Will China Behave in the WTO Dispute Settlement Mechanism:
The law and practice of the Chinese approach to trade disputes
I. Disputes Expected between China and other Trade Partners after China’s Entry
In laborious negotiations with WTO members, particularly with the U.S. and the European Union, China agreed to make vast market-opening changes to its hybrid economy.However, it is increasingly realized that trade between China and the rest of the world, and the United States in particular, may grow contentious as China gains marketing and manufacturing prowess, and particularly after China enters the WTO.
Firstly, China is woefully unprepared to do so much work in so little time. Given the magnitude of preparatory work necessary to implement the WTO agreements fully, it will not be surprising if the details of many implementing measures are not worked out beforehand.In this context, trade friction is expected to arise from China’s inability to meet all of the many concessions it has made to get into the WTO.
Secondly, although China has a generally satisfactory history of adhering to international treaties,there are sure to be lingering struggles between China and its trade partners about the exact nature of some of China’s commitments.China may be reluctant to yield to the claims of its trade partners; on the other hand, China is a good fighter for its presumed legitimate interestsand will predictably begin using the WTO rules to protect its perceived interests.
In all, trade disputes are sure to occur between China and other WTO Member States after China joins the WTO.
II. Understanding the Chinese Practice of Dealing with Trade Dispute with Its Trade Partners:
1. Statutory Provisions concerning Dealing with Trade Disputes
Until the promulgation of the Foreign Trade Law,there had been no legal grounds for China engaging trade disputes with other countries. The Foreign Trade Law lays down a provision for dealing with trade disputes with other countries. Article 7 of the Law provides that “n the event that any country or region applies discriminatory prohibition, restriction or other like measures against the People’s Republic of China in respect of trade, the People’s Republic of China may, as the case may be, take counter-measures against the country or region in question.”
Article 40 of the Anti-Dumping and Anti-Subsidy Regulationsfurther provides that “ased upon actual circumstances, the People’s Republic of China may adopt corresponding measures against any country or region adopting discriminatory anti-dumping or anti-subsidy measures against its exports.”
The statutory provisions give China leeway to restrict foreign imports for indefinite periods in engaging trade disputes.
2. Case Studies
As China’s trade surges,China has scuffled with its major trade partners. The United States, European Union, South Korea and Japan all have encountered disputes with China.
A look at how China approached to these disputes would not only shed light on the Chinese practice in trade dispute settlement, but also help predict how China will behave regarding the WTO dispute settlement mechanism after its WTO accession.
a. China-US dispute of textile transhipment
This is a case where the dispute was settled with China’s making concessions.
China is the third largest supplier of imported textile and apparel products in the United States, after Mexico and Canada. Textile exports account for 10 percent of the overall Chinese exports to the US.In February 1997, China and the United States concluded an agreement on textile trade.Under this four-year agreement, the US promised to raise quotas for Chinese textile imports in exchange for Chinese promises to reduce tariffs and non-tariffs barriers to US textile imports and to crack down on transhipments. However, on 5 May 1998, the US announced it would impose punitive charges of US $ 5 million for exporting textiles to the US via third countries to escape quotas. China responded that the US was in violation of the bilateral agreement by unilaterally deducting the quotas, vehemently accusing the US of “wantonly breaking” the accord. Interestingly, the Chinese did not resort to retaliation. Instead, it tightened the enforcement of the rule against transhipments.
b. China-EU dispute on interpretation of trade agreement
This is a case where the dispute ended in an agreed solution based on China’s concession.
The Agreement on Trade and Economic Co-operation between the European Economic Community and the People’s Republic of China (1985) is the guiding agreement on trade relationship between China and the EU. However, the Agreement does not contain a provision for resolution of disputes and therefore, no reference can be made to this Agreement to solve the trade disputes between the two parties.
Administrative production is a system that China introduced in mid 1980s to grant market exclusivity in China for phamaceuticals and agrochemical product patented in other countries. In 1994, China and the EU reached the agreement on administrative production for phamaceuticals and agrochemical product inventions. At the concluding of the agreement, the EU consisted of 12 Member States. When later other three states, i.e. Austria, Finland and Sweden, acceded to the EU, the Chinese authorities have always previously given a restrictive interpretation and application of the Agreement, and have denied administrative protection to applicants from these new EU Member States. Since then EU raised the issue of equal treatment to these Member States on several occasions. In June 2000, EU Commission Pascal Larmy requested urgent action for equal treatment for all EU Member States from China’s Trade Minister Shi Guangsheng. At the subsequent EU-China Joint Committee in October 2000, Minister Shi agreed in principle to an extension. The EU Delegation in Beijing and the Chinese Ministry of Foreign Trade and Economic Co-operation in February 2001 finally reached a new agreement. The new agreement confirms that administrative protection for phamaceuticals and agrochemical products in China will extent to applicants from Austria, Finland and Sweden.
c. China-Korea dispute of garlic export
This is another case where China and the other disputant agreed on a solution, with the other disputant making more concessions.
