CHINA: An Introduction to International Trade/WTO: Respondent (PRC Firms)
Due to the complexity and uncertainty of the current international situation, the total number of trade remedy investigations worldwide is drastically decreasing compared to 2021. However, China is still the main targeted country of global anti-dumping/countervailing duties (AD/CVD) investigations. As such, this article will discuss the status quo of the AD/CVD legal practice area in China, and analyse the future trend of this legal profession.
Current Economic and Political Conditions Affecting the Legal Profession
Russia–Ukraine war
The war in Ukraine is arguably the most important geopolitical event of the past year, with the effect on trade worldwide already clear. It exposes once more the risks associated with the interconnected nature of global trade. The heavy reliance on foreign producers is likely to cause the disruption of production when source countries experience a negative shock, such as a war that leads to economic sanctions. Based on this, governments are increasingly focusing on supply chain stability, and are trying to take various measures to improve the level of supply chain diversification and localisation. At the same time, governments are reforming industrial policies, including investments in research and development and tax subsidies, to protect their strategic industries from foreign competition. In other words, the Russia-Ukraine war is accelerating the anti-globalisation movement and the potential risk of unilateralism around the world.
The de-globalisation trend may lead to the shrinking of trade frictions between countries. As a result, foreign authorities are likely to be unwilling to initiate considerable numbers of new AD/CVD investigations, but will be able to put more effort into single cases to protect domestic industries and companies from foreign competition.
The COVID-19 Crisis
The COVID-19 pandemic is another crucial factor affecting the current status quo of the AD/CVD practice area in China. According to statistics from the WTO official website, there were 46 AD investigations in China in 2021, and seven CVD investigations; in the first half of 2022, those numbers decreased to 15 and three, respectively. The pandemic crisis led to less international trade occurring between countries, making it less efficient for authorities to carry out such investigations.
In China, the “Zero-Covid” Policy implemented during the year is undoubtably making the work of trade remedy lawyers difficult, since the travel restrictions severely affect the efficiency of communication with clients and colleagues.
Activity, Trends and Developments in the AD/CVD Practice Area
As discussed above, the trend of de-globalisation is inevitable to some extent. From 2019, the Appellate Body of the World Trade Organization (WTO) fell into a position of being unable to hear new appeals. Members of the WTO have also long shared a deep concern that the WTO is incapable of adequately addressing unfair trading practice and protectionism, so they turn to rely on the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to solve those trade friction issues.
As the most credible dispute settlement mechanism, the failing of the WTO is highly likely to lead to decreasing numbers of AD/CVD cases worldwide, with smaller amounts involved in each case. According to statistics from WTO's official website, the total number of AD/CVD investigations as of 30 June 2022 was 18, representing just one third of those in 2021. As the main targeted country, China also faced fewer AD/CVD charges compared to a few years ago.
However, another possible reason for this is increased awareness of a rule of law concerning Chinese enterprises. In recent years, an increasing number of Chinese enterprises have invested more resources into promoting the development of their legal and compliance departments, to avoid potential legal risk. In addition, MOFCOM has adopted a series of measures, including arranging public training for local enterprise to avoid AD/CVD risks and building a public platform to share information.
New Legislation
The US is currently still the main country initiating AD/CVD petitions against China. Therefore, one of the priority tasks for Chinese trade remedy lawyers is to consider the new legislation passed by US congress. Two critical new legislation implementations in the US are of particular note here. First, the Uyghur Forced Labor Prevention Act was signed into law by President Biden in 2021, with the purpose of strengthening the enforcement of Section 307 of the 1930 Tariff Act. Under UFLPA and Section 307, Chinese products could be completely excluded from the US market by virtue of the withhold release orders, and there is no termination date for the order unless the US Customs and Border Protection revokes it.
Second, the Eliminating Global Market Distortions to Protect American Jobs Act was proposed on 15 April 2021. The main purpose of this bill is to provide enhanced tools to deal with several alleged issues that have been linked to unfair trade practices from China. To be more specific, the bill is to prevent companies from evading tariffs by rerouting their products through another country.
This bill would influence Chinese exporters in the following aspects:
- it is a challenge for Chinese enterprise to respond to AD/CVD claims by redirecting investment and producing substitutes;
- foreign companies would be less willing to use Chinese raw materials as this may be considered as a cross-border subsidy – ie, where a foreign government subsidises its own manufacturers in third-country markets;
- as the bill states, non-resident importers need to meet the assets requirement in the US, which would affect the ability of Chinese businesses to export to the US market; and
- the calculation of the dumping and the cost of production is modified.
Potential Hurdles or Difficulties
Doing business in a foreign country is always challenging, and has been further complicated by the COVID-19 pandemic in recent years. Thus, the application of the AD/CVD trade remedy rules is always a major . To overcome such hurdles, Chinese companies should further invest in their legal and compliance departments, to avoid the risk of AD/CVD investigation by understanding the relevant laws. On the other hand, companies should respond to investigation by following professional legal advice once it is alleged as AD/CVD.
Anti-circumvention is another hurdle faced by Chinese clients once they are involved in AD/CVD investigations. This can be overcome by comprehensive research covering the nature of business affiliation; the Trade and Supply Chain Scheme; the size and nature of investment in third countries; and the third country value added ratio.