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China’s Position in Anti-dumping Proceeding【part two】
发布时间: 2010-11-8 20:03:19

China’s Position in Anti-dumping Proceeding

Xiaochen Wang

CONTENT

 

Introduction                                                                                         

Some Relevant Basic Conceptions                                                     

what is dumping?                                                                                              

The conditions for implementation of anti-dumping proceeding                  

How to decide the anti-dumping duty and China’s situation         

The Market Economy Treatment and China                                                  

The Individual Treatment and  China                                                           

Normal value and the analogue country principle                                      

Conclusion 

 

The Individual Treatment and China

     1. What is Individual Treatment and what are its conditions? Generally speaking, as a Non-market Economy country, every companies of this country take the same anti-dumping duty. However, there are two exceptional situations, the Market Economy Treatment and the Individual Treatment. If a company failed to get the MET, it still has chance to apply for the IT. Once is granted the Individual Treatment, the export company will take a special anti-dumping duty based on comparing the analogue country’s normal value with the export company’s own price. Meanwhile, the weighted average of the export price will not be used by the European Commission any longer.

     The great advantage of being granted Individual Treatment is the lower dumping margin. The condition for granting Individual Treatment is the proof about the independent from the state’s operation of the export activities. In details, according to Art.9 (5) of the anti-dumping basic regulation:

"9(5) [1]An anti-dumping duty shall be imposed in the appropriate amounts in each case, on a non-discriminatory basis on imports of a product from all sources found to be dumped and causing injury, except as to imports from those sources from which undertakings under the terms of this Regulation have been accepted. The Regulation imposing the duty shall specify the duty for each supplier or, if that is impracticable, and in general where Article 2(7)(a) applies, the supplying country concerned.

     Where Article 2(7)(a) applies, an individual duty shall, however, be specified for the exporters which can demonstrate, on the basis of properly substantiated claims that:

-- in the case of wholly or partly foreign owned firms or joint ventures, exporters are free to repatriate capital and profits;

-- export prices and quantities, and conditions and terms of sale are freely determined;

-- the majority of the shares belong to private persons. State officials appearing on the board of Directors or holding key management positions shall either be in minority or it must be demonstrated that the company is nonetheless sufficiently independent from State interference;

-- exchange rate conversions are carried out at the market rate; and

-- State interference is not such as to permit circumvention of measures if individual exporters are given different rates of duty."

     2. There are some case studies for making clear the EC’s policy on examination of ‘independence’. Export company’s ‘independence’ is the fundamental and critical subject of the Individual Treatment investigation. The consequence of this process’ investigation directly effects on the EC’s decision of granting or refusing to grant Individual Treatment. The following cases are generally considered as the basic of the EC policy on Individual Treatment, especially on examination of ‘independence’.

1). Study on EC’s statement Small Screen Television case[2]

     In the Small Screen Television case, the Individual Treatment was given to two Sino-Japanese joint ventures by the European Commission. The EC points out that, each of these two Sino-Japanese joint ventures do have the high degree of independence in their operation. Even they cannot be considered as fully market economy condition operation, the independence still can be built up. And this decision was confirmed by the Council.[3] Meanwhile, the Council gave three reasons for establishing “independence”:

“-- the companies were able to import component without control by the China commercial Chamber of Audio and Video products Exporters (‘the Chamber’); and

  -- they were able to export finished products without any control from the Chamber (or indeed from any other body).

  -- Furthermore, the fact that these companies were able to transfer their profits, subject to certain administrative requirements, out of China, ensure that these profit-orientated companies enjoyed a sufficient degree of independence which justified individual treatment.”

     According to Council’s explanation above, the core criterions of establishing ‘independence’ are the absence of control from the state or relevant government department, and the ability to transfer profits.[4] Meanwhile, the Council refused to grant the Individual Treatment to another Chinese exporter. The Council gave the reasons as follows:

“-- Even if they appeared as independence companies which invoice their customers directly, they in fact had very limited, if any, degree of independence in their relationship with importers in other countries as they lacked the possibility of establishing export prices and any other conditions or terms of sale by themselves.

