I OVERVIEW OF TRADE REMEDIES
China first introduced anti-dumping measures in the Foreign Trade Law in May 1994. In 1997, China promulgated the Anti-dumping and Anti-subsidy Regulations and initiated its first trade remedy case – the anti-dumping investigation against newsprint from Korea, Canada and the United States. Nowadays China has become one of the major users of trade remedy measures.
As of June 2018, China has initiated 105 anti-dumping investigations, 10 anti-subsidy investigations and two safeguards investigations.
II LEGAL FRAMEWORK
There are three basic trade remedy regulations of China: the Anti-dumping Regulations, the Anti-subsidy Regulations and the Safeguards Regulations, all of which were enacted in 2002 and amended in 2004.
The Ministry of Commerce (MOFCOM) is the competent authority in charge of all trade remedy cases. MOFCOM has also promulgated a number of implementing rules concerning various issues, such as initiation, questionnaire response, hearing, verification, etc., throughout the investigations.
After China's accession to the WTO, the People's Supreme Court promulgated three rules concerning judicial review of trade remedy measures in 2002 – Rules on Certain Issues Concerning Hearing of International Trade Administrative Cases, Rules on Certain Issues Related to Application of Law in Hearing of Anti-dumping Administrative Cases and Rules on Certain Issues Related to Application of Law in Hearing of Anti-subsidy Administrative Cases. There have been no cases brought to judicial review to date.
III RECENT CHANGES TO THE REGIME
Before April 2014, the dumping and subsidy investigation and the injury investigation were conducted separately by two bureaus under MOFCOM, specifically, the Fair Trade Bureau determining dumping and subsidy and the Industry Investigation Bureau deciding on injury. After April 2014, the two bureaus were combined into a single investigating agency – the Trade Remedy and Investigation Bureau (TRIB). Since then, the same team from TRIB assigned to a case will conduct both the dumping/subsidy and the injury investigations.
IV SIGNIFICANT LEGAL AND PRACTICAL DEVELOPMENTS
i Interim reviews – more cases based on domestic industry's requests as compared to exporters' requests
It is not easy for interested parties to persuade MOFCOM to initiate interim reviews seeking to update its anti-dumping duty rates, particularly for foreign producers/exporters. From 2012 to the first half of 2018, MOFCOM initiated 11 interim reviews in total: three in 2012, none in 2013–2014, two in 2015, three in 2016, two in 2017 and one in the first half of 2018. Notably, among the 11 interim reviews, only three were based on foreign producers/exporters' requests, while nine were based on domestic industries' requests.2 Those interim reviews as requested by Chinese domestic industries always result in raising anti-dumping duty rates.
ii The second safeguard investigation after 14 years
MOFCOM initiated a safeguard investigation on sugar in September 2016, which is the second safeguard investigation by China. The first one was in 2002 on certain iron and steel products.
The 2002 steel investigation was initiated under special circumstances related to the US investigation. On 20 March 2002, the US government imposed safeguard measures by imposing special duties and a tariff rate quota. These US safeguard measures severely impacted the international trading for steel industries, and, as a result, major trade partners, including China, the EU and Canada, imposed their own safeguard measures as counter-measures and also brought the investigation to the WTO Dispute Settlement Body.
To some extent, the sugar investigation is the first safeguard investigation China initiated based on its own concerns. The sugar investigation was completed in May 2017 with a result of safeguard measures of special duties of 45 per cent, 40 per cent and 35 per cent for the first year, the second year and the third year respectively. Over the past decade, the government of China has not resorted to safeguard measures to protect its domestic industries. In light of the greater uncertainty in international trade policies taken by the world major trading partners, particularly the US trade policies under the Trump administration, it is yet to be seen whether the government of China might change its position after the sugar investigation.
iii DDGS and sorghum investigations – MOFCOM's sampling practice
More than 80 US companies registered with MOFCOM to participate in the anti-dumping anti-subsidy investigations against distiller's dried grains with or without solubles (DDGS) from the United States. MOFCOM decided to select respondents for individual examination through a sampling procedure.
