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Stanford Center for International Development
Working Paper No. 360
The US-China Trade Relationship:
Explaining U.S. Anti-Dumping Duties on China
by
Molly Roberts
May 2008
Stanford University
579 Serra Mall @ Galvez, Landau Economics Building, Room 153
Stanford, CA 94305-6015
THE U.S.-CHINA TRADE RELATIONSHIP: EXPLAINING U.S. ANTI-DUMPING DUTIES ON CHINA
Molly Roberts*
May 2008
Abstract Over the past decade, the U.S. placed more antidumping duties against China than any other country. This paper analyzes the U.S.-China trade relationship by examining these antidumping cases filed against China. Detailed antidumping data show that the number of antidumping cases initiated against China was not proportional to the amount of trade between the U.S. and China. Further, industries that were more likely to file and win antidumping cases were not industries dominated by Chinese imports. Instead, China’s status as a non-market economy explains the number of U.S. antidumping cases filed against China. In the sections of the antidumping process where non-market economy status is considered, the U.S. rules against China significantly more often than other countries, but in parts of the antidumping procedure where non-market economy status is not considered, China is defeated at the same rate as other countries. Further, in non-market economies the fair price of the disputed good is always constructed, and countries are more likely to be found to be dumping when the fair price is constructed. This finding suggests that there is no evidence of Chinese trade manipulation or U.S. discrimination in the U.S. antidumping process China. Instead, China’s technical designation as a non-market economy biases the U.S. antidumping process against all non-market economies. Such bureaucratic technicalities bias U.S. trade policy toward protectionism and threaten the U.S.-China trade relationship, regardless of the U.S. administration’s intended trade policies. Keywords: U.S., China, trade JEL Classification No.: F13, F14 *Stanford University, Department of International Relations
Table of Contents
Acknowledgements 1
Tables and Figures 3
Introduction 5
Antidumping Law 9
Antidumping Process 9
History of Antidumping Law 11
Economic Analyses of Antidumping Law 16
China and U.S. Antidumping Polices 19
US-China Trade 20
1979-1992: China Enters World Markets 22
1993-2001: China’s Trade Liberalization 23
2001: China’s Entrance into the WTO 24
WTO Agreement 26
Current U.S.-China Trade Conflict 27
Case Studies 31
Refined Brown Aluminum Oxide 32
Lawn and Garden Steel Fence Posts 34
The Effect of Trade 37
Country-Specific Imports 42
Industry and Country-Specific Imports 47
AD Cases Considering Chinese Predatory Trade 52
The Effect of Industry Organization 55
The Effect of Industry Organization on Cases Filed Against China 57
Addressing Rebuttals 65
The Effect of China’s Non-Market Economy Status 66
Limitations of Previous Research 69
Quantifying China’s NME Effect 71
Conclusion 77
References 81
Appendix 86
Tables and Figures
Tables 1 U.S. Antidumping Legislative Timeline 12
2 AD Cases, by U.S. Largest Trading Partners 39
3 AD Cases, Pre and Post China’s WTO Accession 40
4 AD Requests, Duties Imposed, and Average Exports 43
5 AD Initiation, by Country-Specific Exports 45
6 AD Imposition, by Country-Specific Exports 46
7 AD Initiation, by Country and Industry-Specific Exports 50
8 AD Imposition, by Country and Industry-Specific Exports 51
9 Cases Initiated, by Country and Industry Import Surges 53
10 Duties Imposed, by Country and Industry Import Surges 54
11 AD Requests, Duties Imposed, and Industry 58
12 Cases Initiated, by Industry 60
13 Duties Imposed, by Industry 61
14 Total Imports from China to the U.S. by Industry 62
15 Preliminary Injury Decisions, by Country 73
16 Preliminary Dumping Decisions, by Country 74
17 Industry Key 86
18 Cases Initiated, by Industry and Year 86
19 Duties Imposed by Industry and Year 87
Figures 1 The Antidumping Process 11
2 AD Initiations and Average Exports 43
3 AD Duty Impositions and Average Exports 44
4 U.S.-China Trade Balance, by Industry 2001 48
5 AD Cases Initiated Against China, by Industry 1996-2004 48
6 AD Initiations and Industry Trade Balance 58
7 AD Duty Impositions and Industry Trade Balance 59
8 Imports from China, by Industry 1997-2005 62
9 Composition of U.S. Imports in Four Industries, 1997-2005 64
10 Composition of U.S. Imports in Four Industries, 2004 88
5
Introduction
Few international relationships have changed as quickly as that between the
U.S. and China. Over the last thirty years, the United States has shifted from
considering China an international pariah to one of its most important political
partners. In large part, this transformation has been due to economic factors. Trade
was negligible between the U.S. and China in 1979, but grew steadily to $386 billion
in 2007 (U.S. Census Bureau 2008). During this thirty-year period, China began to
allow U.S. companies access to its markets, became one of the most prominent
manufacturing bases in the world, and joined the World Trade Organization (WTO).
China is now America’s second-largest trading partner, and the U.S. is China’s largest
trading partner. Given this interdependence, the relationship between these two
trading giants will loom large over the next generation.
The growth in trade has not been without complaints from producers in the
U.S. who compete with China and those who see China as a future competitor in
international markets. U.S. politicians have used the growing Chinese trade surplus as
evidence of predatory Chinese trade policy, suspecting that China uses an undervalued
currency, unfairly low labor wages, and questionable human rights practices to gain a
trade advantage. United States newspapers and media have followed suit, advocating
for legislation that protects U.S. workers. A variety of policy and business leaders
have called for the imposition of tariffs and other protectionist measures unless China
appreciates its currency, raises its labor standards, and addresses general human rights
issues.
6
My thesis explores the broader U.S.-China trade relationship by focusing on
U.S. imposition of antidumping (AD) duties to restrict Chinese trade. While the U.S.
government has a number of institutional tools to protect its market, especially against
unfair trade, detailed AD data provides the best source of longitudinal data of U.S.
protectionism against China. I will argue that although the U.S. has levied more AD
duties against China than any other country, there is evidence neither to support the
claim of Chinese predatory trade practices nor to support that U.S. policies
discriminate against China. This is not to suggest the lack of conflict. Rather, trade
conflicts between the U.S. and China, in particular antidumping, will not subside in
the near future. The U.S.-China relationship will continue to be under the shadows of
retaliatory protectionism and the prospect of trade war.
My findings may seem counter-intuitive given that the United States has
placed more antidumping duties on China than on any other country during the past 15
years. Three other studies have sought to explain this trend. Bown (2007) attributes
the increase to U.S. discriminatory protectionism against China. Messerlin (2002)
suggests that this increase is due to the magnitude of Chinese trade in particularly
sensitive U.S. industries. Prusa and Chu (2004) argue that increased trade with China
can explain the number of AD cases against China.
As opposed to these studies, my analysis argues that neither Chinese trade
practices nor U.S. discrimination against China can explain AD duties placed on
China. Instead, China’s status as a non-market economy (NME) results in the
disproportionate number of AD duties placed on China. Because of its technical
designation as a non-market economy, China is treated differently in U.S. antidumping
procedures. For technical, not political reasons, dumping is calculated in a different
7
way than when AD suits are filed against market economies. Instead of using the
price of the Chinese product on a third market or on the home market as the “fair”
price that is used to determine dumping, the U.S. Department of Commerce (DOC)
constructs the fair price from surrogate country data. The DOC therefore has more
leeway in determining the fair price and increases the likelihood that AD duties are
imposed on China. In fact, in every case filed against China, the DOC has found that
the Chinese product is sold at less than fair value. This increased probability of
success incentivizes American companies to file against China, and thus explains the
magnitude of AD cases both filed and won against China.
I thus conclude that the U.S. does not discriminate against China as Bown
(2007) suggests. Instead, the outcome of an AD proceeding relies on a perhaps
outdated legal process that unintentionally creates a bias against China. I show that
during the part of the U.S. antidumping procedure that determines injury, the U.S.
faults China for injury the same percentage of the time that it faults other countries for
injury. It is only during the part of the U.S. AD procedure in which NME status is
taken into account when China receives a disproportionate number of AD affirmative
decisions.
This finding suggests that if the U.S. designated any other country with which
it traded extensively as a non-market economy, that country would also receive a
disproportionate amount of AD duties. Indeed, I show that in the past when the U.S.
has considered other countries as NMEs, the U.S. also imposed an affirmative
dumping decision in almost 100% of cases filed against them – the phenomenon is not
unique to China.
8
Further, the data do not validate the conclusion that Chinese trading practices
are predatory. The disproportionate number of affirmative decisions against China
occurs only in the stages of the antidumping procedure in which China’s NME status
is considered. Until China’s NME status is withdrawn, the number of affirmative
decisions cannot be used as evidence that China is actually dumping.
In short, the analysis of AD duties against China provides no evidence of
predatory Chinese trade practices or U.S. protectionist discrimination against China.
Despite this, these AD policies will likely persist. U.S. antidumping policies have
changed little since 1916, and changes to the policy have only made it easier for
American firms to file and win AD duties. The U.S. president has no control over AD
duties and therefore cannot exempt China from duties imposed through the AD
process even for foreign policy reasons. Since my analysis suggests that the source of
AD duties against China is procedural, the only possible alleviation of AD duties
would have to occur through the slow channels of bureaucracy and law making. Thus,
the high number of AD duties imposed against China will continue until the
procedural bias against China is reversed.
To support my argument, my thesis proceeds as follow. First, I provide an
overview of U.S. AD history and the U.S. AD process, followed by an overview of
U.S.-China trade relations since 1979. Next, I give several examples of AD cases
between China and the U.S. to elaborate how the process works and highlight the
effect of China’s NME status on AD duties imposed against it. Then, using Bown’s
(2007) newly compiled AD dataset and data I collected from U.S. Foreign Trade
Statistics of country-specific imports and exports to the U.S, I establish that AD cases
initiated against China are disproportionate, even after controlling for industry-level
9
trade and import surges. I also explore the effect of industry sensitivity in the U.S. on
how many cases are filed against China and find there is no relationship between
industry organization and AD cases. Finally, I explore the effect of China’s NME
status on AD duties against China and conclude that this has the largest and most
significant effect.
Antidumping Law
In order to support the argument that China receives more AD duties because
of its NME status, this section provides an overview of the history of U.S.
antidumping policy in general and U.S. AD policy against China in particular. After
defining dumping and describing how the U.S. government determines whether or not
foreign products are being sold at less than fair value on the U.S. market, I show how
dumping methodology has affected both domestic and international antidumping
policies. I then review economic analyses of AD policies, followed by other
researchers’ explanations of the rise in AD duties against China in the last 15 years.
Antidumping Process
Countries use antidumping policy as a mechanism to prohibit foreign countries
from “dumping” in their domestic markets, where “dumping” is defined as selling a
product at less than its cost of production. In principle, antidumping legislation seeks
to prevent foreign products from pushing domestic products out of the market and then
raising prices. AD policies have been considered the international analog to antitrust
policies: by placing duties on foreign products being dumped, they are meant to
10
protect domestic producers and consumers from predatory foreign companies who
want to establish a monopoly on the domestic market.
Procedurally, the U.S. places AD duties on a foreign country if a U.S.
company can establish that the product is being sold at less than fair value (LTFV) and
that the dumping has caused direct injury to the domestic industry. A domestic
company begins an AD case by filing a petition accusing a country of selling its
products at LTFV. Once the petition is initiated, the U.S. International Trade
Commission (ITC) makes a preliminary determination of injury – assessing whether
the domestic industry has suffered injury. If the decision is affirmative, the
Department of Commerce (DOC) determines preliminarily if the foreign country is
selling at LTFV and, if so, by how much. The DOC computes fair value either by
constructing a price from estimates of the cost of inputs into the product or by using
the price charged for the product on the home market or on a third market. An
affirmative LTFV decision imposes interim AD duties on the products from that
country.
In the meantime, the DOC conducts on-site verification of the foreign
companies’ pricing, considers various petitions from both respondents and petitioners,
and makes a second decision as to whether the foreign firm is selling its product at
LTFV. If the DOC upholds its previous decision that the good is selling at LTFV, the
AD case then goes back to the ITC, which makes a final determination of whether the
foreign company’s products have caused domestic injury. If the ITC finds injury has
occurred, the DOC places tariffs equal to the dumping margin against the country.
Antidumping duties are reconsidered every five years, when they are
automatically terminated unless a domestic company requests a sunset review. In the
11
sunset review, the DOC and the ITC determine whether injury due to dumping would
continue if the duties were retracted, and if so, the AD tariff will remain in place until
the next review (Lindsey and Ikenson 2002). Figure 1 illustrates these procedures.
Figure 1: The Antidumping Process
Preliminary Injury Decision (ITC) ↓
Preliminary Dumping Decision (DOC) ↓
Final Dumping Decision (DOC) ↓
Final Injury Decision (ITC) ↓
Sunset Review
Source: Lindsey and Ikenson, 2002
History of Antidumping Law
Although Congress passed its first antidumping law in 1916, early AD
legislation was rarely used as a form of protection of U.S. industries against foreign
competition. Over time, however, the gradual expansion of the Act’s purview made it
progressively easier for U.S. producers to petition the government and be rewarded
with increased duties on foreign products. This loosening of constraints on AD suits,
along with the decreased availability of other forms of protection such as tariffs,
voluntary export restraints, and other agreements from renegotiations of the GATT
12
and the WTO, led to an outburst in U.S. AD duties starting in the 1980s. Table 1
provides the history of AD legislation.
