China responds to U.S trade challenge with same losing argument

China’s initial response to a new trade confrontation with the United States has been to use the same arguments that led to Chinese defeats in two previous disputes with Washington.

The Obama administration triggered the confrontation last Wednesday,asking the World Trade Organization to start a process for resolving a U.S. complaint about duties that China imposes on its exports of nine raw materials to the United States. Those exports include antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum and tin – raw materials made more expensive for U.S. manufacturers by the 5 to 20 percent duties, which are not applied to Chinese companies.

The office of the U.S. trade representative said the Chinese export duties “provide substantial competitive advantages for Chinese manufacturers,” and should have been removed under promises that China made when acceding to the WTO in 2001. At the time, China committed to remove export duties on all products except those in a specific annex to its accession agreement. The nine Chinese raw materials being taxed are not listed in that annex.

Chinese response

The Reuters news agency quoted China’s commerce ministry as saying it “regrets” the July 13 U.S. action at the WTO. The ministry also defended its export duties on the raw materials as necessary to protect China’s environment and to prevent its natural resources from being over-exploited by manufacturers.

China used that reasoning in two previous disputes with the United States at the WTO and cited global trade rules that allow member states to impose export duties under certain circumstances. In those cases, Beijing faced U.S. complaints about export duties on other raw materials and on rare earths.

Gary Hufbauer, an analyst at the Washington-based Peterson Institute for International Economics, told VOA’s China 360 podcast that the United States essentially has made the same accusation in all three cases: “which basically is that China is restraining exports of certain raw materials to benefit domestic industries that use those materials to produce industrial goods.”

In the two earlier cases, the WTO sided with the United States.

“The WTO did not see that the Chinese restrictions (on resource exploitation) were applied evenhandedly to Chinese companies versus foreign companies in terms of preserving the environment,” Hufbauer said. “(In the latest case), China will need to show that Chinese firms using the resources in question also are forced to conserve, and that is going to be a hard thing for them to show, but maybe I will be surprised.”

Next steps

Before China makes its case directly to the WTO, Chinese and U.S. negotiators must engage in “consultations” to try to resolve the dispute. If they are unable to do so, a WTO panel is formed.

“In a panel proceeding, it takes a while (for the WTO) to find panelists and bring them together, maybe a year,” Hufbauer said. “After that, (the case) goes to the appellate body. So if China decides to fight it every step of the way, we are looking at a year-and-a-half or two years (for a ruling) – well into the next U.S. administration.”

The new U.S. complaint at the WTO is the 13th to be filed against China by the Obama administration, which leaves office in January. It has won all of the cases decided by the WTO so far.

Peterson Institute analyst Hufbauer said he believes China’s ministry of commerce or MOFCOM will not allow the latest case to drag on until the WTO has to issue a ruling.

“There have been cases in the past where Chinese legal experts in MOFCOM looked at the facts and said, ‘Well, we are wrong, and we will reach a settlement’. And that is certainly possible (this time), given the past two cases which China lost,” he said. “MOFCOM is a professional outfit, and many of its lawyers have been educated in the United States, so they know what they are talking about.”

But even if China’s commerce ministry lawyers decide to accept the U.S. demands to drop export duties in this case, Hufbauer said they might delay such a move for a while.

“Whether a settlement will come before the U.S. presidential election (in November) or after is hard to say,” he said. “I am inclined to think a settlement will come after, so as to be some kind of token of Chinese engagement with the next U.S. administration.”