Back to Asia Rankings

CHINA (PRC FIRMS): An Introduction to China

1. Introduction 

World trade statistics show that in recent years China has become a frequent target of trade remedy investigations, initiated not only by major economies such as the USA and the EU, but by numerous developing countries in Southern and Western Asia, Latin America and Northern Africa as well.

Such a rocketing number of trade remedy investigations against China has been mainly triggered by three factors: (1) unilateral trade measures imposed by foreign governments, such as the US, against a wide range of Chinese export products, which have abruptly distorted the established pattern of trade, leading to a trade imbalance; (2) trade rules that are inconsistent with the WTO laws by some countries or regions, notably the US, the EU, India, Turkey, Brazil, Canada, and to some extent Australia; (3) China’s increasing position in international trade competition.

2. Trade remedy investigations 

2.1 Anti-dumping investigations 

Anti-dumping investigation is the most frequently used instrument to deal with Chinese exporters. There are nearly 700 anti-dumping investigations initiated against imports from China over the past 10 years.

Unfair rules concerning determination of normal value 

As is known to many, determination of dumping is a comparison between an exporter’s normal value (domestic selling prices and/or costs) and its export prices, according to WTO rules governing the domestic laws of all the WTO members. However, some countries or regions such as the US, the EU, Canada, India, Turkey and Brazil are using different methodologies and procedures to determine dumping margins for Chinese exporters, on the grounds that they deem China to be a so-called “non-market economy”.

This implies that a Chinese exporter’s normal value will not be used to compare with its export prices – instead, a surrogate value from a market economy third country will be used. Consequently, an investigating authority could easily find “dumping” of Chinese exporters. For instance, it is common to see dumping margins concluded by the Department of Commerce of the US in real cases can be as high as over 200%. Economically speaking, this is inconceivable as the exporters concerned would have gone completely bankrupt, had the dumping margins been so insanely high.

The issue of transparency and the right to a fair hearing 

There is an issue of transparency in many anti-dumping investigations, especially cases initiated by developing countries. In some cases no concrete and detailed disclosure of the normal value calculation is provided; individual companies cannot receive the calculation of dumping margins until the final disclosure stage. In other cases some investigating authorities simply brush aside the defence comments made by Chinese exporters and provide no reasoned explanation of how dumping margins are calculated, and what methodologies are used to determine the normal value.

Furthermore, there are occasions when the rules of “best information available” are abused. Some investigating authorities often request bulky documents from respondents within a very tight deadline, among which some information actually bear no direct relevance to the issue in hand and have no value to the findings. Such requests are imposed unnecessarily and add burden of proof to Chinese exporters, resulting in data and evidence provided by the Chinese exporters being inadmissible and they are unable to fulfil their obligations.

2.2 Anti-subsidy investigations 

Given many countries across the globe are subsidising certain industries, the WTO subsidy agreement prescribes specific conditions and obligations on WTO members before taking measures in this regard. That being said, in reality, investigations concerning subsidy against China are still popularly used by the US and the EU. To determine whether subsidy can be countervailed, both the US and the EU rely on China’s economic system, legal structure, and administrative setup to determine whether subsidy falls within the definition of the law and whether subsidy is considered “specificity”, either in law or in fact. Besides, external benchmarks for calculating subsidy margins concerning Chinese exporters have been randomly applied without properly respecting the WTO rules and are therefore controversial.

2.3 Safeguard investigations 

Safeguard investigation is another instrument that has been used by most of the developing countries. To a clear degree, safeguard investigation is also abused because rules, procedures, and evidence, on which findings are based, do not entirely comply with the WTO laws. The reason why safeguard investigations are popular is that they are administratively less complex from investigating authorities' point of view, as there is no great deal of data and evidence to be provided, examined and calculated, and hence procedures are short and measures can be imposed quickly.

3. Impacts on the Chinese exporters 

Given the abovementioned unfair rules applied to the Chinese exporters, coupled with opaque procedural rules, it goes without saying that Chinese exporters are treated differently by some markets, if not discriminatorily, in trade remedy investigations. They stand slim chance of successful defence in face of prejudicial rules; they do not have legitimate expectation and legal certainty during the course of such investigations.

Many Chinese exporters are as a result expelled from their traditional export markets following trade remedy investigations on them; they never know whether their action truly constituted “dumping”; they never know how their dumping margins are calculated; they never know whether subsidy conferred can be countervailed under the WTO law. In short, Chinese exporters are facing protectionism rather than fair rules.

With the US having disrupted the function of the Appellate Body of the WTO dispute settlement and started to apply unilateral protective measures, globalisation is in peril. We do not see this situation can be rectified and improved in the foreseeable future. This de facto “no multilateral rules-based trading system” could last for a while, and the US may call for overhauling the existing world trade rules with an aim to eliminate competition. Thus, the challenge that Chinese exporters are encountering may go far beyond trade remedy investigations; new trade laws could possibly bring additional difficulties.  

4. Sticking to multilateral rules-based trading system

4.1 Removal of discord by negotiations 

It is generally recognised that international trade rules can never remain unchanged, as the pattern of international trade, supply and demand, and economic development of countries would bring out changes on the established rules, which reflect trade and global economic dynamics at the time when negotiations took place.

In collaboration with other countries, China should continue its support for globalisation, and actively participate in the establishment of new rules through negotiations. China should also set up a consultation mechanism with each of those countries that are using trade remedy investigations concerning Chinese exporters, in order to exchange views, achieve mutual understanding of their concerns and improve bilateral and multilateral rules.

4.2 Efforts to cooperate with investigations

Despite certain unfair or unreasonable practices in trade remedy investigations, it is still necessary for respondents to fully cooperate in the investigations. After all, trade remedy investigation is carried out within a legal context, so procedures, obligations and substances must be observed in accordance with the laws. Full cooperation will pave a good ground for consultation concerning problems spotted during investigation.

5. Conclusion 

Quite evidently trade remedy investigations concerning exports from China have been on the rise and the trend is very likely to continue for some time. As we stated above, some domestic rules enacted by quite a few WTO members and tailored to deal with Chinese exporters are not necessarily compatible with the existing WTO rules and ought to be dealt with, otherwise trade remedy instruments are still at risk of being abused, which eventually undermines the hard-earned multilateral rules-based trading system and has potentially negative impact on all trade members in the long run.