International Trade Law and Anti-Dumping Measures - Research Paper Example

Anti-Dumping Measures Institution Date Introduction The era where countries could use trade barriers as protectionist tools is long gone. Today, international trade is characterized by intensified economic co-operation and globalized trade. In the place of tariffs, countervailing and anti-dumping measures are becoming the new channels of trade protectionism. Since the WTO permits countervailing and anti-dumping measures, many developing countries are using them to protect local industries. Countervailing and anti-dumping measures have effectively replaced tariffs as the greatest barriers to international trade. China is one of the greatest targets of countervailing and anti-dumping measures by its trade partners. China is now officially the largest exporting country in the world having overtaken Germany several years ago. Unfortunately, the frequent victimization of Chinese exporters by countervailing and non-dumping measures is stifling the growth of the Chinese economy. One of the most significant anti-dumping campaigns against Chinese exporters has been mounted by the United States. The US is China closest trading partners as it is China’s largest export market. On the other hand, China is the third largest export destination for US goods. This essay discusses anti-dumping and countervailing measures and their impact on both the Chinese export industry and the economy. It starts by introducing the frequency and intensity of anti-dumping and countervailing measures by the US against China. Secondly, it analyzes some of the most discussed impacts of US anti-dumping and countervailing measures on Chinese exporters and the Chinese economy. Finally, it concludes that US anti-dumping and countervailing measures are unfair and have had a devastation effect on the Chinese economy and there is urgent need for regulation of their future use in international trade. Nature of US Antidumping and Countervailing measures against China The US asserts that it has several reasons for imposing anti-dumping and countervailing measures against Chinese products1. The US frequently launches anti-dumping investigations against China and proceeds to take punitive actions against Chinese exporters in most case. US anti-dumping measures against China are thus large in numbers, number of affected products and punitive tariffs imposed2. Apparently, the effects of US anti-dumping and countervailing measures are significant and far-reaching in Chinese export industries. The US has launched more anti-dumping and countervailing measures against China than any other country. The US frequently launches anti-dumping investigations against a variety of Chinese products. Between 2000 and 2007, the US had begun over 59 Anti-dumping investigations against Chinese products3. Every year, the number and seriousness of anti-dumping and countervailing measures against Chinese products keeps increasing. One of the reasons given for the intensification of Anti-dumping measures is the increase in Sino-US trade. However, Soonchan Park argues that this does not explain why the punitive duties against Chinese products have increased dramatically4. Many times, the punitive duties on Chinese products lead to their exit from the United States market. The extra high punitive tariffs against Chinese products are one of the most bitterly contested issues in the Sino-US trade relations. In 2003, the United States punished Chinese exporters in the Saccharin case with the extremely high tariff of 329%5. The 2003 Handwagon case was another example where 486% punitive tariff was imposed. This incredulous tariff rates effectively makes export trade between the US and China in the affected good almost impossible. However, the US argues that similar measures have been taken by India which ranks lower as a Chinese export destination. Anti-dumping investigations against Chinese products are concentrated in China’s main export industries. According to Soonchan Park, anti-dumping complaints against China are mostly concentrated in the Steel, Textile, Chemicals and mineral sectors6. A common characteristic among these industries is that they are labour intensive and very little value is added to the finished product through processing. In developing countries like the US, the industries are sunset industries. In contrast, China and other industrializing countries have made these labour-intensive industries their economic mainstay. China’s chemicals and minerals headed the list of the most targeted industries for anti-dumping and countervailing measures. Over 75 per cent of antidumping or countervailing measures were related to textiles, chemicals, metals, electrical equipment, plastics and clothing7. Chinese producers argue that their products follow standard production structures and their low-pricing is just a reaction to competitive forces. Domestic firms from the US have been implicated in the use anti-dumping and countervailing as instruments to squeeze Chinese exporters from their market8. Chinese