 -- Furthermore, the companies concerned were members of the China Commercial Chamber of Audio and Video Products Exporters, and the Chamber had acknowledged during the course of the investigation that the export of SCTVS from all of their members was made under the strict control of the Chamber.

 -- The Chamber had also declared that all exporters had to be members of the Chamber, and that it was only the joint venture companies which could export and import products independently.

 -- In addition, the Commission considered that maintaining individual dumping margins for the Chinese exporters which were subject to the control of the Chamber might provide an opportunity for circumvention of dumping duty as exports to the Community could be channelled through the company with the lowest dumping margin.

 -- The final reason given for refusing individual treatment to the Chinese exporters related to their legal representation. It is a reason which should ring alarm bells with all legal advisers representing more than one exporter from China or any other NME. It was said that the lack of independence of the exporters in conducting their export policy was further confirmed by the fact that the representation of the three Chinese exporters in the investigation had been carried out by the Chamber and its legal representatives which at all times had submitted joint arguments and considerations for all three exporters without individualising any positions. Legal advisers should, therefore, be sure to make separate submissions where they represent more than one exporter.”[5]

     As we can see from the refusing reasons above, the Council was very careful in granting Individual Treatment. The Council concerns not only on the current case, but also on the influence that come from it. As a result, the export company’s operation, the field of the profit’s transfer, even the legal representation all will effect on the estimate of ‘independence’.

2) Study on EC’s statement in the Bicycles from China case[6]

     In the investigation in Bicycles from China case, according to the statement of EC, the Commission’s policy on granting Individual Treatment has been further refined and tightened up in two aspects.

     First, “in the Regulation imposing provisional duties[7], the Commission dealt with the application for individual treatment of some Chinese producers which had ‘non-Chinese participation’ (‘foreign joint ventures’) and which were situated in a Special Economic Zone of China.”[8] This means the EC policy on Individual Treatment has noticed on some special range and became more comprehensive.

     Secondly, the requirement on ‘independence’ reached a new level. A new criterion was pointed out through in this case. In this case the Commission states that “the Commission is prepared to grant individual treatment ... where the exporter demonstrates that it operates independently of the State, public bodies and State controlled companies in the conduct of its sales policy and that this autonomy will continue into the future (i.e. there are no arrangements whereby control which is not at present exercised can be invoked in the future). The power of the State or a representative of the State to block certain key decisions of the company prevents a company from acting in a truly autonomous manner (emphasis added).”[9] According to this statement the requirement on establishing ‘independence’ is the company should be able to “demonstrate that it was enjoying, and could be expected to continue to enjoy, the necessary degree of commercial autonomy were confirmed by the Council in the Regulation imposing definitive duties (Regulation 2474/93).”[10]

     3). Study on EC’s statement in the Handbags from China case

     In this case, the European Commission granted Individual Treatment to two export companies.  The EC stated in the provisional Regulation that both the Jane Shilton (pacific) Limited and Lee& Man Handbag Manufacturing Limited are privately owned companies based in Hong Kong. And the detailed facts for granting Individual Treatment which the Commission gave as:

“ -- In both cases, no legal entity existed in China and the capital goods physically present there were included as assets in the accounts of the Hong Kong companies.

 -- The factory buildings were leased from local authorities and the factory workers were employed and paid by the Hong Kong companies.

 -- The management and control of the factories, both in terms of production and marketing, were in the hands of the Hong Kong companies, and their operations were sufficiently independent from the Chinese authorities.

 -- The export prices to the E.C. and the marketing policies were determined by the Hong Kong companies without any interference from the Chinese state. (This is a very important point, particularly, as mentioned above, because individual treatment can only be considered in relation to Export Prices).”

     The Commission’s policy was expressed clearly in this statement. The investigation on establishing ‘independence’ takes account of the ‘factory building’, the employee, the absence of the state control in factory’s operation and the operation of the company is followed behind the Market condition (especially the export price). However, the requirement of the continuing of ‘independence’ was not presented in this statement.

