Chapter 6

 

The Promotion of Fair Trade

 

 

With the phenomenal growth in foreign trade, the acceleration of opening up the market and the approaching of key transitional period following China¡¯s accession to the WTO, there is an alarming increase in the number of trade frictions between China and its trading partners. The promotion of fair trade in imports and exports is of great significance in ensuring a trade-friendly environment, safeguarding national economic security and protecting the legitimate rights and interests of Chinese firms.

 

By the end of 2004, the number of antidumping charges leveled against Shanghai enterprises account for 39% of all the charges against Chinese enterprises since China¡¯s entry into the WTO. To further advance fair trade, the Shanghai WTO Affairs Joint Conference headed by Mr. Zhou Yupeng, deputy mayor of the city, was set up on August 10, 2004 to coordinate all WTO-related affairs in the municipality and to formulate and enforce relevant strategies and measures. The mission of the Joint Conference is to improve the fair trade coordinating mechanism involving the central government, the local government, the intermediary organizations and the relevant enterprises, to explore ways to improve the early-warning system of trade disputes, and to help Chinese enterprises participate in antidumping charges investigation.

 

 

I. Current Situations of Fair Trade in Shanghai

 

1.   The liberalization of trading rights is likely to trigger more trade frictions in the years to come. The Law on Foreign Trade taking effect on July 1, 2004 has deregulated trading rights in imports and exports. The emergence of a large number of foreign trading companies and the brisk increase in the volume of imports and exports could give rise to serious damages to internal industries and trade remedy measures initiated by foreign countries against China.

 

2.   The rise in international trade protectionism and the unfavorable terms of conditions for China¡¯s WTO accession will exert an adverse impact on China¡¯s trade for a long time. Clauses such as China¡¯s status as a non-market economy, transitional product-specific safeguard mechanism and special restrictive measures for textile products, some of which are effective until 2016, have been abused by some WTO members to restrict market access of Chinese products to their countries. For example, in accordance with Article XVI in the Protocol on the Accession of China, 8 WTO members such as South Korea, Japan, Canada, the US, Turkey, the EU and Peru have enacted domestic laws, launching and preparing to launch special safeguard investigations against China. The Imports Investigation Office of the US Commerce Department set up a China Work Group at the end of 2003 to make, on a more rigid basis, antidumping investigation probes on Chinese firms.

 

With global quotas on textiles and garments set to be phased out on January 1, 2005, enterprises and trade associations in some WTO member countries have been pressing for alternative measures to textile quotas to curb the robust growth in China¡¯s exports of textile products. Representatives of textile trade unions from 49 countries issued the Istanbul Declaration on June 16, 2004, demanding the implementation of a textile trade safeguard mechanism, and relevant trade unions in the US and the EU have been lobbying their governments to impose textile imports restriction measures.

 

3.   Changes have presented themselves in China¡¯s trade frictions with its major trade partners. (1) Trade frictions have been shifted to high value-added products. Antidumping charges levied by the US against Chinese-made light industrial products, textile products and chemical products have recently reduced to 20% of all the antidumping charges against China, as opposed to a nearly 90% high in the 1980s, whereas antidumping investigations on electric and mechanical products have surged to 17% from 6% over the same period. (2) A host of restrictive measures have been placed on products of Chinese origin. At present, such trade remedy measures as antidumping and special safeguard measures are the major forms of trade friction between China and the US and the EU. Countervailing cases are expected to rise when the problem of granting market economy status to China is gradually solved. Some WTO members have also resorted to trade barriers such as intellectual property rights, technical standards, inspection and quarantine of animals and plants, environment, labor, and corporate social responsibility. (3) Trade frictions have been extended to macro-economic issues. As well as placing trade protective measures against specific Chinese products or industries, some countries, notably the United Sates, have frequently exerted pressure on China¡¯s macro-level policies in areas such as foreign exchange rates, judicial system and human rights.

 

 

Box 6.1 Fact Sheet of Fair Trade Disputes with Foreign Countries Involving Enterprises in Shanghai

 

Up to December, 2004, a total of 159 cases of antidumping, countervailing and special safeguard measures initiated by 18 countries or areas have involved trading companies in Shanghai, accounting for 24.73% in the total number of cases in China, among which 57 cases occurred after China¡¯s entry into the WTO, making up 39% in the country. The products involved in trade disputes are chiefly light industrial products, electric and mechanical products and chemical products. The countries or areas involved include the US, the EU, India, Mexico, Turkey, Argentina and Canada.

