During the five-year grace period China was eager to reach early settlements with WTO members in consultations and to avoid litigation. China’s early approach to WTO disputes was rooted in the Confucius-inspired non-legal tradition of Chinese culture. However, thanks to its rapid acquisition of WTO litigation capacity, inter alia through third party participation (in over 130 cases by 2016), China evolved quickly from a conciliatory to an assertive defendant. The turning point came in 2006 when China fully litigated China – Auto Parts brought jointly by the EU (DS339), the USA (DS340), and Canada (DS342).
This change in approach to dispute settlement had two key advantages. First, it helped China to become familiar with the different stages in WTO litigation, including the composition of a panel, the potential involvement of the Appellate Body and a compliance panel under the Dispute Settlement Understanding (DSU). As a result China’s defence became more sophisticated and it started to appeal panel reports and to request the constitution of compliance panels under Article 21.5 DSU in order to exhaust the legal means available. Second, China became aware of the fact that several years of WTO litigation, while WTO inconsistent protectionist measures are in place, can buy valuable time for the development of a fledgling industry, such as China’s car industry. But despite this strategic calculation, China’s preference for settling disputes through consultation is still valid. The most recent example is the 2016 USA-China agreement on the elimination of a comprehensive subsidies scheme in DS489 China – Demonstration Bases.