5 June 2012
Sino-US trade relations in the run-up to the American presidential election
Economic and trade relations between the US and China in the run-up to the American presidential election in November 2012 will certainly have an important bearing on Hong Kong exports. To the relief of exporters, the basic framework for Sino-US economic and trade relations, even with “China-bashing” rhetoric coming into play, has remained relatively unchanged over the past year, and is not expected to undergo major changes in the months ahead. But while the Obama administration has generally emphasised co-operation over confrontation in its dealings with the Mainland through bilateral channels such as the Strategic & Economic Dialogue (S&ED), it remains committed to ensuring vigorous enforcement of US trade laws, and is expected to pursue multi-faceted actions to address various trade-related issues.
Vigorous trade enforcement
Congress and the administration believe that a vigorous trade remedy regime is a vital component of US trade policy because it enables US product manufacturers to compete on a level playing field with imported goods that are illegally subsidised, sold at less than fair value, or both. Two major developments so far this year highlight the growing importance of trade remedies in the current economic and political environment that are expected to shape the administration’s actions on this front in the coming months.
First, the US enacted into law in March 2012 legislation that explicitly allows the federal government to impose countervailing (CV) duties on goods from non-market economy countries like China. The bill reversed an appellate court ruling against that practice, and its retroactive application to November 2006 allows the US to continue 23 CV duty orders and several on-going CV investigations involving Mainland goods.
Calls by legislators to get tough on China, and other countries considered as unwilling to play by international rules, typically play well with the US electorate and, as such, tend to intensify during election years. It would therefore not be surprising to see a moderate rise in anti-China rhetoric in the months before the November election, probably accompanied by calls to protect US manufacturers and employment, and encourage US exports. However, the US Court of Appeals for the Federal Circuit has ordered a review on the constitutionality of CV legislation, leading to uncertainty over how the latest developments could affect Chinese exports.
The second major development is the creation of a new trade enforcement unit that, according to US President Obama, “will be charged with investigating unfair trading practices in countries like China”. Formally established through a February 2012 executive order, the Interagency International Trade Enforcement Center (ITEC) will serve as the primary forum within the federal government for the Office of the US Trade Representative (USTR) and other agencies with trade-related functions to coordinate enforcement of US trade rights under international trade agreements as well as enforcement of domestic laws. The president’s proposed budget for fiscal year 2013 dedicates US$26 million to this new agency.
ITEC, headed by a senior-level USTR official and manned by 50 to 60 staff members, is expected to become a core component of US trade enforcement efforts once it becomes fully operational. Tellingly, Obama announced the establishment of this new inter-agency mechanism during his 2012 state of the union address, and appears willing to invest significant political capital in this initiative. During his speech, Obama also promised not “to stand by while our competitors don’t play by the rules”, and highlighted the trade enforcement cases his administration has brought against China in recent years.
Separately, the Obama administration has been a moderate user of the World Trade Organization’s (WTO) dispute settlement mechanism, having filed six of 13 cases the US has pursued against China, since China joined the WTO. The administration filed only one case in 2009, three cases in 2010, one case in 2011 and one case during the first quarter of 2012. In light of its successes to date and its strong commitment to trade enforcement, the administration is likely to file additional cases on critical issues that cannot be resolved through bilateral engagement.
US’s WTO cases against China
|
Content |
Case filed |
Result |
|
VAT on integrated circuits |
18 Mar 2004 |
A mutually agreed solution was reached, in which China agreed to amend or revoke the measures at issue to eliminate the availability of VAT refunds on ICs (6 Oct 2005) |
|
Measures affecting imports of automobile parts |
30 Mar 2006 |
China lost the case and was requested to bring its import tariffs for foreign auto parts into compliance with international trade rules (15 Dec 2008) |
|
Certain measures granting refunds, reductions or exemptions from taxes of other payments |
2 Feb 2007 |
A mutually agreed solution in the form of a memorandum of understanding was reached (19 Dec 2007) |
|
Measures affecting the protection and enforcement of intellectual property rights |
10 Apr 2007 |
China agreed to implement WTO’s recommendations and rulings to bring its Copyright Law and customs measures into conformity with its obligations under the TRIPS Agreement (26 Jan 2009) |
|
Measures affecting trading rights and distribution services for certain publications and audiovisual entertainment products |
10 Apr 2007 |
China lost the case and was requested to bring into conformity its measures found to be inconsistent with China’s Accession Protocol, China’s Accession Working Party report, the GATS and the GATT 1994 (21 Dec 2009) |
|
Measures affecting financial information services and foreign financial information suppliers |
3 Mar 2008 |
A mutually agreed solution in the form of a memorandum of understanding was reached (4 Dec 2008) |
|
Grants, loans and other incentives |
19 Dec 2008 |
Consultations in progress |
|
Measures related to exportation of various raw materials |
23 Jun 2009 |
China informed the Dispute Settlement Body (DSB) that it intended to implement the DSB recommendations and rulings and that it would need a reasonable period of time to do so (23 March 2012) |
|
Certain measures affecting electronic payment services |
15 Sep 2010 |
Consultations in progress |
|
Countervailing and antidumping duties on grain oriented flat-rolled electrical steel from the US |
15 Sep 2010 |
Consultations in progress
|
|
Measures concerning wind power equipment |
22 Dec 2010 |
China agreed to eliminate certain wind power subsidies (7 June 2011) |
|
Antidumping and countervailing duty measures on broiler products from the US |
20 Sep 2011 |
Consultations in progress
|
|
Measures related to the exportation of rare earths, tungsten and molybdenum |
13 Mar 2012 |
Consultations in progress
|
Source: WTO
In the meantime, antidumping (AD) and CV duty activities against Mainland products are expected to remain fairly brisk this year, and beyond, regardless of who wins the November election. The US initiated five new AD investigations and four new CV proceedings on Mainland products in 2011, compared to two AD investigations and two CV proceedings in 2010, 12 AD investigations and 10 CV proceedings in 2009, and 10 AD investigations and five CV investigations in 2008. China is the US supplier with the highest number of AD and CV duty orders against its products, with 92 AD orders and 23 CV orders in place as of 31 March 2012.
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