     4) Study on EC’s statement in the Textile Shoes from China case

     The range of the Commission’s investigation on ‘independence’ was shown in this Textile Shoes from China case too. “In this case, all of the exporters which replied to the Commission’s questionnaire requested individual treatment with regard to their Export Prices for the purposes of establishing individual dumping margins. In this the Commission stated at paragraph 50 of the Regulation imposing provisional duties (Regulation 165/97) as follow:

“.. Detailed questions regarding ownership, management, control and determination of commercial and business policies were addressed to theexporters. None of the responding companies were able to show, to the satisfaction of the Commission, that their operations were sufficiently independent from the Chinese authorities to qualify for individual treatment.”

The Commission’s criterions on Individual Treatment were detailed in this statement it gave the whole investigation range for establishing ‘independence’.  Nevertheless, such a detailed requirement like this, there still no mention of asking for the company must can keep enjoying the ‘independence’ till the foreseeable future.

     5) Study on EC’s statement in the Ring Binder Mechanism from China case

     In this case, the Commission refused to grant Individual Treatment to both of the two Hong Kong-based companies: Sun Kwong Metals and World Wide Stationary. The Commission gave the reasons for refusing as follow:

".. The information provided showed that their Chinese manufacturing operations had not been independent of the Chinese authorities with regard to their employment policy, their source of raw materials and other production materials and their method of conducting business in the Peoples Republic of China."[11]

     However after World Wild Stationery reiterated its application and the Commission granted Individual Treatment to it. Through the further investigation on the relationship between the World Wild Stationery and its representatives of the local authorities in the People Republic of China, the Commission found the verification should be carried out.

“…in view of the substance and implementing modalities of the production agreement between WWS and the representatives of the local authorities in the Peoples Republic of China. According to this agreement, the company based in Hong Kong seemed to master the production operation in the PRC, since it only paid to the local Chinese authorities a transformation fee per tonne for the product they exported. The machinery used in the operations in the PRC was owned by WWS and appeared as assets in its financial accounts. WWS also seemed to be in control of the supply of raw materials as well as of all sales of the product concerned.”[12]

     Through the verification of the Commission’s decision, it can be concluded that to establish the ‘independence’ is not only relevant to whether there is a relationship between the exporter and the State, but is also regarding to what this relationship is. In this case, once the Commission found the company master the production operation in the People Republic of China, the Individual Treatment was granted. Thus, only when the interference reaches to a degree that can control the company or effect on the export price, the relationship between the company and the state will be against to establish the ‘independence’.

     Another issue should be noticed in this case is the absence of the mention of the requirement for continuing enjoying the ‘independence’ for the future.

     6) Conclusion from these case studies above

     In the Commission’s policy on establishing ‘independence’, “the criteria, as outlined above, may be summarised as requiring autonomy in relation to ownership, management, control and commercial business policies. Foreign-controlled producers, or joint ventures with companies from market economies, are more likely to meet these criteria than wholly Chinese operations.”[13]  Moreover, about the absence of the requirement on lasting enjoyment of ‘independence’ (which was mentioned as an ‘additional ’requirement in the Bicycles case) in the subsequent cases, some authors believe that is because it is too apparent in each case, and do not need to mention every time. However, they also recommend the advisor to remember this requirement, as this situation will not be mentioned in every case.[14]

Normal value and the analogue country principle

     Since China is not automatically considered as a Non-market economy country, in most cases, Chinese export companies are classified as the Individual Treatment cases.

     1) The approaches of building Normal Value

     The normal value’s examine is not only the basic issue of the decision of dumping margin, but also the most complex part of it. There are two possibilities in the resource of the information for constructing normal value. One is the export country’s domestic market price; the other is the relevant information from the third country.

     According to the description on WTO Official website, when sales in the export country market is not an appropriate fundament, there are two alternative possibilities for determination of normal value: one is “constructed normal value” and the other is the import price of the like product to a third country.

