Dec 14, 2002 - On November 10, 2001, China was accepted as a full WTO member. ... of antidumping use and the absence of automatic counter-forces should induce China to take ... antidumping regulations and its first terminated cases (before ..... fact that the level of competition prevailing in the importing markets is ...
China in the WTO: Antidumping and Safeguards
by
Patrick A. Messerlin 1 /
December 14, 2002
1
/I would like to thank Will Martin and Edwin Vermulst for very useful comments on earlier drafts of this paper.
China in the WTO: Antidumping and Safeguards On November 10, 2001, China was accepted as a full WTO member. A few weeks earlier, China’s chief negotiator Long Yongtu had put “stricter rules on antidumping” second in rank among China priorities in the WTO. At that time, the United States was still fighting for excluding antidumping from the topics to be discussed at the WTO Doha Ministerial, whereas the European Community (EC) was adopting an ambiguous position. The antagonistic positions of China on one side, and of the United States (and most probably of the EC and half a dozen developing countries, as shown below) on the other side, on the antidumping issue will be a crucial aspect of the forthcoming negotiations of the Doha Round. In the early stages of the negotiations under the Doha Development Agenda, China finds itself in an unique situation. It is by far the main target of existing antidumping measures whereas, so far, it is one of the smallest users of such measures. One may argue that China’s special situation may fade quickly. China has begun to implement its own antidumping regulations, and the past decade has shown how quickly large developing countries willing to use antidumping can become intensive users of this instrument. However, two strong reasons may induce China not to follow the example of these developing countries. First, the use of antidumping by a few large developing countries has been severely detrimental to their liberalization policy, leading to the worst possible scenario: launching trade liberalization has generated all the associated political costs in the short term, but unraveling it by subsequent antidumping protection has eroded or inhibited the economic gains to be expected from such liberalization in the long term (see section 1). Second, the WTO accession protocol of China includes special provisions on antidumping and safeguard allowing China trading partners to use against Chinese exports, with almost no restraint, the “non-market economy” (NME) status in their antidumping investigations and the so-called “transitional product-specific safeguard” (TPS) provision. This is the first time that these two provisions which are scheduled to last 15 and 12 years, respectively, have been imposed on a WTO member. 1 / 1
/In Spring 2002, the EC and the U.S. declared that they will consider Russia as a market economy for purposes of
The paper argues that these two reasons will strongly induce China to keep the goal of “stricter rules on antidumping” stated by Long Yongtu– that is, to restrain its own antidumping use, and concomitantly to get, during the Doha Round, stricter disciplines on the use of the NTM and TPS specific provisions as well as on WTO general contingent protection instruments. The paper is organized as follows. Section 1 describes the current situation. Antidumping is used massively by only ten countries (four industrial and six developing), but the costs of antidumping measures on the users’ domestic economy are much larger for developing countries than for industrial countries. Section 2 underlines the strong asymmetry, best illustrated by China, between countries enforcing antidumping and those targeted by antidumping measures. This asymmetry reflects the absence of automatic counterbalances which would automatically limit the spread of antidumping as a protectionist instrument for large economies. The high costs of antidumping use and the absence of automatic counter- forces should induce China to take appropriate initiatives, both domestically and in the WTO forum. Section 3 analyzes China antidumping regulations and its first terminated cases (before summer 2001). It raises concerns about China’s possible drift towards a more intensive use of antidumping. Lastly, section 4 examines the opportunities that the Doha Round offers to China for negotiating stricter disciplines both on WTO contingent protection, and on the use of the NME and TPS provisions by China’s trading partners. Section 1. The current situation During the November 2001 Doha WTO Ministerial, antidumping was perceived as an issue opposing developing countries anxious to discipline the use of this instrument to the United States which was (still is) very reluctant to change its own antidumping regulations. However, a close examination of the current situation from both the perspective of antidumping users and of the countries targeted by antidumping measures suggests a much more complex picture.
anti-dumping. However, the case for the introduction of a TPS provision in Russia’s accession protocol seems still open. It would be interesting to make a parallel between the conditions imposed on Japan’s accession to GATT, and those imposed on China in its accession to the WTO.
2
Measures in force versus initiations The choice of data based on measures in force rather than on case initiations as an indicator of antidumping activity should be explained, all the more because the WTO Secretariat feels more comfortable with data on case initiations than with those on measures in force. The problem with case initiations is that they are much harder to interpret than measures in force because they depend from detailed procedural provisions which vary substantially between countries. For instance, some WTO members initiate systematically all the cases lodged by complaining firms whereas others do screen the lodged cases before deciding to initiate them or not. Initiations do not allow to take into account the fact that duration of antidumping measures is not the same among the various WTO members. They ignore the incredibly complicated problem of case “reviews” (the fact that after expiration, a case may be subjected to review under faster legal procedures in order to renew or eliminate definitively the measures in force) etc. Recognizing all these shortcomings of case initiations induces to look at measures in force as the most appropriate indicator, despite its many limitations. 2 / Measures in force underestimate the impact of the antidumping instrument for several reasons. First, they are silent on the tactical games which often accompany official investigations. For instance, a case can be launched by domestic petitioners with no serious hope of getting measures, but with the mere desire to threaten their foreign competitors. Then, the withdrawal of the complaint during the official investigations may reflect private agreements between foreign and domestic competitors, with the blessing, or not, of the antidumping authorities. Second, the mere number of antidumping measures does not provide a good view of the magnitude of the trade concerned. Antidumping measures may be imposed on products defined on a narrow (for instance, at the 8-digit HS level) or wide base (for instance, at the 4digit HS products). There are systematic and wide differences between WTO member practices in this respect, with industrial countries tending to define products under antidumping investigations more narrowly than developing countries. Last but not least, measures in force are a poor indicator of what happens after their expiration. Does the domestic market subjected to 2
/Tables 1 to 3 treat measures taken against different individual EC member-states as one aggregated measure if adopted at the same time and for the same product. By contrast, Table 4 follows the notifications of EC trading partners which vary in their treatment of the EC (as one entity or as a set of distinct member-states). 3
several years of antidumping measures go back to its previous level of openness and competition? Or are foreign exporters so well “disciplined” by seven years (the average time length of antidumping measures in industrial countries) of high antidumping measures that they “behave well” (that is, they avoid being “too” competitive) once the measures have expired?
