Elliot Feldman delivered the Distinguished Alumni Lecture at the University of Chicago’s Center in Paris on February 5, 2013. He explained how international trade law is impeding the development of renewable energy such as solar, wind, and electric cars, focusing on relations between China and the United States.
费德门博士于2013年2月5日在巴黎举办的芝加哥大学杰出校友论坛上发表演讲，详细分析国际贸易法如何影响中美关系以及可再生能源发展，例如太阳能、风能以及电动汽车等。
After the November elections, Elliot Feldman lectured on their implications for China-U.S. relations at the University of Chicago Center in Beijing. The link to the lecture is here. It features video of the remarks by candidates Obama and Romney on China during the presidential debates.
总统大选结束后，费德门博士在芝加哥大学北京中心发表演讲，分析大选如何影响中美关系发展。他的讲座深入浅出、赢得听众阵阵掌声，他为讲座精心准备的短片也异常精彩。
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Presidential races in the United States are always characterized by the classic principle connecting domestic to foreign affairs: conjure a foreign foe against whom disparate domestic interests can coalesce. For a very long time, the Cold War provided the Soviet Union. Political campaign disagreement was never about how best to get along. Instead, it was always about which candidate would be tougher on the Soviet Union, which meant asking which one would amass more arms, spend more money on defense, deploy forces to more corners of the globe to combat the Communist threat driven from Moscow. Debates were not about whether to build more missiles, but whether there was a dangerous “missile gap” requiring immediate attention.
The end of the Cold War presented a strategic problem for Americans. Some even imagined it was the “end of history.” Yet, everyone can always find a foreign foe. Even Canada, under Pierre Trudeau, in the early 1980s, thought it could rally domestic unity (meaning committing Québec to Canadian unity) by complaining about the United States. The National Energy Program and the Foreign Investment Review Act were legislative initiatives making the United States Canada’s bogeyman.
During the 1980s, Americans tried out Japan as a potential substitute for the Soviet Union, specifically with regard to Japan’s apparent (and, as it turned out, somewhat illusory) economic rise. Soviet proxies, such as Cuba, remained available, but threatening as instigators, not themselves a danger to Americans. Bitter critics, such as Hugo Chavez, were not taken very seriously. Implacable enemies, such as the Iranian Ayatollahs, were more of a threat to Americans’ friends, such as Israel, than to the United States itself.
September 11, 2001 delivered a new kind of foe and threat, an enemy without a state. Al Qaeda filled a critical gap that President Bush felt impelled to invoke when declaring his war on terrorism as a war with Iraq. But then, the war in Iraq wound down and Osama Bin Laden was eliminated. The United States had gone from the Cold War with the Soviet Union to an economic war with Japan and military conflict with Al Qaeda, Iraq, and Afghanistan.
And then came China, the perfect potential foe against whom all political candidates could agree. The decision-making of the Middle Kingdom was inscrutable, and China obliged the American need for a foe by alternating between pleas for understanding as a developing country and bluster as a rising star and emerging global power.
It has not been enough to conjure China as an economic challenge. Americans have made much of growing Chinese military might, even though China remains decades behind American military capability. Unlike the Soviet Union, there is no talk of missile gaps, but like the Soviet Union, China champions a centrally-controlled economy and a suppression of individual freedoms and free speech. If not a threat to American military security, China is seen by many as somehow a long-term threat to the American way of life.
China bashing has become as commonplace in American presidential campaigns as pledges of fidelity to Israel and hosannahs for the capacities of the American armed forces. It is assumed, within American politics, that post-election the rhetoric and apparent hostility will fade, with the brickbats of campaign promises shaved into chopsticks for shared culinary celebrations.
These assumptions require Chinese to absorb the insults, recognizing them as little more than populist appeals for votes in a democratic society that may exaggerate respect for the ignorant and willfully ill-informed. Yet, now and again diplomacy ought to require a response to the Beatles’ refrain, pleading, “Try to see it my way,” and “We can work it out.” Were Americans to hear comparable criticism from China—if they routinely were called cheaters and pirates, refusing to play by the rules, stealing Chinese jobs, stacking the legal deck—they might not respond with the equanimity and good humor they seem to expect of the Chinese. There may come a point where, as the rhetoric translates into consequential acts, the electoral benefits of escalating attacks on China may be more far-reaching and damaging than the politicians begging for understanding may ever have foreseen.
Giving Substance To Chatter
Prior to the presidential debate of October 16, Republican candidate Mitt Romney thundered that, “on Day One” of his presidential term he would declare China a currency manipulator. His action would be insulting, and probably inaccurate (tying one’s currency to the U.S. dollar is hardly manipulative, especially as the ties do not bind and the RMB has floated cautiously upward, as much as eleven percent in the last twenty-four months). And the threat is oblivious to the Brazilian allegation that the United States is a currency manipulator, printing dollars to drive down their value and enhance American exports. Yet, Romney decided to add lightning to the percussion, and whereas the sound might be harmless, the electric bolt of trade sanctions based on the currency manipulation tag could do palpable harm to Chinese trade. During the debate, Romney not only repeated the promise, but added that he would use the new label to impose tariffs unilaterally on Chinese exports to the United States. His amended promise ignored the trade laws, but then the trade laws have not much informed presidential debates.
Just prior to the first presidential debate (October 3), on September 28, President Obama exercised powers granted pursuant to the Defense Production Act of 1950 to order a Chinese wind power industry out of Oregon. It seemed not to matter that he and President Hu Jintao had agreed in 2009 to cooperate in the promotion of wind power.It seemed not to matter that the Chinese enterprise apparently had reached accommodation directly with a neighboring naval facility and had express clearance from the Federal Aviation Administration (which had included Department of Defense review). Instead, the order was swift and abrupt, demanding that the Chinese abandon immediately, without compensation, this investment in the United States. Coinciding with final antidumping and countervailing duty determinations against Chinese solar cells, it seemed that multiple branches of the United States Government were acting in concert against Chinese economic interests.
President Obama persistently has boasted throughout the campaign that he saved 1000 jobs by exercising presidential powers against imports of low-cost tires, largely manufactured by American companies relocated in China. Because the consequence of his action was not to restore the production of these tires in the United States, the claim of saved jobs is doubtful (and no one seems to care where those jobs may be). But imagining them to be real, the Peterson Institute for International Economics has calculated them to have cost consumers, in higher prices caused by the presidentially-imposed tariffs, $1.1 billion, or more than $1 million per job.
There is no debate over any of these developments. Candidate Romney would hardly question an anti-China presidential action, any more than President Obama would denigrate directly the Romney promise on the currency – even though for four years Obama has resisted prudently calls to classify China the way Romney now promises he will, and the U.S. Department of the Treasury has postponed until after the election its statutorily required biannual pronouncement on China’s currency. Instead, there is a soft arms race of anti-China actions and promises. Obama claims to have been tougher on China than any of his predecessors, claims which, in the implementation of Section 421 of the Trade Act of 1974 (the safeguard against tires); the invocation of Section 721 of the Defense Production Act of 1950 (to order abandonment of the Oregon windfarms); and the number of complaints brought to the WTO, are undeniable. Romney, however, promises to be even tougher, particularly as he declares impatience with international organizations and would prefer to act unilaterally.
These economic confrontations are particularly important because both Chinese and Americans identify trade as the single greatest interest they have in common (a majority of the Chinese public, according to the Committee of 100’s recently published Opinion Survey of 2012, and a plurality of Americans). American protectionism threatens Chinese jobs, just as Americans believe unfair Chinese trade practices threaten American jobs. Asked, “What are the two most likely sources of conflict between the U.S. and China in the near future?” a plurality of all American respondent groups (general public, opinion leaders, business leaders, and policymakers) said “trade” first. For every Chinese group, the plurality’s first answer was Taiwan.
Tempering The Rhetoric
By the third and final presidential debate of 2012, on October 22, Romney was retreating from the stridency of his earlier statements. He still insisted upon declaring China a currency manipulator “on Day One,” but he no longer threatened to act further, and his surrogates told the press that the declaration would have little meaning or impact. Perhaps someone had advised him that the President does not have the power to impose trade sanctions unilaterally based upon a presidential declaration of currency manipulation. Or perhaps, as he began believing he might be President on January 20, 2013, he was reflecting on exactly what he was promising.
Romney’s retreat ran deeper. He talked of China as an economic partner, even as he again characterized China as a competitor and adversary.
Obama was not retreating. China continued to test him, not only in trade but in strategic issues. He dispatched his Secretary of State to the Asia Pacific region in September, in the midst of the campaign, reassuring putative allies even as he was not characterizing China as a foe. And he emphasized his WTO complaint over autoparts while reinforcing the actions of the Committee on Foreign Investment in the United States against the Ralls Corporation’s Oregon windfarm (a subsidiary of China’s Sany Corporation).
Both candidates continued, on and after October 22, to campaign against China almost as much as against each other, but with a new tone and direction. In the October 22 debate, Romney recast his pronouncements on foreign policy to become more an echo of the Obama Administration than a choice. He concurred generally with Obama on the Arab Spring, on Israel and Iran, on North Africa, Afghanistan and Pakistan. And, in the end, on China.
What It May Mean
According to the Committee of 100 survey, Chinese and Americans admire one another, profess to like one another, but do not trust each other. Americans and Chinese see themselves as trading partners, to each other’s advantage, but as competitors with different long-term visions of their place in the world. Chinese generally accept the United States as a lone superpower for many years to come, but also expect one day to surpass the United States.
These views may be more enlightened than those of leaders in both countries. The leaders tend to see the competition as more intense and immediate. They see as much threat as friendship. They perceive a need to speak regularly to what divides China from the United States, perhaps more than what may unite them. The general public in both countries appears more favorable toward one another than their elites, and less ambitious for superiority.
Fortunately for the health and well-being of Chinese-U.S. relations, Chinese leaders are preoccupied with their own imminent leadership change. They respond publicly and vigorously to American slights, of which there have been many, especially during the presidential campaign. But they are likely sensitive to nuance. They will have detected the change in tone in the October 22 debate and the rhetoric thereafter.
By the end of the second presidential debate there was reason to believe that a Romney presidency would cast China as a cold war adversary, changing course from the sophistication of the Obama Administration balancing many Asian and global interests. In the final weeks of the presidential campaign, the Romney strategy has been to seem more experienced by seeming to endorse Obama’s foreign policies. The strategy is designed to reassure Americans that a change in the White House would not mean a radical change in foreign policy.
Romney, despite this strategy, is burdened by advisers who populated the most prominent positions in the Bush Administration. It is difficult to imagine a President appointing advisers with whom he is known to disagree, yet the Romney positions on and after October 22 sound a lot more like Obama, and a lot less like Bush. Should Romney win, the first test will be in whom he appoints, not what he has said. What he was saying before October 22 was consistent generally with the views of his advisers. What he has said since seems closer to what he must believe Americans want to hear. Whether he would govern as he imagines Americans would want, or as his more experienced advisers would tell him, is a question that ought to be of grave concern to China.
If there be a change in course in the Obama view of China during the campaign, it has been to harden positions, but then the 2008 campaign was full of rhetoric about NAFTA that never meant anything for the Obama presidency. China is an almost inevitable target, both because of the international relations principle of identifying a foreign foe, and because China is a soft target in what Americans see as the zero-sum game of jobs. For Obama, protecting the U.S. economy against China – using whatever legal weapons may be in the arsenal – is foremost a campaign necessity designed to reassure Americans that the economy, and employment in particular, are the President’s leading priorities.
Obama must hope that China hears the rhetoric of the campaign – and policy actions during the campaign -- his way, as part of the American electoral process. Romney must hope China sees and hears his way, with shifting positions more the product of campaign necessity than a forecast of untrustworthy or unpredictable conduct. And China must hope that both candidates, at least occasionally, see things the Chinese way, as insulting, presumptuous, but not a threat to a long-term and mutually valuable partnership. All must conclude that “we can work it out,” or leadership in both countries could move the bilateral relationship in unpredictable directions.
The United States Court of Appeals for the Federal Circuit on May 9, 2012 sent the case titled GPX International Tire Corp. v. United States back to the United States Court of International Trade for the lower court to consider the constitutionality of legislation passed earlier this year overturning the Federal Circuit’s earlier ruling that countervailing duties may not be imposed on non-market economies. The Federal Circuit, as previously reported on this blog, ruled on December 19, 2011 that U.S. law forbids the application of countervailing duties to non-market economies.
Not willing to accept judicial defeat, the U.S. Department of Commerce, and other interests who support imposing countervailing duties on China while treating China as a non-market economy, convinced the United States Congress to rewrite the law and overturn the Federal Circuit’s December ruling.
The new law, also discussed in detail in a previous article posted on this blog, provides that “the merchandise on which countervailing duties shall be imposed . . . includes a class or kind of merchandise imported, or sold (or likely to be sold) for importation, into the United States from a nonmarket economy country.” It provides in a separate section that the Department of Commerce should try to avoid double counting when imposing both countervailing and antidumping duties on the same merchandise from a non-market economy, which means Commerce should not count an alleged subsidy in a countervailing duty determination as a cost of production in the antidumping proceeding, thereby assessing duties on the same alleged program or conduct twice. The first provision, that countervailing duties should be applied to merchandise from non-market economies, was made retroactive to November 20, 2006, but the second provision, to avoid double counting, applies only to new cases initiated on or after March 13, 2012.
GPX argued to the Federal Circuit that the new legislation is unconstitutional because (1) the retroactive effect of the first section would change the outcome of the GPX case after the Federal Circuit already had rendered its decision in favor of GPX last December based on the law as it was when GPX had been investigated; and (2) the new law improperly creates a special rule applicable only to GPX and to a few other cases in which Commerce may impose both countervailing and antidumping duties on the same merchandise from a non-market economy without attempting to avoid double counting. In effect, GPX argued that the different treatment it and a few other companies whose cases were initiated between the two effective dates would receive, as compared to all other companies for which investigations will be initiated after March 13, 2012, violated the Equal Protection Clause of the U.S. Constitution because GPX and those few other companies will be treated differently and for no reason. Although the Equal Protection Clause itself applies only to the states, the courts have long interpreted the Due Process Clause of the Fifth Amendment to the U.S. Constitution as imposing an equal protection obligation on the Federal Government. The Federal Government, which includes Congress as well as the Executive Branch, must treat everyone equally or have a powerful rationale for doing otherwise. That the merchandise happens to be Chinese is not such a powerful rationale for such discrimination.
The Federal Circuit quickly rejected the first argument because the GPX case still was pending when Congress acted and, therefore, the constitutional prohibition on Congress changing the outcome of a decided court case did not apply. The Federal Circuit must have concluded that the second argument might have merit, however, because it sent the case back to the Court of International Trade with instructions to the lower court to make “a determination of the constitutionality of the new legislation and for other appropriate proceedings.”
The case now goes back to the Court of International Trade to consider the constitutionality of the new law. Should that court conclude that the new law is unconstitutional, Commerce can be expected to appeal that decision back to the Federal Circuit. However, even were the Federal Circuit to agree that the new law is unconstitutional, based on GPX’s second argument, that decision would apply only to the GPX case and the few other cases in which Commerce applied both countervailing and antidumping duties to the same merchandise from non-market economies between November 20, 2006 and Match 13, 2012. It would apply only to those cases because that argument is limited to the unequal treatment afforded to GPX and the few other companies whose investigations were initiated between the two effective dates.
To win its first argument, that GPX was being treated differently because a judicial decision in its favor was being overturned by legislation, GPX would have needed a judicial decision that would have had to be final before the new law had been passed. But the second argument is not so limited by the facts: GPX would be one of only a small number of companies treated differently from all other companies in non-market economies.
The Federal Circuit’s remand order is broad enough that it might be possible for GPX to argue, and for the Court of International Trade to agree, that the new legislation is unconstitutional on other grounds that would apply more generally. Such broader arguments are unlikely to succeed, however, because Congress has extensive authority under the U.S. Constitution to regulate international trade. Consequently, GPX may prevail, but only on the narrow grounds of unequal treatment with respect to double counting.
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The final part of “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse),” we present this week. It is called, “Lessons From Canada.” Part One, entitled “Rewriting Subsidies Law To Fit Chinese Facts,” was posted two weeks ago; Part Two, “The Broken Promise To China,” was posted last week.
China is not the first trade partner of the United States to experience losing by winning, going through the process by the rules only to have Congress change them. Perhaps there is something in the American culture that accepts Lucy enticing Charlie Brown and then snatching the football from him. We cautioned, in an article posted August 2, 2009, about “How The U.S. Treats Its Friends In Trade Disputes.” We did not elaborate there on changing the law, but Canada has experienced exactly what has now happened to China, and it has left a lasting impression on Canadians.
To overcome what it interpreted as an intractable bias against foreign countries and entities in U.S. courts, Canada successfully negotiated an alternative dispute resolution system for trade cases, Chapter 19 of the Canada-U.S. Free Trade Agreement, that became Chapter 19 of the North American Free Trade Agreement (“NAFTA”). Chapter 19 creates binational panels of trade experts from both Canada and the United States to replace the U.S. Court of International Trade for appeals of administrative determinations on countervailing duty and antidumping investigations at the Department of Commerce and the U.S. International Trade Commission. The binational panel decisions cannot be appealed except for limited “extraordinary challenges” brought by the governments for gross panelist misconduct or ultra vires panel actions that threaten the review process, so the panels replace the Court of Appeals for the Federal Circuit as well as the Court of International Trade.
Chapter 19 came into effect in 1989 and Canada won some of its first appeals to binational panels within the year. The United States promptly began to curtail the authority of Chapter 19 panel decisions. The Department of Commerce refused to recognize panel decisions from one administrative review to another, forcing Canadian entities to appeal every year determinations finding certain programs to be countervailable subsidies after binational panels had found, in the previous year, that they were not. This practice did not deviate radically from the Department of Commerce’s tendency to ignore CIT decisions as well, but Canada had thought that the Free Trade Agreement would mean greater comity.
Canada found the United States continuously ignoring binational panel decisions. When binational panels decided that the United States Customs Service had no legal authority to collect more than $1 billion in duty deposits, the United States refused to return the money to Canadians as the law seemed to require. The United States used the money as leverage to force Canada into a settlement of a case that Canada had won.
Most egregious, perhaps, and most consistent with China’s experience now, Congress used the occasion of implementing trade liberalization – the Uruguay Round Agreements Act of 1994 – to enhance protectionism, explicitly changing trade rules in the law to reverse adverse judicial decisions in the ongoing feud with Canada over softwood lumber. A section of the trade law, 19 U.S.C. § 1677(A)(5A)(D)(iii), was scripted by U.S. petitioners expressly to overcome decisions favoring Canada in trade remedy judicial appeals.
During the last war over softwood lumber, the United States forced Canada into extraordinary challenges under NAFTA and into U.S. courts to enforce NAFTA and WTO decisions. The United States turned its defeats at the WTO into opportunities to rehabilitate rejected agency determinations. Matters were prolonged for years while Customs collected deposits on duties that would never be owed. The United States accumulated $5.5 billion while bleeding out the cash flow of Canadian companies.
Canadians became completely discouraged. No matter how many times they won legal decisions, the United States kept collecting and holding onto their money. The dispute dragged on for five years. All the while, Canadians remembered well how the United States was willing and able to change the laws when Canadians had enjoyed legal victories, or to interpret laws in novel and doubtful ways.
Nor was the experience with the Uruguay Round implementation entirely new. The Department of Commerce, invoking Section 304 of the trade law, had imposed “interim measures” against Canadian softwood lumber in October 1991, collecting duty deposits, without a petition, self-initiation, nor a preliminary determination. It took two years for an international panel of the General Agreement on Tariffs and Trade (“GATT”) to find this action “inconsistent with Article 5:1 [of the GATT]. The United States then did nothing to comply with the GATT decision. This experience, too, Canadians remembered many years later.
Eventually, Canadians gave up, entering an agreement in which they handed over $1 billion to the United States, half of which was given to the U.S. industry that had lost the legal battles. It was not the first such cash payment to settle a trade dispute (Mexican cement companies paid $150 million), but it was the first not to result in free trade. The Canadians accepted managed trade at higher duty rates than prevailing at the time of the settlement when the legal process had promised free trade. The United States persuaded Canadians that, in the end, they could not win, no matter how much the law supported them. International rulings could not be enforced, and the domestic law could always be changed.
The United States deployed a powerful combination of actions against Canada, defying adverse legal decisions, collecting and withholding money illegally, changing the law. In the end, the United States got its way, not by celebrating the rule of law, but by bending the law to its will. Nothing impressed Canadians more negatively than completing a cycle of the judicial process only to have the law changed.
China Is Not Canada
In addition to the common lessons for China and Canada from different cases – that participation in the judicial process is no guarantee of a fair outcome – there are lessons, too, from the same cases. To pursue subsidies allegations against a non-market economy, the Department of Commerce adopted a methodology in parallel to its antidumping methodology for NMEs. Eschewing values in an economy with no market, the Department has looked to values in other countries. These surrogate values are meant to substitute for values in China that cannot be relied upon absent market forces.
The caprice in selecting surrogate values is perhaps inescapable, but the Department of Commerce has been aggressive in abusing the virtually unlimited discretion it enjoys with a silent statute. The NME methodology for antidumping has statutory rules concerning the selection of surrogate values. Because no statute ever authorized countervailing duty investigations in NME countries, there are no rules. H.R. 4015’s pithy two pages introduce none.
In the countervailing duty investigation of Laminated Woven Sacks, the Department used land values in Bangkok as surrogates for rural Shandong Province. The Department did not even acknowledge in its final determination the testimony of a land use expert that such comparisons of land values across countries and between urban and rural areas are nonsensical.
The Department of Commerce justified its use of out-of-country benchmarks to evaluate subsidy allegations against products from China by citing its final determination in Softwood Lumber from Canada, the very trade dispute in which the United States kept changing the rules. There, the Department had reasoned that provincial government ownership of Canadian forests meant excessive government control of the market and prices, preventing the Department from measuring alleged subsidies. The Department therefore selected prices from the United States, “cross-border benchmarks,” effectively treating Canada as a non-market economy.
A Canada-U.S. Free Trade Agreement binational panel had struck down the cross-border benchmarks in a previous iteration of the dispute over softwood lumber, and a NAFTA panel, more than a decade later, rejected them again. The WTO Appellate Body ruled that out-of-country benchmarks might be justified in some cases, but not in this one. Claiming the WTO rejection of the cross-border benchmarks in this case to be an approval of cross-border benchmarks in principle, the Department of Commerce persisted in using them until Canada capitulated more generally for a settlement.
The Softwood Lumber final determination – repudiated by a binational panel and hardly endorsed by the WTO – has been the legal basis for the Department of Commerce’s methodology in applying surrogate values to China in the subsidies cases that the U.S. Congress has now blessed. The legislation never addressed this issue at all, and China has failed to challenge judicially this fundamental infirmity in the legal process. The Chinese countervailing duty cases are, therefore, the direct progeny of the U.S. treatment of Canada, its best friend and leading trade partner.
Although China is experiencing what Canada has experienced, China is not Canada. Four decades have passed since Canada underwent a drastic reappraisal of its relations with the United States and decided it had to diversify, only to conclude in a Royal Commission Report thirteen years later that Canada would always be dependent on the United States and needed to secure access to the American market. The free trade agreements were supposed to provide that security, but once binational panels began ruling in favor of Canada, the United States hastened to change, in fact and in legal interpretation, the terms to which it had agreed.
The United States has always taken Canada for granted. Canada has not always had to accept that relationship, but it has almost always elected to do so.
The United States cannot now, and never will be able, to take China for granted the way it does Canada. China will not bend so easily to the American will. During the last decade it has been chic in Canada to talk about a foreign policy that “punches above its weight,” highlighting the contradiction between Canada’s prosperity and international influence, on the one hand, and its very small population, on the other. China, by contrast, is thought not to punch its weight at all, still presenting itself partially as a developing country not ready for a full international role. Yet, the Chinese economy already surpasses Canada’s in size and is second only to Canada’s in two-way trade with the United States. Canada will never be a regional power in a region with the United States; China is already a regional power and is growing more powerful.
The United States cannot reasonably expect China to accept the kind of international trade treatment it has gotten Canada to accept. China will have no less a memory of what has happened, and may have no less bitterness that, having played by the rules and participated in the process, China had to face the United States simply changing the rules. But unlike Canada, China will not accept merely what the United States will permit it to have.
The Dangers Of What Has Been Done
Notwithstanding the celebration of bipartisanship and the suggestion of national unity against China in legislating H.R. 4015, the United States has embarked on a perilous course. Following the way it has treated Canada, the United States risks a trade war and endless antagonism with China. It risks, too, the whole international trading system now defined by the WTO, which the United States carefully has built over the last sixty-five years.
It is hazardous to exaggerate U.S. dependence on China as the leading creditor and emerging export market for the United States. China, on many dimensions including trade, is dependent on the United States. Nor should one romanticize the role China plays in the international marketplace. China’s economy is largely controlled from the center and the government does try to pick winners and losers. Notwithstanding protest and denial from China’s Minister of Commerce, there are instances when the appropriate question is not whether the state subsidizes, but whether those subsidies are actionable under U.S. and WTO laws and obligations.
The United States will remain for many years to come a greater power than China in virtually every respect. But unlike Canada, whose ambitions have been contained in a desire to be a faithful and trusted friend and ally, China’s ambitions are to be America’s equal. Probably nothing more; certainly nothing less.
China could interpret this most recent experience as a reason to give up on the rules, to bow out of the judicial processes. To a startling degree, that is what has happened with Canada.
China could devise ways to retaliate or, perhaps worse, imitate American conduct. China will not be inclined from the overheated rhetoric in the United States to conciliate, and it surely will not, like Canada, capitulate. The United States does not need a hostile or antagonistic China, and China will not benefit from a trade war with the United States. This latest episode, however, could be a turning point, as it was for Canadians who harbor an eternal resentment about the American willingness to change the rules when the United States does not like an outcome. Crowing about changing the rules after losing a legal proceeding is no way for the United States to avoid alienating the Chinese the way it has alienated many Canadians. To most Americans, it may not matter how Canadians feel. They still bend. But this time, with China, the United States is dealing with a much less forgiving and compliant friend.
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This week we present Part Two of “Nothing Unites The United States Congress Like China (And Not In A Good Way): Treating China Like Canada (Maybe Even Worse).” It is entitled, “The Broken Promise To China.” Part One, entitled “Rewriting Subsidies Law To Fit Chinese Facts,” was posted last week.
The Broken Promise To China
Entry into the WTO a decade ago has paid off handsomely for China, enabling its trade to flourish and accelerate its economic growth and development. However, a critical element of China’s accession was acceptance of the rule of law. China was required to accept the arbitral procedures and consequences of WTO membership, but reciprocally was promised the benefits of those procedures. Not long after its accession, the United States and other countries brought cases against China. China quickly joined other countries challenging American safeguards against steel, and soon thereafter began to bring cases against the United States and other countries on its own.
Nothing could be more satisfying to proponents of the international rule of law than to persuade a country operating outside that framework for more than a half-century to change its ways and enlist in the procedures of the international community. China was quick, in the first cases brought against it, to accede. Instead of availing itself of the full and often protracted means of delaying undesirable outcomes, China promptly settled cases, acknowledging with little dispute when the complaints against it seemed justified.
It took longer for China to appreciate that generosity with the rules typically is not reciprocated in the WTO, least of all by the United States. The United States normally resists claims against it through every procedural device and interpretation possible. Perhaps the most celebrated example is the antidumping technique of “zeroing,” which the United States lost before the Appellate Body of the WTO in 2004, yet has found ways to continue the practice, in one form or another and despite more than a dozen WTO cases brought against it, since it first lost before a WTO panel a decade ago. The United States has insisted that it plays by the rules and that China does not. To the extent that China has been playing by the same rules as the United States since its accession to the WTO, it has played by the same rules differently and generally not as characterized by the United States.
The WTO is not the only forum in which China had to be persuaded to participate as a price and privilege of conducting its affairs according to the rule of law. Until November 2006, trade remedy cases against China in the United States did not technically or formally involve the Chinese Government because they were always and only antidumping cases. Antidumping allegations revolve around setting prices, which as a matter of the antidumping law is done by companies, not governments. Once the U.S. Department of Commerce began accepting countervailing duty petitions, however, the Chinese Government could not remain on the sidelines. The allegations necessarily involved government activities and programs, and even were it not to avail itself of legal rights, the Government of the People’s Republic of China would have to answer questionnaires and be involved in the investigations.
China was far more reluctant to avail itself of the judicial institutions and procedures of the United States than it had been of the WTO. For all foreign governments there is a hesitation to be a party in U.S. courts and submit sovereignty to the judgments and authority of U.S. judges. For six years, the Government of China has avoided initiating legal procedures in trade matters in U.S. courts, but with caution and reluctance it has begun to participate, conspicuously as an interested party in the GPX case.
Lawyers representing the Chinese Government in countervailing duty cases have urged the Government to participate in the domestic judicial process of the United States. The WTO is slow and its remedies, prospective only, are limited in time, scope, and character. At best, a prevailing party can impose tariffs on products of a losing party. Because disputes are over imports and exports, the merchandise subject to WTO compensation (commonly called “retaliation”) is not the merchandise subject to the dispute. Consequently, the WTO resolves disputes, when parties do not capitulate, through collateral attacks on other merchandise. Often the consumers of the prevailing country are the losers.
Domestic judicial procedures in the United States can move more quickly than the arbitral procedures at the WTO, and remedies are more generous and comprehensive. Deposits being held can be returned with interest, whereas a WTO order cannot see to the return of deposits at all. Obstacles to trade can be removed swiftly. Agencies can resist judicial orders for a long time but, in most instances, the U.S. market can reopen for subject merchandise more quickly than from decisions at the WTO because all of the procedural protections the agencies enjoy domestically they enjoy at the WTO in addition to the WTO’s own procedural obstacles for a complaining country. At the WTO there can be almost endless contention over remedies, whereas prescribed remedies in domestic law are known early in the process even though it may take a very long time to implement them.
These preferable remedies of the domestic judicial process are valid only when the process is fair and transparent and all the parties have reason to believe that they will be treated equally under the law. In general, U.S. judicial proceedings live up to this promise and, in the GPX case, did so for China.
The promise to China of reward and fair treatment from playing by the rules is being broken and, ironically, it is China standing accused of a disregard for the rule of law. According to the Ranking Member of the House Ways and Means Committee, Sander Levin (D-Michigan), “China is tilting the field of competition by not playing by the rules and this bill restores a key instrument of our nation to hold China accountable.” The Ranking Member of the Trade Subcommittee, Jim McDermott (D-Washington), added to the theme, “China has been breaking international trade rules . . . Now our own courts have naively weighed in . . .” Presumably, then, China naively trusted in the U.S. judicial system. Trade Subcommittee Chairman Kevin Brady (R-Texas) asserted that the legislation “provides a WTO-consistent tool to offset these market-distorting subsidies.” Except that the legislation is not WTO-consistent and the alleged subsidies, according to the United States, have no market to distort.
China challenged the United States at the WTO and won. It joined a suit in U.S. courts and won. Congress then stepped in and, as the White House trumpeted the result, “This legislation overturns that [Court of Appeals] decision,” even though it does not overturn the decision as to the parties in the case. So much for playing by the rules.
Next: Lessons For China From Canada
This blog reported on August 30, 2009 that Chief Judge Jane Restani of the U.S. Court of International Trade (“CIT”) ordered the U.S. Department of Commerce (“Commerce”) to revoke the countervailing duty ("CVD") order on pneumatic off-the-road tires from th
e People’s Republic of China in a case titled GPX International Tire Corporation v. United States. Her reasoning was that Commerce was unable to eliminate the double-counting inherent in imposing CVDs while at the same time imposing antidumping duties calculated by using Commerce's non-market economy ("NME") methodology. Commerce appealed the CIT’s decision to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). On December 19, 2011, the Federal Circuit upheld the CIT’s decision but for different reasons than those offered by Chief Judge Restani.
The Federal Circuit held that the U.S. CVD statute prohibits applying countervailing duties to NMEs. It found:
This finding, as a matter of U.S. law, definitively prohibits Commerce from applying CVDs even in cases without a companion antidumping investigation where there is no risk of double-counting. It has much broader impact than the CIT decision that Commerce appealed because the CIT would have permitted CVD investigations and orders, denying only CVD investigations and orders simulaneous and on the same goods as antidumping orders. It also has much broader impact than the WTO ruling in China’s favor on the application of countervailing duties in non-market economy cases, as reported on this blog on April 25, 2011, because the WTO challenge was based exclusively on the issue of double-counting.
Commerce determined that the CVD law could not apply to NMEs in a 1983 steel case against Czechoslovakia. The petitioners appealed. The Federal Circuit agreed with Commerce and established the rule that CVD petitions could not be filed against NMEs in Georgetown Steel Corp. v. United States.
In GPX Tire Corporation, the Federal Circuit reviewed the legislative history and concluded that Congress was well aware that Commerce and the courts were interpreting the CVD law as being inapplicable to NMEs when Congress amended the CVD law in 1984, 1988 and again in 1994. The Federal Circuit held that congressional awareness of this interpretation, when it amended the statute, constitutes legislative ratification of that interpretation. The court reasoned that in the face of this legislative ratification of Commerce’s previous determination that the CVD laws do not apply to NMEs, Commerce is no longer free to change its mind. The Federal Circuit concluded that:
Although Commerce has wide discretion in administering countervailing duty and antidumping law, it cannot exercise this discretion contrary to congressional intent. We affirm the holding of the Trade Court that countervailing duties cannot be applied to goods from [non-market economy] countries. As we concluded in Georgetown Steel, if Commerce believes that the law should be changed, the appropriate approach is to seek legislative change.
Commerce must now wish it had never appealed Judge Restani’s decision. Under the U.S. judicial system, Judge Restani’s decision only bound Commerce in the specific case that she had decided. Commerce was free to continue to apply countervailing duties in other NME cases because the CIT does not set precedent and its decsions only govern specific cases. By contrast, the Federal Circuit’s decision is precedent that binds the lower courts and Commerce not only in the specific case before the court, but in all future cases.
Judge Restani’s decision was based on the double-counting problem and had left Commerce free to use the CVD law in any cases in which there was not a companion antidumping case. It also had left open the possibility that Commerce, in a future case, might find a solution to the double-counting problem and impose both antidumping and countervailing duties on the same product. Because the Federal Circuit’s decision is based on its finding that the U.S. statute prohibits applying countervailing duties to NMEs, it will take an act of Congress before Commerce can again impose countervailing duties on a non-market economy.
China requested a WTO panel on October 13, 2011 challenging the U.S. practice of zeroing in the 2004 antidumping investigation involving warm water shrimp and the 2006 antidumping investigation of diamond saw blades. This challenge to the U.S. Department of Commerce’s (“Commerce”) practice of zeroing to inflate dumping margins is the 10th such challenge since the WTO Appellate Body first condemned the practice in 2004.
The United States apparently recognizes that China likely will succeed in its challenge. The two countries agreed to procedures to accelerate the panel process in which the United States agreed not to contest China's claim that the measures identified in the Panel Request are inconsistent with Article 2.4.2 of the Anti-Dumping Agreement, on the grounds stated in United States - Final Dumping Determination on Softwood Lumber from Canada.
Commerce computes a company’s dumping margin in an original investigation by calculating a weighted average U.S. price and Normal Value for each model of the investigated product, then comparing the two to create model specific dumping margins. Commerce subsequently weight-averages all of those product-specific margins to calculate a single dumping margin for the company. However, before performing this last calculation, Commerce resets all “negative” margins (i.e., cases in which the U.S. Price was higher than the Normal Value) to zero. This practice of “zeroing” results in higher dumping margins than would occur had Commerce calculated a true weighted-average. In some cases, it results in a dumping order being imposed on a company when overall that company was not dumping and no dumping margin otherwise could have been found.
The WTO Appellate Body repeatedly and consistently has condemned the U.S. practice of zeroing beginning in 2004 with cases brought by the European Union involving 15 anti-dumping investigations and Canada involving softwood lumber. In those cases, the United States came into compliance for the specific investigation by making a new determination without the use of zeroing. However, until 2006 the United States refused to change its practices for subsequent and future investigations and systematically limited the application even in the immediate cases (limiting them to investigations instead of administrative reviews, for example). Thus, the United States continued to zero and the affected countries were required to bring a fresh WTO challenge in each case and even in each phase of each case. Worse, unless the amended final determination resulted in a finding of “no dumping” (as opposed to a lower dumping margin), Commerce would use zeroing to calculate the actual dumping duties to be imposed in subsequent administrative reviews. (Under the U.S. retrospective assessment system, the original investigation only sets a rate for cash deposits of estimated duties; the amount of actual duties collected is determined after importation in separate annual administrative reviews.)
In December 2006 Commerce changed its practice for new antidumping investigations initiated after that date and no longer zeros in original investigations. However, it did not go back to undo zeroing in investigations initiated prior to that date. Thus, China had to bring another WTO challenge for warm water shrimp and diamond saw blades notwithstanding nearly a decade of rulings. Moreover, Commerce continued to zero in subsequent administrative reviews, notwithstanding several WTO Appellate Body rulings that zeroing in administrative reviews is no more consistent with WTO obligations than zeroing in original investigations. Thus, even after China succeeds in its WTO challenge in these two cases, eliminating zeroing would help the companies involved only if the elimination of zeroing were to result in a finding of “no dumping” and a revocation of the antidumping order for that company. Were the new calculation to result only in a lower dumping margin, the order would be continued and the actual duty assessment would be determined in the administrative reviews in which Commerce could continue to zero. Surprisingly and without explanation, although China included subsequent administrative reviews and the recent sunset review in its request for WTO consultations with the United States earlier this year, it did not include those reviews in its request for a WTO dispute resolution panel.
China and the United States agreed to expedited procedures in which the panel would issue its decision within three months of its composition and the United States would bring itself into compliance within eight months of the Dispute Settlement Body adopting the panel’s report. As compliance in this case merely requires a recalculation, the eight months to comply is consistent with an American pattern to take as long as possible to comply with WTO decisions whose effects are strictly prospective.
U.S. Trade Representative Ron Kirk announced, on October 20th, 2011, that the United States, pursuant to World Trade Organization (“WTO”) rules, is requesting China to provide more information on its Internet restrictions. More than a week passed with Chinese media and the public paying the request little attention.
It is not surprising that China is giving this sensitive request the silent treatment. Although Kirk claimed that the WTO request relates “specifically to commercial and trade impact of the Internet disruptions,” China is likely to perceive it from a geopolitical point of view. Public communications, or propaganda, is one of the three pillars of the ruling Chinese Communist Party. Moreover, the timing of this request, whether deliberate or coincidental, is less than ideal – submitted in the wake of the Arab Spring, in which the mass public was mobilized by social media via Internet and mobile phones. Most importantly, China has little if anything to lose in extending this process, even if it could lead to a WTO dispute settlement proceeding.
Why China?
According to Google’s White Paper – Enabling Trade in the Era of Information Technologies: Breaking Down Barriers to the Free Flow of Information, more than 40 governments engage in broad-scale restriction of online information. Yet, the Office of U.S. Trade Representative (“USTR”) singled out Chinese Internet restrictions for a WTO request.
