China's New Anti-dumping Rules: Battleground for A New Protectionism?

Inadequate Law and Investigative Resources

The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) is responsible for making dumping margin determinations in Chinese anti-dumping investigations. The State Economic and Trade Council (SETC) is responsible for the injury and causation determinations. The Old AD Regulations provided only limited guidance to these agencies. Many provisions were imprecisely worded or lacked the detail of the WTO Anti-dumping Agreement. Although not strictly bound by the WTO Anti-dumping Agreement itself, the Chinese agencies seemingly tried to follow its rules in many respects. Those rules, however, are complex and often arcane, and Chinese authorities lacked experience in applying them. Both agencies also had only limited staff and resources. In short, many of the problems in China's pre-WTO investigations were not surprising for a country establishing an anti-dumping system for the first time.

Procedural Issues

The WTO Anti-dumping Agreement prescribes a number of procedural rules. The common thread of these rules is that the investigative procedures must be transparent. Each party should have the right to see exactly what evidence and legal argumentation the other party is submitting and to comment thereon. The investigating authorities may rely only on evidence that has been made available to all of the parties for comment.

China's pre-WTO anti-dumping investigations fell far short of these standards. There was no requirement that the parties even see one another's evidence and legal arguments, much less that they have an opportunity to provide comments. In some instances, it appeared that the Chinese parties were fully apprised of the foreign parties' information, but the foreign parties were generally denied access to the Chinese parties' submissions. Chinese parties were routinely permitted to claim protection for "confidential" information even when the public description of the information made clear that there could be no conceivable justification for giving the information such protection. No procedure was provided by which the foreign parties could examine such information to confirm its authenticity or accuracy. Foreign parties seeking to obtain basic economic information concerning the Chinese petitioners and the domestic Chinese market were also dissuaded from doing so by claims that even the most basic market information was "secret".

Transparency of Determinations

The WTO Anti-dumping Agreement also requires that the determinations of investigating agencies be transparent. Rulings must identify all of the evidence on which they are based, the methodology used in any calculations and the reasons for accepting or rejecting the basic contentions of the parties. The basic idea is that the parties ?or a WTO dispute panel reviewing a determination ?should be able to take the rulings and determine exactly what data was used and how and what arguments were accepted or rejected, and why.

China's pre-WTO practice also fell far short of these requirements. The investigating agencies' rulings were generally summary. On the face of the rulings it was impossible to determine the data or methodologies on which MOFTEC's dumping margin calculations were based. The SETC's injury and injury causation determinations simply stated that they had considered all the evidence and other possible causes of injury. There was no indication of precisely what data and evidence were considered and why some data was accepted and others rejected. In some cases, the SETC simply ignored overwhelming evidence ?some of it from the SETC itself - that directly contradicted its findings.8 It is of course possible that some of these rulings were substantively correct, in whole or in part. But the complete lack of transparency and substantiation mean that few, if any, of China's pre-WTO anti-dumping determinations would have been able to withstand the scrutiny of a WTO panel.

THE NEW ANTI-DUMPING REGULATIONS

Significant Progress on Law and Resources

The New AD Regulations are very much in the right direction. Many provisions now follow the terminology of the WTO Anti-dumping Agreement closely, sometimes verbatim, and there are many new details that have been added that are also drawn from that Agreement. This is especially true of the provisions defining the substantive standards for dumping determinations (Articles 2-12), the procedures for initiating an investigation (Articles 13-19), the procedures for calculating and collecting preliminary and final duties (Articles 28-30 and 37-47), procedures for price undertakings and suspension agreements (Articles 31-36), and the sunset and administrative review rules (Articles 48-52). One can raise technical issues with respect to some of these provisions, but the general improvement is dramatic.

At the same time, MOFTEC and the SETC have both reorganized themselves to be able to handle anti-dumping cases more efficiently. A number of staff in each agency has acquired experience in conducting investigations. Each agency has reportedly increased its staff and has added hardware and software resources that should facilitate future investigations. MOFTEC, in particular, has been assiduous in seeking advice from both public and private sector foreign experts as to how to improve their investigations.