     When the normal value is built on the fundament of the cost of production, general and administrative expenses, selling, and the reasonable amount for profits, this construction proceeding is usually referred to as the “constructed normal value”. In the Market Economy cases, the export country’s domestic market price will be applied. In contrast, when the case is in accordance with the rule for the condition which sets forth in the second sub-paragraph of Art.2(5), the third country’s price may be applied. The regulation is:

"If costs associated with the production and sale of the product under investigation are not reasonably reflected in the records of the party concerned, they shall be adjusted or established on the basis of the costs of other producers or exporters in the same country or, where such information is not available or cannot be used, on any other reasonable basis, including information from other representative markets."[15] 

     In the Individual Treatment case, the usual methodology for deciding normal value is to compare the export product’s export price to the like product’s exported price in the third country (known as the analogue country principle or third-country principle). The reason why this method is applied is because the NMEs’ domestic production cost or prices are not considered as the real reflection of the market power. However, as a widely used approach on building normal value, the analogue country principle is not consummate. 

     2) The problems of analogue country principle

     According to the explanation on the WTO Official website, the analogue country principle as “the other alternative method for determining normal value is to look at the comparable price of the like product when exported to an appropriate third country, provided that price is representative.”[16]  And because “the Agreement does not specify any criteria for determining what third country is appropriate”[17], some problems arise from the analogue principle. Some authors even argue that using analogue country principle as the basis of determination normal value is a major disadvantage of being an exporter from the NME country.[18]

     The main problem of the analogue country principle is in the approach of the analogue country’s choice. Because of the difference developing level between analogue country and the export country, a higher normal value of the analogue country may result to a higher dumping margin. This possibility makes the analogue country principle to cause some unfair disadvantages to Non-market economy countries. Substantively, the information which comes from the analogue country is not the real reflection of the export country’s normal value. Indeed, “as the normal value is still based on third-country information, which stays outside the control of the exporter, IT is in fact only a semi-individual treatment.”[19]

     The unfair position above is exactly what most Chinese export companies are taking. The use of the analogue country principle in some China-related cases of EU anti-dumping regulation is harmonious with the WTO law.[20] Although the EC has recognize that China should not be listed in the Non-market economy country, most of Chinese export companies can only get the Individual treatment.[21] EC is still concerning about the various state influence on Chinese company. This concerning of EC is showed in their usage of the analogue country principle on Chinese supplier firms and the same concern also can be found in the WTO regulations. According to the s.15(a)(ii) of China’s Accession Protocol[22], when the producer under the investigation is not able to prove their industry is prevailed of the market economy conditions, a deviant methodology can be used by the importing WTO Member to fix normal value of Chinese goods.[23] As a result, although China is no longer regarded as a NME country directly, until now China still need to take the disadvantage of involving in analogue country principle. 

     Furthermore, in practice, the allowance for adjustments set forth in Art.2 (10)’s range is too narrow. Article 2(10) is purposed to be exceptions on being involved in analogue country principle. It is the reaction on the EC’s concern on developing countries. However, the narrow range makes it hard to fulfil with its intention.  According to Article 2(10), the adjustments are allowed “when normal value and export price are not established on a comparable basis.”[24] In practice, the EC only admit the NME countries’ natural unique competitive advantages which cannot be found in the analogue countries. In accordance with Art.2(10), “differences in product characteristics, sales conditions or easier access to raw materials due to the locations of the exporting producers[25] are only some examples of what could lay the foundation for acceptable adjustments. Nevertheless, in contrast with nature comparative advantages, cost comparative advantage on account of the NME economy system are not acceptable.”[26] The most important objection to make it available for differences in comparative advantages lies in the fact that such thing will involve the need to rely on “the methods and the costs of production in the state-trading country, an exercise which the use of third market economy country analogue is designed to avoid.”[27]