The users’ perspective, and its key lessons Table 1 recapitulates WTO members’ notifications of their antidumping measures in force (for the second semester of each year) from 1995 to 2001. It provides two main robust results. First, the ten top antidumping users enforce 90 percent of the antidumping measures notified in the WTO, whereas they represent 70 percent of the world GDP, and 50 percent of the world trade. Worldwide antidumping enforcement is thus highly concentrated in less than a dozen of countries. Second, the situation prevailing during the Uruguay Round–antidumping users were almost exclusively industrial countries–is no more true. Six “new” antidumping intensive users (all of them being developing countries: Argentina, Brazil, India, Mexico, South Africa, and Turkey) have almost caught up the four major “old” users (Australia, Canada, the EC and the United States). These new users implement 37 percent of the total number of antidumping measures in force in 2001, to compare to 24 percent in 1995–with a worrisome acceleration of the catching- up process during the observation period. Meanwhile, the share of measures of the four old users has declined from 70 to 53 percent during the period. A last worrisome sign is that the rest of the developing countries, while still small users individually, have almost doubled their global share of measures in force during the observation period (from 5 to 9 percent). The “spreading” of antidumping measures in force among the ten top users is also reflected by the very different growth rates of antidumping measures by country (these rates are much higher for developing countries than for industrial countries), and by the decline between 1995 and 2001 of the annual concentration coefficient (the Herfindhal-Hirschman index) calculated on the top ten users. Beyond the mere account of measures, Table 1 provides two key lessons. First, antidumping measures enforced by the six major developing country antidumping users impose 4
welfare costs on their own domestic respective economies which are likely to be much higher than the costs imposed on developing country domestic economies by the developing countryimposed antidumping measures for two reasons. First is the marked difference between the number of measures imposed by developing countries and industrial countries, once adjusted by trade size. The average number of measures in force per thousand of dollars of goods imported (in 1997) by an antidumping user is a better indicator of the potential harm done by antidumping on the domestic economy than the mere absolute number of measures. This indicator is much higher for developing countries than for industrial countries: it ranges from 0.5 (Brazil) to 1.8 (South Africa), whereas it ranges from 0.2 to 0.4 for industrial countries (with the exception of Australia). Differences would be much larger, would the number of antidumping measures be adjusted for taking into account the number of tariff lines concerned (since developing countries tend to define antidumping cases on many more tariff items than industrial countries). The second reason for relatively high welfare costs from antidumping in major developing country users is that, according to available information, antidumping duties enforced by developing countries are, on average, more severe than those imposed by industrial countries– economic analysis shows that welfare costs increase more rapidly than tariffs. However, this observation should be somewhat refined because antidumping measures adopted by industrial countries are sometimes already high enough to reach the level of a de facto trade ban. This situation raises the following question. Are developing countries major antidumping users only “softening” the impact of their ongoing trade liberalizations? In other words, do antidumping measures constitute a mere transitional “safety valve?” Or do they have other motives? Table 1 does not allow to answer this question in an exhaustive manner, but it gives enough information to raise serious doubts on the alleged “safety valve” relation between antidumping and liberalization. For the ten countries involved, it gives three indicators summarizing key aspects of trade policy–simplicity, irreversibility and openness–which have been calculated for ranking the trade policy of 39 countries (the higher the index of a country is, the more simple, or irreversible, or open, the trade policy of the country in question is) [Laird and Messerlin, 2002]. In Table 1, the six major developing country antidumping users clearly lag 5
behind the four old users on all these three key aspects of trade policy. They are also lagging behind the average of the 39 country sample, and even behind the averages of the 27 developing countries (7.1 for irreversibility, 6.6 for simplicity, and 7.4 for openness) pertaining to the sample. Rather than the existence of a safety valve relation between antidumping and liberalization, these convergent observations suggest the existence of a correlation between an intensive use of antidumping procedures and a flagging trade liberalization. 3 /
The targeted countries’ perspective Table 2 presents the stock of antidumping measures in force by targetted country for the same period 1995-2001. It shows a marked asymmetry between antidumping users and targets. The top ten users are the targets of only 29 percent of all the measures in force, that is, a third of their share as users, with a strong amplification of this gap in 2001. In sum, antidumping is currently an instrument enforced by a few countries against the rest of the world. This is a crucial observation. It means that there are currently few incentives coming from the rest of the world which would induce the existing antidumping- intensive users to restrain their use of antidumping actions. In turn, this conclusion raises a question: will this situation perpetuate itself, if no initiative is taken? At a first glance, it seems that countries currently witho ut antidumping regulations will be induced to introduce them in a retaliatory move. This argument is consistent with the increasing number of countries equipped with antidumping regulations: as of 2002, ** countries have antidumping regulations, compared to ** in 1995. However, Table 1 shows that many of those countries have not really used the antidumping regulations that they have adopted. For instance, only 29 WTO members have notified antidumping measures in force to the WTO Secretariat in 2001. Such a discrepancy may be explained by the fact that the domestic economy of these
3
/Indexes for Turkey in Table 1 capture imperfectly the convergence of the Turkish trade regime to the EC one (under the Turkey-EC customs union agreement) because Table 1 relies on information related to the late 1990s (the Turkey-EC customs union will be fully completed in the early 2000s). The fact that Turkey is the only country among the six major users to show a decline in its antidumping use is consistent with an inverse correlation between liberalization and antidumping use. 6
countries are still protected by other trade barriers. But it may also be explained by the fact that a retaliatory use of the antidumping instrument has some appeal only for countries having large markets. A small country imposing antidumping measures for protecting small markets has a limited deterrence power, compared to an antidumping user with large domestic markets–simply because the magnitude of the market access denial generated by the antidumping measures adopted by the small and large countries is very different. (Of course, small countries may have large markets for certain goods, but that does not change the general thrust of the argument.) That small countries have in ge neral no credible threat with respect to large countries fits the observation that so far, the effective and intensive use of antidumping has been limited to large economies–starting from large industrial countries (in the 1970s) and then spreading to large developing countries (in the 1990s). There is a last reason suggesting such a large inertia in the present situation. It is based on the well known proposition of economic theory which analyzes protection more as a conflict between domestic forces (namely export interests versus import-competing interests) than as a conflict between countries. In order to capture this aspect, it is useful to calculate the number of foreign antidumping measures in force imposed on exports from a top user adjusted by the size of the country’s exports (in thousands of US dollars). Such a trade-adjusted number of measures mirrors the intensity of the foreign pressures imposed on the export interests of a country–hence, it gives an indication of the incentives of these export interests to contribute to the opening of the markets of their country, including by fighting in favor of stricter disciplines of the antidumping use by their own government. These numbers can be usefully compared to the symmetrical numbers of antidumping measures in force by thousands of US dollars imported by the country in question (shown in Table 1) which can be interpreted as an indication of the strength of the incentives of these import-competing interests to induce their own government to use the antidumping instrument. Table 2 shows that for all the top ten antidumping users, but Brazil, the country’s interests hurt by foreign antidumping are smaller than those benefiting from domestic antidumping protection. This imbalance between export interests and import-competing antidumping beneficiaries in the top ten antidumping users suggests that it is unlikely that 7
domestic coalitions are strong enough to support antidumping reforms in the WTO in these users. At this stage, it is important to emphasize again that this conclusion on the existence of a strong inertia in the way antidumping is currently used does not take into account the economically sound welfare-based incentive (which should guide governments interested in their country’s welfare, and not captured by vested interests) that protection is harmful. Liberalization is good for the country’s own sake so that pro-liberalization reforms should mostly come from domestic forces–a crucial point for the top ten users, and for China.
