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US Commission Recommends Anti-Chinese Trade Laws

by Glen Shapiro, Tax-News.com, New York

18 November 2016


In its 2016 Report to the US Congress, the US-China Economic and Security Review Commission has recommended a strengthening of US trade dispute procedures and legislation to counteract China's "ongoing failure to uphold its World Trade Organization (WTO) commitments."

The Commission noted that "industrial overcapacity topped the US economic agenda, replacing currency as its primary concern," However, it said, China has made only made vague pledges of capacity reduction with regard to its production of steel, aluminum, and coal – "Beijing has repeatedly stated its commitment to eliminating excess capacity, yet progress has been extremely slow – and in some cases nonexistent."

"Rather than closing industrial production facilities and laying off workers," it continued, "Beijing is exporting its surplus production to the detriment of US and other foreign competitors. As a result, US industries are struggling, with steel and aluminum producers shedding capacity, cutting employment, and reducing capital expenditures."

As a consequence, in 2015, the US goods trade deficit with China increased by 6.5 percent to a record USD367.2bn. Last year, the United States had a substantial but much smaller trade surplus with China in services of USD29.5bn. The Commission added that "China continues to stall on liberalizing key sectors in which the United States is competitive globally, such as services."

It was concerned that China's adherence to its WTO responsibilities "remains mixed, partly due to China's opaque subsidy regime. Recently, the United States initiated WTO cases on China's aircraft taxation, export restrictions on raw materials, and agricultural subsidies."

The Commission pointed out that, "over the last 20 years, antidumping (AD) and countervailing duty (CVD) cases have frequently been brought against China, with over 1,000 AD cases initiated against China globally since 1995. The United States has been a leading complainant, launching 28 AD and CVD investigations – out of a total 48 AD/CVD cases globally – against China in the first nine months of 2016."

The Commission also considered China's demand that it should be granted market economy (ME) status by December 11 this year – the 15th anniversary of its WTO accession – rather than its current treatment as a nonmarket economy (NME), for the purposes of AD and CVD enforcement. However, it concluded that using ME methodology in cases against China could significantly reduce the level of ADs that could be imposed, thereby increasing Chinese imports over the level they would be if the NME regime continued to be applied.

Under standard rules for MEs, ADs are calculated by comparing the export price of a product with the domestic prices or costs of the product in the exporting country. For NMEs, such domestic prices (which could be affected by government subsidies) are not used as a benchmark.

The Commission confirmed that the US Department of Commerce is presently responsible for determining whether a country is an ME. As "China is not currently an ME and is not on the path to become one in the near future," it recommended that "Congress enact legislation requiring its approval before China – either the country as a whole or individual sectors or entities – is granted status as an ME by the United States."

In addition, it recommended that "Congress require that, under AD and CVD laws, Chinese state-owned and state-controlled enterprises are presumed to be operating on behalf of the state and, as a result, do not have standing under US laws against unfair trade to block a case from proceeding, [and that] Congress create an office within the International Trade Administration whose sole purpose is to identify and initiate AD and CVD cases to ensure a more effective and timely response to China's unfair trade practices."

TAGS: tax | business | law | anti-dumping | China | enforcement | manufacturing | legislation | trade disputes | United States | import duty | regulation | trade | services

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