Anti-dumping in China

Anti-dumping investigations are the floodgates used by governments to direct free-market global trade flows in the desired direction

In late November, the US imposed antidumping restrictions on the import of Chinese undergarments and color TV sets and by early December there were another 10 anti-dumping actions against Chinese products under consideration by the US Commerce Department.

The Chinese government accused the Bush administration of using the Chinese trade balance as a political pawn in the runup to next year's US presidential elections and at the same time released new import/ export regulations designed to strengthen the legal process for prosecuting anti-dumping cases in China. Since China first began its opening up and reform process in 1979, the country has been on the receiving end of nearly 600 dumping investigations, but it was not until 1997 that China began initiating its own anti-dumping cases.

As of December 2003, the country had brought a total of 26 cases against various companies, countries and industries.

A deeper understanding of the machinations of global trade combined with a more sophisticated legal framework has led to a growing number of Chinese companies registering their claims with China's Ministry of Commerce (MOFCOM), according to Wu Xiaochen, the lawyer who investigated the first-ever anti-dumping case for the Chinese government in 1997.

Wu now works for law firm T&D Associates in Beijing defending multinational corporations like Akzo Nobel, Bayer, BASF and Mitsui against Chinese accusations of dumping. Of China's 26 dumping cases to date, T&D has worked on 24 of them.

Defining "dumping"

The concept of dumping seems simple enough on the surface – a company or group of companies "dumps" their product on a foreign market by selling it at a loss in order to gain market share and damage competitors – but reaching a final determination on whether dumping has occurred or not is an intricate and convoluted process. Just ask Oliver Trianto, the legal counsel to German chemical company BASF, who is becoming an expert in the field of anti-dumping in China. BASF has had more experience in this field than any other company, having been on the receiving end of no less than eight Chinese anti-dumping investigations.

Trianto defines dumping as the practice of exporting a product at a lower price than its "normal value". A product's normal value is estimated by taking the price of the product in the country of origin or by comparing the sale price with the cost of production taking into account transport costs, duties and a reasonable profit margin.

As one can imagine, all the variables are open to interpretation. Prices in both the importing and exporting countries fluctuate daily and arguments rage over what constitutes a "reasonable" profit margin. A frustrating complication from a Chinese perspective is that China is not afforded the title of 'market economy' by most of its trading partners and therefore can legally be subjected to stricter anti-dumping criteria under world trade rules.

Dumping implies that a company has offloaded its product into a market at a loss in order to gain a greater market share. But companies can be found to be dumping even when sales are profitable and local producers are too small to serve the domestic market.

In order to impose tariffs on a company or group of companies for dumping, the investigating authority (MOFCOM in China's case) must be able to determine injury or threat of injury to local producers and must be able to show the link between a company dumping and that injury. And so dumping rulings become even more subjective and complicated.

According to Wu Xiaochen, because of MOFCOM's lack of experience and personnel, most anti-dumping investigations in China take about 18 months to reach a final determination and regulations are still somewhat murky, usually to the detriment of the foreign importer. Although there is a facility in Chinese anti-dumping law for defendants to ask for a judicial review, so far no company has applied for it because, he says, of a lack of faith in the legal system.

But the murkiness can sometimes work the other way. In early December, MOFCOM officially withdrew an anti-dumping case against importers of Methylene Diphenylene Diisocyanate, or MDI, from Korea and Japan. "Under my work and pressure the petitioner withdrew and the government officially terminated the investigation, " said Wu Xiaochen.