Internet based services companies, such as Apple, Facebook and Google, are playing a central role in the U.S. economy and probably in the submission of this request. Apple reported $6.62 billion in third-quarter profits, slightly below quarterly earnings expectations for the first time in years. Google’s third quarterly earnings soared to $9.72 billion and rebounded to its highest growth rate since before the 2008 financial crisis. It also added more than 2,500 jobs in the same period.
Expanding overseas is crucial to these companies’ growth. For instance, more than half of Google searches come from outside the United States, and revenues from abroad totaled $5.3 billion, representing 55 percent of its total revenues in the third quarter of 2011.
China is the largest market in terms of Internet population. The number of China’s Internet users has exceeded 500 million, according to the Economist Intelligence Unit’s data, which is larger than the total population of the European Union, and roughly twice the size of the U.S. market. More importantly, the Chinese number has been growing at double-digit rates since 2008, far exceeding the 2.5 percent to 4.5 percent U.S. growth rate.
No other market will be able to reach the size of the Chinese market any time soon. For instance, the second most populous country, India, has only 83 million Internet users, less than one third of the U.S. size. The growth rate of India’s Internet population is lagging behind the Chinese as well.
U.S. companies face challenges from Chinese Internet entrepreneurs in the Chinese market. A Silicon Valley venture capital investor – Dave McClure – recently praised his Chinese hosts as “most likely smarter and more aggressive” than their U.S. competitors. He probably went too far because the best-known Chinese Internet companies are copies of the leading U.S. high-tech companies. RenRen, which was modeled after Facebook, went public this year and is now valued at $2.25 billion as reported by the Financial Times’ Kathrin Hille. But McClure responded that, due to the vast size of the Chinese market, “it would be foolish not to copy” an idea that works.
China’s Internet Great Wall
USTR stated that the WTO request focuses solely on “commercial and trade impact of the Internet disruptions,” but it also pointed out that “the United States believes that economic and social development of the Internet globally is best served by policies that encourage the free flow of information and prioritize individual empowerment and responsibility” in its letter to the Chinese Ambassador to the WTO. Thus, the United States is aware that it is pressing China on one of its most sensitive policy issues.
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Richard McGregor, Washington Bureau Chief and former Beijing Bureau Chief of the Financial Times, and author of the widely acclaimed book The Party: The Secret World of China's Communist Rulers, has written, “[t]he party is like God. He is everywhere [in China]. You just cannot see him.” He pointed out, at a Washington, DC seminar last July, that the Chinese Communist Party actively utilizes “3Ps” – personnel (the Central Organization Department, the world’s most powerful human resources outfit), propaganda, and PLA (the People’s Liberation Army) to maintain its power. The Party has fully realized the importance of the Internet in the digital era. Not surprisingly, outsiders have complained that “China has devoted extensive resources to building one of the largest and most sophisticated filtering systems in the world.”
The United States has been actively advocating human rights abroad and sees Internet freedom as an extension of traditional human rights contained in the universal declaration of human rights: free speech, free assembly, free association and freedom of the press. Secretary of State Hilary Clinton last year stepped in when Google clashed with the Chinese government over its Internet restrictions. After Google briefed the State Department, Secretary Clinton issued a statement: “[w]e look to the Chinese government for an explanation.” Despite USTR’s reference to commerce and trade, U.S. policy on human rights is bound up with the Internet.
As propaganda plays such an important role in China, Chinese policy makers most likely would perceive the Google incident and the USTR request as events in a series of plots against China orchestrated by the U.S. government. China looks warily upon the destabilizing implications of the Arab Spring for authoritarian governments. In both China and the United States these revolutions are thought to have been fueled by Google and Facebook. It would be foolish to think that the Chinese government perceives the WTO request related only to the commercial and trade impacts of its Internet policies.
What’s Next?
USTR submitted its informational request under paragraph 4 of Article III of the General Agreement on Trade in Services (“GATS”): “Each Member shall respond promptly to all requests by any other Member for specific information on any of its measures of general application or international agreements within the meaning of paragraph 1.” According to the BNA International Trade Daily, this request could lead to a formal consultation request, which is the first step toward a WTO Dispute Settlement Body (“DSB”) proceeding. Paragraph 1 of GATS Article XXIII says: “If any Member should consider that any other Member fails to carry out its obligations or specific commitments under this Agreement, it may with a view to reaching a mutually satisfactory resolution of the matter have recourse to the DSU.”
China has little if anything to lose if it were not to respond to the U.S. request promptly. As we pointed out in previous blog articles, both the United States and China tend to exaggerate the significance of WTO DSB proceedings, and the United States treats every WTO defeat as sui generis, applicable to the immediate case and no others. Consequently, although the DSB Appellate Body issued a panel report favoring the United States in the case of market access to foreign audiovisual products (WTO DS363), China stalled for four years before taking action that would satisfy the United States. There is nothing to stop China from doing the same thing again were the United States to prevail, eventually, in an Internet case.
WTO DSB proceedings are notoriously prolonged. For instance, in Brazil’s challenge of U.S. upland cotton subsidies (WTO DS267), it took the two sides almost eight years to enter a framework for a mutually agreed solution. In the case of China, the United States spent four years trying to tackle China’s restrictions on market access of foreign audiovisual products. The United States submitted a consultation request in April 2007, and the WTO Appellate Body did not circulate its report until December 2009. In the following months, the United States “expressed concern over the lack of any apparent progress by China in bringing its measures into compliance” at DSB meetings. It was not until April 2011 that the two sides reported to the DSB their agreed procedures to implement the panel recommendations.
The United States-based Internet services companies are not likely to gain much while waiting four years for a favorable outcome, and they are not waiting. Instead, Silicon Valley venture capitalists are continuing frequent visits to China seeking investment opportunities. The WTO case may create political theater, but is not likely to achieve a legal resolution to a political problem.
A year ago, American sentiment toward China, at least as expressed by many Members of Congress, was decidedly negative. Pending legislation included denunciations of China’s subsidization of exports and currency manipulation. Some Members of Congress wanted to restrict all Chinese imports. The slow American economic recovery was blamed to a significant degree on China.
Now, with Americans more focused on domestic economic woes than on any other single concern, complaints about China have receded. Illegal immigrants in the United States seem more of a target than anyone outside the country, even though there is no evidence at all that they have contributed to unemployment or economic stagnation. Historically, Americans tend to blame foreigners for economic hardship and there is a spike in trade remedy actions against foreign products. Not this time. Neither China nor anyone else but Americans themselves (and perhaps the aliens within), especially congressional leaders, seem to be blamed.
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Still, China remains an available target, or at least a convenient means for collateral attacks on other trade priorities. The Obama Administration recognizes three pending trade agreements, with Korea, Colombia, and Panama, as potential stimuli for an expansion of exports that would create jobs. After three years renegotiating them to satisfy moderate Democrats as well as trade unions, the Administration declared them ready for congressional passage many months ago. Republicans, claiming to be champions of free trade, zealously advocated for their immediate passage until the Administration was satisfied with them. Then, Republicans launched a political campaign to deny workers displaced by trade agreements the Trade Adjustment Assistance (“TAA”) that for many years had enjoyed bipartisan support because the Administration linked TAA to passage of the trade deals.
The Administration may have pacified Democrats with the renegotiations and persuaded them that the trade agreements would bolster the economy, but not enough to prevent the insinuation of China as a barrier to final congressional approval. House of Representatives Minority Leader Nancy Pelosi (D-Calif.) has demanded a House vote on a bill retaliating against alleged Chinese currency manipulation as a pre-condition for voting on the trade deals. Her gambit, moreover, seems to have some companion support on the other side of Capitol Hill, where a small group of Senators plans to introduce a similar bill to retaliate against alleged Chinese currency manipulation. No such bill currently is pending, and none was passed in the last year, but Senator Jay Rockefeller (D-W. Va.) is proposing one, focused as much on a complaint about the WTO’s Appellate Body as on China.
With a crowded legislative agenda, bills on Chinese currency not yet fully conceptualized are not likely ever to become law. The very threat of them, however, could impede other international trade. The attempted linkage to the trade agreements with Korea, Colombia, and Panama is typical of congressional legislative tactics, but also a desperate sabotage of the Administration by its own political party.
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The Administration wants and needs the trade deals. Republicans have wanted these trade deals, but have not wanted President Obama to enjoy the satisfaction and potential electoral help from passing them. The President could not pass them relying on his own party. At the moment when he seemed to have struck an agreement with Republicans to pass both TAA and the three free trade agreements, some Democrats seem to be seeking ways to stop him. Their general weapon of choice appears to be China, which Obama has not wanted to antagonize, and more specifically the currency, which his economists generally have advised not to pursue more than diplomacy has been pursuing already.
China, then, is no longer the principal target in bills about currency manipulation. In the Senate, the more fundamental complaint is about the WTO, and in the House the intended target is trade liberalization. In neither case is China likely to be used effectively, but it surely must be to China’s dismay that it is being used in these debates at all.
Other pending legislation regarding China arises more in the context of national security or simple nationalism: a resolution that would ban Chinese manufacture of parts for the President’s helicopter fleet; a ban on technology transfer from NASA. There is more than one “sense of” resolution, which has no legal consequence. Meanwhile, the Administration is promising China more from its export control reform than it can or will deliver, but at least it is actively gesturing in a desired direction.
Unlike a year ago, the legislative spotlight illuminating grievances over the economy and trade is not on China. Indeed, what some call the “Manchurian Candidate” for President, former Ambassador to China Jon Huntsman, has suggested that the United States must look to itself before looking to China for explanations of economic difficulties. The current focus should not be misinterpreted: the bills about China are not about China.
There are many reasons why. The most important is domestic. The summer spectacle of eighty-seven congressional freshmen holding the country’s debt ceiling hostage concentrated minds at home. Imminent possible failure of European banks, and of whole countries, has shifted focus from east to west. Renewed Wall Street bonuses and continuing home foreclosures are reminders of domestic greed, not foreign malevolence. The national conversation is not about China.
There is also a powerful explanation in the deliberate foreign policy toward China of the Obama Administration. Much has been done to routinize U.S.-China diplomacy and reduce earlier tensions. Even as there have been few concrete accomplishments, there have been many calming meetings. The Strategic and Economic Dialogue convened successfully. A summit of Presidents in Washington in January helped Obama recover from his doubtful Asian outing last November, and squads of potential Chinese investors have been visiting the United States, nurturing hope that some of the massive foreign reserves accumulated by China may yet find their way back to the United States. Better in the form of investments than loans or purchased bonds. China, at least rhetorically, has recognized that it cannot continue to attract foreign investment without making some foreign investments of its own.
In November, while in Asia, Obama called for resumption of the Doha Round. His Administration now admits that this objective is not likely to be fulfilled. With its failure will be a failure to capitalize on the imagined global trading rewards that might have energized the world’s economy, and diminish even more the instruments thought to be available for economic recovery. In place of multilateralism, bilateralism is a modest but nonetheless significant alternative.
Successful partnership with China becomes more important with every multilateral setback. Diplomacy that routinizes the relationship, that removes it from a critical spotlight, inevitably makes the partnership more attractive to China. The trick, however, must be to avoid appearing weak, or desperate, to China. As much as the United States needs China, China needs the United States. As congressional complaint about China is not about China, friendship with China is not necessarily so much about China either. Both are about solving economic problems felt at home but driven by forces as foreign as domestic.
And so it is for China, too. China needs the United States as much for China as for the United States, for domestic as well as foreign purposes.
Changes in American politics about China from a year ago say more about the United States than about China or U.S.-China relations. It will be important for both countries to recognize and understand the impact of domestic politics on their relations, and on the needs they have for each other.
The World Trade Organization’s Appellate Body issued a report on March 11, 2011 in which the People’s Republic of China broke a skein of legal losses by recovering some of the ground taken by a WTO panel last autumn. The Chinese Government loudly celebrated a major victory, while U.S. Trade Representative Ron Kirk denounced a “clear case of overreaching” in a “deeply troubling” decision of the Appellate Body.
Were one to listen to the rhetoric of the two governments too closely, one might perceive the WTO proceedings as more of a political than legal affair. The Chinese did not win that much, and the United States did not lose that much. There had to have been powerful political motivations for the over-wrought pronouncements of the two sides.
China elected to consolidate complaints regarding the final Department of Commerce (“Commerce”) determinations in four different antidumping/countervailing duty investigations – hence, eight investigations into four different products – into one WTO complaint. It did not appeal any of the determinations to the U.S. Court of International Trade (“CIT”), and did not challenge any of the four final determinations of the U.S. International Trade Commission in any forum. Hence, what could have been twelve WTO cases and a like number of CIT cases came down to one WTO case.
Double Counting
China complained of many things in the WTO case, but here, too, there was selectivity. The only objection raised regarding the four antidumping final determinations was that Commerce was double-counting remedies, applying duties twice on the same cost or expense. Allegedly subsidized electricity, for example, was countervailed, but also compared to an external surrogate value as an inflated cost in the dumping case and assigned part of the antidumping margin. Meanwhile, China challenged virtually all of the subsidy findings.
The CIT already had ruled that Commerce could not investigate simultaneously for the same merchandise, over the same time period, both antidumping and subsidy allegations, because applying a non-market economy methodology in the antidumping investigation yields a double remedy. Commerce had concluded, in 2007, that it could investigate subsidy allegations in a non-market economy, notwithstanding the definition of subsidies as government financial contributions that are market-distorting.
The CIT did not deny Commerce its desire to conduct subsidy investigations of non-market economies. Instead, it ruled that Commerce would have to figure out how to avoid double-counting when conducting antidumping and countervailing duty investigations simultaneously.
The CIT decision, in the OTR case (GPX Intern. Tire Corp. v. United States, No. 08-00285, 715 F.Supp.2d 1337 (Ct. Int’l Trade 2010)), is on appeal before the Court of Appeals for the Federal Circuit (“CAFC”). The Appellate Body decision ought to strengthen China’s hand in that appeal, albeit that the Chinese Government is not a party. U.S. courts have never treated WTO decisions as dispositive, nor even necessarily persuasive, but a NAFTA panel did apply the Charming Betsy doctrine to require Commerce to interpret U.S. law compatibly with international obligations whenever possible. The CIT here has said subsidy investigations of non-market economies are permissible, but not in conjunction with dumping investigations. The CAFC, were it to uphold the CIT, would rule consistently with the international obligation articulated in the Appellate Body report. There is no U.S. court ruling putting U.S. law at variance with the international obligation.
This Chinese victory, then, already had been won. The CAFC could have, and still could, overturn the CIT. The CAFC could do so without reference to the Charming Betsy doctrine and applicable precedent unless the doctrine were invoked and well-argued by counsel for the Chinese party. Even then, the CAFC ruling, not the Appellate Body report, will determine U.S. law on this question.
Chinese authorities often still insist that the United States cannot investigate subsidies allegations while denying China market economy status. That issue, however, is not in play in the Appellate Body report. Nor would its resolution solve China’s problem with respect to Commerce’s methodology.
Extending a cramped WTO Appellate Body report interpreting Article 14(d) of the Subsidies and Countervailing Measures Agreement in Canada’s complaint against the United States over the use of cross-border benchmarks for analyzing softwood lumber prices, Commerce has treated China in countervailing duty cases the way it attempted to treat Canada. Inasmuch as Canada could not be accused of being a non-market economy, Commerce there established that the methodology of using prices from outside a country in a subsidies case is not exclusive to non-market economies. China did not seem to argue at the WTO any defect in Commerce’s interpretation of the Appellate Body’s softwood lumber report. By accepting the interpretation, it sealed its own fate.
The recognition now of China as a market economy would change very little, if anything, for China in countervailing duty cases. Applying the reasoning applied to Canada, Commerce would continue to select price benchmarks from outside China, thereby utilizing the same methodology it uses now. Indeed, China’s pleading for market economy recognition could lead to Commerce’s solution to the puzzle it was presented by the CIT: as with any other market economy, Commerce could bring dumping and subsidies cases simultaneously against a China recognized as a market economy, and nonetheless could use a countervailing duty methodology founded on the same principles as the NME dumping methodology.
For these reasons – that the CIT already had delivered this victory; that recognition as a market economy could solve Commerce’s problem more than China’s – both China and the United States have exaggerated the significance of the Appellate Body report. There may be powerful political reasons on both sides for the exaggeration, not to be found in a reasoned interpretation of the law.
The Other Chinese Victory
The other Chinese victory accorded by the Appellate Body on March 11 is little more revolutionary than the decision on double-counting, but it may have a greater impact. Commerce has been treating automatically all Chinese state-owned enterprises (“SOE”) as “public bodies,” controlled and directed by the government. This operating assumption enabled Commerce to treat the provision of inputs in the manufacturing process from SOEs as financial contributions because they automatically came from the government. Then Commerce only had to show that the price of the input, when compared to a price from outside China, was less in order to measure the size of the subsidy.
Notwithstanding the automatic treatment of SOEs as public bodies, Commerce already was completing the analysis as to whether SOEs provided inputs at prices that would make them countervailable. The Appellate Body decision will require a more complete analysis every time. Instead of assuming government control, such that the SOE is acting as a public body, Commerce will have to develop evidence that the provision of the input is not a purely economic or commercial act.
The Uruguay Round Agreements recognized that state-owned enterprises could be commercial and had to be treated without assumptions about state direction or control. Commerce’s automatic judgment was at variance with this recognition; the Appellate Body corrected Commerce by requiring it to respect the proposition that state-owned enterprises are legitimate entities in the world trading system. Were it otherwise, the United States would have a very difficult time dealing with General Motors and Chrysler, among other examples. Consequently, the Appellate Body did not take a position that could be considered very remarkable.
The United States pretends that other countries have SOEs, but that all enterprises in the United States are private. As long as that fiction is maintained, the United States will continue to treat SOEs as different and as state-controlled, whether to greater or lesser degrees. Beyond trade, the Appellate Body report theoretically could have additional impact were the definition of the SOE as a non-public body to evolve and become more accepted in the United States, but the Appellate Body report, as a legal matter, pertains only to trade, and only to subsidies disputes, nothing more.
The Losses
China lost everything else. All bank loans from state-owned banks automatically are suspect and subject to comparison for loan terms with banks outside China. There was no effective challenge to the U.S. use of out-of-country benchmarks because China’s complaint was focused on the principle rather than the particulars. The principle of comparing land values to property outside China was endorsed by the panel and left untouched by the Appellate Body; the absurdity of comparing rural Shandong Province to urban Bangkok was permitted without comment. Every other Commerce judgment about subsidies was upheld.
Because none of these issues has been adjudicated in U.S. courts, they all remain subject to challenge. The WTO did not specifically adjudicate them. However, Commerce will continue its practice with respect to all of them, and over the next cases will establish administrative practice difficult for China, as a result of neglect, to overcome.
Winning And Losing Less Than Imagined
The WTO’s decisions have only prospective effect. In addition, the United States treats every defeat as sui generis, applicable to the immediate case and no others. The United States likely will ignore the decision on double remedies, preferring the decision of the Court of Appeals. It may ignore the decision on SOEs except for the administrative reviews in the four cases brought through the WTO appeals process. It likely will promise implementation, take the maximum “reasonable period of time” possible, fail to implement to China’s satisfaction, and oblige China to request a Section 21.5 compliance panel. Consequently, it could take China years to achieve compliance from the Appellate Body decision, and then may enjoy a very limited victory. All the while, the United States Congress will decry the Appellate Body and seek to build pressure against adverse decisions like a bench coach harassing basketball referees. It was not inappropriate, as seen from Congress, that the Appellate Body Report came with March Madness.
Such a limited outcome will be the product of Chinese decisions to rely on the WTO instead of U.S. courts; to consolidate cases instead of appealing them separately; of exaggerating publicly its victory so as to arouse public (and consequently political) resistance in the United States. It will also be the product of the WTO’s institutional weakness, limited to prospective and indirect enforcement, and then only with the cooperation of the parties.
It will be important for both parties to reduce popular expectations and to manage disappointments. Otherwise, in their competition to celebrate the virtues of the WTO, they will undermine the very institution upon which both, for political if not legal and economic reasons, have decided to rely.
Elliot J. Feldman was the keynote speaker opening an applied International Trade Workshop in Beijing on March 21, sponsored by the University of International Business and Economics of Beijing and the United Nations Conference on Trade and Development (“UNCTAD”). The conference, on “Non Tariff Measures and Chinese Foreign Trade,” comes at a time when there has been growing concern about global protectionism advanced by non-tariff measures, especially in China. UNCTAD is launching a major survey effort to identify non-tariff measures and to design strategies to deal with them.
Dr. Feldman was the only attorney invited to the workshop, the only speaker during the two-day conference from the private sector, and one of only two Americans. Others were university professors, international and Chinese civil servants, almost all economists specializing in trade and international development. The second American on the program was Michael Ferrantino, the Lead International Economist at the United States International Trade Commission.
Dr. Feldman emphasized how difficult it can be to identify non-tariff measures and to distinguish them from legitimate concerns about public health and safety. He shared experiences from his practice in which non tariff measures have played an important role in international trade disputes, applauded the project to create a taxonomy of non-tariff measures globally and to seek a strategy for minimizing them, and urged the workshop participants to promote an understanding of the underlying political and economic motivations for erecting such trade barriers so that compromises can be reached protecting public health and safety legitimately while minimizing impediments to international trade.
Please click here to read the text of Dr. Feldman's address.
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The Trade Situation: Pending Bilaterals
President Barack Obama told his Asian hosts in November that he would like to see the Doha Round of multilateral trade negotiations resume as soon as possible, an extension of the campaign initiated in his first State of the Union Address to double American exports over the next five years. After declaring the midterm elections a “shellacking” due to a slow economic recovery, the President converted his long-planned Asian trip into a quest for jobs that would depend upon market opening for American goods. He tied trade liberalization and trade agreements together with economic recovery by promising to conclude a bilateral Free Trade Agreement with Korea while reconstituting multilateral talks.
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The American press blamed China and India for the collapse of the Doha Round eighteen months ago, and the apparent alliance between China and India in trade talks suggested a potentially significant development in world affairs. However, the Doha Round failure should have been ascribed as much to the United States and the European Union as to any of the developing countries. The Doha Round began as the “development round;” when developing countries bordering the Pacific Ocean found the deal on the table unacceptable, above all because of agricultural subsidies on both sides of the Atlantic, it was for the more developed countries to change and adjust, not to assign blame for a global disappointment.
The President enters trade terrain, with his call for resumption of the Doha Round, with little credibility. During his first two years in office, he never asked Congress for, and never seemed particularly interested in, trade negotiation authority. Without it, Presidents have minimal negotiating leverage with foreign governments because presidential signatures on agreements cannot be trusted. Congress retains, and typically delivers, the last word.
President Obama, not deliberately, has proved the point about trade negotiation authority, although by the end of 2010 his profile had improved as it had in almost every domain. He inherited three signed bilateral trade agreements; as he begins his third year in office, he has brought none of them before Congress. He seems to have persuaded Panama to revise its deal to satisfy congressional concerns, but has given no indication when he might present the deal for congressional approval. He left Korea without a revised agreement that he determined he had to have to satisfy Congress, souring the entire Asian expedition, although he seems to have solved these negotiating problems after his return. Nevertheless, the Korean deal must still go before Congress, which can still change it, and more than one prominent Democrat, such as Senator Sherrod Brown (D-Ohio), already has declared it unacceptable. The United Auto Workers have endorsed, but the AFL-CIO has denounced it. And even though some major American manufacturers, such as Caterpillar, have called the Colombian agreement the most important of all for them, there is no hint at all when it might be considered for approval.
The President obviously did not think he could count on a Democratic Congress to pass these trade deals, and while Republicans tout free trade, they are not likely to deliver the Democratic President any immediate trade victories. So, even as the Panamanian and Korean deals may be ready, products of President Obama’s negotiations to satisfy essentially Democratic Party and constituent demands, they were not presented to the extraordinarily productive lame duck Democratic Congress, and could still be rejected in a more Republican session.
The Trade Situation: Doha And Agriculture
When the Doha Round talks fell apart in September 2009, American commentators blamed Asians, especially China and India, but the core dispute was over agricultural subsidies, especially American and European. Some trade analysts think the whole multilateral project is dead, or look to more modest enterprises such as the Trans-Pacific Partnership negotiations, but President Obama specifically said he wanted to reopen the Doha Round, and he may have a significant opportunity to do so, in major if not ironic part courtesy of the shellacking.
President Obama’s first budget, eight months after the collapse of the Doha Round under President Bush, featured an assault on agricultural subsidies. Agriculture Secretary Tom Vilsack emphasized that “direct [farm] payments were never intended to be around this long,” noting that their extension already had cost taxpayers $5.2 billion per year for twelve years. Writing in the Des Moines, Iowa Register, Vilsack assured that “cutting these subsidies does not leave these farmers without a safety net [b]ecause these cuts in farm subsidies do not affect access to other farm programs. . .” Budget Director Peter Orszag emphasized “reducing subsidies to large farmers” in order to save money. When asked how he would cut the growth in the federal deficit, House Financial Services Committee Chairman Barney Frank told the press, “The President proposed cutting back on agricultural subsidies,” but also complained, “some of the great budget hawks in both parties killed that right away.”
President Obama was on the side of China and India, seeking to cut agricultural subsidies. He couldn’t do it because the bipartisan budget hawks often came from rural states and would not give up their bounty. He could not resume the Doha talks, however, without doing something about agricultural subsidies.
The Tea Party To Obama’s Rescue
It is here that the Tea Party may be coming to his rescue. Tea Party members have said they have no more patience for Republicans than for Democrats who do not share their views. Although those views typically are more coincidental with the Republican Party, Tea Party members elected to Congress insist they are as ready to challenge Republicans as Democrats; in the primary elections they toppled several Republican Party incumbents and nominees.
The core of the Tea Party’s views is to cut big government, and to slash government give-aways, of which the biggest long-standing give-away of all is agricultural. Indeed, some in the Tea Party already have declared agricultural subsidies specifically as a target.
During the 2010 campaign, Kentucky and Tea Party Senate candidate Rand Paul told a Kentucky Farm Bureau audience that he wanted to repeal all agricultural subsidies that pay farmers not to farm. He said such a move would save $1 billion annually, and invoked agricultural subsidies specifically as targets to reduce the federal debt. Saying, “I don’t think federal subsidies of agriculture are a good idea,” Paul urged that farmers grow more, not less, and increase exports. He declared support for the trade agreements with South Korea, Panama, and Colombia because they would enable Kentucky farmers to export more food.
Many a Republican ox would be gored by renewal of the President’s assault on money for big farmers. While Paul was attacking agricultural subsidies, his future Kentucky seatmate and Senate Minority Leader Mitch McConnell (R-Ky) said, “I have voted for most of the farm bills, yeah, and I try to help Kentucky agriculture.” Thus, the President and the Tea Party, on this subject, are singing from the same hymnal, which most Republicans find off-key. Both the President and the Tea Party see an opportunity to save money by cutting farm subsidies, and while the Tea Party has said little about international trade, Paul’s statements demonstrate general support, if only to open foreign markets for American products, which is precisely President Obama’s interest. Tea Party adherents would have no objection to a growth in jobs, putting Americans to work, making goods foreigners would buy in more open markets. Those markets will open only with freer trade, and freer trade will be possible, at least through the Doha process, only with reduced American and European agricultural subsidies.
Of course, Europe has shared the American spotlight in spending public money on private farmers. Per capita, European largesse is notably greater than American. But Germany, Europe’s economic engine and principal financier of the Common Agricultural Policy, has long wanted to reduce such contributions. Now that the threatened defaults of Greece, Ireland, Portugal, and Spain all point to Germany to save the Euro Zone, the time for Germany to induce reductions in agricultural subsidies may well have arrived.
As the Doha talks imploded, it became apparent that Europeans would not cut back agricultural subsidies until the United States did. It also became apparent that Europeans could no longer afford them. The United States and Europe, consequently, needed a mutual reduction, and passage of the 2008 Farm Bill in the United States, confirmed by the summary rejection of the Obama budget in 2009, made that step impossible. Now, with non-partisan Tea Party sympathy for the President’s budget-cutting objective, the crucial step may be possible.
It is not as if farm subsidies have not been cut before. There was a significant rollback in the 1996 Farm Bill under President Clinton, but subsidies were restored and expanded twice under President Bush, demonstrating that farm subsidies are more Republican than Democratic. Enhancement of Republican presence in the House of Representatives thus is not likely to help the Democratic President, but the themes of government give-aways, deficit reduction, and restoration of trade opportunities ought to be irresistible to many in both parties.
Were President Obama to align with the Tea Party over agricultural subsidies as a means to reduce the deficit, he might split Tea Party adherents from the Republican Party while embarrassing Republicans demanding cutbacks in federal expenditures. As in 1996, a Democratic President could restore sanity to the Farm Bill, and as in 1996, American cuts in agricultural subsidies would almost certainly lead to corresponding cuts in Europe. Were both the United States and Europe to make serious reductions in their agricultural programs – the United States to reduce the deficit, Germany to free up resources to rescue the Euro Zone -- the Indians and Chinese may find the hope and satisfaction they need. Doha then could be resurrected, and the Obama Administration could discover, courtesy of the Tea Party, that it can fashion a trade policy, one that could satisfy both China and India, after all.
Sophocles wrote, " The keenest sorrow is to recognize ourselves as the sole cause of all our adversities,” which probably applies to the Watanabe Group Companies of China in a recent antidumping determination by the U.S. Department of Commerce (“DOC”).
DOC published in an October 18, 2010 Federal Register notice its preliminary results in Certain Lined Paper Products (“CLPP”) from the People’s Republic of China, for the third administrative review of that antidumping order. DOC imposed a 258.21% dumping rate on Watanabe, based on “adverse facts available,” because DOC believed that Watanabe submitted false documentation at verification.
DOC explained the reasons for the results as follows:
“…petitioner supplied invoices which they claimed correspond to invoices related to third-country sales reviewed at verification and provided as verification exhibits. Specifically, petitioner points to the similarity between the products listed, quantities and other details in the two sets of invoices. However, they note the significant differences in payment amounts between the two sets of invoices. Additionally, petitioner provided documentation demonstrating payment in the amount listed on the petitioner-provided invoice and receipt of that amount as recorded in Watanabe supplied payment documentation at Verification Exhibit 14 at page 1. For three of Watanabe's third-country sales, petitioner provided documentation demonstrating payment in the amount listed on the invoices petitioner provided and not those provided by Watanabe. This raises a fundamental question about the reliability of the documents reviewed at verification.”
“Regardless of the motives of either party, we preliminarily determine that petitioner has provided credible evidence of misreporting of sales values by Watanabe. The fact that the total revenue associated with the invoiced amounts petitioner submitted tied to the company book and records tends to show that the prices on the invoices reviewed at verification are incorrect, thus fundamentally calling into question the reliability of Watanabe's records.”
“To ensure that the margin is sufficiently adverse so as to induce cooperation, we have preliminarily assigned to the PRC-wide entity, including Watanabe, the rate of 258.21 percent, the highest rate on the record of this proceeding. This rate was assigned to the PRC-wide entity in the investigation of CLPP from the PRC.”
Background
An antidumping case was filed against Certain Lined Paper Products (“CLPP”) from the People’s Republic of China on September 9, 2006. Lined paper is used as school supplies, such as notebooks, composition books, loose leaf, filler paper, graph paper, and laboratory notebooks, for writing reports and doing homework. The Watanabe Group participated in the original investigation and received a margin of 134%.
In the First Administrative Review, DOC obtained Customs and Border Protection (“CBP”) quantity and value data for the parties for which a review was requested. After assessing its resources, DOC determined that it could reasonably examine only one of the four exporters subject to the review.
On November 7, 2007, DOC selected Lian Li as a mandatory respondent, not the Watanabe Group. Lian Li succeeded in explaining its accounting system and reconciling most of its costs to its financial statement. As a result, Lian Li received an antidumping margin of 22.35%, which was shared by the Watanabe Group, dropping its margin from the 134% of the original investigation
In the Second Administrative Review, DOC determined that facts available with an adverse inference were warranted for Watanabe because Watanabe had submitted an incomplete response to DOC’s initial questionnaire. Watanabe had claimed that, because it did not sell subject merchandise to the United States during the period of review (“POR”), it would not respond to Sections A, C and D of the questionnaire. However, entries of its merchandise in fact had been made during the POR. Because Watanabe refused to supply the requested information and the record contradicted its representations, DOC assigned Watanabe a punitive facts available rate of 258.21 percent in its final results of the Second Administrative Review. Nonetheless, Watanabe still had a chance to turn its situation around, as it had sales during the period to be examined in the Third Administrative Review.
Verifying The Preliminary Results Of The Third Administrative Review
DOC conducted the Third Administrative Review for the period September 1, 2008, through August 31, 2009 with respect to four producers/exporters. This time, Watanabe was examined and everything seemed to be going well, until the petitioners submitted third country invoices (invoices the petitioner obtained from other buyers of the product), which caused DOC to doubt the accuracy of Watanabe’s records. As DOC reported in its Federal Register Notice of the preliminary results:
- Petitioner-submitted invoices appear to establish that the sales and payment values do not tie to Watanabe's own internal records.
-Watanabe argued the petitioner refers to third country sales, which it claims are irrelevant to the Department's inquiry into U.S. sales and the mere allegation that such third country sales were diverted to the United States is insufficient.
-Specifically, petitioner points to the similarity between the products listed, quantities and other details in the two sets of invoices. However, they note the significant differences in payment amounts between the two sets of invoices.
-For three of Watanabe's third-country sales, petitioner provided documentation demonstrating payment in the amount listed on the invoices that were not those provided by Watanabe. This raises a fundamental question about the reliability of the documents reviewed at verification.
-The fact that the total revenue associated with the invoiced amounts petitioner submitted tied to the company books and records tends to show that the prices on the invoices reviewed at verification are incorrect, thus fundamentally calling into question the reliability of Watanabe's records.
Hence, after the petitioners saw the verification exhibits and compared them to documents they had collected from third parties, they called conspicuous differences to DOC’s attention. They pointed out that verification documents that tied to the third party invoices agreed in total, but the quantities and prices did not. The Petitioners also pointed out that the payment amounts shown on the third country invoices did not match the amounts shown as being paid on those invoices in the accounting records that the respondent presented to DOC at verification.
For a company to improve its margin, it would need to prove higher U.S. sales prices for subject merchandise. In a period of review, the company would have to be selling, therefore, at higher prices than during a prior period. Companies trying to manipulate their records, without in fact making such sales, should expect to be caught and to face the consequences.
It seems that some companies have tried to manipulate their records by appearing to have prices for third country sales that are lower than U.S. sales prices by an equivalent amount (i.e., lowering the reported price on the third country sales by the same amount that they increase the price on the US sale, such that the total remains the same). The total then appears reconciled in the summary totals of the financial statements. Financial statements and invoices appear to reconcile; the antidumping margin falls. The exercise, however, is fraudulent, and the lawyers’ certifications are false. When petitioners present contrary third country prices, the perpetrating companies are caught.
For a successful verification, where DOC officials do not think they are being deceived, financial records must be reconcilable internally and with the answers respondent companies have provided in questionnaires. CLPP is not the first case in which a Chinese company failed in a cloud of distrust generated by inconsistencies exposed in their own documents, but with a growing DOC concern about Chinese respondents generally, it is surprising that Watanabe was apparently not at least more alert about its own records.
The most celebrated and very public example of verification failure involved Crawfish from the People’s Republic of China. DOC officials became suspicious of the documents offered at verification and went to the respondents’ preparation room (typically, respondents will make a well-organized presentation of documents in one room while sorting and assembling them in another) . Although the Crawfish respondent had told the DOC verifiers previously that “the company did not maintain computer records of customers of [sic] business transactions,” the officials found business documents on the computer in use in the preparation room. Following this discovery, things only got worse for the Chinese company. DOC concluded that the respondents were being deceptive and applied punitive adverse facts available, as they did in CLLP. The details of this episode are described in the Crawfish Verification Report.
The respondent Chinese company gave DOC the impression in Crawfish that something was “odd” at verification by its own actions, particularly claiming that computers were not used for maintaining business records while business transactions were found on company computers. In addition, the company’s “accountant” did not have a National “identity” card and apparently was an employee of another crawfish exporter who had been involved in a previous verification for that other company. If these dramatic and unexplained discrepancies were not enough, the electricity did not function during verification in the rooms where DOC was trying to access the company’s computer, leaving DOC officials with little choice but to believe that they were being deceived, as other DOC officials concluded in CLPP.
Trouble Of Watanabe’s Own Making, But In A More Challenging Legal Environment
In the past several months, a pattern has begun to emerge in which DOC has been applying, more often than in the past, “facts available,” and with adverse inferences, to respondents from China. The application of the rules seems to be changing. The DOC and petitioners are more and more suspicious that Chinese companies are falsifying records shown at verification and, therefore, are seeking to confirm the accuracy of those records whenever possible through outside sources. Some petitioners are using former FBI and Scotland Yard investigators to contact companies who supposedly are market economy suppliers of inputs to respondents in China, in order to discredit respondents’ claims of market prices.
CLPP is now one of several cases contributing to DOC’s apparently deep and growing mistrust of Chinese data. The Watanabe Group may, or may not, have been trying to deceive DOC, but in the presence of discrepant data, subsequent to misrepresentation in a previous review, and in a developing context of doubts about the veracity of Chinese verification presentations in other cases, the impression governed. The more Chinese companies rely on deception, or appear to be doing so, to get through verifications, the more they can expect to be exposed and find themselves with prohibitive results. Worried about the expense of legal defense, they are finding themselves having wasted both their money and their time because of an apparent lack of due diligence and care in preparing and hosting verifications. To prevail in trade disputes now, before an ever-more vigilant DOC and ever-more suspicious and skeptical petitioners, Chinese respondents will need to rely on facts they can verify, not fabrication or supposition, and they will need legal counsel with sterling reputations before U.S. agencies to avoid regrettable presumptions.
Winning At All Costs
Unfortunately, as the number of trade disputes has diminished, Chinese and U.S. legal counsel have been promising prospective Chinese clients the impossible, and then have done whatever it seems to take to achieve it. Some routinely promise zero margins in antidumping cases before they have seen company books, and base their fees largely on the contingency of such results. Some have represented more than one company, promising each one a better result than the other with both guaranteeing a fee bonus should it get the best result. One of the companies must lose, but the lawyers in such circumstances have to win.
There may not have been a lawyering issue in the CLPP case. The Watanabe Group’s experience may have arisen from simple misunderstandings. Nonetheless, DOC concluded, as manifested by the application of adverse facts available, that there was deception. When there may be doubt, DOC is now sending a signal that benefits of doubts will not be going to Chinese companies, and the troubles Chinese companies face may be all the more painful for being of their own making.
The U.S. Department of Commerce ("Commerce") reported to the U.S. Congress in November 2010 on the Relative Advantages and Disadvantages of Retrospective and Prospective Antidumping and Countervailing Duty Collection Systems. Commerce made no recommendations. It also is unlikely that Congress would have the appetite anytime soon to consider the wholesale revisions to U.S. trade laws that changing to a prospective duty assessment system would entail. Nevertheless, there are several noteworthy items in the report.