In previous investigations, MOFCOM had always based its sampling decisions on the simple sales information reported in the registration forms. In the DDGS case, however, MOFCOM issued sampling questionnaires for the first time to the registered US respondents. The sampling questionnaires are quite complicated. For example, MOFCOM requested all registered companies to 'provide the name, address, and contact number of all the suppliers from whom your company purchased corn or other grains used for the production of the Product Under Investigation during the POI'. In addition, MOFCOM also requested information that was not normally required for sampling purposes, such as information regarding shareholders, subsidiaries, production and sales costs, domestic sales and exports to third-country markets, as well as information that relates to a material injury investigation such as Chinese like products, sales and production capacity.
Completing such complex sampling questionnaires in 15 days was not an easy task. Many respondents failed to provide complete information requested and were eventually determined as uncooperative by MOFCOM.
In this regard, the anti-dumping anti-subsidy investigations against grain sorghum from the United States in 2018 are even more extreme examples. In sorghum investigations, MOFCOM deviated from its long-time practice and did not conduct sampling before issuing its anti-dumping and anti-subsidy questionnaires. MOFCOM required all interested parties, including over 20,000 US sorghum farmers, to respond to its anti-dumping and anti-subsidy questionnaires. All US producers or exporters who failed to provide complete information requested were determined as uncooperative by MOFCOM.
iv DDGS and sorghum investigations – traders v. producers
It is MOFCOM's long-established practice that MOFCOM assigns individual dumping/subsidy duties only to foreign producers, not to traders. For exports through foreign trading companies, anti-dumping/anti-subsidy duties assigned to foreign producers will be applied.
This producers only practice was faced with challenges in the DDGS case. Unlike vertically integrated industries, the US DDGS industry consists of a large number of producers, marketing companies, traders and exporters. Most of them are not affiliated with one another in any manner. The US DDGS are produced at over 100 ethanol plants, and sold to the Chinese market through many different channels, such as via: (1) sales on the spot market to unaffiliated traders, who then resell to China and other countries; (2) sales under contract to unaffiliated traders, who then resell to China and other countries; (3) indirect purchase from a producer by an unaffiliated trader (usually through another trader); (4) purchase by one or multiple unaffiliated traders through marketing companies that sell for one or multiple producers who then export the DDGS to China and other countries; and (5) direct sale to importers or customers in China by a producer or its affiliated reseller. Only a small number of US producers are themselves responsible for sale or export of their products to China through their own company or its affiliates. On the other hand, the vast majority of DDGS exports to China were not made directly by US producers themselves, but through intermediaries, and, thus, US producers do not know, nor do they control, the destination of their DDGS after they are sold to traders or any intermediary parties.
Despite this unique and complex trading pattern in the industry, MOFCOM declined to deviate from its normal practice and continued to select respondents only from the producers and excluded traders (unless they were producers at the same time) from the sampling pool.
MOFCOM's sampling methodology was a bit different. The sampling was based on the total sales volume, rather than the export volume to China as usual, of the self-produced DDGS (including domestic sales and exports), excluding purchased products, by the US DDGS producers. MOFCOM selected three US producers (including their affiliated companies) for individual examinations: POET LLC, Big River Resources LLC, Marquis Energy LLC and its affiliate Marquis Energy-Wisconsin LLC.
Owing to the unique trading pattern in the industry, the sampled producers most of the time do not have the knowledge of the destinations of their products being sold through intermediaries. MOFCOM, therefore, found they failed to provide complete and accurate information regarding both their exports to China and their domestic sales.
In its final determination, MOFCOM stated that it could not verify the completeness, accuracy and authenticity of domestic sales data reported by the respondent Marquis. It, therefore, found the domestic sales data reported unsuitable as the basis for determining the normal value, and opted to use the constructed value (i.e., production cost plus reasonable expenses and profit) to determine the normal value. For the export price, MOFCOM accepted the sale price of Marquis Energy to Chinese unaffiliated importers or US unaffiliated traders, but used the 'reasonably presumed export price' for Marquis Energy-Wisconsin because it was found that it had failed to provide complete and accurate information regarding its exports to China. The 'reasonably presumed export price' for Marquis Energy-Wisconsin was in fact the export price determined for Marquis Energy.
