China-U.S. Trade Law : International Trade Lawyer & Attorney : Baker Hostetler Law Firm : Trade Remedies, Customs & Export Controls

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An old Chinese proverb says, “You can’t expect both ends of a sugar cane to be just as sweet.” Presidents Obama and Hu, however, do not seem to believe the proverb applies to the U.S.-China trade relationship, according to their public statements leading up to November’s APEC meetings in Singapore and the subsequent bilateral meetings in Beijing. A joint statement on behalf of China and the United States said that the two countries “recognize the importance of open trade and investment to their domestic economies and to the global economy, and are committed to jointly fight protectionism in all its manifestations." Just prior to the APEC summit, President Obama explained that the United States’ relationship with China “does not need to be a zero-sum game, and nations need not fear the success of another.” At the summit, President Hu said, “We both agreed to properly handle trade frictions through negotiations on an equal basis and to make concerted efforts to boost bilateral trade and economic ties in a healthy and steady way.”

Both leaders have suggested recently that there are important steps that their respective countries can and should take to improve the balance of U.S.-China trade. President Obama noted that Americans need to consume less, save more and export more to help offset the trade imbalance with China. President Hu declared that China is in the process of reorienting its export-driven economy to expand and fill an internal, domestic demand for products.

The diplomatic sentiments of mutual cooperation and joint responsibility expressed by Presidents Hu and Obama are noble and serve an important purpose in building constructive relations. China and the United States should aspire to mutually beneficial relationships in trade and on other matters. But no one should think that political pronouncements and temporary trade adjustment policies will easily overcome the seriousness of the trade disputes for the industries involved, and the determination of the governments to act upon their own interests. In 2009, China and the United States both took steps to impose antidumping, anti-subsidy, or safeguard duties on products such as tires and steel pipe from China, or nylon, chicken and automobiles from the United States.

During the recent visit to Shanghai, there was more than a little irony in a November 16 exchange between President Obama and Communist Party Secretary Yu. According to news reports, Secretary Yu told President Obama that business was “pretty good” at a General Motors plant in Shanghai. He went on to say that, “[b]y the end of October this year their sales has increased by 40 percent over the same period of last year. I think that the fantastic performance here in Shanghai is definitely a boost to their business in the United States." President Obama responded, “Absolutely. I think [General Motors] can learn from their operations here in terms of increasing sales back in the United States." Neither of them apparently mentioned the fact that China currently is investigating whether to impose countervailing duties against General Motors to offset alleged subsidies that it is receiving from the U.S. Government in response to the economic crisis, and that China’s petitioners claim General Motors has received over decades.

Even were China and the United States able to agree on the need for reversing current trade flow trends, one should not expect that stopgap policies can be effective in addressing the problem. The policies designed to put the brakes on trade flows easily could become the subject of new WTO complaints about unfair market access restrictions. For example, suppose that China adopted policies such as quotas or duties restraining exports of certain raw materials in an effort to stimulate domestic demand and help reduce the trade imbalance. Instead of receiving a note of thanks from the U.S. Trade Representative, China would likely receive a request for consultations under the WTO Agreements.

That reaction is precisely what happened in response to China’s imposition of quotas and export duties on bauxite, coke, fluorspar, silicon carbide, zinc, and other products. On November 5, 2009, the United States requested that a WTO Panel be formed to resolve the dispute:

"We are going to the WTO today to enforce America's rights, so we can provide our country's manufacturers with a fair competitive environment. We believe the restraints at issue in this dispute significantly distort the international market and provide preferential conditions for Chinese industries that use these raw materials," said Debbie Mesloh, a USTR spokeswoman. "Working together with the European Union and Mexico, we tried to resolve this issue through consultations, but did not succeed. At this point, therefore, we need to move forward with the next step in the WTO dispute settlement process. We remain open to working with China to find a mutually agreeable solution to our concerns.”

The United States contends that China’s export restraints on raw materials violate Article XI(I) of the General Agreement on Tariffs and Trade.

President Obama declared on his way to the APEC Summit, “I do not believe that one country's success must come at the expense of another.” But he will find, if he hasn’t already, that it is no easy task for governments to intervene in markets and solve international problems, even when the countries concerned can agree on the problem. It is not easy, either, for a President to control fully the actions of his Commerce Department, nor is it certain that the Secretary of Commerce himself controls the actions of his Import Administration, where he has yet to choose his own Assistant Secretary. China surely hopes to see the U.S. economy stabilize, especially as it holds so much U.S. debt, and yet President Obama’s emergency stimulus packages to assist U.S. auto companies and calm fears about the U.S. economy are now the subjects of countervailing duty actions in China. As China applauds stabilizing the American economy, it initiates investigations into the very measures that are bringing stability. Meanwhile, Chinese policies that would stimulate domestic demand and potentially limit U.S. consumption are coming under the WTO scrutiny from the United States. At least one important lesson would seem to be that, even when governments are cooperating, short-term government policies to correct systemic trade imbalances typically create new disputes more than they solve old ones. And even Presidents may not have complete control over the decisions taken by others in their own governments.

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The Chinese Ministry of Commerce (“MOFCOM”) announced on November 6, 2009 that it had launched anti-dumping (“AD”) and countervailing (“CVD”) investigations against sedans and sport utility vehicles of cylinder capacity ≥ 2000cc originating from the United States. We are providing on this blog an English translation of the CVD notice. This announcement represents the third CVD investigation initiated against U.S. products in less than six months. So far, Chinese investigations have targeted CVD investigations only against products originating from the United States.