Table 1: U.S. Antidumping Legislative Timeline
Event Description Effect US Antidumping Act 1916 First AD law passed in the
United States. Very vague; few companies used this AD law.
US Antidumping Act 1921 Revised the 1916 AD law, intent did not have to be “predatory.”
Added more specifics, but still few companies used the law.
Formation of the GATT (1947)
Made no explicit changes to the AD law, but member countries agreed to lower tariffs.
Lowered tariffs, thus constraining alternatives to AD laws. Still, AD laws were not often used.
US Trade Act 1974 Allowed for construction of the fair price.
Constructed price made it easier to prove dumping; more companies began to use the law.
Tokyo Round 1979 Further limited non-tariff barriers to trade. Constructed price could now be used internationally.
Explosion in developed countries’ use of AD cases, especially in the U.S.
US Trade Act 1984 Required cumulating imports; did not amend constructed price.
Even easier to prove dumping; even more U.S. companies begin to use AD law.
Formation of the WTO (1995)
Added AD law to WTO procedures, essentially giving all countries an AD law.
Developed and developing countries use AD policies extensively.
Source: Lindsey and Ikenson (2002); Finger, Ng and Wangchuk (2000); Prusa (1990); Prusa and Skeath (2004)
The current U.S. antidumping law has antecedents in 1916 legislation. After
the industrial revolution, an increase in productive capacity around the world resulted
in the formation of large businesses in both Europe and the United States. Many of
these businesses formed cartels, and national governments protected their products
13
with tariffs. Policymakers in the United States feared that European cartels did not
have a large enough market in Europe to sell all of their goods. They worried that
these cartels would sell their excess capacity to the United States market at prices
below cost, hurting U.S. producers, so Congress passed a law prohibiting dumping,
the Antidumping Act of 1916 (Prusa 1990).
The 1916 law was also inspired by the politics of the time. According to Prusa
(1990) the AD bill was a compromise between Republican protectionists and
Democratic free traders. The first bill was vague, prohibiting selling products “at a
price substantially less than the actual market value…provided that such acts…be
done with the intent of destroying or injuring an industry in the United States” (Prusa
1990, 19). The Antidumping Act of 1921 followed with slightly more specific
requirements for what qualified as dumping. Unlike in the 1916 law, in the 1921 AD
law, intent of injuring an industry did not have to exist, but like its predecessor the
1921 law vaguely described what it took for companies to prove dumping (Prusa
1990).
Before the creation of the General Agreement of Tariffs and Trade (GATT) in
1947, high tariffs on the majority of goods were included in foreign price estimations,
and therefore it was difficult for U.S. companies to make a convincing case that prices
were below market level. In addition, to prove a country was dumping, the U.S.
industry could only use evidence based on the foreign country’s own prices in their
home market or in third-country markets and could not construct the fair price based
on estimates of the cost of production of the foreign company, as it can today. Further,
material injury could also only be used as evidence in an AD case if dumping were the
14
primary cause of the injury, whereas today dumping does not have to be the foremost
cause of injury (Prusa and Skeath 2004).
During the first 15 years after the creation of the GATT and the beginning of
lower worldwide tariffs, the U.S. reacted to industry competition by renegotiating
tariffs and emergency protection rather than using AD laws (Finger, Ng, and
Wangchuk 2000). During the middle of the 1960s, however, renegotiation of tariffs
and use of the escape clause became less frequent because of increased GATT
restrictions on their use. In response, the U.S. began to use Voluntary Export
Restraints (VERs) on foreigners to provide injured industries relief. After a while,
pressure from the GATT and the realization that VERs were a costly alternative to
duties shifted countries from using VERs on foreigners toward using AD policies
(Finger, Ng, and Wangchuk 2000).
The most substantial U.S. transition to using AD legislation occurred with the
U.S. Trade Act of 1974; this was followed by the Tokyo Round in 1979, when the
rules that applied to antidumping were renegotiated internationally (Prusa and Skeath
2004). First, the definition of LTFV was amended to include not only low pricing in
the domestic market, but also sales below cost, where price was constructed by the
U.S. government. Additionally, while previously the code had required that dumping
be “the principal cause of material injury,” the Trade Act and the Tokyo Round
removed this requirement, so that there were fewer conditions required to impose AD
duties (Prusa 1989, 24). These changes to the U.S. AD law resulted in U.S. industries
initiating petitions at an unprecedented rate.
In 1984, Congress again revised the 1921 Antidumping Act to include two
controversial provisions. Before 1984, the International Trade Commission could
15
decide whether or not to cumulate imports of a product from various countries being
investigated. After 1984, the AD law required the ITC to cumulate imports, meaning
the total amount of imports from all countries counted as evidence of injury, not just
the imports from the country being investigated (Prusa 1990). Cumulating of imports
made it much easier to determine that injury had occurred to a United States industry
because no matter what percent of the market the investigated country contributed to,
the effect of all foreign countries on the domestic industry was transferred to the
investigated country. Second, the ITC decided not to amend the 1974 Act in which
the ITC could decide whether to use cost or price as a determination of antidumping.
An amendment would have made it more difficult to pass antidumping duties against
foreign countries (Prusa 1990).
In 1995, in tandem with new legislation that created the WTO, the AD law was
changed once again. Although requirements for proof of “dumping” were not
significantly modified, antidumping was added into the WTO’s dispute settlement
procedure. The fact that AD procedures are part of the dispute settlement procedure
means that the WTO made AD law part of its rule structure. Thus countries that did
not have AD laws in the past could now use antidumping laws under the WTO (Prusa
1999).
Given the easing of restrictions on AD duties over time and the absence of
alternative protectionist policies, the U.S. became one of the most frequent users of
AD legislation in the world. The use of U.S. AD cases can only be explained by
highlighting the importance of these changes in AD procedural laws, such as the
ability to construct the fair price and the requirement to cumulate imports. The next
16
section will explore this effect and argue that it led to increasing numbers of AD cases
and undermined trade liberalization.
Economic Analyses of Antidumping Law
In principle, AD laws were created to be the equivalent to anti-trust action for
foreign companies. AD policies are supposedly in the public interest, aiming to
preserve U.S. market competition. In practice, most economists view antidumping as
a form of protectionism. There is some disagreement, however, on the impact that AD
laws have on liberalization. Some see AD laws as one of the few WTO-consistent
forms of protectionism at odds with the goal of full trade liberalization (Bown 2007).
Others, however, see anti-dumping as a “pressure valve” that is important to achieving
trade liberalization because it allows countries to give short-term relief to changes in
underlying trade flows (Prusa and Skeath 2004, Bagwell and Staiger 1990).
Economists who see AD laws as preventing full trade liberalization cite
evidence that AD duties are often passed when foreign industries are not dumping. A
1996 review by the OECD of antidumping cases in Australia, Canada, the EU, and the
U.S. found that 90% of anti-dumping petitions would not have been permissible under
the countries’ domestic anti-trust laws. Even fewer of these would be found to be
competing unfairly (Finger, Ng, and Wangchuk 2000). Similarly, Brink Lindsey and
Don Ikenson of the Cato Institute have shown that the procedures used to determine
LTFV have enormous procedural flaws. They conclude that the DOC’s procedures
often do not compare domestic to foreign prices, rather, they often compare non-
identical products, eliminate low priced inputs when determining cost, and deduct
selling expenses from U.S. firms but not from foreign firms (Lindsey and Ikenson
17
2002). The DOC has also been criticized for including fixed costs and determining a
high “regular” profit margin, making it easier to reach an affirmative conclusion on
dumping. This calls into question the use of antidumping measures to prevent
dumping (Finger, Ng, and Wangchuk 2000).
Economists generally agree that the proliferation of antidumping duties has
hurt competitiveness and consumer welfare. Gallaway, Blonigen, and Flyn (1999)
estimate the collective net cost of AD and countervailing duties to have been four
billion dollars for the U.S. in 1993, more than the cost of any other U.S. trade policy,
excluding the Multifibre Arrangement. Others such as Finger, Ng, and Wangchuk
(2000) have suggested that antidumping duties are more harmful than an import tariff
because foreign companies will respond by raising their prices on the domestic market
in order to avoid antidumping duties. AD duties thus act much like an export quota
because the foreign companies will obtain the revenues from this increase in price,
rather than the U.S. government.
Further, some economists contend that antidumping cases are a means for
domestic companies to force foreign companies to collude and set prices. This would
mean that AD cases, which in principle should protect from antitrust activity, could
instead be a mechanism for oligopoly. Staiger and Wolak (1989) claim that domestic
companies use antidumping cases to punish foreign companies for defecting from a
cartel. Prusa (1990) argues that since domestic firms can cause injury to themselves
before filing an AD case, they can use the threat of an antidumping case to force
foreign firms to collude. Taylor (2004) attempted to verify this result empirically by
measuring the prices of threatened antidumping goods after the withdrawal of an
antidumping case, expecting them to rise, but found no evidence of collusion. On the
18
other hand, Rutkowski (2007) used antidumping evidence from the European Union
and concluded there was evidence of collusion after antidumping withdrawals.
Contrary to these arguments, political economy theorists and other economists
have suggested that AD laws are important “pressure valves” that encourage other
aspects of trade liberalization. Niels and Kate (2006) divide these arguments into
three different types of “pressure valve” arguments. First, Niels and Kate identify the
“political-support pressure valve”, where AD cases provide an opportunity for the
government to concede duties to injured industries in return for industry support on
other forms of trade liberalization. The “unfair-practices safety valve” is an argument
made by policymakers that AD legislation prevents unfair trade practices that are
pervasive in international trade. Last, the “temporary adjustment” safety valve
argument contends that domestic industries that have not been subject to international
competition in the past may need temporary protection in order to adjust to the new
competition.
Most researchers argue that Niels and Kate’s second and third safety valves
claims have little merit. Since economists have found that AD duties are often
imposed against companies that may not actually be dumping, AD laws as a
mechanism to prevent unfair trade practices is not a convincing argument. In addition,
many of the industries that have been filing AD cases in the U.S. have been the
historic filers of AD cases, suggesting that AD legislation is not used as a mechanism
for temporary adjustment of industries.
However, political economy theorists give more legitimacy to the first safety
valve. Mastel (1998) suggests that if AD laws did not exist, U.S. demands for
protection would still exist, but since there would be no process through which to
19
alleviate these demands, Congress might impose even more strict protection laws that
would damage trade liberalization. Niels and Kate (2006) suggest that without AD
legislation, developing countries may not have agreed to the extensive trade
liberalization that has occurred over the last decade.
China and U.S. Antidumping Policies
China has been a main target of AD suits since the 1990s. From 1995 to 2001,
the number of AD suits filed against China led experts to speculate that China faces
discriminatory treatment. In this period, China was the number one target of U.S.
anti-dumping allegations, despite only being the fifth largest exporter to the United
States. Additionally, cases filed against China were significantly more likely to be
passed than those filed against other countries, and China has faced AD duties almost
twice as severe as those imposed on other exporters (Bown 2007).
Four studies examine the determinants of U.S. AD policies against China.
Bown (2007) investigates the use of antidumping against China before and after
China’s entrance to the WTO. He concludes that despite China’s entrance into the
WTO, antidumping cases filed against China have increased, and he attributes this to
discriminatory treatment. Bown then explores whether China uses its own
antidumping policies as retaliation against industries that file antidumping cases
against China, but finds there is no correlation between those industries subjected to
AD duties and the industries that file antidumping cases in China.
Prusa and Chu (2004) conduct the most extensive analysis of antidumping
cases against China. They conclude that antidumping cases are highly correlated with
foreign direct investment (FDI) in China. Since much of this FDI has come from East
20
Asia, they hypothesize that China’s antidumping cases are replacing those that used to
be filed against Japan, South Korea, and Taiwan. Prusa and Chu suggest the existence
of a learned strategy and find that countries will file cases against China after other
countries have won a number of AD cases against China. Once China began to receive
antidumping cases, the effect snowballed.
Blonigen (2003) looks at the effect of China’s non-market economy status on
antidumping cases against China and concludes that NME status does not fully explain
the level of duties placed on China in antidumping cases. Using data from 1980 to
1995, Blonigen uses a regression technique to relate AD duties to country, controlling
for a non-market economy effect. He finds that there is still a China country-effect
despite controlling for NME status. Messerlin (2002) implies that the industrial
structure of U.S.-China trade is one of the explanations for China’s disproportionate
amount of AD cases. He explores the possible ways China could avoid antidumping
cases and suggests that China move Chinese exports away from “antidumping
intensive” industries, mainly manufactures.
U.S.-China Trade
The previous section argued that as other forms of trade protectionism have
become less available and U.S. AD laws have been reformed, the U.S. has become a
more frequent user of AD laws to protect its industries. In particular, the ability for
the U.S. to construct the “fair” price and the application of antidumping laws to WTO
procedures have made antidumping cases more frequent. This increase in AD use has
created debate among experts, some who argue that AD use promotes trade
liberalization and some who argue that AD use is a form of welfare-reducing
21
protectionism. Because China receives more antidumping cases than any other
country, studying the motivation behind U.S. antidumping cases against China
illuminates how antidumping affects trade liberalization between the U.S. and China.
