China Floods the WTO With Tit-for-Tat

June 8, 2012 (Source: Businessweek) — On May 8, China imposed extra import duties on stainless steel seamless tubes imported from the European Union and Japan, saying the tubes damaged the Chinese machinery they were installed in. The Chinese move came less than two months after the EU and Japan, along with the U.S., went to the World Trade Organization to challenge China’s curbs on exports of its rare earths, scarce minerals that are vital to so many industrial processes. The complaint argued that China’s restrictions on exports of the minerals would force multinationals to set up more factories on the mainland.

On March 22, China announced it would impose anti-dumping duties on photographic paper imported from the U.S., the EU, and Japan—nine days after the U.S., the EU, and Japan lodged their WTO complaint about China’s rare-earth policy.

Three trade disputes, three very different cases. Yet trade lawyers detect a pattern in the Chinese action. “What I find really troubling is that the Chinese have gotten into this pattern of filing tit-for-tat cases,” says Stephen Kho, a lawyer at Akin Gump Strauss Hauer & Feld in Washington who was principal attorney at the U.S. Trade Representative’s office on China enforcement. Since joining the WTO in 2001, China’s dealings with the group’s members have evolved from an initial willingness to make its laws comply with the global rules of commerce to a more aggressive stance. “They have no problem saying, ‘If you’re going to hit us, we’ll hit you back,’?” says Kho.

To those facing the backlash, these retaliatory acts do little to resolve the original dispute—the wrangle over rare earths goes on, for example—and China’s moves tax the overloaded system at the WTO, which is supposed to resolve disagreements among its members while otherwise normal trading relationships go on. Kho thinks China risks sparking a trade war with its counterpunch strategy.

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To others, the mainland’s negotiators are simply learning how to play the game. “China has come of age,” says Konstantinos Adamantopoulos, a partner at Holman Fenwick Willan in Brussels who has advised China on several WTO cases. Although China had to relax more than 7,000 trade barriers to join the WTO, its economy quadrupled in size and exports almost quintupled. Still, China remains wedded to policies that protect and promote domestic technologies and state-owned enterprises, stoking accusations that it’s not playing fair.

In its first years of membership, China mostly avoided confrontations. Its first real experience with WTO disputes came in 2004, when the U.S. complained about a value-added tax the Chinese imposed on imported integrated circuits. The two governments negotiated a settlement. China’s reluctance to file formal complaints changed in 2006, when it was targeted by the U.S., the EU, and Canada over imports of car parts and suffered its first legal defeat at the WTO. Three U.S. complaints followed in the first four months of 2007, and China, by then “more confident and comfortable” with the WTO machinery, according to Kho, responded later that year by challenging U.S. duties on coated paper imports.

“China paid extraordinarily close attention to dispute settlement proceedings, watching wherever it could and examining in detail how the process worked and what the results were,” says Alan Wolff, a deputy U.S. trade representative in the Carter administration who is now senior counsel in the Washington office of McKenna Long & Aldridge.

U.S. lawyers in particular have helped China learn the ropes. Three Washington law firms—Sidley Austin, Steptoe & Johnson, and Hogan Lovells US—that have offices in Beijing are among the Chinese government’s favorites for helping it litigate at the WTO. “If it’s a really important or technical trade issue and they’re a first party, I’m not aware of a case where they didn’t hire a foreign lawyer and encourage or require them to team up with a local or Chinese lawyer,” says Daniel Crosby, a partner at King & Spalding in Geneva.

China’s involvement in WTO disputes has escalated since 2008. The government complained seven times between September 2008 and February 2011—twice against the EU, five times against the U.S. The EU has lodged five complaints against China since March 2008, while the U.S. has filed eight, including the latest one on rare earths. The Chinese say that in recessionary times trade frictions increase, and they’re trying to keep global commerce flowing. “China is concerned with the growing trade protectionism in the world,” Yi Xiaozhun, China’s ambassador to the WTO, said in an e-mail. “This trend could be reflected by some WTO members’ unfair and discriminatory application” of anti-dumping and anti-subsidy measures.

“There was a honeymoon between China and the WTO, and now it’s over,” says Ari Afilalo, a professor of international trade at Rutgers School of Law. “Western economies have been looking to China to open up more, and they’ve encountered tremendous resistance.”

The bottom line: Since joining the WTO in 2001 the Chinese have lost their reluctance to challenge commercial rivals before the trade body.


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Tracy Weslosky

About Tracy Weslosky

Tracy Weslosky is the Publisher and Editor-in-Chief of InvestorIntel, a leading global investment intelligence source created for the innovative and entrepreneurial minded that represents over 50 publicly listed companies globally that are listed on InvestorIntel.com. Tracy is also the Founder & CEO for ProEdge Media Corp., an online publishing and media production company since 2001; and is the Managing Partner for 724 Capital Corp., a business consulting firm that currently represents U.S. Rare Earths, Inc. Previously she has owned a boutique Investment Banking firm for 7 years that was the basis for a business reality television series called, DealFlow. Aired around the world for 3 years on CNBC World, WealthTV and many other networks globally; Tracy is a speaker, writer and an entrepreneur.
  1. I do not think that there was ever a “Love Affair/Honeymoon”
    between China and the WTO.
    China was originally allowed accession after a lenghty review and process.
    Not all WTO Members were in favor of this.However, due to the Global Economic
    importance of China it was inevitable.
    From day one of acceptance China has been a “Thorn in the Side” of the WTO.
    They have constantly tried “Work Arounds” to the existing WTO agreements and
    have probed the “Dispute Settlement Process” for vulnerability.
    Do not give too much credibility to the flowry speeches given by Senior
    NGO Officials and Member State’s Diplomats.

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