The United States' Discriminatory Protectionism Against China
The United States' Discriminatory Protectionism Against China
The United States' Discriminatory Protectionism Against China
The article examines the characteristics of the United States’ (US) discriminatory protection measures,
especially the antidumping (AD) duties, against China. China has been the most significant target of
US trade protectionism in terms of the absolute number as well as the intensity of measures. There
exists a positive relationship between the US bilateral trade deficit and the increase in the number of
its discriminatory trade protection measures against China. US AD decisions against China have been
led by the chemical industry, followed by the iron and steel industry. It is expected that the number of
US discriminatory trade protection measures against the Chinese textile products will increase in the
coming years, since the ten-year phase-out of the Multi-Fibre Arrangement (MFA) was completed at
the end of 2004. Since discriminatory trade restrictions are costly in terms of the welfare of the concerned
countries, it would be necessary for them to apply stricter regulations regarding the discriminatory
protection measures.
I. INTRODUCTION
Despite the accomplishment of the Uruguay Round with regard to reducing tariffs,
there remain concerns that many countries are using non-tariff barriers (NTBs) to
protect their markets. One specific concern is that antidumping (AD) duties, originally
intended to remedy situations where foreign firms sell their product in the importing
country at a price that is below normal value, have been used quite often as trade pro-
tection measures selectively targeting specific countries. Since the early 1980s, the
number of AD filings has increased significantly. From January 1995 to June 2005,
41 members of the World Trade Organization (WTO) reported that they initiated
AD investigations and more than 2,700 AD cases were filed. Meanwhile, the US has
been the heaviest user of AD duties for the past decade.
Although the US has imposed AD duties as a discriminatory trade protection
measure against many countries, China has apparently been its main target in this
context since the 1990s. Many recent studies have dealt with the evolution of US AD
measures and its characteristics (Mah 2000a, 2000b; Bown, Hoekman and Ozden
2003; Blonigen 2003; Irwin 2005); however, no work has focused exclusively on US
AD practices against China, which is the most conspicuous recent phenomenon
with respect to discriminatory trade protection measures. Therefore, it would be
worthwhile to take a close look at the pattern of US AD duties against China and its
prospects. The purpose of this article is to reveal the characteristics of US discrim-
inatory trade protection measures against China by closely reviewing the pattern of
the US-China bilateral trade relationship as well as US AD decisions against China.
The structure of this article is as follows. The next section reviews recent literature
that discusses the proliferation of AD uses and the motives behind this phenomenon.
Section III discusses briefly the evolution of AD regulations within the global trading
system as well as in the US. Section IV explains the overall pattern of the US-China
bilateral trade relationship. Section V examines the characteristics of US AD uses
against China. Conclusions are provided in Section VI.
Article VI of the General Agreement on Tariffs and Trade (GATT) explicitly authorises
the imposition of AD duties on imports from a particular country where the following
conditions are satisfied: the existence of a dumping margin; material injury to a do-
mestic industry; and causal relationship between dumped imports and material injury.
As the first attempt to mitigate problems of dumped imports in the global trading
system, the Antidumping Code came into force in 1967 as a result of the Kennedy
Round. Although the Tokyo Round Code came into being in 1980, modifying the
previous Agreement, it had weaknesses arising from the voluntary, non-mandatory,
nature of the Code. The negotiations in the Uruguay Round have resulted in a revision
of the Tokyo Round Code. Although the AD Code of the Uruguay Round includes
the special and differential treatment of developing countries, the cumulation provision
in Article 5 of the Uruguay Round AD Code may deprive them of the possibilities of
preferential treatment.
For the US, the Congress passed legislation that changed various features of
US AD laws in the 1970s and 1980s, making AD duties more like trade protection
measures (Irwin 2005). In particular, the Trade Act of 1974 expanded the definition
of ‘dumping’, which allowed imports to be actionable if they were sold below cost,
even if domestic and foreign prices were the same. In addition, under the Trade and
Tariff Act of 1984, the US ITC started to accumulate the imports of all countries
subject to AD investigation when making an injury determination, which allegedly
increased the benefit to domestic firms filing petitions targeting several different
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288 Yooyeon Noh and Jai S. Mah
countries for dumping the same product (Hansen and Prusa 1996). According to
Mah (2000a), as a result of the inclusion of such a provision, small developing eco-
nomies became more likely to be subject to the imposition of AD duties.
In addition to these changes in the AD law, administrative changes affected the
increase in the number of AD cases in the US. In 1979, the Commerce Department
was delegated full responsibility for determining dumping margins from the Treasury
Department. Since the former is mainly in change of protecting and nurturing the
domestic industries, the US government became more likely to determine the
existence of positive dumping margin, that is, more protective of domestic industries.