To support the argument that China receives more AD duties because it is a
non-market economy, this section provides an overview of U.S.-China trade relations
in general, and specifically how China received NME status. I begin by describing the
period of China’s opening up to international trade, from 1979-1992, followed by a
discussion of U.S.-China trade from 1992-2001. A subsequent section reviews the
issues that surrounded China’s entrance into the WTO in 2001. Last, I explore
pertinent trade conflicts between the U.S. and China today.
The U.S.-China relationship was transformed in 1978 when Deng Xiaoping
gained control of the People’s Republic of China. The PRC had just ended the
decade-long Cultural Revolution, when the Chinese Communist Party (CCP)
leadership, then headed by Mao Zedong, focused on creating political turmoil and
sending capitalists to the countryside, devastating the economy. After a decade of
chaos, a huge balance of payments deficit had developed along with a growing
disillusion with the planned economy system. In response, Deng Xiaoping decided
that a successful China would mean opening up China to international trade. He
therefore engaged the U.S., looking for a strategy that would pull China out of
poverty.
For its part, the U.S. had both political and economic motives in establishing
relations with China. First, the U.S. sought to balance the growing power of Russia by
engaging China. Second, as the most populous country in the world, the U.S. foresaw
trade with China as a potential source of cheap labor to produce products at lower cost
22
as well as a potentially large export market (Lampton 2001). U.S. companies were
using cheap labor from South Korea and Taiwan, and China seemed to offer the same
kind of opportunity. As a result, in 1979, President Carter established formal
relations with the PRC, and in 1980 in a U.S.-China bilateral trade agreement, China
and the U.S. exchanged Most Favored Nation (MFN) status (Lampton 2001).
1979-1992: China Enters World Markets
Trade between the U.S. and China grew quickly after 1979. The value of
bilateral flows quadrupled in the 1980s (Lampton 2001). Despite this growing trade,
there were barriers to foreign participation in the Chinese economy. As the CCP
began to allow trade, it introduced high tariffs. In 1982, the average tariff against
foreign countries was 56% (Lardy 2002). Although the National People’s Congress
lowered the average tariff to 43% in 1985, high tariff levels persisted through the
1980s (Lardy 2002).
China also introduced non-tariff impediments to limit foreign incursion into
their markets. First, China restricted the number of companies allowed to import
goods into China by issuing a limited amount of import licenses. These licenses were
only given to state-owned enterprises at first, severely limiting the imports into China
as they were mostly state-controlled. Second, China maintained an import substitution
list that consisted of products for which there was a required domestic substitute.
Certain foreign goods, especially primary inputs, always had substitutes and thus
could never be sold on the Chinese market. Third, a dual foreign exchange rate
system limited unlicensed domestic companies’ access to foreign exchange and thus
trade, as well as favoring Chinese exporting companies over foreign importing
23
companies (Lardy 2002). These regulations made it difficult for U.S. companies to
obtain access to Chinese consumer markets during the 1980s (Lardy 2002).
Despite these barriers, China encouraged trade in specific industries. Special
economic zones were formed where international trade with foreigners was
encouraged as long as imported goods were used in the zone to produce exports
(Naughton 2007). To encourage this commerce, in 1987 the CCP exempted raw
materials and intermediate goods used to assemble finished goods from tariffs. Tariff
exemptions were also given to foreign capital that was used in joint ventures of
completely foreign-owned companies. Increasingly, as foreign direct investment
(FDI) and export-processed goods were encouraged by the Chinese government,
foreign companies saw China as a platform to produce goods for the world market at
low labor costs (Lampton 2001). U.S. FDI in the PRC reached $254 million in 1989
(Lampton 2001). Export-processed goods became the largest component of China’s
international trade in the 1980s and into the 1990s (Naughton 2007).
1993-2001: China’s Trade Liberalization
As China opened up, foreign investment in China as well as foreign trade with
China grew exponentially. U.S. FDI in industries that produced exported goods
continued well into the next decade. During the 1990s, China became the second-
largest recipient of FDI and outpaced other developing countries. Cumulative FDI in
China surpassed Mexico and Brazil in the 1990s, countries that had opened up to FDI
much earlier (Lardy 2002).
In 1992, a reform of the tariff system reduced China’s average tariff level to
15%, half the level of then Brazil and Mexico’s tariffs. In the same year, China
24
abolished its import substitution list, and in 1997, a government initiative exempted
many domestic firms from import tariffs. By the end of the 1990s, less than 40% of
imports were subject to a duty. By 2000, import licensing had been all but abolished,
with only 4% of commodity categories subject to licensing restrictions (Lardy 2002).
As barriers to trade decreased, not only did U.S. FDI increase, but U.S.
companies also had greater access to Chinese consumers. By 1997, Coca-Cola
controlled 26% of the soft drink market (Lampton 2001). By 2000, China and Hong
Kong made up 10% of Motorola’s global sales (Lampton 2001). By January 1, 2000,
335 of the 503 jetliners operating in China were Boeing airplanes. Still, as of 2000,
most trade was centered in China’s export-processing zone, and ordinary trade imports
accounted for a smaller percentage of overall imports than export-processed goods
(Naughton 2007).
2001: China’s Entrance into the WTO
As part of China’s strategy to open up to international markets, in 1986, China
petitioned to join the General Agreement on Trade and Tariffs (GATT). Most GATT
countries expected China to accede to the agreement quickly (Lardy 2002). A
working party convened to consider China’s accession in 1988. Most analysts at the
time expected that China would make the necessary agreements that would allow its
membership sometime in 1989 (Lardy 2002). But after the June 1989 Tiananmen
Square massacre and the subsequent sanctions placed upon China by most Western
countries, China’s membership was delayed, and it had not yet acceded at the time of
the WTO’s creation in 1995 (Naughton 2007).
25
The WTO expanded the commitments required to become a member, and these
agreements required China’s entry to include services, agriculture, and intellectual
property protection. Therefore, when negotiations resumed after Tiananmen, an
entirely new set of agreements had to be considered. As a result of this expansion, it
took two and a half years before more progress was made toward China’s accession
(Cass and Williams 2003).
China found a number of obstacles in its admittance to the WTO besides the
expanded agreements. Because of the size of the Chinese economy, many WTO
members believed that China should not be admitted as a developing country, but
rather as a developed country (Lardy 2002). A U.S.-China bilateral trade agreement
was almost concluded in April 1999, but the U.S. bombing of the Chinese embassy in
Belgrade again postponed the bilateral agreement and thus China's accession to the
WTO. In the same year, the terms of the WTO agreement were released to the
Chinese people, and huge protests began in China against WTO accession (Lardy
2002). In November 1999, China reached a bilateral trade agreement with the U.S.,
followed by a bilateral agreement with the European Communities in 2000. China
became a member of the WTO at the end of 2001.
China’s prolonged accession into WTO is indicative of the U.S.-China trade
relationship today. Today the U.S., as in the 1980s and 1990s, has a vested interest in
trade with China. However, significant differences between China and the U.S.
impede trade relations. Political obstacles such as human rights violations, protests,
and incidents like the Belgrade bombing significantly constrain the concessions both
countries can make on trade. In addition, wary of the fast-growing Chinese economy
and suspicious of predatory trade practices, the U.S. and other countries have made it
26
more difficult for China to receive trade concessions, and thus trade conflicts are often
prolonged and intensely negotiated.
WTO Agreement
China made significant concessions in order to join the WTO. China promised
that its average tariff levels would be cut to 8.9% by 2005. This number was
significantly lower than other countries. For example, at the time of China’s
accession, Argentina, Brazil, India, and Indonesia had tariff levels of 30.9%, 27%,
32.4%, and 36.9%, respectively. China was also asked to make significantly more
commitments than the majority of members in services, and they committed to all the
provisions of the WTO General Agreement on Trade in Services (Lardy 2002).
China’s largest concessions were on two rule-based issues: safeguards and
antidumping. Under the WTO’s Agreement on Safeguards, a country can impose
restrictions on imports if it can show serious injury to its domestic firms and can show
a causal relationship between another country’s exports and its domestic firms’ injury.
China, however, agreed to a safeguard clause in which a market disruption can be
reason for the U.S. to restrict imports if Chinese imports are a “significant cause of
material injury or a threat to material injury,” instead of a definite causal relationship.
Additionally, China agreed that a WTO member could put a quota on Chinese imports
specifically, even if other countries are part of the cause of material injury (Lardy
2002).
China also agreed to be considered a non-market economy in antidumping
cases. Chinese products, by being classified as from a non-market economy, are
valued via a constructed method using “surrogate” country prices. A country other
27
than China is selected that has the same basic economic characteristics as China. The
Chinese producer supplies the quantities that have been used to produce its product,
and the prices from the surrogate country are used with these quantities to calculate
normal value (Lardy 2002). 1
This methodology presents several problems for Chinese producers. Often,
countries that are used as surrogates for China have higher labor costs than China.
Because Chinese exports often are labor-intensive goods, the surrogate country labor
costs artificially inflate fair value, and there is a higher probability that the Chinese
firms will be found to be dumping. Further, if the surrogate country does not produce
those products for exports, their inputs into these products may be significantly more
expensive than those in China. Finally, the NME law does not define non-market
economy status, so it is largely up to WTO members’ discretion when to apply the
non-market economy method.
Current U.S.-China Trade Conflict
Since China’s accession into the WTO, it has become the U.S.’s third largest
trading partner. China’s market has become increasingly important to the United
States; in 2004, Chinese consumers bought 5% of American exports (Morrison 2008).
In 2002, China replaced Japan as the world’s largest PC market and has already
become the world’s largest market for cell phones. The main U.S. exports to China
are semiconductors and electronic components, soybeans, waste and scrap, aircraft,
and chemicals (Morrison 2008).
1 This is in contrast to the constructed market economy method, where quantities and prices of inputs are taken from the home country.
28
Nearly all imports from China are labor-intensive, low-cost products such as
computers, miscellaneous manufactured articles, audio and video equipment,
footwear, and apparel. As companies moved their production facilities from Japan
and Taiwan to China, China began to produce more advanced technological
equipment.
While trade between the U.S. and China has grown significantly on both sides
since China’s accession to WTO, this growth has been unbalanced. Perhaps the most
contested trade issue between the U.S. and China has been the growing U.S. trade
deficit with China. Every year since 1983, the U.S. has run a trade deficit with China.
In 1988, the deficit was $4.2 billion; by 1997, the trade deficit was $53 billion and in
2007 it had reached $177.5 billion (U.S. Census Bureau 2008).
Many politicians in the U.S. see the trade deficit as evidence that China is
using unfair trade practices to obtain an advantage over U.S. producers. Among the
reasons cited is that China is manipulating its currency in order to keep its exports
cheap and keep Chinese consumer demand at a low, thus contributing to the U.S. trade
deficit. They also argue that Chinese labor laws are too lenient, which unfairly lowers
the cost of labor in China, and encourages U.S. firms to outsource manufacturing.
There is much support for these claims among academics. Goldstein (2005)
supports the claim that China’s currency peg contributes to the U.S.-China trade
imbalance. He argues that the low value of Chinese currency makes Chinese exports
cheaper relative to U.S. exports, and he points to China’s accumulation of foreign
exchange reserves as evidence that the yuan is undervalued and that this money could
be used more efficiently. According to Goldstein, the low value of Chinese currency
29
forces other Asian countries to keep their currencies low relative to the dollar, further
contributing to the U.S. trade deficit as a whole.
Other economists such as McKinnon (2006) are more skeptical about
connecting the value of the Chinese currency to the U.S.-China trade deficit.
McKinnon attributes the trade deficit to differences in savings rates between China
and the U.S. rather than the value of the currency. He argues that high Chinese
savings and low American savings have forced the U.S. to borrow large amounts of
money from China and left China with large amounts of U.S. dollars.
Experts such as Lardy (2005) take a middle ground, saying that the deficit can
be explained by the structure of Chinese trade. According to Lardy, Chinese exports
have relatively little value added; most of the inputs into the products are imported,
and then cheap Chinese labor is used to assemble the product. Much of what China
exports comes from foreign-owned firms and originates in other parts of the world.
For example, in 1999 China was the ninth largest exporting country. According to
Lardy, if foreign invested firms are taken out of this computation, China’s rank falls to
fifteenth. China’s rank would drop even further if reprocessed exports produced by
domestic firms were excluded.
Politicians blame low Chinese labor costs for the trade deficit between the U.S.
and China. They argue that minimal labor laws in China move manufacturing away
from the U.S. to China. While it is true that China has fewer laws protecting workers
than the U.S., were Chinese labor costs higher, production would not move to the
U.S., but would rather move to another low-cost labor country. Thus, most experts
agree that rising Chinese labor compensation will do little to alter the overall U.S.
deficit.
30
Whatever the real cause of the deficit, many politicians see the deficit as
evidence of predatory Chinese trade practices. Senators Stabenow, Shumer, and
Myrick have introduced legislation that would impose a 27% tariff on all Chinese
goods until it has been verified that China is no longer manipulating their currency. A
bill proposed by Senator Lieberman would mandate that the President negotiate with
countries involved in currency manipulation and take action to protect U.S.
manufacturers if these countries did not revalue. Some members of Congress consider
the currency peg as equivalent to a subsidy and have proposed legislation that would
allow countervailing duties and antidumping legislation to be passed against countries
that are manipulating their currencies. This legislation is largely focused on China and
the U.S.-China trade deficit (Morrison 2008).
