Sunsets Over Chinese Anti-dumping Measures: A Practical Guide

In July 2005, MOFCOM announced the impending expiry of five anti-dumping measures and initiated sunset reviews following requests by domestic producers. Specifically, sunset reviews were initiated in newsprint,¹ polyester film² and cold-rolled stainless steel sheets³ (the Three Sunset Reviews). Upon review, the anti-dumping measures on the three products were extended for another five years at the original anti-dumping duty rate.⁴ In addition, the anti-dumping measures on silicon steel from Russia and acrylic ester from Japan and the United States were both terminated, when a review by the domestic industry was not requested or initiated by MOFCOM.⁵

Regulatory framework governing sunset reviews

The PRC Anti-Dumping Regulations (the Regulations) (中华人民共和国反倾销条例)provide the law in relation to the conduct of sunset reviews. While MOFCOM has promulgated several administrative rules regarding various aspects of anti-dumping measures, such as the Tentative Rules for Information Disclosure for Anti-dumping Investigation (the Rules), it has yet to enact separate administrative rules that deal specifically with sunset reviews. Instead, MOFCOM conducts sunset reviews in accordance with the substantive as well as procedural rules applicable to original anti-dumping investigations by way of cross-referencing to the Regulations.

Articles 48 to 52 (Chapter V) of the Regulations relate to the duration and review of anti-dumping duties and price undertakings. In particular, Article 48 provides the legal basis for a sunset review on anti-dumping measures:

"The period for the levy of an anti-dumping duty and fulfilment of a price undertaking shall not exceed five years. However, the period for the levy of the anti-dumping duty may be extended as appropriate if, as a result of the review, it is determined that the termination of the anti-dumping duty would be likely to lead to continuation or recurrence of dumping and injury."

Reviews regarding the need for the continued imposition of an anti-dumping duty, commonly known as 'interim reviews' is provided for under Article 49, which is similar to Article 11.2 of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994. Article 49, Paragraph 1 of the Regulations generally provides:

"After an anti-dumping duty has taken effect, MOFCOM may decide on justifiable grounds to review the need for the continued imposition of the anti-dumping duty; such a review may also be conducted, provided that a reasonable period of time has elapsed, upon request by the interested parties and on the basis of examination of the relevant evidence submitted by the interested parties."

In the Three Sunset Reviews that have already commenced, MOFCOM referred to this provision as an applicable rule in its initiation notices. Article 49, Paragraph 2 contains similar rules regarding price undertakings.

The measures to be taken as a result of a sunset review are specified in Article 50, including the "retention, revision, or termination" of the original anti-dumping measure. Review proceedings must be completed within 12 months from the initiation date of the review. More importantly, reviews "shall be conducted with reference to the relevant provisions on anti-dumping investigations in the Regulations" (Article 51). This cross-reference suggests that the rules governing an original investigation apply mutatis mutandis to specific aspects of sunset reviews.

The "relevant provisions on anti-dumping investigations" are located in Chapter III of the Regulations regarding procedural rules and evidence in an original anti-dumping investigation. By referring to these provisions in sunset review initiation notices, MOFCOM has specifically identified the following Chapter III provisions as being applicable:

i. Article 11 (definition of 'domestic industry');

ii. Article 13 (legal standing of applicants for an anti-dumping investigation);

iii. Article 14 (formal requirements on applications);

iv. Article 16 (initiation), and

v. Article 17 (domestic industry support).

In addition, MOFCOM has referred to 'relevant provisions' governing substantive aspects of an original investigation in the context of a sunset review. In the Sunset Review Determination in Newsprint, for instance, MOFCOM applied Article 6 regarding calculation of dumping margins and relied on 'facts available' under Article 21⁶ due to the lack of participation by foreign respondents in the underlying review. Although MOFCOM did not specifically refer to the provisions applicable to injury determinations, the factors it examined in the Sunset Review Determination in Newsprint appear to be the same as those evaluated in an original anti-dumping investigation.

Lastly, Article 52 provides that an anti-dumping measure subject to a sunset review will remain effective during the sunset review investigation.

Sunset review procedure

On the basis of MOFCOM's sunset review practice, the following procedural aspects compares and highlights the similarities and differences between sunset review proceedings with original investigation proceedings.