China’s special situation Focusing on antidumping users (Table 1) suggests two key lessons for a large developing country, such as China, which has begun to implement its own antidumping regulations (for a detailed description, see section 3). First, large developing countries are more vulnerable to antidumping than industrial countries for two reasons: they impose more antidumping measures than industrial countries (once adjusted for trade size) and they tend to take more severe antidumping measures than industrial countries. Second, antidumping enforcement in the large developing countries does not seem to be driven by adjustment to trade liberalization. Antidumping use by six large developing countries is mostly a backdoor way to traditional protection under the form of a new trade policy instrument. Recognizing these points should induce China to restrain its own use of antidumping–if China wants to continue to enjoy its successful liberalization. Focusing on antidumping targeted countries (Table 2) shows that China has been the main target of all the antidumping measures enforced in the world–18 percent of the antidumping cases in 1995, 21 and 19 percent in 2000 and 2001, respectively. Table 3 refines this information by presenting the unadjusted number of antidumping measures imposed on Chinese exports by the ten top antidumping users, and this number once adjusted by the trade value between each trade partner and China (in other words, the average number of cases imposed by foreign antidumping users per hundred of thousand dollars of exports from China to these users). Both sets of numbers show that China is much more targeted by the developing countries than by the 8
industrial countries–especially when one looks at the figures adjusted for trade size. In fact, China is almost exclusively targeted by the top users, all of them being relatively large economies (a probable sign of China leverage vis-a-vis “small” trading partners). This situation should induce China to link its own restraint in antidumping enforcement to an effort to restrain the antidumping use against its exports, with a strong focus on its largest partners. One may argue that China exports hurt by foreign antidumping measures are a tiny share of China total exports–0.5 percent, according to official sources–suggesting that antidumping damages are negligible. However, such figures are hard to interpret (the same could be said for the shares of imports subjected to antidumping actions). Antidumping measures divert exports from their initial markets (subjected to antidumping actions) to other markets. 4 / Such trade diversion entails costs (from pure adjustment costs caused by necessary shifts to new markets to reduced exports because new markets are less keen to buy Chinese products than initial, but protected by antidumping, markets) which are difficult to estimate. Restraining foreign antidumping use against Chinese exports can be achieved by two alternative options: adopting a policy based on retaliation against foreign antidumping measures, or pushing hard for multilateral negotiations in the Doha Round, in order to improve the existing WTO-based antidumping regulations. Examining the pros and cons of these two options suggests that the retaliatory option is not profitable for China with respect to both developing and industrial countries. First, concerning the major developing country antidumping users, the retaliatory option could have some appeal for China only if China is a big export market for these developing countries. That is not yet the case. All these developing countries export mainly to their region, and to the United States or to the EC. In other words, the costs of reallocating their exports from China to other destinations are likely to be small–implying that the deterrence threat from China retaliatory use of antidumping on these six developing countries is limited (the same observation is valid for the large industrial countries). Second, the costs of a retaliatory use of antidumping against industrial countries by China 4
/In particular, evidence shows that antidumping measures are often taken at the early stage of imports from foreign countries, that is, when trade flows subjected to antidumping measures still represent limited quantities for the exporting countries. 9
will be large because it would require imposing antidumping measures on large Chinese imports (at least as large as the Chinese exports hurt by foreign antidumping measures) in order to hurt foreign exporters from industrial countries badly enough to make them advocate the elimination of the antidumping measures taken by their own country. As a result, the welfare costs for the Chinese economy will be probably large enough to exceed any potential gains from the retaliatory option. These arguments leave the WTO-based approach as the best option for China during the coming decade. This conclusion is reinforced by two considerations. First, the fact that the Chinese economy will be increasingly large by the world standard will make China threats of retaliation increasingly credible as time goes. But, by the same token, it means that multilateral disciplines on antidumping will become increasingly attractive to China trading partners–hence giving China a strong leverage in the Doha negotiations on restraints of antidumping use. Second, China is only one of the many countries which are antidumping targets and not antidumping users. Countries aggregated in the “All others” item of Tables 1 and 2 share the same fate than China (they initiate 12 percent of the world antidumping measures in force, whereas they are the target of 62 percent of these measures). This situation gives China a leading position in a broad and powerful coalition in the WTO which could rely on the many developing and the few industrial economies (Japan, Singapore, Hong-Kong, and Chinese Taipei) harmed by antidumping measures imposed by a few large users of antidumping. Section 2. Minimizing China’s exposure to foreign antidumping China’s best option–minimizing its own antidumping use, and investing its negotia ting strength in the WTO for getting less unfair antidumping rules and enforcement–will be a difficult exercise in the short run. In particular, the usual slowness of WTO negotiations (the Doha Round is likely to last five or more years) will make it hard for Chinese authorities to resist immediate pressures from import-competing firms based in China and that demand intensive use of China’s antidumping procedures. This difficulty raises the following question: could China adopt measures minimizing, as quickly as possible, its exposure to foreign antidumping– and hence alleviate the political costs of following a WTO-based approach? 10
As stated above, trade problems are fundamentally domestic conflicts between firms– between export-oriented and import-competing industries. By relying on country-based data, section 1 cannot cope with this more detailed aspect of protection. It can even be misleading. For instance, it can suggest that the strong asymmetry between antidumping users and targets observed in Tables 1 and 2 would progressively disappear because each WTO member would be induced to introduce antidumping regulations and to enforce them–with such a worsening of the situation ultimately inducing WTO members to adopt collectively stricter disciplines on antidumping. Arguments have already been presented suggesting that the top antidumping users will be unlikely to follow this path. Taking into account firms’ behavior suggests an even darker scenario as quite plausible. Firms which are the petitioners–hence the driving forces in antidumping enforcement–may well want to lodge similar antidumping complaints in several key countries in order to segment the world markets of their products through antidumping measures. (Evidence supporting this hypothesis is shown below.) In such a case, far to be an incentive to reduce antidumping activity, the worldwide spread of antidumping regulations and the increase of antidumping measures are seen as a “positive” development by the firms in question. Examining such deeper aspects of antidumping protection requires looking at the distribution of antidumping measures in force by product rather than by country. As such a task requires a very detailed information, it is limited to the EC and US antidumping cases against China. Befo rehand, a broader picture based on broad sectors (instead of specific products) is an introduction to a worldwide view of antidumping activity as an instrument of market segmentation.