For the other two respondents POET and Big River, MOFCOM calculated their normal values based on the constructed cost (i.e., production costs plus reasonable expenses and profits), and determined their export prices based on 'reasonably presumed export price', which is also the export price to unaffiliated customers determined for another respondent Marquis Energy.
For other cooperative companies, MOFCOM calculated a weighted average dumping margin using total sales volume of DDGS sold during the POI as the weighing factor.
Although MOFCOM adopted the cooperative sampled companies' own data to determine their normal values, the export prices for all respondents were based exclusively on one: the export data of one respondent (Marquis Energy), and only the sales where Marquis Energy knew its DDGS would be exported to China at the time of the sale.
As one can see, MOFCOM also acknowledged that owing to the unique and complex trading patterns in the industry, the majority of DDGS exports to China were not made directly by producers themselves, but through intermediaries; and, thus, the producers did not know, nor did they control the destination of their products in the cases of sales to traders or any intermediaries. Thus, the methodologies used by MOFCOM in the DDGS case to sample, to determine export price and to calculate dumping margin for cooperative companies would not encompass the majority of exports of US DDGS to China. It is doubtful that the dumping margins of 42.2 per cent to 50 per cent determined by MOFCOM can be representative for the US DDGS industry.
In this regard, the anti-dumping anti-subsidy investigations against sorghum from the United States in 2018 are even more extreme examples. The US grain sorghum industry consists of a large number of SMEs, farmer producers, marketing companies and traders/exporters, almost all of whom are not affiliated with one another in any manner. The over-20,000 farmers who grow grain sorghum in the United States do not themselves export sorghum to China. They sell it locally to traders/exporters and others, who are then responsible for any sales to China and setting the price for exports to China. The farmers play no direct role in exports to China.
In the anti-dumping preliminary determination, MOFCOM assigned the dumping margin of 178.6 per cent for all US companies completely based on the best information available, because it determined that no US respondent provided sufficient information requested. However, it is still interesting to observe the different treatments of MOFCOM for producers and exporters in this case. On the one hand, MOFCOM calculated the individual dumping margin for 18 US sorghum producers of which CHS Inc claimed to MOFCOM to be a sorghum producer and exporter but only provided MOFCOM with sales data as a trader. On the other hand, MOFCOM determined to apply the 'all others' rate to the five US responding traders because they did not provide sufficient information for MOFCOM to calculate individual dumping margins for them. We wonder whether the US sorghum responding traders would be entitled to individual anti-dumping duty under the Chinese anti-dumping rules if they had provided all of the information that was requested.
v Sunset or not?
According to the WTO Antidumping Agreement, any definitive anti-dumping duty shall be terminated on a date no later than five years from its imposition, unless the authorities determine in a review that the expiry of the duty would likely lead to continuation or recurrence of dumping and injury.3
The WTO Antidumping Agreement does not specify whether a second sunset review can be initiated before the expiration of an anti-dumping duty extended by a previous sunset review; as a result, different WTO members adopt different approaches in practice. In China, MOFCOM did not initiate a second sunset review on anti-dumping duties extended by a previous sunset review until 28 September 2014. Before that, the anti-dumping duties were always lifted after one or two five-year terms of anti-dumping measures being in place. In the newsprint and polyester film investigations, domestic industries requested the initiation of a second sunset review, but later withdrew their requests. This is seen to be related to the position of China in the WTO Doha negotiations on anti-dumping rules: China had argued vigorously for the automatic termination of all anti-dumping duties within 10 years of the imposition of the definitive anti-dumping duty.
