Monday 14 March 2011

WTO sides with China to kicks the US in the antisubsidies

In a surprise ruling the WTO ruled that the US had introduced illegal antidumping and antisubsidy duties on some Chinese exports.

What is interesting is that China has spent vast sums on experts and lobby groups to fight the US and Europe on their terms. If you cannot beat them, hire them. This strategy is already showing signs of working well.

Trade Body Rules in Beijing's Favor [WSJ]

BRUSSELS—The World Trade Organization handed an important victory to China, ruling that the U.S. illegally imposed both antidumping and antisubsidy duties on some Chinese exports in 2007.

The trade body's surprise decision sets a precedent in limiting the ability of China's trading partners to impose punitive duties on its exports.

China, the world's biggest exporter and its second biggest economy, faces its biggest wave of trade disputes at the WTO since it joined the Geneva-based organization in 2001.

Led by the U.S. and the European Union, China's trading partners are fighting what they say is an export machine often lubricated by state subsidies and aggressive dumping of goods below cost on foreign markets. And they complain it's a one-way street: China had $1.6 trillion of exports in 2010, with a trade surplus of $184.5 billion.

China has reacted to the trade legal war by hiring teams of consultants and expert counsel in Geneva, Brussels and Washington. It has become difficult for a reporter covering trade to find a lawyer not retained on some level by China or one of its exporters.

The WTO recently issued two significant rulings against China, finding that it improperly imposes export tariffs on raw materials in order to protect domestic supplies, and ordering China to bust a state-backed monopoly on processing some credit-card payments.

The most recent case dates back to the U.S. imposing punitive tariffs of up to around 20% on Chinese steel pipes, tires, and laminated woven sacks in 2007. A year later, China complained to the WTO that the U.S. had acted illegally. In October, the WTO rejected those claims.

Beijing appealed, arguing the U.S. couldn't legally impose two different classes of punitive duties—antidumping and antisubsidy— on the same goods. Antidumping duties punish dumping, the selling of goods below cost in a foreign country, while the latter compensate for government aid, such as grants and low-interest loans.

Typically, antidumping duties are levied on countries that are not designated as "market economies," because some subsidies are assumed in those countries. Instead, the WTO permits importers to calculate probable cost of the good using another country as a reference. For China, it is often another emerging economy such as Turkey or Mexico. Most countries, the U.S. included, don't consider China a market economy, and therefore usually don't apply antisubsidy duties. The EU has never imposed antisubsidy duties on China. Beijing has been campaigning hard for market-economy status from both the U.S. and EU because it would make it harder for those countries to levy antidumping duties.

In its 232-page report, the WTO's judges said that the U.S. couldn't apply both kinds of duties.

"The Appellate Body's decision on the 'double remedies' issue is likely to cause concern" among U.S. manufacturers and labor unions who lobby the government to impose duties, said Simon Lester, founder of LLC, a Washington consulting firm.

U.S. Trade Representative Ron Kirk reacted angrily to the ruling by the WTO. "I am deeply troubled by this report," he said."It appears to be a clear case of overreaching by the Appellate Body." The U.S., he added, is "reviewing the findings closely in order to understand fully their implications."

The U.S. must now comply with the ruling by removing some of the duties and change its methodology for future cases.

U.S. trade officials pointed out that the WTO panel upheld some parts of the U.S. case, including the finding that certain banks that gave loans to the exporters were "state bodies."

China welcomed the ruling. The panel, a government statement said, "has conclusively established that the United States acts unlawfully in the methods by which it calculates and imposes countervailing duties on imports from China."


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