A few “antidumping- intensive” sectors Table 4 provides the number and average shares of antidumping measures in force by section of the Harmonized Tariff System. It shows that antidumping measures are concentrated in a handful of HS sections. Antidumping measures in metals, chemicals, machinery and electrical equipment, textiles and clothing, plastics amount to 75 percent of the total number of measures. These few HS sections happen to be key sources of exports for dynamic developing countries in the first stages of their industrial development. Second, these HS sections are 11
characterized by a high proportion of relatively standard products and by oligopolistic market structures. The metals and chemicals sections fit clearly these features. The other HS sectors require a closer look at subsectors. There are few antidumping actions in the machinery and clothing subsectors characterized by many firms and highly differentiated products, and most of the antidumping actions are in the electrical equipment and textiles subsectors characterized by relatively standard products and by oligopolistic firms. (These features explain the wide use of antidumping in the textile subsector since the late 1980s, before any effective liberalization of the MultiFibre Agreement quotas.) Such a pattern strongly suggests that complaining firms use ant idumping as an additional–cheap and powerful–instrument for segmenting the markets that ongoing or scheduled trade liberalizations aim at making more competitive. It also suggests that the spread of antidumping cases to certain sectors, such as clothing, should be expected to the extent that these markets will be increasingly subjected to product differentiation and imperfect competition (based on trademarks, goodwill, distribution channels, etc.). In sum, the observed sectoral pattern of antidumping reflects the increasing “privatization” of trade policy by firms which enjoy enough initial oligopolistic power to fully use the “pro-collusive” bias that is embedded in antidumping regulations–a key lesson which should be kept in mind when implementing these regulations, in China as elsewhere. China’s sensitivity to “antidumping- intensive” sectors Does China tend to import products pertaining to antidumping- intensive HS sections (that is, to industries subjected to many antidumping measures in the world)? If that is the case, one should expect Chinese authorities to be under strong pressures for taking and enforcing antidumping measures on its imports of such goods–that is, for participating to the worldwide segmentation game in this sector which constitutes the ultimate goal of antidumping enforcement. Table 4 shows that the five most antidumping- intensive HS sections represent almost 70 percent of total Chinese imports, opening the possibility that Chinese firms or foreign firms producing in China could table antidumping complaints in order to segment world markets. Section 3 will look at these issues in more details. China’s sensitivity to antidumping-sensitive sectors could also be assessed from an 12
export perspective. Table 4 underlines how “sensitive” are Chinese exports to the worldwide antidumping activity, particularly in machinery-electrical equipment and in textiles-clothing. The above observations on the key role of economic characteristics (type of product, market structure) as the dominant factors driving world antidumping suggest China as a target of foreign antidumping measures much more because of the intrinsic economic features of its exported products (differentiation level and oligopolistic markets) than because it was not a WTO member. Chinese policies as the best ways to minimize China exposure to foreign antidumping A key corollary of this conclusion is that China should not expect to face less antidumping measures in the coming years because of its WTO accession. Rather, it should expect to continue to face a large number of antidumping cases. Of course, WTO membership gives China access to the WTO dispute settlement mechanism which could provide some relief to Chinese exporters harassed by foreign antidumping. But this relief will probably be only marginal and short- lived. For instance, the 2001 WTO dispute settlement ruling banning the averaging method is already in the process of being circumvented by alternative procedures (hastily developed by creative petitioners) which may hurt differently the defendants, but not necessarily less than the condemned averaging method. Moreover, the relief from the dispute settlement mechanism is even more limited for China than for the other WTO Members because of the specific provisions on contingent protection included in China accession protocol (see section 4). More promising for minimizing China exposure to foreign antidumping are Chinese policies–and first of all, China’s own trade policy. If China still imposes high tariffs in antidumping- intensive sectors at the end of its accession period, it may not adopt many or severe antidumping measures on imports from the rest of the world in these products (though section 1 shows that the top developing country antidumping users have not hesitated to add high antidumping measures on the top of unfinished trade liberalization). But, such a costly tariff policy for China will not ensure less foreign antidumping cases against Chinese exports. On the contrary, high Chinese tariffs will make easier the introduction of foreign antidumping measures against Chinese exports in antidumping- intensive sectors. This is because high Chinese tariffs will allow the existence of high prices in China, making in turn easier to prove the existence of 13
dumping by Chinese exporters, and to inflate the magnitude of the estimated antidumping margins–all the more because the Chinese exports in question consist mostly in basic products (for which Chinese exporters are likely to align their prices to those prevailing in foreign markets since there are no or small premia for differentiation). A first way to minimize exposure to foreign antidumping would thus be the adoption of a relatively uniform and moderate tariff policy in order to reduce as much as possible distortions in the domestic production pattern (foreign antidumping investigators generally interpret such distortions as sources of dumping). Table 4 provides the average applied tariffs by HS section that China imposed in 2001. Though averaging tariffs for such widely defined sectors gives a very imperfect information on the tariff structure (peak tariffs within each sector are eroded by low tariffs), it suggests that tariff peaks in China are concentrated in HS sections which are not antidumping- intensive activities, with the exception in textiles and clothing. Implementing an uniform tariff policy may help China to shift its export products away from antidumping- intensive sectors for another reason already observed in certain countries, such as Hong Kong, Japan, Korea, Singapore and Chinese Taipei. These five industrial countries have reduced their exposure to foreign antidumping measures by upgrading their exported products–to the point that one could argue that in fact, foreign antidumping measures may have accelerated the economic development of these industrial countries by inducing them to shift faster to anticipated comparative advantages in highly differentiated products. Hong Kong and Singapore are the archetypal cases (with their uniform applied tariffs being nil) of countries able to reduce the exposure to foreign antidumping to a considerable extent.