All other countries, unlike the United States, rely on prospective systems in their trade laws, as does the WTO. These systems require changes going forward, following an investigation and findings, but do not reach back for penalties. Congress instructed Commerce to address how prospective systems compare to the U.S. retrospective system on the following criteria:
(1) Remedying injurious dumped or subsidized imports;
(2) Minimizing uncollected duties;
(3) Reducing incentives to evade antidumping (“AD”) and countervailing duties (“CVD”);
(4) Targeting high risk importers;
(5) Considering the impact of retrospective rate increases on importers and their employees; and
(6) Minimizing administrative burdens.
Commerce received comments from 40 interested parties, including comments that the editors of this blog submitted on April 20, 2010. Those commentators represented a wide range of industries, petitioning U.S. producers, foreign producers, importers and customers. The U.S. Department of the Treasury and the U.S. Department of Homeland Security ("DHS"), which enforces AD and CVD orders at the ports, previously submitted comments for a study by the Government Accountability Office. Commerce summarizes some of those earlier agency comments in its report.
Commerce noted that the United States is the only country that uses a retrospective system for collecting AD and CVD duties. Advocates of keeping the retrospective system, mostly U.S. petitioners, emphasized the greater accuracy of the system because duties are assessed based on the amount of dumping or subsidization found for the actual imports in question. Commerce acknowledged that advocates of prospective systems argued that such claims of superior accuracy are not achieved consistently in practice because Commerce in recent years has not reviewed more than a couple of companies in administrative reviews, even when many companies requested reviews. Commerce has said it lacks the resources to review all the companies making requests. Commerce also noted the arguments of some commentators that retrospective duties are not very good at remedying the actual injury caused by dumping or subsidies because the duty rates cannot be known when importers and customers are making their pricing and purchasing decisions.
It appears from Commerce's Report that DHS would prefer a switch to a prospective system. Commerce quoted DHS as saying that "its preferred option would be 'for Congress to fundamentally alter the United States system by eliminating its retrospective component and make it prospective. This approach would …. [a]lleviate the collection issue faced by DHS due to substantial rate increases since the amount of duties assessed at entry would be the final amount owed.' "
Advocates of prospective systems emphasized that the retrospective system is bad for business, particularly small business, because it deprives companies of critical information on the full costs of their products before they have to make pricing decisions. Commerce responded to this criticism by pointing out that, because of due process rights in U.S. law, a prospective duty assessment system would not eliminate this uncertainty: the parties to AD and CVD proceedings have a due process right to appeal administrative determinations of Commerce and the United States International Trade Commission to the United States Court of International Trade and eventually to the United States Court of Appeals for the Federal Circuit. The courts routinely enjoin liquidation of the customs entries for the duration of these proceedings. The final duty rates, which could go up as well as down as a result of court decisions, can take years to be known.
Commerce, thus, is correct in questioning the advantage of a prospective system, in light of U.S. legal rights, to achieve accuracy and predictability. The United States is famously a litigious society; trade cases often take many years to work their way through the Court of International Trade, through possible remands by the court back to the agencies (Commerce or the International Trade Commission), and possible further judicial review by the Court of Appeals for the Federal Circuit (with possible remands to the Court of International Trade).
Any party appealing an agency decision would want the court to enjoin the final assessment of antidumping or countervailing duties pending the appeal’s outcome. Otherwise, much of the economic benefit, should the party succeed in the appeal, would be lost. Because of separation of powers and due process requirements of the U.S. Constitution, Congress would not be able to strip the courts of the power to issue such injunctions through a change from a retrospective to a prospective system of duty assessment. Therefore, even were Congress to legislate such a change, the U.S. system would retain retrospective aspects. Under a prospective system, duties could be assessed and collected at the time of importation, but for any case on appeal -- for those companies whose shipments are the subject of the appeal, and with respect only to the issues under appeal -- the final duty owed would not be known until the court process would reach final decisions.
A prospective system may still be better. In many cases, the potential effect of a judicial reversal of Commerce’s determination can be quantified at the time of the appeal. Companies would be able to account for the risk of judicial reversal when making purchasing and pricing decisions. For example, if the only issue on appeal for a particular respondent were whether to allow a particular adjustment in the dumping calculation, the effect on the margin of allowing or disallowing that adjustment could be calculated at the time when the appeal would first be taken; importers could price their products accordingly. By contrast, under the current U.S. system, at the time of importation, when importers make their pricing decisions, most of the data necessary for a dumping calculation are unknown because Commerce has not yet performed any calculations, verification has not yet occurred, and a myriad of other variables remains undetermined. Thus, even for cases subject to judicial appeal, a prospective system provides more certainty than the current U.S. retrospective system.
Although a switch to a prospective system would not be the panacea that some proponents claim it would be, it would represent an improvement over the uniquely cumbersome U.S. system of retrospective duty assessment for the following reasons:
• Defenders of the status quo claim superiority for the retrospective system because, they say, duty rates are based on a comparison of actual import prices to normal values or subsidies calculated for a contemporaneous period. However, because the prospective system allows the importer to account fully for the antidumping or countervailing duties when making pricing decisions (i.e., where the imports compete with the domestic product), a prospective system may, in fact, do a better job of remedying the injurious effect of dumping or subsidization.
• Prospective systems are better at collecting duties because they collect upon importation. Injured parties do not have to wait through years of administrative and legal reviews and proceedings before unfair competition can be offset.
• Prospective systems are more likely to reduce incentives and opportunities for the evasion of duties because they are clearer in their expectations: normal values or fixed duty rates advise importers in advance of the prices they should apply to goods, information known to authorities with certainty at the time of importation.
• The retrospective system has no reliable way to "target high-risk importers," as it is focused on the prices of goods after they are imported. The prospective system, focused on the price of the goods when they arrive at port, makes the relative "risk" of the importer less relevant.
• The American retrospective system, by creating much more uncertainty in the marketplace, creates competitive advantages for U.S. petitioners (through the advantages of market disruption occasioned by the very filing of trade remedy petitions), but the costs and consequences are visited upon importers, their employees, downstream businesses and their employees, and ultimately U.S. consumers, an inherently unfair distribution of the burdens arising from unfair trade.
• The retrospective system is by far more administratively cumbersome and expensive than the prospective system adopted by every other country and reflected in the principles governing the remedy system of the WTO.
The United States has maintained an expensive and inefficient system unlike any other
country's. The case for the status quo, the Commerce report shows, is weak and biased in favor of petitioners, against importers, consumers, and rational markets. The systematic analysis of retrospective and prospective duty assessment systems that Congress has invited has been overdue. This report, unfortunately, is not likely to lead to warranted change.
Until a couple of weeks ago, China appeared isolated in its denial that it was manipulating the value of its currency to give its exports a competitive advantage in world markets. Then, following an announcement by the Federal Reserve Bank of the United States, it was the United States that appeared isolated in denial of an almost identical complaint, but with even more of the world’s leaders outspoken about it. Derived from the Latin word for “hand,” “manipulate” suggests hands-on activities directed toward specific outcomes, and much of the world seems to have concluded that both China and the United States are guilty of currency manipulation.
Manipulate: v.t. Handle, treat, esp. with skill by dextrous (esp. unfair) use of influence, etc. (The Concise Oxford Dictionary); to manage or control artfully or by shrewd use of influence, often in an unfair or fraudulent way (Webster’s New World Dictionary).
On the eve of the G-20 summit in Seoul, the decision of the Federal Reserve Bank of the United States to engage in $600 billion worth of “Quantitative Easing” (being called “QE-2,”) unleashed a torrent of criticism, mostly from China, Germany, Brazil, and Japan, but also from the Republican Party and even fiscal conservative Democrats in the United States. The announcement came not long after the U.S. House of Representatives passed a bill attacking China’s management of its currency (not likely to be approved in the Senate) and while U.S. Treasury Secretary Timothy Geithner was trying to broker an international agreement that would avert mutually assured destruction by currency devaluation among the world’s leading economic powers. The Federal Reserve Bank, by law and practice, acts independently of the Administration, but President Obama rushed publicly to the Bank’s defense with a letter to his G-20 partners, effectively endorsing the Bank’s plan.
By the dictionary definitions of “manipulate,” neither China nor the United States could be held accountable for currency manipulation. Neither one has been particularly shrewd or artful in their monetary management. China has tied its currency valuation to the dollar and has let it rise and fall accordingly. The United States has managed its money supply, entirely aware of the basic rules of supply and demand and their impact on price (or, for currency, valuation). QE-2 will add 600 billion dollars, although technically not into circulation, “easing” the quantity of available cash or at least credit. Had the value of the U.S. dollar been rising since September 2008, China might have been guilty of a serious miscalculation, but not of manipulation. Yet, had the dollar’s value been rising, there could have been even more reason at the Federal Reserve to dilute it.
The American interpretation of China’s actions, perhaps not incorrect, is that China has wanted its currency to fall in value in order to support the export-driven economy. For all that China has articulated what the United States has wanted to hear – that it would rebalance its economy by encouraging domestic consumption and reducing dependence on exports – the effective devaluation of its currency has made it more expensive for Chinese to purchase foreign goods while Chinese exports remain cheap in foreign markets.
For the United States, quantitative easing means priming the economic pump: more money ought to make more credit available, encouraging Americans to spend and invest. The intent, most economists agree, is not to weaken the dollar, but no one can deny the consequence, a 7 percent drop against the euro between the first hint of such a policy in late August and the announcement in November.
Both China and the United States, then, deny that their respective policies are for the purpose of weakening their currencies and enhancing the affordability of their exports. Yet, the actions of both – tying the renminbi (“RMB” or “yuan”) to the dollar while the dollar’s weakening is enhanced by the Federal Reserve Bank’s quantitative easing – have the same consequences and are interpreted by other countries the same way. The game becomes zero-sum: a weaker dollar, or a weaker yuan, has to mean a stronger something else and, in most instances, a stronger everything else. For Brazil and India and Korea and Japan and Germany, it means less competitive exports at the crucial time when everyone would like to export their way out of recession.
China is not alone in tying its currency to the dollar. Some countries, such as Ecuador, use the dollar as their currency and have no currency of their own. The American objection (supported until November 7 by most of the world’s leading economies) has been that China’s export-driven recovery, outstripping the United States and Europe, especially, has been enabled by a sinking in value of the RMB at the very time that market forces would have had it rise. However, had the American recovery been more robust, the dollar might have been rising instead of sinking and the Chinese currency would have been rising with it. Alternatively, had an underpriced Chinese currency not been in play to aid Chinese recovery, perhaps the Chinese recovery would have been less impressive. China argues that the whole world has benefited from its swift recovery, and most economists agree. But most economists agree, too, that a global recovery led by China without the United States is not a durable global recovery.
The underlying complaint, then, is that when the global financial system failed, China acted quickly and fully to sustain its economy while most other countries, especially the United States and the European Union, hesitated before, in instances such as Greece, maybe Ireland, being lost. Many economists, such as Paul Krugman, are convinced that the resources committed by the United States for economic recovery were a mere fraction of what were needed, enough to keep the economy on life support, but not enough to create jobs, restore credit, and secure financial institutions.
Even as Krugman leads the complaints about China, his indictment of American policy in the financial crisis implies an acquittal. Had the United States done what Krugman recommended (above all, a much bigger infusion of capital, but also nationalization of the banks), Krugman probably would have to admit that the United States would have been attracting investment, American corporations would be investing, the dollar would be worth more, and so, as night follows day, would the RMB. Alternatively, had the United States followed Krugman’s advice and it did not work, Krugman would have had to look elsewhere for an explanation. Hence, China’s conduct has been disturbing to the United States (and Europe, Korea and Japan) only because China recovered substantially while the United States did not, in significant measure because China did what Krugman recommended (especially in massive government investment), while the United States did not. The American failure was not initially caused by Chinese conduct, although there may be a causal link to the contrast between Chinese and American economic trajectories following the opening bells.
Nothing could have undone President Obama’s position during his trip to Asia more than the Federal Reserve Bank’s announcement of QE2. Some think the timing of the announcement was too uncanny to have been uncoordinated between the White House and the Federal Reserve, especially given the swift presidential endorsement. Others, however, surmise that the independence of the Federal Reserve has not been compromised. Regardless, President Obama defended the Bank’s action as being good for the U.S. economy and therefore necessarily good for the world. However much world leaders might agree that U.S. economic recovery is good for everyone, and that QE2 may be driven much more by domestic necessity than by competitive advantage in exports, they nonetheless interpreted the development and its timing as hypocritical: China has defended its disinclination to revalue currency in almost identical terms, that China’s policy is good for China and China’s economic stability is good for the world. Contrary to Adam Smith, when everyone acts out of their own self-interest, the common good does not necessarily emerge.
China’s goals of international recognition during the last decade, in addition to accession to the World Trade Organization (“WTO”), include most prominently acceptance by the United States as a market economy. There have been at least two motivations: to have its creation of a market, “with Chinese characteristics,” recognized and approved around the world; and to be liberated from the trade remedy methodology tailored specifically for non-market economies. The former is more psychic; the latter is pragmatic.
Non-Market Economy Status
World trade rules are built around principles of free trade. Free trade as an ideal type refers to unimpeded private market transactions where governments, monopolies, and state enterprises do not have enough influence to distort the conduct or outcomes of private enterprise competition. The free private enterprise system assumes, as did Adam Smith, that the selfish private acts of individuals and their organizations will yield, out of their competition and interaction, a greater public good. The market, not government, defines and produces the public good. It also assumes that governments and monopolies, when regulating or controlling private transactions, distort markets and thus are harmful to the public good.
The role of government in the ideal free private enterprise system is limited, mostly to regulating anticompetitive behavior and breaking up excessively large conglomerates and monopolies that prevent free competition. Of course, such limited government is a fiction. Governments have many roles in civil society, and all impact the economy.
All governments raise revenue through taxes. They make judgments about who most can afford to pay. Despite the periodic calls in the United States for a “flat tax” imposed on everyone equally, taxes everywhere are “progressive,” graduated according to the perceptions of what can be afforded and by whom, including business enterprises as well as individuals. Taxes on transactions – sales taxes or value added taxes – are also common. The form of taxation, the extent to which taxes are graduated, and the taxpayers (corporate or individual) all express public policies favoring some over others. A core public policy in the United States favors private home ownership, which has produced special tax provisions affecting everything from bank loans to construction materials. All such government interventions and taxes distort markets in one way or another. Yet, like death, taxes are inevitable and are the most obvious form of government intervention in markets.
Governments play additional roles. Every free market system assigns governments a role in forbidding the formation and operation of anticompetitive monopolies and trusts. Governments may regulate to protect the health, safety, and welfare of citizens. Such regulations typically raise costs of production for private enterprise, and impose certain manufacturing methods and ways of doing business. Hence, despite the ideal type, governments everywhere intervene in the free market.
Corporations rhetorically champion free enterprise, but in practice they seek competitive advantages that inevitably translate into limitations on competition. Governments regulate to limit or eliminate such corporate behavior. The nature of competition is to seek an advantage and a superiority over others. Such advantages are defined by reducing the competitive abilities and positions of others. Individuals and corporations idealize competition only to the extent that competition can improve their situations, which by definition requires the degrading of the competitive positions of others. Consequently, free private enterprise systems foster competitors whose objective is always to reduce competition. Governments overseeing such systems endeavor to maximize competition, while protecting against the release into the stream of commerce of products and practices inimical to the health and safety of individuals and society.
This ideal type of free enterprise system is the theoretical antithesis of a state-controlled or command economy. In the ideal type, government intervenes only as required, reluctantly, and while trying to guarantee free competition. In a command economy, government seeks to direct all economic activity, deciding what needs to be manufactured, to whom it should be distributed, and at what price. Government extracts rents from this production and, therefore, in control of the entire economy, can raise revenues anyway it likes. Markets function only to the extent that governments permit, in any particular sector, the interaction of willing buyers and willing sellers. Mostly, demand is regulated by supply, the latter controlled entirely by the government.
The United States, since the ascension to power of Mao Tse-Tung, has treated China, dominated by state-owned enterprises and with a tax system dictated by government (rather than negotiated among competing interests), as a non-market economy. However, China, since the “opening” of Deng Xiaoping, no longer regards itself as a non-market economy. Instead, China thinks of itself as a capitalist, market economy, albeit with “Chinese characteristics.”
There are many indicia supporting China’s self-image because substantial competition has grown up in China. Capitalist goods are everywhere and are sold competitively throughout the country. There are advertisements promoting different prices for the same or comparable goods. People decide what to buy, from food to cars, such that supply does not control demand, and the government does not control supplies. Labor has become mobile, with people moving from one part of the country to another, from one kind of job to another, from one corporate entity to another making or selling the same product. Prices vary with supply and demand, not dictated by government.
There are many indicia that China remains a command economy. The government owns and controls the supply and prices of natural resources and public utilities. The government controls banks and insurance, lends money through the banks according to government policy and rates, controls the currency and its value. The most important economic sectors, such as steel production, are dominated, when not exclusively captured, by state-owned enterprises. Through the control of money and loans and prices, the government dictates the supply and demand for the most important products and services.
The global economic meltdown with the fall of Lehman Brothers in September 2008 made the United States look more like China than the other way around. The U.S. government took effective control of major banks and insurance companies, bought out one of the leading economic sectors – automobile manufacturing – and shaped subsidy programs throughout the economy designed to assure the success or survival of enterprises chosen by the government. Yet, while insisting that it is the world’s leading capitalist economy, the United States denied China’s claim to be recognized as a market economy.
Symbolism Of Market Recognition
China, as a matter of national pride and self-respect, has resented the American insistence that massive American subsidies and market intervention preserved a capitalist, market, free enterprise system, while identical conduct in China guaranteed that China would be considered outside the mainstream, along with Cuba and Vietnam and North Korea, as a non-market economy. The more China has insisted that the United States should recognize it as a market economy, the more the United States has resisted. Excuses have become cumulative, most prominently in the American complaint over China’s refusal to float fully the value of its currency, notwithstanding that U.S. currency did not float freely until 1971, and the United States certainly was not considered a non-market economy before then.
Recognition as a market economy has come to mean, for China, fulfillment of a promise it perceives was made in 2001 when China acceded to the WTO. Even though the WTO agreement projected recognition as a market economy by 2016, and then only upon the satisfaction of various criteria, China’s Commerce Minister now insists that the United States agreed to recognize China’s market economy status by 2010 and offers a sense of betrayal that recognition has not happened.
The Practicalities Of Market Economy Status
In only one significant respect does recognition as a market economy matter: when complaints are brought that Chinese goods are dumped in the United States, the methodology for determining whether there is dumping, and if so, how much, is different for non-market economies. This distinct methodology gives the United States Department of Commerce more discretion and flexibility to find dumping, and to inflate the dumping “margin,” the measure of how much dumping and consequently how much duty will be owed for the merchandise to be imported into the United States.
Dumping is determined in one of two ways: either a good is sold abroad for a price lower than the price at home, or the costs to produce the good exceed the price at which the good is sold abroad. When Chinese goods are subjected to this second measurement, the cost of production, the non-market economy methodology becomes critical.
Non-market economy status presumes that, in the absence of markets, there are no market prices. It is then theoretically impossible to determine the cost of production because it is impossible to determine the costs of any of the inputs. There are no market wages; no market rents; no market utilities. Raw materials have no market prices, nor do any component parts.
When the inputs are imported from a market economy, dumping analysts use the price the Chinese manufacturer has paid for those inputs. But when the inputs are domestic products, analysts assume there is no market price for them. The analysts then seek and apply “surrogate” prices – prices of the same input in a “market” economy that, supposedly, is at a similar level of development as China. Surrogate values may come from many different countries, but American official analysts have favored (for China) India, Bangladesh, Indonesia, and occasionally other countries.
The selection of surrogate values is highly contentious and is decided, in the end, by U.S. government officials. They have decided that freight costs, for example, could not be used if derived from a Chinese-flag ship. They have chosen, instead, some of the highest shipping rates in the world.
Subsidies And Market Economy Status
Until November 2006, treatment of China as a non-market economy did have advantages for China. A “subsidy” in international trade is a financial contribution from a government that is market-distorting. Where there is no market, there is nothing to distort. Therefore, until November 2006, the United States had never brought a subsidies (countervailing duty) case against China. Subsidies could not be alleged; they had to be treated as costs of production susceptible to the application of surrogate values.
It was always thought that China could not and would not be exposed to countervailing duty allegations unless and until it might be recognized as a market economy. The Chinese Government, consequently, stayed out of trade remedy disputes, as dumping is the business of business, not government. Dumping is determined by prices, and companies, not governments, set prices. Moreover, it was exceedingly difficult to address some of the “inputs” this way for a cost-of-production analysis.
The 2006 mid-term elections delivered a significant Democratic majority pressuring the Administration to get tough on China, especially as to alleged subsidies. A petition alleging subsidies to coated free sheet paper was pending. The Department of Commerce, soon after the elections, decided to initiate a countervailing duty investigation, while refusing, still, to recognize China as a market economy.
China protested the apparent anomaly – a non-market economy subjected to a countervailing duty investigation – but to no avail. Various legal issues emerged and several are still the subject of WTO proceedings initiated by China. None has been resolved by the WTO, and meanwhile the United States has found subsidies and imposed countervailing duties in 12 cases already. All of these cases were accompanied by antidumping petitions, and a cumulation of dumping and subsidies duties have been imposed in 26 cases since 2007. Petitioners complaining about unfair competition from China now routinely file simultaneously antidumping and countervailing duty petitions.
Why Non-Market Economy Status No Longer Has Practical Meaning
The decision to investigate subsidy allegations and impose countervailing duties while still treating China as a non-market economy rendered the non-market economy status practically meaningless. It is not as if, were China tomorrow to be recognized as a market economy, anything of practical value would change.
The United States has been applying surrogate values for subsidy allegations against China throughout the economy. For the allegation that China was not charging enough money for the commercial use of land in rural Shandong Province, the Department of Commerce used land values from suburban Bangkok. The Commerce Department ignored entirely expert testimony that the use of such values was nonsensical from the perspective of economics and land use. And Commerce treated any input supplied by a state-owned enterprise as a subsidy, the value of which was to be determined by selection of a surrogate value in a market economy.
The rationale for the application of surrogate values is based on Certain Softwood Lumber from Canada. Even though a WTO panel found the use of such values improper in the case of Canada and a NAFTA panel found it illegal, the Commerce Department dismissed the NAFTA panel as having no precedential authority and the WTO panel as ambiguous. Beginning with coated free sheet paper, the Commerce Department has cited its own administrative determination in the softwood lumber case as the basis for its treatment of China.
The Commerce Department argues that, even though Canada is indisputably a market economy, Canadian provincial governments own so much of the forests that any price for standing timber cannot be a market price. It did not matter that nearly twenty-five percent of the standing timber sold in Quebec is private, as is more than fifteen percent in Ontario. It did not matter that the pricing scheme for public forests in Quebec was based entirely on the prices in the private forest. The Commerce Department reasoned that the public sector was so large compared to the private sector that the private sector prices were driven by the public sector and therefore could not be used. It reasoned that the residual value methodology applied by Ontario, whereby the market price of manufactured lumber required certain pricing of the raw material, could not be used because most of the natural resource was in public hands. It did not matter that the NAFTA and WTO panels disagreed, as did a number of notable experts.
China, over the course of three years, has failed to successfully challenge any of the Commerce Department surrogate value applications in U.S. courts. [confirm] Consequently, the Commerce Department has been laying a foundation of subsidy findings as “administrative practice,” upon which it can rely for virtually anything that may arise in the Chinese economy. Bank loans, even from commercial banks, can be treated as non-market rates because of the alleged dominance of state-owned banks setting the market rates; prices for inputs from private companies can be set aside as long as there are state-owned enterprises in the same business. It will be very difficult for China to prove that the state is not dominant in one sector or another, and the burden of proof will fall on China.
The United States can recognize China as a market economy and continue to apply surrogate values and non-market economy methodologies in trade remedy disputes because China has focused on the issue of market economy status instead of on the methodology the United States developed in the softwood lumber dispute with Canada. The core issue remains not the nomenclature, but the predominance of state-owned enterprises.
The Strategic And Economic Dialogue
The Strategic and Economic Dialogue in Beijing in May 2010 seemed to produce only one Chinese headline: that the United States was going to recognize China as a market economy. The expectation was variously seen as fulfillment of a promise and as an essential American concession, a Chinese victory of sorts. The United States, as it happens, did not provide such recognition, only promising to continue a discussion about it. Consequently, the United States now knows it is holding something that China values highly, and yet is not worth very much, an enviable negotiating position. China, for its part, needs to recognize how little such recognition means, and move on to more meaningful discussions.
The US Department of Commerce (“DOC”) initiated 731 antidumping investigations between 1988 and 2008. Three hundred (or 41%) of those investigations did not result in an antidumping order because the International Trade Commission (“ITC”) determined that the imports in question were not the cause of material injury or threat of imminent material injury to a US Industry. Another 81 (or 11%) of those investigations did not result in an antidumping order because DOC terminated or suspended the investigation or found no dumping. Thus, historically, slightly more than half of all antidumping petitions did not result in the imposition of antidumping duties, and about 80 percent of those escaped an antidumping order because of the findings and conclusions of the ITC. These historical results demonstrate that it pays for respondents to defend their interests before the Commissioners.
The benefits of participating at the ITC can be shown by comparing the statistics for cases involving Chinese merchandise (whose respondents typically do not participate actively) to cases involving merchandise from all other countries (whose respondents generally do participate actively). During the same 20 year period indicated above (1988-2008), DOC initiated 124 antidumping cases against products from the People’s Republic of China. The ITC made negative injury and threat of injury determinations in 26 of those cases (or 21%). By contrast, 45% of the antidumping investigations brought against non-Chinese merchandise in those same years resulted in negative ITC determinations and no antidumping order. Although there undoubtedly are many reasons contributing to this disparity, one that cannot be denied is that a party has a better chance to succeed when it participates actively than when it remains on the sidelines.
Appreciation Of The Full Process: There Are Benefits To Be Had At The ITC
Most Chinese respondents seem to believe that they must participate at the DOC when confronted with dumping or subsidy allegations, but that they can ignore the ITC. This belief, which may be based on a misunderstanding of the U.S. trade remedies system (or a reflection of China’s own), is self-defeating. DOC participation is important, but participation at the ITC is no less so, assuming the objective of participation at all is to retain access to the U.S. market. DOC is part of the executive branch of the U.S. government, created primarily to promote and protect domestic industry. The ITC, by contrast, is an agency wholly independent of the executive branch, bipartisan by law, charged with studying world markets for Congress and therefore staffed with competent professionals generally free of protectionist biases.
To initiate an investigation, DOC has a check-off list to make sure a petition makes the required claims as to dumping or subsidies, and injury. DOC undertakes no serious analysis as to whether a U.S. industry is injured or threatened with injury, which is left entirely to the ITC. US law and WTO rules provide that findings of dumping or subsidies do not permit the imposition of duties without a finding of injury (or threat of injury) to an industry in the importing country caused by the dumped or subsidized imports.
The ITC does not assume that, because the U.S. producers may be losing sales or profits (typical indicia of injury), the allegedly dumped or subsidized imports are a cause of the apparent injury. Instead, the ITC must by law consider whether other factors are the cause, including changes in technologies, customer requirements, market conditions, domestic industry efficiency and competitiveness, and third-country competition.
The ITC depends on information provided by the parties to determine causes of injury. When Chinese companies fail to participate at the ITC, or participate with little effort and energy, the ITC is constrained to base its determinations on a record shaped predominantly by the petitioners seeking to impose an order. Notwithstanding views we commonly hear from outside the United States, and especially in China, the ITC has proved in its procedures and results that it wants to hear from both sides in a trade dispute. Even as the law contains its own biases (an evenly split 3-3 vote in the Commission, for example, is awarded to the petitioner), the Commission and its staff generally want to protect domestic industries only when they need protection. However, it is very difficult for them to reach even-handed conclusions when they hear from only one side.
Participation Should Begin At The Beginning
The ITC conducts its investigations in two phases. In the preliminary phase, the ITC must decide within 45 days of the filing of the petition whether there is a reasonable indication that the US industry is injured or threatened with injury by reason of the imports in question. The ITC, thus, must decide within 45 days whether there is enough evidence indicating injury (or threat of injury) to be worth investigating further and requiring DOC to investigate further. A negative determination here would end the case.
The threshold for finding a likelihood of injury if more evidence were gathered is low, but the Commission and its staff frame the issues during this preliminary phase and identify most of the sources from which they will gather evidence. Absence from the proceedings during this phase means failing to help the Commission organize and structure its investigation. Unfortunately, Chinese industry rarely reacts quickly enough to a petition to appear and participate effectively at the ITC before the Commission is required by statute to issue its preliminary determination.
Although few investigations end in the preliminary phase at the ITC, it has happened, in the recent Certain Steel Fasteners From China and in Steel Wire Form China but, in both cases the petitions were filed against multiple countries which probably helped the Chinese cause in that those countries likely hired counsel to defend at the ITC. When it does, everything ends, including especially the greatest expense, which is in responding to DOC questionnaires and participating in verification. All that activity is mooted by a negative preliminary determination at the ITC. So, although such an outcome is improbable, the relative investment is small for the potential gain.
The ITC continues with its investigation, following an affirmative preliminary determination, even while DOC is still deciding whether subject merchandise is being subsidized or dumped, but the ITC will not finish its investigation unless DOC issues final affirmative determinations. The ITC then issues additional questionnaires (much more extensive and tailored to the specific product than those used in the preliminary phase), to the domestic manufacturers, importers, purchasers and foreign producers. These questionnaires are heavily influenced by the parties, on both sides when both sides participate, by the petitioners when they alone invest in the process. The ITC also considers the interested parties' comments submitted during a briefing and hearing, but based on the record evidence.
Chinese Companies Have Prevailed At The ITC
In Manganese Sulfate from the People’s Republic of China, DOC found a margin of about 32%, entirely the result of a very high surrogate value assigned to ocean freight. All international shipping is purchased in US dollars and does not generally vary much by carrier; DOC, nonetheless, assigned a surrogate value much higher than the amount actually paid, an example of the “engineering” of a result that has not been uncommon historically at DOC. The story was different at the ITC, where both the foreign respondent and the U.S. importer participated actively, beginning with the preliminary phase and the development of the factual record. They persuaded the ITC that their product did not compete with the domestic product, not through a conventional argument that the Chinese product was cheaper and sold to a different buyer, but because it was superior and could be used, unlike the domestic product, for both fertilizer and as a nutritional additive for animal feed. The result in the judgment of the ITC: different product, different markets, no injury.
In Refined Antimony Trioxide from the People’s Republic of China. the largest Chinese respondent cooperated with DOC and actively participated at the ITC. DOC found a margin of 13% for the primary Chinese respondent; the ITC, however, found that those imports did not cause injury to a US industry. As a result of the ITC finding, no antidumping order was imposed.
These cases are old, and there are few examples. The problem is not in the impossibility of winning, nor in any particular bias against China. The problem is in the failure to accept and participate in the process. Had the Chinese companies not participated at the ITC, in these cases, the ITC would have heard only the petitioner and dumping orders likely would have been imposed. In the case of antimony trioxide, the domestic U.S. industry was very profitable; its complaint against Chinese imports was unjustified. The domestic industry did not expect the Chinese to defend themselves at the ITC, and thought it would be easy, therefore, to shut the Chinese out of the U.S. market by relying on protectionist impulses at DOC. Petitioners’ counsel remarked privately, following the final negative ITC determination, that it was the first case they had lost against China, principally because Chinese companies routinely abandoned the U.S. market rather than rely on legal proceedings.
Some Chinese companies have made recent ITC appearances, but they remain exceptional. The Chinese Government, in subsidies cases, has not appeared, even as other foreign governments appear at the ITC when their programs are alleged to be the source of injury to a domestic U.S. industry. And even when the outcome at the ITC is not favorable to respondents, a solid evidentiary record can matter. In perhaps the most celebrated trade dispute of all, a NAFTA panel and the Court of International Trade reversed the ITC and found neither injury nor threat of injury to American softwood lumber producers, based on the record compiled by Canadian industry the Canadian and provincial governments at the ITC.
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Chief Judge Jane A. Restani of the United States Court of International Trade (“CIT”) on August 4, 2010 ordered the United States Department of Commerce (“DOC”) to forego the imposition of countervailing duties on pneumatic off-the-road tires from the People’s Republic of China. Her decision, in GPX International Tire Corporation v. United States, was based on her ruling that US law prohibited DOC from imposing duties higher than the amount needed to offset subsidies on imported products.
The problem for DOC, inherent in the case and as posed by Judge Restani, is that DOC uses surrogate values presumed to be unsubsidized, rather than a company’s actual production costs, to calculate Normal Values. DOC compares these Normal Values in its non-market economy antidumping methodology to the export price, a methodology that should, at least in theory, offset any subsidies on the production of the merchandise (because the comparison has been taken against unsubsidized inputs through surrogate values). If DOC were to impose countervailing duties to offset subsidies that benefit the production of the merchandise, then it would be offsetting the same subsidies twice.
Double counting of subsidies does not occur with DOC’s market economy dumping methodologies (19 C.F.R. §§ 351.405 & 351.406) because, in those cases, Normal Value is calculated based on actual prices in the foreign market and actual costs incurred in that market. Thus, if there were any subsidies imbedded in those prices or costs, they would not be offset by the antidumping methodology and would need to be addressed separately in a countervailing duty investigation.
Judge Restani’s August 4, 2010 decision followed an earlier decision in the GPX case where she sent the matter back to DOC to find a way to avoid the double counting problem. In the earlier case, Judge Restani found that, while DOC had discretion to impose countervailing duties on Chinese merchandise while still considering China to be a non-market economy (the central issue in dispute), DOC had to avoid double counting of subsidies when it applied the countervailing duty law and the antidumping non-market economy methodology to the same products at the same time.
DOC interpreted Judge Restani’s earlier decision as giving it three options: (a) not apply the countervailing duty law; (b) apply the market economy antidumping methodology in that case; or (c) lower the cash deposits imposed in the antidumping case by the amount of cash deposits imposed in the countervailing duty case. DOC decided to lower the antidumping deposits by the amount of the countervailing duty deposits. Judge Restani found that option contrary to US law because there is no provision in the antidumping statute to lower duties by the amount of countervailing duties and because that option is unreasonable as it requires the parties to go through the expense of countervailing duty proceedings that are essentially useless.
Judge Restani ordered DOC to forego imposing countervailing duties on off-the-road tires from China because DOC demonstrated in that case that it did not have the ability to determine the degree to which double counting was occurring in its non-market economy language and offset it directly within that methodology. Thus, the CIT has left open the option in future cases for DOC to try new methodologies to eliminate the double counting within the antidumping nonmarket economy methodology. DOC continues to have the option of imposing countervailing duties to products from China in cases without a companion antidumping case on the same products, or in cases in which it uses its discretion to recognize a market-oriented industry (“MOI”). In that latter instance, considering MOI status, it could continue its general policy of not recognizing China as a market economy while using a market economy methodology for a particular industry. DOC has never recognized an industry in China as “market-oriented,” but it does have the statutory authority to decide to apply market economy methodologies on a case-by-case basis.
DOC, or the petitioners in the GPX case, have the right to appeal Judge Restani’s decision to the Court of Appeals for the Federal Circuit (“CAFC”). Should they do so, that higher court could overturn Judge Restani’s decision, affirm it, or modify it. Were the CAFC to overturn the decision, DOC would be free to apply countervailing duties to the same products on which it used the non-market economy antidumping methodology. In deciding whether to appeal, however, DOC must consider the risk of appealing and losing. Right now Judge Restani’s decision is binding on DOC only in the GPX case: it does not set precedent that DOC would be forced to follow in all future cases. Were DOC to appeal and have the CAFC affirm Judge Restani’s decision, that affirmation would be binding precedent, prohibiting DOC from applying both the CVD law and the non-market economy methodology to the same merchandise.
Judge Restani’s decision was based solely upon US law. However, China has challenged at the World Trade Organization, on the same grounds of double-counting, the application to China of the countervailing duty law while DOC refuses to recognize China as a market economy. Judge Restani’s decision in GPX demonstrates the value, at least to the companies involved, of appealing to the US court, rather than relying solely on WTO challenges. As we noted in earlier articles on this blog (US Court Decision Ought to Change Chinese Thinking and WTO Challenges Not Always a Panacea for Respondents in Trade Litigation), the WTO process is designed to vindicate governmental interests, but does not often provide much comfort or relief for commercial interests. Appeals in the US courts, by contrast, are a right belonging to the companies themselves that have been hurt by the agency’s challenged actions and, when those companies win in U.S. courts,, the remedy can provide immediate retroactive relief.
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Trade laws, designed to combat market distortions caused by unfair trade practices, often create 
distortions of their own. They lead to tariffs and other restrictions that often induce manufacturers and exporters to change their markets as much as their conduct, shifting production to a country not subject to the trade remedy, or selling to other customers in other countries. Such changes can create extreme distortions for consumers, depriving them of goods they may crave. They may punish manufacturers and exporters, but may do little, in the end, to protect petitioners.
Fish and seafood tell this story well, and now are part of a particularly disturbing development. The United States Environmental Protection Agency (“EPA”), the United States Food and Drug Administration (“FDA”), and the National Oceanic and Atmospheric Administration (“NOAA”) all desperately want Americans to believe that the bounty of the Gulf of Mexico is safe for consumption, notwithstanding probable widespread contamination from the toxic dispersants that have driven oil out of sight, but not out of mind.
Gulf shrimpers, in particular, are well aware of the problem. Testifying before the House of Representatives Natural Resources Subcommittee on Insular Affairs in June, John Williams, Executive Director of the Southern Shrimp Alliance, insisted that “U.S. shrimp currently being landed and sold in the marketplace is safe, wholesome and healthy,” but then reported of his unanswered letters to EPA and to NOAA, sent more than a month earlier, “voicing strong concerns regarding the impact of the chemical dispersants used by BP on marine life.” While insisting that, “Assuring the public of the safety of seafood landed in the Gulf is essential to our industry,” he volunteered that “the toxins in the dispersants were likely to have direct adverse impacts on both vertebrate and invertebrate marine life and, further, that the dispersal of oil throughout the water column would increase, rather than mitigate, the harmful environmental effects of the oil spill on marine life.” He forecast an impact “over a long period of time.”
Williams and his Alliance brought the 2002 trade case that put the brakes on imports of shrimp from China, Vietnam, India, Thailand and Brazil. Now, acknowledging risks to the future of shrimping in the Gulf caused by the BP oil spill and, even more dramatically, the government-authorized use of toxic dispersants, he also admits that, despite the successful trade action, the Gulf industry continued in steep decline, down from 200,000 shrimping days in 2002 to 63,000 in 2008. The trade laws may have slowed the decline, but the oil spill will accelerate it.
Now that the leaking oil well has been capped, the Obama Administration, and the Obama family, have endorsed Gulf seafood as safe. The Gulf fishermen and shrimpers, however, are not so sure. As reported in the Washington Post, they fear that the Government has not tested adequately, and that the products of the Gulf may not be safe.
There are in these developments opportunities for foreign producers, both in meeting requirements in the trade laws, and in reaching out to cooperate with their U.S. antagonists. Together they might be able to supply Americans with a healthy product in abundance. Despite the core American belief in the virtues of competition, in this case competition probably would have everyone suffer.