PROBLEMS WITH THE NEW AD REGULATIONS

Investigative Procedures and Transparency

Article 6.2 of the WTO Anti-dumping Agreement requires that "[t]hroughout the anti-dumping investigation all interested parties have a full opportunity for the defence of their interests". This must include, on request, "opportunities for all interested parties to meet those parties with adverse interests, so that opposing views may be presented and rebuttal arguments offered". Article 6.4 requires that investigating authorities provide opportunities for the parties "to see all information that is relevant . . . and that is used by the authorities in an anti-dumping investigation, and to prepare presentations on the basis of this information". Article 6.1.2 requires that the authorities make "available promptly" evidence submitted by each "interested party . . . to other interested parties participating in the investigation". Typically, these provisions are interpreted to require that all legal and evidentiary submissions be served on all parties, and that each party have the opportunity to examine and comment on submissions of the other parties. The WTO Anti-dumping Agreement also contains highly detailed procedures to guide the conduct of verifications in the country of origin of the imports.

The New AD Regulations, like the Old, fail to incorporate these procedural requirements of the WTO Anti-dumping Agreement. Article 20 simply repeats the general admonition of the Old AD Regulations' Article 19 that interested parties be provided "opportunities to state their opinions and arguments" ("arguments" has been added). Article 24 similarly repeats the provision in Article 21 of the Old AD Regulations that the "investigating authorities shall allow the petitioner and interested parties access to the files of the case with the exception of information treated as confidential". How often such access will be provided and under what circumstances is not specified. In at least some cases under the Old AD Regulations, access was in fact provided only once, and then long after it would have been useful. The New AD Regulations in Article 20 authorize the investigating authorities to hold hearings at their own discretion but give the parties no right to request hearings of any sort, much less adversarial hearings. Verifications are, again, authorized in the most general terms (in Article 20), but no standards are provided for conducting them.

Most importantly, the New AD Regulations, like the Old, have no requirement for the timely sharing of briefs or evidence between the parties to an anti-dumping investigation. As a result, there is no guarantee that a foreign exporter will have even the basic procedural right to see exactly what has been submitted by the Chinese industry, much less the opportunity to comment on it. Further, there is no bar to ex parte contacts between the Chinese party and Chinese investigators and no guarantee that the Chinese party will not be provided full access to the foreign party's filings.

The related issue of handling confidential materials also remains unsatisfactory. Article 6.5 of the WTO Anti-dumping Agreement requires that detailed public summaries be provided for any "confidential information" submitted by a party. To ensure maximum transparency, many WTO member countries also authorize release of such information to other parties under strict protective orders, a practice acknowledged by the WTO Anti-dumping Agreement (Article 6.5, note 17). The New AD Regulations in Article 22 now require the investigating authorities to determine that a request for confidential treatment is "well-grounded", an improvement from the Old AD Regulations. They also require that the requesting party provide a non-confidential summary. Any information granted confidential status will not, however, be made available to other parties as part of the files of the case (Article 23). It remains to be seen how these provisions will be applied, but the general Chinese penchant for secrecy, and the investigating authorities' record in earlier cases of simply rubber-stamping any Chinese party's request for confidential treatment would not lead one to be optimistic.
The one encouraging addition in the New AD Regulations is found in Article 24, which provides that "[p]rior to rendering the final findings, MOFTEC shall notify all known interested parties of the basic facts on which the final findings will be based". This follows WTO Article 6.9 reasonably closely. This procedure affords an investigated party at least one clear opportunity to advise MOFTEC if its proposed dumping findings are incorrect before those findings become final.
The failure of the New AD Regulations to include the detailed evidentiary and procedural rights of the WTO Anti-dumping Agreement is especially striking because the authors of the New Regulations have been so scrupulous in other areas to follow the terminology of the WTO Agreement closely. The probable explanation lies in China's general lack of a tradition of adversarial litigation. In Chinese judicial and arbitral proceedings there are few well-established rules for managing the presentation of legal arguments and evidence. Chinese authorities may have been uncomfortable taking such procedures out of the WTO Anti-dumping Agreement and writing them into Chinese law. As matters now stand, it will be up to the investigating agencies to remedy these deficiencies in their own implementing regulations or in practice.9 If they fail to do
so, their determinations may well be subject to challenge under the WTO dispute resolution procedures.

