ISLAMABAD: Appellate body, the supreme dispute settlement wing of World Trade Organisation (WTO), has declared European Union (EU) countervailing duties (CVDs) not consistent with its SCM agreement. The EU appealed but was turned down by the appellate body — which upheld the initial decision in favour of Pakistan.

The decision came at a time when United States wants to kill the appellate body but most of the developed and developing countries, including Pakistan, are lobbying for the continuation of the system to ensure rule-based multilateral trading system.

Pakistan’s Permanent Ambassador to WTO Dr Tauqeer Shah told Dawn that this is a great win for the country. He said the appellate body has handed a definitive victory in a dispute concerning CVDs on May 16.

This was only the fifth time that Pakistan has had recourse to the WTO dispute settlement system since 1995, and only the third case in which the country chose to pursue the case all the way to a formal panel ruling.

Countervailing duties on PET resin to go

Dr Tauqeer said the appellate body has now upheld certain key parts of a first-level panel ruling issued in July 2017. The WTO panel had ruled in Pakistan’s favour on all its important claims, finding that the EU had not properly demonstrated that the Government of Pakistan had granted subsidies to its PET exporters. The union appealed certain elements of those rulings.

According to the judgement, the appellate body has now upheld the panel ruling, fully vindicating Pakistan’s position and legal arguments.

Crucially, the appellate body agreed with Pakistan and the panel that the EU’s decision to treat as subsidies all amounts of duties rebated under Pakistan’s Manufacturing Bond Scheme (MBS) duty drawback scheme was illegal under the WTO law.

The EU had determined that the government’s monitoring of rebates under the MBS was inadequate and treated all amounts rebated as a subsidy. Both the panel and the appellate body have ruled that the EU could not automatically treat all of the rebated duties as a subsidy and impose high CVDs on that basis.

Instead, the European Union had to investigate whether any actual excess duty drawback had taken place and could treat that as a subsidy only if it had actual proof. This ruling significantly reduces the level of CVDs that could result from duty drawback schemes.

In addition to the MBS issue, the July 2017 panel had found against the EU on additional issues raised by Pakistan, for instance, that the EU incorrectly calculated the subsidy from a government-administered export loan scheme; that the union had not properly disclosed the results of its “verification” and its analysis of whether Pakistani imports had “caused” injury to its industry was inadequate. The EU did not try to appeal those findings, which means that these verdicts — in favour of Pakistan — stand and are in no way modified by the new judgment.

The appellate body upheld the panel on a very minor issue against Pakistan, concerning the “causation” finding.

The EU revoked its CVD on PET from Pakistan in late 2016, some months before its panel issued the ruling in July 2017.

Thus, the judgment has little immediate effect on Pakistani PET’s access to the EU market.

Dr Tauqeer said the ruling is nevertheless highly important and useful, because it will impose strict disciplines on how the EU and other ,embers conduct future investigations on imports from Pakistan. This will serve the country’s interests as well as those of WTO membership at large.

Many countries like Pakistan that operate duty drawback regimes can continue to do so, ensuring the competitiveness of their export industries in a WTO-consistent manner, without concerns that an importing country like the EU may, based on an incomplete analysis and without examining all the relevant facts, impose countervailing duties and thereby unfairly reduce the competitiveness of these exports, the ambassador added.

Published in Dawn, May 18th, 2018