In the Doha round of WTO negotiations, delegations had widely differing views regarding various aspects of the sunset review issue, especially on whether there should be any automatic termination of anti-dumping duties after a given period of time and, if so, how long. On the two extremes of this issue were those delegations that favoured automatic termination after five years without any possibility of extension and those that reject the principle of automatic termination (anti-dumping duties can be extended through sunset review) altogether. China argued on this issue that, 'In no event, shall such a review be initiated more than one time and any definitive anti-dumping duty be applied for a period longer than ten years from the date of its imposition.'4
This position reflects China's understanding of the intent and spirit of Article 11.3 of the WTO Anti-dumping Agreement (provisions concerning the sunset review issue). China, along with other friends of anti-dumping (FANs), pointed out that Article 11.3 adopts the structure of 'shall be terminated ..., unless ...' and 'this suggests that most, if not all, AD measures will be terminated after 5 years', and that sunset review is just a 'unless' case. However, 'the current situation is that undue emphasis has been put on the “unless” clause' and anti-dumping duties are being extended repeatedly through sunset reviews'. This contradicts the spirit of the WTO Anti-dumping Agreement and the entire sunset review system. Therefore, FANs argued that anti-dumping duties should be terminated after a period of imposition (periods are different according to proposals by different members, for example, five years, eight years or 10 years). FANs further explained that:
[T]he essence of the proposal is to prevent the case of extending AD measures through a forward-looking analysis (i.e., likelihood test). After the lapse of the five years, exporters must be given clearance and a further restriction should only be made possible through an analysis on the current (or immediate past) situation ('he is (has been) dumping') and not by the prediction of the future ('he is likely to dump'). An anti-dumping measure must not be taken in a pre-emptive manner.5
China was always an active supporter of this proposal.
The Doha round negotiations had come to a deadlock. China's position on the sunset issue appears to be changing too. On 28 September 2014, MOFCOM initiated the second sunset review of the anti-dumping measures on the imported PVC originated from the US, Korea, Japan and Russia. As a result of the review, the anti-dumping measures on the imports from the US, Korea and Japan were extended for another three years. During 2016 and 2018, MOFCOM initiated another four and two second sunset reviews respectively.
It is believed that China has abandoned its previous position that the measures should not be applied for a period longer than 10 years.
vi MOFCOM amended its anti-dumping and anti-subsidy rules
In April 2018, MOFCOM published three revised anti-dumping and anti-subsidy implementing rules. These are related to the (1) Rules on Interim Review of Dumping and Dumping Margins, (2) Rules on Hearing for Anti-dumping and Anti-subsidy Investigations, and (3) Rules on Anti-dumping Investigation Questionnaires. The amendments, particularly the one for interim review, reflect some significant changes to their 2002 versions.
The amendments to the Rules on Anti-dumping Investigation questionnaires incorporate some existing practices and requirements of MOFCOM regarding the investigation questionnaires, for example, it makes clear that the investigating authority may not individually examine responses from those that have not registered with the investigating authority.
The amendments to the Rules on Hearing for Anti-dumping and Anti-subsidy Investigations are mainly to consolidate the current three separate but essentially same rules provided in the Provisional Rules on Hearing for Anti-dumping Investigations, Provisional Rules on Hearing for Anti-subsidy Investigations and Rules on Hearing for Industry Injury Investigations. This consolidation reflects the combination of the two bureaus of MOFCOM – the Fair Trade Bureau and the Industry Investigation Bureau – in April 2014.
Notably, three significant changes are made in the amendments to the Rules on Interim Review of Dumping and Dumping Margins, specifically related to the standing of the petitioners, the criteria to initiate an interim review and interim review of foreign producers/exporters with zero dumping margin.
Evidence of the standing for the petitioners in the original investigation is no longer required
An interesting question would be whether the petitioners in the original investigation can ask for an interim review of certain producers/exporters when the circumstances of the domestic industry have changed and the petitioners in the original investigation no longer satisfy the standing requirements needed for petitioning for an original anti-dumping investigation. The answer to this question is 'no' under the previous rules, because the same standing requirement as in an original investigation was clearly included in the previous Rules on Interim Review of Dumping and Dumping Margins. But the answer is 'yes' under the new rules because 'where the petitioners in the original investigation applies for an interim review, it is unnecessary to prove their standing again.' This change makes it easier for the domestic industry to apply for an interim review.