Fixing Cataclysms The American Way
When BP’s Deepwater Horizon platform blew up and sank, the constant appearance of belching oil was ubiquitous in the American media. The crisis response took the form of trying to destroy the offender, in this case the oil itself, dumping millions of gallons of toxic dispersants into the Gulf of Mexico, breaking up the oil while poisoning the food chain. The “solution” was worse than the problem, but it created a promising appearance as the oil went below the surface, a relief to both those discouraged by the spectacle and the company whose visible daily association with the cataclysm through the pictures of the belching oil could only sully further its reputation.
John Williams understood the problem well in his congressional testimony. Noting the EPA and NOAA assertions that the decision to use toxic dispersants in the Gulf involved a “trade-off” that conceded a toxic risk, he concluded that “marine life was sacrificed as a trade-off for preventing oil from floating to the surface and creating even more of a public relations nightmare.” “The shrimp fishery, along with the oyster, crab, bluefin tuna, and other important commercial fisheries in the Gulf,” he said, “are what was ‘traded-off’ in the decision to allow the unprecedented use of these toxic chemicals.” At the time when he was speaking, only a small fraction of the dispersants to be used had yet entered the Gulf’s food chain.
The Impact Of Fixing The Problem: In The Gulf
Oil, being black, is very visible, especially as it washes up on sand. But Corexit, a toxic brew of chemicals relied upon by BP in the millions of gallons to disperse the oil and make it less visible, is itself invisible. It does not eat or destroy or eliminate the oil. It does what its nomenclature suggests – it disperses, and thereby puts out of sight in BP’s hope to put the oil out of mind.
Corexit does not attach to the oil and travel only where the oil goes. Instead, it flows where water flows, or where the tides and waves and storms may take it. Being invisible, it cannot be tracked and traced. It also sinks, so its smell and taste are not obvious on the water’s surface. More likely than not, it has been spreading all over (or under) the Gulf of Mexico.
Fish and seafood live and breathe water. It flows inevitably within and through them. EPA, NOAA, and the FDA all admit that they have never tested the consequences of an intensive distribution of Corexit. They have no idea what it does to seafood and fish, and especially whether the seafood and fish can absorb it and pass it along to humans. Nor have they any idea what quantities humans might be able to ingest without consequence were they to be absorbing it from the consumption of fish and seafood. As Williams correctly observed, “the decision had little to do with science and more to do with limiting the visual impact of the oil spill by keeping oil in the Gulf out of the viewfinders of television cameras.”
EPA, NOAA, and FDA do know that workers involved in the Gulf cleanup have been suffering various ailments and reactions possibly caused by oil but more likely by contact with the toxic dispersants. This contact has been direct, in the water. Williams reported to Congress, “For those shrimpers that have participated in the cleanup process, the reports of health problems related to those efforts are extremely disconcerting. These fishermen report that their concerns have either been ignored or ridiculed.” Possibly the filtration systems of fish and seafood remove such destructive human effects. Unfortunately, none of the relevant federal agencies has any idea.
Millions of gallons of toxic dispersants were poured into the Gulf of Mexico. In the most favorable and charitable scenario, this poisoning of the Gulf did not poison the food chain because seafood and fish either pass the dispersant without residue remaining within them, or their filtration systems somehow clean it up. Much more likely, however, there is now at least a little poison throughout the Gulf’s food chain.
The Impact Of Fixing The Problem: International Trade And The Salmon Lesson
In a distressing irony, Gulf fishermen in early 2005 succeeded in having antidumping duties 
imposed on frozen warm water shrimp from Brazil, China, India, Thailand, and Vietnam. Many of the Gulf shrimpers are of Vietnamese origin, continuing professions they learned in their native land, and deploying the trade laws to contest imports originating from “home.” Their successful petitions raised the price on shrimp in the United States, and reduced the volume of imports. The American appetite for shrimp became more dependent on American product, even as the American product fell into decline and now may be broadly contaminated.
The trade laws have had such effects on the food chain from the sea before. Fresh salmon, once a delicacy, became one of the most widely-consumed dinner staples in the United States through aggressive Norwegian marketing in the 1980s, but after trade remedy action initiated by fishermen in Maine against Atlantic salmon from Norway produced a 26 percent tariff in 1991, Norwegian sales of fresh whole salmon in the U.S. collapsed. The major Norwegian producers then did what producers of portable industries often do: they moved offshore.
The Norwegian producers introduced Atlantic salmon smolts to Chile, promoting a whole new industry of farm-raised “Atlantic” salmon in the Pacific Ocean. By 2006, 65 percent of the farmed salmon sold in the United States came from Chile, with most of the rest from Canada. Norwegian product was gone, and Maine’s product almost gone. Salmon became second only to copper as Chile’s leading export product, having not been exported at all five years earlier, and having not existed in Chile before 1994. Chile aimed in 2006 to increase its exports of salmon by 50 percent by 2010. Wal-Mart by 2006 was buying and exporting to the United States about one-third of Chile’s entire salmon harvest. When Wal-Mart learned, however, of problems in Chilean production, it sent a delegation to Chile, examined the problems carefully, and ceased to buy Chilean salmon altogether.
Instead of achieving continued growth, the Chilean production collapsed in 2008, attacked by a virus caused by inadequate environmental standards and controls in the fish farms, and an excessive use of antibiotics banned in the United States. Compared to a sale of 403,000 tons of salmon in 2008, Chile is predicted to sell only 90,000 tons in 2010. None of it will be sold to Wal-Mart.
The Chilean salmon industry’s growth was environmentally unsustainable, while the pressure to grow in a developing country – producing jobs and revenue – had been irresistible. As early as 2005 an OECD condemnation of Chilean fish farming methods and conditions had already made the collapse predictable if not entirely inevitable.
The American appetite for salmon was not turned off by the collapse of Chilean supply. During the years when Norwegian companies were polluting Chilean waters and undoing the very industry they had created in South America, they were cleaning up their act, under government pressure, in Norway while diverting exports from the United States to Europe. Norwegian product, no longer impeded by trade barriers, rushed into the void in the United States being created by the virus in Chile. However, the diversion is leading to higher supermarket prices for Norwegian salmon in Europe, where the European Union, on July 23, 2010, finally repealed antidumping measures it had imposed on Norwegian salmon in January 2006.
The situation of Maine fishermen, in the long run, was not improved by the trade action. The Chilean product replaced the Norwegian product in the U.S. market, in a more attractive preparation for the supermarket shopper (Norwegian salmon had been sold principally as a whole fish) and at a lower price. A decade later the Maine fishermen went after the Chilean salmon with antidumping and countervailing duty petitions, but failed to stop the exports. When the Chilean production collapsed, the Norwegian production, not Maine’s, met the market demand. Whatever trade distortion the Norwegian salmon had been creating in 1991 was overrun by the distortions from Chile, at least as the Maine fishermen would have to see it. And the whole process of overproduction and contamination, driven at first by a trade remedy action, produced much greater consumption of much more doubtful protein.
Global supplies of shrimp had been making a delicacy into a staple rich in protein for the American diet in the twenty-first century much the way farm-raised salmon had been doing at the end of the twentieth. Once a luxury item on restaurant menus, shrimp in many varieties of preparation became available in every kind of restaurant and at ever more accessible prices, much like the evolution of fresh salmon, selling at less than five dollars per pound just before the collapse of the Chilean supply.
Never have Americans had more doubt, and more reason for doubt, about seafood and fish from the Gulf. These doubts arise just as foreign supplies to the United States have been reduced by application of the trade laws, and in behalf of the very shrimpers who now must catch suspect shrimp. Until NOAA and the FDA can test adequately and certify (EPA is not responsible for fish, but is responsible for the water they swim in), there is no way to know whether the Gulf’s shrimp are safe to consume. There is no indication, however, that there is anything wrong with the shrimp the trade laws are helping to keep out of the United States.
The Opportunity For Foreign Shrimp
Strong concerns have been expressed about the safety of foreign shrimp and other seafood and fish. According to the Voice of America, even before the oil spill the United States imported eighty percent of the seafood it consumed. Yet, questions often are expressed, especially about how farm-raised seafood has been fed, whether it has been kept in unpolluted waters. State regulators have been said to have found antibiotics, banned in the U.S., in foreign imports, along with other illegal chemical residues.
Demand for foreign shrimp will and should go up because of the oil spill and, even more, because of the toxic dispersants used to disguise it. That demand will be offset, however, by legitimate safety concerns regarding imports, and by the antidumping orders.
Under WTO rules, the antidumping orders on shrimp are subject in 2010 to sunset reviews, and the U.S. International Trade Commission decided in April to perform “full” reviews of all the orders. In the circumstances of the Gulf spill, shrimp producers in Brazil, India, China, Thailand and Vietnam have an extraordinary opportunity to make their case, dispose of the orders, and return fully to the U.S. market.
Foreign producers ought to clean up their act, literally, as they will have little difficulty profiting from the marketing of a healthy, safe product, even after spending whatever it takes to assure that the product meets American standards. Wherever the antidumping orders are not sunset, were that to happen (and arguments well made in the current circumstances, where injury to the domestic injury is unmistakably from the oil catastrophe, ought to succeed), producers and exporters who have not shipped to the United States ought to seek “new shipper reviews” so that they can enter the market free of the orders. Chinese producers ought to urge their government to take invite American inspectors to confirm their safe and healthy production in China so that their products can be certified.
The Gulf oil spill is an opportunity for foreign shrimp producers excluded by high tariffs to return to the U.S. market, to improve their product and increase their prices. Orders surviving the sunset reviews will be subject to administrative reviews, where foreign exporters will be able to lower or eliminate their dumping margins.
What is true for shrimp is even truer for crawfish tail meat from China (an antidumping order from 1997 was renewed in 2008; the American petitioners are from the Gulf coast). That order was not sunset and will remain until at least 2013, but new shippers ought to find a U.S. market hungry for safe product. It is true, as well, for frozen fish fillets from Vietnam, subject to an antidumping order since 2003, extended in 2009. That order cannot now be sunset before 2014.
The American appetite for seafood and fish from the Gulf of Mexico may not abate, but the safety of the supply may not be secured merely from the reassurances of government agencies that have admitted they do not know the consequences of the actions they have authorized. The opportunity for foreign suppliers to meet the demand need not be interpreted as a ghoulish outcome of the Gulf tragedy, but rather as a shift in global supply chains. As the Norwegians now are profiting from the uncontrolled exuberance of production in Chile, so producers of healthy fish the world over may profit from the tragedy in the Gulf.
Domestic U.S. producers ought to seek partnerships with foreign producers, instead of acting strictly as adversaries. They could step forward as certifying agents for the quality of imported product; they could partner with foreign producers as investors, as importers, and as experts. They could train foreign fishermen in American standards, and invite them to spend time on American boats and in American production facilities. They could make a more convincing case that they are professionals helping to feed Americans a healthy diet.
All these steps would imply enhancing foreign production, but it need not be entirely at the expense of American production. John Williams recognizes the caution needed going forward as to the quality and safety of shrimp in the Gulf because of the toxic dispersants, which would counsel more selective shrimping and fishing to be supplemented by foreign supply, but unless there is supply, demand will eventually decline. The objective must be an improvement in the quality and safety of everyone’s product. Foreign producers should respond to the market demand, recognizing the paramount need for a healthy product, and the American industry should take the lead.
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.
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The Obama Administration has no trade policy and, as institutions have been functioning and trade laws have been interpreted for more than a decade, it can’t. The institutions, laws, and regulations of the United States convey control and formulation of trade policy into private hands. Although the Obama Administration might seek to wrest control of trade policy, it has elected to assign trade no priority. Key political appointments have not been made or have neglected to tap trade expertise; initiatives have not been taken in Congress. The President has followed the law, but has not tried to shape it. He has extolled the virtues of free trade, but he has not tried to achieve it. At most, he has resisted attempts to circumscribe it, as much because of the circumstances as out of any conviction.
Most of the important enterprises in China are state-owned. Although there is much the central government does not control, it commands far more of the Chinese economy than the U.S. government can control of the American economy. China has placed a high priority on trade policy, and pursues its trade objectives vigorously.
Unfortunately, much of Chinese trade policy is reactive, and built on misinterpretations and misunderstandings of the actions of others, especially the United States. Were a full trade war to emerge, it would be more the result of incomprehension than of malice.
The Institutions And Laws Of American Trade Policy
The United States Constitution, Article 1, Section 8, empowers Congress to “collect Taxes, Duties, Imposts and Excises,” and assigns Congress exclusive authority “To regulate Commerce with foreign Nations.” Institutionally, authority over international trade belongs to Congress.
Trade policy is formulated in two congressional subcommittees, in the Ways and Means Committee of the House of Representatives and in the Finance Committee of the Senate. These committees operate as all committees of Congress, brokering competing interests of their members. Their members are there to protect the industries, and the jobs they provide, in their respective states. Although in some instances there may be manufacturers who require inputs from abroad, and in some others constituents may produce for foreign markets, for the most part the members focus on what is produced within their states and for a domestic market. Consequently, these committees are inherently protectionist.
Until implementation of the Sixteenth Amendment to the Constitution in 1916, conferring upon Congress “power to lay and collect taxes on incomes,” the primary source of revenue for the United States was duties on foreign goods. At the same time, Congress created in 1916 the Tariff Commission, which was to reexamine and reorganize the incoherent approach to duties that had been funding the government. Thus, American trade policy was founded constitutionally on the collection of revenues from imports, and U.S. laws into the 1930s promoted the collection of revenues and severe limitations on imports, infamously in the Tariff Act of 1930, known as the Smoot-Hawley Tariff, that many historians consider to have been a significant contributor to global Depression.
Contemporary trade law in the United States largely reflects a reaction against the fallout of Smoot-Hawley, interpreting international agreements that progressively over a sixty year period liberalized trade by reducing tariffs. Not entirely coincidental was the ability of the United States to finance its government operations with an income tax instead of customs duties. Nonetheless, the framework and apparatus of trade liberalization promoted exceptions and special arrangements to satisfy the legislators constitutionally empowered to regulate foreign commerce. Trade remedy laws tightened as tariffs reduced, supporting a common view that foreigners may “cheat” and export to the U.S. dumped and subsidized goods.
There are three principal U.S. agencies dealing with trade policy. The oldest is a cabinet position in the executive branch of government, the Department of Commerce. The task of the Department of Commerce is to implement the laws on trade passed by Congress. Commerce, therefore, theoretically has no authority to formulate or develop trade policy, which is embodied in congressional statutes. But Commerce does write the regulations that elaborate on and implement statutes. It also interprets the statutes and regulations. Through these two powers – writing regulations, interpreting statutes and regulations -- Commerce has more to say about trade policy than any other government agency.
The second is the Office of the United States Trade Representative, which is in the Executive Office of the President. USTR, created initially in 1962, negotiates trade agreements and enforces them, usually but not always through dispute resolution at the World Trade Organization. USTR comes closest to articulating and carrying out the interests of the President in trade, but also answers to Congress.
Finally, the United States International Trade Commission grew out of the Tariff Commission that was created in 1916. Congress in 1954 assigned the Tariff Commission responsibility, which had been in the Department of the Treasury, for determining whether dumping (the antidumping law having been passed in 1921) caused a U.S. industry material injury, a prerequisite for imposing duties arising from unfair trade. Commerce gave the ITC the same responsibility for countervailing duty cases in 1979 following the Tokyo Round of trade negotiations and passage of a new Tariff Act. The ITC is an “independent” agency responsible directly to Congress, not to the executive branch.
The trade laws have three main features: specific tariff reductions and rate-setting; treaties and agreements for trade arrangements, including non-tariff barriers and intellectual property; global capital flows have led often to treatment of trade and investment together such that bilateral investment treaties have become a frequent subject of trade negotiations. Treaties and agreements, nonetheless, are mostly for tariffs but also for preferences and dispute resolution; and trade remedies. Tariff reductions and rate-setting typically follow bilateral or multilateral agreements. They are expressions of policy only to the extent that the United States has defined a policy mutually with other countries. Unilateral trade policy, the choices of the United States without requiring agreement with anyone else, is confined to trade remedies.
Trade Remedy Laws Are Public Policy By Default
The central feature of trade remedy laws in the United States is that private parties decide which merchandise, and from which countries, will be subject to trade remedy actions. Formally, the Department of Commerce has discretion to decide whether to initiate an investigation, but Congress has fashioned the law to make investigations almost inevitable upon the presentation of a petition, provided the petitioner satisfies statutory requirements.
Congress has created offices, in both the Department of Commerce and at the International Trade Commission, to assist domestic industries preparing petitions. Before filing, petitioners typically know whether they have satisfied the requirements and whether the petition will be accepted. These offices exist to help and encourage petitioners. Congress wants the executive branch to protect domestic industries. To that extent, there is a policy, developed by Congress, inscribed in the laws and institutions.
The International Trade Commission conducts a preliminary investigation to decide whether full investigations will follow. The thresholds for this decision, however, again set by Congress, is very low. It is unusual to stop an investigation at the preliminary stage because of the statutory criteria. Once an investigation is fully underway, the market for the goods involved is distorted and there are significant trade effects.
It is also difficult for foreign interests to defeat a petition in the final determination, particularly for non-market economies. The Commerce Department has great flexibility to select surrogate values and find that government prices or domestic costs are below market values or world market prices. Some Chinese products have been found not to cause or threaten material injury to a U.S. industry (a prerequisite finding for trade restrictions), but the considerable majority of petitions result in antidumping and countervailing duty orders.
The Administration has nothing to say about which industries will petition, and not much to say about which petitions will lead to antidumping or countervailing duty orders. Congress keeps a close eye on the progress of petitions and often makes sure that Commerce officials adhere to the law. The inherent biases in the law written by Congress favor petitioners.
Congressmen and senators often testify in public hearings before the International Trade Commission on behalf of their constituent industries. Neither congressmen nor senators testify on behalf of importers or foreign producers. Congress funds the Commission.
To the extent that cumulative trade actions against foreign merchandise can be interpreted as a trade policy, it is in the United States a trade policy by default. Private parties, not the government, take most of the decisions, because they decide which industries or products will be challenged, and they choose the allegations. The law, developed by Congress over many years, generally leads to antidumping and countervailing duty orders. As long as petitioners can satisfy the criteria set out by Congress, they can restrict or interfere with trade.
The Contrast Of Trade Remedies With China
Chinese trade law has a “public interest” clause. The Chinese Ministry of Commerce (“MOFCOM”) can decide not to initiate an investigation even when a petition satisfies all legal criteria. The President of the United States has a similar power to prevent the imposition of a trade remedy for policy reasons in intellectual property cases arising under Section 337 of the Tariff Act, but not under provisions of the law for antidumping and countervailing duties.
Chinese officials do use this provision. A petition was filed in the autumn of 2009 seeking antidumping and countervailing duty investigations of wood pulp from Canada. China has a robust paper industry. China does not have, however, abundant commercial forests. It imports wood and other forest products, including substantial quantities of wood pulp. MOFCOM concluded, after an internal inquiry, that it would not be in the public interest to restrict the flow of wood pulp from Canada because, MOFCOM apparently reasoned, it was more important to support the Chinese paper industry than the nascent and inevitably limited wood pulp industry. The investigations, whatever the merits of the petitions may have been, were not initiated.
This option, referring to the public interest, does not exist for American authorities. Hence, China can decide which investigations will be pursued, and which will not. It can choose which industries to protect, and which to leave to market forces even when there may be unfair competition from abroad.
There are also important procedural differences that affect trade remedies as an expression of public policy. In the United States, the filing of a petition is a public event. The International Trade Commission and the Department of Commerce alert the public to a new petition as soon as it is filed, and the Department of Commerce has twenty days from the filing to determine whether to initiate an investigation. In a similar time span, the International Trade Commission must convene a public “staff conference” to hear arguments on whether it is likely, should investigations go forward, that it will find material injury or a threat of material injury. Parties must prepare for the staff conference, so everything about the case except confidential, business proprietary information submitted subject to administrative protective orders is public.
The public process of petitioning and launching investigations guarantees that Congress will insure the initial success of a petition satisfying minimal criteria by enabling congressmen to keep track of all developments. Consequently, the ability of private industry to dictate the public policy is assured.
In China, again by contrast, the filing of a petition is confidential and not made public, although MOFCOM officials are known to leak the existence, and often the details, of petitions to select Chinese law firms. Unlike the twenty day fire drill in the United States to challenge the petition at the Department of Commerce and convene a staff conference at the ITC, MOFCOM has sixty days to decide whether to initiate an investigation. Because the filing of the petition is not public, no one can know with any certainty when (or even whether ) a petition has been filed, and so the running of the sixty day clock is entirely in the hands (and knowledge) of MOFCOM.
The very existence of petitioners is also effectively secret in China. Consequently, if MOFCOM were to self-initiate an investigation, it could do so easily in the name of an industry or companies, especially if they were state-owned. MOFCOM put dates and an association name on the receipt and initiation of a countervailing duty investigation into saloon cars from the United States in November 2009, but specific companies in the association were not identified and many international trade observers speculated that the petition was developed at, by, and for MOFCOM.
It may be that the automobile petition should be taken at face value, filed by an association on behalf of an industry. However, the lack of transparency in the Chinese system invites speculation, which cannot happen in the United States. There has been but one Commerce Department self-initiation in U.S. trade history, against softwood lumber from Canada in 1991 (there is disagreement as to whether an antidumping investigation was self-initiated in 1986 against DRAMs). It is certain, because of the transparency of the process, that there have been no others.
In trade remedies, then, the United States cannot have a public policy, as control of the process and the outcomes is in private hands, dictated by Congress to encourage piecemeal protectionism. In China, by contrast, the government can initiate an investigation in the name of an industry, marrying trade policy to industrial policy to favor certain economic sectors. It can decline to investigate in the public interest. Hence, the government can decide what will be investigated and when, which industries it will protect, and which will be exposed to the market, whether fairly or unfairly. Those choices express public policy.
Trade Negotiations And Public Policy
Most observers equate trade policy with the negotiation of trade agreements. The United States, however, does not enter trade negotiations like any other country. The authority to sign a trade agreement is vested constitutionally in the President (Article 2, Section 2), but the regulation of Commerce is the preserve of Congress. Consequently, the President can sign an agreement, but Congress can change it before it is implemented as U.S. law.
Congress historically has changed treaties and agreements signed by the President, or rejected them outright, most famously refusing to join the League of Nations after World War I. Congress also rejected the original international trade organization, concomitant to the General Agreement on Tariffs and Trade (“GATT”) after World War II. The United States came to be known internationally as an unreliable negotiation partner because countries could not count on the signature of the President as the last word for an agreement. Congress could change the terms, or reject the agreement altogether.
To compensate for this problem, Congress agreed to create “fast track” authority, later called by President George W. Bush “trade promotion authority,” whereby Congress could accept or reject a trade agreement signed by the President, but could not change it. The existence of this authority enabled the United States credibly to negotiate trade agreements.
Today, there are three bilateral trade agreements that President Bush negotiated with trade promotion authority but that he failed to present to Congress for an up or down vote before the authority expired. President Obama has not sought and has not received a restoration of this authority. Consequently, Congress has not elected to vote on these agreements, which have been languishing between two and three years.
Without trade promotion authority, the President cannot credibly negotiate trade agreements. The Doha Round stalled over agricultural subsidies in 2008, before the election of President Obama. Today, however, progress is impossible without the engagement of the United States, and the President cannot engage credibly without authority from Congress that he has not received. Consequently, as to trade negotiations, the United States has no policy, and cannot pursue one, because the President does not have effective authority and Congress has chosen not to act on agreements already signed.
China has none of these problems. Its leaders can negotiate with unlimited confidence that their choices will meet with domestic approval. Their negotiating partners know that whatever Chinese leaders sign will be reliable. China, therefore, can fashion a negotiating trade policy: it can decide with whom it wants to reach agreements, and over what, with respect to both specific merchandise and dispute resolution, but also with respect to intellectual property, joint venturing, bilateral and multilateral arrangements, and whatever else may arise in the domain of international commerce. It can, and does, focus as a country on exchanges and agreements that will bring more natural resources to China, and on broader trade issues as well.
The Staffing Problem
When President Obama was first assembling his Cabinet, he asked Congressman Xavier Bercera about becoming his Trade Representative. Congressman Bercera turned down the offer, saying that he did not believe the President was going to assign international trade a high priority. Eventually, President Obama named the Mayor of Dallas, Texas as his trade representative. Ron Kirk’s instincts, like President Obama’s, favor free trade, based on his experience with the value of NAFTA for Texas and Mexico. But no one pretended when he was named that Ambassador Kirk was a trade expert, and conspicuously senior staffing at USTR was done primarily from the congressional trade subcommittees. As befits the history and character of Congress and trade, Ambassador Kirk’s staff was not populated with committed free traders.
To the extent the President might have wanted to pursue freer global trade through new international agreements, he has neither the authority (no trade promotion authority) nor the staff. Congressman Bercera was right in his assessment, and no trade policy has emerged from the Administration. Without congressional authorization and support, moreover, none is possible.
Arguably the most important position in international trade in the United States is not the more visible Trade Representative, but the Assistant Secretary of Commerce for the Import Administration. The occupant of this position decides in most instances the pursuit of antidumping and countervailing duty investigations, and decides their outcomes. She signs the final determinations with duty rates and with decisions over the countervailability of foreign government programs.
As of June 2010, eighteen months into his Administration, President Obama has not nominated a candidate to fill this politically sensitive policy-making position. The Acting Assistant Secretary is a former Bush Administration official, and the office, therefore, carries over from the Bush years. To the extent a trade policy emerges from the Import Administration of the Commerce Department, the policy was developed by President Bush, not President Obama.
Notwithstanding inclinations toward partisan interpretations that would make Republicans free traders and Democrats protectionists (see Part I of this article), it was President Bush’s Assistant Secretary for the Import Administration who chose to initiate a countervailing duty investigation against non-market economy China and thereby to increase significantly trade restrictions. That decision defined an important element of a trade policy, but conspicuously not of the Administration’s own initiative. Private parties petitioned for countervailing duties against coated free sheet paper from China. The Administration had to decide whether to initiate, or whether to reject the petition. Reactions to private initiatives may constitute cumulatively a trade policy, but by default if not by accident.
Once the judicial process upheld the lawfulness of the countervailing duty investigation in a non-market economy, there was little the Obama Administration could do to change it. Then, too, no Obama official has been named as Assistant Secretary.
The statute governing the ITC requires six commissioners, three from each political party, serving nine-year terms. Nominated by the President, commissioners must be confirmed by the Senate. Often the appointees have served on trade committee staffs in Congress. The confirmation process for them often produces debate over trade policy, but such debates cannot affect policy once appointments have been confirmed. Presidents must make appointments to maintain the partisan balance on the Commission, so cannot necessarily choose a candidate from their own party.
The composition of the Commission often does reflect partisan proclivities, with Republicans more inclined to rely on economic modeling and analysis and Democrats more likely to sympathize with claims of injury. Yet, Democrat Janet Nuzum, as Vice Chair, for example, was far more sensitive to the merits of free trade than some of her Republican colleagues, and Republicans on the current Commission frequently sympathize with domestic industry. Regardless, there is little Congress or the President can do to give the Commission direction because of the nine-year terms, during which the President cannot remove a commissioner.
The United States v. China
The United States pursues trade remedies to the extent, and with reference to particular goods, dictated by private sector initiatives. Occasionally it is possible to articulate a policy, as in accepting petitions alleging countervailable subsidies in non-market economies, but mostly the Administration has little to say and even less that it can do. The Obama Administration has resisted the entreaties of many in Congress to countervail Chinese currency valuation, but Congress could legislate an administrative requirement that would leave the Administration little choice.
Choices typically are few, but there are some. The Bush Administration rejected all safeguard actions against China. The Obama Administration accepted the one safeguard brought before it. It is altogether too easy, however, to misread this difference and the relevant implications. Despite many predictions, no safeguard action has been requested against Chinese merchandise since the case on tires, and the looming expiration of the safeguard provision makes further actions improbable. It would be an exaggeration to claim a policy out of the one case, particularly when paired with the Administration’s persistent position on currency valuation. None of the cases brought to President Bush carried anything like the domestic political implications of the tires case.
The Obama Administration has considered trade policy through tax policy, but essentially because of jobs. Proposals abound to tax heavily the corporate offshoring of jobs, and to expand the uniquely worldwide reach of the U.S. income tax. Such indirect instruments, however, can only hint at a trade policy, and not as a commentary on trade itself.
China seems to see in every trade investigation and in every imposed duty a policy hostile to China. China declared its investigations into chicken parts and automobiles from the United States in November 2009 expressly retaliatory, as if the tires safeguard were deliberately provocative. China read the President’s actions as aimed at China, without acknowledgment of the domestic politics that dominated and constrained his options. Publicly, at least, China also therefore took little note of the nuanced elements of the President’s actions, which were avoiding insult to the head of the National People’s Congress, setting rates that would keep the Chinese industry in business, avoiding excessive publicity for a potentially high-profile action by calibrating an announcement on a weekend. Instead, China decided to make the decision a centerpiece for antagonism, collapsing into the one case an apocalyptic view of U.S. trade policy.
The United States cannot have a coherent trade policy, particularly as to trade remedies. The merchandise in dispute and the allegations to be investigated are all defined by private parties often backed by powerful interest groups capable of delivering or denying votes and campaign resources in a perpetual electoral cycle. Retaliation against imagined trade policies, policies thought to be coherent and deliberate, can have little or no effect in shaping the future. There is no point in China pursuing a retaliatory trade policy because such retaliation cannot change what will happen in trade in the United States. Retaliation would have to anticipate, continuously, the next, most powerful interests seeking trade remedies, an impossible task.
China needs to look more closely at U.S. law and appreciate more presidential constraints where the Constitution delivers all authority over foreign commerce to Congress. It needs to be at the negotiating table when the law calls for negotiation (again, see Trade War?), and it needs to protect its own industries only when facing unfair trade and such protection is in the public interest. A policy based on retaliation, where the recipient of the retaliation (the Administration) cannot react or adjust, is a wasted policy opportunity to no one’s long term advantage.
For the United States, the President could do more to create at least an impression about trade commitments. He could nominate an Assistant Secretary of Commerce. He could ask Congress for trade promotion authority. He could engage seriously the defects in the pending, unratified trade agreements. He could take on the agricultural subsidies that contribute mightily to the deficit, paralyze the Doha Round, and drain the Treasury exceptionally, as in the resolution of the cotton dispute with Brazil by continuing to subsidize the domestic industry and then subsidizing Brazil as well. All these steps together still might not translate into a coherent policy on trade, but they would suggest a President who means what he says when he promises the G-20 to resist protectionism, when he champions an expansion of exports, when he extols the virtues of freedom, whether trading in ideas, or in goods.
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The Obama Administration has no trade policy, and cannot have one. China is able to have a trade policy, and has one. China does not believe that the United States has no trade policy, and tailors its policy to react to what it interprets as choices and decisions taken by the U.S. Government. The United States, to the extent it tries to have a trade policy, wants to show that it is not intimidated by the retaliatory choices of China. This systemic and profound misunderstanding is taking neither country in a healthy direction.
This article is in two parts, appearing on the blog in consecutive weeks. The first part explains the concept of “trade policy,” and what it means to have one. The second part explains the opening statements: that the United States Administration has no trade policy and cannot have one; that China can have one, and does.
Part One: What It Means To Have A Trade Policy
Politicians, pundits, and scholars talk and write about “trade policy,” but they rarely explain what they mean. “Trade Policy” refers to the accumulation of deliberate government choices to express positions and preferences on international trade. It has essentially three manifestations: in the laws and institutions of a country pertaining to trade; in the actions a country takes, pursuant to its laws, to restrict trade with respect to specific products or services; and in the negotiations a country undertakes to liberalize trade. As in all domains, policy must be understood as to what a country does, not necessarily what it says. It is politically correct everywhere to champion free trade rhetorically. If all the rhetoric could be relied upon, there would be no protectionism.
Free Trade v. Protectionism
Broadly, trade policy is thought to be either in favor of free exchange, or to be protectionist, favoring imports (free trade) or domestic manufacture (protectionism). Favoring imports, in turn, favors consumers because imports increase competition, expand the variety of products offered, and lower prices. Favoring domestic manufacture, however, generally is thought to defend jobs, and jobs, in the end, are at the heart of every trade policy.
Prior to the Clinton Administration, jobs in the United States were little associated with the production of goods for export, even though in virtually every other country jobs expansion was always understood to be dependent on exports. One of the important subliminal messages in President Obama’s vow, in his first State of the Union Address, to double exports over the next five years, was that the United States does not export very much of its gross national product. Imagine the reaction of the rest of the world if China or Japan were to promise a doubling of exports in five years.
The key difference between American and foreign perceptions of exports was that U.S. manufacturers were satisfied with the American continental market; foreign producers needed to sell into that market, not only because the United States was the quintessential consumer society, but because American wealth and the coherent continental market made it by far the most attractive and inviting place to sell. The United States, long the world’s leading champion of free trade, thought it had nothing to fear and everything to gain by encouraging the rest of the world to become more productive and sell to Americans.
Jobs And Trade Policy
Jobs, everywhere, is the key factor in trade policy. Every government maintains domestic peace by promoting and generating jobs, keeping its domestic population occupied and productive. Jobs depend on trade. Without jobs, whether in developed or developing countries, there is no income for consumers to buy imports, and no tax revenue for government services or government-built infrastructure to enable imports to reach consumers.
The more a product is entirely made from domestic materials and components, the more its producers and spokesmen (and the politicians who represent them) will want to protect their domestic market against foreign competitors, in order to protect their jobs, and the more they will want the rules of trade to favor domestic production over free trade. It is nearly impossible, however, for workers in the global economy to make something that can be finished without inputs from abroad, such that their domestic market, and their jobs, depend upon foreign goods. And, they may make something that is in much, or even more, demand, in foreign markets. They need those foreign markets open to buy their goods, and they know that it is exceedingly difficult to avoid reciprocity in market opening – for the foreign market to be open, the domestic market must be open as well. In all these circumstances, the centerpiece of trade thinking is jobs, but jobs may be protected variously by trade protectionism or by free trade. The more goods are made for export, the more the manufacturers of them must favor free trade.
Developed And Developing Countries
Developing countries historically fear free markets, especially in agriculture, because developed countries can overwhelm developing markets. The characterization of developing countries, however, has become more complicated and nuanced as countries develop at different rates and reach different stages of development. These differences lead to different views of trade.
“Developing” and “developed” here are economic terms. They refer to the construction, maintenance, and operation of infrastructure, to the production of increasingly sophisticated goods and services, to the opening of markets. Over the last decade, certain major developing countries, particularly Brazil, China, and India (not “BRIC” because Russia has not been admitted to the WTO) have separated themselves from most other developing countries by the scale and speed with which their economies are developing. China, in particular, proves that capitalism and democracy can develop separately (contrary to the popular theories of Milton Friedman, for example), as China marries capitalism (“with Chinese characteristics”) to an economy still dominated by state owned enterprises. Historically, developing countries had little influence in shaping the rules of international trade, but the combination of Brazil, China, and India has changed the dynamic. When they advance common interests in world trade forums, they can influence the practice and the rules that once had been largely dictated by the developed world, particularly Europe and the United States.
Governments do not long like to be dependent on other countries for food, which makes agriculture, and subsidies to agriculture, the most contentious of trade issues. Developing countries have always feared significant job displacement when confronting free trade, and developed countries have long craved access to the populations of developing countries because they are potential consumers of goods known not to be produced in those countries. Developing countries also tend to fear free trade because the availability of goods to buy that they do not produce can only retard or terminate the possibility that they will ever produce them.
An important common characteristic of Brazil, China, and India is that, while they identify themselves as “developing,” they generally embrace free trade because they see their paths to prosperity through exports. Nonetheless, India has led the developing world’s objections to European and American agricultural subsidies, with the aggressive support of Brazil and China.
The fault line between developed and developing countries as to trade was recognized analytically at least by the late eighteenth century. Alexander Hamilton, in his 1791 Report on Manufactures, advised the new Congress of the United States that it would be necessary to protect certain industries against foreign imports lest the new country fail to develop competitive industries. England, from whom the United States had just won its independence, was the paragon of free trade, and Hamilton feared that political independence would not mean much if the United States were to remain economically dependent on the manufacturing powerhouse across the sea.
The United States became, in the twentieth century, the global leader for free trade in the image of England in the eighteenth century, the world’s foremost manufacturing center. However, unlike England, the United States was not so dependent on exports. Its ever-expanding domestic market and continent-sized reservoir of natural resource inputs were considered by many sufficient to sustain economic growth.
The global economy has changed this calculus, reflected in ever-evolving rules of origin. It is no longer easy to tell where something has been made, which is the first step in determining the tariff treatment it should receive, in turn the result of agreements between or among the countries engaged in trade. A global distribution of goods and services leads to products with components from many different countries, making choices between domestic and foreign products artificial. Consequently, it is no longer clear whether free trade or protectionist preferences are more likely to protect jobs.
Complexity in the rules of origin has been compounded by the flow of ideas. Countries are increasingly inclined to seek barriers to the movement of goods based on the intellectual property they contain. Patents and trademarks are rapidly becoming core considerations for free trade, potentially shifting the paradigm of jobs to wealth embedded in intangible property. Laws focused on intellectual property rights inevitably favor developed countries, but developing countries are learning how to deal with those advantages. Brazil has proposed, for the compensation arising from the WTO finding against the United States over cotton, concessions over intellectual property rights, thereby tying such rights directly to international trade.
Notwithstanding the growing uncertainty as to whether favoring imports is to favor free trade and whether the defense of domestic manufacturing is necessarily protectionist, traditional lines have been drawn around trade law such that there is more than a little truth in the stereotypes. The challenge to recognize these lines is acute in the United States because the United States is second only to the European Union as the world’s largest consumer market, having been surpassed in 2008 shortly after the EU’s expansion to twenty-seven nations. It took a population 37 percent larger in the European Union to surpass, by a very small margin, the consumption of the U.S. market. Producers around the world, for at least a century, have depended on access to the U.S. market to prosper, and still do. They need to sell their goods in the U.S. market in order to earn capital and to preserve jobs at home.
The divide between free trade and protectionism often is defined as a divide between consumers and producers. Consumers are distinct from producers because they define more of what is wanted than what is needed in a society. When people want a product no one makes at home – whether because the country does not have the needed raw materials or the machinery or skills appropriate to the manufacture, or because the product could not fetch a price commensurate with the costs of labor at home – they favor free trade, access to the imported goods. Of course, it is always possible for people to want one thing but make another, therefore favoring free trade in some goods, but not in others.
Partisanship And Socioeconomic Class
Historically, free trade seemed to be the prerogative of middle and upper classes, populated more by service providers, professionals, and management. They appeared to be less dependent on domestic manufacture for their jobs than trade unionists working on assembly lines.
Consequently, free trade appeared to become associated in the United States with the modern Republican Party, characterized by management and economic elites, and the Democratic Party became identified with protectionism because of its support from trade unions. Unions supported the election of Democrats; ”big business” backed Republicans. Democrats were elected from manufacturing centers and factory towns; Republicans became a rural and suburban party of large landholders and corporate managers. Intellectuals and professionals, however, tended to confuse the picture, sympathizing with workers, living in the suburbs, voting to protect manufacturing jobs.
These logical stereotypes, it turns out, have a polling resonance but are historically inaccurate when translated into partisanship, American party affiliations, and trade policy. For over a century, every Congress, whether majority Democratic or Republican, has resisted free trade.
