The Sino-EU Trade: Antidumping Actions Still a Block

Introduction

According to the World Trade Organization (WTO)， if a company exports a product at a price lower than the price it normally charges on its own home market， it is said to be “dumping” the product. However， the WTO agreement does not make a judgement on whether it is right or wrong. Instead， the‘Anti-dumping agreement’ disciplines antidumping actions.

Anti-dumping lawsuits by EU against China have been increasingly frequent since 1993. As the one of the largest emerging economies in the world， China entered WTO in the 2001 in the Doha Round Negotiation. Economic development of China is then accelerated with that wider openness. However， lawsuits and limits regarding anti-dumping do not stop with the recent development. EU has attacked China by anti-dumping investigations since 1993. Even worse， in the July of 2009， the EU raised 5 anti-dumping cases against imports from China in only 3 weeks. Anti-dumping suits mainly focus on such products as textile， shoes and the steel-related.

It is argued that it is the protectionism of EU and the feature of Chinese importing industries that make anti-dumping charge so commonly occur. In a certain industry， companies are usually concentrated in EU while those are rather dispersed in China. For instance， cloth retailers in EU are usually gathered in a certain city or area while in China， those cloth factories are dispersed in different cities in Zhejiang and Fujian Provinces. Industrial aggregation usually leads to higher degree of cooperation on prices and products， monopoly or oligopoly as a result. Therefore， with a higher wage level in EU， prices of those products are often higher in EU， thus enabling the entrance of Chinese products which have lower prices. Domestic consumers in EU countries will want to buy a commodity at the lower ‘China price’ and consume more while domestic producers will have to lower their output because the domestic price must move to the lower price. Thus， although total surplus of the importer is increased， domestic producers are actually worse-off in the exchange (their surplus is decreased by imports). As a result， the employment and wages incomes in those sectors will decrease and unemployed workers might not find job in short-run.

Currently， EU’s imports from China are mostly textiles， shoes and bicycles. The industries of those imports are characterized by being labour-intensive， able to improve employment to a large extent. Protectionism of EU has been raised since the occurrence of financial crisis in the 2007. Therefore， antidumping charges have become commonplace for Chinese exporters. It should be pointed out that industrial aggregation as previously said indicate that the bargain power of labour over wages and employment are very strong， thus putting a large pressure on EU government to improve employment and wages.

Consequence of antidumping measures taken by EU is the loss of revenues， which

further leads to drops in social surplus of China because of higher duties， lower quota and price undertakings(force the exporter to sell its products at a certain higher price). With those strict antidumping measures， Chinese exporters are discouraged from exporting products to EU， leading to fall in the total surplus of China.

The legal issues

After the 1980s， China has almost become the ‘target’ of anti-dumping accusations from EU， especially before 1998 when China is regarded as a nonmarket economy. Table 1 shows antidumping investigations initiated from 1995 to 1998 with shares of those involving China.

Recent cases involve anti-dumping accusation of bicycles， shoes and steel parts such as nuts and bolts. It is reported that the amount of bicycle exported to EU produced in Shaoxing， Zhejiang has become zero now because of antidumping measures. Also， after antidumping investigations on China’s iron and steel fasteners from 2007 to 2008， EU decided to levy a tax of up to 87% on Chinese imports of fasteners， seriously affecting those producers in Jiaxing， Zhejiang.

Market economy status

In July 1998， China was deleted from the list of NME countries， but that cannot help defend Chinese companies much. Market economy status is not granted automatically to defending Chinese companies. Only if Chinese exporters can prove that they are operating under market economy conditions， information on domestic prices and costs of Chinese exporters rather than information from an analogue country will be used to establish the normal value of those products. In 2002 when China had joined WTO， 32 Chi-

nese companies involved in 9 cases applied for MES， but only 5 of them have been approved by the Commission. All these 5 companies are either foreignfunded enterprises (FFEs) or joint-ventures (JVs). None of State-Owned Enterprises (SOEs) has been given MES. Typical reasons for the rejection at the beginning of 21st Century include state interference， accounting criteria， degree of cooperation etc.

Material injury

Doubts on the EU anti-dumping law lie in the recognizing of the existence of material injury or threats of such injury to certain Community industry (industries).

According to Official Journal of the European Union (L343/52)， only after such injury is identified can antidumping duties be collected. However， EU legislation does not define ‘material injury’， instead， it gives basis on which the material injury can be established: (a) the volume of the dumped imports and the effect of the dumped imports on the pricing in the Community market for similar products; and (b) the impact of those imports on the Community industry. Without a clear definition， those two ‘principles’ actually gives EU authorities a great flexibility on the determination of ‘material injury’ so that EU Court can rule in favour of Community industry (industries).

In addition， Official Journal of the European Union (L343/57) states that‘a cumulative assessment of the effects of the imports from various countries is appropriate in light of the conditions of competition between imported products and the conditions of competition between the imported products and the like Community product’. Because that term is presented vague， cumulative assessment which make it more likely to find material injury seems inevitable for China. As differences exists in various exporting countries， such cumulative assessment， though permitted under WTO， proves to be unfair for those nations that do not dump. Thus， it is important for Chinese exporters to firstly learn the importers’ market volume， industry situation and trading with other nations， especially.

