Understanding and Preparing for Chinese Trade Remedy Cases

by William Turner

Recent research from the US-China Business Council shows US exporters increasingly face the threat of sanctions resulting from anti-dumping (AD) and countervailing duty (CVD) investigations in China. Regardless of whether such sanctions are the result of legitimate investigations of trade remedy rules or overt political retaliation against the United States, companies can take steps to mitigate the threat these cases pose to their business in China.

Background on trade investigations
AD investigations assess whether foreign competitors are selling their product in a country’s market at prices below what they charge in their home market to undercut domestic industry. CVD investigations assess whether a foreign government is subsidizing its exporters. In both cases, different government offices determine whether a domestic industry has been injured and calculate the rate for tariffs to be applied against exporters. Affirmative decisions lead to corrective tariffs being applied against all exports from the foreign country, but specific exporters can argue for lower rates or that they do not qualify for sanctions.

Unlike in the United States, where responsibilities for injury determination and tariff rate calculations are divided between the US International Trade Commission and the US Department of Commerce, respectively, in China these responsibilities are divided between two different departments under the PRC Ministry of Commerce (MOFCOM). This combined structure may increase the risk that political considerations can overshadow legal ones. In addition, Chinese industry petitions are not publicly available when filed, PRC cases do not follow a standard timeline, and there is no administrative protective order in China that allows lawyers to access confidential information that also protects data exposed to other parties. All of this creates uncertainty for US companies seeking to prepare for cases, plan business operations, and protect company information.

Though petitions are not publicly available in China before MOFCOM initiates cases, rumors of pending cases from trade associations or the Chinese media can provide warning signals. Once a case is announced there is little time to file paperwork, so companies should start preparations as early as possible. Registration is costly and time-consuming, but companies should register to participate because it increases the likelihood of receiving a lower rate or avoiding sanctions altogether. Companies that do not register are almost certain to receive the highest tariff.

Companies should hire lawyers from both the United States and China because only Chinese lawyers can represent clients in meetings with PRC government officials, but they frequently do not have the expertise of their US counterparts. US lawyers should conduct internal company investigations as well as educate their Chinese colleagues on relevant World Trade Organization (WTO) law and prepare them to interact with PRC investigators. Since cases are often politicized in China, companies should also assign their government affairs staff in China to engage PRC government contacts and keep US officials informed.

It is also important to coordinate with other affected companies through trade associations or other vehicles during the injury determination proceedings. Injury determination cases can be won, and negative decisions mean no tariffs will be applied against any exporters because the petitioner’s claims have been rejected. If PRC investigators determine that an industry has been injured, however, then companies must assess whether the best strategy is to coordinate with others or work alone to receive a lower tariff rate than their competitors.

Back-up plans
If a company receives a prohibitively high margin or one that puts them at a disadvantage vis-à-vis their competitors, there are options for appealing that ruling. Companies may be able to apply for an administrative review that usually takes three or four months to complete. These reviews can result in changes to the tariff rate. Companies can also pressure MOFCOM through US and other PRC government contacts.

A final option is to work with the Office of the US Trade Representative to file a WTO case against China. Due to a lack of transparency, PRC trade remedy decisions are often vulnerable to charges at the WTO. Though dispute settlement cases can take up to three or four years to resolve, the WTO’s pro-complainant record and China’s desire to avoid losing WTO cases provide the possibility of settling the dispute more quickly.