China's Retaliatory Trade Tactics

What does a fine Bordeaux or Riesling wine have to do with Chinese solar panels? Very little in theory, unless you use the threat of antidumping and countervailing duty investigations on wine from the European Union as retaliation for the filing of an antidumping case on the solar panels from China. 

In an Aug. 28 article, China Daily, the Chinese government-owned English language newspaper, Beijing explicitly tied requests for antidumping and countervailing duty cases investigating imports of wine from the EU to the EU’s antidumping investigation of Chinese solar wafers, cells and panels. According to China Daily’s coverage, analysts described these cases as “Beijing’s latest response to the European Union’s rising trade protectionism against China.”

This type of reaction has become increasingly common, as China has initiated, or threatened to initiate, trade cases soon after industries in other countries have sought, or considered, looking into dumping or subsidy investigations of Chinese products. 

Two other recent examples are illustrative. In July, the Financial Times reported that China “threatened swift retaliation against a range of European Union industries if Brussels presses ahead with an investigation into government subsidies granted to two Chinese telecoms equipment companies.”

And merely one day after the Obama administration imposed 35 percent duties on imports of certain tires from China in 2009, the Chinese government announced antidumping investigations of U.S. chicken parts and cars. China’s investigation of U.S. car imports ultimately led to duties on certain SUVs and luxury vehicles. The U.S. government is challenging these duties, and the way China conducted its investigation, before the World Trade Organization.

By all appearances, the Chinese government has adopted the view that threats of retaliatory trade actions are a legitimate tool to be used when its international trading partners act to investigate unfair trade practices. Whether this is a wise approach, however, is questionable. Regardless of the individual merits of the cases China threatens to bring, overtly linking them to cases brought in other countries ill-serves the global trading system, and China itself. 

For one thing, it demonstrates a willingness of the Chinese government to undermine the WTO’s dispute resolution processes, by engaging in unilateral retaliatory action against other WTO members outside of the WTO’s dispute settlement process, and long before the other member’s case has been completed. Viewed in this light, China’s use of trade cases as a retaliatory tool undermines the authority of the WTO, and suggests a limit to China’s willingness to abide by its WTO commitments.

The cases China chooses to threaten or pursue also are carefully targeted to apply economic and hence political pressure on the countries in which the cases have been filed. For example, China’s investigation of wine from the EU targets an economically vital part of the EU economy. Similarly, China’s imposition of antidumping and countervailing duties on SUVs imported from the United States, which came after the U.S. imposed duties on imports of tires from China, targets the politically and economically sensitive U.S. auto industry. 

Another well-known example is China’s threat, and then initiation, of an investigation of polysilicon from the U.S., done in response to the solar antidumping and countervailing duty cases filed in October 2011 by the U.S. industry.

China’s use of retaliatory trade actions in response to trade cases filed in other countries is an obvious attempt to pressure other WTO members to not initiate, to suspend or to reach negative determinations, in their cases.  Of course, attempting to influence the outcome of trade cases is not unheard of, but these tactics ill-serve all WTO members, including China. 

All WTO members, including China, have agreed to follow recognized procedures that permit retaliation only when the Dispute Settlement Body and the Appellate Body have found violations of WTO agreements that are not remedied. Although  initiation of retaliatory trade investigations does not take the same form as the type of retaliatory actions the WTO authorizes, threatening or initiating retaliatory investigations, undermines the reliability of the rules of the road that China and other WTO members have agreed to follow.

More practically, in my opinion, China’s repeated threats of “trade wars” and retaliatory trade cases ill-serves China itself. In “China Airborne,” his recently published book concerning China’s efforts to develop an aviation manufacturing sector, James Fallows, longtime correspondent for The Atlantic, commented on China’s sensitivity to any perceived lack of “respect” for its activities and institutions.

In the area of international trade relations, to paraphrase Forrest Gump, “Respect is as respect does.” Whatever the merits of the cases China brings, or threatens to bring, in retaliation for cases brought in other WTO member countries, repeatedly promoting the idea that they are brought in retaliation for trade cases filed in other countries can only impede China’s goal of being perceived as a mature, respected player in international trade relations. If China wants to advance its stature in the international trading system, it would do well to reconsider its use of trade cases as a retaliatory tool.

Adam H. Gordon is an international trade partner at Wiley Rein in Washington. He represents U.S. manufacturers, industries and agricultural groups in antidumping and countervailing duty matters before the U.S. Department of Commerce, U.S. International Trade Commission, U.S. Customs and Border Protection, the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit. Contact him at agordon@wileyrein.com.

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