Changes to the legal standard for requesting an interim review
The basis to initiate an interim review is that the normal value or export price, or both, has changed, and it is necessary to review the margin of original anti-dumping measures. The applicant must provide evidence relating to the change in the normal value, export price and dumping margin compared with the level of original anti-dumping measure when submitting a request for an interim review.
The 2018 amendments added one more requirement for foreign applicants: evidence that the change will continue in the future. This amendment requires the foreign applicant not only needs to prove that the dumping margin has changed significantly in the 12 months before the filing date, but also needs to explain the reasons for such a change. Moreover, based on those reasons, it would also need to prove the changes did not just happen in the previous 12 months, but also will continue in the future.
This amendment may inevitably make it more difficult for foreign producers/exporters to seek an interim review. The foreign applicant would need to prepare more evidence. The interim review may not be initiated even if the normal value, export price and dumping margin do change significantly, if the foreign applicant cannot explain the reasons for such changes well, and, more critically, prove the change will continue in the future.
Interim review of exporting producers with zero anti-dumping duty
Domestic industry and foreign competitors definitely wish to push MOFCOM to review foreign exporting producers that have a zero dumping duty rate after the original investigation and that continue their sales in the Chinese market.
According to the previous rules, where domestic industry files an application for interim review, the exporters and producers whose dumping margins were determined as zero or de minimis in the original anti-dumping investigation shall also be subject to the review investigation.
Interestingly, under the new rules, to review such zero margin exporters/producers, it has to be done through a new anti-dumping investigation, which covers both dumping margin examination and injury evaluation, rather than an interim review.
In the meantime, the new rules also provide that if the investigating authority determines in an interim review that the anti-dumping margin for a foreign export producer is zero, then this zero margin may be reviewed in the future interim reviews.
V TRADE DISPUTES
The three rules concerning judicial review of trade remedy measures promulgated by the People's Supreme Court in 2002 establish the legal ground for interested parties to challenge MOFCOM's trade remedy actions. However, no public information shows that such case has ever been brought.
In contrast, other WTO members, including the EU, the US, Japan and Canada, have brought eight cases concerning Chinese trade remedy measures before the Dispute Settlement Body (DSB) as of June 2018: DS407: China – Provisional Anti-Dumping Duties on Certain Iron and Steel Fasteners from the European Union; DS414: China – Countervailing and Anti-Dumping Duties on Grain Oriented Flat-rolled Electrical Steel from the United States; DS425: China – Definitive Anti-Dumping Duties on X-Ray Security Inspection Equipment from the European Union; DS427: China – Anti-Dumping and Countervailing Duty Measures on Broiler Products from the United States; DS440: China – Anti-Dumping and Countervailing Duties on Certain Automobiles from the United States; DS454: China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes (HP-SSST) from Japan; DS460: China – Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes (HP-SSST) from the European Union; and DS483: China – Anti-Dumping Measures on Imports of Cellulose Pulp from Canada.
In several reports of the panels and the Appellate Body, the DSB announced that certain aspects of MOFCOM's trade remedy actions were inconsistent with WTO rules. Transparency is one of the outstanding issues identified by the panels and the Appellate Body. For example, in the case of DS414, the complainants sought and obtained from MOFCOM confidential treatment in relation to a number of categories of information. The Panel upheld the US's claim that MOFCOM acted inconsistently with Articles 12.4.1 of the SCM Agreement and 6.5.1 of the Anti-Dumping Agreement by failing to require the complainant to submit adequate non-confidential summaries of the information. The Panel concluded that the purported summaries did not provide a reasonable understanding of the substance of the information submitted in confidence. The panels also concluded that China acted inconsistently with Articles 6.9 and 12.2.2 of the Anti-Dumping Agreement and Articles 12.8 and 22.5 of the SCM Agreement, on the basis that China failed to disclose the essential facts supporting its causation analysis and did not provide an adequate explanation for its causation findings.
