Background

In the course of economic globalization, regional economic integration, with Free Trade Area as its main form, has been growing dramatically. The major Powers and regional Groups accelerate the development of FTAs. By the end of August 2008, there have been 213 FTA-focused Regional Trade Arrangements (RTAs) proposed to the WTO and being effective, covering more than half of global trade in goods.

Free Trade Area and Its Trend of Global Development

Free trade area is a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods between them. It aims to reduce barriers and realize liberation of trade and investment. As a WTO Plus, FTA entitles its members more preferential treatment than that does the other WTO members. It is such a complementary to the WTO free trade regime that provides the FTA member economies with much more economic space to realize mutual benefits.

The dynamic growth of Free Trade Area has cast a profound impact on the world economic situation. As the experts from the WTO estimate, more than half of the world trade deal internally in various regional Groups with most favored nation treatment. Many countries tend to take advantage of FTAs, especially when the Doha Round talks meet with difficulties.

Developments of China’s Free Trade Areas

China signed its ever first FTA in 2003. Since then, it has established 12 free trade areas with 29 countries from Asia, Oceania, Latin America, Europe and Africa. China’s major FTAs include:

In order to further enhance the level of economic and trade exchanges and cooperation between the Mainland China and Hong Kong/Macao, CEPA was signed in 2003 and followed 4 Supplementary Agreements. Supplementary Agreement V was signed in July 2008. In the aspect of goods trade, the Mainland had implemented zero tariffs on Hong Kong/Macao originated goods. Besides, the Mainland has eased market access in 40 areas, including law and accounting. In terms of Trade and Investment Facilitation, cooperation has been developed in 9 fields between the Mainland and Hong Kong/Macao, such as trade/investment promotion and Customs facilitation. The implementation of CEPA and its Supplementary Agreements further enhances the level of economic and trade growth in Hong Kong and Macao.

In the 6th China-ASEAN high-level meeting, which was held in November 2001, the Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN was agreed. 2 years later Agreement on Commodity Trade of China-ASEAN Free Trade Area (CAFTA) was signed and the Agreement was put into effective in July 2005. In 2010 and 2015, China will eliminate most of the tariffs on 6 old and 4 new members of ASEAN respectively. Since tariff reduction, the economic and trade cooperation between China and ASEAN has developed rapidly. Now the two parties focus on the negotiation on investment.

China-Chile Free Trade Agreement was signed in November 2005 and implemented in October 2006. According to the Agreement, tariffs on 97 percent tariff lines will be reduced to zero in 10 years. Supplementary Agreement on service trade was signed in Sanya on 13 April 2008 and it will help the two countries to open the service market mutually and improve the investment conditions to gain more benefits for their people.

China-Pakistan FTA was signed in November 2006, which was the major achievement in Chinese President’s visit to Pakistan. It was convinced that progressive reduction and elimination of trade barriers through the conclusion of a FTA, will facilitate a win-win scenario and mutual development of the two Parties. Now the two countries are on the phase of service trade negotiations.

China and New Zealand signed a FTA on 7 April 2008 and planed to put it into effect since 1 October 2008. The importance of this FTA can be categorized into four “Firsts”: New Zealand was the first country to complete bilateral negotiations for China’s entry into the WTO, the first country to recognise China’s status as a full market economy, the first developed country to open negotiations on a free trade zone with China, and the first developed country to complete a free trade agreement with China. These four “firsts” in the history of economic relations with China are especially eye-catching.

The development of China’s free trade areas plays an important economic and political role in China’s strategies of opening and pursuit of a harmonious world. This trade giant will take advantage of FTAs to achieve mutual benefits with other economies.

“China Free Trade Area Network” can be viewed at http://fta.mofcom.gov.cn.

“Considering that bilateral consultations between China and the US failed to solve concerns of China, China requested consultations with the US under the WTO dispute settlement mechanism regarding those measures,” the Chinese mission to the WTO said in a statement released on Friday.

Washington imposed the import tariffs arguing that China was selling those products in the US market at less than their normal value, a practice known as ‘dumping’ in WTO parlance. The WTO allows Members to try to counter the effects of dumping by imposing tariffs or other punitive measures against the offending country, but China argues that, in this case, the US has gone too far.

“After the anti-dumping and countervailing investigations by the US against the above mentioned products were initiated, China was highly concerned and has repeatedly articulated its position at various occasions, opposing the unfair practices of the US in those investigations,” the Chinese statement said.

China believes the import duties are “inconsistent with the obligations of the United States” under world trade laws, the country said in its official complaint.