Congressmen derive their power in the United States locally, and the most conspicuous local concern is employment. Most congressmen are inclined to protect the jobs that already exist in their constituency, not to protect jobs that might be if there were freer trade.
Almost every global and domestic initiative to liberalize trade has been taken by a Democratic President of the United States, and most backsliding has been at the hands of Republicans. FDR and Truman saw to the GATT; Eisenhower increased tariffs, and Nixon imposed voluntary restraint agreements on steel; the “Kennedy Round” of global tariff reductions was launched by the Democratic President who gave the negotiations his name; NAFTA was Reagan’s idea, but he also extended VRAs and NAFTA was legislated by Clinton, as was the creation of the WTO and the accession of China to world trade rules. It was a Bush that imposed safeguards on foreign steel.
There are reasons for this history, and for the inaccurate stereotypes, that go beyond the scope of this article, but are describe in my speech to the American Chamber of Commerce in the People's Republic of China. The point here is merely that the principles that lead to supporters of free trade, on the one hand, and protectionism, on the other, do not translate consistently or reliably into the politics and policies of the two major political parties in the United States. When President Bush urged trade partners to complete the Doha Round before Barack Obama might become President, he was relying on the incorrect impression that Republicans would support free trade and a Democratic President would oppose it.
As popular views of trade are dictated by jobs, so a politician’s view is dictated by votes. When representing a constituency looking either to buy goods from the widest choice possible, or to export goods or services from domestic production, a politician will favor free trade. When the constituency is a domestic manufacturer whose jobs could be lost to foreign competition, a politician will favor protectionism. On balance, Republicans more generally represent constituencies of buyers and Democrats represent constituencies of producers, but the lines are inconsistent and the interests tend to narrow. Policy choices can be very specific. They can involve favoring free trade for agriculture, for example, but protectionism for automobile parts, making a state such as Indiana painfully complicated for both political parties. The same conservative farmer benefiting from massive subsidies can also lobby for open access to the Communist Cuban market.
Trade laws, which are the domestic interpretation of international agreements, reflect these choices and contradictions. They include special provisions crafted by individual legislators to protect the interests of particular constituencies provided it has been possible to compromise in the legislative process with politicians representing other, usually competing, interests.
The Three Components Of Trade Policy
Trade laws define the rules, but they alone do not constitute trade policy. The rules permit domestic agencies to investigate allegations of unfair trade, and to impose restrictions on goods or services found to be unfairly traded. The investigations, and the restrictions imposed, are probably the most important features of trade policy, because they have the most specific impact on trade partners. They determine the continuous tensions among countries over trade.
The third, remaining manifestation of trade policy is in the negotiations pursued to reduce tariff and other trade barriers, and in the choice between bilateral and multilateral negotiations. Although many observers think trade policy amounts to nothing more than these negotiations, they can take many years and have little or no short term impact on trade relations. Although formally the GATT took two years to negotiate (completing in 1947), Secretary of State Cordell Hull began the process of its achievement with reciprocal trade agreements in 1934; the Uruguay Round, launched in September 1986 was not concluded until January 1995, and the Doha Round, now at a standstill, was launched officially in Qatar in November 2001, and only after earlier false starts, as in Seattle in 1999. Meanwhile, the bilateral agreements the United States signed with Korea (2007), Panama (2007), and Colombia (2006) remain without endorsement of the U.S. Congress and without, therefore, any effect on trade. Of these three, moreover, the only one significant in economic terms involves Korea. The others, like an earlier agreement with Australia, are primarily political.
The objectives of trade negotiations are always broadly the same: to reduce tariffs and trade barriers and generally to liberalize trade. However, domestic forces driven by the need and desire to protect jobs seek to protect certain sectors and thereby to limit liberalization.
Industry in one country may crave market access in the trade partner; the trade partner may have a specific domestic need to protect its own production in that very industry. Trade negotiations routinely come apart over such conflicting needs, but they may also unravel over perceptions of nontariff barriers. For instance, the United States imagines itself to have a strict environmental regime that imposes serious costs on its manufacturing industries. Those industries believe competitors in other countries to enjoy unfair advantages by manufacturing with less exacting environmental standards. In a trade negotiation, they want the United States to oblige the trade partner to impose similar standards.
The other main point of contention in American trade negotiations, besides environmental standards, is labor. The United States imagines itself to provide the highest standards of worker protection, including minimum wages, maximum hours, and worker safety. These protections cost industries money, and those industries for whom trade liberalization is being negotiated want foreign industries to expend comparable capital to meet comparable standards. Trade unions, especially, demand that labor standards in other countries be comparable to the standards in the United States, and for at least three reasons: to make the cost of production comparable; to advance a common global cause for the rights of working men and women; and to impose a layer of protection for their domestic manufacturing jobs.
Environmental and labor standards are highly contentious in trade negotiations for many reasons. Many specialists in international trade have long believed that they have nothing to do with trade and ought not to be part of trade negotiations. Others who believe they are properly part of negotiations learn slowly that standards may work differently in different countries, and that American rules are not necessarily the most exacting, but instead may have different purposes and costs. Finding common ground can distract from traditional trade negotiations, and can emphasize disagreements between countries. Nonetheless, they are now core American demands in trade negotiations, accepted by both Republican and Democratic Presidents.
All three components of trade policy – institutions (including laws and regulations); trade remedies (investigations and imposed trade restrictions); and trade negotiations – are effectively beyond the control of the executive branch of the U.S. Government, preventing the United States from formulating and adhering to a coherent trade policy. But all three are well within the control of the central government in China, enabling China to articulate and maintain a trade policy. China wishes the world to believe that it is the leading force for free trade, but there are persuasive reasons why its goods are subject to more trade actions than the goods of all other countries combined. Part Two, next week, will explain why the United States and China are positioned so differently.
Click here for Chinese translationWashington, D.C., partner Elliot Feldman, leader of Baker Hostetler's international trade practice and a regular contributor to the practice's China-U.S. Trade Law blog, was recently invited to address the American Chamber of Commerce in the People's Republic of China (AmCham-China) program, "China: Growth Engine for the Next Decade," held in Beijing.
The conference included sessions on investment opportunities, macro-economic trends, political and social developments, and opportunities for participants to engage with business and government leaders. In the "Access China" program, Feldman shared his thoughts on the current state of trade between the United States and China, the potential for and characteristics of a trade war, and what the two countries can do to avoid such a situation. Feldman was also interviewed discussing China's handling of international trade disputes while attending the conference. Watch the video below.
Editor's Note: Baker & Hostetler LLP recently submitted the following comments in response to the Department of Commerce’s request for comments on Retrospective Versus Prospective Antidumping and Countervailing Duty Systems. 中文请点击这里
Introduction: The American Way Compared To The Method Used By Almost Everyone Else
Remedies for disputes heard by panels of the World Trade Organization are prospective.' There are no penalties for past misdeeds. Procedural delay is rewarded. A country is not expected to change its ways before the absolute completion of proceedings and definitive adverse decisions. While it continues conduct ultimately found inconsistent with its international obligations, a country faces no penalty. Only when the decision requires change and a country refuses is the country subject to penalty, and then only indirectly.
Article 9 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (the "Antidumping Agreement") provides for the imposition and collection of anti-dumping duties, and authorizes either prospective or retrospective assessment of duties. The prospective system governs international trade remedy systems in almost every country. It also governs the conduct of original antidumping and countervailing duty investigations in the United States. Except for the very limited exception of critical circumstances, which is almost never used, a company will not be liable for antidumping or countervailing duties on imports before there is at least a preliminary determination of dumping or countervailable subsidies. The United States may be unique in its application of a retrospective review system governing the assessment of duties after an order is imposed, and is certainly the only major WTO member that uses a retrospective system.
The Request for Comment asks for a comparison of prospective and retrospective systems with respect to six criteria. The first criterion refers to "remedying injurious dumping or subsidized exports to the United States." This language carries at least two assumptions, that the result of an investigation will be to find dumping or subsidization, and that the dumping or subsidization will be found to be injurious. The language, thus, fails to recognize a key problem with the American system: the mere filing of a petition disrupts trade because it distorts markets.
Exporters to the United States, as a matter of prudence and precaution, invariably raise prices when an investigation is initiated. Importers and downstream customers start scrambling for alternative suppliers because of uncertainty about how imports from the country subject to the petition may be treated later on. Consequently, petitioners in the American system are rewarded for the filing of a petition, no matter whether the petition is frivolous or bound, ultimately, to fail. The main cause of that problem is the very low standard in the United States for accepting petitions, but retrospective duty assessment exacerbates the problem because importers know that, were an order to be imposed, their liability would be unlimited and would not be determined until well after the subject merchandise had been imported.
Where dumping or subsidization and injury are found, remedies are important. A system that imposes an implicit remedy where there may be no need, however, that imposes an in terrorem effect on trading partners, is defective, and may explain why other countries have thought better of this system. The United States ought to be asking itself, when comparing prospective and retrospective systems, why almost everyone else does things differently.
The American retrospective system begins collecting bonds for prospective duties as soon as there is a preliminary determination estimating antidumping or countervailing duty margins. The negative effects of this initial bonding period are muted because the bonding rate acts as a cap on the duties that can be collected for imports entering between the Commerce Department's preliminary determination and the International Trade Commission's final determination. The actual duties assessed can go down for imports entering during this period, but they cannot go up.
The bonding cap is lifted and replaced by a cash deposit requirement when the antidumping or countervailing duty order goes into effect. Thereafter, the actual duties assessed can be increased or decreased drastically, based on the results of administrative reviews that may not be completed until more than two years after the affected merchandise was imported. Should the results of those administrative reviews be appealed, the actual determination of duties owed could be delayed many years further.
Importers, who are held accountable for the duties, operate in an environment of substantial uncertainty for many years because of this system of assessment. It is impossible to know in advance of the Commerce Department's analysis what a final antidumping or countervailing duty tariff rate may be because there are so many variables that can affect the calculations, including methodological changes the Commerce Department may introduce between reviews, following importation. So, too, the U.S. Treasury cannot know how much money it will actually collect in duties during this extended period.
The prospective system in most other countries removes most of the uncertainty characteristic of a retrospective system. As in the United States, the investigation in a prospective system produces duty rates, updated regularly through administrative reviews. However, reviews do not change rates retrospectively. The duties collected are the duties owed, without the possibilities of increased duties or money returned according to the results of an administrative review. The rates set in the investigation apply to all imports going forward until the first review; the rates set in administrative reviews also apply going forward only.
Not every prospective system is the same, but the principles are consistent and have similar market effects. In Canada, for example, the original investigation determines "normal values," which are minimum acceptable prices. As long as goods are imported above those prices, no duties are collected. Goods imported below normal values, however, are taxed the difference in price. The system is designed not for the purpose of revenue collection, but for the purpose of fair trade: the normal values define prices above which goods are not determined to be dumped or subsidized, leaving no reason to be collecting duties on them. The purpose of the law is to assure fair competition for domestic products, not to disrupt the market or create uncertainty for importers.
The European Union also has adopted a prospective system. EU officials establish the normal value for a product in an investigation and then compare the normal value to the export price. The percentage difference between these two is fixed as the duty rate, which applies to all future imports of the product unless superseded on a prospective basis in a subsequent review.
Most systems are neither purely prospective or retrospective. In the United States, for example, parties must request administrative reviews. When none is requested, the previously found duty rates continue to apply between administrative review periods, and the cash deposit rate from the investigation becomes the duty rate when no first administrative review is conducted.' A European Union importer may be able to recover previously collected duties, provided he can prove that dumping or subsidization has ended or that goods are being imported at rates below those that had applied when the goods had been imported.
Relative Merits Of Prospective And Retrospective Systems
The American retrospective system is more accurate in assessing duties than the prospective system used in the European Union because it is based on the actual prices of imported sales compared to domestic prices (or contemporaneous costs) of like products sold at or near the same time. The American system is not necessarily more accurate, however, than the prospective normal value system used in Canada and several other countries. Although the Canadian system uses normal values calculated during a prior period, both systems use current import data. Because the Canadian prospective normal value system performs the necessary calculations at the time of importation, the risk of inaccuracy caused by lost data is reduced. Moreover, collection of total, accurate duties in a retrospective system requires assessment against importers well after the goods have been imported. It is not unusual for importers to be out of business by the time the final rates are supposed to be collected, leaving only deposits in the Treasury.
Early estimated rates usually are much higher than rates to be finally assessed. These estimated rates distort the market, often dramatically, but when an importer can survive the initial impact, he can also recover monies paid that exceeded what ultimately was due.
The American system is administratively very expensive because customs entries must be kept open, sometimes for years (subject to legal appeals and challenge), before final duties can be assessed. In the interval, the possibility of actual collection diminishes, while importers do not know whether they will be getting money back, or will owe more.
In the prospective system where normal values are fixed in advance, importers can know what their prices have to be to avoid duties. In other prospective systems where duty rates, rather than normal values, are fixed in advance, importers can know what prices they need to charge their customers in order to recover the costs of the duties and still make a profit. There is more certainty and stability in the market than in a retrospective system. Duties are collected at the time of importation. Consequently, there is much more certainty that they, in fact, will be collected, and as the amount to be collected is known at the time of importation, the administrative system is much less cumbersome and expensive.
The Goals Of The Comparison
Congress asked the Department of Commerce to compare prospective and retrospective antidumping and countervailing duty systems according to six goals. The current American retrospective system appears superior to a European style prospective system, but not a Canadian style prospective system, with respect to the first goal. All types of prospective systems appear preferable for the remaining five.
• The retrospective system may appear in theory to be superior for remedying injurious exports to the United States because it calculates duty rates based on a comparison of the actual import prices to normal values or subsidies calculated for a contemporaneous period. However, because the prospective system allows the importer to account fully for the antidumping or countervailing duties in its own pricing decisions (i.e., where the imports compete with the domestic product), it is arguable whether, even under this criterion, a retrospective system is superior.
• Prospective systems are better at collecting duties because they collect upon importation and do not have to wait through administrative and legal reviews and proceedings that can take years.
• Prospective systems are more likely to reduce incentives and opportunities for the evasion of duties because they are clearer in their expectations: normal values or fixed duty rates advise importers in advance of the prices they should apply to goods, information known to authorities with certainty at the time of importation.
• The retrospective system has no reliable way to "target high-risk importers," as it is focused on the prices of goods after they are imported. The prospective system, focused on the price of the goods when they arrive at port, makes the relative "risk" of the importer less relevant.
• The American retrospective system, by creating much more uncertainty in the marketplace, creates competitive advantages for U.S. petitioners (through the advantages of market disruption), but the costs and consequences are visited upon importers, their employees, downstream businesses and their employees, and ultimately U.S. consumers.
• The retrospective system is by far more administratively cumbersome and expensive than the prospective system adopted by almost every other country and reflected in the principles governing the remedy system of the WTO.
The United States has maintained an expensive and inefficient system unlike any other country's. The systematic analysis Congress has invited has been overdue, and ought to lead to change.
Note: Dr. Elliot Feldman on April 15, 2010 presented the following speech at AmCham-China’s Conference of the Asia-Pacific Council of American Chambers of Commerce (APCAC).
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Difficulties with China are now on Page One of The New York Times and The Washington Post almost every day. There is consensus in Washington that relations between China and the United States will get worse before they get better. There are many issues, most related only marginally, if at all, to trade. As examples, there is frustration in Washington that China does not share a western view of the nuclear threat from Iran, nor the urgency of the nuclear threat from North Korea. There is disappointment and chagrin over Copenhagen, and obvious disagreement over Taiwan and over the Dalai Lama. These issues are mostly strategic, sometimes cultural. Cooperation on them would go a long way toward calming concerns in other areas. There is no sign, however, of mutual understanding.
There are many additional issues dividing China and the United States that are economic. The most obvious is that China, as of January, held $2.4 trillion in foreign exchange reserves, of which nearly $900 billion was in U.S. Treasury bonds and securities. The reserves had grown $453 billion in 2009, and economists predict similar growth again in 2010.
No less important to the United States and other countries is the valuation of the RMB. After the end of the dollar peg in July 2005, the RMB appreciated over 20 percent against the dollar. With the global economic crisis, however, China froze the RMB and let its value relative to other world currencies drift down with the dollar. Premier Wen Jiabao dashed American hopes last month that China would permit some adjustment any time soon.
Within the U.S. administration it is said that the word “currency” is not to be spoken, but the characterization of the associated issues as “mercantilism” seems more than tolerated. Meetings between Chinese and American leadership since September 15, 2008 frequently have invoked references to “rebalancing,” the idea that Americans should save more, Chinese should spend more, and Chinese exports to the United States should decline as they find a market at home among consuming Chinese. Such rebalancing, endorsed publicly by both countries, is difficult, however, when an undervalued RMB persistently makes Chinese goods comparatively inexpensive abroad and foreign goods expensive in China.
Both countries, and as important, the governments of both countries, are preoccupied with job creation. Weaker currencies tend to keep jobs at home. Chinese intransigence about currency valuation raises doubts among Americans, however, about the sincerity of Chinese pledges to rebalance. Those doubts are shared, perhaps even more acutely, in Europe. In a form of diplomatic jiu-jitsu, Premier Wen has called the U.S. demand for currency adjustment “a type of trade protectionism,” and Commerce Minister Chen Deming has escalated the rhetoric, threatening that American action on currency would precipitate a trade war that, he insisted ominously, the United States would lose.
Many in Congress, and some in the Administration, want to make currency valuation a trade issue, which perhaps Premier Wen already has done for them by calling it one, confirmed by Minister Chen. Countervailing duty petitions now routinely allege currency valuation as an illegal subsidy (three times in 2009 alone), and many in Congress, and in the business community, want the Treasury Department to label China a currency manipulator. The U.S. Department of Commerce, however, consistently refuses to investigate the allegation, concluding each time that the elements of an export subsidy have not been pleaded sufficiently, particularly as to the subsidy law’s specificity test: the laws and regulations pertaining to valuation of the RMB, Commerce has concluded, are not specific to any industry or group of industries in China, nor is the valuation conditioned on exports.
This legal conclusion has enabled both the Bush and Obama Administrations to avoid a major confrontation with China over the RMB in trade remedy cases, while both Administrations have refused, at least so far, to acquiesce to congressional pressure. The aggressive language adopted by Premier Wen and Minister Chen on this subject, however, could change the dynamic and make it much more difficult for President Obama to hold the line. The postponement of a Treasury Department determination, an apparent trade-off for President Hu’s visit to Washington this week, may only preserve a U.S. card that could be played, in any event, only once.
While China’s exports benefit from an undervalued RMB, China insists that it is contributing to global economic and financial stability, and points to its faster recovery from global recession. China’s friends remind critics of the role of a stable Chinese currency more than a decade ago in halting an Asian financial meltdown. China is not without defenses for its conduct over currency valuation.
In view of the non-trade issues – and the internet dispute over Google is many things, including strategy, technology, human rights, but also trade -- it is arguable whether “pure” trade disputes between China and the United States, trade remedy actions regarding allegations of dumping, subsidies, safeguards, patent and trademark infringements, are all that important. The value of Chinese goods exported to the United States peaked in 2008; less than 2 percent of the value of those goods were subjected in 2009 – the year when U.S. manufacturers were most severely impacted by world trade conditions -- to trade remedy investigations. The official U.S. trade line, in every Administration, reflects such data and has had the following elements:
• The Administration is following the laws as set out by Congress, nothing more;
• There is considerable friction in every significant trade relationship;
• Such friction is normal and indicative of a healthy relationship;
• Trade disputes represent a tiny fraction of overall trade and should be considered nothing more than irritants.
Unfortunately, U.S. trading partners rarely see the disputes this way. While successive Administrations try to minimize them, another branch of the U.S. government, Congress, takes them very seriously and promotes them. Congress, and American trading partners, see trade disputes as economically, politically, even diplomatically important, while Presidents try to ignore them. President Bush, it is said, was amazed at how distressed Canadians were over the treatment of Canada’s softwood lumber exports to the United States. Yet, the trade represented between $7 and $10 billion annually, and there were many U.S. Senators signing letters, testifying at International Trade Commission hearings, and lobbying the Office of the United States Trade Representative and the Department of Commerce. Frequent representations were made by the Canadian Ambassador. For years, no Canadian prime minister failed to raise the issue with the president whenever they met. It probably should have occurred to the president that, since it was apparently important to everyone else, it just might be important.
There is a similar imbalance in trade disputes with China, and to date a similar presidential inclination to minimize them. Although I believe President Obama did what he had to do politically and legally with respect to commercial tires from China in September 2009, and that he acted with as much diplomatic sensitivity as possible within the requirements of the law, I also believe that he underestimated the Chinese reaction just as President Bush misunderstood how the U.S. treatment of softwood lumber was poisoning relations with Canada. The U.S. Department of Commerce, which answers to the President, is, and always has been, systematically deaf to complaints from foreign governments, invoking the mantra that the disputes are minor, normal, even healthy. The apparatus of the Department, meanwhile, and the biases of the laws, are organized and designed to protect the interests of U.S. industry against foreign competition. China, like Japan and Canada before, do not see trade disputes the way Presidents and the Commerce Department see them, and for China, as occasionally for other countries, there are additional, non-economic issues of national pride. Canadians, for example, were furious at the transparent American disrespect for the rule of law in the lumber litigation.
The United States tends to underestimate the Chinese Government’s sensitivity to domestic interests. The Western press has been translating this sensitivity into “hubris” or “triumphalism,” even simple “arrogance,” but whatever it might be called, Chinese concerns for domestic interests reflect a sense of national pride.
The Western press also underestimates internal Chinese debate. The voices of a harder line are heard, notwithstanding the many moderate and engaged voices among elites. Unfortunately, the same is true as to what the Chinese hear from the United States.
Most important to China has been the refusal of the United States to treat China as a market economy. Legally and financially, non-recognition enhances the ability of U.S. industry to succeed in antidumping complaints. Politically and psychologically, however, the issue is far more important. The Communist Party believes it is governing a capitalist state that, economically, should be treated like every other capitalist state. The indicia of a market economy, governed by supply and demand, contracting labor, and competition, are everywhere in China. It is decidedly not a command economy like the Soviet Union.
The United States sees something else. It sees national planning, central control, and a restricted currency. It sees dominant government banks and state-owned enterprises.
When China as a government appears in trade remedy disputes, for example, its counsel sometimes represent the principal Chinese enterprises as well as the Chinese government. This inherent conflict of interest raises doubt about the independence from the government of these enterprises. The counsel for no other foreign governments appear in U.S. proceedings simultaneously representing supposedly private enterprises. It is widely presumed that the Chinese enterprises engage the government’s counsel at the government’s direction. China and the United States are, thus, looking past each other as to China’s very identity.
In November 2006, right after congressional elections produced a Democratic majority, the Bush Administration, while refusing to recognize China as a market economy, nevertheless accepted a petition to investigate Chinese government programs alleged to confer countervailable subsidies on goods exported from China to the United States. A countervailable subsidy, until that time, had been treated in U.S. law as a market-distorting government subsidy. Inasmuch as the United States denied that China had a market, government support would have nothing to distort. The United States Department of Commerce, however, cheered on by Congress and supported by the rest of the Administration, was not deflected by this apparent anomaly. The Chinese Government would now have to answer questions sent to it by the United States Department of Commerce, and would have to receive Commerce Department auditors who would inspect government books and test the veracity of government answers, all the while being treated as a non-market economy.
This recipe for confrontation did not produce a satisfying meal for anyone. Chinese officials were insulted and often adjusted doubtfully to the diplomatic cooperation the new investigations required. U.S. Embassy personnel in Beijing and officials from Washington were not unwilling to make their dissatisfaction with China known. Moreover, U.S. officials began to accuse Chinese officials, in print, that they had not been entirely truthful or accurate in responding to American inquiries. In one published preliminary determination, the Department of Commerce alleged that, “the GOC has withheld the information requested by the Department,” and “the GOC has failed to act to the best of its ability.” The Department declared, “the GOC’s claims of non-use are incorrect as a matter of fact,” and “the GOC’s statements . . . are unreliable and are contradicted by other facts on the record.” I am not aware of comments of this type printed in the Federal Register about other governments.
The multiplying investigations have not enhanced relationships, regardless whether the cases have involved much money or little, or whether the products in dispute have been significant or trivial. The process, and the underlying premises, which the United States insisted was business as usual, have been damaging. In the slow economic recovery we all anticipate in the United States, there will be more cases, more misunderstanding, and more difficulty.
China’s worldwide exports increased from 1999 to 2008 from $195 billion to $1.4 trillion. One of the great surprises accompanying this growth is how few trade complaints, compared to the scale of the growth, that it produced. There were 21 antidumping cases brought against China worldwide in 1999 (often against the same product but in several countries). While China’s exports multiplied seven-fold, in 2008 only 52 new cases were brought against Chinese products (again, often involving the same product but in several different countries). The United States, between July 1, 2007 and June 30, 2008, became China’s leading export destination and China’s leading trade antagonist, with 18 initiated cases. During the previous decade, however, India initiated 120 antidumping cases against Chinese products while becoming China’s leading trade partner in goods; the United States, by contrast, initiated 87, barely more than the European Community, which initiated 84.
Although these numbers for formal disputes are surprisingly small under the circumstances (for the volume and variety of trade), there are at least a couple of notable trends. One is that the number of cases initiated against Chinese products has increased every year except in 2007, albeit in small increments. Another is that more cases are brought against Chinese products around the world than against the products of any other country, by far. Against no other country is so much suspicion expressed about business dealings, honest reporting, and sincere cooperation in the interests of free trade. Since accession to the WTO, China has begun to test trade remedies itself. It initiated 14 antidumping cases against the products of other countries in 2001, more than doubled that number, to 30, in 2002, and through 2008 had initiated 151 antidumping investigations against foreign products. The United States was one of its first targets (along with Japan), and is now its leading target.
When negotiating accession to the WTO, China sought concessions because of its self-characterization as a developing country, a forgiving explanation for a transition from a government-controlled economy. China graduated very quickly from this self-definition, although it still invokes it frequently. It has now initiated three different subsidies investigations, all into products from the United States. In the case against automobiles, initiated on the eve of President Obama’s visit to China last November, the application for duties endorsed by China’s Ministry of Commerce proclaimed a declining United States unfairly trading with an ascendant China. It claimed technical superiority in a pillar industry, what it called the key industry of America’s industrial revolution.
This development, I submit, is of dramatic implication and potential consequence. The United States, since 2006, routinely entertains petitions against China complaining of subsidies due to state-owned banks and state enterprises. China has responded with a complaint about the U.S. bailout of the Big 3 automobile manufacturers and the infusion of capital into U.S. banks. China alleges non-market loan guarantees and special loans to the U.S. steel industry. More jiu-jitsu: China is accusing the United States of government involvement in the economy in programs nearly identical to U.S. allegations against China, and China has begun bringing cases against the United States at the WTO, a forum in which the United States usually wins the cases it initiates, but usually loses the ones brought against it.
The United States is an historic sore loser at the WTO, in one celebrated instance taking more than five years to comply with an adverse decision. China, by contrast, promptly capitulated when the United States brought its first two complaints against it, by requesting consultations, at the WTO; now, the world will watch how the United States responds as China brings more complaints against the United States. To date, China has made a doubtful strategic choice, to appeal its trade disagreements exclusively to the WTO, never seeking recourse in U.S. courts. Between the pattern of American non-compliance at the WTO, for which there are few punitive mechanisms available and all remedies are prospective, and the decision to permit adverse administrative precedents to accumulate without legal challenge, Chinese frustration with the United States as a trading partner is likely to grow, even as the partners can hardly escape one another.
China, it seems, is responding to the United States by acting like the United States. Whatever the poetic justice, this course is perilous. China, unlike the United States, is still dominated by state-owned enterprises, does provide central direction to important segments of its economy, and is still learning how to conduct business in trade remedy disputes.
At a more policy-based level, the United States appears, at the behest of Asian countries, to be in hot pursuit of the Trans-Pacific Partnership, which looks and feels like an economic reincarnation of George Kennan’s cold war approach to the Soviet Union. China, so far, apparently has said nothing, and there is more than enough skepticism, in the United States and abroad, about the trajectory of the TPP despite American enthusiasm. China, nonetheless, cannot be pleased by an even implied encirclement, and an answer to the question of what the United States will gain from this initiative seems to be buried in unexamined assumptions.
These developments, taken together, are unnecessarily ominous. Asian countries are urging the United States to engage more in Asia because, they readily say, they are afraid of China. While China is flexing the muscles of a world power, it is still the fragile developing country it claimed to be only a few short years ago. Tensions in trade are symptomatic of other problems. They are also the essence, because trade and commerce constitute functional interaction more than anything outside armed combat. Trade disputes, it is true, are but a tiny fraction of trade, and there are fewer of them than might be justified given the clash of systems, defiance of rules on all sides, and fundamental underlying political needs, above all for jobs. But they resonate.
Governments in Beijing and in Washington both need to find more jobs for their populations. Both need to promote production and exports. The only possible compromises require consensus about what the rules should be and how they should be obeyed. Those compromises require trade policies.
Trade disputes shape trade policy. The pursuit of trade disputes is determined in U.S. law by the petitions of private enterprise that the Department of Commerce and the International Trade Commission can rarely avoid investigating. By contrast, Chinese law permits the Ministry of Commerce to keep the existence of petitions secret, and the initiation of investigations to be determined by the Ministry’s private assessment of the “public interest,” a provision that does not exist in U.S. law. Consequently, China can, and does, have a trade policy. The United States can have one only with difficulty, and at present has none. U.S. trade policy, such as it is, inherently is protectionist because it follows the protectionist inclinations of private enterprise in hard times. China’s trade policy, unfortunately, is equally or even more protectionist, and is unquestionably the product of government choice. Today, it is hard to tell the pot from the kettle because they are both black.
The United States needs a policy, and China needs a new one. Like almost every major international issue today, this one dividing the United States and China requires the two countries to work together from first principles. They need to examine together what defines and runs and regulates markets. They need to decide together how to keep markets open and free and how to assure fair treatment of foreign investments. That China is standing up to the United States at the WTO is good – it is about time someone besides the European Community and occasionally Japan or others did. It is also not so good if it means antagonism rather than accommodation.
The United States needs to understand that the lack of democracy in China does not mean government unconscious of its responsibility to its people; China needs to understand that central paralysis of American institutions does not necessarily mean American weakness. Both have to keep reminding themselves, lest every now and again they seem to forget, how much they need each other.
I want to conclude briefly with some practical suggestions about how the private sector might respond in these antagonistic times. There are things you can do to cushion the shocks and protect your interests without necessarily changing government policies. The operating assumptions here are that, on the one hand, there will be more trade disputes, and more orders imposing duties and restricting trade; and on the other hand, that business between the two countries will continue to grow.
Should you be a company exporting goods, you should be sure to monitor dumping and subsidy orders in every country where you are doing business, whether in-house or with outside counsel. Even the most sophisticated companies can run afoul of orders, facing penalties and customs duties, because they have not monitored thoroughly. Chinese companies that are exporting should examine carefully the loans they are taking from Chinese banks. They should consider whether they are receiving better-than-market terms, and whether they are exposed to allegations of benefitting from government subsidies. Exporters should learn everything they can about their foreign competition, especially regarding pricing and costs of production: careful pricing can minimize risks of dumping allegations. Such study could also lead to the acquisition of foreign companies. Ownership can reduce dramatically exposure to trade remedy actions. Exporters should cultivate relations with importers, for it is important to have allies in countries where you are doing business. And Chinese companies should make sure they are perceived as private and independent of government.
There are many practical things American companies doing business in China can do to help themselves. They can enlist in trade associations that lobby the U.S. government, beyond the U.S. Chamber of Commerce. They can participate in, or seek to create, boards or commissions to advise the government. Like Chinese companies, American companies now should be wary of better-than-market bank loans or subsidies, especially in agriculture and steel, and like Chinese companies cultivating relations with importers in the United States, American companies should cultivate relations with importers in China.
The corporate world does not control its own destiny, but it need not be tossed without recourse in a turbulent sea. Every company, and every industry, can make things better for itself and, by so doing, contribute to an overall improvement in a bilateral relationship that sorely needs improvement.
Washington, D.C., partner Elliot Feldman, leader of Baker Hostetler's international trade practice and an author of the firm's China-U.S. Trade Law blog, authored a column, "China and the US Must Stop Throwing Stones," which was published in the "Opinion" section of the March 30, 2010, edition of the The Financial Times （中文全文请点击这里）.
According to Feldman, "One of the most troubling features of the growing tension between China and the US is that both countries legitimately have a lot to complain about. It is commonly understood that China and the US have divergent interests. Less understood is that, in the bilateral economic and trade relationship, they usually are complaining about the same things. Both are trying to protect jobs and now seem engaged in a zero-sum game that no one can win. When China and the US criticise each other, each side must realise they are launching their complaints from inside glass houses without regard for their own structural vulnerabilities."
Feldman continues: "Both China and the US believe the other is attempting to interfere in a free market economy and engage in protectionist practices to the detriment of the other. The US sees too much state direction in the Chinese economy and continues to designate China as a non-market economy, leaving China feeling stigmatised and at an unfair disadvantage in international trade."
Feldman's article goes on to provide insight into the countries' opposing viewpoints and some of the events/actions which have led to the current situation. He concludes: "China and the US should acknowledge the reciprocal nature and legitimacy of each other's complaints and seek mutual solutions–or such complaints will compound and multiply, and the two countries will grow further apart and more antagonistic. If Beijing and Washington cannot agree to stop throwing stones from inside their glass houses, the great risk to the world is that they will board them up."
The full article, "China and the US Must Stop Throwing Stones," can be viewed on The Financial Times website (free registration required).
Click here for Chinese translation中文请点击这里
Whenever the United States complains about its trade imbalance with China, China responds that it would buy more goods and services from the United States were it not for U.S. export controls that either prevent or restrict those purchases. Export controls serve important national security and foreign policy goals and the United States will not be eliminating them any time soon. Nonetheless, there has been a general recognition among U.S. industry and government officials that the present controls are more restrictive and cumbersome than they need to be.
There have been many attempts at export control reform in the recent past, but those initiatives usually died in inter-agency squabbles. The Obama Administration is determined to change that pattern through strong support for the reform process from the very top. President Obama, during his State of the Union address on January 27, linked export control reform to economic recovery, stating:
Third, we need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support two million jobs in America. To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.
Another change from prior attempts at export control reform is that, according to statements made by Pentagon Press Secretary Geoff Morrell at a January 27 Pentagon press conference, the leadership of the Defense Department now is committed to working with other agencies and Congress "to make meaningful and lasting changes to our export controls." Mr. Morrell noted that Defense Secretary Gates "believes that [export control reform] is imperative to keep our nation competitive in this global economy." He further noted in response to questions that:
[W]hat is required here is not, you know, tinkering around the edges of what is a rather cumbersome, antiquated, outdated, bureaucratic set of rules and regulations governing the export of technology. [Defense Secretary Gates] believes you need to conduct a wholesale reform of export controls, really starting with a blank sheet of paper. And ...he fully supports and is willing to go to bat for [the initiative of the President].
John Boehner, the Republican party leader in the U.S. House of Representatives, stated in a news conference on January 28 that he believes there could be bipartisan support for legislation to overhaul the export controls. With the Defense Department and both political parties supporting reform, the chance for meaningful reform of the U.S. export control system may be greater now than it has been in many years.
Chinese companies should not expect a drastic loosening of restrictions on exports to China right away. As President Obama noted in his State of the Union address, any reform of export controls must be consistent with national security. While administrative agencies and members of Congress are in principle in favor of eliminating unnecessary restrictions on exports, they also are sensitive to concerns that loosening of export controls, particularly with respect to China, might undermine national security. We expect export control reform to go forward, but only in areas where a consensus is reached that a loosening of controls would not undermine national security.
One of the areas where export control reform may most increase the ability of Chinese companies to buy products from the United States is the commodity jurisdiction process, which determines whether a product or technology should be controlled as a "defense article" by the State Department under the International Traffic in Arms Regulations ("ITAR") or by the Commerce Department under the Export Administration Regulations ("EAR"). This jurisdiction issue is critical to whether a product can be exported to China because Congress has banned all products controlled under the ITAR from being exported to China. By contrast, products subject to control under the EAR generally can be exported to China, often without the need for an export license.
The commodity jurisdiction process currently is extremely cumbersome, which means that military controls often remain on technologies that may have been developed originally for the military long after these items have become predominantly commercial. Reform of the commodity jurisdiction process could mean much greater opportunities for Chinese companies to buy U.S. products.
Click here for Chinese translation
*This article was published in International Trade Law 360 on January 7, 2010. 中文请点击这里
On January 4 The Washington Post headlined on Page 2, with a Beijing dateline, “U.S. and China in a snowballing trade fight.” The article followed two others prominently presented with similar messages on January 1 and 3, one bannered with the same wintry theme (“U.S.-China relations set for chill, experts say”). The Washington Post is not accustomed to covering international trade, let alone with major articles. Meanwhile, Nobel Prize winning economist Paul Krugman was anticipating and endorsing in The New York Times on New Year’s Eve more trade remedy actions against China.
Trade remedy petitions are not prepared overnight. Nor are they, at least in the United States, the products of coordinated policy. Companies and industries decide that they are facing unfair international competition and that they could benefit from a trade action. Such decisions are not reached easily because trade actions are expensive and take a lot of time and attention. Whereas steel companies may orchestrate petitions because they may bring complaints about different products they make, their actions are independent of the manufacturers of non-steel products. Hence, the perception of a coordinated attack on Chinese goods is understandable (it requires only several petitions close in proximity on the calendar), but it does not correspond to a national trade policy.
Contributing to the perception of a coordinated attack on Chinese goods are the results of petitions. Most, but not all, result in affirmative determinations from both the Department of Commerce (“Commerce”) and the International Trade Commission (“ITC”) and the imposition of duties. A constant anti-China roar from Congress contributes. Nonetheless, the process is anchored in the independent initiatives of the American private sector, not in the coordination of the government.
China’s initiation of trade investigations now projects a reflection of the American process, but with insufficient transparency to be entirely persuasive that the new wave is without political motive. China’s Ministry of Commerce (“MOFCOM”) says it is receiving petitions from private enterprises and trade associations, is analyzing them and deciding whether to initiate investigations, exactly like the process in the United States. However, MOFCOM announces the filing of a petition only upon the initiation of an investigation. Some Chinese lawyers say these petitions may be the product of MOFCOM itself, and that their dating is unreliable. Because MOFCOM does not reveal the existence of the petition until it decides whether to investigate, there is no way to know. However, in the United States, Commerce must initiate an investigation within twenty days of the filing of a petition, which is a public document upon filing, Commerce cannot schedule initiations of investigations for political purpose. By contrast, MOFCOM retains complete control of its schedule and therefore can initiate investigations according to a political calendar.
American officials are talking about “inevitable” and “normal” conflicts in a growing trade relationship. China has a different view. It sees nothing inevitable or normal in the cases being brought against its goods, even though the United States has not been as aggressive in challenging Chinese exports as have been the European Union and India. Nor does it accept the results. One of the Washington Post articles, for example, was headlined, “China denounces U.S. trade ruling on steel pipes,” and Chinese Ambassador to the United States Zhou Wenzhong called the tires safeguard signed by President Obama in September “a very dangerous precedent.”
