Lester Ross and Susan Ning
Issue:
Cover by JHDesign
After years on the receiving end of Western countries' dumping rules, China hits back with some of its own
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China's First Antidumping Ruling
The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and State Economic and Trade Commission (SETC) announced the final verdict of the PRC's first antidumping case in June 1999. Punitive antidumping tariffs on newsprint imports from the United States, Canada, and South Korea went into effect on June 3, 1999, in accordance with China's Antidumping and Anti-subsidy Regulations. The tariff rates vary widely by country and company. US newsprint importers must pay a tax of 78 percent on a normal price, which is based on the CIF value of the product. Canadian companies are subject to tax rates ranging from 57-78 percent. South Korean companies pay a 55 percent tariff, except for South Korea's Hansol Paper Co., which pays 9 percent. The tariffs differ becau se costs and market prices vary from company to company. MOFTEC and SETC jointly undertook the case in November 1997 after receiving complaints from nine domestic manufacturers, including four listed firms. Antidumping officials at MOFTEC sent questionnaires about the alleged activities to the accused companies, but only received timely responses from five Canadian companies and one Korean firm. Reportedly, US companies are subject to a single tariff because none of them responded to MOFTEC's questionnaires. SETC and MOFTEC investigators concluded that the 1997 influx of newsprint from those countries had serious consequences for China's domestic newsprint industry. Newsprint prices dropped 9.1 percent, and the total profits of the nine domestic newsprint firms fell 88 percent, leading to inventory buildup, large-scale layoffs, and rising debts. --Staff of The US-China Business Council |
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Lester Ross
is an attorney in the New York and Beijing offices of Paul, Weiss, Rifkind, Wharton & Garrison.
Susan Ning is a partner in the Beijing office of King & Wood. The authors have represented respondents from different parts of the world in several of China's antidumping actions. |
Chinese companies, particularly beleaguered state-owned enterprises struggling to modernize and fend off competition from abroad, have already triggered five antidumping investigations against exporters from countries in North America, Asia, and Europe, and additional applications for relief are currently pending (see Table). The products targeted were newsprint, cold-rolled silicon steel sheet, polyester film, stainless steel strip and sheet, and acrylates. In China's first antidumping case, the final decision resulted in substantial antidumping duties of up to 78 percent against North American newsprint exporters. Should such success be repeated, the number of petitions is likely to increase, with attendant risks for exporters to China.
Dumping ABCs
China's State Council promulgated the Antidumping and Anti-subsidy Regulations (the Regulations) on March 23, 1997, with immediate effect. The Regulations aim to counter the effects of dumping or subsidization of exports that result in substantial injury, or the threat of substantial injury, to an established domestic industry, or that substantially impede the establishment of a comparable domestic industry (Article 2).
The Regulations define dumping simply as the export of a product at a price below the product's normal value (Article 3). Normal value is calculated where possible by referring to the comparable price in the exporting country for an identical or like product. If there is no comparable price for such a product in the exporting country, reference is made to the price at which the exporter sells the identical or like product in a third country. Normal value may also be calculated on the basis of production costs plus reasonable expenses and profit (Article 4). The Regulations make no provision for calculating prices in non-market economies according to prices in market economies, a practice that the United States and European Union have used to the detriment of Chinese exporters in the past, despite China's vehement objections. The dumping margin is the percentage by which a product's export price is less than its normal value as defined above, with the comparison between the export price and normal value in all investigations so far made at the ex-factory level.
MOFTEC and SETC lead
The Ministry of Foreign Trade and Economic Cooperation (MOF TEC) and the State Economic and Trade Commission (SETC) are the principal PRC government bodies responsible for antidumping matters. MOFTEC is in charge of antidumping investigations, which involve examining the application, deciding (after consultation with SETC) whether to initiate an investigation, and determining whether dumping exists (Articles 11 and 13).
MOFTEC conducts investigations together with the General Administration of Customs and SETC, in consultation with other concerned departments of the State Council. SETC industrial bureaus responsible for the well-being of the domestic industry submitting the antidumping application may also be involved in the investigations. Both the applicant(s) and interested parties (including respondents) are permitted to review MOFTEC and SETC investigation files (Article 21) but access is limited to the public portions of the application and questionnaire responses.
The application
The application must identify the relevant domestic and imported product(s), the quantity and price of the imported product(s) and their impact on the domestic industry, as well as the connection between the alleged dumping and injury to the domestic industry (Article 12). In practice, the application is a relatively elaborate but not especially sophisticated analysis of the plight of the domestic industry and the impact of imports. The evidence cited in the applicat ion tends to be spare and the causal relationship postulated between the alleged dumping and injury tends to be relatively simplistic and conclusory relative to a petition in the United States.
