The “public body” enquiry in WTO disputes: implications for partial privatization

• DOI: https://doi.org/10.1108/JITLP-08-2021-0047
• Published date: 15 February 2022
• Date: 15 February 2022
• Pages: 140-159
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Xiaowen Tan

The “public body”enquiry in

WTO disputes: implications for

partial privatization

Xiaowen Tan

WTO Chair Institute-China, Shanghai University of International Business and

Economics, Shanghai, China

Abstract

Purpose –This paper aims to questionthe “conventional”privatization of State-owned enterprises(SOEs)

and to propose the neutral positionadopted by the Dispute Settlement Body (DSB) to reconcile the divergent

views withinthe World Trade Organization (WTO) regime.

Design/methodology/approach –China’s partially privatizedSOEs have raised numerous attention in

WTO disputes regarding whetherChina's way of social and economic reform is consistent with its accession

commitments and withWTO rules, in particular subsidy rules. Instead of providinga def‌inite legal standard

applicable to the “public body”enquiry,the DSB adopts the neutral position to reconcile the divergent views

between developedand developing countries on whether not fully privatizedSOEs constitute “public body.”

Findings –Albeit with interpretative vagueness, the value of DSB’s neutral position lies in its adequacy:

f‌irst, the adequacy to address the complexity of SOE privatizations in developing countries; second, the

adequacy to engage relevant parties to maintain the multilateral trading system; and third, not to impose

specif‌ic impacton justif‌ication of countervailing duties.

Originality/value –This paper captures the recentdevelopments in “public body”enquiry and calls for a

compromised approach to maintain the WTO-like multilateral trade regime and to allow for more policy

spaces for developingcountries that best f‌it their unique circumstances and needs. It sees new and signif‌icant

information, in the sense that the paperaims to present why China’s partial privatization benef‌its from the

WTO “neutrality”onthe subject.

Keywords Public body enquiry, Partial privatization, China’s accession, SOE reforms, WTO law

Paper type Research paper

1. Introduction

The treatment of State-owned enterprises (SOEs) plays an increasingly central role in World

Trade Organization (WTO) disputes against developing countries. In developing countries,

governments play a highly distortionary role in the market, and the involvement of SOEs in

any industry renders domestic prices “incapable of providing an ‘undistorted’benchmark”for

the calculation of the benef‌it received (Prusa and Vermulst, 2013;Zang, 2012). Hence,

developing countries often face countervailing duties for goods exported by subsidized SOEs

and anti-dumping duties for goods sold by SOEs [1].

The US –Anti-Dumping and CountervailingDuties (China) (AD and CVDs (China)) was

one of the leading cases brought by China before the WTO Dispute Settlement Body (DSB).

This case demonstrates the tension between developed countries and developing countries

over the def‌inition of SOEs. In this case, the Panel interpreted the term “public body”in

keeping with the US Department of Commerce (USDOC). It noted that in the four

The author wishes to thank Professor Lei Zhang and Associate Professor Xin Xu for their invaluable

support. Thanks are also due to the peer reviewers. Any errors in the article are those of the author.

JITLP

21,2

140

Received29 August 2021

Revised23 December 2021

Accepted11 January 2022

Journalof International Trade

Lawand Policy

Vol.21 No. 2, 2022

pp. 140-159

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-08-2021-0047

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

investigations at issue, the Chinese Government holds a majority ownership in companies

that provide inputs of exported products,and that was“clear and highly indicative evidence

of government control.”[2] Thus, the Chinese Government-owned SOEs were “public

bodies”within the scope of the Article 1.1(a)(1) of the Agreement on Subsidies and

CountervailingMeasures (SCM Agreement).

On appeal, the Appellate Body overruled the Panel’s decision. Instead, it focused on the

core feature of the entity andits relationship with the Government. By adopting a restrictive

interpretation, the AppellateBody held that the evaluation of whether or not an entity was a

public body must rely on relevant evidence demonstrating whether that entity “is vested

with or exercises governmental authority.”[3] By this token, the Appellate Body reversed

the Panel’s decision and found that the USDOC’s public body determinants in respect of

SOEs to be inconsistent with Article1.1(a)(1) of the SCM Agreement.

Recent trends in US –Countervailing Measures on Certain Hot-rolled Carbon Steel Flat

Products from India and in US –Countervailing Measures on Certain Pipe and Tube

Products from Turkey laid much emphasis on the application of the “meaningful control”

test in asserting whether the relevant entity possessed or exercise d governmental authority [4].

The discussion has concentrated on what elements should be regarded as indicia for

governmental control rather than on the connotation of “meaningful control”per se. The Panel

and the Appellate Body have found only “formal indicia”of government control and thus have

rejected “meaningful control”in various conditions under which it is often the USDOC that

levied countervailing duties from developing countries such as China, India and Turkey [5].

Hence, the adjudicative bodies have failed to provide a def‌inite legal standard to ascertain the

existence of meaningful government control. The failure attributes largely to the diversif‌ied

privatizations of SOEs in developing countries, where SOEs are often only partially privatized.

The divergent views between developed and developing countries on the treatment of

partially privatized SOEs reveals the developing countries’deviation from the conventional

neoclassical market-oriented view of development under which the developed countries

presuppose a kind of privatization dictated by their experiences. While the existing WTO

rules are insuff‌icient to addressthis problem, the neutral position adopted by the DSB seems

to reconcile the divergent views within the WTO regime. Hence, this article f‌irst takes the

experience of China as an example to examine partial privatization of SOEs. Second, it

discusses how WTO DSB handles disputes on SOEs. Third, the articleevaluates the neutral

position adopted by the DSB in coping with the divergent views between developed and

developing countries on partially privatized SOEs. Fourth, the article examines further

implications for other developing countries and least developed countries (LDCs) and for

WTO reform.

2. Partial privatization of State-owned enterprises: example of China’s

accession experience

Partial privatization becomes an increasingly common phenomenon in developing

countries, where the State needs private capital to improve corporate governance of public

entity as well as to increase overalleff‌iciency without transferring the whole or even part of

the control of the entity. China,for example, has adopted partial privatization of SOEs as the

most important reform to comply with its commitments and with WTO rules after its

accession to the WTO.

2.1 State-owned enterprises obligations under China’s Accession Protocol

The most cited provision of SOE obligationsconcerns Article 10 of the Protocol. Article 10.1

of the Protocol provides the general obligation for China to notify any subsidy within the

The “public

body”enquiry

in WTO

disputes

141