Initiation

Approximately six months prior to an anti-dumping measure's fifth-year anniversary, a notice regarding the impending expiry of the measure is issued. So far, the notices issued by MOFCOM indicate that domestic industries must submit their written application for a sunset review no later than 60 days before the end of the measure's five-year expiry date. Similar to an original anti-dumping investigation, MOFCOM will make its decision regarding the initiation of a sunset review within 60 days of receiving the request for a review. However, unlike an original investigation, there is no mechanism for foreign exporters/producers to comment on the request for initiation of a review.

Registration

A sunset review includes an assessment of both dumping and injury. The procedures that apply to registration and questionnaire responses are largely the same as those that apply in original investigations. Therefore, foreign exporters/producers are required to register with both the Bureau of Fair Trade and the Bureau of Industry Injury Investigation within 20 days of the initiation date if they want to participate in the review. Similarly, in an original investigation, belated registration by foreign exporters/producers precludes them from participating in the review.

Questionnaires and investigation periods

According to the initiation notices of the Three Sunset Reviews, the periods of review (POR) for dumping and injury are one year and five years respectively, prior to initiation date of the review. Therefore, the time-span of POR in sunset reviews is the same as the periods of investigation in an original anti-dumping proceeding. However, in its sunset review practice, MOFCOM may request for relevant information regarding the time periods prior to the stated POR and other information not typically examined in an original investigation. Accordingly, questionnaires used in a sunset review differ from those used in an original investigation in two respects.

Firstly, a dumping questionnaire for a sunset review generally requests foreign exporters/producers or respondents to provide information regarding their business situations over the five-year period during which the measure was in effect. This information is collected by MOFCOM to understand the impact anti-dumping measures have had on the respondents. In an original investigation questionnaire, this information is not required. However, specific detailed information regarding production costs and expenses requested in an original investigation are not required in a sunset review.

Secondly, injury questionnaires for sunset review domestic producers are more detailed than those used in original investigations. In particular, MOFCOM may also request relevant data for the year prior to the imposition of the anti-dumping measure in addition to information regarding the five-year POR, to gain a better understanding of the impact of the measure. For example, in the sunset reviews for polyester film and cold-rolled stainless steel sheet, information regarding production capacity, output, export price and profits of the domestic producers for the six-year period before initiation of review was requested. It should be noted that the six-year period is known as a 'period of data analysis', rather than 'period of investigation' in these questionnaires.

The time limits for responding to dumping and injury questionnaires in sunset reviews are the same as those that apply in original investigations, namely 37 days and 30 days respectively.

Hearing and verification

MOFCOM held a hearing two months after initiation of the newsprint sunset review, where the newspaper industry in China submitted comments regarding the review. Additionally, MOFCOM conducted on-site verifications with respect to four domestic producers and approximately four to five months before the issuance of the final determination, held a hearing where submissions by the remaining eight domestic producers were examined. Foreign companies did not participate in this review and MOFCOM relied on facts available to establish dumping margins. Information regarding hearing and verification procedures in the other two sunset reviews is not yet publicly available.

Final determination

At the end of the sunset review proceeding in newsprint, MOFCOM issued a determination. By contrast, a preliminary determination is provided in an original investigation. After referring to the Rules, MOFCOM in newsprint disclosed to the interested parties the facts on which it based its determination including the likelihood of continuation or recurrence of dumping and provided an opportunity for comments. Thus, while Article 51 of the Regulations provides that review proceedings must be conducted according to provisions relevant to an original investigation 'in the Regulations', it seems that MOFCOM will also rely on relevant administrative rules of the original investigations when conducting a sunset review.

KEY elements in the newsprint sunset review

China's sunset review in newsprint was initiated in June 2003 and concluded a year later. MOFCOM found that if the anti-dumping measure was revoked, a continuation or recurrence of dumping and injury would be likely and therefore, extended the anti-dumping measure on imports of newsprint from Canada, Korea, and the United States (the Subject Countries) "at the original duty rate" for another five years.

Continued existence of dumping

In the 12 months immediately preceding the initiation of the sunset review, MOFCOM began determining the dumping margins during the POR. Due to the absence of foreign companies participating in the newsprint sunset review, MOFCOM relied on facts available and found positive dumping margins with respect to Canadian and US companies. In relation to Korean companies, MOFCOM found that there were no Korean imports into China during the POR and therefore did not reach a finding.

MOFCOM's sunset determination does not contain any information on how these margins were calculated based on the 'facts available'. Furthermore, although the dumping margins established in the sunset review were lower than those found in the original investigation, MOFCOM nevertheless decided to use the original duty rate when extending the anti-dumping measure. No explanation in this regard was provided.