Meanwhile, the ITC determines whether or not a domestic industry is materially
injured by foreign dumping. Many have noted the US ITC’s procedure for determining
material injury to be very vague and non-transparent (see Hansen and Pursa 1996;
Mah 2000a, 2000b).
The total volume of trade between the US and China rose rapidly after the two
countries established diplomatic relations, signed a bilateral trade agreement in 1979,
and provided mutual Most Favoured Nation (MFN) treatment in 1980. Total trade
volume between the two nations rose from $4.8 billion in 1980 to $231.4 billion in
2004. Along with the growing total trade volume, the US bilateral trade deficits with
China have gradually increased.
Table 1 shows the increasing and unequal trade balance between the US and China
and highlights the growing contribution of China to the overall trade deficit of the
US. As seen in the table, US imports from China have grown faster than its exports
to China, resulting in an overall trade deficit. Until the late 1980s, the US trade de-
ficits with China were negligible and accounted for less than 6 per cent of the total
US trade deficit. Since then, its trade deficit with China has grown significantly due to
a surge in US imports of Chinese goods, reaching its peak in 2004, when it accounted
for nearly one-quarter of total US trade deficits. In 2004, imports from China amounted
to US$ 196.7 billion, sharing 13.3 per cent of total US imports, and, consequently,
China became the fourth-largest supplier of US imports (United States Trade Repre-
sentative 2004). Thus, the continuing and increasing bilateral trade deficits may
explain the United States’ selective protectionism against China since the 1990s.
At the sectoral level, a substantial proportion of Chinese exports to the US
concentrates on labour-intensive industries. Table 2 shows the values of the top five
US imports from China from 1990 to 2004. Imports of commodities made in five
industries—power generation equipment, electrical machinery and sound equip-
ment, miscellaneous manufactured articles (such as toys and games), furniture, and
footwear—accounted for almost two-thirds of total US imports from China in 2004.
Table 1
Trade between the United States and China: 1985–2004
(unit: US$ billion)
Table 2
Top 5 US Imports from China, 1990–2004
(unit: US$ billion, per cent)
The US has played a paradoxical role in the development of the global trading system,
championing the principle of free trade yet opting for various discriminatory trade
policies against its trading partners. Although most economists believe that AD duties
are not beneficial to overall national welfare, such duties have been sought frequently
by American policymakers to protect domestic industries.
Although the number of US AD investigations was not very significant in the late
1970s, it surged from the early 1980s on and since then the US has remained the
heaviest user of AD measures in the global trading system. Table 3 shows the number
of AD investigations initiated in the period July 1980–June 2005 by the most active
AD users. The US as the heaviest user has continuously increased its AD investigations
until the mid-1990s, which then decreased somewhat, but have rebounded strongly
in the most recent period. By contrast, the EU, which is often considered yet another
of the largest AD users and even initiated more investigations than the US in the
early 1980s, shows a relatively smaller increase in the number of its AD investigations
during the period, which has even decreased in recent years. The total number of AD
investigations initiated by each of the three other traditional users—Australia, Canada
and New Zealand—are 876, 535 and 92, respectively, which is smaller than that of
the US.
Table 3
Number of AD Investigations Initiated by Reporting Countries:
Top 10 Users, July 1980–June 2005
Table 4
US AD Activities against Its Ten Most-Frequently Investigated Trading Partners, 1990–2004
Investigations Resulting
Rank Country AD Investigation (A) in Duties (B) A/B (%)
1 China 90 61 67.8
2 Japan 54 33 61.1
3 South Korea 39 20 51.3
4 Taiwan 32 15 46.9
5 Mexico 28 11 39.3
6 India 28 11 39.3
7 Canada 27 6 22.2
8 Germany 26 10 38.5
9 Brazil 25 12 48.0
10 Italy 19 10 52.6
Sources: US International Trade Commission (2004); US ITC (2005) for 2004 data.
As regards being the target of AD investigations, China has also become a common
target of dumping charges for most of its trading partners. In recent years, the number
of AD cases against China has skyrocketed. From January 1995 to June 2004, some
434 AD cases were initiated and 317 definitive AD measures were imposed out of those
investigations. Figure 1 illustrates the numbers of definitive AD measures against China
by importing countries since 1995. Among developed countries, the US has been the
heaviest user of AD measures against China. It is interesting to note that Chinese ex-
ports have increasingly been hit by developing countries as well over the past ten
years. In particular, India has imposed AD measures more often than the US.
One of the major reasons China is attacked heavily by the US’ selective protection
measures is that it is one of the world’s lowest-cost producers (McGee and Yoon 1998).
