The Stakes Are Too High For China Not To Cooperate And Participate In Trade Remedy Disputes, And To Hire The Best Counsel
China Is A Target
China has been the primary target of anti-dumping measures around the world for a very long time. More than 30 countries have initiated roughly 600 antidumping cases against 4000 different types of Chinese products during the last two decades. The United States alone has conducted 122 investigations (excluding withdrawals and terminations), and imposed 101 orders against Chinese goods. Approximately 30 percent of all WTO-member anti-dumping investigations have been directed against China.
The Chinese Government and Chinese companies have not consistently cooperated with U.S. authorities or participated fully in investigations. History shows, however, that cooperation and participation matter and that results enabling Chinese merchandise to remain competitive in the U.S. market are always possible.
It Is Possible To Win
For many Chinese companies, the United States is an indispensable market and their very existence depends on retaining access to it. Good legal defenses can be expensive, but not nearly as expensive as having to abandon the market, or sell at non-competitive prices. Failing to participate in antidumping or countervailing duty investigations under the assumption that winning is impossible, either because the American system must be rigged or competent counsel is not affordable, is particularly unfortunate because many companies that do participate fully and with competent counsel can, and often, do prevail.
Historically, Chinese companies have won few antidumping and countervailing duty cases, not because it was impossible to win, but because the Chinese companies were not familiar with the legal and operational procedures of the US antidumping and countervailing duty laws, have hired low cost counsel without the experience or resources to defend them effectively, and failed to cooperate fully with the United States Department of Commerce (“DOC”) or participate at the United States International Trade Commission (“ITC”). These reasons for failure are far more important than anything that might be supposed about the political environment or anti-Chinese prejudice in the United States.
Before petitions seeking investigations of Chinese steel products began being filed in 2007, the largest case against China (by volume of exports) was Bicycles from the People’s Republic of China. Hundreds of millions of dollars of exports and thousands of jobs across China, Hong Kong and Taiwan were at stake. Chinese exporters hired talented lawyers who led them through multiple submissions and verifications, in China, Hong Kong and Taiwan. Millions of dollars were spent in legal fees, but more than 100 million dollars of exports were threatened. Paying for competent counsel paid off. Of the nine exporters found dumping, the highest antidumping margin was only 13.67%. Several companies were not found to be dumping at all. The ITC, applying these margins in the analysis of whether a U.S. industry was materially injured or threatened with material injury by Chinese exports of bicycles to the U.S., found none, leading to dismissal of the case.
It Pays To Pay
Chinese respondents in Ball Bearings from the People’s Republic of China spent nearly a million dollars in legal fees, but the leading company, with a multi-million dollar investment in a state-of-the-art manufacturing facility outside Shanghai, received a zero margin and was free from duties. There is no guarantee, of course, that when a Chinese company spends more money on legal services it will necessarily get better results, but there are market reasons why some lawyers command higher rates than others: their time is in more demand, which means the market for services is recognizing their value. It may seem to a company an important savings to hire lawyers for $50,000 or even $100,000 less than lawyers from firms with greater reputations, but when a $100 million market is at stake, the savings on legal fees suddenly does not amount to that much and do not make sound commercial sense.
There are additional considerations. Chinese companies typically want fixed fees for legal services, no matter what may happen in a case. In some instances, petitioners may not want to spend very much themselves and therefore do not apply a great deal of legal pressure on respondents. However, when the opposite is true and petitioners press their case hard, there is much more legal work necessary on the defense. A budgeted commitment for a questionnaire response and perhaps one supplemental questionnaire could turn into multiple supplemental questionnaires. Legal briefing that might have appeared to be routine could require enhanced legal skills and knowledge of the law.
A company may be confident that its records are kept well, only to learn during an investigation that the company standards will not satisfy DOC. In these instances, counsel may require much more time and effort to prepare the company for the audit DOC officials will conduct (called “verification”), which will be a full inspection of the company’s books.
When the fee is fixed and additional legal services are required because of the circumstances of the case, one of three things can happen. The lawyers can do all that is required for the fixed fee and take a financial loss on the case. The company can agree that it will need to pay more for the additional services. Or, the lawyers, without saying much to the company about it, can simply do less, providing less than optimal services because they effectively are not being paid to do all that is required.
It may be unethical not to do all that is needed when payment may not be forthcoming, but in most instances that is what happens. Chinese companies insist upon the fixed fee and will not pay more; the lawyers cannot afford to do a great deal more. The lawyers then do the minimum necessary to get through the case, and the company suffers without ever being told that the lawyers are doing less than they should be doing.
For all these reasons (and there are many others), it pays to pay: participation and cooperation in the case is always better than refusing or limiting participation. Paying for the best available legal services is always better than trying to get through the case on the cheap, particularly when the cost is compared to what is at stake. It is always better to be flexible about fees because every possible contingency in the case cannot be anticipated in advance, and because there will always be unscrupulous lawyers (as there are unscrupulous businessmen) who will promise more than they can deliver, and will do as little as possible to earn their fees.
The Bigger Picture In Trade Remedy Disputes
Many Chinese businessmen and government officials, in our experience, seem to believe that the antidumping and countervailing duty investigations initiated by the United States (and Europe) are part of a larger, undeclared China-US (or China-West) trade war, and that the U.S. Government is behind the scenes controlling the outcome of the cases to the detriment of Chinese companies. There are undoubted protectionist biases in the trade laws that the U.S. government is required to respect, but trade remedy investigations and reviews are more conflicts between companies in different countries competing for the same market share than they are contests between nations. Americans are not unaware that, should they play unfair at home, their own exports may face unfair practices in China and elsewhere, which is why they subscribe to the WTO and a common rule worldwide.
There is little or no benefit for a company to conjure world trade as a conspiracy, and there is ample contrary evidence that respect for laws and institutions can pay off. Chinese companies would benefit more by participating and cooperating fully, fighting as hard as possible according to the legal rules, hiring competent American counsel and participating fully in all phases of the DOC and ITC investigations, instead of blaming or speculating on political motivations behind poor results.
Summary: Improving The Chinese Prospects Of Winning
How can Chinese companies win antidumping and countervailing duty cases? They first need to hire competent U.S. lawyers with experience and proven track records. The homework necessary to choose counsel is not simple, but again not impossible. They cannot listen to lawyers touting their own credentials without proof. They need to ask questions. Their focus, however, should be on the quality of the lawyers and their services, their reputation and their experience. It should not be only on price. Until recently, many trade remedy petitions were brought against merchandise from other countries. Respondents in other countries have never depended so much on the price of legal services the way Chinese companies have done, and there is a contrast in results that suggests powerfully that it pays to pay.
Second, Chinese companies need to commit to cooperation with the investigating agencies and participation in every phase of the investigations. They need to commit resources and devote themselves to fighting hard to win. They need to consider the potential expense of defending their interests in the U.S. market against the potential value of losing access to the market. They need to think in the medium and long term, for once shut out of the market by an adverse outcome, it could take five years or more (the period awaiting a sunset review of an antidumping or countervailing duty order) to get back in. And they must know that, when their market access is challenged in the U.S., a challenge in Europe likely will follow, and vice versa. The global market means global challenges, and a problem in one place inevitably becomes, sooner or later, a problem in another.