 

 

I.  Measures Adopted by Shanghai to Promote Fair Trade

 

1.  Establishing a work body for fair trade. The Section for Treaty and Law was set up in the Shanghai Municipal Commission for Foreign Economic Relations and Trade in 1994. The Treaty and Law Section have become known also as the WTO Affairs Section since 2001 and as the Fair Trade Section since October, 2002. The name Fair Trade Section was finally decided in 2003.

 

The responsibilities of the Fair Trade Section fall into the following lines: to coordinate matters entrusted by the Ministry of Commerce (formerly known as the Ministry for Foreign Trade and Economic Cooperation) regarding antidumping charges against China which mainly affect trading companies in Shanghai; to urge companies to actively participate in antidumping investigations and to provide all the necessary help in the process so as to defend their rights and interests; to monitor the trade remedy impact on relevant industries in Shanghai which arises from antidumping, anti-subsidy and safeguard measures initiated by China; to keep close watch over the antidumping, countervailing and safeguard measures investigation launched by overseas countries against Shanghai firms; to collect information regarding unfair trade treatment that Shanghai companies have encountered in overseas markets and make investigations accordingly; to establish import and export early-warning and monitoring systems; to build a fair trade information bank and forward all such relevant information to the Commerce Ministry; to offer training programs on fair trade to government and company employees.

 

2.  Handling major foreign trade disputes. Special attention has been paid to those foreign trade disputes that involve a big stake in trade, have a widespread impact, are difficult to coordinate with parties concerned, are new in their categories and are entrusted by the Commerce Ministry. Every year, 3 to 5 such disputes have been dealt with, including the US antidumping charges against pencils, the US safeguard measures against steel clothes hangers, Canada¡¯s antidumping and countervailing investigations into barbecue grills, and China¡¯s antidumping investigations into the imported polyester films of South Korean origin.

 

3.  Building a fair trade information bank. The fair trade data cover antidumping, countervailing, safeguard measures and other trade barriers against Shanghai products, including the number of such cases, the countries or areas involved, the products and trade volumes thus affected, and the rulings of such investigations.

 

4.  Fostering international exchanges in fair trade. A large number of international conferences related to fair trade have been held in Shanghai over the years, including Sino-US seminar on trade laws in 1994, Sino-US senior seminar on intellectual property rights in 1997, symposium on general rules of international business contracts in 1998, Asian forum on the WTO multilateral trade regime in 1999, seminar on the legal aspects of Doha Development Agenda in 2003, Sino-US trade safeguard measures seminar, Sino-US antidumping and countervailing seminar, and symposium on US Article 337 investigation. For the past three years since China¡¯s entry into the WTO, 21 delegations from other countries to the Fair Trade Section have been received.

 

5.  Providing training programs on fair trade. Various training programs related to fair trade have been offered in the past few years. A total of 14,000 government officials responsible for foreign economic relations and trade participated in the training programs and related examinations on the Foreign Investment Law in 1997. Senior government officials in foreign economic relations and trade received training on WTO affairs in 2000. Practitioners in foreign economic relations and trade took intern training on fair trade in 2002. Entrusted by the Ministry of Commerce, the Fair Trade Section ran training programs on the revised Foreign Trade Law to people from various parts of the country. In addition, a number of textbooks on fair trade have been compiled, such as WTO and Shanghai Foreign Economic Relations and Trade, Bilateral Trade Disputes Settlement, An Introduction to the WTO, and An Analytical Review of WTO Fair Trade Cases.

 

6.  Formulating action plans in response to China¡¯s WTO accession. A number of action programs have been drawn up over the years, specifying objectives, tasks and measures over specific periods, which include the Action Plan for Shanghai¡¯s Foreign Economic Relations and Trade Following China¡¯s WTO Accession (composed in August, 2000 and revised in April, 2001), the 2002-2003 Action Plan for Shanghai¡¯s Foreign Economic Relations and Trade Following China¡¯s WTO Accession (worked out in January, 2002), and the 2003-2007 Action Program for Shanghai¡¯s Foreign Economic Relations and Trade Following China¡¯s WTO Accession (compiled in January, 2003).

 

7.  Sponsoring research projects on fair trade. Major research programs on fair trade that have been completed include Shanghai¡¯s Antidumping Practices (2001), Shanghai¡¯s Antidumping and Export Trade (2002), Legal Environment for Foreign Investment in Shanghai (2003), and Shanghai Fair Trade Research (2004).

