The Art Of Managing Trade Remedy Cases Involving China

Monday, May 3, 2010 - 01:00

Editor: Please tell our readers about your practice area.

Cannon: My practice focuses on trade remedy actions, primarily antidumping and countervailing duty cases. I represent U.S. manufacturers and agricultural producers having problems due to unfairly traded imported goods. I generally practice before the Commerce Department and the International Trade Commission. Cases on appeal are brought before the Court of International Trade and the Court of Appeals for the Federal Circuit. In addition, I work on international trade policy issues with the U.S. Trade Representative's office.

Editor: In recent years, there has been an increase in trade actions against China, in particular targeting imports of wire products from China. In representing a number of U.S. wire products manufacturers, you recently filed trade remedy actions against China. Is there some reason for the increasing focus on China and on wire products?

Cannon: Many Chinese industries have experienced surging growth in the past decade and are expanding their capacity beyond what their home market can consume. Chinese industries, such as the wire decking industry, will target the U.S. market for their excess production. In fact, wire decking is produced in China almost entirely for export, generally to the United States. These sales occur at very low prices, injuring competing U.S. producers and giving rise to trade remedy cases.

Wire products, in particular, have become increasingly the focus of these cases because of recent changes in Chinese tax policies. The Chinese government has created tax incentives for its companies to retain raw materials in China while increasing the production and exportation of value-added products such as wire decking, thereby causing injury to our competing domestic industries. That is why there has been an increase in wire products cases.

Editor: How do U.S. producers know when a trade action is warranted? What factors cause a company to consider pursuing an antidumping or countervailing duty case?

Cannon: A trade action should be considered when a U.S. manufacturer is experiencing some or all of the following problems: 1) lost sales due to lower-priced imports; 2) an inability to increase prices to cover costs due to the low-priced imports; 3) production cutbacks or unused capacity due to sales being displaced; 4) layoffs of workers; or 5) financial declines due to competition from lower-priced imports.

The question of dumping for China generally involves showing that prices at which a product is being sold in the U.S. market are lower than what reasonable costs should be to produce that product in China. Because China is a non-market economy country, dumping isn't based on the actual costs in China because those are considered to be artificial. Instead it is based on costs in what is called a "surrogate country." Generally, India is the country that the agency looks to as the surrogate.

Unfair trade allegations also can be based on evidence that the government of China is providing subsidies to Chinese producers. We have developed a large database identifying many types of subsidies that the government provides to different industries, and we will review that depending on the specific product at issue.

Editor: If the trade action is successful, what kind of relief is provided? What effect does that relief have on imports generally? How does a U.S. manufacturer benefit from the trade remedy?

Cannon: If the trade action is successful, the Commerce Department imposes antidumping or countervailing duties on imports of the product. The amount of the duty is the margin of dumping or the magnitude of the subsidies bestowed. The result of the duty payment is generally an increase in the import price, benefiting U.S. producers who had been forced to compete with low-priced imports. The U.S. importer is the party required to pay the duty. The point of imposing the duties is to offset the unfair trading practice, so the duties are remedial and not punitive. The whole idea is to restore a level playing field for the U.S. producers.

Editor: Allegations have been made that Chinese producers have been attempting to circumvent duties that are imposed as a result of trade action remedies. Are you seeing that in your cases, and what actions can be taken to address the circumvention problem?

Cannon: We are seeing a disturbing trend by Chinese producers who are attempting to evade the imposition of these duties. As soon as we filed our trade action on PC strand from China, we heard that the Chinese producers were planning to circumvent the imposition of any duties through the unlawful transshipment of products that are manufactured in China via third countries. Then they are repackaged and labeled as a product of that third country before being sent to the United States. We are working actively with Customs and Border Protection to address these circumvention schemes. Customs takes these fraudulent activities seriously and has punished companies and individuals in the past who engage in such schemes.

Editor: Is China generally complying with its WTO obligations on trade?

Cannon: China is now at the table during the WTO trade discussions and is engaged in the dialogue on trade, so that is a good thing. But China has not eliminated its extensive subsidies. China complains about subsidy cases filed against its practices, despite agreeing in its protocol of accession with the United States that the U.S. could apply the countervailing duty law to China. The Obama administration has recently filed a WTO challenge against China for its export restraints on raw materials in violation of WTO obligations.China continues to violate the WTO agreement on intellectual property and other issues as well.