EC and US antidumping “echoing” against China exports Table 4 relies on sectors which are too broadly designed for capturing the key fact that antidumping protection is deeply embedded in the market/product strategies of a few large firms. In order to examine this aspect, one needs information at the product level. Table 5 provides such a detailed information for the EC and US antidumping actions against China. More precisely, Table 5 provides the list of the EC and US “echoing” cases, that is, the EC and US cases which have targeted between 1980 and 1999 the same products exported 14
by China. However, as the EC and the United States are the top antidumping users in terms of the absolute number of measures in force and as they represent the two largest markets for Chinese exports (15 and 21 percent, respectively), Table 5 provides two fairly general observations (all the more because most of the EC and US cases are concentrated in metals and chemicals, confirming the pattern of antidumping activity shown by Table 4). First is that the number of echoing cases is large: 58 cases, that is, 75 and 68 percent of the total number of antidumping cases initiated against Chinese exports by the US and EC, respectively. All these cases echo each other generally within a year or less, though of course they may afterwards follow different developments in the EC and in the US All these cases but three (cycles, hammers, and pocket lighters) are terminated by antidumping measures of some kind. Such a large proportion of echoing cases and the similarity of their outcomes constitute signs that antidumping is a protectionist instrument that petitioners are successfully using in a strategic way for segmenting the two largest world markets. This observation leads to an important corollary. Assessing the welfare costs of antidumping measures should take into account not only the severity of the measures per se (the high level of antidumping duties, or the restrictiveness of quantitative restrictions), but also the fact that the level of competition prevailing in the importing markets is dramatically reduced by such measures. “Indirect” welfare costs–generated by antidumping-caused collusion–compound the direct welfare costs generated by the antidumping duties. Second, US antidumping duties tend to be on average higher than EC duties: 104 percent, to compare to 38 percent in the EC. However, comparing in detail the measures terminating the EC and US echoing cases is difficult because of the differences in regulations and the lack of detailed enough information. For instance, some EC cases are terminated by the withdrawal of their complaint by the EC petitioners. The effective impact of such withdrawals is hard to know. It may be limited to a “chilling” effect on Chinese exporters (forced to export less, or at higher prices, or both, in order to limit the risks of facing new antidumping complaints). But withdrawals may also reflect the fact that EC petitioners have been able to impose quantity or price restraints on Chinese exports on a “private” basis–with the corresponding full- fledged impact to be expected from these hidden restraints. 15
Section 3. China’s antidumping enforcement: at the crossroad The following first assessment of China antidumping regulations and enforcement should be taken as provisional for several reasons. It is based on the English translation (by MOFTEC Department of Treaty and Law) of regulations in Chinese; it does not take into account the guidelines (for which there seems to exist no English version) used by the Chinese authorities for implementing the regulations (which are expressed in fairly general terms). It is also constrained by the little information available on the existing Chinese antidumping cases, and by the so far limited number of ongoing cases (a substantial number of cases is often needed for a robust assessment of the effective antidumping enforcement by a country).
China’s antidumping regulations China adopted its antidumping regulations in March 25, 1997, and the antidumping guidelines necessary for implementing the law the same year. What follows describes the main provisions of the regulations only. Chinese regulations follow the usual structure of antidumping legislation, including: proof of the existence and estimate of the magnitude of dumping and of material injury; and proof of the causal relation between dumping and injury. However, they have a few striking features. First is the brevity of the text–implying that many details are left to the detailed guidelines or to case-by-case practices. This is often the case among countries having just adopted antidumping regulations. But, it has the great inconvenience to generate a high level of legal uncertainty in the whole process. The second feature is that all the (well known) protectionist biases of the WTO antidumping provisions are included in China regulations, as shown by the following, nonexhaustive, list: use of the concept of the “major proportion” of the industry as the threshold level for accepting complaints (a condition that domestic monopolies, oligopolies or cartels fit much more easily than competitive industries); possibility of ex officio initiation of cases by the Chinese authorities; screening of the complaints by the antidumping office, exposing this office to strong and hidden pressures by vested interests; possibility of withdrawal by the petitioners, 16
making easier private collusion between them and the defendants; cumulation of imports, making easier the demonstration of injury and widening the geographical scope of protective measures; accounting practices (such as constructed value or reasonable profit) in case of the absence of comparable prices in the exporting country which can easily inflate the proxies for the foreign exporters’ home prices; a broad definition of the confidentiality of the information limiting the rights of the defendants; possibility to impose undertakings as antidumping measures and the mandatory provision that antidumping duties shall be borne by the importers (the socalled “no absorption” provision); possibility to impose retroactive antidumping duties in the case of a “history” of dumping (that is, recurrent antidumping complaints); possibility to take “appropriate” measures in case of circumvention of the antidumping measures by the foreign firms, etc. The third feature of the Chinese antidumping regulations is the highly complex coordination of the various administrative agencies involved in the antidumping investigation. The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) receives the complaints, decides those it will accept and those it will reject, and is involved in the whole investigation and process. The Customs General Administration (CGA) joins MOFTEC for assessing the existence of dumping, and for estimating the magnitude of the dumping margins at the preliminary stage of the investigations. The State Economic and Trade Commission (SETC) joins MOFTEC for determining the existence of injury at this preliminary stage. The final stage of the investigations is done jointly by MOFTEC and SETC. If the antidumping measures consist in duties, MOFTEC proposes them to the Tariff Commission under the State Council (TCSC) which takes the decision, but MOFTEC seems alone to decide in the case of measures involving cash deposits or bonds (MOFTEC is also alone for publishing the measures). Refunds involve MOFTEC and CGA. Lastly, some articles of the antidumping regulations (for instance, Article 35 devoted to circumvention of antidumping measures) refer to “other relevant authorities under the State Council,” without more precision. Last but not least, Article 40 of these antidumping regulations reads as follows: “In the event that any country or region applies discriminatory antidumping or countervailing measures against the exports from the People’s Republic of China, the People’s Republic of China may, as 17