     Regarding to this explanation above, it is no doubt that, the marvellous lower labour cost advantage of China is also not allowed. However, is this really fair? As the essential cost of the whole industry, labour cost should be taken into account to the examination of normal value. Each country has its own way to survive in the world trade, and the way it takes must rely on the advantage of itself. These advantages can be advanced technology, enrichment natural resource, geographic location, and surely also can be the human resource. The huge population is a heavy burden of China. Turning the burden into the advantage of industry producing is a very effective for Chinese people to feed themselves. Moreover, as a developing country, the advantage of China in world trade is at the very basic level of industry, such as the daily use product or the hand-made product. In this kind of industries, the labour cost is the major element of product cost and will finally decide the price and decide the normal value. Regarding to the analysis above, the low labour cost should be considered as the nature comparative advantages, and be accepted under the Art.2 (10). [28] Or in another aspect, the developed countries, such as the EU countries, can take the advantage of their advanced developed technology in the world trade, why the developing countries, such as China, cannot take the advantage of their inexhaustible cheap labour supply?

     Some other problems of analogue country principle come from its practice proceeding.  First, there is no clear regulation in EU anti-dumping basic regulation for how to choose the analogue country. As a result, in practice, analogue country is always chosen by the import country. Needless to say, this advantage gives the import country the substantive power to control the consequence of the initial proceeding. In analogue country principle, the normal value is decided by the third country’s information. The higher normal value in the analogue country will lead to a higher anti-dumping duty. And the import country will undoubtedly choose the higher normal value analogue country to impose the higher anti-dumping duty to the export product. The unbalanced power the analogue country principle granted put the export country to a hard position. Secondly, the result of the analogue country principle investigation is not completely convictive. The sampling information of the analogue country is not public for keeping the commercial secret. Indeed, this makes the export county unable to understand how the anti-dumping is calculated. Consequently, the unclarity sampling information is hard to make the export country convinced. Thirdly, the analogue country principle is not able to apply a stable standard for dumping margin. Before the anti-dumping initial proceeding, the export companies are not possible to know what price is appropriate for export. The export companies are not able to preview the dumping margin, thereby, they cannot prevent dumping arising. The serious disadvantage of analogue country is that it is not able to reduce the amount of anti-dumping initial proceeding. Finally, the measure of analogue country principle itself contains the unreasonable element. The export product price is decided and affected by a lot of issues. There should be various circumstances’ influence working on the export product’s final price. Even in the same country’s same industry, different locations of the factories or the different material resource also may lead to the different price the rather that the different producers from different countries. Obviously, using the analogue country’s information for examining the normal value of the export country is not appropriate.

     To sum up, the problems on anti-dumping proceeding are very important reasons for the large amount of dumping initiations of China. Nevertheless, China also has a lot of problems on herself.

    

Conclusion

     During recent years’ anti-dumping practice in EU and WTO, China is always the most frequent target. Such a unique position in anti-dumping proceeding brings a lot of attention on the factors of this situation. Through the analysis above, we can find out some the reasons for why there is such amount of anti-dumping cases against China. The major problems come from the anti-dumping proceeding. The initial issue of anti-dumping proceeding is the decision on export country’s classification. These four types of status are: non-market economy, (full-) market economy, individual treatment and the market economy treatment. Each status country takes the different anti-dumping duties. As a non-full market economy country, the approaches for enjoying lower anti-dumping duty are Market Economy Treatment and Individual Treatment. In China’s case, the export companies are appropriate for applying MET. However, the success cases are minority. And in the investigation of granting Market Economy Treatment or Individual Treatment the estimation of the export product’s normal value is the central issue. Nevertheless, both the system for deciding the normal value and the criterions on granting Market Economy Treatment and Individual Treatment has problems. As mentioned above in this essay, either the analogue country principle or the conditions for granting MET can lead to the disadvantage position to the supplier countries.

     The reason that Chinese companies are so popular targets in anti-dumping proceeding is not only from the anti-dumping proceeding itself. Most Chinese companies are negative and unwilling to face the legal challenge from a different jurisdiction. Besides, the lack of legal knowledge and experience is also a reason. As new members of the world trade market, a lot of Chinese export companies do not know the rule of the world trade market’s operation. Moreover, after the initiation raised, a lot of Chinese companies will not respond to it and argue for their benefits, instead, they will take the anti-dumping duty directly, and this is another important reason for why there are so many Chinese anti-dumping issues.