producers have argued that anti-dumping and countervailing measures could slow Chinese production, and lead to bankruptcy of companies which would in turn cause loss of jobs. Many of the targeted industries are labour intensive and western export markets are the main sources of sale revenue. Unfortunately, China is likely to continue suffering from the Anti-dumping protectionism because of its continued status as non-market economy. Since the 1930 Tariff Act, the US has imposed different trade tariffs on countries considered non-market economy9. According to Soonchan, the US takes a dim view of socialist economies. US economist argued that trade was monopolized by the government and price control determined market prices10. Therefore, the prices of exported goods were not market prices and reference had to be made to other economies for true prices to be determined. In many cases this meant higher tariffs for non-market economies which could not fulfill the six criteria for determining whether a country is a market economy. Arguably, China has already fulfilled the criteria for elevation to a market economy but it still has to wait until 2016 to be recognized as such. The US has adamantly refused to classify China as a market economy despite the great strides China has taken in liberalizing its market. The WTO allows its members to continue treating China as a non-market economy until next year. However, some 69 WTO member countries have recognized China as a market economy11. Unfortunately, China most important trading partners including the United States, Japan and China have remained adamant. China feels that its trade partners are acting dishonestly and unfair by failing to recognize her as a market economy. According to Jianguo (2006), China has been open to foreign investment for more than 30 years and conditions are optimum for their operations12. The Chinese government openly champions market liberalization and promotes the recognition of the country as a market economy. A report in 2005 revealed that China was at 75% market development; this is way above the 60% needed for recognition as a market economy. Unfortunately, its trading partners have cunningly refused to give China market economy recognition. In comparison, Russia which is a lesser developed market was recognized as a market economy in 2002. Many commentators argue that political motives underlie the continued refusal to recognize China as a market economy. Li argues that China’s failure to attain market economy status among its political partners is connected to trade conflicts and trade protectionism by some of its trade partners13. Unfortunately, China’s status as a non-market economy means it has some major disadvantage when competing with trade rivals14. China’s effort to achieve market status has seen the role of government in foreign trade and production planning decline greatly. As a result, the Chinese economy is characterized by duplicate investments and overcapacity15. The resulting overcapacity has increased downward pressure on prices; one of the characteristic of Chinese exports that mark them as perfect targets for antidumping measures. Unfortunately, Chinese manufacturers are yet to set up interest groups to cater for their interests in international trade disputes. In 2009, the US put up anti-dumping measures against the Chinese tire industry. The tire safeguard case best illustrates the painful experience of Chinese producers exporting to the American market16. The US government decided that Chinese tire manufacturers were dumping their products into the US market and slapped punitive duties on Chinese Tire exports. Unfortunately, this was done against a backdrop of a global economy recovering from the global financial crisis17. Many economists argued that trade protectionism was to be discouraged, but the US went ahead to effectively block Chinese Tire exports from their market. The United States was China’s main export market for its tire products. In 2009, China was exporting a third of its Tire products to the US market. It is little wonder that the Tire market has been one of the top Chinese industries suffering from US anti-dumping and countervailing measures18. Unfortunately, the US government punitive tariffs against Chinese tires set-off a chain of similar measures against Chinese manufactured tire products in other countries. Following the US Anti-dumping and countervailing final ruling on Chinese pneumatic OTR tires, several countries followed the US precedent19. US law allowed the government to charge Chinese tires an anti-dumping duty between 0% and 210.48%, and countervailing duty of 2.45% and 14%. In September 2008, the US government did impose punitive duties on Chinese car and light truck tires. The new stepwise punitive levy would be 35% in 2009, 30% in 2010 and 25% in 201120. The tire safeguard case had a great impact on the Chinese Tire industry. China had exported 30% of its total tire production to the US in 2008 which declined sharply in 200921. The tire import duty was effectively raised to 35% in 