When the EU adopts law it is bound to observe relevant International Law. Article 216(2) TFEU (in combination with Article 3(5) TEU) provides that international agreements concluded by the EU are binding upon the EU institutions.
In relation to WTO law, the European Court of Justice has constantly recognised the policy space that exists between the WTO and domestic EU law. The policy space gives the EU legislator a wide margin of discretion to implement, or not implement, WTO law. The reason is that WTO law is not always clear and precise and, because of the absence of reciprocity, the EU should not bind itself where other WTO Members might not.
As part of the idea of creating a policy space for the EU legislator and to ensure that the space is protected from legal challenge, the Court of Justice has ruled that litigants can only invoke WTO law as a basis to challenge the legality of EU trade rules in very restricted circumstances.
The Court of Justice, and Advocate General Kokott acting as advisor, have had the occasion to review the relationship of the EU legal order and WTO law in relation to market economy status in Rusal Armenal, Case C-21/14 P.
Rusal Armenal has a significant impact on the China MES debate
The judgement in Rusal Armenal is from 16 July 2015 and therefore post-dates pretty much all of the academic writing and legal opinions on the interpretation of Article 15 of the Protocol of Accession of China to the WTO. Thus, from an EU law perspective, all previous legal analyses need to be re-evaluated in the light of the Court of Justice’s ruling.
The Court of Justice found in Rusal Armenal that WTO Anti-Dumping law ‘has no specific rules relating to’ market economy status. It follows from this consideration that the rules in the EU basic Anti-Dumping Regulation setting out how to calculate normal value in a non-market economy are not an implementation of WTO rules, rather, they are rules developed independently by the EU legislator.
This finding by the Court of Justice is very much in line with Article 15(d) of the Protocol of Accession of China to the WTO. Paragraph (d) recognises that the criteria for determining if the status of the Chinese economy for the purposes of calculating normal value are set out in the domestic rules of the importing WTO Member.
The Court of Justice also found that GATT Article VI does not have any provisions in relation to the calculation of normal value in respect of imports from non-market economies, and the second supplemental provision to Article VI only addresses situations where a country has a complete monopoly on trade. This provision does not apply to China. But it does not set out what the EU must do in relation to a non-market economy, like China’s, either.
On this basis the Court of Justice found that ‘the provisions of the basic [anti-dumping] regulation [on calculating normal value from non-market economies] cannot be considered to be a measure intended to ensure the implementation in the EU legal order of a particular obligation assumed in the context of the WTO’.
The Court concluded that the EU legislator, when it adopted Article 2(7) of the basic Anti-Dumping Regulation dealing with normal value in non- market economies, was exercising ‘its regulatory competence, as regards the calculation of normal value in respect of imports from non-market economy countries members of the WTO, by taking an approach specific to the EU legal order…’.
And, as Advocate General Kokott said in her Opinion, the EU legislator has ‘deliberately opted to take its own, very particular, approach …’ in calculating normal value for non-market economies.
In other words, the EU rules on normal value for goods originating in China are not the implementation of a particular obligation assumed in the context of the WTO. And the Court of Justice recognises that the EU is sovereign and independent on this issue, or, has the space to take its own policy approach.
The consequences of Rusal Armenal for China MES
The Court of Justice determined that the rules on how to calculate normal value for goods coming from non-market economies have been made by the EU legislator in the sovereign policy space between WTO and EU law. The EU is entitled to use that space to legislate in a way that is ‘specific to the EU legal order’ and taking ‘its own, very particular, approach’.
Three simple conclusions can be drawn from analysing the Court of Justice’s position:
- Whatever WTO law or Article 15 of the Protocol of Accession of China to the WTO provides, the EU legislator is independent and has is own policy space to take its own particular approach on calculating normal value for non- market economies.
- As the EU legislator has discretion, then any possible change is a question of EU policy and must be subject to the appropriate legislative due diligence and the Juncker Better Regulation provisions: i.e. wide consultation of stakeholders and prior assessments of the impacts of the different policy choices must be considered.
- Currently the WTO is the only body competent to interpret Article 15.
It does not matter how Article 15 is interpreted
The first conclusion is startling. The EU legislator enjoys a policy space to decide to change or not to change the rules on normal value. The EU can continue to have its own ‘very particular […] approach’ for calculating normal value in relation to China.
This conclusion is also evident from the fact that the EU did not consider that it was obliged to change the basic Anti-Dumping Regulation when Article 15 became part of WTO law in 2001. This conclusion was never the subject of an action before the Court of Justice, or a matter for debate by the EU legislator.
