United States: Trade Remedies Welcome China into the WTO

In late 2001, the People’s Republic of China joined the World Trade Organization (WTO), a momentous step forward into the legal arena of world trade for what is still, at least nominally, a communist country. Since joining the WTO, China has become an aggressive user of WTO-sanctioned trade remedies, including antidumping laws, which allow domestic industries to seek tariffs against imports allegedly being sold too cheaply in the importing country. At the same time, companies in the United States and other countries that import products from China have continued to bring an increasing number of antidumping and other trade remedy cases against Chinese exporters. It is important that companies doing business in and with China understand these trade remedies, which have an enormous impact on affected industries and markets.

The principal weapon employed by Chinese industries seeking relief from U.S. and other imports is the Chinese antidumping law. Since joining the WTO, China has brought about 25 antidumping cases against overseas companies, about the same number of antidumping cases U.S. companies have brought against China during the same period. The Chinese government is actively encouraging its industrial sector to file antidumping cases and other trade remedy actions. According to a July 5, 2004, Financial Times article, the official China Daily newspaper quoted the Chinese vice-minister of commerce as calling for "concerted efforts" to take advantage of these legal market protection methods and stating that "[i]t is an imperative task for governments at all levels to resort to legal means that are enshrined by the WTO pact, such as antidumping, anti-subsidy and other protective measures." Because the implementation of WTO agreements has exposed formerly protected Chinese industries to increasing competition, Chinese manufacturers are likely to bring more trade protection petitions in coming years. Chinese antidumping complaints often target high-tech imports as well as certain industrial products, such as chemicals, as China seeks to protect and nurture nascent industries.

In the United States, antidumping petitions against China often target manufacturing industries. Antidumping actions are bifurcated under U.S. law, with the U.S. Department of Commerce (DOC) determining whether there is dumping and the U.S. International Trade Commission (ITC) determining whether the U.S. industry is materially injured or threatened with material injury as a result of that dumping. At the DOC, Chinese cases differ substantially from other cases because of the DOC’s application of often unfavorable (to Chinese exporters) presumptions pursuant to its non-market economy (NME) methodology.

Under the NME methodology, the DOC does not compare the U.S. price of Chinese products to the price at which those same products are sold in China or the actual cost of producing those products in China (as the DOC would do if China were a capitalist country). Rather, because the DOC considers the Chinese economy to be non-market oriented and, thus, an unreliable basis for comparison, the DOC compares the U.S. price of Chinese imports to the cost of producing the same products in a surrogate country, often India. There are many distortions and anomalies that arise in making numerous complex calculations required by this methodology. Chinese producers typically find themselves facing high dumping margins when all of the calculations are concluded. China recently amended its foreign trade law to set up an "early warning and emergency system" to assist Chinese companies in responding to dumping allegations in overseas markets, such as the United States. The new law went into effect July 1, 2004.

As a price for U.S. agreement to China’s accession to the WTO, China agreed the DOC could continue to treat China as a non-market economy for up to 15 years. In recent antidumping investigations, China has pressed the DOC to find that the particular industries in question are market-oriented and entitled to be exempt from the application of the NME methodology. Thus far, the DOC has not agreed. However, DOC officials have established a working group with their Chinese counterparts "to discuss a range of issues relevant to China’s aspiration to be recognized as a market economy for purposes of the U.S. antidumping law." The DOC held a public hearing in Washington, D.C. on this subject on June 3, 2004. The DOC, however, is not expected to change its policy any time soon.

At the ITC, there is no legal difference between Chinese cases and those involving other countries; although, in practice, parties do tend to make arguments that are China-specific. In a 2003 Ball Bearings from China case, the ITC in making a negative determination with regard to threat of injury noted "the growing home market is likely to demand at least as large a share of China’s domestic production in the imminent future." Of course, the massive scale of the Chinese economy can negatively impact Chinese respondents in antidumping cases as well, particularly if the home market is not a major consumer of the subject merchandise. In a 2003 Crawfish Tail Meat from China sunset review, the ITC found that revocation of the antidumping order would likely lead to continuation or recurrence of material injury because "production capacity in China more than doubled over the last six years" while "the United States has remained by far the most important market for crawfish tail meat."

U.S. manufacturers seeking to limit Chinese imports have an additional weapon in their arsenal besides the antidumping law. On October 10, 2000, in the same law (Public Law 106-286) granting China permanent normal trade relations status, new Sections 421 and 422 were added to the Trade Act of 1974. Section 421 provides for safeguard relief from market disruption caused by Chinese imports, requiring the ITC to conduct investigations and reviews of relief action in response to whether "a product of the People’s Republic of China is being imported into the United States in such increased quantities… as to cause or threaten to cause market disruption to the domestic producers of a like or directly competitive product." Section 422 provides safeguard relief from trade diversion, increased imports that are the result of a third-country safeguard measure applied against Chinese goods.

Following an affirmative determination of market disruption or trade diversion, the U.S. president may impose relief in the form of "increased duties or other import restrictions with respect to such product, to the extent and for such period as the President considers necessary to prevent or remedy the market disruption" or "the trade diversion or threat thereof." In recommending a safeguard measure, the ITC must consider: "(i) the short- and long-term effects that implementation of the action recommended … is likely to have on the petitioning domestic industry, on other domestic industries, and on consumers; and (ii) the short- and long-term effects of not taking the recommended action on the petitioning domestic industry, its workers, and the communities where production facilities of such industry are located, and on other domestic industries." These considerations are nearly identical to those under Section 201, the non-China-specific U.S. safeguards provision.

If there is an affirmative Section 421 or 422 determination by the ITC, the U.S. president is required to first enter into consultations with China before imposing any safeguard measure to remedy market disruption. Only if consultations fail after 60 days may the president impose measures to offset the trade diversion. There have been five investigations thus far under Section 421; none have been conducted under Section 422. In two of the investigations, the ITC declined to recommend relief. In the other three investigations, the ITC recommended relief but the president declined to impose it. Despite the failure of any petitioning U.S. industry to win relief thus far, it remains worthwhile for any U.S. industry adversely affected by increasing imports from China to consider the option of pursuing trade relief under Section 421.

As China becomes firmly entrenched as a world trading nation under the WTO system, there is no doubt that trade between the United States and China will continue to increase. Inevitably, this increased trade will result in winners and losers on both sides of the Pacific. Firms that perceive themselves to be losers should take advantage of the trade remedy proceedings available to them under WTO rules. As a result, all companies that are affected by trade between China and the United States need to be familiar with these trade remedies and their potential impact on their business. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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