China in the WTO antidumping and safeguards World Bank Econ Rev-2004

China in the World Trade Organization: Antidumping and Safeguards Patrick A. Messerlin China finds itself in a unique situation on antidumping and safeguard issues. It is by far the main target of antidumping measures, but (so far) one of the smallest users of such measures. China’s World Trade Organization (WTO) accession protocol includes stringent antidumping and safeguard provisions that its trading partners may use against its exports. The article examines three related concerns: how quickly large developing economies can become intensive users of antidumping measures, an evolution raising concerns about China’s recent antidumping enforcement; how China could minimize its exposure to foreign antidumping cases, a recipe for both improving trade outcomes and for China’s taking a leading role in reforming WTO antidumping; and the opportunities that the Doha Round of trade negotiations offer to China for negotiating stricter disciplines both on WTO contingent protection and on the use by China’s trading partners of the special provisions included in China’s accession protocol. On November 10, 2001, China was accepted as a full member in the World Trade Organization (WTO). A few weeks earlier, China’s chief trade negotia- tor, Long Yongtu, had put ‘‘stricter rules on antidumping’’ second among China’s priorities in the WTO. At that time the United States was still fighting to exclude antidumping from the topics to be discussed at the WTO Doha Ministerial Meeting and the European Union was adopting an ambiguous position. In the early stages of the negotiations under the Doha Round development agenda, China finds itself in a unique situation on antidumping and safeguard issues. China’s WTO accession protocol includes special provisions on antidumping and safeguards that its trading partners may use against Chinese exports. These include continuing use of ‘‘nonmarket economy’’ status in antidumping investiga- tions for 15 years and use of a special ‘‘transitional product-specific safeguard’’ Patrick A. Messerlin is professor of economics at Sciences Po and director at Groupe d’Economie Mondiale de Sciences Po; his e-mail address is patrick.messerlin@sciences-po.fr. The author would like to thank Michael Finger, Will Martin, Edwin Vermulst, and two anonymous referees for useful comments on earlier drafts of this article. THE WORLD BANK ECONOMIC REVIEW, VOL. 18, NO. 1, � The International Bank for Reconstruction and Development / THE WORLD BANK 2004; all rights reserved. DOI: 10.1093/wber/lhh032 18:105–130 105 provision for 12 years.1 China is by far the main target of antidumping measures even though it is one of the smallest users of suchmeasures. But the past decade has shown how quickly large developing economies can become intensive users of this instrument, and the evolution of China’s antidumping enforcement in 2002 and early 2003 raises concerns in this respect. Section I of this article describes the current situation with respect to anti- dumping. It is used massively by only 10 countries (4 industrial and 6 develop- ing), and there is strong asymmetry, best illustrated by China, between countries enforcing antidumping and those targeted by antidumping measures. Section II examines how China could minimize its exposure to foreign antidumping cases—an option that would be a recipe for both improving trade outcomes and for China taking a leading role in reforming WTO antidumping. Section III analyzes China’s antidumping regulations and its first cases, including their crucial relationship with the existing web of the U.S. and EU antidumping cases. Section IV examines the opportunities the Doha Round offers to China for negotiating stricter disciplines both on WTO contingent protection and on the use of the nonmarket economy and transitional product-specific safeguard provisions by China’s trading partners. The conclusion summarizes the crucial choices to be made by China in antidumping and safeguard policy. I . THE CURRENT SITUATION During the November 2001 WTO Doha Ministerial Meeting, antidumping was perceived as an issue pitting developing economies, anxious to discipline the use of this instrument, against the United States, which was (and still is) reluctant to change its own antidumping regulations. However, a much more complex picture emerges from a close examination of the antidumping measures in force at the end of each year during 1995–2002, which are notified to the WTO Secretariat by WTO members.2 Antidumping Users and Targeted Countries: A Key Asymmetry Examination of the stock of antidumping measures in force shows two main results (table 1). First, the top 10 antidumping users enforce 90 percent of the antidumping measures notified to the WTO, whereas they represent 70 percent of world gross 1. In spring 2002 the European Union and the United States declared that they would consider Russia a market economy for purposes of antidumping. However, the case for introduction of a transitional product-specific safeguard provision in Russia’s accession protocol seems open. It would be interesting to make a parallel between the conditions imposed on Japan’s accession to the General Agreement on Tariffs and Trade (GATT) and those imposed on China in its accession to the WTO. 2. Tables 1–3 treat measures taken against individual EU member states as one aggregated measure if adopted at the same time and for the same product (data for 2002 are still not complete). Table 4 follows the notifications of EU trading partners, which vary in their treatment of the European Union (as one entity or as a set of distinct member states). 