Tit For Tat
Were there “tit for tat” in this story, it would be almost entirely in the “tat.” The United States is doing what it has always done, initiating countervailing duty and antidumping investigations on virtually every petition Commerce receives. Commerce is acting as it has always acted, protecting U.S. industries by giving them the benefit of almost every doubt and zealously defending the indefensible, such as the practice of zeroing that has been struck down repeatedly by the WTO.
Commerce has been neither diplomatic nor delicate in its treatment of China. In published determinations it has accused Chinese officials of deceptive practices and misinformation. It has ignored expert testimony. It has cancelled verifications based on suspicions. It has refused to listen to government witnesses. China has ample reason to be distressed by Commerce conduct.
Notwithstanding its experience, China has complained little, if at all, about Commerce’s brass-knuckles treatment. There have been no official protests and no reports of unofficial complaints. The Chinese Government has not challenged Commerce’s conduct and determinations in U.S. courts. Conspicuously, China has reserved its public protest for denunciation of President Obama, and of the ITC, where it has declined to appear.
The President and the ITC, unlike Commerce, have not displayed animus toward China. In the tires safeguard, discussed in earlier postings on this blog, the President adhered closely to the terms of the accession protocol China had signed while fashioning a measure of relief designed to disadvantage Chinese exports without putting them out of business. Chinese commentators have suggested that Democrats, faithful to trade unions, are more protectionist than Republicans, but the ITC, with three Republican commissioners, has been consistently unanimous in its conclusions about injury caused by Chinese imports.
Chinese complaints, thus, do not seem aimed at changing results. They have not changed the course of U.S. actions, nor could they, inasmuch as the petitions do not arise from any particular policy except Commerce’s likely findings supporting petitioners.
The “tat” for the continuing American trade actions seems more apparent. Instead of contesting each trade action within the rules and laws, China has opted to take its own initiatives. Although they are not necessarily linked to American actions, it appears that China wants them interpreted this way. It was not possible, for example, for retaliatory petitions to have been readied within forty-eight hours of the President’s safeguard decision, yet Chinese statements frequently invoke the tire duties as a starting point for apparent retaliation.
Ariana Eunjung Cha linked the tires safeguard directly to Chinese reactions in The Washington Post. First she said that the safeguard “struck an emotional nerve.” She reported, “On Internet bulletin boards, public sentiment about the United States turned ugly.” Then she reported on the Chinese Ambassador’s warning that the safeguard is a “dangerous precedent,” followed by, “Two days later, China accused the United States of predatorily ‘dumping’ chicken products and auto parts into the Chinese market and warned that it could impose its own tariffs.” “Then,” she added, “in October, China made good on that threat by hitting the United States with duties of as much as 36 percent on certain nylon exports.”
With Chinese proceedings less than transparent, it is possible that the Chinese investigations were retaliatory. Ms. Cha’s subsequent statement, however, does not follow: “On Nov. 4 and 5, the United States went on the offensive again – slapping anti-dumping duties on Chinese-made steel pipe and launching two more probes of Chinese imports.” Breathlessly, now with the accumulating evidence of tit-for-tat, she adds, “Barely 24 hours later, the Chinese announced they had opened an investigation into U.S.-made passenger cars.”
The United States is not capable of the tit-for-tat this imagined trade war requires, if for no other reason than it does not control the timing and subject matter of petitions. The ITC does not have the capacity to orchestrate hearing and determination dates according to actions in China. Nor have all the ITC determinations been affirmative, and in the one instance where Chinese interests (but not the Chinese government) have challenged the legality of agency actions, the Court of International Trade handed them a partial victory as discussed in an earlier posting on this blog.
China, by contrast with the United States, may be capable of retaliatory actions, although such capability ought not be exaggerated. Bureaucracies share the same infirmities everywhere. They all move slowly, and they all have difficulty with deadlines. There is surely more coincidence than conspiracy in the timing of apparently reciprocal actions, although retaliation is not impossible.
There is, in the telling, nonetheless encouragement. Commerce has been consistent in rewarding U.S. petitioners. Congress has incited petitions. Professor Krugman, generally supportive of free trade, has declared protectionism justified, even warranted. Seen from Beijing, this apparent pattern could be seen as a policy requiring response.
The Tires Trigger And Chinese Conduct
Since accession to the WTO, China has been participating in trade disputes according to the rules, but less than fully. Unlike other countries, China is not appearing before the ITC. It is not appealing adverse agency determinations in U.S. courts. It is not pursuing administrative reviews of countervailing duty orders, when final duties are determined and set for collection. It is not even answering questionnaires in administrative reviews in support of its own companies. Instead, China is counting on the WTO for trade vindication, a strategic choice almost certain to disappoint.
The prevailing excuse for China’s incomplete commitment to the legal process, and its rising anger over American actions, continues to be President Obama’s safeguard decision. The complaint focuses on the proposition that China “did nothing wrong.” The safeguard exception in the WTO, however, expressly requires that nothing wrong be done. It exists strictly as a response to an unexpected and disruptive surge in imports.
China’s handling of the safeguard, like its handling of some of the other trade disputes, has displayed little strategic thinking. China did not present President Obama with a cogent legal argument as to why no duties should have been imposed on Chinese commercial tires, that there was no industry adjustment plan and, therefore, no remedy could serve the law’s object and purpose. Instead, China argued that the President, a Democrat elected with union support, should respect the decision of U.S. industry to offshore jobs to China.
China’s reaction to the ITC steel pipes decision has a similarly tone-deaf political character. Steven Mufson reported on New Year’s Day in The Washington Post, “China’s Ministry of Commerce said that China was ‘strongly dissatisfied’ with the U.S. International Trade Commission’s Wednesday ruling that Chinese subsidized imports had harmed or threaten to harm U.S. steel pipe manufacturers . . . The Commerce Ministry said that the ITC’s ruling was ‘wrong. . .’” Yet, MOFCOM did not present its case to the ITC. Commissioner Lane, extraordinarily, told the lead counsel for the Chinese industry during a public hearing that she did not think he was answering her questions and insisted on directing questions to the second chair.
China’s unhappiness, then, with U.S. trade actions may be the legitimate result of a pattern of petitions and decisions, but the only event deviant from the past has been the one safeguard action. It has proven not to be the “precedent” of which the Chinese Ambassador warned. No other safeguard action has been brought, even though the core injury complaint against steel pipes was about a surge.
The Bigger Picture
China is participating just enough in trade disputes arising in the United States to be informed and to complain, but not enough to prevail. Respondents to trade remedy petitions in the United States hope, but do not expect, to prevail at the ITC. They have little hope at Commerce except to build a record for appeal. Respondents, therefore, who do not appear at the ITC and do not appeal Commerce determinations do not expect ever to prevail. China’s choice of partial participation must be for some other reason.
China’s reasons may be detectable in the countervailing duty petition against U.S. automobiles, discussed in an earlier posting on this blog. The trade issue in the petition is that the U.S. industry is at least as much the beneficiary of state support as any Chinese industry, such that there is no reason for the United States to persist in treating China as a non-market economy. The grander strategic issue appears to be in the petition that the U.S. automobile industry, like the United States more generally, is in decline, whereas the Chinese industry, and China more generally, are ascending.
Trade disputes, as seen in the automobile petition, are expressions of China’s greater vision, as outlets for China to assert itself and to take on the United States as no other countries have been willing to do. As long as the United States continues business as usual, with agencies favoring domestic producers against Chinese imports, Chinese frustration will grow. Although a better answer, if China were focused on free and fair trade, would be to test the legal system, so far China prefers, apparently, to use trade as a soapbox for a bigger message.
Should China and the United States persist on these paths, the media will persist in seeing a trade war, reading into calendar coincidences strategic conspiracies. It may be the read China wants, and Congress might want it as well. The deteriorating atmosphere may then impact other critical bilateral and global issues. Consequently, it is important for China and the United States to pull back and think strategically together. Otherwise, toxic trade could pollute everything that concerns them.
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China’s leaders and commentators think President Barack Obama’s visit in November was an unqualified success. Publicly, the White House sees a qualified success, and privately not even that. It may all depend on what “success” and “failure” mean. The differences have consequences.
American analysts generally are less equivocal than American officials. They mostly see failure. Elizabeth Economy, Director of Asia Studies at the Council on Foreign Relations, called the trip “optically, one of the worst U.S. presidential visits to Beijing in memory.” Helene Cooper wrote in The New York Times from Beijing, “With China’s micro-management of Mr. Obama’s appearances in the country, the trip did more to showcase China’s ability to push back against outside pressure than it did to advance the main issues on Mr. Obama’s agenda, analysts said.” She went on to quote Eswar S. Prasad of Cornell University, “China effectively stage-managed President Obama’s public appearances, got him to make statements endorsing Chinese positions of political importance to them and effectively squelched discussions of contentious issues such as human rights and China’s currency policy. In a masterstroke, they shifted the public discussion from the global risks posed by Chinese currency policy to the dangers of loose monetary policy and protectionist tendencies in the U.S.”
Some Chinese critics share the American conclusions. Ying Chan, Director of the Journalism and Media Studies Center at the University of Hong Kong, headlined in The New York Times, “Obama Loses A Round,” writing, “While the jury is still out on what President Obama’s China visit has achieved for the long term, the president has most decidedly lost the war of symbolism in his first close encounter with China.”
Certainly China seems to have had its way with the President publicly. He wanted a spontaneous, televised meeting with students and bloggers in Shanghai and he got a rehearsed exchange with young members of the Communist Party in a sealed-off auditorium. He wanted to get out and meet people and he got what Helene Cooper reported in The New York Times to be a “ghost town” at the Great Wall, “the bustling tourist attraction” “largely shuttered for the presidential visit.” He was also diplomatically downgraded, accompanied to the Great Wall by the Chinese and American envoys and no senior Chinese official. At his joint press conference with President Hu Jintao, where the two presidents read mutually approving (and presumably mutually approved) prepared statements, the press were not permitted to ask questions. Ying Chan’s assessment was that “the Chinese outmaneuvered the Americans in all public events,” arguing that, “In status-conscious China, symbolism and protocol play a role that is larger than life.”
These conclusions are not good for Sino-U.S. relations. A cardinal principle of diplomacy is never to crush your opponent in a negotiation unless you expect the outcome to be definitive and final. What is perplexing, however, is that China is not gloating over a victory (although at least one senior U.S. official, quoted in The Washington Post anonymously, has referred to “a sense of triumphalism”). To the contrary, China appears to be sincere in its belief that the visit was a success for both parties, presumably understanding the meaning of such aphorisms and not trying to humiliate the President.
For President Obama, at least publicly, the trip to China was an investment with America’s bankers, and he was depositing good will. It was also intended as a foundation for a solid, long-lasting partnership. Chinese commentators believe he got what he said he was seeking. Xinhua reported, “When he left, analysts saw a new direction for developing the China-U.S. relationship, which had major significance, and believed the summit had rendered bilateral relations stronger.” Xinhua quoted Jin Canrong, deputy dean of the International Studies School at Renmin University referring to a “new goal” for the partnership as “positive and significant,” and Fu Menzgi, director of the Institute of American Studies at the China Institute of Contemporary International Relations ascribing “positive and new meanings” to the partnership. President Obama emphasized the need for mutual trust, and President Hu and Chinese commentators agreed. According to Xinhua, “Obama’s China visit turned to be fruitful. The two countries reaffirmed the new definition of their ties – a positive, cooperative and comprehensive relationship in the 21st century – as established by their heads of state, and enriched their relations and cooperation and more strategic connotation.”
Some critics think, however, that the President’s investment is naïve, the foundation less reliable than might be supposed, the rhetoric unsupported by anything of consequence. Writing in The Washington Post, Zhang Zuhua and Jiang Qishen counseled, “The Chinese government does not reciprocate when it is given things for free. It simply takes them and moves on. Foreigners may not know this, but to people in China it is plain as day.” They contend that the decision not to greet the Dalai Lama in Washington before traveling to China, the capitulation on attendees in Shanghai, the acceptance of a press conference with no questions, and the public silence on human rights were all things given away for free. They interpret the Chinese view of a “new direction” as diminishing the stature and role of the United States, taking advantage of a new, young, eager-to-please President.
Measuring Success And Failure
It may be that China and the United States are measuring success and failure differently. Americans may be inclined to consider the visit an optical failure because President Obama’s greatest populist skills, intelligent communication with “ordinary” people, were shut down by Chinese “micro-management.”
Many consider the visit a substantive failure as well, perhaps because President Obama spent only one full day out of three in serious meetings, mostly finalizing agreements reached before he ever got to China. None of the major items on his agenda – Iranian nuclear development and possible sanctions; climate change; global financial reorganization; valuation of the RMB; human rights and especially freedom of speech and communication – seemed to advance very much if at all.
The American presumption of a zero-sum game – American failure equals Chinese success – is not helped by the Chinese public expression of success, however two-way and sincere may be its intention. Most Americans see in the Chinese success a malevolent hand: a stage-managed, micro-managed visit that denied the President the rock star status he enjoys in much of the rest of the world and a denial of the priorities on his agenda. Some, such as David Lampton of Johns Hopkins University’s School of Advanced International Studies, predict “nasty” relations ahead because China’s celebration of the relationship now is little more than a prediction of an ascendant China replacing a declining United States on the world stage, casting the United States “in the role of the supplicant.”
Some critics of the trip (and they are by far in the majority among American commentators) contrast President Obama’s experience with the experience of his predecessors. Whether Nixon, Reagan, Bush, Clinton or Bush, admiring and enthusiastic crowds greeted the American President at Badaling (they all visited the Great Wall, and all in the same place). American-style press conferences were conducted; interactions with “ordinary” people were televised in China. This time, in Ying Chan’s words, there was “a package of faux public events” in which, he comments, “the Obama team” was “outmaneuvered.”
The contrast with predecessors is politically very damaging for Obama, whatever the long-term outcome of the visit for the bilateral relationship. It compounds an accumulating image at home of a president who avoids controversy through submission, whether on the critical details of a health care bill or on the entire manner of going to war, compromising in ways and with adversaries who seek only to exploit agreeability as manifestations of weakness more than courage. There is a growing American impatience with the President’s diplomacy, from the right over Iran, from the left over Afghanistan. And from the China visit there is an echo for some Americans of John F. Kennedy’s first encounter with Nikita Khrushchev, the young and inexperienced President faring poorly as the tough Soviet tested him in Vienna. It seemed China was testing Obama, and he yielded to Chinese preferences every time.
There was a context for the President’s performance in China. He had been excoriated in the American press for appearing deferential to the Emperor of Japan just before arriving in Shanghai. Sensitive Chinese leadership eager to work with the President as a partner would have recognized his precarious position and would have treated him fully as an equal, catering to his wishes as well as their own. Instead, either oblivious to what had happened in Japan or determined to pursue their own course regardless, the public display in China worked to confirm the impression from Japan of a young president perhaps too eager to please his foreign hosts.
That the trip to China likely contributed to this unflattering portrait at home strongly suggests that the next presidential trip to China will not come any time soon, and that President Obama will need to make up lost ground when President Hu Jintao visits the United States in early 2010. President Obama will need to regain the ground American popular opinion will suggest he lost, from being the lone superpower to being a mere equal with a developing country, or worse.
There are at least two superficial challenges here, and then a third that cuts more deeply into the relationship. Superficially, President Obama’s conduct in China was not inconsistent with his personality and governing style more generally. He has been no more forceful with Congress than with China. He conserves effort for the highest priorities and is inclined to let the symbolic be the worry of others. China may have been exploiting this perceived weakness when it may be little more than style, and the exploitation may have, for purposes of the long-term bilateral relationship, little meaning. Or, it could mean a great deal, and more favorably for the United States than critics suppose: having ceded the superficial symbolism, President Obama may have deposited good will for which he expects later, more important dividends. Many Chinese commentators, in claiming the bilateral relationship was stronger after the visit, seemed to endorse this calculation.
The second superficial challenge may be in distinguishing substance from style. Here the President may have a larger problem, for as a candidate he exploited his rock star receptions abroad to win favor and votes at home. As President, he cannot easily reduce to insignificance, therefore, how foreign nations receive him. He made those receptions important and now cannot escape them. He understood instantly that the Nobel Peace Prize, awarded by Norwegians on promise more than performance, could be more of a burden than a boon, and there was nothing he could do about it.
While there is already some evidence of dividends in quiet diplomacy, there are also troubling signs, particularly in the unaddressed agenda of trade, the third challenge that may cut more deeply. Most of what was visible in Copenhagen was more of the same: lower level Chinese officials publicly disagreed with the President of the United States in meetings that were to have been attended only by heads of state, and Chinese security attempted to bar the President from a meeting chaired by Premier Wen Jiabao. Yet, the breakthrough in Copenhagen, right after the visit in Beijing was not trivial: President Hu seemed to give in to the President on critical points that he had refused in Beijing. Perhaps it was easier when out of China than in, holding on to an independent public profile while getting to more substance . Perhaps there was some payback for the President’s conduct, or some fulfillment of private promises. The apparent progress in Copenhagen on climate change, an apparent failure on the Beijing agenda, is not matched, however, as to trade, which seems to be turning into the third rail of the relationship.
The Chinese view and communication of success, then, needs to be understood better. Did China celebrate the success of the visit because it got its way (no populism, no trappings of democracy, no embarrassments, almost no public criticism in China), or because the relationship for the future is stronger and better? If the latter, was the achievement not possible without wounding the President at home, or were wounds self-inflicted, consistent with the President’s personality and aversion to conflict and confrontation? Or, could China not have been more sensitive to the political risks for their new friend, the Pacific President (a potentially discomfiting double entendre), and permitted him to have more of what he asked symbolically?
There are at least two competing interpretations of the current situation. One refers to a new Chinese “swagger,” a confidence that China and the United States are moving in opposite directions and that the Chinese formula – a capitalist, authoritarian state – is more likely to succeed in the twenty-first century than capitalism and freedom.
China projected many signs of this view during the last year of the decade in addition to the President’s November visit. On the authoritarian side, it has openly restricted internet access and use. It has jailed protestors on transparent pretexts. It summarily executed a British citizen for drug trafficking despite international pleas to reconsider. And on the capitalist side, it has begun lending to American enterprises as diverse as Southwest Airlines and Wal-Mart in a global promotion of trade and investment. It has taken its WTO membership very seriously.
A second interpretation, that China’s actions are not merely expressions of confidence, even arrogance, lies in a cultural difference contributing to a growing mutual incomprehension. China never fails, when the United States appeals for its leadership on issues in its neighborhood – whether North Korea’s nuclear capabilities or Pakistan’s harboring of Al Qaeda – to remind the United States that it is a developing country. While demanding treatment as better than an equal (reveling in suggestions of a G-2 while demurring that it would not want such a thing) , it asks for substantial financial aid on global warming and technology transfer on energy efficiency. China wants to be revered and admired for its astonishing achievement pulling hundreds of millions out of poverty, but it also wants sympathy and help. It is happy to leave the most difficult global problems to American leadership, but it wants deference whenever it chooses to take a position. It wants to develop in its own way, on its own time, although it is also in a hurry. Chinese leadership worries every day that a retardation of economic growth could inspire dangerous protest, the kind of fear no American president experiences.
President Obama needs to address both theories in both substance and in symbols. As he tucked into his steak dinner in the Great Hall of the People with knife and fork, so President Hu perhaps should expect to dine with chopsticks in Washington, D.C., each side catering to the other’s cultural preferences and expectations. Perhaps only with such paradox will Chinese leaders understand the domestic damage the visit to China may have done to the President whom they profess to like and admire, and Americans will need to learn the cultural side of why the Chinese do not perceive American failure in the visit. It is not unlike the contrasting perceptions of the Beijing Olympics, whose disciplined coordination frightened many westerners while seen in a proud China as the success of an ascendant nation.
The Xinhua News Agency carefully selected only favorable comments from a handful of Americans who insisted the trip went well. Sometimes the spinning was transparent, as in a subtitle, “China Pulls U.S. Out Of Recession,” leading a quotation from President Obama that read, “China’s partnership has proved critical in our efforts to pull ourselves out of the worst recession in generations.” President Obama obviously did not credit China with pulling the U.S. out of recession. The bias in this reporting, however, seems to have reflected the sincere views of at least some Chinese authorities.
One well-placed source has explained that the acute attention to every detail of the Obama visit demonstrated China’s respect for the President. This idea is captured well by Ni Shixiong, a professor at Fudan University and an organizer of the sanitized Shanghai meeting. He said the organizers felt “there was no need to make both sides embarrassed and stop our guests in their tracks,” and that they did not want to upstage the subsequent meetings in Beijing. In Mr. Ni’s words, as quoted by Sharon LaFraniere in The New York Times, “The climax was in Beijing. We could not overshadow what really counted.”
“What really counted” in Beijing were prepared statements with no questions, and tourism with only one tourist. American reports indicate consistently that, however much the Chinese may have perceived they were honoring their guest by protecting him from potential embarrassment, they were not honoring his wishes, which had been for a different audience in Shanghai and more direct exposure to the people of China. Arguably, however, Chinese officials believe that, on their turf, they know best, and it is better to honor their own views of protecting their guest, rather than the views of the guest himself. There is more in this idea, unfortunately, than a mere whiff of “father knows best.”
Trade And Electric Cars
If Copenhagen were the first test of the new relationship, electric cars may be the second. In President Hu’s words, “I stressed to President Obama that under the current situation, both China and the United States should oppose and reject protectionism in all forms in an even stronger stand.” On the eve of the meetings, China initiated wide-ranging investigations alleging enormous subsidies (in the tens of billions of dollars) and dumping of U.S. automobiles sold to China, and just after the meetings the United States imposed prohibitive tariffs on oil country tubular goods (“OCTG”) from China. Neither action seems mindful of “the current situation,” nor that either China or the United States is opposing or rejecting protectionism.
The Obama visit to China produced a contradiction at the interstices of climate change, energy efficiency, and international trade. Presidents Obama and Hu announced on November 17 the launch of the “U.S. China Electric Vehicles Initiative,” following a U.S.-China Electric Vehicle Forum in September. According to the U.S. Department of Energy, “The two leaders emphasized their countries’ strong shared interest in accelerating the deployment of electric vehicles in order to reduce oil dependence, cut greenhouse gas emissions and promote economic growth.”
The Electric Vehicles Initiative is to be operationalized within the U.S.-China Clean Energy Research Center, created by a protocol on the same day, along with two other projects, building energy efficiency generally and developing clean coal, including carbon capture and storage. The program is extraordinarily ambitious considering that joint funding may be only $150 million over five years, split evenly between the two countries. Still, as a joint venture it is an important declaration of common good intentions and a commitment of government funds to solve a common environmental problem.
While China and the United States were convening in Beijing in September to discuss electric cars under the auspices of China’s Ministry of Science and Technology and the U.S. Department of Energy, China’s Ministry of Commerce was entertaining a petition requesting an investigation of alleged U.S. Government subsidies to develop electric vehicles. The petition’s complaint about government support for fuel efficient cars began with President Obama’s August 2009 announcement of $2.4 billion “to develop cells for new-fuel cars and parts & components.” The petition argued, “Ultimately, with R&D subsidies, the auto industry boasts advanced production technologies and levels, improve their product varieties and quality, and enhance competitiveness.” Such subsidies, the petition contended, violate Article 3 of Chapter 2 of the PRC Anti-subsidy Regulations.
For ten more pages, the petition focused on American programs promoting the development of fuel efficient and electric cars and buses, concluding “that the US government or the Congress, or governmental organs (especially the Department of Energy) funds R&D of electric vehicles in the form of grants, investment, injection of supporting funds, and all the programs involve fund transfer from the government to the auto industry.” The industry gained, the petition claimed, “a competitive edge” from this support.
MOFCOM initiated a subsidy investigation based on this petition days before President Obama’s arrival in Beijing. Support for fuel efficiency in 2009 had nothing at all to do with the petition’s target, “Saloon cars and Cross-country cars (of a cylinder capacity ≥ 2000cc) exported to the People’s Republic of China which originated and were manufactured in the United States.” Yet, MOFCOM did not exclude from its investigation the allegations aimed at support for R&D in fuel efficiency and electric cars, the very same support the Ministry of Science and Technology was promoting, at the very same time.
Amidst a great deal of chatter about retaliatory trade cases (particularly China’s pique over subsidy cases brought in the United States under President Bush while treating China as a “non-market economy,” beginning in November 2006, and the low-grade commercial tires safeguard enacted by President Obama in September 2009), it is easy to interpret Chinese actions (against American chicken parts, steel, and now automobiles) as merely a way for China to remind the United States of sauce for the goose. There is, however, much more to these actions. Notwithstanding the apparent agreement in Pittsburgh at the G-20 meeting that “rebalancing” requires more American saving and more Chinese spending and consuming, China’s growth remains predominantly export-driven. It still needs Americans, and Europeans and Canadians, to buy its products. As much as exports are helping lift the United States out of recession, the Chinese market still lags behind Canada and Japan. China knows it needs the U.S. market more than Americans need to sell to China. Undertaking these investigations, therefore, must be about more than the allegations themselves.
China, or at least MOFCOM, may now think a way to keep open the American market is to warn that it could close its own. In the automobile petition, it also appears to be a way to remind the United States that its own subsidy allegations against China as a non-market economy are being advanced from a glass house. This trade-off, however, remains unbalanced and legally unsound. The U.S. Department of Commerce, for all its protectionism, would not likely have initiated an investigation into allegations that have little or nothing to do with subject merchandise. Assistance for the future development of electric cars has little or nothing to do with saloon and cross-country vehicles already imported into China. Should China link these alleged subsidies to the subject merchandise in final findings, the WTO almost certainly will reject the link.
There is no sensible way to reconcile MOFCOM’s investigation into electric car subsidies with the joint Electric Vehicles Initiative proclaimed by the two presidents. The U.S.-China Clean Energy Research Center is expected to raise and distribute public and private funds for joint research and development on electric cars, the very thing MOFCOM decided to consider as illegal and subject to trade restrictions and penalties. While President Hu was insisting upon President Obama’s concurrence to resist protectionism, and was celebrating joint research and development to overcome the environmental scourge of carbon emissions from automobiles, President Hu’s Ministry of Commerce was launching a hostile investigation into every American effort to solve that very problem.
It is not as if China were not playing by the rules. The Chinese Anti-Subsidy Regulations are translated almost verbatim from the WTO’s Subsidies and Countervailing Measures Agreement. The countervailing duty laws in the United States, based on this same international agreement, routinely are invoked by U.S. industries to complain about the same kinds of programs identified in the United States by the Chinese petition, and the United States Department of Commerce routinely finds such subsidies in violation of U.S. law and international norms. The Department of Commerce regularly now imposes countervailing duties on Chinese goods (more than a dozen times since 2007) when U.S. industries have complained about Chinese government financial support in a variety of forms. And China, in its investigation of electric vehicles, appears to be pursuing a theory long popular in the United States, that all money is fungible and any government assistance, for any purpose, when within the same company, impacts subject merchandise. Although the U.S. Department of Commerce has experienced judicial setbacks in stretching this theory, MOFCOM has not. Notwithstanding that MOFCOM likely will lose a legal showdown on this theory, if not at home then at the WTO, there is no legal impediment to trying.
Certainly one way to combat the American proclivity to impose countervailing duties on Chinese products is to serve up to American industry, especially prominent industry, high doses of the same medicine. It is also logical to emphasize the overbearing presence of the U.S. government in some sectors, such as automobiles, while combating the American treatment of China as a non-market economy. But such actions hardly reflect President Hu Jintao’s promise to combat protectionism “in all forms” and to promote a stronger, deeper partnership to solve common problems.
Nor is China combating protectionism in all forms when resisting U.S. trade actions. Unlike other countries, China is not appearing before the United States International Trade Commission to challenge injury allegations. It is not appealing adverse agency determinations in U.S. courts. It is not pursuing administrative reviews of countervailing duty orders, when final duties are determined and set for collection. Instead, China is counting on the WTO for trade vindication, a strategic choice almost certain to disappoint.
The only publicly disclosed item on President Obama’s trade agenda in Beijing was the value of the RMB. He apparently made no more progress on this subject than his predecessor, and of course the United States does not comment publicly on “the weak dollar” which, according to Dana Hedgepeth in The Washington Post, “has made it easier for U.S. manufacturers of parts for appliances, automobiles and other equipment to compete globally on price and is helping them win back business lost to overseas competitors, a shift that economists say should help the country’s economic recovery.” That description sounds like a strategy for pulling out of the recession, delivering to the United States exactly the same benefit about which the United States has complained so loud and long with respect to China.
Economists are distinguishing between the weak dollar and the undervalued RMB. Although China may be acting legally, they say China is not acting fairly nor wisely. Countries disadvantaged by China’s currency policy may have no legal complaint, but China’s policy may entitle them to complain about trade on other grounds. Even free traders see protectionism, confronting China’s mercantilism, as justifiable.
On New Year’s Eve, Nobel Prize winner Paul Krugman wrote in The New York Times, “China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.” Krugman goes on to indict specifically China’s currency policy: “In the past, China’s accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low … But right now . . . that trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.”
“The Chinese refuse to acknowledge the problem,” Krugman writes. “Recently Wen Jiabao, the prime minister, dismissed foreign complaints: ‘On one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures.’ Indeed: other countries are taking (modest) protectionist measures precisely because China refuses to let its currency rise. And,” Krugman concludes most conspicuously, “more such measures are entirely appropriate.”
In making currency valuation the only trade issue on his Beijing agenda, President Obama may have been treating it as a surrogate for other trade concerns. However, he thereby avoided confronting the massive government interventions in the economy that unavoidably contravene the rules of the WTO when products benefiting from these interventions are exported. China is now calling the United States on the very programs essential to economic recovery, and as China is unwilling to discuss the value of the RMB, the United States apparently is unwilling to discuss its massive subsidies to banks, automobiles, and other economic sectors.
That China would threaten American trade, both by refusing to discuss currency valuation and by launching cases against American exports, while entertaining the President and applauding new cooperation, should worry everyone sharing agendas of economic recovery and environmental improvement. That the United States should persist in imposing countervailing duties on Chinese products because they benefit from state support should be equally worrisome. There is an inescapable hypocrisy in countervailing loans from Chinese banks going to Chinese goods exported to the United States while American companies are borrowing from the same Chinese banks and the United States has been taking virtual ownership of the key private financial institutions lending to American enterprises.
Embedded in these actions – an effective refusal to confront honestly the pressures of the recession as they impact trade laws and practices -- is either a cultural misunderstanding, a failure to communicate, an intellectual dishonesty, or some dangerous combination. It catapults trade, the subject apparently left behind in Beijing, to the head of an agenda about recovery and climate change. Unfortunately, either the two Presidents do not yet know it, do not want to know, or are ill-equipped to deal with it.
A Further Meaning
China wants the sympathy to be accorded a developing nation historically deprived and exploited, but it also wants the respect of a major power. It wants the United States to provide aid and technology transfer for climate change, but it also wants joint ventures on the basis of equality. It wants President Obama to believe he is admired and respected while it wants him to behave according to Chinese norms and with full respect for Chinese preferences. President Obama seems to have understood these mixed messages and tried mightily to satisfy them all. In 2009 he placed China at the center of his foreign policy, continuing everything he thought good about the Bush Administration’s approach to China, and expanding upon it. In the process, he opened himself to criticism that he satisfied none of China’s expectations, and diminished himself and the United States in the process.
This Chinese paradox inevitably arouses suspicion. China’s celebration of a successful presidential visit may endorse future partnership, but it may also signal an interpretation of a long-term reversal of fortunes. Again, the automobiles petition may be one of the clearest possible statements of Chinese intent, and some Chinese trade experts believe it is an expression of MOFCOM’s own views, perhaps even the product of MOFCOM’s own drafting. It may enable President Hu to say one thing and mean another, his Ministry of Science and Technology devoted to cooperation and government support for technical and technological development, his Commerce Ministry evening the score with American trade agencies by aggressively seeking remedies for state involvement in the economy.
The automobiles petition characterizes the automotive industry as the most important in the United States, “a pillar industry playing a key role in the stability and development of the U.S. economy.” It then accuses past American presidents as acting consistently “to protect the U.S. automobile industry,” but concludes that they failed: “instead, the policies eventually resulted in the decline of the industry.” The protective subsidies “severely violated the relevant provisions of the WTO and distorted the normal market competition.” The petition barely disguises its view that this decline is emblematic of a greater decline of the United States.
The message about decline and bankruptcy is matched by the contrasting description of China’s industry and, without much subtlety, China. However, the most important element of the contrast, the one that raises the most important questions about world trade, contends that China’s rise is attributable to the shedding of state influence, to “the reform and opening up” of China. The petition wishes the legacy of state support to disappear in the mists of time, and pretends that none effectively remains. It wants its audience to believe that the state-driven economy is now in the United States; China is the paragon of a free market.
The automobile industry is the vehicle for this grander argument and seems, therefore, deliberately chosen at the highest levels of the Chinese government. It was bound to get American attention.
Before describing the rise and fall of the U.S. industry, from its creative days as a free enterprise a century ago to its demise at the hands of the state at the dawn of the new millenium, the petition offers a history of the Chinese industry: “By 2008, three decades have passed since the reform and opening up of the country, which is also three decades of reform and opening up of China’s auto industry. In three decades, China’s vehicle production developed, from producing 149,000 vehicles to 9.5 million vehicles, and from less than 1% of world production to nearly 13%. In 2007, car ownership in China exceeded 43 million, ranking fourth in the world. The automotive industry employed 2.91 million people, and employed more than 30 million in related industries.” This astonishing growth, so the petition claims, resulted from free enterprise: “China’s automobile industry grew in strength in the reform and opening up, rapidly becoming one of the world’s largest automobile manufacturer and consumer, and since joining the WTO six years ago, it has achieved the most prominent and fastest sales growth in history.”
The argument of the petition is that China’s automotive ascent matched exactly the U.S. decline, and that as China liberated economic forces, the United States constrained them. Implicitly, as the last century belonged to America, the new one belongs to China. Of course, none of this story has anything to do with trade laws entitling China to impose tariffs on American goods. Instead, the automobile industry here is a surrogate for contrasting the fortunes of China and the United States, a way of saying that the Chinese formula of authoritarian capitalism is better than the American way.
In the new century, China has been innovating, so the automobile petition claims, while the United States has fumbled (the translation apparently was prepared in the Office of the United States Trade Representative but may have originated elsewhere, and is decidedly less elegant here than in some other passages):
Automobile industry is one of the most important pillar industries in America, with a huge number of employees. Less efficient, poor management, and high cost have long since hovering American automobile and keep it down. Under the impact of the economic crisis, American automobile industry is between the beetle and the block. All three top forms are driven to corner. President Obama once declared in public, ‘I may not, can not, and will not let our automotive industry perish . . . It is a pillar of our economy, it is where millions of dreams dwelt.’ Just like what Obama had said, above measures is only the first step. US government will take further measures in domestic automobile industry, and help them get through the difficult period of reorganization. No to mention the competitive power of American new energy vehicles, just from the fact that the government spent such a huge capital and appointed the three top automobiles of General Moto [sic], Ford and Chrysler for its new energy automobiles procurement, we can see that the US automobile industry and new energy automobile project to walk out of their embarrass [sic].
Such statements are rich in irony. They expose resentment of presumed American advantages, criticism of American performance, and rejection of American efforts to stand in the way of a rising China. They demand immediate action because the United States has taken but a “first step” in trying to overwhelm the developing Chinese industry. And since new-energy vehicles define the American strategy for saving its automobile industry, it is the government support for the new-energy vehicle that must be stopped.
President Obama likely did not know, when he used the term “pillar,” that it is a favorite of Chinese central planning and the frequent target of the U.S. Department of Commerce in its assault on alleged Chinese subsidies. The petition authors likely salivated over the American use of the term, confirming their worst suspicions of an American conspiracy to thwart an ascending China by blocking its exports to the United States while shipping to China subsidized goods.
What Now?
The contradiction between the Electric Vehicles Initiative and MOFCOM’s investigation of alleged subsidies to U.S. automakers translates into a much larger problem of cultural misunderstanding and trade protectionism. It echoes the contrasting views of success and failure in the President’s visit in China. It tests whether China and the United States will be able to cooperate or be forced to compete antagonistically. It requires the United States to reexamine the most fundamental aspects of its trade policies and address its hypocrisies, particularly over subsidies and currency valuation. It requires China to tell an honest history and to deal forthrightly with the engagement of the state in the economy.
The avoidance of a trade agenda during President Obama’s visit suggests that neither country is ready for the conversation that could determine the future of the world. Both may well want the same things for the health and prosperity of their societies – gainful and productive employment, clean air to breathe and safe food and water to eat and drink. Both may know, abstractly, that they must trade freely with each other in order to achieve these simple and precious goals. But so absorbed is each country in saving itself that they cannot even talk effectively about saving each other. Instead, they are wrapped in paradoxes and contradictions, leading Krugman to warn that “the victims of [ ] trade mercantilism have little to lose from a trade confrontation.”
China invited the President, deft with chopsticks, to eat with a knife and fork in China, yet one more detail detaching him from the Chinese people and, consequently, from his popular image at home. President Hu’s visit to the United States will, therefore, be all the more important, for its substance and for its symbols. President Obama will demonstrate either that his personality inevitably produces a portrait of unnecessary compromise when China pushes hard, or that as host he can restore his own aura by setting the terms and tone that win at home without exacerbating the tensions already rising between the world’s most significant powers.
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Besides currency valuation, steel is perhaps the most contentious trade issue between China and the United States. Steel products face numerous traditional trade remedy actions in both countries, and are under intense scrutiny in the climate change debate. In the United States, Congress is considering whether to include in climate change legislation additional tariffs on imported steel and other energy-intensive products to offset alleged competitive harm to domestic industries, should other countries not commit to equivalent greenhouse gas (“GHG”) reductions.
China And Copenhagen
China’s chief climate negotiator, Vice Chairman of the National Development and Reform Commission (“NDRC”) XIE Zhenhua, visited India at the end of October where he signed the Agreement on Cooperation on Addressing Climate Change. China and India together called on developed countries to take the lead in reducing GHG emissions and provide financial resources, technology transfer and capacity building support to developing countries.
It was not surprising for the world’s leading GHG emitter to form an alliance with India, another rising industrial power, on the eve of the Copenhagen meeting. Indeed, it was a victory for China to obtain India’s assurance that there “was virtually no difference between the negotiating positions” of the two Asian giants.
China slightly softened its stance in the final negotiations at the Copenhagen meeting, and signaled a willingness to abandon its demand for funding from the developed world. Meanwhile, China's State Council announced that China would stick to its promise to cut emissions per unit of GDP by 40 to 45 percent by 2020.
Although China thinks this promise to cut emissions is a large concession, it may not be viewed that way from the perspective of developed countries, or of those developing countries that are particularly at risk from climate change. With China’s economy expected to expand at a rate of 7 to 10 percent per year for the next decade, a 45 percent reduction per unit of GDP would mean that China’s GHG emissions would still rise substantially while China expects developed countries to make drastic reductions.
Climate Change And The Steel Industry
Even though China’s promise is not binding, Beijing is not paying mere lip-service to climate change. China has realized that it is in its interest to improve energy efficiency, particularly in the steel sector. Improved energy efficiency is the most cost effective way that China can lower its GHG emissions.