Politicians and companies in the U.S. have also been concerned with the
Chinese government’s involvement in the economy. Suspicion over governments’
involvement in communist economies during the Cold War inspired the Jackson-
Vanik Amendment of the Trade Act of 1974, which prevented any country considered
a non-market economy from achieving MFN status, unless the president granted an
exemption and gave the country MFN status for the year. Thus, from 1980, when the
U.S. first granted MFN status to China, to 2002, China had to reapply every year for
MFN status from the United States. The president had to notify Congress every year
about his intention of granting China MFN status, after which Congress would debate
the status and China would be persuaded to make trade concessions in order to remain
a MFN country (Lampton 2001).
Even though China has been granted permanent MFN status today, concerns in
the U.S. over the Chinese government’s influence in its economy persist.
31
Policymakers in Washington have expressed concern over Chinese state-owned
companies acquiring American companies. In 2004, IBM announced that it would sell
its personal computer division to Lenovo, raising concerns among U.S. policymakers
about the threat of Chinese competition, unfair trade practices due to Lenovo’s state-
ownership, and security issues connected with China having control over IBM’s
technologies. In 2005, Congress actually interfered with the China National Offshore
Oil Corporation’s (CNOOC) proposed takeover of Unocal, a U.S. oil producer. The
intervention was based on the premise that CNOOC was a Chinese-owned company
and thus had an unfair advantage, and that CNOOC’s ownership of Unocal would
create a security concern for the United States (Hufbauer 2006).
Finally, U.S. producers and interest groups have sought to link China’s human
rights record to trade. Most obviously, after the Tiananmen massacre, the U.S. and
other Western countries imposed sanctions on China to protest the human rights
violation. In 1988, after the U.S. discovered some of their imports were produced
with prison labor, a coalition of humanitarians and labor activists formed to threaten
sanctions unless China stopped using prison labor to produce goods. Continuously,
workers in the United States and human rights activists have tried to persuade the U.S.
government to force China to impose higher labor standards, including benefits such
as the right to organize and a minimum wage (Lampton 2001).
Case Studies
The previous section argued that while China’s trade has offered U.S.
companies more access to cheap labor and to a larger Chinese market, trade conflicts
between the U.S. and China persist. Congress has become increasingly adamant that
32
China address human rights concerns, the level of its currency, and state intervention
in the economy, while China has often complained about the concessions it has made
in entering the WTO. While these conflicts receive a lot of attention from the media,
little attention is given to impediments to free trade that already exist between U.S.
and China, including antidumping regulations.
In order to illustrate the effects of China’s status as a non-market economy and
further illuminate the antidumping process, this section provides two case studies.
The first case, a decision involving refined brown aluminum oxide imported from
China, shows how NME status can inflate the “fair” price because the DOC uses data
from countries unlike China to construct the price. In the second case, steel lawn and
garden fence posts, the DOC uses a surrogate country and non-identical products to
determine the fair price, also inflating the fair price. Overall, these case studies show
the importance of imperfect data in DOC procedures and how this shifts the fair price
in non-market economies. This process, I argue, makes it more likely that NMEs are
found to be dumping.
Refined Brown Aluminum Oxide
In mid-2002, Washington Mills Company, Inc from Massachusetts filed a
petition with the International Trade Commission alleging that imports from China of
refined brown aluminum oxide (BAO) were being sold at less than fair value. Refined
BAO is an inorganic chemical that is used for lining furnaces and crucibles, for
grinding wheels and coated abrasives, and general industrial applications. U.S.
producers supply most of the refined BAO used in the United States, followed by
33
China, Canada, and Brazil. (All case study information below from International
Trade Administration reports 2002 and 2003.)
Although imports of BAO from China did not change between 2000 and 2002,
the ITC determined that the total amount imported from China was significant enough
to cause injury to U.S. firms. Further, in four fifths of price inquiries, the Chinese
product undersold the American product and the profits of American firms had
decreased between 2000 and 2002. Therefore, the ITC determined that there was
material injury due to Chinese underselling to American firms and passed the dumping
case onto the next round.
The Department of Commerce then issued questionnaires to Chinese producers
to try to determine fair value. The DOC received a response from Zibo Jinyu
Abrasive Company, but from no other Chinese company. Therefore, Zibo Jinyu was
eligible for the separate rate, and a PRC-wide rate was calculated for all other
companies.
The DOC used India to calculate the normal price because it was the only
country among China’s potential surrogate counties that was a significant producer of
refined BAO. The DOC collected data on hours of labor required to produce BAO,
quantities of raw material used, amounts of energy and utilities consumed, and
relevant capital costs. The DOC used an Indian producer of BAO, Carborundum
Universal, Ltd to gather input prices for profits, interest expenses, and factory
overhead.
However, the DOC did not have estimates of input prices for electricity or for
crude BAO, one of the largest inputs for refined BAO. Even though India exports
some BAO, Indian data did not differentiate between crude and refined aluminum
34
oxide products. To value China’s inputs of crude BAO, the DOC used the average
value of crude BAO imported from Canada to the U.S., even though Canada is not an
official surrogate country for China. To calculate electricity prices, the DOC used the
“revised estimate” of the 2000-2001 average rate for industrial consumption from the
Government of India’s Planning Commission report.
In the end, the DOC determined that the tariff rate for both Zibo Jinyu and the
PRC rate should be 219%, meaning that Zibo Jinyu’s prices were 219% lower than
U.S. companies’ prices using the surrogate country estimation of the “fair price.” In
the Final Injury Determination stage, the percentage was revised down to 135% for
both Zibo Jinyu and the PRC-wide rate. The ITC then confirmed injury, and the U.S.
government imposed the duty. This antidumping tariff is still present as of 2008.
This case illustrates the ways data deficiencies increased the likelihood of a
positive ruling. The DOC used an Indian producer of BAO for all prices. It is
probable that since the U.S. does not import BAO from India, Indian prices are
relatively more expensive than Chinese BAO prices. Further, because data on crude
BAO were not available, the DOC used average prices from Canada. Canadian prices
of crude BAO might have no relation to the inputs actually used by Chinese
companies. Essentially, data from India and Canada, both of which may overvalue
Chinese inputs, raise the probability that China will be found to be dumping.
Lawn and Garden Steel Fence Posts
In April of 2002, Steel City Corp, a U.S. company from Ohio, filed an
antidumping petition to the International Trade Commission, alleging that Chinese
lawn and garden steel fence posts were being sold at less than fair value on the U.S.
35
market. Steel City asserted that because of increasing demand in the U.S. market for
fence posts, it tried to increase its prices, but it was unable to sustain the price increase
because of underselling from China.
On May 1st, the International Trade Commission began its preliminary
investigation, beginning with whether the sales of Chinese garden and steel fence
posts had caused material injury to U.S. firms. The ITC determined that demand for
fence posts increased from 2000 to 2002, but that the volume of imports of fence posts
increased over the same period. Because imports from China made up a meaningful
share of this increase, the ITC concluded that the domestic production of fence posts
had suffered material injury.
The ITC next had to determine if this injury came from the underselling of
fence posts. After collecting quarterly sales pricing data from the domestic industry,
the ITC determined that Chinese imports undersold the domestic product in 18 out of
34 quarterly price comparisons, or about half the time. Therefore, the ITC did not find
significant price effects because of Chinese imports.
Although the ITC found no initial price effects, because China’s import
volume rose from 2000 to 2002, the ITC concluded that the Chinese imports had
significant adverse effects on domestic industry. Although the ITC also noted that
imports from countries besides China adversely impacted the domestic industry,
because China was the only country named in the investigation, it was the only
country subject to inquiry. Therefore, the ITC found that Chinese companies caused
material injury to the domestic fence post industry, even though much of the increase
in imports from China came from fence posts that did not undersell the domestic
producers.
36
The investigation then moved to the Department of Commerce, which would
explore whether fence posts from China were being sold at less than fair value. The
DOC issued an announcement to China of the investigation. Three companies
responded: Shanghai BaoSteel International Economic and Trading Corporation,
Hebei Metals and Minerals Import and Export Corporation, and China Nanyang
Import and Export Corporations. Because of their response, the DOC decided that a
company-specific rate could be granted to these companies, and a separate China-wide
rate would be placed on all other companies.
For each of the three companies, the DOC decided to use India as a surrogate
country. BaoSteel, Hebei, and Nanyang reported all of the factors of production for the
fence posts from 2000 to 2002, including hours of labor, quantities of raw materials,
amounts of energy and other utilities, and relevant capital costs. The DOC then
multiplied these quantities by the publicly available surrogate per-unit values from
India.
However, the DOC was unable to locate publicly available financial statements
from an Indian fence post producer, so instead the agency looked for a producer of
“comparable merchandise,” in this case an Indian producer of circular welded steel
pipe. The DOC used input prices from 2001 of this producer, adjusting for inflation
based on the International Monetary Fund’s (IMF) International Financial Statistics.
The DOC found that all three Chinese companies were selling at less than fair
value. Hebei was given a 6.6% dumping margin, Nanyang a 1.4% margin, and
BaoSteel a 0% margin (although BaoSteel was still considered to be dumping and
would move to the next stage). The PRC wide rate was 15.6%. The investigation then
returned to the DOC for final injury determination, and although a few numbers were
37
revised, the result was the same. The ITC finally determined that China caused
material injury to U.S. firms, so tariffs were placed on the Chinese companies. These
tariffs are still in place as of 2008.
Again, this case illustrates how China’s NME status forces the DOC to use
imperfect data when constructing prices, possibly leading to higher dumping margins.
Since the DOC could not find an appropriate Indian producer to steel fence posts, it
instead used steel pipe, a non-identical product. As a result, even though the ITC had
determined that Chinese companies undersold American companies only half the time,
it still ruled that Chinese companies were dumping.
The previous case studies analyzed the DOC’s latitude in constructing the price
of a foreign good, one of the pivotal tests of a dumping investigation. There are two
principal sources of ambiguity in this process. First, since the DOC must construct the
price of the good, non-identical products must be used to value input prices. Second,
since prices of inputs in the home country cannot be used, data from countries that are
not similar in comparative advantage and development to China.
The Effect of Trade
This section explores various hypotheses of why China receives so many
antidumping duties and shows that China’s technical status as a non-market economy
is the source of the U.S.-China AD trade dispute. It will rule out an alternative
hypothesis, that is, that the amount of trade between the U.S. and China can explain
the disproportionate amount of duties. To show that it is not aggregate trade that leads
to dumping duties, I will first compare the number of petitions U.S. companies filed
and won against China from 1997 to 2005 with the number of petitions U.S.
38
companies filed and won against other countries during the same period. Next, I will
control for country-specific yearly imports to the U.S. to see if China had a
disproportionate amount of AD duties in these years even accounting for trade. Last, I
will control for industry-specific imports to the U.S. to examine whether China had a
disproportionate amount of AD duties accounting for industry-specific trade. After
using this specific industry level to control for AD cases between the U.S. and China, I
will conclude that trade between the U.S. and China cannot explain the magnitude of
AD duties filed and won against China.
From 1997 to 2005, U.S. companies targeted China with far more AD cases
than any other country. U.S. companies initiated 50 antidumping cases against China,
twice the number against Japan, the second-most targeted country by the U.S. U.S.
companies targeted China in more than three times the average number of
antidumping cases filed against the top twelve U.S. trading partners. China also
received far more duties than any other country. From 1997-2005, the U.S. imposed
duties on Chinese imports in 33 cases. This is again more than twice the number than
the U.S. imposed on Japan during the same period (Japan has received duties in twelve
cases) and more than four times the international average. (See Table 2.)
39
Table 2: AD Cases, by Country Country U.S. AD Cases Initiated
1997-2005 U.S. AD Cases with Affirmative
Decision 1997-2005 Brazil 9 4 Canada 15 4 China 50 33 France 8 4 Germany 14 2 Italy 7 6 Japan 25 12 Mexico 13 6 Netherlands 4 1 South Korea 21 11 Taiwan 15 6 UK 5 2 Venezuela 10 3
Source: Bown, Global Antidumping Database, 2007 One reason behind China’s disproportionate amount of AD cases could be that
for more than half of the years between 1997 and 2005, China was not a member of
the WTO. Most of the other countries with which I am comparing China’s AD filings
were members of the WTO during that entire period. In fact, some have argued that
one of China’s primary motivations for entering the WTO was to reduce the number
of AD cases filed against it. In the same year as China’s entrance to the WTO, China’s
premier stated that reducing AD cases one of his top priorities. Some observers
predicted that China’s entrance into the WTO would decrease the number of AD suits
it received because China could cut import tariffs, utilize the WTO’s settlement
procedures, and retaliate with its own AD duties (Liu and Vanderbussche 2002). By
cutting import tariffs, other countries would have fewer incentives to use AD duties, as
they would if China threatened its own duties in retaliation to AD duties from other
40
countries. Similarly, by using WTO settlement procedures, China could contest AD
duties it considered unfair.
The data do not show that the amount of AD duties the U.S. imposed against
China decreased after its entrance into the WTO at the end of 2001. Instead, the
number rose. Further, the amount of AD duties against China in comparison with
other countries became even more disproportionate after China’s entrance into the
WTO. Shown in Table 3, the U.S. filed fewer cases from 2002 to 2005 against
countries other than China than they had in 1997-2001. In contrast, China had more
U.S. filings in 2002-2005 than from 1997 to 2001. Therefore, relative to other
countries, it appears that the number of U.S. cases filed against China rose even more
disproportionately after China’s entrance into the WTO.