Editor: What is the Obama administration doing to address some of the unfair trade practices and policy concerns that you have just identified, and what do you think the administration should be doing?

Cannon: To date, the Obama administration has been focusing on its export policy and has not articulated a policy regarding the enforcement of trade remedies. The administration has set a goal of doubling exports, but has said little about what steps could be taken to strengthen the trade laws to help U.S. manufacturers compete with imports in the trade actions I have been describing.

That has been a bit frustrating, particularly given the increase in circumvention activities that I have mentioned. When the unfair imports displace sales by U.S. companies, the companies go out of business and the employees lose their jobs.

Editor: In other words, what you are saying is that the administration is taking a proactive stance in terms of distributing U.S. goods throughout the world, but they are not involved in minimizing unfair imports?

Cannon: Exactly. They are very active in terms of saying we are going to try to take actions that will get our goods exported and into other countries, which is great. But you have to also look at the flip side of that coin, and that is an area that they really haven't seemed to address to date.

Editor: Are there actions other than antidumping or countervailing duty trade remedies that are available to companies concerned with unfair trading practices or injury caused by imports from China?

Cannon: The other major trade remedy action available to address imports from China is called a Section 421 action. That type of action only requires an industry to prove that it has been injured by imports from China, not that the goods are unfairly traded. Basically, it is designed to provide quick relief to an industry that has suffered injury due to a rapid surge in imports from China. Relief can be provided in the form of a temporary quota or some type of tariff.

A Section 421 action is subject to the discretion of the President. For many years, although the International Trade Commission found merit with section 421 cases, President Bush refused to provide relief. There were a string of cases in which the ITC recommended relief, but the President would not provide it. The first and only Section 421 case filed under the current administration involved the import of tires from China. In that case, President Obama did provide relief for the first time in a Section 421 context. It is unclear, though, whether Section 421 will continue to be relied upon by very many other industries because of the highly political nature of the process.

Editor: Why do think that he did grant relief in this one situation with tires? Was there anything particularly unusual about this case?

Cannon: The failure of President Bush to grant relief under Section 421 had gotten a lot of attention before President Obama was elected, so this became a high-profile case. President Obama stated before he was elected that he would enforce the trade laws, and he would look at providing relief in a 421 case. The tires case was the first one that came along, so it was subject to a lot of political scrutiny, particularly given the involvement of the unions. People were asking if the President was going to step up and provide relief as he stated during the campaign. He did, and then the question became whether there was going to now be a flood of Section 421 cases. To date, that has not occurred, likely because the matter is very political. Antidumping and subsidy cases, on the other hand, do not involve presidential discretion, so often those are a preferred means of seeking relief from imports.

Editor: The government of China has become increasingly outspoken in objecting to the U.S. imposition of trade remedies against Chinese products. As a practitioner involved in filing a number of recent trade actions against China, how do you respond to these objections?

Cannon: We filed antidumping and countervailing duty actions when we found evidence that China is engaging in unfair trade practices that cause injury to U.S. producers and workers. Duties are only imposed against China when the evidence indicates that China is dumping or receiving unfair subsidies and that the U.S. industry is being injured by those unfairly traded imports. The right to pursue such actions is fully consistent with the international agreements to which the U.S. and China are parties. It is also important to recognize that these duties are not punitive. They are merely trying to level the playing field for U.S. companies, which is critical if we want to preserve our manufacturing base.

Editor: Given the enormous investment that China has in U.S. securities, is it short-term thinking to flood our markets and cripple our economic base?

Cannon: China is trying to promote its own industries without necessarily considering the broader effects that this build-up is going to have on the United States.On the other hand, to put this in perspective, trade remedy cases affect only a small percentage of U.S. trade with China.So, perhaps that is a trade-off that is simply worth it to China.

Editor: To what extent do the activities of human rights activists or environmentalists impact the work that you do and the policies that the United States has developed toward China and trade?

Cannon: Human rights or environmental policies are not specifically considered as part of these trade remedy laws. They are not factors examined by the agencies in determining whether to provide trade remedies.

There are other means beyond the trade remedies that can be used to deal with those situations. One law, for example, provides a remedy against the importation of goods produced by prison labor, but it has not been used against China to date.Human rights and environmental policies are something that I think this administration considers when looking at the new free trade agreements it is negotiating. It wants to make sure that some of these other factors are taken into account.

Please email the interviewee at kcannon@kelleydrye.com with questions about this interview.