China's Anti-Dumping Regulations

Pearson Publishing's China Law for Business By Laura W. Young, Esq.

As many Asian nations have reformed their laws and regulatory systems to meet international standards, they have simultaneously felt pressure from local populations to show that they are effectively protecting local interests. China, one of the most frequently listed targets in US International Trade Council ("ITC") actions, has long wished to bring similar actions against trading partners in China. One of the provisions in GATT that allows a nation to protect its own markets against foreign competition is Article VI, prohibiting dumping and subsidies to disable a nation's domestic competitors. China incorporated the GATT standard by promulgating rules against dumping last year. China enacted the Anti-Dumping and Anti-Subsidy Regulations of the PRC (Regulations) in 1997, and the regulatory body enforcing it, the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") issued its first decision under the law in December of 1997. China's Anti-Dumping Regulations are simple, only 42 articles and few subarticles. As usual with Chinese laws, the regulations are apparently easy to understand, but indefinite, and subject to a multitude of interpretations. The phrase "the devil is in the details" is a good general descriptor for Chinese law, because the drafters design the laws to be simple, but flexible. This flexibility allows government officials to respond to current political and economic needs, but of course, can create uncertainty for foreign investors and traders. Definition of dumping The Chinese definition of dumping closely tracks the GATT language. Articles 3 and 4 of the Regulations require:

1. Imported goods which compete with locally produced Chinese goods,

2. sold in the Chinese market at prices

A) below the domestic price of the same goods in the exporting country, or B) below the price of the same or similar product exported to a third country, C) or below production cost plus reasonable expense and profits.

If such dumping causes or threatens to cause substantial damages to domestic competitors, or causes substantial obstruction to the establishment of a domestic industry, the Regulations can be invoked. (Anti-Dumping and Anti-Subsidy Regulations of the P.R.C., Article 2.)

General Process of a Dumping Investigation

An investigation of a foreign competitor is initiated by complaint of a Chinese domestic entity alleging either dumping or a foreign government subsidy. The complaint must be made to MOFTEC, and must include sufficient evidence to persuade MOFTEC to initiate an investigation. The complaint should also state the quantities and prices of the imported products, the name and tax codes of the imported products and their local competitors, and the impact of the imported products on the domestic industry. In addition, the complaint must state the causal relationship between the dumping and the damage suffered by domestic industry. (Regulations, Article 12.)
Once a complaint has been accepted, the investigation is placed on MOFTEC's docket, and must be completed within 12 months. In certain circumstances, the investigation period may be extended to 18 months. (Regulations, Article 15.)

If MOFTEC determines that a violation of the Regulations has occurred, temporary measures may be imposed. Such measures include levying interim anti-dumping or anti-subsidy taxes, or requiring the importer or the exporting nation to sign an undertaking to adjust the price. (Regulations, Article 25.) Where the exporter or the exporting country's government has promised to take effective measures to eliminate the damages caused to the domestic market, MOFTEC may terminate the anti-dumping investigations after consultations with the other agencies involved in the investigation.

The Regulations stipulate participation of several agencies in dumping and subsidy cases. MOFTEC is required to consult with the State Economic and Trade Commission (SETC) to determine whether to conduct an investigation, and also to determine actual or potential damages to a domestic industry. (Regulations, Articles 13 and 17.)

The investigation into the existence of dumping and the dumping margins, if any, is undertaken by MOFTEC and the Customs General Administration. (Regulations, Article 17.) If a decision is found against the foreign importer, the State Council's Tax Rule Committee will be called in to determine the amount and the time period for the levy of anti-dumping or anti-subsidy taxes. (Regulations, Article 27.) Generally, if interim measures are imposed, anti-dumping taxes will be levied for four months, and may be extended to nine months from the date of announcement of the decision to impose such anti-dumping measures. (Regulations, Article 24.) However, in a more serious case, such as where there is a history of dumping, the quantity of dumped products is large, etc., the anti-dumping taxes may be imposed for a period of up to five years. The parties may request revision, cancellation, or preservation of the anti-dumping levy during that time. (Regulations, Articles 32 and 33.) The Customs General Administration is responsible for enforcing the measures imposed by MOFTEC. (Regulations, Article 23.)

Defenses to a Dumping Investigation

While a dumping action is technically brought against the imported goods themselves, similar to an in rem action at common law, the importer will receive notice of the anti-dumping investigation at the time that an investigation is publicly announced. (Regulations Article 16.) It is to be presumed that the importer will receive actual notice, although the regulations do not specifically so state. There is not sufficient specificity in the regulations for an importer to complain that MOFTEC failed in its duty to provide notice. Conceivably, MOFTEC could state that it fulfilled its obligation to notify related parties when it made the public announcement.

The regulations state that related parties will be given "opportunities for statements," on request. (Regulations, Article 19.) It is to be hoped that such opportunities will be given early in the proceedings, and will not be limited to a single opportunity, nor limited to statements, but will include providing defensive evidence. Importers must be vigilant, however, for the regulations clearly indicate that MOFTEC need not affirmatively obtain defensive evidence. Only if the importer or related parties request such opportunity will it be granted.

In addition to the obvious responses of no dumping or no damages or risk of damages to the local industry, there are other grounds for response. These include:

  • the quantity of alleged under-priced products is minimal;
  • the alleged subsidized products are imported for industrial research or development, or for environmental protection, or promoting development of "backward areas";
  • the dumping margin is minimal;
  • although the alleged products are in fact below "normal" price, and the domestic industry has faced obstacles or suffered damages, there is no causal relation between the two facts.

The First Case Decided under the Anti-Dumping Regulations

A review of the first case filed under the new Regulations is instructive on how the system will work. After the Regulations were issued, nine Chinese newsprint producers filed a complaint against newsprint from the USA, Canada and South Korea. They submitted evidence that the newsprint imported into China from those three nations was priced at below the international market price, and below the prices in the exporting nations' home markets. In December, 1997, MOFTEC announced that it would conduct an investigation under the Regulations. Prior to that, while apparently still deciding whether to undertake such an investigation, MOFTEC released figures which would indicate dumping and a causal relationship between damages to local industry and dumping activity.

According to the data released by MOFTEC, up until 1995, the domestic market for newsprint was relatively stable and unchanged. Local producers supplied about 80% of the needs of the domestic market. However, in 1996, the average price of imported newsprint paper fell dramatically to about 40% of the price of locally produced newsprint. In that year, the amount of imported newsprint suddenly grew substantially over the amount of domestically produced newsprint.

In 1997, the quantity imported for only the first eight months of the year equaled the 1996 annual total, indicating growth of roughly 50% in the volume of imported newsprint. At that point, local producers controlled only 56% of the market in the first quarter of 1997. In 1997, the local producers reported an aggregate loss of over RMB 20,000,000. The price of imported newsprint was compared to the price on the international market, and found to be far less.

The Regulations do not provide for an appeal process once an investigation has been completed and a decision to levy taxes has been made.

China's recent legislative changes have largely facilitated and promoted foreign trade and investment. The new Anti-Dumping Regulations differ from most other recent trade laws and regulations because they are designed to protect local industries. The Regulations allow China to deliberately protect local industry, and yet enjoy the protection of GATT authority. Since the Regulations are so simple, and lack protections for defending parties, or for an appellate process, they are highly favorable to local industries. It is likely that MOFTEC's mere announcement of an investigation will be sufficient to discourage importers of suspect foreign goods. The first case announced by MOFTEC appears to indicate that MOFTEC will follow an objective analysis. As long as such cases are made public by MOFTEC and the Chinese press, or reported to foreign governments when abuses are believed to have occurred, the system may well work as anticipated.