Table 3: AD Cases, Pre and Post China’s WTO Accession
Pre-WTO Post-WTO
Country
U.S. AD Cases
Initiated 1997-2001
U.S. AD Cases with Affirmative
Decision 1997-2001
U.S. AD Cases
Initiated 2002-2005
U.S. AD Cases with Affirmative
Decision 2002-2005
Brazil 5 2 4 2 Canada 11 3 4 1 China 23 12 27 19 France 6 4 2 0 Germany 10 2 4 0 Italy 7 6 0 0 Japan 18 10 7 2 Mexico 9 4 4 2 Netherlands 3 1 1 0 South Korea 17 9 5 2 Taiwan 13 6 2 0 UK 5 2 0 0 Venezuela 7 1 3 2 Source: Bown, Global Antidumping Database, 2007
41
One of the possible explanations for this phenomenon is that although China
can now use WTO dispute settlement procedures, China did not contest any AD cases
filed by the United States against China between 1997 and 2005. If China had done
so, companies might have been more wary in filing AD cases against China because
they would have been less certain of a positive outcome.
Regardless, given the magnitude of AD cases filed against China after its
entrance to the WTO, it seems unlikely that the threat of China contesting AD cases
would have affected the overall number that dramatically. Indeed, companies filing
AD cases during this period knew that China at least had access to the settlement
procedure. Bown (2004) alleges that China’s disproportionate number of AD cases
during this time period is sufficient evidence that the U.S. filings of AD cases are
“discriminatory.”
In reviewing Bown’s data, however, he fails to control for other economic
factors that are associated with increases in antidumping cases. The more a country
trades with the outside world, the more AD cases it should receive. Additionally, the
more Country A trades with Country B and the less it trades with Country C, the more
likely it is Country B will file antidumping cases against Country A and the less likely
it is Country C will file antidumping cases against Country A.
Having considered this, Prusa and Chu use a variety of “intensity” measures to
control for trade when examining the amount of AD suits filed against China. Prusa
and Chu define “intensity” as the number of AD cases a country receives divided by
the total amount of exports and compared intensity across countries. They find that
42
China has by far the largest intensity measure, and they conclude that controlling for
exports, China still was targeted in a disproportionate amount of AD cases.
Still, Prusa and Chu’s intensity measure may not fully reflect the nature of the
U.S.-China trade relationship. AD cases are often specific to two countries or a group
of countries. China is not the largest world exporter, but it trades so exclusively with
the United States that the amount of trade between the U.S. and China could explain
the amount of AD cases against China, whereas China’s position as a world exporter
would not.
Country-Specific Imports
To address this problem, I collected data on country-specific exports to the
United States from the top twelve U.S. trading partners from 1997 to 2005. I also
obtained data on the AD petitions initiated against the twelve largest U.S. trading
partners from 1997 to 2005 and data on the number of AD cases in which duties were
imposed against these trading partners from 1997 to 2005. Table 4 shows each
country’s average amount of exports to the U.S. between 1997 and 2005 as well as the
total amount of AD cases filed and won during the same period. The total number of
AD cases filed and the total number of AD cases won should be roughly proportional
to the amount of exports for each country. Figure 2 and Figure 3 shows this
relationship graphically. As expected, there is a significant correlation between
average exports and the number of AD cases filed and won.
43
Table 4: AD Requests, Duty Impositions, and Average Exports
Country
Average Exports to the U.S. 1997-2005
(1,000’s) AD Cases Initiated
AD Cases Affirmative
Brazil $15,405 9 4 Canada 218,192 15 4 China 126,176 50 33 France 28,164 8 4
Germany 62,046 14 2 Italy 24,477 7 6 Japan 128,288 25 12
Mexico 128,137 13 6 Netherlands 10,074 4 1 South Korea 35,170 21 11
Taiwan 34,225 15 6 UK 41,366 5 2
Venezuela 17,666 10 3 Source: Bown, Global Antidumping Database, 2007; U.S. Census Bureau 2008
Figure 2: AD Initiations and Average Exports
Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
44
Figure 3: AD Duty Impositions and Average Exports
Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
In order to show the relationship between AD cases and both exports and
country, I used OLS, Ordered Probit, and Negative Binomial models to run a
regression so I could control for exports by year and by country. In the first set of
models, I related the number of AD cases initiated to the amount that a country i
exported to the U.S. in year t. Second, I related the number of AD cases with an
affirmative decision to the amount that a country i exported to the U.S. in year t. The
model I used is shown below.
ADInitiatedt,i = ExportstoUSt,i + Country effect
ADAffirmativet,i = ExportstoUSt,i + Country effect
45
Table 5: AD Initiation, by Country-Specific Exports
Number of AD Cases Initiated
(1) Ordered Probit
(2) Negative Binomial
(3) OLS
(4) Ordered Probit
(5) Negative Binomial
Constant -- 0.13 (0.16)
1.10** (.546)
-- 0.05 (0.36)
Exports to U.S.
4.2x10^-6*** (1.53x10^-6)
5.13x10^-6*** (1.62x10^-6)
-6.5x10^-6 (7.09x10^-6)
-4.54x10^-6 (4.66x10^-6)
-3.19x10^-6 (3.31x10^-6)
Canada 1.98 (1.62)
1.36 (1.06)
1.14 (0.80)
China 5.28*** (1.09)
2.54*** (0.75)
2.07*** (0.55)
France -0.03 (0.76)
-0.10 (0.51)
-0.08 (0.52)
Germany 0.86 (0.83)
0.63 (0.54)
0.59 (0.49)
Italy -0.16 (0.76)
-0.26 (0.51)
-0.22 (0.54)
Japan 2.51** (1.10)
1.68** (0.73)
1.38** (0.57)
Mexico 1.18 (1.10)
0.75 (0.73)
0.72 (0.59)
Netherlands -0.59 (0.76)
-0.81 (0.54)
-0.83 (0.63)
South Korea 1.57** (0.77)
1.07** (0.51)
0.95** (0.43)
Taiwan 0.79 (0.78)
0.51 (0.51)
0.57 (0.46)
UK -0.28 (0.78)
-0.54 (0.55)
-0.51 (0.59)
Venezuela 0.13 (0.76)
0.05 (0.50)
0.11 (0.49)
*.05 p-value, **.01 p-value, ***.001 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
46
Table 6: AD Imposition, by Country-Specific Exports
Number of Cases AD Duties Imposed
(1) Ordered Probit
(2) Negative Binomial
(3) OLS
(4) Ordered Probit
(5) Negative Binomial
Constant -- -0.64 (0.22)
0.49 (0.35)
-- -0.78 (0.52)
Exports to U.S. 2.22x10^-6 (1.66x10^-6)
5.3x10^-6** (2.25x10^-6)
-3.28x10^-6 (4.59x10^-6)
-6.94x10^-6 (5.10x10^-6)
-2.24^-6 (3.92x10^-6)
Canada 0.66 (1.05)
1.03 (1.16)
0.45 (1.07)
China 3.47*** (0.71)
2.81*** (0.80)
2.32*** (0.70)
France 0.04 (0.49)
0.09 (0.56)
0.03 (0.72)
Germany -0.07 (0.54)
-0.23 (0.65)
-0.59 (0.90)
Italy 0.25 (0.49)
0.41 (0.55)
0.43 (0.67)
Japan 1.26* (0.71)
1.74** (0.79)
1.35* (0.74)
Mexico 0.48 (0.71)
0.92 (0.79)
0.47 (0.82)
Netherlands -0.35 (0.49)
-1.00 (0.67)
-1.40 (1.13)
South Korea 0.84* (0.50)
1.12** (0.55)
1.05* (0.61)
Taiwan 0.39 (0.50)
0.61 (0.55)
0.60 (0.65)
UK -0.14 (0.51)
-0.37 (0.62)
-0.64 (0.89)
Venezuela -0.10 (0.50)
-0.23 (0.58)
-0.28 (0.52)
*.01 p-value, **.05 p-value, ***.01 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008 As shown in Tables 5 and 6, after controlling for exports, there is still a
positive and significant effect of Chinese goods on the number of AD cases initiated.
Controlling for exports, China is 528% more likely to have an antidumping case filed
against it and is 347% more likely to have the U.S. impose duties on China. In all
countries except for China, Japan, and South Korea, the country itself has no
significant effect on the number of AD suits initiated or the number of AD cases with
an affirmative decision. But even among China, Japan and South Korea, China has
47
almost twice the effect of South Korea or Japan, and in each case it is much more
significant.
These regressions suggest that even controlling for yearly country-specific
exports to the U.S. from 1997 to 2005, there is still a country-specific effect for China.
In other words, China received a disproportionate amount of antidumping cases from
the U.S. in comparison to other countries after accounting for trade.
Industry and Country-Specific Imports
We now turn to the industry-specific trade balance to determine whether trade
between specific countries in specific industries can explain the number of AD cases
against China. AD suits are not only specific to two countries or a group of countries,
but they are also product specific. As shown in Figure 4 and Figure 5, Chinese exports
from 1997 to 2005 were highly concentrated in a few industries. Similarly, AD cases
against China were highly concentrated in a few industries (although not necessarily
the same industries). A key that shows the name of each industry is in the Appendix.
48
Figure 4: U.S.-China Trade Balance, by Industry 2001
Source: U.S. Census Bureau 2008
Figure 5: U.S. AD Cases Initiated Against China, by Industry 1996-2004
Source: Bown, Global Antidumping Database, 2007
49
To examine the industry-specific trade balance’s effect on antidumping cases, I
collected industry-specific data for each of the U.S.’s top twelve trading partners from
1997 to 2005. I also classified each of the AD cases into industry categories. I used
the same three models (OLS, Ordered Probit, and Negative Binomial) to relate the
number of AD cases filed and won to the amount country i exported in industry j in
year t. The model I used to determine the effect of industry-specific trade balance
added industry indicators to the previous model.
AD Initiatedt,i,j= ExportstoUSt,i,j +Country effect
AD Affirmativet,i,j = ExportstoUSt,i,j +Country effect My model could be improved in one respect. The industries I control for were
only 1-digit SITC codes instead of a more specific industry code. Since antidumping
cases are product specific, using more specific industry codes would be more effective
in controlling for trade balance. However, when I attempted to use 2-digit SITC
codes, since there are so few AD cases per industry, the data was multicollinear and
thus it could not be analyzed using regression techniques. I therefore used the less
collinear 1-digit STIC code in order to form my regression.
50
Table 7: AD Initiation, by Country and Industry-Specific Exports
Industry Specific
AD Initiated
(1) Ordered Probit
(2) Negative Binomial
(3) OLS
(4) Ordered Probit
(5) Negative Binomial
Constant -- -1.87*** (0.12)
0.1000627 (0.06)
-- -2.30*** (.402)
Industry Specific Exports to US
4.9x10^-9* (2.77x10^-9)
1.06x10^-6 (7.52x10^-9)
-4.07*10^-11 (1.19x10^-9)
8.12x10^-10 (3.07x10^-9)
-1.83x10^-9 (6.97x10^-9)
Canada 0.07 (0.09)
0.24 (0.26)
0.54 (0.54)
China 0.46*** (0.09)
0.83*** (0.23)
1.74*** (0.49)
France -0.01 (0.09)
-0.02 (0.27)
-0.12 (0.58)
Germany 0.06 (0.09)
0.16 (0.26)
0.45 (0.53)
Italy -0.02 (0.09)
-0.15 (0.29)
-0.25 (0.60)
Japan 0.18** (0.09)
0.41 (0.25)
1.04** (0.51)
Mexico 0.04 (0.09)
0.15 (0.26)
0.38 (0.54)
Netherlands -0.07 (0.09)
-0.43 (0.32)
-1.10 (0.74)
South Korea 0.13 (0.09)
0.37 (0.25)
0.85* (0.51)
Taiwan 0.07 (0.09)
0.18 (0.26)
0.52 (0.53)
UK -0.04 (0.09)
-0.21 (0.29)
-0.59 (0.64)
Venezuela 0.01 (0.09)
0.10 (0.26)
0.10 (0.56)
*.01 p-value, **.05 p-value, ***.01 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
51
Table 8: AD Imposition, by Industry and Country-Specific Exports
Industry Specific
AD Affirmative
(1) Ordered Probit
(2) Negative Binomial
(3) OLS
(4) Ordered Probit
(5) Negative Binomial
Constant -- -2.58*** (0.15)
0.04 (0.04)
-- -3.10 (0.55)
Industry-Specific Exports to U.S.
