Other China Issues

The Issue:

Continuing irritation over Chinese subsidies led the Bush Administration in February 2007 to file a complaint with the World Trade Organization (WTO).  That complaint could drag out for several years, but could ultimately result in WTO-consistent trade sanctions being imposed on China or the elimination of certain subsidies or practices the Chinese now support.  The United States also filed two other requests March 10 for WTO dispute settlement consultations with China: one over deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks on a wide range of products, and the other over China's barriers to trade in books, music, videos and movies. At the same time, the Bush Administration – through initiatives spearheaded by Treasury Secretary Hank Paulson, Commerce Secretary Carlos Gutierrez, and US Trade Representative Susan Schwab – are engaging in a series of high level dialogues to encourage resolution of bilateral commercial problems.  Despite these efforts, more and more members of Congress have decided it is time for Congress to take action. While many are introducing legislation (Davis/English Bill (H.R. 1229), English bill, Hunter/Ryan bill, Stabenow/Graham bill, etc.) targeting China over their alleged infractions on currency, subsidies and intellectual property rights, others are airing their grievances through Congressional hearings on China, the second of which was held by the powerful House Ways & Means Committee in February. Many believe that the Davis/English bill (H.R. 1229) has the most likelihood of moving forward, with a mark-up in the House Ways & Means Committee expected by early summer.  In response, the Bush administration, reversing 23 years of policy, announced March 30 that it will allow US manufacturers to bring countervailing duty (CVD) cases against U.S. imports from non-market economies, such as China and Vietnam, over alleged subsidies. Meanwhile, as part of their effort to prevent their economy from overheating and to deflect mounting criticism of their trade surplus, China confirmed July 24, 2006 that it reduced or eliminated tax rebates exports of resource-intensive and environmentally-harmful products, including many inputs used in apparel and footwear, such as semi-processed/wet-blue leather and seems poised to take additional measures to slow its exports.

AAFA on the Issue:
AAFA is actively working on bilateral issues to ensure its members maintain as well as increase market access in China, to ensure China adheres to its WTO obligations, and to promote China as a predictable business partner.

The Latest News:

12.16.08
The European Commission December 11 that the current double checking surveillance system on certain European apparel imports from China will expire on December 31, as scheduled. To date, there have been no indications from the European Commission that they plan to impose any new restrictions on European imports of apparel from China.

11.17.08
Christopher A. Padilla, Under Secretary of Commerce for International Trade, delivered a speech November 13 in Washington, DC to a meeting of the Washington International Trade Association (WITA) highlighting the lessons learned by the outgoing Bush administration on trade and how the incoming Obama administration can use those lessons as President Obama develops his trade agenda. Padilla's remarks touched on a number of trade issues important to the apparel and footwear industries, including , the Doha global trade round, preferences and free trade agreements.

10.14.08
House Ways and Means Committee Chair Charlie Rangel (D-NY) sent a letter October 9 to the US International Trade Commission (ITC) requesting a textile and apparel imports monitoring program to collect data on currently quota-protected products. In his letter, Rangel stated that the Committee, which is charged with handling all trade and tax matters, is concerned about what a possible dramatic increase in US imports and a drop in prices of certain apparel and textiles from China when the quotas expire on December 31 could do to US textile manufacturers and US apparel imports from trade preference countries. In response, AAFA again questioned the need for such a monitoring program. The ITC is expected to accede to the request, which would have the ITC report preliminary US import data every two weeks and publish final statistics once a month. The letter does not mention any end date for the proposed monitoring program.

10.06.08
Over 70 members of Congress sent a letter September 26 pushing the Bush Administration to continue the current textile and apparel monitoring program for Vietnam and expand it to China. The group claims that stronger enforcement is needed given the recent lead issues, trade cases and the seizure of 1,000 containers of Chinese apparel that had apparently been shipped illegally through different countries. AAFA opposes the monitoring program, emphasizing that this special apparel monitoring program unfairly singles out a specific sector, is unnecessary and is a misuse of taxpayer’s funds. It is also harmful to the US economy to single out apparel that is solely made in Vietnam or China.

