China’s Trade Dispute

By Amal Omar Al Azem

1) What is your advice to the government of China in regard to the

protection of intellectual property?

As China’s economy grows, its transition from manufacturing-based to

knowledge-based production, more comprehensive laws, and more
attention to enforcement have led to an increase in the number of IPR
violation cases being brought before the courts or taken up through
China's administrative procedures. Meaning that China is trying to cope
with the WTO laws to enhance the IPR. After a decade of heightened
tension between China and the United States, the two countries have
finally decided to build a more stable and healthy relationship with each
other. The Joint Statement
Issued after the 1997 U.S.-China Summit not only presents a new model
upon which the two countries can build their diplomatic relations, but also
provides a conceptual framework under which policymakers can develop a
new bilateral intellectual property policy. China’s government diffuses the
IPR through a number of government agencies and offices with each
typically responsible for the protection afforded by one statute or one
specific area of IP related law there may be geographical limits or conflicts
posed by one administrative agency taking a case involving piracy that
also occurs in another region, on the other hand the existing
administrative abilities are insufficient in light of the scope of the problem
and China need to do more and to train officials to act. Yet China is
moving toward implementing the IPR to move its global view from pirating
to partnering as the cooperation between them and the United States
government has apparently become more beneficial to the U.S. interests
than confronting China. It is difficult to advice the Chinese government as
it seems a very challenging issue to confirm with IPR and still providing an
international and national growing economy, yet China seems to be on the
right track, by communicating to the Chinese people that IP enforcements
is not something brought in from out side to control Chinese society and to
keep it from progressing as they still see the IPR apart from the cultural
environment of China. This can be done via the educational system, TV,
and other media campaigns.
 2) What procedures and policies could enhance the health and safety
features of China’s exports?

China already pledges to improve food and drug safety supervision and
standards, increasing inspections required safety certificates before some
products could be sold and to crack down on government corruption. the
discussions between Chinese authorities and US government led in 2007 to
two memoranda of agreement covering specific food and feed items as well
as drugs and medical devices requiring that the government of china register
all such products that would be exported and obtain certification that would
guarantee their safety. The government of china pledged to inspect firm’s
manufacturing these products at least annually to insure that they met US
standards. Also memoranda of agreement established procedures for sharing
information between both governments and gave US official within the FDA
the right to inspect production facilities in China, this agreement led in 2008 to
the creation of a new FDA office in China.

3) Do China lower labor standards and lower environmental standards

create a permanent unfair competitive advantage for firms located in
China?

Since china considered itself in its early stages of economic growth focusing
on increasing national economic growth and rising and rising its national level
standards, it seems unfair to compel china to adhere to the newer expensive
standards set by western nations that recognized a wide array of
environmental impacts that a firm’s operations could create and came to
increasingly understand the linkage between these environmental impacts
and the health of the general populace. Of course china’s position created an
unfair competitive advantage for firms located in china which attracted foreign
investment and distorted trade patterns because china’s exports and imports
competing products could be manufactured at lower cost. Meanwhile firms
located elsewhere where putting pressure on their governments to impose
compensatory tariffs and to compel china to adapt higher labor and
environmental standards and since china will have to adhere to the KYOTO
protocol it will have to come up with a long term plan to compel which will
eventually remove the unfair competitive for firms located in china in the long
run.
4) What is your advice to the government of China in regard to its foreign
exchange policies?

It seems that Chinese authorities do not respond well to external pressure

for policy change. Changing exchange rate policy in China is a political
decision made at the highest level of government. Accordingly, China's
leaders do not want to be seen as bowing in the face of foreign pressure.
This is said to be particularly true at the moment because relations
between China and some of the developed countries, especially the
United States, have become increasingly tense. In these circumstances,
the Chinese authorities could choose to cling to the current fixed
exchange rate policy to project strength. The suggestion from this
argument is that the rest of the world should ease pressure on China, and
a change in China's exchange rate will come at a more appropriate time.

The reality is, however, that without pressure being exerted to encourage
a change in its exchange rate policy, China will have no reason to move.
And when patience grows thin and pressure rises again, this same
argument will be trucked out once more to try to further postpone policy
adjustment.

There are no good reasons for other countries to diminish their pressure
on China to change its exchange rate policy. The heat is on, and the heat
needs to stay on.

