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China's position in Anti-dumping proceeding【part one】
发布时间: 2010-11-8 20:05:08

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 

 

 Introduction

    According to a report to the WTO committee, between 1995 and 2002, among all 2,160 anti-dumping initiations, “the People’s Republic of China was by far the most frequent target, drawing 14% of antidumping initiations, more than twice as many as any other country.”[1] In 2005, China still remained as the most frequent subject of the anti-dumping investigations, with over 30 initiations directed at its exports during July to December and up from 24 during the corresponding period of 2004.[2] In 2006, China continued to remain her title of the most frequent subject of anti-dumping inquiries, accounting for 32 of the 87 new initiations during January to June, compared with 23 out of 105 during the corresponding period of 2005.[3]

   Not only on the global stage, has China played a primary role in the EC’s anti-dumping practice as well. “As for the period of 1999-2003, China was involved in 74 proceedings, only followed by the 33 and 28 proceedings which involved India and South Korea respectively.”[4]Based on the above figures, China seems to have a big problem in dealing with anti-dumping issues with the rest of the world. Such an unusual situation makes people think what the problem is, how the problem comes and about how to deal with it. This article is trying to give some ideas about the questions by studying the anti-dumping procedure and China-related issues. Furthermore, this article is trying to answer how and why China takes her current position and explain the influence of China’s unique position in world trade, China’s special status in WTO, the relevant regulations of EC and WTO rules. Because of China’s political and economical situation, some study of different anti-dumping duties among non-market economy treatment country, individual treatment country and the market economy treatment country is also introduced in this article. Meanwhile, this article is going to analyse some major elements that cause the existent difficulties for China in EC and WTO anti-dumping practice.

  

Some Relevant Basic Conceptions

   Due to some political causes, it is not a long period since China rejoins the world trade community. Most of the Chinese trade bodies are not familiar with the current anti-dumping regulations. Therefore, it is necessary to explain the existing anti-dumping system and how it affects China-related trades in advance.

What is dumping?

   According to the concept given by WTO, in general, dumping is “a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country.”[5]  In another word, dumping is a concept which builds on the basis of the appropriate comparison between the “normal value” and the “export price”.[6]

The conditions for implementation of anti-dumping proceeding

   The conditions for implementation of anti-dumping proceeding have being modified with the development of WTO codes. The current code was established in the Uruguay Round Anti-dumping Agreement. In the Uruguay Round negotiations, the anti-dumping code received further attention and got the major changes in improving the relationship between developed countries and developing countries.[7] In the Article 2.1 of the Uruguay Round Anti-dumping Agreement, the explanation about how to define dumped products as being dumped is provided. It gives the comparison between the export price and the normal value. Article 2.2 concerns on the situation of the ‘normal value’ not available in the export countries. In this case, two approaches are provided: normal value information from the exporting country and the normal value information from an appropriate third country. Furthermore, Article 3 helps to clarify the conditions for implementation of anti-dumping proceeding by defining the determination of injury. According to Article 3, ‘injury’ means the material injury to a domestic industry, or material retardation of the establishment of such an industry, except otherwise specified.

   To sum up, as the agreement on implementation of the anti-dumping, the UR agreement indicated that WTO members can impose the anti-dumping measures when “(a) that dumping is occurring, (b) that the domestic like product in the importing country is suffering material injury, and (c) that there is a causal link between the two.”[8]

   The purpose of improving the relationship between developed countries and developing countries of the Uruguay Round agreement lead to the stricter limit with assessment of dumping. It is easy to understand because developing countries are often defenders in anti-dumping cases.[9] The agreement provided the principle that “anti-dumping proceeding only can be applied when the dumping product causes or threaten injury to a domestic industry, or materially retards the establishment of a domestic industry”[10]. And the principle was confirmed by Article VI of GATT 1994. According to Article VI of GATT 1994 (known as “Anti-dumping Agreement”), the purpose of anti-dumping is to protect the domestic industry of the import country. Consequently, the Anti-dumping Agreement of GATT 1994 affirms the principle of the further limit for the assessment of dumping, the margin of anti-dumping becomes tighter.



[1] Trebilcock, and Howse, ‘The Regulation of International Trade’, Chapter 8, page 232.

[2]‘ WTO secretariat reports further declines in both new anti-dumping investigations and new final anti-dumping measures’ WTO official website http://www.wto.org/english/

[3] ‘WTO Secretariat reports new anti-dumping investigations continue to decline, while new final measures show increase’ WTO official website http://www.wto.org/english/

[4] 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), page19.