09.15.08
On September 11, the US International Trade Commission in a 6-0 ruling, found that US manufacturers of steel wire garment hangers were threatened by US imports of steel wire garment hangers from China. As a result, the US Department of Commerce will soon impose anti-dumping duties on US imports of steel wire hangers from China ranging from 15.44 to 186.98 percent.

07.28.08
In a July 21 letter to President Bush, AAFA joined with over two dozen other organizations representing the US business community in expressing their support for the negotiation of a commercially meaningful Bilateral Investment Treaty (BIT) with China. In the letter, organizations urged the US government to pursue a “high standard” BIT that follows BITs the United States has recently negotiated with other countries. In particular, the BIT should ensure competitive practices and treatment across all sectors, particularly given that China still has a significant state-owned sector.

07.21.08
The US International Trade Commission (ITC) determined on July 18 that the US laminated woven sack industry is materially injured by US imports of Chinese laminated woven sacks that are subsidized and sold at less than fair value. ITC made the determination during the final phase of its antidumping and countervailing duty (CVD) investigation. As a result, the US Department of Commerce (DOC) will soon issue CVD and antidumping orders on US imports of this product from China, imposing punitive duties averaging over 300 percent. ITC based its decision on allegations of improper subsidies by the Chinese government, subsidies of the same sort the US textile industry claims are supplied to the Chinese apparel industry. This is the first successful CVD case against an import of a Chinese textile article, and AAFA will be closely monitoring the effects of this decision in other potential CVD investigations on textile and apparel products. ITC will submit its determinations to the Commerce Department on July 30, and a public report detailing the dumping duties to be assessed will be forthcoming.

06.16.08
The US government’s inter-agency Committee for the Implementation of Textile Agreements (CITA) announced June 13 the procedures for processing over-quota shipments at the beginning of next year under the current quotas on US apparel and textile imports from China. The procedures are exactly the same as those CITA imposed on over-quota shipments under the China safeguard quotas.

06.16.08
On June 1, Mexico and China announced a deal (original document in Spanish) that will result in the reduction and elimination of the anti-dumping duties charged on Mexican imports of certain Chinese products. A total of 953 tariff lines (mostly footwear and apparel, but some other industries, too, like bicycles) have punitive anti-dumping duties. As of October 5, punitive duties on all but 204 tariff lines will be eliminated under the agreement. While most of those remaining 204 tariff lines include most footwear and apparel, the majority of the punitive tariffs on fabrics, yarns, and made ups will be eliminated as part of the agreement.

Of the tariff lines still subject to punitive duties, apparel items will face duties of 140 percent and footwear items will face duties of 100 percent. The duties will decline slowly each year until they are entirely removed beginning December 12, 2011. This deal will still keep in place regular duties that Mexico assesses on imports from China.

06.09.08
As part of China’s accession to the World Trade Organization (WTO), Mexico promised to eliminate existing anti-dumping duties on the sixth anniversary of China’s accession. When Mexico did not meet this obligation in December 2007, China had the opportunity to sue Mexico. Instead, China and Mexico entered into negotiations to develop a framework through which the punitive anti-dumping duties could be eliminated.
On June 1, Mexico and China announced a deal that will result in the reduction and elimination of the anti-dumping duties charged on Mexican imports of certain Chinese products. A total of 953 tariff lines (mostly apparel and footwear, but some other industries like bicycles) have punitive anti-dumping duties. All but 204 of these will be eliminated when the agreement is ratified by the Mexican Senate this fall. The 204 lines will see a gradual reduction in their anti-dumping duties over the next 4 years, and will be entirely removed by January 1, 2012. It is noteworthy that most of the value of the goods seems to be included in the 204 lines facing a phase-out of anti-dumping duties. Thus, while most lines will see their anti-dumping duties removed immediately, there is not that much trade in those lines. Most of the lines where there are substantial trade flows are reflected in the 204 sensitive lines list. For example, 88 percent of the value of footwear imports and 72 percent of the value of apparel imports will remain protected under the agreement. This deal will still keep in place regular duties that Mexico assesses on imports from China.