Furthermore， although Official Journal of the European Union(L343/58) states that ‘in spotting threat of material injury， the change in circumstances which would create a situation in which the dumping would cause injury must be clearly foreseen and imminent’， factors listed that can be taken into consideration to decide on the existence of the threat of a material injury are so ambiguous that officials of EU can over-use threat of material injury as a reason for exercising anti-dumping measures to China to implement protectionism.

Causal relationship

Terms regarding identifying the causal relationship between dumping and injury to domestic industry appear to be another way to protectionism.

According to ‘Agreement on Implementation of Article Viof the General Agreement on Tariffs And Trade 1994’， ‘the demonstration of a causal relationship between the dumped imports and the injury to the domestic industry shall be based on an examination of all relevant evidence’. The authorities shall also examine the injuries caused by these other factors not attributed to the dumped imports. Thus， factors which may be relevant in this respect include， but not limited to， the volumes and prices of imports not sold at dumping prices， demand or changes in the patterns of consumption， developments in technology， and the export performance and productivity of the domestic industry. Generally， only after the causal link is ascertained can a dumping duty be applied. In most cases， the injury to Community industry is caused by both dumping and non-dumping factors. Nevertheless， it is stipulated that if the complaint can prove that dumped products constitute one of the factors contributing to the injury， causal

link is built (Usually， if the complaint can demonstrate that the impact of imported goods on sales of goods produced by Community industry is higher than a minimum degree---usually 5%， the causal link is then built). Thus， the investigation to establish the causal link is subject to sample biases---if EU wants to protect Community industry， the Committee would not draw samples from local companies completely in the investigation. Other biased-nesses include: omitting other important variables explaining the decline of Community industry. Even it does not subject to sample bias; the‘minimum degree’ is a very low threshold for most Community industries.

However， that does not indicate that Chinese exporters will be inevitably worse off because there are still some spaces for arguing. When faced with antidumping lawsuits， exporters should focus on the collection of evidence supporting that the injury is not caused by the products exported. Therefore， the information needed to collect

should include operation situations of companies in the Community industry， production， amount of imports， prices， demand and market share of the imports and local products in the importing nation(s). Additionally， if exporters can prove that there are differences in the products， distribution channels and product qualities， causal relationship can also be disproved.

The future perspective

Because EU has been the largest China’s trading partner， it has become even more crucial for China to deal with antidumping measures taken by EU. Therefore， both the Chinese government and enterprises should take effort to preserve rights to the largest extent.

For Chinese government

The Chinese government should further negotiate with EU. As previously pointed out， although China is deleted from the list of non-market economy， it is not fully treated as a market economy. Thus， Chinese government should strengthen the communication and cooperation with EU: Chinese government should prove that Chinese companies actually comply with market economy and should get a full understanding of reasons for the rejection of application for MES. A more core job for the government is to require EU to get those unreasonable terms an1ed， for example， the low threshold for the establishment of causal link.

On the other hand， the government should be more careful on the legislation so that rules and standards in China are consistent with the international ones. With the completion of that， Chinese exporters can be in a better position when faced with antidumping investigations and accusations. Meanwhile， those departments responsible for the industries whose products are exported should launch an inspection system to scrutinize exporting amounts and prices of those goods exported. For those goods that have a significantly low exporting price， measures should be taken to limit the amount of exports so as to avoid antidumping lawsuits. For Chinese enterprises

Chinese enterprise should also play a role to deal with unfair antidumping measures.

Firstly， innovations should be encouraged in Chinese companies. It should be admitted that Chinese exports are usually featured by low-tech and low-value-added. Therefore， currently， almost all advantages of Chinese exports lie in the low-price. No wonder China is almost the target of anti- dumping accusations. If an enterprise innovates in its technology， quality of products will be improved， along with increase in production costs. In that way， advantage of Chinese exports would shift from low price to high quality. Though costs are increased by innovations， antidumping suits will be effectively avoided.

Another suggestion for Chinese enterprises is to broaden their markets to other newly-emerging economies. Because the main trading partners of China-EU， USA and Japan are facing financial crisis， protectionism seems to dominate in trading principles of those nations. However， such emerging economies as South America， India and Arabia regions seem to maintain their strengths. Chinese exports are more possibly to be treated equally.

With China’s membership in WTO， Chinese enterprise can be more active in protecting their rights. Faced with antidumping accusations， most enterprises choose not to respond. Also， they reject to cooperate with EU Committee for investigations. One of the rationales for not being involved in is that managers of those enterprises are not familiar with EU legislation or WTO regulations. Thus， in the future， Chinese enterprises would on the one hand focus on providing evidence in favour of them rather than not cooperating， and employ those job applicants familiar with WTO regulations on the other.

(Author: from the University of Nottingham Ningbo， China)