Also sees in: Van Bael and Bellis, Anti-dumping and other trade protection laws of the EC, Kluwer Law International, The Hague (2004),page 14.

[5]‘WTO Understanding the WTO - Anti-dumping, subsidies, safeguards contingencies, etc’WTO official website. http://www.wto.org/english/

[6] WTO Understanding the WTO - Anti-dumping, subsidies, safeguards contingencies, etc’WTO official website. http://www.wto.org/english/

[7] Trebilcock, and Howse, ‘The Regulation of International Trade’, Chapter 8, 235.

[8] WTO Understanding the WTO - Anti-dumping, subsidies, safeguards contingencies, etc’WTO official website. http://www.wto.org/english/

[9] Trebilcock, and Howse, ‘The Regulation of International Trade’, Chapter 8, 235

 

 

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

    Although the investigation of dumping is based on the related company’s legal activity, it still has a close relationship with the export country’ economical system. In his book, Adam Smith pointed out that the political regimes can be classified by the invisible hand mechanism and countries without such a mechanism. This theory influences the decision of dumping margin in EC anti-dumping practice.[1] Based on Adam Smith’s theory, the European Commission classifies counties into four types when decide anti-dumping duties. [2] Each type of the countries has their own anti-dumping duty, and this anti-dumping duty will have an effect on dumping margin of the export country’s company. These four types are full market economy status (ME), non-market economy status (NME), individual treatment status (IT) and market economy treatment status (MET). The full market economy countries take the least anti-dumping duty, and the non-market economy countries take the heaviest duty. The distinct treating difference is based on Article 9(5) of the basic anti-dumping Regulation. This Article states that: “the Regulation imposing the duty shall specify the duty for each supplier or, if that is impracticable, and in general where 2§7a (concerning non-market economy countries) applies, the supplying country concerned”. In practice, the decisive factor on different consequences of being treated as ME or NME is: under Article 9(5), those ME countries, such as the developed countries in EU, automatically enjoy the market economy treatment-‘one country several duties”. That means export companies from such kind of countries enjoy the anti-dumping duty calculated on their specific basis They do not need to take the disadvantages of the effect from other companies or the analogue country principle. Oppositely, the NME countries need to take all the disadvantages from both above sides. Therein, the analogue country principle brings the most serious disadvantage. This relevant issue will be discussed later in this essay.

   Unfortunately, China is still not a full market economy country yet. As a result, the estimation of dumping margin for China only has three options: Market Economy Treatment, Non-market Economy Treatment and the Individual Treatment.

The Market Economy Treatment and China

    According to the amendment of the EC Basic Anti-dumping Regulation, since 1998, China is not automatically considered as having a non-market economy status by the EC.[3] In this case, when the export country (except the ME status) is not automatically considered as a non-market economy country, the export company can apply for the Market Economy Treatment (MET). The MET duty means “one country-several duties”. As mentioned above, the advantages of “one country-several duties” are obvious. After being granted MET, the similar country principle will not be involved in the anti-dumping proceeding, and the companies can always enjoy a lower dumping margin.[4]

   Nevertheless, from case to case, some Chinese companies still have to take the non-market economy status’s anti-dumping duty. According to a recent study, during 2000 to 2005, only 36% of the applications for MET were success.[5]

   Article 2(7)(c) of the Anti-dumping Regulation gives details on these conditions. It reads:

“A claim under subparagraph (b) must be made in writing and contain sufficient evidence that the producer operates under market economy conditions, that is if:

-- decisions of firms regarding prices, costs and inputs, including for instance raw materials, cost of technology and labour, output, sales and investment, are made in response to market signals reflecting supply and demand, and without significant State interference in the regard, and costs of major inputs substantially reflect market values,

-- firms have one clear set of basic accounting records which are independently audited in line with international accounting standards and are applied for all purposes,

-- the production costs and financial situation of firms are not subject to significant distortions carried over from the former non-market economy system, in particular in relation to depreciation of assets, other write-offs, barter trade and payment via compensation of debts,

-- the firms concerned are subject to bankruptcy and property laws which guarantee legal certainty and stability for the operation of firms, and

-- exchange rate conversions are carried out at the market rate.”-too long ,pick up and explain or analyse

     To fulfil these five conditions is the core to be granted the MET. These five conditions are clear and sound reasonable. However, these standards may lead to unfairness to the export companies.