 

8.  Improving the working mechanism for fair trade. A mechanism for fair trade disputes settlement was worked out in 2004, specifying the major tasks and the processing procedures.

 

 

II.     The Active Role of the Shanghai WTO Affairs Consultation Center in Promoting Fair Trade

 

With the frequent occurrence of trade frictions with China¡¯s trading partners, import and export disputes involving enterprises in Shanghai have also been increasing, affecting a large number of its industries and a significant part of its trade volumes. As the most important international trade center in the country, Shanghai has been closely watched by WTO members to evaluate China¡¯s fair trade practices in imports and exports, the fulfillment of its WTO commitments and the observance of WTO rules.

 

The Shanghai WTO Affairs Consultation Center has, in light of the instructions issued by the Ministry of Commerce to coordinate efforts of the national commerce authorities, the local commerce departments, the intermediary organizations and the enterprises involved in foreign trade disputes, played an increasingly active part in promoting fair trade in imports and exports to serve the government, the enterprises and the society as a specialized service organization.

 

1.    Relying on its large regiment of experts, the Center has provided counseling services in the legislative and decision-making processes of the State and Shanghai. For example, experts in the Center have served as advisors in amending the Law of the People¡¯s Republic of China on Foreign Trade, in dealing with the problem of China¡¯s status as a non-market economy in antidumping charges against Chinese businesses, in revising the Interim Rules of Trade Barriers Investigation, and in proposing China¡¯s negotiating plans for the WTO Doha Development Agenda.

 

2.    The Center¡¯s monitoring and early-warning systems for trade remedy measures have become an important tool for the Commerce Ministry, the municipal government and Chinese enterprises in responding to bilateral trade frictions. The Center has joined forces with the Shanghai Municipal Commission for Foreign Economic Relations and Trade, and the Shanghai Information Center to develop the trade remedy measures monitoring and early-warning systems. At the present, the first phase of the project, namely, the monitoring and early-warning systems for Chinese exports to the United States (the monitoring and early-warning systems for antidumping measures, Version 1.0, and for transitional safeguard measures against textile products, Version 1.0), has been completed and has achieved initial results.

 

 

Box 6.2 The Monitoring and Early-warning Systems for Trade Remedy Measures

 

Sponsored by the Shanghai Municipal People¡¯s Government, the monitoring and early-warning systems for trade remedy measures were jointly developed by the Shanghai WTO Affairs Consultation Center, the Shanghai Municipal Commission for Foreign Economic Relations and Trade, and the Shanghai Information Center.

 

Based on WTO rules and relevant laws and regulations of WTO members, the monitoring and early-warning systems are designed to forestall possible trade remedy measures of various kinds against Chinese exports by WTO member countries. By collecting, following and analyzing all kinds of data from the customs authorities, government agencies and trade associations of WTO members, the systems can furnish Chinese government, enterprises, trade associations and special service agencies with full access to dynamic, real-time and online information regarding possible trade remedy measures. Therefore, the systems will provide invaluable support to Chinese firms to enhance the international competitiveness of their products, to avert damages resulting from unfair competition and to deal with trade disputes in a timely and adequate way.

 

The systems cover such areas as antidumping measures, countervailing measures, safeguard measures, transitional product-specific safeguard mechanism and transitional textile products safeguard measures, and are specifically designed on the basis of relevant laws and regulations of WTO members. At the present, the development of the monitoring and early-warning systems for exports to the United States (the monitoring and early-warning systems for antidumping measures, Version 1.0, and for transitional safeguard measures against textile products, Version 1.0) have been completed.

 

The systems are developed to serve mainly the relevant government departments and agencies at various levels, all categories of enterprises registered in China, trade associations and special service organizations.

 

The development of the monitoring and early-warning systems for antidumping measures, Version 1.0, for countervailing measures, Version 1.0, and for safeguard measures, Version 1.0, is now underway.

 

 

3.    The Center¡¯s post-doctoral research station has become one of the key bases in China for fostering and producing high-caliber researchers in the realm of WTO-related affairs. Leading officials in the Ministry of Commerce have shown immense interest and great concern for the Center¡¯s post-doctoral research station ever since it was approved to be established in the Center by the Ministry of Personnel at the end of 2003, provided insightful advice on the selection of topics for research and arranged for the post-doctoral candidates to serve as interns in the Commerce Ministry.