4.13x10^-9 (3.5x10^-9)
8.96x10^-9 (9.4*10^-9)
-1.36x10^-10 (7.43x10^-10)
-1.22x10^-9 (4.00x10^-9)
-2.71x10^-9 (8.84x10^-9)
Canada 0.002 (0.06)
0.02 (0.34)
0.05 (0.80)
China 0.32 (0.06)
0.97*** (0.28)
2.14*** (0.63)
France 0.0001 (0.05)
0.001 (0.33)
0.003 (0.78)
Germany -0.02 (0.05)
-0.29 (0.38)
-0.68 (0.93)
Italy 0.02 (0.05)
0.13 (0.32)
0.41 (0.72)
Japan 0.09 (0.06)
0.36 (0.30)
1.12 (0.67)
Mexico 0.02 (0.06)
0.14 (0.32)
0.43 (0.73)
Netherlands -0.02 (0.05)
-0.30 (0.40)
-0.69 (0.92)
South Korea 0.07 (0.05)
0.35 (0.30)
1.02 (0.67)
Taiwan 0.02 (0.05)
0.13 (0.37)
0.41 (0.72)
UK -0.02 (0.05)
-0.29 (0.38)
-0.69 (0.93)
Venezuela -0.01 (0.05)
-0.13 (0.35)
-0.29 (0.83)
*.01 p-value, **.05 p-value, ***.01 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008 As shown in Table 7 and Table 8, industry-specific imports to the U.S. are not
as good predictors of AD cases as country-specific imports are for the twelve largest
U.S. trading partners. But even in this model, the effect of the China dummy variable
on AD cases initiated and the number of affirmative AD cases is highly significant and
much greater than any other country. The regression shows that, controlling for
industry-specific exports, it is 46% more likely that China has an AD case filed against
it, and 32% more likely that the U.S. will impose duties on China. In fact, when
52
controlling for industry-specific imports in the negative binomial model, China is the
only country that is significantly more likely to receive duties.
AD Cases Considering Chinese Predatory Trade
Even though China was named in a disproportionate amount of antidumping
cases given to exports, it may be that this number simply reflected that Chinese
companies were guilty of dumping on the U.S. market. But since economists have
found that in almost 90% of antidumping cases, foreign companies are not dumping, it
seems unlikely that this explains why China receives more affirmative AD decisions.
Still, I will address this hypothesis in order to consider all possible alternatives.
Total imports in a given year may not reflect dumping because the amount of
trade may be very small even if a company is dumping. However, surges in trade can
be used as a proxy for selling below cost. One would expect that if a Chinese
company were actually dumping, the dumping would create a surge of imports into the
U.S.
I calculated yearly percent change in industry-specific imports and included
them in the regression. As shown in Table 9, even when including surges in imports,
China still received a disproportionate amount of antidumping cases.
53
Table 9: Cases Initiated, by Country and Industry Import Surges
Industry Specific AD Initiated
(1) OLS
(2) Negative Binomial
(3) OLS
(4) Negative Binomial
Constant 0.17*** (0.17)
-1.79*** (0.10)
0.10 (0.06)
-2.30*** (0.40)
Percent Change in Trade Balance
0.001 (0.003)
.013 (0.03)
0.001 (0.003)
0.01 (0.03)
Canada 0.07 (0.09)
0.51 (0.53)
China 0.46*** (0.09)
1.71*** (0.48)
France -0.01 (0.09)
-0.12 (0.58)
Germany 0.06 (0.09)
0.44 (0.53)
Italy -0.02 (0.09)
-0.25 (0.60)
Japan 0.18** (0.09)
1.02** (0.50)
Mexico 0.04 (0.09)
0.36 (0.54)
Netherlands -0.07 (0.09)
-1.10 (0.73)
South Korea 0.13 (0.09)
0.84* (0.51)
Taiwan 0.07 (0.09)
0.51 (0.52)
UK -0.05 (0.09)
-0.59 (0.64)
Venezuela 0.01 (0.09)
0.10 (0.56)
*.01 p-value, **.05 p-value, ***.01 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
54
Table 10: Duties Imposed, by Country and Industry Import Surges
Industry Specific AD Affirmative
(1) OLS
(2) Negative Binomial
(3) OLS
(4) Negative Binomial
Constant 0.08*** (0.01)
-2.51*** (0.14)
-0.04 (0.04)
-3.11*** (0.55)
Percent Change in Trade Balance
0.0004 (0.002)
0.04 (0.14)
0.0003 (0.002)
0.009 (0.04)
Canada -0.0002 (0.05)
-0.004 (0.77)
China 0.32*** (0.05)
2.11*** (0.62)
France -0.00009 (0.05)
-0.002 (0.78)
Germany -0.02 (0.05)
-0.70 (0.93)
Italy -0.02 (0.05)
0.40 (0.72)
Japan 0.09 (0.05)
1.10* (0.66)
Mexico 0.02 (0.05)
0.40 (0.72)
Netherlands -0.02 (0.05)
-0.70 (0.93)
South Korea 0.08 (0.05)
1.01 (0.67)
Taiwan 0.02 (0.05)
0.41 (0.72)
UK -0.02 (0.05)
-0.70 (0.93)
Venezuela -0.01 (0.05)
-0.29 (0.83)
*.01 p-value, **.05 p-value, ***.01 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
In sum, from 1997 to 2005 China received a disproportionate amount of AD
cases and duties from the U.S., even controlling for the most specific industry level
possible at this time. Over the past ten years, China received more than twice the
amount of AD cases initiated and affirmative antidumping decisions than the second-
most targeted country, Japan. Further, taking into account industry-specific imports to
the U.S. and industry-specific import surges, China still receives significantly more
AD cases than any other country. I conclude that the volume of trade cannot explain
the disproportionate number of AD cases filed and won against China. With this
55
explanation ruled out, the next sections explore two other hypotheses that may explain
the disproportionate amount of AD cases filed and won against China.
The Effect of Industry Organization
To support the argument that China’s non-market economy status results in
more AD duties against China, this section will rule out an alternative hypothesis, that
is, that industry organization in the United States can explain the disproportionate
amount of duties. I use my data to identify industries that are better able to file and
win AD cases than other industries, and I look at trade data to see if Chinese products
make up the largest portion of U.S. imports in these industries. Since Chinese
products do not make up the largest proportion of U.S. imports in industries I identify
as well organized, I conclude that industry organization cannot explain the amount of
AD cases filed and won against China.
It is almost undisputed among political economy theorists that the domestic
politics of a country are important predictors of national trade policy. While trade is
on the whole beneficial to countries, it is disruptive to certain groups within a country.
These groups are usually producers that compete with products imported from other
countries and consumers of local goods that have become more expensive due to
demand abroad. These populations have an interest in persuading the government to
protect the industry they work in or consume in from the international market.
Although many groups have an interest in influencing national trade policy to
their benefit, they often cannot solve the collective action problem that needs to be
overcome in order to lobby the government (Olson 1965). Since all members of a
group benefit from their preferred trade policy, if members expect others to be
56
organized, they will not pay the cost of lobbying themselves. If all members of the
group think this way, no action will be taken and these groups will not be able to
successfully achieve their optimal policy (Alt and Gilligan 1994).
Although many groups face collective action problems, there are some groups
that are able to overcome them and are thus able to have powerful influence over
government policies. Smaller groups are more easily organized than larger groups
because they are less costly to organize. Further, in smaller groups the cost of inaction
is often more intense because the costs are spread among fewer people (Alt and
Gilligan 1994). Thus, producers are often much more organized than consumers.
Further, producers who are highly concentrated in a certain geographic areas or for
whom free trade has very high costs will more easily organize. These groups have
been shown to have a lot of influence on U.S. trade policy.
Given this large variability in the ability of certain industries to solve the
collective action problem, the organization of industry in the U.S. should have an
effect on the number of AD cases filed by these industries. As explained above, it is
expensive and time-consuming to file and win an AD suit. A relatively more
organized industry would be better equipped to file more AD cases with the U.S.
government, but a relatively less organized industry may not be able to raise enough
money or gain enough support to file a case and protect itself.
The Effect of Industry Organization on Cases Filed Against China
I hypothesize that there are certain industries that are more highly organized
than other industries, that is, even though many industries may receive the same
amount of competition from imports from the other countries, some industries are
57
better able to file and win antidumping cases. If Chinese exports to the United States
compete relatively more than other countries with products produced in well-
organized U.S. industries, and these industries are better able to file AD cases, then
this could explain why China receives a disproportionate number of antidumping
cases.
To test this argument, I first use the data I have collected of cases between
1997 and 2005 to identify industries that filed and won a disproportionate number of
AD cases and classify them as “well organized.” I then examine the industries I have
determined as “well organized” to see whether products from China made up the
largest portion of U.S. imports in these industries. If they did, this might explain why
China had a disproportionate number of AD cases compared to the other U.S. top
twelve trading partners. However, since they do not, I conclude that industry
organization and domestic politics do not explain the amount of antidumping cases
filed against China.
Table 11 shows each industry’s average total trade balance between the United
States and its largest twelve trading partners between 1997 and 2005. It also includes
the total number of AD cases initiated and AD cases affirmative during these years for
each industry. Organized industries should have a disproportionate amount of
antidumping cases for their average trade balance. Figure 6 and Figure 7 show this
relationship graphically.
58
Table 11: AD Requests, Duties and Imposed, and Industry
Industry Average U.S. Trade Balance 1997-2005
(Thousands of Dollars)
AD Cases Initiated
AD Cases Affirmative
Food and live animals (SITC 0) 597,761 16 6 Beverages and tobacco (SITC 1) -303,788 5 3 Crude materials, except fuels (SITC 2) 538,648 4 1 Mineral fuels and lubricants (SITC 3) -4,759,660 4 1 Animal and vegetable oils, fats and waxes (SITC 4) 11,961 0 0 Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5) 769,673 37 19 Steel, rubber, paper, metal manufactures (SITC 6) -3,158,823 113 59 Machinery and transport equipment (SITC 7) -12,577,709 12 4 Footwear, apparel, furniture and related manufactures (SITC 8) -5,849,655 3 2 Other commodities (SITC 9) -1,544,280 1 0 Source: Bown, Global Antidumping Database, 2007; U.S. Census Bureau 2008
Figure 6: AD Initiations and Industry Trade Balance
Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
59
Figure 7: AD Duty Impositions and Industry Trade Balance
Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
In order to most specifically identify which industries are organized, I used
both a linear regression model and a negative binomial model to estimate the
regression. I related AD cases filed and won to imports in country i in year t. The
models are below.
ADInitiatedi,t = Importsi,t + Industry
ADAffirmativei,t = Importsi,t + Industry
Industries with a significant and positive term in the regression will be those I will
classify as organized.
As can be seen in Table 12 and Table 13, there are several industries in which
the regression term is positive and significant. This means that even controlling for
60
industry-specific trade balance, these industries initiated and won significantly more
antidumping cases than the other industries. Industries that seem to have been better
organized or better able to file antidumping cases were food, live animals, and
agriculture (SITC 0); chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5);
steel, rubber, paper, and metal manufactures (SITC 6); and machinery and transport
equipment (SITC 7). Chemicals, pharmaceuticals and manufactured articles were
most able to win AD cases, although the negative binomial regression did not return
any industries that were significantly better able to win AD cases than other industries.
Table 12: Cases Initiated, by Industry AD Initiated (1)
OLS (2) Negative Binomial
Constant 0.004 (0.05)
-4.81*** (1.01)
Industry Specific Imports to U.S.
1.63x10^-9 (1.24x10^-9)
1.47x10^-8** (7.12x10^-9)
Food and live animals (SITC 0) 0.13** (0.07)
2.78*** (1.04)
Beverages and tobacco (SITC 1) 0.04 (0.07)
1.65 (1.11)
Crude materials, except fuels (SITC 2) 0.03 (0.07)
1.41 (1.13)
Mineral fuels and lubricants (SITC 3) 0.02 (0.07)
1.34 (1.13)
Animal and vegetable oils, fats and waxes (SITC 4) -0.004 (0.07)
-12.8 (623.5)
Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5) 0.31*** (0.07)
3.60*** (1.02)
Steel, rubber, paper, metal manufactures (SITC 6) 0.95*** (0.07)
4.67*** (1.02)
Machinery and transport equipment (SITC 7)
0.04 (0.08)
1.92* (1.09)
Footwear, apparel, furniture and related manufactures (SITC 8)
0.004 (0.07)
0.93 (1.17)
*.05 p-value, **.01 p-value, ***.001 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
61
Table 13: Duties Imposed, by Industry AD Affirmative (1)
OLS (2) Negative Binomial
Constant -0.002 (0.03)
-18.02 (736.34)
Industry Specific Imports to U.S.
8.26x10^-10 (8.07x10^-10)
1.84x10^-8* (1.09x10^-8)
Food and live animals (SITC 0) 0.05 (0.05)
15.02 (736.34)
Beverages and tobacco (SITC 1) 0.03 (0.05)
14.34 (736.34)
Crude materials, except fuels (SITC 2) 0.01 (0.05)
13.14 (736.34)
Mineral fuels and lubricants (SITC 3) 0.006 (0.05)
13.13 (736.34)
Animal and vegetable oils, fats and waxes (SITC 4) 0.002 (0.05)
-1.73 (1948.19)
Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5) 0.16*** (0.05)
16.13 (736.34)
Steel, rubber, paper, metal manufactures (SITC 6) 0.50*** (0.05)
17.20 (736.34)
Machinery and transport equipment (SITC 7)
-0.009 (0.05)
13.84 (736.3)
Footwear, apparel, furniture and related manufactures (SITC 8)
0.01 (0.05)
-18.02 (736.34)
*.05 p-value, **.01 p-value, ***.001 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008 My hypothesis is that China received a large amount of antidumping cases
because Chinese products make up a large percentage of the imports that compete with
organized industries in the United States. To test the validity of this, I have identified
this set of “well-organized” industries and now will establish which country makes up
the most significant part of imports to the U.S. in these industries.