Likelihood of continuation or recurrence of dumping

In examining the likelihood of continuation or recurrence of dumping, MOFCOM reviewed the following statistics over the five-year period during which the anti-dumping measure was in place:

(i) production capacity, production quantity, idle capacity; utilization, domestic consumption, and inventory of newsprint in the subject countries;

(ii) newsprint export from the subject countries, and

(iii) anti-dumping measures imposed by third-country governments on newsprint from these countries.

MOFCOM found that the subject countries had substantial idle capacity and inventory for newsprint while domestic consumption in those countries was declining.

MOFCOM also took notice of the anti-dumping measures imposed on newsprint from the subject countries by other third-country governments. In countries where no anti-dumping measures were in place, MOFCOM found that newsprint from the subject countries was imported in large quantities at prices below their normal values during the last two years preceding the initiation of the review. Import quantities of newsprint from the subject countries to China before and after the imposition of the anti-dumping measure in 1998 were also compared and substantial decreases of imported newsprint since the imposition of the measure were found. According to MOFCOM, such import data demonstrated that the producers/exporters in the subject countries could only enter the Chinese market using large quantities by way of dumping and concluded that dumping would be likely to continue and/or recur should the anti-dumping measure be revoked.

Continued existence of injury

MOFCOM examined various economic factors that have a bearing on the domestic industry and found that the injury caused by the subject imports was eliminated during the POR. The factors examined in this regard are similar to those typically examined in an original investigation. They include domestic consumption, production capacity, output, sales, prices, sales revenue, profits, inventory, capacity utilization, market share, productivity, wages, employment, return on investment, cashflow, and loans and investments.

Likelihood of continuation or recurrence of injury

The estimated domestic demand was compared with the total of estimated imports and domestic production in 2005, and MOFCOM predicted a severe oversupply in the Chinese newsprint market. MOFCOM also found that the oversupply of newsprint in China would be worsened by large quantities of dumped imports from the subject countries due to the following factors:

i. the reliance on exports by newsprint industries in the subject countries;

ii. the significant idle capacity in those countries, and

iii. the trade remedy measures imposed by certain third countries.

In addition, MOFCOM found that further decreases in import prices were anticipated given the declining trend of newsprint import prices and the tariff reduction scheduled for newsprint in the near future. In light of these factors, MOFCOM concluded that injury to the domestic newsprint industry would be likely to recur should the anti-dumping measure be terminated.

Preparation for imminent sunset review

MOFCOM is planning to update and revise its current administrative rules including promulgation of sunset review rules. In the meantime, however, China's regulations contain limited provisions that specifically govern sunset reviews of anti-dumping measures. Although the rules applicable to original investigations are applied mutatis mutandis, in practice, to sunset reviews by cross-reference to the Regulations, there are important differences between original investigations and sunset reviews. An appreciation of the similarities and differences between original investigations and sunset reviews may help foreign producers and exporters to better prepare for potential sunset reviews that may take place in the future.

Endnotes

1 MOFCOM Public Announcement No. 28 of 2003 (Sunset Review Initiation Notice in Newsprint), July 1 2003.

2 MOFCOM Public Announcement No. 84 of 2004 (Sunset Review Initiation Notice in Polyester Film), December 28 2004.

3 MOFCOM Public Announcement No. 15 of 2005 (Sunset Review Initiation Notice in Cold-rolled Steel), April 8 2005.

4 See MOFCOM Public Announcement No. 30 of 2004, Final Determination in the Sunset Review of the Anti-dumping Duty on Imports of Newsprint from Canada, Korea and the United States (Sunset Review Determination in Newsprint), June 30 2004.

5 See MOFCOM Public Notice No. 76 of 2004, Termination of the Anti-dumping Measure on Imports of Cold-rolled Silicon Steel from Russia, December 29 2004; MOFCOM Public Notice No. 71 of 2005, Termination of the Anti-dumping Measure on Imports of Acrylic Ester from Japan and the United States, November 23 2005.

6 Article 21 of the Regulations provides that "the interested parties shall provide necessary and authentic information to the investigation authorities during the investigation. In cases in which any interested party refuses access to, or otherwise does not provide necessary information within a reasonable period or significantly impedes the investigation, determinations may be made on the basis of the facts available."