106 THE WORLD BANK ECONOMIC REV I EW, VOL . 18 , NO . 1 domestic product (GDP) and 50 percent of the world trade. Worldwide antidumping enforcement is thus highly concentrated in fewer than a dozen countries. Second, the situation prevailing during the Uruguay Round—antidumping users were almost exclusively industrial countries—is no longer true. Six new intensive antidumping users are developing economies (Argentina, Brazil, India, Mexico, South Africa, and Turkey), and they have almost caught up with the four major traditional users. These new users implemented more than a third of the antidumping measures in force in 2002, up from less than a fourth in 1995. Meanwhile, the share of measures of the four traditional users declined from more than two-thirds to half the total number of antidumping measures in force during the period. In another worrisome sign of increasing use of antidumping measures, the remaining developing economies, though still small users individ- ually, together doubled their global share of measures in force during the observation period. Examination of the stock of antidumping measures in force by targeted country shows a marked asymmetry between antidumping users and targets (tables 1 and 2). The top 10 users are the targets of less than a third of all the measures in force, and the gap between using antidumping measures and being a TABLE 1. Top 10 Antidumping Users, 1995–2001 (number of measures in force) Country or group 1995 1996 1997 1998 1999 2000 2001 2002 Average number by value of imports Average applied tarrif Industrial countries Australia 78 46 40 49 39 44 59 38 0.77 5.8 Canada 79 78 78 65 72 71 85 83 0.38 4.8 European Union 140 138 138 139 159 175 175 183 0.19 4.6 United States 265 271 271 281 282 202 227 239 0.29 4.3 Developing economies Argentina 15 30 33 39 45 42 45 60 1.17 13.7 Brazil 21 28 23 28 38 43 49 54 0.51 12.5 India 13 15 24 44 58 94 115 181 1.28 39.6 Mexico 93 92 81 86 80 77 61 55 0.72 12.6 South Africa 12 29 42 56 87 96 94 80 1.81 15.0 Turkey 37 37 34 34 35 14 16 30 0.61 12.7 All other 50 59 84 102 122 117 97 — 0.04 — China — — 0 0 4 8 11 17 0.03 15.8 All countries 803 823 848 923 1,017 975 1,023 — 0.21 — Note: Measures in force include antidumping duties and undertakings in force as of December 31 of the year. —, Not available. aAverage number per $1,000 of 1997 imports of the user country. Source: Author’s computations based on WTO Reports on Antidumping (G/ADP/N series at www.wto.org), WTO trade data, and WTO (2001). Messerlin 107 target widened in 2001 and 2002. In sum, antidumping is currently an instru- ment enforced by a few large countries against the smaller economies of the rest of the world. Thus there is little pressure coming from the rest of the world to urge intensive antidumping users to restrain their actions. For the top 10 antidumping users, with the exception of Brazil, the domestic interests that are hurt by foreign antidumping measures are smaller than the interests that benefit from antidumping protection. This reflects the well-known economic proposition that views protection more as a conflict between domestic export interests and import-competing interests than as a conflict between countries. To capture this aspect, the number of foreign antidumping measures in force against the exports of a top user can be adjusted by the size of the country’s exports (in thousands of U.S. dollars; see table 2). These trade- adjusted measures mirror the intensity of foreign pressures imposed on the export interests of a country, thus giving an indication of the incentives of these export interests to contribute to the opening of domestic markets. These numbers can then be compared with the trade-adjusted antidumping measures in force by the country in question (see table 1), which can be interpreted as an TABLE 2. Top 10 Antidumping Targets, 1995–2001 (number of measures in force) Country or group 1995 1996 1997 1998 1999 2000 2001 2002 Average number by value of exportsa Industrial countries Australia 5 6 5 6 5 5 5 5 0.08 Canada 19 19 19 19 20 18 8 8 0.08 European Union 77 88 89 102 132 149 99 98 0.13 United States 60 66 66 68 66 62 57 67b 0.09 Developing economies Argentina 9 8 7 7 7 7 9 8 0.30 Brazil 48 51 52 45 42 43 34 51 0.85 India 15 15 15 21 29 35 42 44 0.72 Mexico 11 15 17 17 19 21 17 17 0.15 South Africa 7 10 11 11 12 15 16 24 0.39 Turkey 9 9 6 8 10 13 12 18 0.37 All other 543 536 561 619 675 611 724 — 0.29 China 143 148 180 193 202 207 199 212 0.99 All countries 803 823 848 923 1,017 979 1,023 — 0.22 Note: Measures in force include antidumping duties and undertakings in force as of December 31 of this year. —, Not available. aAverage number per $1,000 of 1997 exports of targeted country. bIncomplete estimate. Source: Author’s computations based on WTO Reports on Antidumping (G/ADP/N series at www.wto.org) and WTO trade data. 108 THE WORLD BANK ECONOMIC REV I EW, VOL . 