The request for consultations with the US marks only the second time that China has independently launched a dispute at the WTO, although Beijing has been the target of a number of challenges in recent years.

In accordance with WTO dispute settlement process, the two parties will now have 60 days to resolve the matter through consultations. If no solution is found by the end of that period, then China can ask a panel of WTO judges to consider the case.

ICTSD reporting.

Chinese Version

Osram, the dominant CFL producer in Europe, requested permission to impose anti-dumping duties against Chinese exports in 2001. Measures were imposed the same year and were extended for another year last October. Because the deadline for submitting and extension application has already lapsed, the duties are now set to expire on 18 October.

It appears that Osram’s decision is in part based on a lack of political support in the EU. “We have had to concede…that we have not been able to secure a majority in Europe for the Osram position,” the company’s CEO Martin Goetzeler said in a statement.

Political pressure from a wide range of stakeholders - including environmentalist groups, retailers, consumers and business competitors - over the duties had been growing since they were imposed in 2001.

This pressure intensified last October when the anti-dumping duties were given a one year extension. “This is narrowly protectionist and sends a regressive message to developing country producers that they will be excluded from markets for cleaner products created by the higher environmental standards expected by European consumers,” said a WWF press release at the time.

In a July 2008 retailers roundtable, many business leaders - including Sir Terry Leahy of Tesco and Sören Hansen of Ikea - said the tariffs of up to 66 percent ensured that prices were “artificially inflated” when consumers reached the shops and this depressed demand for energy-saving bulbs.

The case has also attracted widespread attention because of the divide of Europe’s light bulb makers between those who have production plants in China and those focusing on local production in Europe. While Osram does have factories in China, production remains focussed in Europe. Philips Lighting and other EU producers with their main production facilities in Asia complain that the duties have been squeezing their profit margins. These companies have been fighting their own case at the EU Court of First Instance to have the anti-dumping duties scrapped completely.

Although the CFL anti-dumping case is coming to a close, analysts think it might serve as a proxy for revisiting some rules in EU anti-dumping measures. “This anti-dumping case has put forward the ongoing discussions on the decision making criteria and process to practice the definition of ‘EC community interests’,” says Xiaoyi Tang, a Brussels-based trade lawyer. Tang says the EU needs to not only strike a balance between producers, retailers and consumers, but also between trade policy instruments and broader community policy objectives such as climate security, social and environmental standards.

Some point out that obstacles to revise trade defence mechanisms are difficult to overcome. Min Shu, an economist at Fudan University, says the energy saving light bulb issue is just a small window for the complex political economy behind the EU anti-dumping measures. Shu says there are clashes between producers from EU member states (i.e., Netherlands-based Philips and Germany-based Osram in the light bulb case. He also says that the divide between the trade Commissioner and industry Commissioner can complicate matters, and points to the shelving of EU trade commissioner Peter Mandelson’s proposal to reform trade defence rules as an example.

ICTSD Reporting; “Osram drops EU call to extend Chinese bulb duties,” REUTERS, 11 Aug. 2008; “Europe can’t agree on anti-dumping rules,” INTERNATIONAL HERALD TRIBUNE, 13 Jan. 2008; “Retailers urge EU to scrap anti-dumping duties on energy-saving lightbulbs,” THE GUARDIAN, 21 July 2008; “Osram drops EU call to extend Chinese bulb duties,” REUTERS, 11 Aug. 2008; “EU allows China to export special globes sans duty,” HAITI NEWS, 12 Aug. 2008.

Chinese Version

The decision to pursue a case at the global trade arbiter signals a more combative stance for the rapidly growing economy: this is only the second time China has sought to use the WTO’s dispute settlement mechanism. The first was in 2002, when it joined several countries in a complaint against US steel duties. Since then, it has preferred to address trade irritants in informal talks.

Stephen Norton, a spokesperson for the US trade representative’s office, downplayed China’s request. “We are fully confident in our trade remedy laws and will vigorously defend the WTO consistency of these laws,” he said. Earlier this year, the US filed WTO cases against China for counterfeiting and industrial subsidies, prompting recriminations from Beijing (see BRIDGES Weekly, 5 September 2007).

Following a preliminary investigation by the US Department of Commerce, Washington has imposed countervailing duties worth up to 20 percent on Chinese coated paper since April, along with anti-dumping levies of up to 99.6 percent since June. It claims that favourable loans and tax measures have inappropriately supported Chinese paper companies.

Although technically about certain types of glossy paper used for writing and printing, the case puts the spotlight on broader aspects of US trade policy vis-à-vis China, specifically with regard to the use of trade remedies.

