Report: US trade rules unfair
(China Daily)
Updated: 2005-04-12 07:01

Editor's note: The Ministry of Commerce issued a foreign market access report recently which summed up the trade and investment environment within Chinese companies in China's 22 major trade partners in 2004. The report showed the ministry's concern on trade barriers in some foreign markets.

Trade with the United States took up the largest section of the 182-page report with 22 pages dedicated to it.

Following are some excerpts from that section.

By frequently using anti-dumping and safeguarding measures, the US government has practically restricted exports from China. From 1980 to the end of 2004, it had initiated 110 anti-dumping investigations and 19 safeguard investigations against Chinese exports. According to statistics from the US International Trade Commission (ITC), 59 anti-dumping orders were still in force by the end of last year. The United States initiated six new anti-dumping investigations against imports from China and 12 special safeguard investigations against Chinese textiles in 2004.

There are many discriminatory provisions against Chinese products in relevant US anti-dumping legislation. Many unfair practices that exist in the investigations have also constituted barriers to China's exports to the United States.

Market economy status

In spite of China's accession to the WTO and China's achievements in the development of its market economy over the years, the United States has consistently treated China as a non-market economy and refused to grant market-economy status (MES) to China.

The US Department of Commerce (DOC) held a public hearing on China's MES for the first time in June 2004. Representatives from industry groups of steel, wood furniture, cookware, paper and other manufacturing sectors spoke at the hearing.

Although most recognized the progress and achievements China has made in developing its market economy since the opening up, it was deemed by most people that there was still a gap China needed to fill before becoming a market economy. Many US officials have said publicly on many occasions that unless China makes significant reforms in its labor market and exchange rate mechanism, the US Government will not recognize China's MES.

To push for an earlier resolution of this issue, the Sino-US Joint Commission on Commerce and Trade (JCCT) agreed to set up a working group for China's MES in April last year. The first meeting of the working group was held in July 2004.

Market oriented industry

According to US laws, if the respondent company in a non- MES country can prove that its industry meets standards for Market Oriented Industry (MOI), the US anti-dumping authorities should adopt the cost data of this respondent company or its industry when calculating production costs and dumping margin, rather than adopting costs in a third country.

However, though Chinese respondents had provided proof of their consistency with the MOI standards in numerous anti-dumping investigations, the US authorities refused to grant MOI status.

So far, no single Chinese respondent has won MOI status. China hopes the US will correct this discriminatory practice as soon as possible.

Surrogate country

To non-MES countries, the US DOC usually uses surrogate country data to determine the normal value and calculate dumping margins. The surrogate country should have a level of economic development comparable to that of the non-MES country and be an important producer of the subject product.

In practice, the United States usually uses India, Pakistan, Indonesia, Sri Lanka or the Philippines as candidates for surrogate country in cases against China. India is usually a favorite choice because of the easy availability of information. In the seven anti-dumping rulings in 2004, the DOC used India as the surrogate country in every case.

However, certain industries in India are by no means comparable to industries in China. Therefore, using India as the surrogate country will inevitably lead to unfair rulings against Chinese enterprises. For instance, in the anti-dumping investigation against Chinese colour TV sets, India was selected as the surrogate country. The colour TV set industry in India, however, is still in a monopoly stage, with small production scale and high costs, while China is a big producer of colour TV sets in the world and the companies have full autonomy in production and participate in free competition.

Using India's standards to measure China's colour TV set industry will naturally lead to the wrong conclusion that Chinese colour TV sets were sold at an abnormally low price.

China suggested that if it is still treated as a non-market economy in the future, the US DOC should select a more appropriate surrogate country in order to come to a reasonable normal value for the subject product.

Separate rate

Unlike the past practice by the DOC of applying one tariff rate towards all producers from one non-market economy country, the current separate rate policy has made it possible for Chinese respondent companies to obtain a lower individual rate.

In practice, however, the DOC has in many cases refused Chinese company's application for individual rates, claiming the application materials and related information were not adequate.

On July 6 last year, the DOC issued the initial ruling on the anti-dumping case against warm-water shrimp of Chinese origin.

Citing the inadequacy of materials and information submitted by Chinese exporters as the reason, the ruling refused to apply separate rates on 32 Chinese companies, and levied a 98.34 per cent anti-dumping tariff on most Chinese exporters.

In fact, in current US laws, there is no clearly defined standard to judge whether the submitted information is adequate or not and the DOC has great discretionary power in this regard.

The DOC is currently considering adjusting the policy of granting separate rates to Chinese companies. Interested parties have been asked to submit written comments. The Chinese Government, as well as relevant chambers of commerce, has submitted several written comments to the DOC, urging the US Government not to impose barriers to Chinese companies on this issue.

Textile products

By the end of 2004, the US Committee for the Implementation of Textile Agreements (CITA) had accepted 12 requests to restrict Chinese textiles.

One petition on knit fabric, brassieres and dressing gowns and robes of Chinese origin was received in 2003 based on market disruption, and a one-year restriction starting from December 24 2003 was imposed.

Another one against China's socks was accepted in July 2004, also based on market disruption, and a one-year restriction starting from October 29 2004 was imposed.

Some 10 more requests have been accepted by the CITA since October 2004 based on the "threat of market disruption", involving trousers, shirts, blouses and underwear.