18 , NO . 1 indication of the strength of the incentives of import-competing interests to induce their government to use antidumping. The observed imbalance between export interests and import-competing antidumping beneficiaries in the top 10 antidumping users suggests that it is unlikely that domestic coalitions in these key users, which are also key WTO players, are strong enough to support anti- dumping reforms in the WTO. This situation raises a question that needs to be carefully examined in the future. The data on antidumping measures in force suggest that antidumping measures by the six major developing economy antidumping users impose welfare costs on their own domestic economies that are higher than the costs imposed on industrial economies by their antidumping measures, for two rea- sons. First is the marked difference between the number of measures imposed by developing and industrial countries once adjusted for trade size. The average number of measures in force per $1,000 of goods imported (in 1997) by an antidumping user is a better indicator of the potential harm done by antidump- ing to the domestic economy than the absolute number of measures. This indicator is much higher for developing economies than for industrial countries, ranging from 0.5 for Brazil to 1.8 for South Africa and from 0.2 for the European Union to 0.4 for Canada (with an exception, Australia, at 0.8). These differences would be even larger if the number of antidumping measures were adjusted for the number of tariff lines concerned because developing economies tend to cover many more tariff items with antidumping cases than do industrial countries. The second reason for higher welfare costs is that available information (though not systematic) suggests that antidumping duties enforced by developing countries are, on average, more severe than those imposed by industrial countries—and economic analysis shows that welfare costs increase more rapidly than tariffs do. China’s Special Situation China has been the main target of antidumping measures—18 percent of anti- dumping cases in 1995 and almost 20 percent in 2001 and 2002 (see table 2). Examination of the raw number of antidumping measures imposed on Chinese exports by the top 10 antidumping users and the number of measures adjusted for trade value between each trade partner and China (the average number of cases per $100,000 of exports fromChina to these users) shows that China is targeted much more by developing economies than by industrial countries (table 3). China is almost exclusively targeted by the top antidumping users, all of them being relatively large economies. All this raises a key question about China’s role in future antidumping activities. Will China follow the same path as other large developing economies, rapidly increasing the number of antidumping cases against other countries? Or will China adopt a different approach, minimizing the use of antidumping Messerlin 109 measures and invest its negotiating strength in the WTO in working for stricter antidumping rules, as its chief trade negotiator announced? Clearly, China’s decision will have a decisive impact on the evolution of world antidumping enforcement and on WTO trade disciplines more generally. II . MINIMIZ ING CHINA ’S EXPOSURE TO FOREIGN ANTIDUMPING The slow pace of WTO negotiations means that China would likely not be able to get reforms of WTO antidumping rules into play for at least two (more likely four) years. Meanwhile, it will be hard for Chinese authorities to resist pressures from import-competing firms in China that demand more intensive use of antidumping procedures. One possibility: Could China adopt measures minimizing as quickly as possible its exposure to foreign antidumping, alle- viating the political costs of playing a reforming role in WTO antidumping rules? TABLE 3. Share of Antidumping Measures in Force against Imports from China, 1995–2002 (% of total antidumping measures in force by user country) Country or group 1995 1996 1997 1998 1999 2000 2001 2002 Average share 1995–2001 Average number by value of imports from Chinaa Industrial countries Australia 9.0 4.3 10.0 8.2 7.7 4.5 5.1 7.9 7.0 0.7 Canada 7.6 7.7 10.3 10.8 8.3 8.5 10.6 10.8 9.1 1.8 European Union 20.7 21.7 23.2 23.0 20.8 19.4 19.4 15.8 21.2 1.0 United