06.02.08
The World Trade Organization (WTO) issued a Trade Policy Review on China last week, offering an update on the country's structural economic changes in recent years. Per the report, the Chinese government has continued a program of economic liberalization that is increasingly providing a more efficient allocation of resources. China is the largest recipient of Foreign Direct Investment (FDI), and is a growing provider of FDI to other economies as it integrates into the global economy. Though all indicators point towards continued high GDP growth, China is beginning to experience some economic imbalances in savings versus consumption, and rising inequality.

12.17.07
In a belated effort to comply with its WTO obligations to ensure that all of its current anti-dumping cases against Mexican imports from China complied with WTO rules by a just-passed December 11, 2007 deadline, Mexico has announced reviews of its current anti-dumping cases against Mexican imports of footwear, apparel and textiles (all in Spanish) from China. The Mexican government requests comments from all interested parties by around January 5, 2008. While the comment period for footwear has officially closed, it appears that the Mexican government is still accepting comments. Meanwhile, the current dumping duties, ranging from 300 percent to 1,100 percent, will remain in place. According to informed sources, the Mexican government is in negotiations with China to implement a one-time extension of the current dumping duties for a defined period of time (probably 18 months), after which the dumping cases will be permanently terminated. 12.17.07 Both the U.S.-China Strategic Economic Dialogue (SED) and the 18th U.S.-China Joint Commission on Commerce and Trade (JCCT) in Beijing, China concluded last week with what U.S. Treasury Secretary Henry M. Paulson Jr. observed as modest improvements in the U.S.-China economic relationship. Both the SED and JCCT also included U.S. Trade Representative Susan C. Schwab, U.S. Commerce Secretary Carlos M. Gutierrez, the U.S. Department of Agriculture along with Chinese Vice Premier Wu Yi. The forum was established to open dialogue between high-level government officials in order to address critical market access, trade and investment issues between the U.S. and China. Both meetings focused on import product safety – especially with regards to food and drugs. The Chinese also agreed to further strengthen their intellectual property rights (IPR enforcement) and improve treatment for foreign investors. 12.17.07 AAFA submitted comments December 10 strongly encouraging the US Department of Commerce (Commerce) to allow individual Chinese firms "Market-Oriented Enterprise (MOE)" status in US anti-dumping and anti-subsidy cases against US imports from China. Because most apparel and footwear factories in China are foreign-owned and operate under free market principles, Commerce must create a mechanism that allows these and other companies to be treated as MOEs in anti-dumping and anti-subsidy cases. 12.03.07 The United States announced November 29 that China has agreed to terminate all the subsidies that the United States alleged were illegal under World Trade Organization (WTO) rules. Most of the challenged subsidies were either export subsidies or import substitution subsidies. Under the agreement, China has committed to complete a series of steps by January 1, 2008 to ensure that the WTO-prohibited subsidies cited in the US complaint have been permanently eliminated, and that they will not be re-introduced in the future.

12.03.07
The US International Trade Commission (ITC) announced November 20 that it rejected the first-ever anti-subsidy (countervailing duty-CVD) case against China. The ITC voted 5-1 that a US industry was neither materially injured nor threatened with material injury by reason of imports of coated free sheet paper from China, Indonesia and Korea. Overturning twenty years of precedent, the US Department of Commerce had determined that imports of coated free sheet paper (glossy paper used in magazines and other publications) from China were subsidized and sold in the United States at less than fair value. However, the ITC decision effectively ends the case. To learn more about this countervailing duty (CVD) case and its implications for the US apparel and textile industry, please join us for AAFA's March 11, 2008 seminar in New York City titled Apparel & Textile Trade After 2008: Trade Remedies in a Post-Quota World.

09.17.07
In the first case brought by China since it joined the World Trade Organization (WTO) in 2001, China filed a WTO dispute settlement case on September 14 against the United States for its anti-dumping and countervailing duty cases against US imports of coated paper for China. In the case, the United States broke with its own 23-year old policy not allowing countervailing duty cases against non-market economies, like China, because it is impossible to determine the actual value of subsidies in a non-market economy. Prior to this case, the United States compensated for alleged subsidies in China by using third countries, called "surrogate" countries to determine actual market costs and prices, the result of which is that there has historically been much higher dumping duties against US imports from China than against market economy countries. In its WTO case, China alleges that by allowing both an anti-dumping and a countervailing duty (anti-subsidy) case against US imports of Chinese coated paper, the United States has imposed WTO-illegal double taxes against its exports for the same alleged violation. The WTO case calls into question various pieces of AAFA-opposed legislation moving through Congress that legislates the use of countervailing duty cases against China for currency manipulation and a range of other alleged offenses.