Article 15 must be interpreted by the WTO
A second conclusion is also startling. As the EU approach to calculating normal value from non- market economies that are Members of the WTO ‘cannot be considered to be a measure intended to ensure the implementation in the EU legal order of a particular obligation assumed in the context of the WTO’ and as the Court of Justice will not allow the legality of those rules to be reviewed in the light of WTO law, Article 15 has no current relevance to EU law.
If Article 15 cannot be interpreted by the EU Courts to determine if current EU rules on calculating the normal value of goods coming from China, as things stand, the only tribunal competent to interpret Article 15 is the WTO itself.
So in this sense Rusal Armenal helps significantly in interpreting Article 15. It shows that the WTO is the body competent to interpret Article 15. This conclusion raises an important question: could the Court of Justice ever have competence to interpret Article 15?
Can the Court of Justice have competence on this matter?
It is clear that the EU legislator is entitled to interpret and implement Article 15 of China’s WTO Accession Protocol as the EU legislator sees fit. If it does choose to implement Article 15, does the Court of Justice become competent to review the new EU measure in the light of Article 15?
There are two situations in which the Court of Justice can review the legality of EU law in the light of WTO law. These are the Fediol and the Nakajima exceptions. The Fediol exception allows the Court of Justice to review the legality of EU law in the light of WTO law if the EU law clearly refers to the WTO provisions in question and those provisions are clear and precise. The Nakajima exception applies where the EU legislator makes clear its intention to implement a particular obligation assumed in the context of the WTO.
It is unlikely that the Fediol exception can apply because the terms of Article 15 in relation to normal value after December 2016 are not clear and precise. This is evident from the heated debates between lawyers as to its proper interpretation.
For the Nakajima exception to apply then the EU legislator must clearly show that the changes to the basic Anti-Dumping Regulation are intended to implement Article 15.
A further conclusion can be drawn from this. If the EU legislator chooses to implement Article 15, it can do so making explicit its intention to implement the Article and thus giving the Court of Justice competence to review the change in the light of Article 15. Or the EU legislator can choose not to make clear its intention to implement Article 15. If it chooses the latter, then the Court of Justice is not competent to review the change in the light of Article 15. Thus the proper interpretation of Article 15 will be left to the WTO Dispute Settlement Body.
If the EU legislator does in fact choose to declare its intention to implement Article 15 and seeks to come within the Nakajima exception, it places the Court of Justice in the difficult position of possibly having to interpret Article 15 unilaterally in the absence of guidance from the WTO Dispute Settlement Body.
Does the EU legislator have a free hand in how to interpret and implement Article 15?
This conclusion in relation to Nakajima raises the question whether the EU legislator is constrained in the way it exercises its wide policy choice in implementing Article 15? Answering this question requires an examination of why the Court of Justice has given the policy space to the EU legislator in the first place.
The Parliament, the Council and the Commission have argued repeatedly before the Court of Justice, and argued in Rusal Armenal, that the EU legislator needs a policy space because other WTO Members interpret and apply WTO differently to the EU. As the EU’s trading partners do not recognise the direct effect of WTO law, the EU should not give direct effect. As there is no reciprocity in the WTO then the EU needs a space to do what is best for the EU: to take the EU’s particular approach. The Court of Justice has accepted these arguments.
In Portugal v Council the Court of Justice held that WTO law cannot have direct effect in the EU legal order (and thus the EU must enjoy a policy space to do what it considers appropriate) because: ‘the lack of reciprocity in that regard on the part of the Community's trading partners, in relation to the WTO agreements which are based on `reciprocal and mutually advantageous arrangements'……, may lead to disuniform application of the WTO rules’.
Rusal Armenal and Portugal v Council puts limits on how the EU can interpret Article 15
This is the third startling consequence of Rusal Armenal. In combination with Portugal v Council, the Court of Justice has found that the EU legislator is, in practice, constrained or limited in how it can interpret and implement Article 15.
The EU legislator cannot abuse the policy space that is recognised in EU law. The EU legislator must act reasonably. In other words, the EU legislator cannot interpret and implement Article 15 without taking into account the reasoning of the Court of Justice as to why the EU legislator has a policy space in the first place.
As the policy space between WTO law and EU law has been recognised by the Court of Justice so as to allow the EU to take into account that WTO law is not always clear and precise and that other WTO Members do not always apply WTO law in the same way as the EU, and because there is no reciprocity, and because there is always a policy element in implementing WTO law, and because there is an overriding necessity to avoid ‘disuniform application of WTO rules’, it means that when the EU legislator interprets and implements Article 15, it should:
- either to take into consideration how other WTO Members interpret Article 15 in reaching any conclusions on implementation of Article 15; or
- wait till the WTO has interpreted the Article,
so as to allow the EU, including the Court of Justice, to achieve the imperative objective that there is no ‘disuniform application of WTO rules’ and to avoid undermining legality in the policy space recognised by the Court of Justice.