     However, the situation is getting better. According to the report of WTO secretariat, both the new anti-dumping investigations and new final anti-dumping measures are getting declines in the recent years. Meanwhile, the EC became more tolerant on the investigation of Market Economy Treatment and Individual Treatment. [29] A good example is the Zinc Oxides case. In this case six out of eight and three out of five Chinese exporters were granted the Market Economy Treatment.[30] Thus, we can believe that, the anti-dumping proceeding will become more complete and the Chinese exporters will become more compliant with the world trade market condition.

 



[1] Para.(5) of Art. 9 of the Basic Anti-dumping Regulation was amended by Council Regulation 1972/2002: [2002] O.J. L305/1 (amendment).

[2] Regulation 2093/91 O.J. 1991 L195/1 (Definitive Duties)

[3] Regulation 2093/91 O.J. 1991 L195/1 (Definitive Duties), paragraph 20.

[4] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page106.

[5] 2093/91 O.J. 1991 L195/1 (Definitive Duties), paragraph 19

[6] Regulation 2474/93 O.J. L228/1 (currently under appeal in case T-170/94 in which the oral hearing was held on 11 March 1997). A summary of the arguments in that case (which include arguments on individual treatment) is set out at O.J. 1994 C76/7.

[7] Regulation 550/93 O.J. L8/12.

[8] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page106.

 

[9] Regulation 550/93, paragraph 34.

[10] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page106.

[11] Regulation 1465/96 O.J. 1996 L187/47, paragraph 39.

[12] Regulation 119/97 O.J. 1997 L22, paragraph 25.

[13] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page107.

[14] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page107.

[15] The second sentence of Art 2(5) of the Basic Anti-Dumping Regulation has been introduced by Council Regulation 1972/2002: [2002] O.J. L305/1 (amendment).

[16] WTO  Anti-dumping - Technical Information, WTO official website. http://www.wto.org/english/

[17] WTO  Anti-dumping - Technical Information, WTO official website. http://www.wto.org/english/

[18] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page105.

[19] Delva.’What Happens When The Dragon Storms The Fortress? China’s Unique Position In EC Policy On Trade Defence Instrument’, International Trade Law & Regulation,2007,13(2),page20-21.

[20] WT/L/432 of November 23,2001, Accession of the People’s Republic of China, Annex: Protocol on the accession of the People’s Republic of China, page 102.

[21] Council Regulation 905/98 of April 27, 1998 amending Regulation 384/96 on protection against dumped imports from countries not members of the EC[1998] O.J. L128/18

[22] WT/L/432 of November 23,2001, Accession of the People’s Republic of China, Annex: Protocol on the accession of the People’s Republic of China, page 102

[23] Delva.’What Happens When The Dragon Storms The Fortress? China’s Unique Position In EC Policy On Trade Defence Instrument’, International Trade Law & Regulation,2007,13(2),page20.

[24] Delva.’What Happens When The Dragon Storms The Fortress? China’s Unique Position In EC Policy On Trade Defence Instrument’, International Trade Law & Regulation,2007,13(2),page20.

 

[25] Commission Regulation 2563/1999 of December 3, 1999 imposing a provisional anti-dumping duty on imports of compact discs boxes original in the People’s Republic of China[1999] O.J. L310/17

[26]Delva.’What Happens When The Dragon Storms The Fortress? China’s Unique Position In EC Policy On Trade Defence Instrument’, International Trade Law & Regulation,2007,13(2),page20-21

[27] Beseler and Williams, Anti-dumping and anti-subsidy law: the European Communities, Sweet and Maxwell, London, (1996), page 71-72.

[28] Liu, ‘Anti-dumping measures and China’ [2005] Journal of Financial Crime 277.

[29] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page128

[30] Certain Zinc Oxides from China [2002] O.J. L 62/7 (definitive duties) ("Zinc Oxides")

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