According to WTO rules, to adopt special restrictions on Chinese textile products, a WTO member must be able to show that it meets three conditions: the existence of market disruption, threatening to impede the orderly development of trade, and the causal link of the two.

The materials submitted by US petitioners only showed a threat of increased imports from China, but failed to illustrate the causal link.

Meanwhile, procedures for the United States to start restriction measures also lack definition on basic concepts such as market disruption.

The Chinese Government and relevant chambers of commerce have on many occasions expressed strong objection to the related procedures.

Import control

The US Government announced it would remove all quotas on textiles on January 1, 2005, according to the World Trade Organization agreement. In terms of implementation, however, restrictive measures still remain.

The CITA declared on December 13 last year that all shipments exported in 2004 that exceed that year's agreed quota limit would not be allowed to enter upon the removal of the quota.

Entry will be permitted to goods in an amount equal to 5 per cent of the applicable 2004 base quota limit, until all shipments in excess of the quota limits have entered.

Shipments in excess of 5 per cent will have to wait until the following month or later for customs clearance.

The delay will inevitably increase traders' warehousing costs and affect the timely supply of products.

In addition, in the absence of sufficient factual evidence as required by the bilateral agreements, the US authorities have taken unilateral action to deduct China's textile quotas in 2004, saying illegal transshipments exist in China's textile trade.

China's investigation revealed that many such transshipments were conducted by exporters from a third country, rather than by Chinese exporters, and a considerable number US importers were involved.

In collusion with US Customs Service staff, they transshipped Chinese products originally destined to a third country to the United States.

Several negotiations were held for solving this issue between China and the US and the US has corrected only part of its practices so far.

Export restrictions

US controls on export of technology to China have long been in place, and have remained a big issue affecting the trade balance between the two countries.

The intention is to prevent China from benefiting from nuclear weapons, missiles, chemical and biochemical weapons, and other important military items.

Over the last few years, China has applied for the most export licences but the procedure for China is the lengthiest one. In addition, certain products or technologies are basically prohibited from being exported to China or face stringent conditions.

Apart from the product-based licensing requirement, the US government lists companies which should be specially watched in the export control.

Some 19 Chinese companies were on the list by the end of 2004, accounting for one third of the total. Only Pakistan had more with 20.

The US Government has also asked for wider coverage to visit Chinese end-users of high and new technologies exported from the United States.

On April 1 last year, the US Government imposed a two-year sanction against 13 companies including 5 Chinese ones, claiming that these companies had transferred US equipment and technology falling within export control classifications to Iran.

These companies were denied new export licenses, and were prohibited from any business transaction with the US Government. Similar sanctions were put in place against a total of 45 Chinese companies between 1999 and 2004.

China believes there are many discriminatory measures in US export controls towards China, which cut US exports to China and led to unbalanced trade.

The US Government should review its export control policies as soon as possible.

Bio-terrorism Act

The US Government promulgated the Public Health Security and Bio-terrorism Preparedness and Response Act (Bio-terrorism Act) in June 2002 and the US Food and Drug Administration (FDA) publicized the Registration of Food Facilities and Prior Notice of Imported Food Shipments.

While China recognizes the efforts of these laws to fight against terrorism, it is concerned about the adverse impact caused, such as slower customs clearance, increased business cost, increased uncertainty in the market.

According to the FDA Import Refusal Report, a total of 1815 shipments from China were denied entry into the US market by the end of 2004. China is concerned over this issue.

Visa issue

The increasingly strict visa policies of the United States have affected bilateral trade.

Santangelo Group, a Washington-based consulting firm comprised of former Fortune 500 executives and senior US government officials,issued a report last year entitled "Do Visa Delays Hurt US Business." The report was based on a survey of 734 companies.

This report identified applicants from China, India and Russia as having the greatest difficulties with timely visa processing from US authorities. The report also found that medium-sized companies suffered the greatest business losses, averaging US$5 million per company.

Issue of IPR

The US ITC can investigate foreign companies, which violate US intellectual property rights (IPRs) in exports to the United States, according to Section 337 of the Tariff Act of 1930.

In recent years, China has become one of the major targets of Section 337 investigations.

In 2004, 11 were filed involving products from China, up 57 per cent over 2003.

China holds that Section 337 is inconsistent with relevant WTO rules and discriminates against imports in investigations.

Certain Section 337 investigations only name an investigated country without naming respondent companies, which in fact undermined the interests of other companies. In 1989, the GATT (The General Agreement on Tariffs and Trade), The WTO's predecessor, ruled that Section 337 were not consistent with related rules.

Although Section 337 was later amended, it is still not in line with related rules. China expressed great concern over this issue.

Banking service

The US Government places stringent restrictions on the marketing network and business scope of foreign banks.

If a foreign bank wants to set up a new branch, it has to go through the application procedures one more time even though it has already established itself in the country.

By September 30 2004, only three Chinese banks, namely, Bank of China, Bank of Communication and CITIC Bank have set up branches in the United States.

Many Chinese bankers have expressed concerns over the difficulty of applying for approval to establish branches or representative offices.

In addition, the United States has rigorous restrictions on mergers, acquisitions and holding majority stakes of US banks by foreign banks, which has seriously affected the business of foreign banks.

In addition, branches of foreign banks are not allowed to take retail deposits that are less than US$100,000 each.

(China Daily 04/12/2005 page11)

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