the case may be, take counter-measures against the country or region in question.” It is not known whether this provision has already led to detailed guidelines and to cases. But it clearly opens the possibility to use China antidumping as a retaliatory instrument. Section 4 will come back to this point. Antidumping enforcement by China Table 6 provides the list of the antidumping cases initiated by China between 1997 and August 2001, with their measures in force as of July 2001. Twenty-three cases have been initiated, with a very uneven time pattern: after a slow start in 1997 and no case initiated in 1998, the number of cases is rapidly increasing–six cases in 2000 and 2001, and eight cases during the first half of 2001 only. This increase can only be a source of serious concerns. It remains to be seen whether it simply mirrors cases which were “in the pipe” a long time ago, or whether China has begun to follow the drift observed in the six top developing country antidumping users (see section 1) and will soon become another antidumping intensive user–putting in danger its so far successful liberalization. Table 6 describes Chinese antidumping measures only for the first nine cases known in Summer 2001 (as of June 2002, China has carried out ten more investigations [WTO, World Trade News, No.567]). It is thus too early to know whether they are representative of China future antidumping enforcement. They deserve a few observations. First is that antidumping measures have been taken in all the cases, but one. This is a very high percentage, to compare to what is generally observed (60-70% in industrial countries). The second observation is the relatively high level of the measures adopted by the Chinese authorities: minimum antidumping duties amount to 14-15 percent, whereas maximum duties amount to 63-75 percent (the ten additional investigations do not show higher maximum rates). The main countries targeted are the Republic of Korea, the USA, Canada and Russia–not the pattern observed for the other developing country antidumping users (see above). The fact that so far, China has more often targeted industrial countries than the six top developing country antidumping users may mirror its more intensive use of antidumping in a retaliatory perspective. However, the products involved in these nine first cases have also been subjected to antidumping enforceme nt by other WTO members–suggesting that China cases may have begun to echo antidumping cases initiated 18
in the rest of the world. Looking at the cases initiated but not terminated by August 2001, two additional remarks can be done. First is that the pattern by country tends to converge towards a more usual pattern, with the emergence of developing countries, such as Thailand, as frequent targets. Second, the product pattern is closer to what is observed for the other antidumping users. This echoing in terms of products suggests that China antidumping enforcement may be starting to be part of the ongoing process of segmenting world markets through worldwide antidumping activity. It also raises the issue of a progressive capture of China trade policy by firms which would be similar to what is observed in the ten major antidumping users. In this context, it would be important to know whether petitioners in China are Chinese firms (private or state-owned), or whether they are firms having strong links (joint ventures, technical relations, vertical integration, etc.) with foreign firms well experienced in “antidumping art.” Section 4. China’s options in the WTO negotiations on contingent protection China antidumping enforcement needs to take into account an aspect that the six top developing country antidumping users have not had to care about: China WTO accession protocol incorporates specific provisions on antidumping and safeguard (for a legal analysis, see Vermulst 2000). The section argues that this special feature which is initially a handicap can be turned into a positive instrument. More precisely, there is room for China to negotiate, in the Doha Round, a more economically sound interpretation of the specific provision on antidumping. This interpretation could create strong incentives in China for both restraining its own antidumping use and for fighting for stricter WTO rules on antidumping. And it could also give to China trading partners strong incentives to ease China transitional period of accession. It is fair to say that dealing with the provision on safeguard seems more difficult. This provision is so much in contradiction with the general WTO rules and spirit that its use will raise a large systemic risk for the whole WTO. However, various options are examined at the end of the section. Linking effective liberalization to a better treatment of Chinese exports by foreign antidumping 19
China protocol of accession allows China trading partners to use the “non-market economy” (NME) status in their investigations against allegedly dumped Chinese exports. This NME status is scheduled to last 15 years (until 2017). It allows foreign antidumping investigators to use proxies for estimating the home prices of Chinese exporters. Such proxies make the proof of the existence of antidumping much easier than under the antidumping rules for market economies, and they inflate the magnitude of the estimated antidumping margins compared to those, already high, imposed on market economies. Table 7 gives a sense of the intrinsic biases of the NME procedure by summarizing the information available from 208 EC and US antidumping cases initiated between 1995 and 1998 [Lindsey, 1999, Messerlin, 2000a]. It shows that the further from pure price comparisons the methodology used for estimating dumping margins has been, the higher these margins have been: from 3% (US) and 22% (EC) under pure price comparisons, to 14% (US) and 24% (EC) under a mix of price comparisons and constructed values, and to 25% (US and EC) under the various constructed value methods. Last but not least, the NME status is clearly associated to the highest dumping margins (40% in the US and 46% in the EC). 5 / It is almost impossible to eliminate a provision included in a country’s protocol of accession. But during the Doha Round, it may be possible to negotiate an economically sound “interpretation” of the use of the NME status by WTO members. The benefits from such an interpretation rely on the fact that China and its trading partners have a common interest in establishing the strongest possible link between Chinese effective liberalization and the elimination of the NME use by foreign antidumping authorities against Chinese exporters. It is important to underline that what is at stake is not the elimination of the NME provision itself (impossible to obtain), but its effective use in the future, and the balance of this effective use 5
/For instance, under the NME status, it is possible to use industrial countries (such as the U.S. or Sweden) as “reference” countries for China. That introduces systemic errors about the product and/or the production process. For instance, it makes no sense to consider, without deep economic analysis, the calcium metal produced in small quantities by a U.S. monopolist for its own use as similar to the calcium metal produced by China and Russia in large quantities for sales on international markets. The U.S. product is like ly to have characteristics in terms of quality and/or availability making it very different from the Russian or Chinese calcium metal, and it is sold and bought in a market structure very different from the markets of its Russian and Chinese counterparts. In the same vein, trying to estimate production costs by combining input prices in industrial countries and input quantities used in a developing country makes little economic sense. 20
with China coming enforcement of its liberalization commitments. The argument aims at mobilizing the export interests in both China and in the rest of the world during the implementation period of China’s accession to the WTO. On the one hand, if Chinese exporters know that they will face a less unfair treatment (no use of the NME status) in foreign antidumping cases, they will be induced to monitor China liberalization more closely–to check whether China is effectively opening its markets in accordance with its accession protocol–and to provide a stronger support to it, including under the form of a stricter use of China antidumping regulations. On the other hand, if foreign exporters are convinced that they will get a more effective and stable access to Chinese markets, they will be induced to fight for restraining the antidumping enforcement by their own authorities, in particular for limiting the use of the NME status. Doing so could be achieved by implementing the following simple rule. Foreign antidumping investigators will automatically grant the “market economy” status to Chinese exporters of any given product which would meet the three following conditions. (i)
The Chinese MFN tariff on the product involved is moderate (say 10% or less). This threshold tariff will be one of the core components of the interpretation agreement to be negotiated during the Doha Round. It could be stable over time, or it could increase as time goes–showing an increasing confidence in the ongoing Chinese liberalization process among China trading partners.
(ii)
No “core grey measures” shall be imposed on the product in question by the Chinese authorities. The list of the core gray-area measures to be introduced in the interpretation agreement should also be negotiated during the Doha Round. It should be short (say, specific tariffs, quantitative restrictions, and minimum prices) and only the measures listed should be considered as parts of the conditions.
(iii)
There shall be no state-owned monopolies distributing in China the competing foreign and Chinese varieties of the product in question. Chinese state-owned sole producers are acceptable because, as shown by economic analysis, a protection granted exclusively by a moderate tariff eliminates the risk of monopoly power of the domestic sole producer.