Sufficiency and Transparency of Rulings

The WTO rules are also very specific in requiring transparent results. The WTO Anti-dumping Agreement Article 12.2 requires that any final determinations "set forth . . . in sufficient detail the findings and conclusions reached on all issues of fact and law . . .". Article 12.2.1 (iii) requires that the methodology in the dumping margin calculation be specified. Article 3 provides in detail the factors that must be considered in the injury and causation determinations. Article 3.5 requires, in particular, that all other possible causes of injury be considered and not be attributed to the imported products under investigation. Article 12.2.1(iv) requires that the factors enumerated in Article 3 be reported in detail in the final determinations. Article 6.8 authorizes investigating authorities to rely on "facts available" ?data from sources other than the parties ?but only under narrowly delimited circumstances and subject to strict requirements that the data be independently verified for accuracy.

These requirements are also conspicuously absent from the New AD Regulations. MOFTEC and the SETC are simply authorized to render preliminary and final determinations "based on their investigations" (Articles 24 and 25). There is no requirement that the findings provide any of the detail required by the WTO. The Chinese authorities are also authorized (Article 21) to rely on "facts available" under very general criteria and with no safeguards that the data be verified as to its accuracy or completeness. Earlier cases suggest that the Chinese authorities have been prepared to ignore the data submitted by the parties and rely on other evidence under circumstances that would manifestly not satisfy the WTO standards.

Again, Chinese authorities may be able to remedy these deficiencies of the New AD Regulations in practice. And again, if they fail to do so, their rulings will be subject to challenge by the governments of the companies subjected to anti-dumping duties as a result.

Miscellaneous

Two specific provisions of the New AD Regulations are also worth noting. Article 13 of the WTO Anti-dumping Agreement requires that each member provide independent judicial review of administrative determinations on anti-dumping. China did not previously have such a review system. Article 53 of the New AD Regulations now provides for an "administrative review" of final determinations, as well as for review in the people's courts. No further details are provided, and we understand this matter is still under consideration. There has also been public discussion of establishing special trade courts with expertise to handle these cases (and possibly other foreign trade-related cases). When China does establish more specific review procedures, it remains to be seen if they will satisfy the WTO requirements for independence.

Article 56 of the New AD Regulations provides that "if any country applies discriminatory anti-dumping measures to goods exported from the People's Republic of China, the People's Republic of China may, depending on the circumstances, adopt corresponding measures to be applied to that country". There is no indication as to which agency would make such a determination or under what circumstances or procedures. The imposition of retaliatory measures of this sort would be a violation of the GATT unless they had been previously authorized as retaliatory sanctions in response to a WTO panel's finding of a violation of China's WTO rights by another government. Perhaps it is merely the intention of Article 56 to provide the authority to impose such retaliatory sanctions.

Structural Issues

Over and above the specifics of the New AD Regulations, several unusual features of China's government and economy may present future questions as to the consistency of China's anti-dumping laws with China's WTO obligations. Many of China's largest industries are still state-owned enterprises (SOEs). Many SOEs are expected to have difficulty competing as China opens under the WTO and are, therefore, the most likely Chinese industries to invoke anti-dumping rules for protection. State agencies will thus be investigating claims brought by state-owned industries. This presents a potential for a conflict of interest in very broad terms.

The potential for conflicts may be more direct in some circumstances. The SETC exercises broad supervisory and planning responsibilities over many sectors of the Chinese economy. In some instances it may be possible to argue that the SETC exercises some of the powers of the Chinese "state" as the "owner" of industries that are petitioners in anti-dumping proceedings. MOFTEC, too, exercises many state functions that may affect domestic industries. Both agencies have, in any event, regular and direct contacts on many levels with many of the Chinese industries that are likely to bring anti-dumping petitions. Chinese institutions are generally insensitive to conflicts of this kind, and they are accustomed to ex parte contacts during legal proceedings that would be unacceptable in many other countries. It seems likely that sooner or later one of these potential conflicts will cause foreign parties to question the impartiality of a Chinese anti-dumping investigation.