     1. The first condition is about the degree of the government’s influence on the company. This criterion requires the whole producing process (including the final pricing) to be independent from the significant state interference and obey the market’s rule. It is obvious that, this condition proposes to block the government’s influence from markets. The intention of this condition is to protect the market’s forces and keep these working orderly. On one hand, it is very fair. This condition is a proof that EC does not only decide the export company’s anti-dumping duty by its nationality, but also considers about the export company’s own situation. It reduces the political impacts to the Common Market. On the other hand, this criterion implies a principle of EC on protecting the market by keeping it away from the government’s impact. However, this may raise some disputes about the fameless of this criterion. In the EC, there are a large number of companies that are wholly or partially state owned. However for such company located in the EC, “neither in state interference assumed, nor do claimants need to prove the absence thereof.”[6]  “Companies in the EC enjoy a presumption innocentiae which does not exist for Chinese companies that claim MET. On the contrary, Chinese exporters have to disprove the presumed interference by the state, the failure of which will lead them to be considered as influence by the state.”[7] Due to this reason, the first criterion for granting market economy treatment is not fair and reasonable enough to Chinese companies. It is hard to say the capital and power from full market economy countries’ government are not harmful to the normal economy market. On the contrary, compared to those developing non-full market economy countries such as China and Vietnam, some developed full market economy countries’ government have even stronger power and make more powerful political impact on the market. Because some state owned companies from developed countries are far more powerful than those counterparts from developing countries, they are able to make much bigger damage to the market. But they can still enjoy the benefits freely from their status. Regarding to this, this criterion does not give the same opportunity to companies from full market economy countries and companies from those un-full market economy countries, even it is supposed to give. 

     2. Another problem comes with the second criterion of these conditions. It asks for the applying company’s accounting record “independently audited in line with international accounting standards”. It is reasonable to build up a standard in accounting system. The problem is on the estimation of what kind of accounting standards should be considered as “acceptable”. In practice, only the ‘international accounting standards’ are accepted by the EC.[8] This strict rule is like a fence, blocking a lot of firms away from Market economy treatment. In fact, this second MET criterion is always the “trump card” by the Commission if it really wants to reject MET. “Full compliance with the Chinese GAAP (Generally Accepted Accounting Principal) tends to imply non-compliance with certain IAS-criteria.” [9]Even the EC realises that after recent years’ development, there already no substantial gap between the Chinese GAAP and the IAS,[10]  however, due to the strict provision of the second criterion, and a lot of Chinese company are refused to grant MET. Furthermore, “the question of whether accounts are audited in line with or are in full compliance with IAS is a completely different standard of appraisal.”[11]

     3. When companies from the non-market economy countries apply for the market economy treatment, the EC is not only considering about the existing situation of the export company, but also will take this firm’s original character into account.  This issue is clearly mentioned as the influence of the “former non-market economy system” in the third criterion. In the Commission’s consideration, as former state-owned companies, they may have got various kinds of benefits from the state. These benefits may include the rent of the land, the operation licence, etc. Even some of those companies are already not state-owned companies or still controlled by the state, they are still getting advantages from their original status. And those benefits will continue to affect the company’s current operation. Consequently, this kind of firms should be considered as not independent from the state. While efforts “seem to have been put in place to standardise these yardsticks, the non-publication of the existing and most up-to-date benchmarks that are in place is regrettable”.[12]

     Therefore, the Commission’s concern is understandable. Nevertheless, in China’s case, this criterion is not an appropriate reason to reject granting MET to Chinese export companies. According to this reject reason from EC, if China is still really recognised by the EC as a former non-market economy, then in practice there should not be necessary to assess whether a company complies with the MET criteria.[13]

     Since 1998, China has been no longer regarded as a non-market economy country automatically. Chinese companies can be investigated to grant MET. Such a  change of EC’s attitude towards China is resulted from the respect of China’s market economy improvement.[14] However, the rejection on granting MET to former state-owned companies just because of their former status is unfair and can be recognised as a rejection on the improvement of Chinese market economy. Apparently, these two issues are incompatible. Indeed, the above term is “recognised to be a contradiction in terminus and could have been the result of careless drafting”[15].

    Needless to say, broad administrative discretion is involved into the estimation of whether the export company fulfils to each of the conditions, especially those criterions above.[16] Furthermore, the limit of the proceeding time makes the applying of MET more difficult. Since the burden of proof is on the company, and because the deadline to return the MET claim form is short (varying between 15 to 21 days), the strict standard can sometimes not be met, simply due to logistical problems and time constraints.[17] Apparently, the time limit rule is also questionable, and so is the inappropriate element.

