Double standards of US trade policy exposed

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Last updated at: (Beijing Time) Friday, March 12, 2004

Double standards of US trade policy exposed

The United States is a major player in world trade and an active participant in drawing up international trade rules. But the United States has implemented a string of excessively protectionist measures in many labour-intensive industries where it has no competitive edge, such as steel and textile, and has provided wide government support measures in agriculture.

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Editor's note: The Institute of American Studies of the Chinese Academy of Social Sciences has released a report commissioned by the Ministry of Commerce on the United States' trade policies, the first time China has compiled an official report assessing US trade policies. The following is an excerpt from the report:

The United States is a major player in world trade and an active participant in drawing up international trade rules. With a powerful economy and competitive domestic industries and services, the United States is one of the biggest beneficiaries from international trade and also an advocate of free trade in most fields.

But the United States has implemented a string of excessively protectionist measures in many labour-intensive industries where it has no competitive edge, such as steel and textile, and has provided wide government support measures in agriculture.

Whether these measures comply with World Trade Organization (WTO) rules has yet to be seen.

I. United States' trade-related legislations and policies are generally in line with WTO rules and principles

WTO protocols were executed in US domestic laws in the wake of the Uruguay Round of negotiations. The US Congress has revised laws at odds with its WTO obligations, such as 301 Article.

It certainly does not mean all US laws have conformed to WTO spirits and agreements. Laws enacted and revised according to the US understanding of WTO principles only meet WTO's requirements in the US eyes, and they actually have many problems from the perspective of other WTO members.

The United States is one of the core participants in WTO activities in all aspects, and was also initiator of the Doha Round of free trade negotiations starting in 2001.

The United States solves disputes with its trade partners within the WTO. It has drawn up quite a few motions on the WTO dispute-settling mechanism since 2001 and continues to appeal and answer appeals under the mechanism.

On trade policies, the US President's 2003 Trade Policy Agenda has announced plans to "remove all tariffs on manufactured goods, open agriculture and services markets, and address the special needs of poorer developing countries."

However, amid a sluggish economy and the growing trade deficit, protectionist tendencies have clearly got stronger in US trade policies, while its enthusiasm to solve disputes multilaterally has clearly waned.

The safeguard measures for the steel industry, as well as a new agriculture subsidy act, have abused and breached related WTO rules.

To relieve local manufacturers' dissatisfaction over falls in profits brought about by foreign competitors, the US Department of Commerce recently set up an "Unfair Trade Practices Team," and appointed a new Assistant Secretary for Trade Promotion to help small manufacturers benefit from a global chain of supply and enter foreign markets, and a new Assistant for Manufacturing, who will lead the new Office of Industrial Analysis to assess the impact of new rules and regulations.

These are protectionist measures initiated under pressure from vested interests.

The United States also takes a passive approach to the reform of multilateral anti-dumping regulations, which are flawed in some ways, the renewal of which has been urged by many WTO members.

The United States is against such reform, which puts stricter conditions on filing anti-dumping cases.

II. US laws are at odds with the spirit of the WTO in some ways

A. Abusing the vagueness of some WTO provisions

The United States has stepped up its trade protection in domestic legislation by taking advantage of opaque of WTO rules in some aspects. The problem has concerned many WTO members, but remains unresolved.

Take the 201 Article for example, which does not fully conform with the Agreement on Safeguards. Article 4.2(b) of the agreement requires a "causal link" between the increased imports and the serious injury or threat of serious injury to the domestic industry, and goes further to state that "when factors other than increased imports are causing injury to the domestic industry at the same time, such injury shall not be attributed to increased imports."

Section 2552 of the US Code requires increased imports to be a "substantial cause" of serious damage or the threat thereof to the domestic industry.

However, it defines the term "substantial cause" as "a cause which is important and not less than any other cause." Disregarding the non-attribution principle of the Agreement on Safeguards, the code justifies a "causal link" as long as the increased import exceeds or equals the importance of other causes.

The methodology, used by the US International Trade Committee to judge the causal link, is inconsistent with the Agreement on Safeguards, and cannot guarantee the committee's ruling is in the exporters' interests.

B. Unilateral tendencies

The 301 Article is an example of the unilateral tendencies in some US laws. As far as their kernel is concerned, practices under the 301 Article are purely based on the United States' unilateral assessment of relevant foreign trade legislation and practices, rather than on existing multilateral agreements.

They will inevitably contradict WTO rules.

C. Limits on foreign investment

A great many barriers have hindered foreign services' market access to the United States. For example, branches of foreign banks cannot accept odd deposits except through their subcompanies in the United States. Nor can foreign banks join the US federal deposit insurance system.

In the telecommunications sector, service providers are subject to the control of both federal and state regulations, which vary from each other in terms of procedures, qualification and terms of certification.

The extra costs involved have become a de facto obstacle of market access for foreign telecommunication operators.

D. Conflicts with WTO spirits

The WTO has required the United States to annul the Continued Dumping and Subsidy Offset Act of 2000 (Byrd Amendment) by December 27, 2003, which requires the customs to allot part of anti-dumping and anti-subsidy income to US companies for technological upgrading, research, training and welfare.

However, the US Government is continuing to distribute subsidies to domestic companies according to the Byrd Amendment.

III. Problems concerning Sino-US bilateral trade

A. The "non-market economy" question

According to the China-US agreement on China's accession to the WTO, the United States can maintain its current anti-dumping methodology of treating China as a non-market economy for 15 years.

Considering the extraordinary development of China's market system, continuing to regard China as a "non-market economy" not only flies in the face of reality but will disadvantage China in its economic ties with the United States.

"Non-market economy" is not an official term used within the WTO. It is coined unilaterally by some countries, particularly by the United States in their domestic laws.

As the terms of market economy and the "non-market" are not clearly defined in major international regulations, it is very difficult to guarantee the fair execution of rules concerning these terms.

China's economic and trade systems have undertaken great changes with reforms over the past 20-odd years.

In 1999, State pricing accounted for only 5 per cent in social retail products, 10 per cent in the purchase of farm produce, and 15 in the trade of means of production.

Only about 15 types of products and services were priced by the central government by the end of 2001.

Although China's market system remains less mature than the United States, it has already outpaced many countries deemed by the United States as "market economies," in terms of size, order and market potential.

Under these circumstances, labelling China as a non-market economy will inevitably make China suffer from unfair treatment and is against the WTO's principle of fair play.

B. The question of anti-dumping and surrogate countries

1) Stipulations concerning "surrogate countries"

The "surrogate country" practice means when calculating the dumping margin of Chinese products under investigation, investigating authorities would refer to prices in a third market-economy country rather than in China to gauge the normal value of the Chinese products.

The practice is mainly based on the Ad Article VI of the Annex I of General Agreement of Tariffs and Trade, which says "it is recognized that, in the case of imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State, special difficulties may exist in determining price comparability for the purposes of paragraph 1, and in such cases importing contracting parties may find it necessary to take into account the possibility that a strict comparison with domestic prices in such a country may not always be appropriate."

To use the surrogate practice provided by this article must satisfy two preconditions.

First, products under investigation must be from "a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State," otherwise investigating authorities must adopt the normal methodology to decide on the dumping margin.

The so-called "non-market economy" does not constitute the ground for using the "surrogate country" practice at will.

Second, in determining price comparability the investigating country must have "special difficulties" that cannot be overcome, otherwise the normal methodology of WTO's anti-dumping agreement should apply.

2) US practices have damaged the Chinese side

In its anti-dumping cases against China, the United States often contradicts the principle of objectiveness and fairness, and abuses bilaterally agreed articles to allow it maintain the current anti-dumping methodology.

For example, in the anti-dumping investigation into mushrooms from China, the US Department of Commerce (DOC) chose Indonesia as the "surrogate country," where mushrooms are grown in air-conditioned houses.

But the DOC refused to deduct the air-conditioning expenditure from Indonesian costs and thus ruled Chinese mushrooms as being dumped.

3) The United States should refer the normal value of Chinese products that apply normal investigative procedures, rather than that of the like products in the market of a "surrogate country" to correctly determine the normal value of Chinese products.

C. Abuse of the special safeguard article

Article 16 of the protocol on China's WTO entry says that "in cases where products of Chinese origin are being imported into the territory of any WTO member in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products, the WTO Member so affected may request consultations with China with a view to seeking a mutually satisfactory solution, including whether the affected WTO Member should pursue application of a measure under the Agreement on Safeguards. Any such request shall be notified immediately to the Committee on Safeguards."

It goes further in a following paragraph by saying: "If a WTO Member considers that an action taken under paragraphs 2, 3 or 7 causes or threatens to cause significant diversions of trade into its market, ... the requesting WTO Member shall be free, in respect of such product, to withdraw concessions accorded to or otherwise limit imports from China, to the extent necessary to prevent or remedy such diversions."

This article, by targeting merely at "products of Chinese origin," runs counter to the non-selective principle of the Agreement on Safeguards and has put China on an unequal footing within WTO.

A result of past negotiations, the article has to an large extent deprived China of the favourable treatment granted to developing economies.

The Agreement on Safeguards forbids a member country to launch safeguards against products from developing countries unless they exceed 3 per cent in the country's overall import of such products.

The 3-per-cent limit is not considered in China's WTO entry protocol.

Worse, the US side even abuses the special safeguard article in trade practices, mainly by applying safeguard measures to products that are excluded by the protocol's special safeguard article.

As a precondition to safeguards provided by the article, the increased import must cause or threaten to cause damage to the "domestic" producer of like or directly competitive products. However, the US side has contained products that its domestic producers do not make into the range of its special safeguard measures.

A case in point is the US special safeguards on the Chinese exports of textile products.

D. Non-economic factors also influence Sino-US trade, mainly in the form of political factors in the United States and limits on exports to China

During election campaigns, US political circles often exert special pressures on Sino-US trade. In particular, some low competitive industries would seek government protection under political banners.

For example, the American Federation of Labour and Congress of Industrial Organizations (AFL-CIO) often lobbies Congress and government agencies to sanction China over so-called human rights problems.

They oppose mass influx of Chinese products and the moving of US factories to China in a bid to protect some uncompetitive labour-intensive US industries.

Political factors have seriously clouded the outlook of entrepreneurs in both China and the United States, and is not good for long-term investment and trade partnership between the two countries.

The US limit on technological exports to China is a long-standing issue that hampers the balance of bilateral trade.

The United States imposes strict control on the export of military and military-civilian products to China, in order to prevent it from benefiting China's nuclear weapon, missile, chemical and biological weapon programmes or other noteworthy military projects.

Source: China Daily

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