Chinese authorities recognize that China needs to change its growth

model and rebalance its economy away from heavy reliance on
investment and exports to generate growth toward greater reliance on
consumption. That will not be accomplished unless greater flexibility and
an appreciation of the exchange rate are permitted. It is understandable
that a country might resist being called on to make a policy change that
would entail a sacrifice to benefit of the rest of the world. But that is not the
case in this instance. Increasingly, other countries will feel justified in
strongly pressing China to change its exchange rate policy.

If China continues to resist, other countries will ramp up pressure and are
likely to choose to retaliate against China's exports to try to force a
change. China has to act soon and in a decisive manner to avoid doing
itself great harm.

5) Analyze the various trade disputes involving textile, footwear, car parts
and steal. For each sector, include a time profile of the changing forces
influencing the disputes.
a- Textile;

The dispute between China and Europe nations raised in 2005 when
the Multi Fiber Agreement was as a part of the WTO move to develop
freer trade, at that time EU enormously experienced political pressure
when its manufacturers realized they could not compete with China’s
inexpensive exports, forcing some EU nations to block Chinese textile
and clothing at their ports, while others like Germany and Netherlands
benefited from the cheep Chinese exports which offered major
consumer benefits without any offsetting manufacturing damage.

China agreed to restrain its exports in these areas in response to the

dispute.

USA also experienced significant difficulties in regard to the flowed of

cheep textile from China, and reacted by imposing specific quotas for a
series of textile products, and the government of China’s agreed on
these quotas that have been expired early in 2009.

b- Footwear;

What is anti dumping?

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. Is this unfair competition? Opinions differ, but many
governments take action against dumping in order to defend their
domestic industries. The WTO agreement does not pass judgment. Its
focus is on how governments can or cannot react to dumping — it
disciplines anti-dumping actions, and it is often called the “Anti-
Dumping Agreement”. Some argues that European Commission
should eliminate
The anti-dumping measures and some pointed to the opportunity
created by cheap imports to restrain the rate of inflation. On the other
hand the United States imported 99 per cent of the footwear worn by
Americans and 87 per cent of these imports came from China. As a
result, the United States no longer had a domestic industry that could
argue for import protection. China needed to take a dispute against
some EU countries that had extended the anti-dispute measures and
won the case, leaving many footwear European manufacturers in a
bad position that some will eventually close their manufacturing firms in
their homeland.
c- Car parts & Steel;

Most automobile manufacturers were investing heavily in China, and

so they could stand to gain from the special assistance offered by the
government, so they could reduce the overall cost of their products by
importing inexpensive components from their operations in China. A
key issue was whether foreign investors in China could have access to
China’s subsidies on the same basis as Chinese-owned firms.
The Western manufacturers pointed to a series of government actions
that limited their ability to export auto parts to China, including very
high tariffs and even higher tariffs if imports exceeded certain
thresholds. Chinese automobile manufacturers were penalized if they
imported auto parts for the manufacturing process. The government of
China appeared to be imposing different charges on vehicles
manufactured in China depending on the domestic content of the
automobile parts used in their manufacture. Hence, Chinese
manufacturers could gain a financial advantage if they used only
domestic parts. These issues continued to be debated through 2008.
Finally a WTO dispute panel in July of 2008 upheld these complaints
that China was violating fair trade rules by discriminating against
imported parts. Many hoped that this WTO finding would lead China to
voluntarily remove its discriminatory measures and create a level
playing field.
The government of China imposed export quotas and export taxes on
certain raw materials that were essential in the steel-making process.
From the perspective of the U.S. government and U.S. manufacturers,
these export quotas and export taxes reduced China’s domestic steel
prices and also inflated global steel prices, which put U.S.
manufacturers at a competitive disadvantage. US manufacturers
claimed that its analyses indicated that the Chinese steel industry had
benefited from the equivalent of US$52 billion of government subsidies
over the previous decade. A conflict rose between US manufacturers
and US business as protection of the steel industry would compel other
U.S. businesses to experience higher costs that would damage their
international competitiveness.