A case study of Hebei Province, China’s leading iron and steel producer (18 percent of the nation’s total iron and steel output in 2007), illustrates the benefit to China of improved energy efficiency, with reduced GHG emissions being a favorable side effect. The case study also demonstrates the difficulties Beijing faces in pushing local governments to shut down small and inefficient steel mills.
Low energy efficiency is one of the reasons why Hebei’s contribution to the nation’s economic growth lags behind coastal provinces. Gross industrial output created by Hebei’s large companies in 2007 was US$230.5 billion (RMB1,705.5 billion), accounting for 4.2 percent of China’s total; industrial value-added was US$65.2 billion (RMB482.3 billion), about 4.1 percent of the nation’s total. In contrast, the same indices for coastal Jiangsu Province, also a major steel producer, were roughly three times those of Hebei (13.2 percent and 11 percent respectively).
Increasing energy efficiency, and reducing GHG emissions, in Hebei’s steel industry depends upon closing old, inefficient mills. However, both the provincial government and the public are reluctant (or unable) to force the iron and steel industry to close those mills. Hebei Province relies heavily on energy intensive industries. It has attracted 112 of China’s Top-1000 energy consuming enterprises, with steel companies the most important. The industrial profit generated by the province’s large ferrous metal producers was US$6.8 billion (RMB50 billion) in 2007, 27.3 percent of the province’s total industrial profit produced by large companies in all industries. Steel employed in 2008 some 450,000 workers, 15 percent of the province’s total employment. As the unemployment rate is rising in Hebei, neither the provincial government nor the public wants to see those small inefficient steel mills closed.
So far, the province has taken one major step to improve the steel industry’s energy efficiency. It consolidated the province’s top two steel groups and launched the Hebei Iron & Steel Group (“HBIS”) in 2008, which became China’s number two steel producer. The creation of HBIS was to improve the competiveness and efficiency of Hebei’s steel industry. However, a recent Chinese study pointed out that China’s giant iron and steel producers are not necessarily more efficient than smaller companies. Compared to the size of a steel company, technology plays a more important role in improving efficiency, particularly energy efficiency.
As in the United States, steel is a major employer in China, and as in the United States, there is insufficient political will to sacrifice steel industry jobs on behalf of climate change. Industry consolidation is inevitable in China as it has been in the United States, but data do not support the perception that fewer, bigger steel mills must translate into reduced GHG emissions. It is not so much size as age that matters. Inefficiency may drive smaller, older mills out of business, but they are less likely to shutter because of a desire to clean up the environment.
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The Scope Of The Challenge
China’s Ministry of Commerce (“MOFCOM”) initiated officially on November 6, 2009 antidumping and countervailing duty investigations into saloon and cross-country cars imported from the United States and manufactured by General Motors, Chrysler, and Ford Motor companies. Although the scope of the products at issue is described (chassis, engine, etc.) and defined according to tariff codes, the real scope of the petitions has little to do with saloon and cross-country (or sport utility) vehicles. The petitions upon which the investigations have been initiated may be the single most important documents in China-U.S. trade relations since the Chinese Protocol of Accession to the WTO. They are about competing models of economic and industrial development, and constitute a complaint against the American strategy for overcoming the financial crisis that dates from at least 2008. According to the Chinese petition, the United States, and the United States alone, caused the crisis. The Chinese contend that China is ascendant while the United States is declining, a statement as much of Chinese historical perspective as of legal rights and wrongs.
The selection of the Big Three American manufacturers, the timing, and the contents of the petitions, suggest that China, on the eve of President Obama’s first visit there, is going far beyond a trade remedy action concerning automobiles. Automobiles, however, may have been chosen as the target of the sweeping indictment, both because of vulnerability in the economic crisis, and because of their symbolism as the icon of American industrial dominance in the twentieth century. China is calling into question the American economic development model and the entire premise of American trade actions against China, advancing an argument that the U.S. automobile industry is failing and exposing the depth and breadth of American economic support for an exporting industry. Were the petitions to succeed, they would likely be the first of many against other U.S. exports to China.
The Chinese petitions challenge American definitions of market and non-market economies, and turn against the United States the subsidy policies and practices the United States has been applying to China. The Chinese petitions question the legitimacy of much of American trade policy toward China, while exposing great American vulnerability to trade remedy actions against American exports.
The petitions reach beyond trade policy. They question the U.S. Government’s energy and climate change policies by challenging government support for research and development into more energy efficient and less-polluting vehicles. As President Obama has placed research and development at the heart of the American economic recovery (and identified it with American global leadership), so China is now contending that state support for research and development is, according to Chinese law, the WTO, and implicitly American practice, a collection of countervailable subsidies.
There are many ironies in the Chinese decision to initiate a countervailing duty investigation based on the automobile petition, but perhaps the greatest is in the agreement reached a few days after initiation by Presidents Obama and Hu Jintao, in mid-November. They announced a cooperative effort specifically for the development of electric vehicles, and both committed significant R&D funds. Yet, China began investigating, ten days before President Obama’s visit, whether American subsidies for the development of electric vehicles violate WTO obligations. The Chinese petition contends that an American competitor, Tesla, in the nascent electric vehicle market, has been receiving funds (the petition alleges at least $465 million) from the federal government under several programs. The petition also identifies electric vehicle development funds to the Big Three, alleging $5.9 billion to Ford alone.
The excuse for the allegations against electric vehicles is the fungibility of money, which is an argument that has been used in the past by the U.S. Commerce Department that says any funds given to a company, for whatever purpose, may contribute to production and export of subject merchandise by relieving other sources of funds. There is no excuse offered, however, for the discussion of Tesla, which is not one of the Big Three, not a manufacturer of subject merchandise, and therefore not a respondent. Nor is there an explicit acknowledgement that electric cars are a different product not subject to the petition.
Warned But Oblivious
In December 2008, we warned the Office of the United States Trade Representative (“USTR”) of a potential Chinese action such as this one. USTR, under the Bush Administration, had solicited comments on how the United States should treat alleged Chinese subsidies. We advised that, since September 15, 2008, it was no longer possible to continue business as usual. The United States, in response to the global financial crisis, was subsidizing banks and encouraging loans to uncreditworthy companies at below market rates. Banks were becoming state-owned, even if temporarily, in all but name. The United States was also acquiring significant equity positions in the automobile industry through massive cash infusions.
Even were the petitions to be taken entirely at face value – that they were prepared by a private industry association and reviewed by MOFCOM for a subsequent government decision whether to initiate investigations in response to a private request – MOFCOM’s notices of initiation imply acceptance of the petitions as to the credibility of most of the allegations. The petitions, therefore, are plausibly statements of MOFCOM’s views on a variety of subjects critical to U.S.-China relations.
The petitions appear to have been used as an opportunity for China to offer a comparative history of economic development, of industry in general and the automobile industry, the American icon, in particular. This Chinese version argues that the American automobile industry had every possible advantage in global markets over the last century, that China’s industry has been developing quickly, first with foreign help but more recently of its own accord, and that the United States’ efforts to save its automobile industry cannot come at the expense of China.
Loosely tied to the petitions’ comparative history of economic development is a contemporary conclusion. The petitions allege that “the U.S. subprime crisis escalated suddenly and ballooned into a global financial crisis.” (Elsewhere, the petition complains, “since the broke out [sic] of economic crisis aroused by the United States sub-loan crisis.”) This critical commentary, like the comparative economic history, is irrelevant to the subsidy and dumping allegations, but appears to be an unvarnished Chinese view of why the United States is today in China’s debt. It is a commentary that unashamedly connects economic and industrial policy to allegations of unfair trade, without hesitating to accuse the United States of pursuing a state-driven “industrial policy,” while implicitly denying its own.
Even the terms of reference equate American policy with Chinese language: the petitioners found President Obama referring to the automobile as a “pillar industry” of the American economy, a favorite Chinese term frequently noted by the U.S. Department of Commerce when, focusing on Chinese central planning, it assumes a link of plans to actions and accuses the state-driven Chinese economy of massive subsidies.
It is possible that neither President knew the details of the automobile petitions when they met shortly after investigations were initiated and they agreed to cooperate in the development of electric vehicles. There had been bilateral consultations as mandated by the WTO before initiation of a subsidies investigation, and the United States Trade Representative had summoned the Big Three manufacturers to a meeting, but the United States has not exported electric cars to China and the subject of the investigation is saloon cars and sport utility vehicles. There was no reason, therefore, for either President to think that R&D support for the development of electric vehicles was a primary focus of the countervailing duty petition.
The agreement Presidents Obama and Hu reached on this subject is strange in the circumstances. In light of the agreement, there is little logic in pursuing the allegations, but China may have its own reasons for both, nearly simultaneous, actions.
A Petition More And Less Than Meets The Eye
According to the countervailing duty petition, China is second only to the United States worldwide in the purchase of automobiles. In the narrower classes of saloon and cross-country vehicles, the petition claims China imported 33,732 such vehicles from the United States in 2007, and 43,240 in 2008. Chinese total imports of these vehicles, however, grew from 234,493 to 299,132 during the same period. Thus, the Big Three represent, in shipping from the United States, less than 15 percent of China’s imports of the subject merchandise, and less than half of one percent of China’s total consumption.
The petition does not link systematically any injury being caused by these shipments to current Chinese manufacture and sale of these specific categories of vehicles. To the contrary, the petition acknowledges that China’s own production and consumption grew during the period of investigation, even as overall imports grew as well. Nor are the subsidy allegations focused on the subject merchandise, but rather refer to the entire automobile industry, and especially initiatives regarding energy efficiency and green technologies that are unrelated to the subject merchandise. The petition challenges almost every aspect of the economic recovery package, with a particular objection to Buy American provisions. But it does not narrow the subsidies analysis to the scope of the petition, complaining more generally about the automobile industry. In repeated recitations of the legal “specificity” standard, it treats automobiles as a specific industry, not the types of cars about which the petition complains.
The petition details two arguments for upstream subsidy investigations, although it does not expressly call for any, and Chinese regulations may not articulate how one might be done. After all, upstream subsidy investigations in the United States have been rare, with the Commerce Department loathe to do them. In a notable exception to practice, the Commerce Department undertook an upstream subsidy analysis in Hardwood Laminated Trailer Flooring from Canada and in February 1997 found no subsidy. There, the allegation was about Canadian stumpage, possibly the most controversial subsidies issue between Canada and the United States in the last twenty-five years. Here, the allegations focus on steel and on components for electric vehicles. Steel is perhaps the most contentious trade issue between China and the United States and likely will be the subject of more petitions in 2009 and early 2010. In both principal instances – stumpage with Canada, steel with China -- an important motivation for the petition might have been to get at the upstream product. The attack on electric car inputs may reflect the U.S. objections in several subsidies cases brought against China regarding inputs from state-owned enterprises. The United States, however, has not deployed any upstream analyses.
It seems the petition, then, is not so seriously about saloon cars and SUVs. It may be more about preemptive strikes (electric vehicles; R&D) and retaliation on thorny disputes (steel). The petitions seem to contend that there is no material difference between the economic actions of governments in China and the United States, between market and non-market economies.
The petition is a first foray against multiple levels of American government (with four allegations concerning subsidies from the state of Michigan), perhaps a response to the now-frequent American complaints about Chinese regional and local government programs and planning. The petition, thus, is less than meets the eye: it is hard to take it too seriously as to the specific cars in question; and a great deal more than meets the eye: a resetting of the table for the treatment of the role of the state in the economy, for addressing American federalism, and in the future of energy efficiency and green technologies.
Possible Reverberations
There are many possible problems arising from this investigation. The United States has never before defended itself in China. China has never before sent investigators to examine U.S. books. No U.S. state has ever before submitted to a Chinese investigation, or participated in one. Although this petition has precipitated China’s third countervailing duty investigation against the United States, none has yet reached a preliminary determination, none has yet involved a verification with Chinese officials inspecting U.S. government books, and none has involved a state government. The U.S. automobile industry has not been subject to dumping or subsidies allegations before. Conducting the investigation will be new for China; responding to it will be new for Americans. It will require a sorting out of American federalism, and a new diplomacy for China.
Some have said that the investigation is retaliation for the tire safeguard. In its timing, this view seems attractive, but too much about it makes the theory implausible. The petition covers too much ground and is too broad an assault on the U.S., its trade and economic policies, to have been mere retaliation for a safeguard contemplated in the Accession Protocols. The timing is more notable for President Obama’s first visit to China than for the safeguard. It sets an agenda: affirmatively, market economy recognition; negatively, warnings on steel and electric vehicles.
There have been no reports suggesting any U.S.-China dialogue about the petition during President Obama’s visit. The United States may have chosen deliberately to say nothing, or it may not have reached the President’s attention in the planning of the visit. China, however, may take American silence on the subject as a first round of acquiescence to the charges, and the charges, formally lodged in a trade action, are the most serious China has brought against the United States since, at least, China’s accession to the WTO.
Other countries likely will watch this investigation closely. On the last day of his Asian tour, President Obama received from President Lee Myung-Bak of South Korea agreement to reconsider the automobile dispute that is blocking finalization of a free trade agreement, but he did not receive agreement to reopen settled language in the pending treaty as sought by Congress. South Korea likely will be reinforced in its objections to the terms of the pending free trade agreement with the United States, as China intends to demonstrate massive subsidies to the U.S. automobile industry that ought to make South Korea reluctant to lower its barriers to U.S. cars.
Competing automobile industries, especially in Europe, which have been subsidized heavily during the financial crisis, may face future Chinese challenges. China may seek to clear its market, as implied in a petition that sees its industry ascendant.
China may have been anticipating American barriers to electric vehicles. The action brought, however, could now arguably make those barriers more likely. Tesla manufactures a luxury vehicle; China will seek to enter the U.S. with much more modest electric cars. Consequently, it may be difficult for Tesla, or any other U.S. manufacturer of electric vehicles, who may not yet have sold in the market when Chinese imports first arrive, to challenge Chinese electric cars. The Chinese petition, however, provides theories for challenging vehicles not yet in the market, including an attack on suppliers.
In Laminated Woven Sacks from China, the U.S. International Trade Commission found neither injury nor threat of injury to any American industry. Instead, it found that China’s industry was responsible for retarding the development of a U.S. industry. China did not contest this weakest of all possible injury allegations, enabling final affirmative determinations.
Chinese acquiescence could inspire a similar approach to electric vehicles. American petitioners might allege that Chinese imports are designed to kill off a nascent American industry. The petition could assure an American petition against Chinese electric cars that could complicate the efforts of both countries to develop new technologies for energy efficiency and environmental improvement. The petition is uncompromising and unforgiving as to American efforts to develop cleaner, more efficient automobiles.
The Chinese countervailing duty petition on automobiles could do more to change Chinese-U.S. trade relations than summits and presidential visits. Just as President Obama apparently did not pursue the frequent congressional complaint (and constant Bush Administration theme) regarding revaluation of Chinese currency, so China did not, apparently, assail publicly the United States as the source of the global financial crisis. Yet, President Obama was barely home before congressional committees called again for tough trade sanctions against China, including an attack on Chinese currency.
In a public document that forms the basis for a Chinese investigation of the United States, the current form of American capitalism is being put on trial. Consultations already have failed. No negotiations have followed. Unless national leaders contain the impulses of their respective Ministries (Departments) of Commerce, the trade war that the tires safeguard likely did not trigger may become inescapable. Each country will accuse the other of violating international trade rules in their respective pursuit of a cleaner and more energy efficient planet. Cooperation might threaten leadership. Without a swift settlement, China will be obliged to make its subsidies case, and the United States will not like it.
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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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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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When China announced it was investigating U.S. chicken parts for dumping a few weeks ago, there were immediate suggestions of an incipient trade war, a Chinese “retaliation” over U.S. safeguards imposed on commercial tires, which we discussed in Trade War? , a recent article on this blog. Yet, there have been disputes between China and the United States over chickens and chicken parts for several years. The United States has been blocking access to the U.S. market for Chinese chickens, and even before questioning trade in the other direction China has been challenging the U.S. actions.
Less than six months after China requested WTO consultations with the United States over measures that they claimed unfairly banned chicken imports from China, members of the U.S. Senate and House of Representatives reached agreement on legislation that eventually may reopen the door to Chinese chickens. On September 25, 2009, U.S. Secretary of Agriculture Tom Vilsack and U.S. Trade Representative Ron Kirk announced that members of the U.S. Senate and House of Representatives had reached an agreement on legislation that would provide the U.S. Department of Agriculture (USDA) funding for the year 2010 to implement rules allowing the import of poultry products from China. The announcement came two days after the WTO declared a panel had been formed to hear the case raised by China in April of this year that the United States’ restrictions on imports of Chinese poultry violated its obligations under the WTO. The public announcement from these Obama Administration officials suggests that the Administration had concerns about the legitimacy of the ban and finally succeeded in moving members of Congress from a protectionist position to a more pragmatic one on questions of the food safety of Chinese imports.
The history of the chicken trade dispute goes back to 2004, when China and the United States suspended trade in poultry amid concerns about the spread of avian bird flu. China claims that, at the Sino-US Joint Commission on Commerce and Trade in 2004, the two countries mutually agreed to lift the bans, but that the United States had failed to live up to that promise. Congresswoman Rosa DeLauro, a Democrat from Connecticut and the Chairwoman of the Agriculture Subcommittee of the House Appropriations Committee, has been an outspoken critic of safety standards for food imported from China, and was primarily responsible for legislation that effectively banned imports of Chinese poultry products. The legislation cut off funding for USDA to implement rules that would allow the importation of Chinese chicken parts consistent with U.S. food safety guidelines. Section 727 of the Omnibus Appropriations Act of 2009 (Public Law 111-8) unabashedly stated that, “None of the funds made available in this Act may be used to establish or implement a rule allowing poultry products to be imported into the United States from the People’s Republic of China.”
Congresswoman DeLauro’s version of the 2010 appropriations bill would have continued the ban on Chinese chicken, but the U.S. Senate version of the bill removed the ban subject to USDA’s adoption of safety inspection and approval procedures. The Senate version of the bill appears now to have prevailed in U.S. House and Senate negotiations, and soon may be approved by Congress.
Although the imbalance in the bilateral chicken trade is a dispute at least five years old, it received greater attention in 2009 as China requested WTO consultations with the United States on April 17, and then initiated an antidumping investigation and threatened to cut off U.S. chicken imports following President Obama’s decision in September to impose safeguard duties on Chinese tires. The U.S. Poultry and Egg Export Council has been lobbying Congress and the Obama Administration to keep the chicken trade open with China, at least for U.S. exports, especially as China is responsible for consuming 19% of U.S. chicken exports, and jumbo-sized chicken feet produced in the United States have been very popular in China and can be sold at much higher prices than in the United States.
Whether the Senate and House agreement on the 2010 appropriations bill ultimately will lead to USDA’s approval of Chinese chicken imports remains to be seen. The Obama Administration’s USDA will continue to face competing domestic pressures from Congresswoman DeLauro, food safety critics, and trade protectionists to require strict audits and on-site review of Chinese poultry processing facilities for compliance with U.S. food safety standards. But U.S. poultry exporters, as well as U.S. poultry producers looking to import from facilities located in China, will be pushing for free trade in chicken. The question is whether China’s WTO complaint can provide the additional impetus to ensure that USDA inspection procedures are conducted fairly, without the taint of protectionism, and will open the door for the import of safe and sanitary Chinese poultry products.
Does China Have A Case At The WTO?
China has argued that the U.S. chicken ban is a quantitative restriction on trade in violation of Article XI:1 of the General Agreement on Tariffs and Trade (GATT 1994) and Article 4.2 of the WTO Agreement on Agriculture, and that the ban is not consistent with the Agreement on the Application of Sanitary and Phytosanitary Measures (“SPS Agreement”). Even though legitimate questions have been raised in the United States about the safety of Chinese food products generally, it would seem that China has a good case regarding chickens that the U.S. ban is not consistent with the WTO Agreements.
It is not clear that the ban would even qualify as an SPS measure that the United States might justify on the basis of concerns for protecting public health. As a WTO panel noted in paragraph 7.149 of European Communities – Measures Affecting the Approval and Marketing of Biotech Products, the purpose, form and nature of a law determines whether it qualifies as an SPS measure. That panel went on to note that the “nature” of an SPS measure is that it has “requirements and procedures, including, inter alia, end product criteria; processes and production methods; testing, inspection, certification and approval procedures… ." Section 727 of the Omnibus Appropriations Act of 2009 does not establish any requirements or testing procedures for determining whether Chinese poultry products meet public safety criteria. To the contrary, Section 727 denies funding for the USDA to adopt and implement any such requirements or procedures exclusively for poultry products from China (“None of the funds made available in this Act may be used to establish or implement a rule allowing poultry products to be imported in the United States from the People’s Republic of China.”).
Even were the ban considered an SPS measure, it would not likely satisfy the requirements of the SPS Agreement. Articles 5.1 through 5.4 of the SPS Agreement require that SPS measures be based on assessments of health risks, taking into account scientific evidence, the cost-effectiveness of alternative approaches to limiting risks, and the objective of minimizing negative trade effects. Article 2.1 requires that any SPS measure be “applied only to the extent necessary to protect human, animal or plant life or health” and that it be “based on scientific principles and is not maintained without sufficient scientific research ….” The very procedures that would allow for risk assessments, research, the gathering of evidence, and evaluation of competing effects have been blocked by legislation that precludes any financial support going to USDA to undertake such procedures.
USDA likely has known that the Chinese chicken ban is problematic with respect to the United States’ international obligations. A February 2006 fact sheet published by the Foreign Agriculture Service explains that the SPS Agreement was adopted during the Uruguay Round with the support of “[v]irtually all countries, including the United States” because countries previously had used vague and opaque SPS measures to disguise restrictions on trade. According to USDA, the SPS Agreement requires that measures “be based on science,” “be applied only to the extent necessary” to protect health, and “should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.” USDA, however, has had its hands tied thus far by the Chairwoman of the Agriculture Subcommittee of the House Appropriations Committee, who opposed earlier attempts by USDA to implement rules allowing the inspection and import of Chinese poultry products.
Were a WTO Panel to agree that Section 727 lacked the “nature” of an SPS measure, Section 727 would appear to be a quantitative restriction on trade in violation of GATT Article XI(1) and Article 4.2 of the Agriculture Agreement. Given the law’s unique and exclusive application to China, it would appear also to violate the principle of most-favored nation treatment, as China suggested in its request for consultations:
Moreover, by imposing these restrictions with respect to imports from China, but not similarly prohibiting the import from other Members of like products, China is concerned that the US fails to accord immediately and unconditionally to China an advantage, favour, privilege or immunity granted to other Members with respect to rules and formalities in connection with importation.
The United States certainly would have other trade disputes with China that would be more compelling and defensible at the WTO.
As pointed out previously on this blog, it is a significant undertaking to seek relief through WTO Dispute Settlement Proceedings. However, in this case there is no mechanism for China to challenge Section 727 in U.S. courts. A WTO challenge offers the best avenue for China to obtain meaningful relief. Here, simply filing the WTO challenge appears likely to have given the U.S. Government sufficient incentive to lift the chicken ban voluntarily.
The WTO challenge to the chicken ban has moved the internal U.S. discussion of the issue from one of purely domestic politics controlled by a powerful subcommittee within the U.S. House of Representatives, to one of respect for international obligations in which the President’s Cabinet-level policymakers—the Secretary of Agriculture and the U.S. Trade Representative -- are involved actively. The President’s pragmatism suggests that he chooses his international trade battles carefully. While the President will want to be resolute on certain trade issues with China, the Chinese chicken ban seems transparently inconsistent with the United States’ WTO obligations and public safety concerns can be addressed through USDA’s implementation of prudent, non-discriminatory inspection procedures. WTO attention to the Chinese chicken ban, coupled with support from U.S. industry groups with aligned interests, should provide the Obama Administration and the Congress with the incentive they need to ensure that the U.S. Senate and House agreement to remove the ban from the 2010 appropriations bill is implemented in the final draft that reaches the President’s desk for signature.
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President Obama, on September 11, announced that the United States would restrict imports of Chinese commercial, low-cost tires. This action was foreseeable and foreseen (for example this blog foresaw this action in articles titled Attack On China Rolls On New Tires and Consultations To Settle The Tires Dispute: Too Little Too Late?). President Obama committed to additional tariffs of 35-30-25 percent stepped down over three years; the United States International Trade Commission had recommended 55-45-35 percent over three years. Many analysts called the ITC’s recommendation prohibitive; the Obama rates, according to United States Trade Representative Ron Kirk, were derived from an economic model designed to reduce but not prohibit Chinese tires in the U.S. market. The victorious United Steelworkers predicted getting their lost jobs back; most analysts predicted that exports from other countries, not domestic production, would fill in the missing Chinese tires.
Within twenty-four hours, China announced trade remedy investigations into chicken and automobile parts from the United States. Observers were quick to label the announcement as “retaliation” (Inside U.S. Trade headline: CHINA RESPONDS TO TIRES SAFEGUARD WITH NEW AD INVESTIGATIONS), which China denied. China announced a WTO appeal of an adverse decision on the sale and distribution of visual works and music download services almost simultaneously, and a WTO challenge to the tires safeguard decision within days.
Dire predictions, and accusations directed at President Obama, followed quickly. President Obama was accused of breaking the word he gave, and the undertaking of world leaders that he had solicited, at the last meeting of the G-20, to avoid any acts of trade protectionism in the midst of a global recession. He was accused of inconsiderate timing, making his announcement on 9/11, a day that ironically had brought the world together, and less than two weeks before the next G-20 in Pittsburgh, where he would be the host. China complained, expressly, that President Obama seemed prepared to trade off 5000 American jobs for 100,000 Chinese, seeking a superior moral ground. Trade analysts rushed to predict a wave of safeguard actions against Chinese products. After all, if an apparently weak claim could succeed with the Obama Administration, surely stronger claims could prevail, and the standards for relief based on a safeguard action are much lower than for dumping and countervailing duty petitions.
The safeguard action did not require any Chinese violations of any trade rules, and there were no formal allegations of dumping or subsidies in the tires case. Had there been any, the law required them to be disregarded in the decision process. Nonetheless, United Steelworkers President Leo Gerard engaged in vitriolic denunciations of Chinese trade practices before, during, and after the President’s decision. He quickly seized leadership in new petitions that did contain such allegations. The Obama Administration said nothing publicly to recognize the difference between the decision on tires and findings of subsidies or dumping, thereby possibly reinforcing an apparent Chinese impression that the proceedings were unfair and ill-timed for global economic recovery. Gerard’s statements (and similar statements from a Union witness, the Alliance of American Manufacturing, at the Trade Policy Committee hearing), seem intended, in their disregard for the law and in their tone, to damage Chinese-U.S. relations. As they were, in the tires case, outside the law, the Obama Administration may need to be sensitive to an overtly warm embrace of the unions.
Did President Obama start a trade war? Is China retaliating? Will the G-20 countries conclude that the U.S. is not committed to free trade, and will they react by seeking to protect their own domestic markets? Will this trade trigger reverse the promising signs of global recovery from the worst recession since the 1930s?
There are no simple answers to these disturbing questions, but it is possible to address some of them without hysteria. There is here much more than may seem apparent, and also a bit less.
The Decision On Tires
All trade disputes begin with domestic politics. The tires dispute began with Candidate Obama’s promises to give meaning to the special China safeguard and to insist upon Chinese adherence to trade laws and agreements, and the critical support he received from the trade unions in his run for the presidency. It was sustained by a continuing anti-Chinese sentiment in Congress, where various bills alleging currency manipulation and other unfair trade sins are introduced almost routinely. And it was advanced by the analytical conclusion of four of the six Commissioners of the International Trade Commission, led by a Chairwoman previously on the staff of the Democratic Chairman of the Senate Finance Committee, who found that an increase in Chinese tire imports had disrupted the U.S. market and injured the U.S. industry. The Democratic Chairman of the Senate Finance Committee, coincidentally but instrumentally, is essential to the President in his efforts to reform health care, his highest priority.
The President’s rationale is uncomplicated. China agreed to the special safeguard. Its requirements were met, at least insofar as the case was presented to the International Trade Commission, the United States Trade Representative, and the Trade Policy Committee. Therefore, it was right and reasonable to apply the law.
There is perhaps another explanation. The gathered political forces made a presidential refusal to act in the tires case impossible. The trade unions and the Democratic Congress would have accused President Obama of representing continuity with the Bush Administration, not the change he had promised. He would have been seen to condone the offshoring of jobs, which the Chinese interests in the case brazenly emphasized as the core of their defense. He would have been seen as “soft” on China. Most important of all, he would have had no subsequent credibility with Congress or a probable majority of Americans on trade. He would never have been able to advance a free trade agenda. Indeed, he likely would never have been granted the trade negotiation authority that, at present, he does not have but needs.
The Timing
The law, Section 421 et seq. of the Trade Agreements Act of 1974 , as amended, required presidential action by September 17. The President could have let the date slip inasmuch as there is nothing in the law to discipline him had he done so. However, President Obama is particularly respectful of the law, and he would have been under unwelcome political pressure had he not acted when the statute required.
The President probably did not want to act while National People’s Congress Chairman Wu Bangguo was in the United States, which China may have interpreted as insulting. The Chairman, after all, seems to have raised the issue in meetings with the President, Vice President, and congressional leaders during a visit of more than ten days, exactly during the initial window when the recommendation from the Trade Policy Committee and the Trade Representative had reached the President’s desk.
With the September 17 deadline preceding the G-20 Summit in Pittsburgh (beginning exactly one week later) the President surely wanted as much distance as possible between his announcement and the Summit. At the Summit he wanted to discuss the world’s financial institutions, the economic crisis, climate change. He did not want a diversion into a trade war.
Wu Bangguo left for China from Washington on Friday morning, September 11. The President announced his decision that afternoon, which was already the weekend in China. It was the end of the U.S. news cycle for the week. It was as long before the Summit as possible once Wu Bangguo had left, and it met the statutory deadline. It happened to be 9/11, but otherwise there could not have been politically or diplomatically a better time.
The “Retaliation”
China’s nearly simultaneous announcement of antidumping and countervailing investigations could not have been retaliatory in any normal meaning of that term. China’s bureaucracy, like the bureaucracy in any major country, inevitably is large and slow. It could not have arranged to announce antidumping and countervailing investigations on less than twenty-four hours notice. The investigations had to have been planned long before the President’s decision was known.
The Chinese announcement, not the investigations themselves, may have been intended to appear retaliatory, but it, too, had to have been planned. It is probable, therefore, that the President had told Chinese officials during consultations (see Consultations To Settle The Tires Dispute: Too Little Too Late?) when he would make his announcement so that they could prepare. It may even have been agreed that the Chinese would announce the antidumping and countervailing investigations effectively in conjunction with the President’s announcement, so that both sides could posture for their publics but also sweep the dispute away a couple of weeks before the G-20 Summit.
That China has a growing agenda of trade grievances with the United States is not surprising, particularly as a wave of trade remedy petitions has begun to flood agencies in the United States and other countries against Chinese products. As much as China pledges to encourage more domestic consumerism and to reduce reliance on exports (consistent with American requests in the G-20 framework), such a change will not come about quickly. China needs foreign markets to remain open to its products, just as do other countries. China is appropriately aggrieved by the drive to close or limit markets for its goods.
A dispute over chicken has been festering between China and the United States for a long time. China’s domestic industry in auto parts has been troubled, especially in the recession. Both have been likely sources of Chinese trade actions against foreign imports. The timing for these investigations may not have been entirely coincidental, but it would also appear to have been less calculated and calculating than to be called “retaliation.”
Within a week of these “retaliatory” Chinese actions, three more antidumping and countervailing duty petitions were filed in Washington against Chinese products. No one suggested that these petitions were part of a new trade war, or were retaliatory. Instead, they were understood to be part of the normal course of trade relations between China and the United States, where China is still a major producer of goods that Americans want to buy and American manufacturers and, more significantly it seems, American trade unions, want to keep out. Notwithstanding the grand objectives of the G-20 Summit in Pittsburgh, to make China more a consumer society and less export-driven, while making Americans greater savers with a reduced compunction to buy, the life of the two countries goes on, and with it the rhythm of American trade complaints against Chinese products.
The Maturing Of China
Although life goes on, there are unmistakable changes, precipitated in part by the global recession, but also by the maturing of China in the international system. China made significant sacrifices to join the WTO, including negotiating compromises that created exposure to the special safeguard that produced President Obama’s tires decision. China has been exposed to the WTO disciplines, and nine Chinese actions have been challenged in cases filed in the WTO against Chinese practices. However, China during the last twelve months alone has launched four cases against others. China has begun to recognize the WTO not only as a forum where it might be brought to judgment, but also one where it may challenge others.
China’s growing engagement in the WTO is part of its growing engagement more generally, whether in the G-8 or the G-5, the G-20 or the International Monetary Fund. China is growing into a new role, still a developing country, but one with a voice to be heard. Rather than characterize China’s use of trade laws as “retaliation,” these actions more properly can be seen as maturation, China’s willingness, ability, even determination to act like other countries participating at comparable levels in the world’s trading system.
China is now neither first nor last in the invocation of trade remedies and dispute settlement. It is one among few, but it is more inside the norms of international organizations than out.
These developments signal more than mere maturation. They also signal that China accepts the legitimacy of international institutions, and their disciplines. China accepts full international citizenship, claiming its rights as well as its responsibilities. Instead of finding fault or danger or risk when China exercises these rights, it is probably wiser to find relief as China integrates into the global economy and polity. It was not so very long ago when China was an effective member of neither.
The Next Road For Tires
There is no forum other than the WTO where China can appeal the Section 421 safeguard decision. Nonetheless, China is likely to be disappointed there. Were it to win, it would not be a victory that could be finalized soon enough to impact the tires trade (especially as all WTO relief is prospective), nor to head off other safeguard actions much before the expiration of Section 421 at the end of 2012. China, therefore, should not permit the safeguard actions to create an illusion about the WTO, nor exaggerated expectations.
The tires decision may also have limited effect encouraging other safeguard actions. It took seven months from the filing of the petition to reach presidential decision, which means that “full” relief (three years) requires beginning a case with at least 43 months left in the statute. It is no longer possible to bring any safeguard action under this provision of the law and obtain a result that could yield even three years of relief, as only 39 months of legal authority remain. With every passing day, the potential length of time for relief diminishes because of the law’s mandatory expiration.
It would be more prudent and effective for Chinese interests to continue pressing for reconsideration in the White House, where the statute directs everyone after a year. Were the first year of relief to produce American jobs, a continuing challenge to the President’s decision likely would be futile, but should the predictions of the economists engaged by the Chinese side prove correct, such that safeguard relief does little or nothing for American jobs, the President might be willing to rethink, just as President Bush was forced to do after two years of steel safeguards. In the latter, even as the President was driven to give up the relief, there was a significant recovery in the domestic industry. Without any recovery in the tires industry, the likely scenario, the President would be that much less likely to continue the relief in a form harmful to China.
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Senior trade officials are meeting in Geneva the week of September 14, 2009 following a meeting of 35 WTO member countries in New Delhi on September 3 and 4, 2009. The September 3 and 4 meetings demonstrated a willingness of member countries to re-engage in the negotiations that have been at a relative standstill for more than one year and to re-affirm their commitment to a 2010 conclusion to the Doha Round. However, a positive conclusion to the Doha Round would require the key players, and, among them, especially India, China, and the United States, to bridge significant differences. India has emerged as a leader in the Doha Round, and China’s alignment with India during the July 2008 talks as well as during the September 3 and 4 discussions demonstrates an important and possibly formidable alliance between the two countries.
India is a leading voice in the Doha Round negotiations. Some have argued that voice led to the July 2008 stalemate, when then-Commerce Minister Kamal Nath declared that he would not risk the livelihoods of millions of farmers. Although there were a host of reasons for the ultimate failure of the Doha Round in July 2008 (see "New Focus Of International Business: Asia, The Centre Stage - The Future Of International Trade" for an insightful perspective on the reasons for the breakdown), the final stand-off in July 2008 was triggered by disagreements – primarily among the United States, India, and China - regarding the special safeguard mechanism threshold that would allow developing countries to impose a tariff on imports of heavily subsidized agricultural products from the developed world. China had remained on the sidelines of the discussion until the very last moment, when it sided with India against the United States.
India again has signaled its desire to take a leadership role, this time in resurrecting the Doha Round by hosting the September 3 and 4 discussions. China expressed its full support for the meetings and was an active participant in the discussions. China’s willingness to follow India’s lead during the July 2008 negotiations as well as during the recent meetings in New Delhi is not surprising, even though China’s economic heft is greater than India’s. India was one of the original contracting parties to the General Agreement on Tariffs and Trade (GATT) in 1947 and was a founding member of the WTO in 1995. It is a savvy negotiator and frequent complainant in WTO disputes. China’s more recent entry into the WTO makes it perhaps more tentative in the multilateral forum, at least until recently. China has been a complainant in only six disputes since its accession, three of which have been filed in just the past 6 months
The position taken by China in the Doha Round indicates its recognition that it may have more to gain by aligning itself with India than the United States. The relationship between the two “Asian giants” historically has been marked with political disputes and economic rivalry. However, since 2005, there have been frequent exchanges of high-level visits and intensified bilateral meetings, including a visit by India’s Prime Minister Manmohan Singh in early 2008 that culminated in both sides signing "A Shared Vision for the 21st Century of China and India."
China and India have shared challenges on the trade front. The two countries combined account for approximately 35 percent of the world’s population and they each need to feed populations of over a billion people. The majority population of both countries is rural. Thus, they both have an interest in protecting their poor farmers from heavily subsidized agricultural imports. India also presents a huge opportunity for China. Trade between the two countries has been growing by more than 30 percent each year. 70 percent of India’s population is under the age of 35, which makes it an attractive market for Chinese consumer goods. Indeed, during the 2008-2009 fiscal year, China emerged as India’s largest trading partner, a position previously held by the United States.
The meeting in New Delhi was important because it was the first such meeting since July 2008, with ministers from practically all major blocs in attendance, including the G-10, G-33, G-20, NAMA 11, Least Developed Countries, Small and Vulnerable Economies, African Group, Cotton 4 and others. However, despite claims from New Delhi of a breakthrough in the negotiations and by other countries that the negotiations were in the “endgame,” critics have noted that there were no actual developments during the September 3 and 4 meetings. India’s Minister Sharma acknowledged in his opening remarks that “even the unequivocal expression of political resolve has not yet been translated into action.”
Not much changed at the end of the two day discussions, other than a commitment by participants to continue talks the week of September 14. Statements issued by key players also highlighted important differences, including on how the talks should progress. Minister Chen stated on September 4 that China would continue to play a constructive role in working for an early conclusion of Doha, but that the focus should be on multilateral talks rather than bilateral talks as the core channel of the negotiations. This position is in direct contradiction to USTR Kirk’s statement on September 4 that bilateral talks are the best way to continue hard-line negotiations.
An alliance between India and China may mean that a successful conclusion to the Doha Round will require greater compromise by the United States. However, although USTR Kirk has not ruled out making further concessions on agricultural subsidies, a key issue for India and China, critics say there is little indication that the United States will change its approach in the negotiations.
Trade also is likely to be on the backburner while the Obama administration focuses on domestic priorities, particularly health care. President Obama is expected to give a speech regarding his position on trade, but critics say that such a speech on trade likely will focus on the importance of trade for economic growth in general terms, rather than a detailed statement on the framework for trade policy.
