China Programme • Volume 11 • Number 31 • 19th September 2007

China Files WTO Case Against US Trade Remedies

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China on 14 September initiated WTO dispute proceedings against the US, requesting consultations on a series of extra duties imposed by Washington on some of its paper exports. Beijing contends that the US has failed to adequately justify the countervailing and anti-dumping tariffs.

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.
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