This article discuss the concept of anti-dumping under the World Trade Organization (WTO) rules, and considers the factors behind some of the current challenges facing world trade in this area. It commences by looking at the origin of the term “anti-dumping” in English and Chinese. It then outlines
the WTO framework as it relates to anti-dumping, and identifies some of the factors behind the current challenges. Finally, it outlines the applicable anti-dumping provisions under Chinese law.
What is dumping?
Put simply, anti-dumping occurs when: (1) an exporter sells a product into an importing country at a lower price than the normal value at which the same (or like) product is sold on its own domestic market; and (2) the action causes material harm to the domestic industry in the importing country. Often the objective of dumping is to increase market share in a foreign market by undercutting competition and driving other sellers out of the market.
In both English and Chinese, the word “dump” has a negative connotation. In English, the word “dump” is considered to originate from the language known as Old Norse, and originally meant to “fall suddenly”. In modern English, it means to dispose of something in a careless or irresponsible way.
The word “dump” in Chinese (倾销) literally means to sell something on a biased or disreputable basis. Similar to the English word, the first character in the Chinese compound means to “collapse” or “fall”.
Various countries started to take action against anti-dumping in the context of imports long before the WTO was established in 1995. For example, Australia has had an anti-dumping system for over 100 years. China first issued anti-dumping provisions in 1994.
Anti-dumping is an important part of what is known as the “rules-based multilateral trading system” under the WTO framework. This system has a number of features. First, it is designed to provide a basis on which all members of the WTO can trade with each other on common terms – thus, it is multilateral, instead of bilateral, in nature. Countries have been trading with each other on bilateral terms for centuries. The important distinction with the WTO is that it provides common terms – or a baseline – for trade between all member states.
Second, the system focuses primarily on trade in goods and services. Although there are provisions that relate to investment, the framework governing the investment by citizens of one state in another state is generally covered by other legal instruments, including bilateral investment treaties. Because trade and investment are inter-related, trade and investment agreements are increasingly being discussed and agreed alongside each other. For example, in 2019, Australia and Hong Kong entered into a bilateral free-trade agreement (FTA) and an associated investment agreement, both of which came into effect in January this year.
Third, and importantly, the system is based on agreed rules, which include a mechanism to resolve disputes between member states in relation to the interpretation and application of those rules.
As the WTO notes on its website, the WTO framework is designed to make the international business environment for trade in goods and services stable and predictable. Stability in trade is considered to be a good thing, as experience shows that countries that trade with each other are less likely to go to war with each other. It reflects the idea that international trade contributes to international peace and security. Trade, therefore, has broader benefits that go beyond economic benefits.
The two main principles underpinning the multilateral trading system are reciprocity and non-discrimination.
Prior to the signing of the General Agreement on Tariffs and Trade (the predecessor to WTO) in 1947, trade was primarily undertaken on a bilateral basis and was characterised by protectionism, namely, efforts on the part of individual countries to protect their markets from foreign competition. Protectionism is often associated with nationalism and the negative forces that this combination can create. One of the benefits of a rules-based multilateral trading system is that countries develop a mutual interdependence and mutual benefits from pursuing trade on a free and open basis.
Of course, this does not mean that countries do not take action at various times to protect their own markets, and to retaliate and harm the markets in other countries (the current global situation is, unfortunately, an example of this). However, for every action that a country takes to harm or punish another country, there is
a potential consequence that harms or adversely affects its own markets. Accordingly, each country needs to be aware of the extent to which its actions against other countries might ultimately prove to be equally or more damaging to its own economy.
Protection can take various forms, including direct barriers such as import duties, and indirect barriers such as quotas, licensing requirements and subsidies.
Auti-dumping under the WTO framework
The WTO framework sets out three trade remedies that member states can unilaterally adopt to protect themselves against breach of the WTO rules by another member state. In addition to anti-dumping, two remedies are available – countervailing duties and safeguards.
Countervailing duties can be imposed if a WTO member provides a subsidy in connection with the manufacture, production or export of a product. In such circumstances, other WTO members are entitled to levy countervailing duties up to the amount of the relevant subsidy. This is designed to overcome the unfair consequences of subsidies. The provision of subsidies has been particularly controversial in areas such as agriculture.
Safeguard measures, including suspending certain obligations and withdrawing certain concessions, can be adopted by a WTO member if a product is imported into the territory of that member in such large quantities as to cause or threaten serious injury to domestic producers in the territory of that member. While safeguard measures are allowed under the WTO rules, they do not really have a free-trade justification. In practice, they are designed to give a government some temporary relief where there is a crisis in a particular industry. The adoption of safeguard measures has been particularly controversial in the steel industry.
Anti-dumping is defined in article VI of the General Agreement on Tariffs and Trade 1994, which provides as follows:
1.The contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of the products,is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry…
2.In order to off setor prevent dumping, a contracting party may levy on any dumped product an anti-dumping duty not greater in amount than the margin of dumping in respect of such product. For the purposes of this Article, the margin of dumping is the price difference determined in accordance with the provisions of paragraph1.
The detailed provisions governing anti-dumping are contained in the Anti-Dumping Agreement (Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994), which is contained in annexe 1A to the WTO agreement.
A key issue is how to calculate the normal value of the product in the domestic market of the exporter, as it is the normal value that determines whether dumping has occurred.
Under article 2.1 of the Anti-Dumping Agreement, the starting point for determining the normal value is “the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country”.
What if there are no sales of the like product in the domestic market of the exporter, or it is not possible to make a proper comparison because, for example, the volume of sales in the domestic market is too small? In such circumstances, the Anti-Dumping Agreement recognizes two alternative bases for determining the normal value:
- The export price to a third country – namely, the comparable price of the like product when exported to an appropriate third country; and
- The “constructed value” in the exporting country – namely, a substitute price for the domestic market price in the exporting country (this is calculated as the cost of production in the country of origin plus a reasonable amount for administrative, selling and general costs, and reasonable amount for-profits).
In addition, and controversially, some countries continue to use a third basis for determining the normal value in respect of imports from other countries that they consider to be “non-market economies”, namely, economies in which there is a high level of government intervention that makes it impractical to use prices and costs in that market for determining anti-dumping margins. The best-known example is the continuing treatment of China as a non-market economy by the EU and the US.
In the case of the US, instead of adopting one of the two bases for determining normal value for imported Chinese products as provided in the Anti-Dumping Agreement, the US adopts a “surrogate country” approach. Under this approach, the anti-dumping margin is calculated based on prices in a “surrogate country” that has a market economy status and is close to China in terms of economic development.
China argues that the text of its WTO accession protocol required all WTO members to terminate their use of the third basis by 11 December 2016, including the US. The US argues that the WTO language does not automatically require it to extend market economy status to China. On 12 December 2016, China initiated a WTO dispute settlement case against the US and the EU for not affording China market economy status.
Anti-dumping provisions under Chinese law
Like other jurisdictions, China has its own anti-dumping laws. The highest-level provisions are contained in the 2004 Foreign Trade Law. Articles 40 and 41 of the Foreign Trade Law provide as follows:
Chapter 8 Foreign Trade Remedies
The state may take appropriate foreign trade remedies on the basis of the findings of foreign trade investigation.
Where a product from other countries or regions is dumped into the domestic market at a price less than its normal value and under such conditions as to cause or threaten to cause material injury to the established domestic industries, or materially retards the establishment of domestic industries, the state may take anti-dumping measures to eliminate or mitigate such injury, threat of injury or retardation.
The wording of these provisions tracks the wording in the WTO agreement.
Detailed provisions governing anti-dumping are contained in the Anti-dumping Regulations of the People’s Republic of China (Revised on 31 March, 2004), which are expressed to be issued pursuant to the Foreign Trade Law. Article 3 of the regulations define anti-dumping as follows:
The term “dumping” refers to the entry of imported products into the market of the People’s Republic of China, in the ordinary course of trade, at an export price that is lower than their normal value. The Ministry of Commerce is responsible for investigating and determining dumping.
The wording of these provisions, and of the regulations, also tracks the wording in the WTO anti-dumping agreement.
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at www.vantageasia.com