The application is also segmented into "public" and "confidential" volumes. Respondents may not access the confidential volume. By contrast, in the United States, attorneys for the parties may be permitted access to business proprietary information submitted by the other party under stringent administrative protective orders. The lack of such access in PRC dumping cases diminishes the ability of the respondents to analyze and rebut the applicants' evidence and arguments, and thereby deprives the relevant government authorities of information that would be available in a more open process. Consequently, the investigative authorities have less accurate and complete information to guide their determination than their US counterparts.
The applicants must comprise all or most of the producers of the same or like products in China, or produce most of the total gross value of output of the same or like products in China. Producers affiliated with exporters or importers of the dumped products, or who are themselves importers of the dumped products, are excludable (Article 10). If the application is accepted, MOFTEC notifies the applicants, the governments of the exporting countries (through their diplomatic missions in China ), and the identified producers and exporters of the subject product(s) in or from the exporting countries (Article 14).
MOFTEC seeks to determine whether to accept an application within 30 days of receipt, but that target has sometimes proven elusive. Once MOFTEC accepts an application, potential respondents then have 30 days to request a copy of the public portion of the application. They can also obtain a copy from the diplomatic mission of an identified exporting country. MOFTEC must complete its investigation within 12 months of the date that it accepts an application, although 18 months is permissible under special circumstances, such as when an on-the-spot investigation in the exporter's country is required or the facts are particularly complex (Article 15).
MOFTEC has the discretion to require respondents to complete a detailed investigation questionnaire (Article 19), and has done so in each case to date. Though neither identified nor published as a standard form, the MOFTEC questionnaire is comparable in concept to the US Department of Commerce International Trade Administration's Standard Questionnaire for Antidumping Investigation.
Respondents must be represented in the investigation by Chinese lawyers. Most respondents have opted to engage international as well as Chinese counsel to facilitate the preparation of their response, among other reasons. Respondents to date have been given 37 days to complete the questionnaire, subject to limited extensions which now tend not to exceed 15 days and which MOFTEC grants with reluctance. Translation (of both the questionnaire and the response) quickly eats into such time, which is less than that afforded respondents in the United States. (In comparison, the US International Trade Commission allows 45 days.) Respondents may also segregate their responses into public and confidential volumes.
Preliminary determination of dumping
MOFTEC aims to issue a preliminary determination on the existence of dumping within two to four months of accepting an application, but does not always meet this self-imposed target. If there is a preliminary determination of the existence of dumping during the period of investigation, respondents have 20 days to file a supplemental response. Requests for hearings and invitations to conduct on-the-spot investigations may also be submitted, although MOFTEC may commence such procedures on its own initiative.
Withdrawal of the application or a preliminary determination by MOFTEC of no dumping during the investigation period terminates the investigation (Article 18[1]-[2]). In contrast to US practice, SETC does not await the preliminary dumping determination, but rather conducts the injury investigation simultaneously. Although injury cannot be found in the absence of a preliminary determination of dumping, s uch overlap in timing and built-in coordination compromises the integrity of the separate phases of the investigation.
An SETC finding of no injury also terminates the investigation (Article 18[2]). However, a provisional determination of dumping and injury may result in the imposition of an interim antidumping duty or the requirement to post a cash bond or other security proportionate to the dumping margin. The State Council's Customs Duty Commission (CDC) determines the percentage of any interim antidumping duty based on MOFTEC's recommendation, while MOFTEC itself determines the duty to be paid in the form of cash bond or other security (Article 22). CDC ordinarily imposes an interim duty, based on MOFTEC's recommendation, for a maximum of four months, which may be extended for up to nine months in special circumstances, such as when the investigation departments examine whether a duty lower than the dumping margin would be sufficient to remove the injury (Article 24). Alternatively, the investigation will terminate if the exporter or exporting country proposes satisfactory measures to eliminate the injury (Article 25). Such measures might include voluntary restraints on the quantity of exports of the subject products to China.
A dumping case can also be terminated after a full investigation if MOFTEC finds that there has been no dumping or injury to the domestic industry during the period of investigation, or that the dumping margin or quantity of imports is negligible (Article 18[3])-[4]). If the final determination is that dumping has caused injury, CDC will impose an antidumping duty based on MOFTEC's recommendation up to the amount sufficient to reflect the dumping margin ( Articles 27 and 29). Antidumping duties or price undertakings are imposed for five-year periods, subject to interim review by MOFTEC in consultation with SETC (Article 33).
CDC may also retroactively impose duties on imports during the 90-day period prior to publication of the preliminary determination--if an import surge has caused injury to the domestic industry and, in accordance with Article 32, the subject product has a history of dumping causing injury to the domestic industry, or the injury caused by the dumping was foreseeable or should have been foreseen by the exporter(s).
