China-U.S. Trade Law : International Trade Lawyer & Attorney : Baker Hostetler Law Firm : Trade Remedies, Customs & Export Controls

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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*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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