In July 2013, MOFCOM promulgated Provisional Rules for Implementing the World Trade Organization Rulings on Trade Remedy Disputes, a set of simple rules containing eight articles. In practice, when DSB delivers a ruling that China's trade remedy measures be inconsistent with WTO rules, MOFCOM will reinvestigate the relevant case and issue new determinations.
Decisions of the WTO Panels and the Appellate Body have brought positive impacts on MOFCOM's practice in trade remedy cases. In recent years, we have noticed obvious laudable improvements in transparency throughout the proceedings at MOFCOM. It is not too long since a foreign producer/exporter may have found the simple and short disclosures of MOFCOM made it quite difficult to understand MOFCOM's calculation of a specific dumping margin. In recent investigations, MOFCOM has provided detailed information to foreign producers/exporters about the calculation of the dumping margins. MOFCOM is now conducting more thorough price impacts and causation analysis in its investigations.
During 2017, China initiated a record number of trade remedy investigations: 10 new anti-dumping investigations and one new anti-subsidy investigation. To a large extent, the tide receded in the first half of 2018. MOFCOM initiated three new anti-dumping investigations and one new anti-subsidy investigation in the first six months of 2018.
After 11 December 2016, the provisions of subparagraph (a)(ii) of Article 15 of the Protocol on the Accession of China (i.e., the non-market economy clause) expired 15 years after China's accession to the WTO. On 12 December 2016, China immediately brought the United States and EU to the DSB, requesting consultations with the United States and EU concerning certain provisions of US laws and of EU regulations pertaining to the determination of normal value for 'non-market economy' countries in anti-dumping proceedings involving products from China.6 In the foreseeable near future, the 'non-market economy' will be the predominant issue in trade remedy cases involving China. If the DSB makes decisions favourable for China but the United States or EU fails to follow the DSB's decisions, it is reasonably anticipated that China's reaction would be strong (such as initiating more trade cases) to gain more bargaining power.
China has initiated 10 anti-subsidy investigations as of June 2018. The first anti-subsidy investigation was in 2009 concerning grain oriented flat rolled electrical steel from the US The first eight anti-subsidy investigations were all targeted against the United States (five cases) and EU (three cases). In February 2017, MOFCOM initiated its first anti-subsidy investigation against imports from India, concerning the product ortho chloro para nitro aniline. In February 2018, MOFCOM initiated the anti-subsidy investigation against the US sorghum, which is sixth to the US and tenth in total. With the unsound global economy and the great uncertainty of trade policies adopted in leading countries, it is expected that there may be more anti-subsidy cases initiated by MOFCOM.
The intensification of trade frictions between China and the United States in 2018 has and will continue to dramatically impact Chinese trade remedy investigations against the US products. One example is the sorghum anti-dumping and anti-subsidy investigations – in February 2018, MOFCOM self-initiated for the first time anti-dumping and anti-subsidy investigations against US sorghum, and imposed 178.6 per cent provisional anti-dumping duty in April. However, the sorghum investigations were terminated because of alleged 'public interests' just ahead of a widely anticipated round of negotiation between China and the United States. When the negotiation at last collapsed and the United States imposed additional tariffs on Chinese products, the sorghum was added to the Chinese retaliation list in June 2018.
1 David Tang is an international trade partner, Yong Zhou is a counsel and Jin Wang is a senior associate at JunHe LLP.
2 The interim review of pyridine produced by Jubilant Life Sciences Limited in India was requested by both the Chinese domestic industry and Jubilant Life Sciences Limited.
3 See Article 11.3 of the Agreement on Implementation of Article VI of the GATT 1994.
4 See TN/RL/GEN/149, dated 29 June 2007.
5 See TN/RL/GEN/74, dated 17 October 2005.
6 DS515: United States – Measures Related to Price Comparison Methodologies; DS516: European Union – Measures Related to Price Comparison Methodologies.