6) Will China achieve a level playing field in its trade and investment
practices? Indicate your views as the likely pattern of future trade
disputes and their resolution.
 According to the WTO report 2006 China has recently been moving
towards achieving a level playing field for foreign and domestic investors
in China. Until the end of 2007, China had provided better than national
treatment in its taxation policies for foreign-invested enterprises (FIEs);
since 1 January 2008, a uniform enterprise income tax rate of 25% has
been applied to all enterprises (including FIEs) in accordance with the
Enterprise Income Tax Law, with some exceptions, such as certain "grand
fathering" and lower rates granted for investment in certain industries. It
would appear that all tax incentives now apply equally to domestic firms
and FIEs. Several regulations and rules have been introduced or
amended with a view to further liberalizing foreign direct investment and
establishing a more rules-based and predictable business environment for
foreign investors. China unilaterally grants preferential treatment to some
products from 39 least developed countries (LDCs).
Although some aspects of China's trade policy regime remain opaque, it
has continued to adopt measures to increase the level of transparency of
its trade and trade-related policies, practices, and measures.
All efforts are being made by the Chinese government towards achieving
a level playing field in its trade and investment practices by adopting many
internal programs as well as resolving disputes and standing tall to protect
their interests.

A list of major trade disputes between China and the US since Beijing’s accession to
the World Trade Organization in 2001:

Date Complainant Issue

China joins other countries in a complaint about

March 2002 China safeguard measures imposed by the US that
increases duties on steel imports.

The US complains Chinese semiconductor

March 2004 US producers pay less tax than their foreign
competitors.

The US and other countries complain that China

March 2006 US has imposed measures including tariffs that
adversely affect their auto parts exports.

February 2007 US The US complains that China has granted tax

refunds, reductions and exemptions for companies
Date Complainant Issue

that buy domestic goods.

The US lodges two cases with the WTO on

April 2007 US intellectual property rights protection and market
access for US movies, DVDs, books and music.

China complains against US duties on glossy paper

April 2007 China
used in packaging.

A US study says China’s steel industry has

benefited over the past 10 years from the
July 2007 US “pervasive influence” of financial transfers from
central and local government bodies, some of which
are alleged to have broken WTO rules.

The US complains about China’s attempt to put the

financial information business of international news
March 2008 US
providers under the control of local rival and
regulator, Xinhua news agency.

China challenges a US law banning imports of

April 2009 China processed Chinese poultry, saying the ban cannot
be justified on health and safety grounds.

The US and European Union complain that China

June 2009 US grants raw materials to domestic manufacturers at
below-market prices.

Washington complains that Beijing breaks WTO

August 2009 US rules by requiring all imported media products to be
channeled through state-run distributors.

China complains that US tariffs on Chinese tires,

September introduced on September 11, are in excess of the
China
2009 rates permitted under US international obligations to
China

China launches anti-dumping and anti-subsidy

September
China investigations into the imports of US car parts and
2009
chicken products
Date Complainant Issue

The Chinese Ministry of Commerce issues a

preliminary ruling against companies in the US and
October 2009 China
other countries, a steel accusing them of dumping
chemical fibers in China.

The US slaps anti-dumping duties on Chinese

December 2009 US
imports.

The US imposes duties of 10 to 16 per cent on

December 2009 US
Chinese steel piping imports.

The US slaps additional duties of 43 to 289 per cent

on imports of Chinese-made wire decking. It follows
January 2010 US
tariffs ranging from 2 to 438 per cent announced in
November 2009 on the products.

China announces anti-dumping duties from 43.1 to

February 2010 China
105.4 per cent on imports of US chicken products.

The US puts anti-dumping taxes of up to 231.4 per

February 2010 US cent on Chinese ribbons used for gift wrapping;
hours after China announced the chicken duties.

Washington imposes anti-dumping duties of up to

April 2010 US
99.14 per cent on imports of Chinese steel pipes.

Beijing slaps duties of as much as 64.8 per cent on

April 2010 China certain specialty steel products from the US and
Russia, following a preliminary ruling in December.

The commerce department launches a probe into

April 2010 US Chinese exports of aluminum products, with an
initial determination scheduled for May 17.

China starts two anti-dumping investigations into

imports of optical fibers and a chemical product
April 2010 China from the US and European Union. It also levies
tariffs on some nylon imports from the US and other
countries.

April 2010 China China’s commerce ministry imposes countervailing

Date Complainant Issue

duties of up to 31.4 per cent on some chicken

products from the US

The US imposes preliminary anti-dumping duties of

April 2010 US as much as 135.8 per cent on glossy paper from
China

The commerce department announces a final ruling

to impose anti-dumping and countervailing duties of
as much as 193.55 per cent on imports of concrete
May 2010 US
steel wire from China. The duties will not come into
effect until the International Trade Commission
votes in June