China was the third largest trade partner of Korea and Korea the fourth of China. The total volume of the trade between the two countries has exceeded 300 US$ billion in 2000. Korea enjoyed a trade surplus of US$ 11.9 billion in 2000.
In 1999, there was a 30 percent drop in garlic prices in Korea and the Korean farmer suffering from such price drop blamed the cheap foreign imports for their loss. The Korean Finance and Economy Ministry issued its No. 141 order on May 31, 2000 which declares that starting from June 1, 2000 Korea adopts limitation measures on garlic imports and a tariff rate as high as 315 percent will be levied on imported garlic.
China is the major garlic exporter to Korea. It thought that Korea’s limitation on garlic import was actually targeted at China. It dismissed the assertion that “the increase of garlic imports has caused a reduction in garlic prices and damaged the garlic industry in Korea” as unjustified. It argued that “]ny damage to Korea’s garlic industry is caused entirely by the sharp increase of its garlic production at home, instead of the minor increase of its garlic imports.”
It further asserted that the unilateral measures without consulting China not only seriously obstructed China’s garlic export and affected the normal development of bilateral trade, from which China had sustained huge amount of deficits for a long time, but also did not accord with the regulations of the WTO.
China announced suspension of the import of Korean mobile telephones (including vehicular mobile sets) and polyethylene on 7 June 2000.
However, on 1 August 2000, China announced the lifting of its two-month ban on import of mobile phones (including vehicular mobile sets) and polyethylene from the Korea after the two countries reached an agreement on garlic trade.The decision was made as two parties reached an agreement after negotiation.
Under the agreement, Korea would import 32,000 tons of Chinese garlic at low tariffs in 2000, and the amount will grow by 5.25 percent annually within a term of three years.For the purpose of implementing the agreement on the Chinese part, the MOFTEC promulgated the Provisional Rules on Management of Export of Garlic to South Korea to regulate and rectify the garlic exports to Korea.
d. China-Japan dispute of agriculture products
This is a case where the on-going dispute is likely to be settled with other disputant making concessions.
Japan is now China’s largest trade partner and China Japan's second, with almost no imbalance, importing US$41.7 billion worth of goods from China and exporting US$41.5 billion in 2000.
On 11 April 2001, the Japanese Embassy in Beijing informed the Chinese government that Japan decided to impose temporary restrictions on the imports of Chinese leeks, shiitake mushrooms and straw for a period of 200 days starting from 23 April 2001. China protested, arguing that Japan used the double standards that were against the principle of fairness. From the Chinese perspective, Japanese decision was politically motivated.
The MOFTEC argued that the Japanese decision ran against the WTO rules in several aspects the selection of products to investigate, the basic conditions to impose the protective measures, the objectiveness of the decision and some others.
While strongly urging Japan to retract the decision, China threatened that a possible retaliation would be imminent if Japan did not suspend the restrictions. Japan had given no regard to China’s opposition, arguing it had imposed temporary safeguard measures under the WTO rules, which preclude retaliation. Moreover, it decided on 7 June to temporarily stop the importation of Chinese poultry on alleged ‘bird flu’ fears, while China denied any local outbreak of the virus. On 19 June, the angered China announced it would soon impose “prohibitively high tariffs” on imports of Japanese cars, mobile phones and air-conditioners, with the total value of about US$500 million. Seemingly, this will be the most severe retaliatory measure taken by the Chinese authorities against Japan’s “wrong decision and discriminatory actions”.
However, the extra tariffs are not expected to have much influence on Japanese manufacturers since the majority of these brands, except for some cars, are manufactured in China.The Chinese move was believed to be more symbolic than anything else,only necessary to dissuade Japan from spreading its protective and discriminatory measures to other Chinese exportsand also to dissuade other countries from adopting similar measures against China.
One has reason to believe that the Chinese response has brought a pause rather than an escalation. A clear indication is that predictably Japan did not respond furiously. Instead, the two parties have engaged themselves in talks. The conciliatory signals from Japan leaves room for speculating that the trade dispute may be resolved without resorting to a war of retaliation. China has also expressed that it would resort to the WTO dispute settlement mechanism for resolution of the disputes after its accession to the WTO, which is expected in November 2001.But, more likely, the dispute will be solved as the
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