    The lack of a special tribunal makes it harder to appeal of the determination. There is a great leap between the regulation on the paper and it in practice. According to the regulation, the appeal is allowed. However in practice, only a small number of the appeal cases will be proved. There are two reasons causing the recent problem in practice. First, in the case of Shanghai Teraoka v Council case, case T-35/01, judgment of October 28, 2004, almost four years was spent for the Court of First Instance for rejecting the appeal of the rejection of the Market Economy Treatment application. This is not an individual case. Normally, “while a Court challenge after imposition of definitive anti-dumping measure is possible, it could take over three years for the Court of First Instance to make a decision and by the time of further appeal, the anti-dumping measures may even have expired.”[18] The long term appeal proceeding will delay the export of the applying product. Even the company can be granted MET after appeal; the cost will be increased because of the long time waiting. And in some cases, export companies are so frighten about the long time waiting that they choose to give up appeal. Then they lost the MET they should be able to get through the appeal proceeding. The second reason is more direct and simple. Although the first decision comes from EC and the appeal decision comes from CFI, some scholars point out that in practice “the persons in charge of the appeal are normally the same as those that took the decision to reject the request for MET in the first place.”[19]This makes it harder to appeal. These two problems in assessment of granting MET lead to the low appeal success rate in practice.      

    4. There is a case worthily to be mentioned. There are two issues in this following case. First, the Market Economy Treatment is revocable. If the element which supported the Commission grant Market Economy Treatment changed, the MET will be revoked. Secondly, the Art.2(7)’s requirements are not only on the company’s current situation, but also a request on the future of the company.

    In the Nanjing Metalink International Co Ltd v Council of the European Union (T-138/02) case, the Council has granted the Market Economy Treatment to Nanjing Metalink International Company in Council Regulation 215/2002. However, the ‘CFI has dismissed an action for annulment of Regulation 215/2002 imposing an anti-dumping duty on imports of ferro molybdenum (FeMo) produced by the applicant in China.’ [20] The reason for this action of CFI is clearly: the essential fundament support for granting the Market Economy Treatment to Nanjing Metalink International Company is lost. The CFI stated that “the method of determining normal value differed depending on whether or not the producers concerned could establish that they had satisfied the criteria set out in Art.2(7)(c) of the basic Regulation and that, therefore, market economy conditions prevailed in respect of them. The last sentence of Art.2(7)(c) was to be interpreted as meaning that it precluded the institutions from re-evaluating evidence that was available to them at the time of the initial determination as to market economy treatment.”[21] In a word, after the Nanjing Metalink International Company joined the in a grouping of Chinese FeMo producers, it no longer fulfilled the criterion on granting the Market Economy Treatment.

     This case is a warning to the firms who has been already granted MET. In his article, Farr argued that the advisor should always remember the requirement on continuing enjoyment of the ‘independence’. Its absence is “because it is too apparent in each case.” [22] Just like his argument, the requirement on the lasting of ‘independence’ can effect on whether the Market Economy Treatment can be granted. Those who want to keep on enjoying MET must be very careful about the absorbed capital. Because over absorbing stated-owned capital may lead to the revocation of MET.  



[1] 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

[2] 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

[3] Council Regulation 905/98: [1998] O.J. L128/18 (amendment)

[4] 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), page21.

[5] Detiof and Fridh, “The EU treatment of nonmarket economy countries in anti-dumping proceeding” [2006] Kommerskollegium (Swedish National Board of Trade) 24.

[6] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126.

[7] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[8] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[9] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[10] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[11] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[12] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[13] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[14] Council Regulation 905/98: [1998] O.J. L128/18( amendment).

[15] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[16] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page124

[17] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page124

[18] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[19] Vermulst and Graafsma, ‘Recent EC Anti-dumping Practice Towards China and Vietnam: The Great Leap Backward’, International Trade Law & Regulation, 2006, 12(5), page126

[20] Case comment: Withdrawal of Market Economy Treatment was correct. EU Focus 2006, 199,page 4.

[21] Case comment: Withdrawal of Market Economy Treatment was correct. EU Focus 2006, 199,page 4

[22] Farr, ‘Individual Treatment For Exporters In Anti-dumping Cases: The China Syndrome’, International Trade Law & Regulation, 1997, 3(3), page106-107.

[10] WTO Understanding the WTO - Anti-dumping, subsidies, safeguards contingencies, etc’WTO official website. http://www.wto.org/english/

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