The WTO is a collection of 160 countries that cooperate on international trade matters under negotiated rules, and is overseen by an administrative system based in Brussels, Belgium.
In the dispute China filed with WTO, Beijing contends that the U.S. and EU made assurances during China’s accession to the WTO that the non-market economy designation agreement would automatically expire after 15 years on December 21, 2016. It’s a significant issue considering that the designation as a non-market economy allows the U.S. and other countries to more easily use punitive tariffs when Chinese companies are found to be selling products below the cost of production and/or fair market value in the exporting (i.e. “dumping”).
Anti-dumping actions have historically been pursued by other sectors of the U.S. textile and apparel industries but, to date, not by the domestic nonwovens industry. This could change, however, based on the explosion of roll goods and converted items exported to the U.S. from China during the past ten to 15 years. As noted in the September 2017 edition of Capitol Comments, for instance, Chinese exports of nonwoven roll goods to the U.S. outpaced U.S. exports of the same goods to all other destinations around the world combined.
In late-2016, China filed a WTO complaint over its continued designation as a non-market economy. Hearings on the issue began within WTO in late November 2017 and, in the run-up to these hearings, U.S. Trade representative (USTR) Robert Lighthizer testified before Congress that this issue is the “most serious litigation that we have at the WTO right now,” and went on to note: “I have made it very clear that a bad decision with respect to the non-market economy status of China…would be cataclysmic for the WTO.”
On its website, Squire Patton Boggs describes USTR opposition to the WTO dispute as follows: “The Trump administration maintains the long-held position that China’s economy is state-controlled and its use of subsidies distorts the market. The U.S. Treasury’s undersecretary of international affairs, David Malpass, expressed concern that ‘China’s economic liberalization seems to have slowed or reversed, with the role of the state increasing.’ Robert Lighthizer, U.S. Trade representative, has previously rejected China’s bid for recognition as a market economy, noting the ‘evidence is overwhelming that WTO members have not surrendered their longstanding rights…to reject prices or costs that are not determined under market economy conditions in determining price comparability for purposes of anti-dumping comparisons.’”
In other words, USTR contends that China has failed to live up to its WTO accession commitments regarding “economic liberalization” while China contends the U.S. has failed to honor its commitment regarding automatic expiration of non-market economy status.
As noted in the National Law Review: “[On December 1, 2017] the U.S. made public that it had just submitted a third-party brief to the WTO in support of the [EU] position against the recognition of China as a ‘market economy’ despite the expiration last year of relevant provisions contained in China’s 2001 WTO accession protocol.”
The NLR article goes on to explain that “The U.S. and EU both argued that the continuing pervasive role of the state in the Chinese economy, especially the use of large scale subsidies, has seriously distorted domestic prices, hence necessitating the continued use of third-country price comparisons in antidumping cases….On the same day of this announcement, U.S. Treasury undersecretary David Malpass told an audience in New York that ‘China’s industrial policy has become more and more problematic for foreign firms’ and ‘huge export credits are flowing in non-economic ways that distort markets.’”
Writing for Forbes Magazine, Sara Hsu says the effect of this dispute on U.S.-China trade relations is likely to be negative, but it is up to the WTO to resolve.
If WTO sides with China, Ms. Hsu predicts it will “anger China hawks in the current U.S. administration and most likely cause a further breakdown in trade relations between the two nations. The present state of affairs is precarious. While presidents Trump and Xi have a warm relationship on the surface, the policy relationship is far from solid. Trump is viewed as weak on representing U.S. business interests in talks with China, but, at the same time, he and his administration have been harsh on China’s trade practices.”
But if WTO sides with EU/U.S. arguments, the continued widespread use of subsidies and other interventions – supposedly to have been discontinued over the past 15 years – preclude designation of China as a market-economy nation because legitimate fair-market values can’t be determined in a government-manipulated market. Market economy status must be earned, according to the Trump Administration, instead of granted automatically.
As NLR puts it, “China does not intend to respond positively to U.S. pressure or to undertake significant market reforms at this time. In fact, president Xi had just re-affirmed the leading role of the party and the state in the economy at the recently-concluded 19th Communist Party Congress in October, just before Trump’s visit to China. Xi called for further measures to support, consolidate, and make more efficient China’s debt-laden state-owned enterprises, and focused on government industrial policies to promote technological advances, innovation, and ‘national champions,’ as laid out in the government’s ‘Made in China 2025’ report.”
Whether this is the first salvo in a looming trade war between the U.S. and China remains to be seen but, clearly, on this issue, whatever the outcome, one side is going to be disappointed and could be expected to take retaliatory action. Which can lead to retaliatory action, which can lead to more retaliation. At present universal support for avoiding a U.S./China trade war is publicly being expressed by heads of state in Washington, Brussels, and Beijing. Nevertheless, the possibility of such a war is very real and industry members should take the threat seriously.
On December 15, 2017, The U.S. Customs and Border Protection Agency (CBP, a division of the Department of Homeland Security) published new regulations relating to the enforcement of intellectual property (IP) rights. Specifically, the new rule prescribes regulatory procedures for the “donation of technologies, training, or other related services for the purpose of assisting CBP in intellectual property enforcement.” These regulations become effective January 16, 2018.
IP protection has been a critical issue for the nonwovens industry for decades, and has become much more important with globalization and the rampant rise of “knock off” counterfeits of branded goods and manufacturing processes.
For the U.S. nonwovens industry, this new regulation could allow INDA – or its member companies – to develop sophisticated test methods, equipment, or other materials that could be used to better spot knock off nonwovens or pilfered technologies and donate those tools to CBP along with training for proper use.
For more information, contact Garrett D. Wright, chief of CBP’s Donations Acceptance Program, at 202.344.2344.