09.10.07
In an unprecedented move, the US International Trade Commission announced August 10 that there is a reasonable indication that the establishment of an industry in the United States is materially retarded by reason of US imports of laminated woven sacks from China that are allegedly subsidized and sold in the United States at less than fair value. The decision allows the anti-dumping and countervailing duty cases against US imports of laminated woven sacks to continue. This is the first time ever in the history of US trade remedy cases where the US government has allowed the case to go forward on the concept that a US industry was not allowed to develop because of imports. In the past, a well-established US industry had to prove that it was materially injured by imports of allegedly dumped and/or subsidized imports. If the US Department of Commerce preliminarily finds dumping or illegal subsidization at that time, it will immediately impose punitive duties on US imports of laminated woven sacks.

08.06.07
In yet another in a series of measures affecting trade in the apparel and footwear industries, China on July 17 banned, effective immediately, all Chinese imports of wool, claiming that its 2007 wool import quota was full. Australia and New Zealand, the world's two biggest wool suppliers, have questioned China's claim that the 2007 wool import quotas have filled, and have initiated discussions with the Chinese government.

Meanwhile, the Senate Banking Committee approved new anti-China legislation (S.1677) on August 1. The powerful House Ways and Means Committee also held a hearing August 2nd covering a wide range of topics related to China in preparation for marking up their own version of Anti-China legislation this fall (AAFA testimony). The future of anti-China legislation remains unclear, however, due to competing legislation in the US Senate and a jurisdictional dispute between the Senate Finance and the Senate Banking Committees as well as the myriad of different anti-China bills working their way through the US House of Representatives. While AAFA shares the lawmakers' frustration that the path toward currency adjustment has not gone more quickly, it notes that slow and deliberate change, rather then abrupt shifts, is the key to predictability to make sure business is not disrupted. AAFA also opposes this type of legislation because it is in direct conflict with World Trade Organization (WTO) rules.

On July 26, the Senate Finance Committee approved on a 20-1 vote the first of many anti-China measures. The Currency Exchange Rate Oversight Reform Act of 2007 requires the US Treasury Department to identify "fundamentally misaligned" currencies to Congress twice a year, classifying some countries for "priority action" if the misalignment is clearly caused by a foreign government's economic policies. Treasury will be required to consult with countries found to have fundamentally misaligned currencies. The legislation imposes a number of immediate consequences for countries designated for "priority action," including accounting for currency undervaluation in determining whether a country should graduate from non-market economy status for purposes of U.S. antidumping rules. If a country fails to take appropriate action within three months, the US Commerce Department must take currency undervaluation into account when making antidumping calculations for products exported from the designated country. The future of the legislation is unclear due to competing legislation in the US Senate and a jurisdictional dispute with the Senate Banking Committee as well as the myriad of different anti-China bills working their way through the US House of Representatives.

07.30.07
The Chinese government published a new regulation July 26 that requires companies exporting certain products from China and importing certain products into China to place a deposit of either 50 percent or 100 percent (depending on the license of the company) of the value of the contract with the Chinese government. The Chinese government will refund the deposit at some undetermined point after being provided proof that the contract has been fulfilled. The announcement applies to 1853 export products (most of which are fiber, yarn, fabric and plastics) and over 200 import items (many of which are textiles) (the items -- by HS number -- are available as appendices in the Chinese version of the announcement -- Appendix 1 (export products) and Appendix 2 (import products). The announcement shall take effect for all contracts signed starting August 23. With this announcement, it appears that China continues to attempt to use trade policy to: 1) lower China's trade surplus with the United States and the rest of the world and 2) reduce and/or eliminate polluting or resource-intensive industries. AAFA will share more details as they become available.