States 12.8 13.7 15.1 14.6 14.5 16.5 18.5 18.0 15.1 1.7 Developing economies Argentina 33.3 20.0 30.3 35.9 31.1 21.4 15.6 20.0 26.8 10.0 Brazil 14.3 14.3 21.7 28.6 28.9 25.6 22.4 20.4 22.3 4.7 India 38.5 46.7 33.3 27.3 32.8 22.3 25.2 27.1 32.3 10.7 Mexico 33.3 28.3 40.7 38.4 36.3 35.1 44.3 41.8 36.6 60.3 South Africa 8.3 27.6 28.6 23.2 19.5 18.8 19.1 22.5 20.7 12.0 Turkey 13.5 13.5 14.7 17.6 17.1 14.3 25.0 40.0 16.5 4.4 All other 34.0 28.8 26.2 22.5 18.9 12.8 15.5 — 22.7 — Total number 143 148 180 193 202 179 199 — 174 — Percent of all anti- dumping measures 17.8 18.0 21.2 20.9 19.9 18.3 19.5 — 19.4 — —, Not available. aPer $1,000 of imports from China. Source: Author’s computations based on WTO Reports on Antidumping (G/ADP/N series at www.wto.org) and WTO trade data. The total number of measures is based on Lindsey and Ikenson (2001). 110 THE WORLD BANK ECONOMIC REV I EW, VOL . 18 , NO . 1 As noted, trade problems are fundamentally domestic conflicts between firms— between export-oriented and import-competing industries. The country-based data discussed sheds no light on this deeper aspect of protection and can even be misleading. For instance, the strong asymmetry between antidumping users and targets shown in tables 1 and 2 could suggest that WTO members would be induced to bring more antidumping cases until the situation is so bad that WTO members collectively adopt stricter disciplines on antidumping. Arguments have already been presented suggesting that the top antidumping users are unlikely to follow this path. Taking firms’ behavior into account suggests a darker scenario. Petition- ing firms—the driving forces in antidumping enforcement—may lodge antidump- ing complaints against several key countries to segment the world market in their products (evidence supporting this hypothesis is shown later). In that case the growing use of antidumping measures becomes not an incentive to discipline antidumping use but an incentive for firms to use the measures ever more inten- sively. Examining these deeper aspects of antidumping protection requires looking at the distribution of antidumping measures in force by sector or product rather than by country. A Few ‘‘Antidumping-Intensive’’ Sectors Antidumping measures are concentrated in a handful of Harmonized Tariff System sections (table 4). Metals, chemicals, machinery and electrical equip- ment, textiles and clothing, and plastics account for 75 percent of antidumping measures, even though these sectors account for less than half of world trade. These sectors are key sources of exports for dynamic developing economies in the first stages of industrial development, and they tend to have a high propor- tion of relatively standard products and oligopolistic market structures. Although the metals and chemicals sectors clearly have these features, the other sectors require a closer look, with greater disaggregation. There are few antidumping actions in the machinery and clothing subsectors that are charac- terized by many firms producing highly differentiated products. Most anti- dumping actions are in the electrical equipment and textiles subsectors that are characterized by relatively standard products produced by oligopolistic firms. This pattern strongly suggests that firms use antidumping as a cheap and powerful instrument for segmenting the markets that ongoing or scheduled trade liberalization is making more competitive. It also suggests that antidump- ing cases are likely to spread to such sectors as clothing that will increasingly experience product differentiation and imperfect competition (based on trade- marks, goodwill, distribution channels, and the like). In sum, the observed sectoral pattern of antidumping reflects the increasing ‘‘privatization’’ of trade policy by firms that have enough initial oligopolistic power to use the ‘‘procollusion’’ bias is embedded in antidumping regulations—a key lesson that should be kept in mind when implementing these regulations, in China as elsewhere. Messerlin 111 TABLE 4. Antidumping Measures in Force in the World by Section of Harmonized System, 1995–2000 Number antidumping measures China Harmonized System section 1995 1996 1997 1998 1999 2000 Section share (%) Growth index 1998–2000/ 1995–97 Export pattern Import pattern Average applied tariff 2001 Tariff lines with tariffs <10% as % of total tariff lines 15 Metals, metal articles 276 290 305 316 372 401 33.5 117.0 6.7 9.2 9.6 68.6 6 Chemical, allied industry products 201 203 204 210 217 228 21.6 104.1 4.7 8.0 9.4 78.2 16 Machinery, electrical equip. 81 85 94 95 100 81 9.2 116.1 29.2 37.8 14.4 30.0 11 Textiles, clothing 48 60 61 54 70 79 6.4 114.2 19.8 7.4 21.0 12.6 7 Plasters, rubbers 53 54 55 53 66 74 6.1 108.4 3.2 7.3 15.9 18.0 17 Vehicles, transport equipment 42 40 40 42 43 30 4.0 101.6 3.7 2.8 23.8 43.4 13 Articles of stone, plaster, cement 34 37 37 42 44 40 4.0 115.5 1.6 0.8 17.7 12.1 10 Woodpulp, paper, paperboard 18 17 21 44 44 39 3.1 20