Though similar in effect in that both amount to additional tariffs, countervailing duties are meant to offset government subsidies provided to the imported product, while anti-dumping duties are supposed to discourage foreign companies from exporting goods at below home market prices.

In introducing the countervailing duties, the US departed from a 23-year policy of not authorising the imposition of such measures on ‘non-market’ economies such as China. The rationale behind this policy was that in non-market economies, governments and enterprises were so interlinked that subsidies could not practicably be identified and isolated.

By the same token, non-market economies are easier targets for anti-dumping duties, since their home market price levels may not adequately reflect costs. Indeed, US companies have benefited from a lower burden of proof while pursuing the imposition of anti-dumping duties on a wide range of Chinese exports.

US companies had lobbied for countervailing duties on Chinese exports in the past, according to information on the US Department of Commerce’s website. However, they had been unsuccessful until April.

Sources suggested that Chinese officials grumble that the US is trying to have it both ways when it comes to the two types of trade remedies. Nevertheless, China’s status as a ‘non-market’ economy is not the subject of the dispute — under the terms of its accession to the WTO in 2001, other Members have the right to treat it as one through 2015.

China’s formal request for consultations (WT/DS368/1) claims that the US has violated WTO rules by imposing duties without failing to prove that the alleged subsidies in question are specific to the coated paper industry. Furthermore, it claims that Washington had improperly calculated the supposed benefits accruing to the sector. Furthermore, it argues that US trade authorities have failed to ensure that the magnitude of the anti-dumping and countervailing duties correspond to the respective margins of dumping and subsidisation.

In its preliminary countervailing duty determination, the US commerce department ruled that “pervasive” government influence in the Chinese banking sector meant that banks there (even foreign-owned ones) provided loans at below market rates, thus tantamount to a subsidy. The department’s final determination of duties is expected in October.

If the two sides cannot resolve their differences in consultations within 60 days, China will have the right to seek the establishment of a formal panel to rule on the dispute.

ICTSD reporting; “China demands consultations with US at WTO,” AGENCE FRANCE PRESSE, 15 September 2007; “China, in Assertive Move, Challenges US at WTO,” WALL STREET JOURNAL, 17 September 2007.
Chinese Version

A divided European Commission decided last week to retain heavy anti-dumping duties on energy-saving light bulbs from China for an additional year, angering environmental groups who argue that the move will impede efforts to curb climate change.

The EU’s executive body on 29 August announced that it would urge member states to remove the extra tariffs in 2008, effectively backing down from plans to eliminate them this year. Governments are set to vote on the proposal during the next week.

Brussels has imposed the duties of up to 66 percent since 2001, claiming that "state intervention or other market distortions" meant that the Chinese bulbs were being sold in the EU "at less than their real value."

EU consumers might have been grateful for cut-rate light bulbs, and the Commission argued that it was in member states’ interest to end the duties - not least to cut energy use and greenhouse gas emissions. Nevertheless, European manufacturers seeking more time to adjust to Chinese competition won a reprieve.

Eivind Hoff, a trade and investment advisor for environmental group WWF, described the EU’s move as "narrowly protectionist." Pointing to a "severe contradiction" between Brussels’ energy efficiency objectives and the prolongation of the extra taxes, he said that it sent "a regressive message to developing country producers that they will be excluded from markets for cleaner products created by the higher environmental standards expected by European consumers."

WWF estimates that a rapid switch from traditional incandescent bulbs to more efficient lamps could reduce EU greenhouse gas emissions by 0.5 percent. The Commission acknowledges that domestic production can account for only a quarter of the EU’s demand for energy-efficient light bulbs.

The four European companies that manufacture such bulbs were split on the issue, based largely on how much they have invested in China. Osram, a German company that produces many bulbs in the EU itself, was the only one to lobby heavily for the extension of the duties, reports Associated Press. Dutch multinational Philips, which manufactures many bulbs in China, pushed for scrapping them. EU Trade Commissioner Peter Mandelson said that the case illustrated "the complexities of managing anti-dumping rules in a global economy and against the broad range of EU interests."

Duties notwithstanding, the EU has been a vocal proponent of liberalising trade in environmental goods as part of the Doha Round WTO talks.

ICTSD reporting; "Europe to keep tariffs on light bulbs," INTERNATIONAL HERALD TRIBUNE, 29 August 2007; "EU won’t lift charges on Chinese energy-saving light bulbs for another year," ASSOCIATED PRESS, 29 August 2007; "Towards a Low Carbon Future: The Case for China and EU Collaboration," THE WORLD TODAY, October 2007 (forthcoming).  

Chinese Version