CHINA: An Introduction to International Trade/WTO: Respondent (PRC Firms)

Anti-dumping and Countervailing Duties in China 

The global economy and international trade was trapped in the COVID-19 pandemic, Russia–Ukraine war, and the high level of inflation throughout the year 2022. The ultimate withdrawal of COVID-19 lockdown measures in China at the beginning of 2023 had ignited the hope of recovery of international trade, which, unfortunately, was subsequently dashed when the World Trade Organization (WTO) lowered the expectation of international merchandise trade volume growth by half. The standstill of international trade, however, did not impede the willingness of initiating anti-dumping and countervailing duties investigations, as the latter seemed to rebound compared to 2022. This article aims to discuss the status quo of the anti-dumping and countervailing duties combined area.

Current economic conditions with material effect on international trade

The continuing challenges faced by China on trade 

As of 2023, China remained as the primary target of trade restrictions and remedies. On the one hand, China’s high-tech enterprises had been confronting the implementation of the “small yard, high fence” doctrine with restriction of exports for almost every merchandise with any potential of facilitating effect on China’s technological research and development. On the other hand, the anti-dumping and countervailing duties investigations against China still accounted for a large proportion of the total sums. As the efforts of trade protectionism and fragmentation stay strong, it is unsurprising that China will confront a substantial amount of trade conflicts in 2024.

The diversity of the western world and China regarding inflation

The global inflation was principally triggered by the Russia–Ukraine war. The tight monetary policies executed by the US and EU have still not eliminated its impact completely on the domestic prices of the relevant countries so far. Given the fact of the simultaneous outburst of the Israel–Hamas war while the Russia–Ukraine war is still ongoing, it is difficult to predict whether the geopolitical crises will expand or be mitigated, and to what extent the current inflation can be recovered.

However, when the western world is troubled with inflation, the status quo of the Chinese economy is inconsistent with the former with an inferior level of consumer price. Such remarkable diversity of the western world and China regarding inflation may have disadvantageous potential on Chinese exporters as to the response of anti-dumping and countervailing duties investigation, which will be discussed later.

The level of activity, trends, and developments in international trade

According to the statistics of the WTO, the trend of development of international trade volume and the level of trade remedy shows paradoxical outcomes. On the one hand, the WTO had lowered the expectation of global merchandise trade volume growth from 1.7% to 0.8%. On the other hand, initiations of anti-dumping and countervailing duties investigations in the first half of this year had already been approaching the total sums in the whole 2022. Specifically, according to the WTO, the number of new initiations of anti-dumping investigations by 30 June 2023 was 76, whereas the total sum last year was 89; the number of new initiations of countervailing duty investigations was ten, whereas the total sum last year was 19. Given the facts detailed, it is predictable that the total sums of the initiations of anti-dumping and countervailing duties investigations will go beyond those of last year. It appears that while the international trade in goods becomes stagnant, trade protectionism has been demonstrating its dominance with the renaissance of trade remedy investigations.

Proposed legislation that will have an effect on clients

As the global political and economic leader, the legislation tendency in the US would be a worthwhile starting point of observing the trend of legislation. On 9 May 2023, the US Department of Commerce issued a proposed amendment of regulations to enhance, improve and strengthen its enforcement of trade remedies through the administration of anti-dumping duty and countervailing duty laws. Amongst the proposals, two of them deserve special attention from the perspective of Chinese exporters as expanding the scope of investigation.

Firstly, the Department of Commerce stated that it is planning to target the inactions by foreign government as to the implementation and enforcement of regulations on property (including intellectual property), human rights, labour, and environmental protection. According to the Department of Commerce, such inaction by the foreign government would lower the cost of production for enterprises in the foreign jurisdictions, as the costs of compliance that ought to be paid are not actually paid by the latter, making the relevant prices and costs unreliable. Therefore, the Department of Commerce is apt to modify the anti-dumping and countervailing duty rules by, inter alia, excluding the prices of foreign enterprises from consideration of benchmark and/or surrogate value if such prices were demonstrated as being distorted by the inaction on the aforementioned less economic-based factors.

Secondly, the Department of Commerce, in the proposed amendment, tended to withdraw its traditional position excluding transnational subsidies from the countervailing duty investigation. According to the Department of Commerce, the current self-restriction on investigating transnational subsidies is not mandatorily required by any upper legislation, but solely because of its “past administrative experience” that transnational subsidies are abnormal. As the Department of Commerce recognised that the provision of subsidies by foreign governments benefiting overseas production has become more prevalent than before, it considers that it is time to abolish the self-restraint on investigating transnational subsidies.

Potential hurdles or difficulties faced by clients

As discussed above, the potential hurdles faced by the producers and exporters in China include the expansion of the scope of anti-dumping and countervailing duties investigations, and the diversities of the economies of China and the western world on inflation. Needless to say, the expansion of the scope of anti-dumping and countervailing duties investigations, if brought into force, would increase the likelihood of anti-dumping and countervailing duties investigations on Chinese enterprises. In particular, the inclusion of the non-economic factors such as intellectual property, human rights and environmental protection would exert more pressure in terms of trade remedy investigations on developing countries whose legal systems await further improvement. The recall of transnational subsidies into the scope of investigation will unquestionably hinder the efforts of small and micro enterprises from participating in globalisation.

The diversities of the economies of China and the western world on inflation are detrimental to Chinese producers and exporters from the perspective of trade remedy investigations in a less perceivable but more general way. Due to the diversities of the level of inflation, the domestic prices of merchandise in the inflating countries would be pushed up, resulting in an enlarged gap of the prices of the domestic and imported products in the countries under inflation. On the one hand, such enlargement of the gap would make the domestic manufacturers of the countries under inflation more proactive in petitioning anti-dumping and countervailing duties investigations to offset their potential loss of sales. On the other hand, when the normal value of investigation on China was determined by surrogation rather than Chinese domestic price, the enlarged gap between the Chinese export price and the surrogated value under inflation would disproportionately increase the dumping margin, resulting in an even worse outcome for Chinese enterprises.

As the extension of the scope of investigation and the divergence of inflation are both macroscopic and generalised, it is difficult for manufacturers and exporters to overcome such hurdles individually. What they can do is to further improve their internal financial and compliance systems to prepare for trade remedy investigations which could be initiated at any time.