The discussions in Geneva this week may shed some light on whether a conclusion to the Doha Round by 2010 is a realistic goal.
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The United States Trade Representative (“USTR”) published a notice in the Federal Register on September 1, 2009 requesting comments and announcing a public hearing on China’s compliance with its WTO commitments. This notice is part of an institutional mechanism the United States created to monitor and enforce other countries’ compliance with their WTO obligations. That mechanism is deployed with particular vigilance when it comes to China.
USTR is requesting these particular comments and holding a public hearing because Section 421 of the U.S.-China Relations Act of 2000 requires USTR to submit annually a report to Congress on China’s compliance with commitments made in connection with its accession to the WTO. Thus, the Obama Administration is following the law as written by Congress, where there is continuous skepticism about China’s fidelity to international trade rules.
The United States is not nearly so vigilant, unfortunately, when it comes to its own WTO obligations. The most glaring example of this double standard is the United States Commerce Department’s continuing refusal to give up its “zeroing” practice, notwithstanding more than seven WTO Appellate Body decisions over the last five years finding the practice inconsistent with WTO obligations. “Zeroing” is a technique used in antidumping cases that increases the likelihood of finding dumping, and inflates the “margins” – the amount of duties to be charged on imports – once dumping has been found. In the most recent WTO decision, United States – Measures Relating To Zeroing And Sunset Reviews - Recourse To Article 21.5 Of The DSU By Japan, issued August 18, 2009, the WTO Appellate Body found that the United States had failed to comply with the WTO Dispute Settlement Body ruling, dated January 23, 2007, that the U.S. practice of zeroing in administrative reviews is contrary to the WTO Antidumping Agreement. The WTO Appellate Body has ruled, repeatedly, that zeroing is not permissible, whether for original investigations or for administrative reviews.
In the Japanese case, the United States Commerce Department made new determinations for the specific administrative reviews without zeroing, but subsequently assessed antidumping duties on certain of the affected customs entries at the rates found in the original determinations using zeroing. It also refused to implement the results going forward, claiming that the reviews at issue had been superseded by subsequent administrative reviews in which the Commerce Department again used zeroing. The Appellate Body found that, because of these actions, the United States had failed to implement the 2007 ruling and remains in continuing violation of its obligations under the WTO Antidumping Agreement.
In our view, China should comply faithfully with its WTO obligations and the scrutiny of its actions required by U.S. law should give it no problems. However, China, and other WTO members, should hold the United States to the same high standard the United States expects of China and all other countries. It is important for the rule of law to apply to everyone equally.
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Only the President can impose a restriction on imports to the United States without a finding of wrongdoing by a foreign producer or exporter. The United Steelworkers of America have asked the President, pursuant to Section 421 of the U.S. trade law (the “special safeguard” for China), to restrict the importation of low grade commercial tires. By law, the President must decide whether to grant or deny the union’s request by September 17. See Attack On China Rolls On New Tires, posted on August 13.
The safeguard law provides for consultations intended to lead to settlements of disputes arising under Section 421. It also specifies a period for consultations that, in this case, expired on August 17. Prior to August 17, some meetings of Chinese and American officials were reported, but there have been no public reports of what was discussed, nor at what level. The law calls for consultations only after the United States International Trade Commission (“ITC”) has found a harmful surge of Chinese product and has recommended a remedy, a period that began on June 18.
President Obama will make his decision after reviewing the ITC’s recommendation, the recommendation of the Trade Policy Staff Committee (“TPSC”) chaired by the United States Trade Representative ("USTR") and in this case including the Departments of State, Treasury, Labor, and Commerce, his National Security Council, the Office of Management and Budget, the National Economic Council, and Council of Economic Advisers. He will weigh the interests of the union, the industry, the national economy, and foreign relations with China and other trade partners.
In a safeguard process it is appropriate for parties to seek consultations with all offices of government involved. It now appears that China, albeit after the statutory deadline, has been pursuing such consultations. During the week of August 24, MOFCOM Deputy Minister Zhong Shan reportedly met with the Secretary of Commerce (Gary Locke), the National Security Council’s Senior Director for Asia (Jeffrey Bader), the Deputy National Security Adviser for International Economic Affairs (Michael Froman), the Deputy United States Trade Representative (Demetrios Marantis), and the Acting Under Secretary for International Trade (Michelle O’Neill). All of these officials will have something to say to the President. It is appropriate and prudent for a senior Chinese official to have spoken with them.
The 60-day window for consultations in the statute (running from the time of the ITC’s finding of injury) is not strict. It would have been better to have had consultations at such high levels sooner (and perhaps there were, albeit unreported), but it remains important that they have been taking place.
There has been no mention of senior level consultations with the TPSC members. The USTR by law will advise the President, on behalf of the TPSC, on September 2. China should have been consulting with the Departments of Treasury, Labor, and State, in addition to Commerce and USTR itself. Maybe such consultations have taken place. None has been reported.
Even more important than the meetings themselves is the content of the meetings. Of this subject there have been no reports. China should not have been pursuing the line taken publicly, however, in the legal briefs submitted to the TPSC and at the public hearing convened by USTR on August 7. There, the Chinese side called for acceptance of the tire manufacturers’ express offshoring of jobs to China, a position amplified by two of the companies themselves, Toyo Tires and Cooper Tire and Rubber Company, in eleventh hour submissions (after remaining silent throughout the ITC proceedings in the spring and the TPSC proceedings, through the August 7 hearing, in the summer). This line ignores the President’s political debt to the unions, his political commitments to keep jobs in the United States, and his political priorities focused, at this very moment, on health care reform that requires vigorous union support. There are more creative, legally-based considerations available (see Attack On China Rolls On New Tires, posted on August 13) that would seem essential for Chinese interests to succeed.
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When companies see their access to the U.S. market threatened by actions of U.S. Government agencies in trade cases, whether antidumping, countervailing duty, or safeguards, often they want to ask their government to challenge those actions at the World Trade Organization (“WTO”). Many governments, too, think they should take their grievances over U.S. policies to the WTO rather than challenge U.S. government actions in U.S. courts. However, companies, and governments, should first consider whether the likely benefits to them outweigh the potential costs.
The WTO dispute resolution process is designed to vindicate the rights of sovereign governments, not necessarily those of the private parties to trade disputes. Only governments may appear, and even a victory may not bring meaningful relief to the government or to the affected private parties. Also, the WTO process could put at risk meaningful relief that the private companies might be able to obtain on their own in U.S. courts.
The WTO process lacks a remand mechanism. Thus, should the WTO Appellate Body determine that a dispute resolution panel made a mistake, it could not send the issue back to the panel to correct the mistake. In many cases, this lack of remand authority means that an Appellate Body reversal, even on relatively minor grounds, terminates the proceedings without any resolution.
Without a remand capability, the Appellate Body cannot gather additional information when it has determined that panels below did not gather enough. The Appellate Body is not empowered to go beyond the record. So, the Appellate Body has to conclude that the record is inadequate, whereupon it may decline to rule, either on the whole case, or on some, often important, parts of it.
Even when the WTO finds that the U.S. actions were contrary to WTO obligations, this vindication may be of little practical benefit for a complaining government or an affected company. The WTO retaliation scheme often involves retaliation in other industry sectors, but unless the pain of the retaliation is enough to cause the United States to comply, it typically does not benefit the industry sector that is the focus of the dispute. The government authorized to exact compensation through retaliation must navigate domestic politics to pick industries for retaliation, and often finds it impossible not to incur the wrath of one industry or another. After all, antidumping and countervailing duty cases erupt because one country believes another is shipping too much of a product at an unfair or subsidized price. It would be unusual for the second country to be shipping similar quantities of the same merchandise in the other direction. Retaliation – restricting imports – is never likely to be on the same merchandise. Therefore, the government may be vindicated, and almost inevitably at a political price, and the company frequently gets no relief at all.
Another factor that companies, especially, should consider is whether a WTO challenge could put at risk more meaningful relief that the company might obtain through appeal of the agency actions in U.S. courts. Just as there is a possibility that victory before the WTO could improve the chances of victory before a U.S. court, there is risk that a loss before the WTO could undermine the company’s U.S. court appeal. This risk is acute in antidumping cases because WTO panelists are almost always former government dumping officials: their training and experience is in imposing duties on goods being imported into their countries. They are not very sympathetic with exporting companies, nor as comfortable with interpreting the law from an exporter’s perspective. Also, less obvious, but nonetheless real, is the risk that a victory at the WTO might be used by the United States to trump a victory in U.S. court.
This latter risk arose in the Softwood Lumber case where Canada and the Canadian lumber industry pursued a strategy of challenging an affirmative U.S. International Trade Commission (“ITC”) threat of injury determination under both U.S. law and the WTO. Canada won on both fronts. However, the U.S. Government claimed that the new ITC determination made to “comply” with the WTO ruling allowed the United States to keep its antidumping and countervailing duty orders in place even in the face of an order requiring the ITC to make a negative determination as a matter of U.S. domestic law. The U.S. Court of International Trade (“CIT”) eventually struck down that claim in Tembec, Inc. v. United States, USCIT Slip Op. 06-152 (Oct. 13, 2006). However, by the time the court’s decision became final, the United States had collected billions more in estimated antidumping and countervailing duties and Canada had acquiesced in a settlement that deprived the court decision of precedential effect.
Were the United States to try again what the CIT struck down in Tembec, it surely would fail again. That conclusion, however, does not mean the United States might not try, and for the time being, with the Tembec decision having been denied precedential effect, the United States could again indulge in the principle that justice delayed is justice denied (i.e., the delay and continued collection of cash deposits would force a settlement unfavorable to the respondents).
There are cases that should be taken to the WTO, both by governments and by private companies. More often, however, challenges to market protectionism should be brought in U.S. courts. In some cases, such as the U.S. Commerce Department’s use of a technique known as “zeroing” to find dumping and to inflate antidumping margins, the WTO offers the best chance of obtaining relief. The law does not require choosing forums, but it is prudent to do so, and particularly wise to overcome the reflex suggesting that the WTO could be a panacea for unfair protectionism.
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The United Steelworkers, qualifying as an “entity” “representative of an industry” under Section 201 of the U.S. Trade Act of 1974, petitioned the Obama Administration in April 2009 to enact a temporary “safeguard” remedy to protect the manufacture and sale of low-grade commercial tires in the United States against a surge of imports from China. Petition Seeking Relief from Market Disruption Caused by Imports of Consumer Tires from China, Inv. No. TA-421-07, April 20, 2009. Even though the union filed the petition without cooperation or support from any company manufacturing tires in the U.S., and safeguards exist primarily to protect productive industries, the Obama Administration is under exceptional political pressure to honor the union’s request.
The special safeguard law for China, Section 421, expires in 2012 in accordance with China’s Protocol of Accession to the World Trade Organization. Thereafter, China will be subject only to the same safeguard provisions as every other country. Until then, the Obama Administration will have to weigh its relations with China against domestic interests and priorities. All safeguards, uniquely among trade remedies, require presidential decisions.
The United States International Trade Commission (“ITC”) issued a report on June 18 finding “market disruption,” the statutory basis for recommending trade relief for a domestic industry under the special safeguard for China. The ITC recommended, on July 9, three years of very high but gradually reducing tariffs. Ten United States Senators then wrote President Obama endorsing the ITC recommendations.
Relying on the ITC record, a Trade Policy Staff Committee (“TPSC”) assembled for this case and comprised of the Departments of State, Commerce, Labor, and Treasury, chaired by the Office of the United States Trade Representative (“USTR”), must make its own recommendation to the President as to whether he should grant any relief to the industry and, were he to do so, how much and in what form. The final public hearing on the case, convened by the TPSC, was held in Washington, D.C. on August 7. All written submissions were due from all parties by August 11.
The statute provides expressly for settlement of disputes where market disruption has been found, but should China want to settle this dispute, it must do so by August 17. The TPSC is expected to make its recommendation to the President by September 2. In the absence of a settlement, the President must decide the question of remedy for the market disruption found by the ITC by September 17.
China’s strategy in this case has been to adopt a “Republican” political and policy position – that the market forces surrounding the choices of the companies to give up the manufacture of low-grade tires should govern, allowing thousands of jobs to move offshore to lower cost manufacturers. China’s opposition to safeguard remedies has been articulated as a preference for market forces over the employment of American workers, and for economic analysis that contradicts the ITC’s report. Advocates for the Chinese side have given the law little attention.
The Chinese strategy opposing the imposition of safeguard remedies neglects both the politics of the American two-party system, and the legal purpose of safeguard provisions. Its reliance on dueling economic analyses, instead of law and a keener appreciation of the political situation of the President, probably will mean that the special safeguard for China will be applied for the first time. China may have something still to say, however, about the severity of the application.
The President is not likely to provide the full measure of relief proposed by the ITC because he may not want to gamble on the predictions that the tariffs would be prohibitive and cause even more market disruption, but he may be inclined to provide more “relief” than China would find acceptable. The August 17 deadline is not absolute (the statutory language instructing that the Trade Representative “should seek to conclude such agreement before the expiration of the 60-days consultation period” would seem equivocal enough were China to express immediately a commitment to a politically sensitive settlement). The statute also permits later review, on the President’s initiative, for modification, reduction, or termination of imposed relief. Mutual sensitivity to the domestic political implications of this case in both China and the United States could lead to an amicable compromise, albeit probably somewhat unsatisfactory (as compromises and settlements are supposed to be) for everyone.
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The Commerce Department on August 12 postponed its preliminary determination in Prestressed Concrete Steel Wire Strand from the People’s Republic of China to October 24 claiming it needed more time due to the large number and complexity of the subsidy programs alleged in the case. However, most of the allegations involve programs that Commerce has investigated recently in other cases. A more likely explanation, therefore, is that the civil servants temporarily acting while political positions in the Commerce Department remain vacant want more time in hopes that more politial guidance wil be provided before critical policy decisions must be made. A recent article in Inside U.S. Trade's World Trade Online took note of the large number of vacancies in the political positions in the Commerce Department. We discussed how these vacancies are affecting trade policy in a recent posting on this blog.
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The U.S. House of Representatives approved an amendment to the 2010 Energy and Water Appropriations bill, just before recessing for an August holiday, that would forbid the use of appropriated funds to “purchase passenger motor vehicles other than those manufactured by Ford, GM, or Chrysler.” The bill does not require that the vehicles be made in the United States, so cars manufactured by BMW, Honda, Toyota, Hyundai and others might be excluded from government fleets, but not necessarily a Chrysler made in Mexico or a Ford made in Germany. Congressmen may have been reasoning that cars made by companies effectively owned by the government should be given preference, but that thinking would have excluded Ford. Ford, then, would have been excluded because it was the only one of the “Big Three” American manufacturers that did not require a government bailout. It would have been politically impossible to exclude from government purchases the one traditional American manufacturer that has managed its own way through the economic crisis. The bill, otherwise, favors neither American workers nor vehicles made in the United States.
This amendment is unlikely to become law because the Obama Administration almost certainly will oppose it, as will Senators representing the thousands of U.S. workers who make Toyotas, Hondas, Hyundais, BMWs and the cars of other foreign-owned manufacturers in the United States. Nevertheless, the amendment is a good indication of current protectionist sentiment in the U.S. Congress. The Financial Times quoted Dr. Elliot J. Feldman last week condemning the Buy Ford, GM or Chrysler amendment.
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Senior U.S. officials revealed privately in the days prior to the first Strategic and Economic Dialogue (“S&ED”) of the Obama Administration, convening in Washington, D.C. on July 27, 2009, that they planned to ask China to subscribe to the Government Procurement Agreement (“GPA”) of the World Trade Organization (“WTO”). They assigned this quest, they said, a high priority, even as the subject seemed to escape public notice.
China did not begin discussing the GPA at the WTO until December 2007, even though upon its WTO accession in 2001 it was expected to negotiate GPA accession “as soon as possible.” China has sent out officials to study the terms under which other countries have signed the Agreement, and is working on a written proposal that would open its government procurement to foreign enterprises while protecting certain areas of economic activity.
China’s trade partners had attached no particular urgency to China’s GPA accession until the autumn of 2008, when China as well as more developed countries, led by the United States, began committing hundreds of billions of dollars to government expenditure for recovery from a global economic recession. It then became important for manufacturers to gain access to the planned expenditures of foreign governments, and the GPA appeared to be the key to access.
The United States would like its manufacturers to be able to participate in the Chinese Government’s expenditures for recovery and so wants China to sign the GPA. China, of course, would like the same for its manufacturers -- to have governments in the United States, Europe, and Japan buy Chinese goods with the funds the governments are spending for recovery. But signing the GPA is not so easy. The signatories have carved out many restrictive exceptions. China does not want to give away more than it gets. In every country, nationalist sentiment clamors for job creation at home, not for government expenditures to buy foreign goods and, hence, to create jobs abroad.
At the very moment, in February 2009, when the United States was asking the world to shun protectionism and recognize that free trade is a necessary element of global recovery, the United States Congress was inscribing in the American Recovery and Reinvestment Act of 2009 (“ARRA”) a requirement for governments of all levels to “Buy American” when spending $787 billion. The provisions were summarized upon notification to the WTO:
The commitment to apply these restrictions “in a manner consistent with US obligations under international agreements” followed public pledges by the newly inaugurated lawyer-President “that we are going to abide by our World Trade Organization and NAFTA obligations just as we always have.” The President had come under fire from the Government of Canada, in particular, because of the ARRA provisions.
President Obama struggled to minimize the significance of the “Buy American” provisions by emphasizing that they would not alter the American commitment to respect all international obligations. He recognized the importance of not sending a signal of protectionism. He told a Canadian Broadcasting Corporation interviewer, “I think that if you look at history one of the most important things during a worldwide recession of the sort that we’re seeing now is that each country does not resort to ‘beggar they neighbor’ policies, protectionist policies, they can end up further contracting world trade.” Yet, he acknowledged, “a lot of governors and mayors are going to want to try to find U.S. equipment or services.”
Provincial premiers and mayors in Canada decided to copy the Buy American provisions, and the protectionist fever that began with the United States, at least symbolically, inevitably spread. The National Development and Reform Commission (“NDRC”) issued on May 27 in China Circular 1361, Opinions on the Implementation of Decisions on Expanding Domestic Demand and Promoting Economic Growth and Further Strengthening Supervision of Tendering and Bidding for Construction Projects. Were the title not to have said it all, a summary might read, “Buy China.” According to the Circular, “Government investment projects that are under government procurement should purchase domestic products, unless these domestic goods, construction engineering or services are not available in China or cannot be acquired on reasonable commercial terms. Projects requiring imported products will need prior approval from relevant government authorities.”
The United States is a signatory to the GPA. China is not. Consequently, Chinese enterprises have no rights of access to government procurement in the United States, nor have U.S companies rights to participate in government procurement in China. Were the congressional objective in the ARRA to keep out China, there was no legislative need for the provision. State and local governments, by international agreement, were free without the legislation to discriminate against Chinese goods. Both countries have included escape clauses -- the U.S. in its legislation and China in the non-binding NDRC Circular -- requiring goods to be available on “commercial terms” at home before prohibiting imports, but both are structured to spend their stimulus packages to create domestic, not foreign jobs.
The concept of free trade, which President Obama recognized, requires mutual access to government procurement. However, the United States, when it subscribed to the GPA in 1998, attached hundreds of exceptions, including especially total exceptions for thirteen state and local governments and qualified exceptions for most of the other thirty-seven. Exceptions for highway and mass transit funding apply to all fifty states and exceptions for procurement of construction grade steel cover most states. Most of the ARRA expenditures are slated for state and local governments, with an emphasis on infrastructure, so the commitment to abide by international obligations offsets almost not at all the Buy American provisions that are consistent with the restrictive U.S. implementation of the GPA.
Much of China’s recovery expenditures are anticipated to be provincial and local, the likely “relevant government authorities” in Circular 1361. China’s absence from the GPA means foreign enterprises have no rights to government procurement in China, but provincial and local governments could buy from them. Circular 1361 converts the absence of a right into an effective prohibition. China and the United States are closed to each other’s government procurement, with governments retaining considerable discretion to open up as needed.
The ARRA, and Circular 1361, are signals. The U.S. interest in pressing China to sign the GPA will not produce quick or meaningful results as long as the United States sends protectionist signals, and China likely will reveal a competing protectionism unless it believes there will be a reciprocal opening. Despite the U.S. pressure, the two countries only agreed, as to the GPA, to treat all goods manufactured domestically as domestic products, regardless whether there might be foreign ownership -- a reaffirmation of current law. The United States must step beyond assurances about compliance with international obligations and provide examples of a free procurement market; China must make purchases from abroad to enhance domestic stimulus projects. Without such concrete steps, both countries will be sending protectionist signals, and the more they press each other in settings like the S&ED, the more they may harm the cause of free trade.
Dr. Feldman was quoted recently in a Business Week report on the S&ED. He also discussed the June 2008 Strategic Economic Dialogue meetings in an interview with CNBC.
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U.S. trading partners can learn a lot from the way the United States treats the countries it actively calls its friends in trade disputes and when interpreting trade agreements. Canada is unmistakably the United States’ best friend. Despite this close friendship, the United States has not treated Canada kindly in trade disputes. The softwood lumber wars are illustrative. Four times since 1982 the U.S. lumber industry has petitioned against Canada for trade relief. Although U.S. agencies have found in favor of the U.S. industry repeatedly, U.S. courts, binational panels convened under the Canadian-U.S. Free Trade Agreement and the North American Free Trade Agreement, and panels convened at the World Trade Organization have all found, repeatedly, to the contrary. Despite these legal outcomes, Canada capitulated in 2006 because of continuous U.S. pressure and apparently interminable litigation. The United States was withholding from Canadian industry $5.5 billion that the courts ultimately said should be returned to Canadians, but the withholding crippled Canadian operations. In order to get the money back, Canada entered the Softwood Lumber Agreement of 2006 restricting trade.
Canada made a minor, inadvertent, error in managing the agreement, which the United States challenged successfully in London Court of International Arbitration CASE NO. 7941. It was not enough for the United States to see the error corrected and the violation of the agreement to end. Nor was it enough to receive a significant cash award for the breach, even though the breach arose from excess shipments that promptly were followed by shipments well below allowances. According to the United States, compensation for breach of the agreement, however inadvertent the breach, had to punish the sector of the Canadian industry that supposedly benefitted from the breach, even as the Government of Canada argued that punishment was inappropriate and that the U.S. action, with help from the tribunal, could devastate a portion of Canadian industry and create significant unemployment. Canada, the United States said, should have understood what it was signing and must accept the consequences.
There are several lessons to be learned here about the United States:
China will never be able to claim a level of friendship with the United States comparable to Canada’s. The way the United States treats Canada in trade should teach Chinese that in trade even the best friends of the United States can expect no favors, must endlessly fight for their rights, and must contest every word and action, just as the United States will do with them. The United States does not like linking trade disputes to any other considerations. It may be that eventually the United States cannot always have its way with respect to trade, and that partners will link trade disputes to other foreign policy questions successfully. But for now, and for the foreseeable future, partners must understand that friendship does not translate into friendly treatment and that, in trade disputes, the United States does not treat its partners as friends.
We discuss this issue in greater detail in the following article: How The United States Treats Its Friends In Trade Disputes: A Recent Revealing Example.
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Below are charts which track developments in current cases. You can scroll down the page to browse all cases or click on a title to be taken to those particular cases.
Go to Adminstrative & Sunset Reviews
Go to Active U.S. Investigations against Chinese Products
Go to WTO cases - China As Complainant
Go to WTO cases - China As Respondent
| Product | Case # | Review Period |
Initiation Notice Published |
Preliminary Determination |
Final Determination Due |
Counsel |
|
Circular Welded Carbon Quality Steel Pipe |
A-570-910 |
1/15/08 - 6/30/09 |
8/25/09 |
Rescides on |
||
| C-570-911 | 11/13/07 - 12/31/08 | 8/25/09 | 7/31/10 | |||
| Persulfates | A-570-847 | 7/1/08 - 6/30/09 | 8/25/09 | 7/31/10 | ||
| Saccharin | A-570-878 | 7/1/08 - 6/30/09 | 8/25/09 | 7/31/10 | ||
| Activated Carbon | A-570-904 |
10/11/06 - 3/31/08 4/1/08 - 3/31/09 |
6/4/08
5/29/09 |
5/7/09
4/30/10 |
8/28/10 |
|
| Apple Juice Concentrate, Non-Frozen |
A-570-855 | 6/1/07 - 5/31/08 | 7/30/08 | 7/22/09 | 10/2/09 | N/A |
| Carbazole Violet Pigment 23 | A-570-892 | 12/1/07 - 11/30/08 | 2/2/09 | 12/22/09 | 4/21/10 | DOC APO Service List |
| Cased Pencils | A-570-827 | 12/01/07 - 11/30/08 | 2/2/09 | 12/15/09 | 4/14/10 | DOC APO Service List |
| Chlorinated Isocyanurates | A-570-898 |
6/1/07 -5/31/08 6/1/08-5/31/09 |
7/30/08
|
6/8/09 7/6/10 |
12/7/09
|
|
| Cut-to-Length Carbon Steel | A-570-849 | 11/1/07 -10/31/08 | 12/24/08 | 8/10/09 | 12/8/09 | DOC APO Service List |
| Folding Metal Tables and Chairs | A-570-868 |
6/1/07 - 5/31/08 6/1/08-5/31/09 |
7/30/09 |
6/30/09 |
12/4/09 |
DOC APO Service List |
| Fresh Garlic | A-570-831 |
11/1/07 - 10/31/08 |
12/24/08 |
11/30/09 |
3/30/10 |
DOC APO Service List |
| Freshwater Crawfish Tailmeat | A-570-848 | 9/1/07 - 8/31/08 | 10/29/08 | 6/8/09 | 10/9/09 | DOC APO Service List |
| Frozen Warmwater Shrimp | A-570-893 |
2/1/08 -1/31/09 |
3/26/09 |
3/3/10 |
7/1/10 |
DOC APO Service List |
| Glycine | A-570-836 |
3/1/08 - 2/28/09 |
4/27/09 |
4/4/10 |
8/2/10 |
DOC APO Service List |
| Hand Trucks | A-570-891 | 12/1/07 - 11/30/08 | 2/2/09 | 1/10/10 | 5/10/10 | DOC APO Service List |
| Heavy Forged Hand Tools | A-570-803 | 2/1/08 - 1/31/09 | 3/24/09 | 3/1/10 | 6/29/10 | DOC APO Service List |
| Helical Spring Lock Washers | A-570-822 |
10/1/07 - 9/30/08 |
11/24/08 |
3/2/10 |
DOC APO Service List | |
| Honey | A-570-863 | 12/1/07 - 11/30/08 | 2/2/09 | 12/16/09 | 4/15/10 | DOC APO Service List |
| Ironing Tables | A-570-888 |
8/1/07 - 7/31/08 8/1/08 - 7/31/09 |
9/30/08
9/22/09 |
8/30/10 |
12/28/10 |
DOC APO Service List |
| Laminated Woven Sacks | A-570-916 | 1/31/08 - 7/31/09 | 9/22/09 | 8/30/10 | 12/28/10 | |
| C-570-917 | 12/3/07 - 12/31/08 | 9/22/09 | 8/30/10 | |||
| Light-Walled Rectangular Pipe and Tubing | A-570-914 | 1/20/08 - 7/31/09 | 9/22/09 | 8/30/10 | 12/28/10 | |
| Lined Paper Products | A-570-901 | 9/1/07 - 8/31/08 | 10/29/08 | /24/09 | 11/21/09 | DOC APO Service List |
| Magnesium Metal | A-570-896 | 4/1/08 - 3/31/09 | 7/30/08 | 6/30/09 | 10/28/09 | DOC APO Service List |
| Non-Malleable Cast Iron Pipe Fittings | A-570-875 | 4/1/08 - 3/31/09 | 7/30/08 | Rescides on 11/19/09 | N/A | |
| Polyester Staple Fiber | A-570-905 |
12/26/06 - 5/31/08 6/1/08 - 5/31/09 |
7/30/08
7/29/09 |
7/7/09
7/6/10 |
11/3/10 |
|
| Polyethlene Retail Carrier Bags | A-570-886 |
8/1/07 - 7/31/08 8/1/08 - 7/31/09 |
9/30/08
9/22/09 |
7/29/09 8/30/10 |
11/26/09 12/28/10 |
DOC APO Service List |
| Pure Magnesium | A-570-832 |
5/1/07 - 4/30/08 5/1/08 - 4/30/09 |
7/1/08
6/30/09 |
3/31/09
6/7/10 |
12/7/09
10/5/10 |
|
| Silicon Metal | A-570-806 | 6/1/07 - 5/31/08 | 7/30/08 | 6/30/09 | 10/28/09 | DOC APO Service List |
| Sodium Hexametaphosphate | A-570-908 | 9/14/07 - 2/28/09 | 4/27/09 | 1/30/10 | 5/30/10 | DOC APO Service List |
| Tissue Paper | A-570-894 |
3/1/07 - 2/29/08 3/1/08 - 2/28/09 |
6/10/08
4/27/09 |
4/6/09
3/31/10 |
7/30/10 |
|
| Steel Nails | A-570-909 | 1/23/08 - 7/31/09 | 9/22/09 | 8/30/10 | 12/28/10 | |
| Wooden Bedroom Furniture | A-570-890 |
1/1/08 - 12/31/08 |
2/26/09 | 1/31/10 | 5/31/10 | DOC APO Service List |
| Tapered Roller Bearings & Parts | A-570-601 |
6/1/07 - 5/31/08 6/109 - 5/31/10 |
7/30/08
7/29/09 |
5/31/09
7/6/09 |
12/7/09
11/3/10 |
|
| Sunset Reviews | ||||||
| Product | DOC Case # | ITC Case # | Initiation Notice Published | Prelim Determination Due on | Final Determination Due on | Counsel |
| Malleable Cast Iron Pipe Fittings | A-570-881 | DOC APO Service List | ||||
| Tetrahydrofurfuryl Alcohol | A-57-887 | 731-TA-1046 | 7/1/09 | ITC 12/4/09 | DOC APO Service List | |
| Ironing Table | A-570-888 | 731-TA-1047 | 7/1/09 | 11/3/09 | DOC APO Service List | |
| Barium Chloride | A-570-007 | 731-TA-149 | 7/1/09 | DOC APO Service List | ||
| Polyethylene Retail Carrier Bags | A-570-886 | 731-TA-1043 | 7/1/09 | 10/19/09 | DOC APO Service List | |
| Chloropicrin (3rd Sunset Review) | A-570-002 | 731-TA-130 | 7/1/09 | 11/6/09 | ||
| Products | Case # | Start Date | Preliminary Determination |
Final Determination |
Counsel | ||||||
| Drill Pipe |
A-570-965 C-570-966 701–TA–474 & 731– |
1/21/10 1/21/10 12/31/09 |
2/16/10 |
ITC APO Service List |
|||||||
| Seamless Refined Copper Pipe and Tube |
A–570–956 731-TA-1174 |
10/20/09 9/30/09 |
3/9/10 |
5/24/10 7/7/10 |
|
||||||
| Sodium and Potasslum Phosphate Salts |
C-570-963 A-570-962 701-TA-473 & 731-TA-1173 |
10/14/09 10/14/09 9/24/09 |
12/18/09 3/3/10 11/9/09 |
3/3/10 5/17/10
|
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| Steel Fasteners |
C-570-961 A-570-960 701-TA-472 & 731-TA-1172 |
10/14/09 10/14/09 9/23/09 |
Note: Case ended on Nov. 9 because of the negative ITC determination. |
|
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| Coated Paper Suitable For High-Quality Print Graphics Using Sheet-Fed Presses |
C-570-959 A-570-958 701-TA-470 & 731-TA-1169 |
10/13/09 10/13/09 9/23/09 |
12/17/09 3/2/10 |
3/2/10 5/17/10 |
|
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| Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe | C-570-957 | 10/13/09 | 12/17/09 | 3/2/10 | |||||||
| A-570-956 | 10/13/09 | 3/2/10 | 5/17/10 | ||||||||
| 701-TA-469 & 731-TA-1168 | 9/22/09 | 11/6/09 | |||||||||
| Magnesia Carbon Bricks | A-570-954 | 8/18/09 | 12/23/09 | 3/22/10 | DOC APO Service List | ||||||
| C-570-955 | 8/18/09 | 12/23/09 | 3/1/10 | DOC APO Service List | |||||||
|
731-TA-1166 & 731-TA-1167 |
7/29/09 | 9/14/2009 | ITC APO Service List | ||||||||
| Narrow Woven Ribbons | A-570-952 | 7/30/09 | 12/16/09 | DOC APO Service List | |||||||
| C-570-953 | 7/31/09 | 12/14/09 | DOC APO Service List | ||||||||
| 701-TA-467 & 731-TA-1164 |
7/9/09 |
8/24/09 | ITC APO Service List | ||||||||
| Woven Electric Blankets | A-570-951 |
7/20/09 | 1/26/10 | 6/10/10 | DOC APO Service List | ||||||
| 731-TA-1163 | 6/30/09 | ITC APO Service List | |||||||||
| Wire Decking | A-570-949 (DOC) | 6/25/09 | 3/20/10 | DOC APO Service List | |||||||
| C-570-950 (DOC) | 6/25/09 | 11/9/09 | 3/20/10 | DOC APO Service List | |||||||
| 701–TA–466 & 731–TA–1162 |
6/05/09 | 7/20/09 | ITC APO Service List | ||||||||
| Steel Grating | A-570-947 (DOC) | 6/18/09 | 11/5/09 | 1/19/10 | DOC APO Service List | ||||||
| C-570-948 (DOC) | 6/18/09 | 11/3/09 | 1/9/10 | DOC APO Service List | |||||||
| 701–TA–465 & 731–TA–1161 |
5/29/09 | 7/13/09 | ITC APO Service List | ||||||||
| Prestressed Concrete Steel Wire Strand (PC Strand) |
A-570-945 (DOC) | 6/16/09 | 12/17/09 | 3/8/10 | DOC APO Service List | ||||||
| C-570-946 (DOC) | 6/16/09 | 10/24/09 | 3/8/10 | DOC APO Service List | |||||||
| 701–TA–464 & 731–TA–1160 | 5/27/09 | 7/13/09 | ITC APO Service List | ||||||||
| Oil Country Tubular Goods | A-570-943 (DOC) | 4/28/09 | 11/17/09 | 1/30/10 | DOC APO Service List | ||||||
| C-570-944 (DOC) | 4/28/09 | 9/8/09 | 1/6/10 | DOC APO Service List | |||||||
| 701–TA–463 & 731–TA–1159 | 4/15/09 | 6/10/09 | ITC APO Service List | ||||||||
| Kitchen Appliance Shelving & Racks | A-570-941 (DOC) | 8/27/08 | 3/5/09 | 9/14/09 |
DOC APO Service List | ||||||
| C-570-942 (DOC) | 8/26/08 | 1/9/09 | 7/21/09 | DOC APO Service List | |||||||
| 701-TA-458 & 731-TA-1154 (ITC) | 8/7/08 | 9/24/08 | ITC APO Service List | ||||||||
| Section 421 Investigation | |||||||||||
| Passenger Vehicle and Light Truck Tires | TA–421–7 | 4/29/09 | 6/25/09 | ITC APO Service List | |||||||
| Case # | Opposing Party |
Short Title | Consulta-tion Requested |
Panel Report Circulated |
Appellate Body Report Circulated |
Implementation Status of Adopted Reports | Third Parties |
| DS252 | U.S. | Steel Safeguards | 3/26/02 | 7/11/03 | 11/10/03 | President Bush issued a proclamation that terminated all safeguard measures subjected to this dispute, pursuant to section 204 or the U.S. Trade Act of 1974. | Brazil, Canada, Chinese Taipei, Cuba, European Communities, Japan, Korea, Mexico, New Zealand, Norway, Switzerland, Thailand, Turkey and Venezuela |
| DS368 | U.S. |
AD, CVD Determina-tions on Coated Free Sheet Paper |
9/14/07 | ||||
| DS379 | U.S. | AD, CVD measures on Several Products | 9/19/08 | No panel established nor settlement notified as of Janurary 2009. | Argentina, Australia, Bahrain, Canada, the European Communities, Kuwait, Saudi Arabia and Turkey | ||
| DS392 | U.S. | Measures Affecting Imports of Chinese Poultry | 4/17/09 | ||||
| DS397 | E.U. | Definitive AD Measures on Chinese Irons or Steel Fastners | 7/31/09 | ||||
| DS399 | U.S. |
Measures Affecting Imports of Certain Passenger Vehicle and Light Truck Tires from China |
9/17/09 |
| Case # | Opposing Party |
Short Title | Consultation Requested |
Panel Report Circulated |
Appellate Body Report Circulated |
Implementation Status of Adopted Reports | Third Parties | |
| DS309 | U.S. | VAT Refunds for Domestically-Produced or Designed Integrated Circuits | 3/18/04 | In July 2004, China agreed to eliminate the availability of VAT refunds on Ics produced and sold in China and on Ics designed in China but manufactured abroad by 11/1/04 and 9/1/04, respectively. The parties notified WTO of a Mutaully Agreed Solution on 10/5/05. (DS309 - Solution) |
The European Communities, Japan and Mexico (other complainants) | |||
| DS339 | E.U. | Auto Parts | 3/30/06 | 7/18/08 Part I & 7/18/08 Part II | 12/15/08 |
Argentina, Australia, Brazil, Japan, Mexico, Chinese Taipei and Thailand | ||
| DS340 | U.S. | 3/30/06 | ||||||
| DS342 | Canada | 4/13/06 | ||||||
| DS358 | U.S. | Refunds and Tax Reduction or Exemptions | 2/2/07 | |
|
Memorandum of understanding signed in December 2007 | Australia, Canada, Chile, the European Communities, Japan, Chinese Taipei and Turkey | |
| DS359 | Mexico | 2/26/07 | Memorandum of understanding signed in January 2008 | |||||
| DS362 | U.S. | IPR Protection & Enforcement | 4/10/07 |
Part IV & |
Two countries agreed that China would have until March 20, 2010, to implement the panel ruling. | Argentina, Australia, Brazil, Canada, the European Communities, Inida, japan, Korea, Mexico, Chinese Taipei, Thailand and Turkey | ||
| DS363 | U.S. | Market Access & Trading Rights Restrictions on Publications & Audiovisual Products | 4/10/07 | 8/12/09 | China appealed on 9/23/09. | Australia, the Euroepan Communites, Japan, Korea and Chinese Taipei | ||
| DS372 | E.U. | Measures Affecting Financial Information Services and Foreign Financial Information Suppliers | 3/3/08 | |
|
Parties reached an agreement in November 2008. (DS373 - MOU with US) | ||
| DS373 | U.S. | 3/3/08 | ||||||
| DS378 | Canada | 6/20/08 | ||||||
| DS387 | U.S. | Grants, Loans and Other Incentives | 12/19/08 | |
|
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||
| DS388 | Mexico | 12/19/08 | ||||||
| DS390 | Guatemala | 1/19/08 | ||||||
| DS394 | U.S. | Export Restrictions on Raw Materials | 6/23/09 | |||||
| DS395 | E.U. | 6/23/09 | ||||||
| DS398 | Mexico | 8/21/09 | ||||||
| E.U. | AD Duties on Iron and Steel Fasteners | 7/31/09 | ||||||
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