THE POLITICAL DIMENSION OF ANTI-DUMPING INVESTIGATIONS

Anti-dumping disputes around the world are intensely fought battles with high political and economic stakes. A domestic industry may fail altogether if it is unable to replace its former protection from customs duties with anti-dumping duties. Foreign exporters may bitterly resent anti-dumping duties that effectively close them out of markets in which they feel they are in fact competitive. Large corporate profits and tens of thousands of jobs may be at stake in both the exporting and importing countries. Local and national politicians will inevitably be sensitive to the resulting pressures from their constituents. The numerous anti-dumping cases brought by the domestic US steel industry against foreign steel exports are only one dramatic recent example of the domestic and international political issues that can easily arise in this context.

These political and economic issues will inevitably appear in China. Indeed, the remarkable scale and rapidity of the adjustments required for China to enter the WTO seem likely to make these problems more acute in China than elsewhere. The bankruptcy of a major Chinese SOE can mean unemployment for tens of thousands of workers who lack an adequate social safety net on which they can rely. Chinese politicians, like politicians elsewhere, will respond to the resulting problems in their constituencies. At the same time, foreign industries effectively barred from the Chinese market by new anti-dumping barriers may feel that the expected benefits of China's WTO entry have been lost to them. They will bring pressure on their governments to obtain redress. China's leaders will be caught in the middle.

Under these circumstances, it seems reasonable to expect Chinese anti-dumping decisions to wind up before WTO dispute resolution panels before long. The likely number of cases, as well as the importance of the interests at stake, suggests this will be the case. Unless there is a dramatic improvement in both Chinese investigative procedures and decisions, Chinese anti-dumping determinations may be particularly tempting targets for foreign companies and their governments. Moreover, unlike many WTO rules, the anti-dumping rules are clear and detailed and hence well suited to legal review. The remedy in an anti-dumping dispute is also relatively clear-cut: if the reviewing panel concludes that China's determination does not comply with WTO standards, the panel can simply order the anti-dumping measures revoked.

There may also be strong domestic political temptations for Chinese leaders to push off difficult cases to Geneva. Where the domestic pressures are sufficiently intense, Chinese leaders, rather than denying relief to Chinese companies because that relief is not justified under WTO anti-dumping rules, may find it politically easier to render determinations in favour of the Chinese companies and let the cases be taken before a distant WTO panel. This will put the issue off for approximately 18 months, including appeals. If China loses, the government will then have to decide whether to comply or to confront retaliatory sanctions by the successful government. In either event, on the domestic political front Chinese leaders can blame the international authorities for the results.

Internationally, any Chinese disputes over anti-dumping decisions will also become enmeshed in the intricate political game of international trade disputes. The choice of which disputes to take to a WTO dispute resolution panel is often a complex strategic issue. A bilateral dispute may have multilateral implications or may risk setting a precedent that the applicant state will later regret in its own practices. There are often potential trade-offs between the grievances of different countries, either in other pending disputes or in negotiations. All that can be said with confidence is that disputes involving China's anti-dumping practices seem likely to become active pawns in this larger diplomatic chess match.

Endnotes

1. Promulgated by the State Council on November 26 2001, and effective January 1 2002.
   
2. "Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade," in The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts, GATT Secretariat, 1994, pp. 168-69.
   
3. CCH, China Law for Foreign Business, paragraphs 19-586.
   
4. Ibid, paragraphs 19-620.
   
5. MOFTEC Announcement [2001] No. 13, Dec. 6 2001, in Investigation of Polystyrene Products from Korea, Japan, and Thailand.
   
6. Almstedt & Norton, "China's Antidumping Laws and the WTO Antidumping Agreement," Journal of World Trade, December 2000, 34(6), pp. 75-114.
   
7. Norton & Almstedt, "Defending Dumping Claims: Exporters to China Beware," China Law & Practice, June 2000, 14(5), pp. 32-39.
   
8. The SETC's most recent ruling may be a marked and welcome departure from these practices. The SETC's dismissal of the Polystyrene case on December 6 2001, supra note 5, for lack of causation is much more thorough and analytical than its earlier decisions.
   
9. The SETC, for example, issued its own regulations for hearings under the pre-WTO rules and will presumably continue to follow them. Hearings held under these rules and attended by the authors were exemplary in their openness and procedural fairness. MOFTEC issued draft-hearing rules, which it also appeared to follow.