Table 4 shows that Chinese ad valorem tariffs applied in 2001 lower than 10 percent amount to 21
38 percent of all the tariff lines. (The fact that the Chinese tariff schedule has only roughly 7000 tariff lines suggests that it is pretty standard, and does not offer many opportunities to create narrow “niches” of protection for carefully defined tariff items.) Interestingly, the share of tariff lines with tariffs lower than 10 percent is the double for the two most antidumping- intensive HS sections (metals and chemicals), with average tariffs of roughly 9.5 percent. Applying the above conditions would thus substantially reinforce the rights of Chinese exporters in the antidumping cases lodged in these two HS sections. (But, China should take some initiatives for improving the situation in the other antidumping- intensive HS sections, in particular in textiles and clothing.) The rationale for the three conditions is that they make unlikely the fact that Chinese exporters would dump for other reasons than those economically sound (differences in demand pattern, need to meet foreign demand and to make Chinese products known in foreign markets, etc.). Hence, the minimum that WTO China trading partners should grant to China is the unconditional benefit of the market economy status in the antidumping investigations faced by the Chinese exports meeting these conditio ns. 6 / Three final observations are necessary. First, the negotiations on the improved implementation of the NME status for China should be swift so that an agreement on such an improved implementation could be reached by the next WTO Ministerial (2003), at the mid-term of the Doha Round. Second, these conditions can be easily defined on a tariff line (HS) basis. For instance, China could notify the WTO, on a regular basis, of the tariff (HS) lines for which these conditions are met (it will be easy to include this procedure in the general procedures of China accession process). Cross-notifications by China trading partners could be added to the process, under the condition that they will not slow it. Finally, weaker variants of the above suggestions could be examined, if necessary. For instance, the NME status could only be eliminated for the goods notified after (say) one year, instead of immediately. Suggesting such weaker variants is beyond the scope of this paper, and is left to trade negotiators. However, it is worth reminding that any weakening of the suggested approach may have huge costs in terms of decreasing 6
/It could be argued that market forces in China for these relatively unprotected products could be distorted by Chinese regulations on inputs for such goods (for instance, subsidies). But there are WTO instruments for addressing such an argument (which could be applied to most China trading partners). 22
incentives for export interests in both China and in the rest of the world to support the transition process of the Chinese accession to the WTO.
Stricter rules on antidumping Ambassador Long Yongtu’s desire to introduce stricter rules on antidumping in the WTO is a “natural” extension of the negotiation on the NME use which is proposed above because it focuses on the antidumping rules faced by allegedly dumped exports from market economies. China efforts to introduce stricter rules on WTO antidumping could follow two very different approaches. A “cautious” approach would be to merely table a series of proposals (or to support those already made available) for improving WTO-based antidumping regulations at the margin. For instance, the following set of suggestions, derived from proposals tabled by the Kommerzkollegium of Sweden [1999], could receive China’s support: (i)
dumping should be the principal cause of material injury;
(ii)
double protection (for instance, antidumping measures imposed on the top of quantitative restrictions) should not be allowed;
(iii)
measures should last 5 years at most (implying stronger limits to review);
(iv)
repeated initiations in a short period of time should not be allowed;
(v)
cumulation of imports from different countries should be banned or severely restricted, unless they come from the same firms or from the subsidiaries of the same firms;
(vi)
aggregating products under the “one single product” procedure should be severely restricted;
(vii)
all zeroing practices (only export transactions that have been found to be dumped are used to calculate dumping margins) should be banned (all export transactions should be included in the investigation);
(viii)
the antidumping authorities should produce short disclosure documents;
(ix)
the use of the de minimis rule should be expanded in an economically sound way.
An interesting feature of this set of suggestions is that it can be shared by countries such as Hong Kong Japan, Chile, or certain EC member states (such as Britain or Sweden). 23
Alternatively, China could adopt a “bold” approach. For instance, provisions for reforming antidumping could take, as often as possible, the form of negotiated “quantitative thresholds” [Messerlin 2000b]. For instance, WTO Members could agree that no antidumping measure should be imposed in cases where the level of injury losses is less than an agreed threshold (say 5%) of the revenues of the year(s) used as the reference (pre-dumping) period. An approach based on quantitative thresholds has several advantages. It is conceptually equivalent to a tariffication process. As a result, it tends to give a sense of the magnitude of the concessions granted by both sides, making much easier to handle it with usual WTO negotiating techniques. It is flexible enough to permit incremental reforms, and to deliver the progressive liberalization that WTO members are looking for through progressive increases of the thresholds–hence, avoiding the current deadlock of binary choices between fully enforcing antidumping regulations or rejecting them totally.
The TPS provision and the general issue of contingent protection in the WTO Section 16 of the China Protocol creates the “transitional product-specific safeguard” (TPS) mechanism. The TPS makes legally much easier for WTO members to impose safeguard measures against Chinese exports during the next 12 years, until 2014 (for a detailed description from a legal perspective, see Andersen and Lau [2001]). All the terms defining the use of a safeguard action in the traditional GATT-WTO context (under Article XIX) have been systematically weakened: no requirement of “unforeseen circumstances,” the need for a “material” (rather than a “serious”) injury, fewer factors related to the condition of the domestic industry, a weaker requirement for the causal link between import surge and injury, the absence of a non-attribution causation analysis, etc. But, the most important–and potentially the most devastating for the WTO–provision of Section 16 of the WTO China Protocol states that WTO members have the possibility (never known before) to use a “trade-diversion” clause, meaning that as soon as one WTO Member implements a TPS measure against Chinese exports, all the other could enforce a similar measure at almost no cost in terms of legal procedures (no investigation, no prior notification, no input from Chinese parties, etc.). In other words, the trade-diversion clause makes almost 24
unchallengeable the hypothesis that Chinese exports will be diverted from the first closed market to the rest of the world. All these features put the TSP largely in contradiction with the usual GATT deep concerns for a fair balance of rights and obligations. It is a provision so unbalanced that one can fear that its use will trigger in China feelings close to those associated to the “Unequal Treaties” of the XIXth century. As a result, it represents a serious systemic risk to the WTO regime. One may argue that the TSP is such a politically aggressive instrument that one may wonder whether it will be ever used. This argument is far to be convincing. Its political explosive content makes the TSP unlikely to be initiated by a WTO Member other than a very large developing country (the US, the EC or Japan). But then, all the other WTO members which would have waited for such a move would benefit from the “trade diversion” clause as soon as a large developing country would have taken the lead. What are the possible actions left to China, would the TSP be initiated? A first possibility would be for China to negotiate the same “preemptive” approach than for the NME provision by negotiating during the Doha Round an interpretation agreement on the effective use of this procedure. WTO members would agree not to use the TSP when Chinese products would meet the three conditions listed above. Rather, they will use the normal WTO safeguard provision under Article XIX. Putting antidumping and safeguards on a par would have an additional benefit. It makes a lot of sense from the perspective of the global WTO architecture. Many WTO members (in particular the developing countries) use antidumping as a substitute to safeguard, with many antidumping measures being in fact safeguard actions dealing with industries in difficulties, and disguising re-protection behind the false argument of dumping. In fact, the TPS provision expands China strong stake in substantial improvements of antidumping to the whole WTO contingent protection regime–that is, antidumping and safeguard. As a result, during the Doha Round, China may not only be very active in the negotiations on antidumping, but it could also try to expand these negotiations to safeguards (not explicitly included in the Doha negotiating program) in order to make more consistent the whole contingent protection WTO regime. A promising way to improve the current WTO Safeguard Agreement would require tying 25