 

 

III. Favorable and Unfavorable Factors in the Promotion of Fair Trade in Shanghai

 

1.  Favorable Factors in Shanghai¡¯s Endeavor of Promoting Fair Trade

 

(1)    Efforts in the promotion of fair trade have been made in Shanghai for a long time. The coordination of efforts in dealing with fair trade disputes and participating in trade investigations was begun in Shanghai more than a decade ago, and therefore, rich experiences have been accumulated over the years.

 

(2)    Shanghai¡¯s exports have been conducted in rather good order thanks to its sound administration, thereby reducing the likelihood of unfair trade complaints brought up by China¡¯s trading partners.

 

(3)    Corporate governance is also in pretty good shape in Shanghai, and in particular, there is a strictly enforced financial regime in Shanghai¡¯s enterprises. As a result, companies in Shanghai are likely to be awarded favorable rulings in the case of unfair trade charges against them.

 

2.  Unfavorable Factors in Shanghai¡¯s Bid of Promoting Fair Trade

 

(1)    The composition of trading companies in Shanghai has greatly changed in recent years. The weight of foreign invested companies and other private sectors in exports has relatively increased. Therefore, shift should be made from managing state-owned foreign trading companies to serving all the different kinds of enterprises engaged in foreign trade, and tremendous efforts will be required to build and improve a working mechanism for fair trade.

 

(2)    Shanghai¡¯s enterprises involved in trade disputes with foreign countries are for the most part engaged in the circulation of products. As an important port city in the country, Shanghai¡¯s trading companies are mostly those which export their own purchased commodities or serve as foreign trade agents for Chinese factories. According to antidumping laws in other countries or areas such as the European Union, such circulation enterprises are in a disadvantageous position when charges of unfair trade are filed against them, and for this reason, they are usually more reluctant to respond to antidumping investigations than those enterprises in Zhejiang and Guangdong provinces which produce and export their own products. Therefore, the task of promoting fair trade in Shanghai differs markedly from that in other coastal cities and provinces.

 

(3)    A large number of newly established foreign trading companies in Shanghai are not quite familiar with international trade rules. In 2003 alone, up to 4,067 domestic invested foreign trading companies were established, among which 3,489 are privately funded and run. The majority of these enterprises are unacquainted with the rules of international trade, and unbridled competition among them tend to disrupt the export trade order in the market, thus leading to trade remedy measures such as antidumping from foreign countries.

 

(4)    The fair trade mechanism in Shanghai is yet to be improved. Antidumping, countervailing and safeguard measures initiated by foreign countries against Chinese exports fall within the work of the Shanghai Municipal Commission for Foreign Economic Relations and Trade, but imports investigation, farm products, intellectual property rights and barriers of technical standards are mainly handled by the Municipal Economic Commission, the Municipal Agricultural Commission, the Municipal Bureau of Intellectual Property Rights and Municipal Bureau of Quality and Technical Supervision respectively. With no specific fair trade body and no special personnel responsible for fair trade at the district and county levels, there is a poor network of fair trade covering the whole city. In addition, the significance of promoting fair trade is not yet fully appreciated by various trade associations in Shanghai and its competence in dealing with fair trade issues is not quite encouraging.

 

(5)    The promotion of fair trade has its unique characteristics in Shanghai. First of all, Shanghai is an important port city along China¡¯s coasts. The volumes of trade in Shanghai¡¯s exports and imports account for 28% and 22% respectively in the whole country. The demands placed on promoting fair trade in imports and exports are heavy, and major trade disputes arise rather frequently. Secondly, the technological level in Shanghai¡¯s industries is relatively high. Developed countries tend to use the leverage of their intellectual property rights to restrict the development of China¡¯s high-tech industries. The exports of electric and mechanical products and new and high-tech products in Shanghai make up a heavy proportion in foreign trade, but there are few products with Chinese core technology, and therefore, disputes regarding intellectual property rights tend to arise. The recent US charges of alleged infringement upon intellectual property rights against such products in Shanghai as DVD players should be noted with deservedly serious attention. Thirdly, the export trade structure of Shanghai exposes its companies to various trade barriers. In market composition, the export markets are mainly in the US and the EU, both of which has so far flatly refused to grant China the market economy status. In product composition, textile materials and products account for 16%, which tend to be restricted in market access by developing nations; new and high-tech products and electromechanical products have reached the proportion of 65% and 38% respectively, which tend to face restrictions such as technical barriers and intellectual property rights charges from advanced economies.