As Figure 8 shows and Table 14 points out, China’s exports to the United
States are concentrated in two industries, footwear, apparel, furniture and related
manufactures (SITC 8) and machinery and transport equipment (SITC 7). China
exports a fair amount of goods in steel, rubber, paper and metal manufactures (SITC
6) to the U.S., but less than a quarter of what it exports in SITC 8 to the United States.
62
Figure 8: Imports from China, by Industry 1997-2005
Table 14: Total Imports from China to the U.S. by Industry
Industry Total Imports from China 1997-2005 (1000’s)
Food and live animals (SITC 0) $13,097,819 Beverages and tobacco (SITC 1) 291,219 Crude materials, except fuels (SITC 2)
6,552,756
Mineral fuels and lubricants (SITC 3) 5,197,449 Animal and vegetable oils, fats and waxes (SITC 4)
79,280
Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5)
22,667,271
Steel, rubber, paper, metal manufactures (SITC 6)
121,764,208
Machinery and transport equipment (SITC 7)
438,273,713
Footwear, apparel, furniture and related manufactures (SITC 8)
514,387,455
Other commodities (SITC 9) 13,034,423 Source: U.S. Census Bureau 2008
63
The appropriate comparison may not be aggregate Chinese exports but relative
imports, that is, how much does China export relative to other countries in industries
that are organized in the United States. It may be that although China exported in total
a very little amount in a particular industry, relative to other countries it was the
largest exporter to the U.S. in that particular industry. It may also be that although a
large percentage of Chinese exports were in SITC 7, China exported relatively little in
that industry compared with other exporters.
To examine this, I constructed pie charts of the country of origin for total U.S.
imports from its top twelve trading partners from 1997 to 2005 in each of the
“organized” industries (SITC 0, SITC 5, SITC 6, and SITC 7). As illustrated in these
charts, Canada was the largest exporter to the U.S. for each of the industries I have
established as “well organized.” China made up a very small portion of U.S. imports
in SITC 0 and SITC 5. Even though products in SITC 7 made up one of the largest
portions of Chinese exports to the United States, Chinese exports in SITC 7 were only
the fourth-largest portion of imports the U.S. received in that industry. China made up
the second-largest portion of U.S. imports in SITC 6, but even then it was
overshadowed by Canadian exports of SITC 6 goods to the United States.
64
Figure 9: Composition of U.S. Imports in Four Industries, 1997-2005
Source: U.S. Census Bureau 2008
65
It seems from these data that Chinese exports made up only a small fraction of
the products that competed with organized industries in the United States. From the
data presented in this chapter, one would expect that Canada would be named in a
disproportionate number of AD cases, given that it is the largest exporter in all
industries I have established as organized in the United States. However, as shown
above, China was named in a disproportionately large number of antidumping cases,
and Canada in relatively fewer. Indeed, for these organized industries, no other
significant exporter to the U.S., including Japan, Mexico, Germany, and the U.K., was
named in more antidumping cases than China. Thus it can be concluded that the
organization of the industries with which China’s exports to the U.S. were competing
in 1997 to 2005 cannot explain the disproportionate number of antidumping cases
filed against China.
Addressing Rebuttals
There are limitations in my data. First, the analysis may be sensitive to the
time period chosen, 1997 through 2005. Because China has grown at record levels
over the last ten years and U.S.-China trade has also experienced commensurate
growth, it may be that by 2004 or 2005 Chinese trade was relatively large in organized
industries. As seen above, antidumping cases against China increased with time, and
therefore growth at the end of the 1997 to 2005 period in Chinese exports in organized
industries could also explain this phenomenon.
To address this, I included a variable for time in my regression. Including time
effects did not affect the results of my previous regression. I have included the results
of this regression in the appendix. I have also included pie graphs and tables of U.S.
66
imports in organized industries in 2004, showing there is no significant difference
between the composition of total imports over 1997-2005 and the composition of
imports in 2004.
Another potential weakness in my analysis is that it may not account for U.S.
free trade agreements. Canada and Mexico are part of the North American Free Trade
Agreement (NAFTA) and may receive fewer antidumping cases than they would
otherwise. Chapter 19 of NAFTA allows for bi-national investigation of any
antidumping suit. One could argue that industries in the United States file fewer cases
against Canada and Mexico because they are more likely to fail and/or go to
arbitration. Because Canada and Mexico are such important trading partners for the
United States, excluding data from these countries from my analysis would greatly
affect my results.
This argument that NAFTA has decreased U.S. filings of AD cases against
Canada and Mexico is not consistent with data on NAFTA cases. Economists and
lawyers who have collected and analyzed data on NAFTA have recently concluded
that NAFTA has done little to decrease the amount of antidumping cases against
Canada and Mexico (Blonigen 2005). Thus, there is no reason to exclude Canada
from my dataset.
The Effect of Non-Market Economy Status
In the previous section, I showed that industry organization and industry-
specific antidumping cases do not seem to explain the number of antidumping cases
filed against China from 1997 through 2005. Even controlling for imports and year,
industry does not remove the “China factor.” In particular, for industries that filed and
67
won the most antidumping cases, China was not the country that most competed with
U.S. producers. If industry organization were the determining factor of antidumping
suits, Canada, Japan, Germany, and Mexico should have received many more
antidumping suits than they did. Therefore, I concluded that industry organization
does not explain the disproportionate number of antidumping cases against China.
To support the argument that the number of AD cases against China can be
explained by China’s NME status, this section quantifies the effect of China’s NME
status on AD cases against China. To do this, I consider the phase of the antidumping
process that takes NME status into account and compare this to the phase of the
antidumping process in which NME status has no pertinence. By comparing the data
across countries in each of these parts, I find that China receives a disproportionate
number of affirmative decisions when NME status is considered, but not in the stages
of the AD process where NME status is not considered. Further, I find that market
economies are also found to be dumping more often when the fair price is constructed
rather than taken from a third market or the home market. Since NME status
mandates that all fair prices be constructed, this evidence also supports my argument.
By creating a higher probability of success in AD proceedings, I conclude that China’s
NME status not only makes it more likely that AD duties will be imposed on China,
but also creates an incentive for firms to file cases against China.
When a foreign company accused of dumping is based in a country classified
as a “market economy,” the DOC determines the “fair” or “normal” value of the
product through one of two methods. The first method is to set the normal price as the
price of the product on the foreign company’s home market or on a third country’s
market. Alternatively, the DOC can use the prices and quantities of inputs (such as
68
labor or materials) taken from the accused company’s data to arrive at the “constructed
price.” However the normal price is determined, the DOC considers a company to be
dumping if the company is selling below the fair price plus a “normal” profit margin.
The Department of Commerce assumes that the government manipulates prices
in non-market economies, possibly reflecting a lower price than the value of the good.
For goods produced in a non-market economy, the DOC will arrive at a normal price
using price data from a surrogate country that it considers a market economy with
“similar” economic characteristics to the non-market economy. It will obtain
quantities of inputs from the accused foreign company, but it will obtain input prices
from the surrogate country. This differs from the market economy method of
constructing the fair price because the market economy method uses home country
data to construct the price, whereas the non-market economy method uses surrogate
country data to construct the price.
The non-market economy method of calculating normal price often results in a
higher normal price than when the accused country is a market economy. First, when
the country is a non-market economy, the DOC has not choice but to construct the
price, whereas a market economy can have a constructed price or a price taken off the
home or third market. Second, when the DOC constructs a market economy’s price, it
uses home country data for inputs, but for a non-market economy, it uses a surrogate
country’s data for inputs. Usually the surrogate country’s comparative advantage is
different than the country whose companies are accused of dumping, so the
surrogate’s input prices are often higher than they are in the accused company’s
country. With an elevated price for normal value, the non-market economy will be
more easily found to be dumping. Further, the Department of Commerce has a lot of
69
discretion in deciding which company from the surrogate country to use. The
petitioning company in the U.S. can argue to the DOC that one company in the
surrogate country is more suitable to use than another, thus perhaps biasing the results
toward a higher normal price. Other complications such as missing data, differences
in product type, and multiple currency conversions can create a wider range of
outcomes and thus can make it more likely for the DOC to find that the non-market
economy country is dumping.
Limitations of Previous Research
China’s non-market economy status is often mentioned when explaining the
magnitude of AD cases filed and won against China. However, researchers who have
focused on explaining the magnitude of China’s antidumping cases have tended to
concentrate on explanations other than China’s non-market economy status. These
experts will agree that China’s non-market economy status makes affirmative AD
cases more likely. However, they will go on to describe other possible explanations
for the disproportionate amount of AD cases against China. Few of them have tried to
quantify NME status’s effect or have considered that non-market economy status
could explain the whole of the excess of AD cases against China.
Bown (2007) mentions that one of the factors contributing to the number of
AD cases against China is its non-market economy status, but Bown moves on without
quantifying this effect. Messerlin (2002) focuses on what China can do to minimize
its antidumping exposure given its non-market economy status. Prusa and Chu (2004)
also acknowledge that China’s NME status exacerbates the number of AD cases filed
against it, but they argue that it cannot explain all of the cases filed against.
70
Blonigen (2003) is the only researcher who quantifies the effect of China’s
NME status on the amount of AD cases that have been filed against China.
Blonigen’s paper focuses on the effect of discretionary U.S. trade policies on duties
imposed in antidumping cases. One of the discretionary practices he examines is
using non-market economy status to calculate dumping margins. Blonigen uses firm-
specific dumping margins from 1980 to 1995. He regresses these margins on
discretionary practices, including if the firm comes from a non-market economy. He
also regresses the margins on which country the firm is from. He finds that while
NME status has a significant effect on the amount of duties placed on China, the
country indicator variable also has a significant effect, implying that China receives
higher antidumping duties even controlling for the fact that it is a non-market
economy.
However, Blonigen’s analysis has shortcomings. First, the data is outdated.
As I explained above, the composition of antidumping cases filed around the world
has changed drastically since the 1980s and after the formation of the WTO. Japan
and the U.S. were the most targeted countries in the 1980s rather than China. More
importantly, Blonigen’s analysis assumes that the effect of non-market economy status
will be uniform across countries. Rather, because NME procedures allow for so much
discretion, non-market economy status should not affect all countries in the same way.
Some countries have more appropriate “surrogate countries” than others do, and some
industries may map to the industry in their surrogate country more easily than others.
For example, the wage difference between China and India may be larger than the
wage difference between Russia and South Africa, which was used as a surrogate
71
country for Russia when Russia was classified as an NME. If this were the case, one
surrogate country would be a better match than another.
Second, if some surrogate countries are more fitting than others, then the effect
of non-market economy status will depend on the country to which it is applied.
Countries that have a worse fit with their surrogate country will be subject to higher
duties, while those countries that have more comparable surrogate countries will have
lower duties. Thus the coefficient on the indicator variable for China in Blonigen’s
analysis may indeed reflect China’s non-market economy status, but, instead of
showing a China factor independent from NME status, it may reflect the fact that non-
market economy procedures are country specific.
Quantifying China’s NME Effect
I now attempt to quantify the effect of China’s NME status on the amount of
antidumping cases filed and won against China. This is a difficult task. Not only do
the procedures that are applied to non-market economies vary across countries, but
China is now one of the few countries still classified as a non-market economy, and it
is the only country classified as a non-market economy that trades extensively with the
U.S. Thus a cross-country analysis that compares the number of AD cases filed
between market countries and non-market countries would do little but tell us that
China receives a disproportionate amount of antidumping cases that may or may not
be related to its NME status.
However, if one can isolate where the non-market economy status becomes
important procedurally, one can distinguish between the effect of “China” on the
number of antidumping cases filed and won against China and the effect of non-
72
market economy status on the number of antidumping cases filed and won against
China. Therefore, in order to quantify the NME effect, I gathered data that covered
how antidumping cases progressed through the stages of investigation at the
International Trade Commission and the Department of Commerce and how the
results of each of these stages have differed across countries.
As explained above, an antidumping investigation has four stages. First, the
International Trade Commission preliminarily determines whether the products sold
by the foreign company have caused injury to the domestic company. Next, the
Department of Commerce preliminarily decides whether the products have been sold
at less than fair value on the domestic market. If these decisions are affirmative, the
DOC completes a more extensive analysis and makes a final determination as to
whether the products have been sold at less than fair value. If the DOC decides that
they have, the ITC last determines whether the goods have caused injury to the
domestic firm. All four of these decisions must be affirmative in order to impose
duties on the foreign company.
If the number of AD cases filed against China can be completely explained by
non-market economy status, one would expect that during the preliminary injury
decision, China would not stand out from other countries because NME status is not
factored into the injury decision by the ITC. Instead, for cases filed against China, the
ITC should reject cases at about the same rate as it rejects cases of other countries. If
the ITC rejected far fewer against China than against other countries, then it could be
assumed that there is a “China” effect outside of its non-market economy status.
Further, if the number of antidumping cases filed against China can be explained by
non-market economy status, then in the preliminary dumping decision, one would
73
expect that almost all of China’s cases would move on to the final dumping decision,
as non-market economy status is factored into the preliminary dumping decision.2
Therefore, I compare China’s cases to other countries at each stage of the preliminary
antidumping process. Table 15 shows the number of AD cases initiated against each
country and the number of these cases that obtained an affirmative preliminary injury
decision. The last column of Table 15 shows the percent of AD cases initiated that
obtained a preliminary injury decision.