Due to the cost structure of its industries and economy as well as the fact that it tends
to manufacture products at the low-quality end, it is able to export a wide range of
products at lower prices than its competitors.
Another reason for such severe protectionism against China is the growth in bilateral
trade with China. As trade values increase, it is natural to see an increase in dumping
investigations. Thus, it might be more appropriate to measure the intensity of AD
uses against China adjusted against the value of imports. The AD intensity would
not only show an alternative measure of the long-run growth in AD but also facilitate
comparing AD activities across countries (Prusa 2005). Messerlin (2004) demonstrates
that China has been targeted much more intensively by the US than by other developed
countries, not only in the sense of the initiation of investigations in absolute terms but
also the AD intensity, defined as the number of AD duties imposed relative to import
values.
Table 5 presents an overview of the number of US AD investigations against China
along with the US bilateral trade balance with China during the period 1980–mid-2005.
As the number of US AD decisions against China has increased from the early 1980s,
its share has increased abruptly from 3.9 per cent during the period 1980–1984 to
11.9 per cent during the period 1990–1994, and further to 17.0 per cent for 2000–2004.
Table 5
US Bilateral Trade Balance with China and Number of AD Investigations
against China and the World, 1985–2004
It is noteworthy that China alone shared more than 30 per cent of US AD decisions
after the settlement of the Uruguay Round. In addition, China has continuously
faced the largest number of US AD decisions even after becoming a formal member
of the WTO in November 2001. Table 5 also presents some correlations between the
number of US AD decisions against China and the US-China bilateral trade balance.
Since the US-China bilateral trade deficits surpassed US$10 billion in 1990 for the
first time, US AD decisions against China accounted for almost one-fifth of US AD
decisions as a whole. Thus, it can be inferred that there exists a positive relationship
between the US bilateral trade deficits and the number of its AD decisions against
China.
Table 6 shows the sectoral distribution of US AD decisions against China for the
period 1980–2004. The chemical industry (39 per cent of the total) and the iron and
steel industry (26 per cent of the total) have been most frequently hit by US AD
measures, followed by the agricultural sector (7 per cent) and the textile and apparel
industry (7 per cent). It is interesting to find that the US imposes relatively fewer AD
measures in machinery and electronics industries, even if the majority of US imports
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294 Yooyeon Noh and Jai S. Mah
Table 6
Number of US AD Investigations against China by Industry, 1980–2004
from China belong to these two industries. Although the textiles and clothing sector
shared only 7 per cent of the number of US-imposed AD measures against China in
1980–2004, its share may increase substantially in the near future, since China is the
largest supplier of textiles and clothes in the world and the Multi-Fibre Arrange-
ment (MFA)—which regulated the developed countries’ imports of clothes and textile
products quantitatively for the past decades—was phased out by the end of 2004.
VI. CONCLUSION
Over the years, GATT/WTO members have agreed to promote trade liberalisation
by eliminating tariffs. In conjunction with the substantial liberalisation of trade that
has occurred in both developed and developing countries, pressure for trade protection
has been channelled more frequently toward trade remedies that are permitted in the
WTO system. AD duties have been the most frequently used trade remedy measure.
Indeed, the relevant literature acknowledges that the AD practice is simply another
form of trade protectionism that nurtures inefficient industries, targets developing
countries selectively, and creates an impediment to national welfare. Nonetheless,
AD practices have spread worldwide, especially since the 1980s.
While promoting free trade in the global trading system, the US has been the
heaviest user of AD duties to protect its domestic industries from selected foreign ex-
porters. About a quarter of US AD measures have been concentrated against China
since the 1990s. When examining the pattern of US AD activities against China, the
current article notices the following characteristics. First, the absolute number and
the intensity of protection measures against China are far higher than those against
other countries. Second, there exists a positive relationship between the US bilateral
trade deficits and the number of its AD decisions. In other words, a rapid increase in
the US bilateral trade deficits with China has resulted in an increase in the number of
US AD decisions against China. Third, US AD decisions against China have targeted
the chemical industry the most, followed by the iron and steel industry. Although
the number of US AD decisions against Chinese textile products is relatively insignifi-
cant, it is expected to increase in the coming years, since the ten-year phase-out of the
Multi-Fibre Arrangement (MFA) was completed at the end of 2004.
WTO regulations regarding AD duties are very vague and leave room for mem-
ber countries to use them as discriminatory practices so as to protect their domestic
industries. Not surprisingly, discriminatory trade restrictions are costly in terms of
the welfare of the concerned countries such as the US and China. Therefore, it would
be necessary for them and the global trading system to institute and apply stricter
regulations regarding AD measures.
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