together the concept of transitory protection embedded in safeguard and the basic concept of renegotiation under GATT Article XXVIII [Messerlin, 2000b]. For instance, at the end of the second period of enforcing a safeguard measure allowed by the current Safeguard Agreement (under GATT Article XIX), the country shall be requested to choose between two alternatives: either to renegotiate the tariff of the product subjected to the safeguard measure in question, or to eliminate the safeguard measure (shifting to antidumping or other trade remedies should be prohibited, a recognition of the fact that all the instruments of contingent protection are substitutable between them). The logic of the mandatory aspect of such a choice is that current safeguard and antidumping procedures transform what should be transitory protection into permanent protection. Such reforms will not be easily accepted by the ten top antidumping users. But, they may be part of a larger deal. The estimated rates of overall protection of roughly 25-30% for products subjected to antidumping enforcement in industrial countries are not too far from the average tariff rates applied by developing countries after the Uruguay Round estimated to 25% [GATT Secretariat, 1994]. Although imposed on very different import coverage, these relatively similar figures suggest some trade-offs in the Doha Round between a progressive dismantlement of antidumping by the industrial countries and an effort to reduce–and bind–applied tariffs by the developing countries. In other words, intensive users of antidumping measures could trade stricter reforms in antidumping in exchange to better and more secure access to certain foreign markets of goods or services. It remains that one should envisage the possibility that such a global approach to antidumping, safeguard, and TSP measures may face entrenched hostility from WTO members, in particular from the top ten antidumping users–and among them from the six top developing country users. In such a case, the remaining options for China would rely on some kind of threats of retaliation aiming at limiting–as much as possible–the TSP use by China trading partners. The least aggressive approach would be for China to announce its intention to systematically use the dispute settlement mechanism–including the urgency provisions of DSU Article 12.8–as soon as a WTO Member would notify TSP use to the WTO Secretariat. Once again, lawyers tend to overstate the benefits of such an approach, by ignoring the full 26
development of the trade conflicts. As they leave the dispute settlement cases after the panel and Appellate Body rulings, lawyers rarely face the political turmoil generated by these rulings. It is almost certain that DSU cases dealing with the TPS would leave the two parties in a difficult political situation–struggling to go back to consultations and negotiations in a face saving exercise made difficult by a context damaged and made bitter by the DSU process itself. A more aggressive approach by China would be based on the existing Article 40 of the current Chinese antidumping law. As mentioned above, this Article allows the possibility to initiate antidumping proceedings on goods for which Chinese exports are facing foreign antidumping investigations. But, included in China antidumping law, this Article is misplaced and counter-productive. As shown above, conflicts on antidumping issues could be settled much more easily and in a much more mutually satisfactory way by WTO negotiations on the interpretation of the use of the NME provision, and on better WTO antidumping rules. Article 40 should thus be eliminated. But, China could envisage the introduction, in its trade regime, of a law on the impediments to trade imposed by foreign countries and having adverse effects on Chinese firms. This law (which would replace Article 40 only for TSP matters) could be similar to the EC Trade Barriers Regulation. It would spell out in advance the ways China could make costly the TSP use by its trading partners–while still keeping a multilateral approach (the Trade Barriers Regulation precludes unilateral actions), that is, showing China willingness to minimize the systemic costs of its actions for the WTO. However, as already stressed above, the drafting of such a law should not forget the basic principle of deterrence: trade deterrence, as nuclear deterrence, is good as long as it remains a threat–as long as it stops short to be an effective action.
Conclusion The paper provides two results of prime importance for China. First, the countries which would gain most from better disciplines on antidumping are the few developing countries which, since the 1995 Uruguay Round, are intensive users of antidumping. Because antidumping 27
measures imposed by these developing countries are more frequent and more severe than those imposed by industrial countries, they are hurting developing countries’ domestic economies much more than industrial country- imposed antidumping measures are harming theirs. If China wants to continue to enjoy successful liberalization, it should not become an intensive user of antidumping. Second, there are few economic and political forces which would introduce some automatic counterweights and restraints to the situation currently existing in terms of antidumping enforcement. Major current users have few incentives to reform their very discriminatory (mostly targeting other countries than the top ten users) use of the antidumping instrument–if one accepts, of course, the economically sound welfare-based incentive that protection is harmful to the economy of the country imposing it. Meanwhile, smaller countries have few incentives to use the antidumping instrument in a retaliatory move. As a result, China is at a crossroad. On the one hand, it may be increasingly tempted to use more intensively antidumping for several reasons: as a retaliatory instrument against foreign antidumping, as a progressive integration in the worldwide collusive dimension of antidumping (used as an instrument for segmenting world markets for the benefit of large firms), and of course as a back-door of old-time protection–at the risk of unraveling its scheduled trade liberalization. On the other hand, being still a small antidumping user and a key target of foreign antidumping, China has expressed the desire to impose stricter rules on WTO antidumping rules. It will be one of the main beneficiaries of such a move which, among other things, will help China to negotiate an economically-sound interpretation of the special provisions on antidumping and safeguard included in its WTO accession protocol. This new interpretation should be based on a few key and economically-sound conditions to be met by China: low tariffs, no “core gray” measures, no distribution monopolies (see section 4). It relies on the following strong economic and political argument. China and its trading partners have a common interest in establishing the strongest possible link between Chinese effective liberalization and the elimination of the use of these special provisions by foreign antidumping authorities against Chinese exporters. In other words, the suggested interpretation of the specific provisions on 28
antidumping and safeguard included in China accession protocol is an effort to mobilize the export interests in both China and in the rest of the world during the difficult implementation period of the Chinese accession to the WTO. China has the capacity of achieving its goal of stricter rules on antidumping and safeguard. First, China’s own policies, in particular low tariffs, could substantially reduce China’s exposure to foreign antidumping, as shown by economies which have been in the same position as China, such as Chinese Taipei, Chile, Hong Kong, Japan, Korea, and Singapore. Second, as a major antidumping target and a small antidumping user like many developing countries and a few industrial countries, China will a natural leader of the large coalition to be built in the WTO in favor of stricter antidumping rules.
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