailing Duties (China) (n 177) paras 317–18.

186 See Cartland et al. (n 184) 1008, 1010–12; Wu (n 183) 303–5. In our view, the AB's approach is reasonable, as it attempts to avoid the overreaching of a ‘public body’ to cover all SOEs or SIEs. If one accepts that SOEs or SIEs may operate as private entities, then the ‘ownership-based’ approach is too broad to distinguish SOEs or SIEs acting on behalf of governments from those operating solely in their own interest.

187 Appellate Body Report, US–Anti-Dumping and Countervailing Duties (China) (n 177) para 318.

188 ibid, paras 317, 345.

189 ibid, para 318.

190 ibid, para 350.

191 Guanyu Jiakuai Tuijin Zhongying Qiye Dangjian Gongzuo Zongti Yaoqiu Naru Gongsi Zhangcheng Youguan Shixiang Tongzhi (关于加快推进中央企业党建工作总体要求纳入公司章程有关事项的通知) [Notice on Relevant Issues concerning the Acceleration of the Advancement of the Incorporation of the Overall Requirements of Central SOEs Party-Building into Company Constitutions] (promulgated by the Party Committee Organization Department of SASAC (Guozi Dangwei Dangjian [2017] No. 1), effective 1 January 2017).

192 See eg State-Owned Assets Supervision and Administration Commission of Yinchuan City <http://gzw.yinchuan.gov.cn/tztg/201707/t20170711_267788.htm>; State-Owned Assets Supervision and Administration Commission of Jilin Province <http://gzw.jl.gov.cn/tzgg09/201712/t20171227_3576921.html>; State-Owned Assets Supervision and Administration Commission of Fujian Province <www.fj.chinanews.com/news/fj_zxmmt/2017/2017-08-16/387698.html>.

193 See C Bown, ‘Should the United States Recognize China as a Market Economy?’ (2016) Peterson Institute for International Economics Policy Brief 16-24, 6–8 <https://piie.com/system/files/documents/pb16-24.pdf>.

194 Zhonghua Renmin Gongheguo Xianfa [Constitution] art 7 (1988) (P.R.C.) (Westlaw).

195 See Wu (n 183) 323–4.

196 See (n 2).

197 Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union (31 May 2018) <https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/may/joint-statement-trilateral-meeting>.

198 Gao, H, ‘From the Doha Round to the China Round: China's Growing Role in WTO Negotiations’ in Toohey, L, Picker, C and Greenacre, J (eds), China in the International Economic Order: New Directions and Changing Paradigms (Cambridge University Press 2014) 79Google Scholar.

199 Testimony of Jennifer Hillman before the U.S.-China Economic and Security Review Commission Hearing on US. Tools to Address Chinese Market Distortions (8 June 2018) <www.uscc.gov/sites/default/files/Hillman%20Testimony%20US%20China%20Comm%20w%20Appendix%20A.pdf>.