Protecting domestic industry
The increase in antidumping actions originates in the growing sophistication of China's trade laws and vulnerable industries' search for protection from imports. Attorneys, who have emphasized the protectionist benefits of antidumping actions for state-owned enterprises, have encouraged this trend.
All investigations to date have involved basic commodities. Only the first investigation, against newsprint, has proceeded to final determination, but each of the first three investigations have resulted in the imposition of hefty but varying interim or permanent antidumping duties on exports of the dumped product from the producing countries (see p.33). It is important to note, however, that the level of the duties has varied by producer and exporter, reflecting in part the qua lity of their responses to the investigation.
No implementing rules, limited transparency
A dozen or more applications are said to be pending, mostly filed by state-owned enterprises against exports from Organization for Economic Cooperation and Development countries. The lag in deciding whether to accept an application is due in part to inadequate staffing. MOFTEC's Antidumping Office in particular has fewer than a dozen personnel to handle its large and growing caseload. Moreover, the investigative departments have yet to demonstrate the capability to investigate non-basic industrial commodities.
The government's delay in issuing implementing rules, which have existed in draft form for some time, also hampers the investigative process. Such rules would ideally provide clearer definitions of key terms and greater detail with respect to such procedures as maintenance of the written record and hearings. Mandatory hearings would increase transparency and force government departments to justify discretionary decisions. For example, hearings might compel government departments to explain why Taiwan has not yet been made a subject of an antidumping investigation, despite the volume of its export sales to China. Respondents were initially reluctant to request hearings, fearing that the responsible government departments would regard such requests as a challenge to their authority.
MOF TEC held the first such hearing on March 30, 2000, at the request of the respondents in the silicon steel investigation, showing the readiness of the Chinese investigative authorities to discuss the merits of the case in an open forum with the interested parties. The MOFTEC panel allowed a domestic non-party to participate. Each party was allowed 20 minutes to make its oral presentation, and cross-examination was not permitted. Curiously, the applicants centered their presentations on injury rather than dumping, even though injury is outside MOFTEC's jurisdiction.
Dumping and the WTO
At the troubled opening session of World Trade Organization (WTO) trade negotiations in Seattle in November 1999, the United States continued to defend antidumping regulations like those in the United States despite criticisms from developing countries--and often-targeted developed countries, particularly Japan--that such measures are protectionist and inhibit their development. Regardless of the merits of such regulations, it would be short-sighted to ignore the fact that developing countries such as China can and are wielding this weapon against exporters from developed countries, as well as against one another. Foreign-invested enterprises in China are also eligible to file applications against foreign competitors, and have done so in at least one instance.
Under these circumstances, producers and exporters of commodities destined for China should familiarize themselves with PRC antidumping regulations, as well as other applicable regulatory rules, to reduce the prospect of punitive antidumping duties. China itself would do well to undertake a serious review of the Regulations with an eye toward making its regulatory process more practical, transparent, and equitable.
After China's accession to the WTO, the Regulations and their implementing rules, when issued, will have to conform fully to the Agreement of Implementation of Article VI of the General Agreement on Tariffs and Trade (1994) (the Agreement), which governs antidumping, subsidies, and countervailing measures. Although many provisions of the regulations and China's scheduling sequence are already largely WTO-compatible, the government will need to allow for more liberal filing extensions, hearings, adherence to the written record, and an independent review tribunal or procedure. For example, the Agreement provides that extensions of the deadline for filing responses "should be granted whenever practicable" upon a showing of cause for such extension (Article 6.1.1), and calls for independent judicial, arbitral, or administrative review of administrative action relating to final determinations and review of determinations (Article 13). Implementation of these measures may take some time, though China reportedly has begun evaluating the legal changes it must un dertake to bring its commercial legal regime into line with WTO obligations. In the meantime, foreign firms should be mindful of antidumping regulatory risk when selling to China.
| China's Dumping Cases to Date | |||||
| Targeted Country/Countries |
Product | Application submitted |
Investigation initiated |
Preliminary determination |
Final determination |
| Canada, United States, South Korea | Newsprint | October 16, 1997 | December 10, 1997 | July 9, 1998 | June 3, 1999 |
| Russia< /font> | Cold-rolled silicon steel sheet | November 12, 1998 | March 12, 1999 | December 30, 1999 | -- |
| South Korea | Polyester film | March 16, 1999 | April 16, 1999, supplemented May 7, 1999 | December 29, 1999 | -- |
| Japan and South Korea | Stainless steel strip and sheet | January 25, 1999 | June 17, 1999 | April 13, 2000 | -- |
| Germany, Japan, and United States | Acrylates | September 2, 1999 | December 10, 1999 | -- | -- |
| Sources: Lester Ross and Susan Ning -- Not available Back |
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