According to the November 6 notice, MOFCOM will investigate 24 alleged subsidy programs, all identified as being provided by the U.S. Government. However, four of those alleged programs are tax incentives and other assistance provided by the state of Michigan, which in the U.S. federal system is a distinct sovereign and not part of the U.S. Government. ( In China, all regional and local governments are subordinate to the central government. In the U.S., the states have distinct powers and are not subordinate.)

China adopted its regulations on CVD investigations in October 2001, and the Regulations Of The People’s Republic Of China On Countervailing Measures entered into force at the beginning of 2002. However, China did not initiate its first CVD investigation until June 1, 2009.

The vocal U.S. steel industry was the first target of Chinese countermeasures. The product under investigation was grain-oriented flat-rolled electrical steel, and an Ohio company – the AK Steel Corporation – and a Pennsylvania producer – the ATI Allegheny Ludlum Corporation – were singled out as respondents.

Soon after President Obama imposed additional tariffs on Chinese commercial, low-cost tires as a China-specific safeguard measure, MOFCOM issued a press release saying it would review AD and CVD petitions against U.S. poultry products and cars. Many observers rushed to label this announcement as “retaliation.” However, both products have been the subject of trade disputes between China and the United States for a long time. Our previous article “Trade War?” analyzed the safeguard action and recent trade disputes between the two sides, querying whether China was retaliating in the opening salvo of a trade war. The initiation of investigations into U.S. automobiles may require an adjustment in our analysis. We expect to post soon an analytical article on China’s investigations of alleged U.S. subsidy programs, particularly as they refer to U.S. automobiles.
 

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Coauthored by Elliot J. Feldman and John J. Burke

The last of the quotas on textile and clothing imported into the United States from the developing world expired at the end of 2008 with the end of the quotas authorized by China’s Protocol of Accession to the WTO. Notwithstanding the end of the quotas, trade in textiles and clothing remains distorted by a web of bilateral agreements that give preferential access to the U.S. market on a quasi colonial basis. Dr. Elliot J. Feldman discussed these issues in a speech he gave on November 3, 2009 to a meeting of the Private Sector Consulting Committee of the International Textiles And Clothing Bureau entitled Rags To Riches To Rags? Textile Trade Policy In The United States After The Quotas.

Dr. Feldman noted in a speech (Part I & Part II) given on September 20, 2008 to the Chinese National Textile Association, Shandong Province Textile Industry Association and the Zaozhuang City Government, that U.S. textile companies would face substantial obstacles in filing trade remedy actions against textiles imports. Whether for the reasons he offered then, or for reasons related to the global recession, no trade remedy actions have been filed to date against textile or apparel imports into the United States. It is prudent to remain vigilant. Cases may still come. If they do, however, they are likely to be narrow and targeted.

Our prediction that significant trade remedy disputes over clothing and textiles are not likely with the United States is based on the organization and structure of American government as much as it is on the nature of the merchandise. The United States federal government has three branches, reasonably balanced and offsetting one another. The power to negotiate trade agreements rests with the President, but only Congress can pass the necessary legislation to implement them. Each house of Congress is divided into many committees.

Two committees, one in each house, control international trade, the Finance Committee in the Senate, and the Ways & Means Committee in the House of Representatives. These committees are also the tax writing committees. For various reasons, the Congressmen and Senators most interested in tax-writing tend to come from rural states with small populations. U.S. textile and apparel manufacturing tends to be concentrated in the more populous states, such as California, New York, New Jersey, Georgia and North Carolina. Hence, in the current Congress, at least, textile and apparel interests are not well-positioned to influence laws and policy with respect to international trade.

Notwithstanding over 30 years of quotas, the U.S. apparel industries declined drastically as production was shifted to lower cost countries, such as China, and countries that benefited from special trade preference agreements with the United States. These industries have declined to the point where, except for certain niche products, it would be hard to find a U.S. industry left with the standing to file a trade remedy case against apparel imports. The U.S. textile industry would like to restrict imports of apparel from countries such as China and Vietnam, because those imports compete with apparel made with U.S. textiles in countries that have entered into preferential trade agreements with the United States. However, the textile industry does not have standing to file trade remedy cases against apparel imports.

The U.S. textile industry would like to restrict imports from countries such as China because Chinese imports interfere with a quasi colonial strategy they have worked out with U.S. apparel companies. The strategy is simple. The capital intensive textile producers sell their products into regions subject to special agreements, originating with the Caribbean Basin Trade Partnership Act, the Caribbean Basin Economic Recovery Act, the Andean Trade Preference Act, and the African Growth and Opportunity Act. The countries subject to the agreements receive textiles and raw materials from the United States duty-free and return them in the form of finished goods to the United States, which imports them duty-free provided they contain raw materials from the United States. The United States thus effectively incorporates cheap labor offshore, preserving the capital intensive industry. The WTO waived on all of these agreements, permitting the discriminatory preferences regarding American content, in May 2009.

The looming question is whether China can penetrate with textiles the markets the United States has insulated through the duty-free provisions for apparel made from U.S. fabric and yarn. So far, however, China has not shown much interest in this direction, content to intensify capital investment at home while also relying at home on the labor intensive process of making finished products. Because the U.S. arrangements are based on regional trade agreements recognized by the WTO, there are limits on what other competing countries can do. They can seek their own bilateral agreements with the United States, of course, asking for the same terms as applied to the NAFTA, CAFTA, and Andean countries. They might focus on reconsideration of these privileged relationships by targeting tariff reductions in the Doha Round, but the Round already is paralyzed by agricultural issues. Expiration of the Multifiber Arrangement meant the end of quotas, but it has turned out not to mean global free trade.
 

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