Table 15: Preliminary Injury Decisions, by Country
Country AD Cases Initiated
Affirmative Preliminary
Injury Decision
Percent Affirmative
Brazil 9 7 77.8 Canada 15 10 66.7 China 50 40 80 France 8 7 87.5 Germany 14 10 71.4 Italy 7 7 100 Japan 25 18 72 Mexico 13 9 69.2 Netherlands 3 3 100 South Korea 21 18 85.7 Taiwan 15 14 93.3 UK 5 3 60 Venezuela 10 6 60 Average 78.7
Source: Bown, Global Antidumping Database, 2007
China has suffered an affirmative preliminary injury decision in 80% of the
cases initiated, which is almost exactly the average rate across countries (79%). This
is not surprising if my hypothesis is true, because non-market economy status does not 2 It is more difficult to predict the rejection rate of the final dumping decision and the final injury decision because these decisions may have been affected by the preliminary decisions. Thus, this analysis will focus only on the preliminary decisions to isolate the NME effect.
74
factor into injury decisions. This result would be surprising if one expected there to be
a “China” effect, but there seems to be no discrimination against China in the
preliminary injury stage of the antidumping procedure, where there is no non-market
economy effect. Thus, this first analysis seems to support my hypothesis.
Table 16: Preliminary Dumping Decision, by Country
Country
Affirmative Preliminary
Injury Decision
Affirmative Preliminary
Dumping Decision
Percent Affirmative
Brazil 7 7 100 Canada 10 10 100 China 40 40 100 France 7 5 71.4
Germany 10 9 90 Italy 7 6 85.7 Japan 18 18 100 Mexico 9 9 100
Netherlands 3 2 66.7 South Korea 18 16 88.9
Taiwan 14 11 78.6 UK 3 3 100
Venezuela 6 6 100 Average 90.9
Source: Bown, Global Antidumping Database, 2007 As shown in Table 16, China suffered an affirmative preliminary dumping
decision in 100% of cases that passed the ITC’s determination of preliminary injury.
This fits with the hypothesis that China’s NME status contributes to the amount of
antidumping cases filed against it, because NME status is an extremely important
factor in calculating the fair value price that determines dumping. However, it is hard
to distinguish China from other countries, because some other countries also have a
100% decision rate. Since 100% is the limit of how many cases can be decided as
affirmative, it is hard to calculate the certainty of affirmative preliminary dumping
75
decisions in China versus countries such as Japan, Mexico, Brazil, and Canada.
However, we can say that Chinese antidumping cases have an affirmative preliminary
dumping decision more often than the average of all 13 countries, which have an
affirmative decision of 90%.
I have hypothesized that NME status biases dumping decisions because the
DOC constructs the normal price for all non-market economies, which allows for more
discretion. Further, in a non-market economy, the normal price is constructed from a
surrogate country’s data, allowing for even more discretion. For market economies,
the DOC can determine normal value either by using the price in a third country’s
market, the price in the home country’s market, or by constructing the price using a
home country’s input data. Therefore, if my hypothesis is correct, for market
economies, the DOC will be more likely to issue an affirmative dumping ruling when
it uses the constructed price method than when it uses the price of the good on the
home country’s market. If this is true, it should be even more likely the DOC would
pass an affirmative dumping decision against a non-market economy because the
normal price is constructed and surrogate country data is used.
To test this hypothesis, I gathered data from the Department of Commerce on
each individual antidumping case in market economies from 2000 to 2005 (these were
the only accessible data). For each case, I read the DOC’s preliminary dumping report
to determine which method the DOC used to calculate the normal price, and whether
the preliminary antidumping decision was affirmative or negative.3
3 I counted adverse inference as constructed, because when companies do not give data, the DOC uses the data that will be most detrimental against the company to determine normal value, constructing the price.
76
The results were significant. When a home price or a third country price was
used, in only 78% of the cases the DOC made an affirmative decision. However,
when the constructed price was used, in 92% of the cases the DOC made an
affirmative decision. This difference is significant at the 10% significance level, with
a p-value of .073. Of the countries that had a 100% rate of affirmative preliminary
injury decision, most of them had a large percentage of constructed price cases. 100%
of Brazil’s cases were constructed, 67% of Canada’s, 100% of Japan’s and 71% of
Mexico’s.
This provides evidence that when the DOC constructs the normal price, the
DOC is more likely to issue an affirmative antidumping ruling. China’s status as a
non-market economy, therefore, could be the source of its disproportionately adverse
antidumping rulings, since the DOC uses a price construction method for all cases
filed against China. In other parts of the antidumping investigation process, China
does not receive a disproportionate amount of adverse decisions, showing that there is
no “China” factor except where non-market economy status is considered. Thus, non-
market economy status indeed may explain the disproportionate amount of
antidumping cases filed against China.
Data from historical non-market economies further support this conclusion.
Since 1985, the DOC has issued affirmative rulings in all but one preliminary
antidumping decisions against Russia. The DOC issued affirmative preliminary injury
decisions in all of Vietnam’s and all of the Ukraine’s cases from 1985 to 2005. Thus
in historical non-market economies, an affirmative preliminary injury decision was
also highly likely.
77
From this analysis, if a U.S. company were interested in filing an antidumping
suit, given limited resources, the company should file first against China. Because
100% of antidumping cases filed against China are constructed, there is a higher
likelihood that these cases will found in the U.S. company’s favor. This higher
probability could be valuable to companies hoping to protect themselves from foreign
competition. Thus, China’s non-market economy status may explain the
disproportionate number of antidumping cases filed against China, as well as won.
This hypothesis is supported by Bown’s finding that China is the sole defendant in
antidumping cases more often than any other country. One would expect that the
country against which a company thinks it has the best chance of prevailing would
also be the country named first and named solely in most antidumping cases.
Conclusion
This thesis has provided evidence that China receives a disproportionate
number of antidumping cases because of a procedural law that affects AD decisions.
China is classified as a non-market economy, so every “normal” price is not only
constructed, but also uses surrogate country data, making it more likely that the DOC
will find China to be dumping. This finding suggests that China’s disproportionate
number of antidumping cases is not due to a “China factor” caused by U.S.
discrimination against China, but instead can be explained by China’s technical
designation in the antidumping process. Further, my analysis finds no evidence of
Chinese predatory trade practices, as the magnitude of AD duties issued against China
cannot be used as evidence of Chinese predation.
78
In particular, my analysis confirms two main points. First, the non-market
economy method of calculating prices biases the “fair” price upwards, making it more
likely that China is found to be dumping. I found that even in market economies, the
DOC issued an affirmative dumping decision in significantly more cases when it
constructed the price than when it used a comparison price. Since surrogate country
data is used to construct a non-market economy price, the data are often imperfect and
reflect a country with a different comparative advantage. Therefore, the prices of
inputs from a surrogate country may be higher than the value of Chinese inputs,
biasing the fair price upwards.
As a result, China receives more affirmative dumping decisions than it would
otherwise. China received an affirmative dumping decision from the DOC in 100% of
its AD cases from 1997 to 2005. Further, in portions of the AD process where NME
status is considered, China receives significantly more AD decisions relative to other
countries. In contrast, in the stages of the AD process in which NME status is not
taken into account, the ITC issues affirmative decisions against China at the same rate
as the international average. This provides evidence that China’s NME status can
explain the disproportionate number of affirmative AD decisions against China.
The higher likelihood of an AD decision against China incentivizes U.S. firms
to file more cases against China. Bown (2007) found that China is named singularly
in AD cases more often than any other country. Therefore, the number of AD cases
filed against China is endogenous: the more duties China receives, the more cases are
filed against it.
Second my analysis rules out other popular explanations for the number of
antidumping cases against China. Although there is a correlation between the amount
79
of trade between two countries and the number of antidumping cases filed, even
accounting for trade between the U.S. and China, China still receives a
disproportionate amount of AD duties. Further, I show that industry sensitivity cannot
explain the number of AD cases against China. After identifying industries more
likely to file and win AD cases, I find that Chinese exports do not account for the
largest portion of total exports to the U.S. in sensitive industries. If industry
sensitivity could explain antidumping cases filed, Canada should receive many more
AD cases than China.
The data do not support the conclusion that Chinese trading practices are
predatory. Rather, my analysis shows that NME status biases the amount of AD duties
imposed against China upwards. Unless the NME effect is removed, the amount of
AD duties imposed against China cannot be used as evidence of Chinese predatory
trade practices.
My evidence suggests that the U.S. does not discriminate against China as is
sometimes claimed. Rather, in sections of the AD process where NME status is not
considered, the International Trade Commission issues an affirmative injury decision
against China at the same rate as the international average. If the U.S. did
discriminate against China, in both the injury decision and the dumping decision
China should receive a disproportionate number of affirmative decisions. Since China
only receives a higher proportion in the dumping part of the AD process, alleged
discrimination against China only takes its effect through China’s NME status.
Since China’s economic opening in 1979, bilateral trade has intertwined the
U.S. and China in many ways. U.S. engagement of China has brought enormous
benefits to both countries. The U.S. has taken advantage of China’s cheap labor to
80
produce inexpensive products, and foreign direct investment in China has built the
largest sectors of the Chinese economy. Both countries have an interest in cooperation
in what will be one of the most dynamic international relationships of the coming
century.
At the same time, even if the next U.S. President decides to continue an open
economic policy towards China, he or she will face a set of U.S. institutions that
constrain the options for defining the U.S.-China relationship. An open policy will
require negotiating around technical U.S. laws that bring disproportionate
protectionism. Reconsidering China’s designation as a non-market economy would
inevitably bring progress to the U.S.-China trade relationship. However, losers from
trade will organize to maintain the status quo. Dislocation from trade inevitably
brings calls for protectionism from the media, politicians, business leaders, and
workers. These supporters of protection will prevent the reform of U.S. institutions
that bias foreign trade policy towards protectionism. If not addressed, protectionism,
retaliation, and the prospect of trade war will continue to shadow the U.S.-China trade
relationship in this century.
81
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Appendix
Table 17: Industry Key
SITC Code Industry
0 Food and live animals 1 Beverages and tobacco 2 Crude materials, except fuels 3 Mineral fuels and lubricants 4 Animal and vegetable oils, fats and waxes 5 Chemicals, pharmaceuticals, plastics, and
fertilizers 6 Steel, rubber, paper, metal manufactures 7 Machinery and transport equipment 8 Footwear, apparel, furniture and related
manufactures 9 Other commodities Source: US Census Bureau, 2008
Table 18: Cases Initiated, by Industry and Year
AD Initiated (2) OLS
(2) Negative Binomial
Constant 24.58* (12.12)
127.06 (75.46)
Industry Specific Imports to U.S.
1.87x10^-9 (12.4x10^-9)
1.66x10^-8* (7.20x10^-9)
Food and live animals (SITC 0) 0.13 (0.07)
2.79*** (1.04)
Beverages and tobacco (SITC 1) 0.04 (0.07)
1.65 (1.10)
Crude materials, except fuels (SITC 2) 0.03 (0.07)
1.41 (1.13)
Mineral fuels and lubricants (SITC 3) 0.02 (0.07)
1.34 (1.13)
Animal and vegetable oils, fats and waxes (SITC 4)
-0.003 (0.07)
-12.06 (426.87)
Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5)
0.031*** (0.07)
3.62*** (1.02)
Steel, rubber, paper, metal manufactures (SITC 6)
0.95*** (0.07)
4.64*** (1.01)
Machinery and transport equipment (SITC 7)
0.04 (0.08)
1.85 (1.10)
Footwear, apparel, furniture and related manufactures (SITC 8)
0.002 (0.07)
0.92 (1.17)
Year -0.01* (0.006)
-0.064 (0.03)
*.05 p-value, **.01 p-value, ***.001 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
87
Table 19: Duties Imposed, by Industry and Year
AD Affirmative (1)
OLS (2)
Negative Binomial Constant 13.20
(7.89) 117.66
(749.54) Industry Specific Imports to U.S.
9.56x10^-10 (8.10x10^-10)
2.03x10^-8 (1.09x10^-8)
Food and live animals (SITC 0) 0.05 (0.05)
15.05 (742.33)
Beverages and tobacco (SITC 1) 0.03 (0.05)
14.36 (742.33)
Crude materials, except fuels (SITC 2) 0.01 (0.05)
13.25 (742.33)
Mineral fuels and lubricants (SITC 3) 0.006 (0.05)
13.15 (742.33)
Animal and vegetable oils, fats and waxes (SITC 4)
0.003 (0.05)
-1.71 (1939.80)
Chemicals, pharmaceuticals, plastics, and fertilizers (SITC 5)
0.16*** (0.05)
16.17 (742.33)
Steel, rubber, paper, metal manufactures (SITC 6)
0.50*** (0.05)
17.19 (742.33)
Machinery and transport equipment (SITC 7)
0.005 (0.05)
13.77 (742.33)
Footwear, apparel, furniture and related manufactures
(SITC 8)
0.01 (0.05)
13.67 (742.33)
Year -0.006 (0.004)
-0.07 (0.05)
*.05 p-value, **.01 p-value, ***.001 p-value Source: Bown, Global Antidumping Database, 2007; US Census Bureau 2008
88
Figure 10: Composition of US Imports in Four Industries, 2004
Source: US Census Bureau, 2008