2009 up from 5% the previous year. The Chinese Rubber Association estimated that the imposition of the punitive tariff affected over 100,000 Chinese jobs22. Effects of US countervailing and anti-dumping measure Near collapse of industries Unfortunately, the US anti-dumping measures start a chain of protectionism that could bring a whole export industry to its knees. Following the Tire safeguard ruling, Brazil imposed a US$1.12-2.59 per KG anti-dumping tariff against Chinese manufactured tires in December 200923. Similarly, Argentina started levying a 24.96 to 88.27 anti-dumping tariff on Chinese truck and Bus tires for a period of five years24. This unfortunate turn of events set off by the United States hurt the Chinese Tire industry badly. By 2010, Chinese tire exports had declined by between 70% and 80%. In addition, the prices for raw materials shot-up. Wei asserts that US countervailing and anti-dumping measures stifled the development of the Chinese tire industry and put it in its worst position for decades25. The cost of the US safeguard cases can be said to be the number of Chinese Jobs lost, the more than 1 billion US dollar revenue lost by the industry and the possible withdrawal of Chinese tire manufacturers from the US market26. Allows Trade manipulation by Western Multinationals The assumption that anti-dumping and countervailing laws are used to even the playground of international trade is far from the truth27. Ordinarily, International trade is defined as export and import of goods and services where goods are allowed to enter and leave international border regardless of nationality or ownership of the producers. However, it is obvious that multinationals from some countries have favored status in the export of goods. Many multinational have altered international trade by off shoring production and trading with affiliates. In a many anti-dumping cases, the interests of multinationals come before those of smoothing and making international trade more equal28. In fact, many anti-dumping complaints are filed by proxies acting on behalf of multinationals. A case in point is the TV-antidumping case of 2003 against Chinese manufacturers. The US had threatened to slap an anti-dumping levy on TVs manufactured in China29. However, there were concerns that the measure would affect US based Phillips. However, Phillips gave the go ahead for imposition of the levy as it would have minimum effect on their operations30. They argued that they could move the production facility to China and export to the US market without having to worry about anti-dumping. Market Exit by Chinese manufacturers Sino-US trade has been increasing in recent decades, in effect China has become the biggest target of protectionist US anti-dumping and countervailing measures. Large quantities of Chinese products have been affected by punitive US Anti-dumping and Countervailing measures31. Losses of money and punitive tariffs have also seen many Chinese exporters forced to exit the US market. Chinese manufacturers exiting the US market are faced with the problem of finding new markets. Initially they have to cope with a slowdown in annual turnover as their market contract. In addition, the effect of the excess production on local markets is another issues as the product destined for the US market are mostly retained locally. Increasing political tension between the US and China Trade disputes between countries have serious bearing on political relations between the two countries. The intensification of countervailing and anti-dumping action against China and the US is likely to affect bilateral trade ties and increase political tension32. As seen earlier, long-term and high tariffs have effectively blocked some Chinese products from the US market. This has led to bankruptcy of some firms and the near collapse of whole industries. These measures ultimately affected the Chinese macroeconomy and China may consider the countervailing and anti-dumping measures as economic sabotage. Accusation of economic sabotage may be reinforced by the status of the US in economic trade matters. China has reason to consider US antidumping measures a political threat. As seen earlier, US anti-dumping measure have a strong demonstration effect on other countries. In the Tire safeguard case, Brazil, Argentina and India followed the US precedent of 35% punitive tariff on Chinese tires to impose their own anti-dumping duties on Chinese tires. This shows that the US measures have the potential to block Chinese products from multiple markets and reinforce the idea that the US is sabotaging the Chinese economy. Impact on Profitability and market share From the view of a single exporter, there is great decrease in profit margins following imposition of punitive anti-dumping measures. Chinese firms are left to cope with lesser profits or quit international markets where anti-dumping measures have been introduced. It pains many manufacturers to exit markets where it cost millions in investment to enter. Chinese manufacturers also lose market share as their product become more expensive. By 2005, Chinese TV makers’ share of the American Market had declined to 5.43% up from 12.69% in 200333. Impacts on Export markets According to Eisenstein, anti-dumping measures are a protectionist instrument used by developing countries to protect sunset industries34. Blocking Chinese products in the export market allows the domestic manufacturers to continue offering their products at high prices. For example, the US steel industry is involved in efforts to control the sale of Chinese steel in the US market. Unfortunately, the effective forcing out of Chinese products only benefits producers at the detriment of domestic consumers. Domestic consumers are denied the benefit of international trade from a diversity and affordability of products offered by Chinese manufacturers. Impact on Chinese Investment Environment The impact of the anti-dumping measures on the attractiveness of China as an investment destination is worth consideration. Foreign investments are an important factor in the growth and stability of the Chinese economy. However, anti-dumping measures affect the marketability of Chinese products internationally. Investors will have less confidence in investing in Chinese industries if they are unable to sell their products internationally. Tariff like Effect According to Loridas, anti-dumping measures have similar effects as trade tariffs on an import product35. Anti-dumping tariffs allow domestic producers to continue dominating home markets and allow the government to collect more revenue from exporters. However, like ordinary tariffs they raise prices for consumers and impact international trade negatively36. The effects of tariffs on trade can be applied to anti-dumping and countervailing measures. However, the effects of non-dumping measures is greater as seen by the chain of events it set-offs in other markets. Conclusion Chinese producers are having a hard time penetrating the US markets due to anti-dumping and countervailing measures. Chinese exporters have to contend with overcapacity and duplicate production which leads to intense price competition. Price competition leads to lowering of prices which ultimately see Chinese exporters accused of anti-dumping practices. Chinese firm’s price competitiveness has marked them as targets for anti-dumping and countervailing measures. However, there is concern that anti-dumping and countervailing punishments are veiled protectionism instruments. Many view these measures as instruments which developed countries use to protect their sunset industries. Unfortunately, antidumping and countervailing measures have been used on Chinese exporters resulting in devastating and detrimental effect on Chinese companies and their greater economy. One of the most notable impacts of US anti-dumping and countervailing measures is the locking out of Chinese exporters from the US market. Slapped with extremely high anti-dumping tariffs, some Chinese manufacturers had to exit the US market. In some cases, Tarrifs over 300% were slapped on Chinese produced goods. The effective blockage of Chinese products from the US industry has had devastating effect on entire industries. In the tire safeguard case, new stiff anti-dumping tariff brought the Chinese tire industry to its knees. Production decreased by over 70% as the tire industry struggled to cope with the 35% anti-dumping tariff imposed on tire exports to the United States. Chinese authorities argue that the tire safeguard tariffs affected over 100,000 Chinese jobs. Moreover, the tire safeguard case led to application of punitive tariffs against Chinese tires in three other countries. The tire safeguard case is just one of the many cases where US anti-dumping and countervailing measures have had a devastating effect on Chinese producers. The effect of these measures on the Chinese economy may give rise to accusations of economic sabotage which may worsen political tensions between the two trade partners. The WTO must step in to ensure that the application of US anti-dumping and countervailing measures is just and fair and does not result in devastating effects as seen in the tire safeguard case. The WTO should also regulate anti-dumping and countervailing tariff rates to make sure that they do not stifle international trade and squeeze competitive businesses out of international markets. The WTO should not allow anti-dumping to be used as protectionist instruments that serve the interest of western multinationals and their governments. Bibliography Bown, Chad P, ‘Assessing the G20 use of antidumping, safeguards and countervailing duties during the 2008-2009 crisis, ‘ (2010) Unequal Compliance: the 6th GTA Report, 39-47. Bown, Chad P, China's WTO entry: antidumping, safeguards, and dispute settlement: In China's Growing Role in World Trade, pp. 281-337 (University of Chicago Press, 2010) Charnovitz, Steve, and Bernard Hoekman, ‘US–Tyres: Upholding a WTO Accession Contract–Imposing Pain for Little Gain’ (2013) 12(2) World Trade Review, 273-296. 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