The US Department of Commerce announced on March 30 its preliminary decision to apply US anti-subsidy law to imports from China. Secretary of Commerce Carlos M. Gutierrez indicated that China was no longer a Soviet-style economy as it was in the 1980s, therefore enabling the US to evaluate China's subsidy system and apply the countervailing duty (CVD) law. The law will be applied to Chinese-made coated free sheet paper, and although the volume of trade is not very big and the anti-subsidy tax rate is not very high, the decision sets a precedent that could have a negative impact in the long-term.

This breakaway decision is the first time that the US has applied its countervailing duty law to a country with a non-market economy. At the 1999 US-China negotiations on China's WTO accession, the US insisted on positioning China as a non-market economy. As a result, the 15th article of the protocol for China's accession to the WTO stipulated that China's non-market economy status would stand for 15 years. This means that China faces difficulties with anti-dumping investigations. It has been the major argument in anti-dumping suits leveled by American, European and even developing countries over the last few years. The anti-subsidy law now made applicable by the US Department of Commerce will no doubt expose China, already the target of numerous anti-dumping charges, to double threats of trade protectionism.

The decision paves the way for the US to levy anti-subsidy duties on other Chinese-made commodities. The coated free sheet paper is likely just the beginning, a very bad beginning. In a preliminary decision, the Department of Commerce found that, "Chinese producers and exporters of coated free sheet paper received countervailable subsidies ranging from 10.90 to 20.35 percent," doing "substantial damage" to US companies in the same trade. According to the WTO agreement, China's textile and garment industry will be liberalized on December 31, 2008. It is very likely that they, as well as iron and steel (of which China is the largest manufacturer) fall victim to the new laws.

The decision clears the way for other countries to begin imposing anti-subsidy duties on Chinese goods. Earlier this year, when the US requested a consultation with China over its subsidy measures under the WTO dispute resolution mechanism, Japan, Mexico and Canada followed. International receptiveness towards Chinese goods will further decline.

Some analysts believe that one reason for the decision is a desire to ease pressure on the government from the Democrat-dominated Congress about the ever-increasing US trade deficit with China. It appears that the US Department of Commerce's decision has been carefully designed by various executive departments of the government, as Gutierrez has said that the US government is willing to discuss the tariff issue with their Chinese counterpart, an obvious attempt to ask a price. However, while it may not be certain whether this decision will ease pressure on the government from Congress, it well certainly damage Chinese enterprises substantially. The Chinese Ministry of Commerce believes that the US' decision has harmed Chinese manufacturer's feelings and interests significantly, and strongly recommends that the US reconsider its decision and correct it as soon as possible.

Trade protectionism is a double-edged sword. US and Chinese authorities have a similar understanding of the advantages and disadvantages of China-US trade. It is hoped that in future negotiations the two nations will be able to resolve problems and prevent the situation from deteriorating, particularly into the 'trade war' that neither party wants.

The author, Zhu Wenhui